Summary of Phoenix Motor, Inc. (NASDAQ:PEV) Proterra Transit Acquisition Update Call Company Overview - **Company**: Phoenix Motor, Inc. - **Acquisition**: Proterra Transit business - **Headquarters**: Anaheim, California - **Established**: 2003 - **Products**: Electric transit and shuttle buses, school buses, delivery vans, work trucks, and light-duty commercial vehicles under the EdisonFuture brand - **Historical Milestone**: Delivered first electric shuttle bus to NASA in 2014, with over 4 million zero-emission miles logged [5][6] Key Points from the Call Acquisition Details - **Acquisition Significance**: Marks a transformational milestone for Phoenix, enhancing competitiveness in the zero-emission commercial vehicle industry [6] - **Proterra's Market Share**: Proterra accounted for over 40% of all electric transit buses delivered in North America, with over 40 million real-world service miles [6] - **Employee Retention**: 298 out of 305 Proterra Transit employees accepted offers to join Phoenix [7] - **Order Backlog**: Approximately 400 buses with a revenue opportunity of about $400 million [10] Financial Performance - **Historical Revenue**: Proterra delivered approximately 200 buses generating about $200 million in revenue annually from 2020 to 2022 [10] - **2024 Guidance**: Initial guidance set for a minimum of 100 bus deliveries and $100 million in revenue [10] - **Gross Margin Expectations**: Historically single-digit gross margins for Proterra's Transit business, with aspirations to reach mid to high 20% margins [32] Market Position and Strategy - **Market Dynamics**: The transit bus market is heavily regulated, requiring Buy America compliance, limiting competition primarily to a few players [44] - **Competitive Advantages**: Best-in-class battery technology, longest range for 40-foot buses, and strong customer relationships [42][45] - **Integration Focus**: Emphasis on integrating operations and ramping up production of the ZX5 transit bus [7][12] Operational Insights - **Production Capacity**: Aiming to ramp up production to approximately three buses per week by the end of 2024 [30] - **Supply Chain Stability**: Suppliers are eager to resume operations, with a strong inventory position prior to bankruptcy [47] - **Service and Maintenance Opportunities**: Significant potential for revenue and profit in servicing existing fleets, an area previously underinvested [74] Challenges and Risks - **Bankruptcy Impact**: Proterra's bankruptcy led to a lack of focus on the Transit business, which will be addressed by Phoenix's operational rigor [27] - **Customer Contracts**: Minimal erosion of the backlog during bankruptcy, with strong relationships expected to maintain contract integrity [54] Future Outlook - **Production and Delivery Timeline**: Expecting first deliveries under the Phoenix brand within weeks, with all backlog buses anticipated to be delivered in the first half of the year [80] - **Long-term Vision**: Phoenix aims to be a leader in the commercial zero-emission vehicle space, leveraging Proterra's technology and market position [15] Additional Important Information - **Management Team**: Experienced leadership from both Phoenix and Proterra, with a focus on engineering and technology [13] - **Customer Relationships**: Strong ties with transit agencies, municipalities, and educational institutions, ensuring a diverse customer base [10][85] - **Regulatory Environment**: The transit industry benefits from various governmental and environmental incentives, driving demand for electric buses [53] This summary encapsulates the key points discussed during the conference call regarding the acquisition of Proterra Transit by Phoenix Motor, highlighting the strategic importance, financial expectations, market positioning, and operational plans moving forward.

Phoenix Motor Inc Business Overview - Phoenix Motor Inc is a leading manufacturer of zero-emission, commercial electric vehicles serving the North American market[5] - The company has over 40 million real world miles on heavy duty EVs and over 4 million real world miles on transit buses[5] - Phoenix Motor acquired Proterra's Transit Bus business in January 2024, becoming a leader in the electric transit bus market with over 40% market share[15] Proterra Transit Bus Business - Proterra delivered approximately 200 buses per year from 2020-2022, generating approximately $200 million in revenue per year[18] - The company has a backlog of approximately 400 buses, representing approximately $400 million in revenue[18] - Proterra has delivered over 1,000 cumulative electric transit buses since inception[21] Phoenix Motorcars - Medium Duty Electric Solutions - Phoenix Motorcars has deployed over 140 shuttle buses & trucks[46] - The company has over 50 commercial fleet customers[46] - Phoenix Motorcars has $175 million in revenue from municipalities[97] EdisonFuture – Future Products & Technology Development - EdisonFuture is developing light duty electric solar pickup trucks and vans[80] - The pickup truck roof solar panel has a solar area of 193 m^2 and a production hourly of 031 kwh[82] - The van roof solar panel has a solar area of 405 m^2 and a production hourly of 065 kwh[85]

Financial Data and Key Metrics Changes - For Q3 2023, net revenues were $0.3 million, a decrease of 30% compared to $0.4 million in Q3 2022, primarily due to lower EV lease and maintenance revenues as certain customer leases rolled off [12] - Gross profit for Q3 2023 was breakeven, compared to a gross profit of $120,000 in the same quarter of the previous year [6] - SG&A expenses decreased to $2.5 million from $3.8 million in the prior year, attributed to cost-cutting initiatives [22] - The net loss for Q3 2023 narrowed to $2.7 million, compared to a net loss of $3.9 million in the same period last year [22] Business Line Data and Key Metrics Changes - The company is developing a light-duty commercial vehicle line under the EdisonFuture brand, which includes pickup trucks, delivery vans, and SUVs [3] - Revenue from the sale of electric forklifts experienced a modest decline, contributing to the overall revenue decrease [12] Market Data and Key Metrics Changes - Proterra accounts for over 40% of all electric transit buses delivered in North America, with over 40 million real-world service miles [20] Company Strategy and Development Direction - The acquisition of Proterra Transit is seen as a significant milestone, providing ownership of advanced technology and a large order backlog, which will enhance competitiveness in the zero-emission commercial vehicle industry [4][11] - The company aims to maximize returns on shareholders' capital while deploying industry-leading technology, positioning itself well in the high-growth zero-emission commercial vehicle sector [7] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the integration of Proterra Transit and the potential for market synergies in scale, product offerings, and customer relationships [11] - The management team is excited about upcoming product launches and the opportunities presented by the Proterra acquisition, as well as the development of Gen 4 and Gen 5 products [21][23] Other Important Information - The company has a stable and loyal customer base, having logged over 4 million zero-emission miles on the road since its founding in 2003 [3] - The Anaheim facility will continue to serve as the hub for the Gen 4 product line, while the Greenville location will ramp up production of the ZX5 transit bus [5] Q&A Session Summary - The Q&A session included discussions on the Proterra acquisition and its implications for future growth, as well as inquiries about the company's product development timelines and market strategies [24]

Revenue Performance - For the three months ended September 30, 2023, revenues were $0.3 million, a decrease of 30% compared to $0.4 million in the same period of 2022[87]. - For the nine months ended September 30, 2023, revenues increased by 25% to $3.2 million, up from $2.6 million in the same period of 2022, primarily due to increased EV deliveries[88]. Cost and Expenses - Cost of revenues for the nine months ended September 30, 2023, was $3.1 million, a 55% increase from $2.0 million in the same period of 2022, driven by higher material costs and manufacturing overheads[92]. - Operating expenses for the three months ended September 30, 2023, were $2.5 million, a decrease from $3.8 million in the same period of 2022, largely due to layoffs and cost-cutting measures[96]. - Operating expenses for the nine months ended September 30, 2023, were $9.5 million, a slight increase from $9.2 million in the same period of 2022, primarily due to increased research and development expenses[97]. Profitability and Loss - The company reported a net loss of $2.7 million for the three months ended September 30, 2023, compared to a net loss of $3.9 million in the same period of 2022[86]. - The net loss for the three months ended September 30, 2023, was $2.7 million, compared to a net loss of $3.9 million for the same period in 2022; the net loss for the nine months ended September 30, 2023, was $8.7 million, up from $8.2 million in 2022[100]. Cash Flow and Financial Position - As of September 30, 2023, the company had cash and cash equivalents of $0.4 million and an accumulated deficit of $37.2 million, raising substantial doubt about its ability to continue as a going concern[105]. - Net cash used in operating activities was $2.5 million for the nine months ended September 30, 2023, a significant improvement from $14.2 million in the same period of 2022[106][107]. - The company generated $2.8 million from financing activities for the nine months ended September 30, 2023, compared to $13.6 million in the same period of 2022[110]. - Capital expenditures were $0.2 million for the nine months ended September 30, 2023, down from $0.7 million in the same period of 2022[111]. Market and Regulatory Environment - Government incentives are driving the adoption of electric vehicles, with programs offering up to $100,000 per Class 4 electric vehicle in New York and $60,000 in California[88]. - The Inflation Reduction Act is expected to significantly impact the demand for electric vehicles, with federal tax credits for commercial zero-emission vehicles up to $40,000[112]. - The increase in inflation and interest rates is anticipated to adversely impact demand for electric vehicles, as customers may delay purchases or face financing difficulties[114]. Strategic Initiatives - The company aims to reduce Bill of Materials (BOM) and overhead costs through supply chain optimization and strategic alliances[84]. - The company is focused on expanding its electric vehicle offerings, particularly in the medium-duty truck segment, in response to regulatory requirements for zero-emission transportation[84]. - The company anticipates increased capital and operating expenditures as it invests in technology and scales production to meet growing demand[84]. - Supply chain challenges continue to affect the company, with chassis and raw material shortages leading to longer lead times and increased capital spending requirements[112]. - The company plans to implement cost-cutting measures, including workforce reduction and strategic partnerships to control development costs[105].

Financial Data and Key Metrics Changes - For Q2 2023, net revenues were $1.2 million, a decrease of 23% compared to $1.5 million in Q2 2022, despite an 80% increase in electric vehicle sales, which was offset by a decline in electric forklift sales [7][21] - Cost of revenues remained at $1.2 million, resulting in a gross loss of $61,000 compared to a gross profit of $325,000 in the prior year, driven by a decline in gross margin from forklift sales [8][21] - SG&A expenses increased to $3.1 million from $2.3 million year-over-year, primarily due to higher payroll expenses, leading to a net loss of $3.2 million compared to a net loss of $2 million in the previous year [21] Business Line Data and Key Metrics Changes - The Retrofit Solutions business is gaining traction, with increasing inquiries from fleet owners looking to modernize and reduce carbon footprints [6][14] - Over half of vehicle deliveries in the recent quarter were leases to a large repeat customer, which, if classified as sales, would have increased total net revenues by approximately $1 million [20] Market Data and Key Metrics Changes - The company serves over 50 commercial fleet customers, having deployed over 125 shuttle buses and trucks with a combined distance traveled of more than 4 million miles [9][16] - The medium-duty EV market is heavily dependent on the supply of Ford chassis, with anticipated supply shortages prompting plans for a Gen 5 ground-up design [25] Company Strategy and Development Direction - The company aims to be a leader in sustainable and zero-emission medium-duty transportation, with a focus on Gen 4 and Gen 5 vehicle development [3][19] - The asset-light business model is a key differentiator, allowing for lower costs and faster production times, with plans to ramp Gen 4 production to 20-25 units per month in the first half of next year [19][22] - Future vehicle lines include EdisonFuture, a light-duty offering with solar-powered components expected to launch in 2025 [26][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledges challenges in battery supply and chassis availability but has secured a long-term supply agreement with CATL for Gen 4 vehicles [12][25] - The Gen 4 development is expected to be profitable with high gross margins, and its principles will be applied to the Gen 5 design for enhanced security and flexibility [13][36] Other Important Information - The company has reduced the number of parts in its Gen 4 vehicles from 450 to 70, improving design efficiency and supply chain management [24] - The Anaheim manufacturing facility will be reconfigured as a showcase and training center for third-party manufacturing partners [31] Q&A Session Summary - The management expressed appreciation for the interest in the company and encouraged questions via email, indicating a commitment to shareholder value and business development [28]

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) This section covers the interim financial statements, management's discussion and analysis, market risk, and internal controls [Item 1. Interim Financial Statements](index=4&type=section&id=Item%201.%20Interim%20Financial%20Statements) The interim financial statements reveal a weakened financial position, increased net loss, improved operating cash flow, and significant going concern doubts [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decline in total assets and stockholders' equity, alongside a shift to a working capital deficit Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $5,709 | $7,721 | | **Total Assets** | **$17,997** | **$20,443** | | **Total Current Liabilities** | $6,175 | $4,789 | | **Total Liabilities** | $10,297 | $8,161 | | **Total Stockholders' Equity** | $7,700 | $12,282 | | **Total Liabilities and Stockholders' Equity** | **$17,997** | **$20,443** | - The company's financial position weakened, with total assets decreasing by **12.0%** and total stockholders' equity declining by **37.3%** from December 31, 2022, to June 30, 2023. A notable shift from a working capital surplus to a deficit of **$466 thousand** occurred during this period[9](index=9&type=chunk)[36](index=36&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Despite revenue growth, the statements of operations indicate a significant drop in gross profit and a widened net loss Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $1,158 | $1,499 | $2,939 | $2,170 | | **Gross Profit (Loss)** | $(61) | $325 | $112 | $445 | | **Operating Loss** | $(3,161) | $(1,965) | $(6,834) | $(4,868) | | **Net Loss** | **$(3,177)** | **$(1,925)** | **$(5,955)** | **$(4,247)** | | **Net Loss Per Share (Basic & Diluted)** | $(0.15) | $(0.11) | $(0.28) | $(0.24) | - For the six months ended June 30, 2023, revenues increased by **35.4%** year-over-year, but the net loss widened by **40.2%** due to a significant drop in gross profit and higher operating expenses[10](index=10&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements show improved operating cash usage but a reduced overall cash increase due to lower financing activities Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,678) | $(8,374) | | Net cash (used in) provided by investing activities | $(766) | $265 | | Net cash generated from financing activities | $2,687 | $13,440 | | **Increase in cash, cash equivalents and restricted cash** | **$243** | **$5,331** | | **Cash, cash equivalents and restricted cash at end of period** | **$632** | **$8,014** | - Cash from financing activities in the first half of 2023 was primarily from convertible notes (**$1.46 million**) and a standby equity purchase agreement (**$1.23 million**), compared to **$13.4 million** from the IPO in the prior year period[15](index=15&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's business, significant going concern issues, recent capital raises, and other critical financial disclosures - The company's primary business involves designing, assembling, and integrating electric drive systems for medium-duty commercial fleet vehicles, and selling material handling products like electric forklifts[17](index=17&type=chunk)[18](index=18&type=chunk) - The company has a working capital deficit of **$466 thousand** and has incurred a net loss of **$6.0 million** for the six months ended June 30, 2023, raising substantial doubt about its ability to continue as a going concern. Management plans include cost-cutting, strategic partnerships, and raising additional capital[36](index=36&type=chunk)[37](index=37&type=chunk) - In June 2023, the company entered into a Securities Purchase Agreement to issue up to **$5.1 million** in unsecured senior convertible promissory notes to raise capital[52](index=52&type=chunk) - For the six months ended June 30, 2023, no single customer represented **10%** or more of total net revenues, a change from 2022 where three customers accounted for **29%**, **18%**, and **10%** respectively[59](index=59&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses revenue growth driven by EV deliveries, declining gross margins, increased operating expenses, critical liquidity issues, and external market influences [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Revenue increased due to EV sales, but gross margin significantly declined, and operating expenses rose, leading to a wider net loss Revenue by Category (in thousands) | Category | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Sales of EVs | $1,868 | $788 | | Lease of EVs | $215 | $275 | | Sales of Forklifts | $270 | $741 | | Others | $586 | $366 | | **Total** | **$2,939** | **$2,170** | - The increase in total revenue for the first six months of 2023 was primarily driven by a **137%** increase in EV sales, which was partially offset by a **63.6%** decrease in forklift sales[75](index=75&type=chunk)[76](index=76&type=chunk) - Gross margin for the six months ended June 30, 2023, decreased to **4%** from **21%** in the same period of 2022, attributed to higher service-related costs and increased fixed costs[80](index=80&type=chunk) - Operating expenses for the six months ended June 30, 2023, increased by **30.7%** to **$6.9 million**, mainly due to higher research and development expenses[82](index=82&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company faces critical liquidity challenges, a working capital deficit, and going concern doubts, necessitating strategic cost reductions and external financing - The company's financial state is precarious, with a working capital deficit of **$466 thousand** and an accumulated deficit of **$34.5 million** as of June 30, 2023[90](index=90&type=chunk) - Management has outlined a multi-pronged strategy to improve liquidity, including reducing the workforce, outsourcing R&D, negotiating better payment terms, and pursuing additional financing through stock or debt offerings[90](index=90&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,678) | $(8,374) | | Net cash (used in) provided by investing activities | $(766) | $265 | | Net cash generated from financing activities | $2,687 | $13,440 | [Trend information](index=29&type=section&id=Trend%20information) Key trends, including the Inflation Reduction Act, ongoing supply chain disruptions, and rising inflation, significantly impact the company's operations and customer demand - The Inflation Reduction Act (IRA) offers substantial tax credits for commercial ZEVs, but uncertainty regarding IRS guidance has led to a delay in customer orders[100](index=100&type=chunk) - Ongoing supply-chain challenges, particularly for chassis and raw materials, are causing longer lead times and increasing working capital needs[100](index=100&type=chunk) - Inflation is driving up the costs of raw materials, labor, and shipping, while higher interest rates may negatively impact customer demand and financing capabilities[100](index=100&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - Disclosure is not required as the registrant is a smaller reporting company[103](index=103&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective due to identified material weaknesses, with remediation plans underway - Management concluded that disclosure controls and procedures were ineffective as of June 30, 2023[104](index=104&type=chunk) - Material weaknesses identified include an ineffective control environment, inadequate risk assessment, ineffective monitoring, and insufficient controls and resources for financial reporting[107](index=107&type=chunk) - The company plans to remediate these weaknesses by hiring more qualified staff, establishing a formal control framework, and improving review processes[106](index=106&type=chunk) [Part II. Other Information](index=32&type=section&id=Part%20II.%20Other%20Information) This section includes information on legal proceedings, risk factors, and other miscellaneous disclosures [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings arising in the normal course of business but does not believe any pending proceeding would have a material impact on its financial condition - The company states that it is not involved in any legal proceedings that are expected to have a material adverse effect on its financial condition[109](index=109&type=chunk) - A specific contingency mentioned is a dispute with a former landlord, but the outcome and potential loss are currently uncertain[57](index=57&type=chunk)[110](index=110&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - No material changes have been made to the risk factors disclosed in the 2022 Form 10-K filed on March 31, 2023[111](index=111&type=chunk) [Other Items (2, 3, 4, 5, 6)](index=32&type=section&id=Other%20Items%20%282%2C%203%2C%204%2C%205%2C%206%29) Under Part II, the company reports no unregistered sales of equity securities, no defaults upon senior securities, no mine safety disclosures, and no other information to disclose for the period - The company reported 'None' for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults upon senior securities), and Item 5 (Other information)[112](index=112&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk) - Item 4 (Mine safety disclosures) was marked as 'Not applicable'[114](index=114&type=chunk) - Item 6 lists the exhibits filed with the 10-Q, including the Securities Purchase Agreement, Form of Note, and various officer certifications[117](index=117&type=chunk)

Financial Data and Key Metrics Changes - For Q1 2023, net revenues were $1.8 million, a 1.7 times increase from $0.7 million in Q1 2022, driven by improved EV deliveries due to resolved supply issues [4] - Gross profit for Q1 2023 was $0.2 million, up 44% from $0.1 million in the same quarter last year, attributed to better gross margins from electric vehicles [5] - The net loss for Q1 2023 was $2.8 million, compared to a net loss of $2.3 million in the prior year period [6] Business Line Data and Key Metrics Changes - The company is transitioning from Gen 3 vehicles to Gen 4, with production expected to ramp up to 20 to 25 units per month by year-end [19] - The Gen 4 vehicles will utilize a streamlined design, reducing the number of parts from 450 in Gen 3 to 70 in Gen 4, enhancing production efficiency [11] Market Data and Key Metrics Changes - The medium duty EV market is heavily reliant on Ford chassis, and the company is planning for Gen 5 to achieve chassis independence by 2024 [12] - The company has secured a long-term supply agreement with CATL for battery procurement, addressing one of the major hurdles in the EV market [28] Company Strategy and Development Direction - The company is focused on an asset-light business model, which allows for lower costs and faster production times, differentiating it from competitors [8] - Future product lines include the EdisonFuture brand, expected to launch in 2025, featuring light-duty vehicles with solar power components [14][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the execution of the asset-light model and the upcoming launches of Gen 4 and Gen 5 vehicles, which are expected to enhance customer satisfaction and operational efficiency [20][36] - The company aims to maximize shareholder returns while deploying leading technology in the zero-emission vehicle sector [31] Other Important Information - The company has a stable customer base, having logged over 4 million zero-emission miles and serving over 50 commercial fleet customers [7][18] - The management team is experienced in the EV sector, which positions the company well for growth in the commercial and consumer vehicle markets [15] Q&A Session Summary Question: What are the expectations for Gen 4 and Gen 5 vehicles? - Management highlighted that Gen 4 will serve as a bridge to Gen 5, with benefits from the asset-light model transferring directly to the new vehicle line [36] Question: How is the company addressing battery supply challenges? - The company has secured a supply agreement with CATL and is exploring additional partnerships to ensure battery availability for future models [28] Question: What is the timeline for the EdisonFuture vehicle launch? - The EdisonFuture lineup is expected to be brought to market in 2025, focusing on reliability and cost competitiveness [14][30]

Part I. Financial Information [Item 1. Interim Financial Statements](index=5&type=section&id=Item%201.%20Interim%20Financial%20Statements) Phoenix Motor Inc. reported a **net loss of $2.8 million** on **revenues of $1.8 million** for Q1 2023, with recurring losses and negative operating cash flow raising going concern doubts Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $6,572 | $7,721 | | **Total Assets** | **$18,984** | **$20,443** | | **Total Current Liabilities** | $5,042 | $4,789 | | **Total Liabilities** | **$8,217** | **$8,161** | | **Total Stockholders' Equity** | **$10,767** | **$12,282** | Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net Revenues | $1,781 | $671 | | Gross Profit | $173 | $120 | | Operating Loss | $(3,673) | $(2,903) | | **Net Loss** | **$(2,778)** | **$(2,322)** | | **Net Loss Per Share (Basic & Diluted)** | **$(0.13)** | **$(0.13)** | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,086) | $(2,692) | | Net cash used in investing activities | $(71) | $0 | | Net cash generated from financing activities | $1,151 | $75 | | **Decrease in cash, cash equivalents and restricted cash** | **$(6)** | **$(2,617)** | - The company has **recurring losses**, **negative operating cash flow**, and needs to raise additional funds, raising **substantial doubt about its ability to continue as a going concern**[37](index=37&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes **165.4% revenue growth** to eased supply chains, but **gross margin declined**, operating expenses rose, and liquidity is a major concern - Net revenues for Q1 2023 increased by **165.4% to $1.8 million** from **$0.7 million** in Q1 2022, primarily driven by the delivery of five EV units compared to two in the prior-year period as supply chain constraints eased[70](index=70&type=chunk) - Gross margin decreased to **9.7%** in Q1 2023 from **17.9%** in Q1 2022, attributed to lower margins on forklift sales, increased fixed costs, partially offset by higher margins on EV sales and leasing[74](index=74&type=chunk) - Operating expenses increased to **$3.8 million** from **$3.0 million** year-over-year, mainly due to higher payroll and research and development expenses[75](index=75&type=chunk) - The company's liquidity is a major concern, with cash and equivalents at only **$0.4 million**, and management has expressed **substantial doubt about the company's ability to continue as a going concern**, relying on equity financing (SEPA), cost controls, and negotiating better payment terms to sustain operations[82](index=82&type=chunk) - Key business trends and challenges include the impact of the Inflation Reduction Act (IRA) causing some customer order delays, ongoing supply-chain challenges leading to delivery delays and component shortages, and cost increases due to inflation and rising interest rates[92](index=92&type=chunk)[93](index=93&type=chunk)[97](index=97&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - The company stated that this item is not applicable to smaller reporting companies[96](index=96&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of March 31, 2023, due to four material weaknesses identified in the 2022 audit - Management concluded that the company's disclosure controls and procedures were **ineffective** as of the end of the fiscal quarter ended March 31, 2023[99](index=99&type=chunk) - Four material weaknesses were identified in the 2022 audit: (1) **ineffective control environment**, (2) **ineffective risk assessment process**, (3) **ineffective monitoring activities**, and (4) **lack of sufficient controls and skilled resources for financial reporting under U.S. GAAP**[103](index=103&type=chunk) - The company intends to implement remedial measures, including hiring more qualified staff, establishing a formal control framework, improving processes, and increasing senior management review[101](index=101&type=chunk) Part II. Other Information [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings but does not believe any pending cases would materially impact its financial condition - The company does not believe that any pending legal proceeding would be material to its financial condition[105](index=105&type=chunk) - A dispute with a previous landlord from 2021 is ongoing, but the outcome and potential loss are uncertain at this stage[53](index=53&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from the 2022 Annual Report on Form 10-K - No material changes to the risk factors from the 2022 Form 10-K were reported[107](index=107&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported for the period[108](index=108&type=chunk) [Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes required certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32) and XBRL interactive data files[112](index=112&type=chunk)

PART I [Business](index=7&type=section&id=Item%201.%20Business) The company is a commercial EV solutions provider using an asset-light model to design and manufacture electric drive systems and vehicles - Phoenix Motor Inc. operates two primary brands: "Phoenix Motorcars" for commercial medium-duty vehicles and chargers, and "EdisonFuture" for future light-duty EVs[18](index=18&type=chunk) - The company has delivered **116 EVs** to over 42 customers as of December 31, 2022, accumulating over four million zero-emission miles[20](index=20&type=chunk) - As of December 31, 2022, the company has a backlog of approximately **61 orders** (56 vehicles, 5 kits) representing **$12.22 million** in potential revenue[24](index=24&type=chunk) - Key strategies include pursuing an asset-light model, achieving scale through standardization, securing key component supply (e.g., CATL batteries), and reducing costs for future generations[29](index=29&type=chunk) - The company faces significant competition from other commercial EV manufacturers and major automotive players entering the market[28](index=28&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant operational, financial, and regulatory risks, including a history of losses and a going concern warning - The company has a history of losses, with a **net loss of $12.7 million in 2022** and an accumulated deficit of **$28.6 million**, leading to a going concern warning[51](index=51&type=chunk)[53](index=53&type=chunk) - Phoenix has experienced **negative cash flow from operations ($14.9 million in 2022)** and anticipates this will continue, requiring additional financing[52](index=52&type=chunk)[56](index=56&type=chunk) - The business is **highly dependent on the Ford E-450 chassis** for its current products, posing a significant viability risk if supply is disrupted[71](index=71&type=chunk) - Management has identified **several material weaknesses in internal controls** over financial reporting, including issues with the control environment and risk assessment[105](index=105&type=chunk)[212](index=212&type=chunk) - The company relies on a **Standby Equity Purchase Agreement (SEPA)** for funding, but access is not guaranteed and sales could be dilutive to shareholders[117](index=117&type=chunk)[118](index=118&type=chunk)[121](index=121&type=chunk) - The business is subject to extensive government regulations and relies on government incentives, which may be reduced or eliminated[123](index=123&type=chunk)[124](index=124&type=chunk) [Unresolved Staff Comments](index=40&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[144](index=144&type=chunk) [Properties](index=40&type=section&id=Item%202.%20Properties) The company leases its principal executive, manufacturing, and R&D facilities in California - Principal executive offices and manufacturing are in a **39,043 sq. ft. leased facility** in Anaheim, CA, with the lease expiring March 2027[145](index=145&type=chunk) - A **35,072 sq. ft. research and development center** is leased in Folsom, CA, with the lease expiring September 2027[145](index=145&type=chunk) [Legal Proceedings](index=40&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no material pending or ongoing legal proceedings - There are no pending or ongoing legal proceedings that are material to the Company's operations or financial condition[146](index=146&type=chunk) [Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[147](index=147&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on NASDAQ under "PEV" and it does not currently pay dividends - The company's common stock trades on the NASDAQ Capital Market under the symbol **"PEV"** since June 8, 2022[149](index=149&type=chunk) - As of March 30, 2023, there were **3 holders of record** of the common stock[150](index=150&type=chunk) - The company has **never declared or paid dividends** and has no present plan to do so[151](index=151&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal year 2022 saw increased revenue and improved gross profit, but the company still recorded a net loss amid ongoing liquidity concerns Consolidated Statements of Operations Highlights (in thousands) | Indicator | 2022 | 2021 | | :--- | :--- | :--- | | **Net revenues** | **$4,330** | **$2,977** | | Cost of revenues | $3,510 | $3,540 | | **Gross profit (loss)** | **$820** | **$(563)** | | Operating expenses | $13,970 | $13,750 | | **Operating loss** | **$(13,150)** | **$(14,313)** | | **Net loss** | **$(12,705)** | **$(14,614)** | | Net loss per share (Basic and Diluted) | $(0.65) | $(0.84) | Revenue Breakdown by Category (in thousands) | Category | Year ended Dec 31, 2022 | Year ended Dec 31, 2021 | | :--- | :--- | :--- | | Sales of EVs | $1,789 | $1,750 | | Lease of EVs | $551 | $586 | | Sales of forklifts | $1,251 | — | | Others | $739 | $641 | | **Total** | **$4,330** | **$2,977** | - Gross margin improved significantly from **-18.9% in 2021 to 18.9% in 2022**, driven by better margins on EVs and the introduction of electric forklifts[170](index=170&type=chunk) - The company incurred a **net loss of $12.7 million** and used **$14.9 million in cash from operating activities** in 2022, raising substantial doubt about its going concern status[194](index=194&type=chunk)[335](index=335&type=chunk) Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(14,866) | $(12,939) | | Net cash used in investing activities | $(1,011) | $(638) | | Net cash generated from financing activities | $13,583 | $561 | | **Net decrease in cash** | **$(2,294)** | **$(13,016)** | [Quantitative and Qualitative Disclosures About Market Risk](index=57&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to the company - Not applicable[204](index=204&type=chunk) [Financial Statements and Supplementary Data](index=57&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The company's Consolidated Financial Statements and supplementary data are included later in the report - The required financial statements appear after the signature page of the report, from F-1 to F-45[205](index=205&type=chunk) [Changes In and Disagreements With Accountants on Accounting and Financial Disclosure](index=57&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - None[206](index=206&type=chunk) [Controls and Procedures](index=58&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective due to material weaknesses in internal control - Management concluded that **disclosure controls and procedures were not effective** as of December 31, 2022[207](index=207&type=chunk) - **Four material weaknesses** in internal control over financial reporting were identified, related to the control environment, risk assessment, monitoring, and lack of skilled resources[212](index=212&type=chunk) - Remediation plans include hiring more qualified staff, setting up a formal control framework, and increasing senior management review[214](index=214&type=chunk) [Other Information](index=60&type=section&id=Item%209B.%20Other%20Information) This item is not applicable to the company - Not applicable[216](index=216&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=60&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[217](index=217&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=61&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the board of directors, executive officers, and corporate governance structures, including committee compositions - The board of directors consists of six members, including Chairman Xiaofeng Denton Peng and CEO Liang Lance Zhou[221](index=221&type=chunk) - The Board has determined that **four of the six directors are independent**[236](index=236&type=chunk) - The company has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, each comprised solely of independent directors[242](index=242&type=chunk) - A code of business conduct and ethics has been adopted and applies to all directors, officers, and employees[249](index=249&type=chunk) [Executive Compensation](index=69&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation consists mainly of salary and equity awards, with detailed figures provided for named executive officers and directors Summary Compensation Table - Fiscal Year 2022 (in $) | Name and Principal Position | Salary ($) | Stock and Options Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Xiaofeng Peng (Chairman) | — | 235,500 | 235,500 | | Liang Lance Zhou (CEO) | 166,667 | 274,750 | 441,417 | | Wenbing Chris Wang (CFO) | 200,000 | 235,500 | 435,500 | | Tarek Helou (COO) | 200,000 | 7,850 | 207,850 | - The company has a **2021 Omnibus Equity Incentive Plan** allowing for the grant of various equity awards, with shares available representing 10% of the fully diluted total[264](index=264&type=chunk)[266](index=266&type=chunk) - Non-executive directors received compensation in 2022, including cash fees ranging from **$10,000 to $12,000** and option awards[263](index=263&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=75&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Parent company EdisonFuture, Inc. is the principal shareholder, beneficially owning 82.6% of the company's common stock Security Ownership of Principal Shareholders and Management | Name | Shares Beneficially Owned | Percentage Beneficially Owned | | :--- | :--- | :--- | | **Principal Shareholders** | | | | EdisonFuture, Inc. | 17,500,000 | 82.6% | | **Directors and Executive Officers** | | | | Xiaofeng Peng, Chairman | 1,200,000 | 5.7% | | All Directors and Executive Officers as a Group | 1,776,250 | 8.4% | - As of the report date, **21,181,924 shares of common stock** were issued and outstanding[277](index=277&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=77&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company details transactions with its parent company, SPI Energy, and confirms the independence of four directors - In 2022, the parent company SPI Energy Co., Ltd. provided a **$1.7 million interest-free loan**, which was subsequently repaid in full from IPO proceeds[279](index=279&type=chunk) - The Group sold **$0.2 million in forklifts** to SolarJuice Co., Ltd., a subsidiary of SPI, in 2022[280](index=280&type=chunk) - The Audit Committee has a policy for reviewing, considering, and overseeing all related party transactions[284](index=284&type=chunk) - The Board has determined that directors John F. Perkowski, Steven E. Stiver, Sam Van, and Zhenxing Fu are independent[286](index=286&type=chunk) [Principal Accountant Fees and Services](index=79&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The company paid its principal auditor, Marcum Asia CPAs LLP, $285,000 in audit fees for fiscal year 2022 Accountant Fees (in $) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $285,000 | $225,000 | | Audit-related fees | — | — | | Tax fees | — | — | | All other fees | — | — | | **Total** | **$285,000** | **$225,000** | - The Audit Committee pre-approved **100% of the audit and audit-related services** performed by the independent registered public accounting firms in fiscal years 2022 and 2021[290](index=290&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=82&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all filed documents, including financial statements, governance documents, material contracts, and required certifications - The Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are filed as part of the report[298](index=298&type=chunk) - A detailed list of exhibits is provided, including governance documents, material contracts like the Standby Equity Purchase Agreement, and executive employment agreements[300](index=300&type=chunk)[301](index=301&type=chunk)[303](index=303&type=chunk) [Form 10-K Summary](index=86&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates that no Form 10-K summary is provided - None[304](index=304&type=chunk) Financial Statements [Report of Independent Registered Public Accounting Firm](index=89&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued an opinion with an explanatory paragraph highlighting substantial doubt about the company's going concern status - The auditor's report contains a **"Going Concern" paragraph**, citing the company's significant losses and negative cash flow from operating activities[315](index=315&type=chunk) [Consolidated Financial Statements](index=90&type=section&id=Consolidated%20Financial%20Statements) The statements show total assets of $20.4 million, a net loss of $12.7 million, and significant cash used in operations for 2022 Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $7,721 | $6,637 | | **Total assets** | **$20,443** | **$15,436** | | Total current liabilities | $4,789 | $4,452 | | **Total liabilities** | **$8,161** | **$5,208** | | **Total stockholders' equity** | **$12,282** | **$10,228** | Consolidated Statement of Operations (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net revenues | $4,330 | $2,977 | | Gross profit (loss) | $820 | $(563) | | Operating loss | $(13,150) | $(14,313) | | **Net loss** | **$(12,705)** | **$(14,614)** | [Notes to the Consolidated Financial Statements](index=95&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail accounting policies and key financial matters, including the going concern issue, revenue recognition, and concentration risks - **Going Concern (Note 2):** The Group has incurred a **net loss of $12.7 million** and used **$14.9 million in cash from operations** in 2022, raising substantial doubt about its ability to continue[335](index=335&type=chunk) - **Revenue Recognition (Note 3 & 15):** Revenue is disaggregated into sales of EVs, lease of EVs, sales of forklifts, and others, with government grants included in the transaction price[356](index=356&type=chunk)[359](index=359&type=chunk)[363](index=363&type=chunk) - **Equity and Financing (Note 11):** The company completed its IPO in June 2022, raising **net proceeds of $13.4 million**, and entered a **$10 million Standby Equity Purchase Agreement (SEPA)**[404](index=404&type=chunk)[405](index=405&type=chunk) - **Stock-Based Compensation (Note 12):** The company recognized **$1.046 million in stock-based compensation expense** in 2022, primarily related to its 2021 Equity Incentive Plan[411](index=411&type=chunk) - **Concentration Risk (Note 16):** For 2022, **three customers represented 19.1%, 18.9%, and 12.9% of total revenue**, respectively, while two vendors represented 24.3% and 19.1% of total purchases[428](index=428&type=chunk)[429](index=429&type=chunk)

Phoenix Motor Inc. (NASDAQ:PEV) Q4 2022 Earnings Conference Call March 29, 2023 5:00 PM ET Company Participants Mark Hastings - Senior Vice President, Corporate Development and Strategy and Head, Investor Relations Lance Zhou - Chief Executive Officer Chris Wang - Chief Financial Officer Operator Welcome to the Fourth Quarter 2022 Phoenix Motors Inc. Earnings Conference Call. My name is Emma and I will be operator for today’s call. As a remainder, this call is being recorded and all participants are in a li ...