PEV Phoenix Motor Inc

1. Description of Business and Organization

Phoenix Motor Inc. (“Phoenix Motor” or the “Company”) and its subsidiaries (collectively, the “Group”) is engaged in design, assembly, and integration of electric drive systems for medium duty electric vehicles (“EVs”) and electric transit buses.

Phoenix Cars, LLC (“PCL”), a subsidiary of Phoenix Motor, designs and manufactures zero- emission electric drivetrain systems for integration in medium to heavy-duty commercial fleet vehicles in United States. PCL also sells a range of material handling products including all-electric lithium-ion forklifts and pallet jacks. Phoenix Motorcars Leasing, LLC (“PML”), a subsidiary of Phoenix Motor, serves as a sales and leasing dealership for PCL in United States.

Phoenix Motor was incorporated in the state of Delaware in October 2020. EdisonFuture, Inc., a subsidiary of SPI Energy Co., Ltd (“SPI”), is the parent company of Phoenix Motor. On November 12, 2020, EdisonFuture, Inc. acquired 100% of the membership interests of PCL and PML. Simultaneously, EdisonFuture, Inc. effected the transfer of 100% of the membership interests of PCL and PML to Phoenix Motor.

On September 26, 2023, the Group’s ultimate parent company, SPI’s wholly - owned subsidiary, EdisonFuture, Inc., sold shares of the Company’s common stock owned by it, representing 56.36% of the outstanding shares of the Company, to Palo Alto Clean Tech Holding Limited (“Palo Alto”), an entity owned and controlled by Mr. Xiaofeng Peng, the Company’s Chairman of the Board of Directors and CEO. After this transaction, SPI was no longer the Group’s ultimate parent company but still considered as a related party of the Group as SPI owns over 20% of the Company’s outstanding shares through EdisonFuture, Inc, and it is an affiliated company controlled by Mr. Xiaofeng Peng.

In November 2023, the Group participated in two of court auctions and emerged as the highest bidder for two asset packages, one for Proterra transit business unit and one for the Proterra battery lease contracts, with total consideration of $10,000 in cash. As part of the acquisition, the Group assumed estimated warranty liability of $14,994. On January 11, 2024, the Group completed the acquisition of the Proterra transit business unit and on February 7, 2024, the Group completed the acquisition of Proterra battery lease contracts. After the acquisition, the Group engages in the business that designs, develops and sells electric transit buses as an original equipment manufacturer for North American public transit agencies, airports, universities and other commercial transit fleets and the Group was assigned with the right to collect certain leasing receivables which Proterra was a party as the lessor thereunder, used in connection with deployed Proterra electric transit buses. In March 2024, the Group declared its plan to sell all the Battery Lease Agreements acquired from Proterra acquisition. On June 24, 2024, the Group entered into an asset purchase agreement with Zenobe Americas EV Assotco LLC (Zenobe). In the agreement, the Group sells the battery lease receivables to Zenobe in two batches while retains the warranty liability associated with leased batteries.

2. Summary of Significant Accounting Policies

3. Going concern

The Group has net income of $12,541 during the six months ended June 30, 2024, mainly due to the bargain purchase gain from the acquisition of Proterra transit business unit. Excluding the one-time bargain purchase gain, the Group incurred a net loss of $19,531 during the six months ended June 30, 2024 and has incurred significant recurring losses before 2024. In addition, the cash flow used in operating activities was $1,599 and the Group needs to raise additional funds to sustain its operations. Furthermore, the Group assumes the responsibility to provide Proterra transit business unit employees job offers at closing date and keep those employees for at least one year, which costs are estimated to be over $20,000. These factors raise substantial doubt as to the Group’s ability to continue as a going concern.

For the next 12 months from the issuance date of the condensed consolidated quarterly financial statements, the Group plans to continue pursuing strategies to improve liquidity and raise additional funds while implementing various measures to control costs and improve efficiency. Such strategies and measures include the following: 1) continue to drive for operation integration and efficiency under ONE Phoenix, re-alignment operating units under ONE Goal, right sizing workforce under ONE Team; 2) re-establish the cost structure and cost base to increase operation efficiency with the new integrated ERP and other operating systems; 3) expand and strengthen strategic partnership to outsource a significant portion of design and engineering work for the next generation product to third party vendors and suppliers to control overall development and supply chain costs; 4) implement working capital initiatives and negotiate better payment terms with customers and for some of the new orders, require down payments; 5) implement cash saving initiatives and tighter cash control, and calibrate capital allocation to manage liquidity; and 6) continue to proactively implement a robust capital market strategy to provide financing for the Group’s operations through proceeds from private stock offering, debt financings including but not limited to term loans, revolving line of credit and equity linked instruments, and potentially federal and state incentive funding programs.

There is no assurance that the plans will be successfully implemented. If the Group fails to achieve these goals, the Group may need additional financing to repay debt obligations and execute its business plan, and the Group may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that the Group is unsuccessful in increasing its gross profit margin and reducing operating losses, the Group may be unable to implement its current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on the Group’s business, financial condition and results of operations and may materially adversely affect its ability to continue as a going concern.

The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Group be unable to continue as a going concern.

4. Business Combination

In November 2023, the Group participated in two auctions conducted by the United States Bankruptcy Court and emerged as the highest bidder for two asset packages, one for Proterra transit business unit and one for the Proterra battery lease contracts, with total consideration of $10,000 in cash. The transaction costs were $553 and the Group assumed estimated warranty liability of $14,994. In addition, the Group also assumed the responsibility to provide Proterra transit business unit employees job offers at closing date and keep those employees for at least one year. The cash consideration has been fully paid as of June 30, 2024.

The acquisition was accounted for as a business combination. Accordingly, the acquired assets and liabilities were recorded at their fair value at the date of acquisition. The purchase price allocation was based on a valuation analysis that utilized and considered generally accepted valuation methodologies such as the market and cost approach. The Group determines the fair value of the assets acquired and the liabilities assumed in this business combination with the assistance of a third-party valuation firm. The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable judgment from management. The amount of the identifiable net assets acquired exceeds the fair value of the consideration transferred and the allocation of negative goodwill to reduce the tax bases of acquired net assets causes the book bases to exceed their respective tax bases, resulting in the recognition of deferred tax liabilities. The Group measures the bargain purchase gain from Proterra acquisition as follows:

During the six months ended June 30, 2024 measurement period since the acquisition date, the Group adjusted the fair value of the inventories acquired for an amount of $1,161, with the offset recorded as a $836 decrease to bargain purchase gain and $325 decrease to deferred tax liabilities. These adjustments were made as the Group obtained new information about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

The gain on bargain purchase from the Proterra acquisition was generated from the acquisition of a bankrupt company and the Group was the only bidder who would continue to run the transit business and keep all transit business employees for at least a one-year period. Other bidders would liquidate the transit assets and terminate the transit business employees. The Group’s bidding was accepted by the Bankruptcy Court.

Due to the fact that the acquisition occurred in the current interim period, the Group’s fair value estimates for the purchase price allocation are preliminary and may change during the allowable measurement period, which is up to the point the Group obtains and analyzes the information that existed as of the date of the acquisition necessary to determine the fair values of the assets acquired and liabilities assumed, but in no case to exceed more than one year from the date of acquisition. As of October 30, 2024, the Group had not finalized the determination of fair values allocated to various assets and liabilities, including, but not limited to, property and equipment, inventories, tax uncertainties and liabilities assumed. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in material adjustments to gain on bargain purchase.

The pro forma information that presents the Group’s pro forma results of operations assuming the acquisition of Proterra transit buses and battery lease receivables took place on January 1, 2023 is not available due to the following reasons: (i) Proterra had three business groups and the three Proterra business groups were integrated and worked together to fulfill customers’ orders, and Proterra does not have standalone data for any of its three business groups, including employee data; and (ii) Proterra did not grant access to the Group of Proterra’s prior years’ consolidated financial data due to the integrated nature of this data. Furthermore, due to significant personnel turnover in the accounting and finance departments of Proterra, the Group lacks the historical knowledge and data to recreate the standalone financial statements for each business group for prior periods

5. Assets held for sale

On January 11, 2024, the Group completed the acquisition of the Proterra Battery Lease Agreements, by which the Group was assigned with the right to collect certain leasing receivables which Proterra was a party as the lessor thereunder, used in connection with deployed Proterra electric transit buses. The fair value of the lease receivables as of the acquisitions date was determined to be $6,400 (Note 4) and the Group also assumed warranty obligations associated with the purchased Proterra Battery Lease Agreements of $994.

In March 2024, the Group has committed to a plan to sell the battery lease receivables and this group of asset to be sold is ready for sale and can be clearly distinguished and valued at its reasonable current fair value. The transaction is probable to close in the second half of 2024 and it is unlikely that significant changes will be made. Thus, the leased assets were recorded as assets held-for-sale and recorded at the lower of the carrying value or fair value less costs to sell.

On June 24, 2024, the Group entered into an asset purchase agreement with Zenobe. In the agreement, the Group sells the battery lease receivables to Zenobe in two batches while retains the warranty liability associated with leased batteries. The aggregate purchase price for Batch 1 transferred assets is made of: (i) $3,575, minus (ii) any payments received by the Group from March 1, 2024 to the Batch 1 closing date, plus (iii) the assumption of the Assumed Liabilities incurred after the applicable Closing Date related to the Batch 1 Transferred Assets. The aggregate purchase price for Batch 2 transferred assets is made of: (i) $2,175, minus (ii) any payments received by the Group from March 1, 2024 to the Batch 2 closing date, plus (iii) assumption of the Assumed Liabilities incurred after the applicable Closing Date related to the Batch 2 Transferred Assets. On July 5, 2024, the Group closed the first batch of the sale and received net proceeds of $2,400 from the sale. The Group is expected to close the second batch of the sale in 2024.

The Group recorded the carrying amount of lease receivable at $5,987 as of June 30, 2024, which represents the best estimate of the current fair value.

6. Accounts Receivable, Net

For the six months ended June 30, 2024, there was no provision for credit loss for accounts receivables. For the six months ended June 30, 2023, the Group reversed provision for credit loss of $10.

7. Inventories

During the six months ended June 30, 2024, there was no write down to reflect the lower of cost or net realizable value. During the six months ended June 30, 2023, $98 of inventories were written down to reflect the lower of cost or net realizable value.

8. Prepaid Expenses and Other Current Assets

9. Sales-type Lease Receivable

The Group entered into a total of ten vehicle lease agreements with certain customers during the year ended December 31, 2023 and the Group delivered vehicles under sales-type leases.

Sales-type lease receivables-short term as of June 30, 2024 and December 31, 2023 was $272 and $249, respectively, and sales-type lease receivables-long term as of June 30, 2024 and December 31, 2023 was $119 and $230, respectively.

Interest income recognized for sales-type leases for the six months ended June 30, 2024 was $13.

10. Short-term Borrowings

Financing with Nations Bus

On February 27, 2024, the Group entered into a financing agreement with Nations Bus Corp. (“Nations Bus”). In the agreement, it stated that the Group had purchased certain assets of Proterra Transit, including 6 buses in inventory. Raleigh-Durham International Airport (“RDU”) has inspected the buses and has executed a contract to purchase them for $652 each for a total consideration of $3,909. Nations Bus lent and wired $1,900 to the Group on February 28, 2024. The Group agrees to wire Nations Bus $2,800 ($467 per bus) within 24 hours of receipt of payment for each bus from RDU. If payment is made separately by bus, then the Group will wire $467 within 24 hours of receipt. If payment is received in one lump sum of $3,909, the Group will wire $2,800 within 24 hours of receipt. The Group received a total of $3,909 from RDU in March 2024. The Group will be entitled to keep the remaining $1,109 received from RDU after payment is made to Nations Bus. The Group has repaid $2,800 to Nations Bus in April and May 2024, including $900 accrued interest.

Financing with Agile Capital

On March 12, 2024, the Group entered into a Subordinated Business Loan and Security Agreement (“Term Loan”) with Agile Capital Funding, LLC (“Agile Capital”) as collateral agent, and Agile Lending, LLC, a Virginia limited liability company (“Lead Lender”) and each assignee that becomes a party to this agreement (each individually with the Lead Lender, a “Lender” and collectively with the Lead Lender, the “Lenders”).

The total principal amount of the Term Loan is $2,363, including the administrative agent fee remitted to Agile Capital of $113. The net proceeds to the Group is $2,250. The total repayment amount of the Term Loan, including all interest, lender fees, and third-party fees, assuming all payments are made on time is $3,402, including the interest charge of $1,039, assuming all payments are made on time weekly, and the default interest rate is otherwise applicable thereto plus five percentage points (5.00%).

The collateral of the Term Loan consists of all of the Group’s right, title and interest in and to the following property:

All of the Group’s goods, accounts, equipment, inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, general intangibles (including Intellectual Property), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts and other collateral accounts, all certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and all of the Group’s books and records relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

If changes in business or management, ownership occur, or the Term Loan is accelerated following the occurrence of an Event of Default (as defined in the Term Loan), the Group shall immediately pay to Lenders, payable to each Lender in accordance with its respective pro rata share, an amount equal to the sum of: (i) all outstanding principal of the Term Loans plus accrued and unpaid interest thereon accrued through the prepayment date, (ii) the prepayment fee (equal to the aggregate and actual amount of interest that would be paid through the maturity date), plus (iii) all other obligations that are due and payable, including, without limitation, interest at the default rate with respect to any past due amounts.

As of June 30, 2024, the loan balance to Agile was $1,317. Since August 2024, the weekly payment amount agreed in the payment schedule was $122 per week; however, the Group paid $30 or $40 per week. The Group did not enter into amendments or supplemental contracts to the original contract. Pursuant to the original agreement, if the borrower fails to pay any principal or interest on its due date, or fails to pay any other obligation within three business days after it becomes due and payable, it constitutes a payment default. During the continuance of an Event of Default, obligations shall accrue interest at a fixed annual rate equal to the rate that is otherwise applicable thereto plus 5.00% as the default rate. The lender may declare the entire unpaid principal balance of the loan, together with all accrued interest thereon and any other charges or fees payable thereunder, immediately due and payable by providing written notice to the borrower.

As of October 31, 2024, the Group has not received any notices or legal actions initiated by Agile.

Financing with Wisdom

The Group entered into a short-term loan agreement with total principal amount of $961 on December 11, 2023 with Wisdom Financial holdings Company Ltd (“Wisdom”). The short-term loan was used to pay deposit to purchase Proterra assets (see Note 4). The principal amount of the loan was fully paid off on January 8, 2024 by cash. Total interest expense of the loan was $279, in which $9 was paid off in January 2024 by cash, and $270 was settled by issuance of 180,202 shares of common stock of the Company in January 2024.

11. Equity