Securities registered or to be registered
pursuant to Section 12(b) of the Act.
Securities registered or to be registered
pursuant to Section 12(g) of the Act.
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act.
Indicate the number of outstanding shares
of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition
report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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.
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).
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See
definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Indicate by check mark which basis of
accounting the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked
in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
This amendment No. 1 is being filed to:
Except as specified above, no material changes have been
made to the Annual Report on Form 20-F.
Unless otherwise indicated and except where the context otherwise
requires, references in this annual report on Form 20-F to:
Names of certain companies in this annual
report are translated or transliterated from their original Chinese legal names.
Discrepancies in any table between the
amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
Share and per share amounts reflect a one-for-ten
reverse stock split that took place in November 2017 and a one-for-ten reverse stock split that took place on November 2018.
The conversion
of amounts of Australian Dollars, Euros and Renminbi, respectively, into U.S. dollars in this annual report, made solely for
the convenience of readers, is based on the noon buying rates in the city of New York for cable transfers of Australian
Dollars, Euros and Renminbi, respectively, as certified for customs purposes by the Federal Reserve Bank of New York as of
December 29, 2017, which was AUD1.2796 to $1.00, EUR0.8318 to $1.00, and RMB6.5063 to $1.00, respectively, unless indicated
otherwise. No representation is intended to imply that the Australian Dollar, Euro or Renminbi could have been, or could be,
converted, realized or settled into U.S. dollars at the foregoing rates or any other rate.
PART I
|
ITEM 1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not Applicable.
|
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not Applicable.
|
A.
|
Selected Financial Data
|
Our Selected Consolidated Financial
Data
The following selected
consolidated statements of operations data for the years ended December 31, 2015, 2016 and 2017 and the selected consolidated
balance sheet data as of December 31, 2016 and 2017 are derived from our audited consolidated financial statements included elsewhere
in this annual report. The selected consolidated statements of operations data for the years ended December 31, 2013 and 2014
and the consolidated balance sheet data as of December 31, 2013, 2014 and 2015 are derived from our audited consolidated financial
statements not included in this annual report. The selected consolidated financial data should be read in conjunction with, and
are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item
5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our consolidated financial statements
are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S.
GAAP. The historical results are not necessarily indicative of results to be expected in any future periods.
On January 1, 2017, we deconsolidated Sinsin
Renewable Investment Limited due to loss of control.
|
|
For the year ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
($ in thousands, except share and per share data)
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
42,629
|
|
|
|
91,642
|
|
|
|
190,510
|
|
|
|
140,199
|
|
|
|
127,465
|
|
Net sales, related party
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total net sales
|
|
|
42,629
|
|
|
|
91,642
|
|
|
|
190,510
|
|
|
|
140,199
|
|
|
|
127,465
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
42,582
|
|
|
|
77,430
|
|
|
|
176,469
|
|
|
|
120,910
|
|
|
|
117,663
|
|
Cost of goods sold, related party
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Provision for losses on contracts
|
|
|
2,816
|
|
|
|
2,055
|
|
|
|
5,932
|
|
|
|
403
|
|
|
|
–
|
|
Total cost of goods sold
|
|
|
45,398
|
|
|
|
79,485
|
|
|
|
182,401
|
|
|
|
121,313
|
|
|
|
117,663
|
|
Gross profit (loss)
|
|
|
(2,769
|
)
|
|
|
12,157
|
|
|
|
8,109
|
|
|
|
18,886
|
|
|
|
9,802
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
8,231
|
|
|
|
8,286
|
|
|
|
76,747
|
|
|
|
34,251
|
|
|
|
22,385
|
|
Sales, marketing and customer service
|
|
|
2,050
|
|
|
|
1,401
|
|
|
|
39,428
|
|
|
|
29,230
|
|
|
|
7,740
|
|
Provision for (reversal of) doubtful accounts, notes and other receivables
|
|
|
9,303
|
|
|
|
(2,043
|
)
|
|
|
45,328
|
|
|
|
30.465
|
|
|
|
9,178
|
|
Impairment charges
|
|
|
7,500
|
|
|
|
–
|
|
|
|
10,853
|
|
|
|
124,970
|
|
|
|
32,021
|
|
Engineering, design and product management
|
|
|
1,761
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total operating expenses
|
|
|
28,845
|
|
|
|
7.644
|
|
|
|
172,356
|
|
|
|
218,916
|
|
|
|
71,324
|
|
Operating income (loss)
|
|
|
(31,614
|
)
|
|
|
4,513
|
|
|
|
(164,247
|
)
|
|
|
(200,030
|
)
|
|
|
(61,522
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,321
|
)
|
|
|
(2,259
|
)
|
|
|
(9,275
|
)
|
|
|
(9,043
|
)
|
|
|
(18,418
|
)
|
Interest income
|
|
|
1,655
|
|
|
|
1,212
|
|
|
|
2,218
|
|
|
|
1,163
|
|
|
|
459
|
|
Gain (loss) on extinguishment of convertible bonds
|
|
|
–
|
|
|
|
(8,907
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
7,121
|
|
Gain from deconsolidation
|
|
|
3,537
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Change in fair value of derivative asset/liability
|
|
|
–
|
|
|
|
972
|
|
|
|
(15,650
|
)
|
|
|
(2,328
|
)
|
|
|
–
|
|
Tax penalty
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(9,670
|
)
|
Loss on investment in affiliates
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,493
|
)
|
|
|
(10,618
|
)
|
|
|
(2,496
|
)
|
Net foreign exchange gain(loss)
|
|
|
(688
|
)
|
|
|
1,498
|
|
|
|
4,412
|
|
|
|
797
|
|
|
|
(5,843
|
)
|
Others
|
|
|
–
|
|
|
|
815
|
|
|
|
628
|
|
|
|
(573
|
)
|
|
|
(439
|
)
|
Total other income (expense), net
|
|
|
183
|
|
|
|
(6,669
|
)
|
|
|
(20,160
|
)
|
|
|
(20,602
|
)
|
|
|
(29,286
|
)
|
Loss before income taxes
|
|
|
(31,431
|
)
|
|
|
(2,156
|
)
|
|
|
(184,407
|
)
|
|
|
(220,632
|
)
|
|
|
(90,808
|
)
|
Income taxes expense
|
|
|
813
|
|
|
|
3,040
|
|
|
|
673
|
|
|
|
336
|
|
|
|
151
|
|
Net loss
|
|
|
(32,244
|
)
|
|
|
(5,196
|
)
|
|
|
(185,080
|
)
|
|
|
(220,968
|
)
|
|
|
(90,959
|
)
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
(16
|
)
|
|
|
(2
|
)
|
|
|
(30
|
)
|
|
|
(34
|
)
|
|
|
(13
|
)
|
Weighted average number of common shares used in computing per share amounts:*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Dilutive
|
|
|
1,982,145
|
|
|
|
3,070,051
|
|
|
|
6,120,471
|
|
|
|
6,415,616
|
|
|
|
6,826,633
|
|
*The shares are presented on a retroactive basis to reflect
the Company’s Reverse Stock Splits.
|
|
As of December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
($ in thousands)
|
|
Summary Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,031
|
|
|
|
156,540
|
|
|
|
82,124
|
|
|
|
4,178
|
|
|
|
2,577
|
|
Total current assets
|
|
|
24,127
|
|
|
|
381,314
|
|
|
|
393,569
|
|
|
|
154,333
|
|
|
|
131,312
|
|
Total assets
|
|
|
70,964
|
|
|
|
587,907
|
|
|
|
709,570
|
|
|
|
361,818
|
|
|
|
317,311
|
|
Total current liabilities
|
|
|
60,679
|
|
|
|
252,309
|
|
|
|
473,551
|
|
|
|
330,528
|
|
|
|
386,306
|
|
Total liabilities
|
|
|
73,831
|
|
|
|
325,799
|
|
|
|
493,012
|
|
|
|
374,746
|
|
|
|
414,955
|
|
Total equity (deficit)
|
|
|
(2,867
|
)
|
|
|
262,108
|
|
|
|
216,558
|
|
|
|
(12,928
|
)
|
|
|
(97,644
|
)
|
Total liabilities and equity
|
|
|
70,964
|
|
|
|
587,907
|
|
|
|
709,570
|
|
|
|
361,818
|
|
|
|
317,311
|
|
Exchange Rate Information
Not Applicable.
|
B.
|
Capitalization and Indebtedness
|
Not Applicable.
|
C.
|
Reasons for the Offer and Use of Proceeds
|
Not Applicable.
Our business, financial condition and results
of operations are subject to various changing business, competitive, economic, political and social conditions in China and worldwide.
In addition to the factors discussed elsewhere in this annual report, the following are some of the important factors that could
adversely affect our operating results, financial condition and business prospects, and cause our actual results to differ materially
from those projected in any forward-looking statements.
Risks Related to Our Business and Industry
We have incurred net losses,
experienced net cash outflows from operating activities and recorded working capital deficit. If we do not effectively manage
our cash and other liquid financial assets and execute our liquidity plan, we may not be able to continue as a going concern.
We incurred net
losses of $185.1 million, $220.7 million and $91.0 million in 2015, 2016 and 2017, respectively. We had net cash used in operating
activities of $155.5 million, $47.0 million and $3.6 million in 2015, 2016 and 2017. We had an accumulated deficit of $557.8 million
as of December 31, 2017. We also had a working capital deficit of $255.0 million as of December 31, 2017. In addition, we have
substantial amounts of debts that became due in 2017 and 2018.
Historically,
we have relied primarily on cash from our operations, bank borrowings, private placements and financial leases to fund our
operations. We expect that our existing cash and cash equivalents and cash flows from operating and financing activities will
be sufficient to meet our anticipated working capital requirements and capital expenditure for at least the next 12 months -
but generally inadequate to pursue new project acquisition or development initiatives without additional capital. The timing
and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors,
such as the timeliness of payments from our customers. We have filed liens to secure customer payments for each of our solar
projects, but there is no assurance that such payments will be timely collected. We have also enhanced our collection efforts
and undertaken various measures to collect outstanding payments from customers, damages from legal actions and other payments
due to us. The volatility and potential deterioration of the PV market conditions and the overall global economies have also
added uncertainties regarding the sustainability of the PV industry and adverse impact on the demand for our products.
Without access to sufficient level of capital from operations or through bank borrowings or other sources, we may not be able
to execute our growth strategy or pursue additional projects, or may not even be able to continue as a going concern. These
doubts and uncertainties may create concerns for our creditors, suppliers, customers and other counterparties, and cause them
to make it more difficult for us to raise our financing, conduct our business and meet our debt and other obligations.
The report of our independent registered
public accounting firm on our financial statements as of and for the year ended December 31, 2017 includes discussions on our
ability to continue as a going concern. Although we have formulated a liquidity plan as summarized under Note 2 (a) to our consolidated
financial statements appearing elsewhere in this annual report, we cannot assure you that we will be able to successfully execute
this liquidity plan. The amount of liquidity that we need may be greater than we currently anticipate as a result of additional
factors and events beyond our control, such as global economic slowdown, continued downturn in the global PV market, potential
financial crises globally or in any region where we conduct a significant portion of our business, changes in the regulatory and
business environments, including international trade-related sanctions, which may prevent us from operating normally or from effectively
competing in the PV industry. All of these and other factors and occurrences may increase our cash requirements and make us unable
to satisfy our liquidity requirements and we may, as a result, be unable to continue as a going concern.
Recently, we have revised the assumptions
underlying our existing operating plans and recognized the fact that additional actions were needed to reposition our operations
to minimize our cash outflows. Therefore, we are undertaking a number of initiatives in order to conserve or generate cash on an
incremental basis in 2018. For a detailed discussion of these initiatives and strategies, please see “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources— Capital Resources and Material Known Facts on Liquidity.”
However, there is no assurance that these
initiatives and strategies will be successfully implemented, or even if successfully implemented, our cash position and our operational
efficiency will improve. In the event that our business initiatives and strategies do not achieve the expected results, our business,
financial conditions, results of operations and liquidity position may be materially and adversely affected. Furthermore, we have
identified several business related risk factors, such as compliance with laws and regulations, contingent liabilities arising
from litigations, suspected related party transactions and unusual transactions, which could cause cash position to further deteriorate. Suspected
related party transactions in 2016 which could cause our cash position to further deteriorate primarily include a guarantee issued
to us by a related entity, of which our former director is its legal representative, to secure the repayment obligation of certain
receivables arising from a finance lease transaction. The principal of the finance lease receivable under guarantee was $23 million,
of which provision for doubtful debts of approximately $10 million was made as at December 31, 2016 as the lessee defaulted
the instalment lease repayment under the lease agreement. We may be unable to collect these receivable balances in full and on
a timely basis as we fail to obtain appropriate and adequate collateral of assets, in addition to the guarantee provided by a
related entity, to secure the repayment of the receivable balances. Additionally, we have also identified certain unusual transactions
in 2016 that were not detected on a timely basis. In 2016, we entered into an agreement to sell a 10-Megawatt PV project to a
third party entity. Although the sales had not been consummated as at December 31, 2016, we had transferred the legal ownership
of the project assets to the buyer without obtaining any security. We made full provision of impairment of $9.5 million against
the carrying amount of these project assets as at December 31, 2016 as the buyer defaulted all instalment payment under the
agreement. Furthermore, we entered into several one-year finance lease agreements as legal lessor with third party entities, which
were concluded in substances as loans made to those entities. As we fail to obtain adequate collateral of assets to secure the
loans repayment and some borrowers have defaulted the loans repayment under the respective agreements, we made a provision for
impairment loss of $8 million against the carrying amount of these loan receivable balances of approximately $11 million as at
December 31, 2016. Our inability to fully recover these project assets or receivable balances arising from these unusual
transactions may cause our cash position to further deteriorate. For the foregoing reasons, we may not be able to continue as
a going concern.
The operations of our e-commerce and investment business
platform are unsuccessful.
In early 2015, our
related party, Solar Energy E-Commerce (Shanghai) Limited (“Solar Energy E-Commerce”), launched the e-commerce and
investment platform, www.solarbao.com, or the Solarbao platform, enabling retail customers and solar project developers to purchase
various PV-related products and services. The Solarbao platform was intended to create a network connecting investors seeking
solar industry investment opportunities and solar project developers. This platform primarily generated revenue from commissions
derived from the leasing of solar panels. Starting from April 18, we have ceased offering new investment products to investors
and stopped accepting new investments on the Solarbao platform due to its short operating history, the ever-changing Chinese regulatory
regime, government policies in this area and various other reasons as discussed below.
We divested this business in December 2018.
If regulators determine that this divestiture was ineffective for any reason, we may be subject to significant liabilities due
to this business.
We are in default on a number of our obligations, which
could result in our being forced to cease operations if we are unable to reach satisfactory settlement with applicable counterparties.
We are in default on the following obligations:
|
·
|
We have outstanding convertible bonds of $55 million, which were defaulted in
June 2016 and not repaid as at December 31, 2017. On February 12, 2017, we entered into an Amendment
Agreement
(“Agreement”) with Union Sky Group Limited, one of the holders of our convertible bonds, to extend the maturity
date of the bonds, pursuant to which the repayment of US$6.6 million, US$6.7 million and $6.7 million of the principal
amount
of the convertible bond will be due by April 30, 2017, January 30, 2018 and January 30, 2019, respectively.
Union Sky Group Limited has the option to convert the outstanding amounts under the convertible bond into equity interest in
our company at a conversion price of $1.372 per share. We were not able to make the first repayment as of
April 29, 2017. We have been in communications with the holders of our convertible bonds, including Union Sky Group
Limited, to further extend the maturity date of the bonds, and On June 29, 2018, the Company entered into another amendment
agreement (the “2nd Amendment”) with the SPV and Magical Glaze Limited (the “MGL”), a company
incorporated under the laws of British Virgin Islands, pursuant to which agreement the SPV has transferred all the rights
and
obligations under the CB Agreement and 1st Amendment to MGL, and the maturity date of the note was extended. According to
the
2nd Amendment, the repayment of US$6.6 million, US$6.7 million and US$6.7 million of the principal amount of the note and
interest thereon is due by December 2019, June 2020 and December 2020, respectively.
|
|
·
|
Pursuant to the share purchase agreement entered between the Group and TBEA Xinjiang Sunoasis
Co., Ltd. (“TBEA Sunoasis”) regarding the acquisition of Xinte in 2014, 100% equity interests in Xinte were
pledged to TBEA Sunoasis to secure purchase consideration and obligation arising from EPC service provided by TBEA Sunoasis.
On March 28, 2016, we entered into a ten-year sale-and-leaseback arrangement on the PV solar system with China Kangfu
International Leasing Co., Ltd. (“Kangfu Leasing”), an independent third party. The sales price of $20.2
million was the same as the principle of the lease arrangement which was used to settle the outstanding purchase
consideration due to TBEA Sunoasis. The pledge of equity interests in Xinte was then released by TBEA Sunoasis. 100%
equity interests in Xinte were pledged to Kangfu Leasing at the inception of lease. Pursuant to the terms of the lease
agreement, we are only required to pay interests at 6.125% per annum in the first eleven months, a portion of principal and
interests of $4.3 million in the twelve months and equal principal and interests payments by installment for the remaining
nine years. The effective interest rate for the lease is determined as 10.1%. The bargain purchase price at the end of lease
period is $1. The lease was classified as capital lease and the Group continued to record this PV solar system in property,
plant and equipment. As of December 31, 2017, the carrying amount of Xinte’s PV solar system amounted to $22.4
million. No new repayment schedule has been agreed between us and Kangfu Leasing.
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If we are unable to enter into settlement arrangements with
all of the parties with whom we are in default, we could be forced to cease operations.
We conduct our business in diverse locations around the
world and are subject to economic, regulatory, social and political risks internationally and in the regions where we operate.
We currently conduct our business operations
in China, the U.S., Japan, the U.K., Greece, Germany, Italy and Australia, and as of December 31, 2017, we owned and operated
73.12MW of solar projects and had 23.99MW of solar projects under construction across the world. We also provide EPC services
in China and the U.S. Our business is therefore subject to diverse and constantly changing economic, regulatory, social and political
conditions in these markets.
Operating internationally exposes us to
a number of risks globally and in each of the markets where we operate, including, without limitation:
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global economic
and financial conditions, including the stability of credit markets, foreign currency
exchange rates and their fluctuations;
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the supply and
prices of other energy products such as oil, coal and natural gas in the relevant markets;
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changes in government
regulations, policies, taxes and incentives, particularly those concerning the electric
utility industry and the solar industry;
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reconciling
heterogeneous, complex or contradictory regulations across different jurisdictions, international
trade policies, including trade restrictions, embargoes and local sourcing or service
requirements;
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political risks,
including risks of expropriation and nationalization of assets, potential losses due
to civil unrests, acts of terrorism and war, regional and global political or military
tensions, strained or altered foreign relations;
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compliance with
diverse and complex local environmental, safety, health, labor and other laws and regulations,
which can be onerous and costly, as the magnitude, complexity and continuous amendments
to the laws and regulations are difficult to predict and liabilities, costs, obligations
and requirements associated with these laws and regulations may be substantial;
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dependence on
local governments, utility companies and other entities for electricity, water, telecommunications,
transportation and other utilities or infrastructure needs;
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difficulties
associated with local operating and market conditions, particularly regarding customs,
taxation and labor;
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difficulties
for our senior management, primarily based in Shanghai, to effectively supervise local
management teams in diverse locations;
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increased difficulty
in protecting our intellectual property rights and heightened risk of intellectual property
disputes;
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failure of our
contractual counter-parties to honor their obligations to us, and potential disputes
with regulatory authorities, customers, contractors, suppliers, local residents or communities;
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obtaining fair
access and legal remedies or benefits through local judicial or administrative bodies;
and
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failure to adapt
to effectively to local competitive environments.
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If economic recovery is slow in the markets
where we operate, our business, financial condition, results of operations and prospects could be materially and adversely affected.
Moreover, as we expand into additional markets, we may face unfamiliar regulatory regimes, business practices, governmental policies
and industry conditions. As a result, our experience and knowledge of our existing markets may not be applicable to new markets
that we enter, requiring significant time and resources to adapt our business to these unfamiliar markets. To the extent that
our diverse business operations are affected by unexpected and adverse economic, regulatory, social and political conditions,
we may experience business disruptions, loss of assets and personnel and other indirect losses and our business, financial condition
and results of operations both locally and internationally could be materially and adversely affected.
The reduction, modification,
delay or discontinuation of government subsidies and other economic incentives for the solar industry may reduce the profitability
or viability of our solar projects and materially adversely affect our business.
At present, solar
power is not cost competitive with other energy sources in our existing markets and the new markets we plan to expand into. For
a variety of technological and economic reasons, the cost of generating electricity from solar energy in these markets currently
exceeds and, absent significant changes in technological or economic circumstances, will continue to exceed the cost of generating
electricity from conventional and certain other competing energy sources. Therefore, government subsidies and incentives, primarily
in the form of feed-in tariffs, or FIT, price support schemes, tax credits, net metering and other incentives to end users, distributors,
system integrators and manufacturers of solar products are generally required to enable companies such as us to successfully operate
in these markets.
Government subsidies and incentives vary
by geographic market. The availability and size of such subsidies and incentives depend, to a large extent, on political and policy
developments relating to environmental concerns and other macro-economic factors. These government subsidies and incentives are
expected to gradually decrease in scope or be discontinued as solar power technology improves and becomes more affordable relative
to other types of energy. Reductions have occurred in certain countries where we have operations, and subsidies and incentives
may be further reduced or discontinued in countries where we currently or intend to operate. Reductions may apply retroactively
to existing solar projects, which could significantly reduce the value of our existing solar projects and other businesses. Even
if reductions in government subsidies and economic incentives apply only to future solar projects, our operations in that country
could be materially and adversely affected as we would not be able to leverage our existing presence to drive further growth.
Moreover, certain solar subsidies and incentives are designed to expire or decline over time, are limited in total funding, require
renewal from regulatory authorities or impose certain investment or performance criteria on our business partners or us, which
we may not be able to satisfy. In addition, we may not be able to upgrade our technologies rapidly enough to compensate for foreseeable
reductions in government subsidies and incentives. As a result, a significant reduction in the scope or discontinuation of government
incentive programs in our existing and target markets could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Misconduct and errors by our employees could harm
our business and reputation.
We are exposed to many types of operational
risks, including the risk of misconduct, errors and fraud by our employees and key management personnel. Our training, resources,
technologies and fraud detection tools may be insufficient to accurately detect and prevent fraud. Significant increases in fraudulent
activity could negatively impact our brand and reputation, which could increase our costs and expenses. High profile fraudulent
activity could even lead to regulatory intervention, and may divert our management’s attention and cause us to incur additional
expenses and costs. If any of the foregoing were to occur, our results of operations and financial condition could be materially
and adversely affected.
Recent changes to our business
strategy provide a limited history on which to base our prospects and anticipated results of operations. Our historical operating
results may not serve as an adequate basis to evaluate our future prospects and results of operations.
Prior to 2014, we were primarily engaged
in providing EPC services to developers of solar projects in the U.S. We have since 2014 expanded our EPC service business to
China and commenced our global project development business under our independent power producer model, or IPP model, or our build-and-transfer
model, or BT model, by ramping up our portfolio of solar projects. This limited operating history of developing and operating
solar projects under our IPP and BT model may not be a reliable indicator of our future performance.
Given our limited operating history under
the current business model, we may not be able to ascertain and allocate the appropriate financial and human resources necessary
to grow these new business areas. We may invest considerable capital into growing these businesses but fail to address market
or customer demands or otherwise fail to achieve satisfactory financial return. In particular, our results of operations, financial
condition and future success depend largely on our ability to continue to identify suitable projects that complement our solar
project pipeline through acquisitions and secondary development, as well as our ability to obtain the required regulatory approvals,
financing and cost-effective construction services for these acquisitions. We must also sustainably manage and operate the solar
projects that we acquire, develop and hold under our IPP model, or successfully identify buyers for solar projects under our BT
model. In addition, in expanding into these new business areas, we may be competing against companies that have substantially
more experience than we do with respect to solar projects under our IPP and BT models. If we are unable to achieve growth in these
new business areas, our overall growth and financial performance may be inferior to our competitors and our operating results
could be adversely impacted.
Due to the change
in our strategic focus and revenue generating efforts since 2014, our prior operating history and historical operating results
may not provide a meaningful basis for evaluating our business, financial performance and prospects. Period-to-period comparisons
of our operating results and our results of operations for any period should not be relied upon as an indication of our performance
for any future period. We have incurred net losses since our inception and as of December 31, 2017, we had an accumulated deficit
of approximately $548.2 million. We may not be able to achieve or maintain profitability in the future.
We may not be able to acquire
additional solar projects to grow our project portfolio, or effectively integrate or realize the anticipated benefits of our acquisitions.
Our current business strategy
includes plans to further increase the number of solar projects we own and operate. Since 2014, we have significantly
expanded our operations through acquisitions of solar projects across different development stages in China, Japan, the U.S.,
the U.K., Greece and Italy, and we may acquire additional businesses, products or technologies or enter into joint ventures
or other strategic initiatives in the future. Accordingly, our ability to execute our expansion strategies depends on our
ability to identify suitable investment or acquisition opportunities, which is subject to numerous uncertainties. We may not
be able to identify favorable geographical markets for expansion or assess local demand for solar power, identify a
sufficient number of projects as contemplated, or secure project financing and refinancing on reasonable terms for the
contemplated acquisitions. In addition, our competitors may have substantially greater capital and other resources than we
do, and may be able to pay more for the acquisition targets we identify and may be able to identify, evaluate, bid for and
acquire a greater number of projects than our resources permit.
Furthermore, we may not realize the anticipated
benefits of our acquisitions and each transaction involves numerous risks, including, among others:
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difficulty in
assimilating the operations and personnel of the acquired business;
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difficulty in
effectively integrating the acquired assets, technologies or products with our operations;
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difficulty in
maintaining controls, procedures and policies during the transition and integration;
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disruption of
our ongoing business and distraction of our management from daily operations;
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inability to
retain key technical and managerial personnel and key customers, suppliers and other
business partners of the acquired business;
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inability to
achieve the financial and strategic goals for the acquired and combined businesses as
a result of insufficient capital resources or otherwise;
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incurring acquisition-related
costs or amortization costs for acquired intangible assets that could impact our operating
results;
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potential failure
of the due diligence processes to identify significant issues with product quality, legal
and financial liabilities, among others;
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potential failure
to comply with local regulatory requirements or to obtain construction, environmental
and other permits and approvals from governmental authorities in a timely manner or at
all, which could delay or prevent such acquisitions; and
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potential failure
to connect the acquired solar projects to the local grid on schedule and within budget,
to ensure sufficient grid capacity for the life of the solar projects, or to collect
FIT payments and other economic incentives as expected from local government authorities.
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Acquisitions of companies are inherently
risky, and ultimately, if we do not generate expected economic returns from the acquired businesses, or become responsible for
any preexisting liabilities related to the acquired businesses, we may not fully realize the anticipated benefits of the acquisitions,
which could adversely affect our business, financial condition or results of operations.
Our substantial indebtedness
could adversely affect our business, financial condition and results of operations.
We require a significant
amount of cash to meet our capital requirements and fund our operations, including payments to suppliers for PV modules and components
and to contractors for EPC services. As of December 31, 2017, we had $108.7 million in outstanding short-term borrowings (and
the current portion of long-term borrowings) and $9.8 million in outstanding long-term borrowings (excluding the current portion).
Our existing debt may have significant
consequences on our operations, including:
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reducing the
availability of our cash flow to fund working capital, capital expenditures, acquisitions
and other general corporate purposes as a result of our debt service obligations;
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limiting our
ability to obtain additional financing;
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making us more
vulnerable to changes in our business, our industry and the general economy;
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potentially
increasing the cost of any additional financing; and
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limiting our ability to make future acquisitions.
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Any of these factors and other consequences
that may result from our substantial indebtedness could have an adverse effect on our business, financial condition and results
of operations as well as our ability to meet our payment obligations under our existing debt facilities. Our ability to meet our
payment obligations under our existing debt facilities depends on our ability to generate significant cash flow in the future.
This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other
factors that are beyond our control.
Our results of operations may
be subject to fluctuations.
Historically, we have generated a substantial
portion of our revenue from the provision of EPC services. Before we achieve economies of scale in terms of our IPP projects and
receive steady electricity generation income, our revenue in a given period will depend on the solar projects we provide EPC services
to, or the number of solar projects sold under our BT model, and therefore is subject to significant fluctuations. For instance,
we may generate a significant portion of our revenues from the one-time sale of solar projects for certain periods. Moreover,
certain aspects of our operations will also be subject to seasonal variations. For example, we may schedule significant construction
activities to connect solar projects to the grids prior to a scheduled decrease in FIT rates in order to qualify for more favorable
FIT policies.
Failure to manage our evolving
business could have a material adverse effect on our business, prospects, financial condition and results of operations.
We intend to expand our business within
our existing markets and in a number of selected new locations in the future. We also intend to expand our global project development
business in the future. As our operations evolve, we expect to encounter additional challenges in our internal management, construction
contracting management, investment and acquisition management, project management, project funding infrastructure and financing
capabilities. Our existing operations, personnel, systems and internal control may not be adequate to support our business expansion
and may require new investments in our internal management infrastructure. To manage the future growth of our operations, we will
be required to improve our administrative, operational and financial systems, procedures and controls, and maintain, expand, train
and manage a growing number of employees. In addition, we will need to hire and train additional project development personnel
to manage our growing portfolio of IPP and BT projects. If we are unable to manage our growth effectively, we may not be able
to take advantage of market opportunities, execute our business strategies successfully or respond to competitive pressures. As
a result, our business, prospects, financial condition and results of operations could be materially and adversely affected.
We act as the general contractor
for our customers for the provision of EPC services, and are subject to risks associated with construction, delays and other contingencies,
which could have a material adverse effect on our reputation, business and results of operations.
Historically, we have generated a significant
portion of our revenue from the provision of EPC services. We generally enter into fixed-price EPC contracts under which we act
as the general contractor for our customers in connection with the installation of their solar power systems. All essential costs
are estimated at the time of entering into the EPC contracts for a particular project, and are reflected in the overall fixed-price
that we charge our customers. These cost estimates are preliminary and may or may not be covered by contracts between us or our
subcontractors, suppliers or other parties to the project. In addition, we engage qualified and licensed subcontractors for the
construction of our EPC projects. Shortages of such skilled labor could significantly delay a project or otherwise increase our
costs. Should miscalculations in project planning or delay in execution occur (including those due to unexpected increases in
inflation, commodity prices or labor costs), we may not be able to achieve our expected margins or recover our costs.
In addition, our EPC contracts generally
provide for performance milestones. Delays in supply of PV module or components, construction delays, unexpected performance problems
in electricity generation or other events may cause us to fail to meet these performance criteria, resulting in unanticipated
and severe revenue and earnings losses and financial penalties. If we are unable to complete the development of a solar project,
or fail to meet one or more agreed target construction milestone dates, any agreed upon system-level capacity or energy output
guarantees or warranties (including, for some projects, twenty-five year performance warranties) or other terms under our EPC
contracts, or the solar projects we develop cause grid interference or other damage, we may be subject to termination of such
contracts or significant damages, penalties and/or other obligation under the EPC agreements or other agreements relating to the
projects (including obligations to repair, replace and/or supplement additional modules and balance of system materials for the
projects), particularly if our liabilities are not capped under the terms of such agreements, and we may not be able to recover
our investment in the project. The occurrence of any of these events could have a material adverse effect on our reputation, business
and results of operations.
We generally recognize revenue
from EPC services on a “percentage of completion” basis and payments are due upon the achievement of contractual milestones
and any delay or cancellation of a project could adversely affect our business.
We generally recognize revenue from our
EPC services on a “percentage of completion” basis, and as a result, revenues from our EPC services are driven by
the performance of our contractual obligations, which is in turn generally driven by timelines of the installation of solar power
systems at customer sites. Such arrangement could result in unpredictability of revenue and in the near term, a revenue decrease.
As with any project-related business, there is potential for delays within any particular customer project. Variation of project
timelines and estimates may impact our ability to recognize revenue in a particular period. In addition, certain EPC contracts
may provide for payment milestones due at specified stages throughout the development of a project. Because we must invest substantially
in a project in advance of achieving these milestones and receiving payments, delay or cancellation of a project could adversely
affect our business and results of operations.
We may fail to comply with laws
and regulations in the markets we operate.
The development, construction and operation
of solar projects are highly regulated. We conduct our operations in many jurisdictions and are subject to different laws and
regulations, including national and local regulations relating to building codes, taxes, safety, environmental protection, utility
interconnection, metering and other matters. Our establish subsidiaries also have operations in these countries and jurisdictions
that are required to comply with various local laws and regulations. While we strive to work with our local counsel and other
advisers to comply with the laws and regulations of each jurisdiction where we operate, there have been, and may continue to be,
instances of non-compliances such as late filings of annual accounts with the appropriate governmental authorities, failure to
notify governmental authorities of certain transactions, failure to hold annual meetings as required, failure to register director
or address changes or other local requirements which may result in fines, sanctions or other penalties against our non-complying
subsidiaries and its directors and officers. While we do not believe our past and continuing non-compliances, singularly or in
the aggregate, will have a material adverse effect on our business, financial condition or results of operations, we cannot assure
you that similar or other non-compliances will not occur in the future which may materially and adversely affect our business,
financial condition or results of operations.
We are responsible for obtaining a
variety of approvals, permits and licenses from various authorities for our solar projects. The procedures for obtaining such
approvals, permits and licenses vary from country to country, making it onerous and costly to adhere to the varying
requirements and standards of individual localities. Failure to obtain the required approvals, permits or licenses or to
comply with the conditions associated therewith may result in fines, sanctions, suspension, revocation or non-renewal of
approvals, permits or licenses, or even criminal liabilities, which could material and adversely affect our business,
financial condition and results of operations. In addition, new government regulations pertaining to our business or solar
projects may result in significant additional expenses. We cannot assure you that we will be able to promptly and adequately
respond to changes of laws and regulations in various jurisdictions, or that our employees and contractors will act in
accordance with our internal policies and procedures. Failure to comply with laws and regulations where we develop, own and
operate solar projects may materially and adversely affect our business, results of operations and financial condition. The
market demand for solar power is strongly influenced by government regulations and policies concerning the electric utility
industry as well as by policies promulgated by electric utilities in each of the markets we operate. These regulations and
policies often relate to electricity pricing and technical interconnection of electricity generation. Customer purchases of
alternative energy sources, including solar power technology, could be deterred by these regulations and policies, which may
significantly reduce the demand for our PV solutions. For example, without a regulatory-mandated exception for solar power
systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the
electric utility grid or limit the production capacity to the grid. The county-level government may also levy additional
tax related to land use or potential plants recovery that was not initially included during the development or construction
phase. These fees could increase, rendering solar power less cost competitive in these markets and our PV solutions less
desirable.
It is difficult to ensure ongoing compliance
with the changing requirements of individual markets. Any new government regulations or utility policies pertaining to solar projects
may result in significant additional expenses to us or other industry participants and as a result could cause a significant reduction
in demand for our PV solutions.
The solar industry faces competition
from both conventional power industries and other renewable power industries.
The solar industry faces intense competition
from all other players within the energy industry, including both conventional energy providers such as nuclear, natural gas and
fossil fuels and other renewable energy providers, such as geothermal, hydropower, biomass, wind and nuclear energy. Other energy
sources may benefit from innovations that reduce their costs and increase safety, and therefore improve their competitiveness.
New natural resources may be discovered, or global economic, business or political developments may disproportionately benefit
conventional energy sources or other renewable energy sources at the expense of solar. Governments may strengthen their support
for other renewable energy sources and reduce their support for the solar industry. Changes in supply and demand of conventional
energy sources or other energy sources may reduce the cost of such sources and render solar power less attractive. For instance,
the recent decline in oil prices and prolong low prices have adversely impacted the competitiveness of solar energy. Failure for
our customers, other business partners or us to compete with the providers of other energy sources may materially and adversely
affect our business, results of operations and financial condition.
The market for solar project
development is highly competitive.
There is currently intense competition
in the solar industry, particularly in the downstream project development segment. Solar projects encounter competition from utilities,
industrial companies and other independent power producers. In recent years, there has been increasing competition for the award
of PPAs, which has in some markets resulted in an excess supply above designated reserve margins and has been contributing to
the declining electricity prices in many markets. In light of these conditions, we may not be able to obtain PPAs for our new
solar projects under our IPP model, and we may not be able to renew PPAs on the same terms and conditions upon expiration, particularly
in terms of securing an electricity sale price that enables profitable operation or the sale of a project at anticipated value,
if at all.
We have only recently expanded our business
to include global project development and may not have the same level of expertise and customer base as our competitors, which
may affect our ability to successfully establish our presence in the global market. Our current or potential competitors may have
greater operational, financial, technical, market share, scale, management or other resources than us in our existing or target
markets. Our competitors may also enter into strategic alliances with other competitors to our detriment, or may ally with our
suppliers or contractors, thereby limiting our procurement choices and our flexibility in project development. Our current or
potential competitors may offer PV solutions comparable or superior to ours at the same or lower prices, or adapt more quickly
to industry trends than we do. Increased competition may result in price reductions, reduced profit margins and loss of market
share.
Technological advances in the
solar industry could render our PV solutions uncompetitive or obsolete.
The solar industry is characterized by
its rapid adoption and application of technological advances. This requires us to develop new PV solutions and enhance our existing
PV solutions to keep pace with and respond effectively to evolving technologies, market conditions and customer demands. Our competitors
may develop technologies more advanced and cost-effective than ours. We will need to invest substantially in research and development
to maintain our market position and effectively compete in the future. Our failure to further refine or enhance our technologies
could render our technologies uncompetitive or obsolete, which could reduce our market share and cause our revenues to decline.
In addition, we may invest in and implement
newly-developed, less-proven technologies in our project development or in maintaining or enhancing our existing projects. There
is no guarantee that these new technologies will perform or generate customer demand as anticipated. The failure of our new technologies
to perform as anticipated may materially and adversely affect our business and results of operations.
If sufficient demand for solar
projects develops slower than we anticipate, develops in ways inconsistent with our strategy, or fails to develop at all, our
business, financial condition, results of operations and prospects could be materially and adversely affected.
The solar power market worldwide is at
a relatively early stage of development compared to conventional power markets and other renewable power markets, such as that
for hydropower. Thus, trends in the solar industry are based only on limited data and may be unreliable. Many factors may affect
the demand for solar projects worldwide, including:
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the cost and
availability of project financing for solar projects;
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fluctuations
in economic and market conditions that improve the viability of competing energy sources;
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the cost-effectiveness,
performance and reliability of solar projects compared to conventional and other non-solar
energy sources;
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the availability
of grid capacity allocated to solar power;
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political opposition
to solar power due to environmental, land use, safety or other local concerns;
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the availability
of government subsidies and incentives to support the development of the solar industry;
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public perceptions
of the utility, necessity and importance of solar power and other renewable energies;
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the success
of other alternative energy generation technologies, such as fuel cells, wind power and
biomass; and
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utility and
grid regulations that present unique technical, regulatory and economic barriers to the
development, transmission and use of solar energy.
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Our analysis and predictions concerning
the future growth of the solar industry are based on complex facts and circumstances and may be incorrect. If market demand for
solar projects in our existing or target markets fails to develop according to our expectations, our business, financial condition,
results of operations and prospects could be materially and adversely affected.
Our growth prospects and future
profitability and our ability to continue to acquire solar projects depends on the availability of sufficient financing on terms
acceptable to us.
The development of solar projects requires
significant upfront cash investments, including the costs of permit development, construction and associated operations. Since
2014, we have been expanding our solar project portfolio primarily by acquiring solar projects across different development stages.
Such expansion strategy requires significant upfront capital expenditures which, depending on the respective development stages
of the acquired projects, may not be recouped for a significant period of time. As a result, we are required to pursue a wide
variety of capital resources to fund our operations, including private placements, bank loans, financial leases and other third-party
financing options.
Our ability to obtain sufficient financing
is subject to a number of uncertainties, including:
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our future financial
condition, results of operations and cash flows;
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the general
condition and liquidity of global equity and debt capital markets;
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local regulatory
and government support for solar power in markets where we operate, such as through tax
credits and FIT schemes;
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the availability
of credit lines from banks and other financial institutions;
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economic, political,
social and other conditions in the markets where we operate;
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our level of
indebtedness and ability to comply with financial covenants under our debt financing;
and
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tax and securities
laws which may hamper our ability to raise capital.
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Due to these or other reasons, we may not
be successful in obtaining the required funds for future acquisitions. Furthermore, we may be unable to refinance our bank borrowings
on favorable terms, or at all, upon the expiration or termination of our existing loan facilities. In addition, rising interest
rates could adversely affect our ability to secure financing on favorable terms. Our failure in securing suitable financing sources
in a timely manner or at all, or on commercially acceptable terms, could significantly limit our ability to execute our growth
strategies or future acquisitions, and may have a material adverse effect on our business, financial condition, results of operations
and cash flows.
An increase in interest rates
or lending rates or tightening of the supply of capital in the global financial market could make it difficult for our customers
to finance the cost of EPC services or solar projects and could reduce the demand of our PV solutions.
Many of our customers depend on debt and/or
equity financing to fund the initial capital expenditure required to develop, build and/or purchase solar projects. These structured
finance arrangements are complex and rely heavily on the creditworthiness of the customer as well as required returns of the financial
institutions. Depending on the status of financial markets and overall economic conditions, financial institutions may be unwilling
or unable to provide financing to our customers, which could materially and adversely affect our ability to maintain or grow our
revenues. In addition, an increase in interest rates or lending rates, or a reduction in the supply of debt financing or tax equity
investments, could reduce the number of solar projects that receive financing or otherwise make it difficult for our customers
to secure the financing necessary to develop, build or purchase a solar project on favorable terms, or at all, and thus lower
the demand for our PV solutions, which could limit our growth or reduce our net sales.
The significant period of time
between our upfront investments in solar projects and their commencement of revenue generation could materially and adversely
affect our liquidity, business and results of operations.
We have since 2014 commenced our
global project development business under our IPP or BT models by ramping up our portfolio of solar projects. There is a
significant gap between the time that we make significant upfront investments in the solar projects and the time that we
receive any revenue from the electricity generated by these solar projects after grid connection (under our IPP model) or
from the sale of these projects (under our BT model). These upfront investments include, among others, legal, accounting and
other professional fees, costs associated with feasibility studies and due diligence, payments for land use rights,
construction costs, government permits and deposits for grid connection agreements and PPAs, none of which may be refundable
if a project fails to achieve completion. We have historically relied on private placements, bank loans and financial leases
to cover costs and expenses incurred during project development.
In particular, there could be an especially
long gap between the initial assessment of a project, the first steps of acquiring land use rights and negotiating interconnection
agreements and the obtaining of governmental approvals for construction. Acquisition of land use rights can be particularly time-consuming
if we are engaged in primary development and need to negotiate with land owners or government entities. The significant development
time increases the risk for adverse events during such process, whether they be economic, environmental, political, social or
otherwise, that could cause further delays in project development or increase the overall development costs. Due to such adverse
developments or unanticipated delays, we may be unable to recoup our initial investment in the solar projects, which may materially
and adversely affect our liquidity, profitability and results of operations.
We may encounter unexpected difficulties
when developing solar power projects.
In 2014, we commenced
our global project development business by ramping up our portfolio of solar projects under both our IPP BT and EPC models. The
attributable capacity of our projects in operation increased from 69.2 MW as of December 31, 2016 to 73.12 MW as of December 31,
2017, and projects under construction decreased from 30.79 MW as of December 31, 2016 to 23.99 MW as of December 31, 2017. In
addition, we had an aggregate of 71.56 MW of projects in announced pipeline as of December 31, 2017. See “Item 4. Information
on the Company—B. Business Overview—Our Global Project Development Business.” The development of solar projects
involves numerous risks and uncertainties and require extensive research, planning and due diligence. Before we can determine
whether a solar project is economically, technologically or otherwise feasible, we may be required to incur significant capital
expenditure for land and interconnection rights, preliminary engineering, permitting, legal and other work. Success in developing
a particular solar project is contingent upon, among others:
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securing the
rights to suitable project locations with access to the grid, necessary rights of way,
and satisfactory land use permissions;
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rezoning land,
as necessary, to support a solar project;
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negotiating
and receiving on schedule the required permits and approvals for project development
from government authorities;
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completing all
required regulatory and administrative procedures needed to obtain permits and agreements;
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obtaining rights
to interconnect the solar project to the grid or to transmit energy;
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paying interconnection
and other deposits, some of which are non-refundable;
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negotiating
favorable payment terms with module and other equipment suppliers and contractors;
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signing PPAs
or other off-take arrangements that are commercially acceptable and adequate for providing
financing;
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obtaining construction
financing, including debt financing and equity contributions, as appropriate; and
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satisfactorily
completing construction on schedule.
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Successful completion of a particular
solar project may be adversely affected by numerous factors, including, without limitation:
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unanticipated
delays or changes in project plans;
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changes to laws
and regulations requiring additional permits, licenses and approvals, or difficulties
in obtaining and maintaining existing governmental permits, licenses and approvals;
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the inability
to obtain adequate financing with acceptable terms;
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unforeseeable
engineering problems, construction or other unexpected delays and contractor performance
issues;
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delays, disruptions
or shortages of the supply of labor, equipment and materials, including work stoppages;
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defective PV
module or other components sourced from our suppliers;
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adverse weather,
environmental and geological conditions, force majeure and other events out of our control;
and
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cost overruns
due to any one or more of the foregoing factors.
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Accordingly, some of the solar projects
in our portfolio may not eventually commence operation and connect to the grid, or even proceed to construction. If a number of
our solar projects are not completed, our business, financial condition and results of operations could be materially and adversely
affected.
Our construction activities may
be subject to cost overruns or delays.
We engage third-party contractors for the
construction of solar projects. Construction of solar projects involves numerous risks and uncertainties, and may be adversely
affected by circumstances outside of our control, including seasonal changes, inclement weather, failure to receive regulatory
approvals on schedule or third-party delays in supplying PV modules or other materials. We may not be able to negotiate satisfactory
construction agreements with third-party contractors, or our third-party contractors may not be able to contract with their subcontractors
on a timely basis. In addition, if our contractors fail to adhere to our quality standards or otherwise fail to meet their contractual
obligations, or if there is a shortage of contractors or labor strikes that prevents our contractors from completing their construction
work on schedule or within budget, the solar projects may experience significant delays or cost overruns. Increases in the prices
of solar products and components may also increase our procurement costs. Labor shortages, work stoppages and labor disputes could
significantly delay a project or otherwise increase our costs. In addition, delays in obtaining or failure to obtain required
construction permits could also delay or hinder the construction of our solar projects. A lack of proper construction permits,
or post-construction approvals could delay or prevent our solar projects from commencing operation and connecting to the grid.
We may not be able to recover any of our
losses resulting from construction cost overruns or delays. In addition, since the FIT applicable to a solar project generally
depends on its lead time to grid connection, construction and connection delays may lead to a lower-than-expected FIT, which would
adversely affect the long-term value and potentially the viability of the project. Many PPAs also require our solar projects to
connect to the grid by a certain date. If the construction of solar project is significantly delayed, we may be in violation of
our PPAs or may only be entitled to reduced FIT payments, if at all. A reduction or forfeiture of FIT payments would materially
and adversely affect the profitability for a solar power project. Any of the above contingencies could lead to our failure to
generate expected return from our solar projects and result in unanticipated and significant revenue and earnings losses.
We rely on third-party suppliers
and contractors when developing our solar power projects.
We source PV modules and other balance-of-system
components from a wide selection of third-party suppliers and LDK and engage third-party contractors for the construction of solar
projects. We typically enter into contracts with our suppliers and contractors on a project-by-project basis and do not maintain
long-term contracts with our suppliers or contractors. Therefore, we are generally exposed to price fluctuations and availability
of PV modules and balance-of-system components sourced from our suppliers and construction services procured from our contractors.
For example, in light of changing market dynamics and government policies, the price and availability of PV modules have been
subject to significant volatility in recent years. Increases in the prices of PV modules or balance-of-system components, decreases
in their availability, fluctuations in construction, labor and installation costs, or changes in the terms of our relationship
with our suppliers and contractors may increase the cost of procuring equipment and engaging contractors and hence materially
adversely affect our financial condition and results of operations.
Furthermore, the delivery of defective
products or products or construction services by our suppliers or contractors which are otherwise not in compliance with contract
specifications, or the late supply of products or construction services, may cause construction delays or solar power projects
that fail to adhere to our quality and safety standards, which could have a material adverse effect on our business, results of
operations, financial condition and cash flow.
Warranties provided by our suppliers
and contractors may be limited or insufficient to compensate for our losses, or may not cover the nature of our losses incurred.
We expect to benefit from various
warranties, including product quality and performance warranties, provided by our suppliers and contractors. These suppliers
and contractors, however, may file for bankruptcy, cease operations or otherwise become unable or unwilling to fulfill their
warranty obligations. Even if a supplier fulfills its warranty obligations, the warranty may not be sufficient to compensate
us for all of our losses. In addition, the warranty for inverters and transformers generally expire after 5 to 10 years from
the date such equipment is delivered or commissioned and is subject to liability limits. Where damages are caused by
defective products provided by our suppliers or construction services delivered by our contractors, our suppliers or
contractors may be unable or unwilling to perform their warranty obligations as a result of their financial conditions or
otherwise. Or if the warranty has expired or a liability limit has been reached, there may be a reduction or loss of warranty
protection for the affected projects, which could have a material adverse effect on our business, financial condition and
results of operations.
Our solar projects have short
operating histories and may not perform up to our expectations.
The projects in our solar project portfolio
are relatively new with expected operating lives of more than 20 years. The majority of our projects in operation as of December
31, 2017 had commenced operations within the last 36 months. In addition, the projects we acquire in the future may not have commenced
construction or operation or otherwise have a limited operating history. As a result, our assumptions and estimates regarding
the future performance of these projects are, and will be, made without the benefit of a meaningful operating history, which may
impair our ability to accurately assess the potential profitability of the projects. The performance of these projects will also
be subject to risks inherent in newly constructed renewable energy projects, including breakdowns and outages, latent defects,
equipment that performs below our expectations and system failures. Failure of some or all of our projects to perform up to our
expectations could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to obtain
long-term contracts for the sale of electricity generated by our solar projects under our IPP model at prices and on other terms
favorable to attract financing and other investments.
Since 2014, we started acquiring solar
projects across different stages of development globally and to hold some of these acquired projects under our IPP model. Obtaining
long-term contracts for the sale of electricity generated by our solar projects under our IPP model at prices and on other terms
favorable to us will be essential for obtaining financing or completing construction of these projects. We must compete for PPAs
against other developers of solar and renewable energy projects. Furthermore, other sources of power, such as natural gas-fired
power plants, have historically been cheaper than the cost of solar power and power from certain types of projects, such as natural
gas-fired power plants, can be delivered on a firm basis. The availability of PPAs is subject to a number of economic, regulatory,
tax and public policy factors. The inability to compete successfully against other power producers or otherwise enter into PPAs
favorable to us would negatively affect our ability to develop and finance our projects and negatively impact our revenue.
We may be subject to unforeseen
costs, liabilities or obligations when providing O&M services.
We provide ongoing O&M services to
third-party solar projects under fixed-price long-term service agreements, pursuant to which we generally perform all scheduled
and unscheduled maintenance and operating and other asset management services for the system. Our costs to perform these services
are estimated at the time of entering into the O&M agreement for a particular project, and these are reflected in the fixed-price
that we charge our customers under the O&M agreement. Should miscalculations in estimating these costs occur (including those
due to unexpected increases in inflation or labor costs), our O&M services may not be profitable and our growth strategy and
results of operations could be adversely affected. Because of the long-term nature of these O&M agreements, the adverse impacts
on results of operations could be significant, particularly if our liabilities are not capped or subject to an above-market liability
cap under the terms of the O&M agreement. In addition, we may be subject to substantial costs, liabilities or obligations
in the event that the solar projects we maintain and operate do not meet any agreed-upon system-level availability or performance
warranties.
We have limited insurance coverage.
Our insurance policies cover employee-related
accidents and injuries, property damage, machinery breakdowns, fixed assets, facilities and liability deriving from our activities,
including environmental liability. We consider our current insurance coverage to be adequate, but we cannot assure you that our
insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject.
Furthermore, our insurance coverage is subject to deductibles, caps, exclusions and other limitations. A loss for which we are
not fully insured could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Furthermore, due to rising insurance costs and changes in the insurance markets, we cannot assure you that our insurance coverage
will continue to be available at comparable rates or on similar terms, if at all. We may also reduce or cancel our insurance coverage
at any time. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates and we may
elect to self-insure a portion of our solar project portfolio. Any losses not covered by insurance could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
In addition, the insurance industry in
many parts of the world is still in an early stage of development. As we continue to expand our global presence, we cannot assure
you that we will be able to obtain adequate insurance coverage in each of the new markets we enter. To the extent that our operations
are not adequately insured in these markets, our business, financial condition and results of operations may be materially and
adversely affected.
We may be subject to product
or strict liability claims if the provision of our EPC services or the solar projects we sell result in injury or damage, and
we have limited insurance coverage to protect against such claims, as well as losses that may result from business interruptions
or natural disasters.
Solar projects are highly sophisticated
and generate and transfer large volumes of electric charge with the potential to harm or kill, whether by improper installation
or other causes. We are therefore exposed to an inherent risk of product liability claims or class action suits in the event that
the installation of the solar power systems during the provision of our EPC services, or the solar projects we sell under our
BT model, results in injury or damage, and we may even be liable in some jurisdictions under a strict liability theory, where
liability holds even if we are not negligent or at fault. Moreover, to the extent that a claim is brought against us, we may not
have adequate resources to defend ourselves. We rely on our general liability insurance to cover product liability and other liability
claims and have not separately obtained product liability insurance. The unfavorable settlement of product or strict liability
claims against us could result in significant monetary damages and significant payments in excess of our insurance coverage could
have a materially adverse effect on our financial results. Any such business disruption could result in substantial costs and
diversion of resources.
Solar energy generation depends
heavily on suitable meteorological conditions. If weather conditions are unfavorable, our power generation output, and therefore
the revenue from our solar projects, may be substantially below our expectations.
The electricity produced and revenues generated
by solar projects are highly dependent on suitable solar conditions and associated weather conditions. Such conditions are beyond
our control. Furthermore, components of these generation systems, including solar panels and inverters, can be damaged by severe
weather, such as heavy snowstorms, hailstorms, ice storms, lightning strikes, extreme winds, earthquakes or tornadoes. Replacement
and spare parts for key components may be difficult costly or unavailable. Unfavorable weather and atmospheric conditions could
reduce the electricity output of our solar projects to below projected generation, damage or impair the effectiveness of our projects
or require shutdown of key equipment, impeding operation of our projects and our ability to achieve forecasted revenues and cash
flows.
The amount of electricity solar projects
produce is dependent in part on the amount of sunlight, or insolation, where the projects are located. Because shorter daylight
hours in winter months results in less insolation, the generation of particular projects will vary depending on the season.
We base our investment decisions with respect
to solar power generation assets on the findings of related solar studies conducted prior to construction or based on historical
conditions at existing projects. However, actual climatic conditions at an asset site may not conform to the findings of these
studies. For example, unexpected development of climate conditions that was not taken into consideration during the investment
decision-making process, such as smog and sand storms may significantly reduce the solar power generation. Therefore, our solar
projects may not meet anticipated production levels or the rated capacity of our projects, which could adversely affect our business,
financial condition, results of operations and cash flows.
The operation of solar projects
involves significant inherent risks and hazards that could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
The operation of solar projects involves
numerous hazardous activities, including delivering electricity to transmission and distribution systems. We are subject to natural
disasters such as earthquakes, floods, snow obscuration, high temperatures, lightning, hurricanes, long-term climate changes,
volcanoes and wind risks, as well as other inherent risks affecting resource availability such as fire, explosion, soil and ice
buildup, structural collapse and equipment failure. Moreover, we may suffer from negligent acts by our PPA counterparties or other
third parties. Our rooftop projects could cause damage to the building roof, resulting in claims due to water damages or replacement
of roofing materials. These and other hazards can cause significant personal injury or loss of life, severe damage to, and destruction
of, property and equipment and contamination of, or damage to, the environment, wildlife takes or fatalities and suspension of
operations. The occurrence of any of these events may result in lawsuits against us asserting claims for substantial damages,
including for environmental cleanup costs, personal injury and property damage and fines and/or penalties.
In addition, the ongoing operation of solar
projects face risks that include the breakdown or failure of equipment or processes or performance below expected levels of output
or efficiency due to wear and tear, latent defect, design error or operator error or force majeure events, among others. Unplanned
outages, including extensions of scheduled outages, occur from time to time and are an inherent risk of our business. Unplanned
outages typically increase our operation and maintenance expenses and may reduce our revenues as a result of generating and selling
less electricity.
If we fail to properly operate and maintain
our solar projects, these projects may experience decreased performance, shortened operating life or shut downs. Our solar projects
may also require periodic upgrading and improvement. Changes in our own operation or local conditions may increase the costs of
operating the project, including costs related to labor, equipment, insurance and taxes. If we cause damage to third parties,
we may become liable for the consequences of any resulting damage. We may also experience equipment malfunction or failure, leading
to unexpected maintenance needs, unplanned outages or other operational issues. In addition, inconsistencies in the quality of
solar panels, PV modules, balance-of-system components or maintenance services for our solar projects may affect the system efficiency
of our projects.
Any unexpected operational or mechanical
failure, including failure associated with breakdowns and forced outages, and any decreased operational or management performance,
could reduce our solar projects’ power generating capacity below expected levels, reducing our revenues and profitability.
Degradation of the performance of our solar projects above levels provided for in the relevant PPAs may also reduce our revenues.
Unanticipated capital expenditures associated with maintaining, upgrading or repairing our projects may also reduce our profitability.
In addition, damage to our reputation due to system failure or accidents could negatively impact our relationships with customers
and local government authorities, which could also materially adversely affect our business. Negative public or community response
to solar energy projects could adversely affect the approval for and construction of our projects. We maintain insurance coverage
that we consider adequate but we cannot assure you that our insurance will be sufficient or effective under all circumstances
and against all hazards or liabilities to which we may be subject.
Environmental, health and safety
laws and regulations subject us to extensive and increasingly stringent operational requirements, as well as potentially substantial
liabilities arising out of environmental contamination.
We are subject to, in each of the jurisdictions
we operate, numerous national and local laws, regulations, guidelines, policies, directives and other requirements governing or
relating to, among others, land use and zoning matters and protection of human health and the environment, including those limiting
the discharge and release of pollutants into the environment, and the protection of certain wildlife. These laws and regulations
require our solar projects to, among others, obtain and maintain approvals and permits, undergo environmental impact assessments
and review processes and implement environmental, health and safety programs and procedures to control risks associated with the
construction, operation and decommissioning of solar projects. If our solar projects do not comply with applicable environmental
laws, regulations or permit requirements, we may be required to pay significant fines or penalties or suspend or cease operations
of the affected projects. Violations of environmental and other laws, regulations and permit requirements may also result in criminal
sanctions or injunctions.
Our solar projects may experience malfunctions
and other unplanned events that result in personal injury and property damage. As such, the operation of our projects carries
an inherent risk of environmental, health and safety liabilities (including potential civil actions, compliance or remediation
orders, fines and other penalties), and may subject us to administrative and judicial proceedings. In addition, certain environmental
laws and regulations may impose joint and several liability on past and present owners and operators of sites, related to the
cleaning up of sites where hazardous wastes or materials were disposed or released.
We may continue to conduct acquisitions
and enter into joint ventures, investments or other strategic alliances which may be unsuccessful.
We may continue to grow our operations
through acquisitions, as well as joint ventures or other strategic alliances when appropriate opportunities arise. Such acquisitions,
joint ventures and strategic alliances may expose us to additional operational, regulatory, market and geographical risks as well
as risks associated with additional capital requirements and diversion of management attention. In particular, any future strategic
alliances may expose us to the following risks:
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There may be
unforeseen risks relating to our counterparty’s business and operations or liabilities
that were not discovered by us through our legal and business due diligence prior to
our investment. Such undetected risks and liabilities could have a material adverse effect
on our reputation, business and results of operations in the future.
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We may not have
experience acquiring, managing or investing in other companies. Business acquisitions
may generally divert a significant portion of our management and financial resources
from our existing business and the integration of the target’s operations may pose
significant business challenges, potentially straining our ability to finance and manage
our existing operations.
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There is no
assurance that the expected synergies from any business acquisition, joint venture or
strategic alliances will materialize. If we are not successful in the integration of
a target’s operations, we may not be able to generate sufficient revenue from its
operations to recover costs and expenses of the acquisition.
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Acquisition
or participation in a new joint venture or strategic alliance may involve us in the management
of operation in which we do not possess extensive expertise.
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The materialization of any
of these risks could have a material adverse effect on our business, financial condition and results of operations.
We rely substantially on our senior management team and our ability to attract, train and retain qualified personnel for our
current and future success.
The industry experience, expertise and contributions
of our chairman, Mr. Xiaofeng Peng, is essential to our continuing success. We will continue to rely on our senior management,
regional management and other key employees to manage our business operations and implement our growth plans. If they cannot work
together effectively or efficiently, our business may be severely disrupted. If one or more of our senior or regional management
personnel were unable or unwilling to continue to hold their present positions, we might not be able to recruit, train and retain
personnel with comparable qualifications, and our results of operations and financial condition may be materially and adversely
affected.
Our qualified and experienced project development
teams are critical to our success. We may not be able to continue to attract, train and retain qualified personnel, including
executive officers, project development personnel, project management personnel and other key personnel with the necessary experience
and expertise. In particular, as we enter into new markets, we face challenges to recruit and retain qualified personnel who are
familiar with local regulatory regimes and have adequate experiences in project development and operations. In particular, we
have experienced a lack of accounting personnel with an appropriate level of knowledge and experience in U.S. GAAP, which resulted
in the late filing of this annual report.
There is substantial competition for qualified
personnel in the downstream PV industry. Our competitors may offer more competitive packages or otherwise attract our personnel.
Our costs to retain qualified personnel may also increase in response to competition. If we fail to continue to attract and retain
a sufficient number of personnel with suitable managerial, technical or marketing expertise, our business operations could be
adversely affected and our future growth and expansions may be inhibited.
Our failure to protect our intellectual
property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.
We rely primarily on trade secrets, know-how
and other proprietary information to protect our intellectual property. Nevertheless, these afford only limited protection and
the actions we take to protect our intellectual property rights may not be adequate to provide us with meaningful protection or
commercial advantage. Third parties may be able to use the technologies that we have developed and compete with us, which could
have a material adverse effect on our business, financial condition or results of operations. Our failure to protect our intellectual
property and proprietary rights may undermine our competitive position. Third parties may infringe or misappropriate our proprietary
technologies or other intellectual property and proprietary rights. Policing the unauthorized use of proprietary technology can
be difficult and expensive. In particular, the laws and enforcement procedures of the PRC and certain other markets where we operate
are uncertain or do not protect intellectual property rights to the same extent as do the laws and enforcement procedures of the
United States. We may need to resort to court proceedings to enforce our intellectual property rights in the future. Litigation
relating to our intellectual property might result in substantial costs and diversion of resources and management attention away
from our business. An adverse determination in any such litigation will impair our intellectual property rights and adversely
affect our business, prospects and reputation.
We may be exposed to infringement
or misappropriation claims by third parties which, if determined adversely to us, could cause us to pay significant damage awards.
Our success depends largely on our ability
to use and develop our technology and know-how without infringing the intellectual property rights of third parties. The validity
and scope of claims relating to solar technology involve complex scientific, legal and factual questions and analysis and, therefore,
may be highly uncertain. As we continue to expand internationally, we face a heightened risk of becoming the subject of claims
for intellectual property infringement. We may be subject to litigation involving claims of patent infringement or violation of
intellectual property rights of third parties. An adverse determination in any such litigation or proceedings against us could
subject us to significant liabilities to third parties, including requiring us to seek licenses from third parties, to pay ongoing
royalties or to pay monetary and punitive damages. Protracted litigation could also result in our customers or potential customers
deferring or limiting their procurement of our PV solutions until resolution of such litigation, which could result in losses
and adversely affect our reputation and results of operations.
Our management has identified
material weaknesses in our internal control over financial reporting and we may not be able to remediate these weaknesses. Additionally,
our management may identify material weaknesses in the future that could adversely affect investor confidence, impair the value
of our securities and increase our cost of raising capital.
Our management identified material weaknesses
in our internal control over financial reporting, and our chief executive officer concluded that our disclosure and internal controls
and procedures were not effective as of December 31, 2017. See “Item 15. Controls and Procedures” for more information.
There can be no assurance as to how quickly or effectively we can remediate the material weaknesses in our internal control over
financial reporting or that additional material weaknesses will not be identified in the future.
Any failure to remedy additional weaknesses
or deficiencies in our internal control over financial reporting that may be discovered in the future or to implement new or improved
controls, or difficulties encountered in the implementation of such controls, could harm our operating results, cause us to fail
to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could, in
turn, affect the future ability of our management to certify that our internal control over financial reporting is effective.
Ineffective internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies
which could cause investors to lose confidence in our reported financial information and subject us to civil or criminal penalties
or shareholder litigation, which could have an adverse effect on the trading price of our securities.
In addition, if we identify
additional deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied,
could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, additional deficiencies
could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Such
non-compliance could subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.
The preparation of our consolidated
financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates, judgments
and assumptions that may ultimately prove to be incorrect.
The accounting estimates and judgments
that management must make in the ordinary course of business affect the reported amounts of assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenue and expenses during the periods presented. If the
underlying estimates are ultimately proven to be incorrect, subsequent adjustments could have a material adverse effect on our
operating results for the period or periods in which the change is identified.
The global cryptocurrency mining
services market is highly competitive and fragmented with low barriers to market.
Although the market for providing services
to cryptocurrency miners is new and evolving, the barriers to entry are quite low. Except for having the financial resources to
set up a facility, no specialized technology or know-how required. Therefore, if cryptocurrency mining remains profitable, we expect
additional competitors to enter the market, some of whom may have greater resources than we do.
If the prices of Bitcoin and other
cryptocurrencies continue to fall, fewer people will want to conduct cryptocurrency mining operations, which will reduce the demand
for our services.
The process for cryptocurrencies has fallen
precipitously in the last few months. This decline has made it less profitable to conduct cryptocurrency mining. If the price of
cryptocurrencies continues to fall or does not increase, fewer people are likely to conduct cryptocurrency mining operations, which
would reduce the demand for our services.
Blockchain technology and cryptocurrency
are in the early stages of development and it is difficult to predict how the market for cryptocurrencies will develop.
Blockchain technology and cryptocurrency
are in the early stages of development and it is difficult to predict how the market for cryptocurrencies will develop. There are
significant factors which may inhibit the growth of these markets, including:
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volatility in the market price of cryptocurrencies;
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the implementation of regulations on cryptocurrency markets or technology; and
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the erosion or loss of user confidence in Bitcoin and other cryptocurrencies could.
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Any of these factors could significantly
limit the growth of our business.
We need to access a large quantity of
power at a reasonable cost in order to provide our cryptocurrency mining services; if we are unable to access such power sources,
we not be able to profitably continue to provide cryptocurrency mining services.
We need to access a large quantity of power
at a reasonable cost in order to provide our cryptocurrency mining services, and we do not have any long-term contract for the
provision of power at specified prices. As competition in this area increases, we may not be able to access power at reasonable
costs or at all. If we are unable to access new power sources, or the price of our current power sources significantly increase,
we not be able to profitably continue to provide cryptocurrency mining services.
Risks Related to Our International Operations
We are subject to risks associated
with foreign currency exchange rates, fluctuations of which may negatively affect our revenue, cost of goods sold and gross margins
and could result in exchange losses.
We currently operate in a number of jurisdictions
including China, the U.S., Japan, the U.K., Greece, Germany, Italy and Australia, and our local operations are generally conducted
in the functional currency of the home jurisdiction. The FIT and other subsidies granted are also denominated in local currencies.
Thus, we deal on a regular basis in several currencies concurrently, which exposes us to significant currency exchange risks.
Any increased costs or reduced revenue as a result of foreign exchange rate fluctuations could adversely affect our profit margins.
The fluctuation of foreign exchange rates also affects the value of our monetary and other assets and liabilities denominated
in local currencies. Generally, an appreciation of the U.S. dollar against the relevant local currencies could result in a foreign
exchange loss for assets denominated in such local currencies and a foreign exchange gain for liabilities denominated in such
local currencies. Conversely, a devaluation of the U.S. dollar against the relevant local currencies could result in a foreign
exchange gain for assets denominated in such local currencies and a foreign exchange loss for liabilities denominated in such
local currencies.
We may also expand into emerging markets,
some of which may have an uncertain regulatory environment relating to currency policy. Conducting business in such emerging markets
could increase our exposure to foreign exchange risks. Although we access a variety of financing solutions that are tailored to
the geographic location of our projects and to local regulations, we have not entered into any hedging transactions to reduce
the foreign exchange risks, but may do so in the future when appropriate. However, if we decide to hedge our foreign exchange
exposure in the future, we cannot assure you that we will be able to reduce our foreign currency risk exposure in an effective
manner, at reasonable costs, or at all.
Certain of our solar projects
are located in China, and therefore we are subject to risks associated with the Chinese legal system which could have a material
adverse effect on us.
We are a Cayman Islands company and our
operations in China are subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable
to wholly foreign owned companies. Since 1979, Chinese legislation and regulations have significantly enhanced the protections
afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the
Chinese legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform
and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to us.
For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either
by law or contract. However, since Chinese administrative authorities and courts have significant discretion in interpreting and
implementing statutory and contractual terms, it may be more difficult than in more developed legal systems to evaluate the outcome
of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may impede our ability
to enforce the contracts we have entered into with customers, suppliers, other business partners and government authorities. In
addition, such uncertainties, including the inability to enforce our contracts, could materially adversely affect our business
and operations.
Furthermore, intellectual property rights
and confidentiality protections in China may not be as effective as in the U.S. or other countries. Furthermore, Chinese tax authorities
may reduce or terminate tax incentives that our Chinese subsidiaries currently enjoy, and their enforcement practice of certain
tax laws, such as laws regulating transfers of equity interests in our Chinese subsidiaries remain uncertain. Accordingly, we
cannot predict the effect of future developments in the Chinese legal system, including the promulgation of new laws, changes
to existing laws or the interpretation or enforcement thereof, or the preemption of national laws by local regulations. These
uncertainties could limit the legal protections available to us and other foreign investors, including you. In addition, any litigation
in China may be protracted and result in substantial costs and diversion of resources and management attention.
Chinese regulations relating
to overseas investment by Chinese residents may restrict our overseas and cross-border investment activities and adversely affect
the implementation of our strategy as well as our business and prospects.
On July 4, 2014, the State Administration
of Foreign Exchange of China, or SAFE, issued the Circular on the Administration of Foreign Exchange Issues Related to Overseas
Investment, Financing and Roundtrip Investment by Domestic Residents through Offshore Special Purpose Vehicles, or the SAFE Circular
37, which replaced the former circular commonly known as “SAFE Circular 75” promulgated on October 21, 2005. The SAFE
Circular 37 requires Chinese residents to register with the competent local SAFE branch in connection with their direct establishment
or indirect control of an offshore special purpose vehicle, for the purpose of overseas investment and financing, with such Chinese
residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. The SAFE Circular
37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose
vehicle, such as any change of basic information (including change of the Chinese residents, name and operation term), increase
or decrease of capital contribution by Chinese individuals, share transfer or exchange, merger, division or other material event.
In the event that a Chinese shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration,
the Chinese subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent
and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in
its ability to contribute additional capital into its Chinese subsidiary. Moreover, failure to comply with the various SAFE registration
requirements described above could result in liability under Chinese law for evasion of foreign exchange controls.
The failure of our Chinese beneficial owners
to comply with the registration procedures set forth in the SAFE Circular 37 may subject such beneficial owners and our Chinese
subsidiaries to fines and legal sanctions. Such failure may also result in restrictions on our Chinese subsidiaries’ ability
to distribute profits to us or our ability to inject capital into our Chinese subsidiaries or otherwise materially adversely affect
our business, financial condition and results of operations. Furthermore, since the SAFE Circular 37 was recently promulgated,
it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted
and implemented by the relevant Chinese government authorities. We cannot predict how these regulations will affect our business
operations or future strategy.
We may rely on dividends paid
by our PRC subsidiaries to fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiaries
to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders
of our ordinary shares.
With China being one of our major markets,
we may rely on dividends to be paid by our wholly owned PRC subsidiaries for our cash and financing requirements, including the
funds necessary to pay dividends and other cash distributions to the holders of our ordinary shares and service any debt we may
incur. If our wholly owned PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may
restrict their ability to pay dividends or make other distributions to us.
Under PRC laws and regulations, wholly
foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits as determined in accordance with
PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10%
of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory
reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. In addition, at the discretion
of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax profits based on PRC accounting standards to
staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
Any limitation on the ability of our wholly owned PRC subsidiaries to pay dividends or make other distributions to us could materially
and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends,
or otherwise fund and conduct our business.
The shareholders of Youying,
which is the sole shareholder of Meijv, may have potential conflicts of interest with us, which may materially and adversely affect
our business.
The individual shareholders of Youying
are also shareholders, directors and officers of our Company. Conflicts of interest may arise between the roles of these individuals
as shareholders, directors and officers of our Company and as shareholders of Youying. We cannot assure you that when conflicts
arise, shareholders of Youying will act in the best interest of our Company or that the conflicts will be resolved in our favor.
For example, these individuals with dual roles may decide to transfer significant business or assets of Meijv to other legal entities
they own or control, or opportunities may arise in the future for these individuals to sell Meijv or its significant business
or assets to third parties at a premium. Under either circumstance, the consideration of such a transfer or sale would be paid
to Youying or its individual shareholders, not to our Company or our other shareholders, which may be materially detrimental to
our other shareholders. In addition, these individual shareholders may otherwise breach or cause Meijv to breach or refuse to
renew its existing contractual arrangements with us. Currently, we do not have existing arrangements to address such potential
conflicts of interest between these individuals and our Company. If we cannot resolve any conflicts of interest or disputes between
us and these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and disruptive to
our operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.
The heightened scrutiny over
acquisition transactions by the PRC tax authorities may have a negative impact on our business operations, our acquisition or
restructuring strategy or the value of your investment in us.
Pursuant to the Notice on Strengthening
the Administration on Enterprise Income Tax for Non-resident Enterprise Equity Transfer (the “SAT Circular 698”) issued
by China’s State Administration of Taxation (“SAT”) in December 2009 with retroactive effect from January 1,
2008, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of
the equity interests of an overseas non-public holding company, or an Indirect Transfer, using a “substance over form”
principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial
purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect
Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that where a non-PRC resident
enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market
value, the relevant tax authority has the power to make a reasonable adjustment of the taxable income of the transaction.
On February 3, 2015, the SAT released the
Announcement on Several Issues concerning the Enterprise Income Tax on Income from the Indirect Transfer of Assets by Non-Resident
Enterprises (Announcement 7). Announcement 7 does not replace Circular 698 in its entirety; instead, it abolishes certain provisions
and provides more comprehensive guidelines on a number of issues. Although it becomes effective from the date of issuance, it
also applies to transactions that took place prior to the effective date but review of which has not yet been concluded by the
tax bureaus.
Announcement 7 stipulates that when a non-resident
enterprise engages in an indirect transfer of assets, including shares of PRC resident enterprise, through an arrangement that
does not have a bona fide commercial purpose in order to avoid China’s enterprise income tax, the transaction should be
re-characterized as a direct transfer of the PRC assets. Announcement 7 stipulates SAT’s intention to provide relief to
some qualified transactions. Article 6 of Announcement 7 provides for a safe harbor for indirect transfers resulting from qualified
group internal reorganizations. An indirect transfer that satisfies all of the following three conditions will be deemed to have
a bona fide commercial purpose and thus will not be taxable under Announcement 7:
The
transferor and the transferee are qualified related enterprises, which will be the case if any of the following applies:
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(1)
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the transferor directly or indirectly owns 80% or more of the
shares in the transferee;
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(2)
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the transferee directly or indirectly owns 80% or more of the
shares in the transferor; or
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(3)
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80% or more of the shares of both the transferor and transferee
are directly or indirectly owned by the same shareholder.
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Where more than 50% of the value of the equity interest
of the non-resident intermediary enterprise is derived directly or indirectly from immovable assets located in PRC, the qualified
ownership requirement will be increased to 100%.
After
the indirect transfer, the PRC tax payable on a potential subsequent indirect transfer of the same PRC taxable assets is no lower
than the PRC tax that could have been payable on a similar or an identical indirect transfer if the first indirect transfer did
not take place; and
All
the consideration paid by the transferee must consist of its own shares or shares of a related enterprise with which the transferee
has a controlling relationship (excluding shares of listed companies).
Announcement 7 may be determined by the
tax authorities to be applicable to previous investments or the current merger restructure by non-resident investors in our Company,
if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. Although we believe
that the risk of SAT Circular 698 or Announcement 7 applying to the Redomicile Merger is low, we and our existing nonresident
investors may become at risk of being taxed under Announcement 7 and may be required to expend valuable resources to comply with
Announcement 7 or to establish that we should not be taxed under Announcement 7, which may have a material adverse effect on our
financial condition and results of operations or such non-resident investors’ investments in us. We have conducted and may
conduct acquisitions involving changes in corporate structures, and historically our shares were transferred by certain then shareholders
to our current shareholders. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital
gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC tax authorities
with respect thereto. Any PRC tax imposed on a transfer of our ordinary shares or any adjustment of such gains would cause us
to incur additional costs and may have a negative impact on the value of your investment in us.
The ongoing debt crisis in the
Eurozone and market perceptions concerning the instability of the Euro and the European economy could adversely affect our business,
results of operations and financing.
Concerns persist regarding the debt burden
of certain Eurozone countries and their ability to meet future financial obligations, the overall stability of the Euro and the
suitability of the Euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries.
These concerns or market perceptions concerning these and related issues could adversely affect the value of our Euro-denominated
assets and obligations and lead to future economic slowdowns.
Risks Related to Our Ordinary Shares
We have significant “equity
overhang” which could adversely affect the market price of our Shares and impair our ability to raise additional capital
through the sale of equity securities.
As of the date
of this annual report, we had 7,260,672 ordinary shares outstanding, including 3,726,040 ordinary shares, or approximately
37.3%
of our total ordinary shares outstanding, held by Mr. Xiaofeng Peng,
our director, executive chairman of the board of directors and chief executive officer. The possibility that substantial
amounts of our outstanding Shares may be sold by Mr. Xiaofeng Peng or the perception that such sales could occur, or
“equity overhang,” could adversely affect the market price of our ordinary shares, and could impair our ability
to raise additional capital through the sale of equity securities in the future.
We are subject to litigation risks, including
securities class actions and shareholder derivative actions, which may be costly to defend and the outcome of which is uncertain.
From time to time, we are subject to legal
claims, with and without merit, that may be costly, and which may divert the attention of our management and our resources in
general. In addition, our solar projects may be subject to litigation or other adverse proceedings that may adversely impact our
ability to proceed with construction or grid connection or sell a given project, which would adversely affect our ability to recognize
revenue with respect to such project. We are currently involved in various legal proceedings. See “Item 8. Financial Information
—Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings.” The results
of complex legal proceedings are difficult to predict. Lawsuits filed against us may assert types of claims that, if resolved
against us, could give rise to substantial damages, and an unfavorable outcome or settlement of one or more of these lawsuits,
or any future lawsuits, could have a material adverse effect on our business, financial condition, or results of operations. Even
if these lawsuits are not resolved against us, the costs of defending such lawsuits may not be covered by our insurance policies.
We cannot assure you that additional litigation will not be filed against us in the future.
It may be difficult to effect
service of process on, or to enforce any judgments obtained outside the PRC against us, our directors, or our senior management
members who reside in the PRC.
Most of our existing directors and senior
management members reside in the PRC and most of our assets and the assets of such persons are located in the PRC. Accordingly,
it may be difficult for investors to effect service of process in the United States on us or on any of these persons or to enforce
judgments obtained outside of the PRC against us or any of these persons. The PRC does not have treaties providing for the reciprocal
recognition and enforcement of judgments awarded by courts in many developed countries, including the U.S. and the U.K. Therefore,
the recognition and enforcement in the PRC of judgments of a court in any of these jurisdictions in relation to any matter not
subject to a binding arbitration provision may be difficult or even impossible.
There is no statutory enforcement in the
Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party
to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained in such jurisdiction will
be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the
underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such
judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated
sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine or a penalty, and (e) was not
obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the
Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil
liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to
give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been
made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable
in the Cayman Islands.
Our shareholders may experience
future dilution.
Our amended and restated memorandum and
articles of association permits our board of directors, without shareholder approval, to authorize the issuance of preferred shares.
The board of directors may classify or reclassify any preferred shares to set the preferences, rights and other terms of the classified
or reclassified shares, including the issuance of preferred shares that have preference rights over our ordinary shares with respect
to dividends, liquidation and voting rights. Furthermore, substantially all of our ordinary shares for which our outstanding stock
options are exercisable are, once they have been purchased, eligible for immediate sale in the public market.
We may from time to time distribute rights
to our shareholders, including rights to acquire our securities. However, we cannot make these rights available in the United
States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from
the registration requirements is available. We are under no obligation to file a registration statement with respect to any such
rights or securities or to endeavor to cause a registration statement to be declared effective. Moreover, we may not be able to
establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights
offerings and may experience dilution in your holdings.
The issuance of additional shares in our
capital or the exercise of stock options or warrants could be substantially dilutive to your shares and may negatively affect
the market price of our ordinary shares.
The price of our securities has
been and may continue to be highly volatile.
The price of our ordinary shares has been
and may continue to be subject to wide fluctuations in the future in response to many events or factors, including those discussed
in the preceding risk factors relating to our operations, as well as:
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actual or anticipated
fluctuations in operating results, actual or anticipated gross profit as a percentage
of net sales, our actual or anticipated rate of growth and our actual or anticipated
earnings per share;
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changes in expectations
as to future financial performance or changes in financial estimates;
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changes in governmental
regulations or policies in the PRC and other countries in which we do business;
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our, or a competitor’s,
announcement of new products, services or technological innovations;
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the operating
and stock price performance of other comparable companies;
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news and commentary
emanating from the media, securities analysts or government bodies in the PRC relating
to us and to the industry in general;
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changes in the
general condition of the global economy and credit markets;
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general market
conditions or other developments affecting us or our industry;
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announcements
regarding patent litigation or the issuance of patents to us or our competitors;
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release or expiry
of lock-up or other transfer restrictions on our outstanding ordinary shares;
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sales or perceived
sales of additional ordinary shares; and
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commencement
of, or our involvement in, litigation.
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Any of these factors may result in
large and sudden changes in the volume and price at which our ordinary shares will trade. We cannot give any assurance that
these factors will not occur in the future again. In addition, the securities market has from time to time experienced
significant price and volume fluctuations that are not related to the operating performance of particular companies. These
market fluctuations may also have a material adverse effect on the market price of our ordinary shares. In the past,
following periods of volatility in the market price of their stock, many companies have been the subject of securities class
action litigation. If we become involved in similar securities class action litigation in the future, it could result in
substantial costs and diversion of our management’s attention and resources and could harm our stock price, business,
prospects, financial condition and results of operations.
We are currently subject to delisting
proceedings and, if we fail to meet the applicable listing requirements, NASDAQ may delist our ordinary shares from trading on
its exchange in which case the liquidity and market price of our securities could decline and our ability to raise additional
capital would be adversely affected.
Our ordinary shares are currently listed
for trading on the NASDAQ Global Select Market. However, we our currently subject to delisting proceedings for failure to maintain
a trading price above $1.00 per share and for failing to file this Annual Report on Form 20-F in a timely fashion. The hearings
panel granted us until December 10, 2018 to file this annual report on Form 20-F and maintain a trading price over $1.00 per share
for ten consecutive trading days. With the filing of this report, we have satisfied both requirements and expect to remain listed
on Nasdaq.
If we remain listed, there are a
number of requirements that must be met in order for our ordinary shares to remain listed on the NASDAQ Global Select Market,
and the failure to meet any of these listing standards could result in the delisting of our ordinary shares from NASDAQ. We
cannot assure you that we will be able to timely file all required reports or comply with all other Nasdaq Listing Rules at
all times in the future, or regain compliance in a timely manner in case of a default and avoid any subsequent adverse action
taken by the Listing Qualifications Department, including but not limited to delisting.
Any potential delisting of our
ordinary shares from the NASDAQ would make it more difficult for our shareholders to sell our ordinary shares in the public
market and will result in decreased liquidity, limited availability of market quotations for our ordinary shares, limited
availability of news and analyst coverage on us and decrease in our ability to issue additional securities.
Our articles of association contain
anti-takeover provisions that could prevent a change in control even if such takeover is beneficial to our shareholders.
Our articles of association contain provisions
that could delay, defer or prevent a change in control of us that could be beneficial to our shareholders. These provisions could
also discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate
actions. As a result, these provisions could limit the price that investors are willing to pay for the ordinary shares. These
provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender
offer is at a price above the then current market price of our ordinary shares. These provisions provide that our board of directors
has authority, without any further action by our shareholders, to issue preferred shares in one or more series and to fix their
designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications,
limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights associated with the ordinary shares. The board of directors may
decide to issue such preferred shares quickly with terms calculated to delay or prevent a change in control of us or make the
removal of our management more difficult. If the board of directors decides to issue such preferred shares, the price of our ordinary
shares may fall and the voting and other rights of holders of our ordinary shares may be materially adversely affected.
You may not receive dividends
or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make
them available to you.
Under Cayman Islands law, we may only pay
dividends out of our profits or share premium account subject to our ability to pay our debts as they fall due in the ordinary
course of our business. Our ability to pay dividends will therefore depend on our ability to generate sufficient profits. We cannot
give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. We have not paid any dividends
in the past. Future dividends, if any, will be paid at the discretion of our board of directors, subject to requirements under
Cayman Islands law and our memorandum and articles of association, as amended and restated from time to time, and will depend
upon our future operations and earnings, capital expenditure requirements, general financial conditions, legal and contractual
restrictions and other factors that our board of directors may deem relevant.
We are treated as a U.S. corporation
for U.S. federal tax purposes.
Due to the circumstances of our formation
and the application of Section 7874(b) of the United States Internal Revenue Code of 1986, as amended (the “Code”),
we are treated as a U.S. corporation for all purposes of the Code. As a result, we are subject to U.S. federal corporate income
tax on our worldwide income. In addition, if we pay dividends to a Non-U.S. Holder, as defined in the discussion “Item 10.
Additional Information—E. Taxation—U.S. Federal Income Taxation,” U.S. income tax will be withheld at the rate
of 30%, or, subject to certain conditions, such lower rate as may be provided in an applicable income tax treaty. Each investor
should consult its own tax adviser regarding the U.S. federal income tax consequences of holding the ordinary shares in its particular
circumstances.
We rely on the foreign private
issuer exemption for certain corporate governance requirements under the NASDAQ Stock Market Rules, or the NASDAQ Rules, including
the majority independent board requirement. This may afford less protection to holders of our ordinary shares and ADSs.
As a foreign private issuer, we are exempt
from certain corporate governance requirements of NASDAQ. We are required to provide a brief description of the significant differences
between our corporate governance practices and the corporate governance practices required to be followed by U.S. domestic issuers
under the NASDAQ Rules. The standards applicable to us are considerably different from those applied to U.S. domestic issuers.
For instance, we are not required to:
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have a majority
of the board of directors be comprised of independent directors;
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have a compensation
committee that is comprised solely of independent directors;
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having a nomination
and corporate governance committee that is comprised solely of independent directors;
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have executive
compensation be determined by independent directors or a committee of independent directors;
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have director
nominees be selected, or recommended for selection by the board of directors, by independent
directors or a committee of independent directors;
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hold an annual
meeting of shareholders no later than one year after the end of our fiscal year-end;
and
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have shareholder
approval for private placement of Company’s common stocks at a price less than
the greater of book or market value which together with sales by officers, directors
or Substantial Shareholders of the Company equals 20% or more of common stock or 20%
or more of the voting power outstanding before the issuance.
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We are not required to, and will not voluntarily
meet, these requirements. For example, our board of directors currently consists of six directors, three of whom satisfy the “independence”
requirements of Rule 10A-3 under the Exchange Act and Rule 5605 of the NASDAQ Rules. The law of our home country, the Cayman Islands,
does not require a majority of our board of directors be composed of independent directors. We intend to follow our home country
practice with regard to the composition of the board of directors.
As a result, holders of our ordinary shares
may not have the same protection afforded to shareholders of companies that are subject to all of NASDAQ’s corporate governance
requirements. For a description of the material corporate governance differences between the NASDAQ Rules and Cayman Islands law,
see “Item 16G. Corporate Governance.”
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ITEM 4.
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INFORMATION
ON THE COMPANY
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A.
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History and Development of the Company
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Our legal and commercial name is SPI Energy
Co., Ltd. Our principal executive office is located at Unit 15-16, 19/F, South Wing, Delta House, 3 On Yiu Street, Shatin, Shek
Mun, Hong Kong SAR, China. Our telephone number at this address is +852 2291 6020 and our fax number is +852 2291 6030. Our registered
office is situated at 4th Floor, Harbour Place, 103 South Church Street, PO Box 10240, George Town, Cayman Islands.
We raised a
significant amount of cash for our working capital purposes from the issuance of shares of SPI’s common stock and
convertible notes in 2014, 2015 and 2016 to non-U.S. investors in private placements. In those periods, we entered into
various private placement share purchase agreements and option agreements with a number of non-U.S. investors and issued
approximately 356.7 million unregistered shares or options to purchase shares of SPI’s common stock in reliance on
Regulation S of the Securities Act, or Regulation S, mostly at a per share purchase price benchmarked to the prevailing
trading price of SPI’s shares at the respective dates of these agreements, and raised an aggregate of $401.58 million.
We also raised $55.0 million of cash by issuing unregistered convertible notes to non-U.S. investors in reliance of
Regulations S in 2014 and 2015. In January 2016, we raised $5 million by issuing 2.5 million ordinary shares, in reliance on
Regulation S, to a non-U.S. investor who exercised an option to purchase our ordinary shares pursuant to an option agreement
with our Company. In September 2016, we entered into share purchase agreements with certain existing shareholders, including
certain members of our management and other investors to issue and sell them an aggregate of 386.1 million ordinary shares
for a total consideration of approximately S$100 million. In January 2017, we completed approximately $881,000 of its $100
million private placement. The investors in these transactions have advised us that they no longer wish to close on these
transactions.
In April 2017,
we entered into a share purchase agreement with Tiger Capital Fund SPC participating in Tiger Global SP, which has agreed to
purchase 80,000,000 ordinary shares, at an aggregate purchase price of US$5,760,000. In June 2017, the Tiger Fund agreed to
assign its rights and obligations under the share purchase agreement to Qian Kun Prosperous Times Investment Limited. The
transaction was completed in July 2017.
In October 2017,
we entered into share purchase agreements with each of Qian Kun Prosperous Times Investment Limited and Alpha Assai fund SP of
Sunrise SPC. The share purchase agreements provide, among other things, that Qian Kun Prosperous Times Investment Limited and
Alpha Assai fund SP of Sunrise SPC will purchase 80,000,000 and 240,000,000 ordinary shares respectively, for a total consideration
of US$33,920,000, subject to the terms and conditions of the respective share purchase agreement, including a lock-up for 90 days
from the closing date of the contemplated transactions, or such other time or on such other date that is agreed upon in writing
by both parties. The investors in these transactions delayed closing the placement due to our delinquency status with Nasdaq.
The investors in these transactions advised us that they no longer wish to close on these transactions.
Our Company was incorporated by SPI as
a company limited by shares in the Cayman Islands on May 4, 2015. On January 4, 2016, we completed the redomiciliation of SPI
to the Cayman Islands, whereby SPI merged with and into a wholly-owned subsidiary of our Company and the holders of SPI common
stock that was acquired before the relevant F-4 registration statement became effective have the right to receive ADS representing
ordinary shares of our Company. As a result, the former shareholders of SPI became the beneficial owners of the capital stock
of our Company, and our Company, together with our subsidiaries, now own and continue to conduct SPI’s business in substantially
the same manner as was conducted by SPI and its subsidiaries. Our Company is also managed by substantially the same board of directors
and executive officers that managed SPI previously.
Between
January 19, 2016 and September 18, 2017, our ADSs were listed on the NASDAQ Global Select Market under the symbol
of “SPI”. The Bank of New York Mellon, the depositary bank for the ADS facility, terminated our ADS facility
on September 18, 2017. Following such termination, we listed our ordinary shares, par value US$0.000001 per share, for
trading on NASDAQ Global Select Market in substitution for our ADSs. On September 19, 2017, the substitution listing
became effective and our ordinary shares began trading on the NASDAQ Global Select Market under the symbol of
“SPI”.
On January 1, 2017, we deconsolidated Sinsin
Renewable Investment Limited due to loss of control.
Nasdaq Compliance
On March 19, 2018, we received a notification
letter from the Listing Qualifications Department of NASDAQ, notifying us that the minimum bid price per ADS, was below $1.00
for a period of 30 consecutive business days and that we did not meet the minimum bid price requirement set forth in the Nasdaq
Listing Rules. We had a compliance period of 180 calendar days, or until September 10, 2018, to regain compliance with Nasdaq’s
minimum bid price requirement. On September 11, 2018, we were notified by the Nasdaq Listing Qualification Staff that our securities
were subject to delisting because our annual report on Form 20-F for the year ended December 31, 2016 was not filed on a timely
basis and because of our failure to meet the $1.00 minimum bid requirement described above. The hearings panel granted us until
December 10, 2018 to file this annual report on Form 20-F and maintain a trading price over $1.00 per share for ten consecutive
trading days. With the filing of this report, we have satisfied both requirements and expect to remain listed on Nasdaq.
We are a global provider of PV solutions
for business, residential, government and utility customers and investors. We provide a full spectrum of EPC services to third
party project developers, as well as develop, own and operate solar projects that sell electricity to the grid in multiple countries,
including China, the U.S., the U.K., Greece, Japan and Italy. Prior to 2014, we were primarily engaged in providing EPC services
to developers in the U.S. We were also engaged in the development, manufacture and marketing of a variety of PV modules, the key
components of solar parks that convert sunlight into electricity, and balance-of-system components, including our in-house brand.
We have discontinued our manufacturing business and liquidated our research and development function. Starting from 2014, we expanded
our full spectrum EPC service business to China, where we provided comprehensive and quality services to large solar projects.
In addition, we commenced our global project development business by ramping up our portfolio of global solar projects, including
projects that we plan to hold in the long term and derive electricity generation revenue from our independent power producer model,
or IPP model, and projects that we plan to sell in the future when we are presented with attractive opportunities under our build-and-transfer
model, or BT model. We grow our project portfolio primarily through acquisitions and act as a secondary developer for the projects
which are under construction or in pipeline upon acquisition. Solar projects in our current portfolio include projects at all
stages of development, including projects in operation, projects under construction and projects in pipeline. See “—Our
Global Project Development Business—Our Solar Project Portfolio.”
For our EPC service business, the scope
of our work encompasses engineering design procurement of technical components from PV module and panel manufacturers and contracting
of construction and installation, which reaches both upstream and downstream along the spectrum of the solar business value chain.
Our rigorous design and supply chain management as well as construction quality control enable us to design, build and deliver
world-class solar system configurations with components that can work optimally together. However, due to legal proceedings relating
to the Solarbao platform in China, no revenue was derived from provision of EPC services in 2017.
For our global project development
business, as of December 31, 2017, we had completed a series of acquisitions of solar projects that were in operation,
consisting of (i) 26.6 MW of projects in Greece, acquired in December 2014 for a total consideration of $140.5 million of its
fair value, (ii) 20.0 MW of projects in China, acquired in December 2014 for a total consideration of RMB190 million ($30.6
million), and (iii) 4.3 MW of projects in Italy, acquired in February 2015 for a total consideration of $11.8 million of its
fair value. (iv) 1.082 MW of projects in Greece, acquired in December 2017 for a total consideration of Euro 2.43 million ($
2.92 million) of its fair value. (v) 0.2744 MW of projects in Japan, acquired in July 2017 for a total consideration of JPY
110 million ($ 0.98 million) of its fair value. By the year ended December 31, 2017, we completed the construction of one
solar project in the U.K. (4.4 MW) and one project in Japan (2.2 MW), and sold the UK project to third party at the
consideration of $ 6.04 million, which has been recognized as revenue accordingly.
As of the date of this report, we are constructing
an aggregate of 6.9 MW of projects in the United States under our BT model. We anticipate that the U.S. project will be connected
to the grid in 2019.
We had 71.56MW of projects in announced
pipeline as of December 31, 2017. See “—Our Global Project Development Business—Our Solar Project Portfolio.”
We expect to complete the acquisition of, or commence permitting processes for, our projects in announced pipeline as soon as
practicable. We believe these new additions, combined with our existing project portfolio, demonstrate our broad geographic reach
and established presence across key solar markets and mitigate country-specific risks.
Solarbao
We launched
www.solarbao.com
in early 2015, which primarily targets retail customers residing in China. Starting from May 2017, we have ceased offering
new investment products to investors and stopped accepting new investments on the Solarbao platform.
Beginning in April 2017, investors on the
Solarbao platform had issues recovering their principal and proceeds in accordance with the terms of their respective investment
agreements due to the reduction in liquidity resulting from the combined effects of delay in the subsidies for providing solar
power from the government on solar farms in operations and delayed rental payments from the solar farm owners. The government
subsidies were delayed due to a delay in the processing of the paperwork by the applicable government agencies.
Since 2018, more lawsuits or disputes were filed by vendors of the
Group, resulting in the Group’s various bank accounts and other assets being frozen during the process of these lawsuits.
The remaining EPC business and PV related projects in China were suspended due to insufficient working capital. The operation
in mainland China suffered from severe suspension. Therefore, it was very difficult for the Company to dispose of its assets and
to accelerate its redemption and repayment plan, as well as settle the payables, including acquisition payables due to Sinsin
Group.
Starting from April
18, we have ceased offering new investment products to investors and stopped accepting new investments on the Solarbao platform
due to its short operating history, the ever-changing Chinese regulatory regime, government policies in this area and various
other reasons. We divested this business in December 2018.
Deconsolidation
On January 1, 2017, we deconsolidated Sinsin
Renewable Investment Limited due to loss of control.
Spin Off China Assets
On August 30 2018, SPI Energy Co., Ltd.
(“SPI Energy” or the “Company”) entered into a share purchase agreement (the “SPA”) with Lighting
Charm Limited (the “Buyer”), an affiliate of Tracy Zhoushan, the spouse of Xiaofeng Peng, the Company’s Chairman
of the Board of Directors and Chief Executive Officer. The agreement was approved by an independent committee of the Company’s
Board of Directors and the transactions contemplated by the SPA closed on December 10, 2018.
The SPA provides that the Company will
sell the Buyer 100% of the shares of SPI China (HK) Limited (“SPI China”), which holds all of the Company’s
assets and liabilities related to its business in China (the “Acquired Business”). These assets include EPC business,
PV projects, Internet finance lease related business, and E-commerce in China.
Pursuant to the
terms of the SPA, the consideration (the “Consideration”) for the Acquired Business to be paid by the Buyer to the
Company in cash was the greater of (i) US$1.00 or (ii) the fair market value of the business as determined by an independent appraisal
firm. The Company also granted the Buyer the option (the “Option”) to purchase from the Company up to 1,000,000 of
the Company’s Ordinary Shares, par value of US$ 0.00001 per share (the “Ordinary Shares”), which Option will
be exercisable by the Buyer at any time on or prior to August 21, 2021. The option exercise price is US$ 3.8 per share. Although
the Agreement provided for the Company to repurchase the Acquired Business, on December 9, 2018, the Company and the Buyer entered
into a supplemental agreement pursuant to which the repurchase right was eliminated.
The pre-closing
restructuring mainly resulted in: (1) SolarJuice Co., Ltd., a 100% wholly owned subsidiary of the Company, acquiring all of
the equity interests in Solar Juice Pty Limited, a holding company which holds all the assets of the Company in Australia;(2)
the Company acquiring all of the equity interests in Solar Power Inc. UK Service Limited, a holding company which holds all
the assets of the Company in UK;(3) SPI Orange Power (Cyprus) Limited, a 100% wholly owned subsidiary of the Company,
acquiring all of the equity interests in SPI Renewable Energy (Luxembourg) Private Limited Company S.a.r.l., a holding
company which holds part of the assets of the Company in Italy;(4) SPI Orange Power (Cyprus) Limited acquiring all the equity
interests in Italsolar S.r.l, a company which holds a portion of the assets of the Company in Italy, and (5) the Company
acquiring all of the equity interests of Sinsin Renewable Investment Limited, a holding company which holds all the assets of
the Company in Greece.
On December 10, 2018, the Company and
the Buyer executed the bought and sold notes and instrument of transfer relating to the shares in SPI China. Upon the execution
of the bought and sold notes, the equitable title to the shares in SPI China passes to the Buyer and until the legal title is
transferred, the Company holds the shares in SPI China on trust for the Buyer. On December 10, 2018, the Company arranged for
the submission of the bought and sold notes and instrument of transfer together with the relevant documents to the Hong Kong Stamp
Office for the assessment of the stamp duty. Once the stamp duty is paid and the Buyer’s name entered in the register of
members of SPI China, the Buyer will be the owner of the shares in SPI China.
Crypto Mining Hosting
In early 2018, we
launched
www.umining.io
, a turnkey solution offering global crypto-mining hosting, training, sales, and repair services.
As of October 31, 2018, we had 2 pilot mining sites in Canada and the United States of America. We continue to look for potential
investments to increase our mining capacity by the end of 2019.
Our Engineering, Procurement and Construction
Service Business
Developing a PV system is a highly complex
endeavor which requires technical expertise as well as process management and business skills. The engineers of a PV project must
properly oversee the design and installation of the PV modules, racking and mounting systems, interconnection and balance-of-systems
components, inverters, batteries and other electric and technical equipment and enable the project to generate electricity and
interconnect with the local grid. As the engineer’s work is closely interrelated with the equipment installed in the project
and the construction of the project itself, project developers generally contract out all three important tasks of the (engineering,
procurement and construction services, which form the technical backbone of a successful PV power plant) to a single EPC contractor.
An EPC service provider generally plans,
executes and manages the engineering design of a project, the procurement of required components and materials, and the construction
of the project itself. Focused on the engineering and other technical aspects of the project, EPC services are distinguishable
from the financial and regulatory aspects of developing a solar project generally handled by developers’ in-house teams.
EPC services work is at the center of the project development value chain, reaching both upstream (the procurement of equipment
from PV module manufacturers) and downstream (the contracting of construction and installation work). As a PV solution provider
familiar with the entire process of a PV project development, we are able to deliver sophisticated and specialized EPC solutions
to PV project developers, achieving efficiencies in both the upstream and downstream of the value chains.
When providing EPC services, our expertise
in the solar project development and manufacturing fields allows us to realize cooperative synergies and also exert leverage with
third-party contractors that helps drive performance and create value for our customers. Our broad expertise can inform the overall
development process, affording us a more significant role in program management, project scheduling, quality management and quality
control of a project. Under this model, we work closely with our customers and sub-contractors to successfully deliver completed
solar projects, fostering and improving our existing relationships with established PV system developers, integrators and installers.
Thus, our provision of EPC services is a critical contribution to projects in which we partner with project developers.
We typically work with customers on-site
to perform feasibility studies, manage deliveries and materials, and oversee design, installation, construction system start-up,
testing, and grid connection. The size of the system is the primary determinant of development timing. For an average project,
the process takes three to six months, based on our past experience. We use our in-house capabilities for engineering and procurement,
taking advantage of our strong relationships with diverse supplier network for the provision of modules, racking systems, balance
of system components and other items at competitive prices and terms. We generally outsource and oversee construction to specialized
EPC construction sub-contractors.
We earn pre-agreed
EPC service fees from our customers, who generally make milestone payments to us. In 2015 and 2016, we derived revenue of $48.0
million and $13.5 million respectively from the provision of our EPC services, while no revenue was derived in 2017. In 2015,
we provided EPC services to five Chinese solar projects having attributable capacities of 49.5 MW in the Inner Mongolia Autonomous
Region, 30 MW in the Ningxia Autonomous Region and 6 MW in Gansu Province. In 2016, we entered into new EPC contracts in China
to provide EPC services to a 0.289MW project with Hebei Zhaoshu New Energy Technology Co., Ltd. and a 1MW project with Foshan
Kezhou New Energy Development Co., Ltd. In 2017, because of the legal proceedings relating to the Solarbao platform, we did not
enter into any EPC contracts in China.
Engineering Design
As a critical first step in the EPC process,
engineering design involves the planning of the entire solar project, from feasibility studies of the land and irradiation levels
to efficient arrangement of mounting, modules and connection systems. Our technical team takes responsibility over initial solar
project engineering with support from third-party contractors. The engineering design process includes the site layout and the
electrical design, as well as assessment of a variety of factors in order to choose appropriate technologies and equipment for
the project, particularly modules and inverters. Throughout the engineering design phase, we aim to reduce the risks, control
the costs and improve the performance of our EPC projects.
Procurement and Construction
In order to focus on our core downstream
development and EPC service businesses, we no longer manufacture PV modules or produce other equipment such as controllers, inverters
and balance of system components. Rather, we procure them from third-party manufacturers and install them in our PV systems as
part of our EPC business.
We procure PV modules and other key equipment
for project construction from independent suppliers and contract work to third-party EPC contractors in areas such as logistics,
installation, construction and supervision. We believe this allows us to focus our resources on higher value-added tasks. We maintain
an updated list of qualified and reliable global suppliers and local third-party contractors in the areas where we operate with
a proven track record and with which we have established relationships.
We choose our suppliers and third-party
EPC contractors through a competitive bidding process. The relevant departments of our headquarters organize and collect bids,
communicate with bidders and coordinate with our regional development teams to meet local technical and legal requirements. This
helps ensure that we have a strong, reliable and experienced supplier and construction team working with us on each of our EPC
project.
Procurement of PV Modules
and Other Equipment
We apply stringent quality assurance protocols
to select components with a long useful life that are compatible with a variety of parameters of the project, including local
topography and local solar irradiation.
PV modules, the
primary equipment of our solar projects, typically contribute to a substantial portion of the overall system costs. We
procure our PV modules from a wide array of suppliers including Trina Solar Limited, JinkoSolar Holding Co., Ltd., SOLARWORLD
AG, Xiexin Integration Technology Co., Ltd., Wuxi Saijing Solar Co., LTD., Zhejiang Global Photovoltaic Technology Co., Ltd.,
Ningbo Shared Solar Energy Co., Ltd. and Tangshan Haitai New Energy Co., Ltd., among others.
We consider the following factors
when we procure project equipment: technical specifications (such as size, type and power output), bid prices, warranty
and insurance programs, spectral response, performance in low light, nominal power tolerance levels, degradation rate,
technical support and reputation of suppliers. We typically require 10-year warranties for defects in materials or
workmanship and 25-year warranty for module capacity under normal testing conditions (2-3% of capacity for the first year
with a 0.5-0.8% linear degradation in capacity every year thereafter).
We are generally required to pay 100% of
the purchase price within a period ranging from three months to six months after receipt, inspection and acceptance of the PV
modules. We typically pay manufacturers deposits that represent 10% to 50% of the total purchase price.
Construction Contracting
When acting as a general contractor, we
generally outsource the construction of our PV power plants to third-party construction companies and closely monitor their execution
of our designs. Most of these companies are specialized EPC construction subcontractors. Our construction oversight teams conduct
constructability reviews, provide construction support, contract administration and document control services, construction inspection,
engineering support, instrumentation installation and monitoring, and on-site construction supervision and monitoring.
We utilize a number of metrics to manage
and monitor the performance of our third-party contractors in terms of both quality and delivery time and to ensure compliance
with applicable safety and other requirements. For instance, we may delegate qualified representatives to review, supervise, organize
and provide comments on the third-party contractor’s design, construction plan, construction guidelines, materials and documentations.
We also conduct periodic inspections to examine project implementation and quality against our project planning and quality standards
and prepare periodic reports for review and approval by our relevant departments. If we identify any quality or progress issues
that are attributable to the work of our third-party contractors, we will follow-up with them and monitor their rectification work.
Those third-party contractors are responsible
for the quality of the project and must maintain relevant insurance designating us as the beneficiary. They must ensure the project
complies with all local safety, labor and environmental laws and regulations. We examine and keep records of the production-related
safety documentation and insurance policies of our third-party contractors. All production-related tools and equipment used by
our third-party contractors must be compliant with and certified by applicable regulatory standards. The contractors submit detailed
quality assurance procedures and regularly updates us on the progress, quality and safety of the project. Our third-party contractors
utilize a variety of measures to protect the project location, including the transmission line, built facilities and infrastructure,
from damage during the construction process.
We are generally entitled to damages if
our third-party contractors fail to meet the prescribed requirements and deadlines under our contracts. We usually negotiate to
pay our third-party contractors the remaining 5% or 10% of the contract price after the expiration of the quality warranty period,
which generally ranges from one to two years. If we pay the full contract price upon completion of a project, we require the contractor
to provide a performance guarantee in respect of the warranty obligations for such project.
Commissioning and Warranties
We assess and evaluate our solar projects
before completion. Upon completion of construction, we conduct commissioning tests prior to grid connection. The tests include
a detailed visual inspection of all significant aspects of the plant, an open circuit voltage test and a short circuit current
test, and then a direct-current test after connecting to the grid. We focus commissioning tests on the quality of the construction
and major equipment. These tests are conducted in order to ensure that the plant is structurally and electrically safe, and is
sufficiently robust to operate as designed for the specified project lifetime.
After grid connection, we also conduct
commissioning tests on electricity generation performance. As grid connection requires approval from power companies, post-grid
connection commissioning tests are also conducted by local quality supervisors or third-parties approved by the power companies.
In addition to the warranties provided by the manufacturers of modules and balance-of-system components, EPC contractors also
typically provide a limited warranty against defects in workmanship, engineering design, and installation services under normal
use and service conditions for a period of one to two years following the energizing of a section of a solar power plant or upon
substantial completion of the entire solar power plant. In resolving claims under the workmanship, design and installation warranties,
the new owner has the option of remedying the defect to the warranted level through repair, refurbishment, or replacement.
Our Global Project Development Business
We develop and sell
or own and operate solar projects which sell electricity to the grid in multiple countries, including China, the U.S., the U.K.,
Greece, Japan and Italy. In 2014, we commenced our global project development business by ramping up our portfolio of global solar
projects, including projects that we plan to hold in the long term for electricity generation revenue under our IPP model, as
well as projects which we plan to sell in the future when we are presented with attractive opportunities under our BT model. We
grow our project portfolio primarily through acquisitions and our project acquisition strategy is based on rigorous market research
and due diligence on the target project’s capacity, local energy demands, applicable tariff regime, supporting infrastructure,
local government support and topography for construction in the case of projects under construction and projects in pipeline.
We also consider available financing options, internal rate of return, key technical components, terms of the grid connection
agreements and power purchase agreements, or PPAs, as well as guarantees on performance for projects in all development stages.
We act as secondary developer for the projects under construction or in pipeline when they are acquired. We either hold these
projects in the long term for electricity generation revenue or sell them when presented with attractive opportunities.
As of December 31, 2017, we had completed
a series of acquisitions of solar projects that were in operation, consisting of 1.082 MW of project in Greece and 0.2744 MW of
project in Japan. The Greek and the Japanese projects were already connected to the grid when the acquisitions were completed.
We had an aggregate 6.9 MW of projects in
the U.S., 2.2 MW of project in Japan and 14.89 MW of projects in China under construction as of December 31, 2017. We expect that
all of these projects will be connected to the grid by December 31, 2019.
Most of our solar projects are subject
to the FIT policies of the countries or regions where they operate. FIT refers to the national and local subsidies to solar power
generation supported by the government. For the FIT terms of our projects, please refer to “—Our Solar Project Portfolio.”
Our Solar Project Portfolio
We expect our solar projects to have operational
lives of 25 to 27 years. As of December 31, 2017, our solar project portfolio consisted of:
|
·
|
Projects in Operation—“Projects in operation” refers to projects connected to the grid
and selling electricity. As of December 31, 2017, we had projects in operation with an attributable capacity of
73.12MW
in the U.K., China, Greece, Japan and Italy.
|
|
·
|
Projects under Construction—“Projects under construction” refers to projects at the construction
stage. We generally complete construction in three to six months after obtaining all the permits required for construction, if
local climate and topographical conditions permit. We had 23.99MW of projects under construction in the China, US and Japan as
of December 31, 2017 and we expect substantially all of them to be connected to the grid by December 31, 2019.
|
|
·
|
Projects in
Announced Pipeline—“Projects in announced pipeline” refers to projects
that we have entered into definitive agreements to develop with a third party in which
we expect to own a majority of the equity interest, and projects we have entered into
definitive agreements to acquire. We had 6.4 MW of projects in our pipeline in Greece
as of December 31, 2017 and we expect substantially all of them to be connected to the
grid by December 31, 2019.
|
The following summary sets forth our
solar projects in operation, solar projects under construction and solar projects in announced pipeline as of December 31,
2017. For more recent development of the solar projects portfolio and potential sale of our solar projects, please see
“Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Resources
and Material Known Facts on Liquidity.”
Solar Projects in Operation*
Country
|
Project
name
|
Gross
capacity (MW)
|
Our
equity holding
|
Attributable
capacity (MW)
|
Ground/
Rooftop
|
Connection
date
|
FIT
terms
|
Greece
|
Sinsin Renewable Investment Limited
|
26.6
|
100%
|
26.6
|
Ground
|
February to October 2013
|
EUR0.14-0.38/kWh
1
|
Greece
|
HELIOSTIXIO SA
|
1.082
|
100%
|
1.082
|
Ground
|
September 2012
|
EUR0.215/kWh
|
Japan
|
Ibaraki
|
0.2744
|
100%
|
0.2744
|
Ground
|
December
2014
|
JPY36/kWh
|
Japan
|
Shibayama
|
2.2
|
100%
|
2.2
|
Ground
|
December
2017
|
JPY36/kWh
|
China
|
Gonghe County Xinte Photovoltaic Co., Ltd.
|
20.0
|
100%
|
20.0
|
Ground
|
December 2013
|
RMB1.00/kWh
2
|
China
|
Hefei 200 Residents Project
|
1.02
|
100%
|
1.02
|
Rooftop
|
August 2015.
|
RMB1.06/kWh
3
|
China
|
Feixi County Hospital Project
|
0.146
|
100%
|
0.146
|
Rooftop
|
December 2015
|
RMB1.57/kWh
4
|
China
|
Shanghai Siyuan Project
|
0.224
|
100%
|
0.224
|
Rooftop
|
January 2016
|
RMB1.58/kWh
5
|
China
|
Suzhou Tong Yuan fang Project
|
0.199
|
100%
|
0.199
|
Rooftop
|
March 2016
|
RMB1.2416/kWh
6
|
China
|
Shanghai Gene Technology Project
|
0.101
|
100%
|
0.101
|
Rooftop
|
April 2016
|
RMB1.27/kWh
7
|
China
|
Suzhou Mudu Studio City Project
|
0.2244
|
100%
|
0.2244
|
Rooftop
|
April 2016
|
RMB1.166/kWh
8
|
China
|
Suzhou Hen Sheng Project
|
0.160
|
100%
|
0.160
|
Rooftop
|
April 2016
|
RMB1.166/kWh
9
|
China
|
Nantong Anda Project
|
4.791
|
100%
|
4.791
|
Rooftop
|
May 2016
|
RMB 1/kWh
10
|
China
|
Fuzhou Meicheng Project
|
1.705
|
100%
|
1.705
|
Rooftop
|
May 2016
|
RMB 1/kWh
11
|
China
|
Suzhou Meiliang Project
|
2.036
|
100%
|
2.036
|
Rooftop
|
May 2016
|
RMB1.6269/kWh
12
|
Italy
|
SPI Renewables Energy (Luxembourg) Private Limited Company
S.a.r.l. (formerly known as CECEP Solar Energy (Luxembourg) Private Limited Company (S.a.r.l.)); Italsolar S.r.l.
|
4.3
|
100%
|
4.3
|
Ground and Rooftop
|
December 2009
|
EUR0.22-0.35/kWh
|
U.K.
|
Cairnhill Solarfield Limited
|
3.0906
|
100%
|
3.0906
|
Ground
|
February 2016
|
1.3 ROCs
|
U.K.
|
Emotion energy Solar One Limited
|
4.971
|
100%
|
4.971
|
Ground
|
March 2016
|
1.3 ROCs
|
Total
|
|
73.12
|
|
73.12
|
|
|
|
|
1.
|
The PPA agreements did not fix the FIT. The FIT will be charged based on the relevant law in force in Greece.
The current law in force is law4254/2014. According the monthly FIT statements by the electricity supply bureau in Greece, the
FIT range of the PV plants was EUR0.19~0.20/kWh in 2014.Sinsin has been deconsolidated in the year of 2017 due to loss of control.
|
|
2.
|
It is the government policy of Qinghai Province in China that
the PV plants grid-connected at the end of 2013 are entitled to a total electricity price
of RMB 1.0/kWh once approved by Development and Reform Committee of Qinghai Province,
among which RMB 0.35/kWh is to be paid by State Grid Company directly as set out in the
PPA agreement. The remaining part (RMB 0.65/kWh) will be paid as an additional tariff
by central government through State Grid Company.
|
|
3.
|
RMB1.02/kWh is a total electricity price entitled to the project, among which RMB0.6/kWh is the price
for electricity sold to 200 residents on whose property the PV project is located, RMB0.42/kWh is the national subsidy, and RMB0.04/kWh
will be paid as an additional construction subsidy by the government of Hefei City.
|
|
4.
|
RMB1.57/kWh is a total electricity price entitled to the project, among which RMB0.9/kWh is the price for electricity sold
to the hospital on whose property the PV project is located, RMB0.42/kWh is the national subsidy, and RMB0.25/kWh will be paid
as an additional tariff by the government of Hefei City.
|
|
5.
|
RMB1.58/kWh is a total electricity price entitled to the project, among which RMB0.91/kWh is the price for electricity sold
to the company on whose property the PV project is located, RMB0.42/kWh is the national subsidy, and RMB0.25/kWh will be paid as
an additional tariff by the government of Shanghai City.
|
|
6.
|
RMB1.2416kWh is a total electricity price entitled to the project, among which RMB 0.8216/kWh is the price for electricity
sold to the company on whose property the PV project is located, RMB0.42/kWh is the national subsidy.
|
|
7.
|
RMB1.27/kWh is a total electricity price entitled to the project, among which RMB0.6/kWh is the price for electricity sold
to the company on whose property the PV project is located, RMB0.42/kWh is the national subsidy, and RMB 0.25/kWh will be paid
as an additional tariff by the government of Shanghai City.
|
|
8.
|
RMB1.166/kWh is a total electricity price entitled to the project, among which RMB0.746/kWh is the price for electricity sold
to the company on whose property the PV project is located, and RMB0.42/kWh is the national subsidy.
|
|
9.
|
The entitled electricity price is same as Suzhou Solar Juice
New Energy Co., Ltd. (Mudu Studio City Project).
|
|
10.
|
This project is entitled to a total electricity price of
RMB1.0/kWh, among which RMB0.378/kWh is to be paid by State Grid Company and the remaining
part (RMB0.622/kWh) will be paid as an additional tariff by central government through
State Grid Company.
|
|
11.
|
This project is entitled to a total electricity price of
RMB1.0/kWh, among which RMB0.3993/kWh is to be paid by State Grid Company and the remaining
part (RMB0.6007/kWh) will be paid as an additional tariff by central government through
State Grid Company.
|
|
12.
|
RMB1.6269/kWh is a total electricity price entitled to the
project, among which RMB0.8289/kWh is the price for electricity sold to the company on
whose property the PV project is located, RMB0.3780/kWh is the price for residual electricity
connected to the grid, and RMB0.42/kWh is the national subsidy.
|
Solar Projects Under Construction*
Country
|
|
Our
equity holding
|
|
Number
of solar projects
|
|
Attributable
capacity (MW)
|
|
Ground/Rooftop
|
|
Scheduled
Connection date
|
|
FIT
terms
|
Japan
|
|
100%
|
|
1
|
|
2.2
|
|
Ground
|
|
2019
|
|
JPY 36 per kWh
|
US
|
|
100%
|
|
9
|
|
6.9
|
|
Ground
|
|
2018, 2019
|
|
<500kW: $0.238/kWh
>500kW: $0.236/kWh
1
|
China
|
|
100%
|
|
3
|
|
14.89
|
|
Rooftop and Ground
|
|
2019
|
|
0.98RMB/kWh
|
Total
|
|
|
|
13
|
|
23.99
|
|
|
|
|
|
|
_______________
1
|
Intended by us to be BT projects in 2018 and 2019 and may be held as our IPP projects upon completion of
construction if we determine that the return of owning the projects and selling electricity is more attractive.
|
As of December
31, 2017, the total capital expenditure incurred for our solar projects under construction amounted to approximately $25
million and we expect to incur additional $24 million to
complete these projects. As the
total capital expenditure may be affected by various factors including, among others, increases in cost of key equipment and
materials, failure to obtain sufficient financing, unexpected engineering or environmental issues as well as changes in
regulatory requirements, the actual total capital expenditure may deviate significantly from such estimates. We expect to
finance construction of these projects using cash from our operations and private placements, bank borrowings, financial
leases as well as other third-party financing options.
|
·
|
Solar
Projects in Announced Pipeline*
As of December 31, 2017,
we were in the process of obtaining relevant regulatory approvals for the following self-developed
solar products: 2.6 MW projects in Guangdong, 5 MW projects in Hubei, 12.26 MW projects
in Jiangsu; 0.8 MW projects in Zhejiang; 6.5 MW project in Shandong;30 MW project in
Henan, China; 13.3 MW project in the U.S.; and 1.1 MW project in Japan. In March 2019
we will acquire an additional 6.4MW of solar projects in operation in Greece according
the Framework SPA with TANEO FUND THERMI executed on
September
20,
2017.
|
_______________________
|
*
|
Our project portfolio excludes projects for which we provide EPC
services but in which we do not own any equity interest or do not expect to acquire and
excludes projects we have disposed of.
|
We sold all of our projects in China in connection with the
sale of our Chinese business in December 2018.
Featured Markets
|
·
|
China.
We entered the Chinese market in 2014. As of December 31, 2017, we owned 11 solar projects in
operation with a total capacity of 30.61 MW, located in Qinghai Province, Anhui Province, Shanghai Province, Jiangsu
Province, and Jiangxi Province, China. We also had 57.2 MW of projects in announced pipeline as of December 31, 2017. In
China, most of the projects in our portfolio were eligible to receive FIT. We sold these projects in connection with the sale
of our China business in December 2018.
|
|
·
|
U.S.
We have been present in the U.S. market since the commencement of our business. As of December 31, 2017,
we had 6.9 MW of projects under construction and 13.3 MW of projects in announced pipeline.
|
|
·
|
U.K.
We entered the U.K. market in 2014. As of December 31, 2017, we owned 2 solar projects in operation with
a total capacity of 8.1MW. In the U.K., all of the projects in our portfolio are eligible for FIT.
|
|
|
|
|
·
|
Greece.
We entered the Greek market in 2014. As of December 31, 2017, we owned five solar
projects in operation with a total capacity of 27.682 MW, of which four solar projects
owned by Sinsin were deconsolidated as of December 31, 2017. In Greece, all of the projects
in our portfolio are eligible for FIT. In 2017 we acquired one solar project of 1.082MW.
|
|
·
|
Japan.
We entered the Japanese market in 2014. We had 2.4744 MW of solar
project in operation and 2.2 MW of solar projects under construction. We also had 1.1 MW of solar projects in announced
pipeline as of December 31, 2017. In Japan, all of our projects are eligible to receive FIT.
|
|
·
|
Italy.
We entered the Italian market in 2015. We had 4.3 MW of solar projects in operation as of December 31,
2017. In Italy, all of our projects are eligible to receive FIT.
|
The following table
sets forth a breakdown of our net sales by geographic location of customers for the periods indicated:
|
|
For the year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
2017
|
|
|
|
($ in thousands except percentage)
|
|
China
|
|
|
56,745
|
|
|
|
29.8%
|
|
|
|
25,597
|
|
|
|
18.3%
|
|
|
|
5,945
|
|
|
|
4.7%
|
|
United Kingdom
|
|
|
50,345
|
|
|
|
26.4%
|
|
|
|
694
|
|
|
|
0.0%
|
|
|
|
6,903
|
|
|
|
5.4%
|
|
Australia
|
|
|
35,418
|
|
|
|
18.6%
|
|
|
|
81,241
|
|
|
|
57.9%
|
|
|
|
112,174
|
|
|
|
88.0%
|
|
United States
|
|
|
29,925
|
|
|
|
15.7%
|
|
|
|
6,622
|
|
|
|
4.7%
|
|
|
|
–
|
|
|
|
–
|
|
Greece
|
|
|
8,720
|
|
|
|
4.6%
|
|
|
|
8,737
|
|
|
|
6.2%
|
|
|
|
–
|
|
|
|
–
|
|
Japan
|
|
|
6,626
|
|
|
|
3.5%
|
|
|
|
12,893
|
|
|
|
9.2%
|
|
|
|
511
|
|
|
|
0.4%
|
|
Italy
|
|
|
1,395
|
|
|
|
0.7%
|
|
|
|
1,740
|
|
|
|
1.2%
|
|
|
|
1,932
|
|
|
|
1.5%
|
|
Germany
|
|
|
1,336
|
|
|
|
0.7%
|
|
|
|
2,675
|
|
|
|
2.5%
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
|
190,510
|
|
|
|
100.0%
|
|
|
|
140,199
|
|
|
|
100.0%
|
|
|
|
127,465
|
|
|
|
100.0%
|
|
Acquisition of Solar Projects
We made significant acquisitions of
solar projects in 2014 and 2015. See “Item 5. Operating and Financial Review and Prospects—Operating
Results—Recent Acquisition Activities” on the projects we have acquired or expect to acquire. We may keep
acquiring completed solar projects or other assets from independent third-parties which we believe will synergize with our
existing operations and expansion strategies. Those acquisitions would be preapproved by our board.
Our board of directors has formulated a
uniform standard for assessing target assets with respect to the acquisition of solar projects, and such standard may be adjusted
based on our Company’s business, financial condition and results of operations from time to time. Our board of directors
considers the following criteria when assessing potential acquisitions, among others:
|
·
|
the internal
rate of return of the project prior to leverage, taking into consideration applicable
FIT or PPA rate, and other applicable government incentives;
|
|
·
|
our ratio of
debt-service coverage;
|
|
·
|
the solar irradiation
hours of the project, after discounting for performance;
|
|
·
|
the use of financeable
and reliable brands for and technical specifications of the key components, including
modules, invertors, mounting systems, racks/tracking systems, and EPC integration services;
|
|
·
|
any performance
guarantees required, as well as any compensation for failing to perform;
|
|
·
|
clear and trustworthy
opinions from third-party professionals after detailed technical, financial, tax and
legal due diligence; and
|
|
·
|
reasonable payment
terms matching relevant milestones.
|
Market Due Diligence
We aim to select solar projects
located at sites with long solar irradiation hours, high energy demand, good supporting infrastructure, favorable tariff
regimes, local government support and appropriate topography for construction. We systematically analyze land cost, solar
irradiation, grid connection capacity, land and property status, government support, availability of project financing and
any other project information that would impact the overall economic return of the project. We target projects that we
believe to have appropriate balance of financial returns, costs and risks.
Permit Development Process
The permit development process is the process
of obtaining all required permits, certifications and approvals from relevant government authorities for solar project development.
As of December 31, 2017, most of our solar projects in operation had been undertaken by us as a secondary developer.
We acquire solar
projects under development by third parties which have secured land use rights, development permits, or even begun
construction. We typically learn about potential projects suitable for secondary development from our business partners,
national or local governments, industry publications, overseas engineering exhibitions or overseas business liaison
organizations. Our criteria for sourcing solar projects include land cost, solar irradiation, availability of FIT benefits or
other government incentives, grid connection capacity, local financing opportunities and other project information. The
selection process involves detailed due diligence into those third parties’ relevant company documentation, financial
projections and the legal status of permits already secured by the project.
After an acquisition, we continue to
develop the project through grid connection as our own. We pursue secondary permit development in markets with relatively
liquid markets for energy permits transfer, thus allowing a smooth transfer of pre-operational solar assets from third-party
developers to us. Under certain circumstances, we negotiate site acquisition, preliminary permits, grid connection agreements
and PPAs for projects under our secondary development model depending on the development stage when we acquire them.
Permit Development Steps
The following sets forth each step of our
permit development:
|
·
|
Evaluating
project sites and location
—The critical factors for evaluating the site
of a solar project include its solar irradiation, its proximity to a grid connection
point, zoning regulations and its general geographic and topographic features. If a project
site is suitable for development or acquisition, our regional development team submits
a site assessment report on the land and other related information to our management
for evaluation and approval.
|
|
·
|
Due diligence
—Our
in-house technical and EPC team, along with third-party experts we contract as needed,
examine project items such as engineering and design specifications, technical risks
and solar irradiation and environmental analyses. We pay special attentions to potential
delays and cost overruns, grid capacity and additional costs which may not be captured
in the technical design. We also ensure that a project has clean legal titles to the
permits and other permissions it has secured. In all cases, we ensure that local regulations
allow us to properly carry out our business intentions for a project, whether by allowing
us to hold the project under our IPP model or transfer it under our BT model.
|
|
·
|
Market
considerations
—We target projects which have appropriate balance of financial
returns, costs and risks. Important factors include, the costs of maintenance, local
taxes and fees, and the availability of applicable FIT, local credit or other refinancing
options. Our financial teams conduct financial forecasts based on information about the
financial prospects of the solar project and the local energy market to make a profitability
estimate and adjust our capital plan accordingly.
|
|
·
|
Permitting
—Permit
and licensing requirements vary depending on the jurisdiction of the solar project, but
the key permits, licenses and agreements typically required for solar projects include
land acquisition or lease contracts, environmental impact assessments, building or rezoning
permits, planning consents, grid connection contracts and PPAs. We work closely with
relevant government and private stakeholders to secure all necessary permits to develop
a project, including local or regional planning authorities, electric utilities, local
communities, environmental agencies, as well as health and safety agencies.
|
Project Financing
A solar project sponsor typically sets up
a project company as a special purpose vehicle to own a particular solar project and arrange for project financing. We typically
enter into contracts and other agreements under the name of the project company, which facilitates project financing by isolating
the project and its assets, and any potential securitization requirements, from our broader global business.
The construction cost of a project is mainly
funded by our working capital, and to a lesser extent, funded through Solarbao and bank borrowings in the year ended December 31,
2017. We seek to negotiate favorable credit terms with our equipment suppliers and EPC contractors when possible, such that payment
is not due until several months after construction and grid connection are complete. While the exact mix of external and internal
financing varies from project to project, we estimate that as of December 31, 2017, approximately 50% to 60% of the total costs
of our solar projects under construction were funded by our working capital, with the remainder funded through the Solarbao platform
and via bank borrowings. Our working capital dedicated towards a particular project would be generally available to us for other
purposes if needed, and would not be considered restricted cash isolated at that project. We also have given guarantees to the
lenders on certain project financings. However, none of our cash and cash equivalents have been collateralized to guarantee such
project financings.
We generally seek
to arrange debt financing for our solar projects from local banks and financial leasing companies in countries that are more
open and receptive to renewable energy investments, such as China, where we primarily work with reputable banking
institutions such as Bank of Suzhou Co., Ltd. For example, we currently have a credit line of RMB 17.8 million with Bank of
Suzhou Co., Ltd. In March 28, 2016, we entered into a 10-year leasing agreement with China Kangfu International Leasing Co.,
Ltd. and obtained financing of RMB140 million ($21.6 million) from it.
Engineering, Procurement and
Construction
Given the multi-jurisdiction coverage of
our project portfolio, we choose to utilize our EPC capabilities or contract third party EPC contractors to service our own projects,
based on our cost analysis taking into consideration of locations, topographical conditions as well as the quality and competition
of local EPC service providers. For detailed information on our EPC capabilities, see “—Our Engineering, Procurement
and Construction Service Business.”
Operation and Maintenance Business
We operate and maintain solar projects
connected to the grid, especially those we have provided EPC services to. We regularly maintain solar projects for our customers
to ensure that these projects operate in good condition and comply with the recommendations issued by the grid company in order
to remain connected. We utilize specialized software to monitor the performance and security of the solar projects on a real-time
basis.
By operating the projects effectively and
efficiently, we reduce down time and increase electricity output. A project’s major lifecycle costs mainly consist of maintenance
fee and depreciation of modules, inverters and transformers. We monitor electricity production and any incidents or abnormalities
which may impede normal operation. We adjust production levels based on the available capacity of the grid.
Our Australia Distribution Business
Solar Juice Pty Limited or Solar Juice is a wholesale distributor of Solar PV panels, solar inverters, components and
complete solar systems, which was established in Australia in September 2009. It is the largest importer of solar related products
in Australia with over 5000 B2B customers in every state and territory of Australia and Southeast Asia. Currently Solar Juice
has six warehouses located around Australia and one located in Singapore.
Solar Juice, as a wholesale supplier, has
developed key partners which have supported the growth of its brands throughout Australia. Solar Juice aligns itself with the most
popular brands SMA, Fronius, ABB, LG Electronics, LG Chem, Trina and JA, which have the same values as Solar Juice, namely service
and support, quality and value for money. Solar Juice’s products are backed by warranties held in Australia, experience and
knowledge which set it apart from the competition, and commitment to serving the customer’ needs.
Solar Juice’s revenue has grown substantially in 2017. The main reason for such a strong
growth was the improvement of Solar Juice’s national distribution network. Solar Juice opened its three new offices in Victoria,
Queensland and Western Australia in late 2016 and expanded its market significantly in these states. Another reason was the development
of a strategic relationship with Austrian inverter maker Fronius. Based on Solar Juice’s national network, Fronius inverter
became the most popular inverter in residential market. In addition, Solar Juice’s own branded products Opal Panels, Opal
Switch and Opal storage provided customers with more value for money choices. Finally, Solar Juice’s outstanding customer
services, technical supports and warranty services differentiate it from its competitors.
Our Partnership with Energy Storage
Solution Provider
See “Item 5. Operating and Financial
Review and Prospects—Operating Results—Recent Acquisition Activities—Other Solar Businesses— EnSync Acquisition.”
Our Partnership with Electric Vehicle
Rental Service Provider
See “Item 5. Operating and Financial
Review and Prospects—Operating Results—Recent Acquisition Activities—Other Solar Businesses— Acquisition
of DingdingYiwei.”
Competition
Solar Power Market
The solar power market is intensely competitive
and rapidly evolving, and we compete with major international and domestic companies over the development of solar projects. Our
major competitors include leading global players such as SunPower Corporation, First Solar, Inc., Canadian Solar, Inc., SunEdison,
Inc., SolarCity Corporation, Lightsource Renewable Energy Limited, and regional players such as West Holdings Corporation, Looop
Inc., Zhenfa New Energy Science and Technology Co. Ltd., TBEA Sunoasis Co. Ltd., China Power Investment Corporation and other
regional and international developers.
We believe that we can compete favorably
with our competitors given that the key competitive factors for solar project development and operation include, without limitation:
|
·
|
industry reputation
and development track record;
|
|
·
|
site selection
and acquisition;
|
|
·
|
permit and project
development experience and expertise;
|
|
·
|
relationship
with government authorities and knowledge of local policies;
|
|
·
|
ability to secure
high-quality PV modules and balance-of-system components at favorable prices and terms;
|
|
·
|
ready access
to project financing;
|
|
·
|
control over
the quality, efficiency and reliability of project development;
|
|
·
|
expertise in
permit and project development; and
|
|
·
|
expertise in
providing EPC and O&M services.
|
However, we cannot guarantee that some
of our competitors do not or will not have advantages over us in terms of greater operational, financial, technical, management
or other resources in particular markets or in general. In terms of the broader energy sector, the entire solar industry faces
competition from other power generation sources, including conventional sources as well as other emerging technologies. Solar
power has certain advantages and disadvantages when compared to other power generating technologies. The advantages include the
ability to deploy products in many sizes and configurations, install products almost anywhere in the world, provide reliable power
for many applications and reduce air, water and noise pollution. Yet other energy sources have advantages which may result in
electric utilities, grid companies or other off-takers to enter PPAs or other electricity purchase arrangements with companies
specializing in those energy sources rather than us or other companies specializing in solar power.
Cryptocurrency
Hosting Services
Cryptocurrencies and
cryptocurrency mining are new industries, the competitive landscapes are still developing. Although the barriers to entry in this
market are low, most of the large cryptocurrency mining farms such as HIVE Blockchain, Hut8Mining, NVIDIA, Giga Watt, Bitfury
Mines, Bcause LLC and Bitmain, cater to large investors. We are not aware of a large competitor that caters to the retail market
as we do.
Suppliers
There are numerous suppliers of PV modules
in the industry, and we have adopted a supplier-neutral approach. For both our EPC service business and global project development
business, we select the suppliers based on whether we could obtain high-quality PV modules and balance-of-system components at
favorable prices and payment terms. For both our EPC service and global project development business, we procure our PV modules
from a broad range of suppliers including Hanwha Q CELLS Co., Ltd., CECEP Solar Energy Technology Co., Ltd., Znshine PV-tech Co.,
Ltd., Lightway Green New Energy Co., Ltd., Renesola America, Inc., and LDK, among others.
Customers and Marketing
We have historically provided EPC and O&M
services, a line of business we are still engaged in. We are also selling electricity to the grid under our IPP model as well
as selling solar projects under our BT model. Customers of our EPC services include independent power developers and producers
as well as commercial and industrial companies. For our global project development business, we sell electricity to power companies
and other electricity off-takers, including government-owned utility companies, operating in the United States, China, Greece
and Italy under our IPP model. Purchasers of our BT projects included utility companies, independent power developers and producers,
commercial and industrial companies as well as investors in the solar business. Further, customers of our Australia distribution
business include residential ones, towards which we distribute PV modules, balance of system components, solar monitoring systems
and inverters.
Between the year 2015 to 2017, both proportions
of revenue from provision of our EPC services and sales of PV solar systems decreased dramatically, while the figures for sales
of PV solar component saw a considerably upwards trend and accounted for the largest portion of our total revenue in 2016 and
2017.
We promote our reputation by participating
in industry conferences worldwide and aggressively sourcing development opportunities in markets with strong growth potential.
Members of our senior and local management team routinely meet with industry players and interested investors. Our business development
teams around the world have significant experience building business in local markets and actively pursue growth opportunities
around the world. We intend to continue to increase our marketing efforts going forward.
We historically engaged in high-profile
marketing activities focused on developing our brand awareness not just among the solar business developers who have traditionally
been our customers, but also among the general public. For example, in 2009, then-Governor Arnold Schwarzenegger made a speech
at one of our 40-acre solar projects outside Sacramento, a media opportunity that we embraced to build our brand awareness.
Seasonality
Demand for solar power products tends to
be weaker during the winter months partly due to adverse weather conditions in certain regions, which complicate the installation
of solar power systems. Our operating results may fluctuate from period to period based on the seasonality of industry demand
for solar power products. Our sales in the first quarter of any year may also be affected by the occurrence of the Chinese New
Year holiday during which domestic industrial activity is normally lower than that at other times. Certain aspects of our operations
are also subject to seasonal variations. For example, we may schedule significant construction activities to connect solar projects
to the grids prior to a scheduled decrease in FIT rates in order to qualify for more favorable FIT policies.
Insurance
We maintain the types and amounts of insurance
coverage that we believe are consistent with customary industry practices in all the countries where we operate. Our insurance
policies cover employee-related accidents and injuries, property damage, machinery breakdowns, fixed assets, facilities and liability
deriving from our activities, including environmental liability. We maintain business interruption insurance for interruptions
resulting from incidents covered by insurance policies. We have not had any material claims under our insurance policies that
would either invalidate our insurance policies or cause a material increase to our insurance premiums. We cannot assure you, however,
that our insurance coverage will adequately protect us from all risks that may arise or in amounts sufficient to prevent any material
loss.
Regulations
We operate in multiple jurisdictions, including
China, the U.S., Japan, the U.K, Greece, Germany, Italy and Australia. We are therefore subject to complex laws, regulations and
policies promulgated by the governments and government-run utilities of these jurisdictions, including FIT regulations, clean
energy incentive rules and programs, laws and regulations that apply to all power producers, regulations that specifically apply
to solar power project operators, EPC service providers as well as solar kit distributors, tax regulations and intellectual property
laws, among others. We are also subject to a number of PRC laws governing foreign investment in various sectors in China. Pursuant
to the Revised Catalog which took effect on July 28, 2017, our business as a provider of EPC services to solar projects as well
as developing, owning and operating solar projects is classified into “catalog of industries in which foreign investment
is encouraged,” such as construction and operation of new energy power stations (including, among others, solar energy,
geothermal energy, tidal energy, wave energy, garbage energy, biogas energy and wind energy). In the Revised Catalog, e-commerce,
as opposed to other value-added telecommunication services, is exempted from the restricted category. However, this new change
has not been reflected in the FITE Regulations by any amendment, thus we should still rely on the contractual arrangement among
our PRC subsidiary, Meijv and its shareholders for the operation of the e-commerce business in order to comply with the FITE Regulations.
This section sets forth a summary of the
most significant regulations or requirements that affect our business activities in China or our shareholders’ right to
receive dividends and other distributions from us.
Renewable Energy Law and Other
Government Directives
The
Renewable Energy Law
, which
originally became effective on January 1, 2006 and was amended on December 26, 2009, sets forth policies to encourage the development
and on-grid application of solar energy and other renewable energy. The law also sets forth a national policy to encourage the
installation and use of solar energy water heating systems, solar energy heating and cooling systems, PV systems and other systems
that use solar energy. It also provides financial incentives, such as national funding, preferential loans and tax preferential
treatment for the development of renewable energy projects and authorizes the relevant pricing authorities to set favorable prices
for electricity generated from solar and other renewable energy sources.
The
PRC Energy Conservation
Law
, which was amended on October 28, 2007 and came into effect on July 2, 2016, encourages the utilization and
installation of solar power facilities on buildings for energy-efficiency purposes. The law also encourages and supports the
development of solar energy system in rural areas.
On September 4, 2006, the MOF and Ministry
of Construction jointly promulgated the
Interim Measures for Administration of Special Funds for Application of Renewable Energy
in Building Construction
, pursuant to which the MOF will arrange special funds to support the application of Building Integrated
Photovoltaics systems, or BIPV applications, to enhance building energy efficiency, protect the environment and reduce consumption
of fossil fuel energy. Under these measures, applications to provide hot water supply, refrigeration, heating and lighting are
eligible for such special funds.
On October 10, 2010, the State Council
of China promulgated a decision to accelerate the development of seven strategic new industries. Pursuant to this decision, the
PRC government will promote the popularization and application of solar thermal technologies by increasing tax and financial policy
support, encouraging investment and providing other forms of beneficial support.
On March 8, 2011, the MOF and the Ministry
of Housing and Urban-Rural Development jointly promulgated the
Notice on Further Application of Renewable Energy in Building
Construction
to increase the utilization of renewable energy in buildings.
On March 27, 2011, the NDRC promulgated
the revised
Guideline Catalog for Industrial Restructuring
which categorizes the solar power industry as an encouraged
item. On February 16, 2013, the NDRC promulgated the 2013 revised Guideline Catalog for Industrial Restructuring to be effective
on May 1, 2013, the solar power industry is still categorized as an encouraged item.
On December 16, 2011, the MOF and Ministry
of Housing and Urban-Rural Development jointly released a notice regarding the application of PV technology in building structures,
pursuant to which the PRC government offers subsidies ranging from RMB7.5 to RMB9.0 per watt for BIPV projects. The construction
of such BIPV projects must be completed in 2012.
On February 24, 2012, the MIIT released
the
12th Five-Year Plan for the Solar Photovoltaic Industry
. According to the industry plan, China will reduce the cost
of solar power to 0.8 yuan (12 U.S. cents) per kilowatt-hour by 2015 and 0.6 yuan per kWh by 2020 and increase production of solar
panels.
In response to the increased pace of market
development, the PRC State Council, in a statement dated July 4, 2013, announced that installed capacity for solar electricity
is expected to reach more than 35 GW by 2015 at a growth rate of about 10 GW a year between now and then, and to reach more than
100 GW by 2020. The PRC State Council also described principles promoting the PV industry through (i) the exploration of the distributed
PV power generation market, (ii) the improvement to the grid connection management and service, in particular for PV power generation,
(iii) the improvement to pricing and subsidy policies and development of fund for renewable energy and (iv) support from the financial
institutions to the PV industry, among other matters.
On January 17, 2014, China’s National
Energy Administration (the NEA) issued the
Notice on Targets for the Increase in PV Power Generation Capacity for 2014
,
and announced that the total target for the increase in PV power generation capacity for 2014 will be 14 GW, of which 8 GW will
be reserved for distributed power generation and 6 GW will be reserved for power generation by solar power projects.
On March 16, 2015, the NEA promulgated
the
Circular on Implementation Plans of PV Generation Construction for 2015
, which revised China’s 2015 solar electricity
installation target upwards by 20% to 17.8 GW of capacity for ground-mounted projects and indicated that rooftop DG projects would
no longer be subject to a quota.
In March 2016, the National People’s
Congress approved the
Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the PRC
,
which includes a national commitment to promote the development of renewable energy and enhancing the competitiveness of the renewable
energy industry. Accordingly, in June 2016, the Ministry of Industry and Information Technology promulgated the
Industrial
Green Development Plan (2016-2020)
to support the development of the PRC solar power industry.
On June 3, 2016,
the NEA promulgated the
Circular on Implementation Plans of PV Generation Construction for 2016
, and announced that
the total target for the increase in PV power generation capacity for 2016 will be 18.1 GW, of which 12.6 GW will be reserved
for ordinary PV power plant projects and 5.5 GW will be reserved for PV leading technology bases.
On November 29, 2016, the State Council
released the
13th Five-Year Development Plan for National Strategic New Industries
. According to this document, by 2020,
the total installed capacity of PV generation will achieve 105GW. This document also set forth the major policies to be promulgated
for promoting the development of solar power industry.
On December 8, 2016, the NEA
officially released the
13th Five-Year Plan on Solar Power Development
. In the document, the NEA stated that by 2020,
the total installed capacity of distributed PV generation will achieve 105GW in China.
On December 26, 2016, the NDRC and NEA
jointly issued the
13th Five-Year Plan for Energy Development
, which demonstrated a commitment to solar energy. It
proposed that by the end of 2020, there should be 110 GW of installed solar power capacity. In addition, the Plan also
encouraged and promoted the development of distributed PV power generation.
On February 10, 2017, the NEA promulgated
the
Circular on Printing and Distributing the Guidance on Energy Work in 2017
, which promotes the photovoltaic, thermal
power project construction. According to this circular, the government plans to start the new construction scale of 20 million
kilowatts and the new installed capacity of 18 million kilowatts in 2017.
Laws and Regulations Concerning
the Electric Power Industry
The regulatory framework of the PRC power
industry consists primarily of the
Electric Power Law of the PRC
, which became effective on April 1, 1996 (subsequently
revised effective in 2009 and 2015) and the Electric Power Regulatory Ordinance, which became effective on May 1, 2005. One of
the stated purposes of the Electric Power Law is to protect the legitimate interests of investors, operators and users and to
ensure the safety of power operations. According to the Electric Power Law, the PRC government encourages PRC and foreign investment
in the power industry. The Electric Power Regulatory Ordinance sets forth regulatory requirements for many aspects of the power
industry, including, among others, the issuance of electric power business permits, the regulatory inspections of power generators
and grid companies and the legal liabilities for violations of the regulatory requirements.
Obtaining the Electric Power
Business Permit
On January 5, 2006, the NDRC promulgated
the
Administrative Provisions on Renewable Energy Power Generation
which set forth specific measures for setting the price
of electricity generated from renewable energy sources, including solar and for allocating the costs associated with renewable
power generation. The
Administrative Provisions on Renewable Energy Power Generation
also delegate administrative and supervisory
authority among government agencies at the national and provincial levels and assign partial responsibility to electricity grid
companies and power generation companies for implementing the Renewable Energy Law.
Pursuant to the
Provisions on the Administration
of the Electric Power Business Permit
, which were issued by the SERC and became effective on December 1, 2005(subsequently
amended on May 30, 2015), unless otherwise provided by the SERC, no company or individual in the PRC may engage in any aspect
of electric power business (including power generation, transmission, dispatch and sales) without first obtaining an electric
power business permit from the SERC. These provisions also require that if an applicant seeks an electric power business permit
to engage in power generation, it must also obtain in advance all relevant government approvals for the project including construction,
generation capacity and environmental compliance.
However, there are exceptions which our
certain PV Power Generation Projects may not need obtain an electric power business permit from the SERC. On July 18, 2013, the
NDRC issued the
Interim Measures for the Administration of Distributed PV Power Generation
, which waived the previous requirement
to obtain an Electric Power Business Permit for DG projects. On April 9, 2014, the NEA issued the
Circular on Clarifying Issues
concerning the Administration of Electric Power Business Permit
, which waived requirement to obtain an Electric Power Business
Permit for those solar power generation projects with installed capacity less than 6 MW and any DG projects approved by or filed
with the NDRC or its local branches, and required local NEA to simplify the Electric Power Business Permit application procedure
for the solar power generation companies.
Obtaining the Construction
Engineering Qualifications and Permit
Pursuant to the Construction Law which
was promulgated by the Ministry of Construction on November 1, 1997 and amended on April 22, 2011, the
Regulation on Administration
on Qualifications to Survey and Design Construction Engineering
which became effective on September 1, 2007, as amended on
May 4, 2015, the
Ordinance on Administration on Survey and Design of Construction Engineering
which became effective on
September 25, 2000, as amended on June 12, 2015, an enterprise engaged in the design and engineering work for an electric power
project must obtain a qualification certificate and must conduct its work within the strict design scope set forth in its certificate.
An enterprise conducting design or engineering work without first obtaining the qualification certificate or an enterprise that
has obtained the qualification certificate but exceeds the permitted design scope may be subject to action by the relevant authorities,
including monetary penalties, rescission of its certification or confiscation of all illicit gains.
Pursuant to the
Provisions on the Administration
of Permits of Installation, Repair, and Test of Electric Power Facilities
, which were promulgated by the SERC and became effective
on March 1, 2005, as amended on December 18, 2009 and May 30, 2015, any entity or individual engaged in installing, repairing
or testing of electric power facilities in the PRC must obtain a permit unless otherwise exempted by the SERC. There are three
categories of permits and each category is further subdivided into five levels. Each category represents a specific range of activity
i.e
., installation, repair and testing. Each level denotes the maximum voltage level of an electric facility that a permit
holder may work with. To apply for a permit, an applicant must submit the application to the local branch of SERC. A permit holder
may also apply to change either the permitted matter, which is the category or level of the permit, or the registered matter,
which is the name, legal address, legal representative and other pertinent matters. A permit is valid for six years and can be
renewed.
Grid Connection and Dispatch
All electric power
generated in China is distributed through power grids, except for electric power generated by facilities not connected to a grid.
The distribution of power to each grid is administered by dispatch centers, which the administration and dispatch of planned output
by power plants connected to the grid. The
Regulations on the Administration of Electric Power Dispatch to Networks and Grids
,
promulgated by the State Council and the former Ministry of Electric Power Industry, effective on November 1, 1993, as amended
on January 8, 2011, and its implementation measures, regulate the operation of dispatch centers.
FIT and Subsidies
FIT Payments
The
Renewable Energy Law of the PRC
,
which was amended on December 26, 2009 and became effective on April 1, 2010, sets forth policies to encourage the development
and utilization of solar power and other renewable energy. The Renewable Energy Law authorizes the relevant pricing authorities
to set favorable prices for electricity generated from solar and other renewable energy sources.
The
Circular on Improving Policies on
the On-grid Tariffs of Solar Power Generation
, which was issued by the NDRC and became effective on July 24, 2011, provides
that the FIT (including VAT) for solar power projects approved before July 1, 2011 that began operation before December 31, 2011
would be RMB1.15 per kWh and the FIT (including VAT) for solar power projects either approved after July 1, 2011 or completed
after December 31, 2011 would be RMB1.00 per kWh (excluding on-grid solar power projects located in Tibet).
The NDRC further issued the
Circular
on Promoting the Healthy Development of PV Industry by Price Leverage
on August 26, 2013, or the 2013 Circular. Under this
circular, the FIT (including VAT) for solar power projects approved or filed after September 1, 2013 or beginning operation after
January 1, 2014 would be RMB0.90 per kWh, RMB0.95 per kWh or RMB1.00 per kWh, depending on the locations of the projects (excluding
on-grid solar power projects located in Tibet).
In addition, the 2013 Circular sets forth
special rules that entitle DG projects (excluding the projects that have received an investment subsidy from the central budget)
to a national subsidy of RMB0.42 per kWh. According to the
Circular on Further Implementing Polices Relating to Distributed
Generation
issued by the NEA on September 2, 2014 and the
Circular on Implementation Plans of PV Generation Construction
for 2015 issued by the NEA on March 16, 2015 and the
Circular on Implementation Plans of PV Generation Construction
for
2016 issued by the NEA on June 3, 2016, rooftop DG projects that sell electricity directly to consumers or to both consumers and
grid enterprises will receive a national subsidy of RMB0.42 per kWh plus the local desulphurized coal benchmark electricity price
for the electricity sold to the State Grid or a negotiated electricity purchase price for electricity sold directly to consumers.
Ground-mounted projects and rooftop DG projects which sell all electricity to grid enterprises are entitled to the FIT of RMB0.90
per kWh, RMB0.95 per kWh or RMB1.00 per kWh, depending on where the project is located (excluding on-grid solar power projects
located in Tibet).
Pursuant to the
Circular on Adjusting
Benchmark On-grid Tariffs for Photovoltaic Power Generation Projects and Onshore Wind Power
by the NDRC on December 26, 2016,
the benchmark electricity price for the newly-built PV generations after January 1, 2017 and newly-approved onshore wind power
after January 1, 2018 will be reduced. The benchmark electricity price for those newly-built PV generations in 2017 located in
the Class I Resource Area will be RMB0.65 per kWh, the price in Class II Resource Area is RMB0.75 per kWh, while in Class III
Resource Area is RMB0.75 per kWh. Meanwhile, the benchmark electricity price for PV generations will be adjusted on a yearly basis.
Pursuant to the
Circular on Adjusting
Benchmark On-grid Tariffs for Photovoltaic Power Generation Projects and Onshore Wind Power
by the NDRC on December 26, 2016,
the benchmark electricity price for the newly-built PV generations after January 1, 2017 and newly-approved onshore wind power
after January 1, 2018 will be reduced. The benchmark electricity price for those newly-built PV generations in 2017 located in
the Class I Resource Area will be RMB0.65 per kWh, the price in Class II Resource Area is RMB0.75 per kWh, while in Class III
Resource Area is RMB0.75 per kWh. Meanwhile, the benchmark electricity price for PV generations will be adjusted on a yearly basis.
The difference
(in amount) between the FIT for solar power projects and the desulphurized coal benchmark electricity price, or the subsidies
paid to DG projects, are funded by the renewable energy development funds. However, there have been delays in the processing of
the paperwork associated with these subsidies. The above FIT and subsidy policies are valid for 20 years for each power
generation project since its formal operation, in principle.
Subsidy Catalog
On November 29,
2011, the MOF, NDRC and NEA jointly issued the
Interim Measures for the Administration of Levy and Use of Renewable Energy
Development Fund
, which provides that development funds for renewable energy include designated funds arranged by the public
budget of national finance, and renewable energy tariff surcharge collected from electricity consumers. Solar power projects can
only receive central government subsidies after completing certain administrative and perfunctory procedures with the relevant
authorities of finance, price and energy to be listed in the Subsidy Catalog issued by the MOF, NDRC and NEA. These subsidies
represent the difference between the FIT for solar power projects and the desulphurized coal benchmark electricity price.
In order to be listed in the Subsidy Catalog,
ground-mounted projects submit applications to the relevant provincial authorities; and in accordance with the
Circular on Issues
Concerning Implementing Electric Quantity-based Subsidy Policy for Distributed Generation Projects
issued by the MOF on July
24, 2013, rooftop DG projects submit applications to the grid enterprises in the area where the projects are located. After preliminary
review of the applications, the provincial authorities will jointly report to the MOF, NDRC and NEA, and the MOF, NDRC and NEA
will have final review on such applications to decide whether to list in the Subsidy Catalog.
The following flow chart illustrates the
process for a utility-scale project to be listed in the Subsidy Catalog.
Development Funds of Renewable
Energy
The
Renewable Energy Law
provides
financial incentives, including national funding for the development of renewable energy projects.
Pursuant to the
Interim Measures
for the Administration of Designated Funds for the Development of Renewable Energy
issued by the MOF and effective on
April 2, 2015, the MOF sets up designated funds to support the development and utilization of renewable energy in accordance
with the national fiscal budget.
According to the
Implementing Measures
for the Administration of Price of Renewable Energy and Cost Sharing Program
issued by the NDRC on January 4, 2006, the gap
between the FIT for solar power projects and the desulphurized coal benchmark electricity price would be shared within the service
coverage of grid enterprises at or above provincial level.
Mandatory Purchase of Renewable
Energy
The
Renewable Energy Law
imposes
mandatory obligations on grid enterprises to purchase the full amount of on-grid electricity generated by approved renewable energy
plants whose power generation projects meet the grid connection technical standards in the areas covered by the grid enterprises’
power grids. Grid enterprises must improve the power grid construction in order to better absorb electricity generated from renewable
energy.
Pursuant to the
Measures for the Supervision
and the Administration of Purchase of Full Amount of Renewable Energy by Grid Companies
issued by the SERC in July 2007, the
SERC and its local branches supervise the purchase of the full amount of renewable energy by the grid enterprises. If the grid
enterprises do not purchase the full volume of the electricity generated from the renewable energy due to the circumstances such
as force majeure or any other circumstance endangering the safety and stability of the power grids, the grid enterprises must
promptly notify the renewable energy power generation companies of the details in writing and also submit detailed facts to the
competent local branches of the SERC.
The
Several Opinions on Promoting the
Healthy Development of PV Industry
issued by the State Council on July 4, 2013 also requires the grid enterprises to ensure
PV power generation projects’ timely connection to the power grid and purchase the full amount of electricity generated
by the PV power generation projects.
On March 20, 2015, the NDRC and NEA issued
a directive opinion, which emphasizes that the competent provincial authorities must strengthen the implementation of the provisions
with regard to the purchase of the full amount of electricity generated by renewable energy and avoid any curtailment of solar
power projects. In addition, it also stated that electricity generated by clean energy is encouraged to be sold directly to the
consumers in the regions where there is ample supply of clean energy, and the relevant parties must coordinate the trans-provincial
supply of electricity and power transmission capability, in order to maximize the utilization of clean energy. Local governments
also announced their intentions to efficiently implement the system regarding the purchase of the full amount of renewable energy,
such as the Inner Mongolian Autonomous Government.
Clean Development Mechanism
Clean Development Mechanism, or CDM, is
an arrangement under the Kyoto Protocol under the United Nations Framework Convention on Climate Change, or the UNFCCC. It allows
industrialized countries with a greenhouse gas emission reduction commitment to invest in emission reducing projects in developing
countries in order to earn Certified Emission Reduction, or CERs. The PRC approved and ratified the UNFCCC in 1993 and the Kyoto
Protocol in 2002, but has no binding obligation to meet the emission reduction targets. On August 3, 2011, the
Measures for
the Administration of Operation of Clean Development Mechanism Projects
promulgated by the NDRC jointly with the Ministry
of Science and Technology, the Ministry of Foreign Affairs and the MOF, sets forth general rules and specific requirements for
the application for, and approval of, CDM projects. Only companies wholly owned or controlled by PRC companies are qualified to
apply for the PRC government’s approval for a CDM project. Some of our solar power projects are on the list of CDM projects.
Environmental Protection
The construction processes of our solar
power projects generate material levels of noise, waste water, gaseous emissions and other industrial wastes. Therefore, we are
subject to a variety of government regulations related to the storage, use and disposal of hazardous materials and to the protection
of the environment of the community. The major environmental regulations applicable our business activities in the PRC include
the
Environmental Protection Law of the PRC
, the
Law on the Prevention and Control of Noise Pollution
, the
Law
on the Prevention and Control of Air Pollution
, the
Law on the Prevention and Control of Water Pollution
, the
Law
on the Prevention and Control of Solid Waste Pollution
, the
Environmental Impact Evaluation of Law
, and the
Regulations
on the Administration of Environmental Protection In Construction Projects
. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Business and Industry—Environmental, health and safety laws and regulations subject us
to extensive and increasingly stringent operational requirements, as well as potentially substantial liabilities arising out of
environmental contamination.”
Foreign Investment in Solar Power
Business
The principal regulation governing foreign
ownership of solar power businesses in the PRC is the
Foreign Investment Industrial Guidance Catalog (2017 Revision)
. Under
the current catalog, which was amended in 2017 and became effective on June 28, 2017, the solar power industry is classified as
an “encouraged foreign investment industry.” Foreign-invested enterprises in the encouraged foreign investment industry
are entitled to certain preferential treatment, such as exemption from tariff on equipment imported for their operations, after
obtaining approval from the PRC government authorities.
Work Safety
The
Work Safety Law of the PRC
,
which became effective on November 1, 2002 and amended on August 31, 2014 is the principal law governing the supervision and administration
of work safety for solar power projects. In accordance with the Measures for the Supervision and the Administration of Work Safety
of Electricity Industry promulgated by the NDRC, which became effective on March 1, 2015, power plants are responsible for maintaining
their safety operations in accordance with the relevant laws, regulations, rules and standards regarding the work safety. The
NEA and its local branches supervise and administer the work safety of electricity industry at the national and local level.
Employment
Pursuant to the
Labor Law of the PRC
,
the
Labor Contract Law of the PRC
and the
Implementing Regulations of the Labor Contract Law of the PRC
, employers
must enter into written employment contracts with full-time employees. If an employer fails to do so within one year from the
date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment
contract with the employee and pay the employee twice the employee’s salary for the period during which the written contract
is not signed. The Labor Contract Law and its implementing rules also require all employers must comply with local minimum wage
standards. If the wage paid to the employee by the employer is lower than the local minimum wage standard, the competent labor
authorities may order the employer to pay the difference; in the event of any failure to pay within the time limit, the employer
may be ordered to pay additional compensation to the employee at the standard of more than 50% but less than 100% of the payable
amount. Violations of the Labor Law, the Labor Contract Law and its implementing rules may result in the imposition of fines and
other administrative liabilities.
Enterprises in the PRC are required by
the PRC laws and regulations to participate in certain employee benefit plans covering pension insurance, unemployment insurance,
maternity insurance, work-related injury insurance, medical insurance and housing funds, and contribute to the plans or funds
in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local
government from time to time at locations where they operate their businesses or where they are located. According to the Social
Insurance Law of the PRC, which came into effect on July 1, 2011, an employer that fails to make social insurance contributions
may be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee at the rate of 0.05%
per day from the date on which the contribution becomes due. If the employer still fails to rectify the failure to make social
insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount
overdue. According to the Regulations on the Administration of Housing Fund, which came into force on March 24, 2002, an enterprise
that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within
a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement.
Taxation
See “Item 10. Additional Information—E.
Taxation—PRC Taxation.”
Foreign Currency Exchange
Foreign currency exchange regulation in
the PRC is primarily governed by the
Regulations on the Administration of Foreign Exchange
, and the
Provisions on the
Administration of Settlement, Sale and Payment of Foreign Exchange
. Currently, the Renminbi is convertible for current account
items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions. Conversion
of Renminbi for most capital account items, such as direct investment, security investment and repatriation of investment, however,
is still subject to registration with the SAFE. Foreign-invested enterprises may buy, sell and remit foreign currencies at financial
institutions engaged in foreign currency settlement and sale after providing valid commercial documents and, in the case of most
capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign enterprises are also subject
to limitations, which include approvals by the NDRC, the MOC, and registration with the SAFE.
In August 2008, the SAFE issued the
Circular
on the Relevant Operating Issues Concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency
Capital of Foreign-Invested Enterprises
, or the SAFE Circular No. 142, regulating the conversion by a foreign invested enterprise
of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. Pursuant to the SAFE Circular
No. 142, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used
for purposes within the business scope approved by the applicable government authority and may not be used for equity investments
within the PRC.
In addition, the SAFE strengthened
its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested
enterprises. The use of such RMB capital may not be changed without the SAFE’s approval, and such RMB capital may not
in any case be used to repay RMB-denominated loans if the proceeds of such loans have not been used. Violations may result in
severe monetary or other penalties. Furthermore, on March 30, 2015, the SAFE issued the
Circular on Reforming the
Administration Approach Regarding the Foreign Exchange Capital Settlement of Foreign-invested Enterprises
, or SAFE
Circular NO. 19, which replaced the SAFE Circular NO. 142 when it became effective on June 1, 2015. SAFE Circular NO. 19
provides that, among other things, the Renminbi capital converted from the foreign currency registered capital of a
foreign-invested enterprise may be used for equity investments within the PRC. There are uncertainties in interpretation and
implementation as to actual transactions according to SAFE Circular NO. 19.
In February 2012, the SAFE promulgated
the
Notice on the Administration of Foreign Exchange Matters for Domestic Individuals Participating in the Stock Incentive
Plans of Overseas Listed Companies
, or the Stock Option Notice. The Stock Option Notice replaced a prior rule issued by SAFE
in 2007, the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in an Employee Stock
Holding Plan or Stock Option Plan of an Overseas-Listed Company. Under the Stock Option Notice, domestic individuals who participate
in equity incentive plans of an overseas listed company are required, through a PRC agent or PRC subsidiary of such listed company,
to register with SAFE and complete certain other bank and reporting procedures. The Stock Option Notice simplifies the requirements
and procedures for the registration of stock incentive plan participants, especially in respect of the required application documents
and the absence of strict requirements on offshore and onshore custodian banks, as were stipulated in the previous rules.
In November 2012, the SAFE promulgated
the
Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment
which
substantially amended and simplified the current foreign exchange procedure. Pursuant to this circular, the opening of various
special purpose foreign exchange accounts (e.g. pre-establishment expenses account, foreign exchange capital account, guarantee
account), the reinvestment of lawful incomes derived by foreign investors in the PRC (e.g. profit, proceeds of equity transfer,
capital reduction, liquidation and early repatriation of investment), and purchase and remittance of foreign exchange as a result
of capital reduction, liquidation, early repatriation or share transfer in a foreign-invested enterprise no longer require the
SAFE’s approval, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible
before. In addition, the SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration
over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specified that the administration
by the SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration
and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information
provided by the SAFE and its branches.
On July 4, 2014, the SAFE issued the
Circular
on the Administration of Foreign Exchange Issues Related to Overseas Investment, Financing and Roundtrip Investment by Domestic
Residents through Offshore Special Purpose Vehicles
, or the SAFE Circular 37, which replaced the former circular commonly
known as “SAFE Circular 75” promulgated on October 21, 2005. The SAFE Circular 37 requires PRC residents to register
with the competent local SAFE branch in connection with their direct establishment or indirect control of an offshore special
purpose vehicle, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or
equity interests in domestic enterprises or offshore assets or interests. The SAFE Circular 37 further requires amendment to the
registration in the event of any significant changes with respect to the special purpose vehicle, such as any change of basic
information (including change of the PRC residents, name and operation term), increase or decrease of capital contribution by
the PRC residents, share transfer or exchange, merger, division or other material events. In the event that a PRC resident holding
interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose
vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border
foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital
into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result
in liability under the PRC law for evasion of foreign exchange controls.
On February 13, 2015, the SAFE promulgated
the
Circular on Further Simplification and Improvement of Foreign Currency Administration Policies on Direct Investment
,
which will be effective on June 1, 2015. This circular aim to further remove or simplify the approval requirements of SAFE upon
the direct investment by foreign investors.
On June 9, 2016, the SAFE promulgated the
Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts
(the
“Circular 16
”
), which expands the application scope from only the capital of the foreign-invested enterprises
to the capital, the foreign debt fund and the fund from oversea public offering. Also, Circular 16 allows the enterprises to use
their foreign exchange capitals under capital account allowed by the relevant laws and regulations. On January 26, 2017, the SAFE
issued the
Notice on Improving the Check of Authenticity and Compliance to further Promote Foreign Exchange Control
(the
“Circular 3”), which continuously implements and improves the policy for outward remittance of foreign exchange profit
generated from direct investment. In addition, Circular 3 expands the scope of settlement of exchange for domestic loans in foreign
currencies, and it is allowed to transfer inward overseas loans under domestic guarantee. The debtor may, directly or indirectly,
transfer inward the funds under guarantee by domestic lending, equity investment or other measures.
Dividend Distribution
The principal laws and regulations governing
distribution of dividends paid by wholly foreign owned enterprises include the
Company Law of the PRC
as amended on December
28, 2013, the
Wholly Foreign Owned Enterprise Law of the PRC
as amended on September 3, 2016 and the
Implementing Rules
of the Wholly Foreign Owned Enterprise Law of the PRC
as amended on February 19, 2014.
Under these laws and regulations, foreign-invested
enterprises in the PRC may pay dividends only out of their accumulated profits, if any, as determined in accordance with the PRC
accounting standards and regulations. In addition, a wholly foreign owned enterprise in the PRC is required to set aside as general
reserves at least 10% of its after-tax profit, until the accumulative amount of such reserves reaches 50% of its registered capital.
These reserves are not distributable as cash dividends. A wholly foreign owned enterprise is not permitted to distribute any profits
until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together
with distributable profits from the current fiscal year. A wholly foreign owned enterprise has the discretion to allocate a portion
of its after-tax profits to staff welfare and bonus funds and expansion funds, which may not be distributed to equity owners except
in the event of liquidation.
Intellectual Property Rights
Patent
The PRC has domestic laws for the protection
of rights in copyrights, patents, trademarks and trade secrets. The PRC is also a signatory to the world’s major intellectual
property conventions, including:
|
·
|
Convention establishing
the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);
|
|
·
|
Paris Convention
for the Protection of Industrial Property (March 19, 1985);
|
|
·
|
Patent Cooperation
Treaty (January 1, 1994); and
|
|
·
|
The Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).
|
Patents in the PRC are governed by the
Chinese Patent Law
(March 12, 1984), as amended and its Implementing Regulations (January 19, 1985), as amended.
The PRC is a signatory to the Paris Convention
for the Protection of Industrial Property, in accordance with which any person who has duly filed an application for a patent
in one signatory country shall enjoy, for the purposes of filing in the other countries, a right of priority during the period
fixed in the convention (12 months for inventions and utility models, and 6 months for industrial designs).
The Chinese Patent Law covers three kinds
of patents, namely, patents for inventions, utility models and designs. The Chinese patent system adopts the principle of first
to file, which means where multiple patent applications are filed for the same invention, a patent will be granted only to the
party that filed the application first. Consistent with international practice, the PRC only allows the patenting of inventions
or utility models that possess the characteristics of novelty, inventiveness and practical applicability. For a design to be patentable,
it must not be identical with or similar to any design which has been publicly disclosed in publications in the country or abroad
before the date of filing or has been publicly used in the country before the date of filing, and must not be in conflict with
any prior right of another.
PRC law provides that anyone wishing to
exploit the patent of another must enter into a written licensing contract with the patent holder and pay the patent holder a
fee. One rather broad exception to this, however, is where a party possesses the means to exploit a patent for inventions or utility
models but cannot obtain a license from the patent holder on reasonable terms and in a reasonable period of time, the SIPO, is
authorized to grant a compulsory license. A compulsory license can also be granted where a national emergency or any extraordinary
state of affairs occurs or where the public interest so requires. The patent holder may appeal such a decision within three months
from receiving notification by filing a suit in people’s court in the PRC.
PRC law defines patent infringement as
the exploitation of a patent without the authorization of the patent holder. A patent holder who believes his patent is being
infringed may file a civil suit or file a complaint with a local PRC intellectual property administrative authority, which may
order the infringer to stop the infringing acts. A preliminary injunction may be issued by the people’s court upon the patentee’s
or the interested parties’ request before any legal proceedings are instituted or during the proceedings. Evidence preservation
and property preservation measures are also available both before and during the litigation. Damages in the case of patent infringement
are determined as either the loss suffered by the patent holder arising from the infringement or the benefit gained by the infringer
from the infringement. If it is difficult to ascertain damages in this manner, damages may be determined with reference to the
license fee under a contractual license.
Trademark
The
PRC Trademark Law
, adopted in
1982 and revised in 1993, 2001 and 2013, with its implementation rules adopted in 2002 and as amended effective on May 1, 2014,
protects registered trademarks. The Trademark Office of the State Administration of Industry and Commerce handles trademark registrations
and grants trademark registrations for a term of ten years which are renewable upon maturity. Trademark license agreements must
be filed with the Trademark Office for record.
|
C.
|
Organizational Structure
|
The following table sets out our principal
subsidiaries as of December 10, 2018.
Subsidiaries
|
Place of Incorporation
|
Percentage of ownership
|
Solar Juice (HK) Limited
|
Hong Kong
|
100%
|
SolarBao E-commerce (HK) Limited
|
Hong Kong
|
100%
|
Yes Solar (HK) Limited
|
Hong Kong
|
100%
|
SPI Orange Power (HK) Limited
|
Hong Kong
|
100%
|
Green Energy Leasing (HK) Limited
|
Hong Kong
|
100%
|
B&J (HK) Trading Company Limited
|
Hong Kong
|
100%
|
SPI Renewable Energy (Luxembourg) Private Limited Company S.a.r.l.
(1)
|
Luxembourg
|
100%
|
Italsolar S.r.l.
|
Italy
|
100%
|
Yes! Solar Inc.
|
U.S.
|
100%
|
Yes Solar (MY) SdnBhd
|
Malaysia
|
100%
|
Yes Solar (SG) Pte Ltd
|
Singapore
|
100%
|
Yes Solar Holding Pte Ltd.
|
Singapore
|
100%
|
SPI Solar New Jersey, Inc.
|
U.S.
|
100%
|
Calwaii Power Holding, LLC
|
U.S.
|
100%
|
SPI Solar, Inc.
|
U.S.
|
100%
|
Solar Juice Pty Limited
|
Australia
|
80%
|
SPI Solar Japan G.K.
(2)
|
Japan
|
97%
|
Solar Hub Utilities, LLC
|
US
|
100%
|
JP Energy Partners, LP
|
US
|
100%
|
Solar Power Inc. UK Services Limited
|
U.K.
|
100%
|
Emotion Energy Solar One Limited
|
U.K.
|
100%
|
Cairnhill Solarfield Limited
|
U.K.
|
100%
|
Sinsin Renewable Investment Limited (Malta)
(3)
|
Greece
|
100%
|
_____________________
Notes:
|
(1)
|
SPI Renewable Energy (Luxembourg) Private Limited Company S.a.r.l.
holds two solar power project entities in Italy and two operation entities in Germany.
One of its entities in Germany filed insolvency in September 2017.
|
|
(2)
|
SPI Solar Japan G.K. holds four solar power project entities in
Japan.
|
|
(3)
|
Sinsin Renewable Investment Limited (Malta) holds four solar power project entities in Greece, which has
been deconsolidated in the year of 2017 due to loss of control.
|
|
D.
|
Property, Plant and Equipment
|
Our global corporate headquarters are located
in Hong Kong SAR, China, which occupies approximately
190
square meters and is under a two-year
lease that expires on December 31 2019. We have leased office premises of an aggregate of approximately 200 square meters in Suzhou,
Jiangsu Province. We occupy approximately 3,300 square feet of office space in Santa Clara, California, for legal and business
development, under a lease that expires in June 30 2021. We occupy approximately 114 square meters of office space in Athens,
the headquarters of the four Greek SPVs, under a monthly lease that expires on May, 2019. We occupy approximately 350 square feet
of office space in
London
for operations and business development under a lease which renews every six months. We lease approximately 2,155 square meters
of office space and warehouse space in Wetherill Park, Sydney, which expires on July 31, 2021.
|
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS
|
None.
|
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
You should read the following
discussion and analysis in conjunction with our financial statements and the related notes appearing elsewhere in this annual
report on Form 20-F. This discussion may contain forward-looking statements based on current expectations that involve risks
and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result
of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts
of this annual report on Form 20-F.
We are a global provider of photovoltaic
(PV) solutions for business, residential, government and utility customers and investors. Our focus is in the EPC/BT, storage
and PV markets, including the development, financing, installation, operation and sale of utility-scale and residential PV projects
in China, Japan, Europe and North America. We operate an online energy e-commerce and investment platform in China, as well as
B2B e-commerce platform offering a range of PV and storage products in Australia. Prior to 2014, we were primarily engaged in
providing EPC services to developers in the U.S. We also engaged in the development, manufacture and marketing of a variety of
PV modules, the key components of a solar project that convert sunlight into electricity, and balance-of-system components, including
our in-house brand. In 2014, we expanded our full spectrum EPC service business to China, where we provide comprehensive and quality
services to large solar projects developers in China. In the same year, we commenced our global project development business by
ramping up our portfolio of global solar projects, including projects that we plan to hold in the long term and derive electricity
generation revenue from under our IPP model, and projects that we plan to sell in the future when we are presented with attractive
opportunities under our build-and-transfer model, or BT model. Solar projects in our current portfolio include projects at all
stages of development, including projects in operation, projects under construction and projects in pipeline. For detailed information
on our project portfolio, please see “Item 4. Information on the Company—B. Business Overview—Our Global Project
Development Business—Our Solar Project Portfolio.” We grow our project portfolio primarily through acquisitions and
acting as a secondary developer for the projects under construction or in pipeline when they are acquired. Although we derived
substantially all of our revenue in 2014 and 2015 from EPC services, our sales of PV solar systems accounted for the largest portion
of our total revenue and we expect to derive an increasing percentage of our revenue from electricity generation from our IPP
solar projects and sale of our BT solar projects as our global project development business expands.
Our liquidity position
deteriorated since 2015. In 2015, we raised $65.0 million by issuing shares of SPI’s common stock and $20.0 million by issuing
convertible notes, in reliance on Regulation S, to non-U.S. investors. In 2016, we have had various private placements to raise
additional capital. See “Item 4. Information on the Company— A. History and Development of the Company.” Our
loss from operations increased significantly from $185.1 million in 2015 to $220.7 million in 2016, and kept suffering from
loss of $91.0 million in 2017. We also had an accumulated deficit of $557.8 million and a working capital deficit of $255.0 million
as of December 31, 2017. For a detailed discussion, please see “Item 5. Operating and Financial Review and Prospects—B.
Liquidity and Capital Resources—Capital Resources and Material Known Facts on Liquidity.”
These may raise substantial doubt about
our ability to continue as a going concern. We have developed a liquidity plan, including restructuring of liabilities, project
assets financing, commitments to invest by existing shareholders and management members, delays in capital expenditures and improvements
in working capital management. We believe this liquidity plan, if executed successfully, will provide sufficient liquidity to
meet our obligations for a reasonable period of time. Please refer to Note 2(a) to our consolidated financial statements
appearing elsewhere in this annual report. However, we cannot assure you that this liquidity plan will be successfully executed.
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
EPC service providers and solar project developers like us with significant opportunities to grow our business.
Many markets
in the PV industry continue to be affected by government subsidies and economic incentives. A number of countries have introduced
highly favorable FIT price support regimes. For example, Japan, which has a high demand for power and low domestic fossil fuel
reserves, faces relatively high energy costs. As a result, the Japanese government has introduced an attractive FIT price support
regime to encourage the development of solar parks. In 2016, the United Kingdom reduced its FIT for all technologies by 65% at
the national level. In Asia, several countries reduced their FIT rates. For example, China reduced its solar FIT by 13-19% in
2017. Japan reduced its solar FIT by 12.5% for 2017 and aims for cuts of 10% or more in the next two years. While governments
generally ratchet down PV subsidies over time to reflect anticipated declines in the system costs of solar parks, the ratchet
down schedules often underestimate our actual realized decrease in costs thus their effect on our margins is manageable. To foster
our growth, we have shifted our focus away from countries with less favorable subsidy regimes and towards countries with more
favorable subsidy regimes.
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.
Access to Adequate Financing on Competitive Terms
We require large capital investments to
expand our project pipeline. Historically, apart from our own operating cash flows, we have relied on private placements, bank
borrowings, financial leases as well as other third-party financing options for our construction of solar projects. A project’s
construction costs are mainly funded by our working capital. We generally negotiate favorable credit terms with our equipment
suppliers or EPC contractors, such that payment is not due until several months after construction and grid connection are complete.
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
China, 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, FIT, tax credits, net
metering and other incentives to end users, distributors, project developers, system integrators and manufacturers of solar power
products.
Governments may
reduce or eliminate existing incentive programs for political, financial or other reasons, which will be difficult for us to predict.
Reductions in FIT programs may result in a significant fall in the price of and demand for solar power related products. Our revenue
and operating results may be adversely impacted by unfavorable policy revisions, such as reductions FIT in the United States and
China, our two largest markets, and certain major markets for our PV solutions. 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.
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.
Selected Statement of Operations Items
Revenue
We derived substantially
all of our revenue from provision of EPC services in 2015 and from our sales of PV solar systems, our provision of EPC services
and our Australian subsidiary, Solar Juice’s trading of PV solar components in 2016. The revenue in 2017 was mainly derived
from Solar Juice’s trading of PV solar components.
The following table sets forth a breakdown
of our revenue by category of activities for the periods indicated:
|
|
For the year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
($ in thousands except percentage)
|
|
Sales of PV solar systems
|
|
|
77,438
|
|
|
|
40.6%
|
|
|
|
14,914
|
|
|
|
10.6%
|
|
|
|
6,042
|
|
|
|
4.7%
|
|
EPC revenue
|
|
|
48,014
|
|
|
|
25.2%
|
|
|
|
13,493
|
|
|
|
9.6%
|
|
|
|
–
|
|
|
|
–
|
|
Sales of PV solar components
|
|
|
41,623
|
|
|
|
21.8%
|
|
|
|
90,108
|
|
|
|
64.3%
|
|
|
|
113,930
|
|
|
|
89.4%
|
|
Electricity revenue with PPAs
|
|
|
16,226
|
|
|
|
8.5%
|
|
|
|
16,022
|
|
|
|
11.4%
|
|
|
|
5,875
|
|
|
|
4.6%
|
|
Pre-development project sales
|
|
|
4,545
|
|
|
|
2.4%
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Financial service revenue
|
|
|
1,486
|
|
|
|
0.8%
|
|
|
|
4,387
|
|
|
|
3.2%
|
|
|
|
695
|
|
|
|
0.5%
|
|
Others
|
|
|
1,178
|
|
|
|
0.7%
|
|
|
|
1,275
|
|
|
|
0.9%
|
|
|
|
923
|
|
|
|
0.8%
|
|
Total
|
|
|
190,510
|
|
|
|
100.0%
|
|
|
|
140,199
|
|
|
|
100.0%
|
|
|
|
127,465
|
|
|
|
100.0%
|
|
Cost of Goods Sold
Our cost of goods
sold consist primarily of raw materials and labor cost. In the years ended December 31, 2015, 2016 and 2017, we had cost
of goods sold of $182.4 million, $121.3 million and $117.7 million, respectively.
Operating Expenses
In the years
ended December 31, 2015, 2016 and 2017, our operating expenses consisted of (1) general and administrative
expenses, (2) sales, marketing and customer service expenses, (3) impairment charges and (4) engineering, design
and product management expenses.
General and administrative
expenses
. Our general and administrative expenses consist primarily of salaries and stock based compensation expense, rental
and office supplies expenses. In the years ended December 31, 2015, 2016 and 2017, our general and administrative expenses
were $76.7 million, $34.3 million and $22.4 million, respectively.
Sales, marketing
and customer service expenses
. Our sales, marketing and customer service expenses consist primarily of advertising expense,
business development expense and salaries. In the years ended December 31, 2015, 2016 and 2017, our sales, marketing and customer
service expenses were $39.4 million, $29.2 million and $7.7 million, respectively.
Provision for doubtful
accounts, notes and other receivables
. In the years ended December 31, 2015, 2016 and 2017, our provision for doubtful
accounts and notes were negative $45.3 million, $30.5 million and $9.0 million, respectively.
Impairment
charges
. Our impairment charges consist of impairment charges for project assets, goodwill and intangible assets, finance
lease receivable, property, plant and equipment and etc. In the years ended December 31, 2015, 2016 and 2017, our impairment
charges were, $10.9 million, $125.0 million and $32.0 million, respectively.
Other Income (Expense)
In the years ended
December 31, 2015, 2016 and 2017, our other income (expense) includes interest expense, interest income, gain on extinguishment
of convertible bonds, change in fair value of derivative asset/liability, loss on investment in affiliates, net foreign exchange
gain and others.
Interest
expense
. Our interest expense arises from borrowings. In the years ended December 31, 2015, 2016 and 2017, our interest
expense was $9.3 million, $9.0 million and $18.4 million, respectively.
Interest income
.
Our interest income arises from cash deposited in banks. In the years ended December 31, 2015, 2016 and 2017, our interest
income was $2.2 million, $1.2 million and $0.5 million, respectively.
Gain on extinguishment
of convertible bonds.
We recorded a gain on extinguishment of convertible bonds of $7.1 million in 2017, due to the extension
of a convertible bond agreement that we entered into with Union Sky Holdings Group Limited.
Change in fair
value of derivative asset/liability
. We recorded a $15.7 million decrease in fair value of derivative assets in 2015 and a
$2.3 million decrease in fair value of derivative assets in 2016, primarily related to the fair value change of convertible preferred
stock and warrants related to our investment in ENS.
Tax penalty
.
We recorded a $9.7 million expected tax penalty in 2017 for late filing of Federal and State income tax returns.
Loss on investment
in affiliates
. We recorded a loss on investment in affiliates of $2.5 million in 2015, which arose from our investment in
ENS. We recorded a loss on investment in affiliates of $10.6 million in 2016, which arose from our investment in ENS and Dingding
Yiwei. See “—Comparison of the year ended December 31, 2016 to the year ended December 31, 2015.”
We recorded a loss on investment in affiliates of $2.5 million which mainly arose from further impairment on our investment in
ENS in 2017.
Other gains or
expenses.
We had other gains of $5.0 million in 2015, primarily related to foreign exchange gains from the depreciation of
RMB against the U.S. dollar, as we had net liability in RMB. We have other loss of $6.3 million in 2017 which primarily caused
by the foreign exchange loss from appreciation of EUR against the U.S. dollar.
Income Tax
The following table
sets forth our loss before income taxes attributable to the relevant geographic locations for the periods indicated:
|
|
For the year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
($ in thousands)
|
|
United States
|
|
|
(75,336
|
)
|
|
|
(102,483
|
)
|
|
|
(24,757
|
)
|
Foreign
|
|
|
(109,071
|
)
|
|
|
(118,149
|
)
|
|
|
(66,051
|
)
|
Total
|
|
|
(184,407
|
)
|
|
|
(220,632
|
)
|
|
|
(90,808
|
)
|
Cayman Islands
We are incorporated
in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to income or capital gains tax in the Cayman
Islands. Payments of dividends and capital in respect of our Shares will not be subject to taxation in the Cayman Islands and no
withholding will be required on the payment of a dividend or capital to any holder of our Shares, nor will gains derived from the
disposal of our Shares be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation
or capital gains tax and no estate duty, inheritance tax or gift tax.
United States
We and our subsidiaries organized in the
United States are subject to U.S. federal income tax at a rate of up to 35%.
On December 22, 2017,
the U.S. enacted the Tax Cuts and Jobs Act (“TCJA” or the “Act”) (which is commonly referred to as “U.S.
tax reform”). Among other provisions, the Act reduces the top U.S. federal corporate tax rate from 35% to 21%, requires
companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, changes
the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31,
2017, and creates new taxes on certain foreign sourced earnings. The Company has reflected the changes resulting from the Act
in the financial statements for the period of enactment, the year ended December 31, 2017. The change in corporate rate resulted
in a $23.2 million decrease in the Company's gross deferred tax assets, with an offsetting decrease in valuation allowance of
the same amount. The Company is not subject to a one-time repatriation tax as no aggregate foreign accumulated earnings and profits
existed in the foreign subsidiaries as of December 31, 2017. The Company will account for future tax liability arising from Global
Intangible Low-Taxed Income, if any, as a period cost.
Hong Kong
Our subsidiaries incorporated
in Hong Kong are subject to the uniform tax rate of 16.5%. Under Hong Kong tax law, they are exempted from the Hong Kong income
tax on its foreign-derived income and there are no withholding taxes in Hong Kong on the remittance of dividends. No provision
for Hong Kong tax has been made in our consolidated financial statements, as our Hong Kong subsidiary had not generated any assessable
income for the years ended December 31, 2015, 2016 and 2017.
PRC
Our subsidiaries incorporated in the PRC
are subject to a statutory corporate income tax rate of 25%.
See “Item 10. Additional Information—E.
Taxation” for more information.
Critical Accounting Policies and Estimates
Principles of Consolidation
The consolidated financial statements include
the financial statements of our Company, our subsidiaries, and consolidated VIEs. All material inter-company transactions and
balances have been eliminated upon consolidation. For consolidated subsidiaries where our ownership in the subsidiary is less
than 100%, the equity interest not held by us is shown as non-controlling interests. We account for investments over which it
has significant influence but not a controlling financial interest using the equity method of accounting. We deconsolidate a subsidiary
when we cease to have a controlling financial interest in the subsidiary. When control is lost, the parent-subsidiary relationship
no longer exists and the parent derecognizes the assets and liabilities of the subsidiary.
Revenue Recognition
Product Sales
—Revenue on product sales is recognized when there is persuasive evidence of an arrangement, title and risk of ownership
have passed (generally upon delivery), the price to the buyer is fixed or determinable and collectability is reasonably assured.
We make determination of our customer’s credit worthiness at the time it accepts their initial order. For cable, wire and
mechanical assembly sales, there are no formal customer acceptance requirements or further obligations related to our assembly
services once we ship its products. Costs to ship products to customers are included in cost of sales in the consolidated statement
of operations. Customers do not have a general right of return on products shipped therefore we makes no provisions for returns.
Construction Contracts
—Revenue
on photovoltaic system construction contracts is generally recognized using the percentage-of-completion method of accounting,
unless we cannot make reasonably dependable estimates of the costs to complete the contract or the contact value is not fixed,
in which case we would use the completed contract method. Under the percentage-of-completion method, we measure the cost incurred
on each project at the end of each reporting period and compares the result against the estimated total costs at completion. The
costs incurred for construction contract mainly include the purchase costs of direct materials and solar modules, which are included
in assessing percentage-of-completion when they have been permanently placed or affixed to the solar power system as required
by engineering designs. The percentage of cost incurred determines the amount of revenue to be recognized. Payment terms are generally
defined by the contract and as a result may not match the timing of the costs incurred by us and the earnings accrued thereon.
Such differences are recorded as costs and estimated earnings in excess of billings on uncompleted contracts (an asset account)
or billings in excess of costs and estimated earnings on uncompleted contracts (a liability account). For the years ended December 31,
2017, 2016 and 2015, nil, $2.4 million and $2.2 million of progress payments have been netted against unbilled receivable disclosed
in the account costs and estimated earnings in excess of billings on uncompleted contracts.
The percentage-of-completion
method requires the use of various estimates, including, among others, the extent of progress towards completion, contract revenues
and contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates,
including direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies,
tools, repairs, and depreciation costs. We have a history of making reasonable estimates of the extent of progress towards completion,
contract revenues and contract completion costs. However, due to uncertainties inherent in the estimation process, it is possible
that actual contract revenues and completion costs may vary from estimates. Under the completed-contract method, contract costs
are recorded to a deferred project costs account and cash received are recorded to a liability account during the periods of construction.
All revenues, costs, and profits are recognized in operations upon completion of the contract. A contract is considered complete
and revenue recognized when all costs except insignificant items have been incurred and final acceptance has been received from
the customer and receivables are deemed to be collectible. Provisions for estimated losses on uncompleted contracts, if any, are
recognized in the period in which the loss first becomes probable and reasonably estimable. For each of the years ended December 31,
2017, 2016 and 2015, no estimated losses on uncompleted contracts have been recorded.
Sales of Project Assets
—We recognize the revenue for project assets sales with the concurrent sale or the concurrent
lease of the underlying land, whether explicit or implicit in the transaction, in accordance with ASC 360-20, Real Estate Sales.
For these transactions, we have determined that the project asset sale represents the sale of real estate and is therefore subject
to the revenue recognition guidance applicable to real estate. A PV solar system is determined to be integral equipment when the
cost to remove the equipment from its existing location, ship and reinstall at a new site, including any diminution in fair value,
exceeds ten percent of the fair value of the equipment at the time of original installation. Generally, we recognize revenue and
profit using the full accrual method once the sale is consummated, the buyer’s initial and continuing investments are adequate
to demonstrate its commitment to pay, the receivable from buyer is not subject to any future subordination, and we have transferred
the usual risk and rewards of ownership to the buyer and does not have a substantial continuing involvement with the project assets.
If the criteria for
recognition under the full accrual method are met except that the buyer’s initial and continuing investment is less than
the level determined to be adequate, then we will recognize revenue using the installment method. Under the installment method,
we recognize revenue up to the costs incurred and apportion each cash receipt from the buyer between cost recovered and profit
in the same ratio as total cost and total profit bear to the sales value.
If we retain some continuing
involvement with the project assets and does not transfer substantially all of the risks and rewards of ownership, profit shall
be recognized by a method determined by the nature and extent of the continuing involvement, provided the other criteria for the
full accrual method are met. In certain cases, we may provide the customers guarantees of system performance or uptime for a limited
period of time and our exposure to loss is contractually limited based on the terms of the applicable agreement. In accordance
with real estate sales accounting guidance, the profit recognized is reduced by the maximum exposure to loss (and not necessarily
the most probable exposure), until such time that the exposure no longer exists.
Other forms of continuing
involvement that do not transfer substantially all of the risks and rewards of ownership preclude revenue recognition under real
estate accounting and require us to account for any cash payments using either the deposit or financing method. Such forms of continuing
involvement may include contract default or breach remedies that provide us with the option or obligation to repurchase the project
assets. Under the deposit method, cash payments received from customers are reported as deferred revenue for the project assets
on the consolidated balance sheet, and under the financing method, cash payments received from customers are considered debt and
reported as the financing and capital lease obligations on the consolidated balance sheet.
Finance Services
Revenue
—We record financial services revenue associated with finance leases. We record a finance lease receivable and
de-recognizes the leased equipment at lease inception. The finance lease receivable is recorded at the aggregate future minimum
lease payments, estimated unguaranteed residual value of the leased equipment less unearned income. Residual values, which are
reviewed periodically, represent the estimated amount we expect to receive at lease termination from the disposition of the leased
equipment. Actual residual values realized could differ from these estimates. The unearned income is recognized in Net sales-financial
service revenue in the consolidated statements of operations over the lease term, in a manner that produces a constant rate of
return on the lease.
The lease receivables
expected to be received within one year after the balance sheet date is classified as current finance lease receivable and the
lease receivable expected to be received over one year after the balance sheet date is classified as noncurrent finance lease receivable.
We raised funds
from individual investors through the on-line platform of Meijv (and Solar Energy prior to March 2016) to purchase solar
related products for leasing to third party project developer. Although a tri-party lease agreement is signed among the individual
investors, we and the third party developer with individual investors as legal lessor and the third party developers as legal
lessee, we are considered as the accounting lessor in substance because 1) the lease terms, rate of return on the investment funds
from individual investors, the initial purchase price and the lease rental of the solar related products payable by the PV developers
and the purchase contract of the solar related products entered with manufacturer are negotiated and concluded by us without any
involvement by the individual investors; and 2) although we do not grant redemption right or guarantee repayment in respect of
funds provided by individual investors and the return they are entitled to, we are expected to repay the funds and return under
industry practice in the PRC. Accordingly, the individual investors do not take credit risk in respect of any default payment
by the lessee nor risk of claim on the leased assets; 3) we are subject to the credit risk as a principal of the lease transaction
and exposes to the reputational and business risk to return the funds to the individual investors and assume the title of the
leased asset after the lock-up period. In substance, the individual investors provided funds (as lender) to finance we (as borrower)
for its purchases of the Underlying PV Products for leasing to third party in return for a fixed return. In this regard, lease
accounting is adopted with Group as accounting lessor and the third-party developer as accounting lessee under finance lease in
our consolidated financial statements upon the inception of the leases.
Since
2017, the third party developers defaulted the payment which indicated that the collectability is not reasonably assured. Accordingly,
we recognized financial service revenue only when received cash payment from lessees. We recognized interest earned on finance
leases, for finance lease as “Net sales-financial service revenue” in the amount of $0.7 million, $4.4 million and
$1.5 million in 2017, 2016 and 2015, respectively.
In connection with the launch of the above
financing and leasing products, we issued coupons to certain third-party vendors with total face value of nil, $2.0 million and
$10.9 million for the years ended December 31, 2017, 2016 and 2015. These coupons are freely transferrable between holders but
could not be redeemed in cash. Each coupon has an expiry date for redemption. Prior to the expiry date, when the holders subscribe
the on-line products through the on-line platform, the holders could redeem the coupons such that the original purchase price to
be paid for the on-line products would be reduced by the face value of the coupons.
For the years
ended December 31, 2017, 2016 and 2015, coupons totaling nil, $2.0 million and $10.9 million were recorded as settlement of those
third-party vendors’ trade payable balance and were reclassified as other current liabilities when the coupons are received
by vendors on the above basis. As of December 31, 2017 and 2016, all coupons issued to these counterparties had been expired or
redeemed.
In order to promote
the above on-line products on the platform, we offered, from time to time, discount from 5% to 20% on the unit value for investment
units subscribed by individual investors. The discount offered for on-line products subscribed by individual investors is amortized
as interest expense using the effective interest rate method through the end of the lock-up period or maturity date, which is
the earliest date that we could be required to repay the unit value in respect of the investment made by individual investors.
As of December 31, 2017 and 2016, the unamortized discount balances of total discount offered were nil and $0.5 million, respectively.
For the years ended December 31, 2017, 2016 and 2015, discount balances of $1.0 million, $1.2 million and $3.2 million have been
amortized as interest expenses respectively.
Services Revenue
Under Power Purchase Agreements
—We derive services revenues from PV solar systems held for own use through the sale
of energy to grid operators pursuant to terms set forth in power purchase agreements or local government regulations (“PPAs”).
We have determined that none of the PPAs contains a lease since (i) the purchaser does not have the rights to operate the
project assets, (ii) the purchaser does not have the rights to control physical access to the project assets, and (iii) the
price that the purchaser pays is at a fixed price per unit of output. Revenue is recognized based upon the output of electricity
delivered multiplied by the rates specified in the PPAs, assuming all other revenue recognition criteria are met.
Operation and maintenance
service revenue
—Operation and maintenance revenue is billed and recognized as services are performed. Costs of these
revenues are expensed in the period they are incurred.
Product Warranties
We offer the industry
standard warranty up to 25 years for PV modules and industry standard warranty for five to ten years on inverter and balance of
system components. Due to the warranty period, we bear the risk of extensive warranty claims long after products have been shipped
and revenues have been recognized. We provide a limited warranty to the original purchasers of its solar modules, inverters and
cables for trading business for one to five years, in relation to defects in materials and workmanship. For our cable, wire and
mechanical assemblies business, historically the related warranty claims have not been material. For our solar PV business, the
greatest warranty exposure is in the form of product replacement.
During the quarter
ended September 30, 2007 and continuing through the fourth quarter of 2010, we installed own manufactured solar panels. Other
than this period, we only installed panels manufactured by unrelated third parties as well as the Company’s principal shareholder
and formerly controlling shareholder, LDK and its subsidiaries (collectively the “LDK Group”). PV construction contracts
entered into during the recent years included provisions under which we agreed to provide warranties to the customers. The warranty
we offer to its customers is identical to the warranty offered to us by its suppliers, therefore, we pass on all potential warranty
exposure and claims, if any, with respect systems sold by us to its suppliers. Due to the absence of historical material warranty
claims and identical warranty terms, we have not recorded any additional warranty provision relating to solar energy systems sold
since 2011. The warranty exposure before 2011 was estimated based on our own historical data in combination with historical data
reported by other solar system installers and manufacturers.
Impairment of Long-lived Assets
Our long-lived
assets include property, plant and equipment, project assets and other intangible assets with finite lives. We evaluate long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash
flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset
or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying
amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models,
quoted market values and third-party independent appraisals, as considered necessary. Any impairment write-downs would be treated
as permanent reductions in the carrying amounts of the assets and a charge to operations would be recognized. Impairment losses
on project assets of $4.0 million, $13.8 million and $10.9 million was recognized for the years ended December 31, 2017,
2016 and 2015, respectively. Impairment loss on property, plant and equipment of $3.8 million, $12.6 million and nil was recognized
for the years ended December 31, 2017, 2016 and 2015, respectively. Impairment loss on intangible assets of $0.2 million,
$1.2 million and nil was recognized for the years ended December 31, 2017, 2016 and 2015, respectively.
Inventories
Inventories are carried
at the lower of cost or market, determined by the first in first out cost method. Provisions are made for obsolete or slow-moving
inventories based on management estimates. Inventories are written down based on the difference between the cost of inventories
and the market value based upon estimates about future demand from customers, specific customer requirements on certain projects
and other factors. Inventory provision charges establish a new cost basis for inventory that subsequently cannot be marked up based
on changes in underlying facts and circumstances.
Stock-Based Compensation
Our share-based payment
transactions with employees, such as restricted shares and share options, are measured based on the grant-date fair value of the
equity instrument issued. The fair value of the award is recognized as compensation expense, net of estimated forfeitures, over
the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period.
Accounts Receivables and Allowance for Doubtful Accounts
We grant open credit
terms to credit-worthy customers. Accounts receivable are primarily related to our EPC contracts. For EPC contracts in the PRC,
we normally request a down payment of 3%-10% upon signing of contract, payment of up to 90%-95% in 90 days after connection to
the grid and customers’ acceptances of project completion, and the remaining balance of 5%-10% one year thereafter. For EPC
projects in other countries, the payment terms were normally negotiated based on achievement of certain contractual milestones
as follows: 5% payment upon submittal of engineering documents, 75% payment upon delivery of certain procurements, 10% payment
upon completion of construction, and remaining 10% payment 30 days after final completion. Contractually, we may charge interest
for extended payment terms and require collateral.
We maintain allowances
for doubtful accounts and for costs and estimated earnings in excess of billings on uncompleted contracts for uncollectible accounts
receivable. We regularly monitor and assess the risk of not collecting amounts owed by customers. This evaluation is based upon
a variety of factors, including an analysis of amounts current and past due along with relevant history and facts particular to
the customer. We do not have any off-balance-sheet credit exposure related to its customers.
Project Assets
We acquire or construct
PV solar power systems (“project assets”) that are (i) held for development and sale or (ii) held for our
own use to generate income or return from the use of the project assets. Project assets are classified as either held for development
and sale or as held for use within property, plant and equipment based on our intended use of project assets. We determine the
intended use of the project assets upon acquisition or commencement of project construction.
Classification of the
project assets affects the accounting and presentation in the consolidated financial statements. Transactions related to the project
assets held for development and sale are classified as operating activities in the consolidated statements of cash flows and reported
as sales and costs of goods sold in the consolidated statements of operations upon the sale of the project assets and fulfillment
of the relevant recognition criteria. Incidental electricity income generated from the project assets held for development and
sale prior to the sale of the projects is recorded in other operating income in the consolidated statement of operations. The project
assets held for use are used by us in its operations to generate income or a return from the use of the assets. Income generated
from the project assets held for use are included in net sales in the consolidated statement of operations. The costs to construct
project assets intended to be held for own use are capitalized and reported within property, plant and equipment on the consolidated
balance sheets and are presented as cash outflows from investing activities in the consolidated statements of cash flows. The proceeds
from disposal of project assets classified as held for own use are presented as cash inflows from investing activities within the
consolidated statements of cash flows. A net gain or loss upon the disposal of project assets classified as held for own use is
reported in other operating income or expense in the consolidated statement of operation.
Project assets costs
consist primarily of capitalizable costs for items such as permits and licenses, acquired land or land use rights, and work-in-process.
Work-in-process includes materials and modules, construction, installation and labor, capitalized interests and other capitalizable
costs incurred to construct the PV solar power systems.
The project assets
held for development and sale are reported as current assets on the consolidated balance sheets when upon completion of the construction
of the project assets, we initiate a plan to actively market the project assets for immediate sale in their present condition to
potential third party buyers subject to terms that are usual and customary for sales of these types assets and it is probable that
the project assets will be sold within one year. Otherwise, the project assets held for development and sale are reported as non-current
assets.
No depreciation expense
is recognized while the project assets are under construction or classified as held for sale.
For project assets
held for development and sale, we consider a project commercially viable if it is anticipated to be sold for a profit once it
is either fully developed or fully constructed. We also consider a partially developed or partially constructed project commercially
viable if the anticipated selling price is higher than the carrying value of the related project assets plus the estimated cost
to completion. We consider a number of factors, including changes in environmental, ecological, permitting, market pricing or
regulatory conditions that affect the project. Such changes may cause the cost of the project to increase or the selling price
of the project to decrease. We record an impairment loss of the project asset to the extent the carrying value exceed its estimated
recoverable amount. The recoverable amount is estimated based on the anticipated sales proceeds reduced by estimated cost to complete
such sales. In 2017, 2016 and 2015, we recorded impairment loss of $0.6 million, $5.1 million and $5.9 million, respectively,
for certain project assets held for development and sale.
In addition to
PV solar power systems that are developed for sale or held for our own use, we also invested in several PV solar power projects
under engineering, procurement and construction (“EPC”) contracts with third party project owners during the years
ended December 31, 2016, 2015 and 2014. In respect of these EPC contracts, there was mutual understanding between us and
the respective project owners upon the execution of the EPC contracts that the title and ownership of the PV solar power systems
would transfer to us upon the completion of construction. Management determined that the substance of the arrangements is for
us to construct the PV solar power systems under the legal title of the project owners with the title and ownership of the systems
transferred to us upon the construction completion, at which time such title transfer is permitted under local laws. The project
assets under construction were pledged to us before title transfer. Like normal project assets, classification in consolidated
statement of cash flow as investing activities or operating activities for these project assets are based on the intention for
own use or sale. Based on our intention to hold for own use, the projects costs incurred for these EPC contracts are presented
as investing activities in the consolidated statement of cash flows. We recorded impairment loss for such project assets of $3.4
million, $8.7 million and $10.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Income Taxes
We account for income
taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred
tax asset will not be realized.
The Company recognizes
in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained
upon examination, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not
recognition threshold, management presumes that the position will be examined by the appropriate taxing authority that has full
knowledge of all relevant information. In addition, a tax position that meets the more-likely-than-not recognition threshold is
measured to determine the amount of benefit to be recognized in the financial statements. The tax position is measured at the largest
amount of benefit that is greater than 50 percent likely of being realized upon settlement. Our tax liability associated with unrecognized
tax benefits is adjusted periodically due to changing circumstances, such as the progress of the tax audits, case law developments
and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. We
record interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the
consolidated statements of operations. No reserve for uncertainty tax position was recorded by us for the years ended December 31,
2017, 2016 and 2015.
Recent Accounting Pronouncements
In May 2014,
the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance
in U.S. GAAP when it becomes effective. This ASU was originally effective for fiscal years and interim periods beginning after
December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (“ASU 2015-14”),
which amends ASU 2014-09 and defers its effective date to fiscal years and interim reporting periods beginning after December
15, 2017. ASU 2015-14 permits earlier application only as of annual reporting periods beginning after December 15, 2016, including
interim reporting periods within that reporting period. The standard allows for either a full retrospective or modified retrospective
transition method. In March and April 2016, the FASB issued the following amendments to clarify the implementation guidance: ASU
No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross
versus Net) and ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.
In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic
606), Leases (Topic 840), and Leases (Topic 842) adds SEC paragraphs pursuant to an SEC Staff Announcement made at the July 20,
2017 EITF Meeting, which addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with
Customers (Topic 606), and No. 2016-02, Leases (Topic 842). We are currently evaluating the impact of adopting ASU 2016-02 and
ASU 2018-11 on the consolidated financial statements.
In February 2016,
the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following
for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s
obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is
an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the
new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor
accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified
the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities.
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified
retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases
that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition
approach. ASU 2016-02 is effective for public companies for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years, with early adoption permitted. In July 2018, the FASB issued Accounting Standards Update (ASU)
2018-11, Lease (Topic 842) Targeted Improvements. The amendments in this Update provide entities with an additional (and optional)
transition method to adopt the new leases standard and provide lessors with a practical expedient, by class of underlying asset,
to not separate nonlease components from the associated lease component and, instead, to account for those components as a single
component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606). We are currently
evaluating the impact of adopting ASU 2016-02 and ASU 2018-11 on the consolidated financial statements.
In June
2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The amendments in this ASU
replace the “incurred loss” methodology for recognizing credit losses with a methodology that reflects expected credit
losses and requires consideration of a broader range of information including past events, current conditions and reasonable and
supportable forecasts that affect the collectability of reported amounts of financial assets that are not accounted for at fair
value through net income, such as loans, certain debt securities, trade receivables, net investment in leases, off-balance sheet
credit exposures and reinsurance receivables. Under the current GAAP incurred loss methodology, recognition of the full amount
of credit losses is generally delayed until the loss is probable of incurring. Current GAAP restricts the ability to record credit
losses that are expected, but do not yet meet the probability threshold. ASU 2016-13 becomes effective for public companies for
fiscal years beginning after December 15, 2019. In November 2018, the FASB issued ASU 2018-19, “Codification Improvement
to Topic 326, Financial Instruments-Credit Losses”. We are evaluating the impact that ASU 2016-13 will have on its consolidated
financial statements and related disclosures.
In August 2016,
the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230).” The new guidance
is intended to reduce diversity in how certain transactions are classified in the consolidated statement of cash flows. ASU 2016-15
will be effective for public companies for fiscal years beginning after December 15, 2017. The adoption of this guidance is not
expected to have a material impact on the consolidated financial condition, results of operations or cash flows.
In October 2016,
the FASB issued ASU 2016-16, “Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory.” ASU
2016-16 requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory
when the transfer occurs. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset
transfer until the asset has been sold to an outside party. ASU 2016-16 will be effective for public companies for fiscal years
beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the consolidated
financial condition, results of operations or cash flows.
In November 2016, the
FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The guidance requires that a statement
of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period
within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied
using a retrospective transition method to each period presented. The adoption of this guidance is not expected to have a material
impact on the consolidated financial condition, results of operations or cash flows.
In January 2017, the
FASB issued ASU 2017-04, “Goodwill and Other (Topic 350) — Simplifying the Test for Goodwill Impairment.” ASU
2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. In computing the
implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment
testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be
required in determining the fair value of assets acquired and liabilities assumed in a business combination. As a result of ASU
2017-04, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount and then recognize an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting
unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective
for fiscal years and interim periods within those years beginning after December 15, 2019, and early adoption is permitted for
interim or annual goodwill impairment tests performed after January 1, 2017. The adoption of this guidance is not expected to have
a material impact on the consolidated financial condition, results of operations or cash flows.
In February 2018, the
FASB issued guidance to address the income tax accounting treatment of the tax effects within other comprehensive income due to
the enactment of the Tax Cuts and Jobs Act (the “Tax Act”). This guidance allows entities to elect to reclassify the
tax effects of the change in the income tax rates from other comprehensive income to retained earnings. The guidance is effective
for periods beginning after December 15, 2018 although early adoption is permitted. In March 2018, the FASB issued ASU No. 2018-05,
Income Tax (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This update adds SEC paragraphs
pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740,
Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Act was signed into law. We are
currently evaluating the impact of this guidance on its consolidated financial statements.
The Company does not
believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on
the consolidated financial position, statements of operations and cash flows.
Recent Acquisition Activities
In line with our strategic
shifting of operational focus in 2014, we have entered into agreements to make acquisitions in order to expand our global project
portfolio, including IPP and BT projects, as well as to diversify our solar businesses.
When making solar project
acquisitions, we focus on attractive targets based on our assessment of the rate of return, taking into consideration a target
project’s irradiation hours, applicable FIT rate, key technical components used as well as our cost of financing for the
acquisition. See “Item 4. Information on the Company—B. Business Overview—Our Global Project Development Business—Acquisition
of Solar Projects” for more information on the criteria we apply when making project acquisitions.
When we pursue a target
engaged in a solar business, such as a distribution business or a rooftop EPC business, we primarily select targets with higher
gross profit margins, or in the case of a target engaged in a line of business complementary to our existing operations, with high
potentials for us to realize synergies.
The following summary outlines the major
acquisitions we completed, or for which have entered into definitive agreements since 2015:
Solar Projects
In February 2015,
we completed the acquisition of a 100% equity interest in the project companies owning 4.3 MW of projects in Italy for an aggregate
consideration of $11.8 million of its fair value. The projects were connected to the grid and selling electricity when we completed
the acquisition. We issued 5,722,977 unregistered shares of SPI’s common stock to the sellers to account for 70% of the consideration
at a per share price of $1.72 and also with adjustments for the lockup period and other factors, with the remaining balance of
Euro 3.1 million ($3.6 million) settled in cash.
In March 2016,
our wholly-owned subsidiary, SPI China (HK) Limited, completed a sale of the entire issued share capital of Solar Park Developments
2 Ltd (“Hall Farm”), which holds a solar power project in the United Kingdom with a rated capacity of approximately
15 MW BlackRock.
In May 2016, we
begun construction of a solar power system covering the roof of Golden 1 Center, the new home of the Sacramento Kings in downtown
Sacramento, California, the project totaling 700 kW was completed and sold to AES Distributed Energy, Inc.
In July 2016,
our wholly owned Japanese subsidiary, SPI Solar Japan G.K. completed the 2.4MW Nishiura power plant in Japan’s Ibaraki Prefecture,
which was connected to the grid.
In March 2017,
our wholly owned subsidiary, SPI Solar Japan GK entered into a definitive agreement to sell all of its interest in the land and
project development rights in its two solar PV projects with total capacity of 4.4 MW in Shibayama city, Chiba. SPI Japan will
also provide engineering, procurement and construction service to complete the projects. The solar plants are located approximately
50 kilometres east of Tokyo in Chiba and each with capacity of 2.2 MW and with an estimated total capacity of 5,200,000 kWh annually.
As of the date of this report, one project has completed connection and the closing condition of another project has not
met.
In May 2017, our
wholly owned subsidiary, SPI China (HK) Limited, entered into an agreement to sell all of its interest in Todderstaffe Solar Limited,
one of the solar PV system in UK, to Capital Stage AG. The Todderstaffe project has a capacity of 4.4MW.
Other Solar Businesses
THERMI Acquisition
In
September 2017, we entered into a framework share purchase agreement to acquire 100% equity interests of three Greek
companies, namely THERMI SUN S.A, HELIOHRISI S.A., and HELIOSTIXIO S.A., from THERMI TANEO Venture Capital Fund
(“TTVCF”), for a total consideration of EUR €16.65 million, subject to certain adjustments. The transaction
is subject to customary closing conditions. These three companies own a total of four PV plants with 7.4MWp PV installations
in northern Greece.
Solar Power Inc., the
predecessor of the Company, provided EPC services to these projects in 2012 and has performed the O&M of these projects since
July 2013. SPI and TTVCF (via the project companies) had previously entered into a dispute in relation to the EPC agreements.
Such dispute will be deemed to be amicably resolved pursuant to the framework share purchase agreement.
The closing of the
transaction will take place in three separate stages (one for each company under acquisition). The acquisition of HELIOSTIXIO S.A.
has been closed in December 2017. The Company expects to complete the entire acquisition by March 2019. With 7.4MWp PV installations
added to SPI Energy’s existing PV portfolio in Greece, the Company will become one of the significant PV owners in Greece.
Solar Juice Acquisition
In May 2015,
we acquired 80% of the equity interest in Solar Juice, a company incorporated in Sydney, Australia, for $15.6 million. Solar
Juice distributes solar kits that include PV modules, balance-of-system components, solar monitoring systems and inverters to
retail or corporate customers in Australia and Southeast Asia. Solar Juice procures PV modules from a wide range of reputable
suppliers, such as Trina Solar Australia Pty Ltd., JA Solar Australia Pty Ltd., Canadian Solar and LG. It also has adopted a
supplier-neutral approach to minimize procurement costs. Solar Juice also distributes its in-house brand of PV modules,
OpalSolar, which Solar Juice contracts with third parties to manufacture. In October 2016, Solar Juice was selected by
LG Chem, Ltd. as a major distributing partner of its RESU home energy storage, with a capacity of 10kWh Batteries in
Australia and New Zealand. As of December 31, 2016, Solar Juice had over 5000 Business-to-Business accounts, of which
700 were active on a monthly basis. In the fourth quarter of 2014, Solar Juice set up a distribution facility in Singapore
and expanded its customer base into Sri Lanka, Malaysia, the Philippines, Thailand, Papua New Guinea, Fiji and the Cook
Islands. We expect the acquisition of Solar Juice to expand our solar business to another continent with a broad customer
base.
EnSync Acquisition
On April 17, 2015,
the Company and EnSync, Inc. (formerly known as ZBB Energy Corporation) (“ENS”), a Wisconsin corporation, entered
into a Securities Purchase Agreement pursuant to which ENS will issue and sell to us for an aggregate cash purchase price of $33.4
million of (i) 8,000,000 shares of ENS’s common stock based on a purchase price per common share of $0.6678 (the “Purchased
Common Stock”) and (ii) 28,048 shares of the ENS’s convertible preferred stock (the “Convertible Preferred Stock”)
which are convertible into an aggregate of 42,000,000 shares of common stock, representing a purchase price of $0.6678 per common
stock on an as-if converted basis. The Convertible Preferred Stock will be convertible over a four-year period with 25% becoming
convertible in each of the next four years if the Company meets certain conditions relating to the Company’s purchases of
minimum megawatt of solar related products from ENS in each of the next four years as set out in the Securities Purchase Agreement.
The purchase prices of the products are not fixed or determinable in the agreements, but ENS shall not at any time sell a lower
quantity of the products under similar terms and conditions to other buyers at prices below those provided to the Company. The
conversion is subject to adjustment for stock splits, stock dividends, and other designated capital events. ENS also entitles
the Company to acquire 50,000,000 shares of ENS’s common stock (the “Warrant”) for an aggregate amount of $36.7
million, or $0.7346 per share, subject to adjustment for stock splits, stock dividends, and other designated capital transactions.
ENS develops, licenses,
and manufactures innovative energy management systems solutions serving the commercial and industrial building utility and off-grid
markets.
On July 13, 2015, all
closing conditions relating to the Securities Purchases Agreement were met and the Purchased Common Stock, Convertible Preferred
Stock and Warrant were issued to the Company. The Purchased Common Stock represents approximately 16.8% of the outstanding common
stock of ENS as at July 13, 2015. Additionally, assuming the full conversion of the Convertible Preferred Stock (and that no other
shares of common stock of ENS are issued), the Company would own greater than a majority of the outstanding common stock of ENS.
The Company also entered
into a supply agreement with ENS pursuant to which ENS will sell and the Company will purchase certain products offered by ENS
from time to time, including energy storage systems for solar projects (the “Supply Agreement”). Convertibility of
the Convertible Preferred Stock is dependent upon the Company making purchases of and payments for energy storage systems under
the Supply Agreement as follows: the first one-fourth (the “Series C-1 Preferred Stock”) of the Convertible Preferred
Stock only become convertible upon the receipt of final payment for 5 megawatts (“MW”) that are purchased by the Company
in accordance with the Supply Agreement; the second one-fourth (the “Series C-2 Preferred Stock”) only become convertible
upon the receipt of final payment for an aggregate of 15 MW worth of the Supply Agreement; the third one-fourth (the “Series
C-3 Preferred Stock”) only become convertible upon the receipt of final payment for an aggregate of 25 MW worth of the Supply
Agreement; and the last one fourth (the “Series C-4 Preferred Stock”) only become convertible upon the receipt of final
payment for an aggregate of 40 MW worth of the Supply Agreement. If the Company complies with the provisions of the Supply Agreement,
it will make sufficient purchases for each tranche of the Convertible Preferred Stock to vest and become convertible over the next
four years. However, the Convertible Preferred Stock will become convertible at any time when the relevant payments are received
by ENS for the specified purchases, even if the payments are made later or earlier than the schedule set out in the Supply Agreement.
Up to December 31, 2017, no purchase of products had been made by the Company under the Supply Agreement.
The Convertible Preferred
Stock possesses no voting rights except as required by law or for certain matters specified in the agreement. The Convertible Preferred
Stock are perpetual, are not eligible for dividends, and are not redeemable. Besides, so long as any shares of Convertible Preferred
Stock are outstanding, ENS may not pay dividends on its common stock and may not redeem more than $100 in common stock per year.
The Convertible Preferred Stock has a liquidation preference equal to the greater of $28.0 million and the distribution of the
entire assets on an as-converted basis.
The Warrant vests and
becomes exercisable once we purchase and pay for 40 MW of the Supply Agreement, and will not vest or become exercisable if those
purchases and payments do not occur before the termination of the Warrant, which will occur, whether the Warrant has vested or
not, on July 13, 2019. Prior to exercise, the Warrant provides the Company with no voting rights. The Warrant may not be partially
exercised. As the closing price of ENS’s common stock at December 31, 2017 and 2016 was below the exercise price of the Warrant,
the Warrant was out-of-the-money at that date.
In connection with
the Securities Purchase Agreement, the Company entered into a governance agreement with ENS (the “Governance Agreement”).
Under the Governance Agreement, the Company is entitled to nominate one director to the board of directors of ENS for so long
as the Company holds at least 10,000 convertible preferred shares or 25 million shares of common stock or common stock equivalents
(the “Requisite Shares”). Additionally, for so long as the Company holds the Requisite Shares (1) following the time
at which the Series C-2 Preferred Stock shall have become convertible in full, we shall be entitled to nominate a total of two
directors and (2) following the time at which the Series C-3 Preferred Stock shall have become convertible in full, the Company
shall be entitled to nominate a total of three directors. Provided in no event shall the Company be entitled to nominate a number
of directors to the Board that would represent a percentage of the Board greater than the percentage determined by dividing the
number of Common Stock Equivalents held by the Company by the sum of (A) the total shares of ENS’s Common Stock outstanding
and (B) the number of shares of Common Stock into which the Preferred Stock held by the Company is convertible.
We account for the
investment in the Purchased Common Stock under the equity method with balances recorded under Investment in an affiliate on the
consolidated balance sheet. The Company includes its proportionate share of net earnings or loss attributable to common stockholders
under loss on investment in an affiliate in the consolidated statements of operations. We record the investment in the Convertible
Preferred Stock at cost less provision for permanent decline in value under Investment in an affiliate on the consolidated balance
sheet. The cost of the Warrant was initially recorded at its fair value of $16.9 million. The total consideration of $33.4 million
less the fair value of warrants as of July 13, 2015 was allocated, based on relative fair value, between the investments in the
Purchased Common Stock and in the Convertible Preferred Stock, which were initially recorded at $3.2 million and $13.2 million,
respectively. The decrease in fair value of $2.3 million and $14.6 million of the Warrant was recorded under other income (expenses)
- Change in fair value of derivative asset/liability in the consolidated statements of operations for the years ended December
31, 2016 and 2015, respectively.
On August 30, 2016, the Company and Melodious Investments Company Limited
(the “Melodious” or the “Purchaser”), a British Virgin Islands company wholly owned by Melodious International
Investments Group Limited, entered into a definitive agreement (“Share Purchase Agreement “) to sell certain of its
shares of ENS. Pursuant to the Share Purchase Agreement, the Company agrees to sell 8,000,000 shares of the common stock, 7,012
shares of the C-1 convertible preferred stock and 4,341 shares of the C-2 convertible preferred stock of ENS for an aggregate
purchase price of $17 million (the “Share Transfer”). The Share Transfer is subject to customary closing conditions.
On December 22, 2016, all closing conditions were met and the Company received cash consideration of $8.5 million as of December
31, 2016. Consideration of $5.4 million and $3.1 million was allocated, based on the fair value, between the investments in the
Common Stock and investments in the Convertible Preferred Stock, respectively. Under the same agreement, the Company agreed that
in the event any of the C-1 convertible preferred stock or C-2 convertible preferred stock subject to the Share Transfer is not
converted into common stock of ENS within six months following the closing date, the purchaser shall (i) be released from the
obligations to pay the unpaid portion of the consideration and (ii) have the right to request the Company to repurchase such C-1
preferred stock and C-2 preferred stock at a price of $1,018.25 per share of preferred stock, plus an uncompounded 10% annual
interest of the total purchase price of $11.6 million. The amount of the repurchase price shall be deducted with the amount of
the unpaid portion of the purchase price. As the Company does not expect to purchase and make payments for energy storage systems
under the Supply Agreement within six months following the closing date, which is October 25, 2016, C-1 preferred stock or C-2
preferred stock would not be converted into common stock. Thus, due to the redemption term, the Company did not derecognize the
investment in convertible preferred stock and recorded the proceeds of $3.1 million as borrowing as of December 31, 2016 (see
Note 15 - Short term borrowings and long-term borrowings). On April 26, 2017, the Purchaser requested the Company to repurchase
the C-1 preferred stock and C-2 preferred stock at the price of $11.6 million plus an uncompounded 10% annual interest. Since
the Purchaser had not paid the rest of $8.5 million consideration, the aggregate repurchase price was $3.1 million plus an uncompounded
10% annual interest. In July, 2017, the Company paid $3.2 million to the Purchaser and the redemption term was released after
the Purchaser delivered to the Company the preferred stocks.
As at December 31,
2017 and 2016, the carrying amounts of investments in Purchased Common Stock were nil and $nil, respectively. As at December 31,
2017 and 2016, the carrying amount of Convertible Preferred Stock was nil and $2.2 million respectively. During the year ended
December 31, 2015, provision for decline in value of $1.1 million, which is considered to be other-than-temporary, was recorded
under loss on investment in affiliates in the consolidated statement of operations. During the year ended December 31, 2016, the
Company recorded provision for decline in value $9.9 million for the investment in Convertible Preferred Stock under loss on investment
in affiliates in the consolidated statement of operations. During the year ended December 31, 2017, the Company recorded provision
of $2.2 million for the investment in Convertible Preferred Stock under loss on investment in affiliates in the consolidated statement
of operations.
Acquisition of Dingding Yiwei
On September 1, 2015, we agreed to
acquire 60% equity interests in Beijing Dingding Yiwei New Energy Technology Development Co., Ltd. (“Dingding Yiwei”),
a company established in the PRC, at a cash consideration of $4.3 million, subject to certain closing conditions set forth in
the share purchase agreement entered between us and the shareholders of Dingding Yiwei. In January 2016, we settled the consideration
of in cash and completed the registration as the shareholder with 60% equity interest in Dingding Yiwei. Dingding Yiwei engaged
in the car rental business through its on-line platform in China.
After the completion
of registration as shareholder of Dingding Yiwei, we were precluded by the former controlling shareholders and management of Dingding
Yiwei to exercise any control over the operating and financial policies of Dingding Yiwei. Also, we were precluded from accessing
any business or financial related information of Dingding Yiwei. We filed a lawsuit in 2017 against Dingding Yiwei and its shareholders
to regain control of Dingding Yiwei, and the lawsuit was still on the proceeding as of the issuance of the financial statement.
As at December 31, 2017 and 2016, the investment in Dingding Yiwei had been recognized at cost less provision for decline
in value under investment in affiliates on the consolidated balance sheet as we were unable to control or obtain any financial
or non-financial information of Dingding Yiwei. As at December 31, 2017 and 2016, full provision for decline in value of investment
in Dingding Yiwei of $4.3 million, which is considered to be other-than-temporary, was recorded under loss on investment in affiliates
in the consolidated statement of operations.
We have funded our
acquisitions primarily from cash generated from our financing activities and from credit facilities. Going forward we expect to
fund our future acquisitions with cash generated from our operations, as well as equity and debt financing.
Results of Operations
The following table
sets forth a summary, for the periods indicated, of our consolidated results of operations and each item expressed as a percentage
of our total net revenues. Our historical results presented below are not necessarily indicative of the results that may be expected
for any future period.
|
For the year ended December 31,
|
|
|
2015
|
|
2016
|
|
2017
|
|
|
($ in thousands except percentage)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
190,510
|
|
|
100.0%
|
|
|
140,199
|
|
|
100.0%
|
|
|
127,465
|
|
|
100.0%
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
176,469
|
|
|
92.6%
|
|
|
120, 910
|
|
|
86.2%
|
|
|
117,663
|
|
|
92.3%
|
|
Provision for losses on contracts
|
|
5,932
|
|
|
3.1%
|
|
|
403
|
|
|
0.3%
|
|
|
–
|
|
|
—%
|
|
Total cost of goods sold
|
|
182,401
|
|
|
95.7%
|
|
|
121,313
|
|
|
86.5%
|
|
|
117,663
|
|
|
92.3%
|
|
Gross profit
|
|
8,109
|
|
|
4.3%
|
|
|
18,886
|
|
|
13.5%
|
|
|
9,802
|
|
|
7.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
76,747
|
|
|
40.3%
|
|
|
34,251
|
|
|
24.4%
|
|
|
22,385
|
|
|
17.6%
|
|
Sales, marketing and customer service
|
|
39,428
|
|
|
20.7%
|
|
|
29,230
|
|
|
20.8%
|
|
|
7,740
|
|
|
6.1%
|
|
Provision for doubtful accounts, notes and other receivables
|
|
45,328
|
|
|
23.8%
|
|
|
30,465
|
|
|
21.7%
|
|
|
9,038
|
|
|
7.2%
|
|
Impairment charges
|
|
10,853
|
|
|
5.7%
|
|
|
124,970
|
|
|
89.1%
|
|
|
32,021
|
|
|
25.1%
|
|
Total operating expenses
|
|
172,356
|
|
|
90.5%
|
|
|
218,916
|
|
|
156.1%
|
|
|
71,324
|
|
|
56.0%
|
|
Operating loss
|
|
(164,247
|
)
|
|
(86.2)%
|
|
|
(200,030
|
)
|
|
(142.7)%
|
|
|
(61,522
|
)
|
|
(48.3)%
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(9,275
|
)
|
|
(4.9)%
|
|
|
(9,043
|
)
|
|
(6.5)%
|
|
|
(18,418
|
)
|
|
(14.4)%
|
|
Interest income
|
|
2,218
|
|
|
1.2%
|
|
|
1,163
|
|
|
0.8%
|
|
|
459
|
|
|
0.4%
|
|
Gain on extinguishment of convertible bonds
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
7,121
|
|
|
5.6%
|
|
Change in fair value of derivative asset/liability
|
|
(15,650
|
)
|
|
(8.2)%
|
|
|
(2,328
|
)
|
|
(1.7)%
|
|
|
–
|
|
|
—%
|
|
Tax penalty
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(9,670
|
)
|
|
(7.6)%
|
|
Loss on investment in affiliates
|
|
(2,493
|
)
|
|
(1.3)%
|
|
|
(10,618
|
)
|
|
(7.6)%
|
|
|
(2,496
|
)
|
|
(2.0)%
|
|
Net foreign exchange gain
|
|
4,412
|
|
|
2.3%
|
|
|
797
|
|
|
0.6%
|
|
|
(5,843
|
)
|
|
(4.6)%
|
|
Others
|
|
628
|
|
|
0.3%
|
|
|
(573
|
)
|
|
(0.4)%
|
|
|
(439
|
)
|
|
(0.3)%
|
|
Total other expense, net
|
|
(20,160
|
)
|
|
(10.6)%
|
|
|
(20,602
|
)
|
|
(14.7)%
|
|
|
(29,286
|
)
|
|
(23.0)%
|
|
Loss before income taxes
|
|
(184,407
|
)
|
|
(96.8)%
|
|
|
(220,632
|
)
|
|
(157.4)%
|
|
|
(90,808
|
)
|
|
(71.3)%
|
|
Income taxes expense
|
|
673
|
|
|
0.4%
|
|
|
336
|
|
|
0.2%
|
|
|
151
|
|
|
0.1%
|
|
Net loss
|
|
(185,080
|
)
|
|
(97.1)%
|
|
|
(220,968
|
)
|
|
(157.6)%
|
|
|
(90,959
|
)
|
|
(71.4)%
|
|
Comparison of the year ended December 31,
2017 to the year ended December 31, 2016
Net sales
—Net
sales were $140.2 million and $127.5 million for the years ended December 31, 2016 and 2017, respectively, representing a
decrease of $12.7 million, or 9.1%. The decrease in net sales for the year ended December 31, 2017 over the comparative period
was primarily due to the decrease of EPC project revenue and PV projects sales.
Cost of goods sold
—Cost of goods sold was $121.3 million (86.5% of net sales) and $117.7 million (92.3% of net sales) for the years ended December 31,
2016 and 2017, respectively, representing a decrease of $3.7 million, or 3.0%. The decrease in cost of goods sold was in line with
our contraction of business operations in China for the provision of EPC services to solar projects located in China.
Gross profit
—Our gross profit increased from $18.9 million in the year ended December 31, 2016 to $9.8 million in the year ended
December 31, 2017. Gross margins were 13.5% and 7.7% for the years ended December 31, 2016 and 2017, respectively. The
decrease in gross margin was primarily due to the decrease of finance service revenue. We terminated Solarbao related business
in China since April 2017 and few finance service revenues was recognized for the year ended December 31, 2017 which had a high
margin as compared with other business.
General and administrative
expenses
—General and administrative expenses were $34.3 million (24.4% of net sales) and $22.4 million (17.6% of net
sales) for the years ended December 31, 2016 and 2017, respectively, representing a decrease of $11.9 million, or 34.6%.
The decrease in our general and administrative expenses mainly consisted of salaries, depreciation and office expenses since we
closed most of our offices in China in 2017.
Sales, marketing
and customer service expenses
—Sales, marketing and customer service expenses were $29.2 million (20.8% of net sales)
and $7.7 million (6.1% of net sales) for the years ended December 31, 2016 and 2017, respectively, representing a decrease
of $21.5 million, or 73.5%. The decrease in sales, marketing and customer service expenses was in line with our decrease of sales
in 2017.
Provision for doubtful
accounts, notes and other receivables
—We recorded a provision for doubtful accounts and notes of $30.5 million in 2016,
including (i) provision for doubtful recoveries of prepaid expenses and other current assets of $28.3 million based on the expected
recoverable amount of these receivables.; (ii) provision for doubtful recoveries of the cost in excess of billings of $13.3 million;
(iii) reversal of bad debt allowance of $14.1 million due to collection back in 2016. We recorded a provision for doubtful accounts
and notes of $9.0 million in 2017, mainly includes provision for doubtful recoveries of prepaid expenses and other current assets
of $5.1 million based on the expected recoverable amount of these receivables.
Impairment charges
—Impairment charges were $125.0 million (89.1% of net sales) and $32.0 million (25.1% of net sales) for the years ended December 31,
2016 and 2017, respectively. The impairment charges for fiscal year 2017 includes (i) the impairment loss of $0.2 million for intangible
assets; (ii) the impairment loss of $24.0 million for finance lease receivables; (iii) the impairment loss of $4.0 million for
project assets; and (iv) the impairment loss of $3.8 million for property, plant and equipment.
Interest expense
—Interest expense was $9.0 million (6.5% of net sales) and $18.4 million (14.4% of net sales) for the years ended December 31,
2016 and 2017 respectively, representing an increase of $9.4 million, or 103.7%. The increase in interest expense was in line with
the increase of borrowings in 2017, and more interest was accrued for default borrowings.
Interest income
—Interest income was $1.2 million (0.8% of net sales) and $0.5 million (0.4% of net sales) for the years ended December 31,
2016 and 2017, respectively, representing a decrease of $0.7 million, or 60.5%. The decrease in interest income was in line with
the decrease in bank deposit in 2017.
Gain on extinguishment
of convertible bonds
—Gain on extinguishment of convertible bonds was $7.1 million for the year ended December 31, 2017.
It was due to the extension of a convertible bond agreement that we entered with Union Sky Holdings Group Limited.
Change in fair
value of derivative asset/liability
—Our change in fair value of derivative asset/liability was $2.3 million for the
year ended December 31, 2016. It was primarily due to the change in market value of the Warrant, which was issued by ENS
to us in accordance with the ENS Purchase Agreement. There’s no change in fair value of derivative asset/liability for the
year ended December 31, 2017.
Tax penalty
—Tax penalty
was nil and $9.7 million for the years ended December 31, 2016 and 2017, respectively. It mainly represents expected penalty for
late filing of Federal and State income tax returns.
Loss on investment in affiliates
—Loss on investment in affiliates was $10.6 million and $2.5 million for the years ended December 31, 2016 and 2017,
respectively. It mainly represented the investment loss on ENS under equity method.
Other gains or
expenses
—We generated other loss of $0.2 million (0.2% of net sales) and $6.3 million (4.9% of net sales) in the years
ended December 31, 2016 and 2017, respectively. The increase in other gains or expenses was primarily due to the increase
of foreign exchange gain in the amount of $5.8 million.
Income tax expense
—We had a provision for income taxes of $0.3 million (0.2% of net sales) and $0.2 million (0.1% of net sales) for the years
ended December 31, 2016 and 2017, respectively.
Net loss
—For the foregoing reasons, we incurred a net loss of $91.0 million (71.4% of net sales) for the year ended December 31,
2017, representing an increase compared to a net loss of $221.0 million (157.6% of net sales) for the year ended December 31,
2016.
Comparison of the year ended December 31,
2016 to the year ended December 31, 2015
Net sales
—Net
sales were $190.5 million and $140.2 million for the years ended December 31, 2015 and 2016, respectively, representing a
decrease of $50.3 million, or 26.4%. The decrease in net sales for the year ended December 31, 2016 over the comparative period
was primarily due to the decrease of EPC project revenue and PV projects sales.
Cost of goods sold
—Cost of goods sold was $182.4 million (95.7% of net sales) and $121.3 million (86.5% of net sales) for the years ended December 31,
2015 and 2016, respectively, representing a decrease of $61.1 million, or 33.5%. The decrease in cost of goods sold was in line
with our contraction of business operations in China for the provision of EPC services to solar projects located in China.
Gross profit
—Our gross profit increased from $8.1 million in the year ended December 31, 2015 to $18.9 million in the year ended
December 31, 2016. Gross margins were 4.3% and 13.5% for the years ended December 31, 2015 and 2016, respectively. The
increase in gross margin was primarily due to decrease revenue contribution from PV project sales, which had lower margins as compared
with other business.
General and administrative
expenses
—General and administrative expenses were $76.7 million (40.3% of net sales) and $34.3 million (24.5% of net
sales) for the years ended December 31, 2015 and 2016, respectively, representing a decrease of $42.4 million, or 55.3%.
The decrease in our general and administrative expenses mainly consisted of the stock-based awards to our management, salaries
and professional service fee.
Sales, marketing and customer service
expenses
—Sales, marketing and customer service expenses were $39.4 million (20.7% of net sales) and $29.2 million (20.8%
of net sales) for the years ended December 31, 2015 and 2016, respectively, representing a decrease of $10.2 million, or
25.9%. The decrease in sales, marketing and customer service expenses was in line with our decrease of sales in 2016.
Provision for doubtful
accounts, notes and other receivables
—We recorded a provision for doubtful accounts, notes and other receivables of
$45.3 million for the accounts receivable balance from EPC service revenue and other revenues based on the expected recoverable
amount of these receivables in 2015. We recorded a provision for doubtful accounts and notes of $30.5 million in 2016, including
(i) provision for doubtful recoveries of prepaid expenses and other current assets of $28.3 million based on the expected recoverable
amount of these receivables.; (ii) provision for doubtful recoveries of the cost in excess of billings of $13.3 million; iii) reversal
of bad debt allowance of $14.1 million due to collection back in 2016.
Impairment charges
—Impairment charges were $10.9 million (5.7% of net sales) and $125.0 million (89.1% of net sales) for the years ended December 31,
2015 and 2016, respectively, including (i) the impairment loss of $65.2 million for goodwill; (ii) the impairment loss of $32.0
million for finance lease receivables; (iii) the impairment loss of $13.8 million for project assets; and (iv) the impairment loss
of $12.6 million for property, plant and equipment.
Interest expense
—Interest expense was $9.3 million (4.9% of net sales) and $9.0 million (6.5% of net sales), for the years ended December 31,
2015 and 2016 respectively, representing a decrease of $0.3 million, or 3.2%. The decrease in interest expense was in line with
the decrease of borrowings in 2016.
Interest income
—Interest income was $2.2 million (1.2% of net sales) and $1.2 million (0.8% of net sales) for the years ended December 31,
2015 and 2016, respectively, representing a decrease of $1.0 million, or 45.5%. The decrease in interest income was in line with
the decrease in bank deposit in 2016.
Loss on extinguishment
of convertible bonds
—No such transaction occurred in 2015 and 2016.
Change in fair value
of derivative asset/liability
—Our change in fair value of derivative
asset/liability
was $15.7 million and $2.3
million for the years ended December 31, 2015 and 2016, respectively. The increase in change in fair value of derivative
asset/liability
was primarily due to the change in market value of the Warrant, which was issued by ENS to us in accordance with the ENS Purchase
Agreement.
Loss on investment
in affiliates
—Loss on investment in affiliates was $2.5 million and $10.6 million for the years ended December 31,
2015 and 2016, respectively. It mainly represented the investment loss on ENS under equity method.
Other gains or expenses
—We generated other gains of $5.0 million (2.6% of net sales) and other loss of $0.2 million (0.2% of net sales) in the years
ended December 31, 2015 and 2016, respectively. The decrease in other gains or expenses was primarily due to the decrease
of foreign exchange gain in the amount of $3.6 million.
Income tax expense
—We had a provision for income taxes of $0.7 million (0.4% of net sales) and $0.3 million (0.2% of net sales) for the years
ended December 31, 2015 and 2016, respectively.
Net loss
—For
the foregoing reasons, we incurred a net loss of $221.0 million (157.6% of net sales) for the year ended December 31, 2016,
representing an increase compared to a net loss of $185.1 million (97.2% of net sales) for the year ended December 31, 2015.
B.
|
Liquidity and Capital Resources
|
Liquidity
A summary of the sources and uses of cash
and cash equivalents is as follows:
|
|
For the year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
($ in thousands)
|
|
Net cash used in operating activities
|
|
|
(155,518
|
)
|
|
|
(47,030
|
)
|
|
|
(3,634
|
)
|
Net cash used in investing activities
|
|
|
(52,008
|
)
|
|
|
(13,117
|
)
|
|
|
(3,286
|
)
|
Net cash provided by (used in) financing activities
|
|
|
133,136
|
|
|
|
(17,819
|
)
|
|
|
5,796
|
|
Effect of exchange rate changes on cash
|
|
|
(26
|
)
|
|
|
20
|
|
|
|
(477
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(74,416
|
)
|
|
|
(77,946
|
)
|
|
|
(1,601
|
)
|
As of December 31, 2015, 2016 and
2017, we had $82.1 million, $4.2 million and $2.6 million, respectively, in cash and cash equivalents.
Operating Activities
Net cash used in
operating activities was $3.6 million for the year ended December 31, 2017, primarily as a result of (i) a net loss of $91.0 million,
partially offset by (i) impairment charges of $32.0 million; (ii) provision of doubtful accounts of $9.0 million; (iii) non-cash
interest expenses of $11.5 million; (iv) tax penalty of $9.7 million; (v) change in accrued liabilities and other liabilities
of $16.4 million and (vi) change in advance from customers of $14.2 million; (vii) change in restricted cash of $8.0 million.
Net cash used in operating
activities was $47.0 million for the year ended December 31, 2016, primarily as a result of (i) a net loss of $221.0
million and (ii) a decrease in note payable of $31.7 million, partially offset by (i) impairment charges of $155.4 million,
(ii) a decrease in restricted cash related to operating activities of $25.9 million, and (iii) a decrease in project
assets of $13.0 million.
Net cash used in operating
activities was $155.5 million for the year ended December 31, 2015, primarily as a result of (i) a net loss of $185.1
million, (ii) an increase in accounts receivable of $86.4 million, (iii) an increase in restricted cash related to operating
activities of $34.6 million, (iv) an increase in finance lease receivable of $31.2 million and (v) an increase in prepaid
expenses and other assets of $25.6 million, partially offset by (i) impairment charges of $56.2 million, (ii) a decrease
in costs and estimated earnings in excess of billings on uncompleted contracts of $41.3 million, (iii) stock-based compensation
expense of $38.2 million, (iv) an increase in accrued liabilities and other liabilities of $25.2 million, (v) a decrease
in project assets held for sale of $21.7 million and (vi) change in fair value of derivative assets/liability of $ 15.7 million.
Investing Activities
Net cash used in
investing activities was $3.3 million for the year ended December 31, 2017, primarily as a result of the decrease of cash
of $2.7 million caused by the deconsolidation of Sinsin.
Net cash used in investing
activities was $13.1 million for the year ended December 31, 2016, primarily as a result of (i) acquisitions of property,
plant and equipment of $33.9 million; (ii) acquisition of subsidiaries, net of cash acquired of $2.3 million and (iii) acquisition
of investment in affiliates of $3.5 million, partially offset by (i) proceeds from sale and leaseback transaction of $20.2
million and (ii) proceeds from disposal of investment in affiliates of $5.4 million.
Net cash used in investing
activities was $52.0 million for the year ended December 31, 2015, primarily as a result of (i) investment in affiliates
of $33.4 million, (ii) acquisition of short-term investments of $31.4 million, (iii) acquisitions of project assets of
$22.7 million, (iv) acquisitions of property, plant and equipment of $22.2 million and (v) prepayment for acquisitions
of subsidiaries and project assets of $ 7.7 million, partially offset by (i) proceeds from disposal of short-term investments
of $58.8 million and (ii) proceeds from uplift of bank deposit upon maturity of $14.2 million.
Financing Activities
Net cash provided
by financing activities was $5.8 million for the year ended December 31, 2017, primarily consisting of (i) proceeds from issuance
of common shares of $5.8 million; (ii) proceeds from line of credit and loans payable of $35.0 million and (iii) proceeds from
loans on Solarbao platform of $84.4 million, partially offset by (i) repayment of line of credit and loans payable of $36.4 million
and (ii) repayment of loans on Solarbao platform of $81.1 million.
Net cash used in financing
activities was $17.8 million for the year ended December 31,2016, primarily consisting of (i) the repayments of loans on Solarbao
platform directly or through Solar Energy E-Commerce and Meijv of $170.4 million and (ii) the repayments of line of credit and
loans payable of $140.0 million, partially offset by (i) proceeds of $181.0 million from loans on Solarbao platform through Solar
Energy E-Commerce and Meijv; (ii) proceeds of $58.8 million from line of credit and loans payable, and (iii) decrease in restricted
cash of $48.2 million.
Net cash generated
from financing activities was $133.1 million for the year ended December 31, 2015, primarily consisting of (i) proceeds
of $254.6 million from line of credit and loans payable, (ii) proceeds of $130.0 million from loans on Solarbao platform through
Solar Energy E-Commerce, (iii) proceeds of $62.0 million from the issuance of SPI’s unregistered shares to various non-U.S.
investors in reliance on Regulation S, and (iv) proceeds of $20.0 million from issuance of convertible bonds, partially offset
by (i) the payments on line of credit and loans payable of $196.2 million, (ii) the repayments of loans on Solarbao platform
directly or through Solar Energy E-Commerce of $89.1, and (iii) increase in restricted cash of $48.0 million.
Capital Resources and Material Known Facts on Liquidity
We had a net loss
of $185.1 million in 2015. We had an accumulated deficit of $246.1 million and working capital of negative $80.0 million as of
December 31, 2015.
During the year ended December 31,
2016, we raised $5 million from non-U.S. investors in private placements for the unregistered issuance of shares of our common
stock at the price $2 per share. However, we had short-term bank borrowings and loan financing through the Solarbao platform of
an aggregate $58.8 million and $181.0 million as of December 31, 2016, respectively, with an interest rate ranging between
2.3% and 11.9% per annum, which will mature from 2016 to 2018. Subsequently, we repaid the short-term bank borrowings in the aggregate
of $140.0 million. With a net loss of $221.0 million during the year ended December 31, 2016, we had an accumulated deficit
of $466.8 million and a working capital deficit of negative $176.2 million as of December 31, 2016.
Our liquidity position further deteriorated
in 2017 and during period between January 1, 2018 and the date of this annual report. We kept suffering from loss of $91.0
million in 2017. We also had an accumulated deficit of $557.8 million and a working capital deficit of $255.0 million as of December
31, 2017. These raised substantial doubt about our ability to continue as a going concern.
Recently, we have revised
the assumptions underlying our existing operating plans and recognized the fact that additional actions were needed to reposition
our operations to minimize our cash outflows. Therefore, we are undertaking a number of initiatives in order to conserve or generate
cash on an incremental basis in 2017. These initiatives include
|
·
|
Deposition of SPI China (HK) Limited. On August 30, 2018, the Group entered into a share purchase agreement
(the “SPA”) with Lighting Charm Limited (“Lighting Charm”), an affiliate of Tracy Zhoushan, the spouse
of Xiaofeng Peng, the Group’s Chairman of the Board of Directors and Chief Executive Officer. The agreement has been approved
by an independent committee of the Group’s Board of Directors. The SPA provides that the Group sold Lighting Charm the 100%
equity interest of SPI China (HK) Limited (“SPI China”), which holds all of the Group’s assets and liabilities
related to its business in China (the “Acquired Business”). The Acquired Business includes EPC business, PV projects,
Internet finance lease related business, and E-commerce in China. Pursuant to the terms of the SPA, the consideration for the Acquired
Business to be paid by the Lighting Charm to the Group in cash was US$1.00. As one of the closing conditions as stated in the SPA,
the Group effected an internal restructuring following which SPI China held the Group's subsidiaries in China only, while subsidiaries
originally held by SPI China related to the Group’s business outside China were transferred to other subsidiaries of the
Group. In 2017, SPI China incurred a net loss of $62.1 million. As of December 31, 2017, SPI China had accumulated deficit of $263.2
million and working capital deficit of $154.6 million.
|
|
·
|
Amendment Agreement of Convertible Bonds. On June 29, 2018, according to the Second Amendment Agreement,
the repayment of $20 million of the principal amount of the convertible bond and interest thereon will be due after December 2019.
Pursuant to the new amendment, $15.8 million convertible bonds have been reclassified to non-current liabilities as of December
31, 2017. Furthermore, for the remaining $35 million convertible bonds, the Group has been proactively and continuously negotiating
with the bond holders for a settlement arrangement acceptable by the two parties. Among other options, the Group has been exploring
the possibility of a settlement of the outstanding convertible bonds payable through a combination of cash payments and share issuances,
and a settlement schedule that would reduce the Group’s cash payment level in the next twelve months.
|
|
·
|
Working
capital management. The Group has planned to mobilize the construction of a project in North America of total capacity of
5MW in the first quarter of 2018 and expected to complete the construction and sales of these 5MW project by the third quarter
of 2019. The Group has started the engineering design of another North America project of total capacity of 4.7MW in October 2017
and expected to complete the construction and sales of this FIT project by the third quarter of 2019. Both of the two projects
are indeed with good value and return, the completion and sales of these projects will expect to bring in significant amount of
cash to the company to improve liquidity and capital to reinvest into new Solar projects. The Group has decided to postpone the
planned investments in certain new project assets and has been closely monitoring the level of the Group’s capital spending
level until liquidity position has improved. These initiatives aim at preserving cash and generating operating cash flows to enable
the Group to repay the borrowings and accounts payable.
|
|
·
|
Cost saving measures. The Group has implemented certain measures with an aim to reduce its operating expenses. Such measures include:
1) strictly controlling and reducing business, marketing and advertising expenses in United States and Australia; 2) relocating
certain offices in United States and United Kingdom to save office rental; and 3) lowering the remuneration of the Group’s
management team.
|
However, we cannot assure
you that this liquidity plan will be successful executed. See “Item 3. Key Information—D. Risk Factors—Risks
Related to Our Business and Industry—We have incurred net losses, experienced net cash outflows from operating activities
and recorded working capital deficit. If we do not effectively manage our cash and other liquid financial assets and execute our
liquidity plan, we may not be able to continue as a going concern.”
As an offshore holding company,
we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund raising activities to
our PRC subsidiaries only through loans or capital contributions, subject to the satisfaction of the applicable government registration
and approval requirements. As a result, there is uncertainty with respect to our ability to provide prompt financial support to
our PRC subsidiaries when needed.
The implementation
rule of the
PRC Corporate Income Tax Law
(“CIT Law”) provide that after January 1, 2008, an income
tax rate of 10% will normally be applicable to dividends declared to non-resident enterprise investors which do not have an establishment
or a place of business in the PRC, or have an establishment or a place of business but the relevant income is not effectively connected
with such establishment or place of business, to the extent that such dividends are derived from source within the PRC. According
to the Arrangement between the Mainland China and Hong Kong for the Avoidance of Double Taxation on Income signed on August 21,
2006, the PRC government may impose taxes on dividends payable by a PRC company to a Hong Kong resident with such taxes not exceeding
either 10% or 5% of the gross amount of dividends payable, applicable when the equity interest percentage in the PRC company held
by the Hong Kong resident is less than 25% and is at least 25%, respectively. As our PRC operating subsidiaries are held by our
Hong Kong subsidiaries, we may be subject to the PRC taxes on dividends payable by our PRC operating subsidiaries to their Hong
Kong parents as described above.
Although we do not
have any present plans to declare any dividends or other distributions from our PRC subsidiaries, we may rely significantly on
dividends and other distributions paid by our PRC subsidiaries for our cash and financing requirements in the future. There may
be restrictions on the dividends and other distributions by our PRC subsidiaries. Under PRC laws and regulations, our PRC subsidiaries
may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations.
Our PRC subsidiaries are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund a
statutory reserve fund, until the aggregate amount of such fund reaches 50% of their respective registered capital.
At their discretion,
our PRC subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus
funds. The reserve fund and the staff welfare and bonus funds cannot be distributed as cash dividends. See “Item 3. Key Information—D.
Risk Factors—Risks Related to Our International Operations—We may rely on dividends paid by our PRC subsidiaries to
fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiaries to pay dividends to
us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of our ADSs.”
Furthermore, our investments made as registered capital and additional paid-in capital of our PRC subsidiaries are also subject
to restrictions on their distribution and transfer according to PRC laws and regulations.
As a result, our PRC
subsidiaries are restricted in their ability to transfer their net assets to us in the form of cash dividends, loans or advances.
As of December 31, 2017, the amount of the restricted net assets, which represents registered capital, additional paid-in
capital and cumulative appropriations made to statutory reserves, was nil.
Capital Expenditures
We incurred capital
expenditures of $71.2 million, $23.2 million and $8.3 million in 2015, 2016 and 2017, respectively. Capital commitments amounted
to approximately $41.0 million as of December 31, 2017. These capital commitments will be used primarily for the construction
of our solar projects. We expect to finance construction of these projects using cash from our operations and private placements,
bank borrowings, financial leases as well as other third-party financing options.
Research and development, patents and licenses, etc.
Prior to 2014, we were
engaged in the development, manufacture and marketing of a variety of PV modules, the key components of solar parks that convert
sunlight into electricity, and balance-of- system components, including our in-house brand. We have discontinued our manufacturing
business and liquidated our research and development function.
Trend information
Other than as disclosed
elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for 2017 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.
Off-Balance Sheet Arrangements
We have not entered
into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. 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 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.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual
obligations as of December 31, 2017:
|
|
Payment due by period
|
|
Contractual Obligations
|
|
Total
|
|
|
less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
more than
5 years
|
|
|
|
($ in thousands)
|
|
Convertible bonds
|
|
|
50,785
|
|
|
|
35,000
|
|
|
|
15,785
|
|
|
|
–
|
|
|
|
–
|
|
Short-term borrowings
|
|
|
108,726
|
|
|
|
108,726
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Long-term debt obligations
|
|
|
9,823
|
|
|
|
–
|
|
|
|
1,185
|
|
|
|
1,289
|
|
|
|
7,349
|
|
Capital (finance) lease obligations
|
|
|
26,399
|
|
|
|
26,399
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Operating lease obligations
|
|
|
4,934
|
|
|
|
546
|
|
|
|
887
|
|
|
|
847
|
|
|
|
2,654
|
|
Capital commitment
|
|
|
41,029
|
|
|
|
41,029
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
|
241,696
|
|
|
|
211,700
|
|
|
|
17,857
|
|
|
|
2,136
|
|
|
|
10,003
|
|
Safe Harbor
This annual report
on Form 20-F for the fiscal year ended December 31, 2017, and information we provide in our press releases, telephonic
reports and other investor communications, including those on our website, contains forward-looking statements within the meaning
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended
(the “Securities Act”), which are subject to risks, uncertainties, and assumptions that are difficult to predict.
All statements in this annual report on Form 20-F, other than statements of historical fact, are forward-looking statements.
These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of
1995.
The forward-looking
statements include statements, among other things, with respect to anticipated future events, including anticipated trends and
developments in and management plans for our business and the markets in which we operate and plan to operate; future financial
results, operating results, revenues, gross profit, operating expenses, projected costs, and capital expenditures; sales and marketing
initiatives; competitive position; and liquidity, capital resources, and availability of future equity capital on commercially
reasonable terms.
Forward-looking statements
can be identified by the use of words such as “expect,” “plan,” “will,” “may,”
“anticipate,” “believe,” “estimate,” “should,” “intend,” “forecast,”
“project” the negative or plural of these words, and other comparable terminology. Our forward-looking statements are
only predictions based on our current expectations and our projections about future events. All forward-looking statements included
in this annual report on Form 20-F are based upon information available to us as of the filing date of this annual report
on Form 20-F. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update
any of these forward-looking statements for any reason.
We have identified
factors that could cause actual plans or results to differ materially from those included in any forward looking statements. These
factors include, but are not limited to, the following:
|
·
|
an inability to realize expected benefits of the restructuring within
the anticipated time frame, or at all;
|
|
·
|
changes in tax law, tax treaties or tax regulations or the interpretation
or enforcement thereof, including
|
|
·
|
taxing authorities not agreeing with our assessment of the effects of
such laws, treaties and regulations;
|
|
·
|
an inability to execute any of our business strategies; and
|
|
·
|
such other risk factors as may be discussed in our reports filed with
the SEC.
|
These forward-looking
statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity,
performance, or achievements to differ materially from those expressed or implied by these statements. These factors include the
matters discussed in the section entitled “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual
report on Form 20-F. You should carefully consider the risks and uncertainties described under this section.
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A.
|
Directors and Senior Management
|
The following table sets forth the names
and ages of our current board of directors (the “Board”) and our named executive officers and the principal offices
and positions held by each person. Our executive officers are appointed by the Board. Our directors serve until the earlier to
occur of the appointment of his or her successor at the next meeting of shareholders, death, resignation or removal by the Board.
There are no family relationships among our directors and our named executive officers.
Name
|
Age
|
Position
|
Xiaofeng Peng
|
43
|
Director, Executive Chairman
of the Board of Directors and Chief Executive Officer
|
Maurice Ngai
|
56
|
Director
|
Lang Zhou
|
56
|
Director
|
HoongKhoeng Cheong
|
53
|
Director and Chief Operating Officer
|
Lu Qing
|
47
|
Director
|
Set forth below is a brief biography of
each director, named executive officer and significant employee that contains information regarding the individual’s service
as a director, named executive officer or significant employee including business experience for the past five years. In addition,
information for directors includes directorships held during the past five years, information concerning certain legal or administrative
proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Board to determine that the
individual should serve as a director for us.
Mr. Xiaofeng Peng
has served as a director and the executive chairman of our Board since January 10, 2011 and as our chief executive officer
since March 25, 2016. Mr. Peng was appointed chairman of the Board pursuant to the Stock Purchase Agreement entered into between
us and LDK on January 5, 2011. Mr. Peng founded LDK in July 2005 and is its chairman of the board and chief executive officer.
Prior to founding LDK, Mr. Peng founded Suzhou Liouxin Co., Ltd., or Suzhou Liouxin, in March 1997 and was its chief executive
officer until February 2006. Suzhou Liouxin is a leading manufacturer of personal protective equipment in Asia. Mr. Peng graduated
from Jiangxi Foreign Trade School with a diploma in international business in 1993 and from Beijing University Guanghua School
of Management with an executive MBA degree in 2002.
Dr. Maurice Wai-fungNgai
has served as our director since May 9, 2016. Dr. Ngai is a member of the Working Group on Professional Services under the
Economic Development Commission of HKSAR, a director of Hong Kong Coalition of Professional Services, the President of the Hong
Kong Institute of Chartered Secretaries (2015), a General Committee member of The Chamber of Hong Kong Listed Companies, a member
of Qualification and Examination Board of the Hong Kong Institute of Certified Public Accountants and the Adjunct Professor of
Law of Hong Kong Shue Yan University. Dr. Ngai obtained a Doctoral Degree in Finance at Shanghai University of Finance and Economics,
a Master’s Degree in Corporate Finance from Hong Kong Polytechnic University, a Master’s Degree in Business Administration
from Andrews University of Michigan and a Bachelor’s Degree in Laws at University of Wolverhampton. He is in a selected
talent pool of State-owned Assets Supervision and Administration of the State Council (SASAC) and is serving as an independent
non-executive director of several reputable listed companies.
Dr. Lang Zhou
has served as our
director since April 17, 2014. Dr. Zhou has been a professor of Nanchang University since 1997. Dr. Zhou has extensive experience
in the solar industry. Dr. Zhou received a doctoral degree in materials science and engineering from University of Science and
Technology Beijing and received a Master of Science and a Bachelor of Science in materials science and engineering from Shanghai
Jiao Tong University in 1985.
Mr.
HoongKhoeng Cheong
has served as our director since September 2017, as and our chief operating officer since May 2014.
Mr. Cheong has more than 20 years of engineering and operation experience in the solar and electronics industries. He
served in various management positions in LDK from 2011 to 2014 and he was appointed as the chairman of the Management Board
and chief executive officer of Sunways AG, a publicly-listed company in Germany. He previously served as our general manager
from 2007 to 2011 and was responsible for PV system design and development as well as the manufacturing of key components for
PV modules and racking systems before joining LDK. Prior to joining the solar industry in 2007, Mr. Cheong spent 16 years in
the electronics industry responsible for engineering development and manufacturing of liquid crystal display products and he
served as the Vice President of Engineering of an affiliate of Flextronics International Ltd. Mr. Cheong holds a Bachelor of
Science degree in mechanical engineering from the University of Louisiana and obtained his Master of Science in computer
integrated manufacturing from Nanyang Technology University, Singapore in 1997.
Ms. Lu
Qing
has served as our director since May 2017. She currently serves as the chief operating officer of WisePublic Asset
Management Limited, where she manages daily operations, and acts as the special consultant to Peking Certified Public
Accountants. Ms. Lu Qing has qualified experience in the finance, accounting, tax and legal fields. She served the head of
internal audit of China Regenerative Medicine International Limited (8158 HK) from January 2013 to October 2015. Ms. Lu Qing
also served as financial controller of Mainland China at Sing Tao News Corporation Limited (1105 HK) from May 2005 to May
2008. From February 1992 to March 2002, Ms. Lu Qing served as one of the major business partners and vice general manager at
Peking Certified Public Accountants. Ms. Lu Qing received bachelor’s degree in economics, major in accounting from
Central University of Finance and Economics in June 1993, and a master’s degree in law from Peking University in
January 2001. Ms. Lu Qing is also a Certified Tax Agents, Certified Public Valuer, and Certified Public Account in China.
B.
|
Compensation
of Directors and Executive Officers
|
For the year ended December 31, 2017, the
aggregate cash compensation and benefits that we paid to our directors and executive officers was approximately $612,305. No pension,
retirement or similar benefits have been set aside or have accrued by us for our executive officers of directors.
Stock Incentive
Plans
2006 Equity
Incentive Plan
On November 15, 2006,
SPI’s board of directors adopted the 2006 Equity Incentive Plan, reserving nine percent (9%) of the outstanding shares of
SPI’s common stock for the plan, and this plan was approved by SPI’s shareholders on February 7, 2007. Upon completion
of the Redomicle Merger, our Company assumed SPI’s existing obligations under the 2006 Equity Incentive Plan and an equal
number of the Company’s ordinary shares, rather than the common stock of SPI, will be issued upon the exercise of the awards
under this plan.
The following are
principal terms under our 2006 Equity Incentive Plan:
Administration.
The administrator is a committee consisting of two or more independent members of the Board appointed by the Board to administer
this plan, or if there is no such committee, the Board itself.
Awards
. We
may grant incentive and non-qualified share options, restricted shares, unrestricted shares and share appreciation rights under
this plan.
Award Agreements.
Each award granted under this plan will be evidenced by a signed written award agreement between the Company and the award
recipient.
Exercise Price.
The exercise price of any option or share appreciation right will be determined by the administrator in accordance with this
plan.
Terms of Awards.
The term of options granted under this plan may not exceed ten years (or five years, in the case of an incentive share option
granted to an optionee who owns more than ten percent of the total combined voting power of all classes of share of the Company).
The term of a share appreciation right will be set forth in the award agreement as determined by the administrator.
Vesting Schedule.
The administrator may determine in its discretion whether any award will be subject to vesting and the terms and conditions
of any such vesting. The award agreement will contain any such vesting schedule.
Transfer Restrictions.
No options, restricted shares awards (prior to vesting, subject to the plan and the award agreement) or share appreciation
rights may be transferred other than by will or by the laws of descent or distribution, except that non-qualified options and
share appreciation rights may be transferred to an award recipient’s former spouse pursuant to a property settlement made
part of an agreement or court order incident to the divorce. During the lifetime of an award recipient, only the award recipient,
his guardian or legal representative may exercise an option (other than an incentive share option) pursuant to a domestic relations
order in accordance with the plan. During the lifetime of an award recipient, only the award recipient may exercise the restricted
share awards or share appreciation rights.
Termination of
Employment or Service.
In the event that an award recipient terminates employment with us or ceases to provide services to
us, an award may be exercised following the termination of employment or services as provided in the plan and the award agreement.
Termination and Amendment of the Plan.
This plan was terminated automatically in 2016 pursuant to its terms. Our Board has the authority to amend, suspend or terminate
the plan, subject to shareholder approval with respect to certain amendments. No award will be granted after termination of this
plan but all awards granted prior to termination will remain in effect in accordance with their terms.
2015 Equity
Incentive Plan
On May 8, 2015, our
board of directors adopted our 2015 Equity Incentive Plan. Our shareholders approved this plan on the same date. This plan went
effective upon completion of the Redomicile Merger. The total number of Shares that may be issued under this plan is nine percent
(9%) of the number of outstanding and issued ordinary shares of the Company. Awards may, in the discretion of the administrator,
be made under this plan in assumption of, or in substitution for, outstanding awards previously granted by the Company or its
affiliates or a company acquired by the Company or with which the Company combines. The number of shares underlying such substitute
awards shall be counted against the aggregate number of shares available for awards under the plan.
The following are
principal terms under our 2015 Equity Incentive Plan:
Administration.
This plan is administered by the compensation committee of our Board, and the compensation committee may delegate its duties
and powers in whole or in part to any subcommittee of it.
Awards.
We
may grant non-qualified or incentive share options, share appreciation rights and other share-based awards such as restricted
shares under this plan.
Option / Exercise
Price
. The purchase price per share of any option and the exercise price of any share appreciation right will be determined
by the administrator in accordance with the plan.
Terms of Awards.
The term of options granted under this plan may not exceed ten years from the date of grant.
Vesting Conditions
. The
administrator has full power and authority to accelerate or waive any vesting conditions.
Transfer Restrictions.
Unless otherwise determined by the administrator and subject to terms and conditions of the plan, an award may not be transferred
other than by will or by the laws of descent and distribution.
Adjustments upon
Certain Events.
In the event of any change in the outstanding shares by reason of certain corporate transactions, the administrator
will in its sole discretion make such substitution or adjustment (if any) as to the number or kind of securities issued or reserved
for issuance pursuant to the plan or outstanding awards, the maximum numbers of awards that may be granted during a calendar year
to any award recipient, the option or exercise price of any awards, or other affected terms of the awards. In the event of a change
of control, the administrator may (1) determine any outstanding awards to be automatically exercisable or otherwise vested or
no longer subject to lapse restrictions; or (2) cancel these awards in accordance with the plan, provide for issuance of substitute
awards that substantially preserve the otherwise applicable terms of these awards, or provide that relevant options shall be exercisable
within a period of at least 15 days prior to the change of control and shall terminate upon occurrence of the change of control.
Termination and
Amendment of Plan
. Unless terminated earlier, this plan shall terminate automatically in 2025. Our Board may amend, alter
or discontinue this plan in accordance with terms and conditions of the plan. No award may be granted under the plan after termination
date, but awards granted prior to termination will remain in effect.
Option Awards
The following table
summarizes the outstanding options that we granted to our directors and executive officers and to other individuals as a group
under both of our 2006 Equity Incentive Plan and our 2015 Equity Incentive Plan as of the date of this annual report. We have
not granted any outstanding options other than to the individuals named below.
Name
|
|
Number of
Shares
|
|
Exercise
Price ($)
|
|
Grant Date
|
|
Expiration Date
|
Xiaofeng Peng
|
|
100,000
|
*
|
$3.63
|
|
September 2017
|
|
September 2027
|
Maurice Ngai
|
|
3,600
5,000
5,000
|
|
$62
$62
$3.63
|
|
May 2016
May 2016
September 2017
|
|
May 2026
May 2026
September 2027
|
Lang Zhou
|
|
5,000
|
*
|
$62
|
|
May 2016
|
|
May 2026
|
|
|
3,000
1,000
|
|
$3.63
$31
|
|
September 2017
June 2014
|
|
September 2027
June 2024
|
HoongKhoeng Cheong
|
|
46,000
|
*
|
$3.63
|
|
September 2017
|
|
September 2027
|
Qing Lu
|
|
800
|
*
|
$3.63
|
|
September 2017
|
|
September 2027
|
Directors and executive officers as a group
|
|
169,400
|
*
|
From $3.63 to $62
|
|
From August 2013 to March 2026
|
|
From May 2026 to September 2027
|
Other individuals as a group
|
|
130,700
|
**
|
|
|
|
|
|
_____________________
*
|
Upon exercise of all
share options, would beneficially own less than 1.0% of our then outstanding share capital.
|
**
|
Upon exercise of all
share options, each such individual would beneficially own less than 1.0% of our then
outstanding share capital.
|
Board of Directors
Our board of directors currently consists
of five directors, three of whom satisfy the “independence” requirements of Rule 10A-3 under the Exchange Act and
Rule 5605 of the NASDAQ Rules. The law of our home country, which is the Cayman Islands, does not require a majority of the board
of directors of our Company to be composed of independent directors, nor does the Cayman Islands law require that of a compensation
committee or a nominating committee. We intend to follow our home country practice with regard to composition of the board of
directors. A director is not required to hold any shares in the Company by way of qualification. A director who is in any way,
whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with our company must
declare the nature of his interest at a meeting of the directors. Subject to the NASDAQ Rules and disqualification by the chairman
of the relevant board meeting, a director may vote in respect of any contract or transaction or proposed contract or transaction
notwithstanding that he or she may be interested therein and if he or she does so his or her vote shall be counted and he or she
may be counted in the quorum at the relevant board meeting at which such contract or transaction or proposed contract or transaction
is considered. Our board of directors may exercise all of the powers of our Company to borrow money, to mortgage or charge our
undertakings, property and uncalled capital, and to issue debentures or other securities whenever money is borrowed or pledged
as security for any debt, liability or obligation of our Company or of any third party.
Committees of the Board of Directors
We have an audit committee, a compensation
committee and a nominating and corporate governance committee under the board of directors. We have adopted a charter for each
of the three committees. Each committee’s members and functions are described below.
Audit Committee
Our audit committee consists of Maurice
Ngai, Qing Lu and Lang Zhou, and is chaired by Maurice Ngai. All of the members of our audit committee satisfy the “independence”
requirements of Rule 10A-3 under the Exchange Act and Rule 5605 of the NASDAQ Rules. The audit committee assists the Board’s
oversight of (1) the quality and integrity of our financial statements and related disclosure, (2) our compliance with legal and
regulatory requirements, (3) the independent auditor’s qualifications and independence, (4) the performance of our internal
audit function and independent auditors and (5) related-party transactions. The audit committee is responsible for, among other
things:
|
·
|
appointing
the independent auditors and pre-approving any non-audit services to be performed by
the independent auditors;
|
|
·
|
reviewing
and approving all proposed related-party transactions;
|
|
·
|
reviewing
with the independent auditors any audit problems or difficulties and management’s
response;
|
|
·
|
discussing
the audited financial statements with management and the independent auditors;
|
|
·
|
reviewing
major issues as to the adequacy of our internal controls and any significant deficiencies
or material weaknesses in internal controls;
|
|
·
|
meeting
separately and periodically with management and the independent auditors;
|
|
·
|
reviewing
with the general counsel the adequacy of procedures to ensure compliance with legal and
regulatory responsibilities; and
|
|
·
|
reporting
regularly to the entire board of directors.
|
Compensation Committee
Our compensation
committee consists of Xiaofeng Peng and Maurice Ngai and Qing Lu, and is chaired by Xiaofeng Peng. Maurice Ngai and Qing Lu
satisfy the “independence” requirements of Rule 10A-3 under the Exchange Act and Rule 5605 of the NASDAQ Rules.
Our home country practice differs from the NASDAQ Rules that require the compensation committees of listed companies to be
comprised solely of independent directors. There are, however, no specific requirements under Cayman Islands law on the
composition of compensation committees. The compensation committee has overall responsibility for evaluating and recommending
to the Board compensation of our directors and executive officers and our equity-based and incentive compensation plans,
policies and programs. The compensation committee is responsible for, among other things:
|
·
|
approving
and overseeing the total compensation package for our executives;
|
|
·
|
reviewing
and recommending to the Board the compensation of our directors;
|
|
·
|
reviewing
and approving corporate goals and objectives relevant to the compensation of our chief
executive officer, evaluating the performance of our chief executive officer in light
of those goals and objectives, and setting the compensation level of our chief executive
officer based on this evaluation;
|
|
·
|
reviewing
periodically and recommending to the Board and administering any long-term incentive
compensation or equity plans, programs or similar arrangements; and
|
|
·
|
reporting
regularly to the entire board of directors.
|
Nominating and Corporate Governance
Committee
Our nominating and corporate governance
committee consists of Xiaofeng Pengand, Lang Zhou and Qing Lu, and is chaired by Xiaofeng Peng. Qing Lu and Lang Zhou satisfy
the “independence” requirements of Rule 10A-3 under the Exchange Act and Rule 5605 of the NASDAQ Rules. Our home country
practice differs from the NASDAQ Rules that require the nominating committees of listed companies to be comprised solely of independent
directors. There are, however, no specific requirements under Cayman Islands law on the composition of nominating committees.
The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become
our directors and in determining the composition of the Board and its committees. The nominating and corporate governance committee
is responsible for, among other things:
|
·
|
identifying
and recommending to the Board nominees for election to the Board or for appointment to
fill any vacancy that is anticipated or has arisen on the Board;
|
|
·
|
reviewing
annually with the Board the current composition of the Board in light of the characteristics
of independence, age, skills, experience and availability of service to us of its members
and of anticipated needs;
|
|
·
|
identifying
and recommending to the Board the directors to serve as members of the Board’s
committees;
|
|
·
|
advising
the Board periodically regarding significant developments in law and practice of corporate
governance and making recommendations to the Board on all matters of corporate governance;
|
|
·
|
monitoring
compliance with our code of business conduct and ethics, including reviewing the adequacy
and effectiveness of our procedures to ensure proper compliance; and
|
|
·
|
reporting
regularly to the entire board of directors.
|
Duties of Directors
Under Cayman Islands law, our directors
owe to us fiduciary duties, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good
faith to be in our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and
diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us,
our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time.
Our Company has the right to seek damages if a duty owed by our directors is breached.
Terms of Directors and Executive Officers
The members of the Board serve until their
successors are duly elected and have qualified. Our officers are appointed by and serve at the discretion of the board of directors.
A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition
with his creditors; (ii) dies or is found by our company to be or becomes of unsound mind; (iii) resigns his office by written
notice to the Company; (iv) the board resolves that his office be vacated; or (v) is removed from office pursuant to any other
provision of our memorandum and articles of association.
Employment Agreements
We have entered into employment agreements
with each of our executive officers. These employment agreements became effective on the signing date and will remain effective
through to 2019. We may terminate an executive officer’s employment for cause for certain acts of the officer, including,
but not limited to, conviction of a felony, any act involving moral turpitude, or a misdemeanor where imprisonment is imposed;
commission of any act of theft, fraud, dishonesty, or falsification of any employment or Company records; improper disclosure of
the Company’s confidential or proprietary information; any action that has a detrimental effect on the Company’s reputation
or business; or failure to perform agreed duties. We may also terminate an executive officer’s employment without cause.
Each of us or the relevant executive officer may terminate the employment by giving advance written notice. We may renew the employment
agreements with our executive officers.
As of December
31, 2015, 2016 and 2017, we had 884, 327 and 63 employees, respectively. Substantially all of these employees are located in
China with a small portion of employees based in the U.S., the U.K., Italy, Greece, Hong Kong and Japan. The following table
sets forth the number of our employees for each of our major functions as of November 30, 2018:
Major functions
|
|
|
Managerial functions
|
|
19
|
Operating functions
|
|
46
|
Others
|
|
2
|
Total
|
|
67
|
None of our employees are represented by
a labor union nor are we organized under a collective bargaining agreement. We have never experienced a work stoppage and believe
that our relations with our employees are good.
As required by regulations in China, we
participate in various employee social security plans that are organized by municipal and provincial governments, including pension,
unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. We are required
under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances
of our employees, up to a maximum amount specified by the local government from time to time.
The following tables set forth information
with respect to the beneficial ownership of our shares as of the date of the report:
|
·
|
each
of our directors and executive officers; and
|
|
·
|
each
person known to us to own beneficially in excess of 5% of our ordinary shares.
|
Directors and Executive
Officers
|
|
Shares
Beneficially Owned
|
|
Percentage
Beneficially Owned
|
Xiaofeng Peng, Chairman of the Board
|
|
3,726,040
1
|
|
37.3%
|
Maurice Wai-fung Ngai, Director
|
|
*
|
|
*
|
Qing Lu, Director
|
|
*
|
|
*
|
Lang Zhou, Director
|
|
*
|
|
|
HoongKhoeng Cheong, Director and Chief Operating Officer
|
|
*
|
|
*
|
All Directors and Executive Officers as a Group
|
|
3,779,090
2
|
|
0.38%
|
__________________
(1)
|
Consists
of options to purchase 100,000
ordinary shares, Mr. Xiaofeng Peng, as the spouse of Ms. Shan Zhou, may be deemed to beneficially own the 875,000
ordinary shares of the Company held by Ms. Shan Zhou. Furthermore, LDK New Energy Holding Limited, or LDK Energy,
directly owns 127,340 ordinary shares and holds an option to purchase 1,621,700 ordinary shares. As a director and as
the spouse of Ms. Zhou, who is the sole shareholder and a director of LDK Energy, Mr. Peng may be deemed to
beneficially own such 1,749,040 ordinary shares beneficially owned by LDK Energy. Lighting Charm Limited holds an option to
purchase 1,000,000 ordinary shares. As the spouse of Ms. Zhou, who is the sole shareholder and a director of Lighting Charm
Limited, Mr. Peng may be deemed to beneficially own such 1,000,000 ordinary shares beneficially owned by Lighting Charm
Limited.
|
(2)
|
Consists of an aggregate of 2,011,340 ordinary shares and options to purchase an aggregate of 1,767,750 ordinary
shares.
|
Principal Shareholders
|
|
Ordinary
Shares
Beneficially Owned
|
|
Percentage
Beneficially Owned
|
LDK Solar USA, Inc.
1
|
|
1,317,463
|
|
18.2%
|
LDK Solar Europe Holding SA
2
|
|
97,712
|
|
1.3%
|
Shan Zhou
3
|
|
2,624,040
|
|
36.2%
|
Qian Kun Prosperous Times Investment Limited
4
|
|
800,000
|
|
11.0%
|
Sinsin Europe Solar Asset Limited Partnership
5
|
|
382,258
|
|
5.3%
|
______________________
|
(1)
|
LDK Solar USA, Inc. LDK Solar USA, Inc. is wholly owned by LDK Solar CO., Ltd. The address of LDK Solar USA, Inc. LDK Solar
USA, Inc. is One Front Street, Suite 1600, San Francisco, CA 94111, USA.
|
|
(2)
|
LDK Solar Europe Holding S.A. is wholly owned by LDK Solar International Co., Ltd., which is in turn wholly owned by LDK Solar
CO., Ltd. The address of LDK Solar Europe Holding S.A. is 898, rue Pafebruch, L-8308, Capellen RCS, Luxembourg.
|
|
(3)
|
Consists of 875,000 ordinary shares held by Ms. Zhou and 1,749,040 ordinary shares
beneficially owned by LDK Energy. As the spouse of Mr. Peng, Ms. Zhou may also be deemed to beneficially own
100,000 ordinary shares that Mr. Peng has the option to purchase.
|
|
(4)
|
Mr. Yunshi Wang is the natural person who has sole voting and investment power over 800,000 ordinary of the company shares
held through Qian Kun Prosperous Times Investment Limited. The address of Qian Kun Prosperous Times Investment Limited is Sea Meadow
House, Blackburne Highway, (P.O. Box 116), Road Town, Tortola, British Virgin Islands.
|
|
(5)
|
Sinsin Europe Solar Asset Limited Partnership’s general partner is Solar Asset Management Capital Inc. Solar Asset Management
Capital Inc. is wholly owned by SAM Capital Holdings Limited. The address of Sinsin Europe Solar Asset Limited Partnership is Suite
716, 10 Market Street, Grand Cayman KY1-9006, Cayman Islands.
|
As of the date of this annual report, 7,260,672
ordinary shares are issued and outstanding. We cannot ascertain the exact number of beneficial shareholders with addresses in
the United States.
None of our shareholders has different
voting rights from other shareholders as of the date of this annual report. We are currently not aware of any arrangement that
may, at a subsequent date, result in a change of control of our Company.
ITEM 7.
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
Please refer to “Item
6. Directors, Senior Management and Employees—E. Share Ownership.”
B.
|
Related
Party Transactions
|
Transactions with Our Directors, Executive
Officers and Shareholders
In 2016 and 2015, the
total fund raised from individual investors through Solar Energy amounted to $22.0 million and $145.6 million, of which $1.8 million
and $11.5 million was settled by the coupons issued by the Group to individual investors without cash inflow and the amount of
$20 million and $129.8 million had been received by the Group from Solar Energy in 2016 and 2015 and Solar Energy charged $0.1
million and $1.1 million as commission fee to the Group at 1% of the fund principal. In 2016 and 2015, the total fund redeemed
to individual investors through Solar Energy amounted to $nil and $19.2 million which had been fully repaid by the Group to Solar
Energy as of December 31, 2016 and 2015. In 2016, the Group operated Solarbao E-commerce and Investment business through its VIE,
Meijv, and there’s no aforesaid transactions occurred with Solar Energy during year ended December 31, 2017. As of December
31, 2017 and 2016, the Group had other receivable (gross) of $3.2 million and $3.2 million from Solar Energy, respectively, for
the fund received from the individual investors on behalf of the Group by Solar Energy net of its commission fee and made an allowance
for doubtful debts of $3.2 million and $3.2 million, respectively, based on the recoverable amount of the receivable from Solar
Energy.
In connection with
the launch of the Underlying PV Products, the Group issued to Jiangxi LDK Solar Hi-Tech Co., Ltd. (“LDK Jiangxi”) and
Suzhou Liuxin Industry Ltd. (“Liuxin”) coupons with total face value of $0.8 million and $0.6 million respectively
during the year ended December 31, 2015. Both LDK Jiangxi and Liuxin are related parties of the Group. LDK Jiangxi is a wholly
owned subsidiary of LDK Solar Co., Ltd. (“LDK”), principle shareholder of the Company. Liuxin is wholly owned by Mr.
Peng’s father. These coupons are freely transferable among holders but could not be redeemed in cash. When the holder subscribe
the on-line products through the on-line platform of Solar Energy, the holders could redeem the coupons and reduce the original
purchase price for the on-line products by the face value of the coupons. In 2015, the Group received full payment of $0.6 million
from Liuxin for the face value of the coupons issued. For the coupons of $0.8 million issued to LDK Jiangxi, they were applied
to offset the outstanding accounts payables of $0.8 million to LDK Jiangxi under mutual agreement between the Group and LDK Jiangxi.
As of December 31, 2015, all coupons issued to these related parties had been redeemed through the on-line platform. No other related
party transactions occurred with LDK Jiangxi and Liuxin for the year ended December 31, 2017 and 2016.
In 2015, the Group
incurred commission fee of $3.5 million to SUPERMERCY Limited (“SUPERMERCY”), one of the shareholders of the Group,
in respect of certain funds successfully raised by the Group that had been resulted from the services rendered by SUPERMERCY. The
commission fee was recognized as a deduction of the funds raised recorded in additional paid in capital within the stockholders’
equity. There were no such transactions between the Group and SUPERMERCY during 2017 and 2016.
During the year ended
December 31, 2016 and 2015, the Group made advance payments of $0.5 million and $0.3 million respectively to Mr. Peng for which
a full provision has been recorded by the Company as of December 31, 2016. During the year ended December 31, 2017, the Group made
advance payments of $0.2 million to Mr. Peng for business operation purpose which was expenses as of December 31, 2017.
During the year
ended December 31, 2017 and 2016, the Group made advance payments of $0.2 million and $1.7 million to Mr. Minghua Zhao, a former
director of the Group, and $0.04 million and $1.5 million had been received in 2017 and 2016, respectively. As of December 31,
2017 and 2016, the Group has receivables from Mr. Minghua Zhao of $0.3 million and $0.1 million, with provision of $0.3 million
and $0.1 million had been provided, respectively.
During the year ended
December 31, 2016, Suzhou Industrial Park Chengcheng Enterprise Guarantee Limited Company (“Chengcheng”) provided guarantee
to secure the repayment obligation under a sale-and-leaseback agreement. The principle of the finance lease receivable guaranteed
by Chengcheng amounted to $23 million as of December 31, 2016 and will expire in 2025. Mr. Minghua Zhao, a former director of the
Group, is the legal representative of Chengcheng. As of December 31, 2017, Chengcheng was no longer a related party of the Group.
On March 30, 2015,
the Group entered into a share purchase agreement (the “LDK Share Purchase Agreement”) with LDK Group. Pursuant to
the LDK Share Purchase Agreement, the Group agreed to purchase from LDK Group three LDK’s subsidiaries incorporated in Italy
and California respectively which hold three solar PV plants in total, at a cash consideration of US$2.4 million. The Group will
also assume certain indebtedness contemplated in the LDK Share Purchase Agreement up to a maximum amount to be agreed upon among
the Group and the LDK Group prior to the closing date of the transaction. The transaction is subject to several closing conditions
including completion of satisfactory due diligence. In connection with the acquisition, the Group paid $2 million as deposits for
the acquisition, such prepaid deposits were subsequently agreed by both parties to offset against certain payable balances due
to LDK Group, on September 30, 2015.
As of December 31,
2017 and 2016, the Group had accounts payable to LDK Group of $4.7 million and $4.4 million, respectively, which were primarily
related to purchases of solar cells for solar development projects. The solar cells purchased from LDK Group for the years ended
2017, 2016 and 2015 were amounted to $nil, $3.7 million and $11.7 million, respectively. The Group also consigned LDK Group to
process solar cells to solar panels for its on-line platform business. The processing fee charged by LDK Group amounted to $nil,
$nil and $4 million for the years ended 2017, 2016 and 2015. Pursuant to a Settlement and Mutual Release dated December 30, 2014
and a supplementary agreement dated September 30, 2015, the LDK Group received $11 million from the Group during the year ended
December 31, 2015 for full settlement of outstanding receivable balances of $28.8 million due from the Group. As a result, the
Group derecognized liabilities of $17.8 million due to LDK Group which was accounted for as a capital transaction by increasing
additional paid in capital as of December 31, 2015.
On August 28, 2018,
SPI Energy entered into a share purchase agreement (the “SPA”) with Lighting Charm Limited (the “Buyer”),
an affiliate of Tracy Zhoushan, the spouse of Xiaofeng Peng, the Company’s Chairman of the Board of Directors and Chief
Executive Officer. The SPA was approved by an independent committee of the Company’s Board of Directors. On December 10,
2018, the transactions contemplated by the SPA closed. Pursuant to the SPA, the Company sold the Buyer 100% of the shares of SPI
China (HK) Limited, which held all of the Company’s assets and liabilities related to its business in China (the “Acquired
Business”). These assets include all of SPI Energy’s China Businesses, including its EPC business, PV projects, Internet
finance lease related business, and E-commerce businesses (including Solarbao). The consideration paid for the business was US$1.00.
An independent appraisal firm determined that the fair market value of the equity interests in the Acquired Business was nil.
The valuation was made, in part, based on the significant liabilities of the Acquired Business. The Company granted the Buyer
the option (the “Option”) to purchase from the Company up to 1,000,000 of the Company’s Ordinary Shares (the
“Ordinary Shares”), which Option is exercisable by the Buyer on or prior to August 21, 2021. The Option exercise price
is US$ 3.80 per share.
Contractual Arrangements with Solar
Energy E-Commerce and Its Shareholders
We, through our wholly-owned subsidiary,
Yan Hua Internet, have entered into a series of contractual arrangements with Solar Energy E-Commerce and its shareholders, Mr.
Xiaofeng Peng, chairman of our board of directors, Mr. Min Xiahou, former deputy chairman of our board of directors and Ms. Amy
Jing Liu, our former chief financial officer:
Exclusive Consultancy and Service Agreement
.
Pursuant to the exclusive consultancy and service agreement entered into between Solar Energy E-Commerce and Yan Hua Internet,
Solar Energy E-Commerce irrevocably appoints and designates Yan Hua Internet as its exclusive service provider to provide, among
others, relevant technical and consulting services. The service fees are determined based on the actual services provided by Yan
Hua Internet and up to the net income of Solar Energy E-Commerce during the relevant period. The term of this agreement is three
years, which may be automatically extended upon expiration. Yan Hua Internet may terminate this agreement in its sole discretion
at any time with a three-month prior written notice.
Exclusive Call Option Agreement
.
Through the exclusive call option agreement entered into among Yan Hua Internet, Solar Energy E-Commerce and its shareholders,
Yan Hua Internet or its designated third party has an exclusive purchase option to acquire all or a part of the equity interest
or assets in Solar Energy E-Commerce at any time when permitted by applicable PRC laws and regulations in its sole discretion.
The transfer price will be the minimum amount of consideration permitted under PRC law at the time of transfer. In addition, without
Yan Hua Internet’s or its controlling shareholder’s prior written consent, the shareholders of Solar Energy E-Commerce
shall not transfer their equity interest in Solar Energy E-Commerce, and Solar Energy E-Commerce shall not transfer any of its
assets. This agreement will remain effective until all of Solar Energy E-Commerce’s equity interest and assets are transferred
to Yan Hua Internet or its designated third party, unless terminated by Yan Hua Internet at any time with a 30-day prior written
notice.
Proxy Voting Agreement
. Through
the proxy voting agreement entered into among Yan Hua Internet, Solar Energy E-Commerce and its shareholders, each shareholder
of Solar Energy E-Commerce undertakes to execute a power of attorney to exclusively assign his or her rights as shareholder of
Solar Energy E-Commerce to Yan Hua Internet’s designated person, including voting right, right to transfer any equity interest
in Solar Energy E-Commerce and right to appoint directors and officers. This agreement will remain effective unless terminated
by mutual agreement or by the non-defaulting party in the case of a breach of contract.
Equity Interest Pledge Agreement
.
To ensure Solar Energy E-Commerce’s performance of its obligations under the exclusive consultancy and service agreement,
the exclusive option agreement and the proxy voting agreement, the shareholders of Solar Energy E-Commerce have entered into an
equity interest pledge agreement with Yan Hua Internet to pledge their equity interests in Solar Energy E-Commerce to Yan Hua
Internet. This equity interest pledge agreement will remain effective until the full performance of the contractual obligations
under the exclusive consultancy and service agreement, the exclusive call option agreement and the proxy voting agreement.
Legal
enforceability of these contractual arrangements has not been established primarily because the registration of the equity
interest pledge agreement with the relevant PRC government authority has not been completed, as one of the legal
shareholder’s equity in Solar Energy E-Commerce is restricted for pledge and transfer, making us unable to legally
enforce our right under the equity interest pledge agreements and potentially other agreements. As a result, we did not
consolidate the operating results of Solar Energy E-Commerce into our financial statements as of and for the year ended
December 31, 2015. We have migrated Solarbao from Solar Energy E-commerce to Meijv since April 2016. We have entered into
contractual arrangements with Meijv and its sole shareholder, Youying. We have set up contractual arrangements with
Youying’s individual shareholders. See “—Contractual Arrangements with Meijv and Its Shareholders”
below. We also used to carry out our on-line solar products trading business through www.solartao.com, which was operated by
Solarbao E-Commerce (Suzhou) Limited (“LvNeng Tao”) to sell PV products, such as solar panel, invertor, framework
and solar lamps, and this website was operated in a very short history. See “—Contractual Arrangements with
LvNeng Tao and Its Shareholders” below.
These transactions relate to the portion
of our business that we sold to Lighting Charm Limited in December 2018, as described above.
Contractual Arrangements with Meijv
and Its Shareholder
We, through our wholly-owned subsidiary,
Yan Hua Internet, have entered into a series of contractual arrangements with Meijv and Youying, whose shareholders are Mr. Min
Xiahou, former deputy chairman of our board of directors and Mr. Tairan Guo, our former Chief Financial Officer, as of the date
of this annual report:
Exclusive Business Cooperation Agreement
.
Pursuant to the exclusive business cooperation agreement entered into between Meijv and Yan Hua Internet, Meijv irrevocably appoints
and designates Yan Hua Internet as its exclusive service provider to provide, among others, relevant technical and consulting
services. The service fees are determined based on the actual services provided by Yan Hua Internet during the relevant period.
This agreement shall remain effective unless otherwise terminated by Yan Hua Internet or terminated according to other provisions
therein. Yan Hua Internet may terminate this agreement in its sole discretion at any time with prior written notice.
Exclusive Call Option Agreement
.
Through the exclusive call option agreement entered into among Yan Hua Internet, Meijv and Youying, Yan Hua Internet or its designated
third party has an exclusive purchase option to acquire all or a part of the equity interest or assets in Meijv at any time when
permitted by applicable PRC laws and regulations in its sole discretion. The transfer price will be the minimum amount of consideration
permitted under PRC law at the time of transfer. In addition, without Yan Hua Internet’s or its controlling shareholder’s
prior written consent, the shareholders of Meijv shall not transfer their equity interest in Meijv, and Meijv shall not transfer
any of its assets. This agreement will remain effective until all of Meijv’s equity interest and assets are transferred
to Yan Hua Internet or its designated third party.
Proxy Voting Agreement
. Through
the proxy voting agreement entered into among Yan Hua Internet, Meijv and Youying, Youying undertakes to execute a power of attorney
to exclusively assign its rights as shareholder of Meijv to Yan Hua Internet’s designated person, including voting right,
right to transfer any equity interest in Meijv and right to appoint directors and officers. This agreement will remain effective
so long as Youying remains to be the shareholder of Meijv.
Equity Interest Pledge Agreement
.
To ensure Meijv’s performance of its obligations under the exclusive business cooperation agreement, the exclusive option
agreement and the proxy voting agreement, Youying as the shareholder of Meijv has entered into an equity interest pledge agreement
with Yan Hua Internet to pledge its equity interests in Meijv to Yan Hua Internet. This equity interest pledge agreement will
remain effective until the full performance of the contractual obligations under the exclusive business cooperation agreement,
the exclusive call option agreement and the proxy voting agreement.
We registered the
equity interest pledge agreement among Yan Hua Internet, Meijv and Youying with the relevant PRC government authority on March
17, 2016. Mr. Min Xiahou, Mr. Tairan Guo, Youying and Yan Hua Internet have entered into a set of contractual arrangements, including
an equity interest pledge agreement on May 11, 2017, similar to those entered among Yan Hua Internet, Youying and Meijv. As the
100% shareholder of Meijv, Youying has pledged its equity interests in Meijv and registered this equity pledge with the relevant
PRC government authority and the legal enforceability of the contractual agreements is established.
These transactions relate to the portion
of our business that we sold to Lighting Charm Limited in December 2018, as described above.
Contractual Arrangements with LvNeng Tao and Its Shareholders
We, through our wholly-owned subsidiary,
Yan Hua Internet, have entered into a series of contractual arrangements with LvNeng Tao, whose shareholders are Mr. Min Xiahou,
former deputy chairman of our board of directors, Mr. Minghua Zhao, a former director of our board of directors, and Mr. Tairan
Guo as of the date of this annual report:
Exclusive Business Cooperation Agreement
.
Pursuant to the exclusive business cooperation agreement entered into between LvNeng Tao and Yan Hua Internet, LvNeng Tao irrevocably
appoints and designates Yan Hua Internet as its exclusive service provider to provide, among others, relevant technical and consulting
services. The service fees are determined based on the actual services provided by Yan Hua Internet during the relevant period.
This agreement shall remain effective unless otherwise terminated by Yan Hua Internet or terminated according to other provisions
therein. Yan Hua Internet may terminate this agreement in its sole discretion at any time with prior written notice.
Exclusive Call Option Agreement
.
Through the exclusive call option agreements entered into among Yan Hua Internet, Mr. Min Xiahou, Mr. Minghua Zhao and Mr. Tairan
Guo respectively, Yan Hua Internet or its designated third party has an exclusive purchase option to acquire all or a part of
the equity interest or assets in LvNeng Tao at any time when permitted by applicable PRC laws and regulations in its sole discretion.
The transfer price will be the minimum amount of consideration permitted under PRC law at the time of transfer. In addition, without
Yan Hua Internet’s or its controlling shareholder’s prior written consent, the shareholders of LvNeng Tao shall not
transfer their equity interest in LvNeng Tao, and LvNeng Tao shall not transfer any of its assets. These agreements will remain
effective until all of LvNeng Tao’s equity interest and assets are transferred to Yan Hua Internet or its designated third
party.
Proxy Voting Agreement
. Through
the proxy voting agreements entered into among Yan Hua Internet, Mr. Min Xiahou, Mr. Minghua Zhao and Mr. Tairan Guo respectively,
Mr. Min Xiahou, Mr. Minghua Zhao and Mr. Tairan Guo all undertake to execute a power of attorney to exclusively assign their rights
as shareholder of LvNeng Tao to Yan Hua Internet’s designated person, including voting right, right to transfer any equity
interest in LvNeng Tao and right to appoint directors and officers. These agreements will remain effective so long as Mr. Min
Xiahou, Mr. Minghua Zhao and Mr. Tairan Guo remain to be the shareholders of LvNeng Tao.
Equity Interest Pledge Agreement
.
To ensure LvNeng Tao’s performance of its obligations under the exclusive business cooperation agreement, the exclusive
option agreement and the proxy voting agreement, Mr. Min Xiahou, Mr. Minghua Zhao and Mr. Tairan Guo as the shareholders of LvNeng
Tao have entered into equity interest pledge agreements with Yan Hua Internet to pledge their equity interests in LvNeng Tao to
Yan Hua Internet. These equity interest pledge agreements will remain effective until the full performance of the contractual
obligations under the exclusive business cooperation agreement, the exclusive call option agreements and the proxy voting agreements.
We registered the equity interest pledge
agreements among Yan Hua Internet, Mr. Min Xiahou, Mr. Minghua Zhao, Mr. Tairan Guo and LvNeng Tao with the relevant PRC government
authority on July 13, 2017, and the legal enforceability of the contractual agreements is established. And we believe that the
current corporate structure of LvNeng Tao is in compliance with existing PRC laws, rules and regulations.
These transactions relate to the portion
of our business that we sold to Lighting Charm Limited in December 2018, as described above.
Employment Agreements
See “Item 6. Directors, Senior Management
and Employees—C. Board Practices—Employment Agreements.”
Share Incentives
See “Item 6. Directors, Senior Management
and Employees—B. Compensation of Directors and Executive Officers” for a description of share options that we have
granted to our directors, officers and other individuals as a group.
C.
|
Interests of Experts and Counsel
|
Not applicable.
ITEM 8.
|
FINANCIAL INFORMATION
|
A.
|
Consolidated Statements and Other Financial Information
|
We have appended consolidated financial
statements filed as part of this annual report.
Legal and Administrative
Proceedings
On June 26,
2015, Aaron Read & Associates (“Aaron Read”) filed a complaint against us for commissions with respect to a
solar project in North Palm Springs, California. Aaron Read is seeking damages in the amount of approximately $0.5 million
plus attorney’s fees and claimed it is due commissions ranging from 0.25% to 2.0% of the project’s gross revenues
depending on the level of involvement by Aaron Read in assisting in obtaining the project by us. We deny that Aaron Read
assisted in the project acquisition, and even if it is deemed that Aaron Read assisted, they would be entitled to only 0.25%,
i.e.$0.1 million. As of the date of issuance of these financial statements, this matter is at its early stage of the
proceeding and it is uncertain how the United States Court will rule on the plaintiff’s appellate brief. Based on
information available to us, management believes that it is remote that a loss had been incurred. We arrange to have a
mediation with Aaron Read to reach a settlement hereto. A settlement agreement was entered into by both parties on November
14, 2017. On January 2, 2018, Aaron Read filed and served upon the company a dismissal with prejudice of the entire case and
all causes of action in the pending action.
Some of
our previous employees filed suits in late 2015 and early 2016 against us for breach of their prior employment contracts with
us. As of the date of this annual report, we have reached a settlement with Michael Turco, Taimur Jamil, Sharon Mauer,
William Heck and Brain Lessig and the court has administratively closed those matters. Only Kevin Adler’s case is
pending to trail. Based on information available to us, we believe that it is probable that a loss had been incurred based on
reasonable estimation.
On August 7, 2016, TBEA Sunoasis filed a complaint against us in a PRC court alleging that we delayed the payment
of $3.8 million for equity transfer of one of our subsidiary Xinte together with factoring interest and bank charge of $1.3 million,
penalty interest for delay payment of factoring of $0.8 million, and penalty of $0.2 million. Judgement of first instance was
made on May 27, 2017, that we shall pay for the delayed payment of $3.8 million for the above acquisition together with 1)
factoring interest and bank charge of $1.3 million; 2) penalty interest of $0.8 million; 3) compensation charge of $0.2 million;
and 4) additional penalty calculated based on the acquisition consideration of $3.8 million at an annual interest rate of 8.7%
from February 28, 2017 to the actual payment date. Based on the judgement of first instance, we believe that it is probable
that a loss has been incurred, and penalty and interest charge of $1.0 million had been accrued according to the judgement of
first instance as of December 31, 2016.
From time to time,
we are involved in various other legal and regulatory proceedings arising in the normal course of business. While we 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 our consolidated financial condition or cash
flows. However, an unfavorable outcome could have a material adverse effect on our results of operations for a specific interim
period or year.
There is currently
an ongoing dispute between “SPI China (HK) Limited” and “SPI Energy Co., Ltd.” on one hand (hereinafter
collectively: “SPI”) and “SINSIN Europe Solar Asset Limited Partnership” and “SINSIN Solar Capital
Limited Partnership” on the other hand (hereinafter collectively: “SINSIN”) with respect to a share sale and
purchase agreement dated September 6, 2014 entered into by and between SINSIN as vendors and SPI as purchaser in relation to all
of the shares in “Sinsin Renewable Investment Limited”, a wholly owned subsidiary of the Company. The target company
is the direct or indirect owner of four (4) Greek companies (hereinafter collectively: “4 SPVs”). The 4 SPVs own a
number of photovoltaic parks in Greece having a total power output of 26.57 MW.
The following judicial proceedings have
been initiated in Greece:
A. SINSIN filed an Injunction Petition
against the 4 SPVs on January 26,2018, which was heard on March 20, 2018, before the Athens One-Member First Instance Court and
on which Judgement No 4212/2018 was issued on June 25, 2018.
This Interim Judgment ordered, inter alia,
the following:
(A) It suspends the force of the extraordinary
General Meetings of the shareholders of the 4 SPVs dated December 19,2017 on the appointment of their members of Board of Directors,
until the issuance of a final judgment on the lawsuit filed by SINSIN.
(B) It appoints an interim management of
the 4 SPVs, consisting of two members elected by SINSIN (Dejun Ye and Fan Yang) and one member elected by the 4 SPVs (Hoong Khoeng
Cheong).
(C) It allows SINSIN to register with the
Greek General Commercial Registry (“GEMI”) the appointed interim management of the 4 SPVs.
B. SINSIN and Mr. Dejun Ye filed a lawsuit
against the 4 SPVs March 14, 2018, with General Submission No 25276/2018 (the “Annulment Lawsuit”). The petitioners
request the annulment of the December 19, 2017 General Assemblies’ Resolutions of the 4 SPVs, which appointed a Board of
Directors elected by their lawful shareholders “Sinsin Renewable Investment Limited”, “Veltimo Limited”
and “Photovoltaica Parka Veroia 1 Malta Limited”, companies belonging to SPI.
SPI filed an Additional Intervention in
the above pending trial under General No. 40772/2018 in favor of the 4 SPVs requesting the rejection of the Annulment Lawsuit.
SPI and their subsidiaries vigorously opposed
the above-mentioned petition.
Court submissions by the parties were completed
on July 12, 2018. A court decision is expected.
C. On the October 23, 2018 another petition
of SINSIN before the Athens Local Court and against “Sinsin Renewable Investment Limited”, “Veltimo Limited”
and “Photovoltaica Parka Veroia 1 Malta Limited” was heard. Such petition was filed with the Athens Local Court under
General Submission No 7294/2018.SINSIN requests the Court to allow them to proceed to an auction of the pledged shares of the 4
SPVs, in order to satisfy their claim amounting to € 38.054 million, plus interest and expenses, for the outstanding purchase
price of the 4 SPVs shares under the above-mentioned share sale and purchase agreement dated 6.9.2014.
Court submissions by the parties were completed
on October 26, 2018.
In June 2018 SPI, as Claimant, filed
arbitration proceedings in Malta against SINSIN Europe Solar Asset Limited Partnership and SINSIN Solar Capital Limited
Partnership as Respondents for an alleged breach of a share sale and purchase agreement dated September 6, 2014 entered into
by and between the Respondents as sellers and the Claimant as purchaser in relation to all of the shares in Sinsin Renewable
Investment Limited (C 60350), a company registered in Malta with registered address at 192, Old Bakery Street, Valletta. The
Claimant is requesting the payment of damages from the Respondents.
The Respondents have filed separate arbitration
proceedings in Malta against SPI, 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. SPI is contesting these claims. Meanwhile, SINSIN has obtained
the status of a precautionary garnishee order against SPI as security for its claims and has had the same order served on SINSIN
Renewable Investment Limited (the Target company) with a view to freezing any payments that may be due by the target company to
its shareholders, SPI.
The Arbitral Tribunal for both sets of
arbitral proceedings has been constituted and the Parties have since agreed that both sets of proceedings will be considered simultaneously.
A schedule has been established and the proceedings continue on November 29 and 30, 2018 when various witnesses produced by SPI
was cross examined by SINSIN’s counsel.
Dividend Policy and Dividend Distribution
We have never declared or paid dividends,
nor do we have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend
to retain our available funds and any future earnings to operate and expand our business.
Subject to our memorandum and articles of
association and certain restrictions under the Cayman Islands law, our board of directors has complete discretion on whether to
pay dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount
recommended by our directors. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend
upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions
and other factors that the board of directors may deem relevant.
We are a holding company incorporated in
the Cayman Islands. We rely principally on dividends paid to us by our subsidiaries in China to fund the payment of our dividends,
if any, to our shareholders. See “Item 3. Key Information—D. Risk Factors—Risks Related to our International
Operations—We may rely on dividends paid by our PRC subsidiaries to fund any cash and financing requirements we may have.
Any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability
to conduct our business and to pay dividends to holders of our ordinary shares.”
Except as disclosed elsewhere in this annual
report, we have not experienced any significant changes since the date of our audited consolidated financial statements included
in this annual report.
ITEM 9.
|
THE
OFFER AND LISTING
|
A.
|
Offering and Listing Details
|
Our ADSs, each representing ten ordinary
shares, have been listed on the NASDAQ Global Select Market between January 19, 2016 and September 18, 2017. Our Ordinary Shares
have been listed on the Nasdaq Global Select Market since September 18, 2017. The following table provides the high and low market
prices for our ADSs and ordinary shares for respective listing periods on NASDAQ.
ADS
|
Market price per ADS
|
|
|
High
|
|
Low
|
|
|
|
($)
|
|
|
|
|
Annual highs and lows
|
|
|
|
|
|
|
2016
|
|
17.48
|
|
|
1.66
|
|
2017 (through September 18, 2017)
|
|
24
|
|
|
0.08
|
|
|
|
|
|
|
|
|
Quarterly highs and lows
|
|
|
|
|
|
|
First Quarter 2016 (from January 20, 2016)
|
|
17.48
|
|
|
5.02
|
|
Second Quarter 2016
|
|
9.79
|
|
|
4.66
|
|
Third Quarter 2016
|
|
6.62
|
|
|
2.29
|
|
Fourth Quarter 2016
|
|
2.94
|
|
|
1.66
|
|
First Quarter 2017
|
|
1.95
|
|
|
1.05
|
|
Second Quarter 2017
|
|
2.4
|
|
|
0.28
|
|
Third Quarter of 2017 (through September 18, 2018)
|
|
1.00
|
|
|
0.08
|
|
Ordinary Shares
|
Market price per ordinary share
|
|
|
High
|
|
Low
|
|
|
($)
|
|
Annual Highs and Lows
|
|
|
|
|
|
|
2017 (beginning September 19, 2017)
|
|
26.1
|
|
|
0.83
|
|
2018
|
|
15.9
|
|
|
1.64
|
|
|
|
|
|
|
|
|
Quarterly highs and lows
|
|
|
|
|
|
|
Between September 19, 2017 and September 30, 2017
|
|
1.7
|
|
|
0.08
|
|
Fourth Quarter 2017
|
|
26.1
|
|
|
1
|
|
First Quarter 2018
|
|
15.9
|
|
|
5.1
|
|
Second Quarter of 2018
|
|
6.9
|
|
|
3.3
|
|
Third Quarter of 2018
|
|
5.4
|
|
|
2.5
|
|
Fourth Quarter of 2018 (through November 30, 2017 )
|
|
4.5
|
|
|
1.64
|
|
|
|
|
|
|
|
|
Monthly highs and lows
|
|
|
|
|
|
|
June 2018
|
|
6.6
|
|
|
3.3
|
|
July 2018
|
|
5.4
|
|
|
3.78
|
|
August 2018
|
|
4.5
|
|
|
2.7
|
|
September 2018
|
|
3.9
|
|
|
2.5
|
|
October 2018
|
|
4.5
|
|
|
2.57
|
|
November 2018
|
|
3.66
|
|
|
1.64
|
|
Not Applicable.
Our ADSs, each
representing ten ordinary shares, were listed on the NASDAQ Global Select market between January 19, 2016 and September 18,
2017 under the symbol “SPI”. Our ordinary shares have been listed on the NASDAQ Global Select market since
September 19, 2017 under the symbol “SPI”.
Not Applicable.
Not Applicable.
Not Applicable.
ITEM 10.
|
ADDITIONAL
INFORMATION
|
Not Applicable.
B.
|
Memorandum and Articles of Association
|
The registered office of our Company is
at the offices of Harneys Fiduciary (Cayman) Limited, PO Box 10240, 103 South Church Street, 4
th
floor, Harbour Place,
George Town, Cayman Islands. The objects for which the Company is established are unrestricted, and the Company has full power
and authority to carry out any object not prohibited by the laws of the Cayman Islands.
The following summarizes material provisions
of our currently effective amended and restated memorandum and articles of association, as well as the Companies Law (2016 Revision)
of the Cayman Islands, which is referred to as the Companies Law below, insofar as they relate to the material terms of our ordinary
shares.
General
All of our issued and outstanding ordinary
shares are fully paid and non-assessable. Our ordinary shares are issued in registered form, and are issued when registered in
our register of members. Our shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary
shares.
Dividends
The holders of our ordinary shares are entitled
to such dividends as may be declared by our board of directors, subject to the Companies Law and the memorandum and articles of
association of our Company, as amended and restated from time to time. In addition, our shareholders may by ordinary resolution
declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, dividends may
be declared and paid only out of funds legally available therefor, namely out of either profit or share premium account, and provided
further that a dividend may not be paid if this would result in us being unable to pay our debts as they fall due in the ordinary
course of business.
Register of Members
Under Cayman Islands law, we must keep a
register of members and there shall be entered therein:
(a) the
names and addresses of the members, a statement of the shares held by each member, and of the amount paid or agreed to be considered
as paid, on the shares of each member;
(b) the
date on which the name of any person was entered on the register as a member; and
(c) the
date on which any person ceased to be a member.
Under Cayman Islands law, our register of
members is
prima facie
evidence of the matters set out therein (namely, the register of members will raise a presumption
of fact on the matters referred to above unless rebutted) and a member registered in the register of members shall be deemed as
a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members. If the name
of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay
in entering on the register the fact of any person having ceased to be a member of our Company, the person or member aggrieved
(or any member of our Group or our Company itself) may apply to the Grand Court of the Cayman Islands for an order that the register
be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order
for the rectification of the register.
Voting Rights
Each holder of ordinary shares is entitled
to one vote on all matters upon which the ordinary shares are entitled to vote on a show of hands or, on a poll, each holder is
entitled to have one vote for each share registered in his name on the register of members. Voting at any meeting of shareholders
is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of the meeting or by any one or more shareholders
holding at least one-tenth of the paid-up shares given a right to vote at the meeting or one-tenth of the votes attaching to the
issued and outstanding ordinary shares in us entitled to vote at general meetings, present in person or by proxy.
A quorum required for a general meeting
of shareholders consists of one or more shareholders who hold in aggregate at least one-third of the votes attaching to the issued
and outstanding ordinary shares in us entitled to vote at general meetings, present in person or by proxy or, if a corporation
or other non-natural person, by its duly authorized representative. Although not required by the Companies Laws or our amended
and restated memorandum and articles of association, we expect to hold shareholders’ meetings annually and such meetings
may be convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding in aggregate
at least one-third of the votes attaching to the issued and outstanding shares that carry the right to vote at general meetings.
Advance notice of at least 14 days is required for the convening of our annual general meeting and other shareholders meetings.
An ordinary resolution to be passed by the
shareholders requires the affirmative vote of a simple majority of the votes cast by those shareholders entitled to vote who are
present in person or by proxy in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds
of the votes cast by those shareholders entitled to vote who are present in person or by proxy in a general meeting.
Transfer of Ordinary Shares
Subject to the restrictions of our articles
of association, as applicable, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of
transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute
discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our directors
may also decline to register any transfer of any ordinary share unless:
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the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and
such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
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the instrument of transfer is in respect of only one class of ordinary shares;
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the instrument of transfer is properly stamped, if required;
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in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does
not exceed four;
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the ordinary shares transferred are free of any lien in favor of us; and
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a fee of such maximum sum as NASDAQ may determine to be payable, or such lesser sum as our board of directors may from time
to time require, is paid to us in respect thereof.
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If our directors refuse to register a transfer
they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and
the transferee notice of such refusal. The registration of transfers may, on 14 days’ notice being given by advertisement
in such one or more newspapers or by electronic means, be suspended and the register of members closed at such times and for such
periods as our board of directors may from time to time determine; provided, however, that the registration of transfers shall
not be suspended and the register of members shall not be closed for more than 30 days in any year.
Liquidation
On a winding up of our Company, if the assets
available for distribution among our shareholders shall be more than sufficient to repay the whole of the share capital at the
commencement of the winding up, the surplus will be distributed among our shareholders in proportion to the par value of the shares
held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies
due, of all monies payable to us for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay
all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the
par value of the shares held by them.
Calls on Ordinary Shares and Forfeiture
of Ordinary Shares
Our board of directors may from time to
time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least
14 days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to
forfeiture.
Redemption, Repurchase and Surrender
of Ordinary Shares
We may issue shares on terms that are subject
to redemption, at our option or at the option of the holders, on such terms and in such manner as may be determined before the
issue of such shares, by our board of directors or by a special resolution of our shareholders. We may also repurchase any of our
shares provided that the manner and terms of such purchase have been approved by our board of directors or by ordinary resolution
of our shareholders, or are otherwise authorized by our memorandum and articles of association. Under the Companies Law, the redemption
or repurchase of any share may be paid out of our profits or out of the proceeds of a fresh issue of shares made for the purpose
of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if we can,
immediately following such payment, pay our debts as they fall due in the ordinary course of business. In addition, under the Companies
Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result
in there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, we may accept the surrender
of any fully paid share for no consideration.
Variations of Rights of Shares
All or any of the special rights attached
to any class of shares may, subject to the provisions of the Companies Law, be varied either with the written consent of the holders
of a majority of the issued shares of that class or with the sanction of an ordinary resolution passed at a general meeting of
the holders of the shares of that class.
Inspection of Books and Records
Holders of our ordinary shares have no general
right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will
provide our shareholders with annual audited financial statements.
Changes in Capital
We may from time to time by ordinary resolution:
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increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe;
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consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;
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convert all or any of our paid-up shares into stock and reconvert that stock into paid up shares of any denomination;
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sub-divide our existing shares, or any of them into shares of a smaller amount that is fixed by the amended and restated memorandum
and articles of association; and
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cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person
and diminish the amount of our share capital by the amount of the shares so cancelled.
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Subject to Companies Law and confirmation
by the Grand Court of the Cayman Islands on an application by us for an order confirming such reduction, we may by special resolution
reduce our share capital and any capital redemption reserve in any manner authorized by law.
Issuance of Additional Preferred Shares
Our amended and restated memorandum and
articles of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of
directors shall determine, to the extent of available authorized but unissued shares.
Our amended and restated memorandum and
articles of association authorizes our board of directors to establish from time to time one or more series of preferred shares
and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
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the designation of the series;
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the number of shares of the series;
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the dividend rights, dividend rates, conversion rights, voting rights; and
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the rights and terms of redemption and liquidation preferences.
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Our board of directors may issue preferred
shares without action by our shareholders to the extent of available authorized but unissued shares. In addition, the issuance
of preferred shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of
these shares may dilute the voting power of holders of ordinary shares.
In the past two
years, we have not entered into any material contracts other than in the ordinary course of business and other than those
described in “Item 4. Information on the Company—B. Business Overview,” “Item 7. Major Shareholders
and Related Party Transactions—B. Related Party Transactions,” or elsewhere in this annual report on Form
20-F.
See “Item
3. Key Information—D. Risk Factors—Risks Related to Our International Operations—We are subject to risks
associated with foreign currency exchange rates, fluctuations of which may negatively affect our revenue, cost of goods sold
and gross margins and could result in exchange losses,” “Item 4. Information on the Company—B. Business
Overview—Regulations—Foreign Currency Exchange” and “Item 4. Information on the Company—B.
Business Overview—Regulations—Dividend Distribution.”
The following summary of the material Cayman
Islands, PRC and United States federal income tax consequences of an investment in our ordinary shares is based upon laws and relevant
interpretations thereof in effect as of the date of this annual report, all of which are subject to change, possibly with retroactive
effect. This summary does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as
the tax consequences under United States state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands, the
PRC and the United States.
Cayman Islands
Taxation
The Cayman Islands currently does not levy
taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the Cayman
Islands in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government
of the Cayman Islands except for stamp duty which may be applicable on instruments executed in, or after execution brought within
the jurisdiction of the Cayman Islands. The Cayman Islands is not a party to any double tax treaties that are applicable to any
payments made to or by our Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
PRC Taxation
Under the CIT Law, as came into effect on
January 1, 2008 and amended on February 24, 2017, and its Implementing Rules which came into effect on January 1, 2008, an enterprise
established outside of the PRC with its “de facto management body” within the PRC is considered a PRC resident enterprise
and will be subject to the enterprise income tax on its global income at the rate of 25%. The Implementing Rules define the term
“de facto management body” as the body that exercises full and substantial control and overall management over the
business, productions, personnel, accounts and properties of an enterprise. In 2009, the SAT issued a circular, known as Circular
82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled
enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled
by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the
circular may reflect the SAT’s general position on how the “de facto management body” text should be applied
in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise
controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de
facto management body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day
operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are
made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting
books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least
50% of voting board members or senior executives habitually reside in the PRC.
We believe that none of us or our subsidiaries
outside of China is a PRC resident enterprise for PRC tax purposes. We are not controlled by a PRC enterprise or PRC enterprise
group and we do not believe we meet all of the conditions above. We are a company incorporated outside the PRC. As a holding company,
our key assets are our ownership interests in our subsidiaries, and our key assets are located, and our records (including the
resolutions of our board of directors and the resolutions of our shareholders) are maintained, outside the PRC. For the same reasons,
our other subsidiaries outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise
is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term
“de facto management body.”
If the PRC tax authorities determine that
we are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from
dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be
subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of ordinary shares, if such income is treated
as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends
or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any
PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a
reduced rate is available under an applicable tax treaty. However, it is also unclear whether our non-PRC shareholders would be
able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated
as a PRC resident enterprise.
Provided that we are not deemed to be a
PRC resident enterprise, holders of our ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends
distributed by us or gains realized from the sale or other disposition of our shares. However, under SAT Circular 698 and Announcement
7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular,
equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company,
the non-resident enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets
may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax
authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established
for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject
to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold
the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. We and our
non-PRC resident investors may be at the risk of being required to file a return and being taxed under SAT Circular 698 and Announcement
7, and we may be required to expend valuable resources to comply with SAT Circular 698 and Announcement 7, or to establish that
we should not be taxed under these regulations.
U.S. Federal Income Taxation
Introduction
The following
discussion is a summary of U.S. federal income tax considerations of the purchase, ownership and disposition of the ordinary
shares. This discussion applies only to holders that hold the ordinary shares as capital assets. This discussion is based on
the Code, Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in
effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not
address all of the tax considerations that may be relevant to specific holders in light of their particular circumstances or
to holders subject to special treatment under U.S. federal income tax law, such as banks, financial institutions, insurance
companies, controlled foreign corporations, passive foreign investment companies, tax-exempt entities, regulated investment
companies, real estate investment trusts, partnerships and the partners therein, dealers in securities or currencies, traders
in securities electing to mark to market, U.S. expatriates, persons who have acquired the ordinary shares as part of a
straddle, hedge, conversion transaction or other integrated investment, U.S. Holders (as defined below) that have a
“functional currency” other than the U.S. dollar or persons that own (or are deemed to own) 5% or more of our
stock. This discussion does not address the alternative minimum tax, the Medicare tax on net investment income or any U.S.
state or local or non-U.S. tax considerations or, other than to the limited extent set forth below, any U.S. federal
estate or gift tax considerations.
As used in this discussion, the term “U.S.
Holder” means a beneficial owner of the ordinary shares that is, for U.S. federal income tax purposes, (i) an individual
who is a citizen or resident of the United States, (ii) a corporation, or other entity classified as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of the United States or of any state thereof, or the District of
Columbia, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source or (iv) a trust that
(1) is subject to the supervision of a court within the United States and the control of one or more United States persons or (2)
has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.
As used in this discussion, the term “Non-U.S.
Holder” means a beneficial owner of the ordinary shares that is not a partnership (or entity treated as a partnership for
U.S. federal income tax purposes) and not a U.S. Holder.
Treatment of the Company as a U.S.
Corporation for U.S. Federal Income Tax Purposes
Even though we are organized as a Cayman
Islands exempted company, due to the application of Section 7874(b) of the Code, we are treated as a U.S. corporation for U.S.
federal income tax purposes and all purposes under the Code.
U.S. Holders
Distributions
We do not currently anticipate paying distributions
on our ordinary shares. In the event that distributions are paid, however, the gross amount of such distributions generally will
be included in a U.S. Holder’s gross income as dividend income on the date of receipt to the extent that the distribution
is paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the
extent the amount of any distribution exceeds our current and accumulated earnings and profits as so computed, it will be treated
first as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in such ordinary shares and,
to the extent the amount of such distribution exceeds such adjusted tax basis, will be treated as gain from the sale of such ordinary
shares.
Subject to certain conditions, including
a minimum holding period requirement, dividends received by individuals and other non-corporate U.S. Holders, generally will be
subject to reduced rates of taxation, and dividends paid by us will be eligible for the “dividends received” deduction
generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.
Sale or Other Disposition of Ordinary
Shares
A U.S. Holder generally will recognize gain
or loss for U.S. federal income tax purposes upon a sale or other disposition of the ordinary shares in an amount equal to the
difference between the amount realized from such sale or disposition and the U.S. Holder’s adjusted tax basis in such ordinary
shares. Such gain or loss generally will be a capital gain or loss and will be long-term capital gain or loss (taxable at a reduced
rate for individuals and other non-corporate U.S. Holders) if, on the date of sale or disposition, such ordinary shares were held
by such U.S. Holder for more than one year. The deductibility of capital losses is subject to limitations.
Foreign Tax Credit Considerations
Subject to the application of the income
tax treaty between the United States and the PRC (the “U.S.-PRC Tax Treaty”), if PRC withholding taxes are imposed
on dividends paid to a U.S. Holder with respect to the ordinary shares, or on gains realized by a U.S. Holder upon a sale or other
disposition of ordinary shares, such PRC withholding taxes generally will be treated as foreign taxes eligible for credit against
the U.S. Holder’s U.S. federal income tax liability, or, at the U.S. Holder’s election, for a deduction in computing
the U.S. Holder’s taxable income. Since we are treated as a U.S. corporation for U.S. federal income tax purposes, our dividends
and a U.S. Holder’s gain from the sale of our ordinary shares generally are expected to be treated as U.S. source passive
category income. As a result, the foreign tax credit limitation may cause a U.S. Holder to be unable to credit PRC withholding
tax imposed on dividends or on gains upon sale or other disposition of ordinary shares unless the U.S. Holder has sufficient other
income derived from foreign sources in the relevant taxable year. If a U.S. Holder qualifies for benefits under the U.S.-PRC Tax
Treaty, the U.S. Holder may be able to treat gains upon a sale or other disposition as foreign source under the U.S.-PRC Tax Treaty,
in which case the U.S. Holder would not be subject to the limitation described in the previous sentence with respect to such dividends
and gains. It is unclear whether the U.S. Holder will be able to treat the dividends as foreign source under the U.S.-PRC Tax Treaty.
The foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code and the U.S.-PRC Tax
Treaty are not entirely clear. If PRC withholding taxes are imposed on dividends paid with respect to the ordinary shares, or on
gains upon a sale or other disposition or ordinary shares, U.S. Holders should consult their own tax advisors with respect to any
benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.
Non-U.S. Holders
Distributions
Distributions treated as dividends (see
“—U.S. Holders—Distributions” above) paid to a Non-U.S. Holder are treated as income derived from sources
within the United States and generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of
such dividend, or at a lower rate provided by an applicable income tax treaty.
Even if a Non-U.S. Holder is eligible for
a lower treaty rate, U.S. federal withholding tax will be imposed at a 30% rate (rather than the lower treaty rate) on dividend
payments to a Non-U.S. Holder, unless (i) the Non-U.S. Holder has furnished a valid U.S. Internal Revenue Service (the “IRS”)
Form W-8BEN or W-8BEN-E or other documentary evidence establishing such holder’s entitlement to the lower treaty rate with
respect to such payments, and (ii) in the case of actual or constructive dividends paid to a foreign entity, (a) if such entity
is, or holds the ordinary shares through, a foreign financial institution, any such foreign financial institution (x) has entered
into an agreement with the U.S. government to collect and provide to the U.S. tax authorities information about its accountholders
(including certain investors in such institution), (y) satisfies an exemption from the obligation to enter into such an agreement,
or (z) satisfies the terms of an applicable intergovernmental agreement, and (b) if required, such entity has provided the withholding
agent with a certification identifying its direct and indirect U.S. owners.
If a Non-U.S. Holder is eligible for a reduced
rate of U.S. withholding tax pursuant to an applicable income tax treaty, the Non-U.S. Holder may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the IRS.
Sale or Other Disposition
Any gain realized upon the sale or other
disposition of ordinary shares by a Non-U.S. Holder generally will not be subject to U.S. federal income tax unless (i) the Non-U.S.
Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain
other conditions are met, or (ii) in the case of the sale or disposition of ordinary shares on or after January 1, 2019, the requirements
described in item (ii) in the second paragraph under “—Distributions,” above, are satisfied. Each Non-U.S. Holder
is encouraged to consult with its own tax advisor regarding the possible implications of these withholding requirements on its
investment in ordinary shares and the potential for a refund or credit in the case of any withholding tax.
Information Reporting and Backup
Withholding
Payments of dividends or of proceeds on
the disposition of ordinary shares to U.S. Holders may be subject to information reporting and backup withholding unless the U.S.
Holder (i) is a corporation or comes within certain other exempt categories and demonstrates this fact, or (ii) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Non-U.S. Holders may be required to provide documentary evidence establishing they
are not subject to information reporting and backup withholding. Payments of dividends to Non-U.S. Holders and the amount of U.S.
federal withholding tax imposed on such dividends must generally be reported annually to the IRS. A similar report will be sent
to Non-U.S. Holders. Copies of these reports may be made available to tax authorities in a holder’s country of residence.
Backup withholding is not an additional
tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a holder’s U.S.
federal income tax liability, provided the required information is furnished to the IRS on a timely basis.
U.S. Federal Estate Tax
Ordinary shares owned or treated as owned
by an individual who is not a citizen or resident of the United States (as specifically defined for U.S. federal estate tax purposes)
at the time of death will be included in the individual’s gross estate for U.S. federal estate tax purposes and may be subject
to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise.
F.
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Dividends and Paying Agents
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Not applicable.
Not applicable.
We are subject to the periodic reporting
and other informational requirements of the Exchange Act as applicable to foreign private issuers. Under the Exchange Act, we are
required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later
than four months after the close of each fiscal year, which is December 31. Copies of reports and other information, when so filed
with the SEC, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room
1580, Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC.
The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330.
The SEC also maintains a web site at
www.sec.gov
that contains reports, proxy and information statements, and other information
regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt
from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive
officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial
statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
In accordance with
Rule 5250(d) of the NASDAQ Rules, we will post this annual report on Form 20-F on our website at
http://www.spigroups.com.
I.
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Subsidiary Information
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Not applicable.
ITEM 11.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Inflation
Since our inception, inflation in China
has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year
percent changes in the consumer price index for December 2014, 2015 and 2016 increases of 1.5%, 1.6% and 2.1%, respectively.
Although we have not been materially affected by inflation in the past, we may be affected if China experiences higher rates of
inflation in the future.
Foreign Exchange Risk
We currently conduct our business operations
in China, the U.S., Japan, the U.K., Greece, Germany, Italy and Australia. The functional currency of our Company and our subsidiaries
located in the United States is the U.S. dollar. The functional currency of our subsidiaries located in the PRC, Europe and Australia
are RMB, Euro and AUD, respectively. Transactions denominated in foreign currencies are re-measured into the functional currency
at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in foreign currencies
are re-measured into the functional currency at rates of exchange in effect at the balance sheet dates. Exchange gains and losses
are included in our consolidated statements of operations.
Our reporting currency is the U.S. dollar.
Assets and liabilities of subsidiaries, whose functional currency is not the U.S. dollar, are translated into the U.S. dollar using
exchange rates in effect at each period end, and revenues and expenses are translated into the U.S. dollar at average rates prevailing
during the year. Gains and losses resulting from the translations of the financial statements of these subsidiaries into the U.S.
dollar are recognized as other comprehensive income in our consolidated statements of comprehensive income.
Depending on movements
in foreign exchange rates, the foreign currency translation may have an adverse impact on our consolidated financial statements.
In 2015, 2016 and 2017, we recorded foreign exchange gains of $1.5 million, $4.4 million and $0.8 million in our consolidated
statements of operations, respectively.
Interest Rate Risk
Our exposure
to interest rate risk primarily relates to interest expenses incurred on our short-term and long-term borrowings, as well as interest
income generated from excess cash invested in demand deposits. Such interest-earning instruments carry a degree of interest rate
risk. We have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed
to, nor do we anticipate being exposed to, material risks due to changes in interest rates. However, our future interest expense
may increase due to changes in market interest rates. If market interest rates for short-term demand deposits increase in the
near future, such increase may cause the amount of our interest income to rise. A hypothetical 10% increase in the average interest
rate for our bank borrowings would result in an increase of approximately $0.2 million and $0.1 million in interest expense in
2016 and 2017. We may use derivative financial instruments, such as interest rate swaps, to mitigate potential risks of interest
expense increases due to changes in market interest rates.
ITEM 12.
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DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
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Not Applicable.
*The shares are presented on a retroactive basis to reflect
the Company’s Reverse Stock Splits (Note 21 (a)).
*The shares are presented on a retroactive basis to reflect
the Company’s Reserve Stock Splits (Note 21(a)).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in US$ thousands, except share
and per share data)
1.
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Description of Business and Organization
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Description of Business
SPI Energy Co., Ltd. (“SPI
Energy” or the “Company”), its subsidiaries and consolidated variable interest entities (“VIEs”)
(collectively the “Group”) is a provider of photovoltaic (“PV”) solutions for business, residential, government
and utility customers and investors. The Group provides engineering, procurement and construction (“EPC”) services
to third party project developers and various PV-related products and services on an e-commerce and investment platform to retail
customers and solar project developers. The Group also develops solar PV projects which are either sold to third party operators
or owned and operated by the Group for selling of electricity to the grid in multiple countries in Asia, North America and Europe.
In Australia, the Group primarily sells solar PV components to retail customers and solar project developers.
Organization
The Company was incorporated in the Cayman
Islands on May 4, 2015 for the sole purpose of effectuating the redomicile of the Company’s predecessor, Solar Power, Inc.,
a California corporation (“SPI California”). The redomicile was approved by the shareholders of SPI California on May 11,
2015, pursuant to which one share of common stock of SPI California held by the shareholders was converted into one SPI Energy’s
ordinary share. On January 4, 2016, SPI California completed the redomicile, resulting in SPI Energy becoming the publicly
held parent company of SPI California. SPI Energy’s shares then began quotation on the Open Transparent Connected Markets
under the symbol “SRGYY” effective January 4, 2016. On January 19, 2016, SPI Energy’s shares were listed
on the Nasdaq Global Select Market and traded under the symbol “SPI”.
The major subsidiaries and consolidated VIEs of the Company
as of December 31, 2017 are summarized as below:
Major Subsidiaries
|
|
Abbreviation
|
|
Location
|
Xinwei Solar Engineering and Construction (Suzhou) Co., Ltd.
|
|
Xinwei Suzhou
|
|
China
|
Xinyu Xinwei New Energy Co., Ltd.
|
|
Xinyu Xinwei
|
|
China
|
Gonghe County Xinte Photovoltaic Co., Ltd.
|
|
Xinte
|
|
China
|
SPI Renewables Energy (Luxembourg) Private Limited Company S.a.r.l. (formerly known as CECEP Solar Energy (Luxembourg) Private Limited Company (S.a.r.l.)) and Italsolar S.r.l.
|
|
CECEP
|
|
Luxembourg, Italy
|
Solar Juice Pty Ltd.
|
|
Solar Juice
|
|
Australia
|
Solarbao E-commerce (HK) Limited
|
|
Solarbao E-commerce
|
|
Hong Kong
|
Jiangsu Solarbao Leasing Co., Ltd.
|
|
Jiangsu Solarbao
|
|
China
|
Yanhua Network Technology (Shanghai) Co., Ltd.
|
|
Yanhua Network
|
|
China
|
SPI Solar Japan G.K.
|
|
SPI Japan
|
|
Japan
|
Solar Power Inc UK Service Limited
|
|
SPI UK
|
|
United Kingdom
|
VIEs
|
|
Abbreviation
|
|
Location
|
Shanghai Meijv Network Technology Co., Ltd.
|
|
Meijv
|
|
China
|
Lv Neng Tao E-Commerce (Suzhou) Co., Ltd.
|
|
Lv Neng Tao
|
|
China
|
Solarbao E-commerce, Jiangsu Solarbao and
Yanhua Network were incorporated by the Group in 2015 to raise interest bearing funds from individual investors through an online
platform owned by Solar Energy E-Commerce (Shanghai) Limited (“Solar Energy”) for use in the purchases and leasing
of solar related products to the Group or third party developers. Pursuant to the terms of the agreements entered with individual
investors, Solar Energy, the Group and/or third party project developers, the Group incurs interest expenses and is expected to
repay the funds provided by individual investors (See Note 17). For those transactions where the solar related products are leased
to third party developers, the Group earns finance lease income (See Note 2(r) and Note 10). For those transactions where
the solar related products are leased to entities within the Group, they are eliminated in the consolidated financial statements
as they are inter-company transactions between two subsidiaries of the Company (with one of the subsidiaries as accounting lessor
and the other one as accounting lessee). As the Group use the on-line platform owned by Solar Energy which also serves as an agent
to collect funds from and repay funds to individual investors on behalf of the Group, the Group pays commission fee to Solar Energy
for the services provided (See Note 28).
Solar Energy was
incorporated in China on December 8, 2014 by Xiaofeng Peng (“Mr. Peng”), Min Xiahou and Jing Liu, who
were the chairman of the Company’s board of directors, former deputy chairman of the Company’s board of directors
and former chief financial officer of the Group, respectively. The Group determines that Solar Energy is a related party of
the Group. Solar Energy operates the “www.solarbao.com” e-commerce and investment platform which primarily
targets retail customers residing in the PRC. On March 26, 2015, the Group, through Yanhua Network, entered into a
series of contractual arrangements with Solar Energy and its shareholders. The contractual
arrangements include power of attorney, call option agreement, equity pledge agreement, and a consulting services agreement.
As of the date of these consolidated financial statements, the Group has not established the legal enforceability of these
contractual agreements described above including the registration of the equity pledge agreement in the relevant government
bureau in the PRC. Therefore, the financial results of Solar Energy have not been included in the accompanying consolidated
financial statements of the Company as the legal enforceability of the contractual agreements is yet to be established.
In March 2016, the Group
established a new corporate structure and has since conducted its on-line fund raising and leasing business through Meijv instead
of Solar Energy in the PRC.
On January 1, 2017, the Group
deconsolidated one of the major subsidiaries, Sinsin Renewable Investment Limited (“Sinsin”) due to loss of control
(see Note 4 Deconsolidation of Sinsin).
On December 13, 2017, the Group acquired 100% equity interest of Heliostixio S.A. (“Heliostixio”)
(see Note 3 Business Acquisition).
Variable Interest Entities
The Group operates its on-line fund raising
and leasing business and its on-line solar products trading through Meijv and Lv Neng Tao (collectively referred to as the “VIEs”)
respectively. Both Meijv and Lv Neng Tao are limited liability companies established in the PRC and hold the requisite licenses
and permits necessary to conduct the on-line businesses, which are restricted from foreign investment in accordance with the relevant
PRC laws and regulations. Meijv was established by Shanghai Youying E-commerce Co., Ltd. (“Youying”) on June 12,
2015. Lv Neng Tao was established on June 17, 2015 by Mr. Min Xiahou, the former deputy chairman of the Company’s
board of directors, Mr. Minghua Zhao, a former director of the Group and Mr. Tairan Guo, the Group’s former Chief
Financial Officer. These individuals act as nominee equity holders of Lv Neng Tao on behalf of the Company. On March 17, 2016,
Meijv entered into a series of contractual arrangements with Yanhua Network and Youying, including exclusive call option agreement,
proxy voting agreement, exclusive business cooperation agreement and equity interest pledge agreement (collectively, the “Meijv
VIE Agreements”). On January 1, 2016, Lv Neng Tao entered into a series of contractual arrangements with Yanhua Network
and its legal shareholders, including exclusive call option agreement, proxy voting agreement, exclusive business cooperation agreement
and equity interest pledge agreement (collectively, the “Lv Neng Tao VIE Agreements”, and together with Meijv VIE Agreements,
the “VIE Agreements”).
Pursuant to the VIE Agreements, Youying
and Lv Neng Tao’s legal shareholders have granted all of their legal rights in Meijv and Lv Neng Tao, respectively, including
voting rights and deposition rights, to Yauhua Network. As a result, Youying and Lv Neng Tao’s legal shareholders does not
have the direct or indirect ability through voting rights or similar rights to make decision about the activities of Meijv and
Lv Neng Tao, respectively, that have a significant effect on the success of Meijv and Lv Neng Tao. The Company, through Yauhua
Network, has obtained a financial controlling interest of Meijv and Lv Neng Tao which enable it to have (1) the power to direct
the activities that most significantly affects the economic performance of Meijv and Lv Neng Tao, and (2) the right to receive
benefits or have the obligation to absorb losses and to receive the expected residual return of Meijv and Lv Neng Tao that could
potentially be significant to Meijv and Lv Neng Tao. Accordingly, the Company, through Yanhua Network, is considered the primary
beneficiary of Meijv and Lv Neng Tao. As such, the financial results of Meijv and Lv Neng Tao are included in the Company’s
consolidated financial statements. Prior to the signing of Meijv VIE Agreements on March 17, 2016 and Lv Neng Tao VIE Agreements
on January 2016, Meijv and Lv Neng Tao had not carried out any business except for the holding the business licenses and permits
necessary to conduct the on-line businesses in the PRC.
The key terms of the VIE Agreements are as follows:
Exclusive Call Option Agreement
Through the exclusive call option agreement
entered into among Yanhua Network, Meijv and Youying, Yanhua Network or its designated third party has an exclusive purchase option
to acquire all or a part of the equity interest or assets in Meijv at any time when permitted by applicable PRC laws and regulations
in its sole discretion. The transfer price will be the minimum amount of consideration permitted under PRC law at the time of transfer.
Youying has also committed in written to return all the consideration to Yanhua Network if such option is exercised. In addition,
without Yanhua Network’s or its controlling shareholder’s prior written consent, the shareholders of Meijv shall not
transfer their equity interest in Meijv, and Meijv shall not transfer any of its assets. Youying should also return any profit
appropriation, dividend and liquidation income derived from Meijv to Yanhua Network. This agreement will remain effective until
all of Meijv’s equity interest and assets are transferred to Yanhua Network or its designated third party.
The exclusive call option agreement between
Yanhua Network, Lv Neng Tao and the legal shareholders of Lv Neng Tao contains the same terms as those described above.
Proxy Voting Agreement
Through the proxy voting agreement entered
into among Yanhua Network, Meijv and Youying, Youying undertakes to execute a power of attorney to exclusively assign its rights
as shareholder of Meijv to Yanhua Network’s designated person, including voting right, right to transfer any equity interest
in Meijv and right to appoint directors and officers. This agreement will remain effective so long as Youying remains to be the
shareholder of Meijv.
The proxy voting agreement between Yanhua
Network, Lv Neng Tao and the shareholders of Lv Neng Tao contains the same terms as those described above.
Exclusive Business Cooperation Agreement
Pursuant to the exclusive business
cooperation agreement entered into between Meijv and Yanhua Network, Meijv irrevocably appoints and designates Yanhua Network
as its exclusive service provider to provide, among others, relevant technical and consulting services. The service fees are determined
based on the actual services provided by Yanhua Network during the relevant period. This agreement shall remain effective unless
otherwise terminated by Yanhua Network or terminated according to other provisions therein. Yanhua Network may terminate this
agreement in its sole discretion at any time with prior written notice. Meijv has no authority to terminate the exclusive business
cooperation agreement. During the term of exclusive business cooperation agreement, both Yanhua Network and Meijv shall renew
their operation terms prior to the expiration thereof so as to enable the exclusive business cooperation agreement to remain effective.
The exclusive business cooperation agreement shall be terminated upon the expiration of the operation term of either Yanhua Network
or Meijv, if the application for renewal of their operation terms are not approved by relevant government authorities.
The exclusive business cooperation agreement
between Yanhua Network and Lv Neng Tao contains the same terms as those described above.
Equity Interest Pledge Agreement
Under the equity interest pledge agreement,
Youying pledges all the equity interests in Meijv to Yanhua Network to secure performance of all obligations of Youying under the
exclusive business cooperation agreement, the exclusive option agreement and the proxy voting agreement. This equity interest pledge
agreement will remain effective until the full performance of the contractual obligations under the exclusive business cooperation
agreement, the exclusive call option agreement and the proxy voting agreement.
The equity interest pledge agreement between
Yanhua Network and Lv Neng Tao contains the same terms as those described above.
Risk in Relation to the VIE
Structure
In the opinion of the Company’s management,
the VIE Agreements have resulted in the Company, through Yanhua Network, having the power to direct activities that most significantly
impact the VIEs and their respective subsidiaries, including appointing key managements, setting up operating policies, exerting
financial controls and transferring profit or assets out of the VIEs at its discretion. The Company considers that it, through
Yanhua Network, has the right to receive all the benefits and assets of the VIEs. As the VIEs were established as limited liability
companies under the PRC law, their creditors do not have recourse to the general credit of the Company and Yanhua Network for the
liabilities of the VIEs, and the Company and Yanhua Network do not have the legal obligation to assume the liabilities of the VIEs.
The Group has determined
that the VIE Agreements are in compliance with PRC laws and regulations and are legally enforceable. However, the Company
cannot be certain that the PRC government authorities will not ultimately take a view contrary to that of the Company. If the
Company, Yanhua Network and legal shareholders of Meijv and Lv Neng Tao were found to be in violation of any existing or
future PRC laws and regulations, or fail to obtain or maintain any of the required permits and approvals, the relevant PRC
regulatory authorities would have board discretion in dealing with such violations, including requiring the Company to
undergo a costly and disruptive restructuring such as forcing the Company to transfer its equity interests in Yanhua Network
to a domestic entity or invalidating the VIE Agreements. The imposition of any of these government actions could result in
the termination of the VIE Agreements, which would result in the Company losing the (i) ability to direct the activities of
the VIEs and (ii) rights to receive substantially all the economic benefits and residual returns from the VIEs. In the
opinion of the management, the likelihood of the termination of the VIE Agreements is remote based on the facts and
circumstances.
The interests of the legal shareholders
of the VIEs, may diverge from that of the Company and that may potentially increase the risk that the VIEs’ legal shareholders
would seek to act contrary to the contractual terms. The Company cannot assure that when conflicts of interest arise, the VIEs’
legal shareholders will act in the best interests of the Company or that conflicts of interests will be resolved in the Company’s
favor. The Company believes the VIEs’ legal shareholders will not act contrary to any of the contractual arrangements and
the exclusive option agreements provide the Company with a mechanism to remove the VIEs’ legal shareholders as the shareholder
of the VIEs should the VIEs’ legal shareholders acts to the detriment of the Company. The Company relies on the VIEs’
legal shareholders to fulfill their fiduciary duties and abide by laws of the PRC and act in the best interest of the Company.
If the Company cannot resolve any conflicts of interest or disputes between the Company and the VIEs’ legal shareholders,
the Company would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial
uncertainty as to the outcome of any such legal proceedings.
There is no VIE in which the Group has
a variable interest but is not the primary beneficiary. Currently, there is no contractual arrangement that could require the Group
to provide financial support to the VIEs.
The following assets and liabilities information
of the VIEs and their operating results and cash flows have been included in the accompanying consolidated financial statements
as of and for the years ended December 31, 2017 and 2016:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
–
|
|
|
$
|
1,661
|
|
Restricted cash
|
|
|
134
|
|
|
|
–
|
|
Inventories, net
|
|
|
–
|
|
|
|
4
|
|
Prepaid expenses and other current assets
|
|
|
16
|
|
|
|
2,192
|
|
Other receivable, noncurrent
|
|
|
231
|
|
|
|
636
|
|
Property, plant and equipment, net
|
|
|
9
|
|
|
|
25
|
|
Total assets
|
|
$
|
390
|
|
|
$
|
4,518
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6
|
|
|
$
|
78
|
|
Accrued liabilities
|
|
|
573
|
|
|
|
1,222
|
|
Other current liabilities due to intra-group entities*
|
|
|
15,421
|
|
|
|
9,411
|
|
Other current liabilities
|
|
|
15
|
|
|
|
6,090
|
|
Total liabilities
|
|
$
|
16,015
|
|
|
$
|
16,801
|
|
|
|
For the Year
Ended
December 31,
2017
|
|
|
For the Year
Ended
December 31,
2016
|
|
Net sales
|
|
$
|
–
|
|
|
$
|
2,503
|
|
Net sales from intra-group entities
|
|
|
583
|
|
|
|
1,226
|
|
Net loss
|
|
|
(4,964
|
)
|
|
|
(12,209
|
)
|
|
|
For the Year
Ended
December 31,
2017
|
|
|
For the Year
Ended
December 31,
2016
|
|
Net cash (used in)/provided by operating activities
|
|
$
|
(1,661
|
)
|
|
$
|
1,997
|
|
Net cash used in investing activities
|
|
|
–
|
|
|
|
(336
|
)
|
Net cash provided by financing activities
|
|
|
–
|
|
|
|
–
|
|
*
Other current liabilities due to intra-group entities represent the amounts due to the Company’s subsidiaries, which have
been eliminated upon consolidation.
2.
|
Summary of Significant Accounting Policies
|
|
(a)
|
Basis of Presentation
|
The accompanying consolidated financial
statements of the Group are prepared in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”).
The accompanying 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 business. The realization of assets and the satisfaction of liabilities in the normal course
of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from
operations, and to pursue financing arrangements to support its working capital requirements.
The Group has suffered
significant recurring losses from operations and operating cash outflows. The Group has incurred a net loss of $90,959 and had
operating cash outflow of $3,634 during the year ended December 31, 2017. As of December 31, 2017 the Group had accumulated deficit
of $557,844. Working capital deficit (current liabilities less current assets) increased significantly from $176,195 at December
31, 2016 to $254,994 at December 31, 2017.
As of December 31, 2017, the
convertible bonds were overdue for repayment (See Note 19). Further, since April 2017 the Group has defaulted repayment for significant
amounts of borrowing raised from individual investors through the on-line platform. As of December 31, 2017, principal amounts
and interests of approximately $92,769 (RMB 604 million) (See Note 16) in the aggregate were overdue without full payment.
These
and other factors disclosed in these financial statements raise substantial doubt as to the Group’s ability to continue
as a going concern. Management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully,
will provide sufficient liquidity to meet the Group’s obligations for a reasonable period of time.
Disposition of SPI China
(HK) Limited
On August 30, 2018, the Group
entered into a share purchase agreement (the “SPA”) with Lighting Charm Limited (“Lighting Charm”), an
affiliate of Tracy Zhoushan, the spouse of Xiaofeng Peng, the Group’s Chairman of the Board of Directors and Chief Executive
Officer. The agreement has been approved by an independent committee of the Group’s Board of Directors. The SPA provides
that the Group sold Lighting Charm the 100% equity interest of SPI China (HK) Limited (“SPI China”), which holds all
of the Group’s assets and liabilities related to its business in China (the “Acquired Business”). The Acquired
Business includes EPC business, PV projects, Internet finance lease related business, and E-commerce in China. Pursuant to the
terms of the SPA, the consideration for the Acquired Business to be paid by the Lighting Charm to the Group in cash was US$1.00.
As one of the closing conditions
as stated in the SPA, the Group effected an internal restructuring following which SPI China held the Group's subsidiaries in
China only, while subsidiaries originally held by SPI China related to the Group’s business outside China were transferred
to other subsidiaries of the Group.
In 2017, SPI China incurred
a net loss of $62,134. As of December 31, 2017, SPI China had accumulated deficit of $263,204 and working capital deficit of $154,610.
Amendment Agreement of
Convertible Bonds
On June 29, 2018, according
to the Second Amendment Agreement (See Note 20), the repayment of $20,000 of the principal amount of the convertible bond and
interest thereon will be due after December 2019. Pursuant to the new amendment, $15,785 convertible bonds have been reclassified
to non-current liabilities as of December 31, 2017.
Furthermore, for the remaining $35,000 convertible bonds, the Group has been
proactively and continuously negotiating with the bond holders for a settlement arrangement acceptable by the two parties. Among
other options, the Group has been exploring the possibility of a settlement of the outstanding convertible bonds payable through
a combination of cash payments and share issuances, and a settlement schedule that would reduce the Group’s cash payment
level in the next twelve months.
Working Capital Management
The Group has planned to mobilize the construction of a project in North America of total capacity
of 5MW in the first quarter of 2018 and expected to complete the construction and sales of these 5MW project by the third quarter
of 2019. The Group has started the engineering design of another North America project of total capacity of 4.7MW in October 2017
and expected to complete the construction and sales of this FIT project by the third quarter of 2019. Both of the two projects
are indeed with good value and return, the completion and sales of these projects will expect to bring in significant amount of
cash to the company to improve liquidity and capital to reinvest into new Solar projects.
The Group has decided to postpone the planned investments in certain new project assets and has
been closely monitoring the level of the Group’s capital spending level until liquidity position has improved. These initiatives
aim at preserving cash and generating operating cash flows to enable the Group to repay the borrowings and accounts payable.
Cost Saving Measures
The Group has implemented certain
measures with an aim to reduce its operating expenses. Such measures include: 1) strictly controlling and reducing business, marketing
and advertising expenses in United States and Australia; 2) relocating certain offices in United States and United Kingdom to
save office rental; and 3) lowering the remuneration of the Group’s management team.
While management believes that the measures
in the liquidity plan will be adequate to allow the Group to meet its liquidity and cash flow requirements within one year after
the date that the financial statements are issued, there is no assurance that the liquidity plan will be successfully implemented.
Failure to successfully implement the liquidity plan will have a material adverse effect on the Group’s business, results
of operations and financial position, and may materially adversely affect its ability to continue as a going concern. The 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 the Group be unable to continue
as a going concern.
|
(b)
|
Principles of Consolidation
|
The consolidated financial statements include
the financial statements of the Company, its subsidiaries, and consolidated VIEs. All material inter-company transactions and balances
have been eliminated upon consolidation. For consolidated subsidiaries where the Group’s ownership in the subsidiary is less
than 100%, the equity interest not held by the Group is shown as non-controlling interests. The Company accounts for investments
over which it has significant influence but not a controlling financial interest using the equity method of accounting. The Company
deconsolidates a subsidiary when the Company ceases to have a controlling financial interest in the subsidiary. When control is
lost, the parent-subsidiary relationship no longer exists and the parent derecognizes the assets and liabilities of the subsidiary.
The preparation of the
consolidated financial statements in conformity with US 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
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 Company’s
consolidated financial statements include the allowance made for doubtful accounts receivable and other receivable, inventory
write-downs, the impairment of finance lease receivables, the estimated useful lives of long-lived assets, the impairment of
goodwill, long-lived assets and project assets, fair value of derivative liability, valuation allowance of deferred income
tax assets, accrued warranty expenses, percentage-of-completion for revenue recognition, the grant-date fair value of
share-based compensation awards and related forfeiture rates, and fair value of financial instruments and assumptions related
to the consolidation of entities in which the Company holds variable interests. 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.
|
(d)
|
Foreign Currency Translation and Foreign Currency Risk
|
The functional currency
of the Company and subsidiaries located in the United States is the United States dollar (“US$” or “$”).
The functional currency of the Company’s subsidiaries located in the PRC, Europe, United Kingdom, Japan and Australia are
Renminbi (“RMB”), EURO (“EUR”), Pounds(“GBP”), JPY and AUD, respectively. Transactions denominated
in foreign currencies are re-measured into the functional currency at the rates of exchange prevailing when the transactions occur.
Monetary assets and liabilities denominated in foreign currencies are re-measured into the functional currency at rates of exchange
in effect at the balance sheet dates. Exchange gains and losses are included in the consolidated statements of operations.
The Group’s reporting currency is
the US$. Assets and liabilities of subsidiaries, whose functional currency is not the US$, are translated into US$ using exchange
rates in effect at each period end, and revenues and expenses are translated into US$ at average rates prevailing during the year,
and equity is translated at historical exchange rates, except for the change in retained earnings during the year which is the
result of the income or loss. Gains and losses resulting from the translations of the financial statements of these subsidiaries
into US$ are recognized as other comprehensive income or loss in the consolidated statement of comprehensive loss.
|
(e)
|
Fair Value of Financial Instruments
|
The Group estimates fair value of financial
assets and liabilities as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price)
on the measurement date in an orderly transaction between market participants. The fair value measurement guidance establishes
a three-level fair value hierarchy that prioritizes the inputs into the valuation techniques used to measure fair value.
|
·
|
Level 1 — Valuation techniques in which all significant inputs
are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being
measured.
|
|
·
|
Level 2 — Valuation techniques in which significant inputs include
quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or
quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets
that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable
in active markets are Level 2 valuation techniques.
|
|
·
|
Level 3 — Valuation techniques in which one or more significant
inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Group’s
own assumptions about the assumptions that market participants would use to price an asset or liability.
|
The Group uses quoted market prices to
determine the fair value when available. If quoted market prices are not available, the Group measures fair value using valuation
techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and
currency rates.
|
(f)
|
Cash and Cash Equivalents
|
Cash and cash equivalents include cash
on hand, cash accounts, interest bearing savings accounts and all highly liquid investments with original maturities of three months
or less, and which are unrestricted as to withdrawal and use.
Restricted cash represent bank
deposits that can’t be withdrawn without prior notice or approval due to legal issues, and bank deposits held as collateral
for issuance of notes payable, letters of credit, or bank borrowings. Upon maturity of the notes payable and letters of credit
as well as repayment of bank borrowings, the deposits are released and become available for general use by the Group. Restricted
cash are reported within cash flows from operating, investing or financing activities in the consolidated statements of cash flows
with reference to the purpose of being restricted. Restricted cash, which matures twelve months after the balance sheet date,
is classified as non-current assets in the consolidated balance sheets.
|
(h)
|
Accounts Receivables and Allowance for Doubtful Accounts
|
The Group grants open credit terms to credit-worthy
customers. Accounts receivable are primarily related to the Group’s EPC contracts. For EPC contracts in the PRC, the Group
normally requests a down payment of 3%-10% upon signing of contract, payment of up to 90%-95% in 90 days after connection to the
grid and customers’ acceptances of project completion, and the remaining balance of 5%-10% one year thereafter. For EPC projects
in other countries, the payment terms were normally negotiated based on achievement of certain contractual milestones as follows:
5% payment upon submittal of engineering documents, 75% payment upon delivery of certain procurements, 10% payment upon completion
of construction, and remaining 10% payment 30 days after final completion. Contractually, the Group may charge interest for extended
payment terms and require collateral.
The Group maintains
allowances for doubtful accounts and for costs and estimated earnings in excess of billings on uncompleted contracts for
uncollectible accounts receivable. The Group regularly monitors and assesses the risk of not collecting amounts owed by
customers. This evaluation is based upon a variety of factors, including an analysis of amounts current and past due along
with relevant history and facts particular to the customer. The Group does not have any off-balance-sheet credit exposure
related to its customers. As at December 31, 2017 and 2016, the Group made allowance of $16,508 and $13,337 for costs and
estimated earnings in excess of billings on uncompleted contracts.
Notes receivable consists
of non-interest bearing commercial bank acceptance notes received from EPC customers in China and a 12-year interest-bearing
promissory note issued by an EPC customer in 2015. As at December 31, 2017 and 2016, all bank acceptances notes were due
for settlement within the next 12 months after the balance sheet date and were classified as current assets on the
consolidated balance sheet. The promissory note carries interests at 6% per annum and is settled by pre-determined
installments. Installment payments that fall due within 12 months and over 12 months after the balance sheet date are
classified as current assets and non-current assets respectively on the consolidated balance sheet. As of December 31,
2017 and 2016, no allowance was made against the notes receivable.
Inventories are carried at the lower of
cost or market, determined by the first in first out cost method. Provisions are made for obsolete or slow-moving inventories based
on management estimates. Inventories are written down based on the difference between the cost of inventories and the market value
based upon estimates about future demand from customers, specific customer requirements on certain projects and other factors.
Inventory provision charges establish a new cost basis for inventory that subsequently cannot be marked up based on changes in
underlying facts and circumstances.
The Group acquires or constructs PV solar
power systems (“project assets”) that are (i) held for development and sale or (ii) held for the Group’s
own use to generate income or return from the use of the project assets. Project assets are classified as either held for development
and sale or as held for use within property, plant and equipment based on the Group’s intended use of project assets. The
Group determines the intended use of the project assets upon acquisition or commencement of project construction.
Classification of the project assets affects
the accounting and presentation in the consolidated financial statements. Transactions related to the project assets held for development
and sale are classified as operating activities in the consolidated statements of cash flows and reported as sales and costs of
goods sold in the consolidated statements of operations upon the sale of the project assets and fulfillment of the relevant recognition
criteria. Incidental electricity income generated from the project assets held for development and sale prior to the sale of the
projects is recorded in other operating income in the consolidated statement of operations. The project assets held for use are
used by the Group in its operations to generate income or a return from the use of the assets. Income generated from the project
assets held for use are included in net sales in the consolidated statement of operations. The costs to construct project assets
intended to be held for own use are capitalized and reported within property, plant and equipment on the consolidated balance sheets
and are presented as cash outflows from investing activities in the consolidated statements of cash flows. The proceeds from disposal
of project assets classified as held for own use are presented as cash inflows from investing activities within the consolidated
statements of cash flows. A net gain or loss upon the disposal of project assets classified as held for own use is reported in
other operating income or expense in the consolidated statement of operation.
Project assets costs consist primarily
of capitalizable costs for items such as permits and licenses, acquired land or land use rights, and work-in-process. Work-in-process
includes materials and modules, construction, installation and labor, capitalized interests and other capitalizable costs incurred
to construct the PV solar power systems.
The project assets held for
development and sale are reported as current assets on the consolidated balance sheets when upon completion of the construction
of the project assets, the Group initiates a plan to actively market the project assets for immediate sale in their present condition
to potential third party buyers subject to terms that are usual and customary for sales of these types assets and it is probable
that the project assets will be sold within one year. Otherwise, the project assets held for development and sale are reported
as non-current assets. No depreciation expense is recognized while the project assets are under construction or classified as
held for sale.
For project assets held for development and sale, the Group considers a project commercially viable if it is anticipated
to be sold for a profit once it is either fully developed or fully constructed. The Group also considers a partially developed
or partially constructed project commercially viable if the anticipated selling price is higher than the carrying value of the
related project assets plus the estimated cost to completion. The Group considers a number of factors, including changes in environmental,
ecological, permitting, market pricing or regulatory conditions that affect the project. Such changes may cause the cost of the
project to increase or the selling price of the project to decrease. The Group records an impairment loss of the project asset
to the extent the carrying value exceed its estimated recoverable amount. The recoverable amount is estimated based on the anticipated
sales proceeds reduced by estimated cost to complete such sales. In 2017, 2016 and 2015, the Group recorded impairment loss of
$687, $5,138 and $5,932, respectively, for certain project assets held for development and sale.
In addition to PV solar
power systems that are developed for sale or held for the Group’s own use, the Group also invested in several PV solar
power projects under engineering, procurement and construction (“EPC”) contracts with third party project owners
during the years ended December 31, 2017, 2016 and 2015. In respect of these EPC contracts, there was mutual
understanding between the Group and the respective project owners upon the execution of the EPC contracts that the title and
ownership of the PV solar power systems would transfer to the Group upon the completion of construction. Management
determined that the substance of the arrangements is for the Group to construct the PV solar power systems under the legal
title of the project owners with the title and ownership of the systems transferred to the Group upon the construction
completion, at which time such title transfer is permitted under local laws. The project assets under construction were
pledged to the Group before title transfer. Like normal project assets, classification in consolidated statement of cash flow
as investing activities or operating activities for these project assets are based on the intention for own use or sale.
Based on the Group’s intention to hold for own use, the projects costs incurred for these EPC contracts are presented
as investing activities in the consolidated statement of cash flows. The Group recorded impairment loss for such project
assets of $3,354, $8,706 and $10,853 for the years ended December 31, 2017, 2016 and 2015, respectively.
|
(l)
|
Property, Plant and Equipment
|
The Group accounts for its property, plant
and equipment at cost, less accumulated depreciation. Cost includes the prices paid to acquire or construct the assets, interest
capitalized during the construction period and any expenditure that substantially extends the useful life of an existing asset.
The Group expenses repair and maintenance costs when they are incurred. Depreciation is recorded on the straight-line method based
on the estimated useful lives of the assets as follows:
Plant and machinery
|
|
5 or 6.67 years
|
|
Furniture, fixtures and equipment
|
|
3 or 5 years
|
|
Computers
|
|
3 or 5 years
|
|
Automobile
|
|
3 or 5 years
|
|
Leasehold improvements
|
|
The shorter of the estimated life or the lease term
|
|
PV solar system
|
|
17, 20, 25 or 27 years
|
|
|
(m)
|
Intangible Assets Other Than Goodwill
|
Intangible assets consist of customer relationships,
patents and software. Amortization is recorded on the straight-line method based on the estimated useful lives of the assets.
|
(n)
|
Impairment of Long-lived Assets
|
The Group’s long-lived
assets include property, plant and equipment, project assets and other intangible assets with finite lives. The Group evaluates
long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Group first
compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying
amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized
to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including
discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Any impairment
write-downs would be treated as permanent reductions in the carrying amounts of the assets and a charge to operations would be
recognized. Impairment losses on project assets of $4,041, $13,844 and $10,853 was recognized for the years ended December 31,
2017, 2016 and 2015, respectively. Impairment loss on property, plant and equipment of $3,808, $12,640 and $nil was recognized
for the years ended December 31, 2017, 2016 and 2015, respectively. Impairment loss on intangible assets of $205, $1,235
and $nil was recognized for the years ended December 31, 2017, 2016 and 2015, respectively.
Goodwill is an asset representing the future
economic benefits arising from other assets acquired in a business combination that are not individually identified and separately
recognized. Goodwill is reviewed for impairment at least annually. In September 2011, the FASB issued ASU 2011-08,
Testing
Goodwill for Impairment,
which provides an entity the option to perform a qualitative assessment to determine whether it is
more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step
goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not
that the fair value of a reporting is greater than its carrying amount, the two-step goodwill impairment test is not required.
If the two-step goodwill impairment test
is required, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair
value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit
and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for
any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied
fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price
allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the carrying
value of a reporting unit’s goodwill exceeds the implied fair value of goodwill, the Group would record an impairment loss
equal to the difference.
See Note 18 “Goodwill
and Other Intangible Assets” for additional information on the Group’s goodwill impairment tests.
The Group offers the industry standard
warranty up to 25 years for PV modules and industry standard warranty for five to ten years on inverter and balance of system components.
Due to the warranty period, the Group bears the risk of extensive warranty claims long after products have been shipped and revenues
have been recognized. The Group provides a limited warranty to the original purchasers of its solar modules, inverters and cables
for trading business for one to five years, in relation to defects in materials and workmanship. For the Group’s cable, wire
and mechanical assemblies business, historically the related warranty claims have not been material. For the Group’s solar
PV business, the greatest warranty exposure is in the form of product replacement.
During the quarter ended September 30,
2007 and continuing through the fourth quarter of 2010, the Group installed own manufactured solar panels. Other than this period,
the Group only installed panels manufactured by unrelated third parties as well as the Company’s principal shareholder and
formerly controlling shareholder, LDK and its subsidiaries (collectively the “LDK Group”). PV construction contracts
entered into during the recent years included provisions under which the Group agreed to provide warranties to the customers. The
warranty the Group offers to its customers is identical to the warranty offered to the Group by its suppliers, therefore, the Group
passes on all potential warranty exposure and claims, if any, with respect systems sold by the Group to its suppliers. Due to the
absence of historical material warranty claims and identical warranty terms, the Group has not recorded any additional warranty
provision relating to solar energy systems sold since 2011. The warranty exposure before 2011 was estimated based on the Group’s
own historical data in combination with historical data reported by other solar system installers and manufacturers.
The Group accounts for income taxes under
the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will
not be realized.
The Company recognizes in the consolidated
financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination,
based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition
threshold, management presumes that the position will be examined by the appropriate taxing authority that has full knowledge of
all relevant information. In addition, a tax position that meets the more-likely-than-not recognition threshold is measured to
determine the amount of benefit to be recognized in the financial statements. The tax position is measured at the largest amount
of benefit that is greater than 50 percent likely of being realized upon settlement. The Group’s tax liability associated
with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of the tax audits,
case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are
identified. The Group records interest and penalties related to an uncertain tax position, if and when required, as part of income
tax expense in the consolidated statements of operations. No reserve for uncertainty tax position was recorded by the Group for
the years ended December 31, 2017, 2016 and 2015.
Product sales
Revenue on product sales is recognized
when there is persuasive evidence of an arrangement, title and risk of ownership have passed (generally upon delivery), the price
to the buyer is fixed or determinable and collectability is reasonably assured. The Group makes determination of our customer’s
credit worthiness at the time it accepts their initial order. For cable, wire and mechanical assembly sales, there are no formal
customer acceptance requirements or further obligations related to our assembly services once the Group ships its products. Costs
to ship products to customers are included in cost of sales in the consolidated statement of operations. Customers do not have
a general right of return on products shipped therefore the Group makes no provisions for returns.
Construction contracts
Revenue on photovoltaic system construction
contracts is generally recognized using the percentage-of-completion method of accounting, unless the Group cannot make reasonably
dependable estimates of the costs to complete the contract or the contact value is not fixed, in which case the Group would use
the completed contract method. Under the percentage-of-completion method, the Group measures the cost incurred on each project
at the end of each reporting period and compares the result against the estimated total costs at completion. The costs incurred
for construction contract mainly include the purchase costs of direct materials and solar modules, which are included in assessing
percentage-of-completion when they have been permanently placed or affixed to the solar power system as required by engineering
designs. The percentage of cost incurred determines the amount of revenue to be recognized. Payment terms are generally defined
by the contract and as a result may not match the timing of the costs incurred by the Group and the earnings accrued thereon. Such
differences are recorded as costs and estimated earnings in excess of billings on uncompleted contracts (an asset account) or billings
in excess of costs and estimated earnings on uncompleted contracts (a liability account). For the years ended December 31,
2017, 2016 and 2015, $nil, $2,369 and $2,161 of progress payments have been netted against unbilled receivable disclosed in the
account costs and estimated earnings in excess of billings on uncompleted contracts.
The percentage-of-completion method requires
the use of various estimates, including, among others, the extent of progress towards completion, contract revenues and contract
completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including direct
material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs,
and depreciation costs. The Group has a history of making reasonable estimates of the extent of progress towards completion, contract
revenues and contract completion costs. However, due to uncertainties inherent in the estimation process, it is possible that actual
contract revenues and completion costs may vary from estimates. Under the completed-contract method, contract costs are recorded
to a deferred project costs account and cash received are recorded to a liability account during the periods of construction. All
revenues, costs, and profits are recognized in operations upon completion of the contract. A contract is considered complete and
revenue recognized when all costs except insignificant items have been incurred and final acceptance has been received from the
customer and receivables are deemed to be collectible. Provisions for estimated losses on uncompleted contracts, if any, are recognized
in the period in which the loss first becomes probable and reasonably estimable. For each of the years ended December 31,
2017, 2016 and 2015, no estimated losses on uncompleted contracts have been recorded.
Sales of project assets
The Group recognizes the
revenue for project assets sales with the concurrent sale or the concurrent lease of the underlying land, whether explicit or
implicit in the transaction, in accordance with ASC 360-20, Real Estate Sales. For these transactions, the Group has determined
that the project asset sale represents the sale of real estate and is therefore subject to the revenue recognition guidance applicable
to real estate. A PV solar system is determined to be integral equipment when the cost to remove the equipment from its existing
location, ship and reinstall at a new site, including any diminution in fair value, exceeds ten percent of the fair value of the
equipment at the time of original installation. Generally, the Group recognizes revenue and profit using the full accrual method
once the sale is consummated, the buyer’s initial and continuing investments are adequate to demonstrate its commitment
to pay, the receivable from buyer is not subject to any future subordination, and the Group has transferred the usual risk and
rewards of ownership to the buyer and does not have a substantial continuing involvement with the project assets.
If the criteria for recognition under the
full accrual method are met except that the buyer’s initial and continuing investment is less than the level determined to
be adequate, then the Group will recognize revenue using the installment method. Under the installment method, the Group recognizes
revenue up to the costs incurred and apportion each cash receipt from the buyer between cost recovered and profit in the same ratio
as total cost and total profit bear to the sales value.
If the Group retains some continuing involvement
with the project assets and does not transfer substantially all of the risks and rewards of ownership, profit shall be recognized
by a method determined by the nature and extent of the continuing involvement, provided the other criteria for the full accrual
method are met. In certain cases, the Group may provide the customers guarantees of system performance or uptime for a limited
period of time and the Group’s exposure to loss is contractually limited based on the terms of the applicable agreement.
In accordance with real estate sales accounting guidance, the profit recognized is reduced by the maximum exposure to loss (and
not necessarily the most probable exposure), until such time that the exposure no longer exists.
Other forms of continuing involvement that
do not transfer substantially all of the risks and rewards of ownership preclude revenue recognition under real estate accounting
and require the Group to account for any cash payments using either the deposit or financing method. Such forms of continuing involvement
may include contract default or breach remedies that provide the Group with the option or obligation to repurchase the project
assets. Under the deposit method, cash payments received from customers are reported as deferred revenue for the project assets
on the consolidated balance sheet, and under the financing method, cash payments received from customers are considered debt and
reported as the financing and capital lease obligations on the consolidated balance sheet.
Financial service revenue
The Group records financial services revenue
associated with finance leases. The Group records a finance lease receivable and de-recognizes the leased equipment at lease inception.
The finance lease receivable is recorded at the aggregate future minimum lease payments, estimated unguaranteed residual value
of the leased equipment less unearned income. Residual values, which are reviewed periodically, represent the estimated amount
the Group expect to receive at lease termination from the disposition of the leased equipment. Actual residual values realized
could differ from these estimates. The unearned income is recognized in Net sales-financial service revenue in the consolidated
statements of operations over the lease term, in a manner that produces a constant rate of return on the lease.
The lease receivables expected to be received
within one year after the balance sheet date is classified as current finance lease receivable and the lease receivable expected
to be received over one year after the balance sheet date is classified as noncurrent finance lease receivable.
As discussed in Note 1
and Note 17, the Group raised funds from individual investors through the on-line platform of Meijv (and Solar Energy prior to
March 2016) to purchase solar related products for leasing to third party project developer. Although a tri-party lease agreement
is signed among the individual investors, the Group and the third party developer with individual investors as legal lessor and
the third party developers as legal lessee, the Group is considered as the accounting lessor in substance because 1) the lease
terms, rate of return on the investment funds from individual investors, the initial purchase price and the lease rental of the
solar related products payable by the PV developers and the purchase contract of the solar related products entered with manufacturer
are negotiated and concluded by the Group without any involvement by the individual investors; and 2) although the Group does
not grant redemption right or guarantee repayment in respect of funds provided by individual investors and the return they are
entitled to, the Group is expected to repay the funds and return under industry practice in the PRC. Accordingly, the individual
investors do not take credit risk in respect of any default payment by the lessee nor risk of claim on the leased assets; 3) the
Group is subject to the credit risk as a principal of the lease transaction and exposes to the reputational and business risk
to return the funds to the individual investors and assume the title of the leased asset after the lock-up period. In substance,
the individual investors provided funds (as lender) to finance the Group (as borrower) for its purchases of the Underlying PV
Products for leasing to third party in return for a fixed return. In this regard, lease accounting is adopted with Group as accounting
lessor and the third party developer as accounting lessee under finance lease in the Group’s consolidated financial statements
upon the inception of the leases.
Since 2017, the third party developers defaulted the payment which indicated that the collectability is not reasonably
assured. Accordingly, the Group recognized financial service revenue only when received cash payment from lessees. The Group recognized
interest earned on finance leases, for finance lease as “Net sales-financial service revenue” in the amount of $695,
$4,387 and $1,486 in 2017, 2016 and 2015, respectively.
In connection with the launch of the above
financing and leasing products, the Group issued coupons to certain third party vendors with total face value of $nil, $2,010 and
$10,944 for the years ended December 31, 2017, 2016 and 2015. These coupons are freely transferrable between holders but could
not be redeemed in cash. Each coupon has an expiry date for redemption. Prior to the expiry date, when the holders subscribe the
on-line products through the on-line platform, the holders could redeem the coupons such that the original purchase price to be
paid for the on-line products would be reduced by the face value of the coupons.
For the years ended December 31,
2017, 2016 and 2015, coupons totaling $nil, $2,010 and $10,942 were recorded as settlement of those third party vendors’
trade payable balance and were reclassified as other current liabilities when the coupons are received by vendors on the above
basis. As of December 31, 2017 and 2016, all coupons issued to these counterparties had been expired or redeemed.
In order to promote the above on-line
products on the platform, the Group offered, from time to time, discount from 5% to 20% on the unit value for investment
units subscribed by individual investors. The discount offered for on-line products subscribed by individual investors is
amortized as interest expense using the effective interest rate method through the end of the lock-up period or maturity
date, which is the earliest date that the Group could be required to repay the unit value in respect of the investment made
by individual investors. As of December 31, 2017 and 2016, the unamortized discount balances of total discount offered
were $nil and $474, respectively. For the years ended December 31, 2017, 2016 and 2015, discount balances of $1,044,
$1,151 and $3,163 have been amortized as interest expenses respectively.
Services revenue under power purchase agreements
The Group derives services revenues from
PV solar systems held for own use through the sale of energy to grid operators pursuant to terms set forth in power purchase agreements
or local government regulations (“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 project assets, (ii) the purchaser does not have the rights to control physical
access to the project assets, and (iii) the price that the purchaser pays is at a fixed price per unit of output. Revenue
is recognized based upon the output of electricity delivered multiplied by the rates specified in the PPAs, assuming all other
revenue recognition criteria are met.
Operation and maintenance service revenue
Operation and maintenance revenue is billed
and recognized as services are performed. Costs of these revenues are expensed in the period they are incurred.
|
(s)
|
Stock-based Compensation
|
The Group’s share-based payment transactions
with employees, such as restricted shares and share options, are measured based on the grant-date fair value of the equity instrument
issued. The fair value of the award is recognized as compensation expense, net of estimated forfeitures, over the period during
which an employee is required to provide service in exchange for the award, which is generally the vesting period.
|
(t)
|
Derivative Instruments
|
The Group enters into derivative
financial instrument arising from the business combination of Solar Juice and the investment as mentioned in Note 12 to the consolidated
financial statements. The Group recognizes all derivative instruments as either assets or liabilities in the balance sheet at
their respective fair values. There’s no derivative instruments as of December 31, 2017 and 2016, and changes in the fair
value are recognized as change in fair value of derivative assets/liabilities in consolidated statements of operations.
The Group’s policy is to capitalize
interest cost incurred on debt during the construction of major projects exceeding three months. A reconciliation of total interest
cost to “Interest Expense” as reported in the consolidated statements of operations for 2017, 2016 and 2015 is as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest cost capitalized
|
|
$
|
2,478
|
|
|
$
|
2,273
|
|
|
$
|
2,268
|
|
Interest cost charged to expense
|
|
|
18,418
|
|
|
|
9,043
|
|
|
|
9,275
|
|
Total interest cost
|
|
$
|
20,896
|
|
|
$
|
11,316
|
|
|
$
|
11,543
|
|
Advertising costs amounted to $755, $5,206
and $22,448 in 2017, 2016 and 2015, respectively. The Group expenses the costs of producing advertisements as incurred. Regarding
the sponsorships of events, the sponsorship amounts are amortized over the period during which the performance under the sponsorship
is received.
|
(w)
|
Commitments and Contingencies
|
Liabilities for loss contingencies arising
from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably
possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, is disclosed. Legal costs incurred in connection with loss contingencies are
expensed as incurred.
|
(x)
|
Recently Adopted and Recently Issued Accounting Guidance
|
In May 2014, the Financial
Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue
from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance
in U.S. GAAP when it becomes effective. This ASU was originally effective for fiscal years and interim periods beginning after
December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (“ASU 2015-14”),
which amends ASU 2014-09 and defers its effective date to fiscal years and interim reporting periods beginning after December 15,
2017. ASU 2015-14 permits earlier application only as of annual reporting periods beginning after December 15, 2016, including
interim reporting periods within that reporting period. The standard allows for either a full retrospective or modified retrospective
transition method. In March and April 2016, the FASB issued the following amendments to clarify the implementation guidance:
ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue
Gross versus Net) and ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing. In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with
Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842) adds SEC paragraphs pursuant to an SEC Staff Announcement made
at the July 20, 2017 EITF Meeting, which addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from
Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). The Group is currently evaluating the impact of adopting
ASU 2016-02 and ASU 2018-11 on the Group’s consolidated financial statements.
In February 2016, the FASB issued
ASU No. 2016-02
,
Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for
all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s
obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which
is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under
the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor
accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified
the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities.
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified
retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases
that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition
approach. ASU 2016-02 is effective for public companies for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years, with early adoption permitted. In July 2018, the FASB issued Accounting Standards Update (ASU)
2018-11, Lease (Topic 842) Targeted Improvements. The amendments in this Update provide entities with an additional (and optional)
transition method to adopt the new leases standard and provide lessors with a practical expedient, by class of underlying asset,
to not separate nonlease components from the associated lease component and, instead, to account for those components as a single
component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606). The Group is
currently evaluating the impact of adopting ASU 2016-02 and ASU 2018-11 on the Group’s consolidated financial statements.
In March 2016, the FASB
issued ASU 2016-07, “Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity
Method of Accounting”, which eliminates the requirement to retrospectively apply the equity method in previous periods.
Instead, the investor must apply the equity method prospectively from the date the investment qualifies for the equity method.
The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016,
and interim periods within those annual periods, with early adoption permitted. The adoption of this guidance is not expected
to have a material impact on the Group's consolidated financial condition, results of operations or cash flows.
In March 2016, the FASB issued
ASU 2016-09, “Compensation - Stock Compensation (Topic 718),” which simplifies several aspects of the accounting for
share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. ASU 2016-09 is effective for public companies for fiscal years beginning after
December 15, 2016. The Company has adopted the new Update for the year ended December 31, 2017.
In June 2016, the FASB issued ASU
2016-13, “Financial Instruments - Credit Losses (Topic 326).” The amendments in this ASU replace the “incurred
loss” methodology for recognizing credit losses with a methodology that reflects expected credit losses and requires consideration
of a broader range of information including past events, current conditions and reasonable and supportable forecasts that affect
the collectability of reported amounts of financial assets that are not accounted for at fair value through net income, such as
loans, certain debt securities, trade receivables, net investment in leases, off-balance sheet credit exposures and reinsurance
receivables. Under the current GAAP incurred loss methodology, recognition of the full amount of credit losses is generally delayed
until the loss is probable of incurring. Current GAAP restricts the ability to record credit losses that are expected, but do not
yet meet the probability threshold. ASU 2016-13 becomes effective for public companies for fiscal years beginning after December 15,
2019. In November 2018, the FASB issued ASU 2018-19, “Codification Improvement to Topic 326, Financial Instruments-Credit
Losses”. The Group is evaluating the impact that ASU 2016-13 will have on its consolidated financial statements and related
disclosures.
In August 2016, the FASB issued ASU
2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230).” The new guidance is intended to reduce
diversity in how certain transactions are classified in the consolidated statement of cash flows. ASU 2016-15 will be effective
for public companies for fiscal years beginning after December 15, 2017. The adoption of this guidance is not expected to
have a material impact on the Group's consolidated financial condition, results of operations or cash flows.
In October 2016, the FASB issued ASU
2016-16, “Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory.” ASU 2016-16 requires
entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the
asset has been sold to an outside party. ASU 2016-16 will be effective for public companies for fiscal years beginning after December 15,
2017. The adoption of this guidance is not expected to have a material impact on the Group's consolidated financial condition,
results of operations or cash flows.
In November 2016, the
FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The guidance requires
that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for
fiscal years beginning after December 15, 2017, and interim period within those fiscal years. Early adoption is
permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to
each period presented. The adoption of this guidance is not expected to have a material impact on the Group's consolidated
financial condition, results of operations or cash flows.
In January 2017, the FASB issued ASU
2017-04, “Goodwill and Other (Topic 350) — Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies
the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. In computing the implied fair value
of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its
assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining
the fair value of assets acquired and liabilities assumed in a business combination. As a result of ASU 2017-04, an entity should
perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and then recognize
an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value,
not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for fiscal years and interim
periods within those years beginning after December 15, 2019, and early adoption is permitted for interim or annual goodwill
impairment tests performed after January 1, 2017. The adoption of this guidance is not expected to have a material impact
on the Group's consolidated financial condition, results of operations or cash flows.
In February 2018, the FASB issued guidance
to address the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment of the
Tax Cuts and Jobs Act (the “Tax Act”). This guidance allows entities to elect to reclassify the tax effects of the
change in the income tax rates from other comprehensive income to retained earnings. The guidance is effective for periods beginning
after December 15, 2018 although early adoption is permitted. In March 2018, the FASB issued ASU No. 2018-05, Income Tax (Topic
740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This update adds SEC paragraphs pursuant
to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income
Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Act was signed into law. The Group is
currently evaluating the impact of this guidance 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 consolidated financial
position, statements of operations and cash flows.
On September 20, 2017, the Group
entered into a Framework Share Purchase Agreement with Thermi Taneo Venture Capital Fund (“Thermi”) to settle the
Group’s EPC receivable from Thermi. Pursuant to the Framework Share Purchase Agreement, the Group agreed to purchase 100%
equity interest in Heliohrisi S.A. (“Heliohrisi”), Heliostixio S.A. (“Heliostixio”) and Thermi Sun S.A.
(“Thermi Sun”) from Thermi.
On December 13, 2017, the Group entered into a Share Purchase Agreement (“Heliostixio
Purchase Agreement”) with Thermi and purchased 100% equity interest of Heliostixio at a cash price of $2,108 (EUR 1,757).
Heliostixio is a Company located in Greece, with a solar photovoltaic project of 1.082 MW peak capacity. Pursuant to Heliostixio
Purchase Agreement, the closing date of the acquisition was December 13, 2017, and the Group obtained related control of Heliostixio.
The acquisition has been accounted for
under ASC 805 Business Combinations. The Group made estimates and judgments in determining the fair value of acquired assets and
liabilities, based on management’s experiences with similar assets and liabilities. The allocation of the purchase price
is as follows:
Identifiable assets acquired and liabilities assumed
|
|
|
|
Cash and cash equivalents
|
|
$
|
43
|
|
Accounts receivable
|
|
|
183
|
|
Property, plant and equipment
|
|
|
2,314
|
|
Accounts payable
|
|
|
(918
|
)
|
Deferred tax liabilities
|
|
|
(185
|
)
|
Other payable
|
|
|
(12
|
)
|
Identifiable net assets acquired (a)
|
|
|
1,425
|
|
Consideration (b)
|
|
|
2,108
|
|
Goodwill (b-a)
|
|
$
|
683
|
|
Goodwill primarily represents the intangible
benefits that would accrue to the Group that do not qualify for separate recognition.
Pro forma financial information is not
presented for the acquisition of Heliostixio as its revenue and earnings were not material to the consolidated statements of operations.
4.
|
Deconsolidation of Sinsin
|
Pursuant to a share sale and
purchase agreement dated September 6, 2014 (“Sinsin SPA”), the Group, through its wholly owned subsidiary SPI China
(HK) Limited (“SPI HK”), acquired the 100% equity interest of Sinsin Renewable Investment Limited (“Sinsin”)
from its former shareholders, Sinsin Europe Solar Asset Limited Partnership and Sinsin Solar Capital Limited Partnership (collectively,
the “Sinsin Group”). Sinsin owns and operates four solar photovoltaic projects in Greece with an aggregate capacity
of 26.57 MW. According to the Sinsin SPA, 70% of the acquisition price would be paid in cash in four installments, while the remaining
30% has been settled by the transfer of Group’s shares to Sinsin Group. In addition, the shares of the Greek project companies
which own the 26.57 MW projects were pledged in favor of Sinsin Group to secure the repayment of the full purchase price to Sinsin
Group. Finally, pursuant to the Sinsin SPA, Sinsin Group undertook the obligation vis-à-vis the Group, to appoint the Group
as its EPC Contractor for solar photovoltaic projects of 360MW, which would be developed by Sinsin Group internationally over
a period of three years (the “360MW EPC assignment obligation”).
However, Sinsin Group failed
to fulfil its 360MW EPC assignment obligation and, as a result thereof, the Group ceased payment of the last two installments
of the purchase price of $45,749 (EUR 38,054). In March, 2016, the Group entered into a supplementary agreement with Sinsin Group
(“Supplementary Agreement”) in order to extend the Group’s payment obligations of the outstanding consideration
up to November 30, 2017.
Moreover, pursuant to the Supplementary
Agreement: (a) Sinsin Group would be entitled to supervise and manage the bank accounts of Sinsin to ensure that all the electricity
income would be applied towards repayment of any outstanding purchase consideration and (b) Sinsin Group would support the Group
in securing project finance for the above projects.
However, and despite the above
obligation by Sinsin Group, the Group was not able to secure project finance and, as a result therefrom, the last two installments
of the purchase consideration were not paid to Sinsin Group.
After the acquisition in
2014, Sinsin was managed by a board of directors which consisted of three members from the Group. Effective on July 1, 2015, Mr.
Ye Dejun, who worked for Sinsin Group before the acquisition, joined the Company as CEO and was assigned to replace an original
director in Sinsin in December of 2015. In March of 2016, Mr. Ye resigned from his role as CEO and was appointed to the Company’s
Board as a director and executive vice president. However, on October 9, 2017, Mr. Ye resigned from his position as a director
of the Company. Due to his demission, on December 19, 2017, in an Extraordinary General Meeting of the shareholders of Sinsin,
a resolution was passed to remove Mr. Ye from the board of directors of Sinsin, and appoint a new director who represented the
Group, which caused the Sinsin Group filed a petition before the Athens One-Member First Instance Court to suspend the force of
the Extraordinary General Meeting resolution.
In November 2017, Sinsin Group
claimed that the Group was in default of the Sinsin SPA and the Supplementary Agreement and attempted to exercise the pledge agreements
and take control of the Greek project companies. The Group denied such allegations and responded that it is Sinsin Group the party
who defaulted in its contractual obligations. Litigation and arbitration proceedings ensued in Greece and Malta. SPI Group filed
a claim against Sinsin group before the arbitration court in Malta requesting the award of circa $65,000 (EUR 54,000) in damages
(arising out of the breach of the 360MW EPC assignment obligation) and Sinsin Group filed a counterclaim against the Group requesting
payment of the outstanding purchase price.
Moreover, Sinsin Group’s
petition to take control over the Greek project companies (and the funds that such project companies had in their bank accounts
from the electricity income generated) was rejected by the Athens One-Member First Instance Court. More particularly, the court
issued a provisional measures decision on June 25, 2018, by virtue of which an interim management was appointed of the Greek project
companies, which consists of two members elected by Sinsin Group and one member elected by the Group. As the date of this report,
the legal dispute is still ongoing (See Note 25 (b) Contingencies).
In view of above situations,
the Group considered that it would not be able to manage any funds or operations of Sinsin even if it had taken actions on an
earlier time in 2017, and it could not benefit from any net income of Sinsin in 2017. In addition, the Group could not access
to or obtain sufficient financial information or operational documents for 2017 to direct Sinsin’s financial and operational
decisions.
The above facts 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. Therefore,
the Group deconsolidated Sinsin as of January 1, 2017. The financial position of Sinsin as of the date of deconsolidation was
as below:
|
|
January 1,
2017
|
|
ASSETS
|
|
|
|
Restricted cash
|
|
|
2,679
|
|
Accounts receivable
|
|
|
3,594
|
|
Prepaid expenses and other current assets
|
|
|
4,000
|
|
Amount due from inter-group entities
|
|
|
7,817
|
|
Property, plant and equipment, net
|
|
|
55,458
|
|
Deferred tax assets
|
|
|
179
|
|
Total assets
|
|
$
|
73,727
|
|
LIABILITIES
|
|
|
|
|
Accounts payable
|
|
$
|
809
|
|
Income tax payable
|
|
|
243
|
|
Deferred tax liabilities
|
|
|
2,958
|
|
Other current liabilities
|
|
|
111
|
|
Total liabilities
|
|
$
|
4,121
|
|
As of December 31, 2017, the
Group’s carrying amount of the investment in Sinsin was $69,606 on the consolidated balance sheet.
At December 31, 2017 and
2016, the Group had restricted bank deposits of $1,053 and $9,059, respectively. The restricted bank deposits as at December 31,
2017 mainly represent bank deposits put under the custodian of Police Department of Suzhou Industrial Park (“Police Department”)
which cannot be withdrawn or used without the prior notice of Police Department. The restricted bank deposits as at December 31,
2016 represent guarantee deposits, which primarily include reserves of $4,954 for bank acceptance notes and short-term borrowings
issued by the Group to suppliers with maturity period of 6 or 12 months, $1,392 in several bank accounts which was frozen due
to certain lawsuits filed by the suppliers and $2,679 of bank deposits put under the custodian of Sinsin Group.
Accounts receivable, current and non-current,
mainly represent amounts due from customers for 1) sales of Solar PV projects; 2) rendering of EPC services; 3) supply of electricity
under power supply agreements (“PPA”); and 4) sales of solar PV related components.
The allowance for doubtful accounts
is provided against gross accounts receivable balances based on the Group’s best estimate of the amount of probable credit
losses in the Group’s accounts receivable. The Group grants credit terms to credit-worthy customers. Terms vary per contract
terms and range from 30 to 90 days. Contractually, the Group may charge interest for extended payment terms and require collateral.
The Group regularly monitors and assesses the risk of not collecting amounts owed by customers. This evaluation is based upon
a variety of factors, including an analysis of amounts current and past due along with relevant history and facts particular to
the customer. The Group does not have any off-balance-sheet credit exposure related to its customers.
Accounts receivable,
current, as at December 31, 2017 and 2016 primarily consists of receivables arose from EPC services, trading and sales of
solar PV related components. The aging of accounts receivable as of December 31, 2017 and 2016, prepared based on
credit period offered, consisted of the followings:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Gross
|
|
|
Allowance
|
|
|
Net
|
|
|
Gross
|
|
|
Allowance
|
|
|
Net
|
|
Current
|
|
|
8,581
|
|
|
|
–
|
|
|
|
8,581
|
|
|
|
9,077
|
|
|
|
–
|
|
|
|
9,077
|
|
0-90 days past due
|
|
|
4,878
|
|
|
|
–
|
|
|
|
4,878
|
|
|
|
6,817
|
|
|
|
–
|
|
|
|
6,817
|
|
91-180 days past due
|
|
|
2,088
|
|
|
|
–
|
|
|
|
2,088
|
|
|
|
9,379
|
|
|
|
–
|
|
|
|
9,379
|
|
181-365 days past due
|
|
|
1,537
|
|
|
|
(764
|
)
|
|
|
773
|
|
|
|
3,516
|
|
|
|
(487
|
)
|
|
|
3,029
|
|
over 1 year past due
|
|
|
56,759
|
|
|
|
(27,763
|
)
|
|
|
28,996
|
|
|
|
37,386
|
|
|
|
(20,079
|
)
|
|
|
17,307
|
|
Total
|
|
$
|
73,843
|
|
|
$
|
(28,527
|
)
|
|
$
|
45,316
|
|
|
$
|
66,175
|
|
|
$
|
(20,566
|
)
|
|
$
|
45,609
|
|
Included in the gross receivable
balances arising from EPC services as at December 31, 2017 and 2016 were $35,222 (RMB 229,166) and $34,049 (RMB 236,403) due
from Zhongwei Hanky Wiye Solar Co., Ltd (“Zhongwei”) against which allowance for doubtful accounts of $17,309 and $16,220
had been recognized, respectively. In August 2014, the Group entered into an EPC contract with Zhongwei, a customer in the
PRC, to construct a 30MW ground mounted PV station. The grid-connection of Zhongwei Project was completed in July 2015. There
was significant delay of payments by Zhongwei based on the contract terms. The Group filed two lawsuits against the project owner
of Zhongwei in August 2016 and April 2017 claiming repayment on the entire outstanding balances. On December 21,
2016, the Group won the first trial of the lawsuit filed in August 2016 and has successfully frozen the Zhongwei’s bank
account that collects the electricity incomes generated from the 30MW PV station. During 2017, $1,112 of Zhongwei’s electricity
income was force executed by the PRC court, which was used to settle payable to an EPC supplier. The force execution process was
paused on December 20, 2017. The second trial of the lawsuit filed in April 2017 has not been scheduled as the date of issuance
of the consolidated financial statements.
Included in the gross receivable
balances arising from EPC services as of December 31, 2017 was $15,487 due from Inner Mongolia Zhaojing Photovoltaic Power Generation
Co., Ltd. (“Zhaojing”) against which allowance for doubtful accounts of $7,802 had been recognized. As of December
31, 2016, the receivable from Zhaojing was $19,815, with provision of $2,924, which was recognized as costs and estimated earnings
in excess of billings on uncompleted projects. In March 2015, the Group entered into EPC contract with Zhaojing to construct a
20MW PV station. The PV station was 96% completed as of December 31, 2016, while Zhaojing didn’t make payment according
to the payment terms. In 2016, the Group terminated the construction of the PV station, and filed a complaint against Zhaojing
claiming repayment on the entire outstanding balances. As of the date of the issuance of the consolidated financial statements,
the complaint is still on the early stage of the proceeding.
The movements of allowance
for doubtful accounts are as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Balance as at January 1
|
|
$
|
20,566
|
|
|
$
|
36,553
|
|
|
$
|
766
|
|
Addition
|
|
|
6,260
|
|
|
|
4,171
|
|
|
|
36,468
|
|
Written off
|
|
|
(1,526
|
)
|
|
|
(239
|
)
|
|
|
(616
|
)
|
Reversal
|
|
|
(1,372
|
)
|
|
|
(18,293
|
)
|
|
|
(65
|
)
|
Reclassification from allowance for costs and estimated earnings in excess of billings on uncompleted contracts
|
|
|
3,121
|
|
|
|
–
|
|
|
|
–
|
|
Foreign currency translation difference
|
|
|
1,478
|
|
|
|
(1,626
|
)
|
|
|
–
|
|
Balance as at December 31
|
|
$
|
28,527
|
|
|
$
|
20,566
|
|
|
$
|
36,553
|
|
As of December 31,
2017 and 2016, allowance for doubtful debts of $26,958 and $18,487 had been recognized for certain gross receivable balances of
$52,664 and $36,480, respectively, which arose from the Group’s EPC service revenue. Also, allowance for doubtful debts of
$1,569 and $2,079 had been recognized for certain gross receivable balances of $21,179 and $29,695, respectively, which arose from
other types of revenues. The allowance is determined on the basis of their expected recoverable amount of these receivables.
Inventories consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Goods in transit
|
|
$
|
632
|
|
|
$
|
631
|
|
Finished goods
|
|
|
15,287
|
|
|
|
11,635
|
|
Total
|
|
$
|
15,919
|
|
|
$
|
12,266
|
|
In 2017, 2016 and 2015, inventories were
written down by $587, $806 and $2,493, respectively, to reflect the lower of cost or market price.
As of December 31, 2017,
project assets, current and non-current, mainly consist of the SEF development across U.S.A., United Kingdom, Japan and the PRC,
with the amount of $42,990 (2016: $41,300), $nil (2016: $1,054), $15,589 (2016: $5,496) and $11,680 (2016: $9,879) respectively.
Project assets consist of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Under development-Company as project owner
|
|
$
|
59,315
|
|
|
$
|
48,605
|
|
Under development-Company expected to be project owner upon the completion of construction*
|
|
|
10,944
|
|
|
|
9,124
|
|
Total project assets
|
|
|
70,259
|
|
|
|
57,729
|
|
Current, net of impairment loss
|
|
$
|
42,211
|
|
|
$
|
27,980
|
|
Noncurrent
|
|
$
|
28,048
|
|
|
$
|
29,749
|
|
* All of the projects costs
under this category were recorded as project assets, noncurrent.
During the years ended December 31,
2017, 2016 and 2015, impairment losses of $3,354, $8,706 and $10,853 were recorded for project assets expected to be held and
use, primarily due to the delay of construction and grid connection as compared to management’s expectation. The Group recorded
impairment loss of $687, $5,138 and $5,932, respectively, for certain project assets held for development and sale.
During the year ended December 31,
2017 and 2016, the Group recognized revenue for sale of project assets of $6,042 and $14,428, respectively, and cost of $5,801
and $13,583 were recognized accordingly.
In 2016, the Group has obtained the ownership
of two grid-connected project and reclassified the related project asset costs incurred of $8,899 to Property, plant and equipment
in the consolidated balance sheet. No similar reclassification incurred from project asset to property, plant and equipment in
2017.
9.
|
Prepaid Expenses and Other Current Assets
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Value-added tax recoverable, current
|
|
$
|
2,936
|
|
|
$
|
2,980
|
|
Deposit and prepayment for acquisitions, net of provision of $16,925 and $16,500, respectively (a)
|
|
|
116
|
|
|
|
2,207
|
|
Other deposit and prepayment, net of provision of $3,536 and $1,445, respectively (b)
|
|
|
3,962
|
|
|
|
5,533
|
|
Receivable from the Group’s executives and employees, net of provision of $6,059 and $6,059, respectively (c)
|
|
|
9,140
|
|
|
|
9,140
|
|
Other receivable, net of provision of $13,635 and $9,639, respectively
|
|
|
3,607
|
|
|
|
4,827
|
|
Others, net of provision of $nil and $426, respectively
|
|
|
–
|
|
|
|
150
|
|
Total prepaid expenses and other current assets
|
|
$
|
19,761
|
|
|
$
|
24,837
|
|
|
(a)
|
Deposit and Prepayment for Acquisitions
|
Deposit and prepayment for acquisitions
as at December 31, 2017 primarily include: i) a deposit of $3,228 (2016: $3,313) paid to acquire 95.68% of the shares in
Guo Dian Nai Lun Te Zuo Qi Photovoltaic Power Generation LLC (“Guo Dian”), and provision for doubtful recoveries of
$3,228 (2016: $3,025) was made; ii) prepayment of $3,492 (2016: $3,272) made to acquire All-Zip Roofing System Group Co., Ltd.,
(“All-Zip”), and fully bad debt was provided. During the year ended December 31, 2015, the acquisition for Guo
Dian and All-Zip were cancelled as certain closing conditions were not met. The Group has filed legal claims against Guo Dian
and All-Zip to collect the prepayment made and made full provision for doubtful recoveries based on its assessment of the estimated
recoverable amounts. iii) an amount of $8,032 (2016: $8,334) relating to the acquisition of RE Capital Projects. The prepayment
for acquisition of RE Capital Projects included cash of $2,640 and the Group’s common stock amounting to $5,500. In April
2017, the acquisition was terminated and both parties agreed that the common stock would be transferred back to the Group and
the cash portion would not be refunded. As of then, the Group totally incurred cost of $8,334 (including the cash portion and
share portion). Thus, provision for doubtful recoveries of $7,978 (2016: $7,964) was accrued, and the prepayment for acquisition
was written down to the recovered amount of $54 and $370 as of December 31, 2017 and 2016.
|
(b)
|
Other Deposit and Prepayment
|
Other deposit and prepayment primarily
include prepayment made to vendors to purchase PV modules, rental deposits and other prepaid expenses.
|
(c)
|
Receivable from the Group’s Executives and Employees
|
Pursuant to the PRC tax regulations,
the income derived from the exercise of the share options and RSU (See Note 22 Stock-based Compensation) is subject to individual
income tax (“IIT”), which should be withheld by the Group from these executives and employees for payment to the PRC
tax authorities. As of December 31, 2017 and 2016, the Group had an outstanding receivable, net of provision, of $9,140 from
the executives and employees and the Group had payable to the PRC tax authorities of US$15,199 in relation to the IIT liabilities
arising from the exercise of share options and RSU by these executives and employees. During the year ended December 31,
2017 and 2016, the Group recognized a provision for doubtful recoveries of such receivable of $nil and $6,059 up to the estimated
recoverable amount based on the market quoted price of the Company’s common share as of December 31, 2016. The provision
is included in impairment charges in the consolidated statements of operations.
10.
|
Finance Lease Receivables
|
The Group had entered into finance
lease contracts for leasing those Underlying PV Products to third-party PV developers through the on-line platforms of Solar Energy
and Meijv (see Note 1— Description of Business and Organization and Note 2(r) Revenue recognition), and also entered
into sales and leaseback arrangements with the third parties. These leases are accounted for as finance lease.
Finance lease receivables are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Minimum lease payments receivable
|
|
$
|
119,475
|
|
|
$
|
113,574
|
|
Less: amounts representing interest
|
|
|
(57,437
|
)
|
|
|
(52,205
|
)
|
Present value of total minimum capital lease payments receivable (at rates range from 5% to 17.25%)
|
|
|
62,038
|
|
|
|
61,369
|
|
Less: impairment
|
|
|
(52,263
|
)
|
|
|
(26,021
|
)
|
Net finance lease receivables
|
|
$
|
9,775
|
|
|
$
|
35,348
|
|
Current
|
|
$
|
3,816
|
|
|
$
|
9,140
|
|
Noncurrent
|
|
|
5,959
|
|
|
|
26,208
|
|
As at December 31, 2017, future maturities of minimum lease
payments receivable are as follows
2018
|
|
$
|
21,383
|
|
2019
|
|
|
9,331
|
|
2020
|
|
|
8,966
|
|
2021
|
|
|
8,879
|
|
2022
|
|
|
8,506
|
|
Thereafter
|
|
|
62,410
|
|
|
|
$
|
119,475
|
|
|
|
|
|
|
During the years ended December 31, 2017, 2016 and 2015,
the Group earned total interest income of $695, $4,387 and $1,507, respectively, for these finance lease contracts.
11.
|
Property, Plant and Equipment
|
Property, plant and equipment consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Photovoltaic (“PV”) solar systems
|
|
$
|
80,683
|
|
|
$
|
145,865
|
|
Furniture, fixtures and equipment
|
|
|
905
|
|
|
|
1,121
|
|
Automobile
|
|
|
713
|
|
|
|
699
|
|
Computers
|
|
|
2,058
|
|
|
|
1,853
|
|
Leasehold improvements
|
|
|
327
|
|
|
|
306
|
|
|
|
|
84,686
|
|
|
|
149,844
|
|
Less: accumulated depreciation
|
|
|
(9,735
|
)
|
|
|
(14,779
|
)
|
|
|
|
74,951
|
|
|
|
135,065
|
|
Construction in progress
|
|
|
3,482
|
|
|
|
4,560
|
|
Less: impairment
|
|
|
(17,105
|
)
|
|
|
(12,640
|
)
|
|
|
$
|
61,328
|
|
|
$
|
126,985
|
|
The costs of PV solar system
include costs of acquiring permits, construction fees of PV solar system, costs of items installed in the PV solar system including
solar panels, and other costs incurred that are directly attributable to getting the PV solar system ready for its intended use
of grid connection with customer for supply of electricity. Depreciation of property, plant and equipment was $2,968, $4,739 and
$4,686 for the years ended December 31, 2017, 2016 and 2015, respectively. Impairment loss on property, plant and equipment
of $17,105 and $12,640 had been recognized as of December 31, 2017 and 2016, respectively.
In 2009, the Group capitalized
a PV solar system relating to the Aerojet 1 solar development project (“Project Aerojet”) along with the associated
financing obligation, recorded under financing and capital lease obligations, net of current portion, in the Consolidated Balance
Sheets, due to certain guarantee arrangements and the continuing involvement with this project. As of December 31, 2016, the carrying
amount of PV solar system relating to Project Aerojet amounted to $9,654 and the associated financing obligation was $8,900. On
March 21, 2017, pursuant to the asset purchase agreement signed in relation to the project, the Group released all the guarantee
arrangements and would not maintain its continuing involvement with this project. Therefore, the PV solar system recorded in property,
plant and equipment with its associated financing obligation in Financing and capital lease obligations was derecognized from the
Consolidated Balance Sheets.
Pursuant to the share purchase
agreement entered between the Group and TBEA Xinjiang Sunoasis Co., Ltd. (“TBEA Sunoasis”) regarding the acquisition
of Xinte in 2014, 100% equity interests in Xinte were pledged to TBEA Sunoasis to secure purchase consideration and obligation
arising from EPC service provided by TBEA Sunoasis. On March 28, 2016, the Group entered into a ten-year sale-and-leaseback
arrangement on the PV solar system with China Kangfu International Leasing Co., Ltd. (“Kangfu Leasing”), an independent
third party. The sales price of $20,164 was the same as the principle of the lease arrangement which was used to settle the outstanding
purchase consideration due to TBEA Sunoasis. The pledge of equity interests in Xinte was then released by TBEA Sunoasis. 100% equity
interests in Xinte were pledged to Kangfu Leasing at the inception of lease. Pursuant to the terms of the lease agreement, the
Group is only required to pay interests at 6.125% per annum in the first eleven months, a portion of principal and interests of
$4,321 in the twelfth month and equal principal and interest payments by installment for the remaining nine years. The effective
interest rate for the lease is determined as 10.1%. The bargain purchase price at the end of lease period is $1. The lease was
classified as capital lease and the Group continued to record this PV solar system in property, plant and equipment. As of
December 31, 2017 and 2016, the carrying amount of Xinte’s PV solar system amounted to $22,358 (RMB 145,468) and $21,996
(RMB 152,374), respectively. In April 2017, the Group defaulted on the payment of partial principal and interests required
for the twelfth month. A new repayment schedule has been agreed between the Group with Kangfu Leasing, pursuant to which, the defaulted
repayment in the twelfth month was deferred from April 2017 to November 2017 with the remaining repayment schedule remains
unchanged. However the Group defaulted again in September 2017 and made no payment since September 2017 till the issuance of the
financial statements. In March 2018, the Group was sued by Kangfu Leasing and was required to repay all the remaining principal,
interest and default penalty (See Note 25(b) Contingencies).
During the year ended December
31, 2017, $60,106 of property, plant and equipment, with accumulated depreciation of $4,648, was derecognized due to the deconsolidation
of Sinsin (See Note 4 Deconsolidation of Sinsin).
12.
|
Investment in Affiliates
|
Investment in affiliates represents:
i) the investment in EnSync, Inc. (formerly known as ZBB Energy Corporation) (“ENS”) of $nil and $2,214 as of
December 31, 2017 and 2016, respectively; ii) the investment of $4,321 in Beijing Dingding Yiwei New Energy Technology Development
Co., Ltd. (“Dingding Yiwei”), which has been fully impaired as of December 31, 2017 and 2016; iii) and the investment
in Sinsin (See Note 4 Deconsolidation of Sinsin).
The investment in ENS consists
of i) 8,000,000 shares of ENS’s common stock (“Purchased Common Stock”), ii) 28,048 shares of ENS’s convertible
preferred stock (“Convertible Preferred Stock”), and iii) warrant to acquire 50,000,000 shares of ENS’s common
stock (“Warrant”). Total cash consideration of ENS investment was $33,390, of which $16,947 was recognized for Warrant,
$3,244 was recognized for the initial cost of investment in Purchased Common Stock, and the remaining $13,199 was recognized for
the initial cost of investment of Convertible Preferred Stock. The decrease in fair value of $nil, $2,328 and $14,619 of the Warrant
was recognized as Change in fair value of derivative asset/liabilities in the consolidated statements of operations for the year
ended December 31, 2017, 2016 and 2015. The investment in Purchased Common Stock was fully impairment as of December 31, 2017 and
2016, and impairment provision of $2,214, $9,895 and $1,090 was provided for investment in Convertible Preferred Stock during the
year ended December 31, 2017, 2016 and 2015. As of December 31, 2017 and 2016, the investment in ENS was $nil and $2,214, respectively.
13.
|
Fair Value Measurement
|
There were no assets or liabilities
measured at fair value on a recurring basis as of December 31, 2017 and 2016. The following method and assumptions were used
to estimate the fair value on a non-recurring basis as at December 31, 2017 and 2016:
Cash and cash equivalents, restricted
cash, accounts receivable and payable, short term investments, bank deposits with maturity over three months, finance lease receivables,
current, short term borrowings, accrued liabilities, advance from customers and other current liabilities — costs approximates
fair value because of the short maturity period.
Convertible bonds. The estimated
fair value of convertible bond with Union Sky was $12,879 as of February 12, 2017. The fair value of convertible bonds was classified
in Level 3 of the fair value hierarchy, and uses binomial model.
Investment in affiliates. Investment
in affiliates consists of Convertible Preferred Stock of ENS with carrying amount of $nil and $2,214 as at December 31, 2017
and 2016. The estimated fair value of Convertible Preferred Stock was $nil and $2,214 as of December 31, 2017 and 2016. The
fair value of Convertible Preferred Stock of ENS was classified in Level 3 of the fair value hierarchy in which management has
used at least one significant unobservable input in the valuation model. The fair value of the Convertible Preferred Stock of
ENS is determined by the fair value of the total common stock with a discount for Lack of Marketability Discount (“LOMD”).
The LOMD as of the Valuation Date is derived by reference to put option based on Black-Scholes Option Pricing Model, with significant
inputs on the volatility and expected terms of each tranche of the Preferred Stock unobservable in the market. The volatility
is determined by the average standard derivation of the comparable companies applicable over a period with length commensurate
to the expected term of the Convertible Preferred Stock, and the expected term of each tranche of the Convertible Preferred Stock
is based on management’s estimation of the conversion schedule. Significant variance of the above-mentioned inputs would
result in a significantly lower or higher fair value measurement.
Finance lease receivables, noncurrent.
The Group used discounted cash flow approach to determine the fair value, which was classified in Level 3 of the fair value hierarchy.
The fair value of finance lease receivables, noncurrent, is determined to approximate its carrying value.
There have been no transfers
between Level 1, Level 2, or Level 3 categories.
Accrued liabilities are as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Other tax payables (a)
|
|
$
|
6,497
|
|
|
$
|
6,653
|
|
Accrued expense
|
|
|
5,937
|
|
|
|
3,379
|
|
Tax penalty payable (b)
|
|
|
9,670
|
|
|
|
–
|
|
Other payable
|
|
|
5,385
|
|
|
|
5,037
|
|
Other accrual and payables
|
|
|
5,321
|
|
|
|
1,505
|
|
Total accrued liabilities
|
|
$
|
32,810
|
|
|
$
|
16,574
|
|
Other tax payables primarily
represent value added tax payables of $6,434 (2016: $5,819) related to the sales of PV modules and EPC service revenue.
The Company was late for
filing Federal and State income tax returns, hence an expected penalty payable of $9,670 was accrued as of December 31, 2017.
15.
|
Advance from Customers
|
The Group requires its customers to make
deposits before sale of PV projects. Such payments are recorded as advances from customers in the Group’s consolidated financial
statements, until the sales completed.
16.
|
Short-term Borrowings and Long-term Borrowings
|
|
|
December 31,
2017
|
|
|
|
December 31,
2016
|
|
Short-term bank borrowings
|
|
$
|
8,050
|
|
|
$
|
11,769
|
|
Loan financing through on-line platform
|
|
|
92,769
|
|
|
|
67,219
|
|
Other short-term borrowings
|
|
|
–
|
|
|
|
3,068
|
|
Current portion of long-term borrowings
|
|
|
7,907
|
|
|
|
2,078
|
|
Total short-term borrowings and current portion of long-term borrowings
|
|
|
108,726
|
|
|
|
84,134
|
|
Long term bank borrowings
|
|
|
9,498
|
|
|
|
2,936
|
|
Other long-term borrowings
|
|
|
8,232
|
|
|
|
7,710
|
|
Loan financing through on-line platform, noncurrent
|
|
|
–
|
|
|
|
6,525
|
|
Total long-term borrowings
|
|
|
17,730
|
|
|
|
17,171
|
|
Less: current portion of long-term borrowings
|
|
|
(7,907
|
)
|
|
|
(2,078
|
)
|
Total long-term borrowings, excluding current portion
|
|
|
9,823
|
|
|
|
15,093
|
|
Total borrowings
|
|
$
|
118,549
|
|
|
$
|
99,227
|
|
As of December 31, 2017, the maturities
of the long-term borrowings are as follows:
|
2018
|
|
|
$
|
7,907
|
|
|
2019
|
|
|
|
577
|
|
|
2020
|
|
|
|
608
|
|
|
2021
|
|
|
|
630
|
|
|
2022
|
|
|
|
659
|
|
|
Thereafter
|
|
|
|
7,349
|
|
|
|
|
|
$
|
17,730
|
As of December 31, 2017,
bank loans primarily represent: i) $2,738 short term loans borrowed from Bank of Suzhou (“BOS”) at an interest rate
of 5.655% per annum which has been matured on April 18, 2017, July 17, 2017 and July 18, 2017, respectively. The Group defaulted
the repayment of the borrowing from BOS and was sued by BOS on August 10, 2017 (see Note 25(b) Contingencies); ii) $2,765 8-year
long-term loan borrowed from Bank of Jiangsu (“BOJ”) at an interest rate of 5.635% per annum with a maturity date
of August 29, 2024. 100% equity interest in one of the Group’s subsidiary in China was pledged as the guarantee of
the long term bank loan and its electricity income will be used to repay the loan. This subsidiary holds a power station, of which
the carrying amount was $3,515 as of December 31, 2017; iii) $6,733 10-year long term loan borrowed from Santander Bank at interest
rate of 2.83% and 3.96% per annum with a maturity date of February 16, 2027.
T
he
Group’s subsidiary, Solar Juice, entered into loan agreements with Westpac Bank, whereby Westpac Bank provided Solar Juice
loans at fixed interest rates ranging from 2.25% to 4.66% amounting to $5,143 as of December 31, 2017. These loans matured from
January 2, 2018 to August 11, 2018, and the Group r
e
paid
when matured.
The Group entered into a borrowing
agreement with a third party on December 31, 2016 and obtained a borrowing of $7,354 which was interest free with a maturity date
of March 31, 2018. The Group defaulted the repayment of the borrowing and was sued by the third party on August 13, 2018 (see
Note 25(b) Contingencies).
As discussed
in Note 1 — Description of Business and Organization and Note 2(r) — Revenue recognition, the Group raised interest
bearing funds from individual investors through the on-line platform of Meijv (Solar Energy before March 2016). Individual investors,
who need to register as a member on the platform, provided funds through subscription for certain on-line products launched by
the Group. Each on-line products launched on the platform are set with a targeted amount of funds in Renminbi to be raised for
that product, which is divided into units (“Investment Unit”) with unit value ranging from RMB16.7 to RMB300,000.
Individual investors may subscribe for Investment Unit of these on-line products which are generally structured in the way of
using the funds from individual investors to purchase solar module or PV related products (“Underlying PV Products”)
for leasing to the PV project developers on PV project basis over a specified period. Investments made into each on-line product
are subject to lock-up period, which ranges from nil to 1,080 days, depending on the terms of each on-line product. During the
lock-up period, the individual investors could not transfer or redeem their subscribed Investment Units. After the lock-up period
individual investors are permitted either to transfer their investments in respect of the principal portion to other investors
through the on-line platform or, for substantially all on-line products launched in 2015 and early 2016, to request the Group
to redeem their subscribed Investments Units (“Redemption Right”). Since second half of 2016, the Group launched
new on-line products with no redemption right in compliance with the relevant regulations. Although the Group does not grant
redemption right or provide guarantee to funds raised under certain on-line products, based on the history and to avoid reputational
risks, the Group would return the funds to the individual investors and assume the title of the leased asset after the lock-up
period. Any Investments Units so redeemed by the Group would be put on the on-line platform for re-sale to other investors. Once
Investment Units are subscribed and funds are provided, individual investors are guaranteed by the Group with a minimum investment
return. During the year ended December 31, 2017, the Group raised funds of $84,368 from the individual investors through
online platform at an interest rates ranging from 5.0% to 10.2% per annum. The Group also offered, from time to time, discount
from 5% to 20% on the unit value for Investment Units subscribed by individual investors. Such discount is amortized as interest
expense using the effective interest rate method through the end of the lock-up period, which is the earliest date that the Group
could be required to repay the unit value in respect of the investment made by individual investors. As of December 31, 2017,
outstanding borrowings from individual investors through on-line platform amounted to $92,769 in total, which was recorded as
short term borrowings since the Group should repay all the principal, interest and penalty immediately once the Group default
the repayment in April 2017. As of December 31, 2016, outstanding borrowings from individual investors amounted to $73,744, of
which $67,219 was short-term and $6,525 was long-term. Borrowings of $30,351 and $23,526 were guaranteed by the Group’s
project assets and property, plant and equipment with total carrying amount of $18,455 and $32,499 as of December 31, 2017
and 2016, respectively.
The
average interest rate on short term borrowings was 7.61%, 7.84% and 7.20% per annum in 2017, 2016 and 2015, respectively.
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
|
2016
|
|
Due to individual investors (a)
|
|
$
|
–
|
|
|
$
|
5,479
|
|
Withholding individual income tax payable
|
|
|
15,199
|
|
|
|
15,199
|
|
Unpaid acquisition payable
|
|
|
57,838
|
|
|
|
47,197
|
|
Other current liabilities
|
|
|
12,273
|
|
|
|
3,342
|
|
Total other current liabilities
|
|
|
85,310
|
|
|
|
71,217
|
|
Other non-current liabilities
|
|
|
756
|
|
|
|
711
|
|
Accrued warranty reserve
|
|
|
1,537
|
|
|
|
1,580
|
|
Total other non-current liabilities
|
|
|
2,293
|
|
|
|
2,291
|
|
Total other liabilities
|
|
$
|
87,603
|
|
|
$
|
73,508
|
|
|
(a)
|
Due to Individual Investors
|
Amount due to individual investors
as of December 31, 2016 was related to funds raised through the on-line platform of Solar Energy. From time to time, individual
investors may have funds in their members’ accounts without subscribing for any on-line products. Such funds provided to
the Group are not entitled to any interest. These non-interest bearing funds are recorded as amount due to individual investors
under other current liabilities. Since April 2017, investors had issues on recovering their funds in the members’ accounts,
principal invested in on-line products nor interest earned. All the amounts due to individual investors were recorded as loan
financing from through on-line platform as of December 31, 2017.
|
(b)
|
Unpaid Acquisition Payable
|
Acquisition payable was $57,838
and $47,197 as of December 31, 2017 and 2016, respectively. It mainly included unpaid purchase consideration of Sinsin (See Note
4 Deconsolidation of Sinsin).
18.
|
Goodwill and Other Intangible Assets
|
(a)
Goodwill
The changes in the carrying amount of goodwill
for the years ended December 31, 2017 and 2016 were as follows:
Balance as of December 31, 2015
|
|
$
|
75,969
|
|
Impairment loss charged during the year
|
|
|
(65,223
|
)
|
Foreign currency translation
|
|
|
(10,746
|
)
|
Balance as of December 31, 2016
|
|
$
|
–
|
|
Acquisition of Heliostixio (Note 3)
|
|
|
683
|
|
Balance as of December 31, 2017
|
|
$
|
683
|
|
The Goodwill of $683 as of December
31, 2017 was from the acquisition of Heliostixio in December 2017 (See Note 3 Business Combination). No impairment provision for
goodwill was made during the year ended December 31, 2017.
Accumulated impairment losses
at December 31, 2016 for our single reporting unit were $65,223.
2016 Goodwill Impairment Testing
Our annual impairment analysis was performed
on December 31, 2016. The Group elected to perform the first step of the two-step goodwill impairment test instead of first
performing a qualitative goodwill impairment test. Such first-step impairment test represented the comparison of the fair value
of the reporting unit with its carrying amount, including goodwill. Due to deterioration in the environment in which the Group
operates and the decline in the Group’s actual and projected financial performance, it was considered more likely than not
that the fair value of the reporting unit was less than its carrying value. The Group has only one reporting unit, which is also
its single operating and reporting segment: solar energy products and services.
Significant estimates used in income approach
fair value calculations included: (i) future sales volumes and average selling prices per watt; (ii) cost per watt projections
for module and system sales; (iii) future effective tax rates, which are estimated to be between 10% and 35%; (iii) forecasts
of capital expenditures and working capital requirements; (iv) discount rates, which are estimated to range between 11.5%
and 18%; and (v) future terminal values of the reporting unit, which are based on its ability to exist into perpetuity. Significant
estimates used in our market approach fair value calculations included business enterprise values and revenue multiples of various
publicly traded companies. The underlying assumptions used in the first step of 2016 impairment test also considered market capitalization
of the Company as of the date of testing and current solar industry market conditions.
As a result of the testing, the Group determined
that the estimated fair value of the Group’s single reporting unit was less than its carrying value, which required the Group
to perform the second step of the goodwill impairment test. The Group performed such second-step impairment test to determine the
implied fair value of goodwill for the single reporting unit, which required the Group to allocate the fair value of the reporting
unit to its individual assets and liabilities, including any unrecognized intangible assets. Based on this second-step impairment
test, the implied fair value of goodwill for the reporting unit was $nil, and the Group recorded an impairment loss of $65,223,
which was included in impairment charges in the consolidated statements of operations for the year ended December 31, 2016.
(b)
Other
Intangible Assets
Intangible assets consisted of the following:
|
|
Useful Life
(in
months)
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Impairment
Charge
|
|
|
Net
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
57
|
|
|
$
|
2,700
|
|
|
$
|
(2,700
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
Customer Relationship
|
|
|
120
|
|
|
|
4,717
|
|
|
|
(1,086
|
)
|
|
|
(1,326
|
)
|
|
|
2,305
|
|
Website
|
|
|
36
|
|
|
|
270
|
|
|
|
(156
|
)
|
|
|
(114
|
)
|
|
|
–
|
|
|
|
|
|
|
|
$
|
7,687
|
|
|
$
|
(3,942
|
)
|
|
$
|
(1,440
|
)
|
|
$
|
2,305
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
57
|
|
|
$
|
2,700
|
|
|
$
|
(2,700
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
Customer Relationship
|
|
|
120
|
|
|
|
4,717
|
|
|
|
(746
|
)
|
|
|
(1,235
|
)
|
|
|
2,736
|
|
Website
|
|
|
36
|
|
|
|
270
|
|
|
|
(75
|
)
|
|
|
–
|
|
|
|
195
|
|
|
|
|
|
|
|
$
|
7,687
|
|
|
$
|
(3,521
|
)
|
|
$
|
(1,235
|
)
|
|
$
|
2,931
|
|
The customer relationship was mainly contributed
by the acquisition of Solar Juice in May 2015. As customer relationship with clients was the key driver of the revenue for
Solar Juice, which will bring further economic benefit to the Group’s business. Therefore, the customer relationship was
separately identified as an intangible asset on the acquisition date. The balance is amortized over the useful life of 10 years.
The Group recorded impairment loss of $91, $1,235 and $nil on customer relationship, respectively, for the years ended December 31,
2017, 2016 and 2015. The Group recorded impairment loss of $114 on the website for the year ended December 31, 2017 since it may
not be recoverable.
Amortization expense for other
intangible assets was $390, $519 and $862 for the years ended December 31, 2017, 2016 and 2015, respectively.
As of December 31, 2017, the estimated future amortization
expense related to other intangible assets is as follows:
|
2018
|
|
|
$
|
302
|
|
|
2019
|
|
|
|
302
|
|
|
2020
|
|
|
|
302
|
|
|
2021
|
|
|
|
302
|
|
|
2022
|
|
|
|
302
|
|
|
Thereafter
|
|
|
|
795
|
|
|
|
|
|
$
|
$2,305
|
In December 2014, the Company entered into
three convertible promissory note purchase agreements with Brilliant King Group Limited (“Brilliant King”), Poseidon
Sports Limited (“Poseidon”) and Union Sky Holding Group Limited (“Union Sky”), respectively whereby the
Company agreed to sell and issue to these three investors convertible promissory notes in an aggregate principal amount of $35,000
which could be converted into 175,000 Common Shares at a fixed conversion price of $200 unless adjusted for anti-dilution. The
convertible notes bore no interest, and might be partially or wholly converted into shares of the Company’s common stock
at any time prior to maturity at the option of the investor. The convertible promissory notes was due and payable on June 11, 2016.
On June 15, 2015, the Company
agreed to issue to Vision Edge Limited (“Vision Edge”) convertible promissory note in an aggregate amount of $20,000
which could be converted into 74,074 Common Shares at a fixed conversion price of $270 unless adjusted for anti-dilution pursuant
to the agreement entered between the Company and Vision Edge. The convertible notes bore no interest, and might be wholly converted
into shares of the Company’s common stock at any time prior to maturity at the option of the investor. The commitment date
of the convertible promissory note is on June 29, 2015. The convertible promissory note was due and payable on June 29, 2016.
Also, as mentioned in Note 20—Stock option, on June 15, 2015, the Company agreed to grant Vision Edge an option to purchase
from the Company a total of 74,074 shares of the Company’s common stock for an aggregate purchase price of $20,000, or $270
per share, prior to December 15, 2015 pursuant to an option agreement. The convertible promissory note and stock options were
initially recorded at $19,705 and $295, respectively, according to the allocation of the total proceeds. The discount of $295
of the convertible promissory note is amortized as interest expense using the effective interest rate method through the earliest
demand payment date, i.e. June 29, 2016. The stock option was accounted for as an equity instrument and was recorded within equity.
The convertible promissory notes was due and payable on June 29, 2016.
The Group defaulted the payment for all
outstanding convertible bonds of $55,000 in June 2016.
First Amendment Agreement
On February 12, 2017, the Group entered
into an Amendment Agreement (“First Amendment Agreement”) with Union Sky, one of the convertible bond holders to extend
the maturity date of the debt, pursuant to which the repayment of $6,600, $6,700 and $6,700 of the principal amount of the convertible
bond was extended to April 30, 2017, January 30, 2018 and January 30, 2019, respectively. The holder has the option to convert
the outstanding amounts under the convertible bond into equity interest in the Company at a conversion price per ordinary share
that equals the weighted average daily closing price of the Company’s American depositary shares from January 30, 2017 to
February 10, 2017.
According to the First Amendment,
the convertible bond held by Union Sky was substantially amended by adding the substantive conversion option and the present value
of the cash flows under the terms of the amended debt instrument was more than 10 percent different from the present value of
the remaining cash flows under the terms of the original instrument. According to ASC Topic 470, if it is determined that the
original and new debt instruments are substantially different, and the new debt instrument shall be initially recorded at fair
value, and that amount shall be used to determine the debt extinguishment gain or loss to be recognized and the effective rate
of the new instrument. Therefore, the amended convertible bond held by Union Sky was initially recorded at fair value, amounting
to $12,879 as of February 12, 2017. As comparing to the carrying value of original of $20,000, a gain from extinguishment of debt
of $7,121 was recognized in 2017. The discount of $7,121 of the amended convertible bond is amortized as interest expense using
the effective interest rate method through the period of the First Amendment Agreement. As of December 31, 2017, the remaining
unamortized discount was $4,215.
As the Group did not make the first repayment
by the end of April 2017, all outstanding debts of $20,000 under the Agreement became due immediately bearing an annual interest
rate of 18%.
Second Amendment Agreement
On June 29, 2018, the Company
entered into another amendment agreement (the “Second Amendment Agreement”) with the Union Sky and Magical Glaze Limited
(“MGL”), a company and Union Sky was under common control, pursuant to which agreement the Union Sky has transferred
all the rights and obligations under the Original agreement and First Amendment Agreement to MGL, and the maturity date of the
note was further extended. According to the Second Amendment Agreement, the repayment of $6,600, $6,700 and $6,700 of the principal
amount of the convertible bond and interest thereon is due by December 2019, June 2020 and December 2020, respectively. MGL and
the Company also agreed that MGL had the option to convert the outstanding amounts under the convertible bond into equity interest
of the Company as the same provision stated in the First Amendment Agreement started on June 29, 2018.
As at December 31, 2017, except the convertible
bonds held by Union Sky and subsequently by MGL, the conversion option of the convertible bonds except had expired and as of the
date of issuance of the accompanying consolidated financial statements, the entire principal amount of the convertible bonds of
$55,000 remained unpaid.
The Company granted warrants
to Brilliant King, Poseidon and Union Sky to purchase from the Company a total shares of 275,000 common stock for an aggregate
purchase price of $55,000 or $200 per share together with issuance of convertible promissory notes (See Note 19 Convertible Bonds)
in December 2014. 200,000 shares of option granted to Union Sky was expired on March 15, 2015, the remaining 75,000
shares of option could be exercised on or prior to the date of completion of the listing of the Company’s ordinary share
on the New York Stock Exchange or the NASDAQ Stock Market, pursuant to the terms of the option agreement and subject to the closing
conditions therein. Brilliant King and Poseidon exercised their options and remitted $12,000 and $3,000 to the Company on December 28,
2015, respectively.
In 2015, the Company granted Border Dragon
Limited (“Boarder Dragon”), Central Able Investments Limited (“Central Able”), Yes Yield Investments Limited
(“Yes Yield”) and Vision Edge options to purchase 216,674 shares of the Company’s common stock in total at an
exercise price of $200 and $270 per share respectively for an aggregate purchase price of $55,002. All these options expired subsequently
except that Yes Yield exercised its option to purchase 37,000 shares at a consideration of $10,000 and the payment was made on
November 18, 2015 and the Company extended Yes Yield’s right to purchase the remaining 55,600 shares to June 30,
2016 pursuant to a supplemental agreement on October 31, 2015. The 55,600 shares of option was expired on June 30, 2016.
21.
|
Stockholders’ Deficit
|
(a)
Common
Stock
On December 6, 2017, the
Group enacted a one-for-ten reverse stock split as approved by the Group’s extraordinary general meeting. On November 12,
2018, an extraordinary general meeting was held and declared a one-for-ten reverse stock split immediately effective on November
12, 2018 (see Note (29(c)). All share and per share amounts in the consolidated financial statements have been retroactively restated
to reflect the reverse stock slips. The authorized shares of common stock were 500,000,000 shares of a par value of $0.0001.
During the year ended
December 31, 2017 and 2016, the Group issued common stock of 834,020 shares and 26,000 shares. The issued common stock of
the Company as of December 31, 2017 and 2016 was 7,250,672 shares and 6,416,652 shares, respectively.
(b)
Non-controlling
Interest
In 2017, loss from operations
of $91,080 was attributable to the shareholders of the Company and income from operations of $121 was attributable to non-controlling
interest, respectively. In 2016, loss from operations of $220,696 was attributable to the shareholders of the Company and loss
from operations of $272 was attributable to non-controlling interest, respectively. In 2015, loss from operations of $184,798
and $282 was attributable to the shareholders of the Company and non-controlling interest, respectively.
(c)
Statutory
Reserve
Relevant PRC statutory laws
and regulation permit payments of dividends by the Company’s subsidiaries in the PRC only out of their retained earnings,
if any, as determined in accordance with the PRC accounting standards and regulations.
Under the Law of the PRC on
Enterprises with Wholly Owned Foreign Investment, the Company’s subsidiaries in the PRC are required to allocate at least
10% of their after tax profits, after making good of accumulated losses as reported in their PRC statutory financial statements,
to the general reserve fund and have the right to discontinue allocations to the general reserve fund if the balance of such reserve
has reached 50% of their registered capital. These statutory reserves are not available for distribution to the shareholders (except
in liquidation) and may not be transferred in the form of loans, advances, or cash dividend.
For the years ended December 31,
2017, 2016 and 2015, $25, $19 and $135 were appropriated from retained earnings and set aside for the statutory reserve by the
Company’s subsidiaries in the PRC.
22.
|
Stock-based Compensation
|
The Company measures stock-based
compensation expense for all stock-based compensation awards based on the grant-date fair value and recognizes the cost in the
financial statements over the employee requisite service period.
The following table summarizes
the consolidated stock-based compensation expense, by type of awards for the years ended December 31:
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Employee stock options
|
|
$
|
510
|
|
|
$
|
1,517
|
|
|
$
|
6,350
|
|
Restricted stock grants
|
|
|
288
|
|
|
|
412
|
|
|
|
31,843
|
|
Total stock-based compensation expense
|
|
$
|
798
|
|
|
$
|
1,929
|
|
|
$
|
38,193
|
|
The following table summarizes
the consolidated stock-based compensation by line items for the years ended December 31:
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
General and administrative
|
|
$
|
790
|
|
|
$
|
1,776
|
|
|
$
|
37,810
|
|
Sales, marketing and customer service
|
|
|
8
|
|
|
|
153
|
|
|
|
383
|
|
Total stock-based compensation expense
|
|
|
798
|
|
|
|
1,929
|
|
|
|
38,193
|
|
Total stock-based compensation expense after income taxes
|
|
$
|
798
|
|
|
$
|
1,929
|
|
|
$
|
38,193
|
|
As stock-based compensation
expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, it has been reduced
for estimated forfeitures. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
Determining Fair Value
Valuation and Amortization
Method —
The Company estimates the fair value of service-based and performance-based stock options granted using the
Black-Scholes option-pricing formula. The fair value is then amortized on a straight-line basis over the requisite service periods
of the awards, which is generally the vesting period. In the case of performance-based stock options, amortization does not begin
until it is determined that meeting the performance criteria is probable. Service-based and performance-based options typically
have a five to ten-year life from date of grant and vesting periods of one to four years.
Expected Term —
The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding.
For awards granted subject only to service vesting requirements, the Group utilizes the simplified method for estimating the expected
term of the stock-based award, instead of historical exercise data. For its performance-based awards, the Group has determined
the expected term life to be four years based on contractual life and the seniority of the recipient.
Expected Volatility
—The
Company uses historical volatility of the price of its common shares to calculate the volatility for its granted options.
Expected Dividend
—The
Company has never paid dividends on its common shares and currently does not intend to do so, and accordingly, the dividend yield
percentage is zero for all periods.
Risk-Free Interest Rate —
The Company bases the risk-free interest rate used in the Black-Scholes valuation model upon the implied yield curve currently
available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.
Assumptions used in the determination
of the fair value of share-based payment awards using the Black-Scholes model for stock option grants during the years ended December 31
were as follows:
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
2017
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Expected term
|
|
|
6.25
|
|
|
|
4
|
|
|
|
4
|
|
Risk-free interest rate
|
|
|
1.81% - 2.30%
|
|
|
|
1.15% - 2.26%
|
|
|
|
1.49% - 1.72%
|
|
Expected volatility
|
|
|
284% - 763%
|
|
|
|
166% - 178%
|
|
|
|
139% - 141%
|
|
Expected dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Equity Incentive Plan
On November 15, 2006, subject
to approval of the stockholders, the Company adopted the 2006 Equity Incentive Plan (the “2006 Plan”) which permits
the Company to grant stock options to directors, officers or employees of the Company or others to purchase shares of Common Stock
of the Company through awards of incentive and nonqualified stock options (“Option”), stock (“Restricted Stock”
or “Unrestricted Stock”) and stock appreciation rights (“SARs”). The Plan was approved by the stockholders
on February 7, 2007.
The Company has granted time-based
share options and restricted stock under the Plan to directors, officers, employees and individual consultants of the Company.
The time-based options generally vest 25% annually and expire three to ten years from the date of grant. Total number of shares
reserved and available for grant and issuance pursuant to the 2006 Plan is equal to 9% of the number of outstanding shares of
the Company. Shares issued under the Plan will be drawn from authorized and unissued shares or shares now held or subsequently
acquired by the Company. Outstanding shares of the Company shall, for purposes of such calculation, include the number of shares
of stock into which other securities or instruments issued by the Company are currently convertible (e.g., convertible preferred
stock, convertible debentures, or warrants for Common Stock), but not outstanding options to acquire stock. (9% of the outstanding
shares of 6,416,652 plus nil of outstanding warrants, less options and restricted stock outstanding and exercised since inception)
The exercise price of any Option will be
determined by the Company when the Option is granted and may not be less than 100% of the fair market value of the shares on the
date of grant, and the exercise price of any incentive stock option granted to a stockholder with a 10% or greater shareholding
will not be less than 110% of the fair market value of the shares on the date of grant. The exercise price per share of a SAR will
be determined by the Company at the time of grant, but will in no event be less than the fair market value of a share of Company’s
stock on the date of grant.
On January 12, 2015 and June 29,
2015, the Board of Directors approved the grants of restricted stock unit awards (“RSU”) to core management members,
other management and staff, pursuant to the terms of the 2006 Plan. The total number of RSUs granted is 204,684 shares. Among these,
the vesting schedules for the chairman, deputy chairman and CFO (“core management”) are 100% vested at the grant date
and the vesting schedules for the rest RSUs granted to other management and staff would be vested within the next one year or four
years equally. The core management exercised all RSUs of 192,000 and all these shares were issued to them in March 2015. The
Group used the market price of its share at grant date as the fair value of the RSUs in calculating the stock based compensation
expense.
On May 8, 2015, the Company adopted
the 2015 Equity Incentive Plan (the “2015 Plan”) which permits the Company to grant stock options to directors, officers
or employees of the Company or others to purchase shares of Common Stock of the Company through awards of incentive and Option,
Restricted Stock or Unrestricted Stock and SARs which was approved by the stockholders. The total number of shares which may be
issued under the 2015 Plan is 9% of the number of outstanding and issued ordinary shares of the Company. The Option Price per Share
shall be determined by the compensation committee of the Board (“Compensation Committee”), unless expressly approved
by the Compensation Committee, shall not be less than 100% of the fair market value of the shares on the date an Option is granted.
During the year ended December 31,
2016, the Board of the Company considered and believed that it was advisable and in the best interest of the Company to terminate
the share option grant agreements under 2006 Plan, and replace it with the ones under 2015 Plan. On May 20, 2016, the Board
of Directors authorized and approved the replacement. A total number of 224 employees accepted the replacement, and the total number
of options replaced represented 13,788 shares. The vesting schedule would be based on the remaining vesting period under the “2006
Plan” or 25% vested on each of the first, second, third, and fourth anniversaries of the grant date, which represents the
date the new options was approved by the Board. The total incremental compensation cost resulting from the modifications
was $1,263, which was amortized on straight-line basis over the remaining vesting period under the “2006 Plan” or the
four-year vesting period under the “2015 Plan”.
The following table summarizes the Group’s stock option
activities:
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
|
Outstanding as of January 1, 2015
|
|
|
|
254,290
|
|
|
|
84
|
|
|
|
5.65
|
|
|
$
|
30,302
|
|
|
Granted
|
|
|
|
465,210
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(787
|
)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
(83,225
|
)
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
|
635,488
|
|
|
|
145
|
|
|
|
7.85
|
|
|
$
|
87,401
|
|
|
Granted
|
|
|
|
268,490
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(1,000
|
)
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
(352,218
|
)
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
|
550,760
|
|
|
|
82
|
|
|
|
7.40
|
|
|
$
|
60,032
|
|
|
Granted
|
|
|
|
325,300
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
(374,800
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
|
|
|
501,260
|
|
|
|
66
|
|
|
|
7.03
|
|
|
$
|
769
|
|
|
Vested and exercisable as of December 31, 2017
|
|
|
|
113,500
|
|
|
|
49
|
|
|
|
10.10
|
|
|
$
|
79
|
|
|
Expected to vest as of December 31, 2017
|
|
|
|
249,681
|
|
|
|
18
|
|
|
|
8.19
|
|
|
$
|
248
|
|
The following table presents the exercise price and remaining
life information about options exercisable at December 31, 2017:
Range of exercise price
|
|
|
Shares
Exercisable
|
|
|
Weighted
average
remaining
contractual
life
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
Intrinsic
($000)
|
|
|
$ 118 - $187
|
|
|
|
1,550
|
|
|
|
7.43
|
|
|
|
178
|
|
|
|
–
|
|
|
$ 40 - $117
|
|
|
|
27,950
|
|
|
|
8.47
|
|
|
|
53
|
|
|
|
–
|
|
|
$ 5 - $39
|
|
|
|
84,000
|
|
|
|
7.07
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
113,500
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Changes in the Group’s non-vested stock awards are summarized
as follows:
|
|
|
|
Time-based Options
|
|
|
Restricted Stock
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
Per Share
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
|
|
Non-vested as of January 1, 2015
|
|
|
|
239,370
|
|
|
$
|
84
|
|
|
|
250
|
|
|
$
|
75
|
|
|
Granted
|
|
|
|
465,211
|
|
|
|
181
|
|
|
|
204,685
|
|
|
|
166
|
|
|
Vested
|
|
|
|
(61,698
|
)
|
|
|
78
|
|
|
|
(191,273
|
)
|
|
|
165
|
|
|
Forfeited
|
|
|
|
(83,225
|
)
|
|
|
164
|
|
|
|
(4,884
|
)
|
|
|
175
|
|
|
Non-vested as of December 31, 2015
|
|
|
|
559,658
|
|
|
$
|
128
|
|
|
|
8,778
|
|
|
$
|
178
|
|
|
Granted
|
|
|
|
268,491
|
|
|
|
47
|
|
|
|
–
|
|
|
|
–
|
|
|
Vested
|
|
|
|
(45,573
|
)
|
|
|
110
|
|
|
|
(2,778
|
)
|
|
|
178
|
|
|
Forfeited
|
|
|
|
(352,218
|
)
|
|
|
169
|
|
|
|
(1,250
|
)
|
|
|
177
|
|
|
Non-vested as of December 31, 2016
|
|
|
|
430,358
|
|
|
|
46
|
|
|
|
4,750
|
|
|
|
178
|
|
|
Granted
|
|
|
|
325,300
|
|
|
|
4
|
|
|
|
–
|
|
|
|
–
|
|
|
Vested
|
|
|
|
(100,663
|
)
|
|
|
43
|
|
|
|
(2,187
|
)
|
|
|
128
|
|
|
Forfeited
|
|
|
|
(275,075
|
)
|
|
|
48
|
|
|
|
(1,250
|
)
|
|
|
177
|
|
|
Non-vested as of December 31, 2017
|
|
|
|
379,920
|
|
|
|
9
|
|
|
|
1,313
|
|
|
|
264
|
|
The total fair value of shares vested during
the years ended December 31, 2017, 2016 and 2015 was $2,955, $2,423 and $4,812, respectively. There were no changes to the
contractual life of any fully vested options during the years ended December 31, 2017, 2016 and 2015.
Following is a summary of our restricted stock awards as follows:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Restricted stock units at January 1, 2015
|
|
|
18,509
|
|
|
$
|
66
|
|
Granted
|
|
|
204,684
|
|
|
|
159
|
|
Forfeited
|
|
|
(4,884
|
)
|
|
|
175
|
|
Restricted stock units at December 31, 2015
|
|
|
218,309
|
|
|
|
151
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
(1,250
|
)
|
|
|
177
|
|
Restricted stock units at December 31, 2016
|
|
|
217,059
|
|
|
|
151
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
(1,250
|
)
|
|
|
177
|
|
Restricted stock units at December 31, 2017
|
|
|
215,809
|
|
|
|
151
|
|
Loss
before provision for income taxes is attributable to the following geographic locations for the years ended December 31:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
(24,757
|
)
|
|
$
|
(102,483
|
)
|
|
$
|
(75,336
|
)
|
Foreign Countries
|
|
|
(66,051
|
)
|
|
|
(118,149
|
)
|
|
|
(109,071
|
)
|
|
|
$
|
(90,808
|
)
|
|
$
|
(220,632
|
)
|
|
$
|
(184,407
|
)
|
The provision for income taxes consists of the following for
the years ended December 31:
|
|
2017
|
|
|
2016
|
|
|
|
2015
|
|
Current tax:
|
|
|
|
|
|
|
|
|
|
|
Federal tax
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
State tax
|
|
|
7
|
|
|
|
7
|
|
|
|
2
|
|
Foreign countries
|
|
|
226
|
|
|
|
674
|
|
|
|
671
|
|
Total current tax
|
|
|
233
|
|
|
|
681
|
|
|
|
673
|
|
Deferred tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax
|
|
|
(16
|
)
|
|
|
–
|
|
|
|
–
|
|
State tax
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Foreign countries
|
|
|
(66
|
)
|
|
|
(345
|
)
|
|
|
–
|
|
Total deferred tax
|
|
|
(82
|
)
|
|
|
(345
|
)
|
|
|
–
|
|
Total provision for income taxes
|
|
$
|
151
|
|
|
$
|
336
|
|
|
$
|
673
|
|
The reconciliation between the actual income
tax expense and income tax computed by applying the statutory U.S. Federal income tax rate of 35% to pre-tax (loss) income before
provision for income taxes for the years ended December 31 is as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Provision for income taxes at U.S. Federal statutory rate
|
|
$
|
(31,783
|
)
|
|
$
|
(77,222
|
)
|
|
$
|
(64,542
|
)
|
State taxes, net of federal benefit
|
|
|
(610
|
)
|
|
|
(3,472
|
)
|
|
|
(1,436
|
)
|
Foreign taxes at different rate
|
|
|
7,502
|
|
|
|
34,457
|
|
|
|
26,552
|
|
Non-deductible expenses
|
|
|
345
|
|
|
|
(72
|
)
|
|
|
67
|
|
Non-taxable income
|
|
|
–
|
|
|
|
–
|
|
|
|
(288
|
)
|
Valuation allowance
|
|
|
(1,631
|
)
|
|
|
24,218
|
|
|
|
26,344
|
|
Other
|
|
|
5,088
|
|
|
|
(1,063
|
)
|
|
|
807
|
|
Prior year deconsolidation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Impairments and intangible amortization
|
|
|
(3,762
|
)
|
|
|
22,826
|
|
|
|
194
|
|
Stock Based Compensation
|
|
|
279
|
|
|
|
664
|
|
|
|
12,975
|
|
Tax law changes
|
|
|
22,813
|
|
|
|
–
|
|
|
|
–
|
|
Gain/loss on debt medication
|
|
|
(1,475
|
)
|
|
|
–
|
|
|
|
–
|
|
Tax penalty
|
|
|
3,385
|
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
151
|
|
|
$
|
336
|
|
|
$
|
673
|
|
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs
Act (“TCJA” or the “Act”) (which is commonly referred to as “U.S. tax reform”). Among other
provisions, the Act reduces the top U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition
tax on earnings of certain foreign subsidiaries that were previously tax deferred, changes the rules related to uses and limitations
of net operating loss carryforwards created in tax years beginning after December 31, 2017, and creates new taxes on certain foreign
sourced earnings. The Company has reflected the changes resulting from the Act in the financial statements for the period of enactment,
the year ended December 31, 2017. The change in corporate rate resulted in a $23.2 million decrease in the Company's gross deferred
tax assets, with an offsetting decrease in valuation allowance of the same amount. The Company is not subject to a one-time repatriation
tax as no aggregate foreign accumulated earnings and profits existed in the foreign subsidiaries as of December 31, 2017. The
Company will account for future tax liability arising from Global Intangible Low-Taxed Income, if any, as a period cost.
Deferred income taxes reflect the net tax
effects of loss carry forwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of the Group’s deferred tax assets and liabilities
for federal, state and foreign income taxes are as follows at December 31 are presented below:
|
|
2017
|
|
|
2016
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
69,847
|
|
|
$
|
63,776
|
|
Temporary differences due to accrued warranty costs
|
|
|
508
|
|
|
|
916
|
|
Investment in subsidiaries
|
|
|
4,796
|
|
|
|
6,662
|
|
Credits
|
|
|
16
|
|
|
|
16
|
|
Allowance for bad debts
|
|
|
22
|
|
|
|
396
|
|
Fair value adjustment arising from subsidiaries acquisition
|
|
|
457
|
|
|
|
657
|
|
Stock compensation
|
|
|
711
|
|
|
|
1,021
|
|
Unrealized gain/(loss) on derivatives
|
|
|
5,389
|
|
|
|
7,733
|
|
Unrealized investment gain/(loss)
|
|
|
4,644
|
|
|
|
6,663
|
|
CFC trade payable
|
|
|
2,098
|
|
|
|
2,153
|
|
Other temporary differences
|
|
|
13
|
|
|
|
575
|
|
|
|
|
88,501
|
|
|
|
90,568
|
|
Valuation allowance
|
|
|
(87,912
|
)
|
|
|
(89,543
|
)
|
Total deferred income tax assets
|
|
|
589
|
|
|
|
1,025
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Fair value adjustment arising from subsidiaries acquisition
|
|
|
632
|
|
|
|
3,863
|
|
Other
|
|
|
116
|
|
|
|
168
|
|
Total deferred income tax liabilities
|
|
|
748
|
|
|
|
4,031
|
|
Net deferred tax liabilities
|
|
$
|
159
|
|
|
$
|
3,006
|
|
As of December 31, 2017,
the Group had a net operating loss carry forward for federal income tax purposes of approximately $103,467, which will start to
expire in the year 2028. The Group had a total state net operating loss carry forward of approximately $119,988, which will start
to expire in the year 2018. The Group has foreign net operating loss carry forward of $37,878, some of which begin to expire in
2018. The Group had a federal AMT credit of $16, which does not expire.
Utilization of the federal and
state net operating losses is subject to certain annual limitations due to the “change in ownership” provisions of
the Internal Revenue Code of 1986 and similar state provisions. However, the annual limitation may be anticipated to result in
the expiration of net operating losses and credits before utilization.
The Group recognizes deferred
tax assets if it is more likely than not that those deferred tax assets will be realized. Management reviews deferred tax assets
periodically for recoverability and makes estimates and judgments regarding the expected geographic sources of taxable income
in assessing the need for a valuation allowance to reduce deferred tax assets to their estimated realizable value. Realization
of the Group’s deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.
Because of the Group’s lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance
in the US and China. The valuation allowance decreased by $1,631 during the years ended December 31, 2017, increased by $24,218
and $27,308 during the years ended December 31, 2016 and 2015, respectively.
The Group has not provided for
deferred taxes on the excess of the financial reporting over the tax basis in our investments in foreign subsidiaries that are
essentially permanent in duration. The determination of the additional deferred taxes that have not been provided is not practicable.
The undistributed earnings for the Group’s foreign subsidiaries (primarily the subsidiaries in China and Greece) will be
permanently reinvested. As of December 31, 2017 and 2016, the total amount of the undistributed earnings for these subsidiaries
amounted to $1,779 and $4,527, respectively.
The Group had no unrecognized
tax benefits as of December 31, 2017 and 2016, respectively. The Group currently files income tax returns in the U.S., as
well as California, New Jersey, and certain other foreign jurisdictions. The Group is currently not the subject of any income
tax examinations. The Group’s tax returns generally remain open for tax years after 2011.
24.
|
Net
Loss Per Share of Common Stock
|
Basic loss per share is computed by dividing
loss attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted loss
per share reflects the potential dilution of shares by adding other common stock equivalents, including stock options, warrants,
and restricted common stock, in the weighted average number of common shares outstanding for a period, if dilutive. Potentially
dilutive shares are excluded from the computation if their effect is anti-dilutive. As a result of the net loss for the years
ended December 31, 2017, 2016 and 2015, there is no dilutive impact to the net loss per share calculation for the period.
The following table presents the calculation of basic and diluted
net loss per share:
|
|
|
De
cember 31, 2017
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(90,959
|
)
|
|
$
|
(220,968
|
)
|
|
$
|
(185,080
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares
|
|
|
6,826,633
|
|
|
|
6,415,616
|
|
|
|
6,120,471
|
|
Diluted weighted-average common shares
|
|
|
6,826,633
|
|
|
|
6,415,616
|
|
|
|
6,120,471
|
|
Basic net loss per share
|
|
$
|
(13
|
)
|
|
$
|
(34
|
)
|
|
$
|
(30
|
)
|
Diluted net loss per share
|
|
|
(13
|
)
|
|
|
(34
|
)
|
|
|
(30
|
)
|
For the years ended December 31, 2017,
2016 and 2015, the following securities were excluded from the computation of diluted net loss per share as inclusion would have
been anti-dilutive.
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Share options and non-vested restricted stock
|
|
|
502,573
|
|
|
|
555,510
|
|
|
|
695,364
|
|
Convertible bonds (see Note 19)
|
|
|
163,385
|
|
|
|
–
|
|
|
|
249,074
|
|
Total
|
|
|
665,958
|
|
|
|
555,510
|
|
|
|
944,438
|
|
25.
|
Commitments and Contingencies
|
(a)
Commitments
Product Warranties —
The Group
offer the industry standard warranty up to 25 years for its PV panels and industry standard five to ten years on inverter and balance
of system components. Due to the warranty period, the Group bear the risk of extensive warranty claims long after the Group has
shipped product and recognized revenue. In the Group’s cable, wire and mechanical assemblies business, the Group’s
historically warranty claims have not been material. In the Group’s solar PV business, the greatest warranty exposure is
in the form of product replacement.
During the quarter ended September 30,
2007 and continuing through the fourth quarter of 2010, the Group installed own manufactured solar panels. Other than this period,
the Group only installed panels manufactured by unrelated third parties as well as the Group’s principal shareholder and
formerly controlling shareholder, LDK. Certain PV construction contracts entered into during the recent years included provisions
under which the Group agreed to provide warranties to the buyer. As a result, the Group recorded the provision for the estimated
warranty exposure on these contracts within cost of sales. Since the Group do not have sufficient historical data to estimate its
exposure, the Group have looked to its own historical data in combination with historical data reported by other solar system installers
and manufacturers. Due to the absence of historical material warranty claims, the Group has not recorded a material warranty accrual
related to solar energy systems as of December 31, 2017 and 2016.
Operating leases —
The Group
leases offices, facilities and vehicles under various operating leases, some of which contain escalation clauses. Rental expenses
under operating leases included in the statement of operations were $2,412, $3,127 and $2,860 for the years ended December 31,
2017, 2016 and 2015 respectively.
Future minimum payments under non-cancelable operating leases
are as follows as of December 31, 2017:
|
2018
|
|
|
$
|
546
|
|
2019
|
|
|
|
477
|
|
|
2020
|
|
|
|
410
|
|
|
2021
|
|
|
|
419
|
|
|
2022
|
|
|
|
428
|
|
|
Thereafter
|
|
|
|
2,654
|
|
|
|
|
|
$
|
4,934
|
Capital commitments
—
As of December 31, 2017 and 2016, the Group had capital commitments of approximately $41,029 and $54,845,
respectively. These capital commitments were solely related to contracts signed with vendors for procurement of services or
PV related products used for the construction of solar PV systems being developed by the Group.
The capital commitments as at balance sheet
dates disclosed above do not include those incomplete acquisitions for investment and business as at balance sheet dates as the
agreements could either be terminated unconditionally without any penalty or cancelable when the closing conditions as specified
in the agreements could not be met.
(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
$45,749 (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. As of the issuance of the financial
statements, this case is still on the proceeding, and it is uncertain how the court will rule.
The Company’s several
previous employees filed suits in November 2015, December 2015, February 2016, March 2016, July 2016 and May
2018 against the Company for breach of their prior employment contracts with the Company. On February 27, 2018, the Company reached
a global settlement with four of the plaintiffs with $1,400, and related liability has been accrued as of December 31, 2017. The
other two cases are still in the early stage of proceeding as of the date of issuance of these financial statements, and it is
uncertain how the United States Court will rule on the plaintiff’s appellate brief. Based on the information available
to the Company, management believe that it is probable that a loss had been incurred and a provision of $951 was made as of December 31,
2017.
On July 5, 2017, a third
party supplier filed a suit against the Group in a PRC court alleging that the Group delayed the payment of $5,427 for EPC equipment
and construction services, penalty interest of $559 and legal fee of $92. As of the date of issuance of the financial statements,
this suit is at its early stage of the proceeding and it’s uncertain how the court will rule it. Based on the information
available to the Group, management believes that it is probable that a loss will incur, and $2,862 was accrued as of December
31, 2017.
On August 10, 2017, Bank of
Suzhou filed a complaint against the Group in a PRC court alleging that the Group defaulted the payment of bank borrowings
amounting to$2,738, as well as the interest and penalty. Court’s judgement has been made on April 17, 2018, that the
Group should repay the principal of $2,738, together with interest of $49, penalty interest of $119, compound interest of $2.
Basing on the judgement, the Group believes that it is probable that a loss has been incurred, and accrued related interest,
penalty and legal fee of $236 as of December 31, 2017.
On May 19, 2017, a third party solar module
supplier filed a suit against the Group in a PRC court alleging that the Group delayed the payment of $1,817 for purchasing of
solar modules, and penalty interest of $15. On January 15, 2018, the judgement was made by the court that the Group should pay
for the delayed payment of $1,817 and penalty interest of $223. Based on the judgement, the Group believes that it is probable
that a loss had been incurred, and penalty interest and legal fee of $239 had been accrued as of December 31, 2017.
On June 22, 2017, a third party
EPC construction supplier filed a suit against the Group in a PRC court alleging that the Group delayed the payment of $1,770
for EPC construction, and penalty interest of $135. As of the date of issuance of the financial statements, this suit is at its
early stage of the proceeding and it is uncertain how the court will rule on the plaintiff’s appellate brief. Based on the
information available to the Group, management believes no loss would incur as of December 31, 2017.
On August 13, 2018, a third
party filed a complaint against the Group in a PRC court that the Group defaulted the repayment of borrowing amounting to $7,354,
and interest of $437. As of the date of issuance of the financial statements, this suit is at its early stage of the proceeding
and it’s uncertain how the court will rule it. Based on the information available to the Group, management believes no loss
would incur as of December 31, 2017.
On July 30, 2018, Jiangsu Solarbao,
a subsidiary of the Company, received an indictment letter. Pursuant to the indictment letter, the Suzhou Industrial Park People’s
Procuratorate (“the SIPPP”) has indicted Jiangsu Solarbao on the charge of illegal pooling of public deposits after
the completion of the investigation conducted by PDSIP. As of the date of issuance of the consolidated financial statements, the
proceeding is still at early stage and the Group is unable to determine whether the proceeding will result to an unfavorable outcome.
No provision has been made in the consolidated financial statements for the year ended December 31, 2017.
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.
A substantial percentage of the Group’s net revenue comes from sales made to a small number of customers
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 years ended December 31, 2017 and 2016. In 2015, the Company has four customers from which the
revenue is over 10% of the Company’s total net revenue. Details of customers accounting for 10% or more of total net revenue
for the years ended December 31, 2015 are as follows:
|
|
2017
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
% of Total
|
|
|
|
|
% of Total
|
|
|
|
|
|
|
|
% of Total
|
|
Customer
|
|
Revenue
|
Revenue
|
|
|
Revenue
|
|
Revenue
|
|
|
|
Revenue
|
|
|
|
Revenue
|
|
Blackrock Income UK Holding Limited
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
486
|
|
|
|
–%
|
|
|
$
|
26,202
|
|
|
|
14%
|
|
RI Income UK Holding Limited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
24,142
|
|
|
|
13%
|
|
Inner Mongolia Zhaojing Photovoltaic Power Generation Co. Ltd.
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
21,635
|
|
|
|
11%
|
|
Shotoco Energy, LLC
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
21,281
|
|
|
|
11%
|
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
486
|
|
|
|
–%
|
|
|
$
|
93,260
|
|
|
|
49%
|
|
Details of customers accounting for 10%
or more of total accounts receivable, notes receivable, costs and estimated earnings in excess of billings on uncompleted contracts
and finance lease receivable at December 31, 2017 and 2016, respectively are:
|
|
2017
|
|
|
2016
|
|
Customer
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
Zhongwei Hanky Wiye Solar Co., Ltd.
|
|
$
|
35,222
|
|
|
|
20%
|
|
|
$
|
34,049
|
|
|
|
24%
|
|
Alxa League Zhiwei Photovoltaic Power Generation Co., Ltd.
|
|
|
40,828
|
|
|
|
23%
|
|
|
|
39,951
|
|
|
|
28%
|
|
Realforce
|
|
|
21,734
|
|
|
|
12%
|
|
|
|
23,199
|
|
|
|
17%
|
|
Inner Mongolia Zhaojing Photovoltaic Power Generation Co., Ltd.
|
|
|
15,487
|
|
|
|
9%
|
|
|
|
19,815
|
|
|
|
14%
|
|
|
|
$
|
113,271
|
|
|
|
64%
|
|
|
$
|
117,014
|
|
|
|
83%
|
|
Operating segments are defined as components
of a company which separate financial information is available that is evaluated regularly by the client operating decision maker
in deciding how to allocate resources and in assessing performance. The Group’s chief operating decision maker is the Chairman,
Mr. Peng. Based on the financial information presented to and reviewed by the chief operating decision maker, the Group has
determined that it has a single operating and reporting segment: solar energy products and services. The types of products and
services in this single segment primarily include: (i) EPC services, (ii) Sales of PV solar system, (iii) Electricity
revenue under PPAs, (iv) Sales of PV solar components, (v) Pre-development project sales (vi) Financial service
revenue.
Net
sales by major product and services are as follows:
|
|
2017
|
|
2016
|
|
|
|
2015
|
|
Sales of PV solar system
|
|
$
|
6,042
|
|
|
|
$
|
14,914
|
|
|
$
|
77,438
|
|
EPC revenue
|
|
|
–
|
|
|
|
|
13,493
|
|
|
|
48,014
|
|
Sales of PV solar components
|
|
|
113,930
|
|
|
|
|
90,108
|
|
|
|
41,623
|
|
Electricity revenue with PPAs
|
|
|
5,875
|
|
|
|
|
16,022
|
|
|
|
16,226
|
|
Pre-development project sales
|
|
|
–
|
|
|
|
|
–
|
|
|
|
4,545
|
|
Financial service revenue
|
|
|
695
|
|
|
|
|
4,387
|
|
|
|
1,486
|
|
Others
|
|
|
923
|
|
|
|
|
1,275
|
|
|
|
1,178
|
|
|
|
$
|
127,465
|
|
|
|
$
|
140,199
|
|
|
$
|
190,510
|
|
Net sales by geographic location are as follows:
Location (a)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
China
|
|
$
|
5,945
|
|
|
$
|
25,597
|
|
|
$
|
56,745
|
|
United Kingdom
|
|
|
6,903
|
|
|
|
694
|
|
|
|
50,345
|
|
Australia
|
|
|
112,174
|
|
|
|
81,241
|
|
|
|
35,418
|
|
United States
|
|
|
–
|
|
|
|
6,622
|
|
|
|
29,925
|
|
Greece
|
|
|
–
|
|
|
|
8,737
|
|
|
|
8,720
|
|
Japan
|
|
|
511
|
|
|
|
12,893
|
|
|
|
6,626
|
|
Italy
|
|
|
1,932
|
|
|
|
1,740
|
|
|
|
1,395
|
|
Germany
|
|
|
–
|
|
|
|
2,675
|
|
|
|
1,336
|
|
|
|
$
|
127,465
|
|
|
$
|
140,199
|
|
|
$
|
190,510
|
|
(a)
Sales are attributed to countries based on location of customer.
Geographic information, which is based upon physical location,
for long-lived assets was as follows:
Location
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
China
|
|
$
|
50,156
|
|
|
$
|
27,671
|
|
|
$
|
68,831
|
|
Greece
|
|
|
2,314
|
|
|
|
55,458
|
|
|
|
59,385
|
|
United States
|
|
|
16,372
|
|
|
|
26,032
|
|
|
|
34,522
|
|
Italy
|
|
|
9,961
|
|
|
|
9,247
|
|
|
|
10,048
|
|
Japan
|
|
|
–
|
|
|
|
3,503
|
|
|
|
11,464
|
|
UK
|
|
|
10,016
|
|
|
|
10,124
|
|
|
|
1,499
|
|
Australia
|
|
|
548
|
|
|
|
611
|
|
|
|
331
|
|
Germany
|
|
|
9
|
|
|
|
47
|
|
|
|
84
|
|
|
|
$
|
89,376
|
|
|
$
|
132,693
|
|
|
$
|
186,164
|
|
28.
|
Related
Party Transactions
|
In 2016 and 2015, the total fund raised
from individual investors through Solar Energy amounted to $22,002 and $145,568, of which $1,829 and $11,524 was settled by the
coupons issued by the Group to individual investors without cash inflow and the amount of $19,993 and $129,830 had been received
by the Group from Solar Energy in 2016 and 2015 and Solar Energy charged $98 and $1,052 as commission fee to the Group at 1% of
the fund principal. In 2016 and 2015, the total fund redeemed to individual investors through Solar Energy amounted to $nil and
$19,237 which had been fully repaid by the Group to Solar Energy as of December 31, 2016 and 2015. In 2016, the Group operated
Solarbao E-commerce and Investment business through its VIE, Meijv, and there’s no aforesaid transactions occurred with Solar
Energy during year ended December 31, 2017. As of December 31, 2017 and 2016, the Group had other receivable (gross) of $3,223
and $3,244 from Solar Energy, respectively, for the fund received from the individual investors on behalf of the Group by Solar
Energy net of its commission fee and made an allowance for doubtful debts of $3,223 and $3,244, respectively, based on the recoverable
amount of the receivable from Solar Energy.
In connection with the launch
of the Underlying PV Products as discussed in Note 16, the Group issued to Jiangxi LDK Solar Hi-Tech Co., Ltd. (“LDK
Jiangxi”) and Suzhou Liuxin Industry Ltd. (“Liuxin”) coupons with total face value of $779 and $582 respectively
during the year ended December 31, 2015. Both LDK Jiangxi and Liuxin are related parties of the Group. LDK Jiangxi is a wholly
owned subsidiary of LDK Solar Co., Ltd. (“LDK”), principle shareholder of the Company. Liuxin is wholly owned
by Mr. Peng’s father. These coupons are freely transferable among holders but could not be redeemed in cash. When the
holder subscribe the on-line products through the on-line platform of Solar Energy, the holders could redeem the coupons and reduce
the original purchase price for the on-line products by the face value of the coupons. In 2015, the Group received full payment
of $582 from Liuxin for the face value of the coupons issued. For the coupons of $779 issued to LDK Jiangxi, they were applied
to offset the outstanding accounts payables of $779 to LDK Jiangxi under mutual agreement between the Group and LDK Jiangxi. As
of December 31, 2015, all coupons issued to these related parties had been redeemed through the on-line platform. No other
related party transactions occurred with LDK Jiangxi and Liuxin for the year ended December 31, 2017 and 2016.
In 2015, the Group incurred
commission fee of $3,450 to SUPERMERCY Limited (“SUPERMERCY”), one of the shareholders of the Group, in respect of
certain funds successfully raised by the Group that had been resulted from the services rendered by SUPERMERCY. The commission
fee was recognized as a deduction of the funds raised recorded in additional paid in capital within the stockholders’ equity.
There was no such transactions between the Group and SUPERMERCY during 2017 and 2016.
During the year ended
December 31, 2016 and 2015, the Group made advance payments of $510 and $310 respectively to Mr. Peng for which a full provision
has been recorded by the Company as of December 31, 2016 and 2015. During the year ended December 31, 2017, the Group made advance
payments of $186 to Mr. Peng for business operation and was expensed as of December 31, 2017.
During the year ended December 31, 2017 and 2016,
the Group made advance payments of $154 and $1,656 to Mr. Minghua Zhao, a former director of the Group, and $43 and $1,512
had been received in 2017 and 2016, respectively. As of December 31, 2017 and 2016, the Group has receivables from Mr. Minghua
Zhao of $264 and $144, with provision of $264 and $144 had been provided, respectively.
During the year ended December 31,
2016, Suzhou Industrial Park Chengcheng Enterprise Guarantee Limited Company (“Chengcheng”) provided guarantee to secure
the repayment obligation under a sale-and-leaseback agreement. The principle of the finance lease receivable guaranteed by Chengcheng
amounted to $23,045 as of December 31, 2016 and will expire in 2025. Mr. Minghua Zhao, a former director of the Group, is
the legal representative of Chengcheng. As of December 31, 2017, Chengcheng was no longer a related party of the Group.
On March 30, 2015, the
Group entered into a share purchase agreement (the “LDK Share Purchase Agreement”) with LDK Group. Pursuant to the
LDK Share Purchase Agreement, the Group agreed to purchase from LDK Group three LDK’s subsidiaries incorporated in Italy
and California respectively which hold three solar PV plants in total, at a cash consideration of US$2,390. The Group will also
assume certain indebtedness contemplated in the LDK Share Purchase Agreement up to a maximum amount to be agreed upon among the
Group and the LDK Group prior to the closing date of the transaction. The transaction is subject to several closing conditions
including completion of satisfactory due diligence. In connection with the acquisition, the Group paid $2,000 as deposits for
the acquisition, such prepaid deposits were subsequently agreed by both parties to offset against certain payable balances due
to LDK Group, on September 30, 2015.
As of December 31, 2017 and 2016, the Group had accounts payable to LDK Group of
$4,713 and $4,389, respectively, which were primarily related to purchases of solar cells for solar development projects. The
solar cells purchased from LDK Group for the years ended 2017, 2016 and 2015 were amounted to $nil, $3,691 and $11,712, respectively.
The Group also consigned LDK Group to process solar cells to solar panels for its on-line platform business. The processing fee
charged by LDK Group amounted to $nil, $nil and $4,000 for the years ended 2017, 2016 and 2015. Pursuant to a Settlement and Mutual
Release dated December 30, 2014 and a supplementary agreement dated September 30, 2015, the LDK Group received $11,000 from the
Group during the year ended December 31, 2015 for full settlement of outstanding receivable balances of $28,775 due from the Group.
As a result, the Group derecognized liabilities of $17,775 due to LDK Group which was accounted for as a capital transaction by
increasing additional paid in capital as of December 31, 2015.
|
(a)
|
Disposition of Chinese Business
|
On August 30, 2018, the Group
entered into a share purchase agreement (the “SPA”) with Lighting Charm Limited (“Lighting Charm”), an
affiliate of Tracy Zhoushan, the spouse of Xiaofeng Peng, the Group’s Chairman of the Board of Directors and Chief Executive
Officer. The agreement has been approved by an independent committee of the Group’s Board of Directors. The SPA provides
that the Group sold Lighting Charm the 100% equity interest of SPI China (HK) Limited (“SPI China”), which holds all
of the Group’s assets and liabilities related to its business in China (the “Acquired Business”). The Acquired
Business includes EPC business, PV projects, Internet finance lease related business, and E-commerce in China. Pursuant to the
terms of the SPA, the consideration for the Acquired Business to be paid by the Lighting Charm to the Group in cash was US$1.00.
The Company also granted the
Buyer the option (the “Option”) to purchase from the Company up to 10,000,000 of the Company’s Ordinary Shares,
par value of US$ 0.00001 per share (the “Ordinary Shares”), which Option will be exercisable by the Buyer at any time
on or prior to August 21, 2021. The option exercise price is US$ 3.8 per share.
As one of the closing conditions
as stated in the SPA, the Group effected an internal restructuring following which SPI China held the Group's subsidiaries in
China only, while subsidiaries originally held by SPI China related to the Group’s business outside China were transferred
to other subsidiaries of the Group. As at December 10, 2018, the transaction was closed.
On June 29, 2018, the Group
entered into a Second Amendment Agreement (“Second Amendment Agreement”) with Union Sky Holdings Group Limited (“Union
Sky”) and Magical Glaze Limited (“MGL”). Pursuant to the Second Amendment Agreement, the convertible bond of
$20,000 held by Union Sky were transferred to MGL. All the parties agreed that the repayment of $6,600, $6,700 and $6,700 of the
principal amount of the convertible bond was extended to December 31, 2019, June 30 2020 and December 31, 2020, respectively.
In addition, MGL has the option to convert the outstanding amounts under the convertible bond into equity interest in the Company
at a conversion price per ordinary share that equals the weighted average daily closing price of the Company’s ADSs of ten
weekdays since June 29, 2018.
On November 12, 2018, the 5,000,000,000
shares of a par value of $0.00001 each in authorized share capital of the Company be consolidated and divided into 500,000,000
shares of a par value of $0.0001 each, with such shares having the same rights and being subject to the same restrictions as the
existing shares of $0.00001 each in the capital of the Company.
On January 26, 2018, Sinsin Group
filed a complaint against the Group requesting the payment of outstanding purchase price and related interest of $45,749 (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. As of the issuance of the financial statements, this case is still on the proceeding.
|
(e)
|
Late Filing of Tax Return
|
The Company
did not file 2017 tax return which was due October 16, 2018 and has not received an assessment on penalty from IRS as the date
of issuance of financial statements.