20-F 1 vpip20230630_20f.htm FORM 20-F vpip20230630_20f.htm
0001681348 VivoPower International PLC false --06-30 FY 2023 1,504 0 4.5 2.7 5 1 0 0 376,043 91,029 92,119 10 2,495 51 51 49 49 51 51 51 51 49 49 1 0 11 11.3 4,568 28 Esplanade, St Helier, Jersey, JE2 3QA 251 Little Falls Drive, Wilmington, DE, USA 19808 251 Little Falls Drive, Wilmington, DE, USA 19808 251 Little Falls Drive, Wilmington, DE, USA 19808 251 Little Falls Drive, Wilmington, DE, USA 19808 251 Little Falls Drive, Wilmington, DE, USA 19808 251 Little Falls Drive, Wilmington, DE, USA 19808 153 Walker St, North Sydney NSW, Australia 2060 153 Walker St, North Sydney NSW, Australia 2060 153 Walker St, North Sydney NSW, Australia 2060 153 Walker St, North Sydney NSW, Australia 2060 153 Walker St, North Sydney NSW, Australia 2060 153 Walker St, North Sydney NSW, Australia 2060 153 Walker St, North Sydney NSW, Australia 2060 153 Walker St, North Sydney NSW, Australia 2060 Unit 10A, Net Lima Building, 5th Avenue cor. 26th Street, E-Square Zone, Crescent Park West, Bonifacio Global City, Taguig, Metro Manila E-Square Zone, Crescent Park West, Bonifacio Global City, Taguig, Metro Manila Marinus van Meelweg 20, 5657 EN, Eindhoven, NL Marinus van Meelweg 20, 5657 EN, Eindhoven, NL Marinus van Meelweg 20, 5657 EN, Eindhoven, NL 0.5 4.3 4.5 2.7 0.5 10.1 5.4 0.4 60 1.5 40,000 43,500 60,000 0.5 0.25 7,500 22,500 2.5 2.0 0 682,220 3.00 11,059,348 7.00 25,075,203 4,265,280 10 1.9 1.9 7 7 1.3 8.6 0.93 2.1 0 0 2.5 60 1.5 25 29,000 40,000 60,000 25 25 0.5 0.25 7,500 22,500 313,688 46,970 3,302 68,000 325,000 38,000 325,000 0.4 The $0.4 million of transaction costs incurred in the year ended June 30, 2023 (year ended June 30, 2022: $0.1 million; year ended June 30, 2021: $2.8 million) relate primarily to capital raises on Nasdaq. On June 30, 2021, holders of convertible preference shares and convertible loan notes in Aevitas Group Limited, exercised their right to convert the debt instruments into ordinary shares in VivoPower International PLC. A total of 2,005,190 restricted ordinary shares were issued at a contracted price of $10.20 on July 21, 2021. Of the 2,005,190 ordinary shares issued, 1,959,339 were issued to entities owned by AWN Holdings Limited, the Company’s largest individual shareholder. During the year ended June 30, 2021, the Company completed a series of capital raises on Nasdaq. A total of 4,091,019 ordinary shares were issued, comprising 3,382,350 ordinary shares issued on October 19, 2020 as an underwritten public offering pursuant to an F-1 registration statement filed with the SEC on October 14, 2020, and 708,669 ordinary shares issued during June 2021, at the market price (an ATM offering), pursuant to an F-3 registration statement filed with the SEC on December 21, 2020. In the year ended June 30, 2022, a further 82,644 ordinary shares were issued under the same registration statement. On July 29, 2022, the Company entered into a Securities Purchase Agreement to issue and sell, in a registered direct offering directly to an investor, (i) an aggregate of 2,300,000 ordinary shares (the “Shares”), nominal value $0.012 per share, at an offering price of $1.30 per share and (ii) an aggregate of 1,930,770 pre-funded warrants exercisable for Ordinary Shares at an offering price of $1.2999 per Pre-Funded Warrant, for gross proceeds of approximately $5.5 million before deducting the placement agent fee and related offering expenses. The Pre-Funded Warrants were sold to the Investor whose purchase of Ordinary Shares in the Registered Offering would otherwise result in the Investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% of the Company’s outstanding Ordinary Shares immediately following the consummation of the Registered Offering, in lieu of Ordinary Shares. Each Pre-Funded Warrant represents the right to purchase one Ordinary Share at an exercise price of $0.0001 per share. The Pre-Funded Warrants were exercised on November 22, 2022. In a concurrent private placement, the Company agreed to issue to the investor, Series A Warrants exercisable for an aggregate of 4,230,770 Ordinary Shares at an exercise price of $1.30 per share. Each Series A Warrant will be exercisable on February 2, 2023 and will expire on February 2, 2028. The Series A Warrants and the Ordinary Shares issuable upon the exercise of the Series A Warrants were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) promulgated thereunder. On July 29, 2022, the Company entered into a Securities Purchase Agreement to issue and sell, in a registered direct offering directly to an investor, (i) an aggregate of 2,300,000 ordinary shares (the “Shares”), nominal value $0.012 per share, at an offering price of $1.30 per share and (ii) an aggregate of 1,930,770 pre-funded warrants exercisable for ordinary shares at an offering price of $1.2999 per pre-funded warrant, for gross proceeds of approximately $5.5 million before deducting the placement agent fee and related offering expenses. The pre-funded warrants were sold to the Investor whose purchase of ordinary shares in the Registered Offering would otherwise result in the Investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% of the Company’s outstanding ordinary shares immediately following the consummation of the Registered Offering, in lieu of ordinary shares. Each pre-funded warrant represents the right to purchase one ordinary share at an exercise price of $0.0001 per share. The pre-funded warrants were exercised on November 22, 2022. In a concurrent private placement, the Company agreed to issue to the investor, Series A Warrants exercisable for an aggregate of 4,230,770 ordinary shares at an exercise price of $1.30 per share. Each Series A Warrant will be exercisable on February 2, 2023 and will expire on February 2, 2028. The Series A Warrants and the ordinary shares issuable upon the exercise of the Series A Warrants were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) promulgated thereunder. During the year ended June 30, 2021, the Company completed a series of capital raises on Nasdaq. A total of 4,091,019 ordinary shares were issued, comprising 3,382,350 ordinary shares issued on October 19, 2020 as an underwritten public offering pursuant to an F-1 registration statement filed with the SEC on October 14, 2020, and 708,669 ordinary shares issued during June 2021, at the market price (an ATM offering), pursuant to an F-3 registration statement filed with the SEC on December 21, 2020. In the year ended June 30, 2022, a further 82,644 ordinary shares were issued under the same registration statement. During the year ended June 30, 2023, $0.1 million was expensed towards share incentive awards to employees, directors, and consultants of the Company under the 2017 Omnibus Incentive Plan (year ended June 30, 2022:$1.9 million). Amounts are expensed at the award grant price over the vesting period, adjusted for actual quantities upon vesting. Of the expenses recorded, $0.1 million of shares were delivered to participants (year ended June 30, 2022:$1.9 million). During the years ended June 30, 2022 and June 30,2023, the following awards under the Incentive Plan have been granted, and have vested or forfeit: V.V.P. Holdings Inc. is controlled by VivoPower Pty Ltd, notwithstanding only owning 40% of the ordinary share capital. During the year ended June 30, 2022, 21,000 restricted shares were issued to Corporate Profile LLC and 21,000 restricted shares were issued to FON Consulting Ltd in exchange for investor relations services. During the year ended June 30, 2023, 102,252 shares (year ended June 30, 2022: 682,220; year ended June 30, 2021: 792,126) were issued to employees and directors of the Company and consultants to the Company under the Omnibus Incentive Plan. Equity instruments held at June 30, 2020 were convertible preference shares and convertible loan notes in Aevitas Group Limited (“Aevitas Group”) which must convert to shares of VivoPower at $10.20 per share no later than June 30, 2021. The Company classified these instruments as equity under the “fixed-for-fixed” rule meaning that both the amount of consideration received/receivable and the number of equity instruments to be issued is fixed. There were 2,473,367 convertible preference shares outstanding with a face value of AU$3.00 per share and a value held in reserves of AU$11,059,348 at June 30, 2020, representing their face value plus dividends accrued. Convertible preference shares were subordinated to all creditors of Aevitas Group, ranked equally amongst themselves, and ranked in priority to ordinary shares of Aevitas Group. There were 2,473,367 convertible loan notes outstanding with a face value of AU$7.00 per share and a value held in reserves of AU$25,075,203, representing their face value plus the dividends accrued. The convertible loan notes ranked equally with the unsecured creditors of Aevitas Group. Dividends or interest were payable quarterly in arrears at a rate of 7% on the capitalized value to December 29, 2016, the date at which they became convertible to VivoPower shares. At maturity, or if a trigger event such as a change of control of Aevitas Group or VivoPower, a listing event, or a disposal of substantially all of the assets of Aevitas Group had occurred, the convertible preference shares and convertible loan notes in Aevitas Group convert to VivoPower ordinary shares at a price of US$10.20 per share On August 7, 2020, the Company offered one new Aevitas Preference Share, with an issue price of $10, in exchange for each combined convertible note and convertible preference share, with an issue price of $7 and $3 respectively. Dividends are payable quarterly, in arrears, at a rate of 7%. Of the 2,473,367 holders of combined convertible note and convertible preference shares, 426,528 holders accepted the terms of the new Aevitas Preference Shares and received 426,528 Aevitas Preference Shares (A$4,265,280) on August 31, 2020, in exchange for the combined convertible notes and convertible preference shares previously held. The new Aevitas Preference Shares are subordinated to all creditors of Aevitas Group, rank equally amongst themselves, and rank in priority to Aevitas Group Limited ordinary shares for the payment of dividends. The 426,528 holders which exchanged on August 31, 2020, had earned $26,708 interest on the convertible loan note in the year ended June 20, 2021, up until exchange, and this was paid in full along with $11,447 dividends that accrued over the same pre-exchange period on the convertible preference shares. Post-exchange, $185,480 dividends of the Aevitas Preference Shares were earned in the year ended June 20, 2021, with $121,905 of those paid by June 30, 2021. And the 426,528 Aevitas Preference Shares have a face value of $3,208,922 (A$10 per share), recognized together with the dividends payable. On June 30, 2021, the remaining 2,005,190 holders of convertible preference shares and convertible loan notes in Aevitas Group Limited (“Aevitas Group”), exercised their right to convert the instruments into ordinary shares in VivoPower International PLC. The cumulative balance of face value and accrued unpaid interest and dividends outstanding of the convertible preference shares and convertible loan notes at June 30, 2021 of $20.5 million, was redeemed on that date, and VivoPower International PLC recognized the requirement to issue 2,005,190 restricted ordinary shares, based on a contracted conversion price of $10.20 per share. During the year ended June 30, 2021, $20.5 million was recognized in equity for the 2,005,190 restricted ordinary shares pending issuance at a contracted conversion price of $10.20 per share. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

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

 

For the fiscal year ended June 30, 2023

 

OR

 

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

 

OR

 

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

 

Date of event requiring this shell company report

 

For the fiscal year ended June 30, 2023

 

Commission file number 1-37974

 

VIVOPOWER INTERNATIONAL PLC

(Exact name of Registrant as specified in its charter)

 

 

England and Wales

(Jurisdiction of incorporation or organization)

 

The Scalpel, 18th Floor, 52 Lime Street

London EC3M 7AF

United Kingdom

(Address of principal executive offices)

 

Kevin Chin, Chief Executive Officer

Tel: +44-203-667-5158

The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF, United Kingdom

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

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

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Ordinary Shares, nominal value $0.012 per share

VVPR

The Nasdaq Capital Market

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None


(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None


(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or Ordinary Shares as of the close of the period covered by the annual report.

 

 

Ordinary Shares, nominal value $0.012 per share

25,788,260

 

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

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes   ☐     No   ☒

 

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

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

 

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

 

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

 

Large accelerated filer  ☐             Accelerated filer  ☐          Non-accelerated filer  ☒            Emerging growth company  

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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. ☐

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

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 (15 U.S.C. 7262(b)) 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 check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ☐ 

 

International Financial Reporting Standards as issued

by the International Accounting Standards Board  ☒

 

Other

☐ 

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    

Item 17   ☐     Item 18   ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒

 

 

 

TABLE OF CONTENTS 

 

Introduction

1

Forward-Looking Statements

1

PART I

2

Item 1. Identity of Directors, Senior Management and Advisors

2

Item 2. Offer Statistics and Expected Timetable

2

Item 3. Key Information

2

A.     Selected Financial Data

2

B.     Capitalization and Indebtedness

2

C.     Reasons for the Offer and Use of Proceeds

2

D.     Risk Factors

2

Item 4. Information on the Company

20

A.     History and Development of the Company

20

B.     Business Overview

20

C.     Organizational Structure

28

D.     Property, Plant and Equipment

28

Item 4A. Unresolved Staff Comments

29

Item 5. Operating and Financial Review and Prospects

29

A.     Operating Results

29

B.     Liquidity and Capital Resources

38

C.     Research and Development, Patents, Licenses, etc.

42

D.     Trend Information

42

E.     Off-Balance Sheet Arrangements

42

F.     Contractual Obligations and Commitments

42

Item 6. Directors, Senior Management and Employees

44

A.     Directors and Senior Management

44

B.     Compensation

46

C.     Board Practices

48

D.     Employees

51

E.     Share Ownership

51

Item 7. Major Shareholders and Related Party Transactions

52

A.     Major Shareholders

52

B.     Related Party Transactions

53

C.     Interests of Experts and Counsel

55

Item 8. Financial Information

55

A.     Consolidated Statements and Other Financial Information

55

B.     Significant Changes

55

Item 9. The Offer and Listing

55

A.     Offering and Listing Details

55

B.     Plan of Distribution

55

C.     Markets

55

D.     Selling Shareholders

55

E.     Dilution

55

F.      Expenses of the Issue

55

Item 10. Additional Information

56

A.     Share Capital

56

B.     Memorandum and Articles of Association

56

C.     Material Contracts

56

D.     Exchange Controls

56

E.     Taxation

56

F.      Dividends and Paying Agents

62

G.     Statements by Experts

62

H.     Documents on Display

62

I.       Subsidiary Information

62

Item 11. Quantitative and Qualitative Disclosures about Market Risk

63

Item 12. Description of Securities Other than Equity Securities

63

A.     Debt Securities

 

B.     Warrants and Rights

 

C.     Other Securities

 

D.     American Depositary Shares

 

 

 

PART II

64

Item 13. Defaults, Dividend Arrearages and Delinquencies

64

Item 14. Material Modifications to the Rights of Securityholders and Use of Proceeds

64

Item 15. Controls and Procedures

64

Item 16. [Reserved]

65

Item 16A. Audit Committee Financial Expert

65

Item 16B. Code of Ethics

65

Item 16C. Principal Accountant Fees and Services

65

Item 16D. Exemption from the Listing Standards for Audit Committees

66

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

66

Item 16F. Change in Registrant’s Certifying Accountant

66

Item 16G. Corporate Governance

66

Item 16H. Mine Safety Disclosure

67

PART III

67

Item 17. Financial Statements

67

Item 18. Financial Statements

67

Item 19. Exhibits

67

Index to Consolidated Financial Statements

F-1

 

 

 

Introduction

 

References in this Annual Report on Form 20-F (the “Annual Report”) to “VivoPower International PLC,” “VivoPower,” “we,” “our,” “us” and the “Company” refer to VivoPower International PLC and its consolidated subsidiaries. Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS”), and are expressed in U.S. dollars. References to “dollars” or “$” are to U.S. dollars. Our fiscal year ends on June 30 of the calendar year. 

 

References to any specific fiscal year refer to the year ended June 30 for 2023 and future periods. For example, we refer to the fiscal year ended June 30, 2023, as “FY2023”.

 

Certain amounts and percentages that appear in this Annual Report have been subject to rounding adjustments. As a result, certain numerical figures shown as totals, including in tables, may not be exact arithmetic aggregations of the figures that precede or follow them.

 

Forward-Looking Statements

 

This Annual Report contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report include, but are not limited to, statements about:

 

 

our expectations regarding our revenue, expenses and other results of operations;

 

our plans to acquire, invest in, develop or sell our investments in energy projects or joint ventures or in the electric vehicle sector;

 

our ability to attract and retain customers;

 

the growth rates of the markets in which we compete;

 

our liquidity and working capital requirements;

 

our ability to raise sufficient capital to realize development opportunities and thereby generate revenue;

 

our anticipated strategies for growth;

 

our ability to anticipate market needs and develop new and enhanced solutions to meet those needs;

 

anticipated trends and challenges in our business and in the markets in which we operate;

 

our expectations regarding demand for electric vehicle conversion kits;

 

our expectations regarding changes in the cost of materials for electric vehicle conversion kits;

 

our expectations regarding demand for solar power by energy users or investor in projects;

 

our expectations regarding changes in the cost of developing and constructing solar projects;

 

our ability to compete in our industry and innovation by our competitors;

 

our ability to develop competitive electric vehicle products and build scalable assembly processes;

 

the extent to which events with a global impact on supply chains, such as pandemics or wars, affects our business, financial condition and results of operations;

 

our expectations regarding our ongoing legal proceedings;

 

our ability to adequately protect our intellectual property; and

 

our plans to pursue strategic acquisitions.

 

We caution you that the foregoing list may not contain all the forward-looking statements made in this Annual Report.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the “Item 3. Key Information - D. Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

 

The forward-looking statements made in this Annual Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report to reflect events or circumstances after the date of this Annual Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

 

 

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

 

Not applicable. 

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

 

Our historical consolidated financial statements are prepared in accordance with IFRS and are presented in U.S. dollars. The selected historical consolidated financial information set forth elsewhere in this Annual Report has been derived from, and is qualified in its entirety by reference to, our historical consolidated financial statements for the periods presented. Historical information as of and for the year ended June 30, 2023, for the year ended June 30, 2022, and for the year ended June 30, 2021, is derived from, and is qualified in its entirety by reference to, our consolidated financial statements. The financial statements have been audited by PKF Littlejohn LLP, our independent registered public accounting firm. You should read the information in conjunction with those audited consolidated financial statements, the notes thereto, and the discussion under “Item 5. Operating and Financial Review and Prospects” included elsewhere in this Annual Report.


B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

An investment in our shares involves a high degree of risk and our business faces significant risk and uncertainty. You should carefully consider the following information, together with the other information in this Annual Report and in other documents we file with or furnish to the U.S. Securities and Exchange Commission (the "SEC"), before deciding to invest in or maintain an investment in any of our securities. Our business, as well as our financial condition or results of operations could be materially and adversely affected by any of these risks, as well as other risks and uncertainties not currently known to us or not currently considered material. The market price of our shares could decline as a result of any of these risks or uncertainties, and you could lose all or part of your investment.

 

Risks related to our business and operations

 

Our operational and financial results may vary significantly from period to period due to fluctuations in our operating costs and other factors. 

 

In order to facilitate the growth of our Sustainable Energy Solutions ("SES") strategy, we will need to make significant investments of both an operational expenditure and a capital expenditure nature.

 

We may not be profitable from period to period because we do not know the rate at which our revenue will grow, if it will grow at all, and we do not know the rate at which we will incur expenses. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our revenue and operating results are difficult to predict and may vary significantly from period to period. Sustained losses could have a material adverse effect on our business, financial condition or results of operations.

 

We expect our period to period financial results to vary based on our operating costs, which we anticipate will fluctuate as the pace at which we continue to design, develop and manufacture new products and to increase production capacity by expanding our current manufacturing facilities and adding future facilities. Additionally, our revenues from period to period may fluctuate as we introduce existing products to new markets for the first time and as we develop and introduce new products. Moreover, our financial results may not meet expectations of equity research analysts, ratings agencies or investors, who may focus on short-term financial results. Accordingly, the trading price of our stock could decline substantially, either suddenly or over time. 

 

We expect to require additional financing to execute our strategy to operate and grow our business and additional requisite funding may not be available to us when we need or want it.

 

Our operations and our future plans for expansion are capital intensive requiring significant investment in operational expenditures and capital expenditures to realize the growth potential of our electric vehicle, critical power services, sustainable energy solutions and solar development businesses. In addition, we are subject to substantial and ongoing administrative and related expenses required to operate and grow a public company. Together these items impose substantial requirements on our cash flow and the specific timing of cash inflows and outflows may fluctuate substantially from period to period. As a result, we expect to require some combination of additional financing options in order to execute our strategy and meet the operating cash flow requirements necessary to operate and grow our business. We may need or want to raise additional funds through the issuance of equity, equity-related or debt securities or through obtaining credit from financial institutions to fund, together with our principal sources of liquidity, the costs of developing and manufacturing our current or future products, to pay any significant unplanned or accelerated expenses or for new significant strategic investments, or to refinance our significant consolidated indebtedness, even if not required to do so by the terms of such indebtedness. We may not be able to obtain the additional or requisite funding on favorable terms when required, or at all, in order to execute our strategic development plans or to meet our cash flow needs. Our inability to obtain funding or engage in strategic transactions could have a material adverse effect on our business, our strategic development plan for future growth, our financial condition, and our results of operations. 

 

 

If we continue to experience losses and we are not able to raise additional financing to grow the revenue streams of the Company to become profit making, or generate cash through sales of assets, we may not have sufficient liquidity to sustain our operations and to continue as a going concern.

 

We experienced a loss of $24.3 million, $22.1 million and $8.0 million for the years ended June 30, 2023, 2022 and 2021, respectively. If we are unable to generate sufficient revenue from the operation of our businesses, grow our electric vehicle sales, and generate sales of SES projects, or if we are unable to reduce our expenses sufficiently, we may continue to experience substantial losses.

 

The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that result from uncertainty about our ability to continue as a going concern. However, if losses continue, and if we are unable to raise additional financing on sufficiently attractive terms or generate cash through sales of solar projects or other material assets or other means, then we may not have sufficient liquidity to sustain our operations and may not be able to continue as a going concern. Similarly, the report of our independent registered public accounting firm on our consolidated financial statements as of and for the year ended June 30, 2023 includes an explanatory paragraph indicating that a material uncertainty exists which may cast material doubt on the group’s ability to continue as a going concern if it is unable to secure sufficient funding. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

If we fail to meet changing customer demands, we may lose customers and our sales could suffer. 

 

The industry in which we operate changes rapidly. Changes in our customers’ requirements result in new and more demanding technologies, product specifications and sizes, and manufacturing processes. Our ability to remain competitive will depend upon our ability to develop technologically advanced products and processes. We must continue to meet the increasingly sophisticated requirements of our customers on a cost-effective basis. We cannot be certain that we will be able to successfully introduce, market and cost-effectively source any new products, or that we will be able to develop new or enhanced products and processes that satisfy customer needs or achieve market acceptance. Any resulting loss of customers could have a material adverse effect on our business, financial condition or results of operations. 

 

We face competition in the markets, industries and business segments in which we operate, which could adversely affect our business, operating results, financial condition and future prospects. 

 

We face competition in each of the business segments and jurisdictions in which we operate. Some of our competitors (i) have more financial, technological, engineering and manufacturing resources than we do to develop products, services and solutions that may compete favorably against our products; (ii) are developing or are currently producing products, services and solutions based on new technologies that may ultimately have costs similar to or lower than ours; (iii) have government-backed financial resources or parent companies with greater depths of resources than are available to us; (iv) have access to a lower cost of capital than we do; (v) have stronger distribution partnerships and channels than we do, enabling access to larger customer bases; and (vi) may have longer operating histories, greater name and brand recognition and greater economies of scale than we do. 

 

In addition, new competitors or alliances among existing competitors could emerge and rapidly acquire significant market share, adversely impacting our business in the process.

 

We expect that our competitors will continuously innovate to improve their ability to deliver products, services and solutions to meet customer demands. Should we fail to compete effectively, this could have a material adverse effect on our business, results of operations and financial condition.

 

Our inability to protect our intellectual property could adversely affect our business. We may also be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require us to pay significant damages and could limit our ability to use certain technologies.

 

Any failure to protect our proprietary rights adequately could result in our competitors offering similar sustainable energy solutions more quickly than anticipated, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which would adversely affect our business prospects, financial condition and operating results. Our success depends, at least in part, on our ability to protect our core technology and intellectual property. We rely on intellectual property laws, primarily a combination of copyright and trade secret laws in the U.S., U.K., Europe, United Arab Emirates and Australia, as well as license agreements and other contractual provisions, to protect our proprietary technology and brand. We cannot be certain our agreements and other contractual provisions will not be breached, including a breach involving the use or disclosure of our trade secrets or know-how, or that adequate remedies will be available in the event of any breach. In addition, our trade secrets may otherwise become known or lose trade secret protection.

 

 

We cannot be certain our products and our business do not or will not violate the intellectual property rights of a third party. Third parties, including our competitors, may own patents or other intellectual property rights that cover aspects of our technology or business methods. Such parties may claim we have misappropriated, misused, violated or infringed upon third-party intellectual property rights and if we gain greater recognition in the market, we face a higher risk of being the subject of claims we have violated others' intellectual property rights. Any claim we violated a third party's intellectual property rights, whether with or without merit, could be time-consuming, expensive to settle or litigate and could divert our management's attention and other resources, all of which could adversely affect our business, results of operations, financial condition and cash flows. If we do not successfully settle or defend an intellectual property claim, we could be liable for significant monetary damages and could be prohibited from continuing to use certain technology, business methods, content or brands. To avoid a prohibition, we could seek a license from third parties, which could require us to pay significant royalties, increasing our operating expenses. If a license is not available at all or not available on commercially reasonable terms, we may be required to develop or license a non-violating alternative, either of which could adversely affect our business, results of operations, financial condition and cash flows.

 

Our brand and reputation are key assets of our business, and if our brand or reputation is damaged, our business and results of operations could be materially adversely affected.

 

If we fail to deliver our renewable products, critical power services and electric vehicle ("EV") conversion kits within planned timelines and contracted obligations, or our products and services do not perform as anticipated, or if we materially damage any of our clients’ properties, or cancel projects, our brand name and reputation could be significantly impaired. If customers or potential customers have or develop a less favorable view of our brand or reputation, for the reasons stated above or for any other reason, it could materially adversely affect our business, results of operations and financial condition.

 

Our future business depends in part on our ability to make strategic acquisitions, investments and divestitures and to establish and maintain strategic relationships, and our failure to do so could have a material and adverse effect on our market penetration and revenue growth.

 

We frequently look for and evaluate opportunities to acquire other businesses, make strategic investments or establish strategic relationships with third parties to improve our market position or expand our products and services. When market conditions permit and opportunities arise, we may also consider divesting part of our current business to focus management attention and improve our operating efficiency. Investments, strategic acquisitions and relationships with third parties could subject us to a number of risks, including risks associated with integrating their personnel, operations, services, internal controls and financial reporting into our operations as well as the loss of control of operations that are material to our business. If we divest any material part of our business, we may not be able to benefit from our investment and experience associated with that part of the business and may be subject to intensified concentration risks with less flexibility to respond to market fluctuations. Moreover, it could be expensive to make strategic acquisitions, investments, divestitures and establish and maintain relationships, and we may be subject to the risk of non-performance by a counterparty, which may in turn lead to monetary losses that materially and adversely affect our business. We cannot assure you that we will be able to successfully make strategic acquisitions and investments and successfully integrate them into our operations or make strategic divestitures or establish strategic relationships with third parties that will prove to be effective for our business. Our inability to do so could materially and adversely affect our market penetration, our revenue growth and our profitability.

 

Additionally, any acquisition involves potential risks, including, among other things:

 

 

mistaken assumptions about assets, revenues and costs of the acquired company, including synergies and potential growth;

 

 

an inability to successfully integrate the assets or businesses we acquire;

 

 

complexity of coordinating geographically disparate organizations, systems and facilities;

 

 

the assumption of unknown liabilities for which we are not indemnified or for which our indemnity is inadequate;

 

 

mistaken assumptions about the acquired company's suppliers or dealers or other vendors;

 

 

the diversion of management's and employees' attention from other business concerns;

 

 

unforeseen difficulties operating in new geographic areas and business lines;

 

 

customer or key employee losses at the acquired business; and

 

 

acquiring poor quality assets, systems and processes.

 

Our insurance coverage strategy may not be adequate to protect us from all business risks.

 

We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. Additionally, the policies that we do have may include significant deductibles or self-insured retentions, policy limitations and exclusions, and we cannot be certain that our insurance coverage will be sufficient to cover all future losses or claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which may harm our business, operating results and financial condition.

 

Our operations may be adversely affected by failure to maintain or renegotiate distribution, supply, manufacturing or license agreements on favorable terms

 

We have distribution, supply, manufacturing and license agreements for our businesses. These agreements vary depending on the particular business, but tend to be for a fixed number of years. There can be no assurance that our businesses will be able to renegotiate rights on favorable terms when these agreements expire or that they will not be terminated. Failure to renew these agreements on favorable terms, or any disputes with distributors of our businesses’ products or suppliers of materials, could have an adverse impact on our business and financial results.

 

In particular in the case of Tembo we depend on suppliers for the components of our kit to maintain or improve their prices as volumes ordered increase and to deliver their products to Tembo within agreed timeframes. There can be no assurance that our volumes of orders and our suppliers’ pricing and lead times will be aligned with our agreements or forecast, which may have an adverse impact on our business and financial results.

 

 

We may incur unexpected warranty and performance guarantee claims that could materially and adversely affect our financial condition or results of operations. 

 

In connection with our products and services, we may provide various system warranties and/or performance guarantees. While we generally are able to pass through manufacturer warranties we receive from our suppliers to our customers, in some circumstances, our warranty period may exceed the manufacturer’s warranty period or the manufacturer warranties may not otherwise fully compensate for losses associated with customer claims pursuant to a warranty or performance guarantee we provided. For example, most manufacturer warranties exclude many losses that may result from a system component’s failure or defect, such as the cost of de-installation, re-installation, shipping, lost electricity, lost renewable energy credits or other solar incentives, personal injury, property damage, and other losses. In addition, in the event we seek recourse through manufacturer warranties, we will also be dependent on the creditworthiness and continued existence of these suppliers. These risks are exacerbated in the event such manufacturers cease operations or fail to honor their warranties.

 

As a result, warranty or other performance guarantee claims against us that exceed reserves could cause us to incur substantial expense to repair or replace defective products. Warranty reserves include management’s best estimates of the projected costs to repair or to replace items under warranty, which are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. Such estimates are inherently uncertain and subject to change based on our historical or projected experience. Significant repair and replacement costs could materially and negatively impact our financial condition or results of operations, as well divert employee time to remedying such issues. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our reputation, any of which could also adversely affect our business or operating results. 

 

Our group SES strategy, including electric vehicles and electrical services to the solar power industry market, may not be successful, could disrupt our existing operations and increase costs, decrease profitability and reduce cash flows across the group.

 

Our strategy is to focus on delivering end-to-end sustainable energy solutions to corporate customers (including electric vehicles and electrical services to the solar power industry market) to help them accelerate achievement of their net zero carbon goals. These include existing customers of our critical power solutions business, particularly those in hard to decarbonize sectors such as the mining, infrastructure and utilities sectors. As part of this strategy, we have also divested of the non-solar operations of J.A. Martin Electrical Pty Limited ("J.A. Martin") in July 2022.

 

There can be no assurance that the SES strategy will succeed, especially as it is a new business model. For example, there may not be enough customers who engage us to deliver full end-to-end SES solutions to drive the growth that our management is targeting. We may not be able to perfect solutions that meet the expectations of customers and we may be surpassed by competitors with better technologies. We may not be able to scale up Tembo appropriately or sufficiently integrate it with our existing business operations.

 

The new SES strategy may transform our growth trajectory but in doing so it will involve significant investment and place strain on our financial and management resources, as well as our business and compliance systems, people and processes. We may not be able to scale up our systems, hire enough people and upgrade our processes effectively so as to realize this growth. If we fail to achieve the targeted growth upon which our investments are made, this could have a material adverse effect on our business, results of operations and financial condition.

 

Any of the above could have a material adverse effect on our business, results of operations and financial condition.

 

Our ability to scale up Tembo, our commercial EV segment, is dependent on securing new business opportunities and orders, meeting the requirements of customers and the timely delivery of orders across different market sectors. 

 

We plan to expand significantly in the commercial electric vehicle market, providing electric utility vehicles (“EUV”) with a key focus initially on servicing EUV customers in the mining, infrastructure, government services, humanitarian, tourism, and utilities sectors. As we look to develop these opportunities, monetise our pipeline and secure firm orders, we will incur increased operational expenditures and capital expenditures that may impact our profitability and cash flows. 

 

We will continue to be engaged in product innovation with Tembo as we look to introduce new products, including EUV conversion kits with a longer range and/or greater payload capacity. To the extent that such innovation does not successfully meet regulatory requirements, quality and safety standards and/or customer expectations more generally, future sales could be impaired.

 

Following the acquisition of Tembo, we signed distribution agreements with a number of partners in North America, Australia, the Middle East, Africa, Southeast Asia and Europe to sell Tembo EUV conversion kits. If Tembo is not able to meet the technical specifications, quality and safety standards of our customers and partners, this will have a material adverse effect on Tembo’s brand, reputation, revenue and future prospects. Furthermore, if Tembo is unable to fulfill product delivery volumes in accordance with timelines agreed with our customers and partners, this could have a material adverse effect on future sales, operating results and the financial condition of the business.

 

 

The future growth and success of Tembo is dependent upon acceptance of its zero-emission specialist battery-electric off-road vehicle kits amongst key target customers in the mining, infrastructure, government services, humanitarian, tourism and utilities sectors.

 

Our strategy for Tembo is to focus its vehicle fleet electrification efforts on the ruggedized, customized and off-road segments of the electric vehicle market including for the mining, infrastructure, government services, humanitarian, tourism and utilities sectors. This market is relatively new, rapidly evolving, and characterized by rapidly changing technologies, new competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. If this market does not develop as we expect or develops more slowly than we expect, our business, results of operations, financial condition and prospects will be materially adversely affected.

 

Factors that may influence the market acceptance of new zero-emission vehicles and the conversion of existing vehicles to zero-emission electric vehicles include:

 

 

perceptions about zero-emission electric vehicle quality, safety design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of any electric vehicle;

 

 

perceptions about the limitations on the range over which zero-emission electric vehicles may be driven on a single battery charge;

 

 

perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced or new technology;

 

 

the availability of, and perceptions about, alternative fuel vehicles, including hydrogen, as well as the cost of these fuels, which may reduce demand for battery electric vehicles;

 

 

the availability of service infrastructure for zero-emission electric vehicles;

 

 

changes in the costs of oil, diesel and gasoline;

 

 

government regulations and economic incentives, including a change in the administrations and legislations of federal and state governments, promoting fuel efficiency and alternate forms of energy;

 

 

access to charging stations, standardization of electric vehicle charging systems and perceptions about convenience and cost to charge an electric vehicle;

 

 

the availability of tax and other governmental incentives and rebates to purchase and operate electric vehicles or future regulation requiring increased use of zero-emission or hybrid electric vehicles, such as the Infrastructure Investment and Jobs Act enacted in November 2021 in the United States; and

 

 

macroeconomic factors.

 

The influence of any of the factors described above may cause current or potential customers not to purchase Tembo’s electric vehicles, which would materially adversely affect our business, results of operations, financial condition and prospects.

 

Tembo faces certain operational risks as it seeks to scale up its assembly and delivery capabilities and if it fails to execute properly, this will expose us to material losses and compromise our cash flows.

 

The Tembo business faces operational risks as a maker of battery-electric ruggedized and off-road vehicles embarking on a scale up of its assembly and delivery capabilities. These risks include:

 

 

industrial accidents or pollution which may result in operational disruptions such as work stoppages and which could result in increased production costs as well as financial and regulatory liabilities;

 

 

actual and potential supply chain shortages, in particular with regard to batteries and other vehicle inputs, as well as increases in the prices of such inputs, which may have a material adverse effect on the operations, profits and cash flow of Tembo;

 

 

issues relating to design or manufacturing defects;

 

 

issues relating to safety, including compliance with safety regulations and standards;

 

 

inability to secure appropriate premises and equipment;

 

 

inability to attract and retain appropriately qualified personnel; and

 

 

delays in launching or scaling up production and assembly of new products and features.

 

 

Constant innovation and product development is required for Tembo to ensure it remains competitive and relevant.

 

Tembo operates in a market that is relatively new, rapidly evolving, and characterized by rapidly changing technologies, new competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. In order to stay competitive and relevant, it needs to continuously innovate and invest in product development and new technologies.

 

In particular, we are in the process of testing EV conversion kits with new battery platforms. Our ability to execute on the research, development and design of the EV conversion kit within the intended time and budget is key to deliver to our distribution partners and customers in accordance with our existing and upcoming agreements and to grow revenues at Tembo.

 

If Tembo fails to innovate and evolve to meet customer demands and stay ahead of competing technologies and companies, it may become obsolete or non-competitive. This would have a material adverse effect on our business, results of operations and financial condition.

 

If the Tembo business does not perform in line with our expectations, we may be required to write-down the carrying value of our investment, including goodwill and intangible assets.

 

Under IFRS, we are required to test the carrying value of long-term assets or cash-generating units for impairment at least annually and more frequently if we have reason to believe that our expectations for the future cash flows generated by these assets may no longer be valid. If the results of operations and cash flows generated by Tembo are not in line with our expectations, we may be required to write-down the carrying value of the investment. Any write-down could materially affect our business, financial condition and results of operations.

 

The market value of our investment in our SES assets may decrease, which may cause us to take accounting charges or to incur losses if we decide to sell them following a decline in their values. 

 

The fair market value of investments we have made in our U.S. solar projects may decline. The fair market values of the investments we have made or may make in the future may increase or decrease depending on a number of factors, many of which are beyond our control, including the general economic and market conditions affecting the renewable energy industry, wholesale electricity prices, expectations of future market electricity prices, land owners’ expectations on terms of their leases, availability of alternative opportunities to land owners, unforeseen development delays, unfavorable project development costs, prohibitive deposit requirements by power offtakers and utilities for interconnection, and long-term interest rates.

 

Any deterioration in the market values of our investments could cause us to record impairment charges in our financial statements, which could have a material adverse effect on our business, financial condition and results of operations. If we sell any of our investments when prices for such investments have fallen, the sale may be at less than the investments’ carrying value on our financial statements, which could result in a loss, which could also have a material adverse effect on our business, financial condition and results of operations.

 

We have a limited operating track record in the development and sale of SES solutions and, as a result, we may not be successful developing and scaling up this business segment profitably. 

 

The SES business segment aims to deliver solutions that combine electrification of customers’ light commercial vehicles; the design, development, construction and electrification of renewable energy powered sites that address customers’ critical power requirements (which will typically involve a solar power system, microgrid and charging stations); and the reuse or recycling of batteries from fleets of electric vehicles once the batteries reach the end of their useful life for vehicle applications.

 

We have experience in developing, financing and building solar power systems. However, we have limited experience and track record in combining this experience to develop and offer a complete SES solution with electric vehicles, renewable microgrids, battery recycling and reuse and we are still in the process of developing such capabilities. 

 

Should we fail to appropriately scale up the SES business segment, we may incur operating losses that reduce our cash flows and have a material adverse effect on our financial condition.

 

Our Australian critical power services workforce and our Netherlands electric vehicle workforce may become unionized, resulting in higher costs of operations and reduced labor efficiency.

 

A small number of our critical power services workforce is currently unionized. The critical power services business in Australia represents the largest proportion of our workforce. This part of our business operates in the Hunter Valley region of Australia whose economy is predominately driven by the mining industry and many businesses in the area are unionized. In periods of strong growth and activity in the mining sector, such as has been experienced over the past five years, the labor market usually becomes extremely competitive, which may entice our workforce to seek collective bargaining through union representation. Unionization of our critical power services workforce could result in additional costs for industrial relations, legal and consulting services, higher labor rates, new requirements for additional employment benefits, more restrictive overtime rules, and less flexible work scheduling, all of which could result in a significant increase in the cost of labor and the requirement for additional labor to maintain existing productivity.

 

Our Netherlands workforce for our electric vehicles business segment is currently not unionized. However, as we grow that workforce, some of the expanded workforce may be unionized.

 

Should such increased unionization occur, it could have a material adverse effect on our business, financial condition or results of operation.

 

 

Development and sales of our solar projects may be delayed or may not be fully realized, which could have a material adverse effect on our financial condition, results of operations or cash flows.

 

In the U.S., we have a portfolio of 7 utility-scale solar projects under development, with total power generating capacity of 365 MW-DC. These projects are at varying stages of development and will take many months or even years to complete and sell. The successful development and sale of these projects is subject to a range of risks and uncertainties, including risks and uncertainties relating to economic and market conditions, political and regulatory conditions, and business and other factors beyond our control.

 

In addition, the attractiveness of these projects to potential purchasers is subject to numerous risks, including: (i) unfavorable changes in forecast construction costs; (ii) engineering or design problems; (iii) problems with obtaining permits, licenses, approvals or property rights necessary or desirable to consummate the projects; (iv) interconnection or transmission related issues; (v) environmental issues; (vi) force majeure events; (vii) access to project financing (including debt, equity or tax credits) on insufficiently attractive terms; and (viii) inability to secure off-takers, including pursuant to power purchase agreements (“PPA”). Failure to secure off-takers on terms favorable to us, or at all, may render projects economically unviable. Even if we are able to secure off-takers, we may experience extended delays in entering into PPAs for some of our solar power projects. Any delay in entering into PPAs may adversely affect our ability to secure the cash flows generated by such projects and impact the economics of those projects. Furthermore, any PPAs may be subject to price adjustments over time. If the price under any of our solar project PPAs is reduced below a level that makes a project economically viable, our financial conditions, cash flows and results of operations could be materially adversely affected.

 

Accordingly, the actual amount of proceeds from sales realized and the actual periods during which these proceeds are realized may vary substantially from our plans and projections. Our inability to realize some or all of the cash from the sale of solar projects could have a material adverse effect on our financial condition, results of operations or cash flows and create a risk that we will not be able to continue as a going concern.

 

Risks related to raising of capital and financing

 

We may not be able to generate sufficient cash flow to service all our indebtedness, any additional debt we may incur and our other ongoing liquidity needs, and we may be forced to take other actions to satisfy our obligations under our indebtedness or any additional debt we may incur, which may not be successful.

 

As of June 30, 2023, we had an aggregate of $32.4 million in debt obligations. Our ability to make scheduled payments on or to refinance our debt obligations and to fund our ongoing liquidity needs depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. There can be no assurance that we will maintain a level of cash flow from operating activities or that future borrowings will be available to us in an amount or on terms sufficient to permit us to pay the principal and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, sell material assets, or to seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

 

We could also face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations or risk not being able to continue as a going concern. In addition, we may be able to incur additional indebtedness in the future. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations or prospects.

 

 

If we fail to adequately manage our planned growth, our overall business, financial condition and results of operations could be materially adversely affected.

 

We had a forward order book of $10.8 million as of June 30, 2023, for our critical power services segment, representing 79% of the $13.6 million revenue generated by this segment (on a continuing basis) for the year ended June 30, 2023. In addition, we have also secured potential commitments in our electric vehicles segment to deliver more than 15,000 electric vehicle conversion kits over the next 5 years. We are targeting significant growth across our businesses over the next 5 years, underpinned by strong industry tailwinds including the electrification of fleet vehicles, the adoption and acceleration of net zero carbon goals by corporate customers, and growth of the renewable and infrastructure sectors in our key geographic markets.

 

We expect that this significant growth in activity will place significant stress on our operations, management, employee base and ability to meet working capital requirements sufficient to support this growth over the next 12 to 36 months. Any failure to address the needs of our growing business successfully could have a material adverse effect on our business, operating results and financial condition.

 

We may be unable to obtain favorable financing from our vendors and suppliers, which could have a material adverse effect on our business, financial condition or results of operations and prospects.

 

In addition to obtaining financing from certain financial parties, we have also historically utilized financing from our vendors and suppliers through customary trade payables or account payables. At times, we have increased the number of days’ payables outstanding. There can be no assurance that our vendors and suppliers will continue to allow us to maintain existing or planned payables balances, and if we were forced to reduce our payables balances below our planned level without obtaining alternative financing, our inability to fund our operations would materially adversely affect our business, financial condition and results of operations. We could also face substantial liquidity problems and might be required to dispose of material assets or enter into economically unfavorable financing arrangements to meet creditor demands or risk not being able to continue as a going concern.

 

If we are unable to enter into new financing agreements when needed, or upon desirable terms, or if any of our current financing partners discontinue or materially change our financing terms, we may be unable to finance our operations and development projects or our borrowing costs could increase, which would have a material adverse effect on our business, financial condition and results of operations.

 

We continue to require working capital and credit facilities to fund the growth of our critical power services businesses, and we may require additional working capital and credit facilities to fund the growth of the electric vehicles business and the up-front costs associated with the development and sale of sustainable energy solutions projects. Without access to sufficient and appropriate financing, or if such financing is not available at desirable rates or on terms we deem appropriate, we would be unable to grow our business. Our ability to obtain financing in the future depends on banks’ and other financing sources’ continued confidence in our business model and the industries in which we operate as a whole. In addition, wholesale regulatory changes within financial services markets within specific jurisdictions in which we operate can affect the availability of financing for our businesses resulting from capital availability in the market and appetite of the market for certain industries, risks, or businesses. Changes to our business, the business of our lenders, or the financing market in a region or as a whole could result in us being unable to obtain new financing or maintain existing credit facilities. Failure to obtain the necessary financing to fund our operations would materially adversely affect our business, financial condition and results of operations. To date, we have obtained financing for our business from a limited number of financial parties. If any of these financial parties decided not to continue financing our business or to materially change the terms under which they are willing to provide financing, we could be required to identify new financial parties and negotiate new financing documentation. The process of identifying new financing partners and agreeing on all relevant business and legal terms could be lengthy and could require us to reduce the rate of growth of our business until such new financing arrangements are in place. In addition, there can be no assurance that the terms of the financing provided by a new financial party would compare favorably with the terms available from our current financing partners. In any such case, our borrowing costs could increase, which could have a material adverse effect on our business, financial condition, and results of operations. 

 

We are a holding company whose material assets consist of our holdings in our subsidiaries, upon whom we are dependent for distributions.

 

We are a holding company whose material assets consist of our holdings in our subsidiaries. We do not have independent sources of revenue generation. Although we intend to cause our subsidiaries to make distributions to us in an amount necessary to cover our obligations, expenses, taxes and any dividends we may declare, if one or more of our operating subsidiaries become restricted from making distributions under the provisions of any debt or other agreements or applicable laws to which it is subject, or is otherwise unable to make such distributions, it could have a material adverse effect on our financial condition and liquidity.

 

 

Risks related to ownership of our Ordinary Shares

 

The trading price of our Ordinary Shares is highly volatile and likely to continue to be so, presenting litigation risks.

 

The trading price of our Ordinary Shares, nominal value $0.012 per share (the "Ordinary Shares"), has been highly volatile and will likely continue to be subject to wide fluctuations in response to various factors, most of which are beyond our control. Our Ordinary Shares have experienced an intra-day trading high of $1.50 per share and a low of $0.23 per share during FY2023.

 

The stock market in general, and the market for technology-oriented companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Furthermore, short sellers and activists may seek to sensationalize selected news about companies, including ours, so as to influence supply and demand for the Ordinary Shares, further influencing volatility in its market price. Public perception and other factors outside of our control may additionally impact our stock price.

 

Following periods of volatility in the overall market and our share price, there is a risk that securities class action litigation may be filed against us. While we would defend any such actions vigorously, any judgement against us or any future stockholder litigation could result in substantial costs and a diversion of our management’s attention and resources.

 

We may issue additional securities in the future, which may result in dilution to our shareholders and may depress our share price.

 

We are not restricted from issuing additional Ordinary Shares or securities convertible into or exchangeable for Ordinary Shares. Because we anticipate we will need to raise additional capital to operate and/or expand our business, we expect to conduct equity offerings in the future.

 

There is no limit on the number of Ordinary Shares we may issue under our articles of association, however the directors’ authority to allot Ordinary Shares is limited to the extent authorized by the shareholders of the Company. On November 10, 2022, at the Company's annual general meeting, the shareholders authorized the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, Ordinary Shares up to an aggregate nominal value of $180,000, such authority to expire on November 10, 2027, and the shareholders waived all and any pre-emption rights in respect of the same. To the extent we conduct additional equity offerings, additional Ordinary Shares will be issued, which may result in dilution to our shareholders. The Ordinary Shares underlying our securities may be eligible for public resale in the future, either pursuant to registration or an exemption from registration. Sales of substantial numbers of shares in the public market could adversely affect the market price of our Ordinary Shares. In addition, issuances of a substantial number of shares will reduce the equity interest of our existing investors and could cause a change in control of our Company.

 

Future sales of substantial amounts of our Ordinary Shares in the public market, or the perception that these sales could occur, could adversely affect the price of our Ordinary Shares and could impair our ability to raise capital through the sale of additional shares. Furthermore, the market price of our Ordinary Shares could drop significantly if our executive officers, directors, or certain large shareholders sell their shares, or are perceived by the market as intending to sell them.

 

We do not intend to pay any dividends on our Ordinary Shares at this time.

 

We have not paid any cash dividends on our Ordinary Shares to date. The payment of cash dividends on our Ordinary Shares in the future will be dependent upon our revenue and earnings, if any, capital requirements, and general financial condition, as well as the limitations on dividends and distributions that exist under the applicable laws and regulations of England and Wales and will be within the discretion of our board of directors (the "Board"). It is the present intention of our Board to retain all earnings, if any, for use in our business operations and, accordingly, our Board does not anticipate declaring any dividends on our Ordinary Shares in the foreseeable future. As a result, any gain you will realize on our Ordinary Shares will result solely from the appreciation of such shares.

 

 

We cannot assure you that our Ordinary Shares will always trade in an active and liquid public market. In addition, at times trading in our Ordinary Shares on The Nasdaq Capital Market ("Nasdaq") has been highly volatile with significant fluctuations in price and trading volume, and such volatility and fluctuations may continue to occur in the future. Low liquidity, high volatility, declines in our stock price or a potential delisting of our Ordinary Shares may have a negative effect on our ability to raise capital on attractive terms or at all and may have a material adverse effect on our operations.

 

The market price of our Ordinary Shares may be influenced by many factors, many of which are beyond our control, including those described above in “Risks related to our business and operations.” As a result of these and other factors, investors in our Ordinary Shares may not be able to resell their shares at or above the price they paid for such shares or at all. The market price of our Ordinary Shares has frequently been highly volatile and has fluctuated in a wide range. The liquidity of our Ordinary Shares as reflected in daily trading volume on Nasdaq has usually been low. As of August 31, 2023, the trading price of our Ordinary Shares on Nasdaq was $0.46 per share. At certain points in the past year, the trading price of our Ordinary Shares on Nasdaq has fallen to a minimum of $0.23 per share, and has also traded to a maximum of $1.50 per share. The Company was first notified by Nasdaq that it no longer met the minimum bid price of $1.00 per share requirement, based on the closing bid price of the Company’s Ordinary Shares for the last 30 consecutive business days, on October 28, 2022, and was given an initial 180-day period, until April 26, 2023, to regain compliance. On April 27, 2023, the Company received written notification from Nasdaq granting the Company's request for a 180-day extension to regain compliance with Nasdaq's minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"). The Company has until October 23, 2023, to meet the Minimum Bid Price Requirement that the bid price of the Company's Ordinary Shares close at, or above, $1.00 per share for a minimum of ten consecutive business days. There can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or that, if the Company receives a delisting notice and appeals the delisting determination by Nasdaq, such appeal would be successful.

 

Low liquidity, high volatility, declines in our stock price or potential delisting of our Ordinary Shares may have a material adverse effect on our ability to raise capital on attractive terms or at all and a material adverse effect on our operations. 

 

As a foreign private issuer whose shares are listed on Nasdaq, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements.

 

As a foreign private issuer whose shares are listed on Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain requirements of Nasdaq. Among other things, as a foreign private issuer we may follow home country practice with regard to the composition of the Board, director nomination procedure, and quorum at shareholders’ meetings. In addition, we may follow our home country law, instead of Nasdaq rules, which require that we obtain shareholder approval for certain dilutive events such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company, and certain acquisitions of the stock or assets of another company. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq’s corporate governance requirements. We currently do not intend to take advantage of any such exemptions.

 

The market price of our shares may be significantly and negatively affected by factors that are not in our control.

 

The market price of our shares may vary significantly and may be significantly and negatively affected by factors that we do not control. Some of these factors include: variance and volatility in global markets for equity and other assets; changes in legal, regulatory or tax-related requirements of governmental authorities, stock exchanges, or other regulatory or quasi-regulatory bodies; the performance of our competitors; and the general availability and terms of corporate and project financing.

 

Our largest shareholder has substantial influence over us and its interests may conflict with or differ from interests of other shareholders.

 

Our largest shareholder AWN Holdings Limited (collectively with its affiliates and subsidiaries, “AWN”) owned approximately 39.3% of our outstanding Ordinary Shares as at August 31, 2023. Accordingly, AWN exerts substantial influence over the election of our directors, the approval of significant corporate transactions such as mergers, tender offers, and the sale of all or substantially all of our assets, the adoption of equity compensation plans, and all other matters requiring shareholder approval. The interests of AWN could conflict with or differ from interests of other shareholders. For example, the concentration of ownership held by AWN could delay, defer, or prevent a change of control of the Company or impede a merger, takeover, or other business combination, which other shareholders may view favorably.

 

In addition, AWN is our largest creditor, having provided us with a shareholder loan on a secured basis, and also some short-term loans. As of June 30, 2023, the balance of these shareholder loan was $28.6 million. AWN has the ability to exert rights that are customary for a secured first ranking loan if we are in breach of covenants or otherwise default on the loans. Any exertion of such rights may adversely affect the value of our share price.

 

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

 

We are incorporated under English law. The rights of holders of our Ordinary Shares are governed by English law, including the provisions of the Companies Act 2006, and by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. Pursuant to the Companies Act 2006, before rights to subscribe for shares are granted, the directors must have in place the relevant shareholder authorities to allot the shares. In addition, shareholders are required to disapply pre-emption rights in respect of shares to be allotted as a result of such rights to subscribe. There is no requirement to seek such authority where awards are made pursuant to an “employees’ share scheme” however, where awards are made to non-employees those will not be made pursuant to an employees’ share scheme. The Company will however take steps to seek ratification in relation to the allotment. See “Issued Share Capital—Differences in Corporate Law”, for a description of the principal differences between the provisions of the Companies Act 2006 applicable to us and, for example, the Delaware General Corporation Law relating to shareholders’ rights and protections.

 

 

Risks related to climate, economic and geopolitical factors

 

We face risks related to natural disasters, health epidemics, such as COVID-19, and other catastrophes, which could significantly disrupt our operations or compromise our business continuity.

 

Our business could be materially and adversely affected by natural disasters or other catastrophes, such as earthquakes, fire, floods, hail, windstorms, severe weather conditions, environmental accidents, power loss, communications failures, explosions, terrorist attacks as well as epidemics and pandemics, including but not limited to outbreaks of avian influenza, severe acute respiratory syndrome, or SARS, Zika virus, Ebola virus, the 2019 novel coronavirus (“COVID-19”) and other similar public health emergencies.

 

Our business has been materially adversely affected by COVID-19 across the key markets where we have operations, including the U.K., Australia, the Netherlands, and the U.S. Due to the outbreak of COVID-19 in 2020, authorities in our key markets and globally took various emergency measures, including implementing travel bans, closing factories and businesses, and imposing quarantine restrictions and lockdowns. These measures prevented many of our employees from going to work, which has adversely impacted our business operations. If any of our employees is suspected of having contracted any contagious disease, we may, under certain circumstances, be required to quarantine those employees and the affected areas of our operations. As a result, we may have to temporarily suspend part or all of our facilities. Furthermore, authorities may impose additional restrictions on travel and transportation and implement other preventative measures in affected regions to deal with the catastrophe or emergency, which may lead to supply chain and logistics disruption, the temporary closure of our facilities and declining economic activity at large. A prolonged outbreak of any health pandemic or other adverse public health developments could have a material adverse effect on our business operations. 

 

Pandemic-related lockdowns and border closures have also caused supply chain and logistics disruption, including exacerbated port congestion and intermittent supplier shutdowns and delays, resulting in additional expenses to expedite delivery of critical parts. Further supply chain and logistics disruption due to COVID-19 could have a material adverse effect on our business operations.

 

COVID-19 has also caused delays in fulfilment of customer orders and contracted projects, which adversely affect our revenues. Although the risk may now be subdued, the extent to which COVID-19 may continue to impact our ability to effectively operate remains uncertain. While restrictions imposed in response to COVID-19 have eased since FY2022, the long-term economic impact of COVID-19 is still uncertain. To the extent that lockdowns, restrictions and border controls are implemented in response to new waves of contagion from COVID-19 or to any other novel global public health threats or fear thereof, there is significant risk that our revenues, operating results and financial condition will be further compromised.

 

General economic conditions, including levels of inflation and official interest rates in different jurisdictions in which we operate, could adversely impact demand for our solutions, products and services.

 

Russia’s invasion of Ukraine and the escalating military conflict in the region has, among other things, resulted in elevated geopolitical instability and economic volatility. The economic volatility attributable initially to COVID-19 and then Russia’s invasion of Ukraine is part of and contributing to a larger trend of rising inflation around the globe, which may have a significant adverse effect on economic activity and VivoPower’s business.

 

Given general cost inflation pressures, to the extent that we are unable to fully pass on any increases in input costs including materials and labor, this will adversely affect our profit margins, cash flows and ultimately our business, results of operations and financial condition.

 

Market interest rates are rising in the countries in which we operate, and any further increase in interest rates may have a material adverse impact on our businesses. For example, customers and investors would apply a higher discount rate in their decision making and this may compromise our ability to sell SES projects and adversely impact the value of our solar projects and other assets. To the extent we are unable to mitigate these risks, there could be a material adverse effect on our business, results of operations and financial condition.

 

The demand for our solutions, products and services is influenced by macroeconomic factors such as global economic conditions, demand for electricity, and supply and prices of other energy products, such as oil, coal and natural gas. Economic slowdowns, global, regional or local recessions or depressions could lead to eroded confidence from our customers and decreased spending more generally, which in turn could reduce demand for the Company’s products. Unfavorable economic conditions could also negatively impact the Company’s customers, distributors, suppliers, and financial counterparties, who may experience cash flow problems, increased credit defaults or other financial issues, in turn affecting our business, results of operations and financial condition.

 

The demand for our solutions, products and services is also affected by microeconomic factors, such as government regulations and policies concerning the electric vehicle industry, the electric utility industry and the renewable energy industry and more broadly, the environment and carbon emissions.

 

Our growth and profitability depend on the demand for and the prices of our solutions, products and services, which are underpinned by the relative cost of electricity and solar power as well as EV conversion kit components. If we experience negative macroeconomic and microeconomic conditions, our business, results of operations and financial condition may be materially adversely affected.

 

 

Commodity prices (particularly for natural gas and coal) could impact the economic viability of our businesses, in particular SES and Solar Development.

 

Traditional forms of electricity generation using commodities such as natural gas and coal provide a source of competition for renewable energy, including solar power. Commodity prices are inherently volatile and from time-to-time traditional forms of generation can be cheaper and more competitive than renewable power. Increased competition caused by prolonged low commodity prices for traditional forms of generation could adversely impact the economic viability of our SES and Solar Development business units. This has the potential to negatively impact our ability to achieve our earnings or cash flow targets, which could have a consequential material adverse effect on our business, results of operations and financial condition.

 

Our operations span multiple markets and jurisdictions, exposing us to numerous legal, political, operational, foreign currency exchange and other risks that could negatively affect our operations and profitability.

 

With operations in the United States, the United Kingdom, Europe, the UAE, the Philippines and Australia, we are exposed to various financial, political and economic factors. Our customers and suppliers are also located in various countries across the world. We are subject to regulation in all of the jurisdictions in which we operate. Compliance with a variety of laws may require additional costs for sufficient controlling mechanisms or legal advice. Difficulties with enforcement of agreements and receivables in foreign legal systems may result in loss of revenue, depreciations, and lower cash flows. Changes in regulatory requirements may cause, among other things, expensive production reorganizations. Decision-making processes may become more complex, requiring more management resources. Trade wars, imposition of tariffs and export controls caused by geopolitical developments may impede supply chains and customer deliveries. In addition, the circulation of goods which are vital to our business success due to our international orientation can been adversely affected by pandemics such as COVID-19.

 

We continue to explore expansion of our international operations in certain markets where we currently operate and in selected new or developing markets. New markets and developing markets can present many risks including the actions and decisions of local and national authorities and regulators, the imposition of limits on foreign ownership of local companies, changes in laws (including tax laws and regulations) as well as their application or interpretation, civil disturbances and political instability, difficulties in protecting intellectual property, fluctuations in the value of the local currency, restrictions that prevent us from transferring funds from these operations out of the countries in which they operate or converting local currencies we hold into U.S. dollars, British Pounds or other currencies, as well as other adverse actions by governmental authorities and regulators, such as the retroactive application of new requirements on our current and prior activities or operations. Additionally, evaluating or entering into a developing market may require considerable time from management, as well as start-up expenses for market development before any significant revenues and earnings are generated. Engaging with foreign representatives and consultants may be vital for the success of our operations in certain countries and hence create a significant dependency on their abilities. Operations in new markets may achieve low margins or may be unprofitable, and expansion in existing markets may be affected by local political, economic and market conditions. As we continue to operate our business internationally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. The impact of any one or more of these or other factors could adversely affect our business, financial condition or results of operations. 

 

We generate revenues and incur costs in a number of currencies. Changes in economic or political conditions in any of the countries in which we operate could result in exchange rate movement, new currency or exchange controls or other restrictions being imposed on our operations or expropriation. Because our financial results are reported in U.S. dollars, if we generate revenue or earnings in other currencies, the translation of those results into U.S. dollars can result in a significant increase or decrease in the amount of those revenues or earnings.

 

Foreign exchange rates have seen significant fluctuation in recent years, and significant increases in the value of the U.S. dollar relative to foreign currencies could have a material adverse effect on the Group’s (as defined below) reported financial results.

 

Seasonal variations in demand linked to construction cycles and weather conditions may influence our results of operations and severe weather, including extreme weather conditions associated with climate change, may negatively affect our operations.

 

Our business is subject to seasonal variations in demand linked to weather conditions. The demand for our solutions, products and services from some countries may also be subject to significant seasonality due to adverse weather conditions. Furthermore, extreme weather conditions such as hurricanes, droughts, heat waves, fires, winter storms and other severe weather events associated with climate change could cause these seasonal fluctuations to be more pronounced. Seasonal variations and unseasonal weather could adversely affect our results of operations, including preventing our workforce from progressing projects as planned and making them more volatile and unpredictable.

 

Destruction caused by severe weather events, such as hurricanes, flooding, tornados, severe thunderstorms, snow and ice storms, can result in lost operating revenues due to outages, property damage including downed transmission and distribution lines, and additional and unexpected expenses to mitigate storm damage, any of which may have a material adverse impact on our business, results of operations and financial condition.

 

A deterioration or other negative change in economic or financial conditions in the countries in which we operate or in the global financial markets could have a material adverse effect on our business or results of operations.

 

Our business depends on the availability of third-party financing on attractive terms. If a deterioration, volatility, or other negative changes occurred in economic or financial conditions, either in the countries in which we operate or in the global financial markets in general, our access to such financing, or the terms on which we are able to access such financing, could be significantly and negatively affected. Financial markets are subject to periods of substantial volatility and such volatility is difficult or impossible to predict in advance.

 

If we are unable to secure third party financing on commercially viable terms, this could have a material adverse impact on our business, prospects, operating results and financial condition.

 

 

Risks related to information systems, internal controls, cybersecurity, record keeping and reporting

 

Our operations depend on proper performance of various information technology systems.

 

The majority of our operational steps are covered by complex information technology (“IT”) systems and Enterprise-Resource-Planning (“ERP”) systems such as Netsuite. We rely on integrated IT systems, in particular for purposes of production planning, scheduling, control and quality assurance, recording our order intake, sales volumes and distribution, and maintaining our accounting systems. In addition, new IT systems are implemented continuously across our Group.

 

Our IT systems may fail for a number of reasons in the future. Rapid growth of our business, fire, lightning, flooding, earthquake or other natural disasters, technological or human error or other events may cause disruptions. In addition, we may be the subject of cyber-attacks in the future, and we cannot ensure entirely that our IT security will successfully prevent such hacks, denial of service attacks, data theft or other cyber-attacks. Our back-up systems may fail to fully protect us against the effects of such events. Consequently, any failure of our IT systems could lead to difficulties meeting customers’ demands, delays in delivery, less effective hedging or accounting or risk management failures. Moreover, confidential or private information, including third-party information, may be leaked, stolen, or manipulated or compromised in other ways. In this event, we may also be subject to contractual penalties or claims for damages, administrative fines or other sanctions under secrecy, confidentiality, or data protection laws and regulations. Our insurance may not adequately cover potential damages which may reduce our customer base and ultimately result in lower revenue.

 

If we are unable to maintain effective internal controls over financial reporting or effective disclosure controls and procedures, or if material weaknesses in our internal controls over financial reporting or in our disclosure controls and procedures develop, it could negatively affect the reliability or timeliness of our financial reporting and result in a reduction of the price of our Ordinary Shares or have other adverse consequences.

 

There can be no assurance that our internal controls or our disclosure controls and procedures will provide adequate control over our financial reporting and disclosures and enable us to comply with the requirements of the Sarbanes-Oxley Act. In addition, carrying out our growth plan may require our controls and procedures to become more complex and may exert additional resource requirements in order for such controls and procedures to be effective. Any material weaknesses in our internal controls over financial reporting, or in our disclosure controls and procedures, may negatively affect the reliability or timeliness of our financial reporting and could result in a decrease in the price of our Ordinary Shares, limit our access to capital markets, harm our liquidity or have other adverse consequences.

 

The accounting treatment for many aspects of our business is complex and any changes to the accounting interpretations or accounting rules governing our business could have a material adverse effect on our reported results of operations and financial results. 

 

The accounting treatment for many aspects of our business is complex, and our future results could be adversely affected by changes in the accounting treatment applicable to our business. In particular, any changes to the accounting rules regarding the following matters may require us to change the manner in which we operate and finance our business: 

 

 

revenue recognition and related timing;

 

 

intercompany contracts;

 

 

operation and maintenance contracts;

 

 

long-term vendor agreements; and

 

 

foreign holding company tax treatment.

 

Security breaches, cyber-attacks, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.

 

In the ordinary course of our business, we collect and store sensitive data, intellectual property and proprietary business information owned or controlled by ourselves or our customers. This data encompasses a wide variety of business-critical information including research and development information, commercial information, and business and financial information. We face four primary risks relative to protecting this critical information: loss of access; inappropriate disclosure; inappropriate modification; and inadequate monitoring of our controls over the first three risks.

 

The secure processing, storage, maintenance, and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses, breaches, interruptions due to employee error, malfeasance, lapses in compliance with privacy and security mandates, or other disruptions. Any such breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost, or stolen.

 

Any such security breach or interruption, as well as any action by us or our employees or contractors that might be inconsistent with the rapidly evolving data privacy and security laws and regulations applicable within the United States and elsewhere where we conduct business, could result in enforcement actions by U.S. states, the U.S. federal government or foreign governments, liability or sanctions under data privacy laws that protect personally identifiable information, regulatory penalties, other legal proceedings such as but not limited to private litigation, the incurrence of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of management efforts and damage to our reputation, which could harm our business and operations. Because of the rapidly moving nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful.

 

 

In addition, the European Parliament and the Council of the European Union adopted a comprehensive general data privacy regulation, or GDPR, in 2016 to replace the current European Union Data Protection Directive and related country specific legislation. The GDPR took effect in May 2018 and governs the collection and use of personal data in the European Union. The GDPR, which is wide-ranging in scope, will impose several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States, enhances enforcement authority and imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater. While we have taken steps to comply with the GDPR, including such as reviewing our security procedures and entering into data processing agreements with relevant contractors, we cannot assure you that our efforts to remain in compliance will be fully successful.

 

Further, unauthorized access, loss or dissemination of sensitive information could also disrupt our operations, including our ability to conduct research and development activities, process and prepare company financial information, manage various general and administrative aspects of our business and damage our reputation, any of which could adversely affect our reputation and our business. In addition, there can be no assurance that we will promptly detect any such disruption or security breach, if at all. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our products could be delayed.

 

We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptions could have a material adverse effect on our reported results of operations.

 

In connection with the preparation of our consolidated financial statements included in Item 17. Financial Statements of this Annual Report, we use certain estimates and assumptions, which are more fully described in Notes 2 and 3 of the financial statements filed as part of this Annual Report, starting on page F-1. The estimates and assumptions we use in the preparation of our consolidated financial statements affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. While we believe that these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our financial statement presentation, financial condition, results of operations and cash flows, any of which could cause our stock price to decline.

 

We currently report our financial results under IFRS, which differs in certain significant respects from U.S. GAAP.

 

We report our financial statements under IFRS. There have been and there may be in the future certain significant differences between IFRS and U.S. GAAP, including but not limited to differences related to revenue recognition, share-based compensation expense, income tax, impairment of long-lived assets and earnings per share. As a result, our financial information and reported earnings for historical or future periods could be significantly different if they were prepared in accordance with U.S. GAAP. As a result, you may not be able to meaningfully compare our financial statements under IFRS with those companies that prepare financial statements under U.S. GAAP.

 

Risks related to regulations and governance

 

Regulations and policies governing the electric utility industry, as well as changes to these regulations and policies, may adversely affect demand for our solutions, projects and services and materially adversely affect our business, results of operations and/or financial condition. 

 

The market for electricity generation is heavily influenced by local country factors including federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by public utility commissions and electric utilities. These regulations and policies govern, among other matters, electricity pricing and the technical interconnection of distributed electricity generation to the grid. The regulations and policies also regulate net metering in the U.S., which relates to the ability to offset utility-generated electricity consumption by feeding electricity produced by onsite renewable energy sources, such as solar energy, back into the grid. Purchases of renewable energy, including solar power, by customers could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for our sustainable energy solutions. Changes in consumer electricity tariffs or peak hour pricing policies of utilities, including the introduction of fixed price policies, could also reduce or eliminate the cost savings derived from sustainable energy solutions and, as a result, reduce customer demand for our systems. Any such decrease in customer demand could have a material adverse effect on our business, financial condition or results operations.

 

 

Regulations and policies governing electric vehicles may materially adversely affect the adoption of electric vehicles and hence the demand for and/or financial viability of our electric vehicle business.

 

Electric vehicle sales are subject to foreign, federal, state and local laws, rules, regulations and policies which affect both demand and supply. These include incentives for purchase as well as manufacturing. Should these incentives be removed or reduced, the demand and/or supply of electric vehicles may decline. In addition, each jurisdiction will have their own laws, rules and regulations in relation to on road usage of electric vehicles, including homologation requirements.

 

Electric vehicles are also subject to industry specific laws, rules and regulations for use in different industries. For example, there are specific mining regulations which define certain technical and safety requirements that must be met in order for electric vehicles to be eligible for use on mine sites. Road use of our electric vehicles will also require adhering to local laws and regulations in order to be operated on public roads.

 

These laws, rules and regulations may adversely affect the technical and economic viability of our Tembo EUV products and solutions which in turn could have a material adverse effect on our business, results of operations and financial condition.

 

Regulations and policies governing solar power project development, installation and energy generation may adversely affect demand for solutions, products and services including SES, Critical Power and Solar Development. 

 

Our SES, Critical Power and Solar Development segments each have revenue generating elements that involve solar power project and systems development, installation and/or generation. Hence, each of these business segments are impacted by regulations and policies that affect solar power project development, installation and generation.

 

Energy and electricity markets are influenced by foreign, federal, state and local laws, rules and regulations. These laws, rules and regulations, which differ across jurisdictions may affect electricity pricing and electricity generation and could have a substantial impact on the relative cost and attractiveness of renewable energy, including solar power compared to other forms of energy generation. Furthermore, there may be rules introduced to curtail the generation and/or supply of renewable power generation so as to reduce the effects of power intermittency, which adversely affects the economic viability of solar power projects and systems.

 

In addition, the financial viability and attractiveness of projects which comprise of renewable power generation heavily depends on equipment prices which are affected by laws, rules and regulations. For example, trade and local content laws, rules and regulations, such as tariffs on solar panels, can increase the pricing of solar equipment, thereby raising the cost of developing solar projects and reducing the savings and returns achievable by off-takers and investors, and also potentially reducing profit margins on projects. These and any other tariffs or similar taxes or duties may increase the cost of solar power project and systems development, thereby reducing their economic appeal.

 

Furthermore, the installation of solar power equipment is subject to a broad range of federal, state, local and foreign regulations relating to trade, construction, safety, environmental protection, utility interconnection and metering, and related matters. Any new regulations or policies in this regard may result in significant additional cost of solar power project and systems installation, thereby reducing their economic appeal.

 

In some cases, the economic viability of a solar project and/or system will depend on securing a power purchase agreement (“PPA”). Such PPAs are typically subject to approval by the relevant regulatory authority in the local market. There can be no assurance that any such approval will be obtained, and in certain markets, the regulatory bodies have recently demonstrated a heightened level of scrutiny on solar PPAs that have been brought for approval. If the required approval is not obtained for any particular solar PPA, the PPA counterparty may exercise its right to terminate such agreement, and we may lose invested development capital, which could have a material adverse effect on our business, results of operations and financial condition.

 

Changes to our tax liabilities or changes to tax requirements in the jurisdictions in which we operate could significantly and negatively affect our profitability. 

 

We are subject to income taxes and potential tax examinations in various jurisdictions, and taxing authorities may disagree with our interpretations of U.S. and foreign tax laws and may assess additional taxes. The taxes ultimately paid upon resolution of such examinations could be materially different from the amounts previously included in our income tax provision, which could have a material impact on our profitability and cash flow. Moreover, changes to our operating structure, losses of tax holidays, changes in the mix of earnings in countries with tax holidays or differing statutory tax rates, changes in tax laws, and the discovery of new information in the course of our tax return preparation process could each have a negative impact on our tax burden and therefore our financial condition. Changes in tax laws or regulations or interpretations may also increase tax uncertainty and adversely affect our results of operations. Any increase in corporation or other tax rates to which the Company is exposed or adverse changes in the basis of calculation could result in the Company paying higher taxes and could have an adverse impact on the Company’s cash flows, financial condition, and results of operations.

 

 

Changes in, or any failure to comply with, privacy laws, regulations, and standards may adversely affect our business.

 

The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Governmental bodies around the world have adopted, and may in the future adopt, laws and regulations affecting data privacy. Industry organizations also regularly adopt and advocate for new standards in this area. In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that apply to us. Any changes in such laws, regulations or standards may result in increased costs to our operations, and any failure by us to comply with such laws, regulations and standards may have a significant and negative impact on our business or reputation.

 

As a foreign private issuer under the rules and regulations of the SEC, we are exempt from a number of rules under U.S. securities laws that apply to U.S.-based issuers and are permitted to file less information with the SEC than such companies.

 

We are a “foreign private issuer” under the rules and regulations of the SEC. As a result, we are not subject to all of the disclosure requirements applicable to U.S.-based issuers. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), that impose disclosure and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to securities registered under the Exchange Act. In addition, we are not required to file periodic reports and consolidated financial statements with the SEC as frequently or as promptly as U.S.-based public companies. As a result, there may be less publicly available information concerning our Company than there is for U.S.-based public companies. Furthermore, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules. 

 

U.S. holders of our shares could be subject to material adverse tax consequences if we are considered a passive foreign investment company for U.S. federal income tax purposes.

 

We do not believe that we are a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, and we do not expect to become a PFIC. However, the determination of whether we are a currently, or may become in the future, a PFIC, depends on the particular facts and circumstances (such as the valuation of our assets, including goodwill and other intangible assets) and may also be affected by the application of the PFIC rules, which are subject to differing interpretations. Because that factual determination is made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable years.

 

If we are a PFIC, U.S. holders of our Ordinary Shares would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. A U.S. holder of our Ordinary Shares may be able to mitigate some of the adverse U.S. federal income tax consequences described above with respect to owning the Ordinary Shares if we are classified as a PFIC, provided that such U.S. investor is eligible to make, and validly makes, a “mark-to-market” election. In certain circumstances a U.S. Holder can make a “qualified electing fund” election to mitigate some of the adverse tax consequences described with respect to an ownership interest in a PFIC by including in income its share of the PFIC’s income on a current basis. However, we do not currently intend to prepare or provide the information that would enable a U.S. Holder to make a qualified electing fund election.

 

Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to our Ordinary Shares. For more information related to classification as a PFIC, see Certain Material U.S. Federal Income Tax Considerations -- Passive Foreign Investment Company Considerations.

 

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

 

As a foreign private issuer, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. In the future, we would lose our foreign private issuer status if we failed to meet the requirements set forth in Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”). If we were to lose our status as a foreign private issuer, we would become subject to the regulatory and compliance costs associated with being a U.S. domestic issuer under U.S. securities laws, rules and regulations and stock exchange requirements, which costs may be significantly greater than costs we incur as a foreign private issuer. We would be required under current SEC rules to prepare our consolidated financial statements in accordance with U.S. GAAP and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. These requirements would be additional to, and not in place of, those under U.K. law to prepare consolidated financial statements under IFRS and comply with applicable U.K. corporate governance laws. If we do not qualify as a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. Such conversion and modifications will involve additional costs, both one-off in nature on conversion and ongoing costs to meet reporting in both U.S. GAAP and IFRS, which would reduce our operating profit. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers. Therefore, the additional costs that we would incur if we lost our foreign private issuer status could have a significant and negative impact on our financial condition, operating results or cash flows.

 

 

U.S. investors may have difficulty enforcing civil liabilities against our Company, our directors or members of senior management and the experts named in this Annual Report.

 

Most of our directors and the experts named in this Annual Report are non-residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgements obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. There may be doubt as to whether the courts of England and Wales would accept jurisdiction over and enforce certain civil liabilities under U.S. securities laws in original actions or enforce judgements of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere are likely to be unenforceable in England and Wales (an award for monetary damages under the U.S. securities laws may be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and appears to be intended to punish the defendant). The enforceability of any judgement in England and Wales will depend on a number of criteria, including public policy, as well as the laws and treaties in effect at the time. The United States and the U.K. do not currently have any treaties providing for recognition and enforcement of judgements (other than arbitration awards) in civil and commercial matters.

 

Changes in U.S. federal income tax policy, including in relation to investment tax credits, may affect the appetite of investors for renewable project investments that are eligible for such credits and could therefore have a negative impact on the economic viability of our U.S. solar development projects.

 

Among other factors, the economic viability of our solar development projects in the United States may depend upon U.S. federal income tax rates as well as the investment tax credit regime under Section 48 of the Internal Revenue Code (the “Code”). The federal income tax reform enacted under the Tax Cuts and Jobs Act of 2017 included a substantial reduction to the federal income corporate tax rate which reduced the economic value of federal investment tax credits. However, the Inflation Reduction Act of 2022 lifted ITCs to 30% and extended them for projects beginning construction before January 1, 2025, with solar projects also being able to take the Production Tax Credit in lieu of ITCs. Any future changes in taxation policy, including in relation to investment tax credits may have a negative impact on the economic viability of our U.S. solar development projects, all other things being equal.

 

From time to time, we may become involved in costly and time-consuming litigation and other regulatory proceedings which require significant attention from our management.

 

In addition to potential litigation related to defending our intellectual property rights, we may be named as a defendant from time to time in other lawsuits and regulatory actions relating to our business, some of which may claim significant damages.

 

For example, as discussed further in “Item 8. Financial Information – A. Consolidated Statements and Other Financial Information - Legal Proceedings,” on February 26, 2018, the Company’s former Chief Executive Officer, Phillip Comberg, filed a legal claim alleging the Company committed a repudiatory breach of his service agreement in connection with the termination of his employment on October 4, 2017. On April 9, 2018, the Company filed a defense and counterclaim, denying that a repudiatory breach was committed by the Company and denying the other claims asserted by Mr. Comberg, claiming that Mr. Comberg was terminated for cause. On November 26, 2018, the Company agreed to a settlement of the counterclaims against Mr. Comberg for an undisclosed amount. After aborted attempts at settlement, the matter was heard in the U.K. High Court, with judgement ruled in September 2020. The Company was successful in defending the majority of the claims, with a total of £0.62 million ($0.90 million) of the claims being settled in favor of Mr. Comberg. However final costs and interest awarded to him were $1.76 million. Of the remaining provision as at June 30, 2021 of $0.5 million for unpaid costs, $0.4 million was spent in the year ended June 30, 2022, resulting in a $0.1 million release of the remaining unutilized provision.

 

On May 31, 2022 the William Q. Richards Estate (the “Plaintiff” or the “Estate”) filed a complaint against VivoPower USA LLC, Caret, LLC (“Caret”), formerly Innovative Solar Ventures I, LLC (“ISV”), and related entities (the "VivoPower Defendants") alleging the VivoPower Defendants improperly included land owned by the Estate in the reinvestment zone of the tax abatement agreements executed on March 14, 2022 between Cottle County, Texas and the Company’s subsidiaries Innovative Solar 144, LLC and Innovative Solar 145, LLC. The complaint sought to nullify and/or declare the tax abatement agreements void. The Estate filed an amended complaint on August 18, 2022, further detailing their claims and requesting unspecified damages. On September 16, 2022, the VivoPower Defendants filed a motion to dismiss Plaintiff’s Amended Complaint, which the Court subsequently granted on January 23, 2023, stating that the Plaintiff had failed “to establish that the amount in controversy had been met.” On February 20, 2023, the Estate filed a second amended complaint to argue that the amount in controversy was met. Regina, widow of the late William Q. Richards, was added as a plaintiff in the second amended complaint. On March 6, 2023, the VivoPower Defendants filed a new motions to dismiss the Plaintiffs’ second amended complaint. On May 5, 2023, the Plaintiffs filed an instant opposition to the VivoPower Defendants’ motions to dismiss. On May 19, 2023, the VivoPower Defendants submitted a reply supporting their motion to dismiss requesting the dismissal of the Plaintiffs' claim. The Company does not expect the Plaintiff to be successful in its complaint. Accordingly no provision has been recorded as at June 30, 2023 in relation to this matter.

 

In addition to the foregoing litigation, we may be subject in the future to, or may file ourselves, claims, lawsuits or arbitration proceedings related to matters in tort or under contracts, employment matters, securities class action lawsuits, whistleblower matters, tax authority examinations or other lawsuits, regulatory actions or government inquiries and investigations. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business and financial condition, results of operations or cash flows or limit our ability to engage in certain of our business activities. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are often expensive, lengthy, disruptive to normal business operations and require significant attention from our management.

 

 

We are subject to the U.K. Bribery Act, the U.S. Foreign Corrupt Practices Act (FCPA) and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations.

 

Our operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010, or the Bribery Act, the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. The Bribery Act, the FCPA and these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage.

 

Under the Bribery Act, we may also be liable for failing to prevent a person associated with us from committing a bribery offense. We, and those acting on our behalf, operate in a number of jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we participate in collaborations and relationships with third parties whose corrupt or illegal activities could potentially subject us to liability under the Bribery Act, FCPA or local anticorruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. Furthermore, compliance with the Bribery Act, the FCPA and these other laws is expensive and difficult, particularly in countries in which corruption is a recognized problem.

 

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United States and the U.K., and authorities in the European Union, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as Trade Control laws.

 

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by United States, U.K. or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition. Further, the failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting.

 

Any such violation, even if prohibited by our policies, could subject us and such persons to criminal and/or civil penalties or other sanctions, which could have a material adverse effect on our reputation and results of operations.

 

Risks related to attracting and retaining talent 

 

Our future success depends on our ability to retain our chief executive officer and other key executives.

 

We are highly dependent on Kevin Chin, our Chairman and Chief Executive Officer, and other principal members of our management team. Although we have formal employment agreements with each of our executive officers, these agreements do not prevent our executives from terminating their employment with us. We do not maintain “key person” insurance on any of our executive officers. The unplanned loss of the services of any of these persons could materially impact our business and results of operations.

 

The success of our Company is heavily dependent on the continuing services of key personnel as well as the recruitment and retention of additional personnel.

 

Our industry is characterized by intense competition for personnel, particularly technically skilled personnel. The success of our Company is highly dependent on the contributions of executives and other key personnel, and if we were to lose the contributions of any such personnel, it could have a negative impact on our business and results of operations.

 

Moreover, our growth plan will require us to hire additional personnel in the future. If we are not able to attract and retain such personnel, our ability to realize our growth objectives will be compromised. For Tembo in particular, given its potential growth trajectory, there is a need to hire a significant number of additional personnel including embedded engineers, software engineers, mechanical engineers and electrical engineers. Tembo’s current location in the Netherlands may not have a sufficiently deep pool of talent in this regard and/or Tembo may face competition for talent from other companies in the region. There can be no assurance that we will be able to successfully recruit the employees we need to achieve our business objectives.

 

In addition, talented employees may choose to leave the Company because of competing companies offering better remuneration packages. When talented employees leave, we may have difficulty replacing them and our business may suffer. While we strive to maintain our competitiveness in the marketplace, there can be no assurance that we will be able to successfully retain the employees that we need to achieve our business objectives.

 

The loss of one or more of our key management or operating personnel, or the failure to attract and retain additional key personnel, could have a material adverse impact on our business, results of operations, financial condition and prospects. 

 

 

ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

 

VivoPower was incorporated on February 1, 2016, under the laws of England and Wales, with company number 09978410, as a public company limited by shares. VivoPower recertified as a B Corporation in 2022 and was recognized in the Best For The World program as being in the top 5% amongst B Corporations for Governance.

 

On November 5, 2020, the Company completed the acquisition of 51% of Tembo e-LV B. V. and its subsidiaries: Tembo 4x4 B.V. and FD 4x4 Centre B.V. (“Tembo”) for a total consideration of €4.0 million. On February 2, 2021, the Company acquired the remaining 49% of Tembo e-LV for €1.8 million cash consideration and €0.2m of Ordinary Shares. The primary business activity of Tembo is assembly of ruggedized electric vehicles and related products, suitable for use in off-road and ruggedized environments, including mining, infrastructure, utilities, government services, humanitarian, tourism and agriculture sectors. Tembo’s capabilities are a key element of VivoPower’s sustainable energy solutions strategy and offering. 

 

On June 30, 2021, the Company acquired the remaining 50% interest in its joint venture, Caret, from the other joint venture partner, Innovative Solar Systems, LLC ("ISS"), for $1. The primary business activity of Caret is the development of utility scale solar farms in the U.S.

 

On July 1, 2022 the Company disposed of the business and assets of J.A. Martin except its solar division and the business and assets of Non-Destructive Testing Services in a sale to ARA Electrical Engineering Services Pty Limited (ARA) for an upfront cash payment of $3.4 million less working capital adjustment of $0.8 million, sale costs of $0.3 million and an earn-out payment payable 12 months after disposal of 4.5x FY2023 EBITDA minus the upfront payment, estimated on a discounted basis at $4.2 million.

 

VivoPower has 22 subsidiaries and associated entities. See “Item 4.C. Organizational Structure” for a list of each entity and its jurisdiction of incorporation.

 

Corporate and Other Information

 

Our registered office is located at The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF, United Kingdom. Our telephone number is +44-203-667-5158 and our internet address is https://www.vivopower.com. Our website and the information contained on or accessible through our website are not part of this Annual Report. Our agent for service of process in the U.S. is CSC Global / The Law Debenture Trust. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).

 

B. Business Overview

 

VivoPower is an award-winning global sustainable energy solutions B Corporation company focused on electric solutions for customised and ruggedised fleet applications, battery and microgrids, solar and critical power technology and services. The Company’s core purpose is to provide its customers with turnkey decarbonisation solutions that enable them to move toward net-zero carbon status. VivoPower has operations and personnel in Australia, Canada, the Netherlands, the United Kingdom, the United States, the Philippines, and the United Arab Emirates.

 

Management analyzes our business in five reportable segments: Critical Power Services, Electric Vehicles, Sustainable Energy Solutions, Solar Development and Corporate Office. Critical Power Services is represented by VivoPower’s wholly owned-subsidiary Aevitas. In turn, Aevitas wholly owns Kenshaw Electrical Pty Limited (“Kenshaw”) and Kenshaw Solar Pty Ltd (previously J.A. Martin) (“Aevitas Solar”), both of which operate in Australia with a focus on the design, supply, installation and maintenance of critical power, control and distribution systems, including for solar farms. Electric Vehicles is represented by Tembo e-LV B.V. (“Tembo Netherlands”) and Tembo EV Australia Pty Ltd (“Tembo Australia”), (in combination “Tembo”) a specialist battery-electric and off-road vehicle company delivering electric vehicles (“EV”) for mining and other industrial customers globally. Sustainable Energy Solutions (“SES”) is the design, evaluation, sale and implementation of renewable energy infrastructure to customers, both on a standalone basis and in support of Tembo EVs. Solar Development is represented by Caret and comprises seven active utility-scale solar projects under development in the United States. Corporate Office is the Company’s corporate functions, including costs to maintain the Nasdaq public company listing, comply with applicable SEC reporting requirements, and related investor relations and is located in the U.K. See Note 4.2 to our consolidated financial statements included herein for a breakdown of our financial results by reportable segment.

 

Critical Power Services

 

VivoPower, by way of a holding entity known as Aevitas, which was established in 2013 and subsequently acquired in December 2016, wholly owns two Australian subsidiaries: Kenshaw and Aevitas Solar. Aevitas is a key player in the manufacture, distribution, installation and servicing of essential energy infrastructure solutions. Its portfolio spans the design, procurement, installation, and upkeep of power and control systems, including those catering to utility and industrial scale solar farms.

 

Aevitas’ reputation as reliable power consultants enables it to serve a diverse range of clients, spanning governmental, commercial, and industrial sectors. From their headquarters located in Newcastle, within New South Wales' Hunter Valley region, these businesses extend their operations across Australia's Eastern seaboard with additional locations in Canberra and Sydney. Owing to their strategic positioning, they are well-equipped to capitalize on the robust growth from public and private sector investments within the infrastructure, renewable energy, mining, and data center industries.

 

The Hunter Valley region is Australia's foremost regional economy, larger than Tasmania, the Northern Territory, and the Australian Capital Territory. With an estimated 322,000 jobs and a GDP valued at $28 billion, the region has a diverse economic landscape and skilled workforce. Traditional strengths in mining and advanced manufacturing, are being supplemented by rapidly expanding sectors such as defense, food and agribusiness, and renewables.

 

 

The region holds a favorable position to reap the benefits from overarching trends influencing the Australian economy. Factors such as an aging population and increased integration into the global economy present significant opportunities for economic advancement and growth in the Hunter Valley.

 

The Critical Power Services businesses have several core competencies, encompassing a range of electrical and mechanical services. In addition, the businesses are responsible for delivering electrical services and infrastructure to support VivoPower’s EV and SES offerings, including on-site renewable generation, batteries and microgrids, EV charging stations, and emergency backup power solutions.

 

Kenshaw Electrical Pty Limited

 

Established in 1981, Kenshaw is a specialist in the provision of essential electrical and mechanical power services, with its headquarters situated in Newcastle, within Australia's Hunter Valley region.

 

Kenshaw operates out of three locations across New South Wales and the Australian Capital Territory, with its head office in Newcastle and additional branches in Canberra and Sydney. The business’s longstanding history of quality is attributed to its highly skilled personnel, whose abilities span a comprehensive array of critical power generation solutions, products, and services. Their expertise covers the entire life cycle of electric motors, power generators, and mechanical equipment.

 

Kenshaw holds ISO9001 (Quality Management), ISO45001 (Occupational Health and Safety) and the newly acquired AS/NZS3800 (Electrical equipment for explosive atmospheres) certification as evidence of its commitment to quality and safety. With a proactive and responsive approach, the business delivers programmed and as-needed services to a dedicated clientele that exceeds 500 in number. This diverse client base spans local, national, and multinational entities, incorporating sectors from data centers and health infrastructure to mine operators and agriculture. Furthermore, it serves aged care facilities, transport providers, and utility services. Offering both contract-based and ad-hoc services, Kenshaw has built a strong reputation for reliable and timely service among its wide-ranging clientele.

 

Kenshaw’s core competencies include: generator design, turn-key sales and installation; generator servicing and emergency breakdown services; customized motor modifications; wheel cartridge motor electric repair and refurbishment; and industrial electrical services. 

 

The data center sector remains an important market for Kenshaw. Propelled by the ongoing trend of digital transformation, the rise and persistence of remote work, online education, and virtual entertainment amid and subsequent to the COVID-19 pandemic, demand for Kenshaw's services has seen significant growth. This surge is further amplified by the burgeoning influence, processing and storage needs of artificial intelligence.

 

VivoPower believes Kenshaw will continue to benefit from the growth in the data center market through its long-term relationship with data center and facility management service providers. While Kenshaw has traditionally been focused on new data center builds, this stage of the market is increasingly being dominated by original equipment manufacturers (OEMs) such as Cummins and Penske, increasing competition and making margins unattractive. As a consequence, Kenshaw has pivoted to focus more heavily on data center maintenance services, both ad-hoc and scheduled. The nature of this revenue is of a higher quality given it is at a higher margin, more predictable and in some cases, multiyear contracted.

 

The growing base of both Kenshaw and third party completed installation projects provides a fertile environment for the business to provide the ongoing monitoring and maintenance of these critical Uninterruptible Power Supply ("UPS") assets, through its Generator Service division. The Canberra and Sydney branches, form an integral part of this offering by allowing for locally stored equipment and locally available personnel with an aim for Kenshaw to become entrenched at its clients’ sites for the entire lifecycle of these assets.

 

In addition to the data center sector, the infrastructure sector continues to be a growing contributor for Kenshaw. In the 2022-23 budget season, a record $168 billion in general government expenditure was allocated to infrastructure over the four years to FY2025-26. This is $4.5 billion higher than the 2021-22 budget season. Of particular relevance to Kenshaw, the New South Wales state government allocated $58 billion to infrastructure, an increase of $1.8 billion over the prior year, and equivalent to 17.9% of general government expenditure.

 

A key part of the infrastructure sector and where Kenshaw has enjoyed good growth is the rail sector. Australian railways activity across construction and maintenance rose to a record $8.5 billion in 2021-22, with activity forecast to average $9.5 billion over the next five years as a swathe of large and predominantly publicly funded projects ramp up across Australia. Railway construction work increased in real terms by 2.9% to $7 billion in 2021-22, a record level of activity. This represents the sixth consecutive year of growth in rail construction driven predominantly by publicly funded projects, which have increased by 287% since 2014-15. Overall, $85 billion in rail civil construction and maintenance is forecast for the coming decade to 2031-32, compared to $63 billion over the last decade. Over the next 15 years, $101 billion in rail construction work is expected.

 

Kenshaw benefits from the continued increase in public sector spending on infrastructure, and in particular rail projects, through the provision of custom critical power backup solutions and generator maintenance to clients such as civil construction contractors, government agencies and government departments.

 

Kenshaw's traditional clientele also extends to entities operating within or servicing Australia's mining sector—the nation's predominant industry as gauged by GDP contribution. Over the past year, the Australian mining sector has maintained strong performance, fortifying Kenshaw's position in the industry.

 

Furthermore, with the mining sector's increasing commitment towards sustainability and acceleration towards achieving net-zero objectives, mine site electrification, particularly with renewable energy, emerges as a significant growth opportunity for both Kenshaw and VivoPower. Given Kenshaw's established track record in the sector, it is optimally poised to capitalize on future expansion in the Australian mining industry, particularly in its pursuit of decarbonization.

 

 

Revenue earned within Australia is comprised of the following activities:

 

   

Year Ended June 30

 

(US dollars in thousands)

 

2023

   

2022

   

2021

 
                         

Generator sales and installation

    2,159       5,206       11,479  

Generator service and non-destructive testing

    2,372       1,767       1,761  

Motor sales and overhaul

    6,474       5,315       5,169  

Total revenue

    11,005       12,288       18,409  

 

There is no material seasonality which impacts Kenshaw, however in FY2023, the business continued to be adversely impacted by supply chain challenges, with most electrical equipment manufactured outside of Australia. The business has had to adapt to longer lead times from suppliers caused by the COVID-19 induced disruption to supply chains and crisis in Ukraine. In addition, inflationary impact has seen an increase in cost of goods sold, the majority of which has been passed on to clients.

 

Relationships with its primary suppliers enables Kenshaw to sell and service their equipment as a dealer or agent. The business is a primary supplier and service agent for Cummins, Deutz and CAT generators, and WEG electric motors, and maintains long-term relationships with other equipment manufacturers such as Siemens, Toshiba and Teco. This allows Kenshaw to offer a complete solution to its clients with flexibility of product choice.

 

With almost 500 active customers for the year ended June 30, 2023, the business is not solely reliant on one customer, nor is the business reliant on any one patent, license, material contract, or process. Further, there are no government regulations which are material to the business, beyond those generally applicable to all businesses within the same statutory regime.

 

VivoPower continues to believe that Kenshaw, through its experience, capability, and track record, is well positioned competitively to benefit from the strong growth outlook for Australian data centers, aged and health care infrastructure as well as the continued strength of the Australian mining sector, particularly as it transitions towards decarbonization.

 

Aevitas Solar

 

Aligning with VivoPower's strategic vision to concentrate on its primary businesses - electrical vehicle, renewable critical power, and sustainable energy solutions - the non-solar segment of J.A. Martin was identified as non-essential. As a result, it was divested to ARA on July 1, 2022. Subsequently, the solar-focused division of J.A. Martin has been rebranded as Aevitas Solar and is now overseen by the Kenshaw leadership team.

 

Aevitas Solar remains committed to fulfilling existing contracts established prior to the divestiture, such as those related to the Blue Grass and Edenvale Solar Farms. Concurrently, the company actively explores new ventures in the solar sector as part of the Aevitas Solar expansion strategy. However, it maintains a prudent approach, being keenly aware of the inherent risks tied to such projects.

 

Results of J.A. Martin's non-solar activities have been classified under discontinued operations. Included in the net assets divested to ARA of the discontinued operation is a Newcastle-based facility, which specializes in manufacturing industrial switchboards and motor control centers. Additionally, this facility oversees end-to-end project installations, provides maintenance services, and offers both design and engineering expertise. Complementing this is an office and workshop facility situated in the Hunter Valley, dedicated to serving the mining and industrial sectors.

 

Despite its longstanding history and focus on the industrial, manufacturing, and mining sectors, Aevitas Solar has, in the past four years, carved out a commendable reputation and standing within the Australian solar market. In the recent fiscal year, Aevitas Solar marked significant milestones by finalizing the electrical installations and services for both its ninth and tenth solar farms, the 200MWdc Blue Grass Solar Farm and the 204MWdc Edenvale Solar Farm.

 

Revenue earned from continuing operations within Australia is comprised of the following activities:

 

   

Year Ended June 30

 

(US dollars in thousands)

 

2023

   

2022

   

2021

 
                         

Electrical installation projects

    2,591       8,671       4,172  

Electrical service contracts

    -       -       -  

Electrical switchboard manufacturing

    -       -       -  

Total revenue

    2,591       8,671       4,172  

 

Aevitas Solar’s solar division continued to be materially affected by high levels of rainfall along the east coast of Australia in the second half of 2022, continuing into 2023. Nationally-averaged rainfall was 26% above the 1961–1990 average at 587.8 mm, which made 2022 the ninth-wettest year on record for Australia. In eastern Australia in particular, persistent rain saw significant flooding affecting large areas multiple times during the year, including Aevitas Solar project locations. As a consequence, the occurrence of delays attributable to adverse weather have risen, resulting in delayed project completions and higher costs due to the fixed price, low margin nature, and disproportionate and unfavorable risk allocation contained within contracts in the industry.

 

 

Given the structural nature of these risks and the likely ongoing effects of climate change, Aevitas Solar is targeting opportunities with more favorable risk allocation and higher margins. These tend to be smaller, industrial projects that are behind-the-meter but where Aevitas Solar can leverage its experience and skills, without taking on burdensome contractual terms and working capital requirements.

 

Aevitas Solar selects its materials from an expansive network of both domestic and international suppliers. The criteria for this selection hinge on competitive pricing, timely delivery, product efficacy, and established business relations. These supplier relationships stand central to Aevitas Solar's ability to achieve its commercial objectives and its capacity to satisfy customer demands in a competitive environment.

 

Given that a majority of electrical equipment is manufactured overseas, the company has adjusted to extended supplier lead times. This is primarily a result of supply chain disruptions instigated by the COVID-19 pandemic and, more recently, the conflict in Ukraine. Despite these adaptations, the challenges in the supply chain have not been entirely alleviated and continue to present operational hurdles.

 

With the sale of the non-solar J.A. Martin operations, Aevitas Solar will need to diversify its customer-base in order to reduce its reliance on its key solar partner, Grupo Gransolar, S.L. The business is not dependent on any one patent, license, material contract, or process. Further, there are no government regulations which are material to the business, beyond those generally applicable to all businesses within the same statutory regime.

 

Electric Vehicles

 

Tembo e-LV B.V. ("Tembo"), with subsidiaries Tembo 4x4 e-LV B.V. and FD 4x4 Centre B.V. (“Tembo Netherlands”), as well as Tembo Technologies Pty Ltd (“Tembo Australia”) are specialist battery-electric and off-road vehicle companies that design and build electric battery conversion kits to replace internal combustion engines (“ICE”) in light utility vehicle fleets. Tembo customers are located across the globe and are mainly in the mining, infrastructure, government services, humanitarian, tourism, agriculture and utilities sectors. At present, Tembo is focused on completing the testing of its new generation LandCruiser LC70 EUV conversion kits ("EUV23") and preparing to commence production later in the year. It is anticipated that Tembo will start shipping these new generation LandCruiser conversion kits late in the second half of calendar year 2023.

 

With a secular trend of increasing Electric Vehicle ("EV") adoption globally by consumers and continuing pressure from governments and investors for companies to implement concrete decarbonization measures, VivoPower believes that Tembo is well placed to satisfy fleet owners' demand for its conversion kits, which are aimed at sectors with stringent requirements on reliability and safety.

 

Order book pipeline, deliveries and key agreements

 

During FY2023, Tembo successfully negotiated several large distribution agreements with partners around the globe. In August 2022, VivoPower entered into memorandum of understanding with a State-Owned Enterprise for 1,000 conversion kits in Jordan, which aligns with Tembo’s strategy to expand its commercial activities and operations in the Middle East, one of the largest market for LandCruisers in the world. In November 2022, the Company signed a definitive agreement with ETC Mauritius in Kenya for the distribution of 4,000 conversion kits, which marked Tembo’s largest agreement to date and its entry into the second-hand light utility vehicle market. In that same month, it signed a supply agreement with Evolution Group Holdings to convert their fleet of Toyota Hilux ICE vehicles in Australia and New Zealand to battery-electric, making Evolution the first traffic management company to commit to the conversion of its fleet to EVs. In February, it signed a definitive agreement with Ulti-Mech in Australia to distribute 1,000 conversion kits, adding to its geographic coverage the important Western Australia mining region, a leading destination in the world for mining investment. In March, it signed a memorandum of understanding with Petrosea, a key supplier to the mining and oil & gas sectors in Indonesia, to distribute 2,000 conversion kits. In June, it signed a definitive agreement with Fourche Maline, an engineering and technical services company in Ghana, one of the largest mining countries in the world and the number one gold mining country in Africa, for 2,500 conversion kits.

 

Also in June, Tembo signed a memorandum of understanding with Al Taif to form a partnership spanning distribution of Tembo EUV conversion kits, research & development, training in electric mobility and high voltage, as well as local assembly operations in the UAE. AL TAIF is a subsidiary of the EDGE Group, one of the world’s leading advanced technology groups, established to develop disruptive solutions for defence and beyond. Its customers include defence and police organizations in the UAE, the Middle East and Northern Africa ("MENA") region and extending to other regions.

 

With regard to orders, in January, Tembo hosted Acces, its distribution partner in Canada, to test drive the newest version of Tembo's converted LandCruiser 70 Series pickup truck in Italy. Acces subsequently placed an initial order for a large proportion of Tembo’s scheduled 2023 production, which are scheduled for delivery in the final quarter of 2023. Customer deliveries of ruggedised electric vehicles were executed for existing partners, including for GHH in South Africa and Jankel in the U.K in March. 

 

Tembo continued to invest in marketing for its EUV23 kit, organizing drive days in the UAE and in Brisbane to showcase its electric LandCruiser to potential customers and partners, which resulted in new business opportunities actively pursued by Tembo's management. Tembo was also selected to showcase its technology and know-how by large companies in the mining and utilities sectors, for example in the case of the Future Forum organized by Endeavour Energy, the operator of the electrical distribution network for Greater Western Sydney, the Blue Mountains, the Southern Highlands and the Illawarra region of New South Wales. 

 

Non EV operations in FD 4x4 for vehicle spec conversion including ruggedization of ICE vehicles comprised primarily an order to ruggedize 15 vehicles from Boliden in Ireland, delivered in December 2022. The order was not completely fulfilled due to the lack of availability of certain parts.

 

Post June 30 2023, Tembo signed a landmark joint venture agreement with Francisco Motors, the pioneering manufacturer of jeepneys in the Philippines. Under the agreement, Tembo will develop and supply EUV electrification kits for a new generation of electric jeepneys. One of the country’s cultural icons, jeepneys are the most common utility vehicle in the Philippines and the main mode of public transportation, accounting for just over 40% of public transportation in the country. There are more than 200,000 jeepneys on the road in the Philippines, of which more than 90% are at least 15 years old and running on second-hand diesel engines. Under the Public Utility Vehicle Modernization Program, the Philippine Government requires that all jeepneys and other public utility vehicles with at least 15 years of service be replaced with Euro 4-compliant or electric-powered vehicles. This creates a US$10bn+ addressable market for the replacement of the old jeepneys. Francisco Motors and Tembo have already secured their first orders and have commenced work to deliver on those orders. The agreement will also give Tembo access to low-cost assembly in the Philippines.

 

Investment

 

In June, VivoPower announced a strategic direct equity investment into Tembo at a pre-money valuation of $120 million. Tembo secured an initial investment commitment of $2.5 million from a private investment office backed by a member of the ruling Al Maktoum family of Dubai. The investor, under the agreement terms, retains the option to increase its cumulative investment in subsequent closings, up to $10 million. This investment underscores Tembo's progress and commitment to the UAE and surrounding markets.
 
Vehicle quality, reliability, certification and safety 
 
In mid-December 2022, Tembo released the first version of its new generation EUV conversion kit fully integrated into a vehicle, the EUV23. This vehicle was undergoing extensive testing and validation throughout the second half of FY2023. Additional pilot vehicles in various configurations, i.e. 2-door and 4-door plus left hand and right-hand were also being built and readied for testing in this period. The EUV23 has a 250 newton-meter torque electric drive train, providing up to 200 kilometres of range and is managed by Tembo’s purpose-built software control systems. In January, Tembo and Toyota Motor Corporation Australia Limited concluded the Design Services Agreement with Toyota Australia for the electrified LandCruiser 70 Series.
 

In planning for its next stage of growth, Tembo has implemented systems, procedures, and policies to underpin a smooth and seamless execution from the time it engages with a prospect through to the on-going support as required by customers as they replace ICE vehicles in their fleets. As part of this, industry-grade, scalable, cloud-based software was implemented in various processes to ensure reliability and continuity of service.

 

In the third quarter of FY2023, Tembo underwent an annual ISO recertification audit for its ISO9001 (Quality Management System) and ISO14001 (Environmental Management System) certifications. Both audits were successfully passed. Additionally, Tembo started two new ISO certification journeys: ISO45001 for Occupational Health & Safety and ISO27001 for Information Security. These additional certifications will add significantly to the overall safety and security of its staff as well as the data held on staff, customers and suppliers. Tembo has also completed its internal assessment in support of its B Corp Certification application and is continuing work on reducing its greenhouse gas (GHG) emissions, for example by optimising its supply chain for proximity to assembly and packing facilities. Tembo expects to obtain its B Corp Certification in the second half of FY2024 if B Lab's independent audit is successfully passed.

 

Tembo’s electric vehicles achieved a significant quality and reliability milestone with its longest-serving electric LandCruiser, which crossed the 5-year mark of active service with an uninterrupted safety record at an operating mine site owned by Boliden in the first quarter of calendar year 2023. Tembo believes this to be the longest actively serving electrified light utility vehicle in the mining industry globally.

 

In preparation for the official production launch of its battery electric EUV23 conversion kits, Tembo launched Tembo Academy which is aimed at ensuring that its partners and customers are adequately trained on all aspects of onboarding an electric battery vehicle fleets, covering operation, maintenance as well as Health & Safety. Tembo set up a cross-functional project team, combining members of its engineering and safety teams and advisory council, in order to deliver carefully structured and practical course materials. An introductory training course was held in Eindhoven in October 2022 with its global partner GHH, who sent technical staff from India and Germany with positive feedback from course attendees.

 

Talent pool and hiring

 

Throughout FY2023, Tembo continued to hire despite retrenchments in other parts of the industry, taking advantage of experienced talent available on the market. Tembo selectively recruited high-quality talent in the Netherlands and the United Kingdom and invested in Engineering, Procurement, Quality and Testing. It continued to be open to hiring experienced talent in its key markets. 

 

Tembo assembled a team of EV and OEM industry leaders, several of them pioneers in their field, to advise on various aspects of its scale-up journey. Their input has already proven tactically invaluable for Tembo and will be leveraged tangibly in FY2024 for the production scale-up phase.

 

VivoPower appointed Eduardo Nebot as a new member of the VivoPower Advisory Council. Based in Sydney, Eduardo is currently an Emeritus Professor at the University of Sydney and a consultant on autonomous systems for various industries, including transport and mining automation. He is a pioneer in the research, development, and deployment of autonomous systems and safety and has worked with both private companies and government organizations in Australia and internationally. Another key recruitment was Choon Lim as Senior Engineering Director. Having worked for Bosch, Tesla and Rivian, he has considerable experience in developing safety critical control systems, self-driving cars and electric cars. In his most recent role as a Senior Director he has been responsible for a significant portion of the firmware at Rivian. He led teams for System Engineering, Software Functional Safety, System Architecture, Integration Testing and Controls Algorithms for the domains of Propulsion, Chassis Controls, Suspension Controls, Body Controls and Over The Air Updating. 

 

 

Revenue earned within the Netherlands is comprised of the following activities:

 

   

Year Ended June 30

 

(US dollars in thousands)

 

2023

   

2022

   

2021

 
                         

Conversion kits

    -       789       137  

Vehicle spec conversion

    1,394       301       1,219  

Accessories

    70       400       37  

Total revenue

    1,464       1,490       1,394  

 

No EUV conversion kits were sold in FY2023, although orders were received (reflected in deferred revenue), whilst the development programme testing continued, nevertheless, vehicle spec conversions for non EV variants increased from $0.3 million in the prior year to $1.4 million in FY2023, primarily as a result of Boliden orders. 

 

Sustainable Energy Solutions (SES)

 

Augmenting its Electric Vehicle business, which deploys EUV conversion products and services to fleet owners, VivoPower is also focused on an SES strategy with its core mission being to help corporate customers achieve their decarbonization goals. The SES business delivers full-suite, holistic SES to industrial customers and other large energy users and is comprised of four key elements:

 

 

Critical power “electric-retrofit” of customer’s sites to enable optimised EV battery charging, encompassing charging stations, renewables, battery storage and microgrids;

 

 

EV and battery leasing; 

 

 

EV battery reuse and recycling; and

 

 

Change management and training services

 

In Australia, the SES business draws on the experience and capabilities of VivoPower’s Australian Critical Power Services businesses (Kenshaw Electrical and Aevitas Solar) to deliver solutions to customers directly, whilst in other markets, it partners with experienced local critical power services and charging infrastructure companies.

 

Since its establishment in FY2021, the SES business has signed several key agreements to complete its offering. In December 2021, VivoPower executed a Memorandum of Understanding signed with Relectrify, a leading supplier of battery energy storage systems utilizing second-life EV batteries, with the collaboration extended to explore future redeployment of Tembo batteries. In August 2022 the Company invested in Green Gravity Energy Pty Ltd, an Australian company specializing in energy storage solutions in former mining locations. In May 2023, VivoPower signed a definitive partnership agreement for VivoPower to market and distribute Vital EV Solutions (“Vital EV”) fleet charging solutions globally. Vital EV is a specialist U.K-headquartered company, offering a comprehensive range of electric vehicle charging solutions for fleet owners and is the official re-seller of Kempower charging stations and service solutions in the U.K and across Africa. Kempower, headquartered in Finland, has high-speed EV fleet charging solutions including for off-highway working environment applications. Under the Agreement, VivoPower will be able to offer to its customers and partners a wide range of EV fleet charging products and services from Vital EV and Kempower for an initial term of 3 years. These products include multi-voltage lightweight movable rapid chargers, hub-and-spoke rapid and ultra-rapid charging systems, satellite dispensers as well as conventional station chargers.

 

Given that the SES business segment was established in FY2021, it has generated minimal revenues to date. VivoPower is actively working to originate new SES projects for both new and existing customers of the VivoPower group of companies, with significant projects already proposed to major mining and utilities companies. The impending release of Tembo's EUV23 conversion kits later in the 2023 calendar year provides a strong impetus for customers to proceed with the electrification of their light vehicle fleet and, in tandem, implement the correct charging infrastructure, which will require the whole suite of SES offerings depending on customer site infrastructure readiness. The Company therefore expects significant growth from this segment going forward.

 

 

Solar Development

 

Historic Solar Development Business

 

As a consequence of the Company’s strategic pivot to an SES strategy in FY2021, VivoPower no longer intends to engage in solar project development activities in isolation, unless it is a component of a sustainable energy solution for a corporate customer that is helping it to achieve decarbonization goals. This segment has historically been characterized as the Solar Development segment and encompassed the Company’s solar development activities in the U.S. and Australia. The Company no longer has solar development activities in Australia following the sale of its interests in solar farm projects in the country in FY2021. 

 

VivoPower’s historic strategy in relation to solar development has been to minimize capital intensity and maximize return on invested capital by pursuing a business model predicated on developing and selling projects prior to construction and continually recycling capital rather than owning assets. The stages of solar development can be broadly characterized as: (i) early stage; (ii) mid-stage; (iii) advanced stage; (iv) construction; and (v) operation. Our business model has been to work through the development process from early stage through to advanced stage, and then sell those projects that have completed the advanced stage of development, also known as “shovel-ready” projects, to investors who will finance construction and ultimately own and operate the project.

 

Successful solar development requires an experienced team that can manage multiple work streams on a parallel path, from initially identifying attractive locations, to land control, permitting, interconnection, power marketing, and project sale to investors. Rather than build a substantial team internally to accomplish all of these activities, our business model has been to joint venture on a non-exclusive basis with existing experienced project development teams so that multiple projects can be advanced simultaneously and allow us to focus on provision of capital, project management, and marketing and sale of projects. In Australia we partnered with ITP Renewables (“ITP”), a global leader in renewable energy engineering, strategy and construction, and energy sector analytics. In the U.S., we entered into a development joint venture with ISS in April 2017 and in June 2021, VivoPower announced that it had secured full ownership of the remaining 50% of the equity interest in the portfolio from ISS for a nominal consideration of $1.

 

United States Solar Development

 

Vivopower's focus for its solar business remains to monetise its portfolio of US solar projects, with the aim of using the funds generated to advance the Company's SES strategy.

 

In July 2021 VivoPower announced that it had gained full ownership of the equity interest in the solar portfolio which was previously owned by an affiliate of ISS. Shortly thereafter, the Company effected the name change of the subsidiary from Innovative Solar Ventures I, LLC to Caret LLC.

 

The Company’s portfolio of U.S. solar projects is held by its wholly owned subsidiary, Caret. Caret owns a solar project portfolio comprising 38 projects in total, of which 7 projects totalling 365 MW-DC are being actively developed, and a further 31 projects totalling approximately 1,479 MW-DC, have either been previously discontinued or are not currently being developed.

 

The actively developed projects are dispersed throughout Texas and are strategically situated in regions with minimal solar power penetration. Each of these projects has reached an advanced phase of development, with substantial interconnection studies and environmental evaluations completed, and the required land secured for a duration of up to 40 years. Despite the strides made in executing our Power-to-X strategy and the passing of the Inflation Reduction Act in August 2022, which heightened investor confidence in the US solar power sector, all these projects are still carried at cost.

 

The Company is assessing the viability of Power-to-X development possibilities with both active and discontinued projects collaborating with data infrastructure developers who intend to place their data centres in proximity to solar farms integrated “behind-the-meter”. Solar energy's power generation pattern aligns with ERCOT's spot electricity cost curve, which allows operators at the load site to curb peak hour rate surges.

 

The company envisages that any income generated from the monetization of its US solar projects, inclusive of those related to Power-to-X developments, will be channelled to bolster its primary SES strategy.

 

 

       

Early Stage

Mid Stage

Advanced Stage

   

Capacity

Development

Land

Interconnection

Environmental

Zoning / Use

Interconnection

Interconnection

Power Purchase

Project

State

(MW)

Stage

Control

Queue

Studies

Permit

Study

Agreement

Agreement

Active Solar Projects

                   

TX 75

TX

55

Advanced

Eligible

 

NM 88

NM

87

On hold

   

     

TX 144

TX

82

Advanced

Eligible

 

TX 145

TX

62

Advanced

Eligible

 

TX 165

TX

62

Advanced

Eligible

 

TX 177

TX

34

Advanced

   

TX 195

TX

41

Advanced

 

   

TX 341

TX

28

Advanced

   

TX 107

TX

93

On hold

   

-

 

TX 137

TX

28

On hold

   

   

TX 276

TX

55

On hold

   

   

TX 307

TX

55

On hold

 

   

Subtotal

12 Projects

682

               

 

   

Capacity

Development

Project

State

(MW)

Stage

Discontinued Solar Projects

     

SC 76

SC

21

Discontinued - FY21

FL 78

FL

75

Discontinued - FY20

GA 83

GA

27

Discontinued - FY21

SC 84

SC

30

Discontinued - FY19

GA 86

GA

27

Discontinued - FY21

GA 90

GA

27

Discontinued - FY21

SC 97

SC

28

Discontinued - FY19

GA 111

GA

27

Discontinued - FY21

GA 112

GA

20

Discontinued - FY19

SC 129

SC

28

Discontinued - FY21

SC 132

SC

28

Discontinued - FY21

FL 168

FL

43

Discontinued - FY20

TX 207

TX

83

Discontinued - FY21

WA 211

WA

56

Discontinued - FY21

KS 229

KS

69

Discontinued - FY21

CO 239

CO

55

Discontinued - FY21

KS 244

KS

34

Discontinued - FY21

OK 267

OK

41

Discontinued - FY21

CO 269

CO

55

Discontinued - FY21

KS 291

KS

34

Discontinued - FY21

TX 305

TX

41

Discontinued - FY21

CO 320

CO

41

Discontinued - FY21

FL 330

FL

41

Discontinued - FY20

OK 339

OK

69

Discontinued - FY21

WA 370

WA

74

Discontinued - FY21

CO 371

CO

86

Discontinued - FY21

Subtotal

26 Projects

1,160

 

Original Portfolio

38 Projects

1,842

 

 

The Company does not intend to acquire any additional utility-scale solar projects in the United States at this time and is focused on maximizing value from its current portfolio of projects.

 

 

JOBS Act

 

In previous reporting periods, the Company met the requirements under the JOBS Act as an “emerging growth company” to not (i) provide an auditor’s attestation report on its system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act ("SOX"), (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), or (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of our chief executive officer’s compensation to median employee compensation. Although the Company no longer qualifies as an “emerging growth company,” it still qualifies as a non-accelerated filer and, therefore, is exempt from the requirement to provide an auditor’s attestation report on its system of internal controls over financial reporting pursuant to Section 404(b) of SOX.

 

C. Organizational Structure

 

VivoPower has 22 subsidiaries (collectively with VivoPower, “the Group”). The following list shows the Company’s shareholdings in subsidiaries owned directly and indirectly as at June 30, 2023.

 

Subsidiaries

Incorporated

% Owned

Purpose

VivoPower International Services Limited

Jersey

100%

Operating company

VivoPower USA, LLC

United States

100%

Operating company

VivoPower US-NC-31, LLC

United States

100%

Dormant

VivoPower US-NC-47, LLC

United States

100%

Dormant

VivoPower (USA) Development, LLC

United States

100%

Holding company

Caret, LLC (formerly Innovative Solar Ventures I, LLC)

United States

100%

Operating company

Caret Decimal, LLC United States 100% Operating company

VivoPower Pty Ltd

Australia

100%

Operating company

Aevitas O Holdings Pty Ltd

Australia

100%

Holding company

Aevitas Group Limited

Australia

100%

Holding company

Aevitas Holdings Pty Ltd

Australia

100%

Holding company

Electrical Engineering Group Pty Limited

Australia

100%

Holding company

Kenshaw Solar Pty Ltd (formerly J.A. Martin Electrical Pty Limited)

Australia

100%

Operating company

Kenshaw Electrical Pty Limited

Australia

100%

Operating company

Tembo EV Australia Pty Ltd Australia 100% Operating company

VivoPower Philippines Inc.

Philippines

64%

Dormant

VivoPower RE Solutions Inc.

Philippines

64%

Dormant

V.V.P. Holdings Inc Philippines 40% Dormant

Tembo e-LV B.V.

Netherlands

100%

Holding company

Tembo 4x4 e-LV B.V.

Netherlands

100%

Operating company

FD 4x4 Centre B.V.

Netherlands

100%

Operating company

VivoPower International IMEA DMCC United Arab Emirates 100% Operating company

 

 

Notwithstanding a 40% ownership by the Company, V.V.P. Holdings Inc is under the control of VivoPower Pty Ltd, and therefore is consolidated into the group financial statements of VivoPower International PLC.

 

D. Property, Plant and Equipment

 

Our corporate headquarters is located in London, United Kingdom.

 

We lease all our facilities and do not own any real property. We believe that our facilities are adequate for our current needs and that suitable additional or substitute space will be available as needed to accommodate planned expansion of our operations. A new lease was taken out for Kenshaw Electrical Pty Ltd for an additional workshop facility in Newcastle, New South Wales to relieve capacity constraints. Leased real property as at June 30, 2023 is as follows:

 

Company

Office Location

Purpose

VivoPower Pty Ltd

Sydney, Australia

SES and Solar Development

Kenshaw Electrical Pty Limited

Cardiff, Australia