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 September 30, 2024

☐	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 45,746,466 shares of common stock outstanding as of February 3, 2025.

TABLE OF CONTENTS

		Page
Part I.	Financial Information
	Item 1. Interim Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023	F-1
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023	F-2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2024 and 2023	F-3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2024 and 2023	F-4
	Notes to Unaudited Condensed Consolidated Financial Statements	F-5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	12
	Item 4. Controls and Procedures	12
Part II.	Other Information
	Item 1. Legal Proceedings	13
	Item 1A. Risk Factors	13
	Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	15
	Item 3. Defaults Upon Senior Securities	15
	Item 4. Mine Safety Disclosures	15
	Item 5. Other Information.	15
	Item 6. Exhibits	15
Signatures		16

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)

(Unaudited)

	September 30, 2024			December 31, 2023

ASSETS
Current assets:
Cash and cash equivalents	$	279		$	31
Restricted cash		-			3,252
Accounts receivable, net		5,592			451
Inventories		45,144			1,796
Prepaid expenses and other current assets, net		1,203			356
Amount due from a related party		23			130
Battery lease receivables		5,855			-
Total current assets		58,096			6,016
Property and equipment, net		4,114			1,119
Operating lease right-of-use assets		1,944			-
Net investment in leases		76			230
Goodwill		-			4,271
Total assets	$	64,230		$	11,636

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,156		$	3,529
Accrued liabilities		5,414			926
Advance from customers, current		5,422			167
Deferred revenue		347			362
Warranty reserve, current		3,649			289
Lease liabilities, current		2,675			1,303
Amounts due to a related party		-			863
Short-term borrowing		1,239			961
Warrant liability		2,103			-
Derivative liability		237			1,156
Income tax payable		736			-
Convertible notes, current		1,533			1,320
Long-term borrowing, current		10			5
Total current liabilities		26,521			10,881
Lease liabilities, noncurrent		2,838			2,696
Warranty reserve, noncurrent		10,699			-
Advance from customers, noncurrent		1,885			2,214
Convertible notes, noncurrent		-			540
Long-term borrowings		141			144
Deferred tax liabilities		7,240			-
Total liabilities	$	49,324			16,475

Commitments and contingencies (Note 16)		-			-

Equity:
Common stock, par $0.0004, 450,000,000 shares authorized, 37,169,420 and 21,900,918 shares issued and outstanding as of September 30, 2024, and December 31, 2023, respectively		15			9
Additional paid-in capital		49,962			44,359
Accumulated deficit		(35,071	)		(49,207	)
Total stockholders’ equity (deficit)		14,906			(4,839	)
Total liabilities and stockholders’ equity	$	64,230		$	11,636

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

F-1

PHOENIX MOTOR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
	Three Months Ended						Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Revenues - third parties	$	4,772		$	177		$	26,224		$	3,116
Revenues - related parties		-			111			-			111
Total revenues		4,772			288			26,224			3,227
Cost of revenues		3,656			293			20,774			3,120
Gross profit (loss)		1,116			(5	)		5,450			107
Operating expenses:
Selling, general and administrative		9,475			2,531			27,053			9,477
Impairment of goodwill		-			-			4,271			-
Operating loss		(8,359	)		(2,536	)		(25,874	)		(9,370	)

Other income (expense):
Interest expense, net		(784	)		(117	)		(4,121	)		(118	)
Gain on sales-type leases		-			-			-			99
Loss on warrants issued for private placements		-			-			(7,432	)		-
(Loss) gain on change in fair value of warrant liability		(216	)		-			14,402			-
Change in fair value of derivative liability		13			-			602			(25	)
Bargain purchase gain		-			-			32,072			-
Others		-			(58	)		-			770
Total other (expenses) income, net		(987	)		(175	)		35,523			726
(Loss) income before income taxes		(9,346	)		(2,711	)		9,649			(8,644	)
Income tax benefits (expenses)		3,755			-			4,487			(22	)
Net (loss) income	$	(5,591	)	$	(2,711	)	$	14,136		$	(8,666	)

(Loss) earnings per share of common stock:
Basic	$	(0.15	)	$	(0.13	)	$	0.42			(0.41	)
Diluted	$	(0.15	)	$	(0.13	)	$	0.37			(0.41	)
Weighted average shares outstanding
Basic		36,427,507			21,291,924			33,910,890			21,124,151
Diluted		36,427,507			21,291,924			37,351,926			21,124,151

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

F-2

PHOENIX MOTOR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

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

	Shares*		Amount		Capital			Deficit			Equity
											Total
	Common Stock				Additional Paid-In			Accumulated			Stockholders’ Equity
	Shares*		Amount		Capital			Deficit			(Deficit)
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
Net loss		—		—		—			(3,177	)		(3,177	)
Stock-based compensation		—		—		37			—			37
Issuance of common stock per standby equity purchase agreements		110,000		—		73			—			73
Balance as of June 30, 2023		21,291,924		8		42,209			(34,517	)		7,700
Net loss		—		—		—			(2,711	)		(2,711	)
Stock-based compensation		—		—		56			—			56
Balance as of September 30, 2023		21,291,924	$	8	$	42,265		$	(37,228	)	$	5,045

Balance as of January 1, 2024		21,900,918	$	9	$	44,359		$	(49,207	)	$	(4,839	)
Net income		—		—		—			16,774			16,774
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 11)		180,202		—		270			—			270
Issuance of common stock for private placements		10,290,560		4		2,027			—			2,031
Balance as of March 31, 2024		34,452,220		14		48,993			(32,433	)		16,574
Net loss		—		—		—			2,953			2,953
Stock-based compensation		—		—		(67	)		—			(67	)
Reclass of derivative liability upon conversion of related convertible notes		—		—		129			—			129
Issuance of common stock for convertible note conversion		949,137		—		381			—			381
Balance as of June 30, 2024		35,401,357		14		49,436			(29,480	)		19,970
Balance		35,401,357		14		49,436			(29,480	)		19,970
Net loss		—		—		—			(5,591	)		(5,591	)
Net income (loss)		—		—		—			(5,591	)		(5,591	)
Stock-based compensation		—		—		22			—			22
Reclass of derivative liability upon conversion of related convertible notes		—		—		44			—			44
Issuance of common stock for convertible note conversion		1,768,063		1		460			—			461
Balance as of September 30, 2024		37,169,420	$	15	$	49,962		$	(35,071	)	$	14,906
Balance		37,169,420	$	15	$	49,962		$	(35,071	)	$	14,906

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

F-3

PHOENIX MOTOR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	2024			2023
	Nine Months ended September 30,
	2024			2023
Changes in operating assets and liabilities:
Net income (loss)		14,136			(8,666	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization		1,356			897
Gain on sales-type leases		-			(99	)
Provision for doubtful accounts		292			10
Loss on disposal of fixed assets		-			59
Write down of inventories		-			124
Amortization of convertible notes		1,490			251
Gain (loss) on change in fair value of derivative liability		(602	)		25
Loss on warrants issued during private placements		7,432			-
Gain on change in fair value of warrant liability		(14,402	)		-
Share-based compensation		5			202
Impairment loss on goodwill		4,271			-
Warranty reserve		(935	)		(30	)
Amortization of right-of-use assets		718			565
Bargain purchase gain		(32,072	)		-
Deferred tax liability reversal		(5,223	)		-
Changes in operating assets and liabilities:
Accounts receivable		(5,433	)		442
Inventories		15,543			1,901
Battery lease receivables		545			-
Prepaid expenses and other assets		(847	)		989
Accounts payable		1,320			604
Accrued liabilities		4,832			20
Deferred revenue		(15	)		(23	)
Advance from customers		4,926			886
Lease liabilities		(1,148	)		(735	)
Net investment in leases		154			-
Amount due from related party		107			36
Income tax payable		736			-
Net cash used in operating activities		(2,814	)		(2,542	)

Cash flows from investing activities:
Purchase of property and equipment		(113	)		(162	)
Loan lent to a related party		(2,566	)		(400	)
Proceeds from repayment from a related party		2,566			400
Acquisition of Proterra		(10,000	)		-
Net cash used in investing activities		(10,113	)		(162	)

Cash flows from financing activities:
Repayment of borrowings		(4,703	)		-
Proceeds from convertible notes		-			1,464
Proceeds from borrowings		4,982			-
Repayment of related party borrowings		(1,914	)		(481	)
Proceeds from related party borrowings		1,051			541
Proceeds received from private placements		11,104			-
Repayment of convertible notes		(597	)		-
Proceeds received from standby equity purchase agreement		-			1,227
Net cash generated from financing activities		9,923			2,751

(Decrease) increase in cash, cash equivalents and restricted cash		(3,004	)		47
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		279			436

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents		279			186
Restricted cash		-			250
Total cash, cash equivalents, and restricted cash		279			436

Supplemental cash flow information:
Income tax paid		-			-
Non-cash activities:
Derivative liabilities recorded as debt discount		-			294
Issuance of common stock for convertible note conversion		1,293			-
Reclass of derivative liability to additional paid-in capital upon conversion of related convertible notes		317			-
Issuance of common stock to Wisdom Financial to repay the consulting fee		270			-
Issuance of common stock for settlement with vendors		1,693			-
Inventories transferred to property and equipment		-			497

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

F-4

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”) are 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 the 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 parent company, SPI’s 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. 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. During the nine months ended September 30, 2024, the Group collected a total of $545 lease receivable from the leasing customers and received a total of $3,600 partial proceeds from Zenobe.

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 nine months ended September 30, 2024 and 2023 are not necessarily indicative of the results for the full years or any future periods.

F-5

(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 EVs 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 to 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 most of the 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.

F-6

The following is a summary of the Group’s disaggregated revenues:

Schedule of Disaggregated Revenues


	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023

Sales of transit buses	$	3,690	$	—	$	22,806	$	—
Sales of EVs		324		—		806		1,868
Lease of EVs		183		70		229		285
Sales of Forklifts		6		103		45		373
Others		569		115		2,338		701
Total	$	4,772	$	288	$	26,224	$	3,227

The following is a summary of the Group’s disaggregated revenues by timing of revenue recognition:


	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023

Point in time	$	4,439	$	112	$	25,333	$	2,572
Over time		333		176		891		655
Total	$	4,772	$	288	$	26,224	$	3,227

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 and deferred revenue. As of September 30, 2024 and December 31, 2023, the balances of contract liabilities were $7,654 and $2,743, respectively. During the nine months ended September 30, 2024, the Group recognized $336 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 $363 as of September 30, 2024, in which current portion of $287 was included in prepaid expenses and other current assets, net on the balance sheet. During the three months ended September 30, 2024 and 2023, there was no gain or loss on sales-type leases. During the nine months ended September 30, 2024 and 2023, gain on sales-type leases was $nil and $99, respectively.

(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.

F-7

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, primarily including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payables, short-term borrowings, 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 an 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.

F-8

Warranty expense is recorded as a component of cost of sales in the condensed consolidated statements of operations. The balance of warranty reserves was $14,348 and $289 as of September 30, 2024 and December 31, 2023, respectively.

(g) 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 nine months ended September 30, 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 $14,136 during the nine months ended September 30, 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 of $17,936 during the nine months ended September 30, 2024 and has incurred significant recurring losses before 2024. The cash flow used in operating activities was $2,814 and the Group needs to raise additional funds to sustain its operations. In addition, the Group assumes 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 $6,000. Furthermore, the Group is in default on a number of obligations, which could result in the Group being forced to cease operations if the Group is unable to reach satisfactory settlement with the counterparties. 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.

F-9

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 September 30, 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:


Inventories.	$	58,891
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		(12,463	)
Identifiable net assets acquired (a)		42,072
Less: Fair value of the consideration transferred (b)		10,000
Gain on bargain purchase (b-a)	$	32,072

During the nine months ended September 30, 2024 measurement period since the acquisition date, the Group adjusted the fair value of the inventories acquired for an amount of $1,161, with the offset recorded as a $836 decrease to bargain purchase gain and $325 decrease to deferred tax liabilities. These adjustments were made as the Group obtained new information about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

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 the issuance of this interim financial statements, 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.

F-10

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 and nine months ended September 30, 2024:


	Nine Months ended		Three Months ended
	September 30, 2024		September 30, 2024

Revenues	$	25,025	$

SEC Form 10-Q filed by Phoenix Motor Inc.