Phoenix Motor (PEV) - 2024 Q4 - Annual Report

Part I Business Overview Phoenix Motor Inc. provides commercial EV solutions, expanding into transit buses via the Proterra acquisition, and focuses on scaling production, cost reduction, and next-gen chassis development - The company operates "Phoenix Motorcars" for commercial EVs and "EdisonFuture" for future light-duty EVs[19] - In early 2024, the company acquired Proterra's transit business and battery lease contracts, expanding into electric transit buses[22][28] Vehicle Delivery and Backlog (as of Dec 31, 2024) | Category | Units Delivered (Cumulative/2024) | Backlog (Orders) | Backlog Value ($) | | :--- | :--- | :--- | :--- | | Medium-Duty EVs | 138 (cumulative) | 73 | $16.7 million | | Transit Buses | 30 (in 2024) | 154 | $160.8 million | - Key strategies include an asset-light model, scaling through standardization, Gen 4 cost reduction, and developing a chassis-independent Gen 5 platform[31][37] Recent Developments In early 2024, the company acquired Proterra's transit business and battery lease agreements for $10 million, later agreeing to sell the battery lease receivables Proterra Asset Acquisition Details | Asset Acquired | Purchase Price | Completion Date | | :--- | :--- | :--- | | Proterra Transit Business Unit | $3.5 million | January 11, 2024 | | Proterra Battery Lease Agreements | $6.5 million | February 7, 2024 | - The company agreed to sell acquired battery lease receivables to Zenobe, retaining associated warranty liability[29] Competition The company faces intense competition from specialized commercial EV manufacturers and major automotive OEMs with superior resources - Direct competitors include commercial EV manufacturers like Lightning eMotors and Green Power Motor Company[33][65] - Major OEMs such as Ford, General Motors, Tesla, and Daimler pose significant competitive threats due to their superior resources[33][65] Manufacturing and Production Phoenix operates two leased production facilities in Anaheim, CA and Greenville, SC, integrating operations in 2024 for efficiency and supply chain improvements - The company integrated transit bus and medium-duty truck operations in 2024 to enhance efficiency and quality[36] - Production facilities are in Anaheim, CA (lease expires March 2027) and Greenville, SC (lease expires June 2026)[36][145] Government Regulation The company's operations are subject to extensive regulations, including safety, emissions, Altoona testing for buses, and earning tradable GHG credits - Vehicles must comply with NHTSA's FMVSS for safety and EPA/CARB emissions regulations[44][50] - Altoona testing is required for buses to qualify for FTA funding, potentially covering up to 80% of vehicle cost[48][49] - The company earns tradable Greenhouse Gas (GHG) credits from EPA and CARB for its zero-emission vehicles, which can be sold[52][53] Risk Factors The company faces significant financial, operational, and stock-related risks, including going concern doubts, intense competition, supply chain vulnerabilities, Nasdaq delisting, and internal control weaknesses Financial Risks The company has a history of unprofitability, with a $42.0 million accumulated deficit and negative cash flows, leading to substantial doubt about its going concern ability - The company reported an accumulated deficit of $42.0 million as of December 31, 2024, anticipating future significant losses[55] - Negative cash flow from operating activities was $1.9 million in 2024 and $3.7 million in 2023[56] - The FY 2024 audited financial statements include a "going concern" paragraph, indicating substantial doubt about continued operations[57] Business and Industry Risks The company faces business risks including manufacturing delays, intense competition, high costs, reliance on the Ford E-450 chassis, supply chain issues, customer concentration, and Proterra integration challenges - The company faces risks of production ramp-up delays and has limited high-volume manufacturing experience[62][78] - All current medium-duty products rely on Ford's E-450 chassis, creating significant dependency and vulnerability to shortages or Ford's own EV offerings[70] - The company relies on a limited customer base without long-term purchase agreements, leading to revenue uncertainty[74] - Significant risks and challenges exist in integrating the acquired Proterra Transit Business Unit, potentially hindering anticipated benefits[95][96] - The company identified material weaknesses in internal controls over financial reporting, potentially impacting accurate financial reporting[100] Stock Ownership Risks Common stock ownership carries significant risks, including Nasdaq delisting to the less liquid OTC Pink Market, potential future dilution, and no anticipated dividends - The company's common stock (PEV) was suspended from Nasdaq on April 15, 2025, and now trades on the OTC Pink Market under "PEVM"[3][107] - The company is appealing the delisting and submitted a compliance plan, including a potential reverse stock split, but success is not assured[109][111] - The company does not anticipate declaring cash dividends in the foreseeable future, requiring investors to rely on stock price appreciation for returns[120] Cybersecurity The company integrates cybersecurity risk management into its enterprise framework, with Board oversight delegated to the Audit Committee and management led by the COO and CFO - The Board delegates cybersecurity risk oversight to the Audit Committee, which receives regular management reports[142] - The COO and CFO lead the cybersecurity risk management program at the management level[143] Properties The company's main offices and medium-duty production are in Anaheim, CA, and transit bus production is in Greenville, SC, both in leased facilities Leased Facilities | Location | Size (sq. ft.) | Primary Use | Lease Expiration | | :--- | :--- | :--- | :--- | | Anaheim, CA | 39,043 | Headquarters, Medium-Duty Production | March 2027 | | Greenville, SC | N/A | Transit Bus Production | June 2026 | Part II Market for Common Equity and Related Matters The company's common stock was delisted from Nasdaq to the OTC Pink Market in April 2025, with 11 record holders and no anticipated cash dividends - The company's common stock was suspended from Nasdaq on April 15, 2025, now trading on the OTC Pink Market as "PEVM"[149] - As of May 20, 2025, there were 11 holders of record for the company's common stock[150] - The company has not paid cash dividends to date and does not plan to in the foreseeable future[151] Management's Discussion and Analysis (MD&A) In 2024, revenue surged to $31.1 million driven by the Proterra acquisition, yielding a $7.1 million gross profit and $7.9 million net income (due to a one-time gain), but financial condition remains precarious with going concern doubts Results of Operations FY 2024 revenue increased to $31.1 million due to the Proterra acquisition, yielding a $7.1 million gross profit and $7.9 million net income, primarily driven by a $38.3 million bargain purchase gain Consolidated Results of Operations (in thousands) | Metric | FY 2024 | FY 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $31,154 | $3,122 | 897.9% | | Gross Profit (Loss) | $7,055 | $(276) | N/A | | Operating Loss | $(30,968) | $(20,506) | 51.0% | | Bargain Purchase Gain | $38,271 | $0 | N/A | | Net Income (Loss) | $7,932 | $(20,645) | N/A | | Basic EPS | $0.22 | $(0.97) | N/A | - Total revenue increased by $28.0 million (897.9%), primarily from the Proterra Transit Business Unit acquisition, which contributed $30.0 million[161] - Gross margin improved to 23.6% in 2024 from -8.8% in 2023, largely due to high-margin Proterra inventory sales[166] - SG&A expenses increased to $33.8 million from $14.9 million, mainly due to higher salary expenses from increased headcount post-Proterra acquisition[168] - A $4.3 million goodwill impairment charge was recorded in 2024 due to the company's continuously decreasing stock price[169] - Other income totaled $42.4 million, primarily from a $38.3 million bargain purchase gain on Proterra and a $15.2 million gain on warrant liability fair value change[174] Liquidity and Capital Resources Going concern is in substantial doubt due to recurring losses and $1.9 million negative operating cash flow in 2024, with management planning to raise additional capital - Despite a $7.9 million net income in 2024, excluding the one-time bargain purchase gain, the company incurred a $30.3 million net loss, raising substantial doubt about its going concern ability[195][366] Summary of Cash Flow Activities (in thousands) | Activity | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,946) | $(3,652) | | Net cash used in investing activities | $(10,113) | $(93) | | Net cash generated from financing activities | $9,540 | $6,639 | - Net cash used in investing activities totaled $10.1 million, primarily for the $10.0 million Proterra acquisition[200] - Net cash from financing activities was $9.5 million, mainly from $11.1 million in private placement proceeds, partially offset by debt repayments[201] Critical Accounting Policies and Estimates Critical accounting estimates include impairment of long-lived assets and goodwill ($4.3 million impairment in 2024), fair value of derivative liabilities, and product warranty reserves ($14.3 million in 2024) - Critical accounting estimates include accounts receivable, impairment of long-lived assets and goodwill, fair value of derivative liabilities, and product warranties[180] - The company recorded a goodwill impairment of $4.3 million in 2024, with no impairment in 2023[188] - Product warranty reserve significantly increased to $14.3 million as of December 31, 2024, from $289 thousand in 2023, primarily due to Proterra acquisition obligations[193][413] - Derivative liabilities for convertible debt were valued at $33 thousand as of December 31, 2024, down from $1.2 million in 2023, yielding a $641 thousand fair value gain[191] Changes in and Disagreements with Accountants On March 13, 2025, the company changed auditors from Marcum Asia CPAs LLP to Yu Certified Public Accountant PC, with no disagreements but disclosed material weaknesses and an affiliate guarantee - On March 13, 2025, the company dismissed Marcum Asia CPAs LLP and engaged Yu Certified Public Accountant PC as its new independent auditor[207][213] - No disagreements occurred with former auditor Marcum Asia, but reportable events included material weaknesses in internal controls and an affiliate guarantee for SPI Energy Co., Ltd[209][211][212] Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2024, due to material weaknesses in internal control over financial reporting, with remediation plans outlined - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024[216] - Identified material weaknesses include an ineffective control environment, inadequate risk assessment and monitoring, and insufficient financial reporting resources and controls[221] - Remediation plans involve hiring qualified staff, establishing a formal control framework, and enhancing monitoring processes[222] Part III Directors, Executive Officers and Corporate Governance The company's leadership includes key executives and a five-member Board with three independent directors, overseeing three independent committees and a code of ethics - Key executive officers include Xiaofeng Denton Peng (CEO), Michael Yung (CFO), and Lewis W. Liu (COO)[228] - The Board of Directors has five members, with Julia Yu, Yongmei (May) Huang, and James Young identified as independent[238][311] - The Board's three key committees (Audit, Compensation, Nominating) are entirely composed of independent directors[243] - A code of business conduct and ethics applies to all directors, officers, and employees[258] Executive Compensation In FY 2024, CEO Xiaofeng Peng's total compensation was $524,000, with the company maintaining an equity incentive plan for officers, employees, and directors 2024 Named Executive Officer Compensation | Name and Principal Position | Salary ($) | Stock and Options Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Xiaofeng Peng (CEO) | 506,000 | 18,000 | 524,000 | | Michael Yung (CFO) | 131,125 | 8,640 | 139,765 | | Lewis W Liu (COO) | 145,159 | 45,726 | 190,885 | - The company maintains a 2021 Omnibus Equity Incentive Plan for granting equity awards to employees, directors, and consultants[272] - As of December 31, 2024, CEO Xiaofeng Denton Peng held 1,050,000 unexercised options at $1.72 and 500,000 unearned options at $0.34[264] Security Ownership As of May 20, 2025, 49,280,432 common shares were outstanding, with CEO Xiaofeng Denton Peng and his controlled entity being the largest beneficial owners - As of May 20, 2025, 49,280,432 shares of common stock were outstanding[286] Principal Stockholders (as of May 20, 2025) | Name of Beneficial Owner | Percentage Owned | | :--- | :--- | | Xiaofeng Denton Peng (CEO & Chairman) | 26.2% | | Palo Alto Clean Tech Holding Limited | 24.4% | | EdisonFuture, Inc. | 11.2% | | Sherman Development LLC | 8.8% | | ATI Chemicals LLC | 8.8% | | EXO Commodity Solution LLC | 8.8% | | WWJ Group, Inc. | 8.8% | | World Trade Technology LLC | 8.8% | | Barton Global LLC | 6.0% | | All Directors and Named Executive Officers as a group | 26.3% | Certain Relationships and Related Transactions The company engaged in numerous related-party transactions with affiliate SPI Energy Co., Ltd., including inter-company loans and a temporary $15.0 million debt guarantee - During 2024, the company borrowed $1.0 million from and repaid $1.9 million to its affiliate, SPI[304] - The company lent up to $3.0 million to SPI under a loan agreement, which was fully repaid and terminated[307] - The company guaranteed a $15.0 million debt settlement for SPI, which was released in September 2024 without incurring liability[308][471] Principal Accountant Fees and Services Total audit fees for FY 2024 were $530,000, split between former and current auditors, an increase from $350,000 in 2023, with all services pre-approved Accountant Fees (in thousands) | Fee Category | 2024 | 2023 | | :--- | :--- | :--- | | Audit fees – Marcum Asia CPAs LLP | $250 | $350 | | Audit fees – Yu Certified Public Accountant PC | $280 | $0 | | Total | $530 | $350 | - 100% of audit and audit-related services for FY 2024 and 2023 were pre-approved by the Board[315] Financial Statements Consolidated Financial Statements FY 2024 consolidated financial statements show improved equity to $10.3 million (from a $4.8 million deficit) and $7.9 million net income, largely due to the Proterra acquisition, despite negative operating cash flow and going concern doubts Key Balance Sheet Data (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $52,005 | $6,016 | | Total Assets | $57,577 | $11,636 | | Total Current Liabilities | $26,219 | $10,881 | | Total Liabilities | $47,257 | $16,475 | | Total Stockholders' Equity (Deficit) | $10,320 | $(4,839) | Key Operations and Cash Flow Data (in thousands) | Account | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Total Revenues | $31,154 | $3,122 | | Net Income (Loss) | $7,932 | $(20,645) | | Net Cash Used in Operating Activities | $(1,946) | $(3,652) | - The 2024 auditor's report includes a going concern paragraph, expressing substantial doubt due to operating losses and negative cash flows[336] Notes to the Consolidated Financial Statements Financial statement notes detail the Proterra acquisition's $38.3 million bargain purchase gain, going concern issues, complex convertible notes, related-party transactions, and subsequent events like Nasdaq delisting and new loan agreements - Going Concern (Note 2): Significant recurring losses and negative operating cash flow raise substantial doubt about the company's ability to continue as a going concern, with management's plans uncertain[366][367] - Business Combination (Note 4): The Proterra transit business acquisition resulted in a $38.3 million bargain purchase gain, primarily driving 2024 net income[430][431] - Convertible Notes (Note 18): Complex convertible notes with derivative liabilities experienced a March 29, 2024, default event, increasing interest to 18% and making notes immediately payable[486][496] - Subsequent Events (Note 25): Post-year-end, the company's stock was delisted from Nasdaq in April 2025, and a new senior secured convertible promissory note for up to $6.0 million was entered in March 2025[528][533]