Phoenix Motor (PEV) - 2022 Q4 - Annual Report

PART I Business 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] - The company has delivered 116 EVs to over 42 customers as of December 31, 2022, accumulating over four million zero-emission miles[20] - 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] - 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] - The company faces significant competition from other commercial EV manufacturers and major automotive players entering the market[28] Risk Factors 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][53] - Phoenix has experienced negative cash flow from operations ($14.9 million in 2022) and anticipates this will continue, requiring additional financing[52][56] - 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] - Management has identified several material weaknesses in internal controls over financial reporting, including issues with the control environment and risk assessment[105][212] - 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][118][121] - The business is subject to extensive government regulations and relies on government incentives, which may be reduced or eliminated[123][124] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[144] Properties 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] - A 35,072 sq. ft. research and development center is leased in Folsom, CA, with the lease expiring September 2027[145] Legal Proceedings 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] Mine Safety Disclosures This item is not applicable to the company - Not applicable[147] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - As of March 30, 2023, there were 3 holders of record of the common stock[150] - The company has never declared or paid dividends and has no present plan to do so[151] Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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][335] 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 This item is not applicable to the company - Not applicable[204] Financial Statements and Supplementary Data 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] Changes In and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[206] Controls and Procedures 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] - 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] - Remediation plans include hiring more qualified staff, setting up a formal control framework, and increasing senior management review[214] Other Information This item is not applicable to the company - Not applicable[216] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[217] PART III Directors, Executive Officers and Corporate Governance 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] - The Board has determined that four of the six directors are independent[236] - The company has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, each comprised solely of independent directors[242] - A code of business conduct and ethics has been adopted and applies to all directors, officers, and employees[249] Executive Compensation 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][266] - Non-executive directors received compensation in 2022, including cash fees ranging from $10,000 to $12,000 and option awards[263] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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] - The Group sold $0.2 million in forklifts to SolarJuice Co., Ltd., a subsidiary of SPI, in 2022[280] - The Audit Committee has a policy for reviewing, considering, and overseeing all related party transactions[284] - The Board has determined that directors John F. Perkowski, Steven E. Stiver, Sam Van, and Zhenxing Fu are independent[286] Principal Accountant Fees and Services 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] PART IV Exhibits, Financial Statement Schedules 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] - A detailed list of exhibits is provided, including governance documents, material contracts like the Standby Equity Purchase Agreement, and executive employment agreements[300][301][303] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[304] Financial Statements Report of Independent Registered Public Accounting Firm 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] Consolidated Financial Statements 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 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] - 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][359][363] - 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][405] - 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] - 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][429]