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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q

 

(Mark One)

 

☑  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

 

OR

 

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to__________

 

Commission file number: 0-30351

 

SPI Energy Co., Ltd.

(Exact Name of Registrant as Specified in Its Charter)

 

Cayman Islands   20-4956638

(State or Other Jurisdiction of

Incorporation or Organization)

  

(I.R.S. Employer

Identification No.)

 

4803 Urbani Ave., Mc Clellan Park, CA   95652
(Address of Principal Executive Offices)   (Zip Code)

 

(408) 919-8000

(Registrant's Telephone Number, Including Area Code)

 

4677 Old Ironsides Drive, Suite 190

Santa Clara, CA 95054
(Former name or former address, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which Registered
Ordinary Shares, par value $0.0001 per share   SPI   NASDAQ Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐ Accelerated Filer ☒
Non-Accelerated Filer ☐ Smaller Reporting Company ☒
  Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The registrant had 27,509,414 shares of common stock outstanding at May 13, 2022.

 

 

   

 

 

TABLE OF CONTENTS

 

    Page
Part I. Financial Information  
  Item 1. Interim Financial Statements  
  Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021 F-2
  Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 F-3
  Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021 F-4
  Unaudited Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021 F-5
  Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 F-6
  Notes to Unaudited Condensed Consolidated Financial Statements F-7
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
  Item 4. Controls and Procedures 10
Part II. Other Information  
  Item 1. Legal Proceedings 11
  Item 1A. Risk Factors 11
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
  Item 3. Defaults Upon Senior Securities 11
  Item 4. Mine Safety Disclosures 11
  Item 5. Other Information. 11
  Item 6. Exhibits 12
Signatures 13

 

 

 2 

 

 

PART I

 

Item 1. Interim Financial Statements

 

Index to Financial Statements

 

 

  Page
Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021 F-2
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 F-3
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021 F-4
Unaudited Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021 F-5
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 F-6
Notes to Unaudited Condensed Consolidated Financial Statements F-7

 

 

 

 

 

 

 F-1 

 

 

 

SPI ENERGY CO., LTD. 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)

 

           
  

March 31,

2022

  

December 31,

2021

 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $3,766   $9,765 
Restricted cash   9,091    8,080 
Accounts receivable, net   24,543    22,599 
Contract asset   1,279    1,621 
Inventories   27,101    23,242 
Project assets held for sale   10,871    8,946 
Prepaid expenses and other current assets, net   8,219    9,584 
Amount due from related parties   264    230 
Total current assets   85,134    84,067 
Intangible assets, net   3,133    3,433 
Goodwill   4,896    4,896 
Other receivable, noncurrent   736    268 
Property and equipment, net   33,841    35,750 
Project assets, noncurrent   16,041    15,969 
Investment in affiliates   69,606    69,606 
Operating lease right-of-use assets   13,842    13,923 
Deferred tax assets, net   306    168 
Total assets  $227,535   $228,080 
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable  $26,683   $25,612 
Accrued liabilities   11,125    10,094 
Income taxes payable   2,318    1,684 
Advance from customers   5,209    4,924 
Short-term borrowings and current portion of long-term borrowings   12,054    9,120 
Amount due to an affiliate   10,586    10,603 
Convertible bonds   47,028    48,603 
Accrued warranty reserve   691    628 
Amount due to related parties   405    – 
Operating lease liabilities, current   1,072    1,351 
Consideration payable   60,973    61,219 
Total current liabilities   178,144    173,838 
Long-term borrowings, excluding current portion   12,022    12,800 
Deferred tax liabilities, net   2,860    2,970 
Operating lease liabilities, non-current   12,312    12,522 
Total liabilities   205,338    202,130 
Equity:          
Ordinary shares, par $0.0001, 500,000,000 shares authorized, 26,376,783 and 25,352,060 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   3    3 
Additional paid in capital   698,041    695,073 
Accumulated other comprehensive loss   (34,529)   (35,257)
Accumulated deficit   (644,235)   (637,390)
Total equity attributable to the shareholders of SPI Energy Co., Ltd.   19,280    22,429 
Noncontrolling interests   2,917    3,521 
Total equity   22,197    25,950 
Total liabilities and equity  $227,535   $228,080 

 

 

The accompany notes are an integral part of these condensed consolidated financial statements.

 

 

 F-2 

 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for share and per share data)

 

 

           
   For the Three Months Ended March 31, 
   2022   2021 
         
Net sales  $38,535   $33,622 
Cost of revenue   35,826    31,484 
Gross profit   2,709    2,138 
Operating expenses:          
General and administrative   9,128    9,595 
Sales, marketing and customer service   1,243    1,037 
Reversal for credit losses   (683)   – 
Total operating expenses   9,688    10,632 
Operating loss   (6,979)   (8,494)
           
Other income (expense):          
Interest expense, net   (1,401)   (1,443)
Net foreign exchange gain   1,062    1,502 
Others   788    649 
Total other income, net   449    708 
Net loss before income taxes   (6,530)   (7,786)
Income tax expense   256    314 
Net loss  $(6,786)  $(8,100)
Less: Net income attributable to noncontrolling interests   59    239 
Net loss attributable to shareholders of SPI Energy Co., Ltd.  $(6,845)  $(8,339)
Net loss per ordinary share:          
Basic and Diluted  $(0.27)  $(0.36)
Weighted average shares outstanding          
Basic and Diluted   25,772,194    23,139,646 

 

 

The accompany notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-3 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

 

 

           
   For the Three Months Ended March 31, 
   2022   2021 
Net loss  $(6,786)  $(8,100)
Other comprehensive income (loss), net of tax of nil:          
Foreign currency translation adjustments   65    (214)
Total comprehensive loss   (6,721)   (8,314)
Comprehensive loss attributable to noncontrolling interests   (604)   (9)
Comprehensive loss attributable to shareholder of SPI Energy Co., Ltd.  $(6,117)  $(8,305)

 

 

The accompany notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 F-4 

 

 

SPIENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except for share and per share data)

 

 

                                         
   Ordinary Shares   Additional Paid-In   Accumulated   Accumulated Other Comprehensive   Equity Attributable to Shareholders of SPI Energy   Noncontrolling   Total 
   Shares   Amount   Capital   Deficit   Loss   Co., Ltd.   Interests   Equity 
Balances at December 31, 2021   25,352,060   $3   $695,073   $(637,390)  $(35,257)  $22,429   $3,521   $25,950 
Net loss   –    –    –    (6,845)   –    (6,845)   59    (6,786)
Foreign currency translation adjustments   –    –    –    –    728    728    (663)   65 
Issuance of restricted share units to employees   229,888    –    623    –    –    623    –    623 
Settlement of convertible debt with ordinary shares   752,393    –    1,750    –    –    1,750    –    1,750 
Issuance of ordinary shares for settlement of consideration related to Acquisition of Phoenix   42,442    –    –    –    –    –    –    – 
Share-based compensation expense   –    –    595    –    –    595    –    595 
Balances at March 31, 2022   26,376,783   $3   $698,041   $(644,235)  $(34,529)  $19,280   $2,917   $22,197 

 

 

   Ordinary Shares   Additional Paid-In   Accumulated   Accumulated Other Comprehensive   Equity Attributable to Shareholders of SPI Energy   Noncontrolling   Total 
   Shares   Amount   Capital   Deficit   Loss   Co., Ltd.   Interests   Equity 
Balances as of December 31, 2020   22,340,689   $2   $670,101   $(591,899)  $(32,947)  $45,257   $3,129   $48,386 
Net loss   –    –    –    (8,339)   –    (8,339)   239    (8,100)
Foreign currency translation adjustments   –    –    –    –    34    34    (248)   (214)
Issuance of ordinary shares in offering   1,365,375    –    13,591    –    –    13,591    –    13,591 
Share-based compensation   –    –    3,074    –    –    3,074    –    3,074 
Exercise of share option   157,000    –    600    –    –    600    –    600 
Balances as of March 31, 2021   23,863,064   $2   $687,366   $(600,238)  $(32,913)  $54,217   $3,120   $57,337 

 

 

 

The accompany notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 F-5 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

           
   For the Three Months Ended March 31, 
   2022   2021 
Cash flows from operating activities:        
Net cash used in operating activities  $(8,583)   (4,008)
           
Cash flows from investing activities:          
Acquisitions of property and equipment   (222)   – 
Acquisitions of PDI   –    (8,003)
Proceeds from disposal of property and equipment   1,318    95 
Net cash provided by (used in) investing activities   1,096    (7,908)
           
Cash flows from financing activities:          
Proceeds from issuance of ordinary shares   –    13,591 
Repayment of borrowings   (33,820)   (35,897)
Proceeds from borrowings   35,949    35,024 
Proceeds from issuance of convertible bond   –    4,000 
Repayment of convertible bonds   –    (13,400)
Proceeds from exercise of options issued to Lighting Charm Limited during disposition of SPI China   –    600 
Net cash generated from financing activities   2,129    3,918 
           
Effect of exchange rate changes on cash   370    (1,122)
           
Decrease in cash, cash equivalents and restricted cash   (4,988)   (9,120)
Cash, cash equivalents and restricted cash at beginning of year   17,845    39,782 
Cash, cash equivalents and restricted cash at end of year  $12,857   $30,662 
           
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets          
Cash and cash equivalents   3,766    30,118 
Restricted cash   9,091    544 
Total cash, cash equivalents, and restricted cash  $12,857   $30,662 
           
Supplemental cash flow information:          
Interest paid  $644   $897 
Non-cash activities:          
Right of use assets obtained in exchange for operating lease obligations  $3,068   $816 
Settlement of convertible debt with ordinary shares  $1,750   $– 

 

 

The accompany notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 F-6 

 

 

SPI ENERGY CO., LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in US$ thousands, except share and per share data)

 

 

1. Description of Business and Organization

 

Description of Business

 

SPI Energy Co., Ltd. (“SPI Energy” or the “Company”) and its subsidiaries (collectively the “Group”) is engaged in the provision of photovoltaic (“PV”), roofing and solar energy systems installation, and electric vehicle (“EV”) solutions for business, residential, government and utility customers and investors.

  

Organization

 

The major subsidiaries of the Group as of March 31, 2022 are summarized as below:

       
Major Subsidiaries   Abbreviation   Location
SolarJuice Co., Ltd   SJ Cayman   Cayman
Solar Juice Pty Ltd.   SJ Australia   Australia
Solarjuice American Inc.   SJ US   United States
Italsolar S.r.l.   SPI Italy   Italy
SPI Solar Japan G.K.   SPI Japan   Japan
Solar Power Inc UK Service Limited   SPI UK   United Kingdom
SPI Solar Inc.   SPI US   United States
Heliostixio S.A.   Heliostixio   Greece
Heliohrisi S.A.   Heliohrisi   Greece
Thermi Sun S.A.   Thermi Sun   Greece
Knight Holding Corporation   Knight   United States
Edisonfuture Inc.   Edisonfuture   United States
Phoenix Motor Inc.   Phoenix   United States
Phoenix Motorcars Leasing LLC   PML   United States

 

On January 1, 2017, the Group deconsolidated one of the major subsidiaries, Sinsin Renewable Investment Limited (“Sinsin”) due to loss of control and recognized the investment in Sinsin on the carrying amount of $69,606. Both the Group and the former shareholders of Sinsin, Sinsin Europe Solar Asset Limited Partnership and Sinsin Solar Capital Limited Partnership (collectively, the “Sinsin Group”), failed to fulfill the obligation under the share sale and purchase agreement of Sinsin, which led to that both parties filed petitions to each other (see Note 8(b)). The petitions directly affected the Group’s ability to effectively control Sinsin and make any direct management decisions or have any direct impact on Sinsin’s polices, operations or assets without the agreement of Sinsin Group.

 

2. Going concern

 

The Group’s condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of the business. The Group had recurring losses from operations. The Group has incurred a net loss of $6,786 during the three months ended March 31, 2022, and the cash flow used in operating activities was $8,583. As of March 31, 2022, there is net working capital deficit of $93,010 and accumulated deficit of $644,235. These factors raise substantial doubt as to the Group’s ability to continue as a going concern. The Group intends to continue implementing various measures to boost revenue and control the cost and expenses within an acceptable level and other measures including: 1) negotiate with potential buyers on PV solar projects; 2) negotiate for postponing of convertible bond payments; 3) improve the profitability of the business in US; 4) obtain equity financing from certain subsidiaries’ initial public offerings; 5) strictly control and reduce business, marketing and advertising expenses and 6) seek for certain credit facilities. While the Group believes that it will be successful in meeting its liquidity and cash flow requirements, there is no assurance to that effect. The Group’s condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

 

 

 F-7 

 

 

3. Summary of Significant Accounting Policies

 

  (a) Basis of Presentation

 

The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.

 

In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

 

  (b) Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Group to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Group’s unaudited condensed consolidated financial statements include the allowance made for credit losses, inventory write-downs, the estimated useful lives of long-lived assets, the impairment of goodwill, long-lived assets and project assets, valuation allowance of deferred tax assets, accrued warranty expenses, the grant-date fair value of share-based compensation awards and related forfeiture rates, the lease discount rate, the purchase price allocation in acquisition, and fair value of financial instruments. Changes in facts and circumstances may result in revised estimates. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

 

  (c) Revenue Recognition

 

The Group’s accounting practices under Accounting Standards Codification (“ASC”) No. 606 are as followings:

 

The Group generates revenue from sales of PV components, roofing and solar energy systems installation, electricity revenue with Power Purchase Agreements (“PPAs”), sales and leasing of EV, and others for the three months ended March 31, 2022 and 2021.

 

Sale of PV components

 

Revenue on sale of PV components is recognized at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or acceptance of the customer depending on the terms of the underlying contracts.

 

Revenue from roofing and solar energy systems installation

 

Revenue from roofing and solar energy system installation is recognized over time.

 

For revenue from solar energy system installation, the Company’s principal performance obligation is to design and install a customize solar energy system, sometimes, reinstall the customer’s existing solar energy system that is interconnected to the local power grid and for which permission to operate has been granted by a utility company to the customer. For roofing the Company’s principal performance obligation is to design and build roof system per customer selection.

 

 

 F-8 

 

 

All costs to obtain and fulfill contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized.

 

The Company recognizes revenue using a cost-based input method that recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated cost of the contract. In applying cost-based input method, the Company uses the actual costs incurred to the total estimated cost, to determine the Company’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize.

 

Electricity revenue with PPAs

 

The Group sells energy generated by PV solar power systems under PPAs. For energy sold under PPAs, the Group recognizes revenue each period based on the volume of energy delivered to the customer (i.e., the PPAs off-taker) and the price stated in the PPAs. The Group has determined that none of the PPAs contains a lease since (i) the purchaser does not have the rights to operate the PV solar power systems, (ii) the purchaser does not have the rights to control physical access to the PV solar power systems, and (iii) the price that the purchaser pays is at a fixed price per unit of output.

 

Revenue from sales and leasing of EV

 

The Group recognizes revenue from sales of EV at a point in time following the transfer of control of such products to the customer, which typically occurs upon the delivery to the customer for EV sales. The Group determined that the government grants related to sales of EV should be considered as part of the transaction price because it is granted to the EV buyer and the buyer remains liable for such amount in the event the grants were not received by the Group or returned due to the buyer violates the government grant terms and conditions.

 

EV leasing revenue includes revenue recognized under lease accounting guidance for direct leasing programs. The Group accounts for these leasing transactions as operating leases under ASC 840 Leases, and revenues are recognized on a straight-line basis over the contractual term.

 

Other revenue

 

Other revenue mainly consisted of revenue generated from sales of component and charging stations, engineering and maintenance service, shipping and delivery service and other.

 

Disaggregation of revenues

 

The following table illustrates the disaggregation of revenue by revenue stream and by geographical location for the three months ended March 31, 2022 and 2021:

                              
By revenue stream  For the three months ended March 31, 2022 (Unaudited) 
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Australia  $28,024   $–   $–   $–   $142   $28,166 
Italy   –    –    256    –    –    256 
United States   –    8,789    –    525    141    9,455 
United Kingdom   –    –    151    –    –    151 
Greece   –    –    507    –    –    507 
Total  $28,024   $8,789   $914   $525   $283   $38,535 

 

 

 F-9 

 

 

 

By revenue stream  For the three months ended March 31, 2021 (Unaudited) 
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Australia  $28,909   $–   $–   $–   $216   $29,125 
Italy   –    –    161    –    –    161 
United States   –    3,030    –    384    243    3,657 
United Kingdom   –    –    165    –    –    165 
Greece   –    –    514    –    –    514 
Total  $28,909   $3,030   $840   $384   $459   $33,622 

 

Contract balance

 

The following table provides information about contract assets and contract liabilities from contracts with customers:

          
  

March 31,

2022

(Unaudited)

  

December 31,

2021

 
Accounts receivable, net  $24,543   $22,599 
Contract assets  $1,279   $1,621 
Advance from customers  $5,209   $4,924 

 

The contract assets primarily relate to the Group’s rights to consideration for work completed but not billed at the reporting date, primarily for the revenue from roofing and solar energy systems installation in the United States. The contract assets are transferred to receivables when the rights become unconditional after billing is issued.

 

Advance from customers, which representing a contract liability, represents mostly unrecognized revenue amount received from customers. Advance from customers is recognized as (or when) the Group performs under the contract. During the three months ended March 31, 2022 and 2021, the Group recognized $4,924 and $1,377 as revenue that was included in the balance of advance from customers at January 1, 2022 and 2021, respectively.

 

  (d) Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This guidance eliminates the beneficial conversion feature and cash conversion models in Accounting Standards Codification (ASC or Codification) 470-20 that require separate accounting for embedded conversion features in convertible instruments. This guidance also eliminates some of the conditions that must be met for equity classification under ASC 815-40-25. The new guidance also requires entities to use the if-converted method to calculate earnings per share (EPS) for all convertible instruments in the diluted EPS calculation and include the effect of potential share settlement (if the effect is more dilutive) for instruments that may be settled in cash or shares, except for liability-classified share-based payment awards. ASU No. 2020-06 is effective for annual periods beginning after 15 December 2021 and interim periods therein. The Group adopted ASU No. 2020-06 on January 1, 2022. The adoption did not have a material impact on the Group’s consolidated financial statements.

 

Other significant accounting policies are detailed in “Note 3 - Summary of Significant Accounting Policies” of the Company 2021 Form 10-K.

 

 

 F-10 

 

 

4. Accounts Receivable, Net

  

The accounts receivable, net as of March 31, 2022 and December 31, 2021 consisted of the following:

          
   March 31,   December 31, 
  

2022

(Unaudited)

  

2021

 
Accounts receivable  $26,645   $25,419 
Less: Allowance for credit losses   (2,102)   (2,820)
Accounts receivable, net  $24,543   $22,599 

 

5. Inventories

 

Inventories as of March 31, 2022 and December 31, 2021 consisted of the following:

          
   March 31,   December 31, 
  

2022

(Unaudited)

  

2021

 

 
Finished goods  $20,252   $16,881 
Goods in transit   2,940    2,846 
Work in process   625    684 
Raw materials   3,284    2,832 
Total inventories  $27,101   $23,243 

 

6. Share-based Compensation

 

The following table summarizes the consolidated share-based compensation expense, by type of awards:

          
   For the three months Ended (Unaudited) 
   March 31,   March 31, 
   2022   2021 
Employee share options  $595   $3,074 
Restricted share grants   623    – 
Total share-based compensation expense  $1,218   $3,074 

 

The following table summarizes the consolidated share-based compensation by line items:

          
   For the Years Ended (Unaudited) 
  

March 31,

2022

  

March 31,

2021

 
General and administrative  $1,211   $3,074 
Sales, marketing and customer service   7    – 
Total share-based compensation expense, net of nil income taxes  $1,218   $3,074 

 

 

 

 F-11 

 

 

7. Net Loss Per Share

 

As a result of the net loss for the three months ended March 31, 2022 and 2021, there is no dilutive impact to the net loss per share calculation for the period. 

 

For the three months ended March 31, 2022 and 2021, the following securities were excluded from the computation of diluted net loss per share as inclusion would have been anti-dilutive.

          
   For the Years Ended (Unaudited) 
  

March 31,

2022

  

March 31,

2021

 
Share options and non-vested restricted stock  $17,500   $18,350 
Convertible bonds   614,500    316,000 
Committed shares   –    114,770 
Total  $632,000   $449,120 

 

8. Commitments and Contingencies

 

  (a) Capital Commitments

 

As of March 31, 2022 and December 31, 2021, the Group had capital commitments of approximately $9,805 and $1,992, respectively. These capital commitments were solely related to contracts signed with vendors for procurement of services, automation production line, equipment or PV related products used for the construction of solar PV systems being developed by the Group.

 

The capital commitments as at balance sheet dates disclosed above do not include those incomplete acquisitions for investment and business as at balance sheet dates as the agreements could either be terminated unconditionally without any penalty or cancelable when the closing conditions as specified in the agreements could not be met.

 

  (b) Contingencies

 

On January 26, 2018, Sinsin Group filed a complaint against the Group requesting the payment of outstanding purchase price and related interest of $43,595 (EUR 38,054). On June 25, 2018, an interim measures judgment was made which appointed an interim management of Sinsin, consisting of two members elected by Sinsin Group and one member elected by the Group. The interim management would manage the bank accounts of Sinsin and collect the proceeds of electric energy revenue. On October 29, 2020, an arbitration decision was made that the Group will need to pay the outstanding purchase price of $43,595 (EUR 38,054), together with interest at 6% accruing from November 20, 2015 on half of the outstanding purchase and from June 30, 2016 on the remaining half of the outstanding purchase price to the date of eventual payment. The Group filed an application for appeals in the court of Malta but was turned down by the court in November 2021. The Group furtherly filed an application of retrial and suspension of the enforcement of the awards. The application of retrial was rejected by the court on March 30, 2022. No further appeal or right of retrial exists in Malta, and the management is preparing for any other available options to suspend the enforcement of the arbitration decision.

 

From time to time, the Group is involved in various other legal and regulatory proceedings arising in the normal course of business. While the Group cannot predict the occurrence or outcome of these proceedings with certainty, it does not believe that an adverse result in any pending legal or regulatory proceeding, individually or in the aggregate, would be material to the Group’s consolidated financial condition or cash flows; however, an unfavorable outcome could have a material adverse effect on the Group’s results of operations. 

 

 

 F-12 

 

 

9. Concentration Risk

 

A substantial percentage of the Group’s net revenue comes from sales made to a small number of customers to whom sales are typically made on an open account basis.

 

There was no customer of which the revenue accounted for 10% or more of total net revenue for the three months ended March 31, 2022 and 2021.

 

As of March 31, 2022, there was one customer of which the accounts receivable accounted for 16% of total accounts receivable. As of December, 2021, there was one customer of which the accounts receivable accounted for 21% of total accounts receivable.

 

10. Related Party Transactions

 

The amount due from related parties were $264 and $230 as of March 31, 2022 and December 31, 2021, respectively, represented the advance payment to management for business operation.

  

The amount due to related parties were $405 and nil as of March 31, 2022 and December 31, 2021, respectively, represented the short term loan from a shareholder with no interest.

  

11. Segment information

 

For the three months ended March 31, 2022 and 2021, there are three operating segments: (1) EV business, (2) renewable energy solutions business and (3) solar projects development business. The Group’s CODM assess the performance of each segments based on revenue, cost of sales and total assets. Other than the information provided below, the CODM does not use any other measures by segments.

 

Summarized information by segments for the three months ended March 31, 2022 and 2021 is as follows:

                         
   For the three months ended March 31, 2022 (Unaudited) 
   Renewable energy solutions   PV stations constructions and operations   Electric vehicles   Others   Total 
   USD   USD   USD   USD   USD 
Revenues from external customers   36,955    909    671    –    38,535 
Cost of sales   34,488    427    551    360    35,826 
Gross profit (loss)   2,467    482    120    (360)   2,709 

 

                     
   For the three months ended March 31, 2021 (Unaudited) 
   Renewable energy solutions   PV stations constructions and operations   Electric vehicles   Others   Total 
   USD   USD   USD   USD   USD 
Revenues from external customers   32,154    709    473    286    33,622 
Cost of sales   30,195    403    421    465    31,484 
Gross profit (loss)   1,959    306    52    (179)   2,138 

 

 

 F-13 

 

 

Summarized information by segments as of March 31, 2022 and December 31, 2021 is as follows:

          
  

As of March 31, 2022

(Unaudited)

   As of December 31, 2021 
    USD    USD 
Segment assets          
Renewable energy solutions   59,509    52,946 
Solar projects development   142,998    144,852 
Electric vehicles   14,960    17,738 
Others   10,068    12,544 
Total segment assets   227,535     228,080 

 

Total long-lived assets excluding financial instruments, intangible assets, long-term investment and goodwill by country were as follows:

          
  

As of March 31, 2022

Unaudited

   As of December 31, 2021 
     USD      USD  
Australia   588    577 
United States   36,513    37,021 
Japan   1,599    1,414 
Italy   1,680    1,749 
United Kingdom   9,156    9,477 
Greece   14,924    15,404 
Total long-lived assets   64,460    65,642 

 

12. Subsequent Events 

 

Entry into a Material Convertible Promissory Note Agreement

 

On April 8, 2022, SPI Energy Co., Ltd. (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”) pursuant to which the Company issued an unsecured convertible promissory note with a one-year maturity (“Note”) to an institutional accredited investor Streeterville Capital, LLC (“Investor”). The Note has the original principal amount of $2,110 and Investor gave consideration of $2,000, reflecting original issue discount of $100 and Investor’s legal fee of $10.

 

Interest accrues on the outstanding balance of the Note at 10% per annum. Upon the occurrence of an Event of Default (as defined in the Note), interest accrues at the lesser of 15% per annum or the maximum rate permitted by applicable law. Certain Major Defaults (as defined in the Note) will result in an additional 15% of the aggregate principal amount of the Note outstanding at such time being added to the total outstanding amount of such note.

 

Pursuant to the terms of the Agreement and the Note, the Company must obtain Investor’s consent for certain fundamental transactions such as consolidation, merger, disposition of substantial assets, change of control, reorganization or recapitalization. Any occurrence of a fundamental transaction without Investor’s prior written consent will be deemed an Event of Default.

 

Investor may redeem all or any part of the outstanding balance of the Note, subject to maximum monthly redemption amount of $350, at any time after six months from the Note issue date, in cash or converting into the Company’s ordinary shares at a conversion price of $20.00 per share, subject to certain adjustments and ownership limitations specified in the Note. The number of ordinary shares that may be issued upon conversion of the Note shall not exceed the requirement of Nasdaq Listing Rule 5635(d). The Note provides for liquidated damages upon failure to comply with any of the terms or provisions of the Note. The Company may prepay the outstanding balance of the Note in cash equal to 115% multiplied by the portion of the outstanding balance the Company elects to prepay.

 

The Group has evaluated subsequent events through the date of issuance of the unaudited condensed consolidated financial statements, there were no other subsequent events occurred that would require recognition or disclosure in the consolidated financial statements.

 

 

 F-14 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Readers are cautioned not to place undue reliance on these forward-looking statements.

 

Overview

 

We are a global provider of photovoltaic (PV) and electric vehicle (EV) solutions for business, residential, government and utility customers and investors. We develop solar PV projects which are either sold to third party operators or owned and operated by us for selling of electricity to the grid in multiple countries in Asia, North America and Europe. In Australia, we primarily sell solar PV components to retail customers and solar project developers. We started to engage in sales and leasing of new zero-emission EVs in U.S. from 2020 and engage in roofing and solar energy systems installation in U.S. from 2021.

 

Our liquidity position has deteriorated since 2015. We suffered a net loss of $6.8 million during the three months ended March 31, 2022, and the cash flow used in operating activities was $8.6 million. For a detailed discussion, please see “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

 

Basis of presentation, management estimates and critical accounting policies

 

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and include the accounts of our company, and all of our subsidiaries. We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. In order to understand the significant accounting policies that we adopted for the preparation of our condensed consolidated interim financial statements, readers should refer to the information set forth in Note 3 “Summary of significant accounting policies” to our audited financial statements in our 2021 Form 10-K.

 

Principal Factors Affecting Our Results of Operations

 

We believe that the following factors have had, and we expect that they will continue to have, a significant effect on the development of our business, financial condition and results of operations.

 

 

 

 3 

 

 

COVID-19

 

The pandemic of a novel coronavirus (COVID-19) has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide. Governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we do business or have operations. While some of these orders permit the continuation of essential business operations, or permit the performance of minimum business activities, these orders are subject to continuous revision or may be revoked or superseded, or our understanding of the applicability of these orders and exemptions may change at any time. In response to these orders, we have reduced the risk of exposure to infection, including reduced travel, cancellation of meetings and events, and implementation of work-at- home policies.

 

Our operating results substantially depend on revenues derived from sales of PV project assets, provision of electricity, our Australian subsidiary’s trading of PV components, and our U.S. subsidiary’s business on roofing and solar energy systems installation and sales and leasing of EVs, respectively. As the COVID-19 spread continues, the measures implemented to curb the spread of the virus have resulted in supply chain disruptions, insufficient work force and suspended manufacturing and construction works for solar industry. One or more of our customers, partners, service providers or suppliers may experience financial distress, delayed or defaults on payment, file for bankruptcy protection, sharp diminishing of business, or suffer disruptions in their business due to the outbreak. These preventative measures have also impacted our daily operations. The efforts enacted to control COVID-19 have placed heavy pressure on our marketing and sales activities. We continue to assess the related risks and impacts COVID-19 pandemic may have on our business and our financial performance. In light of the rapidly changing situation across different countries and regions, it remains difficult to estimate the duration and magnitude of COVID-19 impact. Until such time as the COVID-19 pandemic is contained or eradicated and global business return to more customary levels, our business and financial results may be materially adversely affected.

 

Market Demand

 

Our revenue and profitability depend substantially on the demand for our PV solutions, which is driven by the economics of PV systems, including the availability and size of government subsidies and other incentives, government support, cost improvements in solar power, as well as environmental concerns and energy demand. The world PV market in terms of new annual installations is expected to grow significantly in the next five years, providing engineering procurement construction (“EPC”) service providers and solar project developers like us with significant opportunities to grow our business.

  

In the long term, as PV technology advances and the average system costs of solar projects decrease, we expect the market for electricity in a growing number of countries to achieve grid parity. As the PV industry becomes more competitive against other energy industries and widespread grid parity strengthens demand for solar projects, we expect our costs of sales to decrease and our revenue and profitability to increase.

 

In addition, the medium-duty EV market is expected to grow significantly over the next decade. While the market has been too slow to expand over the last many years, many key factors are shaping the industry for accelerated growth over the next few years. Key factors driving this growth include government regulations requiring fleets to go electric, incentives and grant funding supporting commercial zero emission vehicle deployments, infrastructure deployments and corporate electrification mandates. Many large fleets who operate large truck and bus fleets have committed to go 100% electric over the next few years. This includes large delivery truck fleets like Amazon, FedEx, UPS, DHL, IKEA; also shuttle bus operators like transit agencies in Los Angeles, Orange County, and New York; and large corporate fleet owners like Genentech, Microsoft and Salesforce. All of the above factors, together with key technology catalysts, are expected to spur demand for medium-duty electric vehicles significantly over the next few years. Key technology drivers include reduction in battery costs and costs of other key components, making electric vehicles cheaper, and advances in EV drivetrain technology, including motor improvements that enable better performance and higher efficiencies; and refinements in high-voltage battery technology. The anticipated sales growth in this segment of the EV market is attributed both to new companies that started as electric vehicle manufacturers, as well as and conventional OEMs who are expected to start offering complete EV over the next few years.

 

As PV and energy storage technology advances and the average system costs decrease, in many cases the residential or small business owners of solar systems have effectively achieved grid parity for their systems. Aided by smart meter and virtual power plant technologies such systems can be an attractive alternative to electricity grid in many localities. We expect traditionally strong residential solar markets such as California and Australia to continue to grow, while we expect new growth from markets to emerge such as Florida, Texas and US Northeast. As the overall market grows we expect our costs of sales to decrease and our revenue and profitability to increase.

 

 

 

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Government Subsidies and Incentive Policies

 

We believe that the growth of the solar power industry in the short term will continue to depend largely on the availability and effectiveness of government incentives for solar power products and the competitiveness of solar power in relation to conventional and other renewable energy resources in terms of cost. Countries in Europe, notably Italy, Germany, France, Belgium and Spain, certain countries in Asia, including Japan, India and South Korea, as well as Australia and the United States have adopted favorable renewable energy policies. Examples of government sponsored financial incentives to promote solar power include capital cost rebates, tax credits, net metering and other incentives to end users, distributors, project developers, system integrators and manufacturers of solar power products.

  

Governments may reduce or eliminate existing incentive programs for political, financial or other reasons, which will be difficult for us to predict. Electric utility companies or generators of electricity from fossil fuels or other renewable energy sources could also lobby for a change in the relevant legislation in their markets to protect their revenue streams. Government economic incentives could be reduced or eliminated altogether.

 

With growing emphasis on improving air quality around our communities, large states like California are mandating key end user segments to switch to zero emission transportation options. Some of the key regulations driving growth in our addressable market include, in California, requiring all transit buses to be zero emissions by 2040, requiring all airport shuttles to be electric by 2035, requiring at least 50% of all medium-duty trucks sold in the state to be electric by 2030, and requiring specific end-user segments like drayage and yard trucks to go electric.

  

Other states like New York, New Jersey and Massachusetts are also expected to bring in regulatory requirements for key end user segments like transit agencies and school buses to switch to all electric vehicles. Fifteen other states, including Connecticut, Colorado, Hawaii, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington have committed to follow California’s Clean Truck Regulation.

 

Various state and federal agencies are also supporting the switch to zero emission transportation by providing a host of funding and incentive support to develop, demonstrate and deploy zero emission transportation solutions. This is primarily driven by the urgent need to meet carbon and greenhouse gas emission reduction targets. Some of the key funding / incentives driving adoption of electric medium duty vehicles include: the California HVIP program offering a minimum of $60,000 per vehicle as incentive for Class 4 electric vehicles registered and operating in the state, the New York Truck Voucher Incentive Program offering up to $66,000 per Class 4 electric vehicle, funding from federal agencies like the FTA, covering up to 80% of the cost of procuring electric transit buses and various funding options covering up to 100% of the cost of procuring all electric school buses across key states.

 

Federal and various state agencies have established incentives for setting up both public and private charging infrastructure. Notably, the California Energy Commission and the California Public Utilities Commission have approved funding up to 100% of the cost of setting up chargers and related infrastructure. Large utilities like Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric have ‘Charge Ready’ programs that cover the entire cost of setting up charging infrastructure. Other states like New York, Chicago, North Carolina, Tennessee, Texas and Ohio have also introduced programs to support fleets with their charging infrastructure requirements.

 

Our Solar Power Generation and Operations Capabilities

 

Our financial condition and results of operations depend on our ability to successfully continue to develop new solar projects and operate our existing solar projects. We expect to build and manage a greater number of solar projects, which we expect to present additional challenges to our internal processes, external construction management, working capital management and financing capabilities. Our financial condition, results of operations and future success depend, to a significant extent, on our ability to continue to identify suitable sites, expand our pipeline of projects with attractive returns, obtain required regulatory approvals, arrange necessary financing, manage the construction of our solar projects on time and within budget, and successfully operate solar projects.

  

 

 

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Results of Operations for the Three Months Ended March 31, 2022 and 2021

 

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations (in thousands) and each item expressed as a percentage of our total net revenues. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

   For the Three Months Ended March 31, 
  

2022

(Unaudited)

  

2021

(Unaudited)

 
Net sales  $38,535    100.0%   $33,622    100.0% 
Cost of revenues   35,826    93.0%    31,484    93.6% 
Gross profit   2,709    7.0%    2,138    6.4% 
Operating expenses:                    
General and administrative   9,128    23.7%    9,595    28.5% 
Sales, marketing and customer service   1,243    3.2%    1,037    3.1% 
Reversal for credit losses   (683)   -1.8%    –    – 
Total operating expenses   9,688    25.1%    10,632    31.6% 
Operating loss   (6,979)   -18.1%    (8,494)   -25.3% 
Other (income) expense:                    
Interest expenses, net   1,401    3.6%    1,443    4.3% 
Net foreign exchange gain   (1,062)   -2.8%    (1,502)   -4.5% 
Others   (788)   -2.0%    (649)   -1.9% 
Total other income, net   (449)   -1.2%    (708)   -2.1% 
Loss before income taxes   (6,530)   -16.9%    (7,786)   -23.2% 
Income taxes expense   256    0.7%    314    0.9% 
Net loss  $(6,786)   -17.6%   $(8,100)   -24.1% 

  

Net sales — Net sales were $38.5 million and $33.6 million for the three months ended March 31, 2022 and 2021, respectively, representing an increase of $4.9 million or 14.6%. The increase in net sales for the three months ended March 31, 2022 over the comparative period was primarily due to the increase of revenue from roofing and solar installation of $5.8 million.

 

Cost of revenues — Cost of revenues was $35.8 million (93.0% of net sales) and $31.5 million (93.6% of net sales) for the three months ended March 31, 2022 and 2021, respectively, representing an increase of $4.3 million or 13.8%. The increase in cost of goods sold was consistent with the increase of net sales.

 

Gross profit — Our gross profit increased from $2.1 million in the three months ended March 31, 2021 to $2.7 million in the three months ended March 31, 2022. Gross margins were 7.0% and 6.4% for the three months ended March 31, 2022 and 2021, respectively. The increase in gross margin was primarily due to the increase in GP% of roofing and solar energy system installation. The Company started such business in late February 2021 and incurred significant inefficient indirect cost during the three months ended March 31, 2021. After ten months experience, such inefficient indirect costs decreased significantly and the GP% accordingly in the three months ended March 31, 2022.

 

 

 

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General and administrative expenses — General and administrative expenses were $9.1 million (23.7% of net sale) and $9.6 million (28.5% of net sale) for the three months ended March 31, 2022 and 2021, respectively, representing a decrease of $0.5 million, or 4.9%. The decrease was mainly due to the decrease in stock-based compensation expense and was partially net off by the increase of the expense from U.S. subsidiary’s business on roofing and solar energy systems installation, which started to operate since February 2021 as well as the increase in salaries and wages.

  

Sales, marketing and customer service expenses — Sales, marketing and customer service expenses were $1.2 million (3.2% of net sales) and $1.0 million (3.1% of net sales) for the three months ended March 31, 2022 and 2021, respectively, representing an increase of $0.2 million, or 19.9%. The increase in our sales, marketing and customer service expenses was mainly due to the increase of employees’ salaries.

 

Reversal for credit loss — In the three months ended March 31, 2022, we reversed credit loss provision of $0.7 million, primarily due to the strengthening monitoring on accounts receivable collection. There was no reversal or provision for credit loss in the three months ended March 31, 2021.

 

Interest expense, net — Interest expense net was $1.4 million (3.6% of net sales) and $1.4 million (4.3% of net sales) for the three months ended March 31, 2022 and 2021, respectively. The interest expense net kept stable as there was no significant change in convertible bonds and borrowings.

  

Net foreign exchange gain — We had a net foreign exchange gain of $1.1 million (2.8% of net sales) and $1.5 million (4.5% of net sales) for the three months ended March 31, 2022 and 2021, respectively.

 

Others — We generated other income of $0.8 million (2.0% of net sales) and $0.6 million (1.9% of net sales) in the three months ended March 31, 2022 and 2021. The other income in the three months ended March 31, 2022 mainly represents the gain on disposal for bitcoin equipment of $0.5 million. The other income in the three months ended March 31, 2021 mainly represents the gain on forward contracts of $0.6 million.

 

Income tax expense — We had a provision for income taxes of $0.3 million (0.7% of net sales) and $0.3 million (0.9% of net sales) for the three months ended March 31, 2022 and 2021, respectively. The income tax expense kept stable as there was no significant change in profit before tax of our subsidiary in Australia.

 

Net loss — For the foregoing reasons, we incurred a net loss of $6.8 million (17.6% of net sales) for the three months ended March 31, 2022, representing an decrease of net loss of $1.3 million compared to a net loss of $8.1 million (24.1% of net sales) for the three months ended March 31, 2021.

 

Liquidity and Capital Resources

 

Historically, we have financed our operations primarily through cash flows from bank borrowings, financing from issuance of convertible bonds, operating activities, and the proceeds from private placements and registered offerings.

 

As of December 31, 2021, we had $17.8 million in cash and cash equivalents, and restricted cash. As of March 31, 2022, we had $12.9 million in cash and cash equivalents, and restricted cash.

 

We suffered a net loss of $6.8 million during the three months ended March 31, 2022, and the cash flow used in operating activities was $8.6 million. As of March 31, 2022, there is net working capital deficit of $93.0 million and accumulated deficit of $644.2 million. These factors raise substantial doubt as to the Group’s ability to continue as a going concern. We intend to continue implementing various measures to boost revenue and control the cost and expenses within an acceptable level and other measures including: 1) negotiate with potential buyers on PV solar projects; 2) negotiate for postponing of convertible bond payments; 3) improve the profitability of the business in US; 4) obtain equity financing from certain subsidiaries’ initial public offerings; 5) strictly control and reduce business, marketing and advertising expenses and 6) seek for certain credit facilities. While we believe that it will be successful in meeting its liquidity and cash flow requirements, there is no assurance to that effect. Our condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

 

 

 

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A summary of the sources and uses of cash and cash equivalents is as follows (in thousands):

 

   For the Three Months Ended March 31, 
  

2022

(Unaudited)

  

2021

(Unaudited)

 
Net cash used in operating activities  $(8,583)  $(4,008)
Net cash generated from (used in) investing activities   1,096    (7,908)
Net cash generated from financing activities   2,129    3,918 
Effect of exchange rate changes on cash   370    (1,122)
Net decrease in cash, cash equivalents and restricted cash  $(4,988)  $(9,120)

 

Operating Activities

 

Net cash used in operating activities was $8.6 million for the three months ended March 31, 2022, primarily as a result of (i) net loss of $6.8 million, (ii) increase in inventories of $4.6 million, (iii) increase in accounts receivable of $2.0 million, and (iv) increase in project assets of $2.0 million; the decrease was partially offset by (i) depreciation and amortization expense of $0.7 million, (ii) increase in accounts payable of $1.7 million, (iii) increase in accrued liabilities and other liabilities of $1.8 million, (iv) decrease in prepaid expenses and other current assets of $1.3 million, and (v) stock-based compensation expense of $1.2 million.

 

Net cash used in operating activities was $4.0 million for the three months ended March 31, 2021, primarily as a result of (i) net loss of $8.1 million, (ii) increase in inventories of $4.8 million, and (iii) increase in prepaid expenses and other assets of $3.1 million; the decrease was partially offset by (i) increase in accounts payable of $5.5 million, (ii) decrease in project assets of $2.1 million, (iii) increase in advances from customers of $1.6 million, and (iv) stock-based compensation expense of $3.1 million.

 

Investing Activities

 

Net cash generated from investing activities was $1.1 million for three months ended March 31, 2022, primarily as a result of proceeds from disposal of property and equipment of $1.3 million, partially offset by cash paid for purchase of property, plant and equipment of $0.2 million.

 

Net cash used in investing activities was $7.9 million for three months ended March 31, 2021, primarily as a result of cash paid for asset purchase of PDI in the amount of $8.0 million.

  

Financing Activities

 

Net cash generated from financing activities was $2.1 million for the three months ended March 31, 2022, primarily consisted of net proceeds received from borrowings.

 

Net cash generated from financing activities was $3.9 million for the three months ended March 31, 2021, primarily consisted of (i) proceeds from issuance of ordinary shares of $13.6 million, (ii) proceeds from issuance of convertible note of $4.0 million, partially offset by (i) repayment of convertible notes of $13.4 million, (ii) net repayment of borrowings of $0.9 million. 

  

 

 

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Capital Expenditures

 

We incurred capital expenditures of $0.2 million and $8.0 million for the three months ended March 31, 2022 and 2021, respectively. Capital commitments amounted to approximately $9.8 million as of March 31, 2022. These capital commitments were solely related to contracts signed with vendors for procurement of services, automation production line, equipment or PV related products used for the construction of solar PV systems being developed by us. We expect to finance construction of these projects using cash from our operations and private placements, registered offerings, bank borrowings as well as other third-party financing options.

 

Trend information

 

Our operating results substantially depend on revenues derived from sales of PV project assets, provision of electricity, our Australian subsidiary’s trading of PV components, and our U.S. subsidiary’s business on roofing and solar energy systems installation and sales and leasing of EVs, respectively. As the COVID-19 spread continues, the measures implemented to curb the spread of the virus have resulted in supply chain disruptions, insufficient work force and suspended manufacturing and construction works for solar industry. In light of the rapidly changing situation across different countries and regions, it remains difficult to estimate the duration and magnitude of COVID-19 impact.

  

Other than as disclosed elsewhere in this quarterly report, we are not aware of any trends, uncertainties, demands, commitments or events for the three months ended March 31, 2022 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause reported consolidated financial information not necessarily to be indicative of future operating results or financial conditions.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2022, we had no off-balance sheet arrangements that are or have been reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. We have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our unaudited condensed consolidated financial statements. We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

For more information on our contractual obligations, commitments and contingencies, see Note 8 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report Form 10-Q.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

 

 

 9 

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

  

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the fiscal quarter of 2022 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we are involved in various legal proceedings arising in the normal course of business. While we cannot predict the occurrence or outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal proceeding, individually or in the aggregate, would be material to our financial condition.

 

For more information on our legal proceedings, see Note 8(b) to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report Form 10-Q.

 

Item 1A. Risk Factor

 

This information has been omitted based on the Company’s status as a smaller reporting company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities

 

None.

  

Item 3. Defaults upon senior securities

 

None.

 

Item 4. Mine safety disclosures

 

Not applicable.

 

Item 5. Other information

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

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Item 6. Exhibits.

 

Exhibit No.   Description
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
     
32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
   
101.SCH   XBRL Taxonomy Extension Schema Document
   
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
     

104. Cover Page Interactive Data File - The cover page iXBRL tags are embedded within the inline XBRL document.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SPI ENERGY CO., LTD.
     
  By: /s/ Xiaofeng Peng
    Xiaofeng Peng
    Chief Executive Officer
(Principal executive officer)
     
  By: /s/  Janet Chen
    Janet Chen
    Chief Financial Officer
(Principal financial and accounting officer)

 

Date: May 13, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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