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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended March 31, 2024
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from ___________ to ___________
Commission
file number: 001-41414
Phoenix
Motor Inc.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware |
|
85-4319789 |
(State
or Other Jurisdiction of
Incorporation
or Organization) |
|
(I.R.S.
Employer
Identification
No.) |
1500
Lakeview Loop, Anaheim, CA |
|
92807 |
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
(909)
978-0815
(Registrant’s
Telephone Number, Including Area Code)
(Former
name or former address, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of Each Class |
|
Trading
Symbol(s) |
|
Name
of Each Exchange on Which Registered |
Common
Stock, par value $0.0004 per share |
|
PEV |
|
The
Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer ☐ |
Accelerated
Filer ☐ |
Non-Accelerated
Filer ☒ |
Smaller
Reporting Company ☒ |
|
Emerging
Growth Company ☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
registrant had 37,169,420 shares of common stock outstanding as of September 30, 2024.
TABLE
OF CONTENTS
PART
I - FINANCIAL INFORMATION
Item
1. Interim Financial Statements
PHOENIX
MOTOR INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except for share and per share data)
| |
March 31, 2024 | | |
December 31, 2023 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 2,796 | | |
$ | 31 | |
Restricted cash | |
| — | | |
| 3,252 | |
Accounts receivable, net | |
| 4,974 | | |
| 451 | |
Inventories | |
| 56,216 | | |
| 1,796 | |
Prepaid expenses and other current assets, net | |
| 633 | | |
| 356 | |
Amount due from a related party | |
| 84 | | |
| 130 | |
Assets held-for-sale | |
| 6,370 | | |
| — | |
Total current assets | |
| 71,073 | | |
| 6,016 | |
Property and equipment, net | |
| 5,054 | | |
| 1,119 | |
Operating lease right-of-use assets | |
| 2,431 | | |
| — | |
Net investment in leases | |
| 176 | | |
| 230 | |
Goodwill | |
| — | | |
| 4,271 | |
Total assets | |
$ | 78,734 | | |
$ | 11,636 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 2,629 | | |
$ | 3,529 | |
Accrued liabilities | |
| 1,781 | | |
| 926 | |
Advance from customers, current | |
| 733 | | |
| 167 | |
Deferred income | |
| 357 | | |
| 362 | |
Warranty reserve, current | |
| 4,222 | | |
| 289 | |
Lease liabilities, current | |
| 2,296 | | |
| 1,303 | |
Amounts due to a related party | |
| 178 | | |
| 863 | |
Short-term borrowing | |
| 4,262 | | |
| 961 | |
Derivative liability | |
| 1,070 | | |
| 1,156 | |
Convertible note, current | |
| 2,910 | | |
| 1,320 | |
Income tax payable | |
| 4,943 | | |
| — | |
Long-term borrowing, current | |
| 6 | | |
| 5 | |
Total current liabilities | |
| 25,387 | | |
| 10,881 | |
Lease liabilities, noncurrent | |
| 3,883 | | |
| 2,696 | |
Warranty reserve, noncurrent | |
| 10,796 | | |
| — | |
Advance from customers, noncurrent | |
| 2,066 | | |
| 2,214 | |
Convertible notes, noncurrent | |
| — | | |
| 540 | |
Long-term borrowings | |
| 143 | | |
| 144 | |
Deferred tax liabilities | |
| 12,787 | | |
| — | |
Total
liabilities | |
$ | 55,062 | | |
| 16,475 | |
| |
| | | |
| | |
Commitments and contingencies (Note 16) | |
| - | | |
| - | |
| |
| | | |
| | |
Equity: | |
| | | |
| | |
Common stock, par $0.0004, 450,000,000 shares authorized, 34,452,220 and 21,900,918 shares issued and outstanding as of March 31, 2024, and December 31, 2023, respectively | |
| 14 | | |
| 9 | |
Additional paid-in capital | |
| 58,066 | | |
| 44,359 | |
Accumulated deficit | |
| (34,408 | ) | |
| (49,207 | ) |
Total stockholders’ equity/(deficit) | |
| 23,672 | | |
| (4,839 | ) |
Total liabilities and stockholders’ equity | |
$ | 78,734 | | |
$ | 11,636 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PHOENIX
MOTOR INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except for share and per share data)
| |
March 31, 2024 | | |
March 31, 2023 | |
| |
Three Months Ended | |
| |
March 31, 2024 | | |
March 31, 2023 | |
Revenues | |
$ | 9,420 | | |
$ | 1,781 | |
Cost of revenues | |
| 6,915 | | |
| 1,608 | |
Gross profit | |
| 2,505 | | |
| 173 | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative | |
| 8,649 | | |
| 3,871 | |
Reversal of credit loss | |
| — | | |
| (25 | ) |
Impairment of goodwill | |
| 4,271 | | |
| — | |
Operating loss | |
| (10,415 | ) | |
| (3,673 | ) |
| |
| | | |
| | |
Other income (expense): | |
| | | |
| | |
Interest expense, net | |
| (2,695 | ) | |
| 1 | |
Gain on sales-type leases | |
| — | | |
| 99 | |
Change in fair value of derivative liability | |
| (58 | ) | |
| — | |
Employee retention credit | |
| — | | |
| 697 | |
Others | |
| 2 | | |
| 98 | |
Bargain purchase gain | |
| 32,908 | | |
| — | |
Total other income, net | |
| 30,157 | | |
| 895 | |
Income tax provision | |
| 4,943 | | |
| — | |
Net income (loss) | |
$ | 14,799 | | |
$ | (2,778 | ) |
| |
| | | |
| | |
Net income (loss) per share of common stock: | |
| | | |
| | |
Basic | |
$ | 0.49 | | |
$ | (0.13 | ) |
Diluted | |
$ | 0.44 | | |
$ | (0.13 | ) |
Weighted average shares outstanding | |
| | | |
| | |
Basic | |
| 30,456,235 | | |
| 20,823,622 | |
Diluted | |
| 34,247,958 | | |
| 20,823,622 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PHOENIX
MOTOR INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In
thousands, except for share and per share data)
| |
Shares* | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
| |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Paid-In | | |
Accumulated | | |
Stockholders’ | |
| |
Shares* | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance as of January 1, 2023 | |
| 20,277,046 | | |
$ | 8 | | |
$ | 40,836 | | |
$ | (28,562 | ) | |
$ | 12,282 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (2,778 | ) | |
| (2,778 | ) |
Stock-based compensation | |
| — | | |
| — | | |
| 109 | | |
| — | | |
| 109 | |
Issuance of common stock per standby equity purchase agreements | |
| 904,878 | | |
| — | | |
| 1,154 | | |
| — | | |
| 1,154 | |
Balance as of March 31, 2023 | |
| 21,181,924 | | |
| 8 | | |
| 42,099 | | |
| (31,340 | ) | |
| 10,767 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of January 1, 2024 | |
| 21,900,918 | | |
$ | 9 | | |
$ | 44,359 | | |
$ | (49,207 | ) | |
$ | (4,839 | ) |
Balance | |
| 21,900,918 | | |
$ | 9 | | |
$ | 44,359 | | |
$ | (49,207 | ) | |
$ | (4,839 | ) |
Net income | |
| — | | |
| — | | |
| — | | |
| 14,799 | | |
| 14,799 | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| 14,799 | | |
| 14,799 | |
Stock-based compensation | |
| — | | |
| — | | |
| 50 | | |
| — | | |
| 50 | |
Reclass of derivative liability upon conversion of related convertible notes | |
| — | | |
| — | | |
| 144 | | |
| — | | |
| 144 | |
Issuance of common stock for convertible note conversion | |
| 715,279 | | |
| — | | |
| 451 | | |
| — | | |
| 451 | |
Issuance of common stock for settlement with vendors | |
| 1,365,261 | | |
| 1 | | |
| 1,692 | | |
| — | | |
| 1,693 | |
Issuance of restricted shares to Wisdom Financial to repay loan interest (Note 10) | |
| 180,202 | | |
| — | | |
| 270 | | |
| — | | |
| 270 | |
Issuance of common stock for private placements | |
| 10,290,560 | | |
| 4 | | |
| 11,100 | | |
| — | | |
| 11,104 | |
Balance as of March 31, 2024 | |
| 34,452,220 | | |
| 14 | | |
| 58,066 | | |
| (34,408 | ) | |
| 23,672 | |
Balance | |
| 34,452,220 | | |
| 14 | | |
| 58,066 | | |
| (34,408 | ) | |
| 23,672 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PHOENIX
MOTOR INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
| |
2024 | | |
2023 | |
| |
Three Month ended March 31, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | | |
| | |
Net income (loss) | |
| 14,799 | | |
| (2,778 | ) |
Adjustments to reconcile net loss to cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 416 | | |
| 355 | |
Gain on sales-type leases | |
| — | | |
| (99 | ) |
Reversal of credit loss | |
| — | | |
| (25 | ) |
Write down of inventories | |
| — | | |
| 80 | |
Amortization of convertible notes | |
| 1,490 | | |
| — | |
Loss on Change in market value of derivative liability | |
| 58 | | |
| — | |
Share-based compensation | |
| 50 | | |
| 109 | |
Impairment loss on goodwill | |
| 4,271 | | |
| — | |
Warranty reserve | |
| (235 | ) | |
| (3 | ) |
Amortization of right-of-use assets | |
| 231 | | |
| 280 | |
Bargain purchase gain | |
| (32,908 | ) | |
| — | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (4,523 | ) | |
| 10 | |
Inventories | |
| 5,631 | | |
| 795 | |
Prepaid expenses and other assets | |
| (277 | ) | |
| 222 | |
Accounts payable | |
| 793 | | |
| 116 | |
Accrued liabilities | |
| 1,144 | | |
| (93 | ) |
Deferred revenue | |
| (5 | ) | |
| (10 | ) |
Advance from customers | |
| 418 | | |
| 222 | |
Lease liabilities | |
| (482 | ) | |
| (267 | ) |
Net investment in leases | |
| 54 | | |
| — | |
Amount due to related party | |
| 184 | | |
| — | |
Amount due from related party | |
| 46 | | |
| — | |
Income tax payable | |
| 4,943 | | |
| — | |
Net cash used in operating activities | |
| (3,902 | ) | |
| (1,086 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| (113 | ) | |
| (71 | ) |
Acquisition of Proterra | |
| (10,000 | ) | |
| — | |
Net cash used in investing activities | |
| (10,113 | ) | |
| (71 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Repayment of borrowings | |
| (970 | ) | |
| (3 | ) |
Proceeds from borrowings | |
| 4,263 | | |
| — | |
Repayment of related party borrowings | |
| (1,904 | ) | |
| — | |
Proceeds from related party borrowings | |
| 1,035 | | |
| — | |
Proceeds received from private placements | |
| 11,104 | | |
| 1,154 | |
Net cash generated from financing activities | |
| 13,528 | | |
| 1,151 | |
| |
| | | |
| | |
Decrease in cash, cash equivalents and restricted cash | |
| (487 | ) | |
| (6 | ) |
Cash, cash equivalents and restricted cash at beginning of the period | |
| 3,283 | | |
| 389 | |
Cash, cash equivalents and restricted cash at end of the period | |
| 2,796 | | |
| 383 | |
| |
| | | |
| | |
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | |
| | | |
| | |
Cash and cash equivalents | |
| 2,796 | | |
| 133 | |
Restricted cash | |
| — | | |
| 250 | |
Total cash, cash equivalents, and restricted cash | |
| 2,796 | | |
| 383 | |
| |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | |
Income tax paid | |
| — | | |
| — | |
Non-cash activities: | |
| | | |
| | |
Issuance of common stock for settlement with vendors | |
| 1,693 | | |
| — | |
Issuance of common stock for convertible note conversion | |
| 451 | | |
| — | |
Reclass of derivative liability upon conversion of related convertible debentures | |
| 144 | | |
| — | |
Issuance of restricted shares to Wisdom Financial to repay the consulting fee | |
| 270 | | |
| — | |
Inventories transferred to property and equipment | |
| — | | |
| 163 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PHOENIX
MOTOR INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in US$ thousands except for shares and share prices)
1. Description of Business and Organization
Phoenix
Motor Inc. (“Phoenix Motor” or the “Company”) and its subsidiaries (collectively, the “Group”) is
engaged in design, assembly, and integration of electric drive systems for medium duty electric vehicles (“EVs”) and electric
transit buses.
Phoenix
Cars, LLC (“PCL”), a subsidiary of Phoenix Motor, designs and manufactures zero- emission electric drivetrain systems for
integration in medium to heavy-duty commercial fleet vehicles in United States. PCL also sells a range of material handling products
including all-electric lithium-ion forklifts and pallet jacks. Phoenix Motorcars Leasing, LLC (“PML”), a subsidiary of Phoenix
Motor, serves as a sales and leasing dealership for PCL in United States.
Phoenix
Motor was incorporated in the state of Delaware in October 2020. EdisonFuture, Inc., a subsidiary of SPI Energy Co., Ltd (“SPI”),
is the parent company of Phoenix Motor. On November 12, 2020, EdisonFuture, Inc. acquired 100% of the membership interests of PCL and
PML. Simultaneously, EdisonFuture, Inc. effected the transfer of 100% of the membership interests of PCL and PML to Phoenix Motor.
On
September 26, 2023, the Group’s ultimate parent company, SPI Energy Co., Ltd.’s (“SPI”) wholly - owned
subsidiary, EdisonFuture, Inc., sold shares of the Company’s common stock owned by it, representing 56.36%
of the outstanding shares of the Company, to Palo Alto Clean Tech Holding Limited (“Palo Alto”), an entity owned and
controlled by Mr. Xiaofeng Peng, the Company’s Chairman of the Board of Directors and CEO. After this transaction, SPI was no
longer the Group’s ultimate parent company but still considered as a related party of the Group as SPI owns over 20% of the
Company’s outstanding shares through EdisonFuture, Inc, and it is an affiliated company controlled by Mr. Xiaofeng
Peng.
In
November 2023, the Group participated in two of court auctions and emerged as the highest bidder for two asset packages, one for
Proterra transit business unit and one for the Proterra battery lease contracts, with total consideration of $10,000
in cash. As part of the acquisition, the Group assumed estimated warranty liability of $14,994.
On January 11, 2024, the Group completed the acquisition of the Proterra transit business unit and on February 7, 2024, the Group completed the acquisition of Proterra battery
lease contracts. After the acquisition, the Group engages in the business that designs,
develops and sells electric transit buses as an original equipment manufacturer for North American public transit agencies,
airports, universities and other commercial transit fleets and the Group was assigned with the right to collect certain leasing
receivables which Proterra was a party as the lessor thereunder, used in connection with deployed Proterra electric transit buses.
In March 2024, the Group declared its plan to sell all the Battery Lease Agreements acquired from Proterra acquisition. On June 24,
2024, the Group entered into an asset purchase agreement with Zenobe Americas EV Assotco LLC (Zenobe). In the agreement, the Group
sells the battery lease receivables to Zenobe in two batches while retains the warranty liability associated with leased
batteries.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The
accompany unaudited condensed 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 unaudited condensed consolidated financial statements do not
include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s
consolidated financial statements as of December 31, 2023 and accompanying notes in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2023.
In
the opinion of the management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments,
which are necessary for a fair presentation of financial results for the quarterly periods presented. The Company believes that the disclosures
are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements
have been prepared using the same accounting policies as used in the preparation of the Group’s consolidated financial statements
for the year ended December 31, 2023. The results of operations for the three months ended March 31, 2024 and 2023 are not necessarily
indicative of the results for the full years or any future periods.
(b) Revenue Recognition
The
Group’s accounting practices under Accounting Standards Codification (“ASC”) No. 606, “Revenue from Contracts
with Customers” (“ASC 606” or “Topic 606”) are as followings:
Sales
of EVs and kits
The
Group generates revenue from sales of EVs and kits, which are electric
drive system kits that are integrated into shuttle buses sold to the customers. EV buyers in California are entitled to government grants when they purchase EV that
qualify for certain government grant project. The Group applies for and collects such government grants on behalf of the customers. Accordingly,
customers only pay the amount after deducting government grants.
The
Group recognizes revenue on sales of EVs and kits at a point in time following the transfer of control of such products to the customer,
which typically occurs upon the delivery to the customer. The Group determined that the government grants should be considered as part
of the transaction price because it is granted to the EV buyer and the buyer remains liable for such amount in the event the grants were
not received by the Group or returned due to the buyer violates the government grant terms and conditions.
Sales
of Transit Buses
The
Group recognizes revenue on sales of transit buses at a point in time following the transfer of control of such products to the customer,
which typically occurs upon the delivery to the customer when the Company can objectively demonstrate that the criteria specified in
the contractual acceptance provisions are achieved prior to delivery. In cases where the Company cannot objectively demonstrate that
the criteria specified in the contractual acceptance provisions have been achieved prior delivery, revenue is recognized upon acceptance
by the customer. The Group determined that the government grants should be considered as part of the transaction price because it is
granted to the transit buses buyer and the buyer remains liable for such amount in the event the grants were not received by the Group
or returned due to the buyer violates the government grant terms and conditions.
Lease
of EVs
EV
leasing revenue includes revenue recognized under lease accounting guidance for direct leasing programs. The Group accounts for these
leasing transactions as operating leases under ASC 842 Leases, and revenues are recognized on a straight-line basis over the contractual
term.
Sales of forklifts
Revenue
on sale of forklifts is recognized at a point in time following the transfer of control of such products to the customer, which typically
occurs upon delivery or acceptance of the customer depending on the terms of the underlying contracts.
Other
revenue
Other
revenue consists of maintenance service, sales of component and charging stations, sales of forklifts, shipping and delivery fees and
others. For maintenance service, revenues are recognized on a straight-line basis over the contractual term. For sales of component and
charging stations, shipping and delivery fees and others, the Group recognizes revenue at a point in time following the transfer of control
of such products or services to the customer, which typically occurs upon the delivery to the customer.
Disaggregation of revenues
The
Group disaggregates its revenue by four primary categories: sales of transit buses, sales of EVs, lease of EVs, sales of forklifts and
others.
The
following is a summary of the Group’s disaggregated revenues:
Schedule
of Disaggregated Revenues
| |
March 31, 2024 | | |
March 31, 2023 | |
| |
Three Months Ended | |
| |
March 31, 2024 | | |
March 31, 2023 | |
| |
(Unaudited) | | |
(Unaudited) | |
Sales of transit buses | |
$ | 8,531 | | |
$ | — | |
Sales of EVs | |
| 250 | | |
| 1,151 | |
Lease of EVs | |
| 39 | | |
| 90 | |
Sales of forklifts | |
| 39 | | |
| 214 | |
Others | |
| 561 | | |
| 326 | |
Total | |
$ | 9,420 | | |
$ | 1,781 | |
The
following is a summary of the Group’s disaggregated revenues by timing of revenue recognition:
| |
Three Months Ended | |
| |
March 31, 2024 | | |
March 31, 2023 | |
| |
(Unaudited) | | |
(Unaudited) | |
Over time | |
$ | 235 | | |
$ | 225 | |
Point in time | |
| 9,185 | | |
| 1,556 | |
Total | |
$ | 9,420 | | |
$ | 1,781 | |
A
contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration
(or an amount of consideration is due) from the customer. The Group records contract liabilities as advance from customers. As of March
31, 2024 and December 31, 2023, the balances of contract liabilities were $2,799 and $2,381, respectively. During the three months ended
March 31, 2024, the Group recognized $58 as revenue that was included in the balance of advance from customers at January 1, 2024.
(c) Leases
Lessor
Accounting
During
the year ended December 31, 2023, the Group amended agreements with the customers related to the leased EVs to renew the lease term.
Since there was no grant of additional right-of-use assets, the Group did not account for the modified lease agreements as new leases
but accounted for the original lease and the modified lease agreements as a combined lease. The Group reviewed the combined lease agreements
and considered that (i) the lease term represents for the major part (greater than 75%) of the economic life of the underlying equipment;
and (ii) the present value of the sum of lease payments and any residual value guaranteed by the lessee that has not already been included
in lease payments equals or exceeds substantially (greater than 90%) all of the fair value of the underlying asset.
The
modified EV lease agreements are thus accounted for as sales-type leases. Under sales-type lease accounting, at the commencement date,
the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception,
and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease, and interest income
from the lease is recognized over the lease term.
The
net investment in leases was $424 as of March 31, 2024, in which current portion of $248 was included in prepaid expenses and other current
assets, net on the balance sheet. During the three months ended March 31, 2024, there was no gain or loss on sales-type leases. During
the three months ended March 31, 2023, gain on sales-type leases was $99.
(d) Business Combination
Business
combinations are recorded using the acquisition method of accounting and, accordingly, the acquired assets and liabilities are recorded
at their fair market value at the date of acquisition. Any excess of acquisition cost over the fair value of the acquired assets and
liabilities, including identifiable intangible assets, is recorded as goodwill. The Group charges acquisition related costs that are
not part of the purchase price consideration to general and administrative expenses as they are incurred. Those costs typically include
transaction and integration costs, such as legal, accounting, and other professional fees.
According
to Business Combination (Topic 805) the Group performs a screen test to evaluate whether a transaction should be accounted for as an
acquisition and/or disposal of a business versus assets. In order for a purchase to be considered an acquisition of a business, and receive
business combination accounting treatment, the set of transferred assets and activities must include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to create outputs. If substantially all of the fair value of the gross
assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the set of transferred
assets and activities is not a business.
(e) Fair Value Measurement
The
Group measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based
on the highest and best use of the asset or liability. The levels of the fair value hierarchy are:
| ● | Level
1 — Quoted market prices in active markets for identical assets or liabilities. |
| ● | Level
2 — Significant other observable inputs (e.g., quoted prices for similar items in active
markets, quoted prices for identical or similar items in markets that are not active, inputs
other than quoted prices that are observable, such as interest rate and yield curves, and
market-corroborated inputs). |
| ● | Level
3 — Unobservable inputs in which there is little or no market data, which require the
reporting unit to develop its own assumptions. |
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.
The
carrying values of the Group’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses
and other current assets, accounts payables, accrued liabilities and advance from customers, approximate their fair values due to the
short-term nature of these instruments.
(f) Product Warranties
Products
Warranties on EVs and Kits
The
Group provides warranties on all vehicles or components sold in addition to pass through warranties from third party component suppliers.
The Group accrues a warranty reserve for the products sold by the Group, which includes the Group’s best estimate of the projected
costs to repair or replace items under warranties. These estimates are based on actual claims incurred to date and an estimate of the
nature, frequency and costs of future claims. These estimates are inherently uncertain given the Group’s relatively short history
of sales, and changes to the Group’s historical or projected warranty experience may cause material changes to the warranty reserve
in the future. The Group considers the warranty provided is not providing incremental service to customers rather an assurance to the
quality of the vehicle, and therefore is not a separate performance obligation and should be accounted for in accordance with ASC 460,
Guarantees.
Products
Warranties on transit buses and batteries
The
Group provides a limited warranty to customers on vehicles, battery systems and components. The limited warranty ranges from one to 12
years depending on the components. Pursuant to these warranties, the Group will repair, replace, or adjust the parts on the products
that are defective in factory supplied materials or workmanship. The Group records a warranty reserve for the products sold at the point
of revenue recognition, which includes the best estimate of the projected costs to repair or replace items under the limited warranty.
These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These
estimates are inherently uncertain given the relatively short history of sales. Changes to the historical or projected warranty experience
may cause material changes to the warranty reserve in the future. The portion of the warranty reserve expected to be incurred within
the next 12 months is included within warranty reserve - short term liabilities while the remaining balance is included within warranty
reservice - long term liabilities on the balance sheets.
Warranty
expense is recorded as a component of cost of sales in the condensed consolidated statements of operations. The balance of warranty reserves
was $15,018 and $289 as of March 31, 2024 and December 31, 2023, respectively.
(g) Assets Held-for-Sale
The
Group classifies assets to be sold as assets held for sale when (i) the management has approved and commits to a plan to sell the asset,
(ii) the asset is available for immediate sale in its present condition and is ready for sale, (iii) an active program to locate a buyer
and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively
marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes
to the plan will be made or that the plan will be withdrawn. Assets classified as held for sale are recorded at the lower of the carrying
amount or fair value less the cost to sell and are reflected as held-for-sale leased assets in the consolidated balance sheets.
(h) Goodwill
The
Group assess goodwill for impairment on annual basis in accordance with ASC 350-20, Intangibles – Goodwill and Other: Goodwill,
which permits the Group to first assess qualitative factors to determine whether it is “more likely than not” that the fair
value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative
impairment test. If this is the case, the quantitative goodwill impairment test is required. If it is more likely-than-not that the fair
value of a reporting unit is greater than its carrying amount, the quantitative goodwill impairment test is not required.
Quantitative
goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss, compares the fair value
of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying
amount, goodwill is not considered impaired. If the fair value of the reporting unit is less than its carrying amount, an impairment
loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
During
the three months ended March 31, 2024, the Group identified impairment indicator resulted from the Company’s continuous decreasing
stock price since January 2024 and performed interim goodwill impairment testing. The Group recorded an impairment on goodwill of $4,271
based on the difference between fair value and the carrying amount of the reporting unit.
3. Going concern
The
Group has net income of $14,799 during the three months ended March 31, 2024, mainly due to the bargain purchase gain from the acquisition
of Proterra transit business unit. Excluding the one-time bargain purchase gain, the Group incurred a net loss during the three months
ended March 31, 2024 and has incurred significant recurring losses before 2024. In addition, the cash flow used in operating activities
was $3,902 and the Group needs to raise additional funds to sustain its operations. Furthermore, the Group assume the responsibility
to provide Proterra transit business unit employees job offers at closing date and keep those employees for at least one year, which
costs are estimated to be over $20,000. These factors raise substantial doubt as to the Group’s ability to continue as a going
concern.
For
the next 12 months from the issuance date of the condensed consolidated quarterly financial statements, the Group plans to continue pursuing
strategies to improve liquidity and raise additional funds while implementing various measures to control costs and improve efficiency.
Such strategies and measures include the following: 1) continue to drive for operation integration and efficiency under ONE Phoenix,
re-alignment operating units under ONE Goal, right sizing workforce under ONE Team; 2) re-establish the cost structure and cost base
to increase operation efficiency with the new integrated ERP and other operating systems; 3) expand and strengthen strategic partnership
to outsource a significant portion of design and engineering work for the next generation product to third party vendors and suppliers
to control overall development and supply chain costs; 4) implement working capital initiatives and negotiate better payment terms with
customers and for some of the new orders, require down payments; 5) implement cash saving initiatives and tighter cash control, and calibrate
capital allocation to manage liquidity; and 6) continue to proactively implement a robust capital market strategy to provide financing
for the Group’s operations through proceeds from private stock offering, debt financings including but not limited to term loans,
revolving line of credit and equity linked instruments, and potentially federal and state incentive funding programs.
There
is no assurance that the plans will be successfully implemented. If the Group fails to achieve these goals, the Group may need additional
financing to repay debt obligations and execute its business plan, and the Group may not be able to obtain the necessary additional capital
on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that the Group is unsuccessful
in increasing its gross profit margin and reducing operating losses, the Group may be unable to implement its current plans for expansion,
repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on the Group’s business,
financial condition and results of operations and may materially adversely affect its ability to continue as a going concern.
The
unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification
of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Group
be unable to continue as a going concern.
4. Business Combination
In
November 2023, the Group participated in two auctions conducted by the United States Bankruptcy Court and emerged as the highest
bidder for two asset packages, one for Proterra transit business unit and one for the Proterra battery lease contracts, with total
consideration of $10,000
in cash. The transaction costs were $553
and the Group assumed estimated warranty liability of $14,994.
In addition, the Group also assumed the responsibility to provide Proterra transit business unit employees job offers at closing
date and keep those employees for at least one year. The cash consideration has been fully paid as of March 31, 2024.
The
acquisition was accounted for as a business combination. Accordingly, the acquired assets and liabilities were recorded at their fair
value at the date of acquisition. The purchase price allocation was based on a valuation analysis that utilized and considered generally
accepted valuation methodologies such as the market and cost approach. The Group determines the fair value of the assets acquired and
the liabilities assumed in this business combination with the assistance of a third-party valuation firm. The determination and allocation
of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies
requiring considerable judgment from management. The amount of the identifiable net assets acquired exceeds the fair value of the consideration
transferred and the allocation of negative goodwill to reduce the tax bases of acquired net assets causes the book bases to exceed their
respective tax bases, resulting in the recognition of deferred tax liabilities. The Group measures the bargain purchase gain from Proterra
acquisition as follows:
Schedule of Bargain Purchase Gain From Proterra Acquisition
| |
| | |
Inventories. | |
$ | 60,051 | |
Right-of-use assets | |
| 2,663 | |
Property and equipment | |
| 4,238 | |
Battery lease receivable | |
| 6,400 | |
Lease liabilities | |
| (2,663 | ) |
Warranty liabilities | |
| (14,994 | ) |
Deferred tax liabilities | |
| (12,787 | ) |
Identifiable net assets acquired (a) | |
| 42,908 | |
Less: Fair value of the consideration transferred (b) | |
| 10,000 | |
Gain on bargain purchase (b-a) | |
$ | 32,908 | |
The
gain on bargain purchase from the Proterra acquisition was generated from the acquisition of a bankrupt company and the Group was
the only bidder who would continue to run the transit business and keep all transit business employees for at least a one year
period. Other bidders would liquidate the transit assets and terminate the transit business employees. The Group’s bidding was
accepted by the Bankruptcy Court.
Due
to the fact that the acquisition occurred in the current interim period, the Group’s fair value estimates for the purchase price
allocation are preliminary and may change during the allowable measurement period, which is up to the point the Group obtains and analyzes
the information that existed as of the date of the acquisition necessary to determine the fair values of the assets acquired and liabilities
assumed, but in no case to exceed more than one year from the date of acquisition. As of September 30, 2024, the Group had not finalized the
determination of fair values allocated to various assets and liabilities, including, but not limited to, property and equipment, inventories,
tax uncertainties and liabilities assumed. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement
period may result in material adjustments to gain on bargain purchase.
The
pro forma information that presents the Group’s pro forma results of operations assuming the acquisition of Proterra transit
buses and battery lease receivables took place on January 1, 2023 is not available due to the following reasons: (i)
Proterra had three business groups and the three Proterra business groups were integrated and worked together to fulfill customers’
orders, and Proterra does not have standalone data for any of its three business groups, including employee data; and (ii) Proterra did
not grant access to the Group of Proterra’s prior years’ consolidated financial data due to the integrated nature of this
data. Furthermore, due to significant personnel turnover in the accounting and finance departments of Proterra, the Group lacks the historical
knowledge and data to recreate the standalone financial statements for each business group for prior periods
The
following information presents the revenue and earnings from Proterra transit bus business and Proterra battery lease receivables included
in the Group’s condensed consolidated financial statements for the three months ended March 31, 2024:
Schedule
of Revenue and Earnings
| |
From Proterra
acquisition | |
| |
Three months
ended | |
| |
March 31, 2024 | |
| |
(Unaudited) | |
Revenues | |
$ | 8,979 | |
Net income | |
$ | 24,572 | |
5. Assets held for sale
On
February 7, 2024, the Group completed the acquisition of the Proterra Battery Lease Agreements, by which the Group was assigned with
the right to collect certain leasing receivables which Proterra was a party as the lessor thereunder, used in connection with deployed
Proterra electric transit buses. The fair value of the lease receivables as of the acquisitions date was determined to be $6,400 (Note
4) and the Group also assumed warranty obligations associated with the purchased Proterra Battery Lease Agreements of $994.
As
of March 31, 2024, the Group has committed to a plan to sell the battery lease receivables and this group of asset to be sold is ready
for sale and can be clearly distinguished and valued at its reasonable current fair value. The transaction is probable to close in the
second half of 2024 and it is unlikely that significant changes will be made. Thus, the leased assets were recorded as assets held-for-sale
and recorded at the lower of the carrying value or fair value less costs to sell.
On
June 24, 2024, the Group entered into an asset purchase agreement with Zenobe. In the agreement, the Group sells the battery lease receivables
to Zenobe in two batches while retains the warranty liability associated with leased batteries. The aggregate purchase price for Batch
1 transferred assets is made of: (i) $3,575, minus (ii) any payments received by the Group from March 1, 2024 to the Batch 1 closing
date, plus (iii) the assumption of the Assumed Liabilities incurred after the applicable
Closing Date related to the Batch 1 Transferred Assets. The aggregate purchase price for Batch 2 transferred
assets is made of: (i) $2,175, minus (ii) any payments received by the Group from March 1, 2024 to the Batch 2 closing date, plus (iii)
assumption of the Assumed Liabilities incurred after the applicable Closing
Date related to the Batch 2 Transferred Assets. On July 5, 2024, the Group closed the first batch of the sale and received
net proceeds of $2,400 from the sale. The Group is expected to close the second batch of the sale in 2024.
The
Group recorded the carrying amount of lease receivable at $6,370
as of March 31, 2024, which represents the best estimate of the current fair value.
6. Accounts Receivable, Net
The
accounts receivable, net as of March 31, 2024 and December 31, 2023 consisted of the following:
Summary
of Accounts Receivable
| |
March 31, | | |
December 31, | |
| |
2024 | | |
2023 | |
| |
(unaudited) | | |
| |
Accounts receivable, customers | |
$ | 4,841 | | |
| 171 | |
Accounts receivable, governmental incentive | |
| 158 | | |
| 305 | |
Accounts receivable | |
| | | |
| | |
Less: Allowance for doubtful accounts | |
| (25 | ) | |
| (25 | ) |
Accounts receivable, net | |
$ | 4,974 | | |
$ | 451 | |
For
the three months ended March 31, 2024, there was no provision for credit loss for accounts receivables. For the three months ended March
31, 2023, the Group reversed provision for credit loss of $25.
7. Inventories
Inventories
as of March 31, 2024 and December 31, 2023 consisted of the following:
Summary
of Inventories
| |
March 31, | | |
December 31, | |
| |
2024 | | |
2023 | |
| |
(unaudited) | | |
| |
Raw materials | |
$ | 41,861 | | |
$ | 865 | |
Work in process | |
| 8,530 | | |
| 108 | |
Finished goods | |
| 5,825 | | |
| 823 | |
Total inventories | |
$ | 56,216 | | |
$ | 1,796 | |
During
the three months ended March 31, 2024, there was no write down to reflect the lower of cost or net realizable value. During the three
months ended March 31, 2023, $80 of inventories were written down to reflect the lower of cost or net realizable value.
8. Prepaid Expenses and Other Current Assets
Prepaid
expenses and other current assets as of March 31, 2024 and December 31, 2023 consist of the following:
Summary of Prepaid Expenses and Other Current Assets
| |
March 31, | | |
December 31, | |
| |
2024 | | |
2023 | |
| |
(unaudited) | | |
| |
Prepaid expenses | |
$ | 100 | | |
$ | 100 | |
Sales-type lease receivable | |
| 248 | | |
| 249 | |
Vendor deposits | |
| 417 | | |
| 131 | |
Others | |
| 30 | | |
| 38 | |
Total prepaid and other current assets | |
| 795 | | |
| 518 | |
Less: Provision for credit loss | |
| (162 | ) | |
| (162 | ) |
Total prepaid and other current assets, net | |
$ | 633 | | |
$ | 356 | |
9. Sales-type Lease Receivable
The
Group entered into a total of ten vehicle lease agreements with certain customers during the year ended December 31, 2023 and the Group
delivered vehicles under sales-type leases.
Sales-type
lease receivables-short term as of March 31, 2024 and December 31, 2023 was $248 and $249, respectively, and sales-type lease receivables-long
term as of March 31, 2024 and December 31, 2023 was $176 and $230, respectively.
Interest
income recognized for sales-type leases for the three months ended March 31, 2024 was $16.
Summary
of Net Investment in Sales-type Leases
| |
As of March 31 | |
| |
2024 | |
Lease receivables-long term | |
| 176 | |
Lease receivables-short term | |
| 248 | |
Total lease receivables | |
| 424 | |
Unguaranteed residual assets | |
| — | |
Net investment in leases | |
| 424 | |
Recorded in Prepaid expenses and other current assets | |
| 248 | |
Recorded in Net investment in leases- non-current | |
| 176 | |
Annual
minimum undiscounted lease payments under the Group’s leases were as follows as of March 31, 2024:
Summary
of Annual Minimum Undiscounted Lease Payments
| |
Sales-type | |
Remaining of 2024 | |
| 231 | |
Years Ending December 31, | |
| | |
2025 | |
| 184 | |
2026 | |
| 54 | |
2027 | |
| 15 | |
2028 and thereafter | |
| — | |
Total lease receipt payments | |
| 484 | |
Less: Imputed interest | |
| (60 | ) |
Total lease receivables (1) | |
| 424 | |
Unguaranteed residual assets | |
| — | |
Net investment in leases (1) | |
| 424 | |
10. Short-term Borrowings
Financing
with Nations Bus
On
February 27, 2024, the Group entered into a financing agreement with Nations Bus Corp. (“Nations Bus”). In the agreement,
it stated that the Group had purchased certain assets of Proterra Transit, including 6 buses in inventory. Raleigh-Durham International
Airport (“RDU”) has inspected the buses and has executed a contract to purchase them for $652 each for a total consideration
of $3,909. Nations Bus lent and wired $1,900 to the Group on February 28, 2024. The Group agrees to wire Nations Bus $2,800 ($467 per
bus) within 24 hours of receipt of payment for each bus from RDU. If payment is made separately by bus, then the Group will wire $467
within 24 hours of receipt. If payment is received in one lump sum of $3,909, the Group will wire $2,800 within 24 hours of receipt.
The Group received a total of $3,909 from RDU in March 2024. The Group will be entitled to keep the remaining $1,109 received from RDU
after payment is made to Nations Bus. The Group has repaid $2,800 to Nations Bus in April and May 2024, including $900 accrued interests.
Financing
with Agile Capital
On
March 12, 2024, the Group entered into a Subordinated Business Loan and Security Agreement (“Term Loan”) with Agile Capital
Funding, LLC (“Agile Capital”) as collateral agent, and Agile Lending, LLC, a Virginia limited liability company (“Lead
Lender”) and each assignee that becomes a party to this agreement (each individually with the Lead Lender, a “Lender”
and collectively with the Lead Lender, the “Lenders”).
The
total principal amount of the Term Loan is $2,363, including the administrative agent fee remitted to Agile Capital of $113. The net
proceeds to the Group is $2,250. The total repayment amount of the Term Loan, including all interest, lender fees, and third-party fees,
assuming all payments are made on time is $3,402, including the interest charge of $1,039, assuming all payments are made on time weekly,
and the default interest rate is otherwise applicable thereto plus five percentage points (5.00%).
The
collateral of the Term Loan consists of all of the Group’s right, title and interest in and to the following property:
All
of the Group’s goods, accounts, equipment, inventory, contract rights or rights to payment of money, leases, license agreements,
franchise agreements, general intangibles (including Intellectual Property), commercial tort claims, documents, instruments (including
any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts and other collateral accounts, all certificates
of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other
investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and all
of the Group’s books and records relating to the foregoing, and any and all claims, rights and interests in any of the above and
all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance
proceeds of any or all of the foregoing.
If
changes in business or management, ownership occur, or the Term Loan is accelerated following the occurrence of an Event of Default (as
defined in the Term Loan), the Group shall immediately pay to Lenders, payable to each Lender in accordance with its respective pro rata
share, an amount equal to the sum of: (i) all outstanding principal of the Term Loans plus accrued and unpaid interest thereon accrued
through the prepayment date, (ii) the prepayment fee (equal to the aggregate and actual amount of interest that would be paid through
the maturity date), plus (iii) all other obligations that are due and payable, including, without limitation, interest at the default
rate with respect to any past due amounts.
Since August 2024, the weekly payment amount agreed in the payment schedule
was $122 per week; however, the Group paid $30 or $40 per week. The Group did not enter into amendments or supplemental contracts to the
original contract. Pursuant to the original agreement, if the borrower fails to pay any principal or interest on its due date, or fails
to pay any other obligation within three business days after it becomes due and payable, it constitutes a payment default. During the
continuance of an Event of Default, obligations shall accrue interest at a fixed annual rate equal to the rate that is otherwise applicable
thereto plus 5.00% as the default rate. The lender may declare the entire unpaid principal balance of the loan, together with all accrued
interest thereon and any other charges or fees payable thereunder, immediately due and payable by providing written notice to the borrower.
Financing
with Wisdom
The
Group entered into a short-term loan agreement with total principal amount of $961 on December 11, 2023 with Wisdom Financial holdings
Company Ltd (“Wisdom”). The short-term loan was used to pay deposit to purchase Proterra assets (see Note 4). The principal
amount of the loan was fully paid off on January 8, 2024 by cash. Total interest expense of the loan was $279, in which $9 was paid off
in January 2024 by cash, and $270 was settled by issuance of 180,202 shares of common stock of the Company in January 2024.
11. Equity
On
January 4, 2024, the Company entered into a Securities Purchase Agreement with an accredited investor, relating to a private placement
by the Company pursuant to which the Company issued 600,000 shares of the Company’s common stock at a purchase price of $1.13 per
share, and a common stock purchase warrant to purchase up to 600,000 shares of common stock of the Company, exercisable at $1.13 per
share. The warrant is immediately exercisable, in whole or in part, for a term of one year following issuance and may be exercised on
a cashless basis if a registration statement is not then effective and available for the resale of the warrant shares. The exercise price
and number of warrant shares issuable upon exercise of the warrant are subject to adjustment upon the occurrence of certain events, such
as stock splits, stock dividends, split-ups, recapitalizations, reclassifications or the like. The private placement closed on January
25, 2024 and the Company received gross proceeds from the private placement of $678, before deducting offering expenses payable by the
Company. The Group determined that the warrant met the definition of equity instrument and estimated a fair value of the warrants using
the Black-Scholes pricing model at the date of issuance at$576. During the three months ended March 31, 2024, the Group noted that it
actually issued a total of 1,200,000 shares of common stock of the Company to this investor and the Group is current in negotiation with
the investor to cancel the 600,000 shares that were incorrectly issued.
On
January 11, 2024, the Company entered into separate Securities Purchase Agreements with four accredited investors, relating to a private
placement by the Company of an aggregate of 3,478,260 shares of the Company’s common stock at a purchase price of $1.15 per share,
and common stock purchase warrants to purchase up to 13,913,043 shares of common stock of the Company, exercisable at $2.00 per share.
The Company received gross proceeds from the private placement of $4,000, before deducting offering expenses payable by the Company.
The Group determined that the warrant met the definition of equity instrument and estimated a fair value of the warrants using the Black-Scholes
pricing model at the date of issuance at $15,908.
On
January 29, 2024, the Company entered into a Securities Purchase Agreement with certain accredited investors, to issue and sell in a
registered direct offering an aggregate of 4,196,370 shares of the Company’s common stock. The purchase agreement also provides
that the Company will issue to the investors warrants to purchase up to 4,196,370 shares of common stock of the Company in a concurrent
private placement. The common stock and accompanying warrants were offered at a combined offering price of $1.15 per share. Each warrant
is exercisable for one share of common stock. The warrants have an initial exercise price of $2.00 per share and are exercisable at any
time on or after the date of issuance and will expire on the fifth anniversary of the date on which the warrants were issued. The offering
closed on February 2, 2024 and the proceeds from the offering were $4,826, before offering expenses. The Group determined that the warrants
met the definition of equity instrument and estimated a fair value of the warrants using the Black-Scholes pricing model at the date
of issuance at $4,740.
On
February 7, 2024, the Company entered into another Securities Purchase Agreement with certain accredited investors, to issue and sell
in a registered direct offering an aggregate of 1,415,929 shares of the Company’s common stock. The purchase agreement also provides
that the Company will issue to the investors warrants to purchase up to 1,415,929 shares of common stock of the Company in a concurrent
private placement. The common stock and accompanying warrants were offered at a combined offering price of $1.13 per share. The warrants
have an initial exercise price of $2.00 per share, are exercisable at any time on or after the date of issuance and will expire on the
fifth anniversary of the date on which the warrants were issued. The offering closed on February 9, 2024, and the proceeds from the offering
were $1,600, before offering expenses. The Group determined that the warrant met the definition of equity instrument and estimated a
fair value of the warrants using the Black-Scholes pricing model at the date of issuance at $1,388.
|
(b) |
Shares Issued to Settle Vendor Payables |
During
the three months ended March 31, 2024, the Group issued 769,099 shares of the Company’s common stock, to a vendor for settlement
of payables of $953, and issued 596,162 shares of the Company’s common stock, to another vendor for settlement of payables of $739.
12. Stock-based Compensation
During
the three months ended March 31, 2024 and 2023, there were no stock options granted to management and employees of the Group. The stock-based
compensation expense was $50 and $109 during the three months ended March 31, 2024 and 2023, respectively.
There
were no changes to the contractual life of any fully vested options during the three months ended March 31, 2024 and 2023. As of March
31, 2024, unrecognized share-based compensation expenses related to the share options granted were $582. The expenses are expected to
be recognized over a weighted - average period of 2.11 years.
13. Related Party Transactions
During
the three months ended March 31, 2024, the Group borrowed of $1,020
from SPI. The loan is due on demand and bears 12%
interest per annum. $1,866
loan principal and $38
of interest was repaid by the Group, and all loan and interest were paid in full as of March 31, 2024. During the three months ended
March 31, 2024, SPI billed the Group $406
for legal, human resources and IT services provided by SPI employees and $243
was paid. As of March 31, 2024, $163
of consulting fee was outstanding to SPI and $15
of loan was outstanding to Mr. Xiaofeng Peng, the Company’s Chairman of the Board of Directors and CEO.
During
the three months ended March 31, 2024, the Group collected $46 from SolarJuice Co., Ltd., a subsidiary of SPI, for sales of electronic
forklift made during 2023. As of March 31, 2024 and December 31, 2023, the amount due from a related party was $84 and $130, respectively,
from sales of forklifts.
On March 6, 2024, SPI entered into a Deed of Settlement with its creditor,
Streeterville Capital, LLC (“Streeterville”) to settle the unpaid balances of certain convertible notes via installment payments
as agreed in the Deed of Settlement. As of part of this Deed of Settlement, the Group, as the guarantor, covenants to Streeterville to
pay and satisfy on demand all liabilities due from SPI to Streeterville with a total amount of $14,994. On September 6, 2024, Streeterville
provided a Deed of Release of Guarantor to the Group, confirming that Streeterville releases and discharges the Group from all past, present
and future liability to Streeterville under the Guarantee to Streeterville for SPI and also from all actions, claims and demands under
or in connection with this Guarantee.
14. Convertible Notes Payable
On
June 23, 2023, the Company entered into a Securities Purchase Agreement (the “Original SPA”) with an accredited investor
named therein, to issue and sell, subject to the satisfaction of certain closing conditions, up to $5,100 aggregate principal amount
of the Company’s unsecured senior convertible promissory notes (the “June 2023 Notes”). The June 2023 Notes
are subject to an original issue discount of 8.5%, and each June 2023 Note matures on the date that is 18 months after the date of issuance
at each applicable closing. The June 2023 Notes accrue interest at the Prime Rate (as defined in the June 2023 Notes) plus 4.75% per
annum in cash, or the Prime Rate plus 7.75% per annum if interest is paid in shares of common stock. The Company may, from time to time,
prepay the principal amount owing under the June 2023 Notes, subject to a 30% prepayment premium, so long as the Company provides at
least 30 business days’ prior written notice to the holder of such prepayment.
The
June 2023 Notes are convertible into shares of common stock of the Company, at a conversion price equal to the greater of (x) $0.60 (the
“Floor Price”) and (y) 87.5% of the lowest daily VWAP (as defined in the SPA) in the seven (7) trading days prior
to the applicable conversion date (the “Variable Price”), subject to certain adjustments including full ratchet anti-dilution
price protection, as set forth in the June 2023 Notes. Notwithstanding the foregoing, automatically following an Event of Default (as
defined in the June 2023 Notes), without the requirement of the holder to provide notice to the Company, and subject to the provisions
relating to the stockholder approval requirements under Nasdaq rules for the issuance of shares in a private placement at a price above
the market price (the “Nasdaq 19.99% Cap”), the conversion price is equal to the lesser of the (x) Floor Price and (y) the
Variable Price. In respect of any conversion where the Variable Price is less than the Floor Price (the “Alternative Conversion”),
the Company will pay to the holder either in cash, or subject to the Nasdaq 19.99% Cap, in shares of common stock equal to such conversion
amount or interests, divided by the applicable Variable Price. So in essence, there is no floor price for the conversion and Alternative
Conversion together.
Thus,
the Group determined that the conversion feature and the alternative conversion features embedded within the June 2023 Notes met the
definition of embedded derivatives and the Group estimated a fair value of the derivative liability using the Monte Carlo Simulation
Model at the date of issuance. As the fair value of the derivative liability is less than the face value of the June 2023 Notes, the
fair value of the derivative liability of $294 was recorded as a liability with an offsetting amount recorded as a debt discount, which
offsets the carrying amount of the debt. The original issue discount of the June 2023 Notes of $136 was recorded as a debt discount as
well.
On
October 26, 2023, the Company entered into the First Amendment (the “Amendment”) to the Original SPA, with the same accredited
investor. Pursuant to the Amendment, the “Funding Amount” under the Original SPA was increased to an aggregate principal
amount equal to no greater than $9,667 while other terms remain unchanged. On October 26, 2023, the Company agreed to issue and sell,
in a private placement, an additional $1,750 of principal amount (the “October 2023 Notes”) of the Company’s unsecured
senior convertible promissory note.
In
connection with the Amendment, the Company issued a warrant (the “October Warrant”) to the investor to purchase up to 1,500,000
shares of the Company’s common stock, with an exercise price equal to $1.30 per share, subject to full ratchet anti-dilution protection
and other adjustments as stated in the warrant, which warrant is exercisable for six years on a cash basis or, if the shares of common
stock issuable upon exercise of the Warrant are not registered within 12 months after the closing, on a cashless basis. The Group determined
that the October Warrant met the definition of equity instrument and estimated a fair value of the October Warrant using the Black Scholes
pricing model at the date of issuance.
The
October 2023 Notes are convertible into shares of common stock of the Company, at a conversion price equal to the greater of (x) $0.60
(the “Fixed Price”) and (y) 87.5% of the lowest daily VWAP (as defined in the SPA) in the seven (7) trading days prior to
the applicable conversion date (the “Variable Price”), subject to certain adjustments including full ratchet anti-dilution
price protection, as set forth in the October 2023 Notes. Notwithstanding the foregoing, automatically following an Event of Default
(as defined in the October 2023 Notes), without the requirement of the holder to provide notice to the Company, and subject to the provisions
relating to the Nasdaq 19.99% Cap, the conversion price is equal to the lesser of the (x) Fixed Price and (y) the Variable Price. In
respect of any conversion where the Variable Price is less than the Fixed Price (the “Alternative Conversion”), the Company
will pay to the holder either in cash, or subject to the Nasdaq 19.99% Cap, in shares of common stock equal to such conversion amount
or interests, divided by the applicable Variable Price. So in essence, there is no floor price for the conversion and Alternative Conversion
together.
The
Group determined that the conversion feature and alternate conversion feature within the October 2023 Notes met the definition of embedded
derivatives and the Group estimated a fair value of the derivative liability using the Binominal Tree Model at the date of issuance.
In addition, the Group considered that the October Warrants were issued in a bundled transaction with the October 2023 Notes, and the
proceeds received from the transaction should be allocated based on the relative fair values of the base instrument and the warrants.
Accordingly, the Group recorded the relative fair value of the October Warrant of $590, the fair value of derivative liability of $543
and the original issue discount and related issuance fee of the October 2023 Notes of $254 as debt discounts, which offset the carrying
amount of the October 2023 Notes. $440 of the principal amount of the October 2023 Notes were converted during the three months ended
March 31, 2024.
On
November 10, 2023, the Company entered into Second Securities Purchase Agreement (the “Second SPA”) with the same accredited
investor, which the Company agreed to issue and sell, in a private placement, subject to the satisfaction of certain closing conditions,
a $12,000 of principal amount of the Company’s secured senior convertible promissory notes. As of December 31, 2023, the closing
conditions have not been met and Company has not issued any convertible notes pursuant to the Second SPA. Upon execution of the Second
SPA, the Company also issued a warrant (the “Execution Warrant”) to the investor to purchase up to 1,000,000 shares of the
Company’s common stock, with an exercise price equal to $1.30 per share, subject to full ratchet anti-dilution protection and other
adjustments as stated in the warrant, which warrant is exercisable for six years on a cash basis or, if the shares of common stock issuable
upon exercise of the warrant are not registered within 12 months after the closing, on a cashless basis. Although the Second SPA has
not been closed yet, the Execution Warrant was issued during the year ended December 31, 2023, and the Execution Warrants can be exercisable
no matter whether the Second SPA would be closed or not in the future.
The
Group determined that the Execution Warrant met the definition of equity instrument, and the Group estimated a fair value of Execution
Warrant using the Black Scholes pricing model at the date of issuance. The Group considered that the Execution Warrant was issued in
a bundled transaction with a future convertible note offering, and the Execution Warrant was considered as issuance costs associated
with the future convertible note offering and should be deferred and charged against the gross proceeds of the future offering as debt
discount based on the relative fair values of the base instrument and the warrants. However, this future convertible note offering (Second
SPA) is to be closed subject to certain closing conditions. The Group considered that it is less likely that the closing conditions could
be achieved in the future and recorded the deferred costs as expenses during the year ended December 31, 2023. On April 5, 2024, the
Group entered into a waiver letter by and between the Company and the above investor to which the investor waived its right to require
the Company to sell $12,000 principal amount of the Company’s secured senior convertible promissory note as previously agreed under
Second SPA.
On
March 29, 2024, the Group noted that an event of default has occurred under the June 2023 Notes and October 2023 Notes, due to a
failure to observe or perform in a material respect the following covenants: 1) under the Registration Rights Agreement dated on
November 10, 2023, the Company agreed to use all commercially reasonable efforts to cause a registration statement relating to the
registrable securities to become effective and to keep such registration statement effective until the earlier to occur of the date
on which (A) the investor shall have sold all the registrable securities; or (B) the investor has no right to acquire any additional
shares of common stock under the purchase agreement or the warrants; and 2) under the Securities Purchase Agreement dated as of June
23, 2023 and a covenant under the notes, as
determined on the first of every calendar month, the Company agreed at all times to keep on hand unencumbered, unrestricted cash in
an amount greater than or equal to $200,000. The default was not fully cured within five (5) business days of such failure. As a
result, the interest rate of the June 2023 Notes and October 2023 Notes was automatically increased to 18% per annum, starting from
the date of occurrence of the Event of Default. In
addition, the Group is obligated to pay to the holder of the June 2023 Note and October 2023 Note all of the outstanding principal
amount and accrued interest on the date of occurrence of the Event of Default. As of the date of issuance of the unaudited condensed
consolidated financial statements, the noteholder has not declared that an Event of Default has occurred and that the notes are due
and payable. As a result of the default, the carrying amount of both June 2023 Note and October 2023 Note were classified as
convertible notes, current and all the remaining unamortized debt discounts were amortized into interest expense
immediately.
During
the three months ended March 31, 2024, the Group issued a total of 715,279 shares of common stock of the Company to the investor to convert
a total principal amount of $440 and accrued interest of $11 of the October 2023 Note. The total fair value of the common stock issued
for conversion was $451. As a result of the conversion, the Group reclassified $144 derivative liability into equity upon each conversion
of the corresponding convertible notes.
The
Group recorded interest expenses from debt discount amortization in interest expense, net in the statements of operations of $1,490 and
nil for the three months ended March 31, 2024 and 2023 respectively. Among which, $203 of the debt discount were amortized directly into
interest expense due to the conversion and $1,287 of the debt discount were amortized directly into interest expense due to the occurrence
of Event of Default.
The
Group recorded accrued interest of convertible notes in interest expense, net in the statements of operations of $93 and nil for the
three months ended March 31, 2024 and 2023, respectively.
As
of March 31, 2024 and December 31, 2023, the carrying amounts of the Group’s convertible bonds are $2,910 and $1,860, net of unamortized
debt discount of nil and $1,490, respectively.
As
of March 31, 2024, there was no warrant exercised.
15. Earnings (Loss) Per Share
The
following is a reconciliation of the numerator and denominator used to calculate basic earnings (loss) per share and diluted earnings
(loss) per share for the three months ended March 31, 2024 and 2023:
Summary of Earnings (Loss) Per Share
| |
March 31, 2024 | | |
March 31, 2023 | |
Basic earnings (loss): | |
| | | |
| | |
Basic earnings | |
$ | 14,799 | | |
$ | (2,778 | ) |
Diluted earnings (loss): | |
| | | |
| | |
Net income (loss) | |
$ | 14,799 | | |
$ | (2,778 | ) |
Chang in fair value of derivative liability | |
| 58 | | |
| — | |
Interest expense from Convertible Notes | |
| 93 | | |
| — | |
Diluted earnings (loss) | |
$ | 14,950 | | |
$ | (2,778 | ) |
| |
| | | |
| | |
Basic weighted average shares | |
| 30,456,235 | | |
| 20,823,622 | |
Potentially diluted shares | |
| 3,791,723 | | |
| — | |
Diluted shares | |
| 34,247,958 | | |
| 20,823,622 | |
Earnings per share | |
| | | |
| | |
Basic | |
$ | 0.49 | | |
$ | (0.13 | ) |
Diluted | |
$ | 0.44 | | |
$ | (0.13 | ) |
During
the three months ended March 31, 2024 and 2023, stock options to purchase 2,087,250 and 2,835,000 shares of common stock and warrants
to purchase 22,625,342 and nil shares of common stock, respectively, were not considered in calculating diluted earnings (loss) per share
because the options and warrants are considered out-of-money. There were no other potential shares excluded from the computation of diluted
net income (loss) per share during the three months ended March 31, 2024 and 2023.
16. Commitments and Contingencies
Guarantee
for SPI
On
March 6, 2024, the Group’s related party, SPI Energy Co., Ltd. (“SPI”) entered into a Deed of Settlement with its
creditor, Streeterville Capital, LLC (“Streeterville”) to settle the unpaid balances of certain convertible notes via
installment payments as agreed in the Deed of Settlement. As of part of this Deed of Settlement, the Company, as the guarantor,
covenants to Streeterville to pay and satisfy on demand all liabilities due from SPI to Streeterville with a total amount of $14,980.
The Group assessed the accounting treatment of this guarantee under ASC 460 and ASC 450 and considered that the possibility for the
Group to incur actual liability under this guarantee is remote so there is no guarantee liabilities accrued as of March 31, 2024. On
September 6, 2024, prior to the issuance of the condensed consolidated financial statements, the guarantee was released and canceled
without any actual liabilities incurred by the Group.
Commitments
— As of March 31, 2024, the Group had other commitments of approximately $815. These commitments were solely related to contracts
signed with vendors for research and development by the Group and are expected to be paid in one year. As part of the Proterra acquisition
(Note 4), the Group also took the responsibility to provide Proterra transit business unit employees job offers at acquisition closing
date and keep those employees for at least one year, with an estimated total employee salary of over $20,000.
Contingency
— In the ordinary course of business, the Group may be subject to legal proceedings regarding contractual and employment relationships
and a variety of other matters. The Group records contingent liabilities resulting from such claims, when a loss is assessed to be probable
and the amount of the loss is reasonably estimable. In April 2024, there was a dispute with the landlord of Folsom warehouse which the
landlord seeks to recover damages in excess of $250. However, the lawsuit is in its early stage and the final outcome, including the
potential amount of any losses, is uncertain. As a result, no reasonable estimate on the loss can be made as of March 31, 2024 and the
Group is currently negotiating on settlement with the landlord.
In
the opinion of management, there were no other material pending or threatened claims and litigation as of March 31, 2024 and through
the issuance date of these condensed consolidated financial statements.
17. Concentration Risk
Concentration
of Credit Risk
Assets
that potentially subject the Group to significant concentrations of credit risk primarily consist of cash and cash equivalents, and accounts
receivable. As of March 31, 2024 and December 31, 2023, the cash and cash equivalents are deposited within federally insured banks, which
are typically below the insured limits. There is one customer representing 84.2% of total accounts receivable as of March 31, 2024, and
there were two customers representing 35.5% and 35.0% of total accounts receivable as of December 31, 2023.
Concentration
of Customers and Suppliers
For
the three months ended March 31, 2024, there were two customers representing 44.4% and 41.4% of total net revenues, respectively. For
the three months ended March 31, 2023, there were two customers representing 13.4% and 11.5% of total net revenues, respectively. During
the three months ended March 31, 2024, there were no vendors representing 10% or more of total purchases and during the three months
ended March 31, 2023, there was one vendor representing 10.4% of total purchases.
18. Subsequent Events
Guarantee
for SPI
On
March 6, 2024 (See Note 16), the Group’s related party, SPI Energy Co., Ltd. (“SPI”) entered into a Deed of Settlement
with its creditor, Streeterville Capital, LLC (“Streeterville”) to settle the unpaid balances of certain convertible notes
via installment payments as agreed in the Deed of Settlement. As of part of this Deed of Settlement, the Company, as the guarantor, covenants
to Streeterville to pay and satisfy on demand all liabilities due from SPI to Streeterville with a total amount of $14,980.
On
July 15 2024, SPI entered into a Second Addendum to the Deed of Settlement with Streeterville, under which Streeterville agreed to
release the Group from the guarantee for SPI contingent upon several specific payments to be made on or before August 30, 2024 by
SPI.
As
of the date of this report, SPI has fulfilled all payment obligations to Streeterville required through August 30, 2024. On
September 6, 2024, Streeterville provided a Deed of Release of Guarantor to the Group, confirming that Streeterville releases and
discharges the Group from all past, present and future liability to Streeterville under the guarantee to Streeterville for SPI and
also from all actions, claims and demands under or in connection with this guarantee.
Unauthorized
Form 8-K
On
May 20, 2024, a Current Report on Form 8-K with a date of report of May 17, 2024 (the “Unauthorized Form 8-K”) and signed
by J. Mark Hastings, who resigned as Chief Financial Officer of the Company effective as of April 10, 2024, was filed with the Securities
and Exchange Commission (the “Commission”), purportedly on behalf of the Company. However, the current and legally designated
management of the Company (“Management”) had no knowledge of the Unauthorized Form 8-K, and was unaware of its existence
until reviewing the same upon its filing with the Commission.
On
May 21, 2024, the Company filed a Current Report on Form 8-K with the Commission, in which the Company disavowed the Unauthorized Form
8-K filed by Mr. Hastings, including the substance and legal efficacy of all assertions made therein. Management believes that the purported
actions or events described in the Unauthorized Form 8-K were not legally valid and that the person or persons who filed, or who participated
in or directed the filing of, the Unauthorized Form 8-K were not legally entitled to do so under the federal securities laws.
On
May 16, 2024, the holders of a majority of the outstanding aggregate voting stock of the Company adopted resolutions by written consent
in lieu of a meeting that was delivered to the Company’s board of directors on May 16, 2024, effectuating (i) the removal of John
F. Perkowski, Steven E. Stivers, Sam Van, Kristine Chen and Steven Li from the board of directors of the Company and (ii) electing Julia
Yu, Yongmei (May) Huang and James Young as members of the board of directors of the Company. The written consent was effective on May
16, 2024 when it was signed and delivered to the Company. Accordingly, the former Board members who were removed on May 16, 2024 did
not have the power and capacity after their removal to meet on May 17, 2024 or to take any of the actions they purportedly took during
that meeting (including purportedly approving the filing of the Unauthorized Form 8-K). Likewise, Mr. Hastings, who resigned from the
Company effective April 10, 2024, was not authorized to file the Unauthorized Form 8-K on behalf of the Company on May 20, 2024.
Loan
agreement with SPI
On
June 22, 2024, the Group entered into a loan agreement with its related party, SPI. In the agreement, the Group agreed to lend up to
an aggregate amount of $3,000
to SPI at a rate of 12%
per annual. SPI must repay each loan along with the unpaid and accrued interest within three months from the date the loan was
received. On June 25, 2024 and July 15, 2024, the Group lent $500
and $1,750,
respectively, to SPI under the loan agreement. On August 9, 2024, $2,250
of loan principal was paid in full by SPI and on September 30, 2024, $22 of interest
was paid in full by SPI. On October 1, 2024, both parties agreed to terminate the
loan agreement between the Group and SPI.
Financing
with Dynasty Capital 26, LLC
On
July 25, 2024, the Group entered into a Future Receivables Sale and Purchase Agreement with Dynasty Capital 26, LLC
(“Dynasty”). In the agreement, the Group irrevocably assigns, transfers and conveys onto Dynasty all of the
Group’s right, title and interest in the specified percentage of the future receipts until the purchased amount shall have
been delivered by the Group to Dynasty (“Dynasty Purchased Future Receipts”). This sale of the Dynasty Purchased Future
Receipts is made without express or implied warranty to Dynasty of collectability of the Dynasty Purchased Future Receipts by
Dynasty and without recourse against the Group and/or guarantor, except as specifically set forth in the agreement. By virtue of the
agreement, the Group transfers to Dynasty full and complete ownership of the Dynasty Purchased Future Receipts and the Group retains
no legal or equitable interest therein.
The
total purchase price is $500,
including all initial costs and fees remitted to Dynasty of $50.
The net proceeds to the Group is $450.
The total amount of receivables sold is $750.
On July 31, 2024, an addendum was made between the Group and Dynasty to specify that the payment in the first week would be
$22
and weekly payment of $47
for every following week. The Group made the first weekly payment of $22
and two weekly payments of $47
in August 2024. On August 29, a settlement agreement was made between the Group and Dynasty to reduce the Group’s
obligation for payment to $600,
with the first payment of $100
in August and twenty (20) consecutive weekly installments of $25.
Financing
with Parkview Advance LLC
On
July 31, 2024, the Group entered into a Future Receivables Sale and Purchase Agreement with Parkview Advance LLC
(“Parkview”). In the agreement, the Group irrevocably assigns, transfers and conveys onto Parkview all of the
Group’s right, title and interest in the specified percentage of the future receipts until the purchased amount shall have
been delivered by the Group to Parkview (“Parkview Purchased Future Receipts”). This sale of the Parkview Purchased
Future Receipts is made without express or implied warranty to Parkview of collectability of the Parkview Purchased Future Receipts
by Parkview and without recourse against the Group and/or guarantor, except as specifically set forth in the agreement. By virtue of
the agreement, the Group transfers to Parkview full and complete ownership of the Parkview Purchased Future Receipts and the Group
retains no legal or equitable interest therein.
The
total purchase price is $400,
including all initial costs and fees remitted to Parkview of $20.
The net proceeds to the Group is $380.
The total amount of receivables sold is $600.
The Group has made three weekly payments of $37
since August 8, 2024.
Grant
of options
On
July 1, 2024, 2,415,009 options were granted to a group of managements and employees with the Company, which are subject to an annual
vesting schedule that vests 25% of granted options over the next four years. The exercise price was $0.34 per share.
Minimum
Bid Price Requirement
On
April 12, 2024, the Company received a letter (the “April 12 Deficiency Letter”) from the staff from the Nasdaq Listing Qualifications
Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid
price of the Company’s common stock for the last 30 consecutive business days, the Company was not in compliance with the requirement
to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).
The
April 12 Deficiency Letter has no immediate effect on the listing of the Company’s common stock, and its common stock continues
to trade on The Nasdaq Capital Market.
In
accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been given 180 calendar days, or until October 9, 2024, to regain
compliance with the Minimum Bid Price Requirement. If at any time before October 9, 2024, the bid price of the Company’s common
stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that
the Company has achieved compliance. As of the date of this report, the Company’s stock price remains
below $1 per share, and it is unlikely to regain compliance by the October 9 deadline.
In
the event the Company does not regain compliance, the Company may be eligible for additional time. To qualify, the Company will be required
to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq
Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the
deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If the Company meets these requirements,
the Staff will inform the Company that it has been granted an additional 180 calendar days. However, if it appears to the Staff that
the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Staff will provide notice that
its securities will be subject to delisting.
If
the Company does not regain compliance by October 9, 2024, and is otherwise not eligible for additional time to regain compliance, the
Staff will provide written notice to the Company that its securities are subject to delisting. At that time, the Company may appeal any
such delisting determination to a Nasdaq hearings panel.
Minimum
Stockholders’ Equity Requirement
On
April 17, 2024, the Company received a letter (the “April 17 Deficiency Letter”) from Nasdaq indicating that, based
upon the Company’s Form 10-K for the year ended December 31, 2023 (the “Form 10-K”), the Company was not in
compliance with the requirement to maintain a minimum of $2,500
in stockholders’ equity. In the Form 10-K, the Company reported stockholders’ deficit of $4,839,
which is below the minimum stockholders’ equity required for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1).
Additionally, as of April 17, 2024, the Company did not meet the alternatives of market value of listed securities or net income
from continuing operations under Nasdaq Listing Rules.
The
April 17 Deficiency Letter has no immediate effect on the listing of the Company’s common stock, and its common stock continues
to trade on The Nasdaq Capital Market.
After filing this report, the Company anticipates regaining compliance with the minimum stockholders' equity requirement.
As detailed in this report, as of March 31, 2024, the Company reported stockholders’ equity of $23,672, which exceeds the minimum
stockholders' equity required for continued listing under Nasdaq Listing Rule 5550(b)(1).
The
Company is currently evaluating various courses of action to regain compliance. However, there can be no assurance that the Company will be able to regain compliance. If the Company does not regain compliance within the compliance period, or if the Company fails to satisfy
another Nasdaq requirement for continued listing, Nasdaq could provide notice that the Company’s securities will become subject
to delisting. In such event, Nasdaq rules would permit the Company to appeal the decision to reject the Company’s proposed compliance
plan or any delisting determination to a Nasdaq hearings panel.
Nasdaq
Delinquency Notices
On
May 22, 2024, the Company received a delinquency notification letter from Nasdaq due to the Company’s non-compliance with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”)
as a result of the Company’s failure to timely file its Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2024 (the “Initial Delinquent Filing”). On July 22, 2024, the Company submitted to Nasdaq a plan to regain compliance with the Listing Rule.
On
August 21, 2024, the Company received an additional delinquency notification letter from Nasdaq due to the Company’s non-compliance
with the Listing Rule as a result of the Company’s failure to timely file its Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2024.
The
Listing Rule requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission.
The deficiency letters have no immediate effect on the listing of the Company’s common stock, and its common stock will continue
to trade on The Nasdaq Capital Market under the symbol “PEV” at this time.
As
a result of the additional delinquency, the Company is required to regain compliance with all delinquent filings within 180 calendar
days from the due date of the Initial Delinquent Filing, or November 18, 2024. On September 3, 2024, the Company submitted an update to its original plan
to regain compliance with respect to the filing requirements. If the Company’s plan to regain compliance is not accepted, Nasdaq rules would permit the
Company to appeal the decision to reject the Company’s proposed compliance plan to a Nasdaq Hearings Panel.
The
Company is in the process of completing its Form 10-Q for the quarterly period ended June 30, 2024 and intends to file such report
as soon as practicable. While the Company is exercising diligent efforts to maintain the listing of its common stock on Nasdaq, there
can be no assurance that the Company will be able to regain or maintain compliance with Nasdaq listing standards.
The
Group has evaluated subsequent events through the date of issuance of the unaudited condensed consolidated financial statements and determined
there were no other subsequent events that occurred that would require recognition or disclosure in the condensed consolidated financial
statements.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Forward-Looking
Statements
You
should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated
financial statements and the related notes included elsewhere in this quarterly report. Our consolidated financial statements have been
prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements
regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,”
“intend,” “believe,” or similar language. All forward-looking statements included in this document are based
on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business
and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected
in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading
“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April
15, 2024 and in our subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements.
Overview
Phoenix
Motor Inc., doing business as “Phoenix Motorcars” through its wholly owned subsidiaries, Phoenix Cars LLC (PCL), Phoenix
Motorcars Leasing LLC (PML), and EdisonFuture Motor, Inc. (EdisonFuture), currently designs, assembles, and integrates electric drive
systems and light and medium duty electric vehicles (“EVs”) and transit buses and markets and sells electric vehicle chargers
for the commercial and residential markets. PCL also sells a range of material handling products including all-electric lithium-ion forklifts
and pallet jacks.
The
Group operates two primary brands: “Phoenix Motorcars,” which is focused on commercial products, including medium duty electric
vehicles, chargers and electric forklifts; and “EdisonFuture,” which intends to offer light-duty electric vehicles. As an
EV pioneer, we delivered our first commercial EV in 2014. We develop and integrate our proprietary electric drivetrain into the Ford
Econoline Chassis (E-Series), specifically on the Ford E-450. The Ford E-Series is the dominant chassis in the medium duty Class 4 market
in the U.S. in terms of market share and the range of configurations varying from shuttle buses, Type A school buses, utility trucks,
service trucks, flatbed trucks, walk-in vans, and cargo trucks. Since our inception, we have been developing light and medium duty commercial
electric vehicles for various service and government fleet markets, including city fleets, campuses, municipalities, and transit agencies
and serve a broad spectrum of commercial fleet customers, such as airport shuttle operators, hotel chains, transit fleet operators, seaports,
last-mile delivery fleets, and large corporations.
On
January 11, 2024, the Group completed the acquisition of the Proterra Transit Business Unit (Note 4) for a purchase price of $3,500.
The Group also assumed warranty obligations associated with the purchased Proterra Transit Business Unit. After the acquisition, the
Group engages in the business that designs, develops and sells electric transit buses as an original equipment manufacturer for North
American public transit agencies, airports, universities and other commercial transit fleets. On February 7, 2024, the Group completed
the acquisition of the Proterra Battery Lease Agreements for a purchase price of $6,500, by which the Group was assigned with the right
to collect certain leasing receivables which Proterra was a party as the lessor thereunder, used in connection with deployed Proterra
electric transit buses. The Group also assumed warranty obligations associated with the purchased Proterra Battery Lease Agreements.
In March 2024, the Group declared its plan to sell all the Battery Lease Agreements acquired from Proterra acquisition. On June 24, 2024,
the Group entered into an asset purchase agreement with Zenobe. In the agreement, the Group sells the battery lease receivables to Zenobe
in two batches while retains the warranty liability associated with leased batteries. The aggregate purchase price for Batch 1 transferred
assets is made of: (i) $3,575, minus (ii) any payments received by the Group from March 1, 2024 to the Batch 1 closing date, plus (iii)
the assumption of the Assumed Liabilities incurred after the applicable
Closing Date related to the Batch 1 Transferred Assets. The aggregate purchase price for Batch 2 transferred assets is made
of: (i) $2,175, minus (ii) any payments received by the Group from March 1, 2024 to the Batch 2 closing date, plus (iii) assumption of the Assumed Liabilities incurred after the applicable Closing
Date related to the Batch 2 Transferred Assets. On July 5, 2024, the Group closed the first batch of the sale and received net proceeds
of $2,400 from the sale. The Group is expected to close the second batch of the sale in 2024.
Our
unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“U.S. GAAP”) and include the accounts of our company, and all of our subsidiaries. We prepare
financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts
of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the
most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under
the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ
from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. In order to
understand the significant accounting policies that we adopted for the preparation of our condensed consolidated financial statements;
readers should refer to the information set forth in Note 3 “Summary of significant accounting policies” to our audited financial
statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 15, 2024.
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.
| ● | BOM
and Supply Chain Challenges. Purchased materials represent the largest component
of cost of goods sold in our products and we continue to explore ways to improve cost structure
of our products through better design, strategic alliances for sourcing, supply chain optimization,
and, in some cases vertical integration. We believe that an increase in volume and additional
experience as well as long term and strengthened supply chain partnerships will allow us
to continue to reduce our Bill of Materials (“BOM”), labor and overhead costs,
as a percentage of total revenue. By reducing material costs, driving improvement in battery
performance, increasing facility utilization rates and achieving better economies of scale,
we can reduce prices while maintaining or growing gross margins of our products to further
lower customers’ total cost of ownership (“TCO”) and help accelerate commercial
electric vehicle adoption. Because we rely on third party suppliers for the development,
manufacture, and development of many of the key components and materials used in our vehicles,
we have been affected by industry-wide challenges such as significant delivery delays and
supply shortages of certain BOM components. While we continue to focus on mitigating risks
to our operations and supply chain in the current industry environment, we expect that these
industry-wide trends will continue to affect our ability and the ability of our suppliers
to obtain parts and components on a timely basis for the foreseeable future, having a significant
impact on our business and results of operations in 2023 and possibly thereafter. |
| ● | A
long sales and production cycle. We have a long sales and production cycle given
our customers’ structured procurement processes and vehicle customization requirements.
For out transit buses, public transit agencies typically conduct a request for proposal process
before awards are made and purchase orders are issued. Proposals are evaluated on various
criteria, including but not limited to technical requirements, reliability, reputation of
the manufacturer, and price. This initial sales process from first engagement to award typically
ranges from 6 to 18 months. Once a proposal has been awarded, a pre-production process is
completed where customer specific options are mutually agreed upon. A final purchase order
follows the pre-production process. Procurement of parts and production typically follow
the purchase order. Once a bus is fully manufactured, the customer performs a final inspection
before accepting delivery, allowing us to recognize revenue. The length of time between a
customer award and vehicle acceptance typically varies between 12 and 24 months, depending
on product availability and production capacity. |
| ● | Availability
of Funding to Develop Products and Scale Production. Our results are impacted by
our ability to sell our electrification solutions and services to new and existing customers.
We have had initial success with selling to our fleet customers. In order to sell additional
products to new and existing customers, we will require substantial additional capital to
develop our products and services, ramp up production and support expansion. Although we
pursue an asset light strategy, we expect that both our capital and operating expenditures
will increase significantly in connection with our ongoing activities, as we continue to
invest in our technology, research and development efforts, obtain, maintain and improve
our operational, financial and management information systems, hire additional personnel,
obtain, maintain, expand and protect our intellectual property portfolio. Until we can generate
sufficient revenue from vehicle sales, we expect to primarily finance our operations through
proceeds from public or private stock offering, debt financings including but not limited
to term loans, revolving line of credit and equity linked instruments, and potentially federal
and state incentive funding programs. The amount and timing of our future funding requirements,
will depend on many factors, including the pace and results of our research and development
efforts , the lead time for various components in our supply chain, and our ability to successfully
manage and control costs and scale our operations. |
| ● | Ability
to improve profit margins and scale our business. We intend to continue investing
in initiatives to improve our operating leverage and significantly ramp production. We believe
continued reduction in costs and an increase in production volumes will enable commercial
vehicle manufacturers to electrify faster. Purchased materials represent the largest component
of cost of goods sold in all products and we continue to explore ways to reduce these costs
through improved design for cost, strategic sourcing and long-term contracts. We believe
that an increase in volume and additional experience will allow us to leverage those investments
and reduce our labor and overhead costs, as well as our freight costs, as a percentage of
total revenue. As we grow into our current capacity, execute on cost-reduction initiatives,
and improve production efficiency, we expect our product cost of goods sold as a percentage
of revenue to decrease in the longer term. We anticipate that by increasing facility utilization
rates and improving overall economies of scale, we can positively impact gross margins of
our products, bring value to our customers and help accelerate commercial electric vehicle
adoption. Our ability to achieve cost-saving and production-efficiency objectives can be
negatively impacted by a variety of factors including, among other things, labor cost inflation,
lower-than-expected facility utilization rates, rising real estate costs, manufacturing and
production cost overruns, increased purchased material costs, and unexpected supply-chain
quality issues or interruptions, and delays in our ability to hire, train, and retain employees
needed to scale production to meet demand. |
| ● | Government
Subsidies and Incentive Policies. With growing emphasis on improving air quality
around our communities, large states like California are mandating key end user segments
to switch to zero emission transportation options. Some of the key regulations driving growth
in our addressable market include: |
| ● | requiring
all transit buses in California to be zero emissions by 2040; |
| ● | requiring
all airport shuttles in California to be all electric by 2035; and |
| ● | requiring
at least 50% of all medium-duty trucks sold in California to electric by 2030, requiring
specific end user segments like drayage and yard trucks to go electric. |
Other
states like New York, New Jersey and Massachusetts are also expected to bring in regulatory requirements for key end user segments like,
transit agencies and school buses to switch to all electric transportation options. Fifteen other states including Connecticut, Colorado,
Hawaii, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington
have committed to follow California’s Advanced Clean Trucks Regulation. Primarily driven by the urgent need to meet carbon and
greenhouse gas emission reduction targets, various state and federal agencies are also supporting the switch to zero emission transportation,
providing a host of funding and incentive support to develop, demonstrate and deploy zero emission transportation solutions. Some of
the key funding / incentives driving adoption of electric medium duty vehicles include:
| ● | the
California Hybrid and Zero- Emission Truck and Bus Voucher Incentive Project, which offers
a minimum of $60,000 per vehicle as incentive for Class 4 electric vehicles registered and
operating in the state; |
| ● | the
New York Truck Voucher Incentive Program offering up to $100,000 per Class 4 electric vehicle;
and |
| ● | funding
from federal agencies like the Federal Transit Administration, covering up to 80% of the
cost of procuring electric transit buses and various funding options covering up to 100%
of the cost of procuring all electric school buses across key states. |
| ● | Federal
and various state agencies have established incentives for setting up both public and private
charging infrastructure. Notably, the California Energy Commission and the California Public
Utilities Commission have approved funding up to 100% of the cost of setting up chargers
and related infrastructure. Large utilities like Southern California Edison, Pacific Gas
& Electric and San Diego Gas & Electric have ‘Charge Ready’ programs
that cover the entire cost of setting up charging infrastructure. Other states like New York,
Chicago, North Carolina, Tennessee, Texas and Ohio have also introduced programs to support
fleets with their charging infrastructure requirements. |
Results of Operations
| |
Three Months Ended | |
| |
March 31, 2024 | | |
March 31, 2023 | |
Revenues | |
$ | 9,420 | | |
$ | 1,781 | |
Cost of revenues | |
| 6,915 | | |
| 1,608 | |
Gross profit | |
| 2,505 | | |
| 173 | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative | |
| 8,649 | | |
| 3,871 | |
Provision of credit loss | |
| — | | |
| (25 | ) |
Impairment of goodwill | |
| 4,271 | | |
| — | |
Operating loss | |
| (10,415 | ) | |
| (3,673 | ) |
| |
| | | |
| | |
Other income (expense): | |
| | | |
| | |
Interest expense, net | |
| (2,695 | ) | |
| 1 | |
Gain on sales-type leases | |
| — | | |
| 99 | |
Change in fair value of derivative liability | |
| (58 | ) | |
| — | |
Employee retention credit | |
| — | | |
| 697 | |
Others | |
| 2 | | |
| 98 | |
Bargain purchase gain | |
| 32,908 | | |
| — | |
Total other income, net | |
| 30,157 | | |
| 895 | |
Income (loss) before income taxes | |
| 19,742 | | |
| (2,778 | ) |
Income tax provision | |
| 4,943 | | |
| — | |
Net income (loss) | |
$ | 14,799 | | |
$ | (2,778 | ) |
| |
| | | |
| | |
Net income (loss) per share of common stock: | |
| | | |
| | |
Basic | |
$ | 0.49 | | |
$ | (0.13 | ) |
Diluted | |
$ | 0.44 | | |
$ | (0.13 | ) |
Weighted average shares outstanding | |
| | | |
| | |
Basic | |
| 30,456,235 | | |
| 20,823,622 | |
Diluted | |
| 34,247,958 | | |
| 20,823,622 | |
Net Revenues
For
the three months ended March 31, 2024 and 2023, our revenues were $9.4 million and $1.8 million, respectively. Our total revenue increased
by $7.6 million, or 429%, primarily due to the acquisition of Proterra transit business unit. The transit business unit contributed $9.0
million of revenue to the Group for the three months ended March 31, 2024. The increase was partially offset by the decline in our sales
of EVs. We delivered 5 EVs during the three months ended March 31, 2023 while we delivered only 1 EV during the three months ended March
31, 2024. Such decrease was mainly because we incurred cash shortage issues starting from late 2023 which caused us to suspend most of
the production of EVs during the last quarter of 2023 and the first quarter of 2024.
For
the three months ended March 31, 2024 and 2023, our revenue breakdown by major categories for relevant periods was as follows:
| |
Three Months Ended | |
| |
March 31, 2024 | | |
March 31, 2023 | |
In thousands | |
(Unaudited) | | |
(Unaudited) | |
Sales of transit buses | |
$ | 8,531 | | |
$ | — | |
Sales of EVs | |
| 250 | | |
| 1,151 | |
Lease of EVs | |
| 39 | | |
| 90 | |
Sales of forklifts | |
| 39 | | |
| 214 | |
Others | |
| 561 | | |
| 326 | |
| |
$ | 9,420 | | |
$ | 1,781 | |
The
following is a summary of the Group’s disaggregated revenues by timing of revenue recognition:
| |
Three Months Ended | |
| |
March 31, 2024 | | |
March 31, 2023 | |
In thousands | |
(Unaudited) | | |
(Unaudited) | |
Over time | |
$ | 235 | | |
$ | 225 | |
Point in time | |
| 9,185 | | |
| 1,556 | |
| |
$ | 9,420 | | |
$ | 1,781 | |
Cost of Revenues
Cost
of revenues for transit buses sales and EV sales includes direct parts, material and labor costs, manufacturing overheads, and shipping
and logistics costs. Cost of revenues for EV leasing primarily includes the depreciation of operating lease vehicles over the lease term
and other leasing related charges including vehicle insurance and batteries service cost. Cost of other revenue includes direct parts,
material and labor costs, as well as shipping and delivery and other costs.
For
the three months ended March 31, 2024 and 2023, our costs of revenues were $6.9 million and $1.6 million, respectively. The increase
in costs of revenues was primarily due to the increase in costs of transit buses due to increase in transit bus sales.
Gross
Margin
Gross
profit is defined as revenues minus cost of revenues. Gross margin, stated as a percentage, is defined as gross profit divided by revenues.
For the three months ended March 31, 2024 and 2023, our combined gross margin was 26.6 % and 9.7%, respectively. The increase of
gross margin was primarily due to higher margins for both EV sales and transit buses sales. The Group received gain on bargain purchase
of Proterra transit business unit and was able to quickly sell the inventories acquired from the acquisition with relatively higher margin.
The increase in margin for EV sales was mainly because there was only one EV sold during the three months ended March 31, 2024 with a
relatively high selling price.
Operating
Expenses
Operating
expenses consist of selling, general, and administrative expenses as well as impairment on goodwill.
Our
selling, general and administrative expenses consist primarily of salaries, research and development, professional service fees, rent
expense, and office supplies expenses.
For
the three months ended March 31, 2024 and 2023, our selling, general and administrative expenses were $8.6 million and $3.9 million,
respectively. The increase in selling, general and administrative expenses was largely due to an increase in salary expenses as a result
of acquisition of Proterra transit business unit with increased heads-count.
During
the three months ended March 31, 2024, we identified impairment indicator resulted from the Company’s continuous decreasing
stock price since January 2024 and performed interim goodwill impairment testing. We recorded an impairment on goodwill of $4.3 million
based on the difference between fair value and the carrying amount of the reporting unit.
Other
Income (expense), net
Other
income (expense), net includes gain on bargain purchase, interest expense, gain on sales-type leases and other income.
Our
other income for the three months ended March 31, 2024, was $30.2 million, primarily due to gain on bargain purchase of Proterra transit
business unit of $32.9 million, partially offset by the interest expense of $2.7 million resulted from short-term loan and debt discount
amortization of convertible note. No such loans and convertible notes existed during the three months ended March 31, 2023.
On March 29, 2024, the Group noted that an event of default has occurred under the June 2023 Notes and October 2023
Notes, and the default was not fully cured within five (5) business
days of such failure. As a result, the interest rate of the June 2023 Notes and October 2023 Notes was automatically increased to 18%
per annum, starting from the date of occurrence of the event of default.
Our
other income for the three months ended March 31, 2023, was $0.9 million, primarily due to refund of employee retention credit (“ERC”)
from IRS.
Net Income (loss)
As
a result of the above factors, the net income for the three months ended March 31, 2024, was $14.8 million.
As
a result of the above factors, the net loss for the three months ended March 31, 2023, was $2.8 million.
Critical Accounting Policies and Estimates
Products Warranties on transit buses and batteries
The Group provides a limited
warranty to customers on vehicles, battery systems and components. The limited warranty ranges from one to 12 years depending on the components.
Pursuant to these warranties, the Group will repair, replace, or adjust the parts on the products that are defective in factory supplied
materials or workmanship. The Group records a warranty reserve for the products sold at the point of revenue recognition, which includes
the best estimate of the projected costs to repair or replace items under the limited warranty. These estimates are based on actual claims
incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given the
relatively short history of sales. Changes to the historical or projected warranty experience may cause material changes to the warranty
reserve in the future. The portion of the warranty reserve expected to be incurred within the next 12 months is included within warranty
reserve - short term liabilities while the remaining balance is included within warranty reservice - long term liabilities on the balance
sheets.
Warranty expense is recorded
as a component of cost of sales in the condensed consolidated statements of operations. The balance of warranty reserves was $15,018 and
$289 as of March 31, 2024 and December 31, 2023, respectively.
Recent
Accounting Pronouncements
See Note 3 “Summary of Significant Accounting Policies” to our consolidated financial statements in our
Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 15, 2024 for a description of recently issued or adopted
accounting pronouncements that may potentially impact our financial position, results of operations or cash flows.
Accounting Pronouncements Issued But Not Yet Adopted
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures updates required disclosures of significant
reportable segment expenses that are regularly provided to the CODM and included within each reported measure of a segment’s
profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation
of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how
to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024, though early adoption is permitted. Adoption of the ASU should be applied retrospectively to all prior
periods presented in the financial statements. The ASU will result in additional segment information disclosures within the Group’s
financial statements but is not expected to impact the Group’s financial results or financial position.
In
December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” that addresses
requests for improved income tax disclosures from investors that use the financial statements to make capital allocation decisions. Public
entities must adopt the new guidance for fiscal years beginning after December 15, 2024. The amendments in this ASU must be applied on
a retrospective basis to all prior periods presented in the financial statements and early adoption is permitted. The ASU will result
in additional income tax disclosures within the Group’s financial statements but is not expected to impact the Group’s financial
results or financial position.
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.
Liquidity
and Capital Resources
We
had net income of $14.8 million during the three months ended March 31, 2024, mainly due to acquisition of Proterra transit business
unit. Excluding the one-time bargain purchase gain from acquisition of Proterra transit business unit, we incurred a net loss during
the three months ended March 31, 2024 and has incurred significant recurring losses before 2024. In addition, the cash flow used in operating
activities was $3.9 million and we need to raise additional funds to sustain our operations. Furthermore, we assume the responsibility
to provide Proterra transit business unit employees job offers at closing date and keep those employees for at least one year, which
costs are estimated to be over $20.0 million. These factors raise substantial doubt as to our ability to continue as a going concern.
We
plan to continue pursuing strategies to improve liquidity and raise additional funds while implementing various measures to cut costs.
Such strategies and measures include the following: 1) continue to drive for operation integration under ONE Phoenix, re-alignment operating
units under ONE Goal, right sizing workforce under ONE Team; 2) re-establish the cost structure and cost base with the new integrated
ERP and other operating systems; 3) expand and strengthen strategic partnership to outsource a significant portion of design and engineering
work for the next generation product to third party vendors and suppliers to control overall development and supply chain costs; 4) implement
working capital initiatives and negotiate better payment terms with customers and for some of the new orders, require down payments;
5) implement cash saving initiatives and tighter cash control, and calibrate capital allocation to manage liquidity; and 6) continue
to proactively implement a robust capital market strategy to provide financing for the Group’s operations through proceeds from
public or private stock offering, debt financings including but not limited to term loans, revolving line of credit and equity linked
instruments, and potentially federal and state incentive funding programs. There is no assurance that the plans will be successfully
implemented. If we fail to achieve these goals, we may need additional financing to execute our business plan, and we may not be able
to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are
not available, or that we are unsuccessful in increasing our gross profit margin and reducing operating losses, we may be unable to implement
our current plans for expansion, or respond to competitive pressures, any of which would have a material adverse effect on our business,
financial condition and results of operations and may materially adversely affect our ability to continue as a going concern. Our unaudited
condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.
A
summary of the cash flow activities is as follows:
| |
Three Months Ended | | |
Three Months Ended | |
In thousands | |
March 31, 2024 | | |
March 31, 2023 | |
Net cash used in operating activities: | |
$ | (3,902 | ) | |
$ | (1,086 | ) |
Net cash used in investing activities | |
| (10,113 | ) | |
| (71 | ) |
Net cash generated from financing activities | |
| 13,528 | | |
| 1,151 | |
Net decrease in cash, cash equivalents and restricted cash | |
| (487 | ) | |
| (6 | ) |
As
of March 31, 2024, we had $2.8 million in cash and cash equivalents. Our primary sources of liquidity were from equity financing (through
public or private offerings) as well as various types of debt financings.
Operating Activities
Net
cash used in operating activities was $3.9 million for the three months ended March 31, 2024, primarily as a result of (i) a net income
of $14.8 million, adjusted by non-cash items of bargain purchase gain of $32.9 million from acquisition of Proterra, impairment loss
of goodwill of $4.3 million, depreciation and amortization of $0.4 million, amortization of debt discount of convertible notes of $1.5
million and amortization of right of use of assets of $0.2 million, and changes in operating assets and liabilities including (i) increase
in accounts receivable of $4.5 million due to uncollected accounts receivable from sales of transit buses, (ii) decrease in inventories
of $5.6 million due to certain inventories purchase from Proterra have been sold; (iii) increase in accrued liabilities of $1.1 million
due to interest accrued for Nations Bus loans, (iv) increase in accounts payable of $0.8 million mainly due to additional inventories
purchased for upcoming manufacturing of transit buses, and (v) increase in income tax payable of $ 4.9 million due to taxable bargain
purchase gain from acquisition of Proterra.
Net
cash used in operating activities was $1.1 million for the three months ended March 31, 2023, primarily as a result of (i) a net loss
of $2.8 million, adjusted by non-cash items of depreciation and amortization of $0.4 million and amortization of right of use of assets
of $0.3 million, partially offset by (ii) a decrease in inventories of $0.8 million, and (iii) a decrease in prepaid expenses and other
assets of $0.2 million.
Investing
Activities
Net
cash used in investing activities was $10.1 million for the three months ended March 31, 2024, primarily because of acquisition of Proterra
for a total consideration of $10 million and $0.1 million purchase of property and equipment.
Net cash used in
investing activities was $0.1 million for the three months ended March 31, 2023, primarily due to purchase of property and equipment.
Financing Activities
Net cash generated
from financing activities was $13.5 million for the three months ended March 31, 2024, primarily as a result of (i) net proceeds from
private placements of $11.1 million, (ii) proceeds from borrowings with Nations Bus and Agile Capital of $4.3 million, and (iii) proceeds
from borrowing from a related party of $1.0 million. The increase was partially offset by repayment to borrowings of $1.0 million and
repayment to borrowings to a related party of $1.9 million.
Net cash generated
from financing activities was $1.2 million for the three months ended March 31, 2023, primarily as a result of net proceeds from tapping
the SEPA.
Capital
Expenditures
We
incurred capital expenditures of $10.1 million and $0.1 million for the three months ended March 31, 2024, and 2023, respectively. Our
capital expenditures have historically been comprised of purchase of Proterra assets, equipment for our offices and production infrastructure.
Our capital expenditures may increase in the future as we continue to invest in production and technology infrastructure.
Trend Information
Our
operating results substantially depend on revenues derived from our sales and leasing of EVs. Other than as disclosed elsewhere in this
report, the following trends, uncertainties, demands, commitments, or events for 2023 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:
| ● | Inflation
Reduction Act. The Inflation Reduction Act of 2023, or IRA, was signed into law on August
16, 2023. The $370 billion allocated to climate and clean energy investments dramatically
expands tax credits and incentives to deploy more clean vehicles, including commercial vehicles,
while supporting a domestic EV supply chain and charging infrastructure buildout. IRA transportation
sector provisions will accelerate the shift to zero-emission vehicles (ZEVs) by combining
consumer and manufacturing policies. The IRA extends the existing tax credit for electric
vehicles and establishes a new tax credit for used electric vehicles, as well as establishes
a new tax credit for commercial ZEVs. Under the IRA, commercial ZEVs will be eligible for
a federal tax credit of up to the lesser of 30% of the sales price or the incremental cost
of a comparable ICE-engine vehicle, capped at $7,500 for vehicles under 14,000 pounds and
$40,000 for all others. In addition, governmental entities may also be eligible to claim
these credits. Vehicles’ final assembly must be in North America to be eligible for
the federal tax credit, but commercial vehicles are exempt from the battery or mineral sourcing
requirements that apply to consumer electric vehicles. The federal tax credit on charging
equipment has been extended through 2032. For commercial uses, the tax credit is 6% with
a maximum credit of $100,000 per unit. The equipment must be placed in a low-income community
or non-urban area. The IRS has yet to release further guidance on specific aspects of the
aforementioned credits. The announcement of the IRA and the delay in receiving IRS guidance
as to the roll-out of the new tax credits has reduced the number of customer orders during
the fourth quarter of 2023 and the first quarter of 2024, as many existing or potential customers
are waiting to place orders until they are certain of the amount of tax credits available
per ZEV. In addition, many customers are evaluating the size and type of ZEV they intend
to purchase because the amount of the tax credit depends on the weight of the vehicle, among
other factors. Furthermore, other government programs, such as the FTA’s Low- and No-Emission
Vehicle Program or certain state programs, recently announced new funding and are in the
process of making these funds available for eligible purchases. Until these processes are
established, we believe customer orders may be delayed. |
| ● | Supply-chain
challenges. From the beginning of the COVID-19 pandemic, we started to experience chassis
and raw material shortages from suppliers. The challenge continues with the current development
of our new generation electric vehicles. We need to source new components from various vendors
which lead to longer lead times. In addition, because of the generation advancement, large
capital spending is necessary to fund the project. Lack of cash flow on hand will also trigger
the supply-chain challenges. As a result of these challenges, we have engaged with vendors
to negotiate better terms and lower down-payment alternatives. We contracted with new suppliers
to optimize costs, minimize supply chain issues, and prepare for an increase in future production.
However, adding new suppliers, especially for chassis, increases requirements for working
capital and places us at the mercy of price volatility. We expect supply chain challenges
will continue for the foreseeable future. |
| ● | Inflation
and interest rates. We are experiencing cost increases due to inflation resulting from various
supply chain disruptions and other disruptions caused by the general global economic conditions.
The cost of raw materials, manufacturing equipment, labor and shipping and transportation
has increased considerably. We expect higher than recent years’ levels of inflation
to persist for the foreseeable future. If we are unable to fully offset higher costs through
price increases or other measures, we could experience an adverse impact to our business,
prospects, financial condition, results of operations and cash flows. Interest rates have
also increased considerably. The increase in inflation and interest rates impacts the demand
for our EVs, as customers may delay purchasing and/or have difficulty financing their purchases. |
Off-Balance
Sheet Arrangements
On
March 6, 2024, our related party, SPI Energy Co., Ltd. (“SPI”) entered into a Deed of Settlement with its creditor, Streeterville
Capital, LLC (“Streeterville”) to settle the unpaid balances of certain convertible notes via installment payments as agreed
in the Deed of Settlement. As of part of this Deed of Settlement, the Company, as the guarantor, covenants to Streeterville to pay and
satisfy on demand all liabilities due from SPI to Streeterville with a total amount of approximately $15 million. On September 6, 2024,
the guarantee was released and cancelled.
As
of March 31, 2024, we had no other off-balance sheet arrangements that are or have been reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures,
or capital resources that are material to investors. We have not entered into any derivative contracts that are indexed to our own shares
and classified as shareholder’s equity, or that are not reflected in our unaudited condensed consolidated financial statements.
We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity,
market risk or credit support to us or engages in leasing, hedging or research and development services with us.
For
more information on our contractual obligations, commitments and contingencies, see Note 16 to the unaudited condensed consolidated financial
statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
Not
applicable to smaller reporting companies.
Item 4. Controls
and Procedures
Evaluation of Disclosure
Controls and Procedures
Under
the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting
officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter
ended March 31, 2024, as such term is defined in Rules 13a - 15(e) and 15d - 15(e) under the Exchange Act. Based on this evaluation,
our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this
report, our disclosure controls and procedures were ineffective as of such date to ensure that information required to be disclosed by
us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer
and principal financial and accounting officer or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
In
connection with the audit of our consolidated financial statements for the year ended December 31, 2023, we identified following material
weaknesses, in the design or operation of internal controls.
|
(1) |
Failure to maintain an effective control environment of internal
control over financial reporting; |
| (2) | Failure
to develop an effective risk assessment process to identify and evaluate at a sufficient
level of detail all relevant risks of material misstatement, including business, operational,
and fraud risks; |
|
(3) |
Ineffective monitoring activities to assess the operation of
internal control over financial reporting; |
| (4) | Lack
of sufficient controls designed and implemented for financial information processing and
reporting and lacked resources with requisite skills for the financial reporting under U.S.
GAAP. |
We
intend to implement measures designed to improve the Company’s internal control over financial reporting to address the underlying
causes of these material weaknesses, including (1) hiring more qualified staff and increasing resources with sufficient knowledge and
experience to strengthen financial reporting; (2) setting up a financial and system control framework to ensure proper segregation of
duty and review procedures, with formal documentation of polices and controls in place; (3) forming a task force to design and improve
processes and controls to monitor operations and record financial data; and (4) devoting proper time by senior management to perform
comprehensive review of procedures to assess risks and enforce effective accountability.
Changes in Internal
Control over Financial Reporting
During the quarter ended March 31, 2024, we identified one additional material weakness, which is “Failure
to establish adequate governance procedures, including proper authorization and communication between key executives and the Board, a
well-defined approval process with sufficient documentation for significant transactions, and effective monitoring and control measures
for key personnel transitions, such as the revocation of access for departed executives”.
We also intend to implement measures to “enhancing governance practices by implementing a
formal approval process for significant transactions, improving communication between key executives and the Board, establishing strict
controls for related party transactions, and improving access management for key personnel transitions”. Other than the changes
associated with the material weakness and corresponding remediation procedures described here, there
was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2024 covered by
this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
From
time to time, we are involved in various legal proceedings arising in the normal course of business. While we cannot predict the occurrence
or outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal proceeding, individually
or in aggregate, would be material to our financial condition.
For
more information on our legal proceedings, see Note 16 to the unaudited condensed consolidated financial statements in Part I, Item 1
of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
Risk
factors that may affect our business and financial results are discussed within Item 1A “Risk Factors” of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 15, 2024, and our subsequent filings with the SEC.
In addition to the those in our prior filings, the following are more risk factors to consider:
Holders
of our Notes are entitled to certain payments that may be paid in cash or in shares of our common stock depending on the circumstances.
If we make these payments in cash, we may be required to expend a substantial portion of our cash resources. If we make these payments
in common stock, it may result in substantial dilution to the holders of our common stock.
On
June 23, 2023, the Company entered into a Securities Purchase Agreement (the “Original SPA”) with a certain accredited investor
named therein, to issue and sell, subject to the satisfaction of certain closing conditions, up to $5.1 million aggregate principal amount
of the Company’s unsecured senior convertible promissory notes (the “June 2023 Notes”). The June 2023 Notes are subject
to an original issue discount of 8.5%, and each June 2023 Note matures on the date that is 18 months after the date of issuance at each
applicable closing. The June 2023 Notes accrue interest at the Prime Rate (as defined in the June 2023 Notes) plus 4.75% per annum in
cash, or the Prime Rate plus 7.75% per annum if interest is paid in shares of common stock. The Company may, from time to time, prepay
the principal amount owing under the June 2023 Notes, subject to a 30% prepayment premium, so long as the Company provides at least 30
business days’ prior written notice to the holder of such prepayment.
The
June 2023 Notes are convertible into shares of common stock of the Company, at a conversion price equal to the greater of (x) $0.60 (the
“Floor Price”) and (y) 87.5% of the lowest daily VWAP (as defined in the SPA) in the seven (7) trading days prior to the
applicable conversion date (the “Variable Price”), subject to certain adjustments including full ratchet anti-dilution price
protection, as set forth in the June 2023 Notes. Notwithstanding the foregoing, automatically following an Event of Default (as defined
in the June 2023 Notes), without the requirement of the holder to provide notice to the Company, and subject to the provisions relating
to the stockholder approval requirements under Nasdaq rules for the issuance of shares in a private placement at a price above the market
price (the “Nasdaq 19.99% Cap”), the conversion price is equal to the lesser of the (x) Floor Price and (y) the Variable
Price. In respect of any conversion where the Variable Price is less than the Floor Price (the “Alternative Conversion”),
the Company will pay to the holder either in cash, or subject to the Nasdaq 19.99% Cap, in shares of common stock equal to such conversion
amount or interests, divided by the applicable Variable Price. So in essence, there is no floor price for the conversion and Alternative
Conversion together.
On
October 26, 2023, the Company entered into that certain First Amendment (the “Amendment”) to the Original SPA together with
the Amendment, the “SPA”), with the same accredited investor. Pursuant to the Amendment, the “Funding Amount”
under the Original SPA was increased to an aggregate principal amount equal to no greater than $9.667 million while other terms remain
unchanged. On October 26, 2023, the Company agreed to issue and sell, in a private placement, subject to the satisfaction of certain
closing conditions, an additional unsecured senior convertible promissory note in the principal amount of $1.75 million (the “October
2023 Notes” and together with the June 2023 Notes, the “Notes”), which resulted in $2,910,000 of the Notes outstanding
as of March 31, 2024.
Under
the Notes, we are required to pay interest on the last trading day of each quarter. Interest accrues on the principal amount of the Notes
at the interest rate, which resets daily and accrue, as follows: (a) for payments made in cash, at a rate equal to the Prime Rate plus
4.75% per annum, and (b) for payments made in shares of common stock, at a rate equal to the Prime Rate plus 7.75% per annum.
Our
ability to make payments due to the holders of the Notes using shares of common stock is subject to certain limitations set forth in
the Notes, including a limit on the number of shares that may be issued until our receipt of stockholder approval to issue 20% or more
of our outstanding shares of common stock to the holders of the Notes . If we are unable to make payments in shares of common stock,
we may be forced to make such payments in cash. If we do not have sufficient cash resources to make these payments, we may need to raise
additional equity or debt capital, and we cannot provide any assurance that we will be successful in doing so. If are unable to raise
sufficient capital to meet our payment obligations, we may need to delay, reduce or eliminate certain of our operations, sell some or
all of our assets or merge with another entity.
Our
ability to make payments due to the holders of the Notes using cash is also limited by the amount of cash we have on hand at the time
such payments are due, as well as certain provisions of the Delaware General Corporation Law. Further, we intend to make the installment
payments due to holders of Notes in the form of common stock to the extent allowed under the Notes and applicable law in order to preserve
our cash resources. The issuance of shares of common stock to the holders of our Notes will increase the number of shares of common stock
outstanding and could result in substantial dilution to the existing holders of our common stock.
On
March 29, 2024, the Group noted that an Event of Default has occurred under the June 2023 Notes and October 2023 Notes, due to the Group’s
failure to observe or perform in a material respect a material covenant, condition or agreement contained in the notes or a transaction
document and that such default was not fully cured within five (5) business days of such failure. As a result, the interest rate of the
June 2023 Notes and October 2023 Notes was automatically increased to 18% per annum, starting from the date of occurrence of the Event
of Default. In addition, the Group is obligated to pay to the holder of the June 2023 Note and October 2023 Note all of the outstanding
principal amount and accrued interest on the date of occurrence of the Event of Default. As of the date of issuance of the unaudited
condensed consolidated financial statements, the noteholder has not declared that an Event of Default has occurred and that the notes
are due and payable. As a result of the default, the carrying amounts of both June 2023 Note and October 2023 Note were classified as
convertible notes, current and all the remaining unamortized debt discounts were amortized into interest expense immediately.
The
Notes contain anti-dilution provisions that may result in the reduction of the conversion price of the Notes in the future. These features
may increase the number of shares of common stock being issuable upon conversion of the Notes.
The
Notes contain anti-dilution provisions, which provisions require the lowering of the applicable conversion price or exercise, as then
in effect, to the purchase price of equity or equity-linked securities issued in any subsequent offerings. If in the future, while any
of the Notes are outstanding, we issue securities for a consideration per share of common stock (the “New Issuance Price”)
that is less than the conversion price of the Notes, as then in effect, we will be required, subject to certain limitations and adjustments
as provided in the Notes, to reduce the conversion price to be equal to the New Issuance Price, which will result in a greater number
of shares of common stock being issuable upon conversion of the Notes, which in turn will increase the dilutive effect of such conversions
or exercises on existing holders of our common stock. The potential for such additional issuances may depress the price of our common
stock regardless of our business performance and may make it difficult for us to raise additional equity capital while any of the Notes
are outstanding.
Under
the SPA, we are subject to certain restrictive covenants that may make it difficult to procure additional financing.
The
SPA contains the following restrictive covenants: until thirty (30) days after such time as 80% of Notes have been repaid in full and/or
have been converted into common stock, we agreed not to enter into:
| (a) | any
debt, equity or equity linked securities (including options or warrants) that are convertible
into, exchangeable or exercisable for, or include the right to receive shares of common stock:
(i) at a conversion, repayment, exercise or exchange rate or other price that varies
over time based upon a discount to the future trading prices of, or quotations for, shares
of common stock; or (ii) at a conversion, repayment, exercise or exchange rate or other
price that is subject to being reset at some future date after the initial issuance of such
debt, equity or equity linked security or upon the occurrence of specified or contingent
events (other than warrants that may be repriced by the Company); or |
| (b) | any
securities in a capital or debt raising transaction or series of related transactions which
grant to an investor the right to receive additional securities based upon future transactions
of the Company on terms more favorable than those granted to such investor in such first
transaction or series of related transactions; |
If
we require additional funding while these restrictive covenants remain in effect, we may be unable to effect a financing transaction
while remaining in compliance with the terms of the SPA , or we may be forced to seek a waiver from the investors party to the SPA.
If
we do not receive approval from our stockholders, we will be unable to pay amounts due to the holders of the Notes in shares of common
stock and we will be required to pay such amounts in cash, which may force us to divert cash from other uses.
Under
the SPA, we are required to hold a meeting of our stockholders to seek approval under Rule 5635(d) of the Nasdaq Stock Market for the
sale, issuance or potential issuance by us of our common stock (or securities convertible into or exercisable for our common stock) in
excess of 4,256,256 shares, which is 19.99% of the shares of common stock outstanding immediately prior to the execution of the SPA.
If our stockholders do not approve this proposal, we will not be able to issue 20% or more of our outstanding shares of common stock
to the Notes holders in connection with the SPA. As a result, we may be unable to make some of the interest payments due to the holders
of the Notes in shares of our common stock or issue sufficient shares upon conversion of the Notes, which will, in lieu of those shares,
require that we pay substantial cash amounts to the Notes holders. If we do not have sufficient cash resources to make these payments,
we may need to delay, reduce or eliminate certain of our operations, sell some or all of our assets or merge with another entity.
Item
2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
All
sales of unregistered securities have been previously included in a Current Report on Form 8-K.
Item 3. Defaults
Upon Senior Securities
None.
Item 4. Mine Safety
Disclosures
Not
applicable.
Item
5. Other Information
None.
Item
6. Exhibits
** | Furnished
herewith. This certification is being furnished solely to accompany this report pursuant
to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange
Act of 1934, as amended, and is not to be incorporated by reference into any filings of the
Company, whether made before or after the date hereof, regardless of any general incorporation
language in such filing. |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
|
Phoenix
Motor Inc. |
|
|
|
|
By: |
/s/
Xiaofeng Denton Peng |
|
|
Xiaofeng
Denton Peng |
|
|
Chairman
and Chief Executive Officer
(Principal executive officer) |
|
|
|
|
By: |
/s/
Michael Yung |
|
|
Michael
Yung |
|
|
Chief
Financial Officer
(Principal financial and accounting officer) |
Date:
October 3, 2024
Exhibit
31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Xiaofeng Denton Peng, certify that:
1. | I
have reviewed this quarterly report on Form 10-Q of Phoenix Motor Inc.; |
| |
2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered
by this report; |
| |
3. | Based
on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report; |
| |
4. | The
registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the registrant and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under my supervision, to ensure that material information relating to the
registrant, is made known to us by others within those entities, particularly during the
period in which this report is being prepared; and |
| | |
| b) | Designed
such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under my supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; and |
| | |
| c) | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report my conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and |
| | |
| d) | Disclosed
in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarters that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and |
5. | The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions): |
| a) | All
significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and |
| | |
| b) | Any
fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date:
October 3, 2024
|
/s/
Xiaofeng Denton Peng |
|
Xiaofeng
Denton Peng |
|
Chief
Executive Officer |
|
(Principal
executive officer) |
Exhibit
31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Michael Yung, certify that:
1. | I
have reviewed this quarterly report on Form 10-Q of Phoenix Motor Inc.; |
| |
2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered
by this report; |
| |
3. | Based
on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report; |
| |
4. | The
registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the registrant and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under my supervision, to ensure that material information relating to the
registrant, is made known to us by others within those entities, particularly during the
period in which this report is being prepared; and |
| | |
| b) | Designed
such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under my supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; and |
| | |
| c) | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report my conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and |
| | |
| d) | Disclosed
in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarters that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and |
5. | The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions): |
| a) | All
significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and |
| | |
| b) | Any
fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date:
October 3, 2024
|
/s/
Michael Yung |
|
Michael
Yung |
|
Chief
Financial Officer |
|
(Principal
financial and accounting officer) |
Exhibit
32
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Phoenix Motor Inc. (the “Company”) on Form 10-Q for the third quarter ended March
31, 2024 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities
and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1. | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| |
2. | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operation of the Company. |
Date:
October 3, 2024
|
/s/
Xiaofeng Denton Peng |
|
Xiaofeng
Denton Peng |
|
Chairman
and Chief Executive Officer |
|
(Principal
executive officer) |
Date:
October 3, 2024
|
/s/
Michael Yung |
|
Michael
Yung |
|
Chief
Financial Officer |
|
(Principal
financial and accounting officer) |
v3.24.3
Cover - shares
|
3 Months Ended |
|
Mar. 31, 2024 |
Sep. 30, 2024 |
Cover [Abstract] |
|
|
Document Type |
10-Q
|
|
Amendment Flag |
false
|
|
Document Quarterly Report |
true
|
|
Document Transition Report |
false
|
|
Document Period End Date |
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|
|
Document Fiscal Period Focus |
Q1
|
|
Document Fiscal Year Focus |
2024
|
|
Current Fiscal Year End Date |
--12-31
|
|
Entity File Number |
001-41414
|
|
Entity Registrant Name |
Phoenix
Motor Inc.
|
|
Entity Central Index Key |
0001879848
|
|
Entity Tax Identification Number |
85-4319789
|
|
Entity Incorporation, State or Country Code |
DE
|
|
Entity Address, Address Line One |
1500
Lakeview Loop
|
|
Entity Address, City or Town |
Anaheim
|
|
Entity Address, State or Province |
CA
|
|
Entity Address, Postal Zip Code |
92807
|
|
City Area Code |
(909)
|
|
Local Phone Number |
978-0815
|
|
Title of 12(b) Security |
Common
Stock, par value $0.0004 per share
|
|
Trading Symbol |
PEV
|
|
Security Exchange Name |
NASDAQ
|
|
Entity Current Reporting Status |
Yes
|
|
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Yes
|
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Entity Filer Category |
Non-accelerated Filer
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v3.24.3
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
Current assets: |
|
|
Cash and cash equivalents |
$ 2,796
|
$ 31
|
Restricted cash |
|
3,252
|
Accounts receivable, net |
4,974
|
451
|
Inventories |
56,216
|
1,796
|
Prepaid expenses and other current assets, net |
633
|
356
|
Amount due from a related party |
84
|
130
|
Assets held-for-sale |
6,370
|
|
Total current assets |
71,073
|
6,016
|
Property and equipment, net |
5,054
|
1,119
|
Operating lease right-of-use assets |
2,431
|
|
Net investment in leases |
176
|
230
|
Goodwill |
|
4,271
|
Total assets |
78,734
|
11,636
|
Current liabilities: |
|
|
Accounts payable |
2,629
|
3,529
|
Accrued liabilities |
1,781
|
926
|
Advance from customers, current |
733
|
167
|
Deferred income |
357
|
362
|
Warranty reserve, current |
4,222
|
289
|
Lease liabilities, current |
2,296
|
1,303
|
Amounts due to a related party |
178
|
863
|
Short-term borrowing |
4,262
|
961
|
Derivative liability |
1,070
|
1,156
|
Convertible note, current |
2,910
|
1,320
|
Income tax payable |
4,943
|
|
Long-term borrowing, current |
6
|
5
|
Total current liabilities |
25,387
|
10,881
|
Lease liabilities, noncurrent |
3,883
|
2,696
|
Warranty reserve, noncurrent |
10,796
|
|
Advance from customers, noncurrent |
2,066
|
2,214
|
Convertible notes, noncurrent |
|
540
|
Long-term borrowings |
143
|
144
|
Deferred tax liabilities |
12,787
|
|
Total liabilities |
55,062
|
16,475
|
Commitments and contingencies (Note 16) |
|
|
Equity: |
|
|
Common stock, par $0.0004, 450,000,000 shares authorized, 34,452,220 and 21,900,918 shares issued and outstanding as of March 31, 2024, and December 31, 2023, respectively |
14
|
9
|
Additional paid-in capital |
58,066
|
44,359
|
Accumulated deficit |
(34,408)
|
(49,207)
|
Total stockholders’ equity/(deficit) |
23,672
|
(4,839)
|
Total liabilities and stockholders’ equity |
$ 78,734
|
$ 11,636
|
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