UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(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 | ||
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ |
| 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 shares of common stock outstanding as of October 23, 2024.
TABLE OF CONTENTS
| 2 |
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)
| June 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets, net | ||||||||
| Amount due from a related party | ||||||||
| Assets held-for-sale | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Net investment in leases | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Advance from customers, current | ||||||||
| Deferred income | ||||||||
| Warranty reserve, current | ||||||||
| Lease liabilities, current | ||||||||
| Amounts due to a related party | ||||||||
| Short-term borrowing | ||||||||
| Derivative liability | ||||||||
| Income tax payable | ||||||||
| Convertible note, current | ||||||||
| Long-term borrowing, current | ||||||||
| Total current liabilities | ||||||||
| Lease liabilities, noncurrent | ||||||||
| Warranty reserve, noncurrent | ||||||||
| Advance from customers, noncurrent | ||||||||
| Convertible notes, noncurrent | ||||||||
| Long-term borrowings | ||||||||
| Deferred tax liabilities | ||||||||
| Total liabilities | $ | |||||||
| Commitments and contingencies (Note 16) | ||||||||
| Equity: | ||||||||
| Common stock, par $, shares authorized, and shares issued and outstanding as of June 30, 2024, and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Impairment of goodwill | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sales-type leases | ||||||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| (Reversal of) Bargain purchase gain | ( | ) | ||||||||||||||
| Others | ( | ) | ||||||||||||||
| Total other (expenses) income, net | ( | ) | ||||||||||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefits (expenses) | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| (Loss) earnings per share of common stock: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
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
(In thousands, except for share and per share data)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares* | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | ( | ) | $ | | |||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Issuance of common stock per standby equity purchase agreements | ||||||||||||||||||||
| Balance as of March 31, 2023 | ( | ) | ||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Issuance of common stock per standby equity purchase agreements | ||||||||||||||||||||
| Balance as of June 30, 2023 | ( | ) | ||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net income | — | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Reclass of derivative liability upon conversion of related convertible notes | — | |||||||||||||||||||
| Issuance of common stock for convertible note conversion | ||||||||||||||||||||
| Issuance of common stock for settlement with vendors | ||||||||||||||||||||
| Issuance of restricted shares to Wisdom Financial to repay loan interest (Note 11) | ||||||||||||||||||||
| Issuance of common stock for private placements | ||||||||||||||||||||
| Balance as of March 31, 2024 | ( | ) | ||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | — | ( | ) | ( | ) | |||||||||||||||
| Reclass of derivative liability upon conversion of related convertible notes | — | |||||||||||||||||||
| Issuance of common stock for convertible note conversion | ||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
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)
| Six Month ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Net income (loss) | ( | ) | ||||||
| Adjustments to reconcile net income (loss) to cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sales-type leases | ( | ) | ||||||
| Reversal of credit loss | ||||||||
| Write down of inventories | ||||||||
| Amortization of convertible notes | ||||||||
| Gain on change in market value of derivative liability | ( | ) | ||||||
| Share-based compensation | ( | ) | ||||||
| Impairment loss on goodwill | ||||||||
| Warranty reserve | ( | ) | ( | ) | ||||
| Amortization of right-of-use assets | ||||||||
| Bargain purchase gain | ( | ) | ||||||
| Deferred tax liability reversal | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ||||||||
| Held-for-sale leased assets | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Advance from customers | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net investment in leases | ||||||||
| Amount due from related party | ||||||||
| Income tax payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Loan lent to a related party | ( | ) | ( | ) | ||||
| Proceeds from repayment from a related party | ||||||||
| Acquisition of Proterra | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of borrowings | ( | ) | ( | ) | ||||
| Proceeds from borrowings | ||||||||
| Proceeds from borrowings | ||||||||
| Repayment of related party borrowings | ( | ) | ||||||
| Proceeds from related party borrowings | ||||||||
| Proceeds received from private placements | ||||||||
| Proceeds received from standby equity purchase agreement | ||||||||
| Net cash generated from financing activities | ||||||||
| (Decrease) increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of the period | ||||||||
| Cash, cash equivalents and restricted cash at end of the period | ||||||||
| Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | ||||||||
| Supplemental cash flow information: | ||||||||
| Income tax paid | ||||||||
| Non-cash activities: | ||||||||
| Derivative liabilities recorded as debt discount | ||||||||
| Issuance of common stock per convertible note conversion | ||||||||
| Reclass of derivative liability to additional paid-in capital upon conversion of related convertible debentures | ||||||||
| Issuance of restricted shares to Wisdom Financial to repay the consulting fee | ||||||||
| Issuance of common stock for settlement with vendors | ||||||||
| Inventories transferred to property and equipment | ||||||||
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”) 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
On
September 26, 2023, the Group’s ultimate parent company, SPI’s wholly - owned subsidiary,
EdisonFuture, Inc., sold shares of the Company’s common stock owned by it, representing
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 $
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 six months ended June 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 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.
| F-6 |
The following is a summary of the Group’s disaggregated revenues:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Sales of transit buses | $ | $ | $ | $ | ||||||||||||
| Sales of EVs | ||||||||||||||||
| Lease of EVs | ||||||||||||||||
| Sales of Forklifts | ||||||||||||||||
| Others | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The following is a summary of the Group’s disaggregated revenues by timing of revenue recognition:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Point in time | $ | $ | $ | $ | ||||||||||||
| Over time | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
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 income. As of June 30, 2024 and December 31, 2023, the balances of contract liabilities were $
(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 $
(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, 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.
| 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 $
(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 six months ended June 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 $
3. Going concern
The
Group has net income of $
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 $
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. | $ | |||
| Right-of-use assets | ||||
| Property and equipment | ||||
| Battery lease receivable | ||||
| Lease liabilities | ( | ) | ||
| Warranty liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Identifiable net assets acquired (a) | ||||
| Less: Fair value of the consideration transferred (b) | ||||
| Gain on bargain purchase (b-a) | $ |
During
the six months ended June 30, 2024 measurement period since the acquisition date, the Group adjusted the fair value of the inventories
acquired for an amount of $
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 October 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
| 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 six months ended June 30, 2024:
| Six months ended | Three months ended | |||||||
| June 30, 2024 | June 30, 2024 | |||||||
| Revenues | $ | $ | ||||||
| Net income | $ | $ | ||||||
5. Assets held for sale
On
January 11, 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 $
In March 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
Group recorded the carrying amount of lease receivable at $
6. Accounts Receivable, Net
The accounts receivable, net as of June 30, 2024 and December 31, 2023 consisted of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts receivable, customers | $ | |||||||
| Accounts receivable, governmental incentive | ||||||||
| Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
For
the six months ended June 30, 2024, there was provision for credit loss for accounts receivables. For the six months ended June 30,
2023, the Group reversed provision for credit loss of $
| F-11 |
7. Inventories
Inventories as of June 30, 2024 and December 31, 2023 consisted of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
During
the six months ended June 30, 2024, there was write down to reflect the lower of cost or net realizable value. During the six months
ended June 30, 2023, $
8. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets as of June 30, 2024 and December 31, 2023 consist of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Sales-type lease receivable | ||||||||
| Vendor deposits | ||||||||
| Others | ||||||||
| Total prepaid and other current assets | ||||||||
| Less: Provision for credit loss | ( | ) | ( | ) | ||||
| Total prepaid and other current assets, net | $ | $ | ||||||
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 June 30, 2024 and December 31, 2023 was $
Interest
income recognized for sales-type leases for the six months ended June 30, 2024 was $
| As of June 30 | ||||
| 2024 | ||||
| Lease receivables-long term | ||||
| Lease receivables-short term | ||||
| Total lease receivables | ||||
| Unguaranteed residual assets | ||||
| Net investment in leases | ||||
| Recorded in Prepaid expenses and other current assets | ||||
| Recorded in Net investment in leases- non-current | ||||
| F-12 |
Annual minimum undiscounted lease payments under the Group’s leases were as follows as of June 30, 2024:
| Sales-type | ||||
| Remaining of 2024 | ||||
| Years Ending December 31, | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and thereafter | ||||
| Total lease receipt payments | ||||
| Less: Imputed interest | ( | ) | ||
| Total lease receivables (1) | ||||
| Unguaranteed residual assets | ||||
| Net investment in leases (1) | ||||
| (1) |
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 $
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 $
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.
| F-13 |
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.
As
of June 30, 2024, the loan balance to Agile was $
As of October 31, 2024, the Group has not received any notices or legal actions initiated by Agile.
Financing with Wisdom
The
Group entered into a short-term loan agreement with total principal amount of $
11. Equity
| (a) | Private Placements |
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
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
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
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
| F-14 |
| (b) | Shares Issued to Settle Vendor Payables |
During
the six months ended June 30, 2024, the Group issued shares of the Company’s common stock, to a vendor for settlement of
payables of $
During the six months ended June 30, 2024, no new options were granted under the 2021 Equity Incentive Plan.
During the six months ended June 30, 2024, the net stock-based compensation reversal was $ and during the six months ended June 30, 2023, the stock-based compensation expense was $.
During the three months ended June 30, 2024, the stock-based compensation reversal was $ and during the three months ended June 30, 2023, the stock-based compensation expense was $.
There were no changes to the contractual life of any fully vested options during the six months ended June 30, 2024 and 2023. As of June 30, 2024, unrecognized share-based compensation expenses related to the share options granted were $. The expenses are expected to be recognized over a weighted - average period of years.
13. Related Party Transactions
At December 31, 2023, the amount
of $
At December
31, 2023, the amount of $
During
the six months ended June 30, 2024, the Group borrowed of $
During
the six months ended June 30, 2024, the Group collected $
In April 2024, SPI
borrowed $
On June
22, 2024, the Group entered into a loan agreement with SPI. In the agreement, the Group agreed to lend up to an aggregate amount of $
During
the six months ended June 30, 2024, SPI billed the Group $
At June
30,2024, the total amount due from related parties of $
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. 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 $
The
June 2023 Notes are convertible into shares of common stock of the Company, at a conversion price equal to the greater of (x) $
| F-15 |
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 $
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 $
In connection with the Amendment, the Company issued a warrant (the “October Warrant”) to the investor to purchase up to shares of the Company’s common stock, with an exercise price equal to $ 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) $
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 $
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 $
| F-16 |
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 $
During
the six months ended June 30, 2024, the Group issued a total of
shares of common stock of the Company to the investor to convert a total principal amount of $
The
Group recorded interest expenses from debt discount amortization in interest expense, net in the statements of operations of $
The
Group recorded accrued interest of convertible notes in interest expense, net in the statements of operations of $
As
of June 30, 2024 and December 31, 2023, the carrying amounts of the Group’s convertible bonds are $
As of June 30, 2024, there was warrant exercised.
| F-17 |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Basic earnings (loss): | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Diluted earnings (loss): | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Chang in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Interest expense from Convertible Notes | ||||||||||||||||
| Adjusted net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Weighted average number of shares-basic | ||||||||||||||||
| Potentially dilutive shares | ||||||||||||||||
| Weighted average number of shares-Diluted | ||||||||||||||||
| Earnings per share | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
During
the three months ended June 30, 2024 and 2023, stock options to purchase and shares of common stock and warrants
to purchase
During
the six months ended June 30, 2024 and 2023, stock options to purchase and shares of common stock and warrants to
purchase
There were other potential shares excluded from the computation of diluted net income (loss) per share during the three and six months ended June 30, 2024 and 2023, respectively.
16. Commitments and Contingencies
Guarantee for SPI
On
March 6, 2024, the Group’s related party, SPI entered into a Deed of Settlement with its creditor,
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 $
Commitments
— 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 $
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 $
In the opinion of management, there were no other material pending or threatened claims and litigation as of June 30, 2024 and through the issuance date of these condensed consolidated financial statements.
| F-18 |
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 June 30, 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
Concentration of Customers and Suppliers
For
the six months ended June 30, 2024, there were three customers representing
For the six months ended June 30, 2023, there were no customers representing 10% or more of total net revenues.
During
the six months ended June 30, 2024, there were no vendors representing 10% or more of total purchases and during the six months ended
June 30, 2023, there was one vendor representing
| F-19 |
18. Subsequent Events
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 $
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 $
| F-20 |
Grant of options
On
July 1, 2024, options were granted to a group of managements and employees with the Company, which are subject to an annual
vesting schedule that vests
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 previous 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 was provided 180 calendar days, or until October 9, 2024, to regain compliance with the Minimum Bid Price Requirement. As of October 9, 2024, the Company has not regained compliance with the Minimum Bid Price Requirement.
On October 10, 2024, the Company submitted a request to Nasdaq for an additional 180-day extension to regain compliance and provided written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
On October 11, 2024, the Company received a letter from Nasdaq advising that the Staff has determined that the Company is eligible for an additional 180 calendar day period, or until April 7, 2025, to regain compliance with the Minimum Bid Price Requirement. The Staff’s determination is based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
If at any time during the additional time period the closing bid price of the Company’s security is at least $ per share for a minimum of 10 consecutive business days, Nasdaq will provide written confirmation of compliance and this matter will be closed. If the Company chooses to implement a reverse stock split, it must complete the split no later than ten business days prior to the expiration date in order to timely regain compliance.
If compliance cannot be demonstrated by April 7, 2025, the Staff will provide written notification that the Company’s securities will be delisted. At that time, the Company may appeal Staff’s 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 $
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.
On October 3, 2024, the Company filed its Quarterly Report on Form 10-Q for the period ended March 31, 2024, which reported stockholders’ equity of $23,672, which exceeds the minimum stockholders’ equity required for continued listing under Nasdaq Listing Rule 5550(b)(1).
On October 14, 2024, the Company received a letter from Nasdaq indicating that, based on the Company’s Form 8-K, dated October 10, 2024, the Staff has determined that the Company complies with the Nasdaq Listing Rule 5550(b)(1). However, if the Company fails to evidence compliance upon filing its next periodic report it may be subject to delisting. At that time, Staff will provide written notification to the Company, which may then appeal Staff’s determination to a Nasdaq Hearings Panel.
| F-21 |
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”). The Listing Rule requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission.
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 a 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 deficiency notification 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 to Nasdaq an update to its original plan to regain compliance with respect to the filing requirements.
On October 3, 2024, the Company filed its Form 10-Q for the period ended March 31, 2024.
On October 22, 2024, the Company received a letter from the Staff, determining to grant an exception to enable the Company to regain compliance with the Listing Rule based on the condition that on or before October 31, 2024, the Company must file its Form 10-Q for the period ended June 30, 2024, as required by the Listing Rule. In the event the Company does not satisfy the terms, the Staff will provide written notification that its securities will be delisted. At that time, the Company may appeal Staff’s determination to a Nasdaq Hearings Panel.
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.
| F-22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our 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 for a purchase price of $3.5 million. 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 $6.5 million, 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) $3.6 million, 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) $2.2 million, 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 $2.4 million from the sale. The Group is expected to close the second batch of the sale in 2024.
| 3 |
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. |
| 4 |
| ● | 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. |
| 5 |
Results of Operations
(In thousands, except for share and per share data)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Revenues | $ | 12,032 | $ | 1,158 | $ | 21,452 | $ | 2,939 | ||||||||
| Cost of revenues | 10,203 | 1,219 | 17,118 | 2,827 | ||||||||||||
| Gross profit (loss) | 1,829 | (61 | ) | 4,334 | 112 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 8,929 | 3,100 | 17,578 | 6,946 | ||||||||||||
| Impairment of goodwill | - | - | 4,271 | - | ||||||||||||
| Operating loss | (7,100 | ) | (3,161 | ) | (17,515 | ) | (6,834 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (642 | ) | (2 | ) | (3,337 | ) | (1 | ) | ||||||||
| Gain on sales-type leases | - | - | - | 99 | ||||||||||||
| Change in fair value of derivative liability | 647 | - | 589 | - | ||||||||||||
| (Reversal of) Bargain purchase gain | (836 | ) | - | 32,072 | - | |||||||||||
| Others | (2 | ) | 8 | - | 803 | |||||||||||
| Total other (expenses) income, net | (833 | ) | 6 | 29,324 | 901 | |||||||||||
| (Loss) income before income taxes | (7,933 | ) | (3,155 | ) | 11,809 | (5,933 | ) | |||||||||
| Income tax benefits (provision) | 5,675 | (22 | ) | 732 | (22 | ) | ||||||||||
| Net (loss) income | $ | (2,258 | ) | $ | (3,177 | ) | $ | 12,541 | $ | (5,955 | ) | |||||
| Net (loss) earnings per share of common stock: | ||||||||||||||||
| Basic | $ | (0.06 | ) | $ | (0.15 | ) | $ | 0.38 | (0.28 | ) | ||||||
| Diluted | $ | (0.06 | ) | $ | (0.15 | ) | $ | 0.33 | (0.28 | ) | ||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | 34,821,273 | 21,261,704 | 32,285,754 | 21,038,874 | ||||||||||||
| Diluted | 34,821,273 | 21,261,704 | 36,882,268 | 21,038,874 | ||||||||||||
Net Revenues
For the three months ended June 30, 2024 and 2023, our revenues were $12.0 million and $1.2 million, respectively. Our total revenue increased by $10.8 million, or 900%, primarily due to the acquisition of Proterra transit business unit. The transit business unit contributed $11.7 million of revenue to the Group for the three months ended June 30, 2024. The increase was partially offset by the decline in our sales of EVs. We delivered 5 EVs during the three months ended June 30, 2023 while we delivered only 1 EV during the three months ended June 30, 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 since the last quarter of 2023 and also due to a shift in our operation focus to more on transit business.
For the six months ended June 30, 2024 and 2023, our revenues were $21.5 million and $2.9 million, respectively. Our total revenue increased by $18.6 million, or 641%, primarily due to the acquisition of Proterra transit business unit. The transit business unit contributed $20.7 million of revenue to the Group for the six months ended June 30, 2024. The increase was partially offset by the decline in our sales of EVs. We delivered 9 EVs during the six months ended June 30, 2023 while we delivered only 2 EV during the six months ended June 30, 2024. Such decrease was mainly because we incurred cash shortage issues starting from late 2023 and also due to a shift in our operation focus to more on transit business.
For the three and six months ended June 30, 2024 and 2023, our revenue breakdown by major categories for relevant periods was as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Sales of transit buses | $ | 10,585 | $ | — | $ | 19,116 | $ | — | ||||||||
| Sales of EVs | 233 | 717 | 483 | 1,868 | ||||||||||||
| Lease of EVs | 45 | 125 | 90 | 215 | ||||||||||||
| Sales of Forklifts | — | 57 | 39 | 270 | ||||||||||||
| Others | 1,169 | 259 | 1,724 | 586 | ||||||||||||
| $ | 12,032 | $ | 1,158 | $ | 21,452 | $ | 2,939 | |||||||||
| 6 |
The following is a summary of the Group’s disaggregated revenues by timing of revenue recognition:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Point in time | $ | 11,692 | $ | 904 | $ | 20,894 | $ | 2,460 | ||||||||
| Over time | 340 | 254 | 558 | 479 | ||||||||||||
| $ | 12,032 | $ | 1,158 | $ | 21,452 | $ | 2,939 | |||||||||
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 June 30, 2024 and 2023, our costs of revenues were $10.2 million and $1.2 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.
For the six months ended June 30, 2024 and 2023, our costs of revenues were $17.1 million and $2.8 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 June 30, 2024 and 2023, our combined gross margin was 15.2 % and (5.3)%, 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 June 30, 2024 with a relatively high selling price.
For the six months ended June 30, 2024 and 2023, our combined gross margin was 20.2 % and 3.8%, 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 two EV sold during the six months ended June 30, 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 June 30, 2024 and 2023, our selling, general and administrative expenses were $8.9 million and $3.1 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.
For the six months ended June 30, 2024 and 2023, our selling, general and administrative expenses were $17.6 million and $6.9 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 six months ended June 30, 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 expense for the three months ended June 30, 2024, was $0.8 million, primarily due to an adjustment on gain on bargain purchase of Proterra transit business unit of $0.8 million and interest expense of $0.6 million, from short-term loan and debt discount amortization of convertible note, partially offset by change in fair value of derivative liability of $0.6 million.
Our other income for the six months ended June 30, 2024, was $29.3 million, primarily due to gain on bargain purchase of Proterra transit business unit of $32.1 million and gain of change in fair value of derivative liability of $0.6 million, partially offset by the interest expense of $3.3 million resulted from short-term loan and debt discount amortization of convertible note. Our other income for the six months ended June 30, 2023, was $0.9 million, primarily due to refund of employee retention credit (“ERC”) from the IRS.
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.
| 7 |
Net Income (loss)
As a result of the above factors, the net loss for the three months ended June 30, 2024 and 2023, was $2.3 million and $3.2 million, respectively.
As a result of the above factors, the net income for the six months ended June 30, 2024 was $12.5 million, and the net loss for the six months ended June 30, 2023 was $6.0 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 $14,698 and $289 as of June 30, 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 $12.5 million during the six months ended June 30, 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 of $19.5 million during the six months ended June 30, 2024 and has incurred significant recurring losses before 2024. In addition, the cash flow used in operating activities was $1.6 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.
| 8 |
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:
| Six months Ended | Six months Ended | |||||||
| In thousands | June 30, 2024 | June 30, 2023 | ||||||
| Net cash used in operating activities: | $ | (1,599 | ) | $ | (1,678 | ) | ||
| Net cash used in investing activities | (10,879 | ) | (766 | ) | ||||
| Net cash generated from financing activities | 10,596 | 2,687 | ||||||
| Net (decrease)/ increase in cash, cash equivalents and restricted cash | (1,882 | ) | 243 | |||||
As of June 30, 2024, we had $1.4 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 $1.6 million for the six months ended June 30, 2024, primarily as a result of (i) a net income of $12.5 million, adjusted by non-cash items of bargain purchase gain of $32.1 million from acquisition of Proterra, impairment loss of goodwill of $4.3 million, depreciation and amortization of $0.8 million, amortization of debt discount of convertible notes of $1.5 million, deferred tax liability reversal of $3.0 million, loss on change in market value of derivative liability, an accrual on warranty reserve of $0.6 million and amortization of right of use of assets of $0.5 million, and changes in operating assets and liabilities including (i) increase in accounts receivable of $3.2 million due to uncollected accounts receivable from sales of transit buses, (ii) decrease in inventories of $12.9 million due to certain inventories purchase from Proterra have been sold; (iii) increase in accrued liabilities of $0.5 million due to interest accrued for Nations Bus loans, (iv) increase in accounts payable of $1.1million mainly due to additional inventories purchased for upcoming manufacturing of transit buses, (v) increase in income tax payable of $ 2.3 million due to taxable bargain purchase gain from acquisition of Proterra and (vi) increase in advance from customers of $2.3 million due to collection of downpayments from transit bus sales.
Net cash used in operating activities was $1.7 million for the six months ended June 30, 2023, primarily as a result of (i) a net loss of $6.0 million, adjusted by non-cash items of depreciation and amortization of $0.8 million and amortization of right of use of assets of $0.5 million, partially offset by (ii) a decrease in inventories of $2 million, (iii) a decrease in prepaid expenses and other assets of $0.4 million, and (iv) an increase in account payable of $0.7 million.
Investing Activities
Net cash used in investing activities was $10.9 million for the six months ended June 30, 2024, primarily because of acquisition of Proterra for a total consideration of $10 million and $0.8 million of loan lent to a related party.
Net cash used in investing activities was $0.8 million for the six months ended June 30, 2023, primarily as a result of purchase of property and equipment.
Financing Activities
Net cash generated from financing activities was $10.6 million for the six months ended June 30, 2024, primarily as a result of (i) net proceeds from private placements of $11.1 million, (ii) proceeds from borrowing of $2.4 million, and (iii) proceeds of borrowings from a related party of $1.4 million. The increase was partially offset by repayment to borrowings of $2.0 million and repayment of borrowings to a related party of $2.3 million.
Net cash generated from financing activities was $2.7 million for the three months ended June 30, 2023, primarily as a result of net proceeds from tapping the SEPA and convertible notes.
| 9 |
Capital Expenditures
We incurred capital expenditures of $10.1 million and $0.8 million for the six months ended June 30, 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. |
| 10 |
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 June 30, 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 June 30, 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. |
| (5) | 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 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; (4) devoting proper time by senior management to perform comprehensive review of procedures to assess risks and enforce effective accountability; and (5) 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.
There was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 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.
| 11 |
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 $2,550,000 of the Notes outstanding as of June 30, 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.
| 12 |
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; |
| 13 |
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
| Exhibit No. | Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended. | |
| 31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended. | |
| 32** | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104. | Cover Page Interactive Data File - The cover page iXBRL tags are embedded within the inline XBRL document. |
| * | Filed herewith. |
| ** | 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. |
| 14 |
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 31, 2024
| 15 |