Summary of Significant Accounting Policies | 3. Summary of Significant Accounting Policies (a) Basis of Presentation The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Quarterly results are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. (b) Use of Estimates The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Group to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Group’s unaudited condensed consolidated financial statements include the allowance for doubtful accounts receivable and other receivable, the impairment of goodwill and long-lived assets, fair value of derivative liability and share based compensation. Changes in facts and circumstances may result in revised estimates. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions. (c) Revenue Recognition The Group’s accounting practices under Accounting Standards Codification (“ASC”) No. 606 are as followings: The Group generates revenue from sales of PV components, sales of self-assembled solar modules, roofing and solar energy systems installation, electricity revenue with Power Purchase Agreements (“PPAs”), sales of PV project assets, sales and leasing of EV, and others for the three months ended March 31, 2023 and 2022. Sale of PV components Revenue on sale of PV components includes one performance obligation of delivering the products and the revenue is recognized at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or acceptance of the customer depending on the terms of the underlying contracts. Sales of self-assembled solar modules Revenue on sale of self-assembled solar modules includes one performance obligation of delivering the products and the revenue is recognized at a point in time following the transfer of control of such products to the customer, which typically occurs upon the delivery to the customer. Revenue from roofing and solar energy systems installation Revenue from roofing and solar energy system installation is recognized over time. For revenue from solar energy system installation, the Group’s only performance obligation is to design and install a customized solar energy system, sometimes, reinstall the customer’s existing solar energy system. For revenue from roofing the Group’s only performance obligation is to design and build roof system per customer specifications. The Group’s roofing projects involve the construction of a specific roof systems in accordance with each customer’s selection; the Group’s solar energy system installations involve solar modules being retrofitted to existing consumer roofs using rails, then connected to the utility using an inverter system. For both solar energy system installation and roofing, typically jobs are completed within three months, the specific timing depends on the size of the job and the complexity of the job site, and the contract price includes all material and labor needed, and payments are collected based on specific milestones. The Group provides solar energy systems and roofing installation for various customers, such as homeowners and real estate developers, but the design and installation for each customer differs substantially on the basis of each customer’s needs and the type of shingle or roof that is placed with the solar energy system. The asset consequently has no alternative use to the Group because the customer specific design limits the Group’s practical ability to readily direct the solar energy system to another customer. As such the Group’s performance does not create an asset with an alternative use to the Group. Pursuant to the contract, the customers agree to pay for any costs, expenses and losses incurred by the Group upon termination, and therefore, revenue is recognized over time according to ASC 606-10-25-27(c). For both solar energy system installation and roofing, all costs to obtain and fulfill contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized. The Group recognizes revenue using a cost-based input method that recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated cost of the contract, to determine the Group’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. The total estimated cost of the contract constitutes of material cost and labor cost, and are developed based on the size and specific situation of different jobs. Changes in estimates are mainly due to: (i) unforeseen field conditions that impacts the estimated workload, and (ii) change of the unit price of material or labor cost. If the estimated total costs on any contract are greater than the net contract revenues, the Group recognizes the entire estimated loss in the period the loss becomes known. Electricity revenue with PPAs The Group sells energy generated by PV solar power systems under PPAs. For energy sold under PPAs, the Group recognizes revenue each period based on the volume of energy delivered to the customer (i.e., the PPAs off-taker) and the price stated in the PPAs. The Group has determined that none of the PPAs contains a lease since (i) the purchaser does not have the rights to operate the PV solar power systems, (ii) the purchaser does not have the rights to control physical access to the PV solar power systems, and (iii) the price that the purchaser pays is at a fixed price per unit of output. Sale of PV project asset The Group’s sales arrangements for PV projects do not contain any forms of continuing involvement that may affect the revenue or profit recognition of the transactions, nor any variable considerations for energy performance guarantees, minimum electricity end subscription commitments. The Group therefore determined its single performance obligation to the customer is the sale of a completed solar project. The Group recognizes revenue for sales of solar projects at a point in time after the solar project has been grid connected and the customer obtains control of the solar project. Revenue from sales and leasing of EV The Group recognizes revenue from sales of EV at a point in time following the transfer of control of such products to the customer, which typically occurs upon the delivery to the customer for EV sales. The Group determined that the government grants related to sales of EV should be considered as part of the transaction price because it is granted to the EV buyer and the buyer remains liable for such amount in the event the grants were not received by the Group or returned due to the buyer violates the government grant terms and conditions. EV leasing revenue includes revenue recognized under lease accounting guidance for direct leasing programs. The Group accounts for these leasing transactions as sales-type or operating leases under ASC 842 Leases, and selling profits are recognized at the commencement date and interest income from the lease is recognized over the lease term for sales-type leases, while revenues are recognized on a straight-line basis over the contractual term for operating leases. Other revenue Other revenue mainly consists of sales of self-assembled solar modules, sales of component and charging stations, sales of forklifts, engineering and maintenance service, shipping and delivery service, sales of pre-development solar projects and others. Other revenues are recognized at a point in time following the transfer of control of such service or products to the customer, which typically occurs upon shipment of product or acceptance of the customer depending on the terms of the underlying contracts. Disaggregation of revenues The following table illustrates the disaggregation of revenue by revenue stream and by geographical location for the three months ended March 31, 2023 and 2022: Schedule of disaggregation of revenues By revenue stream For the three months ended March 31, 2023 (Unaudited) Sales of PV components Sales of self-assembled solar modules Revenue from roofing and solar systems installation Electricity revenue with PPAs Automotive sales & leasing Others Total Australia $ 34,997 $ – $ – $ – $ – $ 284 $ 35,281 United States – 9,020 879 40 1,241 560 11,740 Japan – – – – – 18 18 Italy – – – 157 – – 157 United Kingdom – – – 244 – – 244 Greece – – – 483 – – 483 Total $ 34,997 $ 9,020 $ 879 $ 924 $ 1,241 $ 862 $ 47,923 By revenue stream For the three months ended March 31, 2022 (Unaudited) Sales of PV components Revenue from roofing and solar systems installation Electricity revenue with PPAs Automotive sales & leasing Others Total Australia $ 28,024 $ – $ – $ – $ 142 $ 28,166 Italy – – 256 – – 256 United States – 8,789 – 525 141 9,455 United Kingdom – – 151 – – 151 Greece – – 507 – – 507 Total $ 28,024 $ 8,789 $ 914 $ 525 $ 283 $ 38,535 Schedule of revenue by timing By timing of revenue recognition For the three months ended March 31, 2023 (Unaudited) Sales of PV components Sales of self-assembled solar modules Revenue from roofing and solar systems installation Electricity revenue with PPAs Automotive sales & leasing Others Total Goods transferred at a point in time $ 34,997 $ 9,020 $ – $ 924 $ 1,151 $ 862 $ 46,954 Service transferred over time – – 879 – – – 879 On a straight-line basis under ASC 842 – – – – 90 – 90 Total $ 34,997 $ 9,020 $ 879 $ 924 $ 1,241 $ 862 $ 47,923 By timing of revenue recognition For the three months ended March 31, 2022 (Unaudited) Sales of PV components Revenue from roofing and solar systems installation Electricity revenue with PPAs Automotive sales & leasing Others Total Goods transferred at a point in time $ 28,024 $ – $ 914 $ 388 $ 283 $ 29,609 Service transferred over time – 8,789 – 137 – 8,926 On a straight-line basis under ASC 842 – – – – – – Total $ 28,024 $ 8,789 $ 914 $ 525 $ 283 $ 38,535 Contract balance The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers: Schedule of accounts receivables and contract liabilities March 31, 2023 (Unaudited) December 31, 2022 Accounts Receivable $ 24,118 $ 22,691 Contract assets 953 1,403 Advance from customers 7,527 8,634 The contract assets primarily relate to the Group’s rights to consideration for work completed but not billed at the reporting date, primarily for the revenue from roofing and solar energy systems installation in the United States. The contract assets are transferred to receivables when the rights become unconditional after billing is issued. Advance from customers, which representing a contract liability, represents mostly unrecognized revenue amount received from customers. Advance from customers is recognized as (or when) the Group performs under the contract. During the three months ended March 31, 2023 and 2022, the Group recognized $ 8,634 4,924 (d) Leases Lessor Accounting During the three months ended March 31, 2023, the Group amended agreements with the customers related to the leased EVs to renew the lease term. Since there was no grant of additional right-of-use assets, the Group did not account for the modified lease agreements as new leases but accounted for the original lease and the modified lease agreements as a combined lease. The Group reviewed the combined lease agreements and considered that (i) the lease term represents for the major part (greater than 75%) of the economic life of the underlying equipment; and (ii) the present value of the sum of lease payments and any residual value guaranteed by the lessee that has not already been included in lease payments equals or exceeds substantially (greater than 90%) all of the fair value of the underlying asset. The modified EV lease agreements are thus accounted for as sales-type leases. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease, and interest income from the lease is recognized over the lease term. The net investment in leases was $ 295 99 Annual minimum undiscounted lease payments under the Group’s sales-type leases were as follows as of March 31, 2023: Schedule of minimum undiscounted lease receipts Sales-type In Thousands (Unaudited) Years Ending December 31, Remainder of 2023 $ 74 2024 43 2025 43 2026 11 2027 – 2028 and thereafter – Total lease receipt payments 171 Less: Imputed interest (14 ) Total lease receivables (1) 157 Unguaranteed residual assets 138 Net investment in leases $ 295 Net investment in leases - Current $ 78 Net investment in leases - Non-current $ 217 ________________________________________ (1) Current portion of $78 of total lease receivables was included in prepaid and other current assets on the balance sheet. (e) Recent Accounting Pronouncements Recently adopted accounting pronouncements In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers (“ASC 606”). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. ASU 2021-08 is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Group adopted ASU 2021-08 effective January 1, 2023 and apply the guidance to subsequent acquisitions. The adoption of ASU 2021-08 will only impact the accounting for the Group’s future acquisitions. Accounting Pronouncements Issued But Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These amendments were effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), to expand and clarify the scope of Topic 848 to include derivative instruments on discounting transactions. The amendments in this ASU are effective in the same timeframe as ASU 2020-04. In December 2022, the FASB issued ASU 2022-06, Reference Rate reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848, Reference Rate Reform to December 31, 2024. The Group is currently evaluating the impact this guidance will have on its consolidated financial statements. The Group does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the unaudited condensed consolidated balance sheets, statements of operations and cash flows. |