SPI(SPI) - 2023 Q3 - Quarterly Report

Part I. Financial Information Item 1. Interim Financial Statements The unaudited condensed consolidated financial statements for Q3 and 9M 2023 report total assets of $230.2 million, a $14.3 million net loss, and a $3.2 million cash decrease, with notes raising going concern doubts and detailing the deconsolidation of Phoenix Motor Inc Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $80,990 | $81,956 | | Total Assets | $230,192 | $231,095 | | Total Current Liabilities | $195,658 | $189,697 | | Total Liabilities | $214,189 | $213,223 | | Total Equity | $16,003 | $17,872 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $55,928 | $42,803 | $159,762 | $127,752 | | Gross Profit (Loss) | $7,465 | $(2,410) | $17,087 | $3,726 | | Operating Income (Loss) | $961 | $(10,037) | $(2,540) | $(17,743) | | Net Income (Loss) from Continuing Operations | $818 | $(9,563) | $(5,617) | $(14,320) | | Net Loss | $(1,893) | $(13,493) | $(14,283) | $(22,497) | Condensed Consolidated Statements of Cash Flows Highlights (9 Months Ended Sep 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,289 | $(12,968) | | Net cash used in investing activities | $(1,430) | $(4,615) | | Net cash (used in) provided by financing activities | $(4,410) | $13,503 | | Decrease in cash, cash equivalents and restricted cash | $(3,183) | $(5,048) | - The company's financial statements have been prepared on a going concern basis, but recurring losses, a net working capital deficit of $114.7 million, and an accumulated deficit of $684.7 million raise substantial doubt about its ability to continue as a going concern[31] - On September 26, 2023, the Group sold 56.36% of its subsidiary Phoenix Motors Inc. to a related party and deconsolidated it. The business of Phoenix is now presented as a discontinued operation[30][71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, noting a 25.1% increase in net revenues and improved gross margin to 10.7%, but highlights significant liquidity challenges including a $114.7 million working capital deficit and $684.7 million accumulated deficit, raising substantial doubt about its going concern ability, while also covering discontinued operations and future financing plans Results of Operations for the Three Months Ended September 30, 2023 and 2022 For Q3 2023, net revenues increased 30.7% to $55.9 million driven by PV component and solar module sales, leading to a gross margin turnaround to 13.3% and net income from continuing operations of $0.8 million, a significant improvement from a $9.6 million net loss in Q3 2022 Q3 2023 vs Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $55,928 | $42,803 | 30.7% | | Gross Profit (Loss) | $7,465 | $(2,410) | N/A | | Gross Margin | 13.3% | -5.6% | N/A | | Net Income (Loss) from Continuing Operations | $818 | $(9,563) | N/A | - The revenue increase was driven by a $9.3 million rise in PV component sales and $6.7 million from self-assembled solar modules, while revenue from roofing and solar installation decreased by $2.8 million due to a downsizing strategy[131] - The improvement in gross margin was primarily due to higher margins from solar module sales and a reduced contribution from the low-margin roofing and solar installation business[132] Results of Operations for the Nine Months Ended September 30, 2023, and 2022 For the nine months ended September 30, 2023, net revenues grew 25.1% to $159.8 million due to PV component and solar module sales, improving gross margin to 10.7% and narrowing the net loss from continuing operations to $5.6 million from $14.3 million, aided by a $3.3 million ERC tax refund 9M 2023 vs 9M 2022 Performance (in thousands) | Metric | 9M 2023 | 9M 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $159,762 | $127,752 | 25.1% | | Gross Profit | $17,087 | $3,726 | 358.8% | | Gross Margin | 10.7% | 2.9% | N/A | | Net Loss from Continuing Operations | $(5,617) | $(14,320) | -60.8% | - Revenue growth was primarily driven by increased PV component sales due to a strategic supplier cooperation and the commencement of the self-assembled solar modules business, partially offset by a $21.5 million decrease in roofing installation revenue[141] - The company recognized a $3.3 million Employee Retention Credit ("ERC") tax refund and a $4.5 million gain from PPP loan forgiveness in the nine months of 2023 and 2022, respectively, which positively impacted other income[146] Liquidity and Capital Resources As of September 30, 2023, the company had $7.8 million in cash but faces severe liquidity constraints with a $114.7 million net working capital deficit and $684.7 million accumulated deficit, raising substantial doubt about its going concern ability, which management plans to address through project sales, bondholder negotiations, profitability improvements, and new financing - The company suffered a net loss of $5.6 million from continuing operations for the nine months ended September 30, 2023, and had a net working capital deficit of $114.7 million and an accumulated deficit of $684.7 million as of that date[153] - Management's plans to mitigate the going concern risk include negotiating PV solar project sales, postponing convertible bond payments, improving US business profitability, and seeking new debt and equity financing[154] Cash Flow Summary (9 Months Ended Sep 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from continuing operations | | | | Operating Activities | $4,831 | $1,275 | | Investing Activities | $(1,268) | $(4,166) | | Financing Activities | $(7,161) | $(66) | | Net decrease in cash | $(3,183) | $(5,048) | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - The company has omitted this section as it is not applicable to smaller reporting companies[168] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2023, due to six identified material weaknesses, for which a remediation plan is outlined to strengthen oversight, engage professional advisers, and improve internal training - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were not effective[169] - Six material weaknesses were identified in the 2022 audit, including failures in the control environment, risk assessment, monitoring, process-level controls, financial reporting expertise, and IT general controls[171] - Remediation plans include strengthening governance oversight, engaging professional advisers to optimize the internal control system, and providing more comprehensive training to accounting personnel[172][173] Part II. Other Information Item 1. Legal Proceedings The company is involved in significant legal proceedings, including a U.S. court order requiring SPI to pay at least $60.4 million to SINSIN and a judgment against SPI for $1.825 million plus 15% annual interest to Streeterville due to a convertible note default - In the SINSIN dispute, a U.S. court confirmed an arbitration award against SPI, ordering the company to pay no less than $60.4 million, plus interest accruing from 2015 and 2016, and attorneys' fees[179] - Due to a default on a convertible note, Streeterville obtained a judgment against SPI for $1.825 million, with interest accruing at 15% per annum from July 31, 2023[180][181] Item 1A. Risk Factors & Other Items As a smaller reporting company, the company has omitted the Risk Factors section, and reported no unregistered sales of equity securities or defaults upon senior securities, with mine safety disclosures also being inapplicable - Risk Factors (Item 1A) have been omitted as the company is a smaller reporting company[182] - There were no unregistered sales of equity securities (Item 2) or defaults upon senior securities (Item 3) reported for the period[182]