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SPI Energy Co., Ltd. – ‘10-K’ for 12/31/22

On:  Friday, 4/14/23, at 3:20pm ET   ·   For:  12/31/22   ·   Accession #:  1683168-23-2397   ·   File #:  1-37678

Previous ‘10-K’:  ‘10-K’ on 4/1/22 for 12/31/21   ·   Latest ‘10-K’:  This Filing   ·   29 References:   To:  SPI Energy Co., Ltd. – ‘8-K’ on 12/23/22 for 12/22/22 To:  SPI Energy Co., Ltd. – ‘6-K’ on 11/15/21 for 11/12/21 To:  SPI Energy Co., Ltd. – ‘20-F/A’ on 10/29/21 for 12/31/20 To:  SPI Energy Co., Ltd. – ‘6-K’ on 10/4/21 for 9/30/21 To:  SPI Energy Co., Ltd. – ‘6-K’ on / for 6/10/21 To:  SPI Energy Co., Ltd. – ‘20-F’ on 4/29/21 for 12/31/20 To:  SPI Energy Co., Ltd. – ‘6-K’ on 3/4/21 for 2/28/21 To:  SPI Energy Co., Ltd. – ‘6-K’ on 2/11/21 for 2/28/21 To:  SPI Energy Co., Ltd. – ‘6-K’ on / for 2/2/21 To:  SPI Energy Co., Ltd. – ‘6-K’ on 12/4/20 for 12/3/20 To:  SPI Energy Co., Ltd. – ‘6-K’ on / for 11/13/20 To:  SPI Energy Co., Ltd. – ‘6-K’ on / for 11/4/20 To:  SPI Energy Co., Ltd. – ‘6-K’ on 10/28/20 for 10/27/20 To:  SPI Energy Co., Ltd. – ‘6-K’ on 10/1/20 for 9/30/20 To:  SPI Energy Co., Ltd. – ‘6-K’ on 9/30/20 for 9/23/20 To:  SPI Energy Co., Ltd. – ‘20-F’ on 6/29/20 for 12/31/19 To:  SPI Energy Co., Ltd. – ‘20-F’ on 4/30/19 for 12/31/18 To:  SPI Energy Co., Ltd. – ‘20-F’ on 12/10/18 for 12/31/17 To:  SPI Energy Co., Ltd. – ‘20-F’ on 10/27/17 for 12/31/16 To:  SPI Energy Co., Ltd. – ‘20-F’ on 5/17/16 for 12/31/15 To:  SPI Energy Co., Ltd. – ‘S-8 POS’ on 1/4/16 To:  SPI Energy Co., Ltd. – ‘8-K’ on / for 10/30/15 To:  SPI Energy Co., Ltd. – ‘8-K’ on 7/14/15 for 7/13/15 To:  SPI Energy Co., Ltd. – ‘F-4/A’ on 6/24/15 To:  SPI Energy Co., Ltd. – ‘8-K’ on / for 6/15/15 To:  SPI Energy Co., Ltd. – ‘F-4’ on 5/11/15 To:  SPI Energy Co., Ltd. – ‘8-K’ on 4/17/15 for 4/15/15 To:  SPI Energy Co., Ltd. – ‘8-K’ on 12/18/14 for 12/12/14 To:  SPI Energy Co., Ltd. – ‘8-K’ on 2/21/14 for 12/26/13 

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 4/14/23  SPI Energy Co., Ltd.              10-K       12/31/22  129:11M                                    GlobalOne Filings Inc/FA

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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C., 20549

FORM  i 10-K

 i ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended  i  i December 31, 2022 / 

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

Commission File No.  i 0-30351

 i SPI Energy Co., Ltd.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:  i (888)  i 575-1940

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  i No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐  i No ☒

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 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.  i 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  i Yes ☒ No ☐

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

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

As of June 30, 2022, the close of the second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold, was $ i 32,968,710.

At April 14, 2023, the registrant had  i 30,292,960 outstanding shares of common stock, par value $0.0001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

None

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K for the fiscal year ended December 31, 2022, and information we provide in our press releases, telephonic reports and other investor communications, including those on our website, contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended (the “Securities Act”), which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this annual report on Form 10-K, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements include statements, among other things, with respect to anticipated future events, including anticipated trends and developments in and management plans for our business and the markets in which we operate and plan to operate; future financial results, operating results, revenues, gross profit, operating expenses, projected costs, and capital expenditures; sales and marketing initiatives; competitive position; and liquidity, capital resources, and availability of future equity capital on commercially reasonable terms.

Forward-looking statements can be identified by the use of words such as “expect,” “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “should,” “intend,” “forecast,” “project” the negative or plural of these words, and other comparable terminology. Our forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this annual report on Form 10-K are based upon information available to us as of the filing date of this annual report on Form 10-K. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason.

We have identified factors that could cause actual plans or results to differ materially from those included in any forward looking statements. These factors include, but are not limited to, the following:

These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in the section entitled “Item 1A. Risk Factors” and elsewhere in this annual report on Form 10-K. You should carefully consider the risks and uncertainties described under this section.

CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 10-K to:

Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

The conversion of amounts of Australian Dollars, Euros and Renminbi, respectively, into U.S. dollars in this annual report, made solely for the convenience of readers, is based on the noon buying rates in the city of New York for cable transfers of Australian Dollars, Euros, British Pounds, Japanese Yen and Renminbi, respectively, as set forth in the H.10 statistical release of the U.S. Federal Reserve Board as of December 31, 2022, which was AUD 1.4695 to $1.00, EUR 1.0698 to $1.00, GBP 1.2077 to $1.00, JPY 131.8100 to $1.00 and RMB 6.8972 to $1.00, respectively, unless indicated otherwise. No representation is intended to imply that the Australian Dollar, Euro or Renminbi could have been, or could be, converted, realized or settled into U.S. dollars at the foregoing rates or any other rate.

SUMMARY OF RISK FACTORS

Our business is subject to risks of which you should be aware before making an investment decision. The risks described below are a summary of the principal risks associated with an investment in us and are not the only risks we face. You should carefully consider these risk factors, the risk factors described in Item 1A, and the other reports and documents that we have filed with the Securities and Exchange Commission (“SEC”).

Risks Related to Our Company

Risks Related to Our Solar Projects Business

Risks Related to Our America Solar Module Manufacturing Business

Risks Related to Our PV Components Business

Risks Related to Our Residential Roofing and Solar Installation Business

Risks Related to Our Operation in Phoenix

Risks Related to Our Ordinary Shares

Risks Related to Our International Operations

General Risk Factors

PART I

ITEM 1 Business

Business Overview

We are a global renewable energy company and provider of solar storage and EV solutions that was founded in 2006 in Roseville, California and is now headquartered in McClellan Park, California.

Our company is involved in six key businesses, including :

1) Global solar project development business, d/b/a SPI Solar;

2) Electricity sale business under IPP model, d/b/a Orange Power;

3) American solar module manufacturing business, d/b/a Solar4America;

4) Solarjuice Australia Distribution Business, d/b/a Solarjuice AU;

5) Solarjuice American Roofing and Installation buiness, d/b/a Roofs 4 America;

6) Phoenix Motorcars EV business,d/b/a Phoenix Motorcars;

SPI Solar acquires, develops and sells solar projects in multiple countries, including the U.S., the U.K., Greece, Japan and Italy. SPI Solar acquires and develops solar PV projects that are either sold to third party operators or owned and operated by Orange Power for selling of electricity to the grid. As of the date of this report, SPI Solar is constructing an aggregate of 12.04 MW of projects in the U.S. under our BT model and 251.99 MW PV project and 5.45 megawatt hour (MWh) energy storage project in Greece and U.S.in announced pipeline.

Orange Power owns and operates solar projects that sell electricity to the grid globally. As of April 14, 2023, Orange Power currently owns and operates 17.51 MW solar projects in U.S., U.K., Japan and Europe.

Solar4America produces “Made-in-America” solar modules. SJ Technology, doing business as “Solar4America” opened its first US solar module assembly factory in January 2022 in McClellan Park, California, which commenced pilot production in the second quarter of 2022 and began delivering Solar4America brand modules to customers weekly during the third quarter of 2022.

SolarJuice AU distributes the most popular brands of solar photovoltaic (“PV”) modules, solar energy inverters, batteries and storage devices, other solar BOS components, and accessories to commercial customers located in every state and territory of Australia. SolarJuice AU also designs and sells its own private brand of PV products under the trade name “Opal,” including Opal solar modules and “Opal Storage” batteries. Established in September 2009 by founders Rami Fedda and Andrew Burgess, who combined their industry knowledge, supplier networks and sales management skills, SolarJuice AU has grown into one of Australia’s leading distributors of PV and solar-related products.

Our U.S. residential roofing and solar installation business, operated by SolarJuice American Inc., or, SJ America, d/b/a Roofs 4 America, performs residential installations and commercial projects for some of the nation’s largest home builders and real estate developers. Roofs 4 America holds contractor licenses, as required, in California. For solar and re-roofing projects, we manage the entire process from surveying, design, permitting, installation, final inspection, and connection to the power grid; we may choose to outsource part of this process to third party service providers. With hundreds of installation employees, SJ America is one of only a few residential solar companies with extensive roofing experience.

Phoenix Motorcars is a leader in medium-duty commercial electric vehicles, and is developing EV charger solutions, electric pickup trucks, electric forklifts, and other EV products. Phoenix Motorcars operates two primary brands, “Phoenix Motorcars” focused on commercial products including medium duty electric vehicles, chargers and electric forklifts, and “EdisonFuture” which intends to offer light-duty electric vehicles.

Alongside our primary business ventures, we have diversified our portfolio with additional investments in various sectors, including Solar wafer manufacturing business, d/b/a SEM wafertech, the electric scooter retail business,d/b/a Zoomers, and other renewable energy investments. SEM wafertech focus on solar wafer manufacturing business. Solar wafers are a key component used for manufacturing solar cells, which are used in the manufacturing of solar panels. Zoomer offers electric scooter through the retail store and service center in Fremont, California.

SPI maintains global operations in North America, Australia, Asia and Europe and is also targeting strategic investment opportunities in fast growing green industries such as battery storage, charging stations, and other investment which leverage the Company’s expertise and substantial solar cash flow.

Corporate History and Organizational Structure

History and Development of the Company

Our legal and commercial name is SPI Energy Co., Ltd. Our principal executive office is located at 4803 Urbani Ave McClellan Park, CA , 95652. Our telephone number at this address is 888-575-1940. Our registered office is situated at 4th Floor, Harbour Place, 103 South Church Street, PO Box 10240, George Town, Grand Cayman, KY1-1002, Cayman Islands.

The Company was incorporated by SPI Power as a company limited by shares in the Cayman Islands on May 4, 2015. On January 4, 2016, we completed the redomiciliation of SPI Power to the Cayman Islands, whereby SPI Power merged with and into a wholly-owned subsidiary of the Company and the holders of SPI Power common stock received ADS representing ordinary shares of the Company. As a result, the former shareholders of SPI Power became the beneficial owners of the capital stock of the Company, and the Company, together with our subsidiaries, now own and continue to conduct SPI Power’s business in substantially the same manner as was conducted by SPI Power and its subsidiaries. The Company is also managed by substantially the same board of directors and executive officers that managed SPI Power previously.

Between January 19, 2016 and September 18, 2017, our ADSs were listed on the NASDAQ Global Select Market under the symbol of “SPI”. The Bank of New York Mellon, the depositary bank for the ADS facility, terminated our ADS facility on September 18, 2017. Following such termination, we listed our ordinary shares, par value US$0.0001 per share, for trading on the NASDAQ Global Select Market in substitution for our ADSs. On September 19, 2017, our ordinary shares began trading on the NASDAQ Global Select Market under the symbol of “SPI”.

In September 2017, we entered into a framework share purchase agreement to acquire 100% equity interests of three Greek companies, namely THERMI SUN S.A, HELIOHRISI S.A., and HELIOSTIXIO S.A., from THERMI TANEO Venture Capital Fund (“TTVCF”), for a total consideration of EUR 16.8 million, subject to certain adjustments. These three companies own a total of four PV plants with 7.4MWp PV installations in northern Greece. The closing of the transaction took place in three separate stages (one for each company under acquisition). The acquisition of HELIOSTIXIO S.A. was closed in December 2017. The Company completed the second-stage acquisition of 100% of the equity interest of HELIOHRISI S.A., which owns 1.988 MW of photovoltaic projects in Greece on March 20, 2019. The last of three acquisitions of 100% of the equity interest of THERMI SUN S.A., which owns 4.4 Megawatts (“MW”) of photovoltaic (“PV”) projects in Greece, was closed November 1, 2019. With 7.4MWp PV installations added to SPI Energy’s existing PV portfolio in Greece, the Company becomes one of the significant PV owners in Greece.

By the year end of December 31, 2018, our wholly owned subsidiary, SPI Solar Inc., sold eight solar projects in the U.S. (9.653 MW) to third parties.

On January 17, 2019, we entered into share purchase agreements with certain existing shareholders (including certain key management personnel of the Company) and other investors (collectively, the “Purchasers”), pursuant to which the Purchasers agreed to purchase an aggregate of 6,600,000 ordinary shares of the Company at a price of US$1.16 per Share, for a total consideration of approximately $7.7 million. The transaction was closed on April 12, 2019. Those shares were being offered and sold to private investors, on a private placement basis in reliance on Regulation S. Those shares have not been and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration. Net proceeds from the sale of those shares are intended to be used for expansion of our global PV project activities and general corporate purposes.

On July 23, 2019, the Company entered into a framework agreement to acquire up to eight solar PV projects, totaling 21MW in the State of Oregon (the “Oregon Portfolio”). On August 26, 2019, the Company completed the closing of Manchester and Waterford solar projects with a total of approximately 5.4MW. On September 10, 2019, the Company completed the closing on the Belvedere project with approximately 3.56MW of clean energy for the local community. On September 24, 2019, the Company completed the closing of the Dover and Clayfield solar projects with a total of approximately 5.45MW. On April 22, 2020, the Company completed the acquisition of the Cork project with a total of approximately 1.5MW. The Company has now closed 6 of the 8 projects within the Oregon Portfolio. The Company does not intend to purchase the remaining 2 projects, Carlow Solar LLC and Cavan Solar LLC and the right entitled SPI to purchase these remaining 2 projects has expired already.

On September 26, 2019, the Company completed the closing of the sale of Sun Roof II and Sun Roof V to Theia Investments (Italy) S.r.l. (“Theia”), a company established by an infrastructure fund managed by Stafford Capital Partners (“Stafford”), a leading private markets investment and advisory group. Sun Roof II, comprised of three rooftop solar projects totaling 1.83 MW located in Sassari, Italy, and Sun Roof V, a 1 MW rooftop solar project located in Cisterna di Latina, Italy, have been in operation since 2012. Theia paid approximately EUR4.3 million to complete the transaction. On March 9, 2020, the Company completed the closing of the sale of its Sun Roof I assets, a 479 kWp rooftop solar project located in Aprilia, Italy, that has been in operation since 2012. Proceeds from the sale were approximately EUR 1.1 million before transaction fees, providing additional capital for the development of solar assets in the US and Greece. After the sale of Sun Roof II, Sun Roof V and Sun Roof I, the Company currently owns only 1 PV asset with a capacity of 0.993 MW in Italy.

On November 12, 2020, the company, through EdisonFuture, Inc., a wholly owned subsidiary of the Company, acquired 100% of the membership interest of Phoenix Cars, LLC (“PCL”) and Phoenix Motorcars Leasing, LLC (“PML”). Simultaneously, EdisonFuture, Inc. effected the transfer of 100% membership interests of PCL and PML to Phoenix Motor Inc.

In February 2021, SJ America entered the solar and roofing products installation business, upon acquiring certain assets from Petersen-Dean Inc. (“PDI”), which was founded in 1984, and specialized in residential roofing and solar installations in California, Colorado, Florida, Nevada, and Texas. PDI partnered with some of the nation’s largest builders and developers for their roofing and solar product installations.

On April 12, 2021, SPI Solar executed a definitive agreement to acquire the MA Lovers Lane 6.5 megawatt (MW) solar photovoltaic (PV) and 5.45 megawatt hour (MWh) energy storage project in Massachusetts from a third-party developer. The project will sell power through Massachusetts' SMART program and will provide community solar subscriptions to national grid customers. The project is expected to come online in 2024.

In December 2021, SPI Solar acquired the existing lease for the original 140,000 square feet PV solar plant in Sacramento, California and certain pieces of solar module assembly equipment from Sunergy California LLC (”Sunergy”). Sunergy filed Chapter 11 bankruptcy in January 2021. Now with this facility and solar module assembly equipments, we can further support our growth and enables our Solar4Ameirca business to deliver Made-in-USA solar modules. Solar4America started serving the U.S. market in Q1 2022, while agreements have been signed to upgrade the facility with new technology and equipment, ramping to full solar module production capacity of 2.4 gigawatt (GW) per year by the end of 2023.

On January 24, 2022, the Company announced the opening of its first RideZoomers electric scooter retail store and service center in Fremont, California. RideZoomers Inc. is a wholly owned subsidiary of the Company. In addition to offering RideZoomer electric scooters, the Fremont store will include a Solar4America showroom displaying the latest available branded on- and off-grid solar, battery, EV charger, and home energy solutions. Established in Seattle in 2019 as a scooter-sharing startup, RideZoomers pivoted to a direct-to-consumer and hardware business model in 2020 in the wake of the COVID-19 outbreak. SPI Energy acquired the assets of RideZoomers in July 2021. The Fremont City store is located at 6066 Stevenson Boulevard., Fremont, California, 94538.

On March 21, 2022, SJ Technology, doing business as Solar4America launched 450 watt (W) and 550W solar modules for commercial projects. The new commercial solar modules are manufactured at the Company’s state-of-the-art facility in Sacramento, which combines California’s highly skilled workers with machine-to-machine connectivity, featuring a high degree of precision automation and continuous improvement for manufacturing PV modules.

On May 9, 2022, SolarJuice AU signed a 2GW (gigawatt) supply agreement with Sungrow, the global leading inverter solutions supplier for renewables. The 2GW capacity of the supply contract, which includes PV inverters, storage systems, batteries, and other accessories, makes this the largest and most comprehensive contract of its kind in the Australian solar market. The parties announced the agreement at the Smart Energy Conference & Exhibition (Smart Energy 2022), Australia’s premier event for solar, storage, and energy management, on May 6, 2022.

On June 7, 2022, Phoenix Motor Inc. priced its initial public offering (the “IPO”) of 2,100,000 shares of its common stock, par value $0.0004 per share, at $7.50 per share. The shares are listed on the Nasdaq Capital Market and trade under the ticker symbol “PEV” beginning on June 8, 2022. As of the date of this report, We indirectly owned approximately 82.6% of the outstanding voting power of the outstanding common stock of Phoenix Motorcars through EdisonFuture, Inc.

On Sept 15, 2022, the Company launched its new solar wafer manufacturing business, with formal registration as SEM Wafertech Inc which we plan to start productions in middle of 2023. Solar wafers are a key component used for manufacturing solar cells, which are used in the manufacturing of solar panels. The Company is targeting delivery and production of solar wafers in the U.S. by 2023 with an initial capacity of 1.5GW. The Company also plans to further increase its solar wafer manufacturing capacity to 3.0GW by 2024.The Inflation Reduction Act of 2022 created attractive incentives for companies to produce solar wafers and solar modules in the United States. Under the Act, solar wafer manufacturers will receive $12 per square meter of solar wafers produced.

On January 9, 2023, SJ Technology has started volume production of M10 solar modules from its state-of-the-art production line at its facility in Sacramento, CA and have started delivering to customers. This is the very first domestic M10 production line in the U.S. equipped with the latest state-of-the-art technologies. The new line will add an additional 550MW of solar module manufacturing capacity to our existing production volume. We will be delivering 410W American-made modules for the residential market and 550W all black, American-made modules for commercial and industrial markets. The Solar4America module manufacturing facility now produces 700MW with capacity ramping up to 2.4GW in 2023. Currently Solar4America, our Sacramento, California-based solar module manufacturing subsidiary, has production capacities for 2023 on an array of modules including 330W/60 cells and 410W/72cells, 410W/108 half cut cells all black modules for the residential market and 410W/72 cells (silver) and 550W solar modules for industrial and commercial markets.

Deconsolidation of Sinsin

On January 1, 2017, we deconsolidated Sinsin due to loss of control.

Disposition of China Assets

On August 30, 2018, the Company entered into a share purchase agreement (the “SPA”) with Lighting Charm Limited (the “Buyer”), an affiliate of Ms. Shan Zhou, the spouse of Xiaofeng Peng, the Company’s Chairman of the Board of Directors and Chief Executive Officer. The SPA was approved by an independent committee of the Company’s Board of Directors, and the transactions contemplated by the SPA closed on December 10, 2018. Pursuant to the terms of the SPA, the Company sold to the Buyer 100% of the shares of SPI China (HK) Limited (“SPI China”), which held all of the Company’s assets and liabilities related to its business in China (the “Acquired China Business”). These assets include the EPC business, PV projects, Internet finance lease related business, and E- commerce in China. In connection with the transaction, a pre-closing restructuring was accomplished. On April 30, 2019, the transfer was completed, and the Buyer became the owner of the shares in SPI China.

Our Investment in Phoenix

On November 12, 2020, the Company completed the acquisition of Phoenix Cars LLC and Phoenix Motorcars Leasing LLC (together, “Phoenix”), an electric drivetrain manufacturer for medium-duty commercial vehicles and final stage manufacturer that integrates its drivetrains into these vehicles.

On June 7, 2022, Phoenix Motorcars priced its initial public offering (the “IPO”) of 2,100,000 shares of its common stock, par value $0.0004 per share, at $7.50 per share. The shares are listed on The Nasdaq Capital Market and trade under the ticker symbol “PEV” beginning on June 8, 2022. As of the date of this report, we indirectly owned approximately 82.6% of the outstanding voting power of the outstanding common stock of Phoenix Motorcars through EdisonFuture, Inc.

Our Investment in Residential Roofing and Solar Installations Business

Following the January 6, 2021 purchase of all work-in-progress consumer contracts of Petersen-Dean Inc. (“PDI”), for $875,000, on February 25, 2021 Solarjuice American Inc., a wholly owned subsidiary of the Company (“SJ US”), closed the acquisition of substantially all operating assets of PDI, including certain construction contracts with work-in-progress billings, fixed assets, intellectual property and other assets, for total cash consideration of $6,850,000 plus the assumption of $11,000,000 of the outstanding balance under an account receivables financing arrangement of a previous lender of PDI, net off by accounts receivables pledged for the liability with net balance of PDI of $11,764,085. SJ US does not assume any other PDI obligations, except to cure existing leases or warranties.

Founded in 1984, Petersen-Dean, Inc. specializes in residential roofing and solar system installations, frequently in cooperation with some of the nation’s largest builders and developers. With more than a million installations, the Pleasanton, CA-based company employs hundreds of installers and operates in five states: California, Florida, Nevada, Colorado, and Texas.

Since early 2020, PDI started to face the unprecedented disruption caused by the COVID-19 pandemic, which placed inexorable pressure on the business. As a result of the various shelter-in-place orders issued by local governments in response to the pandemic, PDI and its workforce were unable to operate at full capacity, as jobs were closed down or work has been halted at sites throughout the United States. This disruption caused a significant slowdown in collections, reductions in revenue, and cash-collection delays. As a result, PDI and 15 of its affiliates filed petitions for relief under chapter 11 of the United States Bankruptcy Code on June 11, 2020.

In July 2022, the Group made a decision that its SJ America subsidiary would pause its roofing and solar energy system installation business in the states of Florida, Texas, Nevada and Colorado, due to insufficient business volume and profitability in those four states.

Our Recent Equity Financings

In October 2020, the Company offered and sold 2,964,000 ordinary shares in a registered direct offering to institutional investors at a purchase price of $5.40 per share for proceeds of approximately $14.6 million, after deducting the placement agent’s fees and other expenses.

In November 2020, the Company sold a Convertible Promissory Note to an investor for total consideration of approximately $2.11 million, convertible into ordinary shares of the Company at a conversion price of $26.00 per share. The Convertible Promissory Note was offered and sold solely to the investor in a private placement in reliance on Regulation D promulgated under the U.S. Securities Act of 1933, as amended.

In December 2020, the Company offered and sold 3,495,000 ordinary shares and warrants to purchase an aggregate of 3,495,000 ordinary shares in a registered direct offering to institutional investors at a purchase price of $10.02 per share and accompany warrant for $32.3 million, after deducting the placement agent’s fees and other expenses. The warrants are exercisable for a period of five years from December 7, 2020 at an exercise price of $10.50 per share.

In February 2021, June 2021, September 2021 and November 2021, the Company sold Convertible Promissory Notes to an investor for consideration of approximately $4.21 million for each Convertible Promissory Note, and $16.84 million in total, convertible into ordinary shares of the Company at a conversion price of $20.00 per share. The Convertible Promissory Notes were offered and sold solely to the investor in a private placement in reliance on Regulation D promulgated under the U.S. Securities Act of 1933, as amended.

In February 2021, the Company offered and sold 1,365,375 ordinary shares in a registered direct offering to certain institutional investors at a purchase price of $10.79 per ordinary share for $13.6 million, net of direct offering cost of $1.1 million.

In April 2022, the Company sold a Convertible Promissory Note to an investor for total consideration of approximately $2.11 million, convertible into ordinary shares of the Company at a conversion price of $20.00 per share. The Convertible Promissory Note was offered and sold solely to the investor in a private placement in reliance on Regulation D promulgated under the U.S. Securities Act of 1933, as amended.

On December 22, 2022, the Company entered into the purchase agreements (“the Agreements”) with Chief Operating Officer of the Company and Palo Alto Clean tech holding limited (previously known as “LDK New Energy Holding Limited”), an entity affiliated with the Company’s Chief Executive Officer (collectively, the “Purchasers”) to issue and sell 1,150,000 ordinary shares of the Company (the “Shares”) to the Purchasers at a price of US$1.01 per share, representing the closing price of the Company’s Ordinary Shares reported on Nasdaq on December 22, 2022, multiplying by 1.2 times, for a total consideration of approximately US$1,161,500 (the “Private Placement”). In addition, the Purchasers are subject to a two-year lock-up period after the closing of the Private Placement. The Private Placement has been consummated on December 22, 2022, upon satisfaction of customary closing conditions.

On June 7, 2022, Phoenix Motorcars priced its initial public offering (the “IPO”) of 2,100,000 shares of its common stock, par value $0.0004 per share, at $7.50 per share. The shares are listed on The Nasdaq Capital Market and trade under the ticker symbol “PEV” beginning on June 8, 2022. As of the date of this report, we indirectly owned approximately 82.6% of the outstanding voting power of the outstanding common stock of Phoenix Motorcars through EdisonFuture, Inc.

Capital Expenditures and Divestitures

For our global project development business, since January 1, 2018 through April 14, 2023, we had completed a series of acquisitions of solar projects that were in operation, consisting of (i) 1.988 MW and 4.4MW of projects in Greece, acquired in March 2019 and November 2019 respectively, for a total consideration of EUR 11.1 million ($12.5 million), (ii) a total of 15.77 MW DC of projects in the state of Oregon, US, acquired in August, September 2019 and April 2020 respectively for a total consideration of $1.3 million, and (iii) 6.5 megawatt (MW) solar photovoltaic (PV) and 5.45 megawatt hour (MWh) energy storage project in Massachusetts in April 2021, for a total consideration of US$ 2.1 million plus interconnection cost.

Since January 1, 2018 through April 14, 2023 we completed the following divestitures: From January 2019 to December 31, 2019, we sold 1 solar project in Japan (1.99MW) to a third party at the consideration of $9.56 million, which has been recognized as revenue accordingly. On September 26, 2019, we sold Sun Roof II comprised of three rooftop solar projects totaling 1.83 MW, and Sun Roof V with1 MW rooftop solar project in Italy at the consideration of EUR4.3 million. On March 16, 2020, we sold Sun Roof I, a 479 kWp rooftop solar project located in Italy at the consideration of EUR1.1 million before transaction fees. After the sale of Sun Roof II, Sun Roof V and Sun Roof I, the Company currently owns only 1 PV asset with a capacity of 0.993 MW in Italy. On July 27, 2020, we closed of the sale of the 5.5MW Mountain Creek solar project to Marina Energy at the consideration of US$16.1 million. We divested all our operations in China in December 2018 for nominal consideration due to the significant liabilities in the business.

As of the date of this report, we are constructing an aggregate of 12.04 MW of projects in the U.S. under our BT model. We anticipate that the U.S. project will be connected to the grid in 2023. We are financing this development with a combination of internal funds, project finance and tax equity.

We had 251.99MW PV project and 5.45 megawatt hour (MWh) energy storage project in Greece and U.S.in announced pipeline as of April 14, 2023. See “Item 1 Business -Our Global Project Development Business- Our Solar Project Portfolio.” We expect to complete the acquisition of, or commence permitting processes for, our projects in announced pipeline as soon as practicable. We believe these new additions, combined with our existing project portfolio, demonstrate our broad geographic reach and established presence across key solar markets and mitigate country-specific risks.

Additional Information

The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers, such as we, who file electronically with the SEC. The address of that website is http://www.sec.gov. Our Internet address is www.spigroups.com.

The following table sets out our principal subsidiaries as of December 31, 2022:

Our Business

The following table sets forth a breakdown of our net sales by geographic location of customers for the periods indicated:

Our Australia Distribution Business

Solar Juice Pty Limited or SJ AU is a wholesale distributor of Solar PV panels, solar inverters, components and complete solar systems, which was established in Australia in September 2009. It is one of the largest importers of solar related products in Australia with over 5200 B2B customers in every state and territory of Australia, New Zealand and Southeast Asia. As of the date of this annual report, Solar Juice Australia has six warehouses located around Australia.

Solar Juice Australia, as a wholesale supplier, has developed key partners which have supported the growth of its brands throughout Australia, New Zealand and South East Asia (“SEA”) Countries. Solar Juice Australia aligns itself with the most popular brands Sungrow, Fronius, SMA, Tesla, Trina, REC, and LONGi, which have the same values as Solar Juice Australia, namely service and support, quality and value for money. Solar Juice Australia’s products are backed by warranties held in Australia, experience and knowledge which set it apart from the competition, and commitment to serving the customer’ needs.

COVID-19 has significant impacts in some states in Australia including NSW and QLD in early 2022. Solar Juice’s revenue was affected by local lockdowns in Q1 2022 by state government restrictions. The management of Solar Juice Australia’s has made detailed business continuity and resilience plan, predicted market changes and adjusted purchase and sales strategies accordingly. The whole team has put in extra time and effort to help the company went through the toughest period without impacts in revenue and profit. Solar Juice Australia has achieved AUD 191.4 million revenue, AUD 17.4 million gross profit and AUD 5.3 million net profit in 2022, which increased 16%, 14% and 20 % respectively from 2021. Solar Juice Australia’s trade receivable balance increased 66%, inventory increased 13%, trade payable balance increased 1.5% from the previous year. As a result, the net assets of Solar Juice Australia increased significantly by 19.4% to AUD 23.4 million.

We expect Solar Juice Australia to benefit from these improvements in long term and keep its leadership in premium PV market in Australia. In the meantime, Solar Juice Australia’s traditional strengths such as outstanding customer services, technical support, and warranty service will keep differentiating it from competitors.

Solar Juice Australia currently accounts for 74.9% of our revenues and 18.6% of our total assets.

Our Global Project Development Business

We develop and sell or own and operate solar projects which sell electricity to the grid in multiple countries, including the U.S., the U.K., Greece, Japan and Italy. We are expanding our global project development business by ramping up our portfolio of global solar projects, including projects that we plan to hold in the long term for electricity generation revenue under our IPP model, as well as projects which we plan to sell in the future when we are presented with attractive opportunities under our BT model. We grow our project portfolio primarily through acquisitions and our project acquisition strategy is based on rigorous market research and due diligence on the target project’s capacity, local energy demands, applicable tariff regime, supporting infrastructure, local government support and topography for construction in the case of projects under construction and projects in pipeline. We also consider available financing options, internal rate of return, key technical components, terms of the grid connection agreements and power purchase agreements, or PPAs, as well as guarantees on performance for projects in all development stages. We act as secondary developer for the projects under construction or in pipeline when they are acquired. We either hold these projects in the long term for electricity generation revenue or sell them when presented with attractive opportunities.

We had an aggregate 251.99 MW of PV projects and 5.45 MWh energy storage project in the U.S., the U.K., Greece, Japan and Italy as of April 14, 2023.

Most of our solar projects are subject to the FIT or PPA policies of the countries or regions where they operate. FIT refers to the national and local subsidies to solar power generation supported by the government. PPA refers to power purchase agreement with electricity company. For the FIT terms of our projects, please refer to “-Our Solar Project Portfolio.”

Our Solar Project Portfolio

We expect our solar projects to have operational lives of 20 to 25 years. As of April 14, 2023, our solar project portfolio consisted of:

The following summary sets forth our solar projects in operation, solar projects under construction and solar projects in announced pipeline as of March 30, 2023. For more recent development of the solar projects portfolio and potential sale of our solar projects, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-B. Liquidity and Capital Resources-Capital Resources and Material Known Facts on Liquidity.”

Solar Projects in Operation*

* In Greece, the PPA agreements fix the FIT during the first 20 years of operation and will drop to EUR 0.09/ KWh after the 20th year for the next 7 subsequent years. The FIT will be charged based on the relevant law in force in Greece. The current law in force is law4254/2014. According the monthly FIT statements by the electricity supply bureau in Greece, the FIT range of the PV plants was EUR0.19~0.20/kWh in 2014.

Solar Projects Under Construction*

* Intended by us to be BT projects in 2022 and 2023 and may be held as our IPP projects upon completion of construction if we determine that the return of owning the projects and selling electricity is more attractive.

As total capital expenditures may be affected by various factors including, among others, increases in cost of key equipment and materials, failure to obtain sufficient financing, unexpected engineering or environmental issues as well as changes in regulatory requirements, actual total capital expenditures may deviate significantly from such estimates. We expect to finance construction of these projects using cash from our operations and private placements, bank borrowings, financial leases as well as other third-party financing options.

Solar Projects in Announced Pipeline*

As of April 14, 2023, we were in the process of obtaining relevant regulatory approvals for the following self-developed and acquired solar projects:

* Our project portfolio excludes projects for which we provide EPC services but in which we do not own any equity interest or do not expect to acquire and excludes projects we have disposed of.

Featured Markets

Acquisition of Solar Projects

Our board of directors has formulated a uniform standard for assessing target assets with respect to the acquisition of solar projects, and such standard may be adjusted based on our Company’s business, financial condition and results of operations from time to time. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Operating Results-Recent Acquisition Activities” on the projects we have acquired or expect to acquire. Our board of directors considers the following criteria when assessing potential acquisitions, among others:

Market Due Diligence

We aim to select solar projects located at sites with long solar irradiation hours, high energy demand, good supporting infrastructure, favorable tariff regimes, local government support and appropriate topography for construction. We systematically analyze land cost, solar irradiation, grid connection capacity, land and property status, government support, availability of project financing and any other project information that would impact the overall economic return of the project. We target projects that we believe to have appropriate balance of financial returns, costs and risks.

Permit Development Process

The permit development process is the process of obtaining all required permits, certifications and approvals from relevant government authorities for solar project development. As of December 31, 2022, most of our solar projects in operation had been undertaken by us as a secondary developer.

We acquire solar projects under development by third parties which have secured land use rights, development permits, or even begun construction. We typically learn about potential projects suitable for secondary development from our business partners, national or local governments, industry publications, overseas engineering exhibitions or overseas business liaison organizations. Our criteria for sourcing solar projects include land cost, solar irradiation, availability of FIT benefits or other government incentives, grid connection capacity, local financing opportunities and other project information. The selection process involves detailed due diligence into those third parties’ relevant company documentation, financial projections and the legal status of permits already secured by the project.

After an acquisition, we continue to develop the project through grid connection as our own. We pursue secondary permit development in markets with relatively liquid markets for energy permits transfer, thus allowing a smooth transfer of pre-operational solar assets from third-party developers to us. Under certain circumstances, we negotiate site acquisition, preliminary permits, grid connection agreements and PPAs for projects under our secondary development model depending on the development stage when we acquire them.

Permit Development Steps

The following sets forth each step of our permit development:

Project Financing

A solar project sponsor typically sets up a project company as a special purpose vehicle to own a particular solar project and arrange for project financing. We typically enter into contracts and other agreements under the name of the project company, which facilitates project financing by isolating the project and its assets, and any potential securitization requirements, from our broader global business.

The construction cost of a project is mainly funded by our working capital, and to a lesser extent, funded through bank borrowings in the year ended December 31, 2022. We seek to negotiate favorable credit terms with our equipment suppliers and EPC contractors when possible, such that payment is not due until several months after construction and grid connection are complete. Our working capital dedicated towards a particular project would be generally available to us for other purposes if needed, and would not be considered restricted cash isolated at that project. We also have given guarantees to the lenders on certain project financings. However, none of our cash and cash equivalents have been collateralized to guarantee such project financings.

We generally seek to arrange debt financing for our solar projects from local banks and financial leasing companies in countries that are more open and receptive to renewable energy investments.

Engineering, Procurement and Construction

Given the multi-jurisdiction coverage of our project portfolio, we choose to utilize our EPC capabilities or contract third party EPC contractors to service our own projects, based on our cost analysis taking into consideration of locations, topographical conditions as well as the quality and competition of local EPC service providers.

Our Operation and Maintenance Business

We operate and maintain solar projects connected to the grid, especially those we have provided EPC services to. We may choose to contract third party O&M contractors to service our own projects, based on our cost analysis taking into consideration of locations, topographical conditions as well as the quality and competition of local EPC service providers. We regularly maintain solar projects for our customers to ensure that these projects operate in good condition and comply with the recommendations issued by the grid company in order to remain connected.

By operating the projects effectively and efficiently, we reduce down time and increase electricity output. A project’s major lifecycle costs mainly consist of maintenance fee and depreciation of modules, inverters and transformers. We monitor electricity production and any incidents or abnormalities which may impede normal operation. We adjust production levels based on the available capacity of the grid.

Our Electric Vehicle (EV) Business

On November 12, 2020, we completed the acquisition of Phoenix Cars LLC and Phoenix Motorcars Leasing LLC (together, “Phoenix”).

Phoenix, doing business as “Phoenix Motorcars” through its wholly owned subsidiaries, Phoenix Cars LLC, Phoenix Motorcars Leasing LLC, and EdisonFuture Motor, Inc., currently designs, assembles, and integrates electric drive systems and light and medium duty electric vehicles (“EVs”) and markets and sells electric vehicle chargers for the commercial and residential markets. Phoenix operates two primary brands, “Phoenix Motorcars” focused on commercial products including medium duty vehicles, chargers and electric forklifts, and “EdisonFuture” which intends to offer light-duty vehicles. Over the years, we have served over 42 fleet customers with a variety of needs, providing customized products to complete essential business functions. As of December 31, 2022, we have delivered a total of 116 EVs, representing what we believe is the largest number of Class 4 cutaway medium duty electric shuttle bus deployments in the U.S. and the most electric vehicles deployed on the Ford E-Series chassis. With over four million zero-emission miles accumulatively driven by the vehicles we delivered, we have gained significant industry experience, distinct expertise and extensive knowledge in R&D, production, commercialization, customer engagement and validation of light and medium duty EVs, enabling us to drive continued design enhancements and innovations in our current and future generations drivetrain systems and other products. As of December 31, 2022, our backlog of approximately 61 orders consists of 56 vehicles and 5 electric drive system kits. The order backlog represents $12.22 million of revenue, consisting of $11.88 million for vehicles and $0.34 million for electric drive systems.

Our EV buses and trucks are available in a range of configurations, including shuttle buses, Type A school buses, utility trucks, service trucks, flatbed trucks, walk-in vans, and cargo trucks. Our delivery customers include major airports, airport shuttle operators, hotel chains, seaports, universities, municipalities, and large corporations.

We believe that our EVs offer owners and fleet operators significant benefits, including:

We assist customers with all aspects of fleet electrification, including recommending battery power levels needed for the customer’s applications; advising regarding necessary infrastructure, such as types of external chargers required and their locations, and whether the customer’s facilities have sufficient power for charging; and assistance with the customer’s contractors that install infrastructure.

We sell our vehicles to fleet customers directly; retail sales of vehicles carrying Forest River, Inc. bodies, (e.g., Starcraft bus bodies and Rockford truck bodies) are made through Creative Bus Sales, one of the largest distributors of buses in the United States.

On June 7, 2022, Phoenix priced its initial public offering (the “IPO”) of 2,100,000 shares of its common stock, par value $0.0004 per share, at $7.50 per share. The shares are listed on The Nasdaq Capital Market and trade under the ticker symbol “PEV” beginning on June 8, 2022. As of the date of this report, we indirectly owned approximately 82.6% of the outstanding voting power of the outstanding common stock of Phoenix through EdisonFuture, Inc., which is 100% owned by SPI Energy Co., Ltd.

Our Business of Residential Roofing and Solar Installations

On January 6, 2021, SJ US purchased of all work-in-progress consumer contracts of Petersen-Dean, Inc. (“PDI”) for a consideration of $0.88 million in a court-approved agreement. On February 25, 2021, SJ US closed the acquisition of substantially all operating assets of Petersen-Dean including certain construction contracts with work-in-progress billings, fixed assets, intellectual properties and other assets, for a total cash consideration of $6.85 million, plus the assumption of $11 million of outstanding balance under an account receivables financing, net off by accounts receivables pledged for the liability with net balance of PDI of $11.7 million. PDI specializes in residential roofing and solar installations across the U.S., and after acquisition, SJ US operated the business with its own brand and earned revenue of $25.9 million for the year ended December 31, 2022.

Our “Made-in-America” Solar Modules Manufacturing Business

SJ Technology, our Sacramento, California-based solar module manufacturing subsidiary, opened our first US solar module assembly factory in January 2022 in McClellan Park, California, which commenced pilot production in the second quarter of 2022 and began delivering Solar4America brand modules to customers weekly during the third quarter of 2022. We achieved installed capacity of 650MW per year by the end of 2022, assuming the installed production line is running at full shift. SJ Technology intends to sell most of our American-made solar modules under our own “Solar4America” brand, to distributors, project developers and system integrators, and a small portion of solar modules on an OEM basis. We subleased existing solar module manufacturing facilities with a total floor area of 139,100 square feet located in McClellan Park, acquired certain pieces of solar module assembly equipment from Sunergy California LLC, and additional solar module assembly equipment from YingKou JinChen Machinery Co Ltd and Wuxi Autowell Supply Chain Management Co Ltd. to expand our capacity at the McClellan Park facility. In August 2022, we subleased additional space with a total floor area of 56,000 square feet, adjacent to SJ Technology’s current solar module manufacturing facility at McClellan Park. The expansion will enable us to meet the strong demand for its American-made solar modules. We expect that the production capacity of SJ Technology will be further increased to 2.4 GW per year by the end of 2023 as the result acquiring and putting into operation additional solar module assembly equipment and coupled with the utilization of the additional 56,000 square foot facility in McClellan Park, California and well as opening a new facility on the East Coast of the United States.

Inflation Reduction Act of 2022 - New and Expanded Production and Tax Credits for Manufacturers and Projects to Support Clean Energy

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “IRA”). The IRA contains provisions which we expect will have a significant impact on the development and financing of clean energy projects in the United States over the next ten years. The IRA includes a number of key changes relevant to clean energy in the United States, among them the extension of the Investment Tax Credit and Production Tax Credit and the addition of expanded tax credits for other technologies and for manufacturing of clean energy equipment as well as terms allowing parties to more easily monetize the tax credits. The IRA also includes some targeted incentives intended to encourage development in low-income communities and the use of domestically produced materials and compliance with certain prevailing wage requirements. The IRA contains a two-tiered credit-amount structure for many applicable tax credits. Specifically, many of the credits have a lower base credit amount that can be increased up to five times if the taxpayer can satisfy applicable prevailing wage or apprenticeship requirements. In general, under the prevailing wage requirements, the IRA requires all laborers, mechanics and workers to be paid the prevailing wage during project construction (and, during the credit term, for repairs and alterations). Separately and subject to certain exceptions, to meet the apprenticeship requirements, qualified apprentices have to perform an applicable percentage of total labor hours for project construction. Further, the IRA establishes certain options to cure the failure to meet either the prevailing wage or apprenticeship requirements.

We believe that two areas of the IRA will have direct significant benefits for us. First, the impact of the new Section 45X of the IRA will be significant to us, especially our SJ Technology business. Under Section 45X, production credits will be available for each eligible solar component that is produced domestically and sold to an unrelated party. Section 45X credits are based on the type of equipment or material manufactured, how much equipment or material is produced, and certain other criteria. We anticipate that Section 45X will spur United States solar manufacturing to a degree that may not yet be fully appreciated. According to Section 45X of the IRA, the Advanced Manufacturing Production Credit (AMPTC) is available for the production of eligible components which includes solar modules, solar wafers, solar cells produced in the United States and sold after December 31, 2022. The amount of the AMPTC for solar modules are mandated to be $0.07 per module capacity in Wdc. SJ Technology produces “Made-in-America” solar modules under its Solar4America brand. The Section 45X production credit encourages innovation and efficiency because, for example, with respect to certain solar components, credits are tied to the productivity of a solar panel rather than its cost, encouraging companies to manufacture higher-efficiency panels rather than raise prices to increase credits.

Secondly, the Residential Clean Energy Credit under the IRA allows residential customers to subtract 30 percent of solar costs off their federal taxes as a tax credit through 2032. If residential customers install solar energy equipment in their residence any time from 2022 through the end of 2032, they are entitled to a nonrefundable tax credit off their federal income taxes, equal to 30 percent of eligible expenses. There’s no dollar limit on those expenses. We believe this increase to a 30% tax credit under the IRA will significantly enhance SJ America’s U.S. residential roofing and solar installation business. According to the Department of Energy, the new IRA’s language covers the same expenses to be eligible for this new solar tax credit, as those that were declining under the expiring old law, including:

We believe having our own branded products provides greater opportunities to differentiate us in a competitive market. especially when certain products are in short supply in the market, such as current market conditions for made-in-America solar modules, which we expect will accelerate our brand and product penetration into the U.S. domestic market.

Our solar modules utilize advanced solar technologies, such as the Passive Emitter and Rear Contact or “PERC” technology and full cell technology. We expect that our high-quality manufacturing capabilities will enable us to produce solar modules meeting the industry’s highest performance standards, and all of our American-made solar modules sold in North America are UL certified.

Competition

Solar Power Market

The solar power market is intensely competitive and rapidly evolving, and we compete with major international and domestic companies over the development of solar projects. Our major competitors include leading global players such as SunPower Corporation, First Solar, Inc., Canadian Solar, Inc., SunEdison, Inc., SolarCity Corporation, Lightsource Renewable Energy Limited, and regional players such as West Holdings Corporation, Looop Inc., and other regional and international developers.

We believe that we can compete favorably with our competitors given that the key competitive factors for solar project development and operation include, without limitation:

However, we cannot guarantee that some of our competitors do not or will not have advantages over us in terms of greater operational, financial, technical, management or other resources in particular markets or in general. In terms of the broader energy sector, the entire solar industry faces competition from other power generation sources, including conventional sources as well as other emerging technologies. Solar power has certain advantages and disadvantages when compared to other power generating technologies. The advantages include the ability to deploy products in many sizes and configurations, install products almost anywhere in the world, provide reliable power for many applications and reduce air, water and noise pollution. Yet other energy sources have advantages which may result in electric utilities, grid companies or other off-takers to enter PPAs or other electricity purchase arrangements with companies specializing in those energy sources rather than us or other companies specializing in solar power.

Electric Vehicle (EV) Business

Competition in the light and medium-duty truck industry is intense, as new regulatory requirements for vehicle emissions, technological advances, and shifting customer demands are pushing the industry towards zero-emission solutions.

Phoenix competes with a number of commercial EV manufacturers, including those such as Lightning eMotors, GreenPower Bus, SEA Electric and Arrival. Several major companies, including BYD, Ford, General Motors, Tesla and Daimler have begun entry into the commercial EV market. In addition, many of the aforementioned companies, along with others, such as Volvo, BYD, Hyundai, Honda, and Fiat participate in the hybrid combined electric and gasoline powered vehicle business, which includes commercial vehicles that may compete with Phoenix. Most of our current and potential competitors have greater financial, technical, manufacturing, marketing, and other resources than we do. They may be able to deploy greater resources to the design, development, manufacturing, distribution, promotion, sales, marketing and support of their electric truck programs. Additionally, those competitors have greater name recognition, larger sales forces, broader customer and industry relationships, and other resources than we do.

Our Business of Residential Roofing and Solar Installations business and Australia Distribution Business

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

Suppliers

There are numerous suppliers of PV modules in the solar power industry, and we have adopted a supplier-neutral approach. For our global project development business, we select the suppliers based on whether we could obtain high-quality PV modules and balance-of-system components at favorable prices and payment terms. For global project development business, we procure our PV modules from a broad range of suppliers including Trina Solar Limited, LONGi Solar, Zhongli Talesun Solar Co., Ltd, Hanwha Q Cells GmbH, and Chint, among others. we are planning to procure PV modules from our own brand Solar4America to further increase the profitability.

In March 2021, we began delivering our third generation EVs, featuring our new, Romeo Power, Inc. modular battery packs, giving customers choices among 31KwH, 63KwH, 94KwH, 125KwH, and 156KwH batteries. Our ZEUS 300 EVs are built on the Ford F-450 chassis, with Romeo Power battery and Dana TM4 SumoTM MD motors, and BTC Power battery chargers. While the relationships with our key suppliers remain strong, we conduct evaluation of all suppliers on regular basis based on their quality, reliability, cost effectiveness, warranty standards, shipping standards and set up mitigation plan accordingly.

SJ Australia purchases its products from the best in class PV manufacturers that offer products with strong market demand that, generally, allow us to sell the products at higher gross margins. Our leading brands in each product category include, for inverters, Sungrow, Fronius and SMA; for solar panels, Trina and LONGi, for battery storage systems, Tesla and Sungrow; and for BOS and mounting, Tigo, Clenergy,Wallbox and Mibet. SJ Australia actively reviews its product portfolio to discontinue products with low volume, low margin, or poor performance records. SJ Australia enters into agreements with its suppliers during the ordinary course of business.

SJ America purchases materials from leading distributors in the construction and PV industries. We also purchase key solar components, such as panels and batteries from suppliers in Asia and in the US.

SJ Technology has begun to offer its Solar4America private-label as its standard product, with third party products offered as premium choices for consumers. SJ Technology has entered into purchase and other agreements with various suppliers including Jincheng, Sunergy and Autowell to purchase additional manufacturing equipment and expand of its production capacities.

The Company enters into agreements with its suppliers during the ordinary course of business.

Customers and Marketing

We have historically provided EPC and O&M services, a line of business we are still engaged in when we develop and operate the solar projects. We are also selling electricity to the grid under our IPP model as well as selling solar projects under our BT model. For our global project development business, purchasers of our BT projects included utility companies, independent power developers and producers, commercial and industrial companies as well as investors in the solar business. For our Orange Power business, we sell electricity to power companies and other electricity off-takers, including government-owned utility companies, operating in the United States, Greece and Italy under our IPP model. Further, customers of our Australia distribution business include residential ones, towards which we distribute PV modules, balance of system components, solar monitoring systems and inverters.

During the year ended December 31, 2022, there was no sale of PV solar systems.

We promote our reputation by participating in industry conferences worldwide and aggressively sourcing development opportunities in markets with strong growth potential. Members of our senior and local management team routinely meet with industry players and interested investors. Our business development teams around the world have significant experience building business in local markets and actively pursue growth opportunities around the world. We intend to continue to increase our marketing efforts going forward.

We historically engaged in high-profile marketing activities focused on developing our brand awareness not just among the solar business developers who have traditionally been our customers, but also among the general public. Since we have been in solar business for 15 years, we have built our brand awareness and lately we have not engaged in marketing activities.

As one of the early movers in the medium-duty electrification market, Phoenix Motorcars has built a reputation as one of the leading manufacturers in the segment. Our range of vehicles includes all-electric shuttle buses, flatbed trucks, utility trucks, box trucks, service van and custom bodies on a class-4 electric chassis and is used by customers across a wide range of applications including cities, transit agencies, airports, utility agencies, contractors, campuses and other commercial fleets. Phoenix Motorcars has particularly good awareness among shuttle bus customers and has the highest number of class-4 shuttle buses deployed. Further Phoenix also partnerships with industry leaders like Forest River, the largest shuttle bus manufacturer in the country and Creative Bus Sales, the largest bus dealership network to jointly sell and service the shuttle bus product. Being a sunrise industry, most of Phoenix’s fleet customers are first time EV users and Phoenix provides end-to-end electrification solutions to support their efforts. This includes not just providing vehicles, but also supporting with route planning, charging infrastructure planning, charging equipment and telematics solutions for in-service vehicles.

Seasonality

Demand for solar power products tends to be weaker during the winter months partly due to adverse weather conditions in certain regions, which complicate the installation of solar power systems. Our operating results may fluctuate from period to period based on the seasonality of industry demand for solar power products. Certain aspects of our operations are also subject to seasonal variations. For example, we may schedule significant construction activities to connect solar projects to the grids prior to a scheduled decrease in FIT rates in order to qualify for more favorable FIT policies.

The electric Vehicles business is not seasonal, but application and decision timelines of key incentive programs like the California HVIP program and the annual Federal Transit Administration’s LowNo program impact the timing of purchase orders for applicable customer segments.

Insurance

We maintain the types and amounts of insurance coverage that we believe are consistent with customary industry practices in all the countries where we operate. Our insurance policies cover employee-related accidents and injuries, property damage, machinery breakdowns, fixed assets, facilities and liability deriving from our activities, including environmental liability. We maintain business interruption insurance for interruptions resulting from incidents covered by insurance policies. We have not had any material claims under our insurance policies that would either invalidate our insurance policies or cause a material increase to our insurance premiums. We cannot assure you, however, that our insurance coverage will adequately protect us from all risks that may arise or in amounts sufficient to prevent any material loss.

Regulations

We operate in multiple jurisdictions, including the U.S., Japan, the U.K, Greece, Italy and Australia. We are therefore subject to complex laws, regulations and policies promulgated by the governments and government-run utilities of these jurisdictions, including FIT regulations, clean energy incentive rules and programs, laws and regulations that apply to all power producers, regulations that specifically apply to solar power project operators, EPC service providers as well as solar kit distributors, tax regulations and intellectual property laws, among others. Likewise, our hemp and CBD businesses are subject to various laws, regulations and guidelines by governmental authorities relating to, among other things, the manufacture, marketing, management, transportation, storage, sale, pricing and disposal of cannabis, U.S. hemp and cannabis-based products, and also including laws, regulations and guidelines relating to health and safety, insurance coverage, the conduct of operations and the protection of the environment.

Legal Proceedings

From time to time, we are involved in various other legal and regulatory proceedings arising in the normal course of business. While we cannot predict the occurrence or outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal or regulatory proceeding to which we are a party, individually or in the aggregate, would be material to our business, prospects, financial condition, cash flows or results of operations other than the following:

SINSIN Disputes

There is dispute between the Company and SPI China (HK) Limited on one hand (hereinafter collectively, “SPI”) and SINSIN Europe Solar Asset Limited Partnership and SINSIN Solar Capital Limited Partnership on the other hand (hereinafter collectively, “SINSIN”) with respect to a share sale and purchase agreement dated September 9, 2014 (“SPA”) entered into by and between SINSIN, as vendors, and SPI, as purchasers, in relation to all of the shares in Sinsin Renewable Investment Limited, a company registered in Malta (for purpose of this section, “SRIL”). The SPA is governed by Maltese law and any disputes thereunder shall be referred to arbitration in Malta. SRIL is the direct and/or indirect owner of four (4) Greek companies under the names “JASPER PV MACEDONIA ENERGIAKI SOCIETE ANONYME”, “ORION ENERGIAKI SOCIETE ANONYME PHOTOVOLTAICON ERGON”, “ASTRAIOS ENERGIAKI SOCIETE ANONYME PHOTOVOLTAICON ERGON”, “PHOTOVOLTAICA PARKA VEROIA I SOCIETE ANONYME” (hereinafter collectively, “4 SPVs”). The 4 SPVs collectively own a number of photovoltaic parks in Greece having a total power output of 26.57 MW.

Proceedings were initiated both in Greece and Malta in relation to this dispute.

Proceedings in Greece

In particular, the following judicial proceedings were initiated in Greece and are pending as of the date of this annual report:

A. SINSIN’s Injunction Petition against the 4 SPVs dated January 26, 2018, with General Submission No 8118/2018, which was heard on the March 20, 2018, before the Athens One-Member First Instance Court and on which Judgement No 4212/2018 was issued on June 25, 2018.

This Interim Measures Judgment ordered, inter alia, the following:

(A) It suspends the force of the extraordinary General Meetings of the shareholders of the 4 SPVs dated December 19, 2017 on the appointment of their members of Board of Directors, until the issuance of a final judgment on the lawsuit filed by SINSIN on March 14, 2018 for the annulment of the extraordinary General Meetings of the shareholders of the 4 SPVs dated December 19, 2017.

(B) It appoints an interim management of the 4 SPVs, consisting of two members elected by SINSIN (Dejun Ye and Fan Yang) and one member elected by the 4 SPVs (Hoong Khoeng Cheong), with the following, exclusively defined, competences: (a) to represent judicially and extra-judicially the 4 SPVs before any public authority and court, (b) to manage the bank accounts of the 4 SPVs, in order to, exclusively and solely, proceed with the payment of existing and current obligations of the 4 SPVs towards third parties, arising from their regular management (liabilities towards the State, employees, social security institutions, private creditors, banks), excluding the payment of any price of the shares that were transferred from SINSIN to SPI pursuant to the above-mentioned share sale and purchase agreement dated September 6, 2014, (c) to collect the proceeds of the 4 SPVs, especially from selling electric energy from the photovoltaic parks of the 4 SPVs to the Operator of Electricity Market (“LAGIE”), which (proceeds) should be subsequently deposited to the bank accounts of the 4 SPVs, with the exclusive purpose being the payment of the above under element b΄ obligations of the 4 SPVs (i.e., not for the payment of the purchase price of the shares transferred by SINSIN to SPI pursuant to the above-mentioned share sale and purchase agreement dated September 6, 2014.)

(C) It allows the petitioners to register with the Greek General Commercial Registry (“GEMI”) the appointed interim management of the 4 SPVs with the above competences.

B. SINSIN’s and Mr. Dejun Ye’s lawsuit against the 4 SPVs dated March 14, 2018, with General Submission No. 25276/2018 (the “Annulment Lawsuit”). By virtue of the Annulment Lawsuit, the petitioners request the annulment of the December 19, 2017 General Assemblies’ Resolutions of the 4 SPVs, which appointed a Board of Directors elected by their shareholders SRIL, Veltimo Limited and Photovoltaica Parka Veroia 1 Malta Limited, companies belonging to SPI.

SPI and their subsidiaries opposed the above-mentioned petition. SPI and their subsidiaries SRIL, Veltimo Limited and Photovoltaica Parka Veroia 1 Malta Limited filed an Additional Intervention in the above pending trial under General No. 40772/2018 in favor of the 4 SPVs requesting the rejection of the Annulment Lawsuit.

By virtue of its Decision No 2318/2019, the Athens Multimember Court of First Instance suspended the issuance of a definitive judgment on SINSIN’s petition until the issuance of a final decision on the case pending before the Malta arbitration tribunal with respect to the SPA.

C. By virtue of a petition under General Submission No 7294/2018 dated January 25, 2018 filed by SINSIN before the Athens Local Court against SRIL, Veltimo Limited and Photovoltaica Parka Veroia 1 Malta Limited, SINSIN lacking an enforcement title, requested the above Athens Local Court to allow them to proceed to an auction of the pledged shares of the 4 SPVs, in order to satisfy their claim amounting to EUR 38.3 million, plus interest and expenses, for the outstanding purchase price of the 4 SPVs shares under the above-mentioned share sale and purchase agreement dated September 6, 2014.

SRIL, Veltimo Limited and Photovoltaica Parka Veroia 1 Malta Limited opposed the above-mentioned petition.

The above petition was heard on October 23, 2018. The Athens Local Court issued Decision No. 350/2019, which suspended the issuance of a definitive judgment on SINSIN’s petition until the issuance of a final decision on the case pending before the Malta arbitration tribunal with respect to the SPA.

Proceedings in Malta

In June 2018, the Company, as Claimant, filed arbitration proceedings in Malta against SINSIN as respondents for an alleged breach of a share sale and purchase agreement dated September 6, 2014 entered into by and between the respondents as sellers and the claimant as purchaser in relation to all of the shares in SRIL. The claimant is requesting the payment of damages from the respondents.

The respondents have filed separate arbitration proceedings in Malta against the Company, requesting payment of the balance of the purchase price due in terms of the share purchase agreement mentioned above (stated to be EUR38,054,000) together with interest. The Company contested these claims. Meanwhile, SINSIN obtained a precautionary garnishee order against the Company as security for its claims and had the same order served on SRIL with a view to freezing any payments that may be due by SRIL to SPI. In February, 2019, SINSIN also obtained the issue of a precautionary warrant of prohibitory injunction prohibiting SPI from selling or otherwise transferring its shares in SRIL.

On October 29, 2020, awards were issued in both cases, pursuant to which the tribunal dismissed all of SPI’s claims and admitted SINSIN’s counterclaim for payment of the balance of the price of €38,054,000, with interest at 6% accruing from November 30, 2015, on half of this amount, and from June 20, 2016, on the other half. SINSIN’s claims for additional damages were rejected (the “First Award”). Costs of the case filed by SPI ( case 5320/18) are to be borne by SPI, while the costs for case 5532/18 are to be borne 80% by SPI ( the “Second Award”, First Award and Second Awards collectively as “Awards”). On November 13, 2020, SPI filed Appeal Applications to appeal the awards with the Court of Appeal (Inferior Jurisdiction). The Appeal were eventually heard on 23 April 2021. By virtue of two judgements delivered contemporaneously on 12 November 2021, the Court of Appeal dismissed both Appeals filed by SPI on the procedural ground of non-appealability of the Awards. Following consideration of the appeal judgements, the application for retrial was filed on the ground of wrong application of the law. The applications for retrial were filed on 29 November 2021 together with applications for the suspension of the execution of the Awards pending the determination of the retrial applications. The latter applications were accepted by the court pending the consideration of the applications for retrial. Following a hearing held on 16 March 2022 during which the parties were given the opportunity to make final submissions with regard to the application for retrial, on 30 March 2022 the Court of Appeal delivered its final judgement by virtue of which the applications for retrial of the Appeal were rejected. In consequence, the order for the suspension of the enforcement of the Awards was also lifted. While no further appeal or right of retrial exists in Malta, SPI is yet to obtain advice as to whether any other options are available to it to suspend the enforcement of the Awards. Meanwhile, SPI is also taking advice with regard to the time that will be required for SINSIN to complete the procedures necessary for the enforcement of the Awards in Malta and in Greece, and preliminary indications are that relevant procedures are unlikely to be completed during the course of 2023. Confirmatory advice in this regard is pending, however.

Proceedings in US

On November 3, 2022, SinSin have filed a petition for recognition of the Awards in the US (the “Action”), with a view to obtaining the option to enforce the awards in US if and when required. Through the Action, SinSin petitions under the New York Convention to confirm the Awards issued on October 20, 2020, in Malta arising out of the contract dispute relating to SPA and seeks a judgment from the United States District Court confirming the Awards. The Action was initiated by SinSin on November 3, 2022. The Company filed a Response on January 2, 2023, contesting the Petition. As of the Date of this report, no hearing date has been set on the Petition, and the Court has not otherwise ruled on it. Given the early stage of the Action, and pending reply by SinSin to the Company’s Response, or further action by the Court, we believe the probable outcome of this matter is uncertain but the Company is actively engaging the settlement discussion with Sinsin and a resolution will be expected within 2023.

Shengrun Dispute

Solar Juice USA Inc. (“SolarJuice”), a subsidiary of the Company, submitted a complaint in the local court in the county of Santa Clara in the State of California on or about June 11, 2020 against Shengrun Int’l Industry Group, Inc., a California corporation (“Shengrun”) and Sophie Harrison, a resident of the State of California and the purported controlling person of Shengrun. In March 2019, SolarJuice and Shengrun entered into a real property purchase agreement pursuant to which SolarJuice shall purchase from Shengrun a real property located in Santa Clara in the State of California. Subsequently, SolarJuice made a down payment of $3,132,000 to Shengrun for the proposed transaction, and Sophie Harrison provided personal guarantee that if Shengrun does not convey the property to SolarJuice or if SolarJuice withdraws from the transaction, she would be personally liable for the return of the down payment to SolarJuice. As of the date hereof, the subject property has not been conveyed to SolarJuice, neither has Shengrun or Ms. Harrison refunded the down payment to SolarJuice. Counsel for SolarJuice on this matter reasonably expects that the court shall render a verdict against Shengrun and Ms. Harrison personally (as related to the personal guarantee) and in favor of SolarJuice. However, the counsel does not have the information to assess whether Shengrun or Ms. Harrison has the assets available for the governmental authorities or the Company to enforce such verdict.

AHP Dispute

The Company and its various subsidiaries are listed as defendants on a claim for fraudulent transfer pending before superior court of the state of Arizona. This dispute involves the transfer of 15% of ownership of Arizona Hay Press, LLC. (“AHP”) claimed to be originally owned by Woods & Sons, Inc.as Plaintiff, Presently, AHP primary asset is a 120 acre parcel of land. In May 2019, The Company and its various subsidiaries entered into various agreements pursuant to which the Company acquired all shares of AHP. The legal process is ongoing with resolution expected during the calendar year 2023. 

Sulus Dispute

The Company is respondent on a claim pending in arbitration before ADR Services, Inc. SPI Solar, Inc., agreed to purchase from Sulus LLC certain solar photovoltaic Projects under a Membership Interest Purchase Agreement (“MIPA”) dated July 15, 2019. The MIPA contained a project-by-project purchase price escalation clause conditioned upon each Project meeting certain requirements and being awarded into Oregon’s Community Solar Program. Sulus LLC alleges that four Projects, Belvedere Solar LLC, Manchester Solar LLC, Dover Solar LLC and Clayfield Solar LLC, have met the MIPA conditions for the price escalation, and that two Projects, Cork Solar LC and Waterford Solar LLC, still may meet the price escalation conditions. For the four Projects alleged to meet the conditions, Sulus LLC alleges additional compensation is due, and for the two Projects that Sulus LLC alleges may meet the conditions, Sulus LLC estimates additional compensation is due as well. SPI Solar, Inc., denies the allegations, that the MIPA conditions have not been met, and specifically that any of the Projects have yet been awarded into Oregon’s Community Solar Program. It is also SPI Solar, Inc.’s position that the time for the Projects to meet the conditions for the price escalation in the MIPA has passed. On December 13, 2021, an order from the arbitrator was issued and awarded the full amount to Sulus LLC. The cross petitions to enter judgment on the award and to vacate it were timely filed by Sulus LLC and the Company, respectively. On September 8, 2022, Multnomah County Court issued a judgment in favor of Sulus in the principal amount of US$1,400,000. On January 20, 2023, the parties to the litigation entered into a confidential settlement agreement.

Streeterville 2022 Note Dispute

On February 16, 2023, One of the Company’s convertible bondholder, Streeterville Capital, LLC (“Streeterville”) delivered a Redemption Notice to the Company to redeem $350,000 of a promissory note entered into on April 8, 2022 with a deadline to pay the Redemption Amount by February 22, 2023. The Company failed to pay the Redemption Amount on time and such failure to pay is an Event of Default under the 2022 Note. Due to this Event of Default, (i) the base interest of the 2022 Note was increased to 15% per annum; (ii) the outstanding balance of the 2022 Note was increased by 15%; and (iii) the entire outstanding balance of the 2022 Note was accelerated and due on March 3, 2023. The Group failed to pay the outstanding balance of the 2022 Note by March 3, 2023 and as a result, Streeterville filed a complaint in the third judicial district court of Salt Lake County, requesting for actual damages in an amount not less than $2.7 million, plus applicable interest, damages, charges, fees, attorney fees, and collection costs. On March 31, 2023, a hearing was held and the temporary restraining order requiring the Company to pay the 2022 Note in full from the proceeds of the IPO of its subsidiary, SolarJuice Co., Ltd. The Company has engaged attorneys to act as legal representatives for this case while actively negotiating the settlement discussion with Streeterville and a resolution is expected to be within 2023.

NAAC Dispute

The Company is currently involved in a potential lawsuit against Native American Agricultural Company (“NAAC”) regarding our newly set up CBD and hemp business. The Company was required to make a down payment of $324,125 to NAAC on or before July 31, 2019, and the Company timely made this payment. Subsequently, however, NAAC failed to comply with or perform the Agreement dated as of July 24 2019 entered into by and between CBD and Hemp Group Co., Ltd., a wholly owned subsidiary of the Company, Hemp Biotechnology, Inc. and NAAC. First, in August 2019, representatives of the Company visited the farm where NAAC was growing the hemp. The conditions of the plants and growing operations appeared to be deficient and not up to industry standards. Second, NAAC failed to provide the required Milestone Report and Financial Reports. Finally, NAAC failed to deliver any of the hemp plants by November 30, 2019, or at all, and refused and failed to return Company’s down payment and to make whole for the damages the Company has suffered. As such, the Company believes NAAC was in default under the Agreement. The Company sent two demand letters to NAAC on October 25, 2019 and November 25, 2019 respectively without any response from NAAC. Mr. Da Mu Lin and Mr. Yonglei Zhang provided personal guarantee to guaranty the full performance and contractual obligations of NAAC. In March 2022, the Company has filed the complaint against Mr. Da Mu Lin and Mr. Yonglei Zhang for fraud in the inducement, unfair or deceptive trade practices, breach of contract, and unjust enrichment.

However, an unfavorable outcome could have a material adverse effect on our results of operations for a specific interim period or year.

Taxation

The following summary of the material Cayman Islands and United States federal income tax consequences of an investment in our ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change, possibly with retroactive effect. This summary does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as the tax consequences under United States state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands and the United States.

Cayman Islands Taxation

The Cayman Islands currently does not levy taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the Cayman Islands in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duty which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not a party to any double tax treaties that are applicable to any payments made to or by our Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Economic Substance Law

Since January 1, 2019, the Cayman Islands adopted certain laws and regulations in response to the Organisation for Economic Co-operation and Development (OECD)Forum on Harmful Tax Practices, which sets the global standard that requires companies to have substantial activities in a jurisdiction (also known as “economic substance”).To date, the Cayman Islands have passed or adopted the International Tax Co-Operation (Economic Substance) Act, (as varied by the Regulations which are defined below and includes any revision thereof or amendment thereto from time to time, the “ES Law”), the International Tax Co-Operation (Economic Substance) (Prescribed Dates) Regulations, 2018, the International Tax Co-Operation (Economic Substance) (Amendment of Schedule) Regulations, 2019 and the International Co-Operation (Economic Substance) (Amendment of Schedule) (No. 2) Regulations. 2019 (collectively referred to as, the “Regulations”), and the updated related guidance was published on July 13, 2020.

A relevant entity conducting any relevant activity must satisfy the economic substance test (the “ES Test”) as set out in the ES Law. Failure to comply with requirements of the ES Law may result in substantial fines and/or imprisonment.

Considering SPI Energy is a tax resident in US, the Company has determined that it is not a Relevant Entity for the purposes of the ES Law.

U.S. Federal Income Taxation

Introduction

The following discussion is a summary of U.S. federal income tax considerations of the purchase, ownership and disposition of the ordinary shares. This discussion applies only to holders that hold the ordinary shares as capital assets. This discussion is based on the Code, Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the tax considerations that may be relevant to specific holders in light of their particular circumstances or to holders subject to special treatment under U.S. federal income tax law, such as banks, financial institutions, insurance companies, controlled foreign corporations, passive foreign investment companies, tax-exempt entities, regulated investment companies, real estate investment trusts, partnerships and the partners therein, dealers in securities or currencies, traders in securities electing to mark to market, U.S. expatriates, persons who have acquired the ordinary shares as part of a straddle, hedge, conversion transaction or other integrated investment, U.S. Holders (as defined below) that have a “functional currency” other than the U.S. dollar or persons that own (or are deemed to own) 5% or more of our stock. This discussion does not address the alternative minimum tax, the Medicare tax on net investment income or any U.S. state or local or non-U.S. tax considerations or, other than to the limited extent set forth below, any U.S. federal estate or gift tax considerations.

As used in this discussion, the term “U.S. Holder” means a beneficial owner of the ordinary shares that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation, or other entity classified as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any state thereof, or the District of Columbia, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source or (iv) a trust that (1) is subject to the supervision of a court within the United States and the control of one or more United States persons or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

As used in this discussion, the term “Non-U.S. Holder” means a beneficial owner of the ordinary shares that is not a partnership (or entity treated as a partnership for U.S. federal income tax purposes) and not a U.S. Holder.

Treatment of the Company as a U.S. Corporation for U.S. Federal Income Tax Purposes

Even though we are organized as a Cayman Islands exempted company, due to the application of Section 7874(b) of the Code, we are treated as a U.S. corporation for U.S. federal income tax purposes and all purposes under the Code.

U.S. Holders

Distributions

We do not currently anticipate paying distributions on our ordinary shares. In the event that distributions are paid, however, the gross amount of such distributions generally will be included in a U.S. Holder’s gross income as dividend income on the date of receipt to the extent that the distribution is paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent the amount of any distribution exceeds our current and accumulated earnings and profits as so computed, it will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in such ordinary shares and, to the extent the amount of such distribution exceeds such adjusted tax basis, will be treated as gain from the sale of such ordinary shares.

Subject to certain conditions, including a minimum holding period requirement, dividends received by individuals and other non-corporate U.S. Holders, generally will be subject to reduced rates of taxation, and dividends paid by us will be eligible for the “dividends received” deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.

Sale or Other Disposition of Ordinary Shares

A U.S. Holder generally will recognize gain or loss for U.S. federal income tax purposes upon a sale or other disposition of the ordinary shares in an amount equal to the difference between the amount realized from such sale or disposition and the U.S. Holder’s adjusted tax basis in such ordinary shares. Such gain or loss generally will be a capital gain or loss and will be long-term capital gain or loss (taxable at a reduced rate for individuals and other non-corporate U.S. Holders) if, on the date of sale or disposition, such ordinary shares were held by such U.S. Holder for more than one year. The deductibility of capital losses is subject to limitations.

Non-U.S. Holders

Distributions

Distributions treated as dividends (see “-U.S. Holders-Distributions” above) paid to a Non-U.S. Holder are treated as income derived from sources within the United States and generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of such dividend, or at a lower rate provided by an applicable income tax treaty.

Even if a Non-U.S. Holder is eligible for a lower treaty rate, U.S. federal withholding tax will be imposed at a 30% rate (rather than the lower treaty rate) on dividend payments to a Non-U.S. Holder, unless (i) the Non-U.S. Holder has furnished a valid U.S. Internal Revenue Service (the “IRS”) Form W-8BEN or W-8BEN-E or other documentary evidence establishing such holder’s entitlement to the lower treaty rate with respect to such payments, and (ii) in the case of actual or constructive dividends paid to a foreign entity, (a) if such entity is, or holds the ordinary shares through, a foreign financial institution, any such foreign financial institution (x) has entered into an agreement with the U.S. government to collect and provide to the U.S. tax authorities information about its accountholders (including certain investors in such institution), (y) satisfies an exemption from the obligation to enter into such an agreement, or (z) satisfies the terms of an applicable intergovernmental agreement, and (b) if required, such entity has provided the withholding agent with a certification identifying its direct and indirect U.S. owners.

If a Non-U.S. Holder is eligible for a reduced rate of U.S. withholding tax pursuant to an applicable income tax treaty, the Non-U.S. Holder may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Sale or Other Disposition

Any gain realized upon the sale or other disposition of ordinary shares by a Non-U.S. Holder generally will not be subject to U.S. federal income tax unless (i) the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met, or (ii) in the case of the sale or disposition of ordinary shares on or after January 1, 2019, the requirements described in item (ii) in the second paragraph under “-Distributions,” above, are satisfied. Each Non-U.S. Holder is encouraged to consult with its own tax advisor regarding the possible implications of these withholding requirements on its investment in ordinary shares and the potential for a refund or credit in the case of any withholding tax.

Information Reporting and Backup Withholding

Payments of dividends or of proceeds on the disposition of ordinary shares to U.S. Holders may be subject to information reporting and backup withholding unless the U.S. Holder (i) is a corporation or comes within certain other exempt categories and demonstrates this fact, or (ii) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. Non-U.S. Holders may be required to provide documentary evidence establishing they are not subject to information reporting and backup withholding. Payments of dividends to Non-U.S. Holders and the amount of U.S. federal withholding tax imposed on such dividends must generally be reported annually to the IRS. A similar report will be sent to Non-U.S. Holders. Copies of these reports may be made available to tax authorities in a holder’s country of residence.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS on a timely basis.

U.S. Federal Estate Tax

Ordinary shares owned or treated as owned by an individual who is not a citizen or resident of the United States (as specifically defined for U.S. federal estate tax purposes) at the time of death will be included in the individual’s gross estate for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise.

Property

Our global corporate headquarters are located in California, US. We occupy approximately 140,000 square feet of solar plant at Building 783, 4741 Urbani Avenue, McClellan, California 95652 (the “Premises”), for office and manufacturing facility, which lease will expire on January 31,2031. We extended the lease to further rents 56,000 square feet of space adjacent to the Premises which lease will expire on January 31, 2031 concurrently.

We owned approximately 120 acres of farm-land in Arizona, US. We occupy approximately 114 square meters of office space in Athens, the headquarters of the Greek operations, under a monthly lease that expires on June 30, 2023. We occupy approximately 80 square feet of office space in London for operations and business development under a lease which renews every six months.

Our Phoenix Motorcar subsidiary previously operates out of two facilities--the production facility in Ontario, California (a 24,570 sq. ft. facility) and the engineering and service facility in Chino, California (a 12,815 sq. ft. facility) since 2014. In August 2021, we moved to a newly leased facility at 1500 Lakeview Loop, Anaheim, California (the “Anaheim Facility”). The Anaheim Facility is leased by us at a rent of $0.4 million per year and comprises 39,043 square feet of space consisting of 21,000 square feet of manufacturing floor and 18,043 square feet of office space. Our Anaheim Facility will allow us design, build, and test prototype vehicles and components in-house. The lease on Anaheim Facility expires in March 2027. Our Anaheim Facility will allow us to produce up to 120 units a year, with one manufacturing shift and 240 units a year with two shifts per day.

SPI Solar entered into a long-term lease agreement in April 2021 for nearly 57,988 square feet of combined office and warehouse space at the Preston Tech Center in Livermore, California. The new facility will enable the Company to merge two existing facilities, its Solar 4 America headquarters in Livermore, CA and its regional office/warehouse facility in Livermore, CA, into a single unified space. We rent one office/warehouse facilities with space over 13,175 square feet in CA, US. SolarJuice AU rents one office and two warehouses (35,219 square feet, in total) in Sydney. It uses third-party logistics services, which are not leases, in six locations in Sydney, Melbourne, Brisbane, Adelaide, Perth and Townsville in Australia.

We opened our first RideZoomers electric scooter retail store and service center in Fremont, California. We occupy approximately 2,000 square feet of office space in Fremont, California under a lease that expires on January 27, 2027

SPI Solar rents approximately 465 acres across two parcels for the development of a utility-scale solar project in Illinois and approximately 473 acres across three parcels for the development of a utility scale solar project in Maryland.

Employees

As of December 31, 2020, 2021 and 2022, we had 78, 419 and 316 employees, respectively. The employees are based in the U.S., the U.K., Italy, Greece, Hong Kong, Australia, and Japan. The following table sets forth the number of our employees for each of our major functions as of December 31, 2022:

None of our employees are represented by a labor union nor are we organized under a collective bargaining agreement. We have never experienced a work stoppage and believe that our relations with our employees are good.

Executive Office

Our principal executive office is located at 4803 Urbani Ave., McClellan Park, CA 95652. Our telephone number at this address is +1 888-575-1940. Our registered office is situated at 4th Floor, Harbour Place, 103 South Church Street, PO Box 10240, George Town, Cayman Islands.

ITEM 1A. Risk Factors

Our business, financial condition and results of operations are subject to various changing business, competitive, economic, political and social conditions worldwide. In addition to the factors discussed elsewhere in this annual report, the following are some of the important factors that could adversely affect our operating results, financial condition and business prospects, and cause our actual results to differ materially from those projected in any forward-looking statements.

Risks Related to Our Company

We have incurred net losses, experienced net cash outflows from operating activities and recorded working capital deficits. If we do not effectively manage our cash and other liquid financial assets and execute our liquidity plan, we may not be able to satisfy repayment requirements on our borrowings.

We suffered net losses of $44.8 million and $33.7 million for the years ended December 31, 2021 and 2022, respectively. We also had an accumulated deficit of $670.8 million and a working capital deficit of $107.7 million as of December 31, 2022. In addition, we have substantial amounts of debt that became due in 2023. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Historically, we have financed our operations primarily through cash flows from bank borrowings, financing from issuance of convertible bonds, operating activities and proceeds from private placements and registered offerings. However if we failed to achieve the goal, we may need additional financing to repay debt obligation and execute our business plan, and we may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. Without access to sufficient level of capital from operations or through bank borrowings or other sources, we may not be able to execute our growth strategy or pursue additional projects, or may not even be able to satisfy repayment requirements on our borrowings. These uncertainties may create concerns for our creditors, suppliers, customers and other counterparties, and cause them to make it more difficult for us to raise our financing, conduct our business and meet our debt and other obligations.

Although we have formulated a plan as summarized under Note 2 to our consolidated financial statements appearing elsewhere in this annual report to continue implementing various measures to boost revenue and control the cost and expenses within an acceptable level, and other measures including negotiate with potential buyers for sales of Solar PV projects, obtain equity financing from certain subsidiaries’ initial public offering and seek credit facilities, we cannot assure you that we will be able to successfully execute this plan. The amount of liquidity that we need may be greater than we currently anticipate as a result of additional factors and events beyond our control, such as global economic slowdown, potential financial crises globally or in any region where we conduct a significant portion of our business, changes in the regulatory and business environments, including international trade-related sanctions, which may prevent us from operating normally or from effectively competing in the PV industry. All of these and other factors and occurrences may increase our cash requirements and make us unable to satisfy repayment requirements on our borrowings.

We have recognized the fact that additional actions were needed to reposition our operations to minimize our cash outflows. Therefore, we undertook a number of initiatives in order to conserve or generate cash on an incremental basis in 2022. For a detailed discussion of these initiatives and strategies, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-B. Liquidity and Capital Resources- Capital Resources and Material Known Facts on Liquidity.”

However, there is no assurance that these initiatives and strategies will be successfully implemented, or even if successfully implemented, our cash position and our operational efficiency will be improved. In the event that our business initiatives and strategies do not achieve the expected results, our business, financial conditions, results of operations and liquidity position may be materially and adversely affected. Furthermore, we have identified several business related risk factors, such as compliance with laws and regulations, contingent liabilities arising from litigations, suspected related party transactions and unusual transactions, which could cause cash position to further deteriorate.

We are in default on a number of our obligations, which could result in our being forced to cease operations if we are unable to reach satisfactory settlement with applicable counterparties.

We have outstanding convertible bonds of $35.0 million under a convertible bond agreement (“Convertible Bond Agreement”) with certain bond holders, which were defaulted in June 2016 and not repaid through December 31, 2022. We have also defaulted a $2.1 million convertible loan entered into with Streeterville Capital, LLC as of as of the date of this annual report.

If we are unable to reach satisfactory settlement with applicable counterparties, we could be forced to cease operations.

Our substantial indebtedness could adversely affect our business, financial condition and results of operations.

We require a significant amount of cash to meet our capital requirements and fund our operations, including payments to suppliers for PV modules and components and to banks for project loans. As of December 31, 2022, we had $10.1 million in outstanding short-term borrowings (and the current portion of long-term borrowings) and $6.6 million in outstanding long-term borrowings (excluding the current portion).

Our existing debt may have significant consequences on our operations, including:

Any of these factors and other consequences that may result from our substantial indebtedness could have an adverse effect on our business, financial condition and results of operations as well as our ability to meet our payment obligations under our existing debt facilities. Our ability to meet our payment obligations under our existing debt facilities depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control.

Our management has identified material weaknesses in our internal control over financial reporting and we may not be able to remediate these weaknesses. Additionally, our management may identify material weaknesses in the future that could adversely affect investor confidence, impair the value of our securities and increase our cost of raising capital.

Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our Company’s internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework). Based on this evaluation, we noted the following deficiencies that we believe to be material weaknesses:

As a result of the above material weaknesses, management has concluded that our internal control over financial reporting was ineffective as of December 31, 2022.

To remediate the material weaknesses described above, we plan to continue to establish a comprehensive and effective internal control system with the assistance from third party consulting firm which shall provide relevant professional advisory services to us. We plan to continue to assess our standardized processes to further enhance the effectiveness of our financial review, including the analysis and monitoring of financial information in a consistent and thorough manner. The Company’s remediation actions to be taken were highlighted as follows:

Any failure to remedy additional weaknesses or deficiencies in our internal control over financial reporting that may be discovered in the future or to implement new or improved controls, or difficulties encountered in the implementation of such controls, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could, in turn, affect the future ability of our management to certify that our internal control over financial reporting is effective. Ineffective internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in our reported financial information and subject us to civil or criminal penalties or shareholder litigation, which could have an adverse effect on the trading price of our securities.

In addition, if we identify additional deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, additional deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Such non-compliance could subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.

We rely substantially on our senior management team and our ability to attract, train and retain qualified personnel for our current and future success.

The industry experience, expertise and contributions of our chairman, Mr. Xiaofeng Peng, is essential to our continuing success. We will continue to rely on our senior management, regional management and other key employees to manage our business operations and implement our growth plans. If they cannot work together effectively or efficiently, our business may be severely disrupted. If one or more of our senior or regional management personnel were unable or unwilling to continue to hold their present positions, we might not be able to recruit, train and retain personnel with comparable qualifications, and our results of operations and financial condition may be materially and adversely affected.

Our qualified and experienced project development teams are critical to our success. We may not be able to continue to attract, train and retain qualified personnel, including executive officers, project development personnel, project management personnel and other key personnel with the necessary experience and expertise. In particular, as we enter into new markets, we face challenges to recruit and retain qualified personnel who are familiar with local regulatory regimes and have adequate experiences in project development and operations. In particular, we have experienced a lack of accounting personnel with an appropriate level of knowledge and experience in U.S. GAAP.

There is substantial competition for qualified personnel in the industries we operate. Our competitors may offer more competitive packages or otherwise attract our personnel. Our costs to retain qualified personnel may also increase in response to competition. If we fail to continue to attract and retain a sufficient number of personnel with suitable managerial, technical or marketing expertise, our business operations could be adversely affected and our future growth and expansions may be inhibited.

We have limited insurance coverage.

Our insurance policies cover employee-related accidents and injuries, property damage, machinery breakdowns, fixed assets, facilities and liability deriving from our activities, including environmental liability. We consider our current insurance coverage to be adequate, but we cannot assure you that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. Furthermore, our insurance coverage is subject to deductibles, caps, exclusions and other limitations. A loss for which we are not fully insured could have a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, due to rising insurance costs and changes in the insurance markets, we cannot assure you that our insurance coverage will continue to be available at comparable rates or on similar terms, if at all. We may also reduce or cancel our insurance coverage at any time. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates and we may elect to self-insure a portion of our solar project portfolio. Any losses not covered by insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, the insurance industry in many parts of the world is still in an early stage of development. As we continue to expand our global presence, we cannot assure you that we will be able to obtain adequate insurance coverage in each of the new markets we enter. To the extent that our operations are not adequately insured in these markets, our business, financial condition and results of operations may be materially and adversely affected.

Changes to our business strategy provide a limited history on which to base our prospects and anticipated results of operations. Our historical operating results may not serve as an adequate basis to evaluate our future prospects and results of operations.

For the past few years, we have expanded our global project development business under our independent power producer model, or IPP model, or our build-and-transfer model, or BT model, by ramping up our portfolio of solar projects. We entered into EV industry and roofing and solar system installation industry by acquiring Phoenix and certain assets of PDI in 2020 and 2021. This limited operating history may not be a reliable indicator of our future performance.

Given our limited operating history under the current business model, we may not be able to ascertain and allocate the appropriate financial and human resources necessary to grow these new business areas. We may invest considerable capital into growing these businesses but fail to address market or customer demands or otherwise fail to achieve satisfactory financial return. In particular, our results of operations, financial condition and future success depend largely on our ability to continue to identify suitable projects that complement our solar project pipeline through acquisitions and secondary development, as well as our ability to obtain the required regulatory approvals, financing and cost-effective construction services for these acquisitions. We must also sustainably manage and operate the solar projects that we acquire, develop and hold under our IPP model, or successfully identify buyers for solar projects under our BT model. The success of our EV business depends on the development of new drive systems and new vans to attract customers, the supply of EV components and batteries as well as the government policies and incentives. For the roofing and solar system installation, we must compete and obtain contracts from customers, and have the ability the install and connect the roof solar. In addition, in expanding into these business areas, we may be competing against companies that have substantially more experience than we do. If we are unable to achieve growth in these new business areas, our overall growth and financial performance may be inferior to our competitors and our operating results could be adversely impacted.

Period-to-period comparisons of our operating results and our results of operations for any period should not be relied upon as an indication of our performance for any future period. We have incurred net losses since our inception, and, as of December 31, 2022, we had an accumulated deficit of approximately $670.8 million. We may not be able to achieve or maintain profitability in the near future.

We conduct our business in diverse locations around the world and are subject to economic, regulatory, social and political risks internationally and in the regions where we operate.

We currently conduct our business operations in the U.S., Japan, U.K., Greece, Italy, and Australia, and as of April 14, 2023, we own and operate 17.51 MW of solar projects and have 12.04MW of solar projects under construction across the world. Our business is therefore subject to diverse and constantly changing economic, regulatory, social and political conditions in these markets.

Operating internationally exposes us to a number of risks globally and in each of the markets where we operate, including, without limitation:

If economic recovery is slow in the markets where we operate, our business, financial condition, results of operations and prospects could be materially and adversely affected. Moreover, as we expand into additional markets, we may face unfamiliar regulatory regimes, business practices, governmental policies and industry conditions. As a result, our experience and knowledge of our existing markets may not be applicable to new markets that we enter, requiring significant time and resources to adapt our business to these unfamiliar markets. To the extent that our diverse business operations are affected by unexpected and adverse economic, regulatory, social and political conditions, we may experience business disruptions, loss of assets and personnel and other indirect losses and our business, financial condition and results of operations both locally and internationally could be materially and adversely affected.

Risks Related to Our Solar Projects Business

The reduction, modification, delay or discontinuation of government subsidies and other economic incentives for the solar industry may reduce the profitability or viability of our solar projects and materially adversely affect our business.

At present, solar power is not cost competitive with other energy sources in our existing markets and the new markets we plan to expand into. For a variety of technological and economic reasons, the cost of generating electricity from solar energy in these markets currently exceeds and, absent significant changes in technological or economic circumstances, will continue to exceed the cost of generating electricity from conventional and certain other competing energy sources. Therefore, government subsidies and incentives, primarily in the form of feed-in tariffs, or FIT, price support schemes, tax credits, net metering and other incentives to end users, distributors, system integrators and manufacturers of solar products are generally required to enable companies such as us to successfully operate in these markets.

Government subsidies and incentives vary by geographic market. The availability and size of such subsidies and incentives depend, to a large extent, on political and policy developments relating to environmental concerns and other macro-economic factors. These government subsidies and incentives are expected to gradually decrease in scope or be discontinued as solar power technology improves and becomes more affordable relative to other types of energy. Reductions have occurred in certain countries where we have operations, and subsidies and incentives may be further reduced or discontinued in countries where we currently or intend to operate. Reductions may apply retroactively to existing solar projects, which could significantly reduce the value of our existing solar projects and other businesses. Even if reductions in government subsidies and economic incentives apply only to future solar projects, our operations in that country could be materially and adversely affected as we would not be able to leverage our existing presence to drive further growth. Moreover, certain solar subsidies and incentives are designed to expire or decline over time, are limited in total funding, require renewal from regulatory authorities or impose certain investment or performance criteria on our business partners or us, which we may not be able to satisfy. In addition, we may not be able to upgrade our technologies rapidly enough to compensate for foreseeable reductions in government subsidies and incentives. As a result, a significant reduction in the scope or discontinuation of government incentive programs in our existing and target markets could have a material adverse effect on our business, financial condition, results of operations and prospects.

The significant period of time between our upfront investments in solar projects and their commencement of revenue generation could materially and adversely affect our liquidity, business and results of operations.

There is a significant gap between the time that we make significant upfront investments in the solar projects and the time that we receive any revenue from the electricity generated by these solar projects after grid connection (under our IPP model) or from the sale of these projects (under our BT model). These upfront investments include, among others, legal, accounting and other professional fees, costs associated with feasibility studies and due diligence, payments for land use rights, construction costs, government permits and deposits for grid connection agreements and PPAs, none of which may be refundable if a project fails to achieve completion. We have historically relied on private placements, bank loans and financial leases to cover costs and expenses incurred during project development.

In particular, there could be an especially long gap between the initial assessment of a project, the first steps of acquiring land use rights and negotiating interconnection agreements and the obtaining of governmental approvals for construction. Acquisition of land use rights can be particularly time-consuming if we are engaged in primary development and need to negotiate with land owners or government entities. The significant development time increases the risk for adverse events during such process, whether they be economic, environmental, political, social or otherwise, that could cause further delays in project development or increase the overall development costs. Due to such adverse developments or unanticipated delays, we may be unable to recoup our initial investment in the solar projects, which may materially and adversely affect our liquidity, profitability and results of operations.

In addition, we will need to hire and train additional project development personnel to manage our growing portfolio of IPP and BT projects. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business strategies successfully or respond to competitive pressures. As a result, our business, prospects, financial condition and results of operations could be materially and adversely affected.

The market for solar project development is highly competitive.

There is currently intense competition in the solar industry, particularly in the downstream project development segment. Solar projects encounter competition from utilities, industrial companies and other independent power producers. In recent years, there has been increasing competition for the award of PPAs, which has in some markets resulted in an excess supply above designated reserve margins and has been contributing to the declining electricity prices in many markets. In light of these conditions, we may not be able to obtain PPAs for our new solar projects under our IPP model, and we may not be able to renew PPAs on the same terms and conditions upon expiration, particularly in terms of securing an electricity sale price that enables profitable operation or the sale of a project at anticipated value, if at all.

We have expanded our business to include global project development and may not have the same level of expertise and customer base as our competitors, which may affect our ability to successfully establish our presence in the global market. Our current or potential competitors may have greater operational, financial, technical, market share, scale, management or other resources than us in our existing or target markets. Our competitors may also enter into strategic alliances with other competitors to our detriment, or may ally with our suppliers or contractors, thereby limiting our procurement choices and our flexibility in project development. Our current or potential competitors may offer PV solutions comparable or superior to ours at the same or lower prices, or adapt more quickly to industry trends than we do. Increased competition may result in price reductions, reduced profit margins and loss of market share.

We may not be able to obtain long-term contracts for the sale of electricity generated by our solar projects under our IPP model at prices and on other terms favorable to attract financing and other investments.

Obtaining long-term contracts for the sale of electricity generated by our solar projects under our IPP model at prices and on other terms favorable to us will be essential for obtaining financing or completing construction of these projects. We must compete for PPAs against other developers of solar and renewable energy projects. Furthermore, other sources of power, such as natural gas-fired power plants, have historically been cheaper than the cost of solar power and power from certain types of projects, such as natural gas-fired power plants, can be delivered on a firm basis. The availability of PPAs is subject to a number of economic, regulatory, tax and public policy factors. The inability to compete successfully against other power producers or otherwise enter into PPAs favorable to us would negatively affect our ability to develop and finance our projects and negatively impact our revenue.

Our solar projects have short operating histories and may not perform up to our expectations.

The projects in our solar project portfolio are relatively new with expected operating life of more than 20 years. The majority of our projects in operation as of December 31, 2022 commenced operations since 2014. In addition, the projects we acquire in the future may not have commenced construction or operation or otherwise have a limited operating history. As a result, our assumptions and estimates regarding the future performance of these projects are, and will be, made without the benefit of a meaningful operating history, which may impair our ability to accurately assess the potential profitability of the projects. The performance of these projects will also be subject to risks inherent in newly constructed renewable energy projects, including breakdowns and outages, latent defects, equipment that performs below our expectations and system failures. Failure of some or all of our projects to perform up to our expectations could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations may be subject to fluctuations.

Before we achieve economies of scale in terms of our IPP projects and receive steady electricity generation income, our revenue in a given period will depend on the number of solar projects sold under our BT model and sale of PV modules and solar component, and therefore is subject to significant fluctuations. For instance, we may generate a significant portion of our revenues from the one-time sale of solar projects for certain periods. Moreover, certain aspects of our operations will also be subject to seasonal variations. For example, we may schedule significant construction activities to connect solar projects to the grids prior to a scheduled decrease in FIT rates in order to qualify for more favorable FIT policies.

We may be subject to unforeseen costs, liabilities or obligations when providing O&M services.

We provide ongoing O&M services to third-party solar projects under fixed-price long-term service agreements, pursuant to which we generally perform all scheduled and unscheduled maintenance and operating and other asset management services for the system. Our costs to perform these services are estimated at the time of entering into the O&M agreement for a particular project, and these are reflected in the fixed-price that we charge our customers under the O&M agreement. Should miscalculations in estimating these costs occur (including those due to unexpected increases in inflation or labor costs), our O&M services may not be profitable and our growth strategy and results of operations could be adversely affected. Because of the long-term nature of these O&M agreements, the adverse impacts on results of operations could be significant, particularly if our liabilities are not capped or subject to an above- market liability cap under the terms of the O&M agreement. In addition, we may be subject to substantial costs, liabilities or obligations in the event that the solar projects we maintain and operate do not meet any agreed-upon system-level availability or performance warranties.

Warranties provided by our suppliers and contractors may be limited or insufficient to compensate for our losses, or may not cover the nature of our losses incurred.

We expect to benefit from various warranties, including product quality and performance warranties, provided by our suppliers and contractors. These suppliers and contractors, however, may file for bankruptcy, cease operations or otherwise become unable or unwilling to fulfill their warranty obligations. Even if a supplier fulfills its warranty obligations, the warranty may not be sufficient to compensate us for all of our losses. In addition, the warranty for inverters and transformers generally expire after 5 to 10 years from the date such equipment is delivered or commissioned and is subject to liability limits. Where damages are caused by defective products provided by our suppliers or construction services delivered by our contractors, our suppliers or contractors may be unable or unwilling to perform their warranty obligations as a result of their financial conditions or otherwise. Or if the warranty has expired or a liability limit has been reached, there may be a reduction or loss of warranty protection for the affected projects, which could have a material adverse effect on our business, financial condition and results of operations.

Solar energy generation depends heavily on suitable meteorological conditions. If weather conditions are unfavorable, our power generation output, and therefore the revenue from our solar projects, may be substantially below our expectations.

The electricity produced and revenues generated by solar projects are highly dependent on suitable solar conditions and associated weather conditions. Such conditions are beyond our control. Furthermore, components of these generation systems, including solar panels and inverters, can be damaged by severe weather, such as heavy snowstorms, hailstorms, ice storms, lightning strikes, extreme winds, earthquakes or tornadoes. Replacement and spare parts for key components may be difficult costly or unavailable. Unfavorable weather and atmospheric conditions could reduce the electricity output of our solar projects to below projected generation, damage or impair the effectiveness of our projects or require shutdown of key equipment, impeding operation of our projects and our ability to achieve forecasted revenues and cash flows.

The amount of electricity solar projects produce is dependent in part on the amount of sunlight, or insolation, where the projects are located. Because shorter daylight hours in winter months results in less insolation, the generation of particular projects will vary depending on the season.

We base our investment decisions with respect to solar power generation assets on the findings of related solar studies conducted prior to construction or based on historical conditions at existing projects. However, actual climatic conditions at an asset site may not conform to the findings of these studies. For example, unexpected development of climate conditions that was not taken into consideration during the investment decision-making process, such as smog and sand storms may significantly reduce the solar power generation. Therefore, our solar projects may not meet anticipated production levels or the rated capacity of our projects, which could adversely affect our business, financial condition, results of operations and cash flows.

The operation of solar projects involves significant inherent risks and hazards that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The operation of solar projects involves numerous hazardous activities, including delivering electricity to transmission and distribution systems. We are subject to natural disasters such as earthquakes, floods, snow obscuration, high temperatures, lightning, hurricanes, long-term climate changes, volcanoes and wind risks, as well as other inherent risks affecting resource availability such as fire, explosion, soil and ice buildup, structural collapse and equipment failure. Moreover, we may suffer from negligent acts by our PPA counterparties or other third parties. Our rooftop projects could cause damage to the building roof, resulting in claims due to water damages or replacement of roofing materials. These and other hazards can cause significant personal injury or loss of life, severe damage to, and destruction of, property and equipment and contamination of, or damage to, the environment, wildlife takes or fatalities and suspension of operations. The occurrence of any of these events may result in lawsuits against us asserting claims for substantial damages, including for environmental cleanup costs, personal injury and property damage and fines and/or penalties.

In addition, the ongoing operation of solar projects face risks that include the breakdown or failure of equipment or processes or performance below expected levels of output or efficiency due to wear and tear, latent defect, design error or operator error or force majeure events, among others. Unplanned outages, including extensions of scheduled outages, occur from time to time and are an inherent risk of our business. Unplanned outages typically increase our operation and maintenance expenses and may reduce our revenues as a result of generating and selling less electricity.

If we fail to properly operate and maintain our solar projects, these projects may experience decreased performance, shortened operating life or shut downs. Our solar projects may also require periodic upgrading and improvement. Changes in our own operation or local conditions may increase the costs of operating the project, including costs related to labor, equipment, insurance and taxes. If we cause damage to third parties, we may become liable for the consequences of any resulting damage. We may also experience equipment malfunction or failure, leading to unexpected maintenance needs, unplanned outages or other operational issues. In addition, inconsistencies in the quality of solar panels, PV modules, balance-of-system components or maintenance services for our solar projects may affect the system efficiency of our projects.

Any unexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, and any decreased operational or management performance, could reduce our solar projects’ power generating capacity below expected levels, reducing our revenues and profitability. Degradation of the performance of our solar projects above levels provided for in the relevant PPAs may also reduce our revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing our projects may also reduce our profitability. In addition, damage to our reputation due to system failure or accidents could negatively impact our relationships with customers and local government authorities, which could also materially adversely affect our business. Negative public or community response to solar energy projects could adversely affect the approval for and construction of our projects. We maintain insurance coverage that we consider adequate but we cannot assure you that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject.

We may encounter unexpected difficulties when developing solar power projects.

The development of solar projects involves numerous risks and uncertainties and require extensive research, planning and due diligence. Before we can determine whether a solar project is economically, technologically or otherwise feasible, we may be required to incur significant capital expenditure for land and interconnection rights, preliminary engineering, permitting, legal and other work. Success in developing a particular solar project is contingent upon, among others:

Successful completion of a particular solar project may be adversely affected by numerous factors, including, without limitation:

Accordingly, some of the solar projects in our portfolio may not eventually commence operation and connect to the grid, or even proceed to construction. If a number of our solar projects are not completed, our business, financial condition and results of operations could be materially and adversely affected.

We rely on third-party suppliers and contractors when developing our solar power projects.

We source PV modules and other balance-of-system components from a wide selection of third-party suppliers and engage third-party contractors for the construction of solar projects. We typically enter into contracts with our suppliers and contractors on a project-by-project basis and do not maintain long-term contracts with our suppliers or contractors. Therefore, we are generally exposed to price fluctuations and availability of PV modules and balance-of-system components sourced from our suppliers and construction services procured from our contractors. For example, in light of changing market dynamics and government policies, the price and availability of PV modules have been subject to significant volatility in recent years. Increases in the prices of PV modules or balance- of-system components, decreases in their availability, fluctuations in construction, labor and installation costs, or changes in the terms of our relationship with our suppliers and contractors may increase the cost of procuring equipment and engaging contractors and hence materially adversely affect our financial condition and results of operations.

Furthermore, the delivery of defective products or products or construction services by our suppliers or contractors which are otherwise not in compliance with contract specifications, or the late supply of products or construction services, may cause construction delays or solar power projects that fail to adhere to our quality and safety standards, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.

Our construction activities may be subject to cost overruns or delays.

We engage third-party contractors for the construction of solar projects. Construction of solar projects involves numerous risks and uncertainties, and may be adversely affected by circumstances outside of our control, including seasonal changes, inclement weather, failure to receive regulatory approvals on schedule or third-party delays in supplying PV modules or other materials. We may not be able to negotiate satisfactory construction agreements with third-party contractors, or our third-party contractors may not be able to contract with their subcontractors on a timely basis. In addition, if our contractors fail to adhere to our quality standards or otherwise fail to meet their contractual obligations, or if there is a shortage of contractors or labor strikes that prevents our contractors from completing their construction work on schedule or within budget, the solar projects may experience significant delays or cost overruns. Increases in the prices of solar products and components may also increase our procurement costs. Labor shortages, work stoppages and labor disputes could significantly delay a project or otherwise increase our costs. In addition, delays in obtaining or failure to obtain required construction permits could also delay or hinder the construction of our solar projects. A lack of proper construction permits, or post-construction approvals could delay or prevent our solar projects from commencing operation and connecting to the grid.

We may not be able to recover any of our losses resulting from construction cost overruns or delays. In addition, since the FIT applicable to a solar project generally depends on its lead time to grid connection, construction and connection delays may lead to a lower-than-expected FIT, which would adversely affect the long-term value and potentially the viability of the project. Many PPAs also require our solar projects to connect to the grid by a certain date. If the construction of solar project is significantly delayed, we may be in violation of our PPAs or may only be entitled to reduced FIT payments, if at all. A reduction or forfeiture of FIT payments would materially and adversely affect the profitability for a solar power project. Any of the above contingencies could lead to our failure to generate expected return from our solar projects and result in unanticipated and significant revenue and earnings losses.

The solar industry faces competition from both conventional power industries and other renewable power industries.

The solar industry faces intense competition from all other players within the energy industry, including both conventional energy providers such as nuclear, natural gas and fossil fuels and other renewable energy providers, such as geothermal, hydropower, biomass, wind and nuclear energy. Other energy sources may benefit from innovations that reduce their costs and increase safety, and therefore improve their competitiveness. New natural resources may be discovered, or global economic, business or political developments may disproportionately benefit conventional energy sources or other renewable energy sources at the expense of solar. Governments may strengthen their support for other renewable energy sources and reduce their support for the solar industry. Changes in supply and demand of conventional energy sources or other energy sources may reduce the cost of such sources and render solar power less attractive. The decline in oil prices would adversely impacted the competitiveness of solar energy. Failure for our customers, other business partners or us to compete with the providers of other energy sources may materially and adversely affect our business, results of operations and financial condition.

We may not be able to acquire additional solar projects to grow our project portfolio or effectively integrate or realize the anticipated benefits of our acquisitions.

Our current business strategy includes plans to further increase the number of solar projects we own and operate. We have significantly expanded our operations through acquisitions of solar projects across different development stages in Japan, the U.S., the U.K., Greece and Italy, and we may acquire additional businesses, products or technologies or enter into joint ventures or other strategic initiatives in the future. Accordingly, our ability to execute our expansion strategies depends on our ability to identify suitable investment or acquisition opportunities, which is subject to numerous uncertainties. We may not be able to identify favorable geographical markets for expansion or assess local demand for solar power, identify a sufficient number of projects as contemplated, or secure project financing and refinancing on reasonable terms for the contemplated acquisitions. In addition, our competitors may have substantially greater capital and other resources than we do, and may be able to pay more for the acquisition targets we identify and may be able to identify, evaluate, bid for and acquire a greater number of projects than our resources permit.

Furthermore, we may not realize the anticipated benefits of our acquisitions and each transaction involves numerous risks, including, among others:

Acquisitions of companies are inherently risky, and ultimately, if we do not generate expected economic returns from the acquired businesses, or become responsible for any preexisting liabilities related to the acquired businesses, we may not fully realize the anticipated benefits of the acquisitions, which could adversely affect our business, financial condition or results of operations.

We may fail to comply with laws and regulations in the markets we operate.

The development, construction and operation of solar projects are highly regulated. We conduct our operations in many jurisdictions and are subject to different laws and regulations, including national and local regulations relating to building codes, taxes, safety, environmental protection, utility interconnection, metering and other matters. Our establish subsidiaries also have operations in these countries and jurisdictions that are required to comply with various local laws and regulations. While we strive to work with our local counsel and other advisers to comply with the laws and regulations of each jurisdiction where we operate, there have been, and may continue to be, instances of non-compliances such as late filings of annual accounts with the appropriate governmental authorities, failure to notify governmental authorities of certain transactions, failure to hold annual meetings as required, failure to register director or address changes or other local requirements which may result in fines, sanctions or other penalties against our non-complying subsidiaries and its directors and officers. While we do not believe our past and continuing non-compliances, singularly or in the aggregate, will have a material adverse effect on our business, financial condition or results of operations, we cannot assure you that similar or other non-compliances will not occur in the future which may materially and adversely affect our business, financial condition or results of operations.

We are responsible for obtaining a variety of approvals, permits and licenses from various authorities for our solar projects. The procedures for obtaining such approvals, permits and licenses vary from country to country, making it onerous and costly to adhere to the varying requirements and standards of individual localities. Failure to obtain the required approvals, permits or licenses or to comply with the conditions associated therewith may result in fines, sanctions, suspension, revocation or non-renewal of approvals, permits or licenses, or even criminal liabilities, which could material and adversely affect our business, financial condition and results of operations. In addition, new government regulations pertaining to our business or solar projects may result in significant additional expenses. We cannot assure you that we will be able to promptly and adequately respond to changes of laws and regulations in various jurisdictions, or that our employees and contractors will act in accordance with our internal policies and procedures. Failure to comply with laws and regulations where we develop, own and operate solar projects may materially and adversely affect our business, results of operations and financial condition. The market demand for solar power is strongly influenced by government regulations and policies concerning the electric utility industry as well as by policies promulgated by electric utilities in each of the markets we operate. These regulations and policies often relate to electricity pricing and technical interconnection of electricity generation. Customer purchases of alternative energy sources, including solar power technology, could be deterred by these regulations and policies, which may significantly reduce the demand for our PV solutions. For example, without a regulatory-mandated exception for solar power systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid or limit the production capacity to the grid. The county-level government may also levy additional tax related to land use or potential plants recovery that was not initially included during the development or construction phase. These fees could increase, rendering solar power less cost competitive in these markets and our PV solutions less desirable.

It is difficult to ensure ongoing compliance with the changing requirements of individual markets. Any new government regulations or utility policies pertaining to solar projects may result in significant additional expenses to us or other industry participants and as a result could cause a significant reduction in demand for our PV solutions.

Environmental, health and safety laws and regulations subject us to extensive and increasingly stringent operational requirements, as well as potentially substantial liabilities arising out of environmental contamination.

We are subject to, in each of the jurisdictions we operate, numerous national and local laws, regulations, guidelines, policies, directives and other requirements governing or relating to, among others, land use and zoning matters and protection of human health and the environment, including those limiting the discharge and release of pollutants into the environment, and the protection of certain wildlife. These laws and regulations require our solar projects to, among others, obtain and maintain approvals and permits, undergo environmental impact assessments and review processes and implement environmental, health and safety programs and procedures to control risks associated with the construction, operation and decommissioning of solar projects. If our solar projects do not comply with applicable environmental laws, regulations or permit requirements, we may be required to pay significant fines or penalties or suspend or cease operations of the affected projects. Violations of environmental and other laws, regulations and permit requirements may also result in criminal sanctions or injunctions.

Our solar projects may experience malfunctions and other unplanned events that result in personal injury and property damage. As such, the operation of our projects carries an inherent risk of environmental, health and safety liabilities (including potential civil actions, compliance or remediation orders, fines and other penalties), and may subject us to administrative and judicial proceedings. In addition, certain environmental laws and regulations may impose joint and several liability on past and present owners and operators of sites, related to the cleaning up of sites where hazardous wastes or materials were disposed or released.

Technological advances in the solar industry could render our PV solutions uncompetitive or obsolete.

The solar industry is characterized by its rapid adoption and application of technological advances. This requires us to develop new PV solutions and enhance our existing PV solutions to keep pace with and respond effectively to evolving technologies, market conditions and customer demands. Our competitors may develop technologies more advanced and cost-effective than ours. We will need to invest substantially in research and development to maintain our market position and effectively compete in the future. Our failure to further refine or enhance our technologies could render our technologies uncompetitive or obsolete, which could reduce our market share and cause our revenues to decline.

In addition, we may invest in and implement newly-developed, less-proven technologies in our project development or in maintaining or enhancing our existing projects. There is no guarantee that these new technologies will perform or generate customer demand as anticipated. The failure of our new technologies to perform as anticipated may materially and adversely affect our business and results of operations.

If demand for solar projects develops more slowly than we anticipate, develops in ways inconsistent with our strategy, or fails to develop at all, our business, financial condition, results of operations and prospects could be materially and adversely affected.

The solar power market worldwide is at a relatively early stage of development compared to conventional power markets and other renewable power markets, such as that for hydropower. Thus, trends in the solar industry are based only on limited data and may be unreliable. Many factors may affect the demand for solar projects worldwide, including:

Our analysis and predictions concerning the future growth of the solar industry are based on complex facts and circumstances and may be incorrect. If market demand for solar projects in our existing or target markets fails to develop according to our expectations, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Our growth prospects and future profitability and our ability to continue to acquire solar projects depends on the availability of sufficient financing on terms acceptable to us.

The development of solar projects requires significant upfront cash investments, including the costs of permit development, construction and associated operations. Since 2014, we have been expanding our solar project portfolio primarily by acquiring solar projects across different development stages. Such expansion strategy requires significant upfront capital expenditures which, depending on the respective development stages of the acquired projects, may not be recouped for a significant period of time. As a result, we are required to pursue a wide variety of capital resources to fund our operations, including private placements, bank loans, financial leases and other third-party financing options.

Our ability to obtain sufficient financing is subject to a number of uncertainties, including:

Due to these or other reasons, we may not be successful in obtaining the required funds for future acquisitions. Furthermore, we may be unable to refinance our bank borrowings on favorable terms, or at all, upon the expiration or termination of our existing loan facilities. In addition, rising interest rates could adversely affect our ability to secure financing on favorable terms. Our failure in securing suitable financing sources in a timely manner or at all, or on commercially acceptable terms, could significantly limit our ability to execute our growth strategies or future acquisitions, and may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Related to Our America Solar Module Manufacturing Business

We face risks associated with the international manufacturing, marketing, distribution and sale of our products and the construction and operation of our US manufacturing facilities, and if we are unable to effectively manage these risks, our business and operations abroad may be adversely affected and our ability to maintain, develop and expand our business in the US may be restricted.

We commenced pilot production of “Made-in-America” solar modules under the Solar4America brand in June 2022. Currently, we sublease existing solar module manufacturing facilities with a total floor area of 195,100 square feet located in McClellan Park, California. We acquired solar module manufacturing equipment assets from Sunergy California LLC, and we have assembled a manufacturing team to commence production. We have entered into purchase and other agreements for purchase of additional manufacturing equipment and expansion of our production capacities, and expected that our production capacity will expand to approximately 650MW solar modules per year by the end of 2022 once all of the solar module assembly equipment is fully assembled and operational. We expect the production capacity will be further increased to 1,100MW per year by the end of 2023. We plan to promote our products from this factory, as “Made-in-America,” which we expect to appeal to certain customers and to qualify for government “Buy America” programs.

The manufacturing, marketing, distribution and sale of our products in the US, as well as the construction and operation of our manufacturing facilities in the US may expose us to a number of risks, including those associated with:

Our management team has no experience in operating a module manufacturing factory in the US, which will be a unique business line in addition to the distribution, installation and product development businesses that we operate. The new CRM/ERP systems that we are implementing in the US may not be suitable for a manufacturing factory. We cannot assure that the management team will be able to operate the manufacturing factory successfully or generate enough profit or cash flow from it to justify the capital investments.

We will face different business environments and industry conditions in the domestic solar module assembly and sale business, and we may spend substantial resources familiarizing ourselves with the new environment and conditions. Our business operations might be affected by unexpected and adverse economic, regulatory, social and political conditions in the jurisdictions in which we have operations, we may experience project disruptions, loss of assets and personnel, and other indirect losses that could adversely affect our business, financial condition and results of operations. Our manufacturing facility in the United States might expose us to various risks, including, among others, failure to obtain the required approvals, permits or licenses, or to comply with the conditions associated therewith, failure to procure economic incentives or financing on satisfactory terms, and failure to procure construction materials, production equipment and qualified personnel for the manufacturing facility in a timely and cost-effective manner. Any of these events may increase the related costs, or impair our ability to run our operations in the future on a cost-effective basis, which could in turn have a material adverse effect on our business and results of operations.

Compliance with environmentally safe production and construction and renewable energy development regulations can be costly, while non-compliance with such regulations might result in adverse publicity and potentially significant monetary damages, fines and suspension of our business operations.

In connection with SJ Technology’s solar module assembly business, we are required to comply with all national and local environmental protection regulations for our operations in the United States, and some of our subsidiaries must obtain and maintain pollution discharge permits or registrations, or are in the process of application for such permits and registrations, which are subject to application, renewal or extension on an annual basis or within a longer period. We cannot assure you that we are or will be able to successfully obtain, renew or extend these permits in a timely manner or at all.

SJ Technology, uses, stores and generates volatile and otherwise dangerous chemicals and wastes during our manufacturing processes, and is subject to a variety of government regulations related to the use, storage and disposal of such hazardous chemicals and waste. We are also required to obtain construction permits before commencing constructing production facilities. Although we will try to take measures to prevent environmental incidents from occurring in the future, we cannot assure you that our operations will not be disrupted by the environmental incidents. We note that the relevant authorities might issue more stringent environmental protection, safety production and construction regulations that might impact our domestic manufacturing facilities, and the costs of compliance with new regulations could be substantial. If we fail to comply with the future environmentally safe production and construction laws and regulations, we might be required to pay fines, suspend construction or production, or cease operations, and any failure by us to properly manage the discharge of dangerous substances could subject us to potentially significant monetary damages and fines or the suspension of our business operations.

Risks Related to Our PV Components Business

Debt and Collections Risks:

We may have to secure payments for certain consumer solar or battery sales but there is no assurance that such payments will be timely collected. We have also enhanced our collection efforts and undertaken various measures to collect outstanding payments from customers and may suffer damages as a result of legal actions and other payments due to us.

We currently conduct our business operations in Australia. We are in approximately 9 locations in Australia including offices/warehouse and storage facilities. Our business is therefore subject to diverse and constantly changing economic, regulatory, social and political conditions in these areas including the following:

Our sales may be subject to risks associated with construction, delays and other contingencies, which could have a material adverse effect on our reputation, business and the results of operations.

Historically, we have generated a significant portion of our revenue from sales of PV products. We generally enter into a sales contract under which we act as the supplier in connection with the supply of solar and battery systems. In addition, delays in supply of PV module or components, construction delays, pandemic delays, labor, unexpected performance problems in electricity generation or other events may cause us unanticipated and severe revenue and earnings losses and financial penalties.

We rely on suppliers when selling our solar and battery products and may see delays and/or cancellations.

We source PV modules and other balance-of-system components from a wide selection of third-party suppliers. Therefore, we are generally exposed to price fluctuations and availability of PV modules and balance-of-system components sourced from our suppliers. For example, in light of changing market dynamics and government policies, the price and availability of PV modules and other solar materials have been subject to significant volatility in recent years. Increases in the prices of PV modules or balance-of-system components, decreases in their availability, fluctuations in construction, labor and installation costs, or changes in the terms of our relationship with our third party installers and suppliers may increase the cost of procuring equipment and hence materially adversely affect our financial condition and results of operations.

Warranties provided by our third party installers and contractors may be limited or insufficient to compensate for our losses, or may not cover the nature of our losses incurred.

We expect to benefit from various warranties, including product quality and performance warranties, provided by our installers and contractors. These suppliers and contractors, however, may file for bankruptcy, cease operations or otherwise become unable or unwilling to fulfill their warranty obligations. Even if a supplier fulfills its warranty obligations, the warranty may not be sufficient to compensate us for all of our losses. In addition, the warranty for inverters and transformers may expire after such equipment is delivered or commissioned and/or is subject to liability limits. Where damages are caused by defective products provided by our suppliers or construction services delivered by our contractors, our suppliers or contractors may be unable or unwilling to perform their warranty obligations as a result of their financial conditions or otherwise. Or if the warranty has expired or a liability limit has been reached, there may be a reduction or loss of warranty protection for the affected projects, which could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to product or strict liability claims if the provision of our services or the solar projects we sell result in injury or damage, and we have limited insurance coverage to protect against such claims, as well as losses that may result from business interruptions or natural disasters.

Solar projects are highly sophisticated and generate and transfer large volumes of electric charge with the potential to harm or kill, whether by improper installation or other causes. We are therefore exposed to an inherent risk of product liability claims or class action suits in the event that the installation of the solar power systems during the provision of our services, or the solar projects we sell under our business model, results in injury or damage, and we may even be liable in some jurisdictions under a strict liability theory, where liability holds even if we are not negligent or at fault. Moreover, to the extent that a claim is brought against us, we may not have adequate resources to defend ourselves. We rely on our general liability insurance to cover product liability and other liability claims and have not separately obtained product liability insurance. The unfavorable settlement of product or strict liability claims against us could result in significant monetary damages and significant payments in excess of our insurance coverage could have a materially adverse effect on our financial results. Any such business disruption could result in substantial costs and diversion of resources.

Risks Related to Our Residential Roofing and Solar Installation Business

The solar energy industry is a new and evolving market, which may not grow to the size or at the rate we expect.

The solar energy industry is a new and rapidly growing market opportunity. We believe the solar energy industry will continue still take several years to fully develop and mature, but we cannot be certain that the market will grow to the size or at the rate that we expect. Any future growth of the solar energy market and the success of our solar service offerings depend on many factors beyond our control, including recognition and acceptance of the solar service market by consumers, the pricing of alternative sources of energy, a favorable regulatory environment, the continuation of expected tax benefits and other incentives, and our ability to provide our solar service offerings cost-effectively, and our business might be adversely affected should the markets for solar energy do not develop to the size or at the rate we expect.

Solar energy has yet to achieve broad market acceptance and depends in part on continued support in the form of rebates, tax credits, and other incentives from federal, state and local governments. If this support diminishes materially, our ability to attract customers for our products and services could be adversely affected. Growth in residential solar energy also depends on dynamic macroeconomic conditions, retail prices of electricity and customer preferences. Declining macroeconomic conditions, including labor markets and residential real estate markets, could contribute to instability and uncertainty among customers and impact their financial ability, credit scores or interest in entering into long-term contracts, even if such contracts would generate immediate and long-term savings.

Market prices of retail electricity generated by utilities or other energy sources also could decline for a variety of reasons, as discussed further below. Any such declines in macroeconomic conditions, changes in retail prices of electricity or changes in customer preferences would adversely impact our business.

We have historically benefited from declining costs in our industry, and our business and financial results might be harmed not only as a result of any increases in costs associated with our solar service offerings, but, also, by any failure of these costs to continue to decline as we currently expect. If we do not reduce our cost structure in the future, we may not achieve profitability.

Declining costs related to raw materials, manufacturing and the sale and installation of our solar service offerings have been a key driver in the pricing of our solar service offerings and customer adoption of solar energy. The prices of solar modules and raw materials have declined, however the cost of solar modules and raw materials could increase in the future, and such products’ availability could decrease, due to a variety of factors, including restrictions stemming from the COVID-19 pandemic, tariffs and trade barriers, export regulations, regulatory or contractual limitations, industry market requirements, and changes in technology and industry standards.

Other factors may also impact costs, such as our choice to make significant investments to drive growth in the future.

Competition and Price Cutting

The roofing industry is very competitive based on the large number of contractors, and there is intense competition over the pricing of roof repairs and installations, and our business might suffer if our competitors reduce their prices to where we can no longer profitably operate.

We might lose business to competitors that underbid us and might be unable to compete favorably in our highly competitive industry.

Most of our project awards are determined through a competitive bidding process in which price is the determining factor, and we compete against multiple competitors in many of the markets in which we operate. Some of our competitors are larger than we and are vertically integrated, and competitors larger than us may be able to better exploit economies of scale to receive higher discounts or rebates when purchasing materials. An increase in competition may result in decreases in new project awards to us at acceptable profit margins, and a downturn in private residential and commercial construction could materially and adversely impact our financial condition, results of operations or liquidity.

Our business is seasonal and subject to adverse weather conditions, which can adversely impact our business.

Some of our construction operations occur outdoors in areas in which hurricanes, tornadoes, tropical storms, and/or wild fires are common. Seasonal changes and adverse weather conditions, such as extended snowy, rainy or cold weather, can adversely affect our business operations through delays in our construction schedules, and reduced efficiencies in our contracting operations, resulting in under-utilization of crews and equipment and lower contract profitability. Climate change may lead to increased extreme weather and changes in precipitation and temperature, including natural disasters. Should the impact of climate change be significant or occur for lengthy periods of time, our financial condition or results of operations would be adversely affected.

The reduction, modification, delay or discontinuation of government subsidies and other economic incentives for the solar industry might reduce the profitability or viability of our solar projects and materially adversely affect our business.

Solar energy is not currently cost competitive with other energy sources in our existing markets and the new markets into which we plan to expand. For a variety of technological and economic reasons, the cost of generating electricity from solar energy in these markets currently exceeds and, absent significant changes in technological or economic circumstances, will continue to exceed the cost of generating electricity from conventional and certain other competing energy sources. Government subsidies and incentives, primarily in the form of tax credits, net metering, and other incentives to end users and distributors of solar products are generally required to enable companies such as us to successfully operate in these markets.

Government subsidies and incentives vary by geographic market. The availability and size of such subsidies and incentives depend, to a large extent, on political and policy developments relating to environmental concerns, and other macro-economic factors. These government subsidies and incentives are expected to gradually decrease in scope or be discontinued as solar energy technology improves and becomes more affordable relative to other types of energy. Reductions have occurred in certain areas where we have operations, and subsidies and incentives may be further reduced or discontinued in areas where we currently or intend to operate. A significant reduction in the scope or discontinuation of government incentive programs in our existing and target markets could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Existing rules, regulations and policies pertaining to electricity pricing and technical interconnection of customer-owned electricity generation and changes to these regulations and policies might deter the purchase and use of solar energy systems and negatively impact development of the solar energy industry.

The market for solar energy systems is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as policies adopted by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. For example, the vast majority of states have a regulatory policy known as net energy metering, or “net metering”, which allows our customers to interconnect their on-site solar energy systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate for energy generated by their solar energy system that is exported to the grid and not consumed on-site. The customer consequently pays for the net energy used or receives a credit at the retail rate if more electricity is produced than consumed. Net metering, in some states, is being replaced with lower credits for the excess electricity sent onto the grid from solar energy systems, and utilities are imposing minimum or fixed monthly charges on owners of solar energy systems. These regulations and policies have been modified in the past and may be modified in the future in ways that can restrict the interconnection of solar energy systems and deter purchases of solar energy systems by customers. Electricity generated by solar energy systems also competes most favorably in markets with tiered rate structures or peak hour pricing that increase the price of electricity when more is consumed. Modifications to these rate structures by utilities, such as reducing peak hour or tiered pricing or adopting flat rate pricing, could require the price of solar energy systems to be reduced in order to compete with the price of utility generated electricity.  

Large California utilities have, for instance, started transitioning customers to time-of-use rates and also have adopted a shift in the peak period for time-of-use rates to later in the day. Unless grandfathered under a different rate, residential customers with solar energy systems are required to take service under time-of-use rates with the later peak period. Moving utility customers to time-of-use rates or the shift in the timing of peak rates for utility-generated electricity to include times of day when solar energy generation is less efficient or non-operable could also make our offerings less competitive. Time-of-use rates could also result in higher costs for our customers whose electricity requirements are not fully met by our offerings during peak periods. The price of electricity from utilities also may grow less quickly than the escalator feature in certain of our solar service agreements, which could also make our systems less competitive with the price of electricity from the electrical grid and result in a material adverse effect on our business, financial condition and results of operations.

An increase in our cost of materials could arise as a result of US trade restrictions or tariffs on imported solar modules, cells, inverters, batteries or other products related to our business.

The US and China in 2018 began a new round of mutual tariffs on various products imported from each other’s country. The initial US tariffs on products from China include an additional 25% tariff on solar modules and cells made in China, as well as a 25% tariff on inverters, batteries and electrical equipment made in China beginning in January 2019. The US has also imposed or announced tariffs on products imported from other countries that might provide products that we use. President Biden announced in a May 10, 2022 speech that he would consider ending tariffs on certain goods produced in China to help reduce the prices of domestic goods, and his US Trade Representative earlier that month initiated a procedural review of US tariffs on goods made in China leading up to the four-year anniversary of the Trump Administration’s passage of July and August 2018 tariffs on certain goods made in China. We cannot predict future tariffs or trade laws between the US and other countries, which products might be subject to tariffs or other actions, or retaliatory actions against the US by such other countries. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact our supply chain, our costs, our suppliers, and the US economy, which could in turn adversely affect our business, financial condition and results of operation.

For example, in January 2018, in response to a petition filed under Section 201 of the Trade Act of 1974, President Trump imposed four-year tariffs on imported solar modules and imported solar cells not assembled into other products (the “Section 201 Module Tariffs”) that apply to all imports above a 2.5 gigawatts (GW) annual threshold. The Section 201 Module Tariffs were 30% in 2018 and stepped down by 5% annually in the second, third and fourth years. In October 2020, President Trump issued a proclamation increasing the tariff from 15% to 18% for 2021, the final year under the original Sec. 201 proclamation imposing the tariffs.

The Peterson Institute for International Economics or PIIE reported in April 2022 that Chinese exports to the U.S. currently incur an average 19.3% tariff, which amount is more than 600% of the prevailing domestic tariff before trade tensions escalated, and much higher than the current 3.0% average U.S. tariff on products originating in other countries. The PIIE report also indicated that on February 7, 2022, the U.S. reduced its Section 201 tariffs on solar panels among other products, which indicates a potential easing of U.S.-China trade tariffs under the current administration.

Our business prospects could be harmed if solar energy is not widely adopted or sufficient demand for solar energy systems does not develop or takes longer to develop than we anticipate.

The solar energy market is at a relatively early stage of development. The extent to which solar energy will be widely adopted and the extent to which demand for solar energy systems will increase are uncertain. If solar energy does not achieve widespread adoption or demand for solar energy systems fails to develop sufficiently, we might be unable to achieve our revenue and profit targets. Demand for solar energy systems in our targeted markets might not develop as we anticipate. Many factors may affect the demand for solar energy systems, including the following:

Our business has benefited from the declining cost of solar energy system components, and might be harmed to the extent that declines in the cost of such components stabilize or that such costs increase in the future.

Our business has benefited from the declining cost of solar energy system components and to the extent such costs stabilize or decline at a slower rate, or, in fact, increase, our future growth rate may be negatively impacted. The declining cost of solar energy system components and the raw materials necessary to manufacture them has been a key driver in the price of solar energy systems we own, the prices charged for electricity and customer adoption of solar energy. Solar energy system component and raw material prices might not continue to decline at the same rate as they have over the past several years or at all, and growth in the solar industry and the resulting increase in demand for solar energy system components and the raw materials necessary to manufacture them might also put upward pressure on prices. An increase of solar energy system components and raw materials prices could slow our growth and cause our business and results of operations to suffer, and the cost of solar energy system components and raw materials has and could continue to increase due to scarcity of materials, tariff penalties, duties, the loss of or changes in economic governmental incentives or other factors.

Although average selling prices of solar modules in many global markets have declined for several years, recent spot pricing for solar modules has increased, in part, due to elevated commodity and freight costs

While average selling prices of solar modules in many global markets have declined for several years, recent spot pricing for solar modules has increased, in part, due to elevated commodity and freight costs. The price of polysilicon has significantly increased in recent months due to a coal shortage in China, which resulted in higher energy prices and the Chinese government’s mandating power restrictions that led to curtailments of silicon metal production. Given that the majority of global polysilicon capacity is located in China, such higher energy prices and reduced operating capacities have adversely affected the supply of polysilicon, contributing to an increase in polysilicon pricing. In response to such supply shortage, certain other Chinese-based producers of polysilicon are in the process of expanding their production capacity, which is expected to reduce the price of polysilicon in future periods. While the duration of this elevated period of spot pricing is uncertain, module average selling prices in global markets are expected to decline in the long-term, and we believe manufacturers of solar cells and modules, particularly those in China, have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. We believe the solar industry might experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that excess capacity will put pressure on pricing, and intense competition at the system level may result in an environment in which pricing falls rapidly, thereby potentially increasing demand for solar energy solutions but constraining the ability for project developers and module manufacturers to sustain meaningful and consistent profitability. We consequently continue to focus on our strategies and points of differentiation, which include our advanced module technology, our manufacturing process, our research and development capabilities, and the sustainability advantage of our modules.

Shortages in the supply of silicon could adversely affect the availability and cost of the solar photovoltaic modules used in our solar energy systems.

Shortages of silicon or supply chain issues could adversely affect the availability and cost of our solar energy systems. Manufacturers of photovoltaic modules depend upon the availability and pricing of silicon, one of the primary materials used in photovoltaic modules. The worldwide market for silicon from time to time experiences a shortage of supply, which can cause the prices for photovoltaic modules to increase and supplies of photovoltaic modules become difficult to obtain. While we have been able to obtain sufficient supplies of solar photovoltaic modules to satisfy our needs to date, this may not be the case in the future. Future increases in the price of silicon or other materials and components could result in an increase in costs to us, price increases to our customers or reduced margins. Other international trade conditions such as work slowdowns and labor strikes at port facilities or major weather events can also adversely impact the availability and price of solar photovoltaic modules.

Due to the lingering effects of the COVID-19 pandemic the solar industry is experiencing supply constraints, which are resulting in an increase in the cost of solar modules and inverters. If the supply constraints and price increases continue our solar business might be affected.

The primary driver of current supply constraints in the solar industry is material shortages. In 2020, the solar industry experienced record growth in the United States, despite the COVID-19 pandemic, compared to 2019, and installations increased by 43 percent, according to the Solar Energy Industries Association (SEIA). This record demand, coupled with decreased supply, has impacted many key materials throughout the solar supply chain, including polysilicon, solar glass, and semiconductor chips. Polycrystalline silicon, commonly referred to as polysilicon, is a key raw material used in many solar cells, which are responsible for capturing the energy from the sun and turning it into electricity in solar energy systems. Polysilicon is largely produced in China, but factory shutdowns related to the COVID-19 pandemic caused the price of the raw material to spike. Solar modules also include glass casing at the front of the module, which protects the solar cells, there has been recent growing demand for bifacial solar modules, which produce energy from both sides of the module, requiring glass on both sides of the solar module, as opposed to just on the front. In 2018, China, the largest producer of solar glass, imposed restrictions on glass production due to concerns about the required energy consumption. With increasing demand for solar modules, and for solar glass specifically, the restricted production of glass has been unable to meet the demand, causing the cost of solar glass to soar. In December 2020, China’s Ministry of Industry and Information Technology (MIIT) indicated that it would ease restrictions on the production of solar glass. While solar glass supply is expected to remain constrained short-term, increased capacity due to these eased restrictions should expand supply later this year and reduce prices. Semiconductor chips are a key component of inverters, which convert the direct current (DC) energy produced by solar modules into usable alternating current (AC) energy. Inverters are also used for battery storage systems to convert storable DC energy to usable AC energy and vice versa. The use of semiconductor chips is not isolated to the solar industry; they are also crucial components of many other technologies, including cars, computers, and smartphones. Due to COVID-19 related factory shutdowns, manufacturing of semiconductor chips decreased in early 2020, and as factories began to reopen, demand for products containing semiconductor chips surged. The shortages of these materials and attendant price increases may affect our distribution of solar products and our installation of solar energy systems, and future increases in the price of silicon or other materials and components could result in an increase in costs to us, price increases to our customers or reduced margins.

Due to the COVID-19 pandemic, global spending on goods significantly increased global shipping resulting in increased costs and delays. Our company depends on international shipping to obtain our solar products used in our distribution and installation businesses, and if such shipping constraints and price increases continue, our solar business might be affected.

The solar industry has also faced constraints related to shipping. Pandemic-related spending on goods increased global shipping, leading to shortages in containers and port congestion in the United States, impacting virtually every sector, including the solar industry. National lockdowns restricted both manufacturing and shipping as the pandemic began, and many shipping containers, such as those used to hold goods such as solar modules, became stranded and started to accumulate in the United States. Lockdowns continued in the United States as restrictions in China eased, and containers could not be returned to China, which caused a container shortage in China where containers were needed to continue exporting goods. Production of containers also decreased in 2020, further contributing to the shortage and causing prices of shipping containers to escalate. Increased imports, resulting from pandemic spending, has also increased port congestion in the United States, which congestion is exacerbated by significant recent increases in the size of container ships leading to longer unloading times, since each ship can now carry tens of thousands of shipping containers. If the shipping constraints and the increases in shipping costs continue for a long period of time our solar business might be affected. Future delays in shipping and increases in shipping costs or other materials could result in an increase in costs to us, price increases to our customers or reduced margins.

A May 2022 IHS Markit article noted that COVID-19 related supply chain challenges and issues in shipping products from China to the U.S. have continued due to sustained congestion and other delays at both U.S and Chinese ports, as well as an insufficient number of shipping containers. The shipping challenges have also contributed to higher container shipping rates between China and the U.S., and the article reports that the rate in May 2022 of a typical 40-foot container from China to the U.S. West Coast was $14,226, several thousand dollars more than the comparable rate from China to ports in Northern Europe. The article also noted that in increasing number of ships which are operating at only partial capacity is magnifying the port congestion and delays in unloading cargo.

Due to the lingering effects of the COVID-19 pandemic the roofing industry is experiencing supply constraints, which are resulting in scarcity and an increase in the cost of lumber. If the supply constraints and price increases of lumber continue our roofing business may be affected.

Significant supply constraints and price increases in the lumber SJ America uses in its roofing business have occurred due to COVID-19 driven layoffs and plant closings. Lumber prices have been highly volatile since the onset of the COVID-19 pandemic and the following supply chain disruptions. In the event our ability to source lumber continues to be restricted or the prices of lumber continue to increase, the roofing business of SJ America may be affected. We hope these supply issues are only short term, but there can be no assurance as to the timing when these supply constraints will end. Future increases in the price of lumber or scarcity of lumber could result in an increase in costs to us, price increases to our customers or reduced margins.

Our solar business installs solar energy systems, and many factors can prevent us from completing installations on time or on budget. 

Factors that might prevent us from completing installations on time or on budget include:

Our installation projects expose us to risks of cost overruns due to typical uncertainties associated with any project or changes in the designs, plans or concepts of such projects, and installation costs might exceed estimated costs of completion.

A material reduction in the retail price of electricity charged by electric utilities or other retail electricity providers would harm our business, financial condition and results of operations.

Decreases in the retail price of electricity from electric utilities or from other retail electric providers, including other renewable energy sources such as larger-scale solar energy systems, could make our offerings less economically attractive. The price of electricity from utilities could decrease as a result of:

A reduction in electric utilities’ rates or changes to peak hour pricing policies or rate design (such as the adoption of a fixed or flat rate) could also make our offerings less competitive with the price of electricity from the electrical grid. If the cost of energy available from electric utilities or other providers were to decrease relative to solar energy generated from residential systems or if similar events impacting the economics of our offerings were to occur, we might have difficulty attracting new customers or existing customers might default or seek to terminate, cancel or otherwise avoid the obligations under their solar service agreements.

Our ability to provide our solar product and service offerings to homeowners in the US on an economically viable basis depends in part on our ability to arrange financing for these systems. Failure to find partners to provide such financing to our consumers would pose a significant obstacle for us to sustain the US consumer business.

We currently have only indirect partnership relationships with consumer financing providers, through a third-party platform. We are in the process of establishing direct relationships with several financing providers; however, we can give no assurance whether or when we can establish such relationships. Historically, there have been a limited number of investors that generate sufficient profits and possess the requisite financial sophistication to provide financing for solar energy systems for homeowners, and a lack of depth in this market might limit our ability to find partners which can provide financing for our consumers. Our larger competitors might be able far more readily than we to offer financing options to customers, including PPAs, pursuant to which solar energy systems are installed at little cost to the consumer.

Certain types of home solar energy system financing also depend on the existing tax regulatory environment. We are uncertain whether this type of financing will continue to be available to us, as the legal and regulatory landscape may shift in a manner that reduces or eliminates the attractiveness of such financing opportunities.

Our continued success requires us to hire, train and retain qualified personnel and subcontractors in a competitive industry.

The success of our business depends on our ability to attract, train and retain qualified, reliable personnel, including, but not limited to, our executive officers and key management personnel. We also rely on engineers, project management personnel, and other employees and qualified subcontractors who possess the necessary and required experience and expertise to perform their respective services at a reasonable and competitive rate. Competition for these and other experienced personnel is intense, and it might be difficult to attract and retain qualified individuals with the requisite expertise and within the time frame demanded by our customers. We might not be able to satisfy the demand for our services in certain regions because of our inability to successfully hire, train and retain qualified personnel, and we might find it difficult to replace personnel who hold credentials that might be required to perform certain government projects and/or who have significant government contract experience.

We note that the cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. The uncertainty of contract award timing can present difficulties in matching our workforce size with our contracts, and should an expected contract award be delayed or not received, we could incur costs resulting from excess staff or redundancy of facilities that could have a material adverse impact on our business, financial condition and results of operations.

If we are unable to attract, train and retain technical personnel, our business may be materially and adversely affected.

Our future success depends, to a significant extent, on our ability to attract, train and retain technical personnel. Recruiting and retaining qualified technical personnel, particularly those with expertise in the solar power industry, is vital to our success. There is substantial competition for qualified technical personnel, and there can be no assurance that we will be able to attract or retain sufficient qualified technical personnel, and if we are unable to attract and retain qualified employees, our business might be materially and adversely affected.

Changes in general or local economic conditions and the resulting impact on the labor market and on our joint venture partners might make it difficult to attract or retain qualified individuals in the geographic areas where we perform our work, and if we are unable to provide competitive compensation packages, high-quality training programs and attractive work environments or to establish and maintain successful partnerships, our reputation, relationships and/or ability to profitably execute our work could be adversely impacted.

Failure to maintain safe work sites could result in significant losses.

Construction and maintenance sites are potentially dangerous workplaces and often put our employees and others in close proximity with mechanized equipment, moving vehicles, chemical and manufacturing processes, and highly regulated materials.  We are often responsible for safety and must implement safety procedures. Should our safety procedures prove ineffective or incomplete, we might suffer injury to our employees, and expose the company to litigation. Our failure to maintain adequate safety standards through our safety programs could result in reduced profitability or the loss of projects or clients, and could have a material adverse impact on our financial position, results of operations, cash flows and liquidity.

Failure of our subcontractors to perform as anticipated could have a negative impact on our results.

We subcontract portions of some of our contracts to specialty subcontractors, but we are ultimately responsible for the successful completion of their work. Although we seek to require bonding or other forms of guarantees, we are not always successful in obtaining those bonds or guarantees from our higher-risk subcontractors. We might be responsible for the failures on the part of our subcontractors to perform as anticipated, resulting in a potentially adverse impact on our cash flows and liquidity, and the total costs of a project could exceed our original estimates and we could experience reduced profits or a loss for that project, which could have an adverse impact on our financial position, results of operations, cash flows and liquidity.

Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements might result in potentially significant monetary penalties, operational delays and adverse publicity.

The installation and ongoing operations and maintenance of roofing products or roof-top solar energy systems requires individuals hired by us or third-party contractors, including our employees, to work at heights with complicated and potentially dangerous electrical systems.

The evaluation and modification of buildings as part of the installation process requires these individuals to work in locations that may contain potentially dangerous levels of asbestos, lead, mold or other materials known or believed to be hazardous to human health. There is substantial risk of serious injury or death if proper safety procedures are not followed. Our operations are subject to regulation OSHA and equivalent state and local laws, and changes to OSHA requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs. If we fail to comply with applicable OSHA, even if no work-related serious injury or death occurs, we might be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures or suspend or limit operations. Because individuals hired by us or on our behalf to perform installation and ongoing operations and maintenance of our solar energy systems and energy storage systems, including our dealers and third-party contractors, are compensated on a per project basis, they are incentivized to work more quickly than installers that are compensated on an hourly basis. While we have not experienced a high level of injuries to date, this incentive structure may result in higher injury rates than others in the industry and could accordingly expose us to increased liability. Individuals hired by or on behalf of us may have workplace accidents and receive citations from OSHA regulators for alleged safety violations, resulting in fines. Any such accidents, citations, violations, injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position and adversely affect our business. A failure to comply with laws and regulations relating to interactions by us or our dealers with current or prospective residential customers could result in negative publicity, claims, investigations and litigation, and adversely affect our financial performance.

Our business substantially focuses on transactions with residential customers. We must comply with numerous federal, state and local laws and regulations that govern matters relating to interactions with residential consumers, including those pertaining to consumer protection, marketing and sales, privacy and data security, consumer financial and credit transactions, mortgages and refinancing, home improvement contracts, warranties and various means of customer solicitation. These laws and regulations are dynamic and subject to potentially differing interpretations, and various federal, state and local legislative and regulatory bodies may initiate investigations, expand current laws or regulations, or enact new laws and regulations, regarding these matters. Changes in these laws or regulations or their interpretation could dramatically affect how we and our dealers do business, acquire customers, and manage and use information collected from and about current and prospective customers and the costs associated therewith.

We strive to comply with all applicable laws and regulations relating to interactions with residential customers. It is possible, however, that these requirements might be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our customary practices.

Damage to our brands and reputation, or change or loss of use of our brands, could harm our business and results of operations.

We depend significantly on our reputation for high-quality products, excellent customer service and the brand names “Solar Juice,” “Opal,” “Solar4America,” and “Roofs 4 America” to attract new customers and grow our business. If SJ Australia fails to continue to deliver solar and other energy components timely, or if SJ America damages any of our customers’ properties or delays or cancels projects, our brand and reputation could be significantly impaired. Future technological improvements might allow us to offer lower prices or offer new technology to new customers; however, technical limitations in our current solar energy systems and energy storage systems might prevent us from offering such lower prices or new technology to our existing customers. The inability of our current customers to benefit from technological improvements could cause our existing customers to lower the value they perceive our existing products offer and impair our brand and reputation.

We note that given the sheer number of interactions our consumer business has with customers and potential customers, it is inevitable that some customer interactions with our company or dealers operating on our behalf will be perceived as less than satisfactory. These could lead to instances of customer complaints which could affect our ratings on websites and social media platforms, and if we cannot manage our hiring and training processes to avoid or minimize these issues to the extent possible, our reputation might be harmed and our ability to attract new customers would suffer.

We face competition from traditional energy companies as well as solar and other renewable energy companies.

The solar energy industry is highly competitive and continually evolving, as participants strive to distinguish themselves within their markets and compete with large utilities. We believe that our competitors include established utilities that supply energy to homeowners by traditional means, and we compete with these utilities primarily based on price, predictability of price, and the ease by which homeowners can switch to electricity generated by our solar service offerings. If we cannot offer compelling value to customers based on these factors, then our business and revenue will not grow. We also compete with traditional installers who face similar challenges.

The production of solar energy depends heavily on suitable meteorological and environmental conditions. If meteorological or environmental conditions are unexpectedly unfavorable, the electricity production from our solar service offerings might be below our customers’ expectations, reducing the attractiveness of our offerings compared with traditional energy suppliers.

We also face competition from other residential solar service providers. Many of these competitors have a higher degree of brand name recognition, differing business and pricing strategies, and greater capital resources than we have, as well as extensive knowledge of our target markets. If we are unable to establish or maintain a consumer brand that resonates with customers, maintain high customer satisfaction, or compete with the pricing offered by our competitors, our sales and market share position might be adversely affected, as our growth is dependent on originating new customers. We also face competitive pressure from companies that might offer lower-priced consumer offerings than we do.

We compete with companies that are not regulated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure. These power service companies are able to offer customers electricity supply-only solutions that are competitive with our solar service offerings on both price and usage of solar energy technology, which might limit our ability to attract customers, particularly those who wish to avoid long-term contracts or have an aesthetic or other objection to putting solar modules on their roofs.

We also face competition from purely finance-driven nonintegrated competitors that subcontract out the installation of solar energy systems, from installation businesses (including solar partners) that seek financing from external parties, from large construction companies, and from electrical and other roofing companies. Local installers that might otherwise be viewed as potential solar partners might gain market share by being able to be the first providers in new local markets, and some of these competitors might provide energy at lower costs than we do. We also face competition from companies offering consumer loans for solar module products, since declining prices for solar modules and related equipment has resulted in an increase in consumers’ purchasing, instead of leasing, solar energy systems.

As the solar industry grows and evolves, we will continue to face existing competitors as well as new competitors who are not currently in the market (including those resulting from the consolidation of existing competitors) that achieve significant developments in alternative technologies or new products such as storage solutions, loan products, or other programs related to third-party ownership. Our failure to adapt to changing market conditions, to compete successfully with existing or new competitors and to adopt new or enhanced technologies could limit our growth and have a material adverse effect on our business and prospects.

Changes to net metering and related policies might significantly reduce demand for electricity from our solar service offerings.

A substantial majority of states have adopted net metering policies, which are designed to allow homeowners to serve their own energy loads using on-site generation. Electricity that is generated by a solar energy system and consumed on-site avoids a retail energy purchase from the applicable utility, and excess electricity that is exported back to the electric grid generates a retail credit within a homeowner’s monthly billing period. At the end of the monthly billing period, if the homeowner has generated excess electricity within that month, the homeowner typically carries forward a credit for any excess electricity to be offset against future utility energy purchases. At the end of an annual billing period or calendar year, utilities either continue to carry forward a credit, or reconcile the homeowner’s final annual or calendar year bill using different rates (including zero credit) for the exported electricity.

Utilities, their trade associations, and fossil fuel interests in the country are currently challenging net metering policies, and seeking to eliminate them, cap them, reduce the value of the credit provided to homeowners for excess generation, or impose charges on homeowners that have net metering.

California’s Public Utilities Commission (“CPUC”) has made changes to rate design for solar customers, such as adopting “time of use” rates with different electricity prices during peak and off peak hours, as well as modifications to the minimum bill for solar customers. The CPUC is revisiting its net metering policy in a proceeding that began in the third quarter of 2020 and is expected to conclude near the end of 2021 and not take effect until sometime in 2022. The California investor-owned utilities, along with other parties, are seeking to reduce the level of compensation for customer-owned generation and to impose grid access fees on solar customers. Similarly, certain California municipal utilities, which are not regulated by the CPUC and would not be governed by the CPUC's net metering policy, have also announced they plan to review their net metering policies.

Electric utility statutes and regulations and changes to such statutes or regulations might present technical, regulatory and economic barriers to the purchase and use of our solar service offerings that may significantly reduce demand for such offerings.

Federal, state and local government statutes and regulations concerning electricity heavily influence the market for our solar service offerings and are constantly evolving. These statutes, regulations, and administrative rulings relate to electricity pricing, net metering, consumer protection, incentives, taxation, competition with utilities, and the interconnection of homeowner-owned and third party-owned solar energy systems to the electrical grid. Governments, often acting through state utility or public service commissions, change and adopt different rates for residential customers on a regular basis and these changes can have a negative impact on our ability to deliver savings, or energy bill management, to customers.

Many utilities, their trade associations, and fossil fuel interests, which have significantly greater economic, technical, operational, and political resources than the residential solar industry, are currently challenging solar-related policies to reduce the competitiveness of residential solar energy. Any adverse changes in solar-related policies could have a negative impact on our business and prospects.

Regulations and policies related to rate design could deter potential customers from purchasing our solar service offerings, reduce the value of the electricity our systems produce, and reduce any savings that our customers could realize from our solar service offerings.

All states regulate investor-owned utility retail electricity pricing, and there are numerous publicly owned utilities and electric cooperatives that establish their own retail electricity pricing through some form of regulation or internal process. These regulations and policies could deter potential customers from purchasing our solar service offerings. California, our primary state of operations, has one of the most aggressive rate design pricing regimes, which includes high electricity rates and incentives for consumers to transition to solar energy and other types of renewable energy. Texas is another state in which we operate, and in contrast has electricity pricing which is much lower than the national average, as its policy emphasizes cheaper power rather than green energy incentives. Nevada is a third state in which we operate, and has an electricity rate regime more similar to that of Texas than California. Utilities in still other states such as Arizona and Utah have sought and secured rate design changes that reduce credit for residential solar exports to below the retail rate and impose new charges for rooftop solar customers, and other state utilities might follow suit.  Such rate changes can include changing rates to charge lower volume-based rates—the rates charged for kilowatt hours of electricity purchased by a residential customer—while raising unavoidable fixed charges that homeowners are subject to when they purchase solar energy from third parties and levying charges on homeowners based on their point of maximum demand during a month (referred to as “demand charge”). Such forms of rate design could adversely impact our business by reducing the value of the electricity our solar energy systems produce compared to retail net metering, and reducing any savings customers realize by purchasing our solar service offerings. In addition to changes in general electricity rates charged to all residential customers, utilities are increasingly seeking solar-specific charges (which may be fixed charges, capacity-based charges, or other rate charges). Any of these changes could materially reduce the demand for our offerings and could limit the number of markets in which our offerings are competitive with electricity provided by the utilities. 

Interconnection limits or circuit-level caps imposed by regulators might significantly reduce our ability to sell our solar service offerings in certain markets or slow interconnections.

Interconnection rules establish the circumstances in which rooftop solar will be connected to the electricity grid, and interconnection limits or circuit-level caps imposed by regulators may curb our growth in key markets. Utilities throughout the country have different rules and regulations regarding interconnection and some utilities cap or limit the amount of solar energy that can be interconnected to the grid. Our systems do not provide power to customers until they are interconnected to the grid.

Interconnection regulations are based on claims from utilities regarding the amount of solar energy that can be connected to the grid without causing grid reliability issues or requiring significant grid upgrades. Some states require the activation of some advanced inverter functionality to head off presumed grid reliability issues, which might require more expensive equipment and more oversight of the operation of the solar energy systems over time. Such regulations might hamper our ability to sell our offerings in certain markets and increase our costs, adversely affecting our business, operating results, financial condition, and prospects. These advanced functions will become more commonplace as regions start to require 1547-2018 inverters, with activation of some advanced functions starting January 2022 in Colorado and elsewhere.

We might not be able to obtain sufficient raw materials in a timely manner or on commercially reasonable terms, which could have a material adverse effect on our results of operations and financial condition.

Although the global supply of polysilicon has increased significantly, we might experience interruption to our supply of silicon or other raw materials or late delivery in the future for the following reasons, among others:

Our failure to obtain the required amounts of silicon raw materials and other raw materials, such as glass, in a timely manner and on commercially reasonable terms could increase our manufacturing costs and substantially limit our ability to meet our contractual obligations to our customers. Any failure by us to meet such obligations could have a material adverse effect on our reputation, ability to retain customers, market share, business and results of operations and may subject us to claims from our customers and other disputes. Our failure to obtain sufficient silicon and other raw materials would result in under-utilization of our production facilities and an increase in our marginal production costs, and any of the above events could have a material adverse effect on our growth, profitability and results of operations.

Failure to achieve satisfactory production volumes of our solar module products could result in higher unit production costs.

The production of solar modules involves complex processes. Deviations in the manufacturing process can cause a substantial decrease in output and, in some cases, disrupt production significantly or result in no output. From time to time, we have experienced lower-than-anticipated manufacturing output during the ramp-up of production lines, which can occur during the introduction of new products, the installation of new equipment or the implementation of new process technologies. As we bring additional lines or facilities into production, we might operate at less than intended capacity during the ramp-up period, and the demand in global solar power product markets might decrease, including the demand for solar modules, which could cause us to operate at less than intended capacity, and result in higher marginal production costs and lower output, which could have a material adverse effect on our business, financial condition and results of operations.

Performance shortcomings in our products might cause us to incur additional expenses and warranty costs, damage our reputation and cause our sales to decline.

Our products might contain defects that are not detected until after they are shipped or inspected by our customers.

Our solar modules are typically sold with a 10-year warranty for material and workmanship and a 25-year (30-year for dual glass module) linear power output warranty against the maximum degradation of the actual power output for each year after the warranty start date, and if a solar module is defective during the relevant warranty period, we will either repair or replace the solar module. As we continue to increase our sales to the major export markets, we might be exposed to increased warranty claims. Product defects could cause significant damage to our market reputation and reduce our product sales and market share, and our failure to maintain the consistency and quality throughout our production process could result in substandard quality or performance of our products. If we deliver our products with defects, or if there is a perception that our products are of substandard quality, we might incur substantially increased costs associated with returns or replacements of our products, our credibility and market reputation could be harmed and our sales and market share may be materially adversely affected.

Our lack of sufficient patent protection in and outside of US might undermine our competitive position and subject us to intellectual property disputes with third parties, both of which might have a material adverse effect on our business, results of operations and financial condition.

We have developed various production process related know-how and technologies, which have a critical role in our quality assurance and cost reduction. We have also implemented our research and development programs to develop techniques and processes that will improve production efficiency and product quality. Our intellectual property and proprietary rights from our research and development programs will be crucial in maintaining our competitive edge in the solar power industry. As of the date of this prospectus, we have two patents and two other pending patent applications in the US Our patents’ validity is generally ten years, and we plan to sustain protection for our intellectual property and proprietary knowledge with patents and otherwise, but cannot assure you that we will be successful in obtaining patents in the US in a timely manner or at all. We also use contractual arrangements with employees and trade secret protections to protect our intellectual property and proprietary rights, but contractual arrangements afford only limited protection and the actions we might take to protect our intellectual property and proprietary rights might not be adequate. Other parties might obtain knowledge of our know-how and technologies through independent development, and our inability to protect our production process, related know-how and technologies, our intellectual property and proprietary rights or any combination of the above might undermine our competitive position. Third parties may infringe upon or misappropriate our proprietary technologies or other intellectual property and proprietary rights. Policing unauthorized use of proprietary technology can be difficult and expensive, and litigation can be costly and diverts management attention and other resources away from our business, but might be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of our proprietary rights. We cannot assure you that we will prevail in any potential litigation, and an adverse determination might impair our intellectual property and proprietary rights and harm our business, prospects and reputation.

Risks Related to Our Operation in Phoenix

The Company’s investment in Phoenix Cars LLC and Phoenix Motorcars Leasing LLC (together, “Phoenix”) is highly risky. Following are material risks related to the investment.

Our results of Phoenix operations have not resulted in profitability, and may not be able to achieve profitability going forward.

Phoenix had accumulated deficit of $28.6 million as of December 31, 2022. Phoenix have incurred a net loss of $12.7 million and $14.6 million, for the years ended December 31, 2022 and 2021, respectively. Phoenix may incur significant losses in the future and may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Its management is developing plans to alleviate the negative trends and conditions described above and there is no guarantee that such plans will be successfully implemented. Its business plan is focused on providing sustainable and cost-effective solutions to the commercial transportation sector but is still unproven. There is no assurance that even if we successfully implement our business plan, that Phoenix will be able to curtail its losses or ever achieve profitable operations.

Phoenix has yet to achieve positive cash flow and, given its projected funding needs, its ability to generate positive cash flow is uncertain.

Phoenix has had negative cash flow from operating activities of $14.9 million and 12.9 million for years ended December 31, 2022 and 2021. Phoenix anticipate that it will continue to have negative cash flow from operating and investing activities through the remainder of 2023 as it expects to incur research and development, sales and marketing, and general and administrative expenses and make capital expenditures in its efforts to increase sales and ramp up operations. Its business also will at times require significant amounts of working capital to support its growth. An inability to generate positive cash flow for the near term may adversely affect its ability to raise needed capital for its business on reasonable terms, diminish supplier or customer willingness to enter into transactions with Phoenix, and have other adverse effects that may decrease its long-term viability. There can be no assurance that Phoenix will achieve positive cash flow in the near future or at all.

Phoenix may need to raise additional financing for the remainder of 2023, and such financing may not be available to Phoenix on acceptable terms or at all.

Although we believe Phoenix has sufficient capital resources and capital availability to meet its needs for the remainder of 2023, we expect that phoenix will not be able to maintain the levels of capital and operating expenditures necessary to perform its current business plan, including launch and ramp of its Gen 4 products unless Phoenix generates additional cash from operations or obtain additional financing. In light of its operating history and the expected schedule to bring Gen 4 to market, we expect that it will be necessary to obtain additional financing, either through the existing SEPA equity line to issue registered shares, private placement of un-registered shares, or debt financing. We cannot be certain that additional financing will be available to Phoenix on favorable terms when required, or at all. Recent turmoil in the capital markets, including the tightening of credit and rise of interest rates, may cause Phoenix to face higher borrowing costs, less available capital, more stringent terms and tighter covenants. In such circumstances, if Phoenix cannot raise additional capital, its financial condition, results of operations, business and prospects could be materially and adversely affected. In addition, if Phoenix raises additional capital through issuances of equity, through the SEPA or otherwise, Phoenix’s stockholders could experience dilution.

The automotive market is highly competitive, and Phoenix may not be successful in competing in this industry.

Both the automobile industry generally, and the EV segment in particular, are highly competitive, and Phoenix will be competing for customers and sales with both EV manufacturers and traditional automotive companies. Most of its current and potential competitors may have significantly greater financial, technical, manufacturing, marketing, or other resources than Phoenix does and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products than Phoenix may devote to its products. Phoenix expects competition for EVs to intensify due to increased demand and a regulatory push for alternative fuel vehicles. In addition, as fleet operators begin transitioning to EVs on a mass scale, Phoenix expects that more well-financed competitors will enter the commercial fleet EV market. Further, as a result of new entrants in the commercial fleet EV market, Phoenix may experience increased competition for components and other parts of its vehicles, which may have limited or single-source supply.

If Phoenix is unable to successfully design, develop, manufacture and sell its Gen 4, Gen 5, EF-1 truck and EF-1 V van, its business, prospects, financial condition, results of operations, and cash flows could be materially and adversely affected. If Phoenix is able to manufacture and market the Gen 4, Gen 5, EF-1 truck and EF-1 V van, factors affecting competition include product performance and quality, technological innovation, customer experience, brand differentiation, product design, pricing and TCO, and manufacturing scale and efficiency. Increased competition will lead to lower vehicle unit sales and increased inventory, which may result in downward price pressure and adversely affect its business, prospects, financial condition, results of operations, and cash flows.

Phoenix may face competition from global automotive manufacturers.

Phoenix competes with a number of commercial EV manufacturers, including those such as Lightning eMotors, GreenPower Bus, SEA Electric and Arrival. In addition to Tesla & Rivian, a number of traditional global automobile manufacturers, including Ford, General Motors, Mercedes Benz, and Nissan-Renault- Mitsubishi-Toyota, have entered the consumer EV business, and a few, including BYD, Ford, General Motors, Tesla and Daimler have begun entry into the commercial EV market. These companies have far greater resources, brand recognition, and distribution channels than Phoenix or the Company does, which could make it difficult for Phoenix to gain widespread market acceptance. There can be no assurance that Phoenix will be able to compete successfully with other market participants, and, if Phoenix cannot, then its business could fail.

Phoenix will continue to require additional capital to fund its operations, and if Phoenix fails to obtain necessary financing, Phoenix may not be able to complete the development and commercialization of its electric vehicles.

The design, manufacture and sale of electric vehicles is a capital-intensive business. Although Phoenix pursues an “asset light strategy” for growth, its business plan to design, produce, sell and service commercial electric buses, vans and trucks, including the Gen 4, Gen 5, EF-1 truck and EF-1 V van, is expected to require continued capital investment and incur substantial costs including research and development expenses, raw material procurement costs, sales and distribution expenses as Phoenix builds its brand and market its vehicles, and general and administrative expenses as Phoenix scales its operations, identify and commit resources to investigate new areas of demand and incur costs as a public company. its ability to become profitable in the future will not only depend on its ability to complete the design and development of its vehicles but also to control its capital expenditures and costs. As Phoenix expands its product portfolio, including the scheduled release of Gen 4 in 2023, Phoenix will need to manage costs effectively to sell those products at its expected margins. If Phoenix is unable to cost efficiently design, manufacture, market, sell and distribute and service its vehicles and provide its services, its business, prospects, financial condition, results of operations, and cash flows would be materially and adversely affected. Unlike established EV automotive manufacturers that have greater financial resources than Phoenix does, there can be no assurance that Phoenix will have access to the capital Phoenix needs on favorable terms when required or at all. In addition, future debt financing into which Phoenix enters may impose upon us covenants that restrict its operations, including limitations on its ability to incur liens or additional debt, pay dividends, redeem its stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.

If Phoenix is unable to raise additional capital when required or on acceptable terms, Phoenix may be required to significantly delay, scale back or discontinue the development or commercialization of one or more of its EV products, restrict its operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on its business, stock price and its relationships with third parties with whom Phoenix has business relationships, at least until additional funding is obtained. If Phoenix does not have sufficient funds to continue operations, Phoenix could be required to seek bankruptcy protection or other alternatives that would likely result in its stockholders losing some or all of their investment in us. In addition, its ability to achieve profitability or to respond to competitive pressures would be significantly limited.

Phoenix may experience delays in launching and ramping up production or Phoenix may be unable to control its manufacturing costs.

Phoenix has previously experienced and may in the future experience launch and production ramp-up delays. In addition, Phoenix may introduce in the future new or unique manufacturing processes and design features for its products including enhancements under development relating to production assembly efficiency, material component availability, cost reduction and customer feedback. There is no guarantee Phoenix will be able to successfully and timely introduce and scale such processes or features. Phoenix has limited experience to date in manufacturing electric vehicles at low volumes. To be successful, Phoenix will need to implement, maintain, and ramp-up efficient and cost-effective manufacturing capabilities, processes and supply chains, high quality and output rates planned at its Anaheim manufacturing facility. Phoenix also needs to hire, train, and compensate skilled employees for operations. Bottlenecks and other unexpected challenges such as those experienced in the past may arise during its production ramps, and Phoenix must address them promptly while continuing to improve manufacturing processes and reducing costs. If Phoenix is not successful in achieving these goals, Phoenix could face delays in establishing and/or sustaining its vehicle production ramp-ups or be unable to meet its related cost and profitability targets. Any delay or other complication in ramping up the production of its current products or the development, manufacture, launch and production ramp-ups of its future products, features and services, or in doing so cost-effectively and with high quality, may harm its brand, business, prospects, financial condition, and operating results.

Costs of electric vehicles are high in comparison with those of traditional vehicles powered by internal combustion engines or hybrids.

Phoenix’s EVs will not gain wide acceptance unless Phoenix can reduce manufacturing and selling costs. Prices of Phoenix EVs range from $165,000 to $225,000, whereas prices of comparable traditional combustion engine vehicles range from approximately $50,000 to $80,000. The cost difference is due to the incremental cost of electric drivetrain, including lithium-ion batteries, motors, inverter and control software, coupled with the relatively low volume of production, leading to higher overheads.

In addition, government subsidies and incentives, including those available in California, are important for the cost-competitiveness of Phoenix’s EVs, and Phoenix’s growth and prospects depend in part on the availability and amounts of these subsidies and incentives. Any reduction, elimination or discriminatory application of government subsidies and incentives because of budgetary challenges, policy changes, the reduced need for such subsidies and incentives due to the perceived success of electric vehicles, or other reasons may impair the cost-competitiveness of Phoenix’s EVs.

The range of Phoenix’s existing EVs is limited, compared with that of traditional vehicles.

Whereas traditional combustion engine medium-duty vehicles may travel from 240 to 350 miles before refueling, Phoenix’s existing EVs have a maximum range of 160 miles and minimum recharging time of five to six hours. Currently, Phoenix’s EVs can be charged only at the owner’s location or select public charging locations using compatible charging equipment, further limiting the EVs to local use. Accordingly, potential customers needing vehicles with longer ranges or quicker turnaround of depleted electric energy supply may find Phoenix’s products relatively less attractive.

Phoenix may experience significant delays in the design, manufacture, financing, regulatory approval, launch and delivery of its vehicles, which could harm its business, prospects, financial condition, results of operations, and cash flows.

Phoenix’s future business depends in large part on its ability to execute on its plans to develop, manufacture, market and sell its vehicles. Any delay in the financing, design, manufacture, regulatory approval, launch or delivery of its vehicles could materially damage its brand, business, prospects, financial condition, results of operations, and cash flows, and could cause liquidity constraints. Vehicle manufacturers often experience delays in the design, manufacture, and commercial release of new products. To the extent Phoenix delay the launch of its vehicles, its growth prospects could be adversely affected as Phoenix may fail to establish or grow its market share. Furthermore, Phoenix relies on third-party suppliers for the provision and development of the key components and materials used in its vehicles. To the extent its suppliers experience any delays in providing us with or developing necessary components Phoenix could experience delays in delivering on its timelines.

All of Phoenix’s current range of products are built on Ford’s E-450 chassis. A decision by Ford to offer an electric version of this chassis, directly, would impact the viability of Phoenix’s current products.

Phoenix currently builds all its products on Ford’s E-450 chassis. Ford does not offer an electric version of this chassis, due to the relatively small market size for medium-duty electric vehicles. As volumes increase, there is a potential risk of Ford’s launching an electric version of Ford’s E-450 chassis directly from the factory, negating the need for Phoenix’s current range of products. Additionally, a shortage in the availability of this chassis would impact Phoenix’s capability to produce and fulfill customer’s orders in a timely manner.

Phoenix’s future growth is dependent upon the willingness of operators of commercial vehicle fleets to adopt electric vehicles and upon its ability to produce, sell and service vehicles that meet their needs. If the market for commercial electric vehicles does not develop as Phoenix expects, or if it develops slower than Phoenix expects, its business, prospects, financial condition and operating results will be adversely affected.

Phoenix’s growth requires adoption of commercial vehicle operators to adopt EVs for their fleets and on its ability to produce, sell and service vehicles that meet their needs. EVs’ use in the medium-duty commercial vehicle market is a relatively new development, particularly in the United States, and is characterized by rapidly changing technologies and evolving government regulation, industry standards, and customer views of the merits of using electric vehicles in their businesses. This process has been slow, as, without including the impact of government or other subsidies and incentives, the purchase prices for Phoenix’s EVs currently is higher than those for diesel-fueled vehicles. The relatively low price of oil has also hurt Phoenix’s over the last few years.

Phoenix must educate fleet managers regarding the economic benefits that Phoenix believes result over the life of its EVs. Phoenix believes that these benefits depend on the following:

If, in weighing these factors, operators of commercial vehicle fleets determine that there is no compelling business justification for purchasing commercial EVs, the market for commercial EVs may not develop as, or may develop more slowly than, Phoenix expects which would adversely affect Phoenix’s business, prospects, financial condition and operating results.

Phoenix has a limited number of customers, with which Phoenix does not have long-term agreements, and expects that a significant portion of its future sales will be from a limited number of customers. The loss of any of these customers could materially harm Phoenix’s business.

A significant portion of Phoenix’s projected future revenue is expected to be generated from a limited number of customers. Phoenix has no contracts with customers that include long-term commitments that ensure future sales of vehicles. The loss of or a reduction in sales or anticipated sales to Phoenix’s most significant customers would have a material adverse effect on its business, prospects, financial condition and operating results.

An inability to attract new customers for its Gen 4 products and future generations of products will substantially impact its ability to grow revenue or improve its financial results.

Phoenix’s growth will depend in large part on its ability to attract new customers. As Phoenix drives growth in its existing markets, and Phoenix anticipates that its sales activities will lead to additional orders and deliveries for its Gen 4 products, and, as a result, increase its base of customers. An inability to attract new customers would substantially impact its ability to grow revenue or improve its financial results. Further, Phoenix often receive binding and non-binding purchase orders from customers that are contingent on various factors, such as completing a successful pilot program, obtaining third-party financing or obtaining government grants, such as HVIP. In addition, some customers are interested in future products, not yet in its production. While Phoenix continuously strives to expand its product portfolio, developing new products takes a significant amount of time and expense, such as engineering work, sourcing new suppliers, marketing, testing and quality control. In addition, orders may be delayed for a number of reasons, many of which are beyond its control, including supplier delays, which may cause delays in its manufacturing process, or delays in customers obtaining financing. As a result, any such orders may not result in actual revenue in the near term or at all. Accordingly, revenue estimates and the amount and timing of work expected to be performed at the time the estimate of order backlog is developed is subject to change.

Phoenix may not be able to accurately estimate the supply and demand for its vehicles, which could result in a variety of inefficiencies in its business and hinder its ability to generate revenue. If Phoenix fails to accurately predict its manufacturing requirements, Phoenix could incur additional costs or experience delays.

It is difficult to predict its future revenues and appropriately budget for its expenses, and Phoenix may have limited insight into trends that may emerge and affect its business. Phoenix will be required to provide forecasts of its demand to its suppliers several months prior to the scheduled delivery of products to its prospective customers. If Phoenix overestimates its requirements, its suppliers may have excess inventory, which indirectly would increase its costs. If Phoenix underestimates its requirements, its suppliers may have inadequate inventory, which could interrupt manufacturing of its products and result in delays in shipments and revenues. In addition, lead times for materials and components that its suppliers order may vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. If Phoenix fails to order sufficient quantities of product components in a timely manner, the delivery of vehicles to its customers could be delayed, which would harm its business, financial condition and operating results.

Phoenix faces various challenges in scaling manufacturing, assembling, and converting processes effectively and quickly from low volume production to high volume production for its Gen 4 drivetrain products.

Phoenix has no experience to date in high volume manufacturing, assembling, and converting to commercial electric vehicles. Phoenix does not know whether Phoenix will be able to develop efficient, low-cost manufacturing, assembly and converting capability and processes, and reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes Phoenix targets. Any failure to develop such manufacturing, assembly and converting processes and capabilities and reliable sources of component supply within its projected costs and timelines could have a material adverse effect on its business, prospects, operating results and financial condition. Even if Phoenix is successful in developing its high-volume manufacturing, assembly and converting capability and processes, and reliable sources of component supply, Phoenix does not know whether Phoenix will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond its control such as problems with suppliers and vendors, or in time to meet its commercialization schedules or to satisfy the requirements of customers. In addition, certain components Phoenix integrates may not be available on a consistent basis or in large quantities. its business, prospects, financial condition and operating results could be adversely affected if Phoenix experiences disruptions in its supply chain or if Phoenix cannot obtain materials of sufficient quality at reasonable prices.

The complexity in Phoenix’s business is expected to grow as Phoenix develop new products and services. Phoenix has limited experience in simultaneously designing, testing, manufacturing, upgrading, adapting and selling its electric drivetrains as well as limited experience allocating its available resources among the design and production of multiple electric drivetrains. As Phoenix add complexity to its product line and introduce new products and services, Phoenix may experience unexpected delays.

If Phoenix is unable to scale its existing assembly processes and systems quickly while maintaining its current quality level, including as a result of supply chain constraints and inability to manage complexity in its business, Phoenix may be unable to meet its customers’ vehicle quality and quantity requirements or its forecasted production schedule or lower its cost of sales. As a result, Phoenix may not be able to meet its customers’ delivery schedules and could face the loss of customers, or be exposed to liability to customers to which Phoenix promised delivery, which could adversely affect its business, prospects, financial condition and operating results.

If Phoenix fails to scale its business operations or otherwise manage future growth effectively as Phoenix attempts to rapidly grow its company, Phoenix may not be able to produce, market, service and sell its vehicles profitably or successfully.

Phoenix’s future growth depends upon its ability to maintain relationships with its existing suppliers and source suppliers for its critical components, and to complete building out its supply chain, while effectively managing the risks due to such relationships.

Phoenix’s success will be dependent upon its ability to maintain and expand its relationships with suppliers who are critical and necessary to the output and production of its vehicles. Phoenix also relies on a small group of suppliers to provide us with the components for its vehicles. The supply agreements Phoenix has or may enter into with key suppliers in the future may have provisions where such agreements can be terminated in various circumstances, including potentially without cause. If these suppliers become unable to provide, or experience delays in providing, components, or if the supply agreements Phoenix has in place are terminated, it may be difficult to find replacement components. Changes in business conditions, pandemics, governmental changes and other factors beyond its control or that Phoenix does not presently anticipate could affect its ability to receive components from its suppliers.

Further, Phoenix has not secured supply agreements for all of its components. In addition, there is the possibility that finalizing the supply agreements for the parts and components of its vehicles will cause significant disruption to its operations, or such supply agreements could be at costs that make it difficult for us to operate profitably.

If Phoenix does not enter into long-term supply agreements with guaranteed pricing for its parts or components, Phoenix may be exposed to fluctuations in prices of components, materials and equipment. Agreements for the purchase of battery cells typically contain pricing provisions that are subject to adjustment based on changes in market prices of key commodities. Substantial increases in the prices for such components, materials and equipment would increase its operating costs and could reduce its margins, if Phoenix cannot recoup the increased costs. Any attempts to increase the announced or expected prices of its vehicles in response to increased costs could be viewed negatively by its potential customers and could adversely affect its business, prospects, financial condition or operating results.

Phoenix may be unable to adequately control the costs or maintain adequate supply of components associated with its operations.

Phoenix may be unable to adequately control the costs associated with its operations. Phoenix expects to incur significant costs related to procuring raw materials required to manufacture and assemble its vehicles. The prices for these raw materials fluctuate depending on factors beyond its control. its business also depends on the continued supply of battery packs for its vehicles. Phoenix is exposed to multiple risks relating to availability and pricing of quality lithium-ion battery packs.

Furthermore, currency fluctuations, tariffs or shortages in petroleum or other raw materials and other economic or political conditions may result in significant increases in freight charges and raw material costs. Substantial increases in the prices for its raw materials or components would increase its operating costs, and could reduce its margins. In addition, a growth in popularity of electric vehicles without a significant expansion in battery cell production capacity could result in shortages, which would result in increased costs in raw materials to us or impact its prospects.

Disruption of supply or shortage of raw materials could harm Phoenix’s business.

Historically, Phoenix has experienced significant delivery delays and supply shortage with its BOM components, battery packs in particular. When encountered with supply disruption or shortage, its production plans and delivery schedules to its customers are to a large extent dictated by the timing of receiving these BOM components, or when a different supplier is fully qualified and customized into its product design. For example, COVID-19 has caused disruptions to and delays in its operations, including shortages and delays in the supply of certain parts, including batteries and chassis. Although Phoenix has worked diligently with its suppliers to mitigate the risks, Phoenix expects supply chain delays to continue to have a significant impact on its 2023 production and revenue and possibly thereafter. Any such supply interruption or shortage could materially adversely affect its business and operating results.

Phoenix EVs use lithium-ion batteries, which, if not appropriately managed and controlled, have caught fire or released smoke and flames. Such events could result in liability under Phoenix’s warranties, for damage or injury, adverse publicity and a potential safety recall, any of which would hurt Phoenix’s prospects.

The battery packs in Phoenix’s EVs use lithium-ion cells, which, if not appropriately managed and controlled can rapidly release energy by venting smoke and flames that can ignite nearby materials. Highly publicized incidents of laptop computers and cell phones bursting into flames have focused attention on the safety of these cells. These events also have raised questions about the suitability of lithium-ion cells for automotive applications. There can be no assurance that a field failure of Phoenix’s battery packs will not occur, which would damage the vehicle or lead to personal injury or death that subject Phoenix to lawsuits. Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity could adversely affect Phoenix’s business, prospects, financial condition and operating results.

If Phoenix’s vehicles fail to perform as expected, its ability to develop, market and sell or lease its electric vehicles could be harmed.

If Phoenix’s vehicles were to contain defects in design and/or manufacture that cause them not to perform as expected or that require repair, its ability to develop, market and sell or lease its vehicles could be harmed. For example, the operation of its vehicles is highly dependent on software that will require modification and updates over time. Software products are inherently complex and often contain defects and errors when first introduced. Phoenix currently has a limited frame of reference by which to evaluate the long-term quality, reliability and performance characteristics of its buses, trucks, and other products. There can be no assurance that Phoenix will be able to detect and repair any defects in its products before commencing the sale of its vehicles. Any product defects or any other failure of its vehicles to perform as expected could harm its reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims or significant warranty and other expenses, and could have a material adverse impact on its business, financial condition, operating results and prospects.

Phoenix is relying on third-party suppliers to develop a number of advanced technologies for use in its products.

There can be no assurances that its suppliers will be able to meet the technological requirements, production timing and volume requirements to support its business plan. In addition, the technology may not comply with the cost, performance useful life and warranty characteristics Phoenix anticipates in its business plan. As a result, its business plan could be significantly impacted and Phoenix may incur significant liabilities under warranty claims which could adversely affect its business, prospects and results of operations.

Phoenix is relying on a limited number of third-party suppliers to provide us with products for its charger and material handling division.

Currently Phoenix is dependent entirely on third-party suppliers and partners for its chargers and material handling product lines. If these suppliers are not able to provide us with products due to supply chain constrains or other reasons, Phoenix does not have the capability or knowledge to produce these products locally. This would result in delays in getting end products to customers and negatively impact its business and results of operations.

Phoenix’s success may be dependent on its development and protection of intellectual property rights.

Phoenix relies on confidentiality and trade secret protections to protect its proprietary technology. All new EV drivetrain and technical developments by us will be owned by us. its success will, in part, depend on its ability to obtain patents and trademarks and protect its trade secrets and proprietary technology. Phoenix is currently maintaining its engineering under confidentiality agreements and other agreements to preserve its trade secrets and other proprietary technology. Although Phoenix has entered into confidentiality agreements with its employees, consultants and contractors, its agreements may not adequately protect its intellectual property, particularly with respect to conflicts of ownership relating to work product generated by its employees, consultants and contractors, and Phoenix cannot be certain that others will not gain access to its trade secrets and other proprietary technology. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to its trade secrets.

Phoenix may not succeed in establishing, maintaining and strengthening its brand, which would materially and adversely affect customer acceptance of its vehicles and components and its business, revenues and prospects.

Phoenix’s business and prospects heavily depend on its ability to develop, maintain and strengthen its brand. If Phoenix is not able to establish, maintain and strengthen its brand, Phoenix may lose the opportunity to build a larger base of customers. its ability to develop, maintain and strengthen its brand will depend heavily on the success of its marketing efforts. The automobile industry is intensely competitive, and Phoenix may not be successful in building, maintaining and strengthening its brand. its current and potential competitors, particularly automobile manufacturers headquartered in the United States, Japan, the European Union and China, have greater name recognition, broader customer relationships and substantially greater marketing resources than Phoenix does. If Phoenix does not develop and maintain a strong brand, its business, prospects, financial condition and operating results will be materially and adversely impacted.

Phoenix’s electric vehicles will compete for market share with vehicles powered by other vehicle technologies that may prove to be more attractive than its vehicle technologies.

Phoenix’s bus and light and medium-duty truck market currently is serviced by many manufacturers with existing customers and suppliers using proven and widely accepted fuel technologies. Additionally, its competitors are working on developing technologies that may be introduced in its target market. If any of these alternative technology vehicles can provide lower fuel costs, greater efficiencies, greater reliability or otherwise benefit from other factors resulting in an overall lower total cost of ownership, this may negatively affect the commercial success of its vehicles or make its vehicles uncompetitive.

Phoenix may be unable to keep up with changes in electric vehicle technology as new entrants and existing, larger manufacturers enter the electric vehicle space.

Phoenix’s Zeus line of buses and trucks are designed for use with, and is dependent upon, existing electric vehicle technology. As new companies and larger, existing vehicle manufacturers enter the electric vehicle space, Phoenix may lose any technological advantage Phoenix may have had in the marketplace and suffer a decline in its position in the market. As technologies change, Phoenix plans to upgrade or adapt its products to continue to provide products with the latest technology. However, its products may become obsolete or its research and development efforts may not be sufficient to adapt to changes in or to create the necessary technology to effectively compete. As a result, its potential inability to adapt to and develop the necessary technology may harm its competitive position.

Phoenix’s business requires highly technically skilled personnel, for whom Phoenix must compete for employment.

Phoenix’s manufacturing and research and development require highly skilled electrical, mechanical, and software engineers. Competition for employment of such individuals is intense, and Phoenix’s ability to attract and retained and retaining them is essential to continuing its business. Growth of Phoenix’s business will depend upon its ability to compete for increasing numbers of such employees, and there can be no assurance that Phoenix will be able to do so. its inability to attract and retain key personnel may materially and adversely affect its business operations. Any failure by its management to effectively anticipate, implement and manage the changes required to sustain its growth would have a material adverse effect on its business, financial condition and results of operations.

Phoenix will also need to hire and train a significant number of hourly employees to expand its commercial manufacturing operations. Furthermore, in the event employees hired by us seek to join or form a labor union, Phoenix could be subject to risks as Phoenix engages in an attempt to finalize negotiations with any such union, including potential work slowdowns or stoppages, delays and increased costs. If Phoenix is unsuccessful in hiring and training an expanded workforce in a timely and cost-effective manner, its business, financial condition and results of operations could be adversely affected.

Phoenix is highly dependent on the services of Liang Lance Zhou, its Chief Executive Officer.

Phoenix is highly dependent on the services of Liang Lance Zhou, its Chief Executive Officer. Mr. Zhou is the source of many, if not most, of the ideas and execution driving its strategies and supply chains. If Mr. Zhou were to discontinue his service to us due to death, disability or any other reason, Phoenix would be significantly disadvantaged.

Risks Related to Our Ordinary Shares

Our ordinary shares may be delisted under the Holding Foreign Companies Accountable Act ("HCFAA") if the PCAOB is unable to adequately inspect audit documentation located in China. The delisting of our ordinary shares or the threat of their being delisted, may have a material adverse impact on our listing and trading in the U.S. and the trading prices of our ordinary shares.

Pursuant to the Holding Foreign Companies Accountable Act (the “HFCA Act”), if the Public Company Accounting Oversight Board (the “PCAOB”), is unable to inspect an issuer’s auditors for two consecutive years, the issuer’s securities are prohibited to trade on a U.S. stock exchange. The PCAOB issued a Determination Report on December 16, 2021 (the “Determination Report”) which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. Furthermore, the Determination Report identified the specific registered public accounting firms which are subject to these determinations (“PCAOB Identified Firms”).

The Company’s current auditor, Marcum Asia CPAs LLP ("MarcumAsia"), the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. MarcumAsia, whose audit report is included in this annual report, is headquartered in New York, New York, and, as of the date of this annual report, was not included in the list of PCAOB Identified Firms in the Determination Report.

On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “Protocol”) with the China Securities Regulatory Commission (the “CSRC”) and the Ministry of Finance (“MOF”) of the People’s Republic of China, governing inspections and investigations of audit firms based in mainland China and Hong Kong. Pursuant to the Protocol, the PCAOB conducted inspections on select registered public accounting firms subject to the Determination Report in Hong Kong between September and November 2022.

On December 15, 2022, the PCAOB board announced that it has completed the inspections, determined that it had complete access to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, and voted to vacate the Determination Report.

Notwithstanding the foregoing, the Company’s ability to retain an auditor subject to the PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related to us, may depend on the relevant positions of U.S. and Chinese regulators. Marcum Asia CPAs LLP’s audit working papers related to us are located in China. With respect to audits of companies with operations in China, there are uncertainties about the ability of its auditor to fully cooperate with a request by the PCAOB for audit working papers in China without the approval of Chinese authorities. If the PCAOB is unable to inspect or investigate completely the Company’s auditor because of a position taken by an authority in a foreign jurisdiction, or the PCAOB re-evaluates its determination as a result of any obstruction with the implementation of the Statement of Protocol, then such lack of inspection or re-evaluation could cause trading in the Company’s securities to be prohibited under the HFCA Act, and ultimately result in a determination by a securities exchange to delist the Company’s securities. Accordingly, the HFCA Act calls for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.

On December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act, or the AHFCA Act, was signed into law, which reduced the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two. As a result, the risks mentioned above have been heightened.

If our ordinary shares are subject to a trading prohibition under the HFCA Act or the AHFCA Act, the price of our ordinary shares may be adversely affected, and the threat of such a trading prohibition would also adversely affect their price. If we are unable to be listed on another securities exchange that provides sufficient liquidity, such a trading prohibition may substantially impair your ability to sell or purchase our ordinary shares when you wish to do so.

We have significant “equity overhang” which could adversely affect the market price of our Shares and impair our ability to raise additional capital through the sale of equity securities.

As of the date of this annual report, we had 30,292,960 ordinary shares outstanding, including 6,023,204, ordinary shares, or approximately 19.88% of our total ordinary shares outstanding, held by Mr. Xiaofeng Peng, our director, executive chairman of the board of directors and chief executive officer. The possibility that substantial amounts of our outstanding ordinary shares may be sold by Mr. Xiaofeng Peng or the perception that such sales could occur, or “equity overhang,” could adversely affect the market price of our ordinary shares, and could impair our ability to raise additional capital through the sale of equity securities in the future.

We are subject to litigation risks, including securities class actions and shareholder derivative actions, which may be costly to defend and the outcome of which is uncertain.

From time to time, we are subject to legal claims, with and without merit, that may be costly, and which may divert the attention of our management and our resources in general. In addition, our solar projects may be subject to litigation or other adverse proceedings that may adversely impact our ability to proceed with construction or grid connection or sell a given project, which would adversely affect our ability to recognize revenue with respect to such project. We are currently involved in various legal proceedings. See “Item 1. Business -Legal Proceedings.” The results of complex legal proceedings are difficult to predict. Lawsuits filed against us may assert types of claims that, if resolved against us, could give rise to substantial damages, and an unfavorable outcome or settlement of one or more of these lawsuits, or any future lawsuits, could have a material adverse effect on our business, financial condition, or results of operations. Even if these lawsuits are not resolved against us, the costs of defending such lawsuits may not be covered by our insurance policies. We cannot assure you that additional litigation will not be filed against us in the future.

It may be difficult to effect service of process on, or to enforce any judgments obtained against us, our directors, or our senior management members.

There is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments). However, such a judgment will generally be recognized and enforced at common law by the courts of the Cayman Islands, without any re-examination or re-litigation of the merits of the case, by an action commenced on the foreign judgment debt, provided that: (a) the foreign court had jurisdiction over the parties to the dispute; (b) the judgment is for a liquidated sum; (c) the judgment is final, conclusive and not subject to appeal; (d) the judgment is not of a public, revenue or penal nature; (e) the judgment was not obtained by fraud or in proceedings contrary to natural justice; (f) the enforcement of the judgment would not be contrary to Cayman Islands public policy; (g) the judgment is not inconsistent with sections 91 or 92 of the Trusts Act (as revised) of the Cayman Islands; (h) the process by which the judgment is enforced is not barred under laws relating to the prescription and limitation of actions; and (i) the judgment is not inconsistent with a Cayman Islands judgment in respect of the same cause or point at issue between the same parties.

However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.

Our shareholders may experience future dilution.

Our amended and restated memorandum and articles of association permits our board of directors, without shareholder approval, to authorize the issuance of preferred shares. The board of directors may classify or reclassify any preferred shares to set the preferences, rights and other terms of the classified or reclassified shares, including the issuance of preferred shares that have preference rights over our ordinary shares with respect to dividends, liquidation and voting rights. Furthermore, substantially all of our ordinary shares for which our outstanding stock options are exercisable are, once they have been purchased, eligible for immediate sale in the public market.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make these rights available in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

The issuance of additional shares in our capital or the exercise of stock options or warrants could be substantially dilutive to your shares and may negatively affect the market price of our ordinary shares.

The price of our securities has been and may continue to be highly volatile.

The price of our ordinary shares has been and may continue to be subject to wide fluctuations in the future in response to many events or factors, including those discussed in the preceding risk factors relating to our operations, as well as: