Phoenix Motor (PEV) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Interim Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2025, revealing significant revenue decline, a shift to net loss, and deteriorating cash, raising going concern doubts Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $112 | $764 | | Inventories | $39,521 | $40,760 | | Total current assets | $50,329 | $52,005 | | Total assets | $54,486 | $57,577 | | Liabilities & Equity | | | | Total current liabilities | $30,400 | $26,219 | | Total liabilities | $46,679 | $47,257 | | Total stockholders' equity | $7,807 | $10,320 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,742 | $12,032 | $7,153 | $21,452 | | Gross profit | $915 | $1,829 | $2,280 | $4,334 | | Operating loss | $(1,689) | $(7,100) | $(3,625) | $(17,515) | | Net (loss) income | $(1,152) | $2,953 | $(4,738) | $19,727 | | Basic EPS | $(0.14) | $0.42 | $(0.59) | $3.02 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,973) | $(1,599) | | Net cash used in investing activities | $0 | $(10,879) | | Net cash generated from financing activities | $4,321 | $10,596 | | Decrease in cash and cash equivalents | $(652) | $(1,882) | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's business, accounting policies, and significant events, including the Proterra acquisition, declining sales, going concern doubts, and defaulted convertible notes - In January and February 2024, the Group completed the acquisition of the Proterra transit business unit and its battery lease contracts[28] Disaggregated Revenues (in thousands) | Revenue Category | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Sales of transit buses | $5,198 | $19,116 | | Sales of EVs | $237 | $483 | | Sales of parts | $614 | $90 | | Service revenue | $465 | $0 | | Total Revenues | $7,153 | $21,452 | - The company has a net loss of $4.7 million and negative operating cash flow of $5.0 million for the six months ended June 30, 2025, raising substantial doubt about its ability to continue as a going concern[56] - An event of default occurred on the June 2023 and October 2023 convertible notes in March 2024, increasing the interest rate to 18% per annum[110] - A subsequent event of default occurred on new convertible notes on April 15, 2025, when the company's common stock ceased trading on Nasdaq[115] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 66.7% revenue decrease to post-acquisition order fulfillment and cash shortages, with critically low liquidity reinforcing going concern risk, prompting strategies for cost-cutting and new financing Results of Operations Revenues for H1 2025 decreased by 66.7% to $7.2 million due to declining bus sales, while gross margin improved to 31.9% and SG&A decreased, resulting in a net loss of $4.7 million compared to prior year's net income boosted by a bargain purchase gain - Total revenue for the six months ended June 30, 2025, decreased by $14.2 million, or 66.7%, compared to the same period in 2024, primarily due to a surge in sales in 2024 from fulfilling existing orders after the Proterra acquisition, and cash shortages in late 2024 slowing production[143] - Gross margin for the six months ended June 30, 2025, increased to 31.9% from 20.2% in the prior year period, mainly due to a limited number of transit buses and one EV being sold at relatively high selling prices[148] - Selling, general and administrative expenses for the six months ended June 30, 2025, decreased to $5.9 million from $17.6 million in the prior year period, largely due to a decrease in salary expenses from a reduced headcount[151] - The company reported a net loss of $4.7 million for the first six months of 2025, compared to a net income of $19.7 million for the same period in 2024, with the 2024 income significantly impacted by a $32.1 million gain on the bargain purchase of Proterra[156][157] Liquidity and Capital Resources The company's precarious liquidity, with only $0.1 million cash and $5.0 million negative operating cash flow, raises substantial doubt about its going concern ability, prompting management to pursue operational integration, cost controls, and new financing - The company incurred a net loss of $4.7 million and used $5.0 million in cash from operating activities during the six months ended June 30, 2025, raising substantial doubt about its ability to continue as a going concern[163] - As of June 30, 2025, the company had only $0.1 million in cash and cash equivalents[165] - Management's plans to address liquidity issues include operational integration, cost reduction, strengthening strategic partnerships, and pursuing a robust capital market strategy for financing[164] Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required as the company qualifies as a smaller reporting company - The company, as a smaller reporting company, is not required to provide this disclosure[179] Controls and Procedures Management concluded that disclosure controls were ineffective as of June 30, 2025, due to material weaknesses including an ineffective control environment and insufficient U.S. GAAP expertise, with remedial measures planned - Management concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2025[180] - Material weaknesses identified include: failure to maintain an effective control environment, lack of an effective risk assessment process, ineffective monitoring activities, and insufficient controls and resources for financial reporting under U.S. GAAP[190] - The company plans to implement remedial measures, including hiring more qualified staff, setting up a formal control framework, and improving review procedures[183] Part II. Other Information Legal Proceedings The company is involved in ordinary course legal proceedings, none of which are expected to materially impact its financial condition - The company is involved in ordinary course legal proceedings but does not expect any to have a material adverse effect on its financial condition[186] Risk Factors Critical risks include potential dilution or cash outlays from convertible notes, and the Nasdaq delisting on April 15, 2025, which now subjects the stock to OTC Pink Market trading, impacting liquidity and stakeholder confidence - Trading of the company's common stock was suspended on Nasdaq on April 15, 2025, and it is now quoted on the OTC Pink Market, which may adversely affect liquidity and trading price[199] - The company is appealing the delisting decision and has implemented a 1-for-5 reverse stock split effective July 31, 2025, to try and regain compliance with Nasdaq's minimum bid price rule[202][204] - Senior convertible notes issued in March and May 2025 pose a risk of substantial dilution to common stockholders or may require significant cash outlays, with an event of default occurring on these notes when the stock was delisted, triggering penalty clauses[188][193] Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities All sales of unregistered securities have been previously reported in a Current Report on Form 8-K - All sales of unregistered securities have been previously disclosed in Form 8-K filings[209] Defaults Upon Senior Securities The company reports no defaults upon senior securities in this section, despite detailed discussions of convertible note defaults elsewhere - The company reported 'None' under this item[210] Mine Safety Disclosures This item is not applicable to the company's business operations - This section is not applicable to the company's business[211] Other Information No information was provided under this item Exhibits This section lists the exhibits filed with the quarterly report, including CEO and CFO certifications and Inline XBRL data files - The report includes required certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32) and Inline XBRL data files[213]