View:
United States securities and exchange commission logo
July 19, 2022
Edmond Cheng
Chief Financial Officer
CENNTRO ELECTRIC GROUP Ltd
501 Okerson Road
Freehold, New Jersey 07728
Re: CENNTRO ELECTRIC
GROUP Ltd
Form 20-F for the
Year Ended December 31, 2021
Filed April 25,
2022
File No. 001-38544
Dear Mr. Cheng:
We have limited our review of your filing to the financial
statements and related
disclosures and have the following comments. In some of our comments, we
may ask you to
provide us with information so we may better understand your disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 20-F for the Year Ended December 31, 2021
Exhibit 13.3 Certification Pursuant to Section 906 of Sarbanes-Oxley Act
of 2002, page 1
1. We note that your
disclosure in the first paragraph of Exhibit 13.1 refers to the Form 20-F
for the year ended
December 31, 2022. Please revise your certification to reference the
Form 20-F for the year
ended December 31, 2021.
Item 3. Key Information, page 4
2. At the onset of Item 3,
provide a clear description of how cash is transferred through your
organization. Disclose
your intentions to distribute earnings or settle amounts owed under
your operating
structure. Quantify any cash flows and transfers of other assets by type that
have occurred between
the holding company and its subsidiaries, and the direction of
transfer. Quantify any
dividends or distributions that a subsidiary has made to the holding
company and which
entity made such transfer, and their tax consequences. Similarly
quantify dividends or
distributions made to U.S. investors, the source, and their tax
Edmond Cheng
FirstName
CENNTROLastNameEdmond Cheng
ELECTRIC GROUP Ltd
Comapany
July NameCENNTRO ELECTRIC GROUP Ltd
19, 2022
July 19,
Page 2 2022 Page 2
FirstName LastName
consequences. Your disclosure should make clear if no transfers,
dividends, or
distributions have been made to date. Describe any restrictions on
foreign exchange and
your ability to transfer cash between entities, across borders, and to
U.S. investors.
Describe any restrictions and limitations on your ability to
distribute earnings from the
company, including your subsidiaries, to the parent company and U.S.
investors as well as
the ability to settle amounts owed under applicable agreements.
Part 1, page 4
3. At the onset of Part I, please revise to disclose prominently the
following:
whether your auditor is subject to the determinations announced by
the PCAOB on
December 16, 2021;
whether and how the Holding Foreign Companies Accountable Act, the
Accelerating
Holding Foreign Companies Accountable Act, and related regulations
will affect your
company, including the time frame change in PCAOB inspections for
two
consecutive years instead of three years;
whether you have been or expect to be identified by the Commission
under the
HFCAA; and
a cross-reference to your more detailed disclosure in your risk
factors, including the
heading of the risk factor.
4. At the onset of Part I, please disclose prominently that you are not a
Chinese operating
company but an Australian holding company with operations conducted by
your
subsidiaries based in China and that this structure involves unique
risks to investors. If
true, disclose that these contracts have not been tested in court.
Provide a cross-reference
to your detailed discussion of risks facing the company and the
offering as a result of this
structure.
5. At the onset of Part I, clearly disclose how you will refer to the
holding company,
subsidiaries, and other entities when providing the disclosure
throughout the document so
that it is clear to investors which entity the disclosure is
referencing and which
subsidiaries or entities are conducting the business operations.
Refrain from using terms
such as we or our when describing activities or functions
of a subsidiary or other
entity. For example, disclose, if true, that your subsidiaries and/or
other entities conduct
operations in China, that the other entity is consolidated for
accounting purposes but is not
an entity in which you own equity, and that the holding company does
not conduct
operations. Disclose clearly the entity (including the domicile) in
which investors are
purchasing an interest.
Item 5. Operating and Financial Review and Prospects
Key Factors Affecting Operating Results, page 71
6. We note your disclosure on page 71 that prices for certain raw
materials have increased
over the past two years. Please update your disclosure in future
filings to identify actions
planned or taken, if any, to mitigate inflationary pressures.
Edmond Cheng
FirstName
CENNTROLastNameEdmond Cheng
ELECTRIC GROUP Ltd
Comapany
July NameCENNTRO ELECTRIC GROUP Ltd
19, 2022
July 19,
Page 3 2022 Page 3
FirstName LastName
7. We note from your disclosure on page 71 that you have experienced
supply chain
disruptions such as shortages of shipping containers and
semiconductors. Please revise to
discuss known trends or uncertainties resulting from mitigation
efforts undertaken, if any.
Explain whether any mitigation efforts introduce new material risks,
including those
related to product quality, reliability, or regulatory approval of
products.
Key Operating Metrics, page 73
8. We note your disclosure on page 74 of gross margin of Metro vehicle
sales. However, it
appears based on the table on page 76, that the cost of sales amount
used for the
calculation of this gross margin excludes inventory write-downs. In
light of the fact that it
appears inventory write downs should be a component of cost of sales,
we do not believe
it would be appropriate to exclude this amount from your gross margin
measure. Please
revise or advise accordingly.
Non-GAAP Financial Measures and Non-IFRS Financial Information, page 79
9. We note that beginning on page 81 you discuss why you present US GAAP
financial
information rather than IFRS financial information in this filing and
then include a table to
reconcile US GAAP to IFRS. In light of the fact that your financial
statements are
presented in accordance with US GAAP as set forth in Item 17(c) of
Form 20-F, please
remove this discussion and reconciliation table from future periodic
reports.
Audited Financial Statements
Combined Statements of Operations and Comprehensive Loss, page F-4
10. We note from your disclosures on page 75 of MD&A that your increase in
revenue for the
year ended December 31, 2021 was attributable in part to a $.8 million
increase in service
revenue primarily attributable to ECV design services provided to
third parties. To the
extent that service revenue contributes 10% or more to your
consolidated revenue, please
revise to present revenue and cost of revenue from products and
services separately on the
face of the statements of operations and comprehensive loss, in
accordance with Rule 5-03
of Regulation S-X.
Notes to the Financial Statements
General, page F-7
11. We note from your disclosure on page 53 that you provide a warranty
program to your
channel partners to cover defects in certain parts of your ECVs and
your warranty
obligations generally extend for a period of one to two years. If
material, please revise the
notes to your financial statements to include disclosure of the nature
of your warranty
obligations and the disclosures required by ASC 460-10-50-8 which
include a tabular
reconciliation of the changes in the warranty liability for the
reporting period.
Note 2. Summary of Significant Accounting Policies
(k) Revenue Recognition, page F-11
Edmond Cheng
CENNTRO ELECTRIC GROUP Ltd
July 19, 2022
Page 4
12. We note from your disclosures in MD&A and elsewhere that it appears a
portion of your
revenue is generated from the sale of services such as ECV design
services to third
parties. Please revise your disclosure in the notes to the financial
statements to disclose
how you account for this revenue under ASC 606.
13. We note from your disclosure on page 52 that it appears that in some
cases you license the
right to market and distribute the licensed product. If material,
please explain to us, and
revise to disclose, the nature of these licenses and how you recognize
revenue under ASC
606 in relation to the licenses.
14. We note your disclosure that revenue is recognized at a point in time
once the Company
has determined that the customer has obtained control over the
product. Please explain to
us if the customer you refer to in your disclosures in Note 2, is the
same as the channel
partners described earlier in the filing, such as on pages 44 and 52.
In this regard, please
tell us if the revenue recognition process is complete at the time the
channel partner takes
delivery of the vehicle. If not, please identify the nature of any
remaining obligations,
or risks or rewards that have not yet transferred to the channel
partner at the time they
accept delivery of the vehicles. Please refer to guidance in ASC
606-10-25-30.
In closing, we remind you that the company and its management are
responsible for the
accuracy and adequacy of their disclosures, notwithstanding any review,
comments, action or
absence of action by the staff.
You may contact Claire Erlanger at (202) 551-3301 or Kevin Woody at (202)
551-
3629 with any questions.
FirstName LastNameEdmond Cheng Sincerely,
Comapany NameCENNTRO ELECTRIC GROUP Ltd
Division of
Corporation Finance
July 19, 2022 Page 4 Office of
Manufacturing
FirstName LastName