SPI(US:SPI)2023-04-13 16:00PART I Business SPI Energy is a global renewable energy company with six key businesses, deriving a majority of its revenue from its Australian distribution operations - The company operates across six main business segments: solar project development, electricity sales (IPP), US solar module manufacturing, Australian PV distribution, US roofing/solar installation, and EV manufacturing29 - The Inflation Reduction Act of 2022 is expected to provide significant benefits through production tax credits for US-manufactured solar components (Section 45X) and an extended 30% residential clean energy tax credit, boosting the Solar4America and Roofs 4 America businesses, respectively116117118 Net Sales by Geographic Location (in thousands) | Region | 2022 ($) | % of Total | 2021 ($) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Australia | 132,954 | 74.9% | 124,248 | 76.7% | | United States | 38,867 | 21.9% | 33,093 | 20.4% | | United Kingdom | 2,053 | 1.2% | 1,211 | 0.7% | | Greece | 2,545 | 1.4% | 2,686 | 1.7% | | Italy | 1,019 | 0.6% | 690 | 0.4% | | Japan | 80 | 0.0% | 65 | 0.1% | | Total | 177,518 | 100.0% | 161,993 | 100.0% | Risk Factors The company faces substantial risks from its financial instability, material weaknesses in internal controls, and operational challenges across its business segments - The company's financial condition, including net losses of $33.7 million in 2022, an accumulated deficit of $670.8 million, and a working capital deficit of $107.7 million, raises "substantial doubt about the Company's ability to continue as a going concern"190 - Management has identified several material weaknesses in internal control over financial reporting, including failures in the control environment, risk assessment, monitoring activities, and IT general controls199 - The company is in default on multiple obligations, including $35.0 million in convertible bonds from 2016 and a $2.1 million convertible loan from Streeterville Capital195 - The business is highly dependent on government subsidies and incentives (e.g, FITs, tax credits), and any reduction, modification, or discontinuation of these programs could materially harm the business221222 - The Phoenix EV business faces intense competition from established automotive manufacturers and other EV companies with greater financial and technical resources, and its success is unproven381387 Properties The company leases its global headquarters and manufacturing facilities in California, along with various other office, warehouse, and land parcels globally - The company's headquarters and primary manufacturing facility are located in a ~196,000 sq. ft. leased space in McClellan Park, CA, with the lease expiring in January 2031181495 - Phoenix Motorcars operates out of a 39,043 sq. ft. leased facility in Anaheim, CA, capable of producing up to 240 units per year with two shifts183 - The company leases approximately 465 acres in Illinois and 473 acres in Maryland for the development of utility-scale solar projects184 Legal Proceedings This section refers to "Item 1 - Business - Legal Proceedings" for a detailed discussion of the company's significant legal matters - For a discussion of significant legal proceedings, this item refers to the detailed disclosure in "Item 1 Business - Legal Proceedings"495 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's shares trade on NASDAQ under the symbol "SPI", it has never paid dividends, and it made no equity repurchases in Q4 2022 - The company's ordinary shares are traded on the NASDAQ Global Select Market under the ticker symbol "SPI"497 - The company has never paid dividends and has no current plans to do so, intending to retain funds for business expansion499 - No repurchases of the company's ordinary shares were made during the fourth quarter of FY2022500 Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2022 saw revenue growth and a reduced net loss, but significant liquidity concerns raise substantial doubt about its going concern status - The company's financial condition raises substantial doubt about its ability to continue as a going concern, citing recurring losses, a working capital deficit of $107.7 million as of Dec 31, 2022, and negative operating cash flow580796 Consolidated Results of Operations (in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Revenues | $177,518 | $161,993 | | Gross Profit | $14,485 | $10,620 | | Operating Loss | $(28,632) | $(41,476) | | Net Loss | $(33,723) | $(44,834) | | Net Loss per Share | $(1.3) | $(1.9) | Revenue Breakdown by Activity (in thousands) | Activity | 2022 | % of Total | 2021 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Sales of PV components | $133,930 | 75.5% | $123,138 | 76.0% | | Roofing and solar systems installation | $25,899 | 14.6% | $29,028 | 17.9% | | Electricity revenue with PPAs | $5,725 | 3.2% | $4,587 | 2.8% | | Revenue from sales and leasing of EV | $2,340 | 1.3% | $2,336 | 1.4% | | Others | $9,624 | 5.4% | $2,904 | 1.9% | | Total | $177,518 | 100.0% | $161,993 | 100.0% | Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(15,966) | $(27,484) | | Net cash used in investing activities | $(8,157) | $(8,866) | | Net cash generated from financing activities | $17,304 | $18,425 | Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to foreign exchange and interest rate risks from its international operations and borrowings but does not use derivative instruments - The company is exposed to foreign currency exchange risk due to its international operations and recorded a net foreign exchange gain of $2.6 million in 2022598599 - The company is exposed to interest rate risk on its borrowings, and a hypothetical 10% increase in the average interest rate would have increased interest expense by approximately $0.2 million in 2022600 Financial Statements and Supplementary Data This section includes audited financial statements, with the auditor's report highlighting a "Going Concern" uncertainty and identifying critical audit matters - The independent auditor's report includes an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern758 - Critical audit matters identified by the auditor include the accounting for convertible bonds and derivative liabilities, and the impairment assessment of long-lived assets762764766 Key Balance Sheet Items (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $81,956 | $84,067 | | Total Assets | $231,095 | $228,080 | | Total Current Liabilities | $189,697 | $173,838 | | Total Liabilities | $213,223 | $202,130 | | Total Equity | $17,872 | $25,950 | Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of year-end 2022 due to multiple material weaknesses in internal financial controls - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were ineffective604 - Multiple material weaknesses were identified in internal control over financial reporting, including deficiencies in the control environment, risk assessment, and financial reporting skills607 - A remediation plan is in place to address these weaknesses, involving strengthening oversight, engaging a professional adviser, and enhancing training610612613 PART III Directors, Executive Officers and Corporate Governance The company's leadership and board structure are detailed, including director independence and the composition of its key committees - The Board of Directors consists of five members, including three independent directors: Maurice Wai-fung Ngai, Lu Qing, and Jing Zhang619629 - The company has three board committees (Audit, Compensation, Nominating and Corporate Governance), each composed entirely of independent directors633 - The Board has determined that Maurice Wai-fung Ngai qualifies as an audit committee financial expert635 Executive Compensation Executive compensation for 2022 consisted of salaries and equity awards, governed by employment agreements and two primary stock incentive plans - The company's 2015 Equity Incentive Plan was amended in December 2022 to increase the number of ordinary shares authorized for issuance to 4,326,185667 - Non-executive directors received compensation in the form of stock awards, with each of the three independent directors receiving awards valued at $10,000 for fiscal year 2022659 2022 Executive Compensation Summary | Name and Position | Salary ($) | Stock and Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Xiaofeng Peng (CEO) | 196,667 | 300,000 | 496,667 | | HoongKhoeng Cheong (COO) | 290,140 | 120,000 | 410,140 | | Janet Chan (CFO) | 244,524 | 30,000 | 274,524 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Chairman and CEO Xiaofeng Peng is the largest beneficial owner, with all directors and executives as a group holding 23.73% of the company's shares - Chairman and CEO Xiaofeng Peng is the largest beneficial owner, holding 19.88% of the company's ordinary shares679 - All directors and executive officers as a group beneficially own 7,187,024 shares, representing 23.73% of the company679 Equity Compensation Plan Information (as of Dec 31, 2022) | Category | Securities to be issued upon exercise () | Weighted-average exercise price ($) | Securities available for future issuance () | | :--- | :--- | :--- | :--- | | Plans approved by security holders | 1,293,900 | 8.0 | 3,033,285 | Certain Relationships and Related Transactions, and Director Independence The company discloses minor related party transactions, overseen by its Audit Committee, and confirms the independence of three board members - As of December 31, 2022, the company had $332 thousand due from related parties, representing expenses paid on their behalf687 - The company's Audit Committee is responsible for reviewing and approving all related party transactions688689 - The Board has determined that directors Maurice Ngai, Qing Lu, and Jing Zhang are independent690 Principal Accountant Fees and Services Audit fees paid to the principal auditor decreased in 2022, with all services pre-approved by the Audit Committee - The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditor695 Accountant Fees (in thousands) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $576.8 | $968.2 | | Audit-related fees | $0 | $0 | | Tax fees | $0 | $0 | | All other fees | $0 | $0 | | Total | $576.8 | $968.2 | PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the report, including material contracts and executive certifications - This section contains a comprehensive list of all exhibits filed with the 10-K, including corporate governance documents, material contracts, and executive certifications701704