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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2023

 

OR

 

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

 

For the transition period from ________ to__________

 

Commission file number: 001-37678

 

SPI ENERGY CO., LTD.

(Exact Name of Registrant as Specified in Its Charter)

 

Cayman Islands   20-4956638

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

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

 

(408) 919-8000

(Registrant's Telephone Number, Including Area Code)

 

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

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer Accelerated Filer
Non-Accelerated Filer Smaller Reporting Company
  Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

 

As of November 20, 2023, 31,603,109 ordinary shares, par value $0.0001 per share, were issued and outstanding.

 

   

 

 

TABLE OF CONTENTS

 

    Page
Part I. Financial Information 3
  Item 1. Interim Financial Statements 3
  Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 3
  Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 4
  Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022 5
  Unaudited Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022 6
  Unaudited Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2023 and 2022 8
  Notes to Unaudited Condensed Consolidated Financial Statements 9
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 34
  Item 4. Controls and Procedures 34
Part II. Other Information 36
  Item 1. Legal Proceedings 36
  Item 1A. Risk Factors 37
  Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities 37
  Item 3. Defaults Upon Senior Securities 37
  Item 4. Mine Safety Disclosures 37
  Item 5. Other Information 37
  Item 6. Exhibits 37
Signatures 38

 

 

 

 

 

 

 

 

 

 

 2 

 

PART I

 

Item 1. Financial Statements

 

SPI ENERGY CO., LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

         
  

September 30,

2023

  

December 31,

2022

 
    (Unaudited)      
ASSETS          
Current assets:          
Cash and cash equivalents  $5,527   $3,394 
Restricted cash   2,277    6,743 
Accounts receivable, net   24,194    21,181 
Contract asset   358    1,403 
Inventories   34,139    24,427 
Project assets held for sale   6,140    10,634 
Prepaid expenses and other current assets, net   8,023    6,121 
Amount due from related parties   332    332 
Current assets of discontinued operations       7,721 
Total current assets   80,990    81,956 
Intangible assets, net   716    883 
Goodwill   625    625 
Restricted cash, noncurrent       461 
Other receivable, noncurrent   208    26 
Property and equipment, net   37,634    39,064 
Consideration receivable from a related party, noncurrent   12,200     
Project assets, noncurrent   15,515    14,918 
Investment in an affiliate   70,908    69,606 
Operating lease right-of-use assets   10,881    10,355 
Deferred tax assets, net   515    479 
Noncurrent assets of discontinued operations       12,722 
Total assets  $230,192   $231,095 
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable  $43,842   $29,046 
Accrued liabilities   14,148    15,154 
Amount due to related parties   89    168 
Income taxes payable   3,850    3,511 
Advance from customers   5,635    7,404 
Short-term borrowings and current portion of long-term borrowings   3,441    10,061 
Amount due to an affiliate   10,526    10,548 
Convertible bonds, current   45,181    42,676 
Derivative liability   4,083    3,406 
Accrued warranty reserve   557    429 
Operating lease liabilities, current   1,124    888 
Consideration payable   63,182    61,617 
Current liabilities of discontinued operations       4,789 
Total current liabilities   195,658    189,697 
Long-term borrowings, excluding current portion   6,111    6,450 
Deferred tax liabilities, net   2,512    2,673 
Operating lease liabilities, non-current   9,908    11,031 
Noncurrent Liabilities of discontinued operations       3,372 
Total liabilities   214,189    213,223 
Equity:          
Ordinary shares, par $0.0001, 500,000,000 shares authorized, 31,603,109 and 30,292,960 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively   3    3 
Additional paid in capital   733,275    719,697 
Accumulated other comprehensive loss   (36,034)   (36,697)
Accumulated deficit   (684,691)   (670,811)
Total equity attributable to the shareholders of SPI Energy Co., Ltd.   12,553    12,192 
Noncontrolling interests   3,450    5,680 
Total equity   16,003    17,872 
Total liabilities and equity  $230,192   $231,095 

 

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

 

 3 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

                 
   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2023   2022   2023   2022 
                 
Net revenues  $55,928   $42,803   $159,762   $127,752 
Cost of revenue   48,463    45,213    142,675    124,026 
Gross profit (loss)   7,465    (2,410)   17,087    3,726 
Operating expenses:                    
General and administrative   5,787    5,416    16,869    17,706 
Sales, marketing and customer service   737    664    1,884    2,400 
Impairment charges on long-lived assets       1,809        1,809 
(Reversal) provision for credit losses   (20)   (262)   874    (446)
Total operating expenses   6,504    7,627    19,627    21,469 
Operating income (loss)   961    (10,037)   (2,540)   (17,743)
                     
Other (expense) income:                    
Interest expense, net   (1,632)   (1,280)   (5,995)   (4,314)
Loss on extinguishment of convertible bonds   (190)   (422)   (190)   (2,634)
Change in fair value of derivative liability   (88)       (677)    
Net foreign exchange gain   1,350    2,603    262    5,927 
Employee retention credit (“ERC”) tax refund           3,313     
Gain on early termination of leases   1,149        1,149     
Gain on PPP loan forgiveness               4,508 
Others   (105)   273    736    1,333 
Total other income (expense), net   484    1,174    (1,402)   4,820 
Net income (loss) before income taxes   1,445    (8,863)   (3,942)   (12,923)
Income tax expense   (627)   (700)   (1,675)   (1,397)
Net income (loss) from continuing operations   818    (9,563)   (5,617)   (14,320)
Net loss from discontinued operations, net of income taxes   (2,711)   (3,930)   (8,666)   (8,177)
Net loss  $(1,893)  $(13,493)  $(14,283)  $(22,497)
                     
Net income (loss) from continuing operations  $818   $(9,563)  $(5,617)  $(14,320)
Less: Net income attributable to noncontrolling interests from continuing operations   298    303    641    457 
Net income (loss) from continuing operations attributable to shareholders of SPI Energy Co., Ltd.  $520   $(9,866)  $(6,258)  $(14,777)
                     
Net loss from discontinued operations  $(2,711)  $(3,930)  $(8,666)  $(8,177)
Less: loss attributable to noncontrolling interests of discontinued operations   (191   (357)   (1,044)   (357)
Net loss from discontinued operations attributable to shareholders of SPI Energy Co., Ltd.  $(2,520)  $(3,573)  $(7,622)  $(7,820)
                     
Net loss attributable to shareholders of SPI Energy Co., Ltd.   (2,000)   (13,439)   (13,880)   (22,597)
                     
Net income (loss) from continuing operation per ordinary share – Basic  $0.02   $(0.35  $(0.20  $(0.54
Net income (loss) from continuing operation per ordinary share – Diluted  $0.02   $(0.35)  $(0.20)  $(0.54)
Net loss from discontinued operation per ordinary share – Basic  $(0.08  $(0.13  $(0.25  $(0.29
Net loss from discontinued operation per ordinary share – Diluted  $(0.08)  $(0.13)  $(0.25)  $(0.29)
Net loss per ordinary share – Basic  $(0.06)  $(0.48)  $(0.45)  $(0.83)
Net loss per ordinary share – Diluted  $(0.06)  $(0.48)  $(0.45)  $(0.83
                     
Weighted average shares outstanding – Basic   30,991,052    28,090,018    30,528,214    27,230,553 
Weighted average shares outstanding – Diluted   31,087,302    28,090,018    30,528,214    27,230,553 

 

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

 

 

 

 4 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

                     
   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2023   2022   2023   2022 
Net loss  $(1,893)  $(13,493)  $(14,283)  $(22,497)
Other comprehensive income (loss):                    
Foreign currency translation adjustments   (802)   (2,195)   (324)   (4,557)
Total comprehensive loss   (2,695)   (15,688)   (14,607)   (27,054)
Comprehensive loss attributable to noncontrolling interests   (195)   (77)   (1,390)   (612)
Comprehensive loss attributable to shareholder of SPI Energy Co., Ltd.  $(2,500)  $(15,611)  $(13,217)  $(26,442)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 5 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

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

 

                                 
   Ordinary Shares   Additional Paid-In   Accumulated   Accumulated Other Comprehensive   Equity Attributable to Shareholders of SPI Energy   Noncontrolling   Total 
   Shares   Amount   Capital   Deficit   Loss   Co., Ltd.   Interests   Equity 
Balances at December 31, 2022  30,292,960   $3   $719,697   $(670,811)  $(36,697)  $12,192   $5,680   $17,872 
Net loss              (9,408)       (9,408)   (341)   (9,749)
Foreign currency translation adjustments                  1,289    1,289    (683)   606 
Issuance of common stock of Phoenix for standby equity purchase agreement of Phoenix                          1,155    1,155 
Share-based compensation expense          617            617        617 
Balances at March 31, 2023  30,292,960   $3   $720,314   $(680,219)  $(35,408)  $4,690   $5,811   $10,501 
Net loss              (2,472)       (2,472)   (169)   (2,641)
Foreign currency translation adjustments                  (126)   (126)   (2)   (128)
Issuance of common stock of Phoenix for standby equity purchase agreement of Phoenix                          72    72 
Share-based compensation expense          404            404        404 
Balances at June 30, 2023  30,292,960   $3   $720,718   $(682,691)  $(35,534)  $2,496   $5,712   $8,208 
Net loss               (2,000)        (2,000)   107    (1,893)
Foreign currency translation adjustments                   (500)   (500)   (302)   (802)
Share-based compensation expense            388            388        388 
Deconsolidation of Phoenix (Note 4)          10,564            10,564    (2,067)   8,497 
Issuance of restricted share units to employees  747,703        815            815        815 
Settlement of convertible debt with ordinary shares  562,446        790            790        790 
Balances at September 30, 2023  31,603,109   $3   $733,275   $(684,691)  $(36,034)  $12,553   $3,450   $16,003 

 

 

 

 6 

 

 

                                                               
  Ordinary Shares     Additional Paid-In     Accumulated     Accumulated Other Comprehensive     Equity Attributable to Shareholders of SPI Energy     Noncontrolling     Total  
  Shares     Amount     Capital     Deficit     Loss     Co., Ltd.     Interests     Equity  
Balances at December 31, 2021   25,352,060     $ 3     $ 695,073     $ (637,390 )   $ (35,257 )   $ 22,429     $ 3,521     $ 25,950  
Net loss                   $ (6,845 )         $ (6,845 )     59       (6,786 )
Foreign currency translation adjustments                           728       728       (663 )     65  
Issuance of common stock of Phoenix for standby equity purchase agreement of Phoenix   229,888             623                   623             623  
Settlement of convertible debt with ordinary shares   752,393             1,750                   1,750             1,750  
Issuance of ordinary shares for settlement of consideration related to Acquisition of Phoenix   42,442                                            
Share-based compensation expense               595                   595             595  
Balances at March 31, 2022   26,376,783     $ 3     $ 698,041     $ (644,235 )   $ (34,529 )   $ 19,280     $ 2,917     $ 22,197  
Net loss                   $ (2,313 )         $ (2,313 )     95       (2,218 )
Foreign currency translation adjustments                           (2,401 )     (2,401 )     (26 )     (2,427 )
Settlement of convertible debt with ordinary shares   1,615,784             5,337                   5,337             5,337  
Issuance of common stock of Phoenix for standby equity purchase agreement of Phoenix               11,344                   11,344       2,094       13,438  
Share-based compensation expense               340                   340             340  
Balances at June 30, 2022   27,992,567     $ 3     $ 715,062     $ (646,548 )   $ (36,930 )   $ 31,587     $ 5,080     $ 36,667  
Net loss                     (13,439           (13,439)       (54)       (13,493)  
Foreign currency translation adjustments                           (2,172 )     (2,172)       (23)       (2,195 )
Settlement of convertible debt with ordinary shares   848,669             1,572                   1,572             1,572  
Share-based compensation expense               707                   707             707  
Exercise of vested options by employees of Phoenix                                       138       138  
Issuance of ordinary shares of Phoenix in its IPO                                       793       793  
Balances at September 30, 2022   28,841,236     $ 3     $ 717,341     $ (659,987 )   $ (39,102 )   $ 18,255     $ 5,934     $ 24,189  

 

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

  

 

 

 7 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

           
   For the Nine Months Ended September 30, 
   2023   2022 
Cash flows from operating activities:          
Net cash provided by operating activities of continuing operations  $4,831   $1,275 
Net cash used in operating activities of discontinued operations   (2,542)   (14,243)
Total net cash provided by (used in) operating activities   2,289    (12,968)
           
Cash flows from investing activities:          
Purchase of property and equipment   (872)   (5,817)
Proceeds from disposal of property and equipment       1,651 
Loan lent to a related party       (1,676)
Proceeds from repayment from a related party       1,676 
Spin-off off a subsidiary   (396    
Net cash used in investing activities of continuing operations   (1,268)   (4,166)
Net cash used in investing activities of discontinued operations   (162)   (449)
Total net cash used in investing activities   (1,430)   (4,615)
           
Cash flows from financing activities:          
Repayment of borrowings   (148,501)   (114,598)
Proceeds from borrowings   141,715    112,532 
Proceeds from issuance of convertible bond, net of original issuance discount       2,000 
Repayment of convertible bond   (375    
Net cash used in financing activities of continuing operations   (7,161   (66)
Net cash provided by financing activities of discontinued operations   2,751    13,569 
Total net cash (used in) provided by financing activities   (4,410   13,503 
           
Effect of exchange rate changes   368    (968)
           
Decrease in cash, cash equivalents and restricted cash   (3,183)   (5,048)
Cash, cash equivalents and restricted cash at beginning of period   10,987    17,845 
Cash, cash equivalents and restricted cash at end of period  $7,804   $12,797 
           
Less: cash of discontinued operations at September 30       1,567 
Cash, cash equivalents and restricted cash at September 30 for continuing operations  $7,804   $11,230 
           
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets          
Cash and cash equivalents   5,527    4,787 
Restricted cash   2,277    6,443 
Total cash, cash equivalents, and restricted cash  $7,804   $11,230 
           
Supplemental cash flow information:          
Interest paid  $3,192   $1,890 
Income tax paid  $1,524   $ 
Non-cash investing and financing activities:          
Right of use assets obtained in exchange for operating lease obligations  $1,942   $428 
Inventories transferred to PPE  $163   $690 
Settlement of convertible debt with ordinary shares  $600   $8,659 
Derecognition of ROU assets and lease liabilities upon lease termination  $610   $ 
Issuance of restricted share units to employees  $815   $ 

 

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

 

 8 

 

 

SPI ENERGY CO., LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

1. Description of Business and Organization

 

Description of Business

 

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

  

Organization

 

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

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

 

On January 1, 2017, the Group deconsolidated one of the major subsidiaries, Sinsin Renewable Investment Limited (“Sinsin”) due to loss of control and recognized the investment in Sinsin at the carrying amount of $69,606. Both the Group and the former shareholders of Sinsin, Sinsin Europe Solar Asset Limited Partnership and Sinsin Solar Capital Limited Partnership (collectively, the “Sinsin Group”), failed to fulfill the obligation under the share sale and purchase agreement of Sinsin, which led to that both parties filed petitions to each other. The petitions directly affected the Group’s ability to effectively control Sinsin and make any direct management decisions or have any direct impact on Sinsin’s polices, operations or assets without the agreement of Sinsin Group. On October 29, 2020, an arbitration decision was made in Malta that the Group will need to pay the unpaid consideration of EUR 38,054, together with interest at 6% accruing from November 20, 2015 on half of the unpaid consideration and from June 30, 2016 on the remaining half of the unpaid consideration to the date of eventual payment. The Group filed an application for appeals but was turned down by the court of Malta on November 12, 2021. The Group furtherly filed an application of retrial and suspension of the enforcement of the awards but was rejected by the court of Malta on March 30, 2022. On November 2, 2022, Sinsin filed an action to confirm these arbitral awards pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (“New York Convention”) as implemented by the Federal Arbitration Act (“FAA”) before U.S. District Court Eastern District of California. On April 27, 2023, Sinsin filed amended petition to add a request for an award of attorneys’ fees incurred in connection with the petition, add detail on the allegedly owed costs and liabilities, and request that the court issue an injunction against asset dissipation pending satisfaction of the requested judgment.

 

 

 

 

 9 

 

 

On October 2, 2023, the United States District Court Eastern District of California filed an order dated September 29, 2023 about the action. Pursuant to the order, (i) SPI shall pay Sinsin the amounts no less than $60.4 million, subject to a continuing interest rate of six percent accruing from November 30, 2015 on half of the outstanding balance owed under the parties’ Share Sale and Purchase Agreement dated September 6, 2014 (“SPA”) (€19million), and accruing from June 20, 2016 on the remaining half of the outstanding amount owed under the SPA (€19million); (ii) Sinsin’ request for a worldwide asset freeze to prevent SPI from dissipating its assets was denied by the Court without prejudice to renewal as necessary should SPI fail to comply with the Court’s orders; and (iii) Sinsin’ motion for an award of attorneys’ fees and costs was granted by the Court. On October 2, 2023, the Court entered a judgement in accordance with such order. The Group is currently negotiating with Sinsin on the settlement plan.

 

As of September 30, 2023, investment in Sinsin was $69.6 million. Consideration payable, including accrued interest and litigation fees payable, was $63.2 million as of September 30, 2023.

 

On September 26, 2023, the Group transferred 56.36% of common stock of one of its subsidiaries, Phoenix Motors Inc. (“Phoenix”), to a related party at a consideration of $12,240 and deconsolidated Phoenix due to loss of control. The Group recognized the remaining investment in Phoenix at the carrying amount of $1,302. The disposal of Phoenix was completed as of September 30, 2023 (See Note 4 Discontinued Operations).

 

 

2. Going concern

 

The Group’s condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of the business. The Group had recurring losses from operations. The Group has incurred a net loss of $5,617 from continuing operations during the nine months ended September 30, 2023. As of September 30, 2023, there was net working capital deficit of $114,668 and accumulated deficit of $684,691. These factors raise substantial doubt as to the Group’s ability to continue as a going concern. The Group intends to continue implementing various measures to boost revenue and control the cost and expenses within an acceptable level and other measures including: 1) negotiate with potential buyers on PV solar projects; 2) negotiate for postponing of convertible bond payments; 3) improve the profitability of the business in US; 4) strictly control and reduce business, marketing and advertising expenses; 5) obtain equity financing from certain subsidiaries’ initial public offerings; and 6) seek for certain credit facilities. There is no assurance that the group will be successful in meeting its liquidity and cash flow requirements. The Group’s condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

 

 

3. Summary of Significant Accounting Policies

 

  (a) Basis of Presentation

 

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

 

 

 

 10 

 

 

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

 

  (b) Use of Estimates

 

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

 

  (c) Revenue Recognition

 

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

 

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

 

Sale of PV components

 

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

 

Sales of self-assembled solar modules

 

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

 

Revenue from roofing and solar energy systems installation

 

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

 

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

  

 

 

 11 

 

 

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

  

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

  

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

 

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

 

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

 

Electricity revenue with PPAs

 

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

 

Sale of PV project asset

 

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

 

Other revenue

 

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

 

 

 

 12 

 

 

Disaggregation of revenues from continuing operations

 

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

                            
By revenue stream  For the nine months ended September 30, 2023 (Unaudited) 
   Sales of PV components   Sales of self-assembled solar modules   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Sales of pre-development solar projects   Others   Total 
Australia  $119,062   $   $   $   $   $870   $119,932 
United States       26,810    2,256    216    6,743        36,025 
Japan                       67    67 
Italy               499            499 
United Kingdom               1,260            1,260 
Greece               1,979            1,979 
Total  $119,062   $26,810   $2,256   $3,954   $6,743   $937   $159,762 

 

By revenue stream  For the three months ended September 30, 2023 (Unaudited) 
   Sales of PV components   Sales of self-assembled solar modules   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Sales of pre-development solar projects   Others   Total 
Australia  $45,035   $   $   $   $   $260   $45,295 
United States       8,071    831    69            8,971 
Japan                       25    25 
Italy               192            192 
United Kingdom               616            616 
Greece               829            829 
Total  $45,035   $8,071   $831   $1,706   $   $285   $55,928 

 

By revenue stream  For the nine months ended September 30, 2022 (Unaudited) 
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Sales of self-assembled solar modules   Sales of pre-development solar projects   Others   Total 
Australia  $94,953   $   $   $   $   $660   $95,613 
Italy           776                776 
United States   1,608    23,735        1,382    637    304    27,666 
United Kingdom           1,561                1,561 
Greece           2,136                2,136 
Total  $96,561   $23,735   $4,473   $1,382   $637   $964   $127,752 

 

 

 

 13 

 

 

By revenue stream  For the three months ended September 30, 2022 (Unaudited) 
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Sales of self-assembled solar modules   Sales of pre-development solar projects   Others   Total 
Australia  $35,399   $   $   $   $   $218   $35,617 
Italy           308                308 
United States   305    3,582        1,318        259    5,464 
United Kingdom           629                629 
Greece           785                785 
Total  $35,704   $3,582   $1,722   $1,318   $   $477   $42,803 

 

                        
By timing of revenue recognition  For the nine months ended September 30, 2023 (Unaudited) 
   Sales of PV components   Sales of self-assembled solar modules   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Others   Total 
Goods transferred at a point in time  $119,062   $26,810   $   $3,954   $7,680   $157,506 
Service transferred over time           2,256            2,256 
Total  $119,062   $26,810   $2,256   $3,954   $7,680   $159,762 

 

By timing of revenue recognition  For the three months ended September 30, 2023 (Unaudited) 
   Sales of PV components   Sales of self-assembled solar modules   Revenue from roofing and solar systems installation   Electricity revenue with PPAs    Others   Total 
Goods transferred at a point in time  $45,035   $8,071   $   $1,706    $285   $55,097 
Service transferred over time           831             831 
Total  $45,035   $8,071   $831   $1,706    $285   $55,928 

 

By timing of revenue recognition  For the nine months ended September 30, 2022 (Unaudited) 
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Sales of self-assembled solar modules   Others   Total 
Goods transferred at a point in time  $96,561   $   $4,473   $1,382   $1,601   $104,017 
Service transferred over time       23,735                23,735 
Total  $96,561   $23,735   $4,473   $1,382   $1,601   $127,752 

 

 

 

 14 

 

 

By timing of revenue recognition  For the three months ended September 30, 2022 (Unaudited) 
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Sales of self-assembled solar modules   Others   Total 
Goods transferred at a point in time  $35,704   $   $1,722   $1,318   $477   $39,221 
Service transferred over time       3,582                3,582 
Total  $35,704   $3,582   $1,722   $1,318   $477   $42,803 

 

Contract balance

 

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

         
  

September 30,

2023

(Unaudited)

  

December 31,

2022

 
Accounts Receivable  $24,194   $21,181 
Contract assets   358    1,403 
Advance from customers   5,635    7,404 

 

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

 

Advance from customers, which represent a contract liability, represent mostly unrecognized amount received for customers. Advance from customers is recognized as (or when) the Group performs under the contract. During the nine months ended September 30, 2023 and 2022, the Group recognized $7,404 and $4,924 as revenue that was included in the balance of advance from customers at January 1, 2023 and 2022, respectively.

 

  (d) Discontinued operations

 

A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when any of the following occurs:

 

(1)the component of an entity or group of components of an entity meets the criteria to be classified as held for sale;
(2)the component of an entity or group of components of an entity is disposed of by sale;
(3)the components of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).

 

 

 

 15 

 

 

For any component classified as held for sale or disposed of by sale or other than by sale that qualify for presentation as a discontinued operation in the period, the Group has reported the assets and labilities of the discontinued operations as current and non-current assets of discontinued operations, and current and non-current liabilities of discontinued operations in the consolidated balance sheets as of December 31, 2022. The results of operations of discontinued operation for the nine and three months ended September 30, 2023 and 2022 have been reflected separately in the consolidated statements of operations as a single line item for all periods presented in accordance with U.S.GAAP. Cash flows from discontinued operations of the three categories for the nine months ended September 30, 2023 and 2022 were separately presented in the consolidated statements of cash flows for all periods presented in accordance with U.S. GAAP.

 

For the disposal under common control, the Group records the impacts on deconsolidation in additional paid in capital based on the difference on the deconsolidation date between (i) the aggregate of (a) the consideration received, (b) the carrying amount of non-controlling interest in the deconsolidated subsidiaries, and (c) the carrying amount of the remaining interests in the deconsolidated subsidiaries less (ii) the carrying amount of the deconsolidated subsidiaries’ assets and liabilities.

 

  (e) Recent Accounting Pronouncements

 

Recently adopted accounting pronouncements

 

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

 

Accounting Pronouncements Issued But Not Yet Adopted

 

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

 

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

 

 

 

 16 

 

 

 

4.

Discontinued Operations

 

On September 26, 2023, the Group’s subsidiary, Edison Future, sold 56.36% of its common stock of Phoenix Motor Inc. (“Phoenix”) to Palo Alto Clean Tech Holding Limited (“Palo Alto”, the Buyer), an entity controlled by Xiaofeng Peng, the Group’s Chairman of the Board of Directors and Chief Executive Officer.

 

The consideration of $12,240 was paid $40 in cash on September 26, 2023 and the balance of $12,200 was paid by delivery of a secured promissory note dated September 26, 2023, bearing interest at 3% per annum, with the full principal amount of $12,200 due at maturity in 3 years, or September 26, 2026. The common stock of Phoenix sold in this transaction were also pledged as collateral for the seller Edison Future's benefit under a Stock Pledge Agreement dated September 26, 2023.

 

As Phoenix used to be a reportable segment of the Group and the disposal of Phoenix is considered as a strategic shift, the Group disclosed the results of the business of Phoenix as discontinued operations. As the disposal of Phoenix is considered as a spin-off, there is no gain or loss recognized because of the disposal and the difference between consideration received, the carrying amount of the remaining interests, the carrying amount of the non-controlling interest derecognized, over the carrying amount of the net asset of Phoenix disposed were recorded in APIC.

 

The assets and liabilities of Phoenix are included in the captions "Current assets of discontinued operations”, “Non-current assets of discontinued operations”, “Current liabilities of discontinued operations” and “Non-current liabilities of discontinued operations”, in the accompanying balance sheets at December 31, 2022 and consist of the following:

    
   December 31, 2022 
Assets    
Current assets     
Cash and cash equivalents  $139 
Accounts receivable, net   1,510 
Inventories   4,560 
Prepaid expenses and other current assets   1,344 
Amount due from related party   168 
Total current assets of discontinued operations   7,721 
Restricted cash, non current   250 
Property and equipment, net   2,492 
Security deposits   208 
Right-of-use assets   3,797 
Intangible assets, net   1,704 
Goodwill   4,271 
Total non-current assets of discontinued operations   12,722 
Total assets of discontinued operations  $20,443 
      
Liabilities     
Current liabilities     
Accounts payable  $1,359 
Accrued liabilities   650 
Advance from customers   1,230 
Deferred revenue   503 
Warranty reserve   325 
Lease liabilities - Current portion   719 
Long-term borrowing, current portion   3 
Total current liabilities of discontinued operations   4,789 
Lease liabilities - Non-current portion   3,225 
Long-term borrowings   147 
Total non-current liabilities of discontinued operations   3,372 
Total liabilities of discontinued operations  $8,161 

 

 

 

 17 

 

 

The comparative condensed consolidated statements of operations have been represented to show the discontinued operations separately from continuing operations. Details of the results from discontinued operations, net of tax are set out below:

                     
Schedule of income from discontinued operations  For the three months ended
September 30,
   For the nine months ended
September 30,
 
    2023*    2022    2023*    2022 
    USD’000    USD’000    USD’000    USD’000 
Net sales  $288   $409   $3,227   $2,579 
Cost of goods sold   293    288    3,120    2,013 
Gross (loss) profit   (5)   121    107    566 
                     
Selling, general and administrative   2,531    3,847    9,477    9,160 
Total operating expense   2,531    3,847    9,477    9,160 
Total other income (expense), net   (175)   (204)   726    431 
Loss from discontinued operations   (2,711)   (3,930)   (8,644)   (8,163)
Income tax expense           (22)   (14)
Loss from discontinued operations, net of income tax  $(2,711)  $(3,930)  $(8,666)  $(8,177)

 

* The result of discontinued operations included those of discontinued operations from January 1, 2023 to September 26, 2023.

 

 

5. Accounts Receivable, Net

  

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

         
  

September 30,

2023

(Unaudited)

   December 31,
2022
 
Accounts receivable  $26,760   $22,896 
Less: Allowance for credit losses   (2,566)   (1,715)
Accounts receivable, net  $24,194   $21,181 

 

For the nine months ended September 30, 2023, the Group recorded credit losses with amount of $874. For the nine months ended September 30, 2022, the Group reversed bad debt provision of $446.

 

 

 

 18 

 

 

6. Inventories

 

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

         
  

September 30,

2023

(Unaudited)

   December 31,
2022
 
Finished goods  $28,422   $20,744 
Goods in transit   699    737 
Work in process   239    550 
Raw materials   4,779    2,396 
Total inventories  $34,139   $24,427 

 

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

 

 

7. Share-based Compensation

 

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

   For the three months Ended   For the nine months Ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
Employee stock options  $186   $707   $1,207   $1,642 
Restricted share units grants (See Note 8)   815        815    623 
Total share-based compensation expense  $1,001   $707   $2,022   $2,265 

 

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