UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended: September 30, 2023
OR
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ______ to _______.
Commission file number: 001-38544
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code (732 ) 820-6757
Securities registered under Section 12(b) of the Exchange Act:
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Title of each class:
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Trading Symbol(s)
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Name of each exchange on which registered:
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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.
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.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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☒
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Smaller reporting company
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Emerging growth company
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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 November 13, 2023.
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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:
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general economic and business conditions, including changes in interest rates;
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prices of other EVs, costs associated with manufacturing EVs and other economic conditions;
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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);
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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;
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the ability of our information technology systems or information security systems to operate effectively;
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actions by government authorities, including changes in government regulation;
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uncertainties associated with legal proceedings;
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changes in the size of the EV market;
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future decisions by management in response to changing conditions;
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the Company’s ability to execute prospective business plans;
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misjudgments in the course of preparing forward-looking statements;
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the Company’s ability to raise sufficient funds to carry out its proposed business plan;
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inability to keep up with advances in EV and battery technology;
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inability to design, develop, market and sell new EVs and services that address additional market opportunities to generate revenue and positive cash flows;
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dependency on certain key personnel and any inability to retain and attract qualified personnel;
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inexperience in mass-producing EVs;
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inability to succeed in establishing, maintaining and strengthening the Cenntro brand;
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disruption of supply or shortage of raw materials;
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the unavailability, reduction or elimination of government and economic incentives;
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failure to manage future growth effectively; and
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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”).
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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
CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
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For the Three Months Ended September 30,
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For the Nine Months Ended September 30,
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|||||||||||||||||||
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Note
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2023
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2022
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2023
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2022
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||||||||||||||||
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Net revenues
|
2(c)
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|
$
|
|
$
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|
$
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|
$
|
|
||||||||||
|
Cost of goods sold
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Gross profit
|
|
(
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)
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(
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)
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||||||||||||||
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|
||||||||||||||||||||
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OPERATING EXPENSES:
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||||||||||||||||||||
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Selling and marketing expenses
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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General and administrative expenses
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Research and development expenses
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Total operating expenses
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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|
||||||||||||||||||||
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Loss from operations
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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||||||||||||||||||||
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OTHER EXPENSE:
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||||||||||||||||||||
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Interest (expense) income, net
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(
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)
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(
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)
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(
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)
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|||||||||||||
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(Loss) Income from long-term investment
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(
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)
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(
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)
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||||||||||||||
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Loss from acquisition of Antric Gmbh
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( |
) | ( |
) | ||||||||||||||||
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Impairment of long-term investment
|
7(1)
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(
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)
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(
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)
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||||||||||||
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Gain on redemption of convertible promissory notes
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Loss on exercise of warrants
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(
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)
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(
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)
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||||||||||||||
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Change in fair value of convertible promissory notes and derivative liability
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||||||||||||||||
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Convertible bond issuance cost
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( |
) | ( |
) | ||||||||||||||||
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Change in fair value of equity securities
|
8
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(
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)
|
|
(
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)
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|
|||||||||||||
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Other expense, net
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Loss before income taxes
|
(
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)
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(
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)
|
(
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)
|
(
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)
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||||||||||||
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Income tax benefit (expense)
|
11
|
|
|
(
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)
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||||||||||||||
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Net loss
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Less: net loss attributable to non-controlling interests
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Net loss attributable to the Company’s shareholders
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$
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(
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)
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$
|
(
|
)
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$
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(
|
)
|
$
|
(
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)
|
||||||||
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|
||||||||||||||||||||
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OTHER COMPREHENSIVE LOSS
|
||||||||||||||||||||
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Foreign currency translation adjustment
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
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Total comprehensive loss
|
(
|
)
|
(
|
)
|
(
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)
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(
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)
|
||||||||||||
|
|
||||||||||||||||||||
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Less: total comprehensive loss attributable to non-controlling interests
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Total comprehensive loss to the Company’s shareholders
|
$
|
(
|
)
|
$
|
(
|
)
|
$ |
(
|
)
|
$ |
(
|
)
|
||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
Note
|
September 30,
2023
|
December 31,
2022
|
||||||||||
|
(Unaudited)
|
||||||||||||
|
ASSETS
|
||||||||||||
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Current assets:
|
||||||||||||
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Cash and cash equivalents
|
$
|
|
$
|
|
||||||||
|
Restricted cash
|
|
|
||||||||||
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Accounts receivable, net
|
4
|
|
|
|||||||||
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Inventories
|
5
|
|
|
|||||||||
|
Prepayment and other current assets
|
6
|
|
|
|||||||||
| Deferred cost -current |
||||||||||||
|
|
16
|
|
|
|||||||||
|
Total current assets
|
|
|
||||||||||
|
Non-current assets:
|
||||||||||||
|
long-term investment, net
|
7
|
|
|
|||||||||
|
Investment in equity securities
|
8
|
|
|
|||||||||
|
Property, plant and equipment, net
|
9
|
|
|
|||||||||
|
Intangible assets, net
|
10 |
|
|
|||||||||
|
Right-of-use assets
|
12
|
|
|
|||||||||
| Deferred cost - non-current |
||||||||||||
|
Other non-current assets, net
|
|
|
||||||||||
|
Total non-current assets
|
|
|
||||||||||
|
Total Assets
|
$
|
|
$
|
|
||||||||
|
LIABILITIES AND EQUITY
|
||||||||||||
|
LIABILITIES
|
||||||||||||
|
Current liabilities:
|
||||||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||||||
|
Accrued expenses and other current liabilities
|
|
|
||||||||||
|
Contractual liabilities
|
|
|
||||||||||
|
Operating lease liabilities, current
|
12
|
|
|
|||||||||
|
Convertible promissory notes
|
13
|
|
|
|||||||||
|
Deferred government grant, current
|
|
|
||||||||||
|
|
16
|
|
|
|||||||||
|
Total current liabilities
|
|
|
||||||||||
|
Non-current liabilities:
|
||||||||||||
|
Deferred government grant, non-current
|
|
|
||||||||||
|
Derivative liability - investor warrant
|
13
|
|
|
|||||||||
|
Derivative liability - placement agent warrant
|
13
|
|
|
|||||||||
|
Operating lease liabilities, non-current
|
12
|
|
|
|||||||||
|
Total non-current liabilities
|
|
|
||||||||||
|
Total Liabilities
|
$
|
|
$
|
|
||||||||
|
Commitments and contingencies
|
15
|
|||||||||||
|
EQUITY
|
||||||||||||
|
Ordinary shares (
|
|
|
||||||||||
|
Additional paid in capital
|
|
|
||||||||||
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Accumulated deficit
|
(
|
)
|
(
|
)
|
||||||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||||||
|
Total equity attributable to shareholders
|
|
|
||||||||||
|
Non-controlling interests
|
(
|
)
|
(
|
)
|
||||||||
|
Total Equity
|
$
|
|
$
|
|
||||||||
|
Total Liabilities and Equity
|
$
|
|
$
|
|
||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
For the Nine Months Ended September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net cash used in operating activities
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase of equity investment
|
(
|
)
|
(
|
)
|
||||
| Purchase of equity securities | ( |
) | ||||||
|
Purchase of plant and equipment
|
(
|
)
|
(
|
)
|
||||
|
Purchase of land use right and property
|
(
|
)
|
(
|
)
|
||||
| Purchase of other intangible assets | ( |
) | ||||||
|
Acquisition of CAE’s equity interests
|
(
|
)
|
(
|
)
|
||||
|
Cash acquired from acquisition of CAE
|
||||||||
| Acquisition of Antric Gmbh’s equity interests | ( |
) | ||||||
| Cash acquired from acquisition of Antric Gmbh | ||||||||
|
Payment of expense for Acquisition of CAE’s equity interests
|
( |
) | ||||||
|
Proceeds from disposal of property, plant and equipment
|
|
|
||||||
|
Loans provided to third parties
|
(
|
)
|
(
|
)
|
||||
|
Repayment of loans from related parties
|
||||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Repayment of loans to related parties
|
|
(
|
)
|
|||||
|
Repayment of loans to third parties
|
|
(
|
)
|
|||||
| Repayment of bank loans | ( |
) | ||||||
|
Purchase of CAE’s loan
|
|
(
|
)
|
|||||
|
Reduction of capital
|
|
(
|
)
|
|||||
| Proceed from issuance of convertible promissory notes | ||||||||
|
Redemption of convertible promissory notes
|
(
|
)
|
|
|||||
| Proceed from exercise of share-based awards | ||||||||
|
Payment of expense for the reverse recapitalization
|
|
(
|
)
|
|||||
|
Net cash (used in) provided by financing activities
|
(
|
)
|
|
|||||
|
Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
||||
|
Net decrease in cash, cash equivalents and restricted cash
|
(
|
)
|
(
|
)
|
||||
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
||||||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
|
$
|
|
||||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
|
Interest paid
|
$
|
|
$
|
|
||||
|
Income tax paid
|
$ | $ | ||||||
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
|
Convention from debt to equity interest of HW Electro Co., Ltd.
|
$ | $ | ||||||
|
Cashless exercise of warrants
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S 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
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Acquisition of
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Exercise of share-based award
|
||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||
|
Balance as of September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
|
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
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Acquisition of
|
-
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Balance as of September 30, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
The accompanying notes are an integral part of these unaudited 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
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.
5
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
As of September 30, 2023, CEGL’s subsidiaries are as follows:
|
Name
|
Date of
Incorporation
|
Place of
Incorporation
|
Percentage of direct or
indirect economic
interest
|
|||
|
Cenntro Automotive Corporation (“CAC”)
|
|
|
|
|||
|
Cenntro Electric Group, Inc. (“CEG”)
|
|
|
|
|||
|
Cennatic Power, Inc. (“Cennatic Power”)
|
|
|
|
|||
|
Teemak Power Corporation
|
|
|
|
|||
|
Avantier Motors Corporation
|
|
|
|
|||
|
Cenntro Electric CICS, SRL
|
|
|
|
|||
|
Cennatic Energy S. de R.L. de C.V.
|
|
|
|
|||
|
Cenntro Automotive S.A.S.
|
|
|
|
|||
|
Cenntro Electric Colombia S.A.S.
|
|
|
|
|||
|
Cenntro Automotive Group Limited (“CAG HK”)
|
|
|
|
|||
|
Hangzhou Ronda Tech Co., Limited (“Hangzhou Ronda”)
|
|
|
|
|||
|
Hangzhou Cenntro Autotech Co., Limited (“Cenntro Hangzhou”)
|
|
|
|
|||
|
Zhejiang Cenntro Machinery Co., Limited
|
|
|
|
|||
|
Jiangsu Tooniu Tech Co., Limited
|
|
|
|
|||
|
Hangzhou Hengzhong Tech Co., Limited
|
|
|
|
|||
|
Teemak Power (Hong Kong) Limited (HK)
|
|
|
|
|||
|
Avantier Motors (Hong Kong) Limited
|
|
|
|
|||
|
Cenntro Automotive Europe GmbH (“CAE”)
|
|
|
|
|||
|
Cenntro Electric B.V.
|
|
|
|
|||
|
Cenntro Elektromobilite Araçlar A.Ş
|
|
|
|
|||
|
Cenntro Elecautomotiv, S.L.
|
|
|
|
|||
|
Cenntro Electric Group (Europe) GmbH (“Cenntro Electric”)
|
|
|
|
|||
|
Simachinery Equipment Limited (“Simachinery HK”)
|
|
|
|
|||
|
Zhejiang Sinomachinery Co., Limited (“Sinomachinery Zhejiang”)
|
|
|
|
|||
|
Shengzhou Cenntro Machinery Co., Limited (“Cenntro Machinery”)
|
|
|
|
|||
|
Cenntro EV Center Italy S.R.L.
|
|
|
|
|||
|
Antric Gmbh
|
|
|||||
|
Pikka Electric Corporation
|
|
|||||
|
Centro Technology Corporation
|
|
6
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2023 and for the nine months ended September 30, 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 nine months ended September 30, 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 estimates 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 occurring 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.
The following table disaggregates the Company’s revenues by product line for the nine months ended September 30, 2023 and 2022:
|
For the Nine Months Ended
September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Vehicles sales
|
$
|
|
$
|
|
||||
|
Spare-parts sales
|
|
|
||||||
|
Other service income
|
|
|
||||||
|
Net revenues
|
$
|
|
$
|
|
||||
7
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company’s revenues are derived from Europe, Asia and America. The following table sets forth disaggregation of revenue by customer location.
|
For the Nine Months Ended
September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Primary geographical markets
|
|
|||||||
|
Europe
|
$
|
|
$
|
|
||||
|
Asia
|
|
|
||||||
|
America
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Contract Balances
The timing of revenue recognition is 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 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 nine months ended September 30, 2023 and 2022, the Company recognized $484,477 and $1,079,090 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:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
Accounts receivable, net
|
$
|
|
$
|
|
||||
|
Contractual liabilities
|
$
|
|
$
|
|
||||
| (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.
8
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - BUSNIESS COMBINATION
Acquisition of CAE’s equity interests
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 the 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.
Acquisition of Antric GmbH’s equity interests
On December 16, 2022, the Company invested EUR2,500,000 (approximately $2,646,000 ) in Antric GmbH, a German company with
limited liability, to acquire 25 % of its equity interest, and the investment was accounted for under the equity method.
The Company entered into an agreement with Moritz Heibrock and Eric Diederich (the “Founder”) to acquire the remaining
75 % equity interest of Antric GmbH (“Antric Transaction”), which was closed on August 31, 2023. The payment terms consisted of (i)
purchasing 75 % of the equity interest on the consideration of one euro (EUR 1); (ii) two hundred euros (EUR 200 ) for every Antric Unit (as defined by the agreement) sold by the Company for a period of ten years from August 31, 2023, subject to those terms and conditions under that Deed of Sale; (iii) a cash injection of five hundred thousand euros (EUR 500,000 ) into Antric GmbH by the Company; and (iv) a loan issued by the Company to Antric for seven hundred thousand euros (EUR 700,000 ) with interest payable to the
Company at a rate of 6.5 % per annum for a term of sixty (60 ) months.
After the transaction, Antric GmbH became a wholly-owned subsidiary of the Company. 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 Antric GmbH are recorded at the fair value as of
the date of the closing.
9
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net is summarized as follows:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
Accounts receivable
|
$
|
|
$
|
|
||||
|
Less: provision for doubtful accounts
|
(
|
)
|
(
|
)
|
||||
|
Accounts receivable, net
|
$
|
|
$
|
|
||||
The changes in the provision for doubtful accounts are as follows:
|
For the Nine Months Ended
September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Balance at the beginning of the period
|
$
|
|
$
|
|
||||
|
Additions
|
|
|
||||||
|
Write-off
|
(
|
)
|
(
|
)
|
||||
|
Foreign exchange
|
|
(
|
)
|
|||||
|
Balance at the end of the year
|
$
|
|
$
|
|
||||
NOTE 5 - INVENTORIES
Inventories are summarized as follows:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
Raw material
|
$
|
|
$
|
|
||||
|
Work-in-progress
|
|
|
||||||
|
Goods in transit
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
Inventories
|
$
|
|
$
|
|
||||
For the nine months ended September 30, 2023 and 2022, the impairment loss recognized by the Company for slow-moving inventory with cost lower than net realizable
value was and $587,027 ,
respectively.
10
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - PREPAYMENT AND OTHER CURRENT
ASSETS
Prepayment and other current assets consisted of the following:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
Advance to suppliers
|
$
|
|
$
|
|
||||
|
Deductible input value added tax
|
|
|
||||||
|
Receivable from third parties
|
|
|
||||||
|
Loans to a third party
|
|
|
||||||
|
Others
|
|
|
||||||
|
Prepayment and other current assets
|
$
|
|
$
|
|
||||
NOTE 7 - LONG-TERM INVESTMENT, NET
Equity method investments, net
The Company had the following equity method investments:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
Antric GmbH (1)
|
$
|
|
$
|
|
||||
|
Hangzhou Entropy Yu Equity Investment Partnership (Limited Partnership) (“Entropy Yu”) (2)
|
|
|
||||||
|
Hangzhou Hezhe Energy Technology Co., Ltd. (“Hangzhou Hezhe”) (3)
|
|
|
||||||
|
Able 2rent GmbH (DEU) (4)
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
| (3) |
|
| (4) |
|
Equity investment without readily determinable fair value
The Company had the following equity investment without readily determinable fair value:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
HW Electro Co., Ltd. (1)
|
$ |
|
$ |
|
||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|
11
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - INVESTMENT IN EQUITY SECURITIES
As of September 30, 2023, the balance consisted of the following two equity investments:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
MineOne Fix Income Investment I L.P
|
$
|
|
$
|
|
||||
|
Micro Money Fund SPC
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
For the nine months ended September 30, 2023 and 2022, the Company recorded downward adjustments of $1,166,125 and upward adjustments $19,052 for changes in fair value of both
equity investments, respectively.
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
At cost:
|
||||||||
|
Plant and building (1)
|
$
|
|
$
|
|
||||
|
Machinery and equipment
|
|
|
||||||
|
Leasehold improvement
|
|
|
||||||
|
Office equipment
|
|
|
||||||
|
Motor vehicles
|
|
|
||||||
|
Property, plant and equipment, gross
|
|
|
||||||
|
Less: accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Property, plant and equipment, net
|
$
|
|
$
|
|
||||
Depreciation expenses for the nine months ended September 30, 2023 and 2022 were $1,128,261 and $588,085 , respectively.
Impairment loss for the nine months ended September 30, 2023 and 2022 were $345,540 and , respectively.
NOTE 10 - INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
At cost:
|
||||||||
|
Land use right
|
$
|
|
$
|
|
||||
|
Software
|
|
|
||||||
|
Total
|
|
|
||||||
|
Less: accumulated amortization
|
(
|
)
|
(
|
)
|
||||
|
Intangible assets, net
|
$
|
|
$
|
|
||||
Amortization expenses for the nine months ended September 30, 2023 and 2022 were $83,367 and $328,142 , respectively.
12
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 - 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, Cenntro Electric and Antric Gmbh 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 nine months ended September 30, 2023 was $25,084 and income tax benefit for the nine months ended September 30, 2022 was $92,228 .
The components of losses before income taxes are summarized as follows:
|
For the Nine Months Ended
September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
US
|
$
|
|
$ |
|
||||
| Europe |
|
|||||||