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 quarterly 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 and commenced pilot production of "Made-in-America" solar modules in US in
the second quarter of 2022.
Our liquidity position has deteriorated since 2015. We suffered a net loss of
$22.5 million during the nine months ended September 30, 2022, and the cash flow
used in operating activities was $13.0 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".
On June 10, 2022, our wholly owned subsidiary, Phoenix Motor Inc., a Delaware
corporation, closed its initial public offering of 2,100,000 shares of common
stock at a public offering price of $7.50 per share, for aggregate gross
proceeds of $15.75 million before deducting underwriting discounts and
commissions and offering expenses. The offering closed on June 10, 2022 and the
common stock of Phoenix Motor Inc. began trading on June 8, 2022 on The Nasdaq
Capital Market under the ticker symbol "PEV."
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 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.
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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.
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. Due to the worldwide growing trend in availability and administration
of vaccines against Covid-19, many restrictions resulted from the pandemic were
gradually lifted by governments across the globe. However, the future impact of
the Covid-19 pandemic remains highly uncertain.. Our first priority continues to
be to protect and support our employees while maintaining company operations and
support of our customers with as few disruptions as possible. 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, sales and leasing of EVs, sales of forklift and sales of
solar modules, 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.
20
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.
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.
21
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.
Outbreak of war in Ukraine
On February 24, 2022, the Russian Federation launched an invasion of Ukraine
that has had an immediate impact on the global economy resulting in higher
energy prices and higher prices for certain raw materials and goods and services
which in turn is contributing to higher inflation in the United States and other
countries across the globe with significant disruption to financial markets. We
do not have any operation or business in Russia or Ukraine, however, we may be
potentially indirectly adversely impacted any significant disruption it has
caused and may continue to escalate. In addition, the United States and other
countries have imposed sanctions on Russia which increases the risk that Russia
may resort to retaliatory actions, including the launching of cyberattacks. It
is possible that these attacks could have collateral effects on additional
critical infrastructure and financial institutions globally, which could
adversely affect our operations. It is difficult to assess the likelihood of
such threat and any potential impact at this time. Any one or more of these
events may impede our operation and delivery efforts and adversely affect our
sales results, or even for a prolonged period of time, which could materially
and adversely affect our business, financial condition, and results of
operations.
Results of Operations for the Three Months Ended September 30, 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 sales. 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 September 30,
2022 2021
(Unaudited) (Unaudited)
Net revenues $ 43,212 100.0% $ 38,964 100.0%
Cost of revenues 45,501 105.3% 40,066 102.8%
Gross loss (2,289 ) -5.3% (1,102 ) -2.8%
Operating expenses:
General and
administrative 8,847 20.5% 9,506 24.4%
Sales, marketing and
customer service 1,080 2.5% 3,172 8.1%
Impairment charges on
long-lived assets 1,809 4.2% - -
(Reversal) Provision for
credit losses (262 ) -0.6% 2,184 5.6%
Total operating expenses 11,474 26.6% 14,862 38.1%
Operating loss (13,763 ) -31.8% (15,964 ) -41.0%
Other (expense) income:
Interest expenses, net (1,282 ) -3.0% (880 ) -2.3%
Loss on extinguishment of
convertible bonds (422 ) -1.0% - -
Net foreign exchange gain 2,603 6.0% 870 2.2%
Others 71 0.2% (9 ) -
Total other income
(expenses), net 970 2.2% (19 ) -
Loss before income taxes (12,793 ) -29.6% (15,983 ) -41.0%
Income taxes expense 700 1.6% 496 1.3%
Net loss $ (13,493 ) -31.2% $ (16,479 ) -42.3%
22
Net revenues - Net revenues were $43.2 million and $39.0 million for the three
months ended September 30, 2022 and 2021, respectively, representing an increase
of $4.2 million or 10.9%. The increase in net sales for the three months ended
September 30, 2022 over the comparative period was primarily due to the increase
of revenue from sales of PV components of $8.3 million and $1.4 million from
sales of solar modules, and was partially net off by the decrease of revenue
from roofing and solar energy systems installation of $5.7 million.
Cost of revenues - Cost of revenues was $45.5 million (105.3% of net sales) and
$40.1 million (102.8% of net sales) for the three months ended September 30,
2022 and 2021, respectively, representing an increase of $5.4 million or 13.6%.
The increase in cost of goods sold was consistent with the increase of net
revenues.
Gross loss - Our gross loss decreased from $1.1 million in the three months
ended September 30, 2021 to $2.3 million in the three months ended September 30,
2022. Gross margins were -5.3% and -2.8% for the three months ended September
30, 2022 and 2021, respectively. The decrease in gross margin was primarily due
to the decrease in gross margin of roofing and solar energy system installation.
Since the Company's indirect costs of job management is relatively fixed, the
decrease in number of work-in-progress jobs significantly decreased the overall
GP of roofing and solar energy system installation.
General and administrative expenses - General and administrative expenses were
$8.8 million (20.5% of net sale) and $9.5 million (24.4% of net sale) for the
three months ended September 30, 2022 and 2021, respectively, representing a
decrease of $0.7 million, or 6.9%. The decrease of general and administrative
expenses was mainly due to the decrease in stock-based compensation expense.
Sales, marketing and customer service expenses - Sales, marketing and customer
service expenses were $1.1 million (2.5% of net sales) and $3.2 million (8.1% of
net sales) for the three months ended September 30, 2022 and 2021, respectively,
representing a decrease of $2.1 million, or 66.0%. The decrease was mainly due
to the decrease of amortization of the cost of customer list and work in process
contracts purchased from the PDI.
Impairment charges on long-lived assets - Impairment charges on long-lived
assets were $1.8 million and nil for the three months ended September 30, 2022
and 2021, respectively, which was mainly due to the impairment of right-of-use
assets of SJ US.
(Reversal) Provision for credit loss - In the three months ended September 30,
2022, we reversed credit loss provision of $0.3 million, primarily due to the
strengthening monitoring on accounts receivable collection. In the three months
ended September 30, 2021, we accrued credit loss provision of $2.2 million which
is mainly due to additional provision made for the accounts receivable from the
business of roofing and solar energy systems installation in U.S.
Interest expense, net - Interest expense, net was $1.3 million (3.0% of net
sales) and $0.9 million (2.3% of net sales) for the three months ended September
30, 2022 and 2021, respectively. The increase in interest expense was primarily
due to interest accrued from new convertible bonds.
Loss on extinguishment of convertible bonds - We had a loss on extinguishment of
convertible bonds of $0.4 million (1.0% of net sales) for the three months ended
September 30, 2022. The loss came from the extinguishment of the convertible
bonds during the current period.
Net foreign exchange gain - We had a net foreign exchange gain of $2.6 million
(6.0% of net sales) and $0.9 million (2.2% of net sales) for the three months
ended September 30, 2022 and 2021, respectively. The variance is mainly due the
fluctuation of exchange rate for EUR/USD and AUD/USD.
Income tax expense - We had a provision for income taxes of $0.7 million (1.6%
of net sales) and $0.5 million (1.3% of net sales) for the three months ended
September 30, 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 $13.5 million
(31.2% of net sales), for the three months ended September 30, 2022,
representing a decrease of net loss of $3.0 million compared to a net loss of
$16.5 million (42.3% of net sales) for the three months ended September 30,
2021.
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Results of Operations for the Nine Months Ended September 30, 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 sales. Our historical results presented below are
not necessarily indicative of the results that may be expected for any future
period.
For the Nine Months Ended September 30,
2022 2021
(Unaudited) (Unaudited)
Net revenues $ 130,331 100.0% $ 118,404 100.0%
Cost of revenues 126,039 96.7% 112,139 94.7%
Gross profit 4,292 3.3% 6,265 5.3%
Operating expenses:
General and
administrative 25,600 19.6% 26,775 22.6%
Sales, marketing and
customer service 3,691 2.8% 5,418 4.6%
Impairment charges on
long-lived assets 1,809 1.4% - 0.0%
(Reversal) provision of
credit losses (471 ) -0.4% 2,503 2.1%
Total operating expenses 30,629 23.5% 34,696 29.3%
Operating loss (26,337 ) -20.2% (28,431 ) -24.0%
Other (expenses) income:
Interest expenses, net (4,320 ) -3.3% (3,582 ) -3.0%
Loss on extinguishment of
convertible bonds (2,634 ) -2.0% - 0.0%
Net foreign exchange gain 5,927 4.5% 1,580 1.3%
Others 6,278 4.8% 743 0.6%
Total other income
(expenses), net 5,251 4.0% (1,259 ) -1.1%
Loss before income taxes (21,086 ) -16.2% (29,690 ) -25.1%
Income taxes expense 1,411 1.1% 1,356 1.1%
Net loss $ (22,497 ) -17.3% $ (31,046 ) -26.2%
Net revenues - Net revenues were $130.3 million and $118.4 million for the nine
months ended September 30, 2022 and 2021, respectively, representing an increase
of $11.9 million or 10.1%. The increase in net sales for the nine months ended
September 30, 2022 over the comparative period was primarily due to the increase
of revenue from sales of PV components of $8.4 million, forklift sales of $0.9
million and $1.4 million from sales of solar modules.
Cost of revenues - Cost of revenues was $126.0 million (96.7% of net sales) and
$112.1 million (94.7% of net sales) for the nine months ended September 30, 2022
and 2021, respectively, representing an increase of $13.9 million or 12.4%. The
increase in cost of revenues was consistent with the increase of net revenues.
Gross profit - Our gross profit decreased from $6.3 million in the nine months
ended September 30, 2021 to $4.3 million in the nine months ended September 30,
2022. Gross margins were 3.3% and 5.3% for the nine months ended September 30,
2022 and 2021, respectively. The decrease in gross margin was primarily due to
the decrease in gross margin of roofing and solar energy system installation.
Since the Company's indirect costs of job management is relatively fixed, the
decrease in number of work-in-progress jobs significantly decreased the overall
GP of roofing and solar energy system installation.
24
General and administrative expenses - General and administrative expenses were
$25.6 million (19.6% of net sale) and $26.8 million (22.6% of net sale) for the
nine months ended September 30, 2022 and 2021, respectively, representing a
decrease of $1.2 million, or 4.4%. The decrease was mainly because there was
one-off expense from U.S. subsidiary's business on roofing and solar energy
systems installation that started in 2021, and was partially net off by the
increase of the salary expense in Phoenix due to the new mid and top level
managerial staffs hired with higher salaries.
Sales, marketing and customer service expenses - Sales, marketing and customer
service expenses were $3.7 million (2.8% of net sales) and $5.4 million (4.6% of
net sales) for the nine months ended September 30, 2022 and 2021, respectively,
representing a decrease of $1.7 million, or 31.9%. The decrease in our sales,
marketing and customer service expenses was mainly due to due to the decrease of
amortization of the cost of customer list and work in process contracts
purchased from the PDI.
Impairment charges on long-lived assets - Impairment charges on long-lived
assets were $1.8 million and nil for the nine months ended September 30, 2022
and 2021, respectively, which was mainly due to the impairment of right-of-use
assets of SJ US.
Loss on extinguishment of convertible bonds - We had a loss on extinguishment of
convertible bonds of $2.6 million (2.0% of net sales) for the nine months ended
September 30, 2022. The loss came from the extinguishment of the convertible
bonds during the current period.
(Reversal) provision for credit loss - In the nine months ended September 30,
2022, we reversed credit loss provision of $0.5 million, primarily due to the
strengthening monitoring on accounts receivable collection. In the nine months
ended September 30, 2021, we accrued credit loss provision of $2.5M which is
mainly due to additional provision made for the accounts receivable from the
business of roofing and solar energy systems installation in U.S.
Interest expense, net - Interest expense net was $4.3 million (3.3% of net
sales) and $3.6 million (3.0% of net sales) for the nine months ended September
30, 2022 and 2021, respectively. The increase in interest expense was primarily
due to interest accrued from new convertible bonds.
Loss on extinguishment of convertible bonds - We had a loss on extinguishment of
convertible bonds of $2.6 million (2.0% of net sales) and nil for the nine
months ended September 30, 2022 and 2021, respectively. The loss came from the
extinguishment of the convertible bonds during the current period.
Net foreign exchange gain - We had a net foreign exchange gain of $5.9 million
(4.5% of net sales) and $1.6 million (1.3% of net sales) for the nine months
ended September 30, 2022 and 2021, respectively. The variance is mainly due the
fluctuation of exchange rate for EUR/USD and AUD/USD.
Others - We generated other income of $6.3 million (4.8% of net sales) and $0.7
million (0.6% of net sales) in the nine months ended September 30, 2022 and
2021. The other income in the nine months ended September 30, 2022 mainly
represents the gain on PPP loan forgiveness of $5.1 million and the gain on
disposal for bitcoin equipment of $0.5 million. The other income in the nine
months ended September 30, 2021 mainly represents the gain on forward contracts
of $0.6 million.
Income tax expense - We had a provision for income taxes of $1.4 million (1.1%
of net sales) for the nine months ended September 30, 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 $22.5 million
(17.3% of net sales) for the nine months ended September 30, 2022, representing
a decrease of net loss of $8.5 million compared to a net loss of $31.0 million
(26.2% of net sales) for the nine months ended September 30, 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.
25
As of September 30, 2022, we had $12.8 million in cash and cash equivalents, and
restricted cash.
We suffered a net loss of $22.5 million during the nine months ended September
30, 2022, and the cash flow used in operating activities was $13.0 million. As
of September 30, 2022, there is net working capital deficit of $96.9 million and
accumulated deficit of $660.0 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) strictly control and reduce business, marketing and advertising expenses; 5)
obtain equity financing from certain subsidiaries' initial public offerings; 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.
A summary of the sources and uses of cash and cash equivalents is as follows (in
thousands):
For the nine months ended September
30,
2022 2021
(Unaudited) (Unaudited)
Net cash used in operating activities $ (12,968 ) $ (22,460 )
Net cash used in investing activities (4,615 ) (9,053 )
Net cash provided by financing activities 13,503 15,103
Effect of exchange rate changes on cash (968 ) (1,155 )
Net decrease in cash, cash equivalents and
restricted cash $ (5,048 ) $ (17,565 )
Operating Activities
Net cash used in operating activities was $13.0 million for the nine months
ended September 30, 2022, primarily as a result of (i) net loss of $22.5
million, (ii) gain on forgiveness of PPP loan of $5.1 million, (iii) increase in
prepaid expenses and other assets of $2.8 million due to prepaid R&D expenses,
(iv) increase of inventories of $4.3 million for purchasing raw materials for
upcoming productions; and (v) decrease of amount due to related parties of $4.4
million due to fluctuation of exchange rate for EUR/USD; was partially offset by
(i) increase in advances from customers of $1.9 million due to collection from
customers while slow progress of the uncompleted jobs, (ii) increase in accrued
liabilities and other liabilities of $7.5 million, (iii) increase in accounts
payable of $5.1 million, both due to slow payment of liabilities as a result of
capital shortage (iv) decrease in accounts receivable of $2.6 million due to
closer monitoring on collections, (v) loss on extinguishment of convertible
bonds of $2.6 million, and (vi) stock-based compensation expense of $3.1
million, (vii) depreciation and amortization of $3.3 million.
Net cash used in operating activities was $22.5 million for the nine months
ended September 30, 2021, primarily as a result of (i) net loss of $31.0
million, (ii) increase in prepaid expenses and other assets of $8.7 million due
to prepayment of raw materials for the new roofing business; was partially
offset by (i) increase in accounts payable of $4.2 million for purchasing of
inventories in SJ Australia for preparation of peak sales season, (ii) decrease
in accounts receivable of $3.1 million due to higher bad debt ratio related to
the new roofing business, and (iii) stock-based compensation expense of $5.1
million, (iv) depreciation and amortization of $5.0 million.
Investing Activities
Net cash used in investing activities was $4.6 million for nine months ended
September 30, 2022, primarily as a result of cash paid for purchase of property
and equipment of $6.5 million, partially offset by proceeds from disposal of
equipment of $1.9 million.
Net cash used in investing activities was $9.1 million for nine months ended
September 30, 2021, primarily as a result of cash paid for asset purchase of PDI
in the amount of $8.0 million and purchase of property and equipment of $1.2
million.
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Financing Activities
Net cash provided by financing activities was $13.5 million for the nine months
ended September 30, 2022, primarily consisted of (i) proceeds from IPO of
Phoenix of $13.4 million, (ii) proceeds from issuance of convertible note of
$2.0 million, partially offset by (i) net repayment of borrowings of $2 million.
Net cash provided by financing activities was $15.1 million for the nine months
ended September 30, 2021, primarily consisted of (i) proceeds from issuance of
ordinary shares of $13.6 million, (ii) proceeds from issuance of convertible
note of $12.0 million, and (iii) net proceeds received from borrowings of $2.2
million; partially offset by (i) repayment of convertible notes of $13.8
million.
Capital Expenditures
We incurred capital expenditures of $6.5 million and $9.2 million for the nine
months ended September 30, 2022 and 2021, respectively. Capital commitments
amounted to approximately $8.1 million as of September 30, 2022. These capital
commitments were solely related to contracts signed with vendors automation
production line, equipment or PV related products used for the construction of
solar PV systems being developed by the Group. 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, leasing of EVs, sales of forklifts, and sale of
solar modules, respectively. As the COVID-19 spread and impact of the outbreak
of war in Ukraine continues, the measures implemented to curb the spread of the
virus and the crisis in Ukraine 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 the impact of COVID-19 and the crisis in Ukraine.
Other than as disclosed elsewhere in this quarterly report, we are not aware of
any trends, uncertainties, demands, commitments or events for the nine months
ended September 30, 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 September 30, 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.
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