UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: March 31, 2023
OR


Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to _______.

Commission file number: 001-38544
 
CENNTRO ELECTRIC GROUP LIMITED
(Exact name of registrant as specified in its charter)

Australia
 
N/A
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification Number)

501 Okerson Road
 
Freehold, New Jersey 07728
 
(Address of principal executive offices, including zip code)
 
Registrant’s telephone number, including area code (604) 428-7656
 
Securities registered under Section 12(b) of the Exchange Act:
 
Title of each class:
 
Trading Symbol(s)
Name of each exchange on which registered:
Ordinary Shares
 
CENN
The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company

   
Emerging growth company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No ☒
 
The registrant had 304,449,091 ordinary shares outstanding as of July 25, 2023.



TABLE OF CONTENTS

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Forward-Looking Statements
 
This Quarterly Report of Cenntro Electric Group Limited ACN 619 054 938 (“we,” “us,” “our,” “Cenntro” and the “Company”) contains statements that constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in several different places in this Quarterly Report and, in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “contemplates”, “intends”, “believes”, “plans”, “may”, “will” or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this Quarterly Report may include, but are not limited to, statements and/or information related to: our financial performance and projections; our business prospects and opportunities; our business strategy and future operations; the projection of timing and delivery of products in the future; projected costs; expected production capacity; expectations regarding demand and acceptance of our products; estimated costs of machinery to equip a new production facility; trends in the market in which we operate; the plans and objectives of management; our liquidity and capital requirements, including cash flows and uses of cash; trends relating to our industry; plans relating to our electric vehicles (“EVs”); and plans and intentions to regain compliance with the listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”), including, among other things, through a reverse stock split.
 
We have based these forward-looking statements on our current expectations about future events on information that is available as of the date of this Quarterly Report, and any forward-looking statements made by us speak only as of the date on which they are made. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed or implied in our forward-looking statements for various reasons, including, our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; our capital needs, and the competitive environment of our business. Additional Factors that could contribute to such differences include, but are not limited to:
 
general economic and business conditions, including changes in interest rates;
prices of other EVs, costs associated with manufacturing EVs and other economic conditions;
the effect of an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, on the Company’s business (natural phenomena, including the lingering effects of the COVID-19 pandemic);
the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations, and our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;
the ability of our information technology systems or information security systems to operate effectively;
actions by government authorities, including changes in government regulation;
uncertainties associated with legal proceedings;
changes in the size of the EV market;
future decisions by management in response to changing conditions;
the Company’s ability to execute prospective business plans;
misjudgments in the course of preparing forward-looking statements;
the Company’s ability to raise sufficient funds to carry out its proposed business plan;
inability to keep up with advances in EV and battery technology;
inability to design, develop, market and sell new EVs and services that address additional market opportunities to generate revenue and positive cash flows;
dependency on certain key personnel and any inability to retain and attract qualified personnel;
inexperience in mass-producing EVs;
inability to succeed in establishing, maintaining and strengthening the Cenntro brand;
disruption of supply or shortage of raw materials;
the unavailability, reduction or elimination of government and economic incentives;
failure to manage future growth effectively; and
the other risks and uncertainties detailed from time to time in our filings with the Security and Exchange Commission (“SEC”), including but not limited to those described under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K as amended for the year ended December 31, 2022, filed with the SEC on June 30, 2023 and as amended on July 6, 2023 (the “Form 10-K/A”).

Although management has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There is no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. These cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our Company or persons acting on our Company’s behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements, except as, and to the extent required by, applicable securities laws.

PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CENNTRO ELECTRIC GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)

         
For the Three Months Ended March 31,
 
   
Note
   
2023
   
2022
 
                   
Net revenues
   
2(c)
 
$
3,470,544
   
$
1,830,633
 
Cost of goods sold
           
(3,275,800
)
   
(1,467,603
)
Gross profit
           
194,744
     
363,030
 
                         
OPERATING EXPENSES:
                       
Selling and marketing expenses
           
(1,868,985
)
   
(1,095,108
)
General and administrative expenses
           
(7,358,264
)
   
(8,211,831
)
Research and development expenses
           
(1,569,919
)
   
(425,359
)
Total operating expenses
           
(10,797,168
)
   
(9,732,298
)
                         
Loss from operations
           
(10,602,424
)
   
(9,369,268
)
                         
OTHER EXPENSE:
                       
Interest (expense) income, net
           
(54,415
)
   
64,201
 
Income from long-term investment
           
19,042
     
5,937
 
Impairment of long-term investment
           
(1,146,128
)
   
-
 
Loss on redemption of convertible promissory notes
           
(2,001
)
   
-
 
Loss on exercise of warrants
           
(212,870
)
   
-
 
Change in fair value of convertible promissory notes and derivative liability
           
(126,273
)
   
-
 
Change in fair value of equity securities
           
653,016
     
-
 
Other income (expense), net
           
358,076
     
(49,239
)
Loss before income taxes
           
(11,113,977
)
   
(9,348,369
)
Income tax expense
   
10
     
-
     
-
 
Net loss
           
(11,113,977
)
   
(9,348,369
)
Less: net loss attributable to non-controlling interests
           
(156,028
)
   
(36,719
)
Net loss attributable to the Company’s shareholders
         
$
(10,957,949
)
 
$
(9,311,650
)
                         
OTHER COMPREHENSIVE LOSS
                       
Foreign currency translation adjustment
           
337,278
     
253,156
 
Total comprehensive loss
           
(10,776,699
)
   
(9,095,213
)
                         
Less: total comprehensive loss attributable to non-controlling interests
           
(180,595
)
   
(57,588
)
Total comprehensive loss to the Company’s shareholders
         
$
(10,596,104
)
 
$
(9,037,625
)

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

CENNTRO ELECTRIC GROUP LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)

   
Note
   
Mach 31,
2023
   
December 31,
2022
 
         
(Unaudited)
       
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
       
$
91,847,734
   
$
153,966,777
 
Restricted cash
         
92,461
     
130,024
 
Accounts receivable, net
   
4
     
2,732,834
     
565,398
 
Inventories
   
5
     
36,546,917
     
31,843,371
 
Prepayment and other current assets
   
6
     
15,596,764
     
16,138,330
 
Deferred cost- current
            20,026       -  
Amounts due from related parties
   
14
     
343,353
     
366,936
 
Total current assets
           
147,180,089
     
203,010,836
 
                         
Non-current assets:
                       
Long-term investment, net
   
7
     
5,239,512
     
5,325,741
 
Investment in equity securities
   
8
     
30,412,211
     
29,759,195
 
Property, plant and equipment, net
   
9
     
17,265,446
     
14,962,591
 
Intangible assets, net
           
4,558,185
     
4,563,792
 
Right-of-use assets
   
11
     
13,865,063
     
8,187,149
 
Deferred cost- non-current
            243,251       -  
Other non-current assets, net
           
2,306,597
     
2,039,012
 
Total non-current assets
           
73,890,265
     
64,837,480
 
                         
Total Assets
         
$
221,070,354
   
$
267,848,316
 
                         
LIABILITIES AND EQUITY
                       
                         
LIABILITIES
                       
Current liabilities:
                       
Accounts payable
         
$
2,899,119
   
$
3,383,021
 
Accrued expenses and other current liabilities
           
3,668,415
     
5,048,641
 
Contractual liabilities
           
2,656,151
     
2,388,480
 
Operating lease liabilities, current
   
11
     
2,779,279
     
1,313,334
 
Convertible promissory notes
   
12
     
17,903,274
     
57,372,827
 
Deferred government grant, current
           
56,009
     
26,533
 
Amounts due to related parties
   
15
     
46,900
     
716,372
 
Total current liabilities
           
30,009,147
     
70,249,208
 
                         
Non-current liabilities:
                       
Deferred government grant, non-current
           
1,036,172
     
497,484
 
Derivative liability - investor warrant
   
12
     
12,392,632
     
14,334,104
 
Derivative liability - placement agent warrant
   
12
     
3,457,067
     
3,456,404
 
Operating lease liabilities, non-current
   
11
     
11,640,499
     
7,421,582
 
Total non-current liabilities
           
28,526,370
     
25,709,574
 
                         
Total Liabilities
         
$
58,535,517
   
$
95,958,782
 
                         
Commitments and contingencies
   
14
             
                         
EQUITY
                       
Ordinary shares (No par value;  304,449,091 and 300,841,995 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively)
           
-
     
-
 
Additional paid in capital
           
398,262,089
     
397,497,817
 
Accumulated deficit
           
(230,782,125
)
   
(219,824,176
)
Accumulated other comprehensive loss
           
(4,945,127
)
   
(5,306,972
)
Total equity attributable to shareholders
           
162,534,837
     
172,366,669
 
Non-controlling interests
           
-
     
(477,135
)
Total Equity
         
$
162,534,837
   
$
171,889,534
 
Total Liabilities and Equity
         
$
221,070,354
   
$
267,848,316
 

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

CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the Three Months Ended March 31,
 
   
2023
   
2022
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net cash used in operating activities
 
$
(17,363,332
)
 
$
(23,486,438
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of equity investment
   
(622,917
)
   
-
 
Purchase of plant and equipment
   
(2,577,292
)
   
(82,799
)
Purchase of land use right and property
   
(268,993
)
   
-
 
Acquisition of CAE’s equity interests
   
(1,924,557
)
   
(2,843,003
)
Proceeds from disposal of property, plant and equipment
   
-
     
327
 
Loans provided to third parties
   
(100,000
)
   
(1,047,053
)
Net cash used in investing activities
   
(5,493,759
)
   
(3,972,528
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Repayment of loans to related parties
   
-
     
(1,750,367
)
Repayment of loans to third parties
   
-
     
(421,222
)
Purchase of CAE’s loan
   
-
     
(13,228,101
)
Reduction of capital
   
-
     
(13,930,000
)
Redemption of convertible promissory notes
   
(39,583,321
)
   
-
 
Payment of expense for the reverse recapitalization
   
-
     
(904,843
)
Net cash used in financing activities
   
(39,583,321
)
   
(30,234,533
)
                 
Effect of exchange rate changes on cash
   
283,806
     
97,755
 
                 
Net decrease in cash, cash equivalents and restricted cash
   
(62,156,606
)
   
(57,595,744
)
Cash, cash equivalents and restricted cash at beginning of period
   
154,096,801
     
261,664,962
 
Cash, cash equivalents and restricted cash at end of period
 
$
91,940,195
   
$
204,069,218
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Interest paid
 
$
-
   
$
377,717
 
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
Cashless exercise of warrants
 
$
2,168,185
   
$
-
 

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

CENNTRO ELECTRIC GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

   
Ordinary shares
   
Additional
paid in capital
   
Accumulated
deficit
   
Accumulated
other
comprehensive
loss
   
Total
shareholders’
equity
   
Non-
controlling
interest
   
Total equity
 
   
Shares
   
Amount
                                     
Balance as of December 31, 2021
   
261,256,254
   
$
-
   
$
374,901,939
   
$
(109,735,935
)
 
$
(1,392,699
)
 
$
263,773,305
   
$
-
   
$
263,773,305
 
Share-based compensation
   
-
     
-
     
199,416
     
-
     
-
     
199,416
     
-
     
199,416
 
Net loss
   
-
     
-
     
-
     
(9,311,650
)
   
-
     
(9,311,650
)
   
(36,719
)
   
(9,348,369
)
Acquisition of 65% of CAE’s equity interests
   
-
     
-
     
-
     
-
     
-
     
-
     
1,555,320
     
1,555,320
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
274,025
     
274,025
     
(20,869
)
   
253,156
 
Balance as of March 31, 2022
   
261,256,254
   
$
-
   
$
375,101,355
   
$
(119,047,585
)
 
$
(1,118,674
)
 
$
254,935,096
   
$
1,497,732
   
$
256,432,828
 

   
Ordinary shares
   
Additional
paid in capital
   
Accumulated
deficit
   
Accumulated
other
comprehensive
loss
   
Total
shareholders’
equity
   
Non-
controlling
interest
   
Total equity
 
   
Shares
   
Amount
                                     
Balance as of December 31, 2022
   
300,841,995
   
$
-
   
$
397,497,817
   
$
(219,824,176
)
 
$
(5,306,972
)
 
$
172,366,669
   
$
(477,135
)
 
$
171,889,534
 
Share-based compensation
   
-
     
-
     
1,153,808
     
-
     
-
     
1,153,808
     
-
     
1,153,808
 
Net loss
   
-
     
-
     
-
     
(10,957,949
)
   
-
     
(10,957,949
)
   
(156,028
)
   
(11,113,977
)
Acquisition of 35% of CAE’s equity interests
   
-
     
-
     
(2,557,721
)
   
-
     
-
     
(2,557,721
)
   
657,730
     
(1,899,991
)
Exercise of warrants
   
3,607,096
     
-
     
2,168,185
     
-
     
-
     
2,168,185
     
-
     
2,168,185
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
361,845
     
361,845
     
(24,567
)
   
337,278
 
 Balance as of March 31, 2023
   
304,449,091
   
$
-
   
$
398,262,089
   
$
(230,782,125
)
 
$
(4,945,127
)
 
$
162,534,837
   
$
-
   
$
162,534,837
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
          
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

Historical and principal activities

Cenntro Automotive Group Limited (“CAG Cayman”) was formed in the Cayman Islands on August 22, 2014. CAG Cayman was the former parent of Cenntro (as defined below), prior to the closing of the Combination (as defined below).

Cenntro Automotive Corporation (“CAC”) was incorporated in the state of Delaware on March 22, 2013. CAC became CAG Cayman’s wholly owned company on May 26, 2016.

Cenntro Automotive Group Limited (“CAG HK”) was established by CAG Cayman on February 15, 2016 in Hong Kong. CAG HK is a non-operating, investment holding company, which conducts business through its subsidiaries in mainland China and Hong Kong.

Cenntro Electric Group, Inc. (“CEG”) was incorporated in the state of Delaware by CAG Cayman on March 9, 2020.

Cenntro Electric Group Limited ACN 619 054 938, formerly known as Naked Brand Group Limited (“NBG”), was incorporated in Australia on May 11, 2017, and is the parent company of Cenntro. NBG changed its name to Cenntro Electric Group Limited (“CEGL”) on December 30, 2021, in connection with the closing of the Combination.

CAC, CEG and CAG HK and its consolidated subsidiaries are collectively known as “Cenntro”; CEGL and Cenntro are collectively known as the “Company”. The Company designs and manufactures purpose–built, electric commercial vehicles (“ECVs”) used primarily in last mile delivery and industrial applications.

On March 25, 2022 and January 31, 2023, the Company entered into Share Purchase Agreements to acquire 65% and 35% of the issued and outstanding shares in Cenntro Automotive Europe GmbH (“CAE”), formerly known as Tropos Motors Europe GmbH. For information of the Share Purchase Agreements, see Note 3 of this Annual Report, “Business Combination”.

Reverse recapitalization

On December 30, 2021, the Company consummated a stock purchase transaction (the “Combination”) pursuant to that certain stock purchase agreement, dated as of November 5, 2021 (the “Acquisition Agreement”) by and among CEGL (at the time, NBG), CAG Cayman, CAC, CEG and CAG HK, whereby CEGL purchased from CAG Cayman (i) all of the issued and outstanding ordinary shares of CAG HK, (ii) all of the issued and outstanding shares of common stock, par value $0.001 per share, of CAC, and (iii) all of the issued and outstanding shares of common stock, par value $0.01 per share, of CEG, in exchange for an aggregate purchase price of (i) 174,853,546 newly issuing ordinary shares of CEGL and (ii) the assumption of options to purchase an aggregate of 9,225,271 ordinary shares under the Cenntro Electric Group Limited Amended & Restated 2016 Incentive Stock Option Plan (the “Amended 2016 Plan”). The Combination closed on December 30, 2021. Immediately prior to the consummation of the Combination, there were 86,402,708 ordinary shares of NBG issued and outstanding. In connection with the closing of the Combination, CEGL changed its name from “Naked Brand Group Limited” to “Cenntro Electric Group Limited”.

Promptly following the closing of the Combination, CAG Cayman distributed the Acquisition Shares to the holders of its capital stock in accordance with (i) the distribution described in the Acquisition Agreement and (ii) CAG Cayman’s Third Amended and Restated Memorandum and Articles of Association. Pursuant to the Acquisition Agreement, at the closing of the Combination, NBG assumed the Amended 2016 Plan and each CAG Cayman employee stock option outstanding immediately prior to the closing of the Combination under the Amended 2016 Plan was converted into an option to purchase a number of ordinary shares equal to the aggregate number of CAG Cayman shares for which such stock option was exercisable immediately prior to the closing of the Combination multiplied by the exchange ratio of 0.71536 (the “Exchange Ratio”), as determined in accordance with the Acquisition Agreement, at an option exercise price equal to the exercise price per share of such stock option immediately prior to the closing of the Combination divided by the Exchange Ratio.

Cenntro was deemed to be the accounting acquirer given Cenntro effectively controlled the consolidated entity after the Combination. Under U.S. generally accepted accounting principles, the Combination is accounted for as a reverse recapitalization, which is equivalent to the issuance of shares by Cenntro for the net monetary assets of CEGL, accompanied by a recapitalization. Cenntro is deemed to be the predecessor for accounting purposes and the historical financial statements of Cenntro became CEGL’s historical financial statements, with retrospective adjustments to give effect to the reverse recapitalization. The financial statements for periods prior to the consummation of the reverse recapitalization are the combined financial statements of CAC, CEG and CAG HK and its consolidated subsidiaries.
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

As of March 31, 2023, CEGL’s subsidiaries are as follows:

Name
 
Date of
Incorporation
 
Place of
Incorporation
 
Percentage of direct or
indirect economic
interest
Cenntro Electric CICS, SRL
 
November 30, 2022
 
Santo Domingo, Dominican Republic
 
100% owned by CEGL
Cennatic Power, Inc. (“Cennatic Power”)
 
June 8, 2022
 
Delaware, U.S.
 
100% owned by CEGL
Cenntro Automotive Europe GmbH (“CAE”)
 
May 21, 2019
 
Herne, Germany
 
65% owned by CEGL
Cenntro Electric Group (Europe) GmbH (“Cenntro Electric”)
 
January 13, 2022
 
Düsseldorf, Germany
 
100% owned by CEGL
Cennatic Energy S. de R.L. de C.V.
 
August 24, 2022
 
Monterrey, Mexico
 
99% and 1% owned by Cennatic Power and CAC, respectively
Cenntro Electric B.V.
 
December 12, 2022
 
Amsterdam, Netherlands
 
100% owned by CEGL
Cenntro Automotive Corporation (“CAC”)
 
March 22, 2013
 
Delaware, U.S.
 
100% owned by CEGL
Cenntro Electric Group, Inc. (“CEG”)
 
March 9, 2020
 
Delaware, U.S.
 
100% owned by CEGL
Cenntro Automotive Group Limited (“CAG HK”)
 
February 15, 2016
 
Hong Kong
 
100% owned by CEGL
Simachinery Equipment Limited (“Simachinery HK”)
 
June 2, 2011
 
Hong Kong
 
100% owned by CAG HK
Zhejiang Cenntro Machinery Co., Limited
 
January 20, 2021
 
PRC
 
100% owned by CAG HK
Jiangsu Tooniu Tech Co., Limited
 
December 19, 2018
 
PRC
 
100% owned by CAG HK
Hangzhou Ronda Tech Co., Limited (“Hangzhou Ronda”)
 
June 5, 2017
 
PRC
 
100% owned by CAG HK
Hangzhou Cenntro Autotech Co., Limited (“Cenntro Hangzhou”)
 
May 6, 2016
 
PRC
 
100% owned by CAG HK
Zhejiang Sinomachinery Co., Limited (“Sinomachinery Zhejiang”)
 
June 16, 2011
 
PRC
 
100% owned by Simachinery HK
Shengzhou Cenntro Machinery Co., Limited (“Cenntro Machinery”)
 
July 12, 2012
 
PRC
 
100% owned by Cenntro Hangzhou
Hangzhou Hengzhong Tech Co., Limited
 
December 16, 2014
 
PRC
 
100% owned by Cenntro Hangzhou
Zhejiang Xbean Tech Co., Limited *
 
December 28, 2016
 
PRC
 
100% owned by Sinomachinery Zhejiang
Cenntro Automotive S.A.S.
 
January 16, 2023
 
Galapa, Colombia
 
100% owned by CEGL
Cenntro Electric Colombia S.A.S.
 
March 29, 2023
 
Atlántico, Colombia
 
100% owned by CEGL
Cenntro Elektromobilite Araçlar A.Ş
 
February 21, 2023
 
Turkey
 
100% owned by CEGL
Teemak Power Corporation
 
January 31, 2023
 
Delaware, U.S.
 
100% owned by CEGL
Avantier Motors Corporation
 
November 27, 2017
 
Delaware, U.S.
 
100% owned by CEGL
Avantier Motors (Hong Kong) Limited
 
March 13, 2023
 
Hong Kong
 
100% owned by CEGL

*
Zhejiang Xbean Tech Co., Limited was in the liquidation process as of March 31, 2023.

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Basis of presentation

The accompanying consolidated balance sheet as of December 31, 2022, which has been derived from audited financial statements, and the unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Certain information and disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. Management believes that the disclosures made are adequate to provide a fair presentation. The interim financial information should be read in conjunction with the financial statements and the notes for the fiscal year ended December 31, 2022. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results for the full year or any future periods.

(b)
Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include provision for doubtful accounts, lower of cost and net realizable value of inventories, impairment losses for long-lived assets and investments, valuation allowance for deferred tax assets and fair value measurement for share-based compensation expense, convertible promissory notes and warrants. Changes in facts and circumstances may result in revised estimates. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

(c)
Revenue recognition

The Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of a contract with the customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company generates revenue primarily through sales of light-duty ECVs, sales of ECV parts, and sales of off-road electric vehicles. Revenue is recognized at a point in time once the Company has determined that the customer has obtained control over the product. Revenue is recognized net of return allowance and any taxes collected from customers, which are subsequently remitted to governmental authorities. Significant judgement is required to estimate return allowances. The Company reasonably estimate the possibility of return based on the historical experience, changes in judgments on these assumptions and estimates could materially impact the amount of net revenues recognized.

Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods are accounted for as fulfilment costs rather than separate performance obligations and recorded as sales and marketing expenses.

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The following table disaggregates the Company’s revenues by product line for the three months ended March 31, 2023 and 2022:

   
For the Three Months
Ended March 31,
 
   
2023
   
2022
 
Vehicles sales
 
$
2,840,963
   
$
1,718,371
 
Spare-parts sales
   
598,036
     
101,424
 
Other service income
   
31,545
     
10,838
 
Net revenues
 
$
3,470,544
   
$
1,830,633
 

The Company’s revenues are derived from Europe, Asia and America. The following table sets forth disaggregation of revenue by customer location.

   
For the Three Months
Ended March 31,
 
   
2023
   
2022
 
Primary geographical markets
   
 
 
Europe
 
$
3,061,998
   
$
617,601
 
Asia
   
276,500
     
795,549
 
America
   
32,046
     
417,483
 
Total
 
$
3,470,544
   
$
1,830,633
 

Contract Balances

Timing of revenue recognition was once the Company has determined that the customer has obtained control over the product. Accounts receivable represent revenue recognized for the amounts invoiced and/or prior to invoicing when the Company has satisfied its performance obligation and has an unconditional right to the payment.

Contractual liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration. The consideration received remains a contractual liability until goods or services have been provided to the customer. For the three months ended March 31, 2023 and 2022, the Company recognized $98,818 and $723,278 revenue that was included in contractual liabilities as of December 31, 2022 and 2021, respectively.

The following table provides information about receivables and contractual liabilities from contracts with customers:

   
March 31,
2023
   
December 31,
2022
 
Accounts receivable, net
 
$
2,732,834
   
$
565,398
 
Contractual liabilities
 
$
2,656,151
   
$
2,388,480
 

(d)
Recently issued accounting standards pronouncement

Except for the ASUs (“Accounting Standards Updates”) issued but not yet adopted disclosed in “Note 2 (z) Recent Accounting Standards” of the Company 2022 Form 10-K, there is no ASU issued by the FASB that is expected to have a material impact on the Company’s consolidated results of operations or financial position.
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 3 – BUSINESS COMBINATION

On March 5, 2022, the Company entered into a Share and Loan Purchase Agreement (the “Purchase Agreement I”) with Mosolf SE & Co. KG, a limited liability partnership incorporated under the laws of Germany (“Seller” or “Mosolf” and, together with CEGL and CEG, the “Parties”), pursuant to which Mosolf agreed to sell to the Company (i) 65% of the issued and outstanding shares (the “TME Shares”) in Cenntro Automotive Europe GmbH, previously known as Tropos Motors Europe GmbH, a German limited liability company (“CAE”), and (ii) 100% of the shareholder loan (the “Shareholder Loan”) which Mosolf previously provided to CAE (the “CAE Transaction”). CAE was one of Cenntro’s private label channel partners and has been one of Cenntro’s largest customers since 2019.

The CAE Transaction closed on March 25, 2022. At closing of the CAE Transaction, the Company paid Mosolf EUR3,250,000 (or approximately USD$3.6 million) for the purchase of the TME Shares and EUR11,900,000 (or approximately USD$13.0 million) for the purchase of the Shareholder Loan, for total aggregate consideration of EUR15,150,000 (or approximately USD$16.6 million). An aggregate of EUR3,000,000 (or approximately USD$3.3 million) of the purchase price is held in escrow to satisfy amounts payable to any of the buyer indemnified parties in accordance with the terms of the Purchase Agreement I.

The transaction constitutes a business combination for accounting purposes and is accounted for using the acquisition method under ASC 805. The Company is deemed to be the accounting acquirer and the assets and liabilities of CAE are recorded at the fair value as of the date of the closing.

On December 13, 2022, the Company entered into another Share Purchase Agreement (the “Purchase Agreement II”) with Mosolf, pursuant to which Mosolf agreed to sell to the Company its remaining 35% of the issued and outstanding shares in CAE in exchange for a purchase price of EUR1,750,000 (or approximately USD$1.86 million) (the “Transaction”). The Transaction was closed on January 31, 2023, as a result, CAE became a wholly-owned subsidiary of the Company. This transaction was accounted for as equity transactions, no gain or loss was recognized in consolidated statement of operations. The difference between the fair value of the consideration paid and the amount by which the noncontrolling interest was adjusted was recognized in equity attributable to the Company.

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 4 - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net is summarized as follows:
   
March 31,
2023
   
December 31,
2022
 
Accounts receivable
 
$
4,686,735
   
$
2,526,432
 
Less: provision for doubtful accounts
   
(1,953,901
)
   
(1,961,034
)
Accounts receivable, net
 
$
2,732,834
   
$
565,398
 

The changes in the provision for doubtful accounts are as follows:
   
For the Three Months Ended March 31,
 
   
2023
   
2022
 
Balance at the beginning of the period
 
$
1,961,034
   
$
1,475,983
 
Additions
   
-
     
-
 
Write-off
   
(11,402
)
   
-
 
Foreign exchange
   
4,269
     
6,362
 
Balance at the end of the year
 
$
1,953,901
   
$
1,482,345
 

NOTE 5 - INVENTORIES

Inventories are summarized as follows:
   
March 31,
2023
   
December 31,
2022
 
Raw material
 
$
8,102,206
   
$
9,311,419
 
Work-in-progress
   
578,233
     
290,220
 
Goods in transit
   
3,073,933
     
2,364,136
 
Finished goods
   
24,792,545
     
19,877,596
 
Inventories
 
$
36,546,917
   
$
31,843,371
 

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 6 - PREPAYMENT AND OTHER CURRENT ASSETS

Prepayment and other current assets consisted of the following:

   
March 31,
2023
   
December 31,
2022
 
Advance to suppliers
 
$
9,708,922
   
$
9,877,337
 
Deductible input value added tax
   
4,376,571
     
4,097,162
 
Receivable from third parties
   
681,813
     
678,887
 
Loans to a third party
   
100,000
     
1,044,181
 
Others
   
729,458
     
440,763
 
Prepayment and other current assets
 
$
15,596,764
   
$
16,138,330
 

NOTE 7 – LONG-TERM INVESTMENT, NET

Equity method investments, net

The Company had the following equity method investments:

   
March 31,
2023
   
December 31,
2022
 
Antric GmbH (1)
 
$
1,556,672
   
$
2,674,500
 
Hangzhou Entropy Yu Equity Investment Partnership (Limited Partnership) (“Entropy Yu”) (2)
   
2,199,016
     
2,189,570
 
Hangzhou Hezhe Energy Technology Co., Ltd. (“Hangzhou Hezhe”) (3)
   
391,088
     
367,272
 
Able 2rent GmbH (DEU) (4)
   
92,736
     
94,399
 
Total
 
$
4,239,512
   
$
5,325,741
 

(1)
On December 16, 2022, the Company invested EUR2,500,000 (approximately $2,718,000) in Antric GmbH to acquire 25% of its equity interest. The Company accounts for the investment under the equity method because the Company controls 25% of voting interests, and has the ability to exercise significant influence over Antric GmbH. For the three months ended March 31, 2023, the Company recorded impairment on investment of Antric GmbH of $1,146,128.

(2)
On September 25, 2022, the Company invested RMB15,400,000 (approximately $2,242,414) in Entropy Yu to acquire 99.355% of the partnership entity’s equity interest. The Company accounts for the investment under the equity method because the Company controls 50% of voting interests in partnership matters and material matters must be agreed upon by all partners. The Company has the ability to exercise significant influence over Entropy Yu.

(3)
On June 23, 2021, the Company invested RMB2,000,000 (approximately $291,223 in Hangzhou Hezhe to acquire 20% of its equity interest. The Company accounts for the investment under the equity method because the Company controls 33% of voting interests in board of directors, and has the ability to exercise significant influence over Hangzhou Hezhe.

(4)
On March 22, 2022, CAE invested EUR100,000 (approximately $108,720 in Able 2rent GmbH (DEU) to acquire 50% of its equity interest. The Company accounts for the investment under the equity method because it does not have control over Able 2rent GmbH (DEU) as the Company does not participate in its operation and does not serve as member of board of director.

Equity investment without readily determinable fair value

The Company had the following equity investment without readily determinable fair value:

   
March 31,
2023
   
December 31,
2022
 
HW Electro Co., Ltd. (1)
   
1,000,000
     
-
 
Total
 
$
1,000,000
   
$
-
 
 
(1)
On January 31, 2023, the Company entered into a convertible debt agreement with HW Electro Co., Ltd., to convert the loan principal of $1,000,000 into 571,930 shares of HW Electro Co., Ltd.’s for a total of 3.59% of its equity interest.

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 8 – INVESTMENT IN EQUITY SECURITIES

As of March 31, 2023, the balance consisted of the following two equity investments:

   
March 31,
2023
   
December 31,
2022
 
MineOne Fix Income Investment I L.P
 
$
25,275,956
   
$
25,019,244
 
Micro Money Fund SPC
   
5,136,255
     
4,739,951
 
Total
 
$
30,412,211
   
$
29,759,195
 

NOTE 9 –PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:
   
March 31,
2023
   
December 31,
2022
 
At cost:
           
Plant and building (1)
 
$
11,502,851
   
$
11,453,436
 
Machinery and equipment
   
3,248,410
     
2,413,087
 
Leasehold improvement
   
4,442,928
     
2,956,515
 
Office equipment
   
1,366,669
     
1,192,443
 
Motor vehicles
   
422,682
     
352,972
 
Total
   
20,983,540
     
18,368,453
 
Less: accumulated depreciation
   
(3,718,094
)
   
(3,405,862
)
Construction in progress
   
132,808
     
-
 
Property, plant and equipment, net
 
$
17,265,446
   
$
14,962,591
 

Depreciation expenses for the three months ended March 31, 2023 and 2022 were $305,262 and $137,104, respectively.

Impairment loss for the three months ended March 31, 2023 and 2022 were $24,369 and nil, respectively.

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 10 - INCOME TAXES

Australia

CEGL is subject to a tax rate of 30%.

United States

U.S. subsidiaries CEG, Cennatic Power Inc. and CAC are subject to a federal tax rate of 21%.

Germany

CAE and Cenntro Electric is subject to a tax rate of 30%.

Hong Kong

In accordance with the relevant tax laws and regulations of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong Kong at the applicable tax rate on taxable income. Effective from April 1, 2018, a two-tier corporate income tax system was officially implemented in Hong Kong, which is 8.25% for the first HK$2.0 million profits, and 16.5% for the subsequent profits, it is exempted from the Hong Kong income tax on its foreign-derived income. CEG’s subsidiaries, CAG HK and Sinomachinery HK, are registered in Hong Kong as intermediate holding companies, subject to an income tax rate of 16.5% for taxable income earned in Hong Kong. Payments of dividends from Hong Kong subsidiaries to CEG are not subject to any Hong Kong withholding tax.

PRC

Pursuant to the tax laws and regulations of the PRC, the Company’s applicable enterprise income tax (“EIT”) rate is 25%. Zhejiang Tooniu Tech Co., Ltd, Hangzhou Hengzhong Tech Co., Ltd and. Zhejiang Xbean Tech Co., Ltd qualify as Small and micro enterprises in the PRC, and are entitled to pay a reduced income tax rate of 2.5%, 2.5% and 5% in 2022 and 2023.

Income tax expenses for the three months ended March 31, 2023 and 2022 are nil.

The components of losses before income taxes are summarized as follows:

   
For the Three Months Ended March 31,
 
   
2023
   
2022
 
PRC
 
$
(1,778,180
)
   
(1,712,432
)
US
   
(3,554,955
)
   
(3,122,402
)
Europe
   
(2,904,320
)
   
(44,753
)
Australia
   
(2,606,972
)
   
(4,468,782
)
Others
   
(269,550
)
   
-
 
Total
 
$
(11,113,977
)
   
(9,348,369
)

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 11 - LEASES

The Company leases offices space under non-cancellable operating leases. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right of use assets and lease liabilities. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheets.

The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

A summary of lease cost recognized in the Company’s consolidated statements of operations and comprehensive loss is as follows:

 
For the Three Months Ended March 31,
 
 
2023
 
2022
 
Operating leases cost excluding short-term rental expense
 
$
671,313
   
$
238,569
 
Short-term lease cost
   
268,721
     
58,096
 
Total
 
$
940,034
   
$
296,665
 

A summary of supplemental information related to operating leases is as follows:

 
March 31,
2023
 
March 31,
2022
 
Cash paid for amounts included in the measurement of lease liabilities
 
$
671,109
   
$
112,669
 
Weighted average remaining lease term
7.26 years
 
1.78 years
 
Weighted average discount rate
   
5.41
%
   
4.08
%

The Company’s lease agreements do not have a discount rate that is readily determinable. The incremental borrowing rate is determined at lease commencement or lease modification and represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and an amount equal to the lease payments in a similar economic environment.

The following table summarizes the maturity of lease liabilities under operating leases as of March 31, 2023:

   
Operating
Leases
 
For the remaining of 2023
 
$
2,156,895
 
Years ended December 31,
       
2024
   
2,845,452
 
2025
   
2,068,015
 
2026
   
2,126,623
 
2027
   
2,191,533
 
2028 and thereafter
   
6,171,223
 
Total lease payments
   
17,559,741
 
Less: imputed interest
   
3,139,963
 
Total
   
14,419,778
 
Less: current portion
   
2,779,279
 
Non-current portion
 
$
11,640,499
 

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 12 - CONVERTIBLE PROMISSORY NOTE AND WARRANT

Convertible Promissory Note

On July 20, 2022, the Company issued to investors convertible promissory note (“Note”) in the aggregate principal amount of $61,215,000 due on July 19, 2023, unless earlier repurchased, converted or redeemed. The Note bears interest at a rate of 8% per annum, and the net proceed after deducting issuance expenses was $54,069,000.

The main terms of the Note are summarized as follows:

Conversion feature

At any time after the issue date until the Note is no longer outstanding, this Note shall be convertible, in whole or in part, into ordinary shares at the option of the holder, at any time and from time to time.

Redemption feature

If the Company shall carry out one or more subsequent financings in excess of US$25,000,000 in gross proceeds, the holder shall have the right to (i) require the Company to first use up to 10% of the gross proceeds of such subsequent financing if the aggregate outstanding principal amount of the Note is in excess of US$30,000,000 and (ii) require the Company to first use up to 20% of the gross proceeds of such subsequent financing if the outstanding principal amount of the Note is US$30,000,000 or less to redeem all or a portion of this Note for an amount in cash equal to the Mandatory Redemption Amount equal to 1.08 multiplied by the sum of principal amount subject to the mandatory redemption, plus accrued but unpaid interest, plus liquidated damages, if any, and any other amounts.

In addition, if the closing price of the ordinary shares on the principal trading market is below the floor price of $1.00 per share for a period of ten consecutive trading days, the holder shall have the right to require the Company to redeem the sum of principal amount plus accrued but unpaid interest under the Note.

Contingent interest feature

The Note is subject to certain customary events of default. If any event of default occurs, the outstanding principal amount, plus accrued but unpaid interest, liquidated damages and other amounts owing, shall become immediately due and payable, and at the holder’s election, in cash at the mandatory default amount or in ordinary shares at the mandatory default amount at a conversion price equal to 85% of the 10-day volume weighted average price. Commencing 5 days after the occurrence of any event of default, the interest shall accrue at an interest rate equal to the lesser of 10% per annum or the maximum rate permitted under applicable law.

The financial liability was initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The remaining estimated fair value adjustment is presented as other expense in the consolidated statement of operations, change in fair value of convertible notes.

The movement of Note during the three months ended March 31, 2023 are as follows:
   
Liability component
 
As of December 31, 2022
 
$
57,372,827
 
Convertible promissory notes issued during the year
   
-
 
Redemption of convertible promissory notes
   
(39,581,320
)
Fair value change recognized
   
111,767
 
As of March 31, 2023
   
17,903,274
 

The estimated fair value of the Note upon issuance date December 31, 2022 and as of March 31, 2023 was computed using a Monte Carlo Simulation Model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement. The unobservable inputs utilized for measuring the fair value of the Note reflects our assumptions about the assumptions that market participants would use in valuing the Note as of the issuance date and subsequent reporting period.

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 12 - CONVERTIBLE PROMISSORY NOTE AND WARRANT (CONTINUED)

We determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:

 
Fair Value Assumptions - Convertible Promissory Note
 
March 31,
2023
   
December 31,
2022
 
Face value principal payable
   
17,904,179
     
57,488,000
 
Original conversion price
   
1.2375
     
1.2375
 
Interest Rate
   
8.00
%
   
8.00
%
Expected term (years)
   
0.30
     
0.55
 
Volatility
   
61.54
%
   
75.13
%
Market yield (range)
   
25.12
%
   
18.02
%
Risk free rate
   
4.48
%
   
4.69
%
Issue date
 
July 20, 2022
   
July 20, 2022
 
Maturity date
 
July 19, 2023
   
July 19, 2023
 

Warrant

Accompany with the Note, the Company issued to the same investor warrants to purchase up to 24,733,336 ordinary shares of the Company, with an exercise price of $1.61 per share, which may be exercised by the holders on a cashless basis by using Black-Scholes model to determine the net settlement shares.

Additionally, after the Company completed the above Note financing, the Company issued to the placement agent warrants to purchase 2,473,334 ordinary shares of the Company at a same day, as part of the underwriter’s commission. The warrants were issued with an exercise price of $1.77 per share.

Both warrants are exercisable from the date of issuance and have a term of five years from the date of issuance. They were presented as liabilities on the consolidated balance sheet at fair value in accordance with ASC 480 “Distinguishing Liabilities from Equity”. The liabilities then, will be remeasured every reporting period with any change to fair value recorded as other income (expense) in the consolidated statement of operations.

The movement of warrants during the three months ended March 31, 2023 are as follows:
   
Investor warrants
component
   
Placement agent
warrants component
 
As of December 31, 2022
 
$
14,334,104
   
$
3,456,404
 
Warrants issued during the year
   
-
     
-
 
Exercise of warrants
   
(1,955,315
)
   
-
 
Fair value change recognized
   
13,843
     
663
 
As of March 31, 2023
   
12,392,632
     
3,457,067
 

The fair value for these two warrants were computed using the Binomial model with the following assumptions:
 
Fair Value Assumptions Warrants
 
March 31,
2023
   
December 31,
2022
 
Expected term (years)
   
4.30
     
4.55
 
Volatility
   
75.99
%
   
77.72
%
Risk free rate
   
3.61
%
   
4.13
%

CENNTRO ELECTRIC GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, except for number of shares)

NOTE 13- CONCENTRATIONS

(a)
Customers

The following table sets forth information as to each customer that accounted for 10% or more of net revenue for the three months ended March 31, 2023 and 2022.

   
Three months ended
   
Three months ended
 
   
March 31, 2023,
   
March 31, 2022,
 
Customer
 
Amount
   
% of Total
   
Amount
   
% of Total
 
A
   
339,874
     
10
%
   
-
     
-
 
B
   
100,211
     
*
     
291,780
     
16
%
C
   
-
     
-
     
550,954
     
30
%
D
   
-
     
-
     
415,558
     
23
%
Total
 
$
440,085
     
10
%
 
$
1,450,937
     
69
%

*
Indicates below 10%.

The following table sets forth information as to each customer that accounted for 10% or more of total gross accounts receivable as of March 31, 2023 and December 31, 2022.

     
As of March 31, 2023,
   
As of December 31, 2022,
 
Customer
   
Amount
   
% of Total
   
Amount
   
% of Total
 
C
    $
397,064
     
*
    $
395,360
     
16
%
E

   
392,094
     
*
     
410,321
     
16
%
F

   
1,216,491