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, 2024

☐	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: 001-41414

Phoenix Motor Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

85-4319789

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1500 Lakeview Loop, Anaheim, CA		92807
(Address of Principal Executive Offices)		(Zip Code)

(909) 978-0815

(Registrant’s Telephone Number, Including Area Code)

(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
Common Stock, par value $0.0004 per share		PEV		The Nasdaq Stock Market LLC

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 37,169,420 shares of common stock outstanding as of September 30, 2024.

TABLE OF CONTENTS

		Page
Part I.	Financial Information
	Item 1. Interim Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023	F-1
	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024, and 2023	F-2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024, and 2023	F-3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024, and 2023	F-4
	Notes to Unaudited Condensed Consolidated Financial Statements	F-5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	11
	Item 4. Controls and Procedures	11
Part II.	Other Information
	Item 1. Legal Proceedings	12
	Item 1A. Risk Factors	12
	Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	14
	Item 3. Defaults Upon Senior Securities	14
	Item 4. Mine Safety Disclosures	14
	Item 5. Other Information.	14
	Item 6. Exhibits	14
Signatures		15

PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements

PHOENIX MOTOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	March 31, 2024			December 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,796		$	31
Restricted cash		—			3,252
Accounts receivable, net		4,974			451
Inventories		56,216			1,796
Prepaid expenses and other current assets, net		633			356
Amount due from a related party		84			130
Assets held-for-sale		6,370			—
Total current assets		71,073			6,016
Property and equipment, net		5,054			1,119
Operating lease right-of-use assets		2,431			—
Net investment in leases		176			230
Goodwill		—			4,271
Total assets	$	78,734		$	11,636

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,629		$	3,529
Accrued liabilities		1,781			926
Advance from customers, current		733			167
Deferred income		357			362
Warranty reserve, current		4,222			289
Lease liabilities, current		2,296			1,303
Amounts due to a related party		178			863
Short-term borrowing		4,262			961
Derivative liability		1,070			1,156
Convertible note, current		2,910			1,320
Income tax payable		4,943			—
Long-term borrowing, current		6			5
Total current liabilities		25,387			10,881
Lease liabilities, noncurrent		3,883			2,696
Warranty reserve, noncurrent		10,796			—
Advance from customers, noncurrent		2,066			2,214
Convertible notes, noncurrent		—			540
Long-term borrowings		143			144
Deferred tax liabilities		12,787			—
Total liabilities	$	55,062			16,475

Commitments and contingencies (Note 16)		-			-

Equity:
Common stock, par $0.0004, 450,000,000 shares authorized, 34,452,220 and 21,900,918 shares issued and outstanding as of March 31, 2024, and December 31, 2023, respectively		14			9
Additional paid-in capital		58,066			44,359
Accumulated deficit		(34,408	)		(49,207	)
Total stockholders’ equity/(deficit)		23,672			(4,839	)
Total liabilities and stockholders’ equity	$	78,734		$	11,636

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

F-1

PHOENIX MOTOR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	March 31, 2024			March 31, 2023
	Three Months Ended
	March 31, 2024			March 31, 2023
Revenues	$	9,420		$	1,781
Cost of revenues		6,915			1,608
Gross profit		2,505			173
Operating expenses:
Selling, general and administrative		8,649			3,871
Reversal of credit loss		—			(25	)
Impairment of goodwill		4,271			—
Operating loss		(10,415	)		(3,673	)

Other income (expense):
Interest expense, net		(2,695	)		1
Gain on sales-type leases		—			99
Change in fair value of derivative liability		(58	)		—
Employee retention credit		—			697
Others		2			98
Bargain purchase gain		32,908			—
Total other income, net		30,157			895
Income (loss) before income taxes		19,742			(2,778	)
Income tax provision		4,943			—
Net income (loss)	$	14,799		$	(2,778	)

Net income (loss) per share of common stock:
Basic	$	0.49		$	(0.13	)
Diluted	$	0.44		$	(0.13	)
Weighted average shares outstanding
Basic		30,456,235			20,823,622
Diluted		34,247,958			20,823,622

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

F-2

PHOENIX MOTOR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

	Shares*		Amount		Capital		Deficit			Equity
					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders’
	Shares*		Amount		Capital		Deficit			Equity
Balance as of January 1, 2023		20,277,046	$	8	$	40,836	$	(28,562	)	$	12,282
Net loss		—		—		—		(2,778	)		(2,778	)
Stock-based compensation		—		—		109		—			109
Issuance of common stock per standby equity purchase agreements		904,878		—		1,154		—			1,154
Balance as of March 31, 2023		21,181,924		8		42,099		(31,340	)		10,767

Balance as of January 1, 2024		21,900,918	$	9	$	44,359	$	(49,207	)	$	(4,839	)
Balance		21,900,918	$	9	$	44,359	$	(49,207	)	$	(4,839	)
Net income		—		—		—		14,799			14,799
Net income (loss)		—		—		—		14,799			14,799
Stock-based compensation		—		—		50		—			50
Reclass of derivative liability upon conversion of related convertible notes		—		—		144		—			144
Issuance of common stock for convertible note conversion		715,279		—		451		—			451
Issuance of common stock for settlement with vendors		1,365,261		1		1,692		—			1,693
Issuance of restricted shares to Wisdom Financial to repay loan interest (Note 10)		180,202		—		270		—			270
Issuance of common stock for private placements		10,290,560		4		11,100		—			11,104
Balance as of March 31, 2024		34,452,220		14		58,066		(34,408	)		23,672
Balance		34,452,220		14		58,066		(34,408	)		23,672

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

F-3

PHOENIX MOTOR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	2024			2023
	Three Month ended March 31,
	2024			2023
Cash flows from operating activities:
Net income (loss)		14,799			(2,778	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		416			355
Gain on sales-type leases		—			(99	)
Reversal of credit loss		—			(25	)
Write down of inventories		—			80
Amortization of convertible notes		1,490			—
Loss on Change in market value of derivative liability		58			—
Share-based compensation		50			109
Impairment loss on goodwill		4,271			—
Warranty reserve		(235	)		(3	)
Amortization of right-of-use assets		231			280
Bargain purchase gain		(32,908	)		—
Changes in operating assets and liabilities:
Accounts receivable		(4,523	)		10
Inventories		5,631			795
Prepaid expenses and other assets		(277	)		222
Accounts payable		793			116
Accrued liabilities		1,144			(93	)
Deferred revenue		(5	)		(10	)
Advance from customers		418			222
Lease liabilities		(482	)		(267	)
Net investment in leases		54			—
Amount due to related party		184			—
Amount due from related party		46			—
Income tax payable		4,943			—
Net cash used in operating activities		(3,902	)		(1,086	)

Cash flows from investing activities:
Purchase of property and equipment		(113	)		(71	)
Acquisition of Proterra		(10,000	)		—
Net cash used in investing activities		(10,113	)		(71	)

Cash flows from financing activities:
Repayment of borrowings		(970	)		(3	)
Proceeds from borrowings		4,263			—
Repayment of related party borrowings		(1,904	)		—
Proceeds from related party borrowings		1,035			—
Proceeds received from private placements		11,104			1,154
Net cash generated from financing activities		13,528			1,151

Decrease in cash, cash equivalents and restricted cash		(487	)		(6	)
Cash, cash equivalents and restricted cash at beginning of the period		3,283			389
Cash, cash equivalents and restricted cash at end of the period		2,796			383

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents		2,796			133
Restricted cash		—			250
Total cash, cash equivalents, and restricted cash		2,796			383

Supplemental cash flow information:
Income tax paid		—			—
Non-cash activities:
Issuance of common stock for settlement with vendors		1,693			—
Issuance of common stock for convertible note conversion		451			—
Reclass of derivative liability upon conversion of related convertible debentures		144			—
Issuance of restricted shares to Wisdom Financial to repay the consulting fee		270			—
Inventories transferred to property and equipment		—			163

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

F-4

PHOENIX MOTOR INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in US$ thousands except for shares and share prices)

1. Description of Business and Organization

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

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

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

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

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

2. Summary of Significant Accounting Policies

(a) Basis of Presentation

The accompany unaudited condensed consolidated financial statements of the Group are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The unaudited condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s consolidated financial statements as of December 31, 2023 and accompanying notes in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

In the opinion of the management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation of financial results for the quarterly periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Group’s consolidated financial statements for the year ended December 31, 2023. The results of operations for the three months ended March 31, 2024 and 2023 are not necessarily indicative of the results for the full years or any future periods.

F-5

(b) Revenue Recognition

The Group’s accounting practices under Accounting Standards Codification (“ASC”) No. 606, “Revenue from Contracts with Customers” (“ASC 606” or “Topic 606”) are as followings:

Sales of EVs and kits

The Group generates revenue from sales of EVs and kits, which are electric drive system kits that are integrated into shuttle buses sold to the customers. EV buyers in California are entitled to government grants when they purchase EV that qualify for certain government grant project. The Group applies for and collects such government grants on behalf of the customers. Accordingly, customers only pay the amount after deducting government grants.

The Group recognizes revenue on sales of EVs and kits 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. The Group determined that the government grants 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.

Sales of Transit Buses

The Group recognizes revenue on sales of transit buses 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 when the Company can objectively demonstrate that the criteria specified in the contractual acceptance provisions are achieved prior to delivery. In cases where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior delivery, revenue is recognized upon acceptance by the customer. The Group determined that the government grants should be considered as part of the transaction price because it is granted to the transit buses 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.

Lease of EVs

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 842 Leases, and revenues are recognized on a straight-line basis over the contractual term.

Sales of forklifts

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

Other revenue

Other revenue consists of maintenance service, sales of component and charging stations, sales of forklifts, shipping and delivery fees and others. For maintenance service, revenues are recognized on a straight-line basis over the contractual term. For sales of component and charging stations, shipping and delivery fees and others, the Group recognizes revenue at a point in time following the transfer of control of such products or services to the customer, which typically occurs upon the delivery to the customer.

Disaggregation of revenues

The Group disaggregates its revenue by four primary categories: sales of transit buses, sales of EVs, lease of EVs, sales of forklifts and others.

F-6

The following is a summary of the Group’s disaggregated revenues:

Schedule of Disaggregated Revenues

	March 31, 2024		March 31, 2023
	Three Months Ended
	March 31, 2024		March 31, 2023
	(Unaudited)		(Unaudited)
Sales of transit buses	$	8,531	$	—
Sales of EVs		250		1,151
Lease of EVs		39		90
Sales of forklifts		39		214
Others		561		326
Total	$	9,420	$	1,781

The following is a summary of the Group’s disaggregated revenues by timing of revenue recognition:

	Three Months Ended
	March 31, 2024		March 31, 2023
	(Unaudited)		(Unaudited)
Over time	$	235	$	225
Point in time		9,185		1,556
Total	$	9,420	$	1,781

A contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. The Group records contract liabilities as advance from customers. As of March 31, 2024 and December 31, 2023, the balances of contract liabilities were $2,799 and $2,381, respectively. During the three months ended March 31, 2024, the Group recognized $58 as revenue that was included in the balance of advance from customers at January 1, 2024.

(c) Leases

Lessor Accounting

During the year ended December 31, 2023, the Group amended agreements with the customers related to the leased EVs to renew the lease term. Since there was no grant of additional right-of-use assets, the Group did not account for the modified lease agreements as new leases but accounted for the original lease and the modified lease agreements as a combined lease. The Group reviewed the combined lease agreements and considered that (i) the lease term represents for the major part (greater than 75%) of the economic life of the underlying equipment; and (ii) the present value of the sum of lease payments and any residual value guaranteed by the lessee that has not already been included in lease payments equals or exceeds substantially (greater than 90%) all of the fair value of the underlying asset.

The modified EV lease agreements are thus accounted for as sales-type leases. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease, and interest income from the lease is recognized over the lease term.

The net investment in leases was $424 as of March 31, 2024, in which current portion of $248 was included in prepaid expenses and other current assets, net on the balance sheet. During the three months ended March 31, 2024, there was no gain or loss on sales-type leases. During the three months ended March 31, 2023, gain on sales-type leases was $99.

(d) Business Combination

Business combinations are recorded using the acquisition method of accounting and, accordingly, the acquired assets and liabilities are recorded at their fair market value at the date of acquisition. Any excess of acquisition cost over the fair value of the acquired assets and liabilities, including identifiable intangible assets, is recorded as goodwill. The Group charges acquisition related costs that are not part of the purchase price consideration to general and administrative expenses as they are incurred. Those costs typically include transaction and integration costs, such as legal, accounting, and other professional fees.

F-7

According to Business Combination (Topic 805) the Group performs a screen test to evaluate whether a transaction should be accounted for as an acquisition and/or disposal of a business versus assets. In order for a purchase to be considered an acquisition of a business, and receive business combination accounting treatment, the set of transferred assets and activities must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the set of transferred assets and activities is not a business.

(e) Fair Value Measurement

The Group measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are:

●

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

●

Level 2 — Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs).

●

Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions.

The Group uses quoted market prices to determine the fair value when available. If quoted market prices are not available, the Group measures fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates.

The carrying values of the Group’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payables, accrued liabilities and advance from customers, approximate their fair values due to the short-term nature of these instruments.

(f) Product Warranties

Products Warranties on EVs and Kits

The Group provides warranties on all vehicles or components sold in addition to pass through warranties from third party component suppliers. The Group accrues a warranty reserve for the products sold by the Group, which includes the Group’s best estimate of the projected costs to repair or replace items under warranties. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given the Group’s relatively short history of sales, and changes to the Group’s historical or projected warranty experience may cause material changes to the warranty reserve in the future. The Group considers the warranty provided is not providing incremental service to customers rather an assurance to the quality of the vehicle, and therefore is not a separate performance obligation and should be accounted for in accordance with ASC 460, Guarantees.

Products Warranties on transit buses and batteries

The Group provides a limited warranty to customers on vehicles, battery systems and components. The limited warranty ranges from one to 12 years depending on the components. Pursuant to these warranties, the Group will repair, replace, or adjust the parts on the products that are defective in factory supplied materials or workmanship. The Group records a warranty reserve for the products sold at the point of revenue recognition, which includes the best estimate of the projected costs to repair or replace items under the limited warranty. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given the relatively short history of sales. Changes to the historical or projected warranty experience may cause material changes to the warranty reserve in the future. The portion of the warranty reserve expected to be incurred within the next 12 months is included within warranty reserve - short term liabilities while the remaining balance is included within warranty reservice - long term liabilities on the balance sheets.

F-8

Warranty expense is recorded as a component of cost of sales in the condensed consolidated statements of operations. The balance of warranty reserves was $15,018 and $289 as of March 31, 2024 and December 31, 2023, respectively.

(g) Assets Held-for-Sale

The Group classifies assets to be sold as assets held for sale when (i) the management has approved and commits to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition and is ready for sale, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Assets classified as held for sale are recorded at the lower of the carrying amount or fair value less the cost to sell and are reflected as held-for-sale leased assets in the consolidated balance sheets.

(h) Goodwill

The Group assess goodwill for impairment on annual basis in accordance with ASC 350-20, Intangibles – Goodwill and Other: Goodwill, which permits the Group to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. If this is the case, the quantitative goodwill impairment test is required. If it is more likely-than-not that the fair value of a reporting unit is greater than its carrying amount, the quantitative goodwill impairment test is not required.

Quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired. If the fair value of the reporting unit is less than its carrying amount, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

During the three months ended March 31, 2024, the Group identified impairment indicator resulted from the Company’s continuous decreasing stock price since January 2024 and performed interim goodwill impairment testing. The Group recorded an impairment on goodwill of $4,271 based on the difference between fair value and the carrying amount of the reporting unit.

3. Going concern

The Group has net income of $14,799 during the three months ended March 31, 2024, mainly due to the bargain purchase gain from the acquisition of Proterra transit business unit. Excluding the one-time bargain purchase gain, the Group incurred a net loss during the three months ended March 31, 2024 and has incurred significant recurring losses before 2024. In addition, the cash flow used in operating activities was $3,902 and the Group needs to raise additional funds to sustain its operations. Furthermore, the Group assume the responsibility to provide Proterra transit business unit employees job offers at closing date and keep those employees for at least one year, which costs are estimated to be over $20,000. These factors raise substantial doubt as to the Group’s ability to continue as a going concern.

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

F-9

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

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

4. Business Combination

In November 2023, the Group participated in two auctions conducted by the United States Bankruptcy Court and emerged as the highest bidder for two asset packages, one for Proterra transit business unit and one for the Proterra battery lease contracts, with total consideration of $10,000 in cash. The transaction costs were $553 and the Group assumed estimated warranty liability of $14,994. In addition, the Group also assumed the responsibility to provide Proterra transit business unit employees job offers at closing date and keep those employees for at least one year. The cash consideration has been fully paid as of March 31, 2024.

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


Inventories.	$	60,051
Right-of-use assets		2,663
Property and equipment		4,238
Battery lease receivable		6,400
Lease liabilities		(2,663	)
Warranty liabilities		(14,994	)
Deferred tax liabilities		(12,787	)
Identifiable net assets acquired (a)		42,908
Less: Fair value of the consideration transferred (b)		10,000
Gain on bargain purchase (b-a)	$	32,908

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

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

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

F-10

The following information presents the revenue and earnings from Proterra transit bus business and Proterra battery lease receivables included in the Group’s condensed consolidated financial statements for the three months ended March 31, 2024:

Schedule of Revenue and Earnings

	From Proterra acquisition
	Three months ended
	March 31, 2024
	(Unaudited)
Revenues	$	8,979
Net income	$	24,572

5. Assets held for sale

On February 7, 2024, the Group completed the acquisition of the Proterra Battery Lease Agreements, by which the Group was assigned with the right to collect certain leasing receivables which Proterra was a party as the lessor thereunder, used in connection with deployed Proterra electric transit buses. The fair value of the lease receivables as of the acquisitions date was determined to be $6,400 (Note 4) and the Group also assumed warranty obligations associated with the purchased Proterra Battery Lease Agreements of $994.

As of March 31, 2024, the Group has committed to a plan to sell the battery lease receivables and this group of asset to be sold is ready for sale and can be clearly distinguished and valued at its reasonable current fair value. The transaction is probable to close in the second half of 2024 and it is unlikely that significant changes will be made. Thus, the leased assets were recorded as assets held-for-sale and recorded at the lower of the carrying value or fair value less costs to sell.

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

The Group recorded the carrying amount of lease receivable at $6,370 as of March 31, 2024, which represents the best estimate of the current fair value.

6. Accounts Receivable, Net

The accounts receivable, net as of March 31, 2024 and December 31, 2023 consisted of the following:

Summary of Accounts Receivable

	March 31,			December 31,
	2024			2023
	(unaudited)
Accounts receivable, customers	$	4,841			171
Accounts receivable, governmental incentive		158			305
Accounts receivable
Less: Allowance for doubtful accounts		(25	)		(25	)
Accounts receivable, net	$	4,974		$	451

For the three months ended March 31, 2024, there was no provision for credit loss for accounts receivables. For the three months ended March 31, 2023, the Group reversed provision for credit loss of $25.

F-11

7. Inventories

Inventories as of March 31, 2024 and December 31, 2023 consisted of the following:

Summary of Inventories

	March 31,		December 31,
	2024		2023
	(unaudited)
Raw materials	$	41,861	$	865
Work in process		8,530		108
Finished goods		5,825		823
Total inventories	$	56,216	$	1,796

During the three months ended March 31, 2024, there was no write down to reflect the lower of cost or net realizable value. During the three months ended March 31, 2023, $80 of inventories were written down to reflect the lower of cost or net realizable value.

8. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of March 31, 2024 and December 31, 2023 consist of the following:

	March 31,			December 31,
	2024			2023
	(unaudited)
Prepaid expenses	$	100		$	100
Sales-type lease receivable		248			249
Vendor deposits		417			131
Others		30			38
Total prepaid and other current assets		795			518
Less: Provision for credit loss		(162	)		(162	)
Total prepaid and other current assets, net	$	633		$	356

9. Sales-type Lease Receivable

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

Sales-type lease receivables-short term as of March 31, 2024 and December 31, 2023 was $248 and $249, respectively, and sales-type lease receivables-long term as of March 31, 2024 and December 31, 2023 was $176 and $230, respectively.

Interest income recognized for sales-type leases for the three months ended March 31, 2024 was $16.

	As of March 31
	2024
Lease receivables-long term		176
Lease receivables-short term		248
Total lease receivables		424
Unguaranteed residual assets		—
Net investment in leases		424
Recorded in Prepaid expenses and other current assets		248
Recorded in Net investment in leases- non-current		176

F-12

Annual minimum undiscounted lease payments under the Group’s leases were as follows as of March 31, 2024:

	Sales-type
Remaining of 2024		231
Years Ending December 31,
2025		184
2026		54
2027		15
2028 and thereafter		—
Total lease receipt payments		484
Less: Imputed interest		(60	)
Total lease receivables (1)		424
Unguaranteed residual assets		—
Net investment in leases (1)		424

(1)	Current portion of $248 of total lease receivables included in prepaid expenses and other current assets, net on the consolidated balance sheet.

10. Short-term Borrowings

Financing with Nations Bus

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

Financing with Agile Capital

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

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

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

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

F-13

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

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

Financing with Wisdom

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

11. Equity

(a)

Private Placements

On January 4, 2024, the Company entered into a Securities Purchase Agreement with an accredited investor, relating to a private placement by the Company pursuant to which the Company issued 600,000 shares of the Company’s common stock at a purchase price of $1.13 per share, and a common stock purchase warrant to purchase up to 600,000 shares of common stock of the Company, exercisable at $1.13 per share. The warrant is immediately exercisable, in whole or in part, for a term of one year following issuance and may be exercised on a cashless basis if a registration statement is not then effective and available for the resale of the warrant shares. The exercise price and number of warrant shares issuable upon exercise of the warrant are subject to adjustment upon the occurrence of certain events, such as stock splits, stock dividends, split-ups, recapitalizations, reclassifications or the like. The private placement closed on January 25, 2024 and the Company received gross proceeds from the private placement of $678, before deducting offering expenses payable by the Company. The Group determined that the warrant met the definition of equity instrument and estimated a fair value of the warrants using the Black-Scholes pricing model at the date of issuance at$576. During the three months ended March 31, 2024, the Group noted that it actually issued a total of 1,200,000 shares of common stock of the Company to this investor and the Group is current in negotiation with the investor to cancel the 600,000 shares that were incorrectly issued.

On January 11, 2024, the Company entered into separate Securities Purchase Agreements with four accredited investors, relating to a private placement by the Company of an aggregate of 3,478,260 shares of the Company’s common stock at a purchase price of $1.15 per share, and common stock purchase warrants to purchase up to 13,913,043 shares of common stock of the Company, exercisable at $2.00 per share. The Company received gross proceeds from the private placement of $4,000, before deducting offering expenses payable by the Company. The Group determined that the warrant met the definition of equity instrument and estimated a fair value of the warrants using the Black-Scholes pricing model at the date of issuance at $15,908.

On January 29, 2024, the Company entered into a Securities Purchase Agreement with certain accredited investors, to issue and sell in a registered direct offering an aggregate of 4,196,370 shares of the Company’s common stock. The purchase agreement also provides that the Company will issue to the investors warrants to purchase up to 4,196,370 shares of common stock of the Company in a concurrent private placement. The common stock and accompanying warrants were offered at a combined offering price of $1.15 per share. Each warrant is exercisable for one share of common stock. The warrants have an initial exercise price of $2.00 per share and are exercisable at any time on or after the date of issuance and will expire on the fifth anniversary of the date on which the warrants were issued. The offering closed on February 2, 2024 and the proceeds from the offering were $4,826, before offering expenses. The Group determined that the warrants met the definition of equity instrument and estimated a fair value of the warrants using the Black-Scholes pricing model at the date of issuance at $4,740.

On February 7, 2024, the Company entered into another Securities Purchase Agreement with certain accredited investors, to issue and sell in a registered direct offering an aggregate of 1,415,929 shares of the Company’s common stock. The purchase agreement also provides that the Company will issue to the investors warrants to purchase up to 1,415,929 shares of common stock of the Company in a concurrent private placement. The common stock and accompanying warrants were offered at a combined offering price of $1.13 per share. The warrants have an initial exercise price of $2.00 per share, are exercisable at any time on or after the date of issuance and will expire on the fifth anniversary of the date on which the warrants were issued. The offering closed on February 9, 2024, and the proceeds from the offering were $1,600, before offering expenses. The Group determined that the warrant met the definition of equity instrument and estimated a fair value of the warrants using the Black-Scholes pricing model at the date of issuance at $1,388.

F-14

(b)

Shares Issued to Settle Vendor Payables

During the three months ended March 31, 2024, the Group issued 769,099 shares of the Company’s common stock, to a vendor for settlement of payables of $953, and issued 596,162 shares of the Company’s common stock, to another vendor for settlement of payables of $739.

12. Stock-based Compensation

During the three months ended March 31, 2024 and 2023, there were no stock options granted to management and employees of the Group. The stock-based compensation expense was $50 and $109 during the three months ended March 31, 2024 and 2023, respectively.

There were no changes to the contractual life of any fully vested options during the three months ended March 31, 2024 and 2023. As of March 31, 2024, unrecognized share-based compensation expenses related to the share options granted were $582. The expenses are expected to be recognized over a weighted - average period of 2.11 years.

13. Related Party Transactions

During the three months ended March 31, 2024, the Group borrowed of $1,020 from SPI. The loan is due on demand and bears 12% interest per annum. $1,866 loan principal and $38 of interest was repaid by the Group, and all loan and interest were paid in full as of March 31, 2024. During the three months ended March 31, 2024, SPI billed the Group $406 for legal, human resources and IT services provided by SPI employees and $243 was paid. As of March 31, 2024, $163 of consulting fee was outstanding to SPI and $15 of loan was outstanding to Mr. Xiaofeng Peng, the Company’s Chairman of the Board of Directors and CEO.

During the three months ended March 31, 2024, the Group collected $46 from SolarJuice Co., Ltd., a subsidiary of SPI, for sales of electronic forklift made during 2023. As of March 31, 2024 and December 31, 2023, the amount due from a related party was $84 and $130, respectively, from sales of forklifts.

On March 6, 2024, SPI entered into a Deed of Settlement with its creditor, Streeterville Capital, LLC (“Streeterville”) to settle the unpaid balances of certain convertible notes via installment payments as agreed in the Deed of Settlement. As of part of this Deed of Settlement, the Group, as the guarantor, covenants to Streeterville to pay and satisfy on demand all liabilities due from SPI to Streeterville with a total amount of $14,994. On September 6, 2024, Streeterville provided a Deed of Release of Guarantor to the Group, confirming that Streeterville releases and discharges the Group from all past, present and future liability to Streeterville under the Guarantee to Streeterville for SPI and also from all actions, claims and demands under or in connection with this Guarantee.

14. Convertible Notes Payable

On June 23, 2023, the Company entered into a Securities Purchase Agreement (the “Original SPA”) with an accredited investor named therein, to issue and sell, subject to the satisfaction of certain closing conditions, up to $5,100 aggregate principal amount of the Company’s unsecured senior convertible promissory notes (the “June 2023 Notes”). The June 2023 Notes are subject to an original issue discount of 8.5%, and each June 2023 Note matures on the date that is 18 months after the date of issuance at each applicable closing. The June 2023 Notes accrue interest at the Prime Rate (as defined in the June 2023 Notes) plus 4.75% per annum in cash, or the Prime Rate plus 7.75% per annum if interest is paid in shares of common stock. The Company may, from time to time, prepay the principal amount owing under the June 2023 Notes, subject to a 30% prepayment premium, so long as the Company provides at least 30 business days’ prior written notice to the holder of such prepayment.

The June 2023 Notes are convertible into shares of common stock of the Company, at a conversion price equal to the greater of (x) $0.60 (the “Floor Price”) and (y) 87.5% of the lowest daily VWAP (as defined in the SPA) in the seven (7) trading days prior to the applicable conversion date (the “Variable Price”), subject to certain adjustments including full ratchet anti-dilution price protection, as set forth in the June 2023 Notes. Notwithstanding the foregoing, automatically following an Event of Default (as defined in the June 2023 Notes), without the requirement of the holder to provide notice to the Company, and subject to the provisions relating to the stockholder approval requirements under Nasdaq rules for the issuance of shares in a private placement at a price above the market price (the “Nasdaq 19.99% Cap”), the conversion price is equal to the lesser of the (x) Floor Price and (y) the Variable Price. In respect of any conversion where the Variable Price is less than the Floor Price (the “Alternative Conversion”), the Company will pay to the holder either in cash, or subject to the Nasdaq 19.99% Cap, in shares of common stock equal to such conversion amount or interests, divided by the applicable Variable Price. So in essence, there is no floor price for the conversion and Alternative Conversion together.

F-15

Thus, the Group determined that the conversion feature and the alternative conversion features embedded within the June 2023 Notes met the definition of embedded derivatives and the Group estimated a fair value of the derivative liability using the Monte Carlo Simulation Model at the date of issuance. As the fair value of the derivative liability is less than the face value of the June 2023 Notes, the fair value of the derivative liability of $294 was recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The original issue discount of the June 2023 Notes of $136 was recorded as a debt discount as well.

On October 26, 2023, the Company entered into the First Amendment (the “Amendment”) to the Original SPA, with the same accredited investor. Pursuant to the Amendment, the “Funding Amount” under the Original SPA was increased to an aggregate principal amount equal to no greater than $9,667 while other terms remain unchanged. On October 26, 2023, the Company agreed to issue and sell, in a private placement, an additional $1,750 of principal amount (the “October 2023 Notes”) of the Company’s unsecured senior convertible promissory note.

In connection with the Amendment, the Company issued a warrant (the “October Warrant”) to the investor to purchase up to 1,500,000 shares of the Company’s common stock, with an exercise price equal to $1.30 per share, subject to full ratchet anti-dilution protection and other adjustments as stated in the warrant, which warrant is exercisable for six years on a cash basis or, if the shares of common stock issuable upon exercise of the Warrant are not registered within 12 months after the closing, on a cashless basis. The Group determined that the October Warrant met the definition of equity instrument and estimated a fair value of the October Warrant using the Black Scholes pricing model at the date of issuance.

The October 2023 Notes are convertible into shares of common stock of the Company, at a conversion price equal to the greater of (x) $0.60 (the “Fixed Price”) and (y) 87.5% of the lowest daily VWAP (as defined in the SPA) in the seven (7) trading days prior to the applicable conversion date (the “Variable Price”), subject to certain adjustments including full ratchet anti-dilution price protection, as set forth in the October 2023 Notes. Notwithstanding the foregoing, automatically following an Event of Default (as defined in the October 2023 Notes), without the requirement of the holder to provide notice to the Company, and subject to the provisions relating to the Nasdaq 19.99% Cap, the conversion price is equal to the lesser of the (x) Fixed Price and (y) the Variable Price. In respect of any conversion where the Variable Price is less than the Fixed Price (the “Alternative Conversion”), the Company will pay to the holder either in cash, or subject to the Nasdaq 19.99% Cap, in shares of common stock equal to such conversion amount or interests, divided by the applicable Variable Price. So in essence, there is no floor price for the conversion and Alternative Conversion together.

The Group determined that the conversion feature and alternate conversion feature within the October 2023 Notes met the definition of embedded derivatives and the Group estimated a fair value of the derivative liability using the Binominal Tree Model at the date of issuance. In addition, the Group considered that the October Warrants were issued in a bundled transaction with the October 2023 Notes, and the proceeds received from the transaction should be allocated based on the relative fair values of the base instrument and the warrants. Accordingly, the Group recorded the relative fair value of the October Warrant of $590, the fair value of derivative liability of $543 and the original issue discount and related issuance fee of the October 2023 Notes of $254 as debt discounts, which offset the carrying amount of the October 2023 Notes. $440 of the principal amount of the October 2023 Notes were converted during the three months ended March 31, 2024.

On November 10, 2023, the Company entered into Second Securities Purchase Agreement (the “Second SPA”) with the same accredited investor, which the Company agreed to issue and sell, in a private placement, subject to the satisfaction of certain closing conditions, a $12,000 of principal amount of the Company’s secured senior convertible promissory notes. As of December 31, 2023, the closing conditions have not been met and Company has not issued any convertible notes pursuant to the Second SPA. Upon execution of the Second SPA, the Company also issued a warrant (the “Execution Warrant”) to the investor to purchase up to 1,000,000 shares of the Company’s common stock, with an exercise price equal to $1.30 per share, subject to full ratchet anti-dilution protection and other adjustments as stated in the warrant, which warrant is exercisable for six years on a cash basis or, if the shares of common stock issuable upon exercise of the warrant are not registered within 12 months after the closing, on a cashless basis. Although the Second SPA has not been closed yet, the Execution Warrant was issued during the year ended December 31, 2023, and the Execution Warrants can be exercisable no matter whether the Second SPA would be closed or not in the future.

F-16

The Group determined that the Execution Warrant met the definition of equity instrument, and the Group estimated a fair value of Execution Warrant using the Black Scholes pricing model at the date of issuance. The Group considered that the Execution Warrant was issued in a bundled transaction with a future convertible note offering, and the Execution Warrant was considered as issuance costs associated with the future convertible note offering and should be deferred and charged against the gross proceeds of the future offering as debt discount based on the relative fair values of the base instrument and the warrants. However, this future convertible note offering (Second SPA) is to be closed subject to certain closing conditions. The Group considered that it is less likely that the closing conditions could be achieved in the future and recorded the deferred costs as expenses during the year ended December 31, 2023. On April 5, 2024, the Group entered into a waiver letter by and between the Company and the above investor to which the investor waived its right to require the Company to sell $12,000 principal amount of the Company’s secured senior convertible promissory note as previously agreed under Second SPA.

On March 29, 2024, the Group noted that an event of default has occurred under the June 2023 Notes and October 2023 Notes, due to a failure to observe or perform in a material respect the following covenants: 1) under the Registration Rights Agreement dated on November 10, 2023, the Company agreed to use all commercially reasonable efforts to cause a registration statement relating to the registrable securities to become effective and to keep such registration statement effective until the earlier to occur of the date on which (A) the investor shall have sold all the registrable securities; or (B) the investor has no right to acquire any additional shares of common stock under the purchase agreement or the warrants; and 2) under the Securities Purchase Agreement dated as of June 23, 2023 and a covenant under the notes, as determined on the first of every calendar month, the Company agreed at all times to keep on hand unencumbered, unrestricted cash in an amount greater than or equal to $200,000. The default was not fully cured within five (5) business days of such failure. As a result, the interest rate of the June 2023 Notes and October 2023 Notes was automatically increased to 18% per annum, starting from the date of occurrence of the Event of Default. In addition, the Group is obligated to pay to the holder of the June 2023 Note and October 2023 Note all of the outstanding principal amount and accrued interest on the date of occurrence of the Event of Default. As of the date of issuance of the unaudited condensed consolidated financial statements, the noteholder has not declared that an Event of Default has occurred and that the notes are due and payable. As a result of the default, the carrying amount of both June 2023 Note and October 2023 Note were classified as convertible notes, current and all the remaining unamortized debt discounts were amortized into interest expense immediately.

During the three months ended March 31, 2024, the Group issued a total of 715,279 shares of common stock of the Company to the investor to convert a total principal amount of $440 and accrued interest of $11 of the October 2023 Note. The total fair value of the common stock issued for conversion was $451. As a result of the conversion, the Group reclassified $144 derivative liability into equity upon each conversion of the corresponding convertible notes.

The Group recorded interest expenses from debt discount amortization in interest expense, net in the statements of operations of $1,490 and nil for the three months ended March 31, 2024 and 2023 respectively. Among which, $203 of the debt discount were amortized directly into interest expense due to the conversion and $1,287 of the debt discount were amortized directly into interest expense due to the occurrence of Event of Default.

The Group recorded accrued interest of convertible notes in interest expense, net in the statements of operations of $93 and nil for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 and December 31, 2023, the carrying amounts of the Group’s convertible bonds are $2,910 and $1,860, net of unamortized debt discount of nil and $1,490, respectively.

As of March 31, 2024, there was no warrant exercised.

F-17

15. Earnings (Loss) Per Share

The following is a reconciliation of the numerator and denominator used to calculate basic earnings (loss) per share and diluted earnings (loss) per share for the three months ended March 31, 2024 and 2023:

Summary of Earnings (Loss) Per Share

	March 31, 2024		March 31, 2023
Basic earnings (loss):
Basic earnings	$	14,799	$	(2,778	)
Diluted earnings (loss):
Net income (loss)	$	14,799	$	(2,778	)
Chang in fair value of derivative liability		58		—
Interest expense from Convertible Notes		93		—
Diluted earnings (loss)	$	14,950	$	(2,778	)

Basic weighted average shares		30,456,235		20,823,622
Potentially diluted shares		3,791,723		—
Diluted shares		34,247,958		20,823,622
Earnings per share
Basic	$	0.49	$	(0.13	)
Diluted	$	0.44	$	(0.13	)

During the three months ended March 31, 2024 and 2023, stock options to purchase 2,087,250 and 2,835,000 shares of common stock and warrants to purchase 22,625,342 and nil shares of common stock, respectively, were not considered in calculating diluted earnings (loss) per share because the options and warrants are considered out-of-money. There were no other potential shares excluded from the computation of diluted net income (loss) per share during the three months ended March 31, 2024 and 2023.

16. Commitments and Contingencies

Guarantee for SPI

On March 6, 2024, the Group’s related party, SPI Energy Co., Ltd. (“SPI”) entered into a Deed of Settlement with its creditor, Streeterville Capital, LLC (“Streeterville”) to settle the unpaid balances of certain convertible notes via installment payments as agreed in the Deed of Settlement. As of part of this Deed of Settlement, the Company, as the guarantor, covenants to Streeterville to pay and satisfy on demand all liabilities due from SPI to Streeterville with a total amount of $14,980. The Group assessed the accounting treatment of this guarantee under ASC 460 and ASC 450 and considered that the possibility for the Group to incur actual liability under this guarantee is remote so there is no guarantee liabilities accrued as of March 31, 2024. On September 6, 2024, prior to the issuance of the condensed consolidated financial statements, the guarantee was released and canceled without any actual liabilities incurred by the Group.

Commitments — As of March 31, 2024, the Group had other commitments of approximately $815. These commitments were solely related to contracts signed with vendors for research and development by the Group and are expected to be paid in one year. As part of the Proterra acquisition (Note 4), the Group also took the responsibility to provide Proterra transit business unit employees job offers at acquisition closing date and keep those employees for at least one year, with an estimated total employee salary of over $20,000.

Contingency — In the ordinary course of business, the Group may be subject to legal proceedings regarding contractual and employment relationships and a variety of other matters. The Group records contingent liabilities resulting from such claims, when a loss is assessed to be probable and the amount of the loss is reasonably estimable. In April 2024, there was a dispute with the landlord of Folsom warehouse which the landlord seeks to recover damages in excess of $250. However, the lawsuit is in its early stage and the final outcome, including the potential amount of any losses, is uncertain. As a result, no reasonable estimate on the loss can be made as of March 31, 2024 and the Group is currently negotiating on settlement with the landlord.

In the opinion of management, there were no other material pending or threatened claims and litigation as of March 31, 2024 and through the issuance date of these condensed consolidated financial statements.

F-18

17. Concentration Risk

Concentration of Credit Risk

Assets that potentially subject the Group to significant concentrations of credit risk primarily consist of cash and cash equivalents, and accounts receivable. As of March 31, 2024 and December 31, 2023, the cash and cash equivalents are deposited within federally insured banks, which are typically below the insured limits. There is one customer representing 84.2% of total accounts receivable as of March 31, 2024, and there were two customers representing 35.5% and 35.0% of total accounts receivable as of December 31, 2023.

Concentration of Customers and Suppliers

For the three months ended March 31, 2024, there were two customers representing 44.4% and 41.4% of total net revenues, respectively. For the three months ended March 31, 2023, there were two customers representing 13.4% and 11.5% of total net revenues, respectively. During the three months ended March 31, 2024, there were no vendors representing 10% or more of total purchases and during the three months ended March 31, 2023, there was one vendor representing 10.4% of total purchases.

18. Subsequent Events

Guarantee for SPI

On March 6, 2024 (See Note 16), the Group’s related party, SPI Energy Co., Ltd. (“SPI”) entered into a Deed of Settlement with its creditor, Streeterville Capital, LLC (“Streeterville”) to settle the unpaid balances of certain convertible notes via installment payments as agreed in the Deed of Settlement. As of part of this Deed of Settlement, the Company, as the guarantor, covenants to Streeterville to pay and satisfy on demand all liabilities due from SPI to Streeterville with a total amount of $14,980.

On July 15 2024, SPI entered into a Second Addendum to the Deed of Settlement with Streeterville, under which Streeterville agreed to release the Group from the guarantee for SPI contingent upon several specific payments to be made on or before August 30, 2024 by SPI.

As of the date of this report, SPI has fulfilled all payment obligations to Streeterville required through August 30, 2024. On September 6, 2024, Streeterville provided a Deed of Release of Guarantor to the Group, confirming that Streeterville releases and discharges the Group from all past, present and future liability to Streeterville under the guarantee to Streeterville for SPI and also from all actions, claims and demands under or in connection with this guarantee.

Unauthorized Form 8-K

On May 20, 2024, a Current Report on Form 8-K with a date of report of May 17, 2024 (the “Unauthorized Form 8-K”) and signed by J. Mark Hastings, who resigned as Chief Financial Officer of the Company effective as of April 10, 2024, was filed with the Securities and Exchange Commission (the “Commission”), purportedly on behalf of the Company. However, the current and legally designated management of the Company (“Management”) had no knowledge of the Unauthorized Form 8-K, and was unaware of its existence until reviewing the same upon its filing with the Commission.

On May 21, 2024, the Company filed a Current Report on Form 8-K with the Commission, in which the Company disavowed the Unauthorized Form 8-K filed by Mr. Hastings, including the substance and legal efficacy of all assertions made therein. Management believes that the purported actions or events described in the Unauthorized Form 8-K were not legally valid and that the person or persons who filed, or who participated in or directed the filing of, the Unauthorized Form 8-K were not legally entitled to do so under the federal securities laws.

On May 16, 2024, the holders of a majority of the outstanding aggregate voting stock of the Company adopted resolutions by written consent in lieu of a meeting that was delivered to the Company’s board of directors on May 16, 2024, effectuating (i) the removal of John F. Perkowski, Steven E. Stivers, Sam Van, Kristine Chen and Steven Li from the board of directors of the Company and (ii) electing Julia Yu, Yongmei (May) Huang and James Young as members of the board of directors of the Company. The written consent was effective on May 16, 2024 when it was signed and delivered to the Company. Accordingly, the former Board members who were removed on May 16, 2024 did not have the power and capacity after their removal to meet on May 17, 2024 or to take any of the actions they purportedly took during that meeting (including purportedly approving the filing of the Unauthorized Form 8-K). Likewise, Mr. Hastings, who resigned from the Company effective April 10, 2024, was not authorized to file the Unauthorized Form 8-K on behalf of the Company on May 20, 2024.

F-19

Loan agreement with SPI

On June 22, 2024, the Group entered into a loan agreement with its related party, SPI. In the agreement, the Group agreed to lend up to an aggregate amount of $3,000 to SPI at a rate of 12% per annual. SPI must repay each loan along with the unpaid and accrued interest within three months from the date the loan was received. On June 25, 2024 and July 15, 2024, the Group lent $500 and $1,750, respectively, to SPI under the loan agreement. On August 9, 2024, $2,250 of loan principal was paid in full by SPI and on September 30, 2024, $22 of interest was paid in full by SPI. On October 1, 2024, both parties agreed to terminate the loan agreement between the Group and SPI.

Financing with Dynasty Capital 26, LLC

On July 25, 2024, the Group entered into a Future Receivables Sale and Purchase Agreement with Dynasty Capital 26, LLC (“Dynasty”). In the agreement, the Group irrevocably assigns, transfers and conveys onto Dynasty all of the Group’s right, title and interest in the specified percentage of the future receipts until the purchased amount shall have been delivered by the Group to Dynasty (“Dynasty Purchased Future Receipts”). This sale of the Dynasty Purchased Future Receipts is made without express or implied warranty to Dynasty of collectability of the Dynasty Purchased Future Receipts by Dynasty and without recourse against the Group and/or guarantor, except as specifically set forth in the agreement. By virtue of the agreement, the Group transfers to Dynasty full and complete ownership of the Dynasty Purchased Future Receipts and the Group retains no legal or equitable interest therein.

The total purchase price is $500, including all initial costs and fees remitted to Dynasty of $50. The net proceeds to the Group is $450. The total amount of receivables sold is $750. On July 31, 2024, an addendum was made between the Group and Dynasty to specify that the payment in the first week would be $22 and weekly payment of $47 for every following week. The Group made the first weekly payment of $22 and two weekly payments of $47 in August 2024. On August 29, a settlement agreement was made between the Group and Dynasty to reduce the Group’s obligation for payment to $600, with the first payment of $100 in August and twenty (20) consecutive weekly installments of $25.

Financing with Parkview Advance LLC

On July 31, 2024, the Group entered into a Future Receivables Sale and Purchase Agreement with Parkview Advance LLC (“Parkview”). In the agreement, the Group irrevocably assigns, transfers and conveys onto Parkview all of the Group’s right, title and interest in the specified percentage of the future receipts until the purchased amount shall have been delivered by the Group to Parkview (“Parkview Purchased Future Receipts”). This sale of the Parkview Purchased Future Receipts is made without express or implied warranty to Parkview of collectability of the Parkview Purchased Future Receipts by Parkview and without recourse against the Group and/or guarantor, except as specifically set forth in the agreement. By virtue of the agreement, the Group transfers to Parkview full and complete ownership of the Parkview Purchased Future Receipts and the Group retains no legal or equitable interest therein.

The total purchase price is $400, including all initial costs and fees remitted to Parkview of $20. The net proceeds to the Group is $380. The total amount of receivables sold is $600. The Group has made three weekly payments of $37 since August 8, 2024.

F-20

Grant of options

On July 1, 2024, 2,415,009 options were granted to a group of managements and employees with the Company, which are subject to an annual vesting schedule that vests 25% of granted options over the next four years. The exercise price was $0.34 per share.

Minimum Bid Price Requirement

On April 12, 2024, the Company received a letter (the “April 12 Deficiency Letter”) from the staff from the Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company was not in compliance with the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).

The April 12 Deficiency Letter has no immediate effect on the listing of the Company’s common stock, and its common stock continues to trade on The Nasdaq Capital Market.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been given 180 calendar days, or until October 9, 2024, to regain compliance with the Minimum Bid Price Requirement. If at any time before October 9, 2024, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that the Company has achieved compliance. As of the date of this report, the Company’s stock price remains below $1 per share, and it is unlikely to regain compliance by the October 9 deadline.

In the event the Company does not regain compliance, the Company may be eligible for additional time. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If the Company meets these requirements, the Staff will inform the Company that it has been granted an additional 180 calendar days. However, if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Staff will provide notice that its securities will be subject to delisting.

If the Company does not regain compliance by October 9, 2024, and is otherwise not eligible for additional time to regain compliance, the Staff will provide written notice to the Company that its securities are subject to delisting. At that time, the Company may appeal any such delisting determination to a Nasdaq hearings panel.

Minimum Stockholders’ Equity Requirement

On April 17, 2024, the Company received a letter (the “April 17 Deficiency Letter”) from Nasdaq indicating that, based upon the Company’s Form 10-K for the year ended December 31, 2023 (the “Form 10-K”), the Company was not in compliance with the requirement to maintain a minimum of $2,500 in stockholders’ equity. In the Form 10-K, the Company reported stockholders’ deficit of $4,839, which is below the minimum stockholders’ equity required for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1). Additionally, as of April 17, 2024, the Company did not meet the alternatives of market value of listed securities or net income from continuing operations under Nasdaq Listing Rules.

The April 17 Deficiency Letter has no immediate effect on the listing of the Company’s common stock, and its common stock continues to trade on The Nasdaq Capital Market.

After filing this report, the Company anticipates regaining compliance with the minimum stockholders' equity requirement. As detailed in this report, as of March 31, 2024, the Company reported stockholders’ equity of $23,672, which exceeds the minimum stockholders' equity required for continued listing under Nasdaq Listing Rule 5550(b)(1).

F-21

The Company is currently evaluating various courses of action to regain compliance. However, there can be no assurance that the Company will be able to regain compliance. If the Company does not regain compliance within the compliance period, or if the Company fails to satisfy another Nasdaq requirement for continued listing, Nasdaq could provide notice that the Company’s securities will become subject to delisting. In such event, Nasdaq rules would permit the Company to appeal the decision to reject the Company’s proposed compliance plan or any delisting determination to a Nasdaq hearings panel.

Nasdaq Delinquency Notices

On May 22, 2024, the Company received a delinquency notification letter from Nasdaq due to the Company’s non-compliance with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”) as a result of the Company’s failure to timely file its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (the “Initial Delinquent Filing”). On July 22, 2024, the Company submitted to Nasdaq a plan to regain compliance with the Listing Rule.

On August 21, 2024, the Company received an additional delinquency notification letter from Nasdaq due to the Company’s non-compliance with the Listing Rule as a result of the Company’s failure to timely file its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024.

The Listing Rule requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission. The deficiency letters have no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on The Nasdaq Capital Market under the symbol “PEV” at this time.

As a result of the additional delinquency, the Company is required to regain compliance with all delinquent filings within 180 calendar days from the due date of the Initial Delinquent Filing, or November 18, 2024. On September 3, 2024, the Company submitted an update to its original plan to regain compliance with respect to the filing requirements. If the Company’s plan to regain compliance is not accepted, Nasdaq rules would permit the Company to appeal the decision to reject the Company’s proposed compliance plan to a Nasdaq Hearings Panel.

The Company is in the process of completing its Form 10-Q for the quarterly period ended June 30, 2024 and intends to file such report as soon as practicable. While the Company is exercising diligent efforts to maintain the listing of its common stock on Nasdaq, there can be no assurance that the Company will be able to regain or maintain compliance with Nasdaq listing standards.

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

F-22

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 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, 2023 filed with the SEC on April 15, 2024 and in our subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements.

Overview

Phoenix Motor Inc., doing business as “Phoenix Motorcars” through its wholly owned subsidiaries, Phoenix Cars LLC (PCL), Phoenix Motorcars Leasing LLC (PML), and EdisonFuture Motor, Inc. (EdisonFuture), currently designs, assembles, and integrates electric drive systems and light and medium duty electric vehicles (“EVs”) and transit buses and markets and sells electric vehicle chargers for the commercial and residential markets. PCL also sells a range of material handling products including all-electric lithium-ion forklifts and pallet jacks.

The Group operates two primary brands: “Phoenix Motorcars,” which is focused on commercial products, including medium duty electric vehicles, chargers and electric forklifts; and “EdisonFuture,” which intends to offer light-duty electric vehicles. As an EV pioneer, we delivered our first commercial EV in 2014. We develop and integrate our proprietary electric drivetrain into the Ford Econoline Chassis (E-Series), specifically on the Ford E-450. The Ford E-Series is the dominant chassis in the medium duty Class 4 market in the U.S. in terms of market share and the range of configurations varying from shuttle buses, Type A school buses, utility trucks, service trucks, flatbed trucks, walk-in vans, and cargo trucks. Since our inception, we have been developing light and medium duty commercial electric vehicles for various service and government fleet markets, including city fleets, campuses, municipalities, and transit agencies and serve a broad spectrum of commercial fleet customers, such as airport shuttle operators, hotel chains, transit fleet operators, seaports, last-mile delivery fleets, and large corporations.

On January 11, 2024, the Group completed the acquisition of the Proterra Transit Business Unit (Note 4) for a purchase price of $3,500. The Group also assumed warranty obligations associated with the purchased Proterra Transit Business Unit. After the acquisition, the Group engages in the business that designs, develops and sells electric transit buses as an original equipment manufacturer for North American public transit agencies, airports, universities and other commercial transit fleets. On February 7, 2024, the Group completed the acquisition of the Proterra Battery Lease Agreements for a purchase price of $6,500, by which the Group was assigned with the right to collect certain leasing receivables which Proterra was a party as the lessor thereunder, used in connection with deployed Proterra electric transit buses. The Group also assumed warranty obligations associated with the purchased Proterra Battery Lease Agreements. In March 2024, the Group declared its plan to sell all the Battery Lease Agreements acquired from Proterra acquisition. On June 24, 2024, the Group entered into an asset purchase agreement with Zenobe. In the agreement, the Group sells the battery lease receivables to Zenobe in two batches while retains the warranty liability associated with leased batteries. The aggregate purchase price for Batch 1 transferred assets is made of: (i) $3,575, minus (ii) any payments received by the Group from March 1, 2024 to the Batch 1 closing date, plus (iii) the assumption of the Assumed Liabilities incurred after the applicable Closing Date related to the Batch 1 Transferred Assets. The aggregate purchase price for Batch 2 transferred assets is made of: (i) $2,175, minus (ii) any payments received by the Group from March 1, 2024 to the Batch 2 closing date, plus (iii) assumption of the Assumed Liabilities incurred after the applicable Closing Date related to the Batch 2 Transferred Assets. On July 5, 2024, the Group closed the first batch of the sale and received net proceeds of $2,400 from the sale. The Group is expected to close the second batch of the sale in 2024.

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 Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 15, 2024.

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.

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BOM and Supply Chain Challenges. Purchased materials represent the largest component of cost of goods sold in our products and we continue to explore ways to improve cost structure of our products through better design, strategic alliances for sourcing, supply chain optimization, and, in some cases vertical integration. We believe that an increase in volume and additional experience as well as long term and strengthened supply chain partnerships will allow us to continue to reduce our Bill of Materials (“BOM”), labor and overhead costs, as a percentage of total revenue. By reducing material costs, driving improvement in battery performance, increasing facility utilization rates and achieving better economies of scale, we can reduce prices while maintaining or growing gross margins of our products to further lower customers’ total cost of ownership (“TCO”) and help accelerate commercial electric vehicle adoption. Because we rely on third party suppliers for the development, manufacture, and development of many of the key components and materials used in our vehicles, we have been affected by industry-wide challenges such as significant delivery delays and supply shortages of certain BOM components. While we continue to focus on mitigating risks to our operations and supply chain in the current industry environment, we expect that these industry-wide trends will continue to affect our ability and the ability of our suppliers to obtain parts and components on a timely basis for the foreseeable future, having a significant impact on our business and results of operations in 2023 and possibly thereafter.

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A long sales and production cycle. We have a long sales and production cycle given our customers’ structured procurement processes and vehicle customization requirements. For out transit buses, public transit agencies typically conduct a request for proposal process before awards are made and purchase orders are issued. Proposals are evaluated on various criteria, including but not limited to technical requirements, reliability, reputation of the manufacturer, and price. This initial sales process from first engagement to award typically ranges from 6 to 18 months. Once a proposal has been awarded, a pre-production process is completed where customer specific options are mutually agreed upon. A final purchase order follows the pre-production process. Procurement of parts and production typically follow the purchase order. Once a bus is fully manufactured, the customer performs a final inspection before accepting delivery, allowing us to recognize revenue. The length of time between a customer award and vehicle acceptance typically varies between 12 and 24 months, depending on product availability and production capacity.

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Availability of Funding to Develop Products and Scale Production. Our results are impacted by our ability to sell our electrification solutions and services to new and existing customers. We have had initial success with selling to our fleet customers. In order to sell additional products to new and existing customers, we will require substantial additional capital to develop our products and services, ramp up production and support expansion. Although we pursue an asset light strategy, we expect that both our capital and operating expenditures will increase significantly in connection with our ongoing activities, as we continue to invest in our technology, research and development efforts, obtain, maintain and improve our operational, financial and management information systems, hire additional personnel, obtain, maintain, expand and protect our intellectual property portfolio. Until we can generate sufficient revenue from vehicle sales, we expect to primarily finance our operations through proceeds from public or private stock offering, debt financings including but not limited to term loans, revolving line of credit and equity linked instruments, and potentially federal and state incentive funding programs. The amount and timing of our future funding requirements, will depend on many factors, including the pace and results of our research and development efforts , the lead time for various components in our supply chain, and our ability to successfully manage and control costs and scale our operations.

●

Ability to improve profit margins and scale our business. We intend to continue investing in initiatives to improve our operating leverage and significantly ramp production. We believe continued reduction in costs and an increase in production volumes will enable commercial vehicle manufacturers to electrify faster. Purchased materials represent the largest component of cost of goods sold in all products and we continue to explore ways to reduce these costs through improved design for cost, strategic sourcing and long-term contracts. We believe that an increase in volume and additional experience will allow us to leverage those investments and reduce our labor and overhead costs, as well as our freight costs, as a percentage of total revenue. As we grow into our current capacity, execute on cost-reduction initiatives, and improve production efficiency, we expect our product cost of goods sold as a percentage of revenue to decrease in the longer term. We anticipate that by increasing facility utilization rates and improving overall economies of scale, we can positively impact gross margins of our products, bring value to our customers and help accelerate commercial electric vehicle adoption. Our ability to achieve cost-saving and production-efficiency objectives can be negatively impacted by a variety of factors including, among other things, labor cost inflation, lower-than-expected facility utilization rates, rising real estate costs, manufacturing and production cost overruns, increased purchased material costs, and unexpected supply-chain quality issues or interruptions, and delays in our ability to hire, train, and retain employees needed to scale production to meet demand.

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Government Subsidies and Incentive Policies. 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:

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requiring all transit buses in California to be zero emissions by 2040;

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requiring all airport shuttles in California to be all electric by 2035; and

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requiring at least 50% of all medium-duty trucks sold in California to electric by 2030, 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 transportation options. 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 Advanced Clean Trucks Regulation. Primarily driven by the urgent need to meet carbon and greenhouse gas emission reduction targets, various state and federal agencies are also supporting the switch to zero emission transportation, providing a host of funding and incentive support to develop, demonstrate and deploy zero emission transportation solutions. Some of the key funding / incentives driving adoption of electric medium duty vehicles include:

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the California Hybrid and Zero- Emission Truck and Bus Voucher Incentive Project, which offers a minimum of $60,000 per vehicle as incentive for Class 4 electric vehicles registered and operating in the state;

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the New York Truck Voucher Incentive Program offering up to $100,000 per Class 4 electric vehicle; and

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funding from federal agencies like the Federal Transit Administration, 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.

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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.

Results of Operations

	Three Months Ended
	March 31, 2024			March 31, 2023
Revenues	$	9,420		$	1,781
Cost of revenues		6,915			1,608
Gross profit		2,505			173
Operating expenses:
Selling, general and administrative		8,649			3,871
Provision of credit loss		—			(25	)
Impairment of goodwill		4,271			—
Operating loss		(10,415	)		(3,673	)

Other income (expense):
Interest expense, net		(2,695	)		1
Gain on sales-type leases		—			99
Change in fair value of derivative liability		(58	)		—
Employee retention credit		—			697
Others		2			98
Bargain purchase gain		32,908			—
Total other income, net		30,157			895
Income (loss) before income taxes		19,742			(2,778	)
Income tax provision		4,943			—
Net income (loss)	$	14,799		$	(2,778	)

Net income (loss) per share of common stock:
Basic	$	0.49		$	(0.13	)
Diluted	$	0.44		$	(0.13	)
Weighted average shares outstanding
Basic		30,456,235			20,823,622
Diluted		34,247,958			20,823,622

Net Revenues

For the three months ended March 31, 2024 and 2023, our revenues were $9.4 million and $1.8 million, respectively. Our total revenue increased by $7.6 million, or 429%, primarily due to the acquisition of Proterra transit business unit. The transit business unit contributed $9.0 million of revenue to the Group for the three months ended March 31, 2024. The increase was partially offset by the decline in our sales of EVs. We delivered 5 EVs during the three months ended March 31, 2023 while we delivered only 1 EV during the three months ended March 31, 2024. Such decrease was mainly because we incurred cash shortage issues starting from late 2023 which caused us to suspend most of the production of EVs during the last quarter of 2023 and the first quarter of 2024.

For the three months ended March 31, 2024 and 2023, our revenue breakdown by major categories for relevant periods was as follows:

	Three Months Ended
	March 31, 2024		March 31, 2023
In thousands	(Unaudited)		(Unaudited)
Sales of transit buses	$	8,531	$	—
Sales of EVs		250		1,151
Lease of EVs		39		90
Sales of forklifts		39		214
Others		561		326
	$	9,420	$	1,781

The following is a summary of the Group’s disaggregated revenues by timing of revenue recognition:

	Three Months Ended
	March 31, 2024		March 31, 2023
In thousands	(Unaudited)		(Unaudited)
Over time	$	235	$	225
Point in time		9,185		1,556
	$	9,420	$	1,781

Cost of Revenues

Cost of revenues for transit buses sales and EV sales includes direct parts, material and labor costs, manufacturing overheads, and shipping and logistics costs. Cost of revenues for EV leasing primarily includes the depreciation of operating lease vehicles over the lease term and other leasing related charges including vehicle insurance and batteries service cost. Cost of other revenue includes direct parts, material and labor costs, as well as shipping and delivery and other costs.

For the three months ended March 31, 2024 and 2023, our costs of revenues were $6.9 million and $1.6 million, respectively. The increase in costs of revenues was primarily due to the increase in costs of transit buses due to increase in transit bus sales.

Gross Margin

Gross profit is defined as revenues minus cost of revenues. Gross margin, stated as a percentage, is defined as gross profit divided by revenues.

For the three months ended March 31, 2024 and 2023, our combined gross margin was 26.6 % and 9.7%, respectively. The increase of gross margin was primarily due to higher margins for both EV sales and transit buses sales. The Group received gain on bargain purchase of Proterra transit business unit and was able to quickly sell the inventories acquired from the acquisition with relatively higher margin. The increase in margin for EV sales was mainly because there was only one EV sold during the three months ended March 31, 2024 with a relatively high selling price.

Operating Expenses

Operating expenses consist of selling, general, and administrative expenses as well as impairment on goodwill.

Our selling, general and administrative expenses consist primarily of salaries, research and development, professional service fees, rent expense, and office supplies expenses.

For the three months ended March 31, 2024 and 2023, our selling, general and administrative expenses were $8.6 million and $3.9 million, respectively. The increase in selling, general and administrative expenses was largely due to an increase in salary expenses as a result of acquisition of Proterra transit business unit with increased heads-count.

During the three months ended March 31, 2024, we identified impairment indicator resulted from the Company’s continuous decreasing stock price since January 2024 and performed interim goodwill impairment testing. We recorded an impairment on goodwill of $4.3 million based on the difference between fair value and the carrying amount of the reporting unit.

Other Income (expense), net

Other income (expense), net includes gain on bargain purchase, interest expense, gain on sales-type leases and other income.

Our other income for the three months ended March 31, 2024, was $30.2 million, primarily due to gain on bargain purchase of Proterra transit business unit of $32.9 million, partially offset by the interest expense of $2.7 million resulted from short-term loan and debt discount amortization of convertible note.

SEC Form 10-Q filed by Phoenix Motor Inc.