UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the fiscal year ended December 31, 2023
For the transition period from __________ to __________
Commission File Number: 001-38544
(Exact name of registrant as specified in its charter)
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incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (732 )
820-6757
Securities registered pursuant to Section 12(b) of the 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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Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Note - Checking the box above will not relieve any registrant required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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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Accelerated filer
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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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check
mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
As of March 25, 2024, there were 30,828,795 of the
registrant’s common stock per value $0.0001 per share, issued and outstanding. The aggregate market value of the voting securities held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed
second fiscal quarter, June 30, 2023, was approximately $67,270,474 based upon the closing sale price of $2.89.
CENNTRO INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2023
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PART I
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ITEM 1.
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ITEM 1A.
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ITEM 1B.
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51 |
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ITEM 1C.
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ITEM 2.
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ITEM 3.
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ITEM 4.
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PART II
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ITEM 5.
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ITEM 6.
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ITEM 7.
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ITEM 7A.
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ITEM 8.
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ITEM 9.
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ITEM 9A.
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ITEM 9B.
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ITEM 9C.
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PART III
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ITEM 11.
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ITEM 12.
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ITEM 13.
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ITEM 14.
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PART IV
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ITEM 16.
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ABOUT THIS ANNUAL REPORT
Unless the context otherwise requires, the terms “Cenntro,” the “Company,” “we,” “us,” “our” and similar terms used in this Annual Report on Form 10-K refer (i), prior to the Redomiciliation (as defined herein) to
Cenntro Electric Group Limited (CEGL), an Australian corporation, and its subsidiaries, and (ii), following the Re-domiciliation, to Cenntro Inc., a Nevada corporation, and its subsidiaries (including Cenntro Electric Group Limited).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements regarding our business, financial condition, results of operations, and prospects. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions or variations of such words are intended to identify forward-looking statements but are not deemed to represent an all-inclusive means of identifying forward-looking
statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known
by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements.
Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the SEC. The SEC maintains a website (www.sec.gov)
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room
at 100 F Street, NE, Washington, D.C. 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K,
except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report on Form 10-K, which are designed to advise interested parties of the risks and factors that
may affect our business, financial condition, results of operations and prospects.
OTHER PERTINENT INFORMATION
This Annual Report contains our audited consolidated and combined financial statements and related notes as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, and
2022 (“Audited Financial Statements”). Our Audited Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Prior to the Redomiciliation and during the fiscal years ended
December 31, 2023, and 2022, the Company was subject to the Australian Corporations Act 2001 (Cth) (“Corporations Act”), which requires financial statements be prepared in accordance with Australian Accounting Standards (“AASB”), equivalent to
International Financial Reporting Standards (“IFRS”) and audited in accordance with Australian Auditing Standards (“ASAs”). The financial information in this Annual Report (including the information in the Audited Financial Statements) are not
financial statements for the purposes of the Corporations Act and is considered “non-IFRS financial information” under the Australian Securities and Investment Commission’s Regulatory Guide 230: ‘Disclosing non-IFRS financial information.’ Such
non-IFRS financial information may not be comparable to similarly titled information presented by other entities and should not be construed as an alternative to other financial information prepared in accordance with IFRS. Our combined financial
statements as of December 31, 2023 and for the years ended December 31, 2023, and 2022, included in this Annual Report, are the combined financial statements of Cenntro and present periods prior to the Redomicile (as defined below). We refer to
such financial statement as Cenntro’s “combined financial statements.” References to “dollars,” “$,” “U.S. dollars” and “USD” refer to United States dollars.
On December 8, 2023, the Company effected a 1-for-10 reverse stock split, where the Company’s common stock began to trade on a reverse split adjusted basis. No fractional shares were issued in
connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. All references herein to the outstanding stock of the Company have been adjusted to reflect this
reverse split.
On February 27, 2024, Cenntro Electric Group Limited, a public company incorporated under the laws of Australia (“CEGL”) completed the redomiciliation of CEGL in accordance with the scheme implementation
agreement, between CEGL and Cenntro Inc. (the “Redomiciliation”), a Nevada corporation (the “Company” or “Cenntro”). As a result of the Redomiciliation, the jurisdiction of incorporation of the ultimate parent company of the Cenntro
group of companies was changed from Australia to Nevada, and as a result of CEGL becoming a subsidiary of the Company.
The Redomiciliation was effected pursuant to a statutory scheme of arrangement under Australian law (the “Scheme”), whereby on February 27, 2024 (the “Implementation Date”), all of the issued ordinary shares
of CEGL were exchanged for newly issued shares of common stock of the Company, on the basis of one share of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) for every one ordinary shares of CEGL.
The Company’s Common Stock issued in the Scheme was exempt from registration under Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”).
Prior to the Redomiciliation, CEGL’s ordinary shares were registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and were listed on the Nasdaq Capital
Market (“Nasdaq”).
Pursuant to Rule 12g-3(a) under the Exchange Act, as of the Implementation Date, the Company is the successor issuer to CEGL, the Company’s Common Stock is deemed to be registered under Section 12(b) of the
Exchange Act, and the Company is subject to the periodic and current reporting requirements of the Exchange Act and the rules and regulations promulgated thereunder.
The Company’s Common Stock began trading on Nasdaq at the start of trading on the Implementation Date under the symbol “CENN”, the same symbol under which CEGL’s ordinary shares were traded on
Nasdaq prior to the Implementation Date. The new CUSIP for the Company’s Common Stock is 150964104.
Unless the context specifically states or implies otherwise references in this Annual Report on Form 10-K to “we,” “us,” the “Company”, and “Cenntro” refer to Cenntro Inc. and its subsidiaries
including:
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Able2rent GmbH (“Able2rent” when individually referenced), a German company and a 50% subsidiary of Cenntro Automotive Europe GmbH;
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Avantier Motors Company (“Avantier” when individually referenced), a Delaware company and a wholly owned subsidiary of Cenntro Electric Group, Inc.;
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Avantier Motors (Hong Kong) Limited (“Avantier HK” when individually referenced), a Hong Kong company and a wholly-owned subsidiary of Avantier;
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Cennatic Power, Inc. (“Cennatic” when individually referenced), a Delaware company and a wholly owned subsidiary of Cenntro Electric Group, Inc.;
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Cennatic Energy S. de R.L. de C.V. (“Cennatic MX” when individually referenced), a Mexican company and 99% subsidiary of Cennatic and 1% subsidiary of Cenntro Automotive Corporation;
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Cenntro Automotive Corporation (“CAC” when individually referenced), a Delaware company and a wholly-owned subsidiary of Cenntro Electric Group Limited ACN 619 054 938;
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Cenntro Automotive Europe GmbH (formerly Tropos Motors Europe GmbH or “TME”) (“CAE” when individually referenced), a German company and wholly-owned subsidiary of Cenntro Electric Group, Inc;
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Cenntro Automotive S.A.S. (“CA COL” when individually referenced), a Colombian company and wholly-owned subsidiary of CAC;
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Cenntro Elecautomotiv, S.L. (“CE SPAIN” when individually referenced), a Spanish company and wholly-owned subsidiary of CE EU;
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Cenntro Electric B.V. (“CEBV” when individually referenced), a Dutch company and wholly-owned subsidiary of Cenntro Electric Group, Inc.;
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Cenntro Electric CIC, SRL (“CEG DOM” when individually referenced), a Dominican company and 99%-owned subsidiary of Cenntro Automotive Corporation;
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Cenntro Electric Colombia S.A.S. (“CE COL” when individually referenced), a Colombian company and wholly-owned subsidiary of CAC;
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Cenntro Electric Group Limited ACN 619 054 938, (“CEGL” when individually referenced), an Australian company and wholly-owned subsidiary of Cenntro, Inc.;
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Cenntro Electric Group (Europe) GmbH, (formerly Blitz F22-1 GmbH) (“CEGE” when individually referenced), a German company and wholly-owned subsidiary of CEBV.;
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Cenntro Electric Group, Inc. (“CEGI” when individually referenced), a Delaware company and a wholly-owned subsidiary of Cenntro Electric Group Limited ACN 619 054 938;
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Cenntro EV Center Italy S.R.L. (“CEV Italy” when individually referenced), an Italian company and a wholly-owned subsidiary of CE EU;
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Cenntro Automotive Group Limited (“CAG HK” when individually referenced), a Hong Kong company and a wholly owned subsidiary of Cenntro Electric Group Limited ACN 619 054 938;
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Cenntro Technology Corporation (“CTC” when individually referenced), a California corporation and a wholly owned subsidiary of CEGI;
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Hangzhou Ronda Tech Co., Ltd. (“Ronda” when individually referenced), a PRC company and a wholly owned subsidiary of Cenntro Automotive Group Limited;
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Hangzhou Cenntro Autotech Co., Ltd. (“Autotech” when individually referenced), a PRC company and a wholly owned subsidiary of Cenntro Automotive Group Limited;
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Hangzhou Hengzhong Tech Co., Ltd. (“Hengzhong Tech” when individually referenced), a PRC company and a wholly owned subsidiary of Hangzhou Cenntro Autotech Co., Ltd.;
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Pikka Electric Corporation (“PEC” when individually referenced), a Delaware corporation and a wholly owned subsidiary of CEGI;
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Shengzhou Cenntro Machinery Co., Ltd. (“Shengzhou Machinery” when individually referenced), a PRC company and a wholly owned subsidiary of Hangzhou Cenntro Autotech Co., Ltd.;
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Simachinery Equipment Limited (“Simachinery Equipment” when individually referenced), a Hong Kong company and a wholly owned subsidiary of Cenntro Automotive Group Limited;
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Teemak Power Corporation (“Teemak” when individually referenced), Delaware company and a wholly owned subsidiary of Cenntro Electric Group, Inc.;
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Teemak Power (Hong Kong) Limited (“Teemak HK” when individually referenced), a Hong Kong company and a wholly-owned subsidiary of Teemak;
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Zhejiang Cenntro Machinery Co., Ltd. (“Zhejiang Machinery” when individually referenced), a PRC company and a wholly owned subsidiary of Cenntro Automotive Group Limited;
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Zhejiang Sinomachinery Co., Ltd. (“Zhejiang Sinomachinery” when individually referenced), a PRC company and a wholly owned subsidiary of Simachinery Equipment Limited;
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Jiangsu Tooniu Tech Co., Ltd. (“Tooniu” when individually referenced), a PRC company and a wholly owned subsidiary of Cenntro Automotive Group Limited;
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Zhejiang Xbean Tech Co. Ltd. (“Zhejiang Xbean” when individually referenced), a PRC company and a wholly owned subsidiary of Zhejiang Sinomachinery Co., Ltd.;
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PART I
| Item 1. |
Business
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Overview
We are an emerging designer, manufacturer, distributor, and service provider of commercial vehicles powered by either electricity or hydrogen energy sources. Our commercial
vehicles are designed to serve a variety of fleet and municipal organizations in support of city services, last-mile delivery and other commercial applications. As of December 31, 2023, we have developed six series of commercial vehicle models,
Metro®, Logistar™, Logimax™, Avantier™, Teemak™ and Antric One. We have successfully begun to produce and deliver these models into the global markets, apart from Logimax™.
We have also developed and introduced iChassis™: a programmable “smart” chassis that may be controlled by third-party software for various remote controlled or autonomous
driving applications. We continue to leverage our technology, vehicle development, and vehicle distribution capabilities with a goal to become a leading provider in the electric commercial vehicle (“ECV”) market. Our greater mission is to provide
commercial vehicles that may be powered by sustainable sources while building eco-chains to reduce carbon dioxide for a better environment and quality of life.
With the global trend toward reducing the number of internal combustion engine (“ICE”) vehicles, electric-battery and fuel cell technologies stand out as strong alternatives.
Prior to COVID-19, battery costs significantly decreased over the past decade. We expect that over the long term, prices will continue to fall. According to research service Bloomberg NEF (“BNEF”), lithium-ion battery pack prices decreased from
above $1,200 per kilowatt-hour in 2010 to $132/kWh in 2021. In real terms, this represented a decline of approximately 89%. Although battery pack prices have recently increased and may continue to increase in the near-term due to the rising price
of lithium as a result of COVID-19 and other factors, we anticipate that battery prices will continue to decrease in the long-term. BNEF further forecasts that by 2024, average prices are expected to fall to below $100/kWh, though such reductions
in average price may be delayed due to higher raw material prices in the near term. Additionally, while prices for key battery metals like lithium, nickel and cobalt have moderated slightly in recent months, BNEF expects average battery pack
prices to remain elevated in 2023 at $152/kWh (in real 2022 dollars). BNEF expects battery price to start dropping again in 2024, when lithium prices are expected to ease as more extraction and refining capacity comes online. Based on the updated
observed learning rate, BNEF’s 2022 Battery Price Survey predicts that average pack prices should fall below $100/kWh by 2026. By emphasizing investments in technology, supply-chains, vehicle distribution and aftermarket support, we have begun
making our own battery packs, preparing battery cell production, by building up vehicle distribution and service networks, and introducing our cloud-based parts distribution systems. As investment in battery technology continues to increase, we
believe these cost reductions outlined by BNEF will continue to improve the economics of battery-powered ECVs, like ours.
In addition to our investment in battery-technology, we have established an asset-light, distributed manufacturing business model through which we may distribute our vehicles
in unassembled semi-knockdown vehicle kits (“vehicle kits”) for local assembly in addition to fully assembled vehicles. Some of our vehicle models have a modular design that allows for local assembly in micro factory facilities that require less
capital investment. We manufacture our own vehicle kits for the Metro® in our facilities in China and leverage the economies of scale of and the supply-chain availability in China to manufacture vehicle kits and fully assembled vehicles in our
assembly plants in United States and Germany. We believe our distributed manufacturing methodology allows us to execute our business plan with less capital than would be required by the traditional, vertically integrated automotive model and, in
the long-term, drive higher profit margins.
Our distributed manufacturing model allows us to focus our efforts on the design of ECV models and related technologies while outsourcing various portions of the
manufacturing, assembly and marketing of our vehicles to qualified third parties, allowing the Company to operate with lower capital investment than traditional vertically integrated automotive companies. For the last several years, we relied
substantially on private label channel partners to assemble and distribute the Metro® from vehicle kits that we manufactured in our facilities. Our vehicle kits and in some cases fully assembled vehicles are completed by third party Original
Equipment Manufacturers (“OEMs”) manufacturing partners and, in the case of vehicle kits, assembled in our own facilities in North America and Europe. Our relationships with such third parties, our “manufacturing partners,” have allowed us to
forego expensive capital investments in our own facilities and operate within our historic working capital limitations. Throughout 2022 we began to re-align our distribution and marketing strategy away from relying mainly on third-party channel
partners to a distribution model that combines wholly-owned EV Centers with local dealers in order to improve overall operational efficiencies, product quality, brand value, market share, customer support and service. Throughout 2023 we have
relied on our local EV Centers to develop local dealer networks that directly sell to local customers in order to improve overall operational efficiencies, product quality, brand value, market share, customer support and service.
Additionally, to meet our anticipated demand in the United States, we have established local assembly facilities in Northern America as we have launched assembly facilities
in Jacksonville, Florida and Freehold, New Jersey. We are also in the of process establishing additional assembly facility in Ontario, California. Additionally, we expect that our acquisition of CAE (f.k.a. TME) in 2023 will further expand our
local assembly capacity in the European Union for production of some of our ECV models, including the Teemak™ series, Antric products, in addition to the Metro®.
Corporate Structure and History
Cenntro Inc. was incorporated in the State of Nevada on March 9, 2023, under The Nevada Revised Statutes (the “NRS”). Our principal executive offices are located at 501
Okerson Road, Freehold, New Jersey, 07728, and our telephone number is (732) 820-6757. Our current registered office and current principal place of business in Nevada are located at 701 S. Carson Street, Suite 200, Carson City, NV 89701. Our
website address is www.cenntroauto.com.
Cenntro is a holding company incorporated in Nevada and headquartered in New Jersey. As a holding company with no material operations of its own, Cenntro Inc. conducts
operations through its subsidiaries in the United States, Australia, Europe, Mexico, Hong Kong, the Dominican Republic, and in the People’s Republic of China, which we refer to as the PRC or China.
On November 5, 2021, our predecessor Naked Brand Group Limited (“NBG”) entered into an acquisition agreement with CAG to effect a combination through reverse merger which
occurred on December 30, 2021 (the “Combination”), whereby NBG purchased the Cenntro Shares to effect the Combination using 174,853,546 ordinary shares (the “Acquisition Shares”) serving as good and valuable consideration. Immediately after the
Closing of the Combination, we changed our name from “Naked Brand Group Limited” to “Cenntro Electric Group Limited” and the business conducted by Cenntro became the business conducted by the Company. The transaction was accounted for as a
reverse recapitalization in which Cenntro was determined to be the accounting acquirer.
On February 27, 2024, our predecessor CEGL, a public company incorporated under the laws of Australia completed the Redomiciliation of CEGL. As a result of the Redomiciliation, the jurisdiction
of incorporation of the ultimate parent company of the Cenntro group of companies was changed from Australia to Nevada, and as a result of CEGL becoming a subsidiary of the Company.
Prior to June 30, 2022, the Company historically qualified as a ‘foreign private issuer’ for purposes of reporting under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) and filing registration statements under the Securities Act of 1933, as amended (the “Securities Act”). As of June 30, 2022, or the end of the Company’s second fiscal quarter in 2022, the Company ceased to qualify as a “foreign
private issuer” as defined in Rule 405 under the Securities Act and Rule 3b-4 under the Exchange Act. Accordingly, effective as of January 1, 2023, the Company became obligated to file reports with the SEC as a “domestic issuer” under the
Securities Act.
The following diagram illustrates our current corporate structure as of the date of this report:
On March 22, 2013, Cenntro Motor Corporation (“CMC”) was registered in the State of Delaware. Mr. Peter Wang was the founder and sole director of CMC. CMC conducted business to design and develop electric utility vehicles.
On January 28, 2014, Cenntro Automotives Group Limited (“CAG BVI”) was formed in British Virgin Islands to conduct electric vehicle related business worldwide outside of U.S.A. On January 29,
2014, CAG BVI acquired CMC. CMC changed its name from “Cenntro Motor Corporation” to “Cenntro Motors Corporation” on August 5, 2014, and further changed from “Cenntro Motors Corporation” to “Cenntro Automotive Corporation” (“CAC”) on October 7,
2014.
On July 20, 2015, CAG BVI acquired Sinomachinery Equipment Limited, a Hong Kong corporation with its manufacturing subsidiary in PRC, Zhejiang Sinomachinery Co., Ltd. (“Zhejiang
Sinomachinery”). Sinomachinery Equipment Limited was renamed Simachinery Equipment Limited on November 2, 2015. Zhejiang Sinomachinery registered Zhejiang Xbean Tech Co. Ltd. in PRC on December 28, 2016.
On August 22, 2014, Cenntro Motors Group Limited was formed in Cayman Islands, which was renamed as Cenntro Automotive Group Limited (“CAG Cayman”) on October 15, 2014.
On February 15, 2016, CAG Cayman formed its subsidiary, Cenntro Automotive (Hong Kong) Limited (“CAG HK”) in Hong Kong. On March 2, 2016, CAG HK changed its name to “Cenntro Automotive Group
Limited”. Subsequently CAG HK took over all Hong Kong and mainland China subsidiaries of CAG Cayman.
On May 6, 2015, CAG HK registered Hangzhou Cenntro Autotech Co., Ltd. (“Autotech”) in PRC.
On May 26, 2016, CAG Cayman merged with CAG BVI and CAG Cayman being the surviving entity. After the merger, all shareholders of CAG BVI automatically became the shareholders of CAG Cayman and
the percentage of ownership unchanged. CAG Cayman inherited and took over all existing rights, assets and liabilities of CAG BVI. Subsequently CAG BVI was closed and cancelled. CAG Cayman became the controlling parent company to continue carrying
out the business plan and operations.
In August 2016, Autotech acquired 100% equity interest of Hangzhou Hengzhong Tech Co., Ltd. (“Hengzhong Tech”) in PRC.
On June 5, 2017, CAG HK registered Hangzhou Ronda Tech Co., Ltd. (“Ronda”) in PRC.
In January 2018, Autotech acquired 100% equity interest of Shengzhou Cenntro Machinery Co., Ltd. (“Shengzhou Machinery”) in PRC.
On December 19, 2018, CAG HK registered Zhejiang Tooniu Tech Co., Ltd. (“Tooniu”) in PRC, which was relocated and renamed Jiangsu Tooniu Tech Co., Ltd. on November 24, 2022.
On January 20, 2021, CAG HK registered Zhejiang Cenntro Machinery Co., Ltd. (“Zhejiang Machinery”) in PRC to take over and replace Shengzhou Machinery, which is now dormant.
On March 3, 2022, Cenntro Electric Group, Inc. (CEGI) acquired 100% shares of Blitz F22-1 GmbH, a shell company registered on January 13, 2022 in Germany, and then renamed it Cenntro Electric
Group (Europe) GmbH (“CEGE”). On November 24, 2023, CEGI transferred 100% shares of CEGE to CEBV.
On March 23, 2022, CEGI acquired 65% of equity interest in Tropos Motors Europe GmbH (“TME”), a wholly owned subsidiary of Mosolf, and renamed TME to Cenntro Automotive Europe GmbH (“CAE”). On
January 31, 2023, CEGI further acquired from Mosolf the remaining 35% equity interest in CAE.
On May 23, 2022, we dissolved both of our previously dormant Nevada subsidiaries Naked Brand Group, Inc. and Naked Inc.
On June 8, 2022, Cennatic Power, Inc. ("Cennatic”) was incorporated under the laws of the state of Delaware as a wholly-owned subsidiary of Cenntro Automotive Corporation. Cennatic in turn
incorporated Cennatic Energy, S. DE R.L. DE C.V. in Mexico on August 24, 2022. Cenntro Automotive Corporation later transferred all shares in Cennatic Power to Cenntro Electric Group, Inc. on September 30, 2022.
On November 30, 2022, CAC set up a 99% subsidiary Cenntro Electric CICS, S.R.L. in Dominican Republic.
On December 12, 2022, CEGI incorporated its fully subsidiary Cenntro Electric B.V. (“CEBV”) in the Netherlands. CEBV further established a wholly-owned subsidiary in Turkey named Cenntro
Elektromobilite Araçlar A.Ş on February 21, 2023.
On December 16, 2022, CEGE invested in Antric GmbH (“Antric”) and became a 25% shareholder of Antric. On August 31, 2023, CAE acquired the other 75% shares of Antric from Eric Diederich and
Moritz Heibrock, the original founders of Antric.
On January 16, 2023, CAC incorporated its wholly-owned subsidiary Cenntro Automotive S.A.S. in Colombia.
On January 31, 2023, CEGI incorporated its wholly-owned subsidiary Teemak Power Corporation in the state of Delaware. On May 17, 2023, Teemak formed its wholly-owned subsidiary Teemak Power
(Hong Kong) Limited in Hong Kong.
On February 14, 2023, CEGI acquired all shares of Avantier Motors Corporation, a company incorporated on November 17, 2017, in the state of Delaware. Avantier has not been operating since
incorporation. On March 13, 2023, Avantier formed its wholly-owned subsidiary Avantier HK in Hong Kong.
On March 29, 2023, CAC incorporated its wholly-owned subsidiary Cenntro Electric Colombia S.A.S. in Colombia.
On May 8, 2023, CEBV established a wholly-owned subsidiary in Italy named Cenntro EV Center Italy S.R.L.
On May 19, 2023, CEBV acquired 100% of equity interest in Cenntro Elecautomotiv, S.L. in Spain from an individual Don Yong Wang.
On August 3, 2023, CEGI incorporated its wholly-owned subsidiary Pikka Electric Corporation in the state of Delaware.
On August 24, 2023, CEGI incorporated its wholly-owned subsidiary Cenntro Technology Corporation in the state of California.
On March 9, 2023, Cenntro Inc. was incorporated under the laws of the state of Nevada.
On February 27, 2024, pursuant to the Redomiciliation CEGL became a wholly-owned subsidiary of Cenntro Inc. As a result of the Redomiciliation, the jurisdiction of
incorporation of the ultimate parent company of the Cenntro group of companies was changed from Australia to Nevada, and as a result of CEGL becoming a subsidiary of the Company.
Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign Companies Accountable Act (the “HFCAA”), if the Public Company Accounting Oversight Board (the “PCAOB”), is unable to inspect an issuer’s
auditors for three consecutive years, the issuer’s securities are prohibited to trade on a U.S. stock exchange. The PCAOB issued a Determination Report on December 16, 2021 (the “Determination Report”) which found that the PCAOB was unable to
inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special
Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. Furthermore, the Determination Report identified the specific registered public accounting firms which are subject to these
determinations. On December 23, 2022, United States Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”), which amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any
U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. If trading of our shares of Common Stock is prohibited under the HFCA Act in the future because the PCAOB determines that it
cannot inspect or fully investigate our auditor at such future time, Nasdaq may determine to delist our Common Stock.
On August 26, 2022, the PCAOB signed the SOP Agreements with the CSRC and China’s Ministry of Finance. The SOP Agreements established a specific, accountable framework to
make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law.
On December 15, 2022, the PCAOB announced its completion of inspections and investigations of PCAOB-registered public accounting firms headquartered in mainland China and
Hong Kong in 2022. Accordingly, the PCAOB vacated its Determination Report. As a result, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA for the fiscal year ended December 31, 2022, after we file our annual
report on Form 10-K for such fiscal year. However, whether the PCAOB will continue to conduct inspections and investigations of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely to its satisfaction
is subject to uncertainty and depends on several factors out of our, and our auditor’s, control. Such factors include positions taken by authorities of the PRC. We expect the PCAOB will continue to demand complete access to inspections and
investigations to accounting firms headquartered in mainland China and Hong Kong in the future and the PCAOB has stated that it has made plans to resume regular inspections in early 2023 and beyond.
Under the HFCAA, the PCAOB is required to make its determination on an annual basis with regards to its ability to fully inspect and investigate accounting firms based in
mainland China and Hong Kong. The possibility of being a “Commission-Identified Issuer” under the HFCAA and risk of delisting could continue to adversely affect the trading price of our securities. Should the PCAOB again encounter impediments to
inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, the PCAOB will issue new determinations under the HFCAA as and when appropriate.
Our current auditor, GGF CPA LTD (“GGF”), (fka Guangzhou Good Faith CPA LTD), the independent registered public accounting firm that issues the audit report included in this
annual report on Form 10-K, as a firm registered with the PCAOB (PCAOB ID:2729), is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. GGF,
whose audit report is included in this report, is headquartered in Guangzhou, China. While our auditor is based in the PRC and is registered with PCAOB and subject to PCAOB inspection, in the event it is later determined that the PCAOB is unable
to inspect or investigate completely the Company’s auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading of our securities to be prohibited under the HFCA Act, and
ultimately result in a determination by a securities exchange to delist the Company’s securities. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and resumed regular inspections in 2023 and beyond, as
well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCA Act, if needed.
Transfers of Cash to and from Our Subsidiaries
Cash transfers through the Company since inception are primarily attributed to: 1) capital contribution from CEGL to its subsidiaries; 2) shareholder loans from CEGL to its
subsidiaries; or 3) payment from one group company to another through intercompany transactions. During the year ended December 31, 2023, the total material cash transfer of other assets within the organization was approximately USD$23 million.
The transfer consisted of approximately $15.0 million loan from CEGL, to Cenntro Electric Group Inc., a wholly owned Delaware subsidiary ("CEGI)"), and approximately $8.0 million loan to Cenntro Automotive Corporation, a wholly owned Delaware
subsidiary ("CAC"). There was no cash amount transferred from the operating subsidiaries to the holding companies during the year 2023 in the form of advances, dividends, or other assets. As of the date of this report, none of our operating
subsidiaries have made any dividend or distributions to the holding company or through the intermediate holding companies, or to investors including U.S. investors.
Our subsidiaries are permitted to pay dividends to us only out of their accumulated profits. Additionally, each of
our subsidiaries in the PRC must make appropriations from after-tax profit to a statutory surplus reserve fund. The reserve fund requires an annual appropriation of 10% of after-tax profit (determined under accounting principles generally
accepted in the PRC at each year-end) after offsetting accumulated losses from prior years until such reserve reaches 50% of the subsidiary’s registered capital. The reserve fund can only be used to increase the registered capital and eliminate
further losses of the respective companies under PRC regulations. These reserves are not distributable as cash dividends, loans or advances. A PRC company cannot distribute any profits until any losses from the prior fiscal years have been
offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. Total restrictions placed on the distribution of the Company’s PRC subsidiaries’ net assets were approximately
$66.6 million, or 54.6% of the Company’s total consolidated net assets as of December 31, 2023.
In addition, under the regulations of the State Administration of Foreign Exchange of the PRC (“SAFE”), Renminbi is not convertible into foreign currencies for capital
account items, such as loans, repatriation of investments, and investments outside of China, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made.
Our Industry
The ECV Market
According to a January 2022 report by Allied Market Research, the global EV market was valued at approximately $163.01 billion in 2020 and is projected to reach approximately
$823.75 billion by 2030, representing a compound annual growth rate of 18.2% from 2021 to 2030. Factors such as increases in demand for fuel-efficient, high-performance and low-emission vehicles, along with stringent government rules and
regulations toward vehicle emissions are expected to drive the growth of the electric vehicle market. According to Statista, in 2024 the ECV market is projected to reach revenues of US$623.3bn globally. Statista projects that it is expected the
ECV market will demonstrate a steady annual growth rate (CAGR 2024-2028) of 9.82% and projected market volume of US$906.7bn by 2028.
Many governments around the world, including the United States, China, Germany, and various other European countries, are regulating vehicle emissions and fuel economy
standards and offering incentives to commercial and government operators to purchase more energy efficient vehicles. The mitigation of greenhouse gas emissions from ICE vehicles is an integral part of various nations’ strategies to meet the
objectives of the 2015 Paris Agreement, which the United States rejoined in February 2021. As of the date of this report, over 25 countries have made announcements regarding their intention to phase out ICE vehicles include the following:
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China: End production and sales of ICE vehicles by 2040;
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France: Ban the sale of ICE cars by 2040;
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Germany: No registration of ICE vehicles by 2030 (passed by legislature); cities can ban diesel cars;
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India: Official target of no new ICE vehicles sold after 2030; Incentive program in place for EV sales;
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Japan: Incentive program in place for EV sales; and
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United Kingdom: Ban the sale of new ICE cars starting in 2030.
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In the United States, the Biden administration announced plans to put the United States on a path to achieve net-zero emissions, economy-wide, by no later than 2050. Several
states in the United States have also announced the ban of new ICE vehicles including California by 2030 and New York by 2035. In 2021, President Biden signed an executive order that mandates the
replacement of all civilian federal vehicles, over 600,000 vehicles, with U.S.-made clean and zero-emission vans, trucks and passenger vehicles. The Biden administration has also announced a goal of building more than 500,000 EV chargers across
the United States and has expressed its support for an expansion of federal tax credits and incentives targeted at EVs and EV manufacturing. In August 2021, the Biden Administration announced that it had set the goal for half of all new vehicles
to be electric by 2030, as part of a plan that also includes construction of a nationwide network of charging stations and various financial incentives to consumers and auto industry companies. In November 2021, President Biden signed the $1.2
trillion bipartisan infrastructure bill into law, which bill includes $7.5 billion for electric vehicle charging infrastructure, $3 billion to support the domestic battery material processing industry and $3 billion to support the development of
domestic battery manufacturing and recycling facilities. We believe the Biden administration’s strong support for ECVs and renewables will encourage an even more rapid shift from ICEs to ECVs in the United States, particularly in the commercial
vehicle market. In August 2022, the Inflation reduction Act was signed into law marking the most significant action the U.S. Congress has taken to invest in clean energy and climate change. The Inflation Reduction Act, among other actions
includes a federal tax credit for up to 30% of the sales price for commercial ECVs. The Inflation Reduction Act also allocates significant incentive funds under the Diesel Emission Reduction Act program for use in the commercial EV market.
Further, in February 2023, the Biden Administration announced the latest set of actions aimed at further enhancing the U.S. EV Charging Infrastructure network.
Incentive programs and new regulations affecting passenger and commercial vehicles vary by country. However, there is strong sentiment to reduce global greenhouse gas
emissions from leading governments. For heavy-duty vehicles, the European Union mandated a 15% reduction in CO2 emissions (from 2019 levels) by 2025 and a 30% reduction target (from 2019 levels) by 2030. Also, by 2025, manufacturers will be
required to ensure that at least a 2% market share of the sales of new vehicles is made up of zero-and-low-emission vehicles to counteract steadily increasing road traffic emissions. For light-duty vehicles, the European Union has mandated a 15%
reduction in CO2 emissions by 2025 and a 31% reduction target by 2030. The European Union may impose financial penalties on vehicle manufacturers for failure to achieve certain CO2 emission targets imposed on such manufacturers, with such
penalties scaling upward based on the level of CO2 emission exceedance for their vehicles. We believe that increasing government regulations and incentives, together with shifting consumer preferences, will encourage significant growth in the
market for ECVs.
Last-mile Delivery and City Services
The last-mile delivery market in the United States and the European Union is quickly expanding, driven by the rapid growth in the e-commerce industry resulting from consumer
preference for faster deliveries, significant increases in online purchases resulting from COVID-19 and governmental focus on low emission urban logistics models. We believe consumer behavior will accelerate the online transformation of retail
businesses and the expected need for efficient last-mile delivery ECVs.
We believe there is a growing sustainability trend among companies to reduce their carbon footprint and incorporate ECVs into their commercial delivery fleets. A number of
well-established companies, such as Amazon, FedEx, UPS and Walmart, have made announcements about their intentions to reduce CO2 emissions and/or become carbon-neutral by a specified future date. A number of these companies have committed to
purchase large quantities of ECVs (some of which are not yet commercially available) to transition their fleets over the next several years, with a focus on enhancing their last-mile delivery services, as well as lowering their operating costs,
all while reducing their carbon footprint.
Our Products
As an electric commercial vehicle (“ECV”) provider, we have developed a full line of vehicle models to meet the market demand and fit various commercial needs and
applications. As of the date of this report, we offer six series of commercial vehicle models that are ready to be sold on the global markets apart from Logimax™.
The Metro®
The Metro® is a customizable ECV used in commercial applications such as city services (i.e., street cleaners, firetrucks and garbage trucks) and last-mile delivery. The
Metro® was “born electric,” meaning that, unlike many other ECVs that are converted from existing ICE designs, the Metro® was purpose-built from inception to be highly energy efficient and providing for a greater range, implementing a number of
proprietary design elements, including a lightweight structure and efficient power system.
The Metro® chassis is designed with a unique cab-forward feature. By moving the cab of the Metro® forward over the front wheels, we have been able to increase its cargo
volume ratio and decrease the cost of materials used in its manufacturing. In addition, the chassis of the Metro® has been designed to support a variety of fittings, allowing the vehicle to be used for a number of different applications, which we
believe is a feature rarely offered by other ECV manufacturers and gives us the opportunity to market the Metro® to a wider array of potential end-users. We believe our lightweight chassis structure and cab-forward design of the Metro® enable
greater payload and cargo volume with lower vehicle weight and smaller vehicle size, compared to other like-size ECVs. Our modular vehicle design enables us to manufacture a wide range of variations of Metro® models around a uniform chassis
structure.
The Metro® complies with all applicable vehicle safety standards related to light-duty commercial vehicles in North America and the Asian and European countries in which it
is sold. The Metro® has passed N1 homologation requirements in Asia. We have obtained EU Small Series Type Approval for our new model of the Metro® under N1 vehicle classification, which includes an annual sales limitation of 1,500 units into the
European Union market. In the United States, the Metro® qualifies as a Neighborhood Electric Vehicle (an “NEV”) with low-speed modifications, and, as a result, is not required to pass the United States high speed front-end impact test. NEVs are
built to have a top speed of 25 miles per hour (40 km/h) and have a maximum loaded weight of 3,000 lbs. (1,400 kgs) and are classified by the United States Department of Transportation as low-speed vehicles. This qualification generally limits
the Metro® to roads with posted maximum speed limits of 35 miles per hour (56 km/h). Under the EU Small Series N1 Type Approval, the Metro® does not have comparable speed limitations in the European Union.
Logistar™ Series
Logistar™ Series are the vehicles for on-road applications with the gross vehicle weight rate (“GVWR”) under 19,500 lbs. It consists of Logistar 100 (LS100), Logistar 200
(LS200), Logistar 260 (LS260), Logistar 300 (LS300), and Logistar 400 (LS400). LS100, LS200, and LS260 meet with European Union regulatory requirement and are mainly targeted for European markets, and LS300 and LS400 meet with U.S. regulatory
requirements and are mainly targeted for North American markets.
The Logistar™ 400 is a medium-duty electric commercial truck designed to meet the delivery requirements of tier 1 logistics companies as well as upfitters. The Logistar™ 400
is a U.S. Class 4 (over 14,000 lbs.) truck under U.S. truck classification. It can be configured as a delivery van or a shuttle bus or equipped with a cargo box or a truck bed. In addition, the Logistar™ 400 can be upfitted for different
applications of city service, such as a vending truck, fire truck, garbage truck and repair truck. We expect that the most common use of the Logistar™ 400 will be for intra-city delivery. The Logistar™ 400 has a cargo volume that is over three
times the cargo volume of the Metro® and a payload capacity more than seven times the payload capacity of the Metro®. As of the date of this report, the homologation status of the Logistar™ 400 has been completed. On June 23, we received
certification for our LS400 by the California Air Resources Board (“CARB”) as a zero-emission vehicle in the state of California. The certification is awarded to vehicle manufacturers who meet specific emissions standards in compliance with
California Air Resources Board (“CARB”) regulations. In December 2022, the LS400 previously received its certificate of conformity from the United States Environmental Protection Agency (“EPA”). Because we received credentials from both CARB and
the EPA, we can now sell our LS400 in every state throughout the U.S.
In December 2023, the LS400 received approval from the California Air Resources Board (“CARB”) to participate in California’s Hybrid and Zero-Emission Truck and Bus Voucher
Incentive Project (“HVIP”) in the state of California, providing a $60,000 point-of-sale voucher for the Company’s customers. The LS400’s certification as a zero-emission vehicle cleared the way for the LS400 to be approved for participation in
the HVIP.
The approval to participate in the HVIP program is awarded to vehicle manufacturers, like Cenntro, that meet specific on-road zero-emission powertrain standards in
compliance with CARB regulations. California’s HVIP incentive program is intended to advance adoption and commercialization of fleet vehicles, helping to reduce the total cost of ownership of hybrid and zero-emission commercial vehicles in the
state of California.
We have also designed the Logistar™ 200, a multi-purpose vehicle customized for transporting light goods specifically for the EU market. The Logistar™ 200 is
designed to qualify as an N1 category truck in the European Union and is available in three models: (i) as a van, (ii) as a flat-bed truck, and (iii) as a cargo truck. Each of the three models is specialized for last-mile delivery, city delivery and city services. We completed homologation of the Logistar™ 200 in the European Union in January 2022 and it is commercially available in the EU
market, and countries that adopt EU vehicle homologations.
The Logistar™ 260, or LS 260, is positioned above the Logistar 200 and
defines a new size in the van segment. With dimensions of 5.50 meters long, 1.85 meters wide and a height of 2 meters, the LS 260 offers a cargo space of 7.5 cubic meters or 265 cubic feet, two side loading doors and convenient rear doors with
a loading opening of up to 270°. The load volume, payload and range of the Logistar™ 260 will be targeted for a wide range of applications in the trades, couriers, express and parcel services, logistics solutions, and facility management. As
of the date of this report, the LS 260 passed all homologation tests in accordance with European Union (EU) standards and requirements and receive EU type approval.
The Logistar™ 100, or LS 100, is a versatile, compact light cargo van purpose-built to serve diverse commercial applications, especially in population-dense urban areas.
The vehicle has a range of 74 miles (118 kilometers) (WLTP), 1151 lbs. (525 kg) of payload, and a cargo capacity of 73.3 cubic feet (2 cubic meters). The combination of its cargo space and multiple entry points at the side and rear of the vehicle
makes the LS100 ideal for multiple applications, including package delivery, trade and maintenance services, hospitality, and catering. The LS100 completed all homologation tests in compliance with the standards and requirements of the European
Union (EU) in July and received type approval from the EU in August. As a result, and as of the date of this report, the LS100 is eligible for sale in all 27 EU member states and other countries that adopt EU vehicle homologation standards.
In January 2023, we introduced the Logistar™ 300 (LS300) in a full-size van segment. The LS 300 sets a new benchmark for all electric commercial work trucks. This model
boasts 370 cubic feet of storage space and a payload of 3307 lbs. along with a range of 270 miles. The vehicle will also be made available either as a van or as cab chassis that may be customized.
LogiMax Series
The LogiMax Series includes vehicle models of U.S. Class 8 with GVWR over 26,000 lbs. There are two vehicle models within this series which include: the LogiMax 800 (LM800)
and LogiMax 864H (LM864H). The LM800 is powered by electricity while the LM864H is hybrid model powered either by electricity or hydrogen. We are in the process of ensuring that both the LM800 and LM864H will meet U.S. regulatory requirements for
North American markets.
The LogiMax 864M (LM864H) is a 6x4 semi-tractor hydrogen fuel cells. The LMH864 has a total weight of 25 tons and is designed for short- and long-haul applications. The
semi-tractor’s electric motors are fully powered by high-efficiency sustainable hydrogen fuel cells with eight 210-liter banks that convert hydrogen into electric power by combining it with oxygen, producing only water as byproduct. Additionally,
the LMH864 has an operational range and refueling time comparable to many diesel trucks making it suitable for longer distances and heavy, energy-intensive responsibilities in areas where battery charging is limited. The LMH864 prototype model
represents an additional zero emissions product choice from Cenntro that is performance-heavy despite also being a sustainable vehicle.
Teemak™ Series
Our Teemak™ Series includes two vehicle models, The Teemak™ and Teemak™ TB. The Teemak™ is designed for off-road applications for utility or leisure use. The Teemak™ TB is
designed for agricultural and forestry uses and currently meets all EU vehicle type regulatory requirements.
Avantier™ Series
The Avantier™ Series are our micro ECV models. This series includes two vehicle models, the Avantier™ c and the Avantier™ α. They are smaller in size and are purpose-build for dense urban uses. The Avantier™ c is a two-seater while Avantier™ α is a
four-seater ECV.
Antric One
The Antic One is a cargo bike designed for last mile city logistics. It is especially designed for- and useful in-narrow city streets and pedestrian zones. One unique selling
proposition for the Antic One compared to other vehicles is, that the Antic One is a cargo-bike. Thus, no driver’s license is required to operate it and the Antic One is permitted to use bike lanes, what makes the vehicle particularly agile in
dense city centers. Another advantage includes the Antic One’s exchangeable batteries. A battery-swap for the Antic One takes less than a minute and each swap enables the driver to ride for approximately 50 km. Compared to other cargo bikes the
Antric One has a robust construction, cargo volume and payload (>2m3 volume, 270kg payload in the container). The production for Antic One began in November 2022.
The production of our advanced version of the Antric One commenced in February 2024. We anticipate the advanced version of the Antric One to be less expensive to produce while maintaining its high quality. We intend to include new features to
this second generation Antic One that will make riding easier and more comfortable.
Cenntro iChassis™
As a technology leader, we developed Cenntro iChassis™, which was previously referred to as the ePortee™, an open-platform and programmable (‘smart’) chassis product. The
iChassis™ is designed to be a basic modular building block for use by automakers and special vehicle upfitters in the design of automated or autonomous driving vehicles.
Through our advancements in vehicle digitization and digital control (‘drive-by-wire’) capabilities, we commercially launched this product as an industry pioneer. The Cenntro
iChassis™ allows third-party developers to integrate detection devices (i.e., lidar, radar, ultra-sound, infrared and other sensory devices) and third-party or proprietary decision-making software to permit vehicles based on the programmable
chassis to be driven autonomously. We sold 303 iChassis in 2023.
Our Product Development and Manufacturing Process
Our capability of vehicle development is at the core of what we believe positions us to effectively compete in the ECV market. Since inception in 2013 through December 31,
2023, we have spent approximately USD$90 million in research and development activities related to our operations, developing various technologies and products, including the following:
Vehicle Development
We have allocated resources and efforts for vehicles that we believe the market demands. We have developed eight vehicle models: Metro®, LS100, LS200, LS260, LS300, LS400,
Teemak™, and Avantier™. In addition we have introduced our LM864H hydrogen fuel-cell powered semi-tractor. Moreover, we are in the process of developing the LS450 (class 4) and LM800 (class 8) electric vehicle models for the US market . We
believe successful vehicle development will put us in a position to become a leading ECV provider who offers a full line of electric and hydrogen powered commercial vehicles.
Vehicle Charger Development
We have developed level 2 AC chargers (7kw/10kw) and level 3 DC chargers (120kw), which have received EU CE and US ETL certificates. These chargers will support the charge of
the vehicles that we sell to our customers as well as the vehicles that are made by other auto manufacturers as long as they meet the EU (Mennekes/CCS2) and USA (J1772/CCS1) standards.
Electric vehicle chargers are essential for ECV users to charge their ECV for daily use. Many ECV users require to install their own charging stations instead of relying on
public charge stations. It would be more convenient and more practical if our customers could purchase their vehicle chargers directly from us when they buy ECVs from us. It will be guaranteed that the charger will work with our vehicle
seamlessly.
Manufacturing
We have established an asset-light manufacturing business model under both a distributed manufacturing model and original equipment manufacturing (“OEM”) model. Our
distributed manufacturing model focuses on the production of semi-knock down vehicle kits from our centralized manufacturing facilities which are then distributed for local final assembly. Alternatively, we work with tier-one automakers under our
OEM model who produce completed vehicles for us that meet our design and specifications.
Under our distributed manufacturing model, some of our vehicle models have a modular design that allows for local assembly in small factory facilities which require less
capital investment. We manufacture our own vehicle kits in our facilities in China where we leverage the economies of scale coupled with our matured supply-chain to efficiently manufacture vehicle kits.
Under our OEM manufacturing model, we contracted well established third-party automobile manufacturers, such as Dongfeng Motors Corporation, Chery, and Beijing Auto, to
manufacture vehicle kits and completed vehicles for us. In some cases, we provide technology and vehicle modules to the OEM contractors.
We believe our distributed manufacturing and OEM manufacturing methodologies allows us to execute our business plan with less capital than would be required by the
traditional, vertically integrated automotive model and, in the long-term, drive higher profit margins.
As of the date of this report, we have established and built seven manufacturing and/or assembly facilities, in Jacksonville, Florida, Ontario, California and Freehold, New
Jersey in the United States, Changxing and Yangzhong in China, Herne in Germany, and Monterrey in Mexico.
Our Distribution and Service Infrastructure
We have established our distribution and service infrastructure, which consists of our wholly owned local Electric Vehicle Centers (“EV Centers”), local dealer networks,
parts fulfillment centers, and local service providers. We continuously develop, expand, and improve our distribution and service infrastructure. We believe that having a good and capable distribution and service infrastructure is essential for
our business. We have invested many resources to build this distribution and service infrastructure. We believe a wholly owned distribution and service infrastructure is important to an automobile manufacturer like us. To that end, we have
decided to build our own distribution and service infrastructure after we secured sufficient capital to do so.
We distribute and sell our products directly by our corporate sales department or by our local EV Centers. We also distribute and sell our products through our local dealer
networks in Europe and in the United States, which are developed by our local EV Centers.
We provide our services through our local EV centers, our local dealers, or our local service providers. To support our local service providers or dealers, our local EV
centers provide training and support to our local dealers and local service providers.
To distribute parts for vehicle maintenance, repair, and warranty handling, we have setup two parts fulfillment centers, one in Dusseldorf, Germany and on in Freehold, New
Jersey in the United States. Up on the order or request from local dealer or service provider, our central parts warehouse in China or our local parts fulfillment centers will fulfill orders or requests and delivery the parts to local dealers or
service providers.
Our local EV Centers are an essential part of our distribution and service infrastructure and they are Cenntro wholly owned subsidiaries, which sign up local dealers and
service providers to become Cenntro dealers and Cenntro service providers. By establishing these local dealers and service networks regionally around our EV Centers, we believe we can more seamlessly handle local sales and provide local services.
Aside from developing local dealers and service providers and maintaining good relationships with them, our local EV Center will also handle local corporate users, such as national fleets. As of December 31, 2023, we have established eleven EV
Centers in Dusseldorf, Germany, Warsaw, Poland, Budapest, Hungary, Istanbul, Turkey, Barcelona, Spain, Casablanca, Morocco, Hangzhou, China, Santo Domingo, Dominican Republic, and Jacksonville, Florida and Freehold, New Jersey in the United
States.
Our Parts Distribution System (“PARDISYS”)
We have invested resources into our cloud-based parts distribution system because we believe an effective and efficient parts distribution system is important for vehicle
after-market support and customer satisfaction. Through our cloud-based parts distribution system we globally provide and timely deliver spare-parts to our service providers and customers. The cloud-based system also keeps our parts inventory
leaner and more responsive to better manage our working capital more efficiently.
In order to satisfy that goal, we established two production-side parts warehouses in Changxing, China and Yangzhong, China which store our produced parts that can be locally
sourced on a global scale. Our warehouses can send the parts globally in response to orders from our website that customers can place. Based on the local demand data, our cloud-based parts distribution system will make determinations on when to
send certain parts from production-site warehouses to remote warehouses for quicker local delivery. As of December 31, 2022, we have established two spare-parts fulfillment warehouses in Dusseldorf in Germany, and Freehold, New Jersey.
Our Battery Technology and Production
One of the key components in the EV industry is the battery. The battery is a key differentiator not just because of associated costs of manufacturing it, but because of
technological investments needed to extend the range and safety of EV operation.
To that end, we have developed technology for an advanced lithium iron phosphate (“LFP”) battery that will be safer while lowering overall cost, and providing a longer
battery life. Our advanced LFP battery technology will provide EVs a large power output that is fast charging without causing damage the battery. With a large battery cell capacity, it can support both commercial vehicles and the need for large
capacity power storages. In order to build out this LFP battery we use lithium iron phosphate (LiFePO4) as cathode, graphite as anode, and a proprietary electrolyte. We have purchased the battery production line, that is designed and made by a
third-party equipment designer and manufacture from China to our specifications.
We have leased a newly constructed battery manufacturing facility in Monterrey, Mexico to produce our advanced LFP battery for our ECVs and energy storage applications. As of
the date of this report, the manufacturing and acquisition of our production equipment is complete and production equipment has been shipped to the Monterrey facility. We expect our production line installation to be installed in quarter two of
2024.
Sales and Marketing
We believe that the quality and reputation of our products and our distribution and service infrastructure will support the company’s goals to retain and attract new
customers.
We distribute and sell our products to our end-customers through our wholly-owned EV Centers and through our network of Cenntro dealers and distributors. Previously, Cenntro
sold its products through a channel partner network which enabled each partner to distribute products under respective private labels. While this model offered benefits of leveraging sales through each partners customer network; are partners
‘white labeled’ our vehicles which diluted our brand value and placed too much of Cenntro’s reliance in each channel partner’s ability to conduct marketing in order to drive sales. With the expansion of our product lines, our ECV distribution
model required a shift from strict reliance on channel partners to a hybrid model that utilizes both select channel partners and combines direct sales with established regional dealers and branded EV Centers.
Under a strictly channel partner distribution model, we had little control over sales and quality. Through our EV Center model, we will have better assurance of our product
quality, reduce our overhead, improve customer satisfaction and enhance our brand recognition. Furthermore, our EV Center model will allow us to distribute our products directly in US as well as through established dealers and resellers.
This hybrid model will enable the company to scale to meet demand, provide enhance control of the marketing and sales of its products, and parts support. Our EV Centers have become the hub for distribution and provide marketing, technical training, logistical, and after-market support to Cenntro’s regional dealers, strategic partners and customers. Further, Cenntro’s EV Centers work with well-established commercial vehicles dealers to build out and scale markets. We believe this hybrid model will serve us and our
customers to improve customer satisfaction and enhance our brand recognition.
The Company’s distribution and service infrastructure also includes the development of a cloud-based parts distribution system as a global spare parts fulfillment system.
This system will enhance the after-sales spare parts support for our appointed service providers as well as our enterprise customers in servicing our commercial electric vehicles.
In 2022, Cenntro has significantly scaled its EV Center growth. In 2022 Cenntro added six EV Centers to our global
distribution system. Our first EV Center was in Dusseldorf, Germany. By the end of 2022, we opened additional EV Centers in Spain, Italy, Poland, Turkey, Morocco, and the Dominican Republic. In 2023, Cenntro opened two United States based EV
Centers in Jacksonville, Florida and Freehold, NJ. We expect Cenntro’s EV centers will support our distribution and sales goals, better align our supply with demand, add capacity for scale, stability, and reduced logistics costs. To achieve
our sales and marketing goals, Cenntro is leveraging advanced cloud-based distribution technologies to move parts through our centers efficiently and accurately to better serve our global customers. As
of the date of this report our eleven EV Centers are located in Dusseldorf, Germany, Barcelona, Spain, Warsaw, Poland, Budapest, Hungary, Casablanca, Morocco, Istanbul, Turkey, Santo Domingo, Dominican Republic, Jacksonville, Florida, Costa
Mesa, California and Freehold, New Jersey.
In key strategic markets, including Japan, the Company has maintained channel partners relationships. For example, the company’s Japanese channel partner HW Electro, has
established deep relationships with renowned companies in Japan’s transportation and logistics sector. This channel partner has in turn represented and sold our brand and the company’s product line allowing Cenntro’s EVCs to gain early market
share.
Suppliers and Customers
Our Integrated Supply Chain
We have invested significant time and resources in developing a supply chain capable of providing all of the components and materials necessary to manufacture our ECVs. Our
integrated supply chain is comprised of over 500 suppliers located in China and various other countries. Our vehicle designs share many of the same component parts, including the battery module, battery control, motor control and vehicle control,
allowing us to achieve significant cost efficiencies in our supply chain. Generally, our suppliers undergo rigorous testing before we onboard them as a supplier, including quality and process auditing, product verification, regulatory compliance
and reliability testing. Our suppliers must demonstrate that they can consistently deliver their specialized parts on time, while meeting our quality and product specifications. Many of our components are based on Cenntro-developed designs, and
our suppliers are contractually restricted from selling our customized components to any third parties unless we discontinue our purchases from such suppliers.
Currently, materials and components for our Metro® are shipped to our Changxing facilities where we manufacture key components for and vehicle kits of our Metro® model and
integrate vehicle kits for assembly and shipment. Components for our new ECV models are shipped directly to our assembly and manufacturing sites that fully assemble vehicles for their local markets. Since substantially all of our manufacturing to
date has been conducted in China (through both our facilities and those of our manufacturing partners), sourcing our components in China has been more cost-effective than sourcing components outside of China, and we believe it has reduced risks
arising from shipping delays and importing inefficiencies.
In the long-term, through our deep supply chain development know-how, we plan to geographically expand our supply chain to support our planned growth. More specifically, we intend to establish
supply chain relationships in North America and the European Union to support our manufacturing and assembly needs in these markets, thereby reducing the time in transit and potentially the duties associated with importing our components and
spare parts from China. We believe we can reduce the overall cost of ECV assembly by shifting to a “merge in transit” model, whereby component shipments from suppliers, including local market suppliers, are consolidated at our local assembly
facilities for final ECV assembly.
Historically, we have generally obtained components from multiple sources whenever possible, similar to other automotive manufacturers. However, a small number of components
used in our ECVs are purchased from a single-source, which we refer to as our single-source suppliers. For example, while several sources for the airbag module in the Metro® are available, we currently have only one supplier for this component.
We generally do not maintain long-term agreements with our single-source suppliers. The vast majority of our components have alternative sources and we do not anticipate that finding qualified alternative sources for any particular component,
including single-source supplier components, will be a material concern. For our new ECV models, we anticipate that in the short term, we will source substantially all components from single-source suppliers due to volume limitations and
efficiency concerns.
We use various raw materials in our business including aluminum, steel, carbon fiber, non-ferrous metals such as copper, lithium, nickel and cobalt, as well as key component
inputs such as semiconductors. The prices for these raw materials and key components fluctuate depending on market conditions and global demand. We believe that we have adequate supplies or sources of availability of the raw materials necessary
to meet our manufacturing and supply requirements. There are always risks and uncertainties, however, with respect to the supply of raw materials that could impact their availability in sufficient quantities or reasonable prices to meet our
needs. For example, beginning in late 2020, the automotive industry has been subject to a shortage of semiconductors due to a spike in demand and a series of supply chain issues relating to COVID-19.
Our Growth Strategy
We intend to be a leading global designer, developer and manufacturer of a full range of ECVs from electric light models to and heavy-duty ECVs models. The key elements of
our growth strategy include:
To Expand Our Cenntro Branded Global Marketing sales and after-sales support network (i.e. EV Centers) to replace Channel Partner Network in selected
countries
Until the end of 2021, we outsourced the majority of distribution and marketing for our vehicles to third party “channel partners”. Similarly, we substantially relied on
private label channel partners to assemble the Metro® from vehicle kits that we manufactured in our China-based facilities. While these relationships allowed the Company to forego expensive capital investments it significantly diluted our brand
value and left the Company fully reliant on third parties to scale markets for our ECVs. To further expand our market presence and control our growth we shifted our distribution strategy to our wholly owned and operated EV Centers. In conjunction
with the introduction of our new ECV models, we believe operating our own EV Centers will improve brand awareness, effectively scale market penetration and better align product supply to meet demand. Our EV Centers are established locally and
provide for local marketing, sales, technical and after-market parts support. Our regional EV Centers will also recruit and develop local dealers and service providers to support expansion of their local networks. As a result of the
implementation of this new go-to-market model, in the first quarter of 2022, we terminated two channel partners in the United States. In March 2022 and March 2023, we acquired 65% and further 35% equity interest of TME and gained complete
control of our largest channel partner in Europe based in Germany. We rebranded TME to become Cenntro Automobile Europe (i.e. CAE).
During late 2021, Cenntro Automotive Corporation (“CAC”) began utilizing one of our two facilities in Freehold, New Jersey for the trial production of our Logistar™ 400
model. We also have established a European Operations Center in Dusseldorf, Germany, which provides marketing support, after-market support and spare-parts warehousing for the European market, as well as warehousing services with a logistics
company in Budapest, Hungary to house spare parts for our ECVs. We established a local assembly facility in Jacksonville, Florida, where we plan to scale assembly of the Logistar™ 400, the Metro® and the Teemak™ for distribution in the North
American market. We believe maintaining a local assembly facility in Germany will provide us with access to well-established hardware and logistics systems and trained personnel. We began trial assembly operations at the Jacksonville facility in
March 2023 and the Onterio facility in September 2023. We expect that our full acquisition of CAE will allow us to expand local assembly capacity in the European Union for production some of our EU ECV models, including the Metro® series, Teemak®
and Antric®.
During 2022, we began to establish a hybrid distribution model that combines our EV Centers, established dealers with select channel partners. During 2023, we established
eleven EV centers mainly in the US and the EU and cooperate with few channel partners in selected strategic markets, such as Japan in east-Asia. We believe transitioning our third-party reliant distribution model to a hybrid model will provide
economic advantages and reduce time to market for our ECVs.
To Brand our Global Market Sales and After Sales Support Network via our EV Centers
Our manufacturing model has traditionally relied on developing supply chain relationships with component vendors and specifically through a network of third-party supply
partners. From 2022 onwards we shifted our focus from solely investing in our own manufacturing capabilities to a contract manufacturing strategy. To this end, we work closely with proven tier one suppliers for components and parts in order for
the Company to utilize a less capital intensive path to product development. Correspondingly, we also re-aligned our distribution model from a majority of channel partners and country importers to building our own branded local EV Centers. Our
regional EV Centers are wholly-owned subsidiaries that distribute, market, and sell parts in addition to providing after market support for Cenntro EVCs. Our implementation strategy focuses on setting EV Centers in targeted local regions to
distribute our ECVs mainly through local dealer networks and value-added re-sellers. Our EV Centers also develop local dealers and service their local networks to become Cenntro dealers and Cenntro service providers. Aside from developing local
dealers and service providers while maintaining good relationships with them, Cenntro’s regional EV Centers manage regional strategic accounts, including national fleets.
We believe our strategy to manage and support our own EV Center distribution network will distinguish Cenntro from other traditional EV automakers and build a
solid distribution and service infrastructure in local markets. We believe this shift will enhance our market penetration, and ability to be more responsive to market feedback and customer input. Local EV Centers will bolster our local presence
in sales markets to help Cenntro become perceived and associated with better products and while enhancing our ability to provide hands-on service. In the meantime, with the hybrid model, we also utilize
local channel partners with their existing sales and service capabilities for quicker market penetration and reduction on capital requirements. This two-tier approach will achieve our sales control and building our own sales capability but also
benefit from channel partner’s existing sales capabilities.
As of the date of this report, our distribution and service infrastructure consist of four EV Centers in Europe, three EV Centers in North & Central America, one EV
Center in Turkey and one EV Center in Morocco. In 2023 we will expand more EV Centers to cover the Asia-Pacific and South America markets.
To Regionalize Manufacturing and Supply Chain
We plan to regionalize the manufacturing and supply chain relating to certain key components of our ECVs, such as vehicle upfitting and battery packs, in the geographic
markets in which our ECVs are sold. In the long-term, through our deep supply chain development know-how, we plan to geographically expand our supply chain to support our planned growth. More specifically, we intend to establish supply chain
relationships in North America and the European Union to support our manufacturing and assembly needs in these markets, thereby reducing the time in transit and potentially the duties associated with importing our components and spare parts from
China. We believe we can reduce the overall cost of ECV assembly in certain geographical markets by shifting to a “merge in transit” model, whereby component shipments from suppliers, including local market suppliers, are consolidated at our
local assembly facilities for final ECV assembly, in contrast with our current model which integrates all components into vehicle kits or fully assembled vehicles in our manufacturing facilities in China or our manufacturing partners’ facilities.
We believe that investing in the regionalization of our manufacturing and supply chain can ultimately provide significant benefits to us and our channel partners. We believe sourcing our ECV components and manufacturing, assembling and selling
our ECVs regionally can help us reduce costs associated with import/export taxes and shipping, further reducing vehicle production costs. In addition, we believe that regionalizing our manufacturing and supply chain will help support and
strengthen our brand in the markets in which our ECVs are sold, as our operations become integrated into those markets. We believe that our deep supply chain development know-how will provide us significant advantages; however, currently,
substantially all of our supply chain experience is limited to China. If we are unable to effectively manage the sourcing of our components and the responsiveness of our supply chain in areas outside of China, our business and results of
operations may be harmed. It is also likely that in the early stages of our supply chain expansion, we can expect most component sources will be single-source suppliers in areas outside of China.
To Invest in our Enterprise Resource Planning and Parts Distribution Systems
To enhance vehicle after-market support and customer satisfaction, we believe an effective and efficient parts distribution system is important to develop. For this purpose,
we have invested resources to build out a cloud-based automobile parts distribution system (“PARDISYS”). This cloud-based automobile parts distribution system allows us to more responsively provide and timely deliver spare parts to our service
providers and global customers while maintaining a well-managed minimum parts inventory. To use PARDISYS, our customers log in the cloud-based system to enquire and order the required spare parts. The enquiry can be made by entering the name of
the part, part number, VIN number of the whole vehicle, among other search functions. There are both fuzzy inquiries and precise inquiries for searching, which brings convenience to the customers. Currently, parts, accessories and special repair
tools for all Cenntro vehicles can be ordered through the PARDISYS system, and the back-office will provide the optimal distribution plan according to the customer's delivery address and warehouse inventory. PARDISYS consists of two source
warehouses - Changxing Warehouse and Zhenjiang Warehouse, and two fulfilment warehouses in New Jersey, United States and Düsseldorf, Germany. The source warehouses distribute frequently used parts to the fulfilment warehouses, which ship them to
customers. When parts inventory falls below the safety stock level, the fulfilment warehouses submit replenishment requests to the source warehouses to replenish the inventory to ensure the supply of frequently used parts. Non-usable parts are
stored in the fulfilment warehouse and shipped directly to the customer when a customer order is placed.
As of the date of this report, we established two production site parts warehouse in Changxing, Zhejiang province and Yangzhong, Jiangsu province in China. These warehouses
store our parts that are produced or sourced locally. These warehouses can send the parts globally based on the orders from our website that customers can place globally. Based on the local demand data, the system is expected to source certain
parts from production-site warehouses to a remote parts warehouse for quicker local delivery. As of December 31, 2022, we established four remote parts warehouses in Dusseldorf, Germany, Barcelona, Spain, Freehold, New Jersey and Jacksonville,
Florida.
To Expand Our Product Offerings
We began pilot production of our first-generation, U.S. Class 1 (0 - 6,000 lbs.), light-duty commercial vehicle, the Metro®, in 2018, and, as of December 31, 2022, we have
sold more than 4,090 Metro® units throughout Europe, North America and Asia. Utilizing our proprietary design and technology, we subsequently launched six EVCs including The Logistar™ 400 U.S. Class 4
(over 14,000 lbs.) medium-duty commercial vehicle for North America. The Logistar™ 200, designed to meet the European Union N1 Class truck requirements, the Neibor® 150, designed to meet the European
Union and UK L7e Class requirements, in the European Union and the UK, in the European market, and the Teemak™, an off-road electric commercial vehicle.
The Logistar 260, or LS 260, is positioned above the Logistar 200 and defines a new size in the van segment.. The load volume, payload and range of the Logistar 260 will
be targeted for a wide range of applications in the trades, couriers, express and parcel services, logistics solutions, and facility management. The LS 260 passed all homologation tests in accordance with European Union (EU) standards and
requirements and received EU type approval.
The Logistar 100, or LS 100, is a versatile, compact light cargo van purpose-built to serve diverse commercial applications in population-dense urban areas. The LS100
completed all homologation tests in compliance with the standards and requirements of the European Union (EU) in July and received type approval from the EU in August. The LS100 is eligible for sale in all 27 EU member states and other
countries that adopt EU vehicle homologation standards.
In January 2023, we introduced the Logistar 300 (LS300) in a full-size van segment. The vehicle will also be made available as a van and as cab chassis that may be
customized and will initially be offered for The North American market.
We have also expanded our product line with the LogiMax series for the heavy duty market. The LogiMax 864M (LM864H) is a 6x4 semi-tractor hydrogen fuel cells. In 2023,
we stopped the launch of LM864H due to lack of hydrogen filling infrastructure and uncertain market acceptance. As of the date of this report, we do not have any future plan to re-launch this model.
The TeeMak is an off-road vehicle designed to meet the demands of farms and ranches, corporate campuses, warehouses, construction sites, or trailing and hunting.
Our pipeline includes the Neibor® 300, an L7e Class compact electric commercial vehicle designed to complement the smaller Neibor® 150 in the European and UK markets, and
the ePortee™ programmable chassis, which we also refer to as the Cenntro iChassis, which became commercially available in quarter four of 2022. In 2023, we introduced an unmanned delivery vehicle using our iChassis 100 platform and OEMed the
vehicles for a third-party brand. We have also introduced a minibus product and OEMed the minibus for a third-party brand. As of the date of this report, our pipeline includes the LS210, an N1K Type electric commercial van to replace with older
model, LS210.
To Invest in Advanced Battery Packing Technology
We have invested resources in the research and development not only of ECV design and manufacturing processes, but also in digitally enabled components, intra-vehicle
communication, vehicle control and vehicle automation, or what we collectively refer to as “vehicle digitization,” as well as in the improvement of lithium battery technology. We have developed a prototype system-on-chip (which we sometimes
refer to as an “SOC”) for vehicle control and an open-platform, programmable chassis, with potential for both programmable and autonomous driving capabilities. We have also designed and developed in-house a proprietary telematics box, sometimes
referred to as a T-Box, which allows our ECVs to send and receive data relating to location, speed, acceleration, braking and battery consumption, among others, to end-users. Additionally, our engineers have worked closely with certain of our
qualified suppliers to co-design digitally enabled components in areas such as steering, braking, acceleration and signaling.
With the global trend toward reducing the number of internal combustion engine (“ICE”) vehicles, electric-battery and fuel cell technologies stand out as strong
alternatives. Prior to COVID-19, battery costs significantly decreased over the past decade, and in the long run, prices are expected to continue to fall. According to research service Bloomberg NEF (“BNEF”), lithium-ion battery pack prices
decreased from above $1,200 per kilowatt-hour in 2010 to $132/kWh in 2021 in real terms, representing a decline of approximately 89%. Although battery pack prices have recently increased and may continue to increase in the near-term due to the
rising price of lithium as a result of COVID-19 and other factors, we anticipate that battery prices will continue to decrease in the long-term. BNEF forecasts that by 2024, average prices are expected to fall to below $100/kWh, though such
reductions in average price may be delayed due to higher raw material prices in the near term. As investment in battery technology continues to increase, we believe these cost reductions will continue to improve the economics of battery-powered
ECVs.
Batteries are and remain, one on of the key components in the EV industry. With the anticipated demand for EVs, it is increasing important for OEMs to control their own
battery supply. To address this need, in August Cenntro announced the establishment of a separate operating division and wholly owned U.S. subsidiary Cennatic Power Inc. to manufacture advanced lithium-ion batteries to be used for its electric
commercial vehicles. Our Cennatic facility is in Monterrey, Mexico and construction of the building to house the manufacturing facility was completed in late 2022. The facility will commercially produce lithium-ion batteries with advanced
features including greater temperature tolerance, faster charging time, safer operating parameters, longer life cycles and cost efficiencies. Our decision to bring the production of essential battery technologies and manufacturing process
in-house can accelerate the development of our electric commercial vehicles and reduce our supply chain dependency on external suppliers. The facility’s strategic location in Mexico provides for competitive production and complements our
strategy to open assembly plants that are in customers’ markets and as of the date of this report, the majority of our production equipment has been shipped to our factory. To that end, we expect to complete the production line installation in
the second quarter of 2024.
To Expand Market Breadth and Depth
We expect to increase our market share in the current markets where our ECVs are sold, while simultaneously penetrating new markets worldwide. Aside from the Europe and US
market, we are expanding our operations to select markets, such as Morocco, the Dominican Republic, and Turkey.
The following table summarizes the breakdown of our revenues by region for the years ended December 31, 2023 and 2022, respectively:
|
For the Year Ended December 31,
|
||||||||||||||||
|
2023
|
2022
|
|||||||||||||||
| $ |
|
%
|
$ |
|
%
|
|||||||||||
|
United States
|
$ | 34,990 |
4.63
|
%
|
$
|
697,452
|
7.80
|
%
|
||||||||
|
Europe
|
$
|
1,021,205
|
73.45
|
%
|
$
|
7,052,452
|
78.87
|
%
|
||||||||
|
Asia
|
$
|
16,218,398
|
21.76
|
%
|
$
|
1,191,931
|
13.33
|
%
|
||||||||
|
Others
|
$
|
4,805,312
|
0.16
|
%
|
-
|
-
|
||||||||||
We are currently targeting new markets where local governments have begun incentivizing a shift from ICEs to EVs. We intend to expand our reach in these markets with the efforts and market
knowledge of our existing channel partners as well as by forming new partnerships and leveraging our increased brand recognition.
To Emerge as a Key Developer of Autonomous Driving Solutions
We intend to continue to invest in our smart driving technology to develop more applications using our iChassis platforms. We have developed the ePortee™, which we also refer to
as the Cenntro iChassis, an open-platform and programmable vehicle chassis with digital control capabilities. The Cenntro iChassis is designed to act as a basic and core execution unit of an automated or autonomous driving vehicle. It
includes application programming and communication interfaces that enable third-party autonomous driving vehicle developers to use this programmable chassis to develop various autonomous driving applications and fittings.
Competitive Strengths
We design, develop and manufacture ECVs in a cost-effective manner to enable us to compete favorably in the light- and medium-duty commercial vehicle market. In a fast-growing industry, we
believe our ability to adapt and evolve without jeopardizing the timing, quality, and quantity of the service through our agile and well-run structure has been proven through our forward-looking approach.
Unlike many of our competitors, our approach is future-focused while developing an asset-light, distributed manufacturing business model as opposed to generating short-term revenues and
unsustainable growth. This approach, paired with our values, tools and teams, has put us in a position to operate in the ECV market in a way that we believe our competitors cannot. We believe our competitive strengths position us well to
continue to grow our base of vehicles and capitalize on the expected growth in the light- and medium-duty ECV market.
Our Consistent Launch and Homologation of New and Innovative ECV Models
Over the past calendar year, we introduced the iChassis and Minibus products for third-party OEMs that are manufactured in our facility in Changxing, China. The ePortee™, which we also refer
to as the Cenntro iChassis is an open-platform and programmable chassis product. The Cenntro iChassis is designed to be a basic modular building block for use by automakers and special vehicle upfitters in the design of automated or
autonomous driving vehicles. Through our advancements in vehicle digitization and smart components, we have equipped the Cenntro iChassis with digital control capabilities. The Cenntro iChassis allows third-party developers to integrate
detection devices (i.e., lidar, radar, ultra-sound, infrared and other sensory devices) and third-party or proprietary decision-making software to allow for vehicles based on the programmable chassis to be driven autonomously. We also
manufacture minibus products for a global golf car manufacturer. Our minibus is a 14-seat passenger carrier mainly used for shuttling people in a closed environment, such as theme parks or tourist attractions.
These products are in addition to our five other ECV models, each of which are designed for specific geographic markets and to address additional commercial applications. The Logistar™ 400 is
a U.S. Class 4 (over 14,000 lbs.) medium-duty electric commercial truck designed to meet U.S. city delivery and service needs. The Logistar™ 400 is offered in four configurations: cargo-box, van, flatbed truck, and basic chassis for
upfitters. The Logistar™ 200 is a European Union N1 Class electric commercial vehicle designed to meet the European Union’s city delivery and city service requirements. The Logistar™ 200 was homologated in the European Union in January 2022
and first became commercially available in the European market in February 2021. The Logistar™ 200, is a European Union N1 Class electric commercial vehicle designed to meet the European Union’s city delivery and city service requirements.
The Neibor® 150 is a European Union and UK L7e (heavy quadricycle) Class compact electric commercial vehicle designed to meet European neighborhood delivery and neighborhood service needs. The Neibor® 150 was homologated in December 2022 and
first became commercially available in the European market in March, 2022. We have also developed the Teemak™, an off-road electric commercial vehicle with essentially no homologation requirements in the United States and limited
certification requirements and are developing the Neibor® 300, a European Union and UK L7e (heavy quadricycle) Class compact electric commercial vehicle designed to complement the smaller Neibor® 150. See “Risk Factors-Risks Related to Our Business and Financial Results-Our future success depends on our ability to introduce new models and we may experience delays in launching and ramping up production of our new ECV models.”
We have also developed the Teemak™, an off-road electric commercial vehicle with essentially few homologation and certification requirements in the United States. The Teemak™ first became
commercially available in the United States in December 2021.
The electrification of the global automotive industry has been a major policy focus of governments worldwide. Certain countries, such as the United States, China, Canada, Germany, and various
other European countries, have announced aggressive EV initiatives designed to reduce carbon emissions, through the replacement of fossil fuels, and have begun incentivizing the development and sale of ECVs through government subsidy
programs.
Proven Record of Manufacturing and Distributing ECVs
We have manufactured light-duty ECVs since 2018. Our business to date has began to expand beyond Metro® into five other categories of ECV models to expand our reach in the global ECV market.
We believe we are well positioned to take advantage of the growing global ECV market, which has few mature competitors capable of manufacturing and delivering cost-effective and financially viable ECVs today.
Distributed Manufacturing Methodology
Traditionally, automakers operate under a vertically integrated business model performing a variety of capital-intensive and time-consuming functions, including not only vehicle design,
process setup, tooling, parts making, supply chain establishment, vehicle assembly and vehicle homologation, but also market promotion, sales and distribution, after-market support and vehicle servicing. This business model requires
significant capital, is asset heavy and imposes significant barriers to entry for new players while impeding their ability to rapidly change their vehicle lineup or their operating model.
Based on our unique manufacturing and distribution model, we believe we are positioned to be an industry disruptor. Unlike many traditional, vertically integrated vehicle companies, which
manufacture fully assembled vehicles for export, we use an innovative distributed manufacturing methodology in which our ECVs are designed to be manufactured and exported as vehicle kits for assembly in local markets. Our ECVs are designed
using a “modular” method, allowing for simple final assembly and eliminating the need for acquiring and maintaining heavy and expensive assembly equipment at the local assembly stage. We or our manufacturing partners manufacture and integrate
the materials and parts into vehicle kits, which we can then ship to one of our local assembly facilities for final assembly.
We believe that our distributed manufacturing methodology can provide us with competitive advantages compared to traditional vehicle manufacturers, as we are able to operate with lower
capital investment requirements. In addition, we believe our distributed manufacturing methodology provides significant advantages for local homologation, local distribution, and local service. For example, we believe U.S. homologation
certification requirements are less burdensome for vehicles that are assembled and manufactured in the United States rather than imported into the United States.
As of the date of this report, our distributed manufacturing methodology relied upon six Cenntro-owned assembly facilities, including our facility at
Changxing, which assembles for international export, and our local assembly facility in Freehold, New Jersey, which we utilize for trial production of our Logistar™ 400 model. Currently, Cenntro has six manufacturing and assembly plants
including three in North America, two in China, and one in Germany. We plan to open a third North American facility in the second quarter of 2023.
Our North American facilities provide vehicles to the local market and export ECVs to markets in Central and South America. The Howell, New Jersey and Jacksonville, Florida facility both
assemble the Logistar™ 400, the Metro® and the Teemak™. The Herne facility, acquired through the acquisition of TME has allowed us to expand capacity in the European Union for production of our European ECV models, including the Logistar™
series: the Metro® and the Teemak™.
Prior to the regionalization of our supply chains, we plan to utilize these facilities to assemble vehicle kits that are manufactured by us in our facilities in Changxing, in the case of the
Metro®, and by third parties in the case of our other new ECV models. We have subcontracted all manufacturing processes of the ECV components for our Logistar™ and Neibor® series and Teemak™ model to our qualified suppliers, allowing us to
further reduce our capital expenditure requirements and increase our focus on local assembly.
In the long-term, through our deep supply chain development know-how, we intend to establish supply chain relationships in North America and the European Union to support our manufacturing
and assembly needs in these markets, thereby reducing the time in transit and potentially the duties associated with importing our components and spare parts.
Our Investment in Global Assembly and Manufacturing Facilities
We have established an asset-light, distributed manufacturing business model through which we can distribute our unique modular vehicles in vehicle kits for local assembly in addition to
distributing fully assembled vehicles. Each of our vehicle models has a modular design that allows for local assembly in small factory facilities, which allows us to focus our efforts on the design of ECV models and related technologies while
outsourcing various portions of the manufacturing, assembly and marketing of our vehicles to qualified third parties, allowing the Company to operate with lower capital investment than traditional vertically integrated automotive companies.
To support the expansion of our product line, in May 2022, we acquired a new manufacturing facility in Changxing, Huzhou City, China, for a purchase price of approximately $19.5 million. The
new 474,000-square-foot facility will allow Cenntro to expand its production capacity. The facility, built in 2018, provides Cenntro with advanced manufacturing capabilities. In addition to expanding capacity, the new site is expected to
enable Cenntro to obtain ISO 9000 certification. The new facility will support the production of a new Metro® series and have an expected capacity of 50,000 vehicles annually once fully operational.
To meet our anticipated demand in the United States, we have established a local assembly facility in Jacksonville, Florida and have expanded our capacity at our New Jersey-based assembly
facility. We began trial assembly operations at the Jacksonville facility in March 2023. The New Jersey facility will support the Northeast region and will initially support assembly of the Logistar™ 400, Metro® and Teemak models. The
Jacksonville facility will support our expansion throughout the U.S. market and will also supply vehicles to our electric vehicle centers (“EV Centers”) and customers in the Central American region.
Until approximately December 31, 2021, we outsourced the vast majority of the marketing of our vehicles to third party “channel partners” and relied substantially on private label channel
partners to assemble the Metro® from vehicle kits that we manufactured in our China-based facilities. Our relationships with such third parties, our “channel partners,” have allowed us to forego expensive capital investments in our own
facilities and operate within our historic working capital limitations. With the introduction of our new ECV models, however, we have shifted the manufacturing of our vehicle kits and in some cases fully assembled vehicles to third party OEM
partners and, in the case of vehicle kits, assembling them in our own facilities in North America and Europe. We have established a European Operations Center in Dusseldorf, Germany, which provides marketing support, after-market support and
spare-parts warehousing for the European market, as well as warehousing services with a logistics company in Budapest, Hungary to house spare parts for our ECVs. We believe that a reinvigorated and in-house managed distribution model that is
founded on local and strategically placed EV Centers together with local dealers and service networks will enhance brand recognition, provide economic advantages and reduce time to market for our ECVs. We further believe a well-developed
distribution and service infrastructure is important to our brand as an automobile manufacturer. For these reasons, we have made new and expanding investments in our own distribution and service infrastructure model.
Our Core Technology
Because we design, develop and manufacture our ECVs, our technology is at the core of what we believe positions us to effectively compete and become a technology leader in the ECV market.
Since inception in 2013 through December 31, 2023, we have spent approximately $90.0 million in research and development activities related to our business. Specifically, we have developed new vehicle chassis structures and digital control,
smart driving and network connectivity capabilities. In addition to our significant know-how, as of December 31, 2023, we had 122 discovery patents, nine design
patents and 86 innovation patents granted by the Chinese Patent Office, four design patent applications and ten discovery patent applications pending in the Chinese Patent Office, covering our
technological innovations relating to power systems, vehicle electronics, vehicle control and structure, production processes and other new technologies.
Our technological advantage begins with our chassis designs, which promote efficiencies in energy consumption as well as development and manufacturing processes. The Metro® and Neibor® Series
utilize proprietary, lightweight chassis designs that reduce the overall weight of the vehicle and thus increase the battery efficiency of the vehicle. Our chassis designs also lend themselves to modification and flexibility to meet the needs
of the specific customers in our local markets. For instance, our ECVs can be upfitted and customized to fill a variety of end-user roles, such as a small firetruck, street sweeper, vending truck, garbage truck, pickup truck or service truck.
We are focused on continuous improvement in our technology through continued investment in research and development. We believe our ECV expertise, market focus, installed base of vehicles and
know-how (including our smart driving capabilities), coupled with our dedication to research and development, will enable us to continue advancing our business.
Low Upfront Cost and Operating Costs to End-Users
Through our modular ECV design and unique business model, we believe we are able to enter the ECV market with competitively priced products compared to our competitors in the ECV space. For
instance, our Metro® and Neibor® Series are designed with a proprietary, lightweight chassis structure, enabling us to use less steel and such ECVs to utilize less battery power than our competitors. Furthermore, because our ECVs have fewer
components and moving parts than their ICE counterparts, we believe the ongoing maintenance costs of our vehicles is low. In addition, engines in traditional ICE commercial vehicles typically have a 10-year life, whereas the motor in our ECVs
are designed to last, on average, for more than 20 years. The lithium-ion batteries used in our ECVs have a useful life of approximately 2,000 charge-cycles, with each charge providing for a range, in the case of the Metro®, of approximately
124 miles per charge for a total range of approximately 248,400 miles over a battery’s useful life. Additionally, based on our collected data, the Metro® has a miles per gallon of gasoline equivalent of approximately 156 (equivalent to 4.875
miles per KWh).
Our Integrated Supply Chain
We have invested significant time and resources in developing a supply chain capable of providing all of the components and materials necessary to manufacture our ECVs. Our integrated supply
chain is comprised of over 500 suppliers located in China and various other countries. Generally, our suppliers undergo rigorous testing before we onboard them as a supplier, including quality and process auditing, product verification,
regulatory compliance and reliability testing. Our suppliers must demonstrate that they can consistently deliver their specialized parts on time, while meeting our quality and product specifications. Many of our components are based on
Cenntro-developed designs, and our suppliers are contractually restricted from selling our customized components to any third parties unless we discontinue our purchases from such suppliers.
We plan to expand our supply chain as necessary to support our planned growth, including localizing our supply chain for certain key components of our ECVs in North America and the European
Union. We have subcontracted all manufacturing processes of the ECV components for our new ECV models to our qualified suppliers, allowing us to further reduce our capital expenditure requirements and increase our focus on local assembly.
Strategic Channel Partner Network
In selected markets, we continue to leverage our channel partner network to distribute our ECVs around the world. Through this network, we have engaged partners for local homologation,
promotion, distribution, and service in the markets they serve, and, in a limited number of cases, assembly, upfitting and customization. All our channel partners sell fully assembled ECVs under private label to the local market and provide
aftermarket service to end users. Our channel partners such as HW Electro in Japan, purchase our fully assembled ECVs with HW Electro’s brand and sell them in their respective local market.
As of December 31, 2023, we shifted our reliance on channel partners and had established eleven EV Centers which are now the base of our distribution network in addition leading our local
marketing and aftermarket service.
Our Highly Skilled and Experienced Management Team
Our management team is led by Peter Z. Wang, our Chief Executive Officer and Chairman of the Board, who we refer to as our Chairman. Mr. Wang has extensive experience in the automotive and
technology industries, having co-founded Sinomachinery Group (a diesel power system (engine and transmission) manufacturer) in 2006 and UTStarcom (a global telecom infrastructure provider), which went public in 2000. Mr. Wang was named as one
of the Outstanding 50 Asian Americans in Business by Asian American Business Development Center in 2004, one of China’s 100 Most Innovative Businessmen by Fast Company Magazine in 2017 and one of the Most Intriguing Entrepreneurs by Goldman
Sachs in 2019.
More specifically, our management team has significant experience in vehicle design, supply chain, logistics, quality control and process management. Our management is singularly focused on
developing and manufacturing high quality, best-in-class, light- and medium-duty ECVs for the growing ECV marketplace and becoming a technology leader in the ECV market. Starting in 2013 with a simple idea, our management team has
successfully designed energy efficient ECVs and associated technologies and established a broad supply chain to support our product growth.
Intellectual Property
Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents, patent applications,
trade secrets, including know-how, employee and third-party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology.
As of December 31, 2023, we had 122 discovery patents, nine design patents and 86 innovation patents granted by the Chinese Patent Office, and seven innovation patent applications, four design patent applications and ten discovery patent applications pending in the Chinese Patent Office, covering our
technological innovations relating to power systems, vehicle electronics and structure, production processes and other new technologies. All of our patents are granted under PRC law and have not been given reciprocal treatment and protection
under the laws of either the United States or the European Union. Our issued patents will begin to expire in April 2024. We intend to continue to file additional patent applications with respect to our innovation and know-how.
Our Employees
As of the date hereof, we have 315 full-time employees. The following table sets forth the number of our employees by function:
|
Functional Area
|
Number of
Employees
|
|||
|
Senior management
|
7
|
|||
|
Research and Development
|
64
|
|||
|
Supply Chain Operations
|
36
|
|||
|
Marketing
|
37
|
|||
|
Manufacturing
|
77
|
|||
|
Quality Assurance
|
27
|
|||
|
Finance
|
25
|
|||
|
Corporate Affairs
|
42
|
|||
|
Total
|
315
|
|||
We provide social insurance for each employee in accordance with Chinese law, including pension insurance, medical insurance, unemployment insurance, work injury insurance and maternity
insurance and housing provident fund.
| Item 1A. |
Risk Factors.
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Risks Related to Our Business
We have a limited operating history and face significant challenges in an emerging industry.
We began pilot production of our first-generation, U.S. Class 1 (0 - 6,000 lbs.), electric light-duty commercial vehicle, the Metro®, in 2018. Our revenues were approximately $22.1 million for the year ended December 31, 2023. To date, we have derived our revenues principally from sales of the Metro®, Logistar™ series, Teemak™, and iChassis 100 models. We have a limited operating history on which you can base an evaluation of our business and prospects. You should consider our business and prospects in light of the risks and
challenges we face in an emerging industry with limited experience to date in high volume manufacturing of electric commercial vehicles (“ECVs”), including challenges related to our ability to:
| • |
design and manufacture safe, reliable and quality ECVs on an ongoing basis;
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| • |
establish and ramp up assembly facilities in the United States and European Union;
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| • |
maintain and expand our network of local assembly facilities, manufacturing partners, channel partners and suppliers;
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| • |
execute on our growth plan to regionalize supply chains, manufacturing and assembly of our ECVs;
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| • |
maintain and improve our operational efficiency;
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| • |
maintain a reliable, high quality, high-performance and scalable manufacturing and assembly infrastructure;
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| • |
attract, retain and motivate talented employees including our production workforce in existing and planned facilities, including the challenges we face with COVID-19 and the impact on our workforce
stability;
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| • |
anticipate and adapt to changing market conditions, including technological developments and changes in the competitive landscape;
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| • |
protect our intellectual property; and
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| • |
navigate an evolving and complex regulatory environment.
|
If we fail to address any or all of these risks and challenges, our business, financial condition, operating results and prospects may be materially and adversely affected. As we continue to
grow our business, we cannot assure you that we will be able to develop effective and cost-efficient manufacturing capabilities and processes, and maintain reliable sources of component supplies, that will enable us to meet the production
demands required to successfully sell our ECVs.
We have historically incurred losses from our operations and may not be profitable in the future.
We incurred losses from operations of approximately $51.9 million, and $54.7 million for the years ended
December 31, 2023, and 2022, respectively. We have made significant up-front investments in research and development, supply chain establishment, establishment of local assembly facilities and capacity, and channel partner development to
develop and expand our business. We have spent approximately $8.5 million in research and development activities related to our operations from our inception through December 31, 2023. We expect to continue to invest significantly in research
and development, manufacturing and supply chain operations to expand our business, and these investments may not result in profitability within our expected timeframe or at all.
We may not generate sufficient revenues to be profitable in the future and we may incur substantial losses for a number of reasons, including lack of demand for our ECVs and increasing
competition. In addition, we may incur unforeseen expenses, or encounter difficulties, complications and delays in market penetration or delivery for our products, generating revenue or achieving profitability. If we are unable to achieve
profitability, we may have to reduce the scale of our operations, which may impact our planned growth and adversely affect our business, financial condition, operating results and prospects.
Our ability to develop and manufacture ECVs of sufficient quality, on schedule and on a large scale is still evolving.
Our business depends in large part on our ability to execute on our plans to develop, manufacture and sell our ECVs. We began pilot production of the Metro® in 2018. We plan to manufacture
ECVs in higher volumes than we have historically and our production capabilities, including our facilities and those of our manufacturing partners, may not be able to handle the anticipated volumes in our business plan. Development and
manufacturing of our current and future ECVs, such as the Metro®, Logistar™, LogiMax, Avantier™, Teemak™ and Antric One are and will be subject to risks, including:
| • |
accurately manufacturing or procure components within appropriate design tolerances;
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| • |
establishing additional manufacturing and local assembly facilities in our various target markets;
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| • |
compliance with environmental, workplace safety and similar regulations;
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| • |
securing necessary high-quality components and materials from our supply chain on acceptable terms and in a timely manner;
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| • |
our ability to execute on our growth plan to regionalize our supply chain and manufacturing;
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| • |
quality controls;
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| • |
delays or disruptions in the supply chain, including as a result of pandemics such as COVID-19;
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| • |
delays or disruptions in ocean transit or transportation between our suppliers, our manufacturing facilities (or manufacturing partners’ facilities) and our local assembly facilities and our customers;
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| • |
our ability to establish, maintain and rely upon relationships with our suppliers, channel partners and manufacturing partners; and
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| • |
other delays, backlog in manufacturing and research and development of new models, and cost overruns.
|
Any of the foregoing could materially and adversely affect our business, financial condition, operating results and prospects.
Our future success depends on our ability to continue to introduce new models and we may experience delays in launching and ramping up production of our new ECV models.
In 2023, we introduced the Antric series of electric cargo bikes onto European markets, which is designed for last mile city logistics. Beginning in the fourth quarter of 2021, we introduced
into the market the Neibor® and Logistar™ series of ECVs as well as the Teemak™ off-road ECV. In order to introduce new ECV models through 2024, we have to coordinate with our suppliers, manufacturing partners, channel partners and other
third parties in order to ensure timely execution of the manufacturing and assembly processes. If we fail to coordinate these efforts and achieve market introduction and acceptance of our new ECV model in a timely manner, our business,
financial condition, operating results and prospects could be adversely affected. In addition, we have limited experience to date in manufacturing and assembling each of our new ECV series, as well as limited experience building and ramping
up multiple vehicle production lines across multiple factories (including those of our manufacturing partners) in different geographies. In order to be successful, we will need to implement, maintain and ramp-up efficient and cost-effective
manufacturing capabilities between our manufacturing partners, our own facility in Changxing and our local assembly facilities. Manufacturing bottlenecks and other unexpected challenges may arise during our production ramp-up, and we must
address them promptly. We may face delays in establishing and/or sustaining production and timely delivery of our new ECV models. Any delay or other complication in ramping up the production of our current or future ECV models may harm our
business, financial condition, operating results and prospects.
Our operating results may be more volatile due to a shift from only a high concentration of sales in relatively few channel partners to establishing our own distribution network.
For the years ended December 31, 2023, and 2022, our three largest channel partners accounted for approximately 10.5%, and 27.6% of our sales, respectively. As of quarter one of 2022, the
company made significant changes regarding its few channel partners and shifted reliance away from select channel partners to its own distribution network through the establishment of local EV Centers. In 2022, we acquired TME inclusive of
its assembly facility and distribution network in the EU. Simultaneously, and based on decreasing sales we ended our relationship with two US distributors: Ayro and Tropos. This shift in our distribution model is uncertain, and if we are
unable to establish effective EV Centers that make-up for losses in revenue from our channel partners, our operating results could be materially and adversely affected.
Our reliance on our new hybrid distribution model to market, sell and service (and in certain cases, assemble and/or homologate) our vehicles is subject to substantial risks because we do not
maintain control over certain of our remaining channel partners and our newly established EV Center dealerships are relatively new.
Our newly established EV Center dealerships and remaining channel partners in Japan are responsible for different portions of the sale, marketing and servicing (and for our channel partners,
assembly and/or homologation) of the ECV products we sell. We do not control the actions of our channel partners. For example, we do not control how our channel partners market or sell assembled ECVs or the quality of their service on our
ECVs and, with respect to the private label channel partners, we do not oversee their assembly of our ECVs.
Our EV Centers are relatively new to the markets in which they are established and working with local dealers to sell our ECVs in the countries and regions in which they operate. If we are
unable to efficiently operate or manage these new EV Centers, they may not be successful in the markets in which they operate or fail to satisfy sales targets, meet customer service objectives, or experience adverse regulatory actions or
other operational challenges, we could experience a reduction in sales. If we decide to close or shift resources or operations from certain EV Centers at any time in the future, end-user customers of our ECVs may encounter difficulties in
maintaining their vehicles and obtaining satisfactory support, which may negatively impact our reputation.
Our remaining channel partners are not subject to any minimum annual purchase requirements. In the event our channel partners are not successful in the markets in which they operate or fail
to satisfy sales targets, meet customer service objectives or experience adverse regulatory actions or other operational challenges, we could experience a reduction in sales. Furthermore, if any of our channel partners fail to successfully
operate their business or lack liquidity to support their operations, they may be unable to continue to purchase and sell our ECVs in the countries in which they operate, which could limit our sales to such market for an extended period and
adversely affect our business.
In addition, our ECVs are highly technical products that require maintenance and support, which we rely on our newly established EV Centers and certain of our channel partners to provide to
our customers. If our channel partners were to cease or cut back operations at any time in the future, end-user customers of our ECVs may encounter difficulties in maintaining their vehicles and obtaining satisfactory support, which may
negatively impact our reputation.
Disputes may occur between us and our channel partners or our channel partners and their customers, and we could be affected by adverse publicity related to such disputes, whether or not such
publicity is related to their collaboration with us. Our ability to successfully build and maintain our brand can be adversely impacted by perceptions about the quality of our channel partners’ servicing (and in some cases, assembly)
processes. Our arrangements with our channel partners typically specify general quality standards that the partners may meet, but do not provide us with any direct control or oversight over marketing and selling (and in some cases, assembly)
behavior of such channel partners. We rely on our channel partners to meet quality standards, but we cannot assure you that they will successfully maintain quality standards, which could adversely affect our reputation.
We may be unable to enter into new agreements or extend existing agreements with channel partners on terms and conditions acceptable to us or at all. In addition, even if we are able to
expand our channel partner network, it on average takes up to six months from the time we enter into an agreement with a new channel partner for them to be operational and selling our ECVs, depending on their familiarity with ECVs and the
types of services they will provide to us.
As of December 31, 2022, we shifted from relying only on channel partners to a hybrid model combines distribution between our wholly owned EV Centers with local established dealers and
channel partners. We currently have eleven EV Centers worldwide and anticipate the EV Centers will lead the distribution network, however if we were to close or dissociate one or more of our EV Centers due to performance, there is no
assurance that we would be able to establish a suitable replacement EV Center in the region to take up the role of marketing , distributing and after-market care our ECVs in the relevant market within a suitable timeframe or at all.
The expense and time required to establish and train staff at our EV Centers so performance and service will be able to meet our quality standards and regulatory requirements, may be greater
than anticipated, or we may never establish a new operation after having invested significant resources on that local market. Any of the foregoing could adversely affect our business, financial condition, operating results and prospects.
Our EV Center dealers and channel partners may reduce or cancel their orders at any time, which could adversely affect our business.
Our relationships with our dealers and channel partners are typically subject to definitive agreements we have with them. Under these agreements, our dealers and channel partners do not have
any minimum or binding purchase obligations. Because our sales are made pursuant to standard purchase orders, orders may be cancelled, reduced, or rescheduled with little or no notice. Our ECVs may not meet the expectations of our end users
or market requirements. In the future, our dealers or channel partners or their customers may decide to purchase fewer ECVs than they have in the past, may alter their purchasing patterns at any time with limited or no notice, or may decide
not to continue to purchase our ECVs at all. Cancellations of, reductions in, or rescheduling of orders could also result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses, as
a substantial portion of our expenses are fixed at least in the short term. In addition, changes in forecasts or the timing of orders expose us to the risks of inventory shortages or excess inventory. Any of the foregoing events could
materially and adversely affect our business, financial condition, operating results and prospects.
Our EV Center dealers and channel partner network may not grow or develop as we currently expect, in current markets in which we sell ECVs or penetrate new markets, our revenue and financial
condition would be adversely affected.
Substantially all of our revenue for the years ended December 31, 2023, and 2022 was derived from sales of our ECVs in North America, Europe and Asia. As of December 31, 2023, we have
remaining relationships with one of our private labeling channel partners which imports completely built units and sell them in the Japanese market—as opposed to our remaining channel partners which are simply resellers of whole unit
vehicles.
Moving forward, we aim to increase the size of our dealership network in our target markets through establishing EV Centers and identifying dealerships partners when warranted, which is
necessary for our expansion in both existing and new markets. If we fail to successfully establish new EV Centers in these key markets, our expected expansion could be materially impacted, which could adversely affect our business, financial
condition, operating results and prospects. Furthermore, our future revenue growth will depend in part on our ability to penetrate new geographic markets by establishing EV Centers in those markets. Each new geographic market presents
distinct and substantial challenges and risks and, in many cases, requires us to develop new customized solutions to address the particular technical and regulatory requirements of that market. Meeting the technical and regulatory
requirements in any of these new markets will require a substantial investment of our time and resources. We cannot assure you that we will be able to establish EV Centers in these new markets, or that we will achieve meaningful revenue from
sales in these markets. If any of these markets do not develop as we currently anticipate, our business, financial condition, operating results and prospects could be adversely affected.
We do not provide charging solutions for our channel partners or their customers.
Our ECVs have two ways to charge - slow charging from a regular power outlet and fast charging from a public electric vehicle (“EV”) charging station. Though we plan to establish charging
infrastructure and stations in select regions, we do not currently install charging stations in the markets in which our ECVs are sold through our channel partners. As such, we rely on our channel partners or other third parties in such
markets to ensure charging solutions are available for end-user customers. If a market in which our ECVs are sold has few options for charging, the customers of our channel partners may need to rely on their own power supply for charging,
which may make our vehicles less attractive in such markets.
The battery capacity of our ECVs will decline over time, which may negatively influence purchasing decisions by our channel partners and end-users.
Our ECVs can experience battery capacity and performance loss over time depending on the use of the battery. We anticipate the battery capacity in our ECVs will decline over time as the
battery deteriorates. We currently expect up to a 5% decline in the energy capacity retention per year, which will decrease the capacity of our ECVs over five years by up to 25% under normal use. Other factors such as usage, time and stress
patterns may also impact the battery’s ability to hold a charge, which would decrease our ECVs range before needing to recharge. Such battery deterioration and the related decrease in range may negatively influence purchase decisions by
channel partners and end-users.
Our business is subject to the risk of disruption in our supply chain.
We depend on suppliers for the sourcing of ECV components and principal raw materials. Our suppliers (and those they depend upon for materials and services) are subject to risks, including
labor disputes or constraints, financial liquidity, inclement weather, natural disasters, significant public health and safety events, supply constraints or shortages, and general economic and political conditions that could limit their
ability to provide us with components and raw materials. Our business and operations would be adversely affected if any of our key suppliers were to experience significant disruption affecting the price, quality, availability or timely
delivery of parts they supply to us or if any one or more or our key suppliers discontinued operations. Furthermore, if we experience significant increased demand, or need to replace our existing suppliers, there can be no assurance that
additional suppliers of component parts will be available when required on terms that are favorable to us, or at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a
timely manner. The partial or complete loss of these suppliers, or a significant adverse change in the sourcing of ECV components, could result in lost revenue, added costs and distribution delays that could harm our business and channel
partner relationships. In addition, concentration in our supply chain can exacerbate our exposure to risks associated with the termination by key suppliers of our supply-chain arrangements or any adverse change in the terms of such
arrangements, which could adversely affect our business, financial condition, operating results and prospects.
We may be unsuccessful in our continuous efforts to source less expensive suppliers for certain parts, redesign certain parts to make them less expensive to produce and negotiate with
existing suppliers to obtain cost reductions and avoid unfavorable changes to terms. Any of these occurrences may harm our business, prospects, financial condition and operating results. We cannot assure you that we will be able to maintain
our existing relationships with our suppliers and continue to be able to source key components we use in our ECVs on a stable basis and at reasonable prices or at all. For example, our suppliers may increase the prices for the components we
purchase and/or experience disruptions in their production of the components.
We are dependent on our suppliers, certain of which are single-source suppliers, and the inability of these suppliers to continue to deliver, or their refusal to deliver, necessary components
of our ECVs at prices and volumes acceptable to us could have a material adverse effect on our business, prospects and operating results.
Historically, we have generally obtained components from multiple sources whenever possible, similar to other automotive manufacturers. However, a small number of our components used in our
ECVs are purchased from a single source. We refer to these component suppliers as our single-source suppliers. For example, while several sources for the airbag module for the Metro® are available, we currently have only one supplier for
these components.
We generally do not maintain long-term agreements with our single-source suppliers. Any disruption in the supply of airbag modules from our single-source supplier, for instance, could
temporarily disrupt production of our ECVs. While we believe that we may be able to establish alternate supply relationships for our single-source components and can obtain or engineer replacement components, we may be unable to do so in the
short term or at all at prices or costs that are favorable to us. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to delays in vehicle deliveries to our channel
partners, which could hurt our relationships with them and their end-user customers and also materially adversely affect our business, prospects and operating results.
In the long-term, we intend to establish supply chain relationships in North America and the European Union to support our manufacturing and assembly needs in these markets, thereby reducing
the time in transit and potentially the duties associated with importing our components and spare parts from China. We believe that our deep supply chain development know-how will provide us significant advantages; however, substantially all
of our supply chain experience is limited to China. If we are unable to effectively manage the sourcing of our components and the responsiveness of our supply chain in areas outside of China, our business and results of operations may be
harmed. It is also likely that in the early stages of our supply chain expansion, we can expect most component sources will be single-source suppliers.
Changes in international trade policies, tariffs and rising political tensions, particularly between the U.S. and China, may adversely impact our business and operating results.
In recent years, China and the United States have implemented certain increasingly protective trade measures with continuing trade tensions, including significant tariff increases, between
these countries. Although the United States and China successfully reached an interim trade deal in January 2020 that de-escalated the trade tensions with both sides rolling back tariffs, the extent to which the trade deal will be
successfully implemented is unpredictable. A decrease in the level of imports to and exports from China could adversely affect our business, operating results and financial condition. Rising trade and political tensions could reduce levels of
trades, investments, technological exchanges and other economic activities between China and other countries, which would have an adverse effect on global economic conditions, the stability of global financial markets, and international trade
policies. It could also adversely affect the financial and economic conditions in the jurisdictions in which we operate, as well as our global expansion, our financial condition, and results of operations.
Moreover, the imposition of tariffs and trade restrictions as a result of international trade disputes or changes in trade policies may adversely affect our sales and profitability. For
example, in recent years, the U.S. government imposed and proposed, among other actions, new or higher tariffs on specified imported products originating from China in response to what it characterized as unfair trade practices, and China
responded by imposing and proposing new or higher tariffs on specified U.S. products. There can be no assurance that a broader trade agreement will be successfully negotiated between the United States and China to reduce or eliminate these
tariffs. These tariffs, and the related geopolitical uncertainty between the United States and China, may cause decreased demand for our products or increase cost of components used in our products, which could have a material adverse effect
on our business and results of operations. For example, certain of our foreign customers may respond to the imposition of tariffs or threat of tariffs on products we produce by delaying purchase orders or purchasing products from our
competitors. Ongoing international trade disputes and changes in trade policies could also impact economic activity and lead to a general contraction of customer demand. In addition, tariffs on components for our ECVs that we may import from
China or other nations will adversely affect our profitability unless we are able to exclude such components of our ECVs from the tariffs or we raise prices for our products, which may result in our products becoming less attractive relative
to products offered by our competitors. Future actions or escalations by either the United States or China that affect trade relations may also negatively affect our business, or that of our suppliers or customers, and we cannot provide any
assurances as to whether such actions will occur or the form that they may take.
The resulting environment of retaliatory trade or other practices or additional trade restrictions or barriers, if implemented on a broader range of products or raw materials, could harm our
ability to obtain necessary raw materials and product components or sell our ECVs at prices customers are willing to pay, which could have a material adverse effect on our business, prospects, results of operations, and cash flows. Relatedly,
trade policies could lead to an increasing number of competitors entering the United States, thereby creating more competition. For example, other foreign companies could begin manufacturing vehicles in Mexico in order to take advantage of
the United States-Mexico-Canada Agreement that could allow the free flow of trade into the United States and Canada. To the extent that our sales or profitability are negatively affected by any such tariffs or other trade actions, our
business and results of operations may be materially adversely affected.
We rely on third parties to manufacture substantially all of our components and vehicle kits for each of our new series of ECV models. Our qualified suppliers and manufacturing partners may
fail to deliver components and vehicle kits, respectively, according to schedules, prices, quality and volumes that are acceptable to us.
We have shifted substantially all component manufacturing processes for our new vehicles to qualified suppliers. The continuous and stable supply of components needed in the manufacture and
assembly of our ECVs that meet our standards will be crucial to our operations and production. Unexpected changes in business conditions, materials pricing, labor issues, wars, governmental changes, tariffs, natural disasters, health
epidemics such as the global COVID-19 pandemic, trade and shipping disruptions and other factors beyond our or our suppliers’ control could affect their ability to deliver components to us and expose us to component shortages.
The unavailability of any component or supplier could result in production delays, idle manufacturing facilities, product design changes and loss of access to important technology and tools
for producing and supporting our products. Moreover, significant increases in our production or product design changes by us may require us to procure additional components in a short amount of time. Our suppliers may not be willing or able
to sustainably meet our timelines or our cost, quality and volume needs, or to do so may cost us more, which may require us to replace them with other sources. While we believe that we will be able to secure additional or alternate sources or
develop our own replacements for most of our components, there is no assurance that we will be able to do so quickly or at all.
As part of our light-asset distributed manufacturing business model and methodology, vehicle kits (and in some instances, fully-assembled vehicles) for our new ECV series are manufactured by
third-party manufacturing partners. From time to time, these manufacturing partners may experience production problems or delays and may not be able to meet our demand for vehicles. We may be required to retain additional third-party
manufacturing partners to assure continuity in production, but finding additional manufacturing partners in a timely and cost-effective manner may be difficult. Any delays in the manufacture of our vehicle kits could cause the loss of sales,
and harm our brand, all of which could adversely affect our business, financial condition, operating results or prospects.
If our suppliers, channel partners or manufacturing partners fail to use ethical business practices and comply with applicable laws and regulations, our brand image and business could be
harmed due to negative publicity.
Our core values, which include developing high quality ECVs while operating with integrity, are an important component of our brand image, which makes our reputation sensitive to allegations
of unethical business practices. We do not control our independent suppliers, channel partners or manufacturing partners or their respective business practices. Accordingly, we cannot guarantee their compliance with ethical business
practices, such as environmental responsibilities, fair wage practices, and compliance with child labor laws, among others. A failure in compliance could lead us to seek alternative suppliers, channel partners or manufacturing partners, which
could increase our costs or result in delayed delivery of our products, product shortages or other disruptions of our operations.
Violation of labor or other laws by our suppliers, channel partners or manufacturing partners or the divergence of an independent supplier’s labor or other practices from those generally
accepted as ethical in the markets in which we do business could also attract negative publicity for us and our brand. This could diminish the value of our brand image and reduce demand for our ECVs if, as a result of such violation, we were
to attract negative publicity. Any negative publicity that results from unethical practices by third parties could harm our brand image, business, financial condition, operating results or prospects. If other manufacturers in our industry
encounter similar problems with their third-party partners, any negative publicity with respect to the ECV industry could negatively impact us.
We heavily rely on our third-party logistics service providers for international shipping of our products, and if disruptions in our transportation network continue to occur or our shipping
costs continue to increase, we may be unable to sell or timely deliver our products, and our gross margin could decrease.
Our success is dependent on our ability to transport our ECVs (whether as vehicles kits or fully assembled vehicles) from China to markets in the North America, Europe and Asia in a timely
and cost-effective manner. We rely heavily on third parties, including ocean carriers and truckers, in that process. The global transportation industry is experiencing ocean shipping disruptions, trucking shortages, increased ocean shipping
rates and increased trucking and fuel costs, and we cannot predict when these disruptions will end.
In recent years, the global transportation industry has experienced unprecedented increases in shipping rates from the trans-Pacific Ocean carriers due to various factors, including limited
availability of shipping capacity. As a result, our ability to deliver our ECV units to our channel partners has been disrupted or delayed well into calendar year 2022. Additionally, the cost of shipping from China to local markets in North
America and Europe had each increased substantially between March 2020 and October 2022. Such factors had, and if persistent, may continue to have a negative impact on our vehicle production, gross profit margin, product delivery time and
revenue recognition. Shipping cost have increased as of the end of November 2023 due to the frequent attacks by Houthi rebels on vessels transporting goods through the Suez Canal. Shipments to EU have instead taken a route crossing the Cape
of Good Hope, which have significantly increased shipping costs. Certain cost were stabilized as of March 2024, but the risk of higher cost volatility remains. Our operating results for the year ended December 31, 2023, have been impacted by
certain capacity shortages and attacks on vessels in the Suez Canal and we expect such attacks to continue for the foreseeable future.
In recent years, the shipping industry also experienced growing issues with port congestion and pandemic-related port closures and ship diversions well into 2022. We may experience such
disruption again in the near future due to multiple factors that may be brought about by variants of the COVID-19 pandemic, such as supply and demand imbalance, a shortage of warehouse workers, truck drivers, transport equipment (tractors and
trailers) and other causes, which may result in heightened congestion, bottleneck and gridlock, leading to abnormally high transportation delays. Similarly, potential supply chain disruptions such as those described in the preceding
paragraphs may lead to an increase in our transportation costs. Such disruptions have and may continue to materially and adversely affect our business, financial results, prospects, financial condition and operating results.
The commercial viability of our Cenntro iChassis relies on third-party hardware and software that may not be available, which could render our product less marketable and negatively impact
our business, prospects and operating results.
The commercial viability of our Cenntro iChassis depends in large part on third-party developers utilizing hardware and software that is required for autonomous driving. The Cenntro iChassis
is an open-platform and programmable chassis product, designed to act as a basic and core execution unit of an automated or autonomous driving vehicle. An automated system typically runs within a well-defined set of parameters and is
restricted in what tasks can be performed. In contrast, an autonomous system learns and adapts to dynamic environments, and evolves as the environment around it changes. To be driven autonomously, the Cenntro iChassis requires hardware and
software that we do not produce, such as detection devices and decision-making software. The Cenntro iChassis can only be utilized if such hardware and software is otherwise available and third parties are willing to integrate such technology
with the Cenntro iChassis. To the extent our competitors develop and market a fully integrated autonomous EV, we may be at a commercial disadvantage. The marketability of the Cenntro iChassis is dependent on the willingness of third-party
autonomous driving vehicle producers to adopt our programmable chassis technology rather than adopting other similar technologies or developing their own proprietary programmable chassis, as well as the willingness of end-users to purchase
autonomous driving vehicles from such third parties. If any of these factors is not present then the marketability of our Cenntro iChassis will suffer, which could negatively impact our business, prospects and operating results. Furthermore,
there are many uncertainties relating to the homologation of autonomous driving vehicles, and we are unable to predict when the market for autonomous driving vehicles will develop more fully.
Our business depends substantially on the continuing efforts of our executive officers, and our business may be severely disrupted if we lose their services.
Our future success depends substantially on the continued services of our executive officers, especially our CEO and Chairman, Mr. Peter Z. Wang. We do not currently maintain key man life
insurance on any of our executive officers. If any of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely
disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if any of our executive officers joins a competitor or forms a competing company, our business, financial condition, operating results or
prospects could be harmed.
Our facilities or operations could be damaged or adversely affected as a result of disasters or unpredictable events.
We have manufacturing and research facilities currently located in Changxing, China. During 2021, we began utilizing one of our two facilities in Freehold, New Jersey for the trial production
of our Logistar™ 400 model. In January 2022, we established a European Operations Center in Dusseldorf, Germany, which provides assembly, marketing support, after-market support and spare-parts warehousing for the European market. Effective
March 2023, we began pilot production of the Logistar 400 at the in Jacksonville, Florida facility for distribution in the North American market. We also rely on our relationships with various manufacturing partners in China who manufacture
our new ECV series. If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics (such as COVID-19) or other unpredictable events, such as cyber-attacks, occur that impact our
facilities or the facilities of our channel and manufacturing partners, we may have to stop or delay production and shipment of our ECVs, and our operations may be seriously damaged. We may incur expenses relating to such delays or damages,
which could materially and adversely affect our business, financial condition, operating results and prospects.
Global economic conditions could materially and adversely affect our business, financial condition, operating results and prospects.
The global macroeconomic environment is facing challenges, and the uncertain state of the global economy continues to impact businesses around the world, including as a result of COVID-19. If global economic
and financial market conditions do not improve or further deteriorate, our business, financial condition, operating results and prospects may be materially and adversely affected. Some of the factors that could materially and adversely affect
us include:
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Slower spending may result in reduced demand for our ECVs, reduced orders from our channel partners, order cancellations, lower revenues, higher discounts, increased inventories and lower gross margins.
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Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported operating results and financial
condition. We conduct transactions in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates relative to the U.S. Dollar.
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Volatility in the availability and prices for commodities and raw materials we use in our ECVs from our supply chain could have a material adverse effect on our costs, gross margins and profitability.
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Instability in global financial and capital markets may impair our ability to raise additional equity or debt financing on reasonable terms or at all in order to grow our business.
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Our financial results may vary significantly from period-to-period due to the seasonality of our business and fluctuations in our operating costs.
Our operating results may vary significantly from period-to-period due to many factors, including seasonal factors that may have an effect on the demand for our ECVs. Demand for vehicles in
the automotive industry in general typically decline over the winter season, while sales are generally higher during the spring and summer months. Our limited operating history makes it difficult for us to judge the exact nature or extent of
the seasonality of our business. Also, any unusually severe weather conditions in some markets may impact demand for our vehicles. Our operating results could also suffer if we do not achieve revenue consistent with our expectations for this
seasonal demand.
We also expect our period-to-period operating results to vary based on our operating costs which we anticipate will increase significantly in future periods as we, among other things, design
and develop additional ECVs and components, establish new channel partners relationships, establish new local assembly facilities and technology support and research and developments centers, and increase our general and administrative
functions to support our growing operations. In addition, our channel partner network includes companies that have in the past, and may in the future, experience financial difficulty and, in some instance, have been unable to pay amounts owed
to us on a timely basis, or at all. This has led us to from time to time recognize provision for doubtful accounts that vary from period to period and are difficult to anticipate. As a result of these factors, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.
Our distributed manufacturing methodology and channel partner network model is different from the predominant current distribution model for automotive manufacturers, which makes evaluating
our business, financial condition, operating results and prospects difficult.
Our distributed manufacturing model allows us to focus our efforts on the design of ECV models and related technologies while outsourcing various portions of the manufacturing, assembly and
marketing of our vehicles to qualified third parties, allowing the Company to operate with lower capital investment than traditional vertically integrated automotive companies. For the last several years, we relied substantially on “private
label” channel partners to assemble the Metro® from vehicle kits that we manufactured in our facilities. With the introduction of our new ECV models, we have begun the process of shifting the manufacturing of our vehicle kits, and in some
cases fully assembled vehicles, to third party OEM manufacturing partners and, in the case of vehicle kits, assembling in our own facilities in North America and Europe. This model of vehicle distribution is relatively new and unproven and
subjects us to substantial risk. For example, our success depends in large part on our ability to effectively establish and maintain successful relationships with manufacturing partners and channel partners and for them to implement
successful processes for manufacturing our vehicles or marketing, sales, and servicing, respectively.
Our business model is subject to numerous significant challenges and uncertainties, some of which are outside of our control, and we may not be successful in addressing these challenges. For
instance, we have limited control or oversight over our manufacturing partners and channel partners. To the extent a manufacturing partner or channel partner is not conducting its business in an ethical manner or is not performing to the
required standards, we have limited recourse. Our manufacturing partner and channel partner networks are based solely on contractual arrangements and such contractual arrangements do not currently, and may not into the future, provide us with
adequate oversight over our channel partners to protect our reputation.
Additionally, in certain markets we intend to increase direct sales to dealers, upfitters, enterprises and government organizations, which will require that we add overhead and business
structures to service a direct sales business model that we do not currently have in place.
Our business plans require will additional capital in the future, which may not be available to us on acceptable terms or at all.
Our business plans will require additional capital in the future, including to strengthen the selling and marketing functions of our EV Centers and to develop our distribution centers for
parts backed by the PARDISYS system. However, we expect to have a constrained cash outlay throughout 2024, and plan to focus on internally generated cash flow rather than on relying on the expectations of future external capital financing. To
support this goal, no we do not plan to invest in any production facilities in the near future unless necessary and plan to improve our existing EV Center networks so they may be more efficient. We expect that our level of capital
expenditures may be relatively lower in 2024 but may be affected by the profitability and cash generating capacities of our recently established EV Centers around the global markets. The fact that we have a limited operating history means we
have limited historical data regarding the demand for our products and services and our future capital requirements. As a result, our future actual capital requirements may be uncertain and actual capital requirements may be materially
different from those we currently anticipate.
We may seek equity or debt financing to finance a portion of our capital requirements in the future. Such financing might not be available to us in a timely manner or on terms that are
acceptable, or at all. Our ability to obtain the necessary financing to carry out our business plans is subject to a number of factors, including general market conditions and investor acceptance of our business plans. These factors may make
the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, and delay or cancel our planned activities.
As we shift component and vehicle kit manufacturing to qualified suppliers and manufacturing partners, we may have to shorten the useful lives of any equipment to be retired as a result, and
the resulting acceleration in our depreciation could adversely affect our financial results
We have invested in what we believe is state of the art tooling, machinery and other manufacturing equipment, and we depreciate the cost of such equipment over their expected useful lives.
However, throughout 2022 and well into 2023, we continued to shift procurement of vehicle component, and semi-knocked-down kit manufacturing to qualified suppliers. Continuing into 2024, we have also outsourced vehicle kit manufacturing
(and, in some instances, vehicle assembly) to qualified manufacturers for our new ECV series to manufacturing partners to reduce our capital expenditure requirements. As we shift component and vehicle kit manufacturing of our new ECV series
to our qualified suppliers and manufacturing partners, respectively, we may have to shorten the useful life of any equipment we retire as a result, which would require that we accelerate the depreciation on such equipment. Any such
accelerated depreciation on our equipment, to the extent we own such equipment, could adversely affect our results of operations.
We may not be able to accurately estimate the supply and demand for our vehicles, which could result in a variety of inefficiencies in our business and hinder our ability to generate revenue.
If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays.
We may have limited insight into trends that may emerge and affect our business. This may result in our inability to accurately estimate the supply and demand for our vehicles. Beginning in
the fourth quarter of 2021 and continuing into the first quarter of 2022, we introduced into the market the Neibor® and Logistar™ series of ECVs as well as the Teemak™ off-road ECV. We cannot predict whether these new ECV models will be
readily adopted by channel partners and end-users in their respective markets. We may need to provide forecasts of our demand to our suppliers several months prior to the scheduled delivery of products to our channel partners. Currently,
there is limited historical basis for making judgments on the demand for our planned or existing vehicles or our ability to develop, manufacture, and deliver vehicles, or our profitability in the future. If we underestimate our requirements,
our suppliers may have inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipments and revenues. In addition, lead times for materials and components that our suppliers order may vary
significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. If we fail to order sufficient quantities of product components in a timely manner, the delivery of vehicles to
our channel partners could be delayed, which would harm our business, financial condition and operating results.
Our ECVs use lithium-ion battery cells, which have the potential to catch fire or vent smoke and flame and may lead to additional concerns about batteries used in automotive applications.
The battery packs in our ECVs use lithium-ion cells, and we intend to use lithium-ion cells in our future ECV products. On rare occasions, lithium-ion cells can rapidly release the energy
they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. Extremely rare incidents of laptop computers, cell phones and EV battery packs catching fire have focused consumer
attention on the safety of these cells.
These events have raised concerns about batteries used in automotive applications. To address these questions and concerns, a number of battery cell manufacturers are pursuing alternative
lithium-ion battery cell chemistries to improve safety. The battery packs used in our ECVs may need to be redesigned, which would be time-consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion
cells for automotive applications or any future incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve us, could seriously harm our business.
The majority of the battery packs we use in our ECVs are shipped in a “just in time” fashion so that we are generally not housing them for a long period of time. Nonetheless, we may in the
future store lithium-ion cells at our facilities from time to time. Any incident involving battery cells may cause disruption to the operation of our facilities. While we have implemented safety procedures related to the handling of the
cells, we cannot assure you that a safety issue or fire related to the cells would not disrupt our operations. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any type of battery failure in
relation to a competitor’s ECV may cause indirect adverse publicity for us and our ECVs. Such adverse publicity could negatively affect our brand and harm our business, financial condition, operating results and prospects.
We have identified a material weakness in our internal control over financial reporting that could materially harm our company. If we fail to remediate the material weakness, or if we
experience material weaknesses in the future, we may not be able to accurately and timely report our financial condition or results of operations, which may adversely affect investor confidence in us.
Historically Cenntro had not retained a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and
disclose accounting matters under U.S. GAAP. Similarly it does not retain certain a sufficient number of professionals which to address its internal control over financial reporting in accordance with requirements applicable to public
companies.
A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material
misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. During the preparation of its 2021 and 2022 financial statements, Cenntro’s management identified a material weakness in
its internal control over financial reporting. Specifically, Cenntro did not historically have adequate accounting staff generally in its finance and accounting department, particularly with respect to (i) the preparation of financial
statements prepared in accordance with U.S. GAAP and the inclusion of proper disclosures in the related footnotes, and (ii) the design, documentation and implementation of internal controls surrounding risk management and financial reporting
processes. During the preparation of the Company’s consolidated financial statements for the year ended December 31, 2023, management reassessed the Company’s internal control over financial reporting. Although controls and supervision over
risk management and financial reporting processes have improved, management has concluded that the Company continues to have this material weakness in its internal control over financial reporting.
Management has taken and is continuing to take actions to remediate this material weakness and is taking steps to strengthen our internal control over financial reporting and risk management.
Our Financial Controller for North America joined us in January 2022 and she is a CPA license holder. As of the date of this report, we have a total of four professionals on our Finance team in the United States including two certified public
accountants (CPAs) and one staff accountant who has passed the CPA exams with public accounting experience. We intend to hire additional professional accountants with greater familiarity with U.S. GAAP and SEC reporting requirements. We
strive to continue to take measures to improve compliance with our overall financial reporting process by (i) further developing and implementing formal policies, processes and documentation procedures relating to our financial reporting as
well as (ii) addressing the accounting function’s staffing needs and training and strengthen our internal control processes. This material weakness will not be considered remediated until management completes the design and implementation of
the measures described above and the controls operate for a sufficient period of time and management has concluded that these controls are effective.
To the extent we are unable to remediate this material weakness or identify future material weaknesses in our internal control over financial reporting, such material weakness could severely
inhibit our ability to accurately report our financial condition or results of operations and could cause future investors to lose confidence in the accuracy and completeness of our financial reports, we could become subject to litigation
from investors and shareholders, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or
maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Risks Related to Our Industry
The unavailability or reduction of government and economic incentives or the elimination of regulatory policies which are favorable for ECVs could materially and adversely affect our
business, financial condition, operating results and prospects.
Our business depends significantly on government subsidies, economic incentives and government policies that support the growth of new energy vehicles generally and ECVs specifically. Any
reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived success of ECVs, fiscal tightening or
other factors may result in the diminished competitiveness of the alternative fuel vehicle industry generally or our ECVs in particular. Any of the foregoing could materially and adversely affect our business, financial condition, operating
results and prospects.
Our future growth is dependent upon end-users’ willingness to adopt ECVs.
Our growth is highly dependent upon the adoption by national and local governments and the commercial vehicle market of, and we are subject to a risk of any reduced demand for, alternative
fuel vehicles in general and ECVs in particular. The market for alternative fuel vehicles (including ECVs) is relatively new and rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors,
evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. If the market for ECVs in North America, Europe, Asia or elsewhere does not develop as we expect, or
develops more slowly than we expect, our business, financial condition, operating results and prospects will be harmed. Other factors that may influence the adoption of alternative fuel vehicles, and specifically ECVs, include:
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perceptions about electric vehicle quality, safety, design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles, whether
or not such vehicles are produced by us or other manufacturers;
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perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology, including electric vehicle systems;
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the limited range over which electric vehicles may be driven on a single battery charge and the speed at which batteries can be recharged;
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the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge;
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concerns about electric grid capacity and reliability;
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the availability of new energy vehicles, including plug-in hybrid electric vehicles and vehicles powered by hydrogen fuel;
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improvements in the fuel economy of the internal combustion engine;
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the availability of service for electric vehicles;
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the environmental consciousness of end-users;
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access to charging stations, standardization of electric vehicle charging systems and perceptions about convenience and cost to charge an electric commercial vehicle;
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the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles;
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perceptions about and the actual cost of alternative fuel; and
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macroeconomic factors.
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Any of the factors described above may cause our channel partners and their customers not to purchase our ECVs. If the market for ECVs does not develop as we expect or develops more slowly
than we expect, our business, financial condition, operating results and prospects will be adversely affected.
Continued elevated levels of inflation could adversely impact our business and results of operations.
Adverse and uncertain economic conditions and, in particular, the impact of global general price inflation, may negatively impact our business and operating results. We have experienced, and
expect to continue to experience, price increases from, among other things, our component suppliers. Sustained inflation, combined with key component shortages, may require us to raise the prices of our ECVs in order to offset cost increases,
which may negatively impact the demand for our vehicles. As a result, our channel partners may become more conservative in response to such conditions and seek to reduce their inventories. Conversely, to the extent inflation or other factors
increase our business costs, it may not be feasible to pass price increases on to our channel partners, which will adversely affect our profitability. Our results of operations depend upon, among other things, our ability to maintain and
increase sales volume with our channel partners, our ability to attract new channel partners, the financial condition of end-consumers in the commercial ECV market and our ability to provide ECVs that appeal to our channel partners and other
direct customers at a competitive upfront cost. Unfavorable macroeconomic conditions may lead our channel partners to reduce, delay, curtail or cancel proposed or existing contracts, decrease the overall demand for our ECVs or otherwise
adversely affect our results of operations. The duration and severity of the current inflationary period cannot be estimated with precision.
We could experience cost increases or disruptions in the supply of raw materials or components used in our vehicles, and a shortage of key components, such as semiconductors, can disrupt our
production of ECVs.
We incur significant costs related to the procuring of raw materials and components required to manufacture our vehicles. Our ECVs use various raw materials including aluminum, steel, carbon
fiber, non-ferrous metals such as copper, lithium, nickel and cobalt, as well as key component inputs such as semiconductors. The prices for these raw materials fluctuate depending on factors beyond our control, including market conditions
and global demand for these materials, and could adversely affect our business and operating results. In particular, the automotive industry is currently facing a significant shortage of semiconductors. The global semiconductor supply
shortage is having wide-ranging effects across multiple industries, particularly the automotive industry, and it has impacted multiple suppliers that incorporate semiconductors into the parts they supply to us. As a result, the semiconductor
supply shortage has had, and will continue to have, a negative impact on our vehicle production. To date, we have experienced price decreases compared to the rising market prices in 2022, which resulted in higher vehicle costs. The market in
2023 was favorable for the entire new energy industry in terms of vehicle costs. For example, semiconductors are no longer in short supply, and the prices of batteries, motors and electronic controls have all fallen.
Increases in the cost, disruptions of supply or shortages of lithium-ion batteries could harm our business.
Our business depends on the continued supply of battery cells for our vehicles. Battery cell manufacturers may refuse to supply battery cells to electric vehicle manufacturers to the extent
they determine that the vehicles are not sufficiently safe. We are exposed to multiple risks relating to availability and pricing of quality lithium-ion battery cells. These risks include:
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the inability or unwillingness of current battery cell manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of
the electric vehicle industry as demand for such cells increases;
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disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and
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an increase in the cost or shortages of raw materials, such as lithium, nickel and cobalt, used in lithium-ion cells.
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Any disruption in the supply of battery cells could temporarily disrupt the planned production of our ECVs until such time as a different supplier is fully qualified. Furthermore, strong
growth in sales of our ECVs may in some instances outpace the production and availability of lithium-ion batteries, which could result in substantial increases in the price of batteries used in our vehicles. Substantial increases in the
prices for lithium-ion batteries would increase our operating costs, and could reduce our gross margins if we cannot recoup the increased costs through increased ECV prices.
Developments in alternative technologies or improvements in the internal combustion engine may materially and adversely affect the demand for our ECVs.
Significant developments in alternative technologies, such as advanced diesel, ethanol,
hydrogen fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business, financial condition, operating results and prospects in ways we do not
currently anticipate. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay the development and introduction of new and enhanced ECVs, which could
result in the loss of competitiveness of our vehicles, decreased revenue and a loss of market share to competitors.
The automotive market is highly competitive, and we may not be successful in competing in this industry.
Both the automotive industry generally, and the ECV segment in particular, are highly
competitive, and we will be competing for sales with both ICE commercial vehicles and other ECVs. Many of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than
we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of ECVs. We expect competition for ECVs to intensify due to increased demand and a regulatory push for
alternative fuel vehicles and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, fuel economy, customer
service, and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in downward price pressure and adversely affect our business, financial condition, operating results, and
prospects.
If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.
We may be unable to keep up with changes in ECV technology, and we may suffer a resulting
decline in our competitive position, which would materially and adversely affect our business, financial condition, operating results and prospects. Our research and development efforts, as well as our manufacturing and supply chain capacity,
may not be sufficient to adapt to changes in ECV technology. As technologies change, we plan to upgrade or adapt our ECVs and introduce new models in order to continue to provide our ECVs with the latest technology, including battery cell
technology. However, our ECVs may not compete effectively with ECVs manufactured and marketed by our competitors if we are not able to develop and integrate the latest technology into our ECVs.
Risks Related to Legal and Regulatory Matters
Our business is subject to substantial regulations, which are evolving, and unfavorable changes or the failure by us or our channel partners to comply with these regulations could materially
and adversely affect our business, financial condition, operating results and prospects.
Motor vehicles are subject to substantial regulation under U.S. federal, state and local
laws as well as the laws of each of our target markets. We incur significant costs to comply with these regulations, including obtaining required vehicle certifications in the jurisdictions in which our ECVs are sold, and we may be required
to incur additional costs related to any changes to such regulations. Any failures by us or our channel partners to comply with existing or future regulations could result in significant expenses, vehicle recalls, delays or fines. We and our
channel partners are subject to laws and regulations applicable to the supply, manufacture, import, sale and service of automobiles internationally. For example, in countries outside of the United States, we or our channel partners are
required to meet standards relating to vehicle safety and testing, fuel economy, battery safety, transportation, testing and recycling and greenhouse gas emissions, among other things, that are often materially different from requirements in
the United States, thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance in those countries. This process may include official review and certification of our vehicles by foreign regulatory
agencies prior to market entry, as well as compliance with foreign reporting and recall management systems requirements. See “Business-Governmental Regulations.”
To the extent U.S. or international laws change, some or all of our vehicles may not comply
with any new applicable international, federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with
new regulations is cost prohibitive, our business, prospects, financial condition and operating results will be adversely affected. Similarly, compliance with various regulations pertaining to ECVs in our various target markets may limit our
ability to sell certain of our ECV models in such markets.
Our ECVs may be subject to product liability claims or recalls which could cause us to incur expenses, damage our reputation or result in a diversion of management resources.
As manufacturer of record of our ECVs (except in the case of vehicles assembled by our
private label channel partners), we may be responsible for product liability claims or costs associated with product recalls. We may be subject to lawsuits resulting from injuries associated with the use of the ECVs that we design,
manufacture and sell to our channel partners. We may incur losses relating to these claims or the defense of these claims. Our ECVs may also be subject to recalls if any of our ECV designs prove to be defective, or our channel partners may
voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or the need to maintain good customer relationships. Such a recall would result in a diversion of resources and could
damage our reputation with both our channel partners and their customers. Any claims or recalls associated with our ECVs could exceed our insurance coverage and materially and adversely affect our business, financial condition, operating
results and prospects.
We face risks associated with our global operations and expansion, including unfavorable regulatory, political, legal, economic, tax and
labor conditions, and with establishing ourselves in new markets, all of which could harm our business.
We currently have international operations and subsidiaries in various countries and jurisdictions, and we expect to expand and optimize our channel partner network internationally and to invest in new manufacturing and assembly
facilities in various jurisdictions as part of our growth plan. Accordingly, we and our products are subject to a variety of legal, political and regulatory requirements and social and economic conditions over which we have little control.
For example, we may be impacted by trade policies, political uncertainty and economic cycles involving geographic regions where we have significant sales or operate.
We are subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our ECVs and require significant management attention. These risks include:
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conforming our products to various international regulatory and safety requirements in establishing, staffing and managing foreign operations;
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challenges in attracting channel partners;
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compliance with foreign government taxes, regulations and permit requirements;
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our ability to enforce our contractual rights and intellectual property rights;
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compliance with trade restrictions and customs regulations as well as tariffs and price or exchange controls;
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fluctuations in freight rates and transportation disruptions;
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fluctuations in the values of foreign currencies;
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compliance with certification and homologation requirements; and
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preferences of foreign nations for domestically manufactured products.
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In many of these markets, long-standing relationships between potential customers and their local partners and protective regulations and disparate networks and systems used by each country will create barriers
to entry.
We are currently selling our ECVs in North America, Europe and Asia, and, as a result, we are subject to laws and regulations in those jurisdictions that are applicable to the import and/or sale of electric
vehicles. For example, we are required to meet vehicle-specific safety standards that are often materially different across markets, thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance. For
each of the markets in which we sell our ECVs, we must obtain advanced approval from regulatory agencies regarding the proper certification or homologation of our vehicles to enter into these markets. This process necessitates that regulatory
officials in each market review and certify our vehicles prior to market entry. Any delay in the homologation process could adversely impact our ability to introduce any of these ECV models in their respective markets on our planned
timeframe, which could adversely affect our business, financial condition and operating results and harm our reputation.
Our business will be adversely affected if we are unable to
protect our intellectual property rights from unauthorized use or infringement by third parties.
Any failure to adequately protect our intellectual property rights could result in the weakening or loss of such rights, which may allow our competitors to offer similar or identical products or use identical or
confusingly similar branding, potentially resulting in the loss of some of our competitive advantage, a decrease in our revenue or an attribution of potentially lower quality products to us, which would adversely affect our business,
financial condition, operating results and prospects. Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents, patent
applications, trade secrets (including know-how), employee and third-party nondisclosure agreements, copyright protection, trademarks, intellectual property licenses and other contractual rights to establish and protect our intellectual
property rights in our technology. Our registered patents are under PRC law and have not been given reciprocal treatment and protection under the laws of either the United States or the European Union. We may be unable to adequately protect
our proprietary technology and intellectual property from use by third parties.
The protection provided by patent laws is and will be important to our business. However, such patents and agreements and various other measures we take to protect our intellectual property from use by others
may not be effective for various reasons, including the following:
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our pending patent applications may not result in the issuance of patents;
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our patents may not be broad enough to protect our commercial endeavors;
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the patents we have been granted may be challenged, invalidated or circumvented because of the pre-existence of similar patented or unpatented technology or for other reasons;
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the costs associated with obtaining and enforcing patents in the countries in which we operate, confidentiality and invention agreements or other intellectual property rights may make enforcement
impracticable; or
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current and future competitors may independently develop similar technology, duplicate our vehicles or design new vehicles in a way that circumvents our intellectual property protection.
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Existing trademark and trade secret laws and confidentiality agreements afford only limited protections. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United
States and policing the unauthorized use of our intellectual property is difficult. For example, historically the implementation and enforcement of PRC intellectual property-related laws have been limited. Accordingly, protection of
intellectual property rights in China may not be as effective as in the United States or other countries.
Some of the components in our supply chain are co-designed with third-party vendors, who are generally restricted from selling parts that are co-designed with us to other parties. However, in the event we discontinue our purchases of such
co-designed components from our vendors, these vendors may no longer be restricted from selling such co-designed components to third parties.
We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and could cause us to incur substantial costs.
Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop or sell our vehicles or
vehicle kits, which could make it more difficult for us to operate our business. From time to time, we receive notices from holders of patents or trademarks regarding their proprietary rights. Companies holding patents or other intellectual
property rights may bring suits against us alleging infringement of such rights or otherwise assert their rights and seek licenses. Even if we are successful in these proceedings, any intellectual property infringement claims against us could
be costly, time-consuming, harmful to our reputation, and could divert the time and attention of our management and other personnel or result in injunctive or other equitable relief that may require us to make changes to our business, any of
which could have a material adverse effect on our financial condition, cash flows, results of operations or prospects. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required
to do one or more of the following:
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cease selling vehicles or incorporating or using designs or offering goods or services that incorporate or use the challenged intellectual property;
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pay substantial damages;
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obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or
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redesign our vehicles or other goods or services.
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In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, financial condition,
operating results and prospects could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources and management attention.
In addition, we have agreed, and expect to continue to agree, to indemnify our channel partners for certain intellectual property infringement claims regarding our products. As a result, if infringement claims
are made against our channel partners, we may be required to indemnify them for damages (including expenses) resulting from such claims or to refund amounts they have paid to us.
Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.
Our business operations may generate noise, wastewater, end-of-life batteries, gaseous byproduct and other industrial waste. We are required to comply with all applicable national and local regulations regarding
the protection of the environment. We believe we are in compliance with current environmental protection requirements and have all necessary environmental permits to conduct our business. However, if more stringent regulations are adopted in
the future, the costs of compliance with these new regulations could be substantial. Additionally, if we fail to comply with present or future environmental rules or regulations, we may be liable for cleanup costs or be required to pay
substantial fines, suspend production or cease operations. Any failure by us to control the use of, or to adequately restrict the unauthorized discharge of, hazardous substances or comply with other environmental regulations could subject us
to potentially significant monetary damages and fines or suspensions to our business operations. Additionally, as we expand our local assembly capabilities in our target markets, our expansion will necessarily increase our exposure to
liability with respect to environmental regulations and the fines and injunctive actions related thereto and require us to spend further resources and time complying with complex environmental regulations in such jurisdictions.
Contamination at properties currently or formerly owned or operated by us, and properties to which hazardous substances were sent by us, may result in liability for us under environmental laws and regulations,
including the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). The U.S. government can impose liability on us under CERCLA for the full amount of remediation-related costs of a contaminated site without regard
to fault. Such costs can include those associated with the investigation and cleanup of contaminated soil, ground water and buildings as well as to reverse impacts to human health and damages to natural resources.
Pursuant to the Environmental Protection Law of the PRC, which was adopted on December 26, 1989, and amended on April 24, 2014, effective on January 1, 2015, any entity which discharges pollutants must adopt
measures to prevent and treat waste gas, waste water, waste residue, medical waste, dust, malodorous gas, radioactive substances generated in manufacturing, construction or any other activities as well as environmental pollution and hazards
such as noise, vibration, ray radiation, electromagnetic radiation etc. Environmental protection authorities impose various administrative penalties on entities in violation of the Environmental Protection Law, including warnings, fines,
orders to rectify within a prescribed period, cease construction, restrict or suspend production, make recovery, disclose relevant information or make an announcement, or seize and confiscate facilities and equipment which cause pollutant
emissions, the imposition of administrative action against relevant responsible persons, and orders to shut down enterprises. In addition, pursuant to the Civil Code of the PRC, which was adopted on May 28, 2020, and became effective on
January 1, 2021, in the event of damage caused to others as a result of environmental pollution and ecological destruction, the actor will bear tortious liability. In the event a party, in violation of laws and regulations, intentionally
pollutes the environment or damages the ecology, thereby causing serious consequences, the infringed party is entitled to claim appropriate punitive damages. Any violations of the Environmental Protection Law or the Civil Code of the PRC
could expose us to liabilities including fines and damages that could impact our business, prospects, financial condition and operating results.
China has implemented several regulations, policies and measures to regulate the batteries used in ECVs, which cover the security standards, recycling activities and other specifications. For example, the Interim
Measures for the Management of the Recycling of Power Battery in New Energy Vehicles (“PRC Battery Measures”) regulate the recycling and disposal of end-of-life batteries for new energy vehicles. The PRC Battery Measures provide that
manufacturers of new energy vehicles must take primary responsibilities of the recycling of batteries and are required, for instance, to transfer batteries that have been damaged during manufacturing to vendors that provide recycling
services, and to maintain records of the vehicles they have manufactured, the identification codes of the batteries incorporated into the vehicles, and the owners of the vehicles. The batteries used in our ECVs are also subject to a number of
national standards in China, including functional safety requirements and testing methods for the battery management system of electric vehicles.
The EU has specific regulations on batteries and the disposal of batteries to minimize the negative environmental effects of batteries and hazardous waste. The EU Battery Directive (2006/66/EC) (the “EU Battery
Directive”) is intended to cover all types of batteries regardless of their shape, volume, weight, material composition or use. It is aimed at reducing mercury, cadmium, lead and other metals in the environment by minimizing the use of these
substances in batteries and by treating and re-using old batteries. This directive applies to all types of batteries except those used to protect European Member States’ security, for military purposes, or sent into space. To achieve these
objectives, the EU Battery Directive prohibits the marketing of some batteries containing hazardous substances. It establishes processes aimed at high levels of collection and recycling of batteries with quantified collection and recycling
targets. The directive sets out minimum rules for producer responsibility and provisions with regard to labeling of batteries and their removability from equipment. Product markings are required for batteries and accumulators to provide
information on capacity and to facilitate reuse and safe disposal. We currently ship our ECVs pursuant to the requirements of the directive. Our current estimated costs associated with our compliance with this directive based on our current
market share are not significant. However, we continue to evaluate the impact of this directive as European Union member states implement guidance, and actual costs could differ from our current estimates.
In December 2020, the European Commission adopted a proposal to revise the EU Battery Directive. The proposal is designed to modernize the EU’s regulatory framework for batteries to secure the sustainability and
competitiveness of battery value chains. It could introduce mandatory requirements on sustainability (such as requiring responsible sourcing of raw materials, restrictions on the use of hazardous substances, carbon footprint rules, minimum
recycled content targets, performance and durability criteria), safety and labelling for the marketing and putting into service of batteries, and requirements for end-of-life management including to facilitate the repurposing of industrial
and electric-vehicle batteries as stationary energy storage batteries. The proposal also includes due diligence obligations for economic operators as regards the sourcing of raw materials.
The EU Restriction of Hazardous Substances Directive 2002/95/EC (the “RoHS Directive”) places restrictions on the use of certain hazardous
substances in electrical and electronic equipment. All applicable products sold in the European Union market after July 1, 2006 must comply with EU RoHS Directive. While this directive does not currently affect our ECVs in any meaningful way,
should any changes occur in the directive that would affect our ECVs, we will need to comply with any new regulations that are imposed.
Our noncompliance with any of these regulations may materially and adversely affect our operations or financial condition.
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject us to administrative,
civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition, prospects and reputation.
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which we conduct activities, including the
U.S. Foreign Corrupt Practices Act, or FCPA and other anti-corruption laws and regulations. The FCPA prohibits us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering,
promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies
to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. A violation of these laws or regulations could adversely affect
our business, results of operations, financial condition, prospects and reputation.
We have direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinary course of business. These interactions subject us to an increased
level of compliance-related concerns. We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, agents and business partners with
applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, our policies and procedures may not be sufficient, and our directors, officers, employees,
representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.
Noncompliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe
administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition, prospects and
reputation. In addition, changes in economic sanctions laws in the future could adversely affect our business and investments in our shares.
Risks Related to Information Technology, Data Security, and Privacy
We seek to continuously expand and improve our information technology systems and use security measures designed to protect our systems against breaches and cyber-attacks. If these
efforts are not successful, our business and operations could be disrupted, and our operating results and reputation could be harmed.
We seek to continuously expand and improve our information technology systems, including implementing new internally developed and/or external industry standard enterprise resource planning systems (“ERP
systems”), to assist us in the management of our business. We maintain information technology measures designed to protect us against intellectual property theft, data breaches and other cyber-attacks. The implementation, maintenance and
improvement of these systems require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving and expanding our core systems as well as implementing new systems, including the
disruption of our data management, procurement, manufacturing execution, finance and supply chain processes. Despite network security and back-up measures, our information technology systems are potentially vulnerable to physical or
electronic break-ins, computer viruses and similar disruptive problems. Despite precautionary measures to prevent unanticipated problems that could affect our information technology systems, sustained or repeated system failures that
interrupt our ability to generate and maintain data could adversely affect our ability to manage our data and inventory, procure parts or supplies or manufacture, sell, deliver ECVs, or achieve and maintain compliance with, or realize
available benefits under, tax laws and other applicable regulations.
We cannot assure you that any of our new information technology systems or their required functionality will be effectively implemented, maintained or expanded as planned. If we do not successfully maintain our
information technology or expand these systems as planned, our operations may be disrupted, our ability to accurately or timely report our financial results could be impaired, and deficiencies may arise in our internal control over financial
reporting, which may adversely affect our ability to certify our financial results. Moreover, our proprietary information could be compromised or misappropriated, and our reputation may be adversely affected. If these systems or their
functionality do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.
Data collection is governed by restrictive regulations governing the use, processing, and cross-border transfer of personal information.
International jurisdictions have their own data security and privacy legal framework with which companies or their customers must comply. The collection, use, storage, transfer, and other
processing of personal data regarding individuals in the European Economic Area is governed by the General Data Protection Regulation (“GDPR”), which came into effect in May 2018. It contains numerous requirements and changes from previously
existing EU law, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Among other things, the GDPR regulates transfers of personal data subject to
the GDPR to countries outside of the European Union that have not been found to provide adequate protection to such personal data, including the United States. The European Data Protection Board has issued draft guidance requiring additional
measures be implemented to protect EU personal data from foreign law enforcement, including in the U.S. These additional measures may require us to expend additional resources to comply.
The GDPR also introduced numerous privacy-related changes for companies operating in the European Union, including greater control for data subjects, increased data portability for EU
consumers, data breach notification requirements and increased fines. Fines of up to 20 million Euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain GDPR
requirements. Such penalties are in addition to any civil litigation claims by customers and data subjects. The GDPR requirements apply not only to third-party transactions but also to transfers of information between us and our subsidiaries,
including employee information.
The European Commission has another draft regulation in the approval process that focuses on a person’s right to conduct a private life, in contrast to the GDPR, which focuses on protection
of personal data. The proposed legislation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive. While the new legislation contains protections for those using
communications services (for example, protections against online tracking technologies), the timing of its proposed enactment following the GDPR means that additional time and effort may need to be spent addressing differences between the
ePrivacy Regulation and the GDPR. New rules related to the ePrivacy Regulation are likely to include enhanced consent requirements to use communications content and metadata and other data collected from connected devices and physical
objects, including our ECVs which are fitted with networking devices.
Following the United Kingdom’s (the “UK”) exit from the European Union, the GDPR was transposed into UK law (“UK GDPR”) as supplemented by the UK Data Protection Act 2018. As a result, the UK
GDPR will not automatically incorporate any changes made to the GDPR going forward (which would need to be specifically incorporated by the UK Government). At present, the GDPR and the UK GDPR are broadly similar and have parallel regimes,
which have not yet diverged significantly. However, the UK Government has launched a public consultation on proposed reforms to the data protection framework in the UK. This may lead to future divergence and variance between the two regimes.
In addition, China has laws relating to the supervision of data and information protection. The Cybersecurity Law regulates the activities of “network operators,” which include companies that
manage any network under PRC jurisdiction. As such, certain of our PRC subsidiaries may be regarded as network operators under the Cybersecurity Law, since our ECVs are fitted with networking devices. The Cybersecurity Law requires that the
collection of personal data is subject to consent by the person whose data is being collected.
On June 10, 2021, China enacted the Data Security Law of the PRC (“DSL”), which became effective as of September 1, 2021. The DSL introduces several changes and new features to data security
regulation and a comprehensive data security regime, which authorizes national departments to conduct stricter supervision of data in China. For example, the PRC government will establish a catalogue of crucial data categories and promulgate
stricter regulations over the protection of such crucial data listed in the catalogue. The DSL also will introduce the concept of “National Core Data,” which refers to data related to, among other topics, national security, the PRC economy,
and significant public interests, and provides that stricter regulations may be imposed on such National Core Data. The cross-border transfer of domestic data as required by non-PRC judicial or enforcement authorities is also subject to the
approval of competent Chinese authorities.
Compliance with the GDPR, the UK GDPR, the new ePrivacy Regulation, as well as the Cybersecurity Law and DSL in China, may involve substantial operational costs or require us to change
business practices. While we have not had a substantial presence in the European Union historically, in January 2022, we opened our European Operations Center in Dusseldorf, Germany and, in March 2022, we acquired a 65% equity interest in
Tropos Motors Europe GmbH (“TME”), a “private label” channel partners that assembles and distributes branded ECVs based on our Metro® called the ABLE and one of our largest customers since 2019. As a result, we may be required to comply with
certain provisions of the GDPR and the new ePrivacy Regulation (once effective). As a result, we may need to undertake an update of certain of our business practices, including (i) updating internal records, policies and procedures; (ii)
updating publicly facing privacy notices and consent mechanisms, where required; (iii) implementing employee privacy training; (iv) appointing an individual responsible for privacy compliance; (v) implementing an inter-group data transfer
agreement; (vi) reviewing/updating contracts with vendors that process data on our behalf, and (vii) implementing an audit framework. Furthermore, if we begin selling our ECVs directly to end-users in the European Union, UK or China, we would
likely be required to comply with additional regulatory requirements. To the extent we become subject to any such regulations, our noncompliance could result in proceedings by governmental entities, customers, data subjects or others and may
result in fines, penalties, and civil litigation claims.
Our ECVs are fitted with a networking device connecting the vehicle to our proprietary cloud-based software, which enables end-users to collect data about vehicle configuration, vehicle
status and user efficiency through a system of digitally enabled components, which we sometimes refer to as “smart components.” With the permission of the end-users of the vehicles, we received data collected from approximately 950 Metro®
units that we put into service through a company affiliated with our former parent company, CAG Cayman, in the Chinese market. This data included vehicle-specific data collected for operational analysis, which we used to make improvements in
the quality and durability of such components. We enable end-users to collect, store and analyze data using tools that we have developed but we do not have access to this end-user collected data unless we request and receive access from the
end-user. We do not currently collect, use or store any vehicle-specific or driver-specific data in any region and do not intend to do so in the future.
These laws, rules, and regulations are constantly evolving and may be interpreted, applied, created, or amended in a manner that could harm our current or future business and operations and
may result in ever increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. Any significant changes to applicable laws, regulations, or industry practices regarding the use, transfer, or disclosure of
individual data, or regarding the manner in which the express or implied consent of individuals for the use and disclosure of such data is obtained - or in how these applicable laws, regulations, or industry practices are interpreted and
enforced by state, federal, and international privacy regulators - could require us to modify our services and features, possibly in a material and costly manner, may subject us to legal claims, regulatory enforcement actions and fines, and
may limit our ability to develop new services and features that make use of the data that individuals share with us, should we begin to collect such data.
To the extent we are required to comply with regulations under the GDPR, the UK GDPR, the ePrivacy Regulation (once effective), the Cybersecurity Law and the DSL (collectively, the “Data
Security Regulations”), any non-compliance could adversely affect our business, financial condition, results of operations and prospects. Compliance with Data Security Regulations may be a rigorous and time-intensive process that may increase
our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with any future activities.
Any unauthorized control or manipulation of our ECV’s information technology systems could result in loss of confidence in us and our ECVs and harm our business.
Our ECVs are equipped with complex information technology systems. For example, our ECVs are designed with built-in data connectivity to improve their functionality. We have designed,
implemented and tested security measures intended to prevent unauthorized access to our information technology networks, our ECVs and their systems. However, hackers may attempt in the future to gain unauthorized access to modify, alter and
use such networks and ECV systems to gain control of, or to change, our ECVs’ functionality, user interface and performance characteristics, or to gain access to data stored in or generated by our ECVs. In addition, there are limited
preventative measures that we can take to prevent unauthorized access to our information technology network by an employee that is knowledgeable about our information technology network and its various safeguards. We encourage reporting of
potential vulnerabilities in the security of our ECVs, and we aim to remedy any reported and verified vulnerability. However, there can be no assurance that vulnerabilities will not be exploited in the future before they can be identified, or
that our remediation efforts are or will be successful.
Any unauthorized access to or control of our ECVs or their systems or any loss of data could result in legal claims or proceedings. In addition, regardless of their veracity, reports of
unauthorized access to our ECVs, their systems or data, as well as other factors that may result in the perception that our ECVs, their systems or data are capable of being “hacked,” could adversely affect our brand, business, financial
condition, operating results and prospects.
Breaches in data security, failure of information security systems, cyber-attacks or other security or privacy-related incidents affecting us or our suppliers could have a material adverse
effect on our reputation and brand, harm our business, prospects, financial condition, results of operations, and cash flows, and subject us to legal or regulatory fines or damages.
Threats to networks and information technology infrastructure are increasingly diverse and sophisticated. Traditional computer “hackers,” malicious code (such as viruses and worms), phishing
attempts, employee theft or misuse, denial of service attacks, ransomware attacks, and sophisticated nation-state and nation-state supported actors engage in intrusions and attacks that create risks for our (and our suppliers’) internal
networks, vehicles, infrastructure, and cloud deployed products and the information they store and process, including personal information of our employees and customers, including names, accounts, user IDs and passwords, vehicle information,
and payment or transaction related information. Although we have implemented security measures designed to prevent such attacks, our networks and systems may be breached due to the actions of outside parties, employee error, malfeasance, a
combination of these, or otherwise, and as a result, an unauthorized party may obtain access to our systems, networks, or data, resulting in data being publicly disclosed, altered, lost, or stolen, which could subject us to liability and
adversely impact our financial condition. Further, any breach in our data security could allow malicious parties to access sensitive systems, such as our product lines and the vehicles themselves. Such access could adversely impact the safety
of our employees and customers. We and our suppliers have been and continue to be subject to ransomware and phishing attacks. While we seek to learn from all attacks directed at us and implement remedial measures where necessary under the
framework of our cybersecurity risk management program we have developed and expect our suppliers to do the same, we cannot guarantee that such remedial measures will prevent material cybersecurity incidents in the future. We also face
increasing and evolving disclosure obligations related to cyber and other security events. Despite our cybersecurity risk management program and processes, we may fail to meet our existing or future disclosure obligations and/or may have our
disclosures misinterpreted.
Any actual, alleged, or perceived failure to prevent a security breach or to comply with our privacy policies or privacy-related legal obligations, failure in our systems or networks, or any
other actual, alleged, or perceived data security incident we or our suppliers suffer, could result in: damage to our reputation; negative publicity; loss of customers and sales; loss of competitive advantages over our competitors; increased
costs to remedy any problems and provide any required notifications, including to regulators and individuals, and otherwise respond to any incident; regulatory investigations and enforcement actions; costly litigation; and other liabilities.
In addition, we may incur significant financial and operational costs to investigate, remediate, and implement additional tools, devices, and systems designed to prevent actual or perceived security breaches, and other security or
privacy-related incidents, as well as costs to comply with any notification obligations resulting from any such incidents. Further, we could also be exposed to a risk of loss or litigation and potential liability under laws, regulations, and
contracts that protect the privacy and security of personal information. Any of these negative outcomes could adversely impact the market perception of our products and customer and investor confidence in our Company, and would materially and
adversely affect our business, prospects, financial condition, results of operations, or cash flows.
Risks Related to Doing Business in China
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business, results of operations, financial condition and
prospects.
A significant amount of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced by political,
economic and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of
foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the
establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in
regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. In some instances, these regulatory measures could negatively impact us. For instance, the Chinese government restricts foreign
direct investment in certain industries, which could in the future, if such restrictions are expanded to include the ECV industry, limit our ability to operate through Chinese subsidiaries.
Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall
economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our ECVs and adversely affect our competitive position. While the Chinese economy has experienced
significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of
resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our business, results of operations, financial condition and prospects may be adversely affected by government
control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustments, to control the pace of economic growth. These measures may
cause decreased economic activity in China, which may also adversely affect our business, results of operations, financial condition and prospects.
The PRC government may intervene or otherwise adversely affect our operations at any time, or may exert more control over foreign investment in issuers with operations in China, which could
materially affect our operations.
The PRC government may intervene or otherwise adversely affect our operations at any time, or may exert more control over foreign investment in issuers with operations in China, which could
materially affect our operations. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and Internet industries, and we cannot rule out the possibility that it
will in the future release regulations or policies regarding the electric commercial vehicle or any other related industry that could adversely affect the business, financial condition and results of operations of our company. Furthermore,
the PRC government has also recently indicated an intent to exert more oversight and control over foreign investment in companies with China-based operations. Rules and regulations in China can change with little advance notice. Any such
action, once taken by the PRC government, could cause the value of such securities to significantly decline.
Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on certain
activities in the securities market, enhancing supervision over China-based companies listed overseas (particularly those using variable interest entity structures), adopting new measures to extend the scope of cybersecurity reviews
(particularly for companies that process large amounts of sensitive consumer data), and expanding efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or
administrative bodies will respond, what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have
on our daily business operations or the ability to accept foreign investments.
Uncertainties with respect to the Chinese legal system could materially and adversely affect us and may restrict the level of legal protections to foreign investors.
China’s legal system is based on statutory law. Unlike the common law system, statutory law is based primarily on written statutes. Previous court decisions may be cited as persuasive
authority but do not have a binding effect. Although the Supreme People’s Court has determined and issued guiding caselaw that courts should refer to when trying similar cases, it may not sufficiently cover all aspects of economic activities
in China. Since 1979, the Chinese government has been promulgating and amending laws, regulations and relevant interpretations regarding economic matters, such as corporate organization and governance, foreign investment, commerce, taxation
and trade. However, since these laws and regulations are relatively new, and the Chinese legal system continues to rapidly evolve, the interpretation of many laws, regulations and rules is not always uniform, and enforcement of these laws,
regulations and rules may involves uncertainties, which may limit legal protections available to us.
In addition, any litigation in China may be protracted and may result in substantial costs and diversion of resources and management’s attention. The legal system in China may not provide
investors with the same level of protection as in the United States or Australia. We are governed by laws and regulations generally applicable to local enterprises in China. Many of these laws and regulations are still being continuously
revised and improved. Interpretation, implementation and enforcement of the existing laws and regulations can be uncertain and unpredictable and therefore may restrict the legal protections available to foreign investors.
We currently conduct a significant amount of our operations through our subsidiaries established in China. Adverse regulatory developments in China may subject us to additional regulatory
review or regulatory approval, and additional disclosure requirements. Also, regulatory scrutiny in response to recent tensions between the United States and China may impose additional compliance requirements for companies like ours with
significant China-based operations. These developments could increase our compliance costs or subject us to additional disclosure requirements.
We currently conduct a significant amount of our operations through our subsidiaries established in China. Because of our corporate structure, we and our investors are subject to unique risks
due to uncertainty regarding the interpretation and application of currently enacted PRC laws and regulations and any future actions of the PRC government relating to companies with significant PRC operations, and the possibility of sanctions
imposed by PRC regulatory agencies, including the China Securities Regulatory Commission, if we fail to comply with their rules and regulations. For example, as a result of our PRC operations, we are subject to PRC laws relating to, among
others, data security and restriction over foreign investments. Recent regulatory developments in China, in particular with respect to restrictions on companies with significant operations in China raising capital offshore, including
companies that process large amounts of sensitive consumer data and companies with a variable interest entities structure, or a VIE structure, may lead to additional regulatory review or approval in China over our financing and capital
raising activities in the U.S. capital markets. On December 28, 2021, the Cyberspace Administration of China (the “Cyberspace Administration”) and other competent authorities issued the amended Cybersecurity Review Measures (effective as of
February 2022), which provides, among other things, that online platform operators (i.e., over one million users) must apply for cybersecurity review prior to public listings outside of China. Under such rules, the Cyberspace Administration
has jurisdiction to review and limit foreign public listings of critical information infrastructure operators (data operators in industries such as energy, water conservancy and public services) and online platform operators with more than
one million users (for example, companies that operate consumer platforms such as ride-sharing, personal banking or retail).
Additionally, on December 24, 2021, the China Securities Regulatory Commission (“CSRC”) published the Regulations of the State Council on the Administration of Overseas Issuance and Listing
of Securities by Domestic Enterprises (Draft for Public Comments) and the Measures for the Administration of Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Public Comments) for public comments, which will apply
to a domestic enterprise that issues shares, depositary receipts, corporate bonds convertible into shares, or other securities of an equity nature outside of the PRC, or lists its securities for trading outside of the PRC.
On February 17, 2023, the CSRC issued the Overseas Offering and Listing Measures, which provides principles and guidelines for direct and indirect issuance of securities overseas by a Chinese
domestic company. Under the Overseas Offering and Listing Measures, the substance rather than the form of issuance will govern when determining whether an issuance constitutes “indirect issuance of securities overseas by a Chinese domestic
company”, and an issuance meeting the following two conditions simultaneously will be deemed as an “indirect issuance of securities overseas by a Chinese domestic company”: (i) 50% or more of the issuer’s operating revenue, total profit,
total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic enterprises, and (ii) the principal business is conducted or the principal business
place is within the territory of mainland China, or the majority of senior management in charge of business operation are Chinese citizens or have habitual residence within the territory of mainland China. In the event any listing or issuance
of securities has fallen under this definition, the issuer shall assign one of its related major Chinese domestic operating entities to make filings with the CSRC within three business days after its initial public offering or any offerings
after the initial public offering. As the Company is an Australian company with (i) only partial business operations conducted within the territory of mainland China constituting less than 50% of our total financials on a consolidated basis,
and (ii) does not have its principal business conducted or the principal business place within the territory of mainland China, or have majority of senior management in charge of business operation are Chinese citizens or have habitual
residence within the territory of mainland China, we understand the Company’s listing and issuance of securities on Nasdaq will not constitute an indirect issuance of securities overseas by a Chinese domestic company under the Overseas
Offering and Listing Measures. However, even if we were subject to the Overseas Offering and Listing Measures according to the Overseas Offering and Listing Notice, an issuer who has completed overseas issuance and listing before March 31,
2023 like us is not required to file with the CSRC for the offering or listing that is already completed but is required to make filings with the CSRC for its follow-on financing activities involving overseas offering or listing after the
effective date of the Overseas Offering and Listing Measures. As such, we are not required to make filings with CSRC under the Overseas Offering and Listing Measures unless we qualify under the above criteria and conduct new overseas
offerings of our securities in the future. As the Overseas Offering and Listing Measures is recently issued and the interpretations and implementation of such regulation still involve uncertainties, we cannot assure you that the Company, and
its subsidiaries can complete the filings with the CSRC if the Company become subject to the Listing Measures intends to conduct new overseas offerings of its securities after March 31, 2023. In addition, since regulatory regime of the PRC
for securities activities continues to rapidly evolve, we cannot assure you that we will not be required in the future to make filings with or obtain approvals from the CSRC or potentially other regulatory authorities in order to maintain the
listing status on Nasdaq due to changes or passing of applicable laws, regulations, or interpretations in the future. In the event that it is determined that the Company, and its subsidiaries are required to make filings with or obtain
approval from the CSRC or any other regulatory authority but fail to make such filings or obtain such approvals timely or at all, the PRC subsidiaries of the Company may be subject to non-compliance rectification order, warning letters or
fines, which could materially and adversely affect our business, financial condition, and results of operations, and/or the value of our Common Stock, or could significantly limit or completely hinder our ability to offer or continue to offer
securities to investors and cause the value of such securities to significantly decline or be worthless.
In addition, on July 30, 2021, in response to the recent regulatory developments in China and actions adopted by the PRC government, the Chairman of the SEC issued a statement asking the SEC
staff to seek additional disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective, including detailed disclosure related to VIE structures and whether
the VIE and the issuer, when applicable, received or were denied permission from Chinese authorities to list on U.S. exchanges and the risks that such approval could be denied or rescinded.
We may face heightened scrutiny and negative publicity, which could result in a material change in our operations or significantly limit our ability to offer or continue to offer securities
to investors and cause the value of such securities to significantly decline. Additionally, recent statements by PRC authorities and changes in PRC internal regulatory mandates, such as certain rules surrounding mergers and acquisitions, the
Data Security Law, and rules related to entities using a variable interest entity structure, may target the Company due to our significant operations in China and impact our ability to conduct business, accept foreign investments, or maintain
a listing on a U.S. exchange. We cannot predict the effects of future developments in the PRC legal system. We may be required in the future to procure additional permits, authorizations and approvals for our existing and future operations,
which may not be obtainable in a timely fashion or at all and which could materially affect our operations as a business. The occurrence of any of the aforementioned regulatory obstacles or the inability to obtain such permits or
authorizations may have a material and adverse effect on our business, financial condition and results of operations.
Increases in labor costs and enforcement of stricter labor laws and regulations in China may adversely affect our business and our profitability.
China’s overall economy and the average wage in China have increased in recent years and are expected to grow. The average wage level for our employees has also increased in recent years. We
expect that our labor costs, including wages and employee benefits, will increase. Unless we are able to take effective measures to reduce labor costs or pass on these increased labor costs to those who pay for our ECVs, our profitability and
results of operations may be materially and adversely affected.
In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees, limitation with respect to utilization of labor
dispatching, applying for foreigner work permits, labor protection and labor condition and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance
and maternity insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law and its implementation rules, employers are subject to stricter requirements in terms of signing labor
contracts, minimum wages, paying remuneration, determining the term of employee’s probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or
labor practices, the PRC Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.
In October 2010, the Standing Committee of the National People’s Congress promulgated the PRC Social Insurance Law, which came into effect on July 1, 2011 and was amended on December 29,
2018. On April 3, 1999, the State Council of the People’s Republic of China (the “State Council”) promulgated the Regulations on the Administration of Housing Funds, which was amended on March 24, 2002 and March 24, 2019. Companies registered
and operating in China are required under the Social Insurance Law and the Regulations on the Administration of Housing Funds to apply for social insurance registration and housing fund deposit registration within 30 days of their
establishment, and to pay for their employees different social insurance including pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to the extent required by law, as well as
housing provident funds. If we are deemed to have violated relevant social insurance and housing funds regulations, we could be subject to orders by the competent authorities for rectification and failure to comply with such orders may
further subject us to administrative fines or other corresponding measures.
As the interpretation and implementation of labor-related laws and regulations are still evolving, our employment practices may violate labor-related laws and regulations in China, which may
subject us to labor disputes or government investigations. We cannot assure you that we have complied or will be able to comply with all labor-related law and regulations including those relating to obligations to make social insurance
payments and contribute to the housing provident funds. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees or assume other responsibilities and our
business, financial condition and results of operations will be adversely affected.
Fluctuations in the value of the RMB and restrictions on currency exchange may adversely affect our business.
The reporting currency of our U.S. subsidiary is the U.S. Dollar while our Chinese subsidiaries’ functional currency is RMB. Our Audited Financial Statements are presented in USD and will be
affected by the foreign exchange rate of the Renminbi (“RMB”) against the USD. During the years ended December 31, 2023, and 2022, significant portions of our revenues were derived from the sales in the European Union and United States,
denominated in Euros or USD, respectively, while our costs and expenses were primarily incurred in the PRC (and denominated in RMB). The value of the RMB against the Euro, USD and other currencies is affected by changes in China’s political
and economic conditions and by China’s foreign exchange policies, as well as currency market conditions and other factors.
Since July 21, 2005, the RMB has been permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. It is difficult to predict how market forces or
PRC, U.S. or EU government policy may impact the exchange rate between the RMB and the USD or Euro, respectively, in the future. For instance, during the year ended December 31, 2023 the RMB depreciated against the USD by approximately 8%.
Currency exchange rate fluctuation in either direction can negatively impact our results of operations or financial condition. Appreciation in RMB could have the effect of increasing our
operating costs so long as a material amount of our current operations occur in China. Conversely, appreciation of USD against the RMB could have the effect of reducing the value of our cash and cash equivalents in China for the purpose of
paying any cash dividends.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC
subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.
We conduct our operations in various countries, including China, through wholly owned subsidiaries with direct equity ownership. If our PRC subsidiaries incur debt on their own behalf in the
future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries, which are foreign-owned enterprises, may pay dividends only out of
their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if
any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends. At its discretion, a foreign-owned enterprise may
allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund, or a staff welfare and bonus fund. To date, we have not been required to set aside and fund any such statutory reserve fund, as we
have, since our inception, incurred net losses.
Under applicable PRC accounting standards and regulations, intercompany transfers are accounted for under either a general account, for cash transfers in the ordinary course of business, or a
capital account, for cash transfers on investments (i.e., dividends and loan repayments). With respect to our capital account, we can send capital investments to our subsidiaries for working capital and our subsidiaries can use such capital
at their discretion. To the extent one of our PRC subsidiaries declares and pays a dividend, such subsidiary must pay a transfer tax of 15% to repatriate any profit distributed to our Australian parent company. Our PRC subsidiaries, as Wholly
Foreign Owned Enterprises (WFOEs) under PRC law, can make dividends up to CAG HK without prior PRC regulatory approval. However, any such subsidiary is limited in its ability to make dividends while that subsidiary has either net losses in
the current period or accumulated net losses from prior periods and will only be able to pay dividends during periods in which it has positive net income and no accumulated net losses. We have not made any cash distributions or transfers of
other assets between us and any of our subsidiaries. To date, there have been no net profits recognized at any of our PRC subsidiaries and thus there have not been any dividends or distributions made by any of our subsidiaries. With respect
to our general account, our subsidiaries purchase and pay for materials and parts, and receive funds for the sale of vehicle kits and vehicles. There is no PRC government approval required for transactions in our general account, where funds
can be sent and received in the ordinary course of business freely without government approvals.
Revenue generated in Renminbi by our PRC Subsidiaries is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC
subsidiaries to use their Renminbi revenues to pay dividends to us.
The PRC government may continue to strengthen its capital controls and more restrictions and substantial vetting processes may be put forward by the State Administration of Foreign Exchange,
or SAFE, for cross-border transactions. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions
that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding
tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments
of other countries or regions where the non-PRC-resident enterprises are incorporated.
Changes in U.S. and international trade policies, particularly with regard to China, may adversely impact our business and operating results.
Since the beginning of 2018, there has been increasing rhetoric, in some cases coupled with legislative or executive action, from several U.S. and foreign leaders regarding tariffs against
foreign imports of certain materials. More specifically, there have been several rounds of U.S. tariffs on Chinese goods taking effect in the past few years, some of which prompted retaliatory Chinese tariffs on U.S. goods. By January 2020,
China and the United States had reached a phase one trade deal to roll back tariffs and suspend certain tariff increases by the United States that were scheduled to take effect; however, such phase one trade deal made reductions in tariffs
contingent on certain purchase concessions from China. As of March 2022, China has yet to satisfy the trade deal’s purchase conditions and tariff levels have not been reduced under the agreement. The institution of trade tariffs both globally
and between the U.S. and China specifically carries the risk of negatively affecting both countries’ overall economic condition. If these tariffs continue or additional new tariffs are imposed in the future, they could have a negative impact
on us as we have significant operations in China.
The Chinese government has adopted legislation and new regulations designed to counteract U.S. trade policies towards China, including the Anti-Foreign Sanctions Law and the Ministry of
Commerce of the People’s Republic of China Order No. 1 of 2021 on Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures. Pursuant to the Anti-Foreign Sanctions Law, all entities and
individuals (including subsidiaries of multinational companies and foreign citizen) in China (including Hong Kong and Macao) risk being on the anti-sanctions list if they are deemed to aid and abet in the implementation of sanctions imposed
by foreign countries. Continuing trade tensions between China and the United States could adversely affect our business and our operations.
It may be difficult for overseas regulators to conduct investigations or collect evidence within China.
Shareholder claims or regulatory investigations that are common in the United States and other developed countries generally are difficult to pursue as a matter of law or practicality in
China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory
cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not
be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to
directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities
regulator to directly conduct investigations or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to or
make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Under PRC laws and regulations, we are permitted to utilize the proceeds of any financing outside China to fund our PRC subsidiaries by making loans to or additional capital contributions to
our PRC subsidiaries, subject to applicable government registration, statutory limitations on amount and approval requirements. These PRC laws and regulations may limit our ability to use Renminbi converted from the net proceeds of any
financing outside China to make future loans to our PRC subsidiaries or future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise
fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us or
otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
SAFE requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of
overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes certain material events.
If our stockholders who are PRC residents or entities do not complete their registration with the local SAFE branches, our PRC subsidiaries may be prohibited from distributing their profits
and any proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with SAFE registration
requirements could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.
However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interests in our company, nor can we compel our beneficial owners to comply
with SAFE registration requirements. As a result, we cannot assure you that all of our stockholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain, any applicable registrations
or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or
legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and
prospects.
Any failure to comply with PRC regulations regarding the registration requirements for employee share incentive plans may subject the PRC plan participants or us to fines and other legal or
administrative sanctions.
Under SAFE regulations, PRC residents who participate in a share incentive plan in an overseas publicly listed company may be required to register with SAFE or its local branches and complete
certain other procedures. We and our PRC resident employees who participate in our share incentive plans may become subject to these regulations. If we or any of these PRC resident employees fail to comply with these regulations, we or such
employees may be subject to fines and other legal or administrative sanctions. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under
PRC law.
You may experience difficulties in enforcing foreign judgments or bringing actions in China against us based on foreign laws.
The recognition and enforcement of foreign judgments in China are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with
the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of
reciprocity with the United States or Australia that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, PRC courts will not enforce a foreign judgment if they
decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the
United States or Australia against any of our subsidiaries or assets located in China.
Risks Related to Our Common Stock
Our common stock may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors. The delisting of our common stock, or the threat of their
being delisted, may materially and adversely affect the value of your investment.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states if the SEC determines that a company has filed audit reports issued by a
registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such Common Stock from being traded on a national securities exchange or in the
over-the-counter trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. A company will be required to
comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and
trading prohibition requirements described above. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an
issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. A bill corresponding to the Senate’s Accelerating Holding Foreign Companies Accounting
Act was introduced in the U.S. House of Representatives on December 13, 2021, though such legislation has not yet been passed. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the
PCAOB to use when determining, as contemplated under the HFCA Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or
more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having
filed an Annual Report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in
foreign jurisdictions. On December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (i) China, and (ii) Hong Kong.
Our current auditor, GGF, the independent registered public accounting firm that issues the audit report included in this annual report on Form 10-K, as a firm registered with the PCAOB
(PCAOB ID:2729), is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. GGF, whose audit report is included in this report, is headquartered
in Guangzhou, China, and, as of the date of this annual report, was not included in the list of PCAOB Identified Firms in the Determination Report. Recent developments create uncertainty as to the PCAOB’s continued ability to conduct
inspections of our independent accounting firm GGF.
Our ability to retain an auditor subject to the PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related to us, may depend on the
relevant positions of U.S. and Chinese regulators. With respect to audits of companies with operations in China, such as the Company, there are uncertainties about the ability of our auditor to fully cooperate with a request by the PCAOB for
audit working papers in China without the approval of Chinese authorities. If the PCAOB is unable to inspect or investigate completely the Company’s auditor because of a position taken by an authority in a foreign jurisdiction, then such lack
of inspection could cause trading in the Company’s securities to be prohibited under the HFCAA, and ultimately result in a determination by a securities exchange to delist the Company’s securities. Such a prohibition would substantially
impair an investor’s ability to sell or purchase the Company’s Common Stock and negatively impact the price of the Common Stock. Accordingly, the HFCAA calls for additional and more stringent criteria to be applied to emerging market
companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
Our Common Stock price may be volatile, and the value of our Common Stock may decline.
The market price of our Common Stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including:
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our future financial performance, including expectations regarding our revenue, expenses and other operating results;
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changes in customer acceptance rates or the pricing of our vehicles;
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delays in the production of our vehicles;
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our ability to establish new channel partners and successfully retain existing channel partners;
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our ability to anticipate market needs and develop and introduce new and enhanced vehicles to adapt to changes in our industry;
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the success of our competitors;
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our operating results failing to meet the expectations of securities analysts or investors in a particular period;
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changes in financial estimates and recommendations by securities analysts concerning us or the industry in which we operate in general;
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the stock price performance of other companies that investors deem comparable to us;
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announcements by us or our competitors of significant business developments, acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
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future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
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disputes or other developments related to our intellectual property or other proprietary rights, including litigation;
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changes in our capital structure, including future issuances of securities or the incurrence of debt;
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changes in senior management or key personnel;
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changes in laws and regulations affecting our business;
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commencement of, or involvement in, investigations, inquiries or litigation;
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the inherent risks related to the electric commercial vehicle industry;
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the trading volume of our Common Stock; and
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general economic and market conditions.
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Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, may also negatively impact the market price of our Common Stock. In
addition, technology stocks have historically experienced high levels of volatility. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We
may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.
Concentration of ownership among our executive officers, directors and their affiliates, may prevent new investors from influencing significant corporate decisions.
As of December 31, 2023, our executive officers, directors and their affiliates beneficially own, in the aggregate, approximately 24.9% of our outstanding Common Stock. In particular, as of
December 31, 2023, Mr. Peter Z. Wang, our Chief Executive Officer, beneficially owned approximately 23.7% of our outstanding Common Stock.
Mr. Wang is able to exercise a significant level of influence over all matters requiring shareholder approval, including the election of directors, amendments of our Constitution and approval
of significant corporate transactions. This influence could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible
without the support of Mr. Wang.
Future sales of our Common Stock by us in the public market could cause the market price of our Common Stock to decline. The issuance of additional Common Stock in connection with financings,
acquisitions, investments, our equity incentive plans or otherwise will dilute all other shareholders.
Sales of a substantial number of Common Stock in the public market, including sales of Common Stock or securities convertible into Common Stock under our existing universal shelf registration
statements on Form F-3, filed with the SEC on May 18, 2021, and January 6, 2022, or the perception that these sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale
of additional equity securities. We are unable to predict the timing of or the effect that any such sales may have on the prevailing market price of our Common Stock.
The issuance of additional Common Stock in the future will result in dilution to all other shareholders. In addition, we expect to grant equity awards to employees, directors and consultants
under our equity incentive plans. As part of our business strategy, we may acquire or make investments in companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of
additional share capital may cause shareholders to experience significant dilution of their ownership interests and the per share value of our Common Stock to decline.
If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, the market price and trading volume of our Common Stock could
decline.
The market price and trading volume of our Common Stock is heavily influenced by the way analysts interpret our financial information and other disclosures. We do not have control over these
analysts. If industry analysts cease coverage of us or if securities analysts do not publish research or reports about our business, the price of our Common Stock may be negatively affected. If securities or industry analysts downgrade our
Common Stock or publish negative reports about our business, the price of our Common Stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Common Stock
could decrease, which might cause a decline in the price of our Common Stock and could decrease the trading volume of our Common Stock.
We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Common
Stock.
We have never declared or paid any cash dividends on our Common Stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the
future will be at the discretion of our Board. Accordingly, you may need to rely on sales of our Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on your investment.
There can be no assurance that we will be able to comply with the continued listing standards of the Nasdaq Capital Market. Our failure to meet the continued listing requirements could
result in a de-listing of our Common Stock.
We cannot assure you that we will be able to comply with the standards that we are required to meet in order to maintain a listing of our Common Stock on the Nasdaq Capital Market of The
Nasdaq Stock Market LLC (“Nasdaq”). If we fail to satisfy the continued listing requirements of the Nasdaq Capital Market, such as the minimum stockholder’s equity requirement, the minimum bid price requirements or the minimum market value
of publicly held shares requirement, Nasdaq staff may take steps to de-list our Common Stock. A notice of de-listing or any de-listing would likely have a negative effect on the price of our Common Stock and may impair our stockholders’
ability to sell our Common Stock when they wish to do so. In the event that we receive a notice of de-listing, we would plan to take actions to restore our compliance with the Nasdaq Capital Market’s listing requirements, but we can provide
no assurance that any action taken by us would result in our Common Stock maintaining its listing, or that any such action would stabilize the market price or improve the liquidity of our Common Stock.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Common Stock less
attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or Section 404 and disclosure obligations
regarding executive compensation. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards
would otherwise apply to private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that
are applicable to public companies, which may make our Common Stock less attractive to investors. In addition, if we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with
new or revised accounting standards.
We will remain an emerging growth company until the earliest of: (1) the last day of the fiscal year following the fifth anniversary of June 20, 2018, which was the date of the first sale
of our Common Stock pursuant to an effective registration statement; (2) the last day of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (3) the date on which we have, during the previous rolling
three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the last day of the fiscal year in which the market value of our Common Stock held by non-affiliates exceeded $700 million as of June 30 of such
fiscal year.
We cannot predict if investors will find our Common Stock less attractive if we choose to rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our
future results of operations may not be as comparable to the results of operations of certain other companies in our industry that adopted such standards. If some investors find our Common Stock less attractive as a result, there may be a
less active trading market for our Common Stock, and our share price may be more volatile.
The Nevada Revised Statutes contain anti-takeover provisions, which may discourage a third-party from acquiring us and adversely affect the rights of holders of our Common Stock.
The Nevada Revised Statutes contain certain provisions that could limit the ability of others to acquire control of our Company. In addition, Nevada law restricts the ability of a
corporation to engage in any combination with an interested stockholder for three years from when the interested stockholder acquires shares that cause the stockholder to become an interested stockholder, unless the combination or purchase
of shares by the interested stockholder is approved by the Board of Directors before the stockholder became an interested stockholder. These provisions could discourage, delay or prevent a transaction involving a change in control of our
company. These provisions could also make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions that you desire. Additionally, our Chairman and Chief Executive
Officer, Peter Z. Wang has considerable influence over the composition of our Board. See “⸺Concentration of ownership among our executive officers, directors and their affiliates, may prevent new investors from influencing significant
corporate decisions.”
| Item 1B. |
Unresolved Staff Comments.
|
Smaller reporting companies are not required to provide the information required by this item.
| Item 1C. |
Cybersecurity.
|
Our ECVs are fitted with a networking device connecting the vehicle to our proprietary cloud-based software, which enables end-users to collect data about vehicle configuration, vehicle
status and user efficiency through a system of digitally enabled components, which we sometimes refer to as “smart components.” With the permission of the end-users of the vehicles, we received data collected from approximately 950 Metro®
units that we put into service through a company affiliated with our former parent company, CAG Cayman, in the Chinese market. This data included vehicle-specific data collected for operational analysis, which we used to make improvements
in the quality and durability of such components. We enable end-users to collect, store and analyze data using tools that we have developed but we do not have access to this end-user collected data unless we request and receive access from
the end-user. We do not currently collect, use or store any vehicle-specific or driver-specific data in any region and do not intend to do so in the future.
While to our knowledge no previous cybersecurity incidents have occurred, we seek to continuously expand and improve our information technology systems, including implementing new
internally developed and/or external industry standard enterprise resource planning systems (“ERP systems”), to assist us in the management of our business. We maintain information technology measures designed to protect us against
intellectual property theft, data breaches and other cyber-attacks. The implementation, maintenance and improvement of these systems require significant management time, support and cost. Moreover, there are inherent risks associated with
developing, improving and expanding our core systems as well as implementing new systems, including the disruption of our data management, procurement, manufacturing execution, finance and supply chain processes. Elements our cybersecurity
information technology measures include efforts to identify, prevent, detect, mitigate, and remediate cybersecurity risks and incidents through:
• Cybersecurity risk assessments for identification of material cybersecurity risks to our critical systems, information, products, and our
technology environment;
• Security personnel and vendors responsible for managing our cybersecurity risk assessment processes, our security controls, and our
response to cybersecurity incidents;
• Training and awareness programs for our personnel and senior management to drive adoption and awareness of cybersecurity processes and
information technology measures;
• A cybersecurity monitoring program responsible for tools that produce alerts and reports of suspicious activity for the prevention of and
response to cybersecurity incidents;
• Internal testing and assessments, where appropriate, of our cybersecurity information technology measures;
• Management of external consultants and services engaged by us, where appropriate, to assess, test, or otherwise assist with aspects of our
cybersecurity information technology measures; and
• A third-party risk management process for evaluating cybersecurity threats associated with our use of service providers, suppliers, and
vendors.
Despite network security and back-up measures, our information technology systems are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive
problems. Despite precautionary measures to prevent unanticipated problems that could affect our information technology systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely
affect our ability to manage our data and inventory, procure parts or supplies or manufacture, sell, deliver ECVs, or achieve and maintain compliance with, or realize available benefits under, tax laws and other applicable regulations.
We cannot assure you that any of our new information technology systems or their required functionality will be effectively implemented, maintained or expanded as planned. If we do not
successfully maintain our information technology or expand these systems as planned, our operations may be disrupted, our ability to accurately or timely report our financial results could be impaired, and deficiencies may arise in our
internal control over financial reporting, which may adversely affect our ability to certify our financial results. Moreover, our proprietary information could be compromised or misappropriated, and our reputation may be adversely affected.
If these systems or their functionality do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.
The risks from cybersecurity threats are monitored and managed by the Company’s information systems team members who have relevant expertise with such potential threats, and who operate in
collaboration with other Company functions. The Company’s Audit Committee is responsible for overseeing cybersecurity risk and are informed in a timely manner of any incidents considered potentially serious, together with details on the
prevention, detection, mitigation and remediation of such incidents.
| Item 2. |
Properties.
|
We currently own one facility in Changxing, China, which is approximately 165,800 square feet, and is primarily used for engineering and production of vehicle kits of the Metro® and
assembly of certain ECV models for export and logistics operations. We currently lease eighteen facilities and offices located in the United States, Germany, Mexico and China. One of our existing United States facilities located in
Freehold, New Jersey, is approximately 9,750 square feet and is used primarily for the trial production of our Logistar™ 400 model and warehousing. Our second existing facility in Freehold, New Jersey is approximately 2,600 square feet and
is used as our corporate headquarters. The third facility in Howell, New Jersey includes two units with a combined space of 41,160 square feet and is used to supplement the first New Jersey facility for production. Our leased China
facility is located in Hangzhou, Zhejiang Province, with approximately 15,456 square feet of office space primarily used as regional headquarters, as well as for research and development, supply-chain management, and sales operations.
In January 2022, we established a European Operations Center in Dusseldorf, Germany, which provides marketing support, after-market support and spare-parts warehousing for the European
market. Our European Operations Center is approximately 27,220 square feet.
We established a local assembly facility and EV Center in Jacksonville, Florida. The assembly factory is where we plan to assemble the Logistar™ 400 and the Teemak™ for eventual sale in the
North American market. We began trial assembling operations at the Jacksonville facility in March 2023. Our Florida based EV Center is approximately 12,000 square feet and is our flagship EV Center for sales and support functions.
In addition, in connection with our acquisition of TME, we utilize TME’s facility in Herne, Germany, where we are expanding local assembly capacity in the European Union for production of
our European ECV models, including the Teemak® and Logistar™ series, in addition to the Metro®. In November 2022, we leased a 112,332 square feet manufacturing facility located in the Aero Industrial Park in Monterrey, Mexico that will
house our wholly owned Mexican subsidiary, Cennatic Energy, S. DE R.L. DE C.V. (“Cennatic Energy”). Cennatic Energy will manufacture lithium-ion batteries for electric commercial vehicles. The purpose of the facility is to enhance the
independence of our supply chain for essential components.
| Item 3. |
Legal Proceedings.
|
From time to time, we may be subject to various legal claims and proceedings that arise from the normal course of business activities, including, third party intellectual property
infringement claims against us in the form of letters and other forms of communication. Litigation or any other legal or administrative proceeding, regardless of the outcome, could result in substantial cost, diversion of our resources,
including management’s time and attention, and, depending on the nature of the claims, reputational harm. In addition, if any litigation results in an unfavorable outcome, there exists the possibility of a material adverse impact on our
results of operations, prospects, cash flows, financial position and brand. Please refer to the description as contained in “Item 8 Financial Statements and Supplementary Data” on page F-1 of our Annual Report and the information described
below.
On March 25, 2022, Shengzhou Hengzhong Machinery Co., Ltd. (“Shengzhou”), an affiliate of Cenntro Automotive Corporation, filed a demand for arbitration against Tropos Technologies, Inc.
with the American Arbitration Association (“AAA”), asserting claims for breach of contract and unjust enrichment. Shengzhou is seeking payment of $1,126,640 (exclusive of interest, costs, and attorneys’ fees) for outstanding invoices owed
by Tropos Technologies, Inc. to Shengzhou. As of the date of this report, Tropos Technologies, Inc. has not yet formally responded to the demand. On February 16, 2023, AAA appointed an arbitrator and arbitrator and on April 25,2023, Tropos
Technologies, Inc. filed a motion to dismiss the arbitration demand. On May 23,2023, Shengzhou filed a response in opposition to the motion to dismiss the arbitration demand. A hearing on the motion to dismiss was held on November 7, 2023.
On January 29, 2024, the arbitrator issued his opinion and order denying Tropos Technologies, Inc.’s motion to dismiss.
On July 22, 2022, Xiongjian Chen (the “Plaintiff") filed a complaint against Cenntro Electric Group Limited (“CENN”), Cenntro Automotive Group Limited (“CAG”), Cenntro Enterprise Limited
(“CEL”) and Peter Z. Wang (“Wang,” together with CENN, CAG and CEL, the “Defendants”) in the United States District Court for the District of New Jersey. The complaint alleges eleven causes of action sounding in contract and tort against
the Defendants, all pertaining to stock options issued to Mr. Chen pursuant to his employment as Chief Operating Officer of CAG. With respect to the four contract claims, Plaintiff alleges breach of contract claims pertaining to an
employment agreement between Plaintiff and CAG and a purported letter agreement between Plaintiff and CEL. With respect to the seven tort claims, Plaintiff alleges claims regarding purported misrepresentations and promises made concerning
the treatment of Plaintiff’s stock options upon a corporate transaction, including claims for tortious interference, fraud, promissory estoppel, negligent misrepresentation, unjust enrichment and conversion. The complaint seeks, among other
things, money damages (including compensatory and consequential damages) in the amount of $19 million, plus interest, attorneys’ fees and expenses. Defendants moved to dismiss the complaint against all Defendants for failure to state a
claim and for lack of personal jurisdiction over defendants CAG and CEL. On April 30, 2023, the District Court dismissed the claims against CAG and CEL for lack of personal jurisdiction. In addition, the District Court dismissed all the
claims against Wang and CENN without prejudice and permitted the Plaintiff to amend his complaint within 30 days to address the deficiencies in his claims against Wang and CENN. On July 20, 2023, the Defendants filed a motion seeking the
dismissal of that amended complaint. On July 20, 2023, the Defendants filed a motion seeking the dismissal of Plaintiff’s amended complaint. On September 22, 2023, the Plaintiff filed a motion to strike our motion to dismiss. The Defendants
filed reply briefs to Plaintiff’s motion to strike on November 9, 2023. On January 25, 2024, the Magistrate Judge entered an order granting Plaintiff’s Motion to Amend and denying our Motion to Strike as moot.
On February 6,
2023, Hangzhou Ronda Tech Co., Limited (“Ronda”), one of Cenntro’s wholly owned subsidiaries, Ronda commenced a lawsuit against Fujian Newlongma Automotive Co., Ltd. (“Newlongma”), one of Ronda’s suppliers in the Hangzhou Yuhang District
People's Court (the “Court”), under which Ronda pled for (i) the termination of the vehicle purchase orders that Ronda placed with Newlongma on February 26, 2022; (ii) recovery of advance payments for total amount of approximately $438,702;
and (iii) compensation for damages equal to approximately $453,290. The mediation date was set for March 3, 2023 and subsequently docketed on July 3, 2023. Since then, Newlongma filed a jurisdictional objection, and the Court dismissed that
jurisdictional objection. Subsequently Newlongma filed a counterclaim and the Court hosted an exchange of evidence between the parties on October 17, 2023. On March 5, 2024, the Court issued a judgment ruling: (1) Newlongma was to return
advance payments plus 100% damages totaling $869,702; (2) Ronda was to pay for outstanding invoices totaling $583,813; and (3) that all agreements between the parties were to be terminated, including the vehicle purchase orders which have
not been fulfilled. Newlongma is dissatisfied with this third judgment and filed an appeal on March 21, 2024. We will prepare relevant defense materials.
| Item 4. |
Mine Safety Disclosures.
|
Not Applicable.
PART II
| Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
Shares of our Common Stock are currently quoted on the Nasdaq Capital Markets under the symbol “CENN”. We had 30,828,778 shares of Common Stock issued and outstanding as of December 31, 2023.
The following table sets forth, for the periods indicated, the high and low bid prices of our Common Stock.
|
High
|
Low
|
|||||||
|
Fiscal Year Ended December 31, 2023(1)
|
||||||||
|
First Quarter
|
$
|
0.87
|
$
|
0.35
|
||||
|
Second Quarter
|
$
|
0.49
|
$
|
0.28
|
||||
|
Third Quarter
|
$
|
0.50
|
$
|
0.23
|
||||
|
Fourth Quarter
|
$
|
1.59
|
$
|
1.21
|
||||
|
Fiscal Year Ended December 31, 2022
|
||||||||
|
First Quarter
|
$
|
5.57
|
$
|
1.05
|
||||
|
Second Quarter
|
$
|
2.30
|
$
|
1.34
|
||||
|
Third Quarter
|
$
|
1.82
|
$
|
0.95
|
||||
|
Fourth Quarter
|
$
|
1.20
|
$
|
0.26
|
||||
| (1) |
Accounts for a 1:10 reverse stock spit effective as of December 8, 2023.
|
Holders of Capital Stock
As of December 31, 2023, we had 191 holders of our Common Stock.
Stock Option Grants
As of the date of this Annual Report, options to purchase an aggregate of 2,202,248 shares of Common Stock have been granted and 5,147 shares of Common Stock have been issued under the 2023 Plan.
Transfer Agent
The transfer agent for our Common Stock is Continental Stock Transfer & Trust Company. The transfer agent’s address is 1 State Street, 30th Floor, New York, NY 10004.
Dividends
To date, we have not declared or paid any dividends on our Common Stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our Common Stock. Although we intend to retain our earnings, if any, to finance the
exploration and growth of our business, our Board of Directors has the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend upon our earnings, capital requirements, and any other factors that our Board of Directors deems relevant.
Recent Sales of Unregistered Securities
Except as set forth below or in a Current Report on Form 6-K or 8-K, there were no equity securities of the registrant sold by the registrant during the period covered by this annual report
that were not registered under the Securities Act other than the following transaction pursuant to the Redomiciliation:
On February 27, 2024, the Company completed the Redomiciliation. In connection with the Redomiciliation, Cenntro issued 30,828,778 (thirty million, eight hundred and twenty-eight
thousand, seven hundred and seventy-eight) shares of common stock, on the basis of one share of common stock for every one ordinary share of CEGL issued and outstanding prior to the Redomiciliation. The Redomiciliation was effected
pursuant to a statutory scheme of arrangement under Australian law (the “Scheme”). The issuance of Cenntro’s shares of common stock in the Scheme was exempt from registration under the Securities Act in reliance on Section 3(a)(10).
| Item 6. |
[Reserved]
|
Smaller reporting companies are not required to provide the information required by this item.
| Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operation.
|
The information set forth in this section contains certain “forward-looking statements”, including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities
and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as
“believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering into future
agreements with companies, and plans to successfully develop and obtain approval to market our product. We have based these forward-looking statements largely on our current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of
the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Annual Report should not be regarded as a representation by us or any other person that our objectives or plans will be
achieved.
We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.
Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of
significant natural disaster, the inability of our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally
affecting our products and businesses.
You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Annual Report.
US Dollars are denoted herein by “USD”, “$” and “dollars”.
Overview
We are an emerging designer, manufacturer, distributor, and service provider of commercial vehicles powered by either electricity or hydrogen energy sources. Our commercial vehicles are
designed to serve a variety of fleet and municipal organizations in support of city services, last-mile delivery and other commercial applications. As of December 31, 2023, we have developed six series of commercial vehicle models, Metro®,
Logistar™, Logimax™, Avantier™, Teemak™ and Antric One. We have successfully begun to produce and deliver these models into the global markets, apart from Logimax™.
We have also developed and introduced iChassis™: a programmable “smart” chassis that may be controlled by third-party software for various remote controlled or autonomous driving
applications. We continue to leverage our technology, vehicle development, and vehicle distribution capabilities with a goal to become a leading provider in the electric commercial vehicle (“ECV”) market. Our greater mission is to provide
commercial vehicles that may be powered by sustainable sources while building eco-chains to reduce carbon dioxide for a better environment and quality of life.
With the global trend toward reducing the number of internal combustion engine (“ICE”) vehicles, electric-battery and fuel cell technologies stand out as strong alternatives. Prior to
COVID-19, battery costs significantly decreased over the past decade. We expect that over the long term, prices will continue to fall. According to research service Bloomberg NEF (“BNEF”), lithium-ion battery pack prices decreased from
above $1,200 per kilowatt-hour in 2010 to $132/kWh in 2021. In real terms, this represented a decline of approximately 89%. Although battery pack prices have recently increased and may continue to increase in the near-term due to the rising
price of lithium as a result of COVID-19 and other factors, we anticipate that battery prices will continue to decrease in the long-term. BNEF further forecasts that by 2024, average prices are expected to fall to below $100/kWh, though
such reductions in average price may be delayed due to higher raw material prices in the near term. Additionally, while prices for key battery metals like lithium, nickel and cobalt have moderated slightly in recent months, BNEF expects
average battery pack prices to remain elevated in 2023 at $152/kWh (in real 2022 dollars). BNEF expects battery price to start dropping again in 2024, when lithium prices are expected to ease as more extraction and refining capacity comes
online. Based on the updated observed learning rate, BNEF’s 2022 Battery Price Survey predicts that average pack prices should fall below $100/kWh by 2026. By emphasizing investments in technology, supply-chains, vehicle distribution and
aftermarket support, we have begun making our own battery packs, preparing battery cell production, by building up vehicle distribution and service networks, and introducing our cloud-based parts distribution systems. As investment in
battery technology continues to increase, we believe these cost reductions outlined by BNEF will continue to improve the economics of battery-powered ECVs, like ours.
In addition to our investment in battery-technology, we have established an asset-light, distributed manufacturing business model through which we may distribute our vehicles in unassembled
semi-knockdown vehicle kits (“vehicle kits”) for local assembly in addition to fully assembled vehicles. Some of our vehicle models have a modular design that allows for local assembly in micro factory facilities that require less capital
investment. We manufacture our own vehicle kits for the Metro® in our facilities in China and leverage the economies of scale of and the supply-chain availability in China to manufacture vehicle kits and fully assembled vehicles in our
assembly plants in United States and Germany. We believe our distributed manufacturing methodology allows us to execute our business plan with less capital than would be required by the traditional, vertically integrated automotive model
and, in the long-term, drive higher profit margins.
Our distributed manufacturing model allows us to focus our efforts on the design of ECV models and related technologies while outsourcing various portions of the manufacturing, assembly and
marketing of our vehicles to qualified third parties, allowing the Company to operate with lower capital investment than traditional vertically integrated automotive companies. For the last several years, we relied substantially on private
label channel partners to assemble and distribute the Metro® from vehicle kits that we manufactured in our facilities. Our vehicle kits and in some cases fully assembled vehicles are completed by third party Original Equipment Manufacturers
(“OEMs”) manufacturing partners and, in the case of vehicle kits, assembled in our own facilities in North America and Europe. Our relationships with such third parties, our “manufacturing partners,” have allowed us to forego expensive
capital investments in our own facilities and operate within our historic working capital limitations. Throughout 2022 we began to re-align our distribution and marketing strategy away from relying mainly on third-party channel partners to
a distribution model that combines wholly-owned EV Centers with local dealers in order to improve overall operational efficiencies, product quality, brand value, market share, customer support and service. Throughout 2023 we have relied on
our local EV Centers to develop local dealer networks that directly sell to local customers in order to improve overall operational efficiencies, product quality, brand value, market share, customer support and service.
Additionally, to meet our anticipated demand in the United States, we have established local assembly facilities in Northern America as we have launched assembly facilities in Jacksonville,
Florida and Freehold, New Jersey. We are also in the of process establishing additional assembly facility in Ontario, California. Additionally, we expect that our step acquisition of CAE (f.k.a. TME) in 2023 will further expand our local
assembly capacity in the European Union for production of some of our ECV models, including the Teemak™ series, Antric products, in addition to the Metro®.
| A. |
Key Components of Results of Operations
|
Net revenues
Up until December 31, 2021, we generate revenue primarily through the sale of ECVs to our
channel partners. Starting in 2022, especially after the acquisition of CAE and the termination of the channel partners in North America, we have started to transform our go-to-market model to also include Cenntro Branded EV Centers
globally. Historically (i.e. up until end of 2021), these revenues were generated solely by the sale of the Metro®. Starting from the last quarter of 2021, we began generating revenue from the sales of the Logistar™ 200, Logistar™ 100,
Logistar™ 260, Teemak™ and Neibor® 150 in Europe.
Net revenues ended December 31, 2023 and 2022 were generated from (a) vehicles sales, which primarily represent net revenues from sales of Metro® vehicles (including vehicle kits),
Logistar™ 200, Logistar™ 260 and Logistar™ 100, (b) sales of ECV spare-parts related to our Metro® vehicles, and (c) other sales, which primarily were: (i) the sales of inventory of outsourced ECV batteries and (ii) charges on services
provided to channel partners for technical developments and assistance with vehicle homologation or certification .
Cost of goods sold
Cost of goods sold mainly consists of production-related costs including costs of raw materials, consumables, direct labor, overhead costs, depreciation of plants and equipment,
manufacturing waste treatment processing fees and inventory write-downs. We incur cost of goods sold in relation to (i) vehicle sales and spare-part sales, including, among others, purchases of raw materials, labor costs, and manufacturing
expenses that related to ECVs, and (ii) other sales, including cost and expenses that are not related to ECV sales.
Cost of goods sold also includes inventory write-downs. Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined on the basis of weighted
average. The cost of finished goods is determined on the basis of weighted average and is comprised of direct materials, direct labor cost and an appropriate proportion of overhead. Net realizable value is based on estimated selling prices
less selling expenses and any further costs of completion. Adjustments to reduce the cost of inventory to net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. Write-downs are recorded in the
cost of goods sold in our statements of operations and comprehensive loss.
Operating expenses
Our operating expenses consist of general and administrative, selling and marketing expenses, and research and development expenses. General and administrative expenses are the most
significant components of our operating expenses. Operating expenses also include provision for doubtful accounts and impairment loss for long- lived assets.
Research and Development Expenses
Research and development expenses consist primarily of employee compensation and related expenses, prototype expenses, costs associated with assets acquired for research and development,
product development costs, production inspection and testing expenses, product strategic advisory fees, third-party engineering and contractor support costs and allocated overhead. We expect our research and development expenses to increase
as we continue to invest in new ECV models, new materials and techniques, vehicle management and control systems, digital control capabilities and other technologies.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of employee compensation and related expenses, sales commissions, marketing programs, freight costs, travel and entertainment expenses and
allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications and brand-building activities. We expect our selling and marketing expenses to increase as we introduce our new ECV models, further
develop additional local dealership and service support networks to augment our expanding sales globally.
General and Administrative Expenses
General and administrative expenses consist primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, and fees for
third-party professional services. While we will continue to monitor general and administrative expenses, we expect general and administrative expenses to materially increase over the next two years in connection with the execution of our
growth strategy, including the regionalization of our manufacturing and supply chain and expanded product offerings and expenses relating to being a public company.
Provision for doubtful accounts
A provision for doubtful accounts is recorded for periods in which we determine a loss is probable, based on our assessment of specific factors, such as troubled collections, historical
experience, accounts aging, ongoing business relations and other factors. Account balances are charged off against the provision after all means of collection have been exhausted and the potential for recovery is considered remote.
Impairment loss for long-lived assets
We evaluate the recoverability of long-lived assets or asset group with determinable useful lives whenever events or changes in circumstances indicate that an asset or a group of assets’
carrying amount may not be recoverable. We measure the carrying amount of long-lived asset against the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. The
carrying amount of the long-lived asset or asset group is not recoverable when the sum of the undiscounted expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the
amount by which the carrying value of the asset exceeds its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset group, when the market prices are not readily
available. The adjusted carrying amount of the assets become a new cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
Other income (expenses)
Interest expense, net
Interest expense, net, consists of interest on outstanding loans and the convertible promissory notes.
Income(loss) from and impairment on equity method investments
Entities over which we have the ability to exercise significant influence but do not have a controlling interest through investment in common shares, or in-substance common shares, are
accounted for using the equity method. Under the equity method, we initially record our investment at cost and subsequently recognize our proportionate share of each such entity’s net income or loss after the date of investment into the
statements of operations and comprehensive loss and accordingly adjust the carrying amount of the investment. When our share of losses in the equity of such entity equals or exceeds our interest in the equity of such entity, we do not
recognize further losses, unless we have incurred obligations or made payments or guarantees on behalf of such entity. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is
determined to be other-than-temporary. The adjusted carrying amount of the assets become a new cost basis.
Key Operating Metrics
We prepare and analyze operating and financial data to assess the performance of our business and allocate our resources. The following table sets forth our key performance indicators for
the years ended December 31, 2023 and 2022.
|
Year ended December 31
|
||||||||
|
2023
|
2022
|
|||||||
|
Gross margin of vehicle sales
|
11.7
|
%
|
-0.27
|
%
|
||||
Gross margin of vehicle sales
. Gross margin of vehicle sales is defined as gross profit of vehicle sales divided by total revenue of vehicle sales
Results of Operations
The following table sets forth a summary of our statements of operations for the periods indicated:
|
|
Year Ended December 31,
|
|||||||
|
|
2023
|
2022
|
||||||
|
|
(Expressed in U.S. Dollars)
|
|||||||
|
Combined Statements of Operations Data:
|
||||||||
|
Net revenues
|
22,079,905
|
8,941,835
|
||||||
|
Cost of goods sold
|
(19,821,645
|
)
|
(9,455,805
|
)
|
||||
|
Gross profit/(loss)
|
2,258,260
|
(513,970
|
)
|
|||||
|
Operating Expenses:
|
||||||||
|
Selling and marketing expenses
|
(7,868,773
|
)
|
(6,525,255
|
)
|
||||
|
General and administrative expenses
|
(35,768,786
|
)
|
(32,822,709
|
)
|
||||
|
Research and development expenses
|
(8,469,241
|
)
|
(6,362,770
|
)
|
||||
|
Provision for doubtful accounts
|
—
|
(5,986,308
|
)
|
|||||
|
Reverse of Deferred tax liabilities
|
—
|
898,632
|
||||||
|
Impairment of ROU
|
—
|
(371,695
|
)
|
|||||
|
Impairment of Intangible assets
|
—
|
(2,995,440
|
)
|
|||||
|
Impairment of PPE
|
(431,319
|
)
|
(550,402
|
)
|
||||
|
Total operating expenses
|
(52,538,119
|
)
|
(54,715,947
|
)
|
||||
|
|
||||||||
|
Loss from operations
|
(50,279,859
|
)
|
(55,229,917
|
)
|
||||
|
|
||||||||
|
Other Income (Expense):
|
||||||||
|
Interest expense, net
|
402,414
|
(844,231
|
)
|
|||||
|
(Loss) Income from equity method investments
|
(222,349
|
)
|
(12,651
|
)
|
||||
|
Other (expense) income, net
|
621,633
|
(924,867
|
)
|
|||||
|
Loss on redemption of convertible promissory notes
|
12,507
|
(7,435
|
)
|
|||||
|
Change in fair value of convertible promissory notes and derivative liability
|
75,341
|
(37,774,928
|
)
|
|||||
|
Change in fair value of equity securities
|
(2,600,721
|
)
|
(240,805
|
)
|
||||
|
Convertible bond issuance cost
|
—
|
(5,589,336
|
)
|
|||||
|
Foreign currency exchange loss, net
|
(848,781
|
)
|
(409,207
|
)
|
||||
|
Impairment of Goodwill
|
—
|
(11,111,886
|
)
|
|||||
|
Gain (loss)from cross-currency swaps
|
8,664
|
—
|
||||||
|
Impairment of Long-term investments
|
(1,155,411
|
)
|
||||||
|
loss from acquisition of Antric
|
(136,302
|
)
|
||||||
|
Loss on exercise of warrants
|
(228,903
|
)
|
—
|
|||||
|
Loss before income taxes
|
(54,351,767
|
)
|
(112,145,263
|
)
|
||||
|
Income tax expense
|
(8,988
|
)
|
—
|
|||||
|
Net loss
|
(54,360,755
|
)
|
(112,145,263
|
)
|
||||
|
Less: net loss attributable to non-controlling interests
|
(161,430
|
)
|
(2,057,022
|
)
|
||||
|
Net loss attributable to shareholders of the Company
|
(54,199,325
|
)
|
(110,088,241
|
)
|
||||
Comparison of the Years Ended December 31, 2023 and 2022
Net Revenues
The following table presents our net revenue components by amount and as a percentage of the total net revenues for the periods presented.
|
Year Ended December 31,
|
||||||||||||||||
|
2023
|
2022
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
(Expressed in U.S. Dollars)
|
||||||||||||||||
|
Net revenues:
|
||||||||||||||||
|
Vehicle Sales
|
$
|
20,344,889
|
92.1
|
%
|
$
|
8,235,053
|
92.1
|
%
|
||||||||
|
Spare-part sales
|
1,554,311
|
7.1
|
%
|
304,506
|
3.4
|
%
|
||||||||||
|
Other sales
|
180,705
|
0.8
|
%
|
402,276
|
4.5
|
%
|
||||||||||
|
Total net revenues
|
$
|
22,079,905
|
100.00
|
%
|
$
|
8,941,835
|
100.00
|
%
|
||||||||
Net revenues for the year ended December 31, 2023 were approximately $22.1 million, an increase of approximately $13.1 million or 146.9% from approximately $8.9 million for the year ended
December 31, 2022. The increase in net revenues in 2023 was primarily attributed to an increase in vehicle sales by approximately $12.1 million and an increase in spare-part sales by approximately $1.2 million, offset by the decrease in
service revenue of approximately $0.2 million.
For the year ended December 31, 2023, we sold 1,135 ECVs, including 261 fully assembled Metro® units, 172 fully assembled Logistar™ 200 units, 214 fully assembled Logistar™ 100 units, 13
fully assembled Teemak™ units, 210 fully assembled Logistar™ 260 units, one fully assembled Logistar™ 400 units, 193 fully assembled Avantier™ units, 8 Neibor® 150 units, 42 Clubcar units and 21 Antric® V5 units, compared with 458 ECVs for
the year ended December 31, 2022, including 48 Metro® vehicle kits, 200 fully assembled Metro® units, one fully assembled Neibor® 150 unit, 205 fully assembled Logistar™ 200, one fully assembled Teemak™ and three fully assembled iChassis
100.
Geographically, the vast majority of our net revenues were generated from vehicle sales in the European Union during the years ended December 31, 2023 and 2022. For the year ended December
31, 2023, net revenues from Europe, North America, Asia (including China) and Latin America as a percentage of total revenues was 73.4%, 4.6%, 21.8% and 0.2%, respectively, compared to 78.9%, 7.8%, 13.3% and nil, respectively for the
corresponding period in 2022.
Cost of goods sold
The following table presents our cost of goods sold by amount and as a percentage of the total cost of goods sold for the periods presented.
|
Year Ended December 31,
|
||||||||||||||||
|
2023
|
2022
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
(Expressed in U.S. Dollars)
|
||||||||||||||||
|
Cost of goods sold:
|
||||||||||||||||
|
Vehicle Sales
|
$
|
(17,375,714
|
)
|
87.7
|
%
|
$
|
(6,852,852
|
)
|
72.5
|
%
|
||||||
|
Spare-part sales
|
(1,534,172
|
)
|
7.7
|
%
|
(190,241
|
)
|
2.0
|
%
|
||||||||
|
Other sales
|
(253,136
|
)
|
1.3
|
%
|
(257,312
|
)
|
2.7
|
%
|
||||||||
|
Inventory write-down
|
(658,622
|
)
|
3.3
|
%
|
(2,155,400
|
)
|
22.8
|
%
|
||||||||
|
Total cost of goods sold
|
$
|
(19,821,645
|
)
|
100.00
|
%
|
$
|
(9,455,805
|
)
|
100.00
|
%
|
||||||
Cost of goods sold for the year ended December 31, 2023 was approximately $19.8 million, an increase of approximately $10.4 million or approximately 109.6% from approximately $9.5 million
for the year ended December 31, 2022. The increase in cost of goods sold in 2023 was primarily attributable to the increase of cost of vehicle sales of approximately $10.5 million. The increase of cost of vehicle sales was mainly caused by
the increased vehicle sales during the year 2023. The increase cost per vehicle was also partly attributable to the additional ocean shipping between continents, as the Company shift from recognizing revenue with FOB terms to recording
revenue on local direct pricing in the European and the US market which covered ocean shipping.
Gross Profit/(Loss)
Gross profit for the year ended December 31, 2023 was approximately $2.3 million, an increase of approximately $2.8 million from approximately $0.5 million of gross loss for the year ended
December 31, 2022. For the years ended December 31, 2023 and 2022, our overall gross margin was approximately 10.2% and -5.7%, respectively. Our gross margin of vehicle sales for years ended December 31, 2023 and 2022 was 11.7% and -0.27%,
respectively. The increase of our gross profit was caused by (i) the decrease in inventory write-down of approximately $1.5 million; (ii) the realized gross margin of Logsitar®100 and our newly introduced Logsitar®260 was approximately
25.4% and 18.8%, respectively. Both of the models only began sales in 2023.
Selling and Marketing Expenses
Selling and marketing expenses for the year ended December 31, 2023 were approximately $7.9 million, an increase of approximately $1.3 million or approximately 20.6% from
approximately $6.5 million for the year ended December 31, 2022. The increase in selling and marketing expenses in 2023 was primarily attributed to the increase in service fees related to European
market and distribution channel research and salary and social insurance of approximately $1.6 million and $0.7 million, respectively, offset by a decrease in marketing expense of approximately
$1.1 million.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2023 were approximately $35.8 million, an increase of approximately $2.9 million or approximately 9.0% from approximately $32.8 million for the year ended December 31, 2022. The increase in general and administrative expenses in 2023 was primarily
attributed to (i) an increase in share-based compensation of approximately $1.4 million, (ii) an increase in ROU amortization of approximately $2.1 million, (iii) an increase in ROU interest expense of approximately $1.0 million, (iv) an
increase in office expense of approximately $0.6 million, (v) an increase in others of approximately $0.4 million, which mainly related to garage liability insurance fee, and (vi) the increase in rental expense, travelling fee, freight
and depreciation of approximately $0.6 million, $0.3 million, $0.3 million and $0.6 million, respectively, offset by the decrease in salary and social care expense and FOH stripping fee of approximately $2.8 million and $1.8 million,
respectively.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2023 were approximately $8.5 million, an increase of approximately $2.1 million or approximately 33.1% from approximately
$6.4 million for the year ended December 31, 2022. The increase in research and development expenses in 2023 was primarily attributed to the increase in design and development expenditures and salary expense of approximately $1.0 million
and $1.4 million, respectively, offset by a decrease in development fee related to enhancing quality of approximately $0.5 million.
Interest income (expense), net
Interest income (expense), net, consists of interest income on deposit and short-term products and interest expense on convertible bonds. Net interest income was approximately $0.4 million
for the year ended December 31, 2023, a change of approximately $1.2 million or approximately 146.3% compared to the approximately $0.8 million in interest expense for the year ended December 31, 2022. The change was primarily attributable
to (i) a decrease in interest expense to convertible bonds of approximately $1.1 million; (ii) the increase in interest income of approximately $0.7 million from short-term money market investment; (iii) offset by a decrease in interest
income of approximately $0.6 million from bank deposit.
Other income (expense), net
Other income net for the year ended December 31, 2023 was approximately $0.6 million, representing a change of approximately $1.5 million compared to approximately $0.9 million of other
expense, net for the year ended December 31, 2022. The change of other income in 2023 compared to 2022 was primarily attributable to the decrease in litigation compensation of approximately $1.3 million paid to Sevic Systems SE over IP
dispute and an increase of approximately $0.3 million in liquidation income from Shengzhou Cenntro Machinery Co., Ltd. and Zhejiang Xbean Tech Co. Ltd. during the year 2023.
Change in fair value of convertible promissory notes and derivative liability
An income in the change in fair value of convertible promissory notes and derivative liability for the year ended December 31, 2023 was approximately $0.08 million compared to approximately
$37.8 million of a loss in the change in fair value of convertible promissory notes and derivative liability for the year ended December 31, 2022. The less loss derived from fair value change was primarily caused by the reduced volatility
of Company’s stock price, which stabilizes the probability of exercising the mandatory redemption rights of the Company’s convertible promissory notes and cashless exercising the warrants.
Change in fair value of equity securities
A loss in the change in fair value of equity securities for the year ended December 31, 2023 was approximately $2.6 million compared to approximately $0.2 million of a loss in the change in
fair value of equity securities for the year ended December 31, 2022. The increased loss was attributed to a downward adjustment of approximately $2.3 million due to the fair value change of our investment on participating shares in Micro
Money Fund SPC with an original investment value of $5 million, and a loss of $1.4 million related to the redemption of $1 million of Micro Money Fund, offset by an upward adjustment of approximately $1.0 million from our investment on
partnership shares in MineOne Fix Income Investment IL.P with an original investment value of $25 million.
Foreign currency exchange loss, net
Foreign currency exchange loss, net for the year ended December 31, 2023 was approximately $0.8 million, an increase of $0.4 million compared with approximately $0.4 million for the year
ended December 31, 2022.
Impairment of ROU, intangible assets, goodwill, PPE and reversal of deferred tax liabilities
Impairment of ROU, intangible assets, goodwill, and PPE of approximately were nil, nil, nil, $0.4 million for the year 2023 compared to approximately $0.4 million, $3.0 million, $11.1
million, and $0.6 million respectively for the year 2022. The impaired ROU, intangible assets, goodwill and PPE were one-off events all related to the acquisition of CAE closed as of March 23, 2022. Impairments to these assets were provided
due to the underperformance of CAE to earn revenue as projected during 2022, which was significantly and negatively influenced by the regional conflict in the European continent and distortion of energy prices during the year 2022. A
Reversal of deferred tax liabilities of approximately $0.9 million was recognized given the impairment of intangible assets related to CAE being provided during the year 2022, no deferred tax liabilities were reversed during the year 2023.
Impairment of long-term investments
Impairment of Long-term investments for the year ended December 31, 2023 was approximately $1.2 million compared to nil of impairment of long-term investments for the year ended
December 31, 2022. The impairment was attributed to a downward adjustment of the fair value on the 25% acquisition of Antric.
Loss from acquisition of Antric
Loss from acquisition of Antric for the year ended December 31, 2023 was approximately $0.1 million compared to nil of loss from acquisition of Antric for the year ended December 31, 2022.
Non-GAAP Financial Measures
Adjusted EBITDA for the Years Ended December 31, 2023 and 2022
In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure is useful in evaluating operational performance. We use Adjusted EBITDA
to evaluate ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing operating performance.
Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a measurement of our financial
performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. We define Adjusted EBITDA as net income (or net loss) before net interest expense, income tax
expense, depreciation and amortization as further adjusted to exclude the impact of stock-based compensation expense and other non-recurring expenses including expenses related to TME Acquisition, expenses related to one-off payment inherited from
the original Naked Brand Group, impairment of goodwill, convertible bond issuance fee, loss on redemption of convertible promissory notes, loss on exercise of warrants, and change in fair value of convertible promissory notes and derivative
liability.
We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and
other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing
results of operations. Management uses Adjusted EBITDA:
| • |
as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core
operations;
|
| • |
for planning purposes, including the preparation of our internal annual operating budget and financial projections;
|
| • |
to evaluate the performance and effectiveness of our operational strategies; and
|
| • |
to evaluate our capacity to expand our business.
|
By providing this non-GAAP financial measure, together with the reconciliation, we believe we are enhancing investors’ understanding of our business and our results of operations, as
well as assisting investors in evaluating how well we are executing our strategic initiatives. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by our
competitors because not all companies and analysts calculate Adjusted EBITDA in the same manner. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for net income
or other financial statement data presented in our financial statements as indicators of financial performance. Some of the limitations are:
| • |
such measures do not reflect our cash expenditures;
|
| • |
such measures do not reflect changes in, or cash requirements for, our working capital needs;
|
| • |
although depreciation and amortization are recurring, non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements
for such replacements; and
|
| • |
the exclusion of stock-based compensation expense, which has been a significant recurring expense and will continue to constitute a significant recurring expense for the foreseeable future, as equity awards are
expected to continue to be an important component of our compensation strategy.
|
Due to these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments to exclude the impact of stock-based compensation expense and material
infrequent items. It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to
the ongoing operations of our business and may complicate comparisons of our internal operating results and operating results of other companies over time. In addition, Adjusted EBITDA may include adjustments for other items that we do not expect to
regularly occur in future reporting periods. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time
by removing items that are not related to day-to-day operations.
The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net loss:
|
|
Year Ended December 31,
|
|||||||
|
|
2023
|
2022
|
||||||
|
|
(Unaudited)
|
|||||||
|
Net loss
|
$
|
(54,360,755
|
)
|
$
|
(112,145,263
|
)
|
||
|
Interest expense, net
|
(402,414
|
)
|
844,231
|
|||||
|
Income tax expense
|
24,919
|
—
|
||||||
|
Depreciation and amortization
|
1,570,313
|
953,872
|
||||||
|
Share-based compensation expense
|
5,230,273
|
4,031,629
|
||||||
|
Expenses related to TME Acquisition
|
—
|
348,987
|
||||||
|
Expenses related to one-off payment inherited from the original Naked Brand Group
|
—
|
8,299,178
|
||||||
|
Impairment of goodwill
|
—
|
11,111,886
|
||||||
|
Convertible bond issuance cost
|
—
|
5,589,336
|
||||||
|
Loss on redemption of convertible promissory notes
|
(12,507
|
)
|
7,435
|
|||||
|
Loss on exercise of warrants
|
228,903
|
—
|
||||||
|
Change in fair value of convertible promissory notes and derivative liability
|
(75,341
|
)
|
37,774,928
|
|||||
|
Loss from acquisition of Antric
|
136,302
|
—
|
||||||
|
Adjusted EBITDA
|
$
|
(47,575,571
|
)
|
$
|
(43,183,781
|
)
|
||
The following table reconciles the Group‘s audited balance sheet under U.S. GAAP with its audited balance sheet under IFRS as of 31 December 2023 and
2022, respectively:
|
For the Year Ended
|
||||||||||||||||||||||||
|
31 December 2023
|
31 December 2022
|
|||||||||||||||||||||||
|
Balance Sheet:
|
U.S. GAAP
|
IFRS Difference
|
IFRS
|
U.S. GAAP
|
IFRS Difference
|
IFRS
|
||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||||
|
Cash and cash equivalents
|
29,375,727
|
-
|
29,375,727
|
153,966,777
|
-
|
153,966,777
|
||||||||||||||||||
|
Restricted cash
|
196,170
|
-
|
196,170
|
130,024
|
-
|
130,024
|
||||||||||||||||||
|
Short-term investment
|
4,236,588
|
-
|
4,236,588
|
-
|
-
|
-
|
||||||||||||||||||
|
Accounts receivable, net
|
6,530,801
|
-
|
6,530,801
|
565,398
|
-
|
565,398
|
||||||||||||||||||
|
Inventories
|
43,909,564
|
-
|
43,909,564
|
31,843,371
|
-
|
31,843,371
|
||||||||||||||||||
|
Prepayment and other current assets
|
20,391,150
|
-
|
20,391,150
|
16,138,330
|
-
|
16,138,330
|
||||||||||||||||||
|
Amount due from related parties - current
|
287,439
|
-
|
287,439
|
366,936
|
-
|
366,936
|
||||||||||||||||||
|
Total current assets
|
104,927,439
|
-
|
104,927,439
|
203,010,836
|
-
|
203,010,836
|
||||||||||||||||||
|
Non-current assets
|
||||||||||||||||||||||||
|
Long-term investments
|
4,685,984
|
-
|
4,685,984
|
5,325,741
|
-
|
5,325,741
|
||||||||||||||||||
|
Investment in equity securities
|
26,158,474
|
-
|
26,158,474
|
29,759,195
|
-
|
29,759,195
|
||||||||||||||||||
|
Property, plants and equipment, net
|
20,401,521
|
-
|
20,401,521
|
14,962,591
|
-
|
14,962,591
|
||||||||||||||||||
|
Goodwill
|
223,494
|
-
|
223,494
|
-
|
-
|
-
|
||||||||||||||||||
|
Intangible assets, net
|
6,873,781
|
-
|
6,873,781
|
4,563,792
|
-
|
4,563,792
|
||||||||||||||||||
|
Right-of-use assets
|
20,039,625
|
-
|
20,039,625
|
8,187,149
|
-
|
8,187,149
|
||||||||||||||||||
|
Other non-current assets, net
|
2,227,672
|
-
|
2,227,672
|
2,039,012
|
-
|
2,039,012
|
||||||||||||||||||
|
Total non-current assets
|
80,610,551
|
-
|
80,610,551
|
64,837,480
|
-
|
64,837,480
|
||||||||||||||||||
|
Total assets
|
185,537,990
|
-
|
185,537,990
|
267,848,316
|
-
|
267,848,316
|
||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
6,797,852
|
-
|
6,797,852
|
3,383,021
|
-
|
3,383,021
|
||||||||||||||||||
|
Accrued expense and other current liabilities
|
4,263,887
|
-
|
4,263,887
|
5,048,641
|
-
|
5,048,641
|
||||||||||||||||||
|
Contractual liabilities
|
3,394,044
|
-
|
3,394,044
|
2,388,480
|
-
|
2,388,480
|
||||||||||||||||||
|
Operating lease liabilities, current
|
4,741,599
|
-
|
4,741,599
|
1,313,334
|
-
|
1,313,334
|
||||||||||||||||||
|
Convertible promissory notes
|
9,956,000
|
-
|
9,956,000
|
57,372,827
|
-
|
57,372,827
|
||||||||||||||||||
|
Contingent liabilities
|
26,669
|
-
|
26,669
|
-
|
-
|
-
|
||||||||||||||||||
|
Deferred government grant, current
|
108,717
|
-
|
108,717
|
26,533
|
-
|
26,533
|
||||||||||||||||||
|
Amount due to related parties
|
10,468
|
-
|
10,468
|
716,372
|
-
|
716,372
|
||||||||||||||||||
|
Total current liabilities
|
29,299,236
|
-
|
29,299,236
|
70,249,208
|
-
|
70,249,208
|
||||||||||||||||||
|
Non-current liabilities
|
||||||||||||||||||||||||
|
Contingent liabilities – non-current
|
230,063
|
-
|
230,063
|
-
|
-
|
-
|
||||||||||||||||||
|
Deferred tax liabilities
|
228,086
|
-
|
228,086
|
-
|
-
|
-
|
||||||||||||||||||
|
Deferred government grant, non current
|
1,929,733
|
-
|
1,929,733
|
497,484
|
-
|
497,484
|
||||||||||||||||||
|
Derivative liability - investor warrant
|
12,189,508
|
-
|
12,189,508
|
14,334,104
|
-
|
14,334,104
|
||||||||||||||||||
|
Derivative liability - placement agent warrant
|
3,456,578
|
-
|
3,456,578
|
3,456,404
|
-
|
3,456,404
|
||||||||||||||||||
|
Operating lease liabilities, non current
|
16,339,619
|
-
|
16,339,619
|
7,421,582
|
-
|
7,421,582
|
||||||||||||||||||
|
Total non-current liabilities
|
34,373,587
|
-
|
34,373,587
|
25,709,574
|
-
|
25,709,574
|
||||||||||||||||||
|
Total liabilities
|
63,672,823
|
-
|
63,672,823
|
95,958,782
|
-
|
95,958,782
|
||||||||||||||||||
|
Equity
|
||||||||||||||||||||||||
|
Ordinary shares (No par value; 30,828,778 and 30,084,200 shares issued and outstanding as of 31 December 2023 and 2022, respectively)
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Additional paid-in capital
|
402,337,393
|
176,895,202
|
(1)
|
579,232,595
|
397,497,817
|
182,125,475
|
(1)
|
579,623,292
|
||||||||||||||||
|
Accumulated other comprehensive loss
|
(6,444,485
|
)
|
6,444,485
|
-
|
(5,306,972
|
)
|
5,306,972
|
-
|
||||||||||||||||
|
Reserves
|
-
|
26,090,244
|
(2)
|
26,090,244
|
-
|
21,997,484
|
(2)
|
21,997,484
|
||||||||||||||||
|
Accumulated deficit
|
(274,023,501
|
)
|
(209,429,931
|
)
|
(483,453,432
|
)
|
(219,824,176
|
)
|
(209,429,931
|
)
|
(429,254,107
|
)
|
||||||||||||
|
Total equity attributable to shareholders
|
121,869,407
|
121,869,407
|
172,366,669
|
172,366,669
|
||||||||||||||||||||
|
Non-controlling interests
|
(4,240
|
)
|
(4,240
|
)
|
(477,135
|
)
|
-
|
(477,135
|
)
|
|||||||||||||||
|
Total Equity
|
121,865,167
|
121,865,167
|
171,889,534
|
171,889,534
|
||||||||||||||||||||
|
Total Liabilities and Equity
|
185,537,990
|
185,537,990
|
267,848,316
|
267,848,316
|
||||||||||||||||||||
| (1) |
Includes $(32,534,729) (2022: $(27,304,456)) in share-based compensation payments and additional equity of $209,429,931 recognised in 2021 from
the difference between the deemed transaction price and net assets acquired related to the Combination under IFRS.
|
| (2) |
Includes (i) a reclassification of Accumulated other comprehensive loss under U.S. GAAP of $(6,444,485) (2022: $(5,306,972)) and (ii) a
reclassification of Additional paid-in capital under U.S. GAAP of $32,534,729 (2022: $27,304,456) in share-based compensation payments to Reserves under IFRS.
|
The following table reconciles the Group’s audited statement of operations under U.S. GAAP for the years ended 31 December 2023 and 2022 with its
statement of operations under IFRS for the years ended 31 December 2023 and 2022, respectively:
|
For the Year Ended
|
||||||||||||||||||||||||
|
31 December 2023
|
31 December 2022
|
|||||||||||||||||||||||
|
Statement of Operations:
|
U.S. GAAP
|
IFRS
Difference
|
IFRS
|
U.S. GAAP
|
IFRS
Difference
|
IFRS
|
||||||||||||||||||
|
Net revenues
|
22,079,905
|
-
|
22,079,905
|
8,941,835
|
-
|
8,941,835
|
||||||||||||||||||
|
Cost of goods sold
|
(19,821,645
|
)
|
-
|
(19,821,645
|
)
|
(9,455,805
|
)
|
-
|
(9,455,805
|
)
|
||||||||||||||
|
Gross profit (loss)
|
2,258,260
|
-
|
2,258,260
|
(513,970
|
)
|
-
|
(513,970
|
)
|
||||||||||||||||
|
OPERATING EXPENSE
|
||||||||||||||||||||||||
|
Selling and marketing expenses
|
(7,868,773
|
)
|
-
|
(7,868,773
|
)
|
(6,525,255
|
)
|
-
|
(6,525,255
|
)
|
||||||||||||||
|
General and administrative expenses
|
(35,768,786
|
)
|
-
|
(35,768,786
|
)
|
(32,822,709
|
)
|
-
|
(32,822,709
|
)
|
||||||||||||||
|
Research and development expenses
|
(8,469,241
|
)
|
-
|
(8,469,241
|
)
|
(6,362,770
|
)
|
-
|
(6,362,770
|
)
|
||||||||||||||
|
Provision for doubtful accounts
|
-
|
-
|
-
|
(5,986,308
|
)
|
-
|
(5,986,308
|
)
|
||||||||||||||||
|
Impairment loss of right-of-use assets
|
-
|
-
|
-
|
(371,695
|
)
|
-
|
(371,695
|
)
|
||||||||||||||||
|
Impairment loss of intangible assets
|
-
|
-
|
-
|
(2,995,440
|
)
|
-
|
(2,995,440
|
)
|
||||||||||||||||
|
Impairment of property, plant and equipment
|
(431,319
|
)
|
-
|
(431,319
|
)
|
(550,402
|
)
|
-
|
(550,402
|
)
|
||||||||||||||
|
Reverse of deferred tax liabilities
|
-
|
-
|
-
|
898,632
|
-
|
898,632
|
||||||||||||||||||
|
Total operating expenses
|
(52,538,119
|
)
|
-
|
(52,538,119
|
)
|
(54,715,947
|
)
|
-
|
(54,715,947
|
)
|
||||||||||||||
|
Loss from operations
|
(50,279,859
|
)
|
-
|
(50,279,859
|
)
|
(55,229,917
|
)
|
-
|
(55,229,917
|
)
|
||||||||||||||
|
OTHER EXPENSE:
|
||||||||||||||||||||||||
|
Interest income/(expense), net
|
402,414
|
-
|
402,414
|
(844,231
|
)
|
-
|
(844,231
|
)
|
||||||||||||||||
|
Gain (loss) on redemption of convertible promissory notes
|
12,507
|
-
|
12,507
|
(7,435
|
)
|
-
|
(7,435
|
)
|
||||||||||||||||
|
(Loss) income from long-term investments
|
(1,377,760
|
)
|
-
|
(1,377,760
|
)
|
(12,651
|
)
|
-
|
(12,651
|
)
|
||||||||||||||
|
Change in fair value of convertible promissory notes and derivative liability
|
75,341
|
-
|
75,341
|
(37,774,928
|
)
|
-
|
(37,774,928
|
)
|
||||||||||||||||
|
Change in fair value of equity securities
|
(2,600,721
|
)
|
-
|
(2,600,721
|
)
|
(240,805
|
)
|
-
|
(240,805
|
)
|
||||||||||||||
|
Convertible bond issuance cost
|
-
|
-
|
(5,589,336
|
)
|
(5,589,336
|
)
|
||||||||||||||||||
|
Foreign currency exchange loss, net
|
(848,781
|
)
|
-
|
(848,781
|
)
|
(409,207
|
)
|
-
|
(409,207
|
)
|
||||||||||||||
|
Impairment loss of goodwill
|
-
|
-
|
-
|
(11,111,886
|
)
|
-
|
(11,111,886
|
)
|
||||||||||||||||
|
Loss from acquisition of Antric
|
(136,302
|
)
|
-
|
(136,302
|
)
|
-
|
-
|
-
|
||||||||||||||||
|
Loss on exercise of warrants
|
(228,903
|
)
|
(228,903
|
)
|
-
|
-
|
-
|
|||||||||||||||||
|
Gain from cross-currency swaps
|
8,664
|
8,664
|
-
|
-
|
-
|
|||||||||||||||||||
|
Other (expense) income, net
|
621,633
|
-
|
621,633
|
(924,867
|
)
|
-
|
(924,867
|
)
|
||||||||||||||||
|
Loss before income taxes
|
(54,351,767
|
)
|
-
|
(54,351,767
|
)
|
(112,145,263
|
)
|
-
|
(112,145,263
|
)
|
||||||||||||||
|
Income tax expense
|
(8,988
|
)
|
-
|
(8,988
|
)
|
-
|
-
|
-
|
||||||||||||||||
|
Net loss
|
(54,360,755
|
)
|
-
|
(54,360,755
|
)
|
(112,145,263
|
)
|
-
|
(112,145,263
|
)
|
||||||||||||||
|
Less: Net loss attributable to non-controlling interests
|
(161,430
|
)
|
-
|
(161,430
|
)
|
(2,057,022
|
)
|
-
|
(2,057,022
|
)
|
||||||||||||||
|
Net loss attributable to the Company’s shareholders
|
(54,199,325
|
)
|
-
|
(54,199,325
|
)
|
(110,088,241
|
)
|
-
|
(110,088,241
|
)
|
||||||||||||||
|
OTHER COMPREHENSIVE LOSS
|
||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
(1,162,080
|
)
|
-
|
(1,162,080
|
)
|
(3,889,706
|
)
|
-
|
(3,889,706
|
)
|
||||||||||||||
|
Total comprehensive loss
|
(55,522,835
|
)
|
-
|
(55,522,835
|
)
|
(116,034,969
|
)
|
-
|
(116,034,969
|
)
|
||||||||||||||
|
Less: total comprehensive loss attributable to non-controlling interests
|
(185,997
|
)
|
-
|
(185,997
|
)
|
(2,032,455
|
)
|
-
|
(2,032,455
|
)
|
||||||||||||||
|
Total comprehensive loss attributable to the Group’s shareholders
|
(55,336,838
|
)
|
-
|
(55,336,838
|
)
|
(114,002,514
|
)
|
-
|
(114,002,514
|
)
|
||||||||||||||
As set forth above, the material differences between the U.S. GAAP and IFRS presentation with respect to the Group’s combined balance sheet as of 31
December 2023 and combined balance sheet as of 31 December 2022 are as follows:
| a) |
The reclassification of “Accumulated other comprehensive loss” under U.S. GAAP to “Reserves” under IFRS;
|
| b) |
The reclassification of amounts of IFRS share-based payments from “Additional paid-in capital” under U.S. GAAP to “Reserves” under
IFRS; and
|
| c) |
Additional equity recognized from the difference between the total deemed transaction price and net assets acquired related to the
Combination under IFRS.
|
| d) |
In 2021, the Group was deemed to have incurred non-cash listing costs of approximately $209.4 million as a result of the IFRS accounting
treatment of the Combination, as Cenntro was deemed to have received a 67% controlling interest in CEGL (formerly NBG) and the Group was deemed to have incurred listing costs equalling the difference between the total deemed transaction
price and total net assets. Under U.S. GAAP, the Combination is accounted for as a reverse recapitalisation, which is equivalent to the issuance of shares by Cenntro for the net assets of CEGL (formerly NBG), accompanied by a
recapitalisation).
|
As set forth above, there is no difference between the U.S. GAAP and IFRS presentation as it relates to our combined statement of operations and comprehensive loss for the year ended December 31 2023.
B. Liquidity and Capital Resources
We have historically funded working capital and other capital requirements primarily through bank loans, equity financings and short-term loans. Also, the reverse recapitalization we
have completed at the end of December 2021 provided significant funding for the Company’s operations. Cash is required primarily to purchase raw materials, repay debts and pay salaries, office expenses and other operating expenses.
As of December 31, 2023, we had approximately $29.4 million in cash and cash equivalents, approximately $4.2 million in short-term investment and approximately $6.5 million of
accounts receivables as compared to approximately $154.0 million in cash and cash equivalents, nil in short-term investment and $0.6 million in accounts receivable as of December 31, 2022. For the years ended December 31, 2023 and 2022, net cash used
in operating activities was approximately $58.5 million and $69.4 million, respectively.
Short-Term Liquidity Requirements
We believe our cash and cash equivalents will be sufficient for us to continue to execute our business strategy over the twelve months period following the date of issuance of our
annual report. Our current business strategy for the next twelve months includes (i) the continued rollout of our new ECV models and green energy related products in North America and Europe, as applicable and (ii) the establishment and development
of local distribution channels in the United States and the European Union. Actual results could vary materially as a result of a number of factors, including:
| • |
The costs of bringing our new facilities into operation;
|
| • |
The timing and costs involved in rolling out new ECV models to market;
|
| • |
Our ability to manage the costs of manufacturing our ECVs;
|
| • |
The costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
|
| • |
Revenues received from sales of our ECVs;
|
| • |
The costs of additional general and administrative personnel, including accounting and finance, legal and human resources, as well as costs related to litigation, investigations, or settlements;
|
| • |
Our ability to collect future revenues; and
|
| • |
Other risks discussed in the section titled “Risk Factors.”
|
For the twelve months from the date hereof, we also plan to continue implementing measures to increase revenues and control operating costs and expenses, implementing comprehensive
budget controls and operational assessments, implementing enhanced vendor review and selection processes as well as enhancing internal controls.
Long-Term Liquidity Requirements
In the long-term, we plan to regionalize the manufacturing and supply chain relating to certain components of our ECVs in the geographic markets in which our ECVs are sold. In the
long-term, through our supply chain development know-how, we intend to establish supply chain relationships in North America and the European Union to support anticipated manufacturing and assembly needs in these markets, thereby reducing the time in
transit and potentially other landed costs elements associated with importing our components and spare parts from China. Currently, the majority of our revenues is derived from the sale of ECVs by private label channel partners that assemble our
vehicle kits in their own facilities. As part of our growth strategy, we plan to expand our channel partner network, and local assembly facilities to regionalize our manufacturing and supply chains to better serve our global customers especially to
expand our after-sales-market services offerings.
We intend to further expand our technology through continued investment in research and development. Since inception in 2013 through December 31, 2023, we have spent over
approximately $90.0 million in research and development activities related to our operations. We plan to increase our research and development expenditure over the long term as we build on our technologies in vehicle development, driving control,
cloud-based platforms, and innovations for promoting sustainable energy.
For our long-term business plan, we plan to fund current and future planned operations mainly through cash on hand, cash flow from operations, lines of credit and additional equity
and debt financings to the extent available on commercially favorable terms.
Working Capital
As of December 31, 2023, our working capital was approximately $75.6 million, as compared to a working capital of approximately $132.8 million as of December 31, 2022. The approximately $57.1 million decrease in working capital during 2022 was primarily due to (i) the decrease
of cash and cash equivalents of approximately $124.6 million, offset by the increase in inventories, accounts receivable and short-term investment of approximately $12.1 million, $6.0 million and $4.2 million, respectively and (ii) a decrease in
convertible bonds of approximately $47.4 million.
Cash Flow
|
Year Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Net cash used in operating activities
|
$
|
(58,457,164
|
)
|
$
|
(69,401,126
|
)
|
||
|
Net cash (used in) provided by investing activities
|
(16,388,156
|
)
|
(56,883,397
|
)
|
||||
|
Net cash provided by financing activities
|
(48,135,595
|
)
|
19,452,636
|
|||||
|
Effect of exchange rate changes on cash
|
(1,543,989
|
)
|
(736,274
|
)
|
||||
|
Net (decrease) increase in cash, cash equivalents, and restricted cash
|
(124,524,904
|
)
|
(107,568,161
|
)
|
||||
|
Cash and cash equivalents, and restricted cash at beginning of the year
|
154,096,801
|
261,664,962
|
||||||
|
Cash and cash equivalents, and restricted cash at end of the period
|
$
|
29,571,897
|
$
|
154,096, 801
|
||||
Operating Activities
Our net cash used in operating activities was approximately $58.5 million and $69.4 million for the years ended December 31, 2023 and 2022, respectively.
Net cash used in operating activities for the year ended December 31, 2023 was primarily attributable to (i) our net
loss of approximately $54.4 million and adjusted for non-cash items of approximately $18.3 million, which primarily consisted of amortization of operating lease
right-of-use asset, share based compensation expense, impairment of long-term investments, depreciation and amortization, loss (gain) on disposal of long-term
investment, loss from equity securities investment, foreign currency exchange loss, impairment of slow-moving inventories, impairment of PPE and intangible assets,
loss on exercise of warrants, equity pick up loss of the investment and changes in fair value of equity securities of approximately $4.5 million, $5.2 million, $1.2 million, $1.7 million,$0.1 million, $1.4 million, $1.5 million, $0.7 million, $0.4 million, $0.2 million, $0.2 million and $1.2 million, respectively, (ii)
the decrease in accrued expense and other current liabilities and operating lease liabilities of approximately $1.1 million and $4.0 million respectively, (iii) increase in account receivable, accounts payable, deferred revenue, inventories and
prepayments and other assets of approximately $5.9 million, $3.1 million, $2.5 million, $12.2 million and $4.6 million, respectively.
Investing Activities
Net cash used in investing activities was approximately $16.4 million for the year ended December 31, 2023. Net cash used in investing activities for the year ended December 31, 2023
was primarily attributable to cash paid for regular financial investments in 2023 in the amount of approximately $4.2 million and approximately $1.1 million in purchase of land use rights and property, additions in long-term investments as a minority
interest of approximately $0.9 million, approximately $7.6 million in purchase of plant and equipment and approximately $1.9 million net cash paid in acquisition of 35% of CAE's share and including related expenses.
Financing Activities
Net cash used by financing activities was approximately $48.1 million for the year ended December 31, 2023. Net cash provided by financing activities for the year ended
December 31, 2023 was primarily attributable to the redemption of convertible bonds of approximately $47.5 million and the repayments to bank loans of approximately $0.6 million.
Contractual Obligations
In February 2021, we signed a non-cancellable operating lease agreement for warehouse and trial production use in Freehold, New Jersey (Willowbrook Road) of approximately 9,750 square feet. The lease period began in February 2021 and ends in January 2025. The annual base rent for this facility is $175,500 starting from February 2023. The lease rent fee will be adjusted
upward by 3% annually afterwards. We signed the first addendum to lease on December 7, 2022 and the renewal period is two years commencing on February 1, 2023 and terminating on January 31, 2025, the annual base rent for the first twelve months the
period is $175,500 and the annual base rent for the second twelve months the period is $180,765.
In June 2021, we signed two non-cancellable operating lease agreements for approximately 11,690 square feet and 3,767 square feet, respectively, of two floors of an office building in
Hangzhou, China. The lease period for each lease agreement began in June 2021 and ends in May 2025. Pursuant to each agreement, we paid the first six months of our rent obligations in June 2021 and thereafter will be obligated to make rental payments
in advance semi-annually. The total annual base rent under these two lease agreements is $171,397 for the term ending May 2022 and $173,987 for the term ending May 2023.
On December 4, 2021, we entered into an entrustment agreement with Cedar Europe GmbH, a company organized under the laws of Germany (“Cedar”) pursuant to which we entrusted Cedar to,
in Cedar’s name, obtain a lease agreement for facilities in Germany and operate such lease facility under Cedar’s name in exchange for the Cenntro’s responsibility for all expenditures and costs of the lease. On December 24, 2021, Cedar entered into
a lease agreement for an approximately 27,220 square feet facility in Dusseldorf, Germany, where we now house our European Operations Facility. The lease period began on January 1, 2022 and ends on December 31, 2024. Pursuant to such lease agreement,
the total annual base rent is €354,787 (or approximately $383,512) for the lease term. Cedar transferred the leasing property to CEGE on February 1, 2023.
On January 20, 2022, we entered into an operating lease agreement (the “Jacksonville Lease”), between CAC, as tenant, the Company, as guarantor, and JAX Industrial One, LTD., a
Florida limited liability company, as landlord, for a facility of approximately 100,000 square feet in Jacksonville, Florida. The lease period commenced on May, 2022 and ends 120 months following a five-month rent abatement period. Pursuant to the
Jacksonville Lease, minimum annual rent is approximately $695,000, $722,800, and $751,710, for the first three years, sequentially, and rising thereafter.
On July 28, 2022, we signed a non-cancellable operating lease agreement for approximately 12,000 square feet as an EV center in Jacksonville, Florida. The lease period began on
September 1, 2022 and ends on August 31, 2029, the first annual base rent is $150,000 and the annual increase is 4%.
On August 4, 2022, we signed a non-cancellable operating lease agreement in Mexico as a facility. For the first 12 months, the rentable area is 58,413 square feet. Starting on the
month 13 to month 18, the rentable area is 85,554 square feet, and as of month 19 of the Rent Commencement Date and for the remainder of the initial term, the rentable area is 112,694 square feet. The lease period commenced on January, 2023 and ends
8.5 years. The monthly rent is $29,225.38 and the annual increase is the higher of a) the consumer price index, or b) 2.5%.
On December 15, 2022, we signed a non-cancellable operating lease agreement for approximately 41,160 square feet as a facility in Howell, New Jersey. The lease period began on
February 1, 2023 and ends five years, the first annual base rent is $493,920 and the annual increase is 3%.
On December 29, 2022, we signed a non-cancellable operating lease agreement with BAL Freeway Associates, LLC for approximately 64,000 square feet as a facility. The lease period
commenced on April 1, 2023 and ends five years following a one-month rent abatement period. The base rent for the first year is $115,200 per month. The monthly rent for the following four years is $119,808, $124,600.32, $129,584.33 and $134,767.71,
respectively.
On November 28, 2022, we signed a non-cancellable operating lease agreement for approximately 6,510 square feet as an EV center in Dominica Republic. The lease period commenced on
December 1, 2022 and ends five years. The rent is $9,000 per month and the annual increase is 5%.
On December 8, 2022, we signed a non-cancellable operating lease agreement for approximately 10,656 square feet as a headquarters and service center in Dominica Republic. The lease
period commenced on February 15, 2023 and ends five years. The rent is $9,000 per month and the annual increase is 5%.
On March 22, 2023, we signed a non-cancellable operating lease agreement for approximately 26,579 square feet as a local plant in Colombia, the lease period began on May 1, 2023 and
the lease term is two years. The rent is COP 46,796,001.49 (or approximately $10,344.77) per month and the value of the lease fee shall be readjusted in a proportion equal to the consumer price index (CPl) certified by DANE as of December 31 of the
immediately preceding year, plus two (2) points.
On May 19, 2023, we completed the acquisition with Cenntro Elecautomotiv, S.L., our EVC in Spain. On April 3, 2023, Cenntro Elecautomotiv, S.L. signed a non-cancellable operating
lease agreement for approximately 1,765 square feet as a local office in Barcelona, Spain, the lease period began on April 3, 2023 and the lease term is five years. The monthly rent is €1,776 (or approximately $1,919.9) plus value-added tax with a
two-month rent abatement period. In addition, Cenntro Elecautomotiv, S.L. signed a non-cancellable operating lease agreement for approximately 3,471 square feet as a service center in Barcelona, Spain on August 9, 2022, the lease period began on
August 1, 2022 and the lease term is ten years. The annual rent is €36,000 (or approximately $38,916) and shall be readjusted depending on the changes of the consumer price index (CPl) determined by the National Bureau of Statistics and its
substitute institutions. Legal defense is €6,000 (or approximately $6,486).
On April 4, 2023, we signed a non-cancellable operating lease agreement for approximately 2,500 square feet in Freehold, New Jersey. The lease period commenced on July 17, 2023 and
ends on July 31, 2025. The annual base rent for the first twelve months of the period is $33,525 and the annual base rent for the second twelve months of the period is $35,201.
On February 16, 2022, we signed a non-cancellable operating lease agreement for apartment 53D in the building at 555 Tenth Avenue, New York, NY 10018. The term is one year and one
month, beginning on March 5, 2022 and ending on April 4, 2023. The monthly rent is $5,750. On February 1, 2023, we signed a renewal lease agreement. The term of this lease is one year, beginning on April 5, 2023 and ending on April 4, 2024. The
monthly rent is $5,950.
On March 25, 2022, we completed the acquisition of TME, and change its name to Cenntro Automotive Europe GmbH ("CAE”). TME signed a non-cancellable operating lease agreement for
approximately 5,212 square meters in 2019, the lease period starts on July 1, 2019 and ends on June 30, 2024, the monthly rent is €18,891 (or approximately $20,468).
On August 31, 2023, we completed the acquisition with Antric GmbH in Germany. On July 20, 2022, Antric signed a non-cancellable operating lease agreement for approximately 4,361
square feet in Bochum, Germany, the lease period ends on December 31, 2026. The monthly rent is €3,605.26 (or approximately $3,988.14). On September 1, 2022, the lease area increased to 7,326 square feet and the monthly rent increased to €6,000.32
(or approximately $6,637.55). The additional deposit is €18,000.96 (or approximately $19,912.66). On January 20, 2023, Antric signed another non-cancellable operating lease agreement for approximately 252 square feet in Bochum, Germany, the lease
period starts on February 1, 2023 and ends on December 31, 2026. The monthly rent increased to €6,315.38 (or approximately $6,986.07). On March 27, 2023, Antric signed another non-cancellable operating lease agreement for approximately 2,949 square
feet in Bochum, Germany, the lease period starts on April 1, 2023 and ends on December 31, 2026. The monthly rent increased to €8,597.80 (or approximately $9,510.89).
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not
entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our Audited Financial Statements. Furthermore, we do not have any retained or contingent interest in assets
transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us
or engages in leasing, hedging or product development services with us.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements, the reported amounts of revenue and expenses during the reporting period and the related disclosures in the
consolidated and combined financial statements and accompanying footnotes. Out of our significant accounting policies, which are described in “Note 2—Summary of Significant Accounting Policies” of our consolidated and combined financial statements
for the year ended December 31, 2022, included elsewhere in this Annual Report, certain accounting policies are deemed “critical,” as they require management’s highest degree of judgment, estimates and assumptions. While management believes its
judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those estimates under different assumptions and conditions.
Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). As an Australian public limited company, the Company is
subject to the Corporations Act 2001 (the “Corporations Act”), which requires financial statements be prepared and audited in accordance with Australian Auditing Standards (“AAS”) and International Financial Reporting Standards (“IFRS”). The
consolidated financial statements are not financial statements for the purposes of the Corporations Act and are considered “non-IFRS financial information” under the Australian Securities and Investment Commission’s Regulatory guide 230: ‘Disclosing
non-IFRS financial information.’ Such non-IFRS financial information may not be comparable to similarly titled information presented by other entities and should not be construed as an alternative to other financial information prepared in accordance
with AAS or IFRS.
All intercompany balances and transactions have been eliminated in consolidation and combination.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company continually evaluates these estimates and assumptions based on the most
recently available information, historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Significant accounting estimates reflected in the Company’s consolidated financial statements
include, but are not limited to, estimates and judgments applied in determination of provision for doubtful accounts, lower of cost and net realizable value of inventories, impairment losses for long-lived assets and investments, goodwill, valuation
allowance for deferred tax assets and fair value measurement for share-based compensation expense, convertible promissory notes and warrants. Since the use of estimates is an integral component of the financial reporting process, actual results could
differ from those estimates
Fair value measurement
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in
measuring fair value are observable in the market. These tiers include:
Level 1—defined as observable inputs such as quoted prices in active markets;
Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3—defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company’s financial instruments not reported at fair value primarily consist of cash and cash equivalents, restricted cash, accounts
receivable, prepayments and other current assets, amount due from and due to related parties, accounts payable and accrued expenses and other current liabilities.
The carrying value of cash and cash equivalents, restricted cash, wealth management products, accounts receivable, prepayment, goodwill and other current assets, accounts payable, accrued expenses and other current
liabilities and amount due from and due to related party, current were approximate fair value because of the short-term nature of these items. The estimated fair values of loan from third party, and amount due from related party, non-current were not
materially different from their carrying value as presented due to the brief maturities and because the interest rates on these borrowings approximate those that would have been available for loans of similar remaining maturities and risk profiles.
Available-for-sale investments and currency-cross swap were classified within Level 1 of the fair value hierarchy because they were valued using quoted prices in active markets. Our debt security investments are
classified within Level 3 of the fair value hierarchy. As the Issuer is not yet listed and there are no similar companies in the market at the same stage of development for comparison, the Issuer is difficult to value, and the valuation is not
considered reliable. Therefore, the Company develop own assumption by future cash flow forecast, which contains principle paid and interests accrued.
The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The
Company has elected to apply the fair value option to: i) convertible promissory notes payable due to the complexity of the various conversion and settlement options available to notes holders; ii) convertible loan receivable, which was recognized as
debt security in long-term investments, and iii) cross-currency swap, which was recognized as short-term investments.
The convertible promissory notes payable accounted for under the fair value option election are each a debt host financial instrument containing embedded features that would otherwise be required to be bifurcated from
the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements in accordance with GAAP. Notwithstanding, when the fair value option election is applied to financial
liabilities, bifurcation of an embedded derivative is not required, and the financial liability is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis as of each
reporting period date.
The portion of the change in fair value attributed to a change in the instrument-specific credit risk is recognized as a component of other comprehensive income and the remaining amount of the fair value adjustment is
recognized as changes in fair value of convertible promissory notes and derivative liabilities in the Company’s consolidated statement of operations. The estimated fair value adjustment is presented in a respective single line item within other
expense in the consolidated statement of operations because the change in fair value of the convertible notes was not attributable to instrument-specific credit risk.
In connection with the issuances of convertible promissory notes, the Company issued investor warrants and placement agent warrants to purchase ordinary shares of the Company. The Company utilizes a Binomial model to
estimate the fair value of the warrants and are considered a Level 3 fair value measurement. The warrants are measured at each reporting period, with changes in fair value recognized in the statement of operations.
As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of its certain fund investment. The Company’s investments valued at NAV as a practical expedient are: i)
private equity funds, which represent the investment in equity securities on the consolidated balance sheet; ii) wealth management products purchased from banks, which represents the available-for-sale investments in short-term investments on the
consolidated balance sheet.
Business combination
The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 “Business Combinations.” The cost of an acquisition is measured as the aggregate of the acquisition
date fair value of the assets transferred to the sellers, liabilities incurred by the Company and equity instruments issued by the Company. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets
acquired and liabilities assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling
interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the acquisition date amounts of the identifiable net assets of the acquiree is recorded as goodwill.
Cash and cash equivalents and restricted cash
The Company considers highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Restricted cash consists of cash restricted as to withdrawal or use. Such restricted cash relates to certain credit card and lease guarantees.
Accounts receivable and provision for doubtful accounts
Accounts receivable are recognized and carried at net realizable value.
The Company adopted ASC 326 Financial Instruments – Credit Losses using the modified retrospective approach through a cumulative-effect adjustment to accumulated deficit from January 1, 2023 and interim periods therein.
Management used an expected credit loss model for the impairment of accounts receivable as of period ends. Management believes the aging of accounts receivable is a reasonable parameter to estimate expected credit loss, and determines expected credit
losses for accounts receivables using an aging schedule as of period ends. The expected credit loss rates under each aging schedule were developed on basis of the average historical loss rates from previous years, and adjusted to reflect the effects
of those differences in current conditions and forecasted changes. Management measured the expected credit losses of accounts receivable on a collective basis. When an accounts receivable does not share risk characteristics with other accounts
receivables, management will evaluate such accounts receivable for expected credit loss on an individual basis. Doubtful accounts balances are written off and deducted from allowance, when receivables are deemed uncollectible, after all collection
efforts have been exhausted and the potential for recovery is considered remote.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined on the basis of weighted average. The cost of finished goods is determined on the basis of weighted average and
comprises direct materials, direct labor cost and an appropriate proportion of overhead.
Net realizable value is based on estimated selling prices less selling expenses and any further costs of completion. Adjustments to reduce the cost of inventory to net realizable value are made, if required, for
estimated excess, obsolescence, or impaired balances. Write-downs are recorded in the consolidated statements of operations and comprehensive loss.
Available-for-sale investments and Debt Security investments
The Company’s available-for-sale investment consist of wealth management products purchased from banks and convertible loans. The Company’s short-term available-for-sale investment are classified as short-term
investments on the consolidated balance sheets based on the contractual maturity date which is less than one year. The wealth management products purchased from banks are stated at the net asset value
The Company’s debt security investments consist of convertible loan. At any time on or after the maturity date, the convertible loan will convert into shares equal to the quotient obtained by dividing the outstanding
principal balance and unpaid accrued interest of the convertible loan as of the date of such conversion by the applicable conversion price. The convertible loans are stated at fair value.
The Company reviews its investments for other-than-temporary impairment (“OTTI”) based on the specific identification method. The Company considers available quantitative and qualitative evidence in evaluating potential
impairment of its investments. If the cost of an investment exceeds the investment’s fair value, the Company considers, among other factors, general market conditions, expected future performance of the investees, the duration and the extent to which
the fair value of the investment is less than the cost, and the Company’s intent and ability to hold the investment. OTTI is recognized as a loss in the statement of operations. There is no OTTI recognized during the years ended December 31, 2023 and
2022.
Cross-currency swap
The Company used cross-currency swap contracts to manage its exposures to movements in foreign exchange rates primarily related to the RMB or Renminbi. The use of these cross-currency swap modifies the Company’s
exposure to these risks with the goal of reducing the risk or cost to the Company. The Company does not use derivatives for trading purposes and is not a party to leveraged derivative contracts.
Depending on the nature of the underlying risk being hedged, these cross-currency swap are accounted for either as cash flow, net investment or mark to market hedges against changes in the value of the hedged item.
Derivatives are recorded in the Consolidated Balance Sheets at fair value. The fair value is based upon either market quotes for actively traded instruments or independent bids for nonexchange traded instruments. The accounting for changes in fair
value of a derivative instrument depends on whether the instrument has been designated and qualifies as part of a hedging relationship. The Company determines whether a derivative instrument meets the criteria for cash flow or net investment hedge
accounting treatment on the date the derivative is executed. Derivatives accounted for as mark to market hedges are not designated as hedges for accounting purposes.
Economic Hedges
A derivative instrument whose change in fair value is used to hedge against changes in the value of a hedged item, but which is not designated as a hedge under ASC815 “Derivative Instruments and Hedging Activities”, is
accounted for as an economic hedge. These derivatives are recorded at fair value in the Consolidated Balance Sheets when the hedged item is recorded as an asset or liability and then are revalued each accounting period. Changes in the fair value of
derivatives accounted for as economic hedges are reported in the “Gain from cross-currency swaps” lines under “Other expense” in the Consolidated Statements of Operations. Cash flows from derivatives not designated as hedges are classified as cash
flows from operating activities in the Consolidated Statements of Cash Flows. For the year ended December 31, 2023, all of the cross-currency swap contracts were accounted for as economic hedges.
Investment in equity securities
For investments in equity securities with a variable interest rate indexed to the performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these
investments subsequently at fair value. Changes in fair values are reflected in the consolidated statements of operations and comprehensive loss.
The Company determines the appropriate classification of its investments in equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. The private equity funds are measured
at fair value with gains and losses recognized in earnings. As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of the Fund.
The Company evaluates whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value
has occurred include the market value of the security in relation to its cost basis, the financial condition of the investee, and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market
value of the investment.
Property, plant and equipment, net
Property, plant and equipment are carried at cost less accumulated depreciation and any impairment. Depreciation is calculated over the asset’s estimated useful life, using the straight-line method. Leasehold
improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are as follows:
|
Buildings
|
20 years
|
|
Machinery and equipment
|
5-10 years
|
|
Office equipment
|
5 years
|
|
Motor vehicles
|
3-5 years
|
|
Leasehold improvement
|
3-10 years
|
|
Others
|
3 years
|
The Company reassesses the reasonableness of the estimates of useful lives and residual values of long-lived assets when events or changes in circumstances indicate that the useful lives and residual values of a major
asset or a major category of assets may not be reasonable. Factors that the Company considers in deciding when to perform an analysis of useful lives and residual values of long-lived assets include, but are not limited to, significant variance of a
business or product line in relation to expectations, significant deviation from industry or economic trends, and significant changes or planned changes in the use of the assets. The analysis will be performed at the asset or asset category with the
reference to the assets’ conditions, current technologies, market, and future plan of usage and the useful lives of major competitors.
The costs and related accumulated depreciation of assets sold or otherwise retired are eliminated from the Company’s accounts and any gain or loss is included in the consolidated statements of operations and
comprehensive loss. The cost of maintenance and repair is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.
The Company constructs certain of its property including recodifications and improvement of its office buildings and plant. Depreciation is recorded at the time assets are ready for the intended use.
Intangible assets, net
Intangible assets are carried at cost less accumulated amortization and any recorded impairment. Intangible assets are amortized using the straight-line approach over the estimated economic useful lives of the assets as
follows:
|
Category
|
Estimated useful life
|
|
Land use rights
|
45.75-50 years
|
|
Software
|
3 years
|
|
Technology
|
5 years
|
|
Trademark
|
5 years
|
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets or asset group with determinable useful lives whenever events or changes in circumstances indicate that an asset or a group of assets’ carrying amount may not
be recoverable. The Company measures the carrying amount of long-lived asset against the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. The carrying amount of the
long-lived asset or asset group is not recoverable when the sum of the undiscounted expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value
of the asset exceeds its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset group, when the market prices are not readily available. The adjusted carrying amount of the assets
become new cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of
other assets and liabilities. The impairment test is performed at the asset group level. Impairment loss for long-lived assets of $431,319 and $3,917,537 were recorded in the Company’s consolidated statements of operations and comprehensive loss for
the years ended December 31, 2023 and 2022, respectively.
Goodwill
Goodwill represents the future economic benefits arising from other assets acquired in a business combination. Goodwill acquired in a business combination is tested for impairment at least annually or more frequently
when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company performs impairment analysis on goodwill as of December 31 every year either beginning with a qualitative assessment, or starting with the
quantitative assessment instead. The quantitative goodwill impairment test compares the fair values of each reporting unit to its carrying amount, including goodwill. A reporting unit constitutes a business for which discrete profit and loss
financial information is available. The fair value of each reporting unit is established using a combination of expected present value of future cash flows. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not
considered to be impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.
Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is
"more-likely-than not" that the fair value is less than the carrying value, a quantitative assessment of goodwill is required.
The quantitative impairment test requires significant management judgments, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and
determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and
assumptions could materially affect the determination of fair value for each reporting unit.
Impairment loss for goodwill of $nil and $11,111,886 were recorded for the years ended December 31, 2023 and 2022, respectively.
Long-term investment
Equity method investments
Investee companies over which the Company has the ability to exercise significant influence but does not have a controlling interest through investment in common shares or in substance common shares are accounted for
using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%, and other factors, such as representation on the investee’s board of
directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate.
Under the equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s proportionate share of each equity investee’s net income or loss after the date of investment into
the consolidated statements of operations and comprehensive loss and accordingly adjusts the carrying amount of the investment. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the
Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee.
Equity investments without readily determinable fair values
For investments in an investee over which the Company does not have significant influence, the Company carries the investment at cost and recognizes income as any dividends declared from distribution of investee’s
earnings. The Company reviews the equity investments without readily determinable fair values for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. An impairment loss is recognized
in earnings equal to the difference between the investment’s carrying amount and its fair value at the balance sheet date of the reporting period for which the assessment is made. All equity investments, except those accounted for under the equity
method of accounting or those resulting in the consolidation of the investee, be accounted for at fair value with all fair value changes recognized in income. For equity investments that do not have readily determinable fair values the Company
measures the equity investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company.
Impairment for long-term investment
The Company reviews its long-term investments for impairment whenever an event or circumstance indicates that other-than-temporary impairment has occurred. The Company considers available quantitative and qualitative
evidence in evaluating potential impairment of its long-term investments. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The adjusted
carrying amount of the assets become new cost basis.
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.
The following table disaggregates the Company’s revenues by product line for the years ended December 31, 2023 and 2022:
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Vehicles sales
|
|
$
|
20,344,889
|
|
|
$
|
8,235,053
|
|
|
Spare-parts sales
|
|
|
1,554,311
|
|
|
|
304,506
|
|
|
Other service income
|
|
|
180,705
|
|
|
|
402,276
|
|
|
Net revenues
|
|
$
|
22,079,905
|
|
|
$
|
8,941,835
|
|
The Company’s revenues are primarily derived from Europe, America and Asia. The following table sets forth disaggregation of revenue by customer location.
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Primary geographical markets
|
|
|
|
|
||||
|
Europe
|
$
|
16,218,398
|
$
|
7,052,452
|
||||
|
Asia
|
4,805,312
|
1,191,931
|
||||||
|
America
|
|
|
1,056,195
|
|
|
|
697,452
|
|
|
Total
|
|
$
|
22,079,905
|
|
|
$
|
8,941,835
|
|
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 years ended December 31, 2023 and 2022, the Company recognized $464,636 and $1,105,076 revenue that was included in contractual liabilities as of January 1,
2023 and 2022, respectively.
The following table provides information about receivables and contractual liabilities from contracts with customers:
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
Accounts receivable, net
|
$
|
6,530,801
|
$
|
565,398
|
||||
|
Contractual liabilities
|
$
|
3,394,044
|
$
|
2,388,480
|
||||
Cost of goods sold
Cost of goods sold mainly consists of production related costs including costs of raw materials, consumables, direct labor, overhead costs, depreciation of property, plant and equipment, manufacturing waste treatment
processing fees and inventory write-downs.
Government grants
The Company’s PRC based subsidiaries received government subsidies from certain local governments. The Company’s government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies
that the local government has provided for a specific purpose, such as land fulfillment costs. Other subsidies are the subsidies that the local government has not specified its purpose for and are not tied to future trends or performance of the
Company, receipt of such subsidy income is not contingent upon any further actions or performance of the Company and the amounts do not have to be refunded under any circumstances.
Specific subsidies relating to land use rights are accounted for as an income with the subsidy benefit reflected over the related asset useful life. Other subsidies are recognized as other income upon receipt as further
performance by the Company is not required.
Income taxes
The Company accounts for income tax using an asset and liability approach, which allows for the recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred income taxes are
recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect for the years in which the differences are expected to reverse. The accounting for deferred tax calculation represents
management’s best estimate of the most likely future tax consequences of events that have been recognized in our financial statements or tax returns and related future anticipation. A valuation allowance is recorded to reduce the deferred tax assets
to an amount that is more likely than not to be realized after considering all available evidence, both positive and negative.
Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each
of the jurisdictions in which it operates. The Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities
and their reported amounts in the financial statements. Net operating losses are carried forward and credited by applying enacted statutory tax rates applicable to future years when the reported amounts of the asset or liability are expected to be
recovered or settled, respectively. Deferred tax assets are reduced by a valuation allowance when, based upon the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The
components of the deferred tax assets and liabilities are individually classified as non-current. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position.
As required by applicable tax law, interest on non-payment of income taxes and penalties associated with tax positions when a tax position does not meet the minimum statutory threshold to avoid payment of penalties
recognized, if any, will be classified as a component of the provisions for income taxes. The tax returns of the Company and its Germany, Hong Kong and PRC subsidiaries are subject to examination by the relevant local tax authorities. The standard
period in which Australian Taxation Office can amend an assessment is four years and there is no statute of limitation in the case of fraud or evasion. The statutory limitation period in Germany for the issue or correction of assessments is four
years from the end of the year in which the return was filed. In the case of fraud and willful evasion, the investigation is extended to cover ten years of assessment. According to the Departmental Interpretation and Practice Notes No.11 (Revised) of
the Hong Kong Inland Revenue Ordinance (the “HK tax laws”), an investigation normally covers the six years of the assessment prior to the year of the assessment in which the investigation commences. In the case of fraud and willful evasion, the
investigation is extended to cover ten years of assessment. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the
withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no
statute of limitation in the case of tax evasion. U.S. federal tax matters are open to examination for years 2015 through 2023. For the years ended December 31, 2023 and 2022, the Company did not have any material interest or penalties associated
with tax positions. The Company did not have any significant unrecognized uncertain tax positions as of December 31, 2023 or 2022. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the
next 12 months.
Foreign currency translation and transaction
The consolidated financial statements are presented in United States dollars (“USD” or “$”). The functional currency of certain of CEGL’s PRC
subsidiaries is the Renminbi (“RMB”). The functional currency of CEA is the EUR, and CEGL and its other subsidiaries in US is the USD. The functional currency of Cenntro Electric CICS,SRL was DOP. The
functional currency of Cenntro Automotive S.A.S. and Cenntro Electric Colombia S.A.S. was COP. The functional currency of Cenntro Elektromobilite Araçlar A.Ş was TRY.
Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the reporting period. Capital accounts of the consolidated
financial statements are translated into USD from RMB, EUR, DOP, COP and TRY at their historical exchange rates when the capital transactions occurred. Translation adjustments are reported as cumulative translation adjustments and are shown as a
separate component of accumulated other comprehensive loss in the balance sheets. The rates are obtained from H.10 statistical release of the U.S. Federal Reserve Board.
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Period end USD: RMB exchange rate
|
|
|
7.0999
|
|
|
|
6.8972
|
|
|
Average USD: RMB exchange rate
|
|
|
7.0809
|
|
|
|
6.7290
|
|
|
Period end USD: EUR exchange rate
|
1.1062
|
0.9348
|
||||||
|
Average USD: EUR exchange rate
|
1.0817
|
0.9493
|
||||||
Foreign currency transactions denominated in currencies other than functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and from
re-measurement at year-end are recognized in foreign currency exchange gain/loss, net on the consolidated statement of operations.
Comprehensive loss
Comprehensive loss includes all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current
accounting standards as components of comprehensive loss are required to be reported in a financial statement that is presented with the same prominence as other financial statements. For the years presented, comprehensive loss includes net loss and
the foreign currency translation changes.
Segments
In accordance with ASC 280-10, Segment Reporting, the Company’s chief operating decision maker (“CODM”), identified as the Company’s Chief Executive Officer, relies upon the consolidated results of operations as a whole
when making decisions about allocating resources and assessing the performance of the Company. As a result of the assessment made by CODM, the Company has only one reportable segment. The Company does not distinguish between markets or segments for
the purpose of internal reporting.
The Company’s long-lived assets are substantially located in the PRC and United States. The following table presents long-lived assets by geographic segment as of December 31, 2023 and 2022.
Long-lived assets
|
December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
PRC
|
$
|
19,900,770
|
$
|
18,018,954
|
||||
|
US
|
19,730,650
|
9,125,535
|
||||||
|
Mexico
|
4,238,942
|
|||||||
|
Dominican
|
808,346
|
469,740
|
||||||
|
Others
|
2,636,219
|
99,303
|
||||||
|
Total
|
$
|
47,314,927
|
$
|
27,713,532
|
||||
Share-based compensation expenses
The Company’s share-based compensation expenses are recorded in accordance with ASC 718 and ASC 710.
Share-based awards to employees are measured based on the grant date fair value of the equity instrument issued and recognized as compensation expense net of a forfeiture rate on a straight-line basis, over the requisite
service period, with a corresponding impact reflected in additional paid-in capital.
The estimate of forfeiture rate will be adjusted over the requisite service period to the extent that the actual forfeiture rate differs, or is expected to differ, from such estimates. Changes in estimated forfeiture
rate will be recognized through a cumulative catch-up adjustment in the period of change.
Convertible promissory notes
The Company has elected the fair value option to account for its convertible promissory notes issued during 2022. In accordance with ASC 825, the convertible promissory notes are marked-to-market at each reporting date
with changes in fair value recorded as a component of other income (expense), in the consolidated statements of operations and comprehensive loss. We disclose the nature and terms, the income statement effects, the valuation methods and assumptions
of the convertible promissory notes in Note 15 to our consolidated financial statements.
Derivative liability
Warrants recorded as liabilities at fair value in accordance with ASC 480 “Distinguishing Liabilities from Equity”. The liability remeasured every reporting period with any change to fair value recorded in the
consolidated statements of operations.
Operating lease
The Company accounts for its lease under ASC 842 Leases, and identifies lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified
asset) for a period of time in exchange for consideration. For all operating leases except for short-term leases, the Company recognizes operating right-of-use assets and operating lease liabilities. Leases with an initial term of 12 months or less
are short-term lease and not recognized as right-of-use assets and lease liabilities on the consolidated balance sheet. The Company recognizes lease expense for short-term leases on a straight-line basis over the lease term. The operating lease
liabilities are recognized based on the present value of the lease payments not yet paid, discounted using the Company’s incremental borrowing rate over a similar term of the lease payments at lease commencement. Some of the Company’s lease
agreements contain renewal options; however, the Company do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a
triggering event occurs. The right-of-use assets consist of the amount of the measurement of the lease liabilities and any prepaid lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The
Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Non-controlling Interest
A non-controlling interest in subsidiaries represents the portion of the equity (net assets) in the subsidiaries not directly or indirectly attributable to the Company’s shareholders. Non-controlling interests are
presented as a separate component of equity on the consolidated balance sheets and consolidated statements of operations and other comprehensive loss are attributed to controlling and non-controlling interests.
Recently issued accounting standards pronouncements
In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method”. The new accounting rules allow entities to expand the use of the portfolio layer method to
all financial assets and designate multiple hedged layers within a single closed portfolio. The new accounting rules also clarify guidance related to hedge basis adjustments and the related disclosures for these adjustments. The new accounting rules
were effective for the Company starting January 1, 2023. As the Company does not currently have any fair value hedging programs that leverage the portfolio layer method, the adoption of the new accounting rules did not have any impact on the
Company’s financial condition, results of operations, cash flows or disclosures.
| Item 7A. |
Quantitative and Qualitative Disclosures about Market Risk.
|
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
| Item 8. |
Financial Statements and Supplementary Data
|
INDEX TO FINANCIAL STATEMENTS
|
PAGE
|
|
| F-2 |
|
| F-3 |
|
| F-4 |
|
| F-5 |
|
| F-6 |
|
| F-7 |
| Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|
We have not had any disagreements with our accountants or auditors that would need to be disclosed pursuant to Item 304 of Regulation S-K promulgated under the Securities Act of 1933.
Until the Implementation Date, the Company was subject to obligations under the Corporations Act, including financial reporting obligations that require the Company to prepare, audit
and lodge with ASIC financial reports audited in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board. As a result, the Company has appointed Wis Audit Pty Ltd to act as its
ASIC-registered independent auditor for the purposes of statutory compliance with the Corporations Act.
| Item 9A. |
Controls and Procedures.
|
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s
Chief Executive Officer (the Company’s principal executive officer and interim principal accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the
Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to the Company’s management, including Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) under the
Exchange Act. Internal control over financial reporting is a process used to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with
U.S. GAAP. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide
reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our
Board and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Any system of internal control, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of
the inherent limitations in all internal control systems, no system of internal control over financial reporting can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on this evaluation, management concluded that Cenntro has limited
accounting personnel and other resources with which to address its internal control over financial reporting in accordance with requirements applicable to public companies. Historically, Cenntro had not retained a sufficient number of professionals
with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters under U.S. GAAP.
Management’s Remediation Initiatives
Management has taken- and is continuing to take-actions to remediate our material weakness and strengthen our internal control over our financial reporting and risk management. In
2022, we steadily increased our finance team resources based in our Freehold, NJ, headquarters. Also in in January 2022, we appointed our Financial Controller for North America who is a CPA license holder.
As of the date of this report, we have a total of four professionals on our finance team in the United States including two certified public accountants (CPAs) and one staff
accountant with public accounting experience who has passed their CPA exams. We intend to hire additional professional accountants with greater familiarity with U.S. GAAP and SEC reporting requirements. Additionally, we have retained a consulting
firm to assist us in assessing our compliance with The Sarbanes-Oxley Act to help us (i) further develop and implement formal policies, processes and documentation procedures relating to our financial reporting as well as (ii) address the accounting
function’s staffing needs and training and strengthen our internal control processes. Our material weakness will not be considered remediated until management completes the design and implementation of the measures described above and the controls
operate for a sufficient period of time and management has concluded that these controls are effective.
Changes in Internal Controls over financial reporting
No change in our internal control over financial reporting occurred during the fiscal year ended December 31, 2023 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
| Item 9B. |
Other Information.
|
During the year ended December 31, 2023, no director or officer adopted or terminated a “Rule 10b5-1 10b5-1
The Company has adopted an insider trading policy governing the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees, or the registrant itself, that
have been designed to promote compliance with insider trading laws, rules and regulations, and Nasdaq’s listing standards.
PART III
| Item 10. |
Directors, Executive Officers and Corporate Governance.
|
The following table sets forth certain information with respect to our directors, executive officers and significant employees:
|
Name
|
Age
|
Position
|
||
|
Executive Officers:
|
||||
|
Peter Z. Wang
|
69
|
Chief Executive Officer, Managing Director and Chairman of the Board
|
||
|
Edward Ye
|
33
|
Acting Chief Financial Officer
|
||
|
Wei Zhong
|
46
|
Chief Technology Officer
|
||
|
Tony W. Tsai
|
51
|
Vice President, Corporate Affairs and Corporate Secretary
|
||
|
Ming He
|
53
|
Treasurer
|
||
|
Non-Executive Directors:
|
||||
|
Yi Zeng
|
68
|
Director
|
||
|
Stephen Markscheid (1)(2)(3)
|
69
|
Director
|
||
|
Jiawei “Joe” Tong (1)(2)(3)
|
60
|
Director
|
||
|
Benjamin B. Ge (1)(2)(3)
|
56
|
Director
|
| (1) |
Member of the Audit Committee
|
| (2) |
Member of the Compensation Committee
|
| (3) |
Member of the Nominating Committee
|
Peter Z. Wang, founded CAG, the former parent company of Cenntro, and served as its Chairman and Chief Executive Officer since 2013. Mr. Wang began serving as
Managing Director, Chairman of the Board, and Chief Executive Officer of the Company immediately following the closing of the Combination in December 2021. Mr. Wang is an entrepreneur and investor in the electric vehicle and technology industries,
and has founded or co-founded a number of companies in his career, including UTStarcom (a global telecom infrastructure provider), which went public in 2000, World Communication Group, an international telecommunication company, and Sinomachinery
Group, a diesel power system (engine and transmission) manufacturer. Mr. Wang was named one of the Outstanding 50 Asian Americans in Business by Asian American Business Development Center in 2004, one of China’s 100 Most Innovative Businessmen by
Fast Company Magazine in 2017, and one of the Most Intriguing Entrepreneurs by Goldman Sachs in 2019. Mr. Wang is also the chairman of the board of directors of Cenntro Enterprise Limited, a principal stockholder of the Company, and Greenland
Technologies Holding Corp. (NASDAQ: GTEC), a transmission products manufacturing company. Mr. Wang holds Bachelor of Science degrees in Computer Science and Math, as well as a Master of Science degree in Electrical Engineering, from the University of
Illinois at Chicago. Mr. Wang also holds a Master of Business Administration from Nova Southeastern University. We believe Mr. Wang is qualified to serve on our Board due to his extensive leadership and management experience, including his experience
serving as founder and Chairman and Chief Executive Officer of CAG.
Edward Ye, has served as Cenntro’s Financial Director since December 2019 and became Acting Chief Financial Officer of the Company in March 2024. Prior to
joining Cenntro, Mr. Ye was a Senior Associate at Deloitte Touche Tohmatsu Limited (“Deloitte”) from September 2012 to August 2017 where he assisted in the completion of initial public offerings in the US and Hong Kong. At Deloitte, Mr. Ye served a
multitude of clients in industries such as education, manufacturing, energy and resources, retail, customer service, real estate, transportation, and telecommunications. Mr. Ye earned a Bachelor’s degree in Accounting from Hong Kong Baptist
University and a Master of Science in Corporate Finance from Bayes Business School of the City, University of London, (formally known as, the Case Business School).
Wei Zhong, has been Cenntro’s Chief Technology Officer since 2013 and became our Chief Technology Officer immediately following the closing of the Combination in
December 2021. Mr. Zhong has been instrumental in the development of our electric vehicle technologies and models, as well as the development of its supply chain. Prior to 2013, Mr. Zhong was employed with Hangzhou Jiuru Economic Information
Consulting Co., Ltd., where he developed software for its enterprise information query platform. Prior to that time, Mr. Zhong served as a communication technology developer for Zhejiang Guangtong Network Technology Co., Ltd. Mr. Zhong holds a
bachelor’s degree in Biotechnology from Zhejiang University.
Tony W. Tsai, has served as Vice President, Corporate Affairs of CAC, a wholly owned subsidiary, since July 2013 and was appointed Vice President, Corporate
Affairs and Company Secretary of CEG, a wholly owned subsidiary, in July 2021. Mr. Tsai was appointed our Vice President, Corporate Affairs and Company Secretary immediately following the closing of the Combination in December 2021. Since April 2007,
Mr. Tsai has also been a real estate advisor at Winzone Realty, Inc. From 2007 to 2009, Mr. Tsai served as Compliance Director and an investment banker at CapLink Financial Group, LLC, where he managed broker dealer compliance, supervised sales teams
and provided strategic advice. From 2006 to 2007, Mr. Tsai was an investment banker with Kuhns Brothers, Inc. Since joining CAC, Mr. Tsai has been involved in corporate and communications strategy and global regulatory matters. Mr. Tsai holds a
bachelor’s degree in Business Administration, with a focus on International Sales Marketing, from Baruch College, City University of New York.
Ming He, was appointed as Cenntro’s Treasurer in May 2022. Mr. He joined Cenntro Automotive Group, the predecessor of CEGL as Chief Financial Officer in February
2014. Before his role at CAG, he served as the Chief Financial Officer of Shengkai Innovations, Inc. from March 2010 through April 2012, which completed its Nasdaq listing and public offerings. Between January 2007 and February 2010, Mr. He served as
Chief Financial Officer of Zhongchai Machinery, Inc. From October 2004 until January 2007, Mr. He served as Senior Director at SORL Auto Parts, Inc. (“SORL"), where he guided SORL’s progress in the US capital market and closed a public offering in
November 2006. Mr. He holds designations of Chartered Financial Analyst and Certified Public Accountant. He received his Master of Science in Accountancy in 2004 and Master of Business Administration in 2003 from University of Illinois at
Urbana-Champaign. He also received his bachelor’s degree from Shanghai University of International Business and Economics (f.k.a. Shanghai Institute of Foreign Trade) in 1992.
Non-Employee Directors
Yi Zeng, became a member of our Board on September 16, 2022 after the resignation of a former board member. Dr. Zeng has
over 30 years’ experience in the energy industry, management, marketing and research. From 2016 to 2017, Dr. Zeng served as a non-executive Director of an energy company Range Resources Pty. Ltd, a former public company that was listed on both the
London and Australian Stock Exchanges. He retired thereafter to enjoy family life. From 2011 to 2016, Dr. Zeng served as an independent consultant for Kori Ltd. From 2011 to 2012, he was the managing director of Lomon Pty. Ltd. a former public
company that was listed on the Australian Stock Exchange. From 2007-2009, Dr. Zeng was the Asia Pacific Regional Marketing Manager of Titanium, BHP Billiton Shanghai, a global energy and mining company. Prior to that Dr. Zeng served as a Principle
and Senior Scientist at BHP Exploration & Mining Technology in Melbourne, Australia from 2000 to 2007. Dr. Yi Zeng holds a Ph.D. in Geophysics from Victoria University of Wellington, New Zealand; an MSc in Applied Geophysics Exploration from
Chengdu College of Geology, China; and a BSc in Geophysical Exploration from Chengdu University of Technology, China. The Company believes Dr. Zeng’s extensive experience in management, technical, and research with global and Australian-based
companies makes him well suited to serve as a member of the Board.
Stephen Markscheid, became a member of our Board on November 1, 2023, and serves on each of our audit committee, compensation committee and nominating committee.
Mr. Markscheid has been the Managing Principal of Aerion Capital, a family office, since July 2022. He currently serves as independent non-executive director of six other publicly listed companies: Fanhua, Inc. (Nasdaq: FANH), a financial services
provider (since 2007); Jinko Solar Inc. (NYSE: JKS), a solar panel manufacturer (since 2010); Kingwisoft Technology Services Ltd. (HKSE: 8295.HK), an information technology company (since 2016); Monterey Capital Acquisition Corporation (Nasdaq:
MCAC), a special purpose acquisition company (since 2022); Four Leaf Acquisition Corporation (Nasdaq: FORL), a special purpose acquisition company (since 2023); and Tristar Acquisition I Corp. (NYSE: TRIS), a special purpose acquisition company
(since 2023). Mr. Markscheid previously served as a director of UGE International (XTSX:UGE), a solar installation company from August 2019 to July 2023. He is also a trustee emeritus of Princeton-in-Asia. From 1998 to 2006, he worked for GE Capital.
During his time with GE Capital, Mr. Markscheid led GE Capital’s business development activities in China and Asia Pacific, primarily acquisitions and direct investments. Prior to GE Capital, Mr. Markscheid worked with the Boston Consulting Group
throughout Asia. He was a banker for ten years in London, Chicago, New York, Hong Kong and Beijing with Chase Manhattan Bank and First National Bank of Chicago. Mr. Markscheid began his career with the US-China Business Council, in Washington D.C.
and Beijing. He earned a BA in East Asian Studies from Princeton University in 1976, an MA in international affairs from Johns Hopkins University in 1980, and an MBA from Columbia University in 1991, where he was class valedictorian. We believe that
Mr. Markscheid’s extensive experience serving on public boards and working with technology companies makes him a qualified to serve on our board of directors.
Jiawei “Joe” Tong, became a member of our Board following the closing of the Combination on December 30, 2021, and serves on each of our audit committee,
compensation committee and nominating committee. Mr. Tong co-founded MeetChina, a leading B2B e-commerce website for China in 1998 and served as its Chief Executive Officer and Director from 1998 to 2003. In 2007, Mr. Tong joined Telstra Sensis as
its President of China, and helped build Fang.com (NASDAQ: SFUN), a leading real-estate company website in China, and Autohome Inc. (NYSE: ATHM), a leading automotive company website. In 2016, Mr. Tong joined Ford Motor Company as its Head of Smart
Mobility, China. Mr. Tong holds a bachelor’s degree in Computational Mathematics from Nanjing University, and a Master of Business Administration in Finance and Strategic Marketing from the University of Pennsylvania’s Wharton School of Business. We
believe Mr. Tong is qualified to serve on our Board due to his past experience with business-to-business enterprises and in the automotive industry.
Benjamin B. Ge, became a member of our board following his election at the Company’s annual general meeting on May 31, 2022. Since February 2019, Mr. Ge has been
the Chief Financial Officer of New Century Science & Technology Limited. Mr. Ge was a Managing Director at Citic Capital Holdings Limited, an alternative investment management and advisory company, from 2016 to 2019. Prior to joining Citic
Capital, Mr. Ge was Regional Head (China) at Sequoia Capital Operations LLC, a venture capital firm focused on seed stage, mid stage, late stage, and growth investments in the fintech sector, from 2010 to 2016. Mr. Ge was Vice President of JP
Morgan’s Global Special Opportunity Group from 2007 to 2009 and Vice President of UniCredit China Capital Ltd. from 2005 to 2007. Mr. Ge received a Bachelor of Economics degree from Southern China Normal University in 1989, as well as an Associate
Diploma of Business in International Trade in 1991, a Post-Graduate Diploma of Finance in 1994, and a Master of Finance degree in 2001 from Royal Melbourne Institute of Technology. He is member of the Securities Institute of Australia. The Company
believes Mr. Ge is qualified to serve on our Board due to his extensive experience in private equity and corporate finance matters.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers are
appointed by our board of directors and hold office until removed by the board.
Board Committees
We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating committee. We have adopted a charter for each of the three committees.
Copies of our committee charters are posted on our corporate investor relations website.
Each committee’s members and functions are described below.
Audit Committee. Our Audit Committee consists of Stephen Markscheid, Jiawei “Joe” Tong and Benjamin B. Ge. Mr. Tong is the chairman of our audit committee. We
have determined that these directors satisfy the “independence” requirements of NASDAQ Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. Our board of directors has determined that Mr. Thorne qualifies as an audit committee financial
expert and has the accounting or financial management expertise as required under Item 407(d)(5)(ii) and (iii) of Regulation S-K. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial
statements of our company. The audit committee is responsible for, among other things:
| ● |
appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;
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| ● |
reviewing with the independent auditors any audit problems or difficulties and management’s response;
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| ● |
discussing the annual audited financial statements with management and the independent auditors;
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reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;
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| ● |
reviewing and approving all proposed related party transactions;
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| ● |
meeting separately and periodically with management and the independent auditors; and
|
| ● |
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
|
Compensation Committee. Our Compensation Committee consists of Stephen Markscheid, Jiawei “Joe” Tong and Benjamin B. Ge. Mr. Tong is the chairman of our
compensation committee. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be
present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
| ● |
reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;
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| ● |
reviewing and recommending to the shareholders for determination with respect to the compensation of our directors;
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| ● |
reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
|
| ● |
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.
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Nomination Committee. Our Nomination Committee consists of Stephen Markscheid, Jiawei “Joe” Tong and Benjamin B. Ge. Mr. Tong is the chairman of our nomination
committee. The nomination committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nomination committee is responsible for, among other
things:
| ● |
selecting and recommending to the board nominees for election by the shareholders or appointment by the board;
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reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;
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making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and
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advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to
the board on all matters of corporate governance and on any remedial action to be taken.
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Family Relationships
There are no family relationships between any of our directors or executive officers.
Certain Legal Proceedings
To our knowledge, no director, nominee for director, or executive officer of the Company has been a party in any legal proceeding material to an evaluation of his ability or integrity during the past
ten years.
Code of Ethics
The Company adopted a Code of Ethics applicable to its directors, officers, and employees. This includes our principal executive officer, principal financial officer, and principal accounting officer or
controller, or persons performing similar functions. The full text of our Code of Ethics is posted on our website at https://ir.cenntroauto.com/static-files/fd697ea5-17b6-4536-bfe2-5539e84305f3 .
Compensation Recovery Policy
Under the Sarbanes-Oxley Act, in the event of misconduct that results in a financial restatement that would have reduced a previously paid incentive amount, we can recoup those
improper payments from our executive officers. The SEC also recently adopted rules which direct national stock exchanges to require listed companies to implement policies intended to recoup bonuses paid to executives if the company is found to have
misstated its financial results.
Our Board s approved the adoption of the Executive Compensation Recovery Policy (the “Recovery Policy”) in order to comply with the clawback rules adopted by the SEC under the
rule, and the listing standards, as set forth in the Nasdaq Listing Rule 5608 (the “Recovery Rules”).
The Recovery Policy provides for the mandatory recovery of erroneously awarded incentive-based compensation from our current and former executive officers as defined in Rule
10D-1 under the Exchange Act (“Covered Officers”) in the event that we are required to prepare an accounting restatement, in accordance with the Recovery Rules. The recovery of such compensation applies regardless of whether a Covered Officer engaged
in misconduct or otherwise caused or contributed to the requirement of an accounting restatement. Under the Recovery Policy, our Board may recoup from the Covered Officers erroneously awarded incentive compensation received within a lookback period
of the three completed fiscal years preceding the date on which we are required to prepare an accounting restatement.
| Item 11. |
Executive Compensation.
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Introduction
We are an emerging growth company, as defined in the JOBS Act. As an emerging growth company, we will be exempt from certain requirements related to executive compensation, including, but not limited
to, the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating to the ratio of total compensation of our Chief Executive Officer to the median of the annual total compensation of all of our
employees, each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
This section provides an overview of Cenntro’s executive compensation programs, including a narrative description of the material factors necessary to understand the information disclosed in the summary
compensation table below.
For the year ended December 31, 2023, Cenntro’s named executive officers (“Named Executive Officers” or “NEOs”) were:
| • |
Peter Z. Wang, Chief Executive Officer;
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| • |
Edmond Cheng, Former Chief Financial Officer;
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| • |
Ming He, Treasurer; and
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| • |
Tony W. Tsai, Corporate Secretary.
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The objective of Cenntro’s compensation program is to provide a total compensation package to each NEO that will enable Cenntro to attract, motivate and retain outstanding individuals, align the
interests of our executive team with those of our equity holders, encourage individual and collective contributions to the successful execution of our short- and long-term business strategies and reward NEOs for performance.
|
Name and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
All Other
Compensation
($)
|
Total($)
|
||||||||||||||||
|
Peter Z. Wang
|
2023
|
350,000
|
1,234,596
|
(1)
|
1,584,596
|
|||||||||||||||||
|
Chief Executive Officer
|
2022
|
350,000
|
0
|
920,165
|
(1)
|
0
|
1,270,165
|
|||||||||||||||
|
Edmond Cheng
|
2023(2)
|
300,000
|
464,758
|
(3)
|
464,758
|
|||||||||||||||||
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Former Chief Financial Officer
|
2022
|
300,000
|
464,022
|
(3)
|
464,022
|
|||||||||||||||||
|
Ming He
|
2023
|
250,000
|
53,774
|
(4)
|
303,774
|
|||||||||||||||||
|
Treasurer
|
2022
|
250,000
|
40,247
|
(4)
|
290,247
|
|||||||||||||||||
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Tony W. Tsai
|
2023
|
250,000
|
53,774
|
(5)
|
303,774
|
|||||||||||||||||
|
Corporate Secretary
|
2022
|
250,000
|
40,247
|
(5)
|
290,247
|
|||||||||||||||||
| (1) |
On May 3, 2022, Mr. Wang was granted an option to purchase 350,000 shares of common stock of the Company under the former 2022 Stock Incentive Plan (the “2022 Plan”), with an exercise price per share equal to
$1.8480 per share of incentive stock options and $1.6800 per share of non-statutory stock options, which is equal to the price per share of common stock of the Company on the date of grant of the option, out of which 87,500 and 65,625 options
vested during the years ended December 31, 2023, and December 31, 2022, fair value of which is represented here, respectively.
|
| (2) |
Mr. Cheng terminated his service as CFO to the Company as of March 1, 2024.
|
| (3) |
On December 30, 2021, Mr. Cheng was granted an option to purchase 129,706 shares of common stock under the 2022 Plan, with an exercise price per share equal to $5.74 per share, which is equal to the price per share
of common stock of the Company on the date of grant of the option. The option grant, and adjustment of exercise price to $1.6800 per share, were approved by shareholders at the Annual General Meeting on May 31, 2022, out of which 32,428 and
32,426 options have been vested during the years ended December 31, 2023, and December 31, 2022, fair value of which is represented here, respectively.
|
| (4) |
On May 3, 2022, Mr. He was granted an option to purchase 15,000 shares of common stock of the Company under the former 2022 Stock Incentive Plan (the “2022 Plan”), with an exercise price per share equal to $16.800
per share, which is equal to the price per share of common stock of the Company on the date of grant of the option, out of which 3,752 and 2,814 options vested during the years ended December 31, 2023, and December 31, 2022, fair value of
which is represented here, respectively.
|
| (5) |
On May 3, 2022, Mr. Tsai was granted an option to purchase 15,000 shares of common stock of the Company under the former 2022 Stock Incentive Plan (the “2022 Plan”), with an exercise price per share equal to $16.800
per share, which is equal to the price per share of common stock of the Company on the date of grant of the option, out of which 3,752 and 2,814 options vested during the years ended December 31, 2023, and December 31, 2022, fair value of
which is represented here, respectively.
|
Compensation of Directors
We review compensation annually for all employees, including our executives. In setting executive base salaries and bonuses and granting equity incentive awards, we consider
compensation for comparable positions in the market, the historical compensation levels of our executives, individual performance as compared to our expectations and objectives, our desire to motivate our employees to achieve short- and long-term
results that are in the best interests of our stockholders, and a long-term commitment to us.
Agreements with Our Named Executive Officers
Below are descriptions of the material terms of the employment agreements and offer letters with Cenntro’s Named Executive Officers.
Employment Agreement with Peter Z. Wang
On August 20, 2017, CAG entered into an employment agreement with Mr. Wang to serve as Chief Executive Officer of CAG. The initial term of the employment agreement expires on August
19, 2022 and is automatically renewed for successive one-year periods unless terminated by either party prior to the expiration of any extended term. The employment agreement provides that Mr. Wang is entitled to an annual base salary (which is
currently $350,000). Mr. Wang is not entitled to any cash severance under his employment agreement. Mr. Wang’s employment agreement contains customary restrictions on competition, solicitation and the disclosure of confidential information. In
connection with the closing of the Combination, CAC assumed the rights and obligations of CAG under the employment agreement with Mr. Wang.
Employment Agreement with Edmond Cheng
On April 1, 2021, Edmond Cheng joined CAG as CEG’s President and Chief Financial Officer. In connection with Mr. Cheng’s appointment, CAG entered into an offer letter with Mr. Cheng,
which was amended and restated as of June 28, 2021 and further amended on September 3, 2021. The initial term of Mr. Cheng’s employment expires on March 31, 2024 and is automatically renewed for successive one-year periods unless terminated by either
party prior to the expiration of the initial term or any extension thereof. Pursuant to the amended and restated offer letter, Mr. Cheng will receive an annual base salary of $300,000 and received a one-time signing bonus of $100,000. Additionally,
on December 30, 2021, Mr. Cheng was granted an option, subject to shareholder approval, to purchase 129,706 shares of common stock of the Company under the former 2022 Plan with an exercise price per share equal to $5.74 per share, which is equal to
the price per Ordinary Share of the Company on the date of grant of the option.
Mr. Cheng executed CAG’s standard Employee’s Proprietary Information and Inventions and Non-Competition Agreement (“PIIA”) which contains customary restrictions on competition,
solicitation and disclosure of confidential information as well as provisions regarding the assignment of intellectual property.
Mr. Cheng terminated his service as CFO to the Company as of March 1, 2024.
Employment Agreement with Ming He
On August 20, 2017, CAG entered into an employment agreement with Mr. He to serve as Chief Financial Officer of CAG. The initial term of the employment agreement expired on August 19, 2022 has been
automatically renewed for successive one-year periods unless otherwise terminated by either party prior to the expiration of any extended term. The employment agreement provides that Mr. He is entitled to an annual base salary (which is currently
$250,000). Mr. He is not entitled to any cash severance under his employment agreement. Mr. He’s employment agreement contains customary restrictions on competition, solicitation and the disclosure of confidential information. In 2021, CAC assumed
the rights and obligations of CAG under Mr. He’s employment agreement. On May 3, 2022, Mr. He was appointed as Treasurer of the Company.
Employment Agreement with Tony W. Tsai
On August 20, 2017, CAC entered into an employment agreement with Mr. Tsai to serve as VP of Corporate Affairs of CAC. The initial term of the employment agreement expired on July 11, 2019 and was
automatically renewed for successive one-year periods unless otherwise terminated by either party prior to the expiration of any extended term. The employment agreement provides that Mr. Tsai is entitled to an annual base salary (which is currently
$250,000). Mr. Tsai is not entitled to any cash severance under his employment agreement. Mr. Tsai’s employment agreement contains customary restrictions on competition, solicitation and the disclosure of confidential information. On December 31,
2021, Mr. Tsai was appointed as Secretary of the Company.
Health and Welfare Benefits and Perquisites
All of Cenntro’s executive officers were eligible to participate in its employee benefit plans, including its medical, dental, vision, life and disability insurance plans, in each
case on the same basis as all of its other employees. Cenntro does not maintain any retirement plans or executive-specific benefit or perquisite programs. Following the closing of the Combination, we provide employees, including our executive
officers, the same benefits.
Annual Cash Bonuses
None of Cenntro’s executive officers were eligible to receive a cash bonus for the year ended December 31, 2023.
Equity Incentive Awards
Cenntro has historically granted stock options to its employees, including its executive officers. On the Implementation Date, and pursuant to the Scheme, the Company
assumed CEGL’s obligations with respect to the settlement of stock options that were issued by CEGL prior to the Implementation Date pursuant to CEGL’s amended and restated 2016 incentive stock option plan and 2022 stock incentive plan (the “Share
Option Plans”) by way adoption of a new incentive plan, the Company’s 2023 equity incentive plan (the “2023 Plan”).
Following the Implementation Date, no new options were issued under the Share Option Plans. The Company has assumed CEGL’s obligations with respect to the settlement of incentive
options that were previously issued by CEGL under the 2023 Plan.
Cenntro Inc. 2023 Equity Incentive Plan
On the Implementation Date, in connection with the Redomicile, the Board adopted the 2023 Plan, which became effective on that date. The following is a description of the material
terms of the 2023 Plan. The summary below does not contain a complete description of all provisions of the 2023 Plan and is qualified in its entirety by reference to the 2023 Plan, a copy of which was filed as Exhibit 10.1 to our Current Report on
Form 8-K12-B, filed with the SEC on February 27, 2024, and is incorporated herein by reference.
Share Awards. The 2023 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), restricted share awards, share unit
awards, share appreciation rights, cash-based awards, and performance-based share awards, or collectively, share awards. ISOs may be granted only to our employees, including officers, and the employees of our subsidiaries. All other share awards may
be granted to our employees, officers, our non-employee directors, and consultants and the employees and consultants of our subsidiaries and affiliates.
Share Reserve. The aggregate number of Common Stock that may be issued pursuant to share awards under the 2023 Plan will not exceed the sum
30,000,000 shares.
If restricted securities or securities issued upon the exercise of options are forfeited, then such shares shall again become available for awards under the 2023 Plan. If share units,
options or share appreciation rights are forfeited or terminate for any reason before being exercised or settled, or an award is settled in cash without the delivery of shares to the holder, then the corresponding shares will again become available
for awards under the 2023 Plan. Any shares withheld to satisfy the exercise price or tax withholding obligation pursuant to any award of options or share appreciation rights shall again become available for awards under the 2023 Plan. If share units
or share appreciation rights are settled, then only the number of shares (if any) actually issued in settlement of such share units or share appreciation rights shall reduce the number of shares available under the 2023 Plan, and the balance
(including any shares withheld to cover taxes) shall again become available for awards under the 2023 Plan.
As of the date of this Annual Report, options to purchase a total of 1,937,623 shares of Common Stock were outstanding under the 2023 Plan. As of the date of this Annual Report,
options to purchase an aggregate of 2,202,248 shares of Common Stock have been granted and 5,147 shares of Common Stock have been issued under the 2023 Plan.
Incentive Stock Option Limit. The maximum number of Common Stock that may be issued upon the exercise of ISOs under the 2023 Plan is
30,000,000 shares of Common Stock.
Administration. The 2023 Plan will be administered by our Board or a committee appointed by our Board, or the compensation committee. Subject
to the limitations set forth in the 2023 Plan, the compensation committee has the authority to determine, among other things, to whom awards will be granted, the number of shares subject to awards, the term during which an option or share
appreciation right may be exercised and the rate at which the awards may vest or be earned, including any performance criteria to which they may be subject. The compensation committee also has the authority to determine the consideration and
methodology of payment for awards.
Repricing; Cancellation and Re-Grant of Share Awards. The compensation committee has the authority to modify outstanding awards under the
2023 Plan. Subject to the terms of the 2023 Plan, the compensation committee has the authority to cancel any outstanding share award in exchange for new share awards, cash, or other consideration, without shareholder approval but with the consent of
any adversely affected participant.
Stock Options. A stock option is the right to purchase a certain number of shares, at a certain exercise price, in the future. Under the 2023
Plan, ISOs and NSOs are granted pursuant to stock option agreements adopted by the compensation committee. The compensation committee determines the exercise price for a stock option, within the terms and conditions of the 2023 Plan, provided that
the exercise price of a stock option generally cannot be less than one hundred percent (100%) of the fair market value of our Common Stock on the date of grant. Options granted under the 2023 Plan vest at the rate specified by the compensation
committee. Stock options granted to certain employees outside of the United States may be settled in cash.
Stock options granted under the 2023 Plan generally must be exercised by the optionee before the earlier of the expiration of such option or the expiration of a specified period
following the optionee’s termination of employment. Each stock option agreement will set forth the extent to which the option recipient will have the right to exercise the option following the termination of the recipient’s service with us, and the
right to exercise the option of any executors or administrators of the award recipient’s estate or any person who has acquired such options directly from the award recipient by bequest or inheritance. Payment of the exercise price may be made in cash
or, if provided for in the stock option agreement evidencing the award, (1) by surrendering, or attesting to the ownership of, shares which have already been owned by the optionee, (2) future services or services rendered to us or our affiliates
prior to the award, (3) by delivery of an irrevocable direction to a securities broker to sell shares and to deliver all or part of the sale proceeds to us in payment of the aggregate exercise price, (4) by delivery of an irrevocable direction to a
securities broker or lender to pledge shares and to deliver all or part of the loan proceeds to us in payment of the aggregate exercise price, (5) by a “net exercise” arrangement, (6) by delivering a full-recourse promissory note, or (7) by any other
form that is consistent with applicable laws, regulations, and rules.
Tax Limitations on Incentive Stock Options. The aggregate fair market value, determined at the time of grant, of our shares of Common Stock
with respect to ISOs that are exercisable for the first time by an option holder during any calendar year under all of our share plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No
ISO may be granted to any person who, at the time of the grant, owns or is deemed to own shares possessing more than ten percent (10%) of our total combined voting power or that of any of our affiliates unless (1) the option exercise price is at
least one hundred ten percent (110%) of the fair market value of the shares subject to the option on the date of grant, and (2) the term of the ISO does not exceed five (5) years from the date of grant.
Restricted Share Awards. The terms of any awards of restricted securities under the 2023 Plan will be set forth in a restricted share
agreement to be entered into between us and the recipient. The compensation committee will determine the terms and conditions of the restricted share agreements, which need not be identical. A restricted share award may be subject to vesting
requirements or transfer restrictions or both. Restricted securities may be issued for such consideration as the compensation committee may determine, including cash, cash equivalents, full recourse promissory notes, past services and future
services. Award recipients who are granted restricted securities generally have all of the rights of a shareholder with respect to those shares, provided that dividends and other distributions will not be paid in respect of unvested shares unless and
until the underlying shares vest.
Share Unit Awards. Share unit awards give recipients the right to acquire a specified number of shares (or cash amount) at a future date upon
the satisfaction of certain conditions, including any vesting arrangement, established by the compensation committee and as set forth in a share unit award agreement. A share unit award may be settled by cash, delivery of shares, a combination of
cash and shares as deemed appropriate by the compensation committee. Recipients of share unit awards generally will have no voting or dividend rights prior to the time the vesting conditions are satisfied and the award is settled. At the compensation
committee’s discretion and as set forth in the share unit award agreement, share units may provide for the right to dividend equivalents. Dividend equivalents may not be distributed prior to settlement of the share unit to which the dividend
equivalents pertain and the value of any dividend equivalents payable or distributable with respect to any unvested share units that do not vest will be forfeited.
Share Appreciation Rights. Share appreciation rights generally provide for payments to the recipient based upon increases in the price of our
shares of Common Stock over the exercise price of the share appreciation right. The compensation committee determines the exercise price for a share appreciation right, which generally cannot be less than one hundred percent (100%) of the fair market
value of our Common Stock on the date of grant. A share appreciation right granted under the 2023 Plan vests at the rate specified in the share appreciation right agreement as determined by the compensation committee. The compensation committee
determines the term of share appreciation rights granted under the 2023 Plan, up to a maximum of ten years. Upon the exercise of a share appreciation right, we will pay the participant an amount in shares, cash, or a combination of shares and cash as
determined by the compensation committee, equal to the product of (1) the excess of the per share fair market value of our Common Stock on the date of exercise over the exercise price, multiplied by (2) the number of shares of Common Stock with
respect to which the share appreciation right is exercised.
Other Share Awards. The compensation committee may grant other awards based in whole or in part by reference to our shares of Common Stock.
The compensation committee will set the number of shares under the share award and all other terms and conditions of such awards.
Cash-Based Awards. A cash-based award is denominated in cash. The compensation committee may grant cash-based awards in such number and
upon such terms as it shall determine. Payment, if any, will be made in accordance with the terms of the award, and may be made in cash or in shares of Common Stock, as determined by the compensation committee.
Performance-Based Awards. The number of shares or other benefits granted, issued, retainable and/or vested under a share or share unit award
may be made subject to the attainment of performance goals. The compensation committee may utilize any performance criteria selected by it in its sole discretion to establish performance goals.
Changes to Capital Structure. In the event of a recapitalization, share split, or similar capital transaction, the compensation committee
will make appropriate and equitable adjustments to the number of shares reserved for issuance under the 2023 Plan, the number of shares that can be issued as incentive stock options, the number of shares subject to outstanding awards and the exercise
price under each outstanding option or share appreciation right.
Transactions. If we are involved in a merger or other reorganization, outstanding awards will be subject to the agreement or merger or
reorganization. Subject to compliance with applicable tax laws, such agreement will provide for (1) the continuation of the outstanding awards by us, if we are a surviving corporation, (2) the assumption or substitution of the outstanding awards by
the surviving corporation or its parent or subsidiary, (3) immediate vesting, exercisability, and settlement of the outstanding awards followed by their cancellation, or (4) settlement of the intrinsic value of the outstanding awards (whether or not
vested or exercisable) in cash, cash equivalents, or equity (including cash or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such award or the underlying shares) followed by cancellation of
such awards.
Change of Control. The compensation committee may provide, in an individual award agreement or in any other written agreement between a
participant and us, that the share award will be subject to acceleration of vesting and exercisability in the event of a change of control.
Transferability. Unless the compensation committee provides otherwise, no award granted under the 2023 Plan may be transferred in any manner
(prior to the vesting and lapse of any and all restrictions applicable to shares issued under such award), except by will, the laws of descent and distribution, or pursuant to a domestic relations order.
Amendment and Termination. Our Board has the authority to amend, suspend, or terminate the 2023 Plan, provided that such action does not
materially impair the existing rights of any participant without such participant’s written consent. No ISOs may be granted after the tenth anniversary of the date our Board adopted the 2023 Plan.
Recoupment. In the event that we are required to prepare restated financial results owing to an executive officer’s intentional misconduct or
grossly negligent conduct, the Board (or a designated committee) has the authority, to the extent permitted by applicable law, to require reimbursement or forfeiture to us of the amount of bonus or incentive compensation (whether cash-based or
equity-based) such executive officer received during the three fiscal years preceding the year the restatement is determined to be required, to the extent that such bonus or incentive compensation exceeds what the officer would have received based on
an applicable restated performance measure or target. We intend to recoup incentive-based compensation from executive officers to the extent required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules, regulations and
listing standards that may be issued under that act.
| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
The following table provides information with respect to the beneficial ownership of our Common stock as of the date of this report, by:
| • |
each of our executive officers and directors;
|
| • |
all of our current directors and executive officers as a group; and
|
| • |
each person or entity, or group of persons or entities, known by us to own beneficially more than 5% of our Common Stock.
|
We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and the information is not necessarily indicative of beneficial ownership for any
other purpose. In general, under these rules a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares voting power or investment power
with respect to such security. A person is also deemed to be a beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days. Except as indicated by the footnotes below, we believe, based
on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares that they beneficially own, subject to applicable community property laws.
Percentage ownership is based on 30,828,795 shares of Common Stock outstanding as of March 22, 2024.
|
Name and Address of Beneficial Owner (1)
|
Amount and
Nature of
Beneficial
Ownership
|
Percentage of
Beneficial
Ownership
|
||||||
|
5% Shareholders:
|
||||||||
|
China Leader Group Limited (2)
|
1,644,312
|
5.3
|
%
|
|||||
|
Directors and Executive Officers:
|
||||||||
|
Peter Z. Wang (3)
|
7,307,560
|
23.7
|
%
|
|||||
|
Edward Ye (4)
|
30,219
|
*
|
%
|
|||||
|
Wei Zhong (5)
|
161,017
|
*
|
%
|
|||||
|
Tony Tsai (6)
|
49,504
|
*
|
%
|
|||||
|
Jiawei “Joe” Tong (7)
|
6,666
|
*
|
%
|
|||||
|
Stephen Markscheid
|
-
|
-
|
%
|
|||||
|
Ming He (8)
|
96,020
|
*
|
%
|
|||||
|
Yi Zeng
|
-
|
-
|
%
|
|||||
|
Benjamin B. Ge (9)
|
36,446
|
*
|
%
|
|||||
|
All current directors and executive officers as a group (eleven persons) (10)
|
7,687,432
|
25
|
%
|
|||||
|
*
|
Represents beneficial ownership of less than 1%.
|
| 1) |
Unless otherwise indicated, the address for each beneficial owner listed in the table above is c/o Cenntro Inc., 501 Okerson Road, Freehold, New Jersey 07728.
|
| 2) |
Represents the Acquisition Shares received by China Leader Group Limited (“CLGL”) following the closing of the Combination. CLGL is wholly owned by Yeung Heung Yeung, one of the directors of CAG, the former parent
company of Cenntro. Yeung Heung Yeung has sole voting and dispositive power with respect to the shares of Common Stock held by CLGL. Accordingly, Mr. Yeung may be deemed to beneficially own the 1,644,312 shares of Common Stock directly held
by CLGL. The address of China Leader is Flat B, 29 Floor, Tower 1, Starcrest, 9 Star Street, Wan Chai, Hong Kong.
|
| 3) |
Consists of (i) 6,539,994 Acquisition Shares held of record by Cenntro Enterprise Limited, (ii) 614,441 Acquisition Shares held of record by Trendway Capital Limited, each of which is wholly owned by Mr. Peter Wang,
and (iii) 153,125 shares of Common Stock that Mr. Wang has the right to acquire from us within 60 days of March 18, 2024, pursuant to the exercise of stock options granted under the 2023 Plan. Mr. Wang has voting and dispositive power over
the securities held by each entity and as a result may be deemed to beneficially own the securities of such entities. Each of Cenntro Enterprise Limited and Trendway Capital Limited received such Acquisition Shares presented above following
the closing of the Combination, pursuant to the Distribution.
|
| 4) |
Consists of 30,219 shares of Common Stock that Mr. Ye has the right to acquire from us within 60 days of March 18, 2024, pursuant to the exercise of stock options granted under the 2023 Plan.
|
| 5) |
Consists of 161,017 shares of Common Stock that Mr. Zhong has the right to acquire from us within 60 days of March 18, 2024, pursuant to the exercise of stock options under the 2023 Plan.
|
| 6) |
Consists of 49,504 shares of Common Stock that Mr. Tsai has the right to acquire from us within 60 days of March 18, 2024, pursuant to the exercise of stock options under the 2023 Plan.
|
| 7) |
Consists of 6,666 shares of Common Stock that Mr. Tong has the right to acquire from us within 60 days of March 18, 2024, pursuant to the exercise of stock options granted under the 2023 Plan
|
| 8) |
Consists of 96,020 shares of Common Stock that Mr. He has the right to acquire from us within 60 days of March 18, 2024, pursuant to the exercise of stock options granted under 2023 Plan.
|
| 9) |
Consists of 29,780 shares of Common Stock beneficially owned by Mr. Ge, and 33,333 shares of Common Stock that Mr. Ge has the right to acquire from us within 60 days of March 18, 2024, pursuant to the exercise of
stock options granted under the 2023 Plan.
|
| 10) |
Consists of (i) 7,184,215 shares of Common Stock beneficially owned by our directors and executive officers and (ii) 503,217 shares of Common Stock underlying outstanding options, exercisable within 60 days of March
18, 2024.
|
| Item 13. |
Certain Relationships and Related Transactions, and Director Independence.
|
Our audit committee, pursuant to its written charter, is responsible for reviewing and approving related party transactions to the extent we enter into such transactions. The audit
committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party
under the same or similar circumstances and the extent of the related party’s interest in the transaction. We will require each of our directors and executive officers to complete an annual directors’ and officers’ questionnaire that elicits
information about related party transactions. These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or
officer.
Other than employment and other agreements set out elsewhere in this annual report, the following summarizes those of transactions since January 1, 2023 to which we have been a
participant in which the amount involved exceeded or will exceed $63,000, and in which any of our directors, executive officers or beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described in the section entitled “Executive Compensation.” Described below
are certain other transactions with our directors, executive officers and stockholders.
Since January 1, 2023, Cenntro has been party to the following material transactions and loans with (a) enterprises that directly or indirectly through one or more intermediaries,
control or are controlled by, or are under common control with, Cenntro; (b) associates; (c) individuals owning, directly or indirectly, an interest in voting power that gives them significant influence over Cenntro, and close members of any such
individual’s family; (d) key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling Cenntro’s activities, including directors and senior management and close members of such
individuals’ families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.
Commercial Transactions
Purchased raw material from related parties
During the year ended December 31, 2023, Cenntro purchased approximately $0.2 million of batteries for Metro® from Hangzhou Hezhe Energy Technology Co., Ltd., an entity significantly influenced by
Hangzhou Ronda Tech Co., Limited, the subsidiary of the Company.
Capital injection to a related party
On July 28, 2022, Cenntro Electric Group (Europe) GmbH (“CEGE”) entered into an agreement to invest in Antric GmbH whereby CEGE invested EUR 2.5 million to acquire 25% of Antric’s
total share capital. CEGE made the first payment of approximately $1.3 million on July 28, 2022. On January 17, 2023, CEGE made a second investment of approximately $0.7 million. On August 31, 2023, Cenntro Automotive Europe GmbH (“CAE”) entered into
an agreement to invest one euro to acquire 75% of Antric’s total share capital which was fully paid on September 8, 2023.
Employment agreement to a related party
On March 25, 2022, as a result of CEGI’s acquisition of 65% shares of CAE (f.k.a. TME), CAE entered into a managing director’s contract with Mr. Gregory Hancke to retain him as
Managing Director (“Geschäftsführer”) of CAE. The Managing Director’s contract is for two years commencing on the day following the closing of the acquisition transaction, or March 23, 2022. The term of the contract is not automatically renewed for
successive periods. The contract provides that Mr. Gregory Hancke is entitled to an annual base salary of €240,000 (equivalent to approximately $259,599). Mr. Gregory Hancke is not entitled to any cash severance under this Managing Director’s
contract.
| Item 14. |
Principal Accounting Fees and Services.
|
Dismissal of Marcum Asia CPAs LLP
On April 14, 2023, the Audit Committee of the Company approved the dismissal of Marcum Asia CPAs LLP (“Marcum Asia”) as our independent registered public accounting firm effective
April 17, 2023.
The Company provided the Marcum Asia with a copy of the foregoing disclosures and requested that the Marcum Asia furnish the Company with a letter addressed to the SEC stating whether
it agrees with the statements made herein and, if not, stating the respects in which it does not agree. A copy of the letter provided by Marcum Asia, dated March 24, 2023, is filed as Exhibit 16.1 to our Form 8-K/A filed on April 26, 2023.
Engagement of GGF CPA LTD (“GGF”) (fka Guangzhou Good Faith CPA LTD)
On April 14, 2023, the Company, upon the Audit Committee’s approval, engaged the services of GGF CPA LTD ("GGF”) as the Company’s new independent registered public accounting firm to
audit the Company’s financial statements for the two years ended December 31, 2021, and December 31, 2022.
During each of the Company’s three most recent fiscal years and through the date of this report, the Company or someone on its behalf did not consult GGF with respect to (i) either:
the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements, or (ii) any other matter that was either the subject of a
disagreement or a reportable event as set forth in Items 304(a)(1)(iv) and (v) of Regulation S-K.
Cost of Fees and Services
The following table sets forth fees billed to us by our current independent auditor GGF for the year ended December 31, 2023 and former independent auditor Marcum Asia for the years
ended December 31, 2022 for (i) services rendered for the audit of our annual consolidated financial statements and the review of our quarterly consolidated financial statements, (ii) services rendered that are reasonably related to the performance
of the audit or review of our consolidated financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
|
SERVICES
|
2023
|
2022
|
||||||
|
Audit fees
|
$
|
1,012,781
|
$
|
527,307
|
||||
|
Audit-related fees
|
-
|
51,500
|
||||||
|
Tax fees
|
-
|
-
|
||||||
|
All other fees
|
-
|
-
|
||||||
|
Total fees
|
$
|
1,012,781
|
$
|
578,807
|
||||
Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual consolidated financial statements and the review of our
interim consolidated financial statements. Prior to Marcum Asia’s dismissal, Marcum Asia’s engagement was approved by the audit committee of the Board and ratified by the Board.
PART IV
| Item 15. |
Exhibits and Financial Statement Schedules.
|
| (a) |
The following documents are filed as part of this report:
|
| (1) |
Financial Statements:
|
The audited balance sheet of the Company as of December 31, 2023, the related statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the year then ended, the
footnotes thereto, and the report of GGF, independent auditors, are filed herewith.
| (2) |
Financial Schedules:
|
None
Financial statement schedules have been omitted because they are either not applicable or the required information is included in the financial statements or notes hereto.
| (3) |
Exhibits:
|
The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.
| (b) |
The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.
|
Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the
agreement. These representations and warranties:
| ● |
may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
|
| ● |
may apply standards of materiality that differ from those of a reasonable investor; and
|
| ● |
were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.
|
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should
not rely on them as statements of fact.
|
Exhibit Number
|
Description
|
|
|
Amended and Restated Articles of Incorporation of Cenntro Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K12-b, File No. 001-38544, filed with the SEC on February 27,
2024).
|
||
|
Scheme Implementation Agreement (dated September 8, 2023 between CEGL and Cenntro Inc.)( incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form
8-K12-b, File No. 001-38544, filed with the SEC on February 27, 2024)
|
||
|
Cenntro Inc. 2023 Equity Incentive Plan (and Forms of Stock Option Agreement, Cash-Settled Option Agreement, Restricted Stock Agreement and Restricted Stock Unit Agreement (and each agreement’s Notice of
Exercise and Grant Notice, as applicable)) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K12-b, File No. 001-38544, filed with the SEC on February 27, 2024).
|
||
|
Plant Lease Agreement, dated December 2020, by and between Administrative Commission of Changxing Branch, Huzhou Taihu South Industrial Zone and Cenntro Automotive Group Limited (Hong Kong)
(English Translation) (incorporated by reference to Exhibit 10.8 to the Company’s Report of Foreign Private Issuer on Form 6-K, File No. 001-38544, filed with the SEC on January 5, 2022).
|
||
|
Employment Agreement, dated August 20, 2017, by and between Mr. Peter Z. Wang and Cenntro Automotive Group Limited (incorporated by reference to Exhibit 10.9 to the Company’s Report of Foreign
Private Issuer on Form 6-K, File No. 001-38544, filed with the SEC on January 5, 2022).
|
|
Amended and Restated Offer Letter, dated June 28, 2021, by and between Edmond Cheng, Cenntro Automotive Group Limited and, for limited purposes, Cenntro Electric Group, Inc (incorporated by
reference to Exhibit 10.10 to the Company’s Report of Foreign Private Issuer on Form 6-K, File No. 001-38544, filed with the SEC on January 5, 2022).
|
||
|
Addendum to Amended and Restated Offer Letter, dated October 1, 2021, by and between Mr. Edmond Cheng and Cenntro Automotive Group Limited (incorporated by reference to Exhibit 10.11 to the
Company’s Report of Foreign Private Issuer on Form 6-K, File No. 001-38544, filed with the SEC on January 5, 2022).
|
||
|
Employment Agreement, dated as of August 20, 2017, by and between Mr. Ming He and Cenntro Automotive Group Limited.
|
||
|
Employment Agreement, dated as of August 17, 2017, by and between Mr. Tony Tsai and Cenntro Automotive Corporation.
|
||
|
Entrustment Agreement, dated December 4, 2021, by and between Cenntro Electric Group, Inc. and Cedar Europe GmbH (incorporated by reference to Exhibit 10.21 to the Company’s Report of Foreign
Private Issuer on Form 6-K, File No. 001-38544, filed with the SEC on January 5, 2022).
|
||
|
Lease Agreement for Commercial Space, dated as of December 26, 2021, by and between Cedar Europe GmbH and Stefan Schoppmann (English Translation) (incorporated by reference to Exhibit 10.22 to
the Company’s Report of Foreign Private Issuer on Form 6-K, File No. 001-38544, filed with the SEC on January 5, 2022).
|
||
|
Share and Loan Purchase Agreement, dated as of March 5, 2022, by and among Cenntro Electric Group, Inc. and Mosolf SE & Co. KG (incorporated by reference to Exhibit 10.1 to the Report of
Foreign Private Issuer on Form 6-K filed with the SEC on March 9, 2022).
|
||
|
Lease Agreement, dated January 20, 2022, by and between Jax Industrial One, Ltd., as Landlord, and Cenntro Automotive Corporation, as Tenant, (incorporated by reference to Exhibit 4.26 to the
Annual Report Form 20-F filed by the registrant on April 25, 2022).
|
||
|
First Lease Amendment, dated as of February 17, 2022, by and among Jax Industrial One, Ltd., as Landlord, Cenntro Automotive Corporation, as Tenant, and Cenntro Electric Group Limited, as
Guarantor, (incorporated by reference to Exhibit 4.27 to the Annual Report Form 20-F filed by the registrant on April 25, 2022).
|
||
|
Share and Loan Purchase Agreement, dated as of December 13, 2022, by and among Cenntro Electric Group, Inc. and Mosolf SE & Co. KG (incorporated by reference to Exhibit 10.1 to the Report of
Foreign Private Issuer on Form 6-K filed with the SEC on December 16, 2022).
|
||
|
Placement Agency Agreement, dated as of July 20, 2022 , by and between Cenntro Electric Group Limited and Univest Securities, LLC, as placement agent (incorporated by reference to Exhibit 10.1
to the Report of Foreign Private Issuer on Form 6-K filed with the SEC on July 21, 2022).
|
||
|
Securities Purchase Agreement, dated as dated as of July 20, 2022 , by and among Cenntro Electric Group Limited and certain accredited investors, (incorporated by reference to Exhibit 10.2 to
the Report of Foreign Private Issuer on Form 6-K filed with the SEC on July 21, 2022).
|
||
|
Share and Loan Purchase Agreement, dated as of March 5, 2022, by and among Cenntro Electric Group, Inc. and Mosolf SE & Co. KG (incorporated by reference to Exhibit 10.1 to the Report of
Foreign Private Issuer on Form 6-K filed with the SEC on March 9, 2022).
|
||
|
Cenntro Code of Ethics (incorporated by reference Exhibit 14.1 to the Company’s Current Report on Form 8-K12-b, File No. 001-38544, filed with the SEC on February 27, 2024).
|
||
|
Cenntro Insider Trading Policy
|
||
|
List of Subsidiaries.
|
||
|
Powers of Attorney (the signature page to this registration statement)
|
||
|
Certification of Principal Executive Officer required by Rule 13a-14(a).
|
||
|
Certification of Principal Financial Officer required by Rule 13a-14(a).
|
||
|
Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
||
|
Cenntro Policy Related to Recovery of Erroneously Awarded Compensation
|
||
|
101. INS
|
Inline XBRL Instance Document.
|
|
|
101. SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
|
101. CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
101. DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
101. LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
101. PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
|
+ Management contract or compensatory plan
| ITEM 16. |
FORM 10-K SUMMARY
|
We have elected not to provide a summary of the information provided in this annual report on Form 10-K.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
CENNTRO INC.
|
||
|
By:
|
/s/ Peter Z. Wang
|
|
|
Peter Z. Wang
|
||
|
Chief Executive Officer
|
||
|
(Principal Executive Officer)
|
||
|
By:
|
/s/ Edmond Cheng
|
|
|
Edmond Cheng
|
||
|
Chief Financial Officer
|
||
|
(Principal Accounting Officer)
|
Each person whose signature appears below constitutes and appoints Peter Z. Wang and Edmond Cheng, jointly and severally, his or her attorney-in-fact, with the power of substitution,
for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying
and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
|
Signature
|
Capacity
|
Date
|
||
|
/s/ Peter Z. Wang
|
Chairman of the Board and Chief Executive Officer
|
April 1, 2024
|
||
|
Peter Z. Wang
|
(Principal Executive Officer)
|
|||
|
/s/ Edward Ye
|
Acting Chief Financial Officer
|
April 1, 2024
|
||
|
Edward Ye
|
(Principal Accounting Officer)
|
|||
|
/s/ Benjamin B. Ge
|
Director
|
April 1, 2024
|
||
|
Benjamin B. Ge
|
||||
|
/s/ Jiawei “Joe” Tong
|
Director
|
April 1, 2024
|
||
|
Jiawei “Joe” Tong
|
||||
|
/s/ Stephen Markscheid
|
Director
|
April 1, 2024
|
||
|
Stephen Markscheid
|
||||
|
/s/ Yi Zeng
|
Director
|
April 1, 2024
|
||
|
Yi Zeng
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Consolidated Financial Statements
|
|
| F-2 |
|
| F-3 | |
| F-4 | |
| F-5 | |
| F-6 | |
| F-7 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Cenntro Electric Group Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cenntro Electric Group Limited (the “Company”) as of December 31, 2023, and the related consolidated statements of income and comprehensive
income, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes to the financial statements (collectively referred to as the “financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on the entity’s financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GGF CPA LTD
We have served as the Company’s auditor since 2023.
April 1, 2024
CENNTRO INC.
(Expressed in U.S. dollars, except for the number of shares)
|
Note
|
December 31,
2023
|
December 31,
2022
|
||||||||||
|
ASSETS
|
||||||||||||
|
Current assets:
|
||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||||||
|
Restricted cash
|
|
|
||||||||||
| Short-term investment |
4 | |||||||||||
|
Accounts receivable, net
|
5
|
|
|
|||||||||
|
Inventories
|
6
|
|
|
|||||||||
|
Prepayment and other current assets
|
7
|
|
|
|||||||||
|
|
22
|
|
|
|||||||||
|
Total current assets
|
|
|
||||||||||
|
Non-current assets:
|
||||||||||||
|
Long-term investments
|
8
|
|
|
|||||||||
| Investment in equity securities |
9 |
|||||||||||
|
Property, plant and equipment, net
|
10
|
|
|
|||||||||
| Goodwill |
||||||||||||
|
Intangible assets, net
|
11 |
|
|
|||||||||
|
Right-of-use assets
|
15
|
|
|
|||||||||
|
Other non-current assets, net
|
12
|
|
|
|||||||||
|
Total non-current assets
|
|
|
||||||||||
|
Total Assets
|
$
|
|
$
|
|
||||||||
|
LIABILITIES AND EQUITY
|
||||||||||||
|
LIABILITIES
|
||||||||||||
|
Current liabilities:
|
||||||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||||||
|
Accrued expenses and other current liabilities
|
13
|
|
|
|||||||||
|
Contractual liabilities
|
2(p)
|
|
|
|
||||||||
|
Operating lease liabilities, current
|
15
|
|
|
|||||||||
| Convertible promissory notes |
16 |
|||||||||||
| Contingent liabilities |
||||||||||||
| Deferred government grant, current |
||||||||||||
|
|
22
|
|
|
|||||||||
|
Total current liabilities
|
|
|
||||||||||
| Non-current liabilities: |
||||||||||||
| Contingent liabilities non-current |
||||||||||||
| Deferred tax liabilities |
||||||||||||
| Deferred government grant, non-current |
||||||||||||
| Derivative liability - investor warrant |
16 |
|||||||||||
| Derivative liability - placement agent warrant |
16 |
|||||||||||
|
Operating lease liabilities, non-current
|
15
|
|
|
|||||||||
| Total non-current liabilities | ||||||||||||
|
Total Liabilities
|
$
|
|
$
|
|
||||||||
|
Commitments and contingencies
|
21
|
|||||||||||
|
EQUITY
|
||||||||||||
|
Ordinary shares (
|
18 |
|
|
|||||||||
|
Additional paid in capital
|
|
|
||||||||||
|
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 consolidated financial statements.
CENNTRO INC.
(Expressed in U.S. dollars, except for number of shares)
|
For the Years Ended December 31,
|
||||||||||||
|
Note
|
2023
|
2022
|
||||||||||
|
Net revenues
|
2(p)
|
|
$
|
|
$
|
|
||||||
|
Cost of goods sold
|
(
|
)
|
(
|
)
|
||||||||
|
Gross profit (loss)
|
|
(
|
)
|
|||||||||
|
|
||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||
|
Selling and marketing expenses
|
(
|
)
|
(
|
)
|
||||||||
|
General and administrative expenses
|
(
|
)
|
(
|
)
|
||||||||
|
Research and development expenses
|
(
|
)
|
(
|
)
|
||||||||
|
Provision for doubtful accounts
|
|
(
|
)
|
|||||||||
|
Impairment loss of right-of-use assets
|
( |
) | ||||||||||
|
Impairment loss of intangible assets
|
( |
) | ||||||||||
|
Reverse of deferred tax liabilities
|
||||||||||||
|
Impairment loss of property, plant and equipment
|
( |
) | ( |
) | ||||||||
|
Total operating expenses
|
(
|
)
|
(
|
)
|
||||||||
|
|
||||||||||||
|
Loss from operations
|
(
|
)
|
(
|
)
|
||||||||
|
|
||||||||||||
|
OTHER EXPENSE:
|
||||||||||||
|
Interest (income)/expense, net
|
|
(
|
)
|
|||||||||
|
Gain (loss) on redemption of convertible promissory notes
|
( |
) | ||||||||||
|
(Loss) income from long-term investments
|
8
|
(
|
)
|
(
|
)
|
|||||||
|
Change in fair value of convertible promissory notes and derivative liability
|
( |
) | ||||||||||
|
Change in fair value of equity securities
|
( |
) | ( |
) | ||||||||
|
Convertible bond issuance cost
|
( |
) | ||||||||||
|
Foreign currency exchange loss, net
|
( |
) | ( |
) | ||||||||
|
Impairment loss of goodwill
|
( |
) | ||||||||||
|
Loss from acquisition of Antric
|
( |
) | ||||||||||
|
Loss on exercise of warrants
|
( |
) | ||||||||||
|
Gain from cross-currency swaps
|
||||||||||||
|
Other income/ (expense), net
|
( |
) | ||||||||||
|
Loss before income taxes
|
(
|
)
|
(
|
)
|
||||||||
|
Income tax expense
|
14
|
(
|
)
|
|
||||||||
|
Net loss
|
(
|
)
|
(
|
)
|
||||||||
|
Less: net loss attributable to non-controlling interests
|
(
|
)
|
(
|
)
|
||||||||
|
Net loss attributable to the Company’s shareholders
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
|
OTHER COMPREHENSIVE LOSS
|
||||||||||||
|
Foreign currency translation adjustment
|
(
|
)
|
(
|
)
|
||||||||
|
Total comprehensive loss
|
(
|
)
|
(
|
)
|
||||||||
|
|
||||||||||||
|
Less: total comprehensive loss attributable to non-controlling interests
|
(
|
)
|
(
|
)
|
||||||||
|
Total comprehensive loss to the Company’s shareholders
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
|
|
||||||||||||
|
|
||||||||||||
|
Weighted average number of shares outstanding, basic and diluted *
|
|
|
||||||||||
|
|
||||||||||||
|
Loss per share, basic and diluted
|
19
|
(
|
)
|
(
|
)
|
|||||||
* On September 1, 2023 the Company held its annual general meeting of shareholders where
among other proposals, the shareholders of the Company did approve the consolidation of the ordinary shares of the Company on a
(1:10) basis with effect from December 8, 2023. The
reverse stock split decreased the number of outstanding shares and increased net loss per common share. All per share and share amounts presented have been retroactively adjusted for the effect of this share consolidation for all
periods presented.
The accompanying notes are an integral part of these consolidated financial statements.
CENNTRO INC.
(Expressed in U.S. dollars, except for number of shares)
|
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 January 1, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Exercise of warrants
|
||||||||||||||||||||||||||||||||
|
Exercise of share-based award
|
||||||||||||||||||||||||||||||||
|
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Acquisition of
|
- | |||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Balance as of December 31, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
|
Share-based compensation
|
- | |||||||||||||||||||||||||||||||
|
Net loss
|
- | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
|
Acquisition of
|
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Exercise of warrants |
||||||||||||||||||||||||||||||||
| Fractional shares issued due to reverse stock split |
||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
- | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
|
Balance as of December 31, 2023
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
* On
September 1, 2023 the Company held its annual general meeting of shareholders where among other proposals, the shareholders of the Company did approve the consolidation of the ordinary shares of the Company on a (1:10) basis with effect from December 8, 2023. The reverse stock split decreased the number of outstanding shares and increased net loss per common share. All per share
and share amounts presented have been retroactively adjusted for the effect of this share consolidation for all periods presented.
The accompanying notes are an integral part of these consolidated financial statements.
CENNTRO INC.
(Expressed in U.S. dollars, except for number of shares)
| For the Year Ended December 31, | ||||||||
|
2023
|
2022
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Amortization and interest of operating lease right-of-use asset
|
|
|
||||||
|
Impairment of property, plant and equipment
|
|
|
||||||
|
Impairment of intangible assets
|
|
|
||||||
|
Reversal of deferred tax liabilities
|
|
(
|
)
|
|||||
|
Impairment of right-of-use assets
|
|
|
||||||
|
Impairment of goodwill
|
|
|
||||||
|
Written-down of inventories
|
|
|
||||||
|
Provision for doubtful accounts
|
|
|
||||||
|
Convertible promissory notes issuance costs
|
|
|
||||||
|
(Gain) Loss on redemption of convertible promissory notes
|
(
|
)
|
|
|||||
|
Loss on exercise of warrants
|
||||||||
|
Changes in fair value of convertible promissory notes and derivative liabilities
|
(
|
)
|
|
|||||
|
Changes in fair value of equity securities
|
|
|
||||||
|
Foreign currency exchange loss, net
|
|
|
||||||
|
Share-based compensation expense
|
|
|
||||||
|
Loss (Gain) from disposal of plant and equipment
|
|
(
|
)
|
|||||
|
Loss from long-term investments
|
|
|
||||||
|
Income from short-term investment
|
( |
) | ||||||
|
Loss from acquisition of Antric Gmbh
|
||||||||
| Deferred income taxes |
( |
) | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(
|
)
|
|
|||||
|
Inventories
|
(
|
)
|
(
|
)
|
||||
|
Prepayment and other assets
|
(
|
)
|
(
|
)
|
||||
|
Amounts due from/to related parties
|
|
(
|
)
|
|||||
|
Accounts payable
|
|
(
|
)
|
|||||
|
Accrued expense and other current liabilities
|
(
|
)
|
|
|||||
|
Contractual liabilities
|
|
|
||||||
|
Long-term payable
|
|
(
|
)
|
|||||
|
Operating lease assets and liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase of equity investment
|
(
|
)
|
(
|
)
|
||||
|
Purchase of convertible note from Acton
|
(
|
)
|
||||||
| Purchase of wealth management products purchased from banks |
( |
) | ||||||
|
Purchase of land, plant and equipment
|
(
|
)
|
(
|
)
|
||||
|
Purchase of land use rights and property
|
(
|
)
|
(
|
)
|
||||
|
Acquisition of CAE’s equity interests
|
(
|
)
|
(
|
)
|
||||
|
Payment of expense for 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
|
||||||||
|
Purchase of equity securities
|
|
(
|
)
|
|||||
|
Proceeds from disposal of property, plant and equipment
|
|
|
||||||
|
Loans provided to third parties
|
|
(
|
)
|
|||||
|
Repayment of loans from related parties
|
|
|
||||||
|
Net cash (used in) provided by investing activities
|
(
|
)
|
(
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Repayment of loans to related parties
|
|
(
|
)
|
|||||
|
Repayment of loans to third parties
|
|
(
|
)
|
|||||
|
Repayments 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 provided by financing activities
|
(
|
)
|
|
|||||
|
Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
||||
|
Net (decrease)increase in cash, cash equivalents and restricted cash
|
(
|
)
|
(
|
)
|
||||
|
Cash, cash equivalents and restricted cash at beginning of year
|
|
|
||||||
|
Cash, cash equivalents and restricted cash at end of year
|
$
|
|
$
|
|
||||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
|
Interest paid
|
$
|
|
$
|
|
||||
| Income tax paid |
$ | $ | ||||||
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
|
Cashless exercise of warrants
|
$
|
|
$
|
|
||||
|
Non-cash capital injection to Robostreet by i-Chassis
|
$
|
|
$
|
|
||||
| Convention from debt to equity interest of HW Electro Co., Ltd. |
$ | $ | ||||||
| Non-cash recognition of new leases |
$ | $ | ||||||
The accompanying notes are an integral part of
these consolidated financial statements.
CENNTRO INC.
(Expressed in U.S. dollars, except for number of shares)
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. CAC’s operations include corporate affairs, administrative, human resources, global marketing and sales, after-market support,
homologation, and quality assurance. CAC also leases and operates facilities in Freehold, New Jersey, including the Company’s corporate headquarters, and Jacksonville, Florida facility.
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.
On March 25, 2022 and January 31, 2023, CEGL 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”.
CAC, CEG and CAG HK and its consolidated subsidiaries are collectively known as
“Cenntro”; CEGL, Cenntro and its subsidiaries 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.
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.
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.
As of December 31, 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 (“CEGE”)
|
|
|
|
|||
|
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
|
|
|
|
F-7
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| (a) |
Basis of presentation
|
The consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). As an Australian public limited company, the Company is subject to the Corporations Act 2001 (the “Corporations Act”), which requires financial statements be
prepared and audited in accordance with Australian Auditing Standards (“AAS”) and International Financial Reporting Standards (“IFRS”). The consolidated financial statements are not financial statements for the purposes of the
Corporations Act and are considered “non-IFRS financial information” under the Australian Securities and Investment Commission’s Regulatory guide 230: ‘Disclosing non-IFRS financial information.’ Such non-IFRS financial information may
not be comparable to similarly titled information presented by other entities and should not be construed as an alternative to other financial information prepared in accordance with AAS or IFRS.
All intercompany balances and transactions have been eliminated in consolidation and
combination.
| (b) |
Use of estimates
|
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting
period. The Company continually evaluates these estimates and assumptions based on the most recently available information, historical experience and various other assumptions that the Company believes to be reasonable under the
circumstances. Significant accounting estimates reflected in the Company’s consolidated financial statements include, but are not limited to, estimates and judgments applied in determination of provision for doubtful accounts, lower of
cost and net realizable value of inventories, impairment losses for long-lived assets and investments, goodwill, valuation allowance for deferred tax assets and fair value measurement for share-based compensation expense, convertible
promissory notes and warrants. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
| (c) |
Fair value measurement
|
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy
prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. These tiers include:
Level 1—defined as observable inputs such as quoted prices in active markets;
Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3—defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
The Company’s financial instruments not reported at fair value primarily consist of cash and cash equivalents, restricted cash, accounts
receivable, prepayments and other current assets, amount due from and due to related parties, accounts payable and accrued expenses and other current liabilities.
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, prepayment, goodwill and other current assets,
accounts payable, accrued expenses and other current liabilities and amount due from and due to related party, current were approximate fair value because of the short-term nature of these items. The estimated fair values of loan from
third party, and amount due from related party, non-current were not materially different from their carrying value as presented due to the brief maturities and because the interest rates on these borrowings approximate those that would
have been available for loans of similar remaining maturities and risk profiles.
Available-for-sale investments and currency-cross swap were classified within Level 1 of the fair value hierarchy because they were valued
using quoted prices in active markets. Our debt security investments are classified within Level 3 of the fair value hierarchy. As the Issuer is not yet listed and there are no similar companies in the market at the same stage of
development for comparison, the Issuer is difficult to value, and the valuation is not considered reliable. Therefore, the Company develop own assumption by future cash flow forecast, which contains principle paid and interests accrued.
The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and
liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company has elected to apply the fair value option to: i) convertible promissory notes payable due to the complexity of the various conversion and
settlement options available to notes holders; ii) convertible loan receivable, which was recognized as debt security in long-term investments, and iii) cross-currency swap, which was recognized as short-term investments.
The convertible promissory notes payable accounted for under the fair value option election are each a debt host financial instrument
containing embedded features that would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements in accordance
with GAAP. Notwithstanding, when the fair value option election is applied to financial liabilities, bifurcation of an embedded derivative is not required, and the financial liability is initially measured at its issue-date estimated fair
value and then subsequently remeasured at estimated fair value on a recurring basis as of each reporting period date.
The portion of the change in fair value attributed to a change in the instrument-specific credit risk is recognized as a component of other comprehensive income and the remaining amount of
the fair value adjustment is recognized as changes in fair value of convertible promissory notes and derivative liabilities in the Company’s consolidated statement of operations. The estimated fair value adjustment is presented in a
respective single line item within other expense in the consolidated statement of operations because the change in fair value of the convertible notes was not attributable to instrument-specific credit risk.
In connection with the issuances of convertible promissory notes, the Company issued investor warrants and placement agent warrants to purchase ordinary shares of the Company. The
Company utilizes a Binomial model to estimate the fair value of the warrants and are considered a Level 3 fair value measurement. The warrants are measured at each reporting period, with changes in fair value recognized in the statement
of operations.
As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of its certain fund
investment. The Company’s investments valued at NAV as a practical expedient are: i) private equity funds, which represent the investment in equity securities on the consolidated balance sheet; ii) wealth management products purchased
from banks, which represents the available-for-sale investments in short-term investments on the consolidated balance sheet.
|
(d)
|
Business combination
|
The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805
“Business Combinations.” The cost of an acquisition is measured as the aggregate of the acquisition date fair value of the assets transferred to the sellers, liabilities incurred by the Company and equity instruments issued by the
Company. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets acquired and liabilities assumed are measured separately at their fair values as of the acquisition date, irrespective
of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over
(ii) the acquisition date amounts of the identifiable net assets of the acquiree is recorded as goodwill.
F-8
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| (e) |
Cash and cash equivalents and restricted cash
|
The Company considers highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Restricted cash consists of cash restricted as to withdrawal or use. Such restricted cash relates to certain credit card and lease
guarantees.
| (f) |
Accounts receivable and provision for doubtful accounts
|
Accounts receivable are recognized and carried at net realizable value.
The Company adopted ASC 326 Financial Instruments
– Credit Losses using the modified retrospective approach through a cumulative-effect adjustment to accumulated deficit from January 1, 2023 and interim periods therein. Management used an expected credit loss model for the impairment
of accounts receivable as of period ends. Management believes the aging of accounts receivable is a reasonable parameter to estimate expected credit loss, and determines expected credit losses for accounts receivables using an aging
schedule as of period ends. The expected credit loss rates under each aging schedule were developed on basis of the average historical loss rates from previous years, and adjusted to reflect the effects of those differences in current
conditions and forecasted changes. Management measured the expected credit losses of accounts receivable on a collective basis. When an accounts receivable does not share risk characteristics with other accounts receivables, management
will evaluate such accounts receivable for expected credit loss on an individual basis. Doubtful accounts balances are written off and deducted from allowance, when receivables are deemed uncollectible, after all collection efforts have
been exhausted and the potential for recovery is considered remote.
| (g) |
Inventories
|
Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined on the basis of weighted
average. The cost of finished goods is determined on the basis of weighted average and comprises direct materials, direct labor cost and an appropriate proportion of overhead.
Net realizable value is based on estimated selling prices less selling expenses and any further costs of completion. Adjustments to
reduce the cost of inventory to net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. Write-downs are recorded in the consolidated statements of operations and comprehensive loss.
|
(h)
|
Available-for-sale investments and Debt Security investments
|
The Company’s available-for-sale investment
consist of wealth management products purchased from banks and convertible loans. The Company’s short-term available-for-sale investment are classified as short-term investments on the consolidated balance sheets based on the
contractual maturity date which is less than one year. The wealth management products purchased from banks are stated at the net asset value
The Company’s debt security investments consist
of convertible loan. At any time on or after the maturity date, the convertible loan will convert into shares equal to the quotient obtained by dividing the outstanding principal balance and unpaid accrued interest of the convertible
loan as of the date of such conversion by the applicable conversion price. The convertible loans are stated at fair value.
The Company reviews its investments for
other-than-temporary impairment (“OTTI”) based on the specific identification method. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an
investment exceeds the investment’s fair value, the Company considers, among other factors, general market conditions, expected future performance of the investees, the duration and the extent to which the fair value of the investment
is less than the cost, and the Company’s intent and ability to hold the investment. OTTI is recognized as a loss in the statement of operations. There is no
|
(i)
|
Cross-currency
swap
|
The Company used cross-currency swap contracts to
manage its exposures to movements in foreign exchange rates primarily related to the RMB or Renminbi. The use of these cross-currency swap modifies the Company’s exposure to these risks with the goal of reducing the risk or cost to the
Company. The Company does not use derivatives for trading purposes and is not a party to leveraged derivative contracts.
Depending on the nature of the underlying risk being hedged, these cross-currency swap are accounted for either as cash flow, net
investment or mark to market hedges against changes in the value of the hedged item. Derivatives are recorded in the Consolidated Balance Sheets at fair value. The fair value is based upon either market quotes for actively traded
instruments or independent bids for nonexchange traded instruments. The accounting for changes in fair value of a derivative instrument depends on whether the instrument has been designated and qualifies as part of a hedging
relationship. The Company determines whether a derivative instrument meets the criteria for cash flow or net investment hedge accounting treatment on the date the derivative is executed. Derivatives accounted for as mark to market
hedges are not designated as hedges for accounting purposes.
Economic Hedges
A derivative instrument whose change in fair
value is used to hedge against changes in the value of a hedged item, but which is not designated as a hedge under ASC815 “Derivative Instruments and Hedging Activities”, is accounted for as an economic hedge. These derivatives are
recorded at fair value in the Consolidated Balance Sheets when the hedged item is recorded as an asset or liability and then are revalued each accounting period. Changes in the fair value of derivatives accounted for as economic
hedges are reported in the “Gain from cross-currency swaps” lines under “Other expense” in the Consolidated Statements of Operations. Cash flows from derivatives not designated as hedges are classified as cash flows from operating
activities in the Consolidated Statements of Cash Flows. For the year ended December 31, 2023, all of the cross-currency swap contracts were accounted for as economic hedges.
| (j) |
Investment in equity securities
|
For investments in equity securities with a variable interest rate indexed to the performance of underlying
assets, the Company elected the fair value method at the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in the consolidated statements of operations and
comprehensive loss.
The Company determines the appropriate classification of its investments in equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. The
private equity funds are measured at fair value with gains and losses recognized in earnings. As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of the Fund.
The Company evaluates whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are
considered in determining whether an other-than-temporary decline in value has occurred include the market value of the security in relation to its cost basis, the financial condition of the investee, and the intent and ability to
retain the investment for a sufficient period of time to allow for recovery in the market value of the investment.
| (k) |
Property, plant and equipment, net
|
Property, plant and equipment are carried at cost less accumulated depreciation and any impairment. Depreciation is calculated over the
asset’s estimated useful life, using the straight-line method. Leasehold improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are as follows:
|
Buildings
|
|
|
Machinery and equipment
|
|
|
Office equipment
|
|
|
Motor vehicles
|
|
|
Leasehold improvement
|
|
|
Others
|
|
The Company reassesses the reasonableness of the estimates of useful lives and residual values of long-lived assets when events or
changes in circumstances indicate that the useful lives and residual values of a major asset or a major category of assets may not be reasonable. Factors that the Company considers in deciding when to perform an analysis of useful lives
and residual values of long-lived assets include, but are not limited to, significant variance of a business or product line in relation to expectations, significant deviation from industry or economic trends, and significant changes or
planned changes in the use of the assets. The analysis will be performed at the asset or asset category with the reference to the assets’ conditions, current technologies, market, and future plan of usage and the useful lives of major
competitors.
The costs and related accumulated depreciation of assets sold or otherwise retired are eliminated from the Company’s accounts and any
gain or loss is included in the consolidated statements of operations and comprehensive loss. The cost of maintenance and repair is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.
The Company constructs certain of its property including recodifications and improvement of its office buildings and plant. Depreciation
is recorded at the time assets are ready for the intended use.
| (l) |
Intangible assets, net
|
Intangible assets are carried at cost less accumulated amortization and any recorded impairment. Intangible
assets are amortized using the straight-line approach over the estimated economic useful lives of the assets as follows:
|
Category
|
Estimated useful life
|
|
Land use rights
|
|
|
Software
|
|
| Technology |
|
| Trademark |
| (m) |
Impairment of long-lived assets
|
The Company evaluates the recoverability of
long-lived assets or asset group with determinable useful lives whenever events or changes in circumstances indicate that an asset or a group of assets’ carrying amount may not be recoverable. The Company measures the carrying amount of
long-lived asset against the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. The carrying amount of the long-lived asset or asset group is not
recoverable when the sum of the undiscounted expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its
fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset group, when the market prices are not readily available. The adjusted carrying amount of the assets become new
cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of
other assets and liabilities. The impairment test is performed at the asset group level. Impairment loss for long-lived assets of $431,319
and $3,917,537 were recorded in the Company’s consolidated statements of operations and comprehensive loss for the years ended
December 31, 2023 and 2022, respectively.
F-9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| (n) |
Goodwill
|
Goodwill represents the future economic benefits arising from other assets acquired in a business combination. Goodwill acquired in a business combination is
tested for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company performs impairment analysis on goodwill as of December 31 every year either
beginning with a qualitative assessment, or starting with the quantitative assessment instead. The quantitative goodwill impairment test compares the fair values of each reporting unit to its carrying amount, including goodwill. A
reporting unit constitutes a business for which discrete profit and loss financial information is available. The fair value of each reporting unit is established using a combination of expected present value of future cash flows. If the
fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that
excess, limited to the total amount of goodwill allocated to that reporting unit.
In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.
Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company
determines it is “more-likely-than not” that the fair value is less than the carrying value, a quantitative assessment of goodwill is required.
The quantitative impairment test requires significant management judgments, including the identification of reporting units, assigning assets and
liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining
appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.
Impairment loss for goodwill of $ and $11,111,886 were recorded for the years ended December 31, 2023 and 2022, respectively.
| (o) |
Long-term investment
|
Equity method investments
Investee companies over which the Company has the ability to exercise
significant influence but does not have a controlling interest through investment in common shares or in substance common shares are accounted for using the equity method. Significant influence is generally considered to exist when the
Company has an ownership interest in the voting stock of the investee between 20 % and 50 %, and other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements,
are also considered in determining whether the equity method of accounting is appropriate.
Under the
equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s proportionate share of each equity investee’s net income or loss after the date of investment into the consolidated statements
of operations and comprehensive loss and accordingly adjusts the carrying amount of the investment. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Company does not
recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee.
Equity investments without readily
determinable fair values
For investments in an investee over which the
Company does not have significant influence, the Company carries the investment at cost and recognizes income as any dividends declared from distribution of investee’s earnings. The Company reviews the equity investments without readily
determinable fair values for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. An impairment loss is recognized in earnings equal to the difference between the
investment’s carrying amount and its fair value at the balance sheet date of the reporting period for which the assessment is made. All equity investments, except those accounted for under the equity method of accounting or those
resulting in the consolidation of the investee, be accounted for at fair value with all fair value changes recognized in income. For equity investments that do not have readily determinable fair values the Company measures the equity
investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company.
Impairment for long-term investment
The Company reviews its long-term investments for impairment whenever an
event or circumstance indicates that other-than-temporary impairment has occurred. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its long-term investments. An impairment charge
is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The adjusted carrying amount of the assets become new cost basis.
F-10
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| (p) |
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.
The following table disaggregates the Company’s revenues by product line for the years ended
December 31, 2023 and 2022:
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Vehicles sales
|
|
$
|
|
|
|
$
|
|
|
|
Spare-parts sales
|
|
|
|
|
|
|
|
|
|
Other service income
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
|
|
|
$
|
|
|
The Company’s revenues are primarily derived from Europe, America and Asia. The following table sets forth disaggregation of revenue by customer location.
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Primary geographical markets
|
|
|
|
|
||||
|
Europe
|
$
|
|
$
|
|
||||
|
Asia
|
|
|
||||||
| America | ||||||||
|
Total
|
|
$
|
|
|
|
$
|
|
|
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 years ended December 31, 2023 and 2022, the Company recognized $464,636 and $1,105,076 revenue that was included in contractual liabilities as of January
1, 2023 and 2022, respectively.
The following table provides information about
receivables and contractual liabilities from contracts with customers:
|
December 31,
2023 |
December 31,
2022 |
|||||||
|
Accounts receivable,
net
|
$
|
|
$
|
|
||||
|
Contractual liabilities
|
$
|
|
$
|
|
||||
F-11
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| (q) |
Cost of goods sold
|
Cost of goods sold mainly consists of production related costs including costs of raw materials, consumables, direct labor, overhead
costs, depreciation of property, plant and equipment, manufacturing waste treatment processing fees and inventory write-downs.
| (r) |
Government grants
|
The Company’s PRC based subsidiaries received government subsidies from certain local governments. The Company’s
government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has provided for a specific purpose, such as land fulfillment costs. Other subsidies are the subsidies that
the local government has not specified its purpose for and are not tied to future trends or performance of the Company, receipt of such subsidy income is not contingent upon any further actions or performance of the Company and the
amounts do not have to be refunded under any circumstances.
Specific subsidies relating to land use rights are accounted for as an income with the subsidy benefit reflected
over the related asset useful life. Other subsidies are recognized as other income upon receipt as further performance by the Company is not required.
| (s) |
Income taxes
|
The Company accounts for income tax using an asset and liability approach, which allows for the recognition of deferred tax benefits in
future years. Under the asset and liability approach, deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect for the years in which the
differences are expected to reverse. The accounting for deferred tax calculation represents management’s best estimate of the most likely future tax consequences of events that have been recognized in our financial statements or tax
returns and related future anticipation. A valuation allowance is recorded to reduce the deferred tax assets to an amount that is more likely than not to be realized after considering all available evidence, both positive and negative.
Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of
preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the asset and liability method. Under this method,
deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Net operating losses are carried forward and credited by applying
enacted statutory tax rates applicable to future years when the reported amounts of the asset or liability are expected to be recovered or settled, respectively. Deferred tax assets are reduced by a valuation allowance when, based upon
the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
As required by applicable tax law, interest on non-payment of income taxes and penalties associated with tax positions when a tax position does not meet the minimum statutory threshold to avoid
payment of penalties recognized, if any, will be classified as a component of the provisions for income taxes. The tax returns of the Company and its Germany, Hong Kong and PRC subsidiaries are subject to examination by the relevant
local tax authorities. The standard period in which Australian Taxation Office can amend an assessment is four years and there is no statute of limitation in the case of fraud or evasion. The statutory limitation period in Germany for the issue or correction of assessments is four years from the end of the year in which the return was filed. In the case of fraud and willful evasion, the investigation is extended
to cover ten years of assessment. According to the Departmental Interpretation and Practice Notes No.11 (Revised) of the Hong Kong Inland Revenue Ordinance (the “HK tax laws”), an investigation normally covers the six years of the assessment prior to the year of the assessment in which the investigation commences. In the case of fraud and willful
evasion, the investigation is extended to cover ten years of assessment. According to the PRC Tax Administration and
Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made
by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances,
where the underpayment of taxes is more than RMB100,000 . In the case of transfer pricing issues, the statute of limitation is
ten years . There is no statute of limitation in the case of tax evasion. U.S. federal tax matters are open to examination for
years . For the years ended December 31, 2023 and 2022, the Company did not have any material interest or
penalties associated with tax positions. The Company did no no t expect that its assessment regarding unrecognized tax positions
will materially change over the next 12 months.
| (t) |
Foreign currency translation and transaction
|
The consolidated financial statements are presented in
United States dollars (“USD” or “$”). The functional currency of certain of CEGL’s PRC subsidiaries is the Renminbi (“RMB”). The functional currency of CAE, CEGE and Antric Gmbh is the EUR, and CEGL and its other subsidiaries in US is
the USD. The functional currency of Cenntro Electric CICS, SRL was DOP. The functional currency of Cenntro Automotive S.A.S. and Cenntro Electric Colombia S.A.S. was COP. The functional currency of Cenntro Elektromobilite Araçlar A.Ş
was TRY.
Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the
average exchange rate of the reporting period. Capital accounts of the consolidated financial statements are translated into USD from RMB, EUR, DOP, COP and TRY at their historical exchange rates when the capital transactions occurred.
Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of accumulated other comprehensive loss in the balance sheets. The rates are obtained from H.10 statistical release of the
U.S. Federal Reserve Board.
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Period end USD: RMB exchange rate
|
|
|
|
|
|
|
|
|
|
Average USD: RMB exchange rate
|
|
|
|
|
|
|
|
|
|
Period end USD: EUR exchange rate
|
||||||||
|
Average USD: EUR exchange rate
|
||||||||
Foreign currency transactions denominated in
currencies other than functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are re-measured at the applicable rates of exchange in effect at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and from re-measurement at year-end are recognized in foreign
currency exchange gain/loss, net on the consolidated statement of operations.
F-12
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(u)
|
Comprehensive loss
|
Comprehensive loss includes all changes in equity except those resulting from investments by owners and distributions to owners. Among
other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive loss are required to be reported in a financial statement that is presented with the same prominence as
other financial statements. For the years presented, comprehensive loss includes net loss and the foreign currency translation changes.
| (v) |
Segments
|
In accordance with ASC 280-10, Segment Reporting, the Company’s chief operating decision maker (“CODM”), identified as the Company’s
Chief Executive Officer, relies upon the consolidated results of operations as a whole when making decisions about allocating resources and assessing the performance of the Company. As a result of the assessment made by CODM, the Company
has only one reportable segment. The Company does not distinguish between markets or segments for the purpose of internal
reporting.
The Company’s long-lived assets are substantially located in the PRC and United States. The
following table presents long-lived assets by geographic segment as of December 31, 2023 and 2022.
Long-lived assets
|
December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
PRC
|
$
|
|
$
|
|
||||
|
US
|
|
|
||||||
|
Mexico
|
||||||||
|
Dominican
|
||||||||
|
Others
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| (w) |
Share-based compensation expenses
|
The Company’s share-based compensation expenses are recorded in accordance with ASC 718 and ASC 710.
Share-based awards to employees are measured based on the grant date fair value of the equity instrument issued and recognized as
compensation expense net of a forfeiture rate on a straight-line basis, over the requisite service period, with a corresponding impact reflected in additional paid-in capital.
The estimate of forfeiture rate will be adjusted over the requisite service period to the extent that the actual forfeiture rate
differs, or is expected to differ, from such estimates. Changes in estimated forfeiture rate will be recognized through a cumulative catch-up adjustment in the period of change.
| (x) |
Convertible promissory notes
|
The Company has elected the fair value option to account for its convertible promissory
notes issued during 2022. In accordance with ASC 825, the convertible promissory notes are marked-to-market at each reporting date with changes in fair value recorded as a component of other income (expense), in the consolidated
statements of operations and comprehensive loss. We disclose the nature and terms, the income statement effects, the valuation methods and assumptions of the convertible promissory notes in Note 15 to our consolidated financial
statements.
| (y) |
Derivative liability
|
Warrants recorded as liabilities at fair value in accordance with ASC 480 “Distinguishing Liabilities from Equity”. The liability remeasured every reporting
period with any change to fair value recorded in the consolidated statements of operations.
| (z) |
Operating lease
|
The Company accounts for its lease under ASC 842 Leases, and identifies lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an
identified asset) for a period of time in exchange for consideration. For all operating leases except for short-term leases, the Company recognizes operating right-of-use assets and operating lease liabilities. Leases with an initial
term of 12 months or less are short-term lease and not recognized as right-of-use assets and lease liabilities on the consolidated balance sheet. The Company recognizes lease expense for short-term leases on a straight-line basis over
the lease term. The operating lease liabilities are recognized based on the present value of the lease payments not yet paid, discounted using the Company’s incremental borrowing rate over a similar term of the lease payments at lease
commencement. Some of the Company’s lease agreements contain renewal options; however, the Company do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably
certain of renewing the lease at inception or when a triggering event occurs. The right-of-use assets consist of the amount of the measurement of the lease liabilities and any prepaid lease payments. Lease expense for lease payments is
recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
| (aa) |
Non-controlling Interest
|
A non-controlling interest in subsidiaries represents the portion of the equity (net assets) in the subsidiaries not directly or
indirectly attributable to the Company’s shareholders. Non-controlling interests are presented as a separate component of equity on the consolidated balance sheets and consolidated statements of operations and other comprehensive loss are
attributed to controlling and non-controlling interests.
F-13
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| (ab) |
Recently issued accounting standards pronouncements
|
In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method”. The new
accounting rules allow entities to expand the use of the portfolio layer method to all financial assets and designate multiple hedged layers within a single closed portfolio. The new accounting rules also clarify guidance related to hedge
basis adjustments and the related disclosures for these adjustments. The new accounting rules were effective for the Company starting January 1, 2023. As the Company does not currently have any fair value hedging programs that leverage
the portfolio layer method, the adoption of the new accounting rules did not have any impact on the Company’s financial condition, results of operations, cash flows or disclosures.
F-14
NOTE 3 – BUSINESS COMBINATION
Acquisition of CAE’s equity interests
On March 5, 2022, CEGL
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 CEGL (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, CEGL 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. CEGL 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,
CEGL entered into another Share Purchase Agreement (the “Purchase Agreement II”) with Mosolf, pursuant to which Mosolf agreed to sell to CEGL 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 CEGL. 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 $2,674,500 ) 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 cash 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.
On the acquisition
date August 31, 2023, total consideration of the transaction was EUR1,278,327 (approximately $1,385,578 ), which was consisted of: (1) 25 % equity Interest
of Antric previously held by the Company fair valued at EUR1,042,221 (approximately $1,129,663 ) (Loss associated with the "step-acquisition" was recognized in other expenses (see Note 8 (a) (1)), (2) a cash consideration amounted to EUR 1 (approximately $1 ), and (3) an
earn-out consideration amounted to EUR 236,106 (approximately $255,319 ). The excess of the purchase price over the net assets acquired was recorded as goodwill, which was $223,494 as of December 31, 2023. Contingent liabilities of $256,732 for
earn-out price was recognized as of December 31, 2023.
Fair value of net assets acquired and liabilities assumed
On the acquisition date August 31, 2023, the allocation of the consideration of the assets acquired and liabilities assumed based on their fair value was as
follows (USD:EUR) exchange rate of 1.0839 as of August 31, 2023 was applied:
|
|
Amount
|
|||
|
|
||||
|
Cash and Bank Balance
|
$
|
|
||
|
Accounts Receivable
|
|
|||
|
Inventory
|
|
|||
|
Fixed Assets
|
|
|||
|
Intangible Assets
|
|
|||
|
Other assets
|
|
|||
|
Goodwill
|
|
|||
|
Short Term Borrowing
|
(
|
)
|
||
|
Trade and Service Liabilities
|
(
|
)
|
||
|
Deferred Tax Liabilities
|
(
|
)
|
||
|
Other Liabilities
|
(
|
)
|
||
|
Net assets
|
$
|
|
||
NOTE 4 – SHORT-TERM INVESTMENTS
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
Available-for-sale investment (1)
|
$
|
|
$
|
|
||||
|
Cross-currency swap (2)
|
|
|
||||||
|
Total
|
$ |
|
$ |
|
||||
| (1) |
|
| (2) |
|
NOTE 5 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net is summarized as follows:
|
December 31,
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 Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Balance at the beginning of the year
|
$
|
|
$
|
|
||||
|
Additions
|
|
|
||||||
|
Write-off
|
(
|
)
|
(
|
)
|
||||
|
Foreign exchange
|
|
|
||||||
|
Balance at the end of the year
|
$
|
|
$
|
|
||||
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
|
December 31,
2023 |
December 31,
2022 |
|||||||
|
Raw material
|
$
|
|
$
|
|
||||
|
Work-in-progress
|
|
|
||||||
|
Goods in transit
|
||||||||
|
Finished goods
|
|
|
||||||
|
Inventories
|
$
|
|
$
|
|
||||
For the years ended December 31, 2023 and 2022, the impairment loss recognized by the Company for slow-moving inventory with cost lower than net realizable value was
$658,622 and $2,155,400 ,
respectively.
F-15
NOTE 7 – PREPAYMENT AND OTHER CURRENT ASSETS
Prepayment and other current assets consisted of the following:
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
Advance to suppliers
|
$
|
|
$
|
|
||||
|
Deductible input value added tax
|
|
|
||||||
|
Receivable from a third party (1)
|
|
|
||||||
| Loans to a third party (2) |
|
|
||||||
|
Receivable from third parties
|
|
|
||||||
|
Others
|
|
|
||||||
|
Prepayment and other current assets
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
NOTE 8 – LONG-TERM INVESTMENTS
|
(a)
|
Equity method investment, net
|
Equity method investments consisted of the following:
|
December 31,
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) |
|
F-16
|
(b)
|
Equity investment without readily determinable fair values, net
|
Equity investments without readily determinable fair values, net consisted of the following:
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
HW Electro Co., Ltd. (1)
|
$
|
|
$
|
|
||||
|
Robostreet Inc. (2)
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
(1)
|
|
|
(2)
|
|
|
(c)
|
Debt security investments
|
On July 24, 2023 the Company purchased a $1,000,000 convertible note (the “Convertible Note”) from Acton (the “Issuer”). As of December 31, 2023, the Company has paid $600,000 to the Issuer, the balance of debt investments was $611,712 . At any time on or after the maturity date, the convertible loan will convert into shares equal to the quotient obtained by dividing the outstanding
principal balance and unpaid accrued interest of the convertible loan as of the date of such conversion by the applicable conversion price.
F-17
NOTE 9 – INVESTMENT IN EQUITY SECURITIES
As of December 31, 2023, the balance consisted of the following two equity investments:
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
MineOne Fix Income Investment I L.P (1)
|
$
|
|
$
|
|
||||
|
Micro Money Fund SPC (2)
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
(1)
|
|
|
(2)
|
|
The Company has neither control nor significant influence over MineOne or Micro
Money Fund, the Company does not have the power to direct the activities that most significantly affect their economic performance, and there is no kick-off rights or right to dissolve the funds.
NOTE 10 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
December 31,
2023 |
December 31,
2022 |
|||||||
|
At cost:
|
||||||||
| Plant and building |
$ | $ | ||||||
| Land |
||||||||
|
Machinery and equipment
|
|
|
||||||
|
Leasehold improvement
|
|
|
||||||
|
Office equipment
|
|
|
||||||
|
Motor vehicles
|
|
|
||||||
|
Construction in progress
|
||||||||
|
Total
|
|
|
||||||
|
Less: accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Property, plant and equipment, net
|
$
|
|
$
|
|
||||
Depreciation expenses for the years ended December 31, 2023 and 2022 were $1,456,984 and $907,739 , respectively. Impairment loss
for the years ended December 31, 2023 and 2022 were $431,319 and $550,402 , respectively.
F-18
NOTE 11 – INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following:
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
At cost:
|
||||||||
|
Land use right
|
$
|
|
$
|
|
||||
| Trademark | ||||||||
| Technology | ||||||||
|
Software
|
|
|
||||||
|
Total
|
|
|
||||||
|
Less: accumulated amortization
|
(
|
)
|
(
|
)
|
||||
|
Intangible assets, net
|
$
|
|
$
|
|
||||
Amortization expenses for the years ended December 31, 2023 and 2022 were $213,996 and $46,133 , respectively.
Impairment loss for the years ended December 31, 2023 and 2022 were $ and $2,995,440 , respectively.
NOTE 12 – OTHER NON-CURRENT ASSETS, NET
|
December 31,
2023 |
December 31,
2022 |
|||||||
|
Loan to the third party (1)
|
$
|
|
$
|
|
||||
|
Deferred cost (2)
|
|
|
||||||
|
Deposit (3)
|
|
|
||||||
|
Long-term prepayment (4)
|
|
|
||||||
|
Total
|
|
|
||||||
|
Less: provision for loan to the third party and receivable from a third party
|
|
(
|
)
|
|||||
|
Other non-current assets, net
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
| (3) |
|
| (4) |
|
NOTE 13 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are summarized as follow:
|
December 31,
2023 |
December 31,
2022 |
|||||||
|
Accrued litigation compensation
|
$
|
|
$
|
|
||||
| Accrued expenses | ||||||||
| Other taxes payable |
||||||||
|
Employee payroll and welfare payables
|
|
|
||||||
|
Accrued professional fees
|
|
|
||||||
| Payable for purchasing the factory | ||||||||
|
Interest expense of convertible loans
|
|
|
||||||
| Credit card payable | ||||||||
|
Others
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
F-19
NOTE 14 - INCOME TAXES
Australia
CEGL is subject to a tax rate of 25 %.
United States
U.S. subsidiaries are subject to a federal tax rate
of
21 % and respective state tax rate.
Europe
Subsidiaries in Germany, Spain, Italy, Netherlands and Turkey are
subject to a tax rate of 15.8 %, 25 %, 24 %, 19 % and 25 %, respectively.
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 5
| (1) |
Income taxes
|
Income tax expenses for the years ended December 31, 2023 and 2022 are $8,988 and .
The components of the income tax provision are as follows:
|
|
For the Years Ended December 31,
|
|||||||
|
|
2023
|
2022
|
||||||
|
Current
|
$
|
|
$
|
|
||||
|
Deferred
|
(
|
)
|
|
|||||
|
Total
|
$
|
|
$
|
|
||||
The components of losses before income taxes are summarized as follows:
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
PRC
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
US
|
(
|
)
|
(
|
)
|
||||
|
Europe
|
(
|
)
|
(
|
)
|
||||
|
Australia
|
(
|
)
|
(
|
)
|
||||
|
Others
|
(
|
)
|
|
|||||
|
Total
|
$
|
(
|
)
|
$
|
(
|
)
|
||
As the main business operations were concentrated in China, and other losses except for PRC losses are caused by non-operating
activities, PRC statutory income tax rate was applied. The actual income tax expense reported in the consolidated statements of operations and comprehensive loss for years ended December 31, 2023 and 2022 differs from the amount computed
by applying the PRC statutory income tax rate to income before income taxes due to the following:
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Loss
before provision for income tax
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
PRC
statutory income tax rate
|
|
%
|
|
%
|
||||
|
Income
tax expense at the PRC statutory rate
|
(
|
)
|
(
|
)
|
||||
|
Effect
of preferential tax rate
|
|
|
||||||
|
Effect
of international tax rates
|
|
(
|
)
|
|||||
|
Effect
of non-deductible expenses
|
|
|
||||||
|
Effect
of research and development deduction
|
(
|
)
|
(
|
)
|
||||
| Fair value change of warrant liability | ||||||||
| Impairment loss of goodwill | ||||||||
|
Effect
of valuation allowance
|
|
|
||||||
|
Total
income tax expense - current
|
|
|
||||||
|
Effective
income tax rate
|
|
%
|
|
%
|
||||
F-20
NOTE 14 - INCOME TAXES (CONTINUED)
| (2) |
Deferred taxes assets/(liabilities)
|
The tax effects of temporary differences that give rise to the net deferred tax liabilities balances as of December 31, 2023 and
2022 are as follows:
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Impairment loss
|
$
|
|
$ | |||||
|
Change in fair value of financial instrument
|
(
|
)
|
||||||
|
Capitalization of research and experimental costs
|
|
|||||||
|
Net operating loss carry forwards
|
|
|||||||
|
Total deferred income tax assets
|
|
|||||||
|
Valuation allowance
|
(
|
)
|
( |
) | ||||
|
Deferred tax assets, net
|
$
|
|
$ | |||||
| Deferred income tax liabilities: | ||||||||
| Intangible assets arising from acquisition | ( |
) | ||||||
| Total deferred tax liabilities | ( |
) | ||||||
| Net deferred tax liabilities | ( |
) | ||||||
The changes related to valuation allowance are as follows:
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Balance at the beginning of the year
|
$
|
|
$
|
|
||||
|
Additions during the year
|
|
|
||||||
|
Expire of NOL
|
(
|
)
|
(
|
)
|
||||
|
Change in tax rate
|
|
(
|
)
|
|||||
|
Exchange rate effect
|
(
|
)
|
(
|
)
|
||||
|
Balance at the end of the year
|
$
|
|
$
|
|
||||
The valuation allowances as of December 31, 2023 and 2022 were provided for the deferred income tax assets of certain subsidiaries,
which were at cumulative loss positions. In assessing the realization of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or utilizable.
For entities incorporated in Hong Kong, net losses of $1,173,034 can be carried forward indefinitely.
For entities incorporated in the U.S., federal net operating losses of $38,730,970 can be carried forward indefinitely subject to a limitation in utilization against 80 % of annual taxable income. Federal net operating losses of $3,740,668 ,
$1,430,246 , $744,848 ,
and $1,512,798 will expire if unused by 2035, 2036, 2037 and 2038, respectively.
For entities incorporated in the PRC, net losses can be carried forward for five years. PRC net losses of $37,266,136 were available to offset future taxable income. Net losses of $5,413,592 , $2,210,756 , $5,989,640 , $10,479,727 and $13,172,422 will expire, if unused, by 2024, 2025, 2026, 2027 and 2028 respectively.
For entities incorporated in German, net losses of $26,565,271 can be carried forward indefinitely.
For entities incorporated in Australia, net losses of $61,911,565 can be carried forward indefinitely.
Internal Revenue Code of 1986, as amended (“IRC”), Section 382 provides that, after an ownership change, the amount of a loss
corporation’s taxable income for any post-change year that may be offset by pre-change losses shall not exceed the IRC Section 382 limitation for that year. The IRC Section 382 limitation generally equals the fair market value of the
old loss corporation multiplied by the long-term tax-exempt rate. A loss corporation is any corporation that has a net operating loss, a net operating loss carryforward, or a net unrealized built-in loss for the taxable year in which
the ownership change occurs. An ownership change is a greater than 50-percentage point increase in ownership by five-percent shareholders.
The Company has not yet performed an IRC Section 382 analysis to determine whether an ownership change has occurred and whether any
tax attributes are limited. The Company has recorded a full valuation allowance against its deferred tax assets and does not expect to utilize its tax attributes. Once the Company utilizes its tax attributes, a complete IRC Section 382
analysis will be performed.
Uncertain tax positions
The Company
evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. CAE GmbH was not yet subject
to a tax audit, but a tax audit for 2019 has been recently announced. As of December 31, 2023 and 2022, the Company did no
F-21
NOTE 15 - 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 Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
Operating leases cost excluding short-term rental expense
|
$
|
|
$
|
|
||||
|
Short-term lease cost
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
A summary of supplemental information related to operating leases is as follows:
|
December 31,
2023
|
December 31,
2022
|
|||||||
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
|
$
|
|
||||
|
Weighted average remaining lease term
|
|
|
||||||
|
Weighted average discount rate
|
|
%
|
|
%
|
||||
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 December 31, 2023:
|
For the year ending December 31,
|
Operating
Leases |
|||
|
2024
|
$
|
|
||
|
2025
|
|
|||
| 2026 |
||||
| 2027 |
||||
| 2028 | ||||
| 2029 and thereafter |
||||
|
Total lease payments
|
|
|||
|
Less: imputed interest
|
|
|||
|
Total
|
$ |
|
||
|
Less:
|
|
|||
|
|
|
|
||
F-22
NOTE 16 - 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 income (expense) in the consolidated statement of operations, change in fair value of convertible notes.
The movement of Note during the year ended December 31, 2023 are as follows:
|
|
Liability component
|
|||
|
As of December 31, 2022
|
$
|
|
||
|
Convertible promissory notes issued during the year
|
|
|||
|
Redemption of convertible promissory notes
|
(
|
)
|
||
|
Fair value change recognized
|
|
|||
|
As of December 31, 2023
|
$
|
|
||
The estimated fair value of the Note as of December 31, 2023 and 2022 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.
F-23
We determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
|
Fair Value Assumptions - Convertible Promissory Note
|
December 31,
2023
|
December 31,
2022
|
||||||
|
Face value principal payable
|
|
|
||||||
|
Original conversion price
|
|
|
||||||
|
Interest Rate
|
|
%
|
|
%
|
||||
|
Expected term (years)
|
|
|
||||||
|
Volatility
|
|
%
|
|
%
|
||||
|
Market yield (range)
|
|
%
|
|
%
|
||||
|
Risk free rate
|
|
%
|
|
%
|
||||
|
Issue date
|
|
|
||||||
|
Maturity date
|
|
|
||||||
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 year ended December 31, 2023 are as follows:
|
Investor warrants
component
|
Placement agent
warrants component
|
|||||||
|
As of December 31, 2022
|
$
|
|
$
|
|
||||
|
Warrants issued during the year
|
|
|
||||||
|
Exercise of warrants
|
(
|
)
|
|
|||||
|
Fair value change recognized
|
(
|
)
|
|
|||||
|
As of December 31, 2023
|
$ |
|
$ |
|
||||
The fair value for these two warrants were computed
using the Binomial model with the following assumptions:
|
Fair Value Assumptions – Warrants
|
December 31,
2023
|
December 31,
2022
|
||||||
|
Expected term (years)
|
|
|
||||||
|
Volatility
|
|
%
|
|
%
|
||||
|
Risk free rate
|
|
%
|
|
%
|
||||
F-24
NOTE 17 - SHARE-BASED COMPENSATION
Share based compensation expenses for periods prior to the consummation of the Combination relate to the share options granted by CAG
Cayman to the employees and directors of Cenntro.
Share options granted by CAG Cayman to employees of the Company
On February 10, 2016, CAG Cayman adopted the 2016 Share Incentive Option Plan (the “2016 Plan”), which allowed CAG Cayman
to grant options to the employees and directors of Cenntro to purchase up to 14,139,360 ordinary shares of CAG Cayman
subject to vesting requirements. On April 17, 2018, CAG Cayman expanded the share reserve under the 2016 Plan, increasing the number of ordinary shares available for issuance under the 2016 Plan by an additional 10,484,797 ordinary shares for a total 24,624,157
ordinary shares. Generally, the options granted under the 2016 Plan became exercisable during the term of the optionee’s service with CAG Cayman in five equal annual instalments of 20 % each. The
expiration dates of the options are between and eight years from the respective grant dates as stated in the option grant letters.
In connection with the Combination, CAG Cayman amended and restated the 2016 Plan, adopting the Amended 2016 Plan. In
connection with the closing of the Combination, each employee stock option outstanding under the Amended 2016 Plan immediately prior to the closing of the Combination was converted into an option to purchase a number of ordinary shares
equal to the aggregate number of shares for which such stock option was exercisable immediately prior to the closing of the Combination multiplied by the Exchange Ratio of 0.71563 . As a result, the 12,891,130 options granted
by CAG Cayman prior to the closing of the Combination under the 2016 Plan were converted into 9,225,271
options of CEGL. The exercise price of such options modified to equal the exercise price per share of such stock option immediately prior to the closing of the Combination divided by the Exchange Ratio.
The conversion of the incentive stock options of CAG Cayman under the Amended 2016 Plan into incentive stock options of CEGL was deemed
a modification at closing of the Combination, which is the modification date. There were, no incremental fair value recorded immediately before and after the modification date.
On August
21, 2023, the Company extended the term and expiration date of each 2016 Option Agreement from eight (8 ) years to ten (10 ) years from the date of grant pursuant to the terms of the 2016 Plan .
Share options granted by CEGL to employees of the
Company
On May 3, 2022, CEGL adopted the 2022 Share Incentive Plan (the “2022
Plan”), which allowed CEGL to grant options to the employees and directors of the Company to purchase up to 25,965,234
ordinary shares of CEGL subject to vesting requirement.
On May 3, 2022, CEGL granted 12,797,063 options to the directors of the Company to purchase CEGL’s ordinary shares at exercise prices ranging from $1.680 to $1.848 per share.
Among them, 297,615 options have a contractual term of five years , 12,499,448 options have a contractual
term of ten years .
The fair value of option per share grant on May 3, 2022 varied from $1.1130 to $1.4310 . The
aggregate grant date fair value of the options grant was $18,217,956 .
For the year ended December 31, 2023 and 2022, the total share-based
compensation expenses were comprised of the following:
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
General and administrative expenses
|
|
$
|
|
|
|
$
|
|
|
|
Selling and marketing expenses
|
|
|
||||||
|
Research and development expenses
|
|
|
|
|
||||
|
Total
|
|
$
|
|
|
|
$
|
|
|
A summary of share options activity for the years ended December 31, 2023 and 2022 is as follows:
|
Number of
Share
Options
|
Weighted
Average
Exercise Price
US$
|
Weighted
Average
Remaining
Contractual
Years
|
Aggregate
Intrinsic
Value
US$
|
|||||||||||||
|
Outstanding at January 1, 2022
|
|
|
|
|
||||||||||||
|
Granted
|
|
|
||||||||||||||
|
Exercised
|
(
|
)
|
|
|||||||||||||
|
Forfeited
|
(
|
)
|
|
|||||||||||||
|
Expired
|
(
|
)
|
|
|||||||||||||
|
Outstanding at December 31, 2022
|
|
|
||||||||||||||
|
Outstanding at December 31, 2022(After the
“Share Consolidation”)*
|
|
|
|
|
||||||||||||
|
Granted
|
|
|
||||||||||||||
|
Exercised
|
|
|
||||||||||||||
|
Forfeited
|
(
|
)
|
|
|||||||||||||
|
Expired
|
(
|
)
|
|
|||||||||||||
|
Outstanding at December 31, 2023
|
|
|
|
|
||||||||||||
|
Expected to vest at December 31, 2023
|
|
|
|
|
||||||||||||
|
Exercisable as of December 31, 2023
|
|
|
|
|
||||||||||||
*On September 1, 2023 the Company held its annual general meeting of shareholders
where among other proposals, the shareholders of the Company did approve the consolidation of the ordinary shares of the Company on a
(1:10) basis with effect from December 8, 2023 (the “Share Consolidation”). The reverse stock split
decreased the number of outstanding shares and increased net loss per common share. All per share and share amounts presented have been retroactively adjusted for the effect of this share consolidation for all periods presented.
F-25
NOTE 17 - SHARE-BASED COMPENSATION (CONTINUED)
The Company calculated the fair value of the share options on the grant date and modification date using the Black-Scholes
option-pricing valuation model. The assumptions used in the valuation model are summarized in the following table.
|
For the Years Ended December 31,
|
||||
| 2023 |
2022
|
|||
|
Expected volatility
|
|
|
||
|
Expected dividends yield
|
|
|
||
|
Risk-free interest rate per annum
|
|
|
||
|
The fair value of underlying ordinary shares (per share)
|
$ |
$
|
||
The expected volatility is calculated based on the annualized standard deviation of the daily return embedded in historical share prices
of the Company. The risk-free interest rate is estimated based on the yield to maturity of US treasury bonds based on the expected term of the incentive shares.
As of December 31, 2023, there was approximately $8,734,833 of total unrecognized compensation cost related to unvested share options. The unrecognized compensation costs are expected to be recognized over a weighted average period of approximately 2.16 years.
F-26
NOTE 18 - ORDINARY SHARES AND RESTRICTED NET ASSETS
Ordinary shares
Immediately prior to the consummation of the Combination, there were 8,640,271 17,485,355 shares to CAG Cayman as consideration for the Combination. In 2022, 5,147 ordinary shares were exercised under the 2016 Share Incentive Option Plan, and 3,953,427
ordinary shares were issued for exercise of the investor warrants. As of December 31, 2022, the issued and outstanding ordinary shares are 30,084,200
During the year ended December 31, 2023, investor warrants were exercised via cashless option by the investors for 360,710
ordinary shares of the Company. On September 1, 2023 the Company held its annual general meeting of shareholders where among other proposals, the shareholders of the Company did approve the consolidation of the ordinary shares of the
Company on a (1:10) basis with effect from December 8, 2023. 383,868 ordinary shares were issued during the shares consolidation. As of December 31,
2023, the issued and outstanding ordinary shares are 30,828,778
The holders of ordinary shares are entitled to participate in dividends and the proceeds on winding up of CEGL. Each holder of ordinary
shares has one vote in person or by proxy, and upon a poll each share is entitled to one vote.
Restricted net assets
A significant portion of the Company’s operations are conducted through its PRC (excluding Hong Kong) subsidiaries. Due to restrictions
on the distribution of share capital from the Company’s subsidiaries in PRC, total restrictions placed on the distribution of the Company’s PRC subsidiaries’ net assets were $ as of December 31, 2023.
NOTE 19 - NET LOSS PER SHARE
Basic and diluted net loss per share for each of the year presented were calculated as follows:
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
| Numerator: | ||||||||
|
Net loss attributable to the Company’s shareholders
|
(
|
)
|
(
|
)
|
||||
|
Denominator:
|
||||||||
|
Weighted average ordinary shares used in computing basic and diluted loss per share *
|
|
|
||||||
|
Basic and diluted net loss per share
|
(
|
)
|
(
|
)
|
||||
* On September 1, 2023 the Company
held its annual general meeting of shareholders where among other proposals, the shareholders of the Company did approve the consolidation of the ordinary shares of the Company on a (1:10) basis with effect from December 8, 2023. The
reverse stock split decreased the number of outstanding shares and increased net loss per common share. All per share and share amounts presented have been retroactively adjusted for the effect of this share consolidation for all
periods presented.
The
Company incurred losses for the years ended December 31, 2023 and 2022, no
F-27
NOTE 20 - CONCENTRATIONS
|
(a)
|
Customers
|
The following table sets forth information as to each customer that accounted for 10% or more of net revenue for the years ended
December 31, 2023 and 2022.
| Year ended December 31, 2023 | Year ended December 31, 2022 | |||||||||||||||
|
Customer
|
Amount
|
% of Total
|
Amount
|
% of Total
|
||||||||||||
|
A
|
|
|
%
|
|
|
|||||||||||
| B |
% | |||||||||||||||
| C |
% | |||||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
*
|
|
The following table sets forth information as to each customer that accounted for 10% or more of total gross accounts receivable as of
December 31, 2023 and 2022.
|
As of December 31, 2023
|
As of December 31, 2022
|
||||||||||||||||
|
Customer
|
Amount
|
% of Total
|
Amount
|
% of Total
|
|||||||||||||
|
A
|
$
|
|
|
%
|
$
|
|
|
|
|||||||||
| D |
|
|
|
%
|
|
|
%
|
||||||||||
| E |
|
% |
|||||||||||||||
| F |
% |
||||||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
|||||||||
|
(b)
|
Suppliers
|
For the years ended December 31, 2023 and 2022, the Company’s material suppliers, each of whom accounted for more than 10% of the
Company’s total purchases, were as follows:
|
Year ended December 31, 2023
|
Year ended December 31, 2022
|
|||||||||||||||
|
Supplier
|
Amount
|
% of Total
|
Amount
|
% of Total
|
||||||||||||
|
A
|
$
|
|
|
%
|
$
|
|
|
% |
||||||||
|
B
|
|
|
% |
|
||||||||||||
| C | % | |||||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
*
|
Indicates below 10%. |
The following table sets forth information as to each supplier that accounted for 10% or more of total accounts payable as of December 31, 2023 and 2022.
| As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||
|
Supplier
|
Amount
|
% of Total
|
Amount
|
% of Total
|
||||||||||||
|
D
|
$
|
|
|
$
|
|
|
% |
|||||||||
|
C
|
|
|
|
|
% |
|||||||||||
|
Total
|
$
|
|
|
$
|
|
|
% |
|||||||||
|
*
|
Indicates below 10%. |
F-28
NOTE 21 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be involved in various legal proceedings, claims and other disputes arising from the commercial operations, projects,
employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss
is deemed probable and can be reasonably estimated. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial
position, results of operations or liquidity.
Subject to retention of title and an instalment payment agreement, CAE sold 90 vehicles for a total price of EUR 2,185,721.32 to the French
company B-Moville under a contract dated August 23，2021. B-MOVILLE had already settled an amount of EUR 58,787.33 by the end
of 2022 and, therefore, still owed CAE an amount of EUR 2,126,933.99 , of which EUR 548,244.11 was owed by the end of 2022 under the instalment agreement. B-Moville had withheld instalment payments due to alleged defects of the vehicles, without
specifying the amount of the claims for reduction of the purchase price. B-Moville had handed over the cars to its parent company SWOOPIN. SWOOPIN is insolvent and has been in judicial liquidation since November 2, 2022. The vehicles
held by SWOOPIN were prevented from becoming part of the insolvency estate and being realized by the insolvency administrator. Due to the retention of title clause, the 90 vehicles remain the property of CAE. In the meantime, SWOOPIN returned the vehicles to B-Moville. CAE and B-Moville are currently negotiating the amount of the mutual claims.
In October 2021, Sevic Systems SE (“Sevic”), a former channel partner, commenced a lawsuit against Zhangzhou Machinery, one of Cenntro’s
wholly owned subsidiaries, relating to a breach of contract for the sale of goods (the “Sevic Lawsuit”). Sevic filed its complaint with the People’s Court of Keqiao District, Shaoxing City, Light Textile City (the “People’s Court”). In
the Sevic Lawsuit, Sevic alleges that the Shengzhou Machinery provided it with certain unmarketable goods and requests that the People’s Court (i) terminate two signed purchase orders signed on July 22, 2019 under its sales contract with Shengzhou Machinery signed on August 13, 2019 and (ii) award Sevic money damages for the cost of goods of $465,400 , as well as interest and incidental losses, including freight and storage costs, for total damages of approximately $628,109 . The parties entered into mediation and on July 27, 2023, the People’s Court issued a civil mediation letter stating that i) both
Sevic and Shengzhou Machinery agreed to terminate (x) two purchase orders signed on July 22, 2019 and (y) the sales contract
signed on August 13, 2019; ii) Shengzhou Machinery shall pay Sevic a sum of approximately $13,908 by August 7, 2023; iii) Sevic
voluntarily waived all other claims; and iv) Sevic shall pay the case acceptance fee and the property preservation application fee totaling approximately $3,429 . After the completion of the meditation, no other disputes were outstanding between the two parties.
On March 25, 2022, Shengzhou Hengzhong Machinery Co., Ltd. (“Shengzhou”), an affiliate of Cenntro Automotive Corporation, filed a demand
for arbitration against Tropos Technologies, Inc. with the American Arbitration Association (“AAA”), asserting claims for breach of contract and unjust enrichment. Shengzhou is seeking payment of $1,126,640 (exclusive of interest, costs, and attorneys’ fees) for outstanding invoices owed by Tropos Technologies, Inc. to Shengzhou. As of the date of, Tropos
Technologies, Inc. has not yet formally responded to the demand. On February 16, 2023, AAA appointed an arbitrator and both parties are waiting for further proceedings under the arbitration process. On April 25, 2023, Tropos Technologies,
Inc. filed a motion to dismiss the arbitration demand. On May 23, 2023, Shengzhou Machinery filed a response in opposition to the motion to dismiss the arbitration demand. On January 29, 2024, the arbitrator issued his opinion and order
denying Tropos’ Motion to dismiss.
In June
2022, Sevic Systems SE (“Sevic”) filed for injunctive relief in a corporate court in Brussels, Belgium, alleging CAE infringement of Sevic’s intellectual property (“IP”) rights. The injunctive action was also directed against LEIE
Center SRL (“LEIE”) and Cedar Europe GmbH (“Cedar”), two distribution partners of CAE. There, Sevic claims it acquired all
IP rights to an electric vehicle, the so-called CITELEC model (“CITELEC”), fully and exclusively from the French company SH2M Sarl (“SH2M”) under Mr. Pierre Millet. Sevic claims these rights were acquired under a 2019 IP transfer
agreement. According to Sevic, the METRO model (“METRO”) produced by Cenntro Electro Group Ltd. (“Cenntro”) and distributed by CAE derives directly from the CITELEC. The distribution of the METRO, therefore, allegedly infringes on
Sevic’s IP rights. In its action, Sevic relies on (Belgian) copyright law and unfair business practices. On February 2, 2023, the president of the commercial court of Brussels rendered a judgment, declaring i) the claim against Cedar
was inadmissible and ii) The main claim against CAE and LEIE was founded. According to the president’s opinion the CITELEC-model can enjoy copyright protection and determined it was sufficiently proven that Sevic acquired the copyrights
of the CITELEC-model. The president then concluded that the distribution of the METRO-model in Belgium constituted a violation of article XI. 165 §1 of the Belgian Code of Economic Law and thereby ordered the cessation of the
distribution of the METRO-model, a penalty in the form of a fine of EUR20,000.00 per sold vehicle in Belgium and EUR5,000.00 for each other infringement in Belgium after the judgement was served with a maximum fine of EUR500,000.00 for LEIE and EUR1,000,000.00
fine for CAE. Because CAE has not sold any METRO-models in Belgium, the Company believes the judgement is incorrect but has accrued the related liability according to the judgement made. On April 17, 2023 CAE filed a writ of appeal. The
introductory hearing was scheduled for May 22, 2023. The judge did not give any legal assessment at the hearing. All parties have been granted deadlines for written pleadings. The receipt of the final writ has been planned for September
2, 2024. As of now, it is not possible to determine what the outcome of these proceedings will be.
F-29
In July 2022,
Cenntro filed a request for the cancellation of two European Union mark (“EU mark”) which belongs to a third party with
European Union Intellectual Property Office (“EUIPO”). EUIPO decided in favor of Cenntro in November 2023. The two trademarks
in question were cancelled and the costs of the cancellation proceedings were borne by the other party.
On July 22,
2022, Xiongjian Chen filed a complaint against Cenntro Electric Group Limited (“CENN”), Cenntro Automotive Group Limited (“CAG”), Cenntro Enterprise Limited (“CEL”) and Peter Z. Wang (“Wang,” together with CENN, CAG and CEL, the
“Defendants”) in the United States District Court for the District of New Jersey. The complaint alleges eleven causes of
action sounding in contract and tort against the Defendants, all pertaining to stock options issued to Mr. Chen pursuant to his employment as Chief Operating Officer of CAG. With respect to the four contract claims, Plaintiff alleges breach of contract claims pertaining to an employment agreement between Plaintiff and CAG and a purported letter agreement
between Plaintiff and CEL. With respect to the seven tort claims, Plaintiff alleges claims regarding purported
misrepresentations and promises made concerning the treatment of Plaintiff’s stock options upon a corporate transaction, including claims for tortious interference, fraud, promissory estoppel, negligent misrepresentation, unjust
enrichment and conversion. The complaint seeks, among other things, money damages (including compensatory and consequential damages) in the amount of $19 million, plus interest, attorneys’ fees and expenses. Defendants moved to dismiss the complaint against all Defendants for failure to state a claim and for lack of personal
jurisdiction over defendants CAG and CEL. On April 30, 2023, the District Court dismissed the claims against CAG and CEL for lack of personal jurisdiction. In addition, the District Court dismissed all the claims against Wang and CENN
without prejudice and permitted the Plaintiff to amend his complaint within 30 days to address the deficiencies in his
claims against Wang and CENN. On May 28, 2023, Plaintiff filed an amended complaint. On July 20, 2023 the Defendants filed a motion seeking the dismissal of that amended complaint. On September 22, 2023, the Plaintiff filed to oppose
our Motion to Dismiss and Motion to Strike. The Defendants filed our reply briefs by the deadline on November 9, 2023. On January 25, 2024, the Magistrate Judge entered an Order granting Plaintiff’s Motion to Amend and denying our
Motion to Strike as moot.
As of the
issuance date of this report on Form 10-K, there remains one ongoing civil litigation cases between Hangzhou Ronda Tech
Co., Limited (“Ronda”), one of Cenntro’s wholly owned subsidiaries, and Fujian Newlongma Automotive Co., Ltd. (“Newlongma”), one of Ronda’s suppliers; and the other two cases have been withdrawn:
On February 6, 2023, Hangzhou
Ronda Tech Co., Limited (“Ronda”), one of Cenntro’s wholly owned subsidiaries, commenced a lawsuit against Fujian Newlongma Automotive Co., Ltd. (“Newlongma”), one of Ronda’s suppliers, in the Hangzhou Yuhang District People's Court,
under which Ronda plead for (i) the termination of the vehicle purchase orders that Ronda placed with Newlongma on February 26, 2022; (ii) recovery of advance payments for total amount of approximately $438,702 ; and (iii) compensation for damages caused equal to approximately $453,290 . The case mediation date was March 3, 2023 and was subsequently docketed on July 3, 2023. Since then, Newlongma filed a jurisdictional objection, and the
Court dismissed that jurisdictional objection. Subsequently Newlongma filed a counterclaim and the Court hosted an exchange of evidence between the parties on 17 October 2023, and discovery was also organized on November 14, 2023 and
January 16, 2024. On March 5, 2024, the first instance judgment was made, ruling: 1) Newlongma to fully return advance payments plus 100 %
damage totaling $869,702 ; 2) Ronda to pay for outstanding invoices totaling $583,813 ; and 3) to terminate all agreements between the parties, including the vehicle purchase orders which have not been fulfilled. Newlongma is dissatisfied
with this third judgment and filed an appeal on March 21, 2024. We will prepare relevant defense materials.
On
December 18, 2023, Zhejiang Sinomachinery Co., Ltd. filed a lawsuit against Tonghe County Tianxin Agricultural Machinery Co., Ltd. (“Tianxin”), requesting payment for total contract price of CNY461,800 (approximately US$ 65,104 )
and interest under a disputed contract of sale. As of today the case is in the first instance proceedings.
On
January 2, 2024, MHP Americas, Inc. (“MHP”), through counsel, sent a letter to Cenntro Electric Group Limited (“Cenntro”) demanding payment allegedly owed by Cenntro to MHP in the amount of $1,767,516.91 for alleged breaches in connection with the parties’ August 8, 2022, Master Consulting Services Agreement and/or March 9, 2023, Statement of Work.
On January 12, 2024, Cenntro, through counsel, responded to the letter denying any breach and disputing the amounts claimed. No lawsuit has been filed yet.
F-30
NOTE 22 - RELATED PARTY TRANSACTIONS
The table below sets forth the major related parties and their relationships with the Company:
|
Name of related parties:
|
Relationship with the Company
|
|
|
Mr. Peter Wang
|
|
|
|
Mr. Yeung Heung Yeung
|
|
|
| Bendon Limited | ||
|
Zhejiang Zhongchai Machinery Co., Ltd (“Zhejiang Zhongchai”)
|
|
|
|
Zhejiang RAP
|
|
|
|
Jiangsu Rongyuan
|
|
|
|
Hangzhou Hezhe Energy Technology Co., Ltd (“Hangzhou Hezhe”)
|
|
|
|
Shenzhen Yuanzheng Investment Development Co. Ltd (“Shenzhen Yuanzheng“)
|
|
|
|
Shanghai Hengyu Enterprise Management Consulting Co., Ltd (“Shanghai Hengyu”)
|
|
|
| Antric GmbH | ||
|
Billy Rafael Romero Del Rosario
|
|
F-31
NOTE 22 - RELATED PARTY TRANSACTIONS (CONTINUED)
Related party transactions
During the years ended December 31, 2023 and 2022, the Company had the following material related party transactions.
|
For the Years Ended December 31,
|
||||||||
|
2023
|
2022
|
|||||||
|
|
||||||||
|
Zhejiang RAP
|
$
|
|
$
|
|
||||
| Bendon Limited | ||||||||
|
Purchase of raw materials from related parties
|
||||||||
| Hangzhou Hezhe |
||||||||
| Service provided by a related party | ||||||||
| Shanghai Hengyu | ||||||||
|
Zhejiang Zhongchai
|
||||||||
| Payment on the purchase of the raw materials |
||||||||
| Hangzhou Hezhe | ||||||||
|
|
||||||||
| Prepayment of operating fund to a related party |
||||||||
| Billy Rafael Romero Del Rosario |
||||||||
| Repayment of the advance operating fund from a related party |
||||||||
| Zhejiang Zhongchai |
||||||||
| Repayment of interest-bearing Loan from a related party | ||||||||
| Shenzhen Yuanzheng | ||||||||
| Mr. Yeung Heung Yeung | ||||||||
|
|
||||||||
|
Mr. Yeung Heung Yeung
|
|
|
||||||
|
Others
|
|
|
||||||
F-32
NOTE 22 - RELATED PARTY TRANSACTIONS (CONTINUED)
Amounts due from Related Parties
The following table presents as of December 31, 2023 and 2022.
|
|
As of December 31,
|
|||||||
|
|
2023
|
2022
|
||||||
|
Hangzhou Hezhe (1)
|
$
|
|
$
|
|
||||
|
Billy Rafael Romero Del Rosario (2)
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
Amounts due to Related Parties - current
The following table presents amounts due to related parties as of December 31, 2023 and 2022.
|
As of December 31,
|
||||||||
|
2023
|
2022
|
|||||||
| Antric GmbH (1) | $ |
$ |
||||||
|
Zhejiang RAP
|
|
|
||||||
|
Jiangsu Rongyuan (2)
|
|
|
||||||
|
Shanghai Hengyu (2)
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
NOTE 23 - SUBSEQUENT EVENT
On February 16, 2024, CEGL issued a press release announcing the Supreme Court of New South Wales, Australia (the “Court”) made orders
to approve CEGL’s proposed scheme of arrangement in relation to which CEGL will redomicile from Australia to the United States (the “Scheme”). Under the Scheme, CEGL will become a subsidiary of Cenntro Inc. (the “HoldCo”), a United
States company incorporated in accordance with the laws of the State of Nevada for the purpose of effecting CEGL group’s redomiciliation to the United States.
The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements, there were no other subsequent events with material financial impact
on the consolidated financial statements.
F-33
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is dated as of the 20th day of August, 2017 by and between Cenntro Automotive Group Limited, a Cayman Islands
corporation (the “Company”), and, Mr. Ming He (“Executive”).
W I T N E S S E T H:
WHEREAS, the Company is desirous of engaging Mr. Ming He as its Chief Financial Officer and he is agreeable to being so appointed on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement, the parties agree as follows:
1. Effective Date of Agreement. This Agreement and the obligations of the parties to adhere to the terms and conditions contained herein shall not be deemed effective until (i) the earlier of
30 days from the date of this Agreement, or (ii) the date that the Executive has resolved any prior conflicts with his ability to assume his duties under the terms of this Agreement.
2. Employment and Duties.
(a) Subject to the terms and conditions
hereinafter set forth, the Company hereby employs Mr. Ming He as its Chief Financial Officer. During the Term, as hereinafter defined, Executive shall report to the Company’s Chief Executive Officer. Executive shall also perform such other duties
and responsibilities as may be determined by the Company’s board of directors and Chief Executive Officer, as long as such duties and responsibilities are consistent with those of the Company’s Chief Financial Officer.
(b) Unless terminated earlier as provided in
Section 5 of this Agreement, this Agreement shall have an initial term (the “Initial Term”) commencing as of (i) the earlier of 30 days from the date of this Agreement, or (ii) the date that the Executive has resolved any prior conflicts with his
ability to assume his duties under the terms of this Agreement, and expiring on August 19, 2022, and continuing on a year-to-year basis thereafter unless terminated by either party on not less than thirty (30) days notice prior to the expiration of
the Initial Term or any one-year extension. The Initial Term and the one-year extensions are collectively referred to as the “Term.”
3. Performance. Executive hereby accepts the employment contemplated by this Agreement. During the Term, he shall devote substantially all of his business time to the performance of his duties
under this Agreement, and shall perform such duties diligently, in good faith and in a manner consistent with the best interests of the Company.
4. Compensation and Other Benefits.
For his services to the Company during the Term, the Company shall (a) pay Executive an annual salary (“Salary”), and (b) grant to Executive
an option (“Option”) to purchase the Company’s common stock. Executive’s Salary and terms of the Option will be discussed and determined separately.
All Salary payments shall be payable in equal monthly installments at the end of each calendar month, as the Company regularly pays its
employees in accordance with normal payroll practices.
The Company shall reimburse Executive, upon presentation of proper expense statements, for all authorized, ordinary and necessary
out-of-pocket expenses reasonably incurred by Executive during the Term in connection with the performance of his services pursuant to this Agreement hereunder in accordance with the Company’s expense reimbursement policy.
5. Termination of Employment.
(a) This Agreement and Executive’s employment
hereunder shall terminate immediately upon his death.
(b) This Agreement and Executive’s employment
pursuant to this Agreement, may be terminated by him or the Company on not less than thirty (30) days’ written notice in the event of Executive’s Disability. The term “Disability” shall mean any illness, disability or incapacity of Executive which
prevents him from substantially performing his regular duties for a period of two (2) consecutive months or three (3) months, even though not consecutive, in any twelve (12) month period.
(c) The Company may terminate this Agreement
and Executive’s employment pursuant to this Agreement for cause with no notice. The term “cause” shall mean:
(i) Repeated failure to perform
material instructions from the Company’s board of directors and/or Chief Executive Office, provided that such instructions are reasonable and consistent with his duties as set forth in Section 1 of this Agreement or any other failure or refusal by
Executive to perform his duties required by said Section 1; provided, however, that Executive shall have received notice from the Board specifying the nature of such failure in reasonable detail and he shall have failed to cure the failure within
ten (10) business days after receipt of such notice:
(ii) a breach of Section 6 or 7 of this Agreement;
(iii) a breach of trust whereby
Executive obtains personal gain or benefit at the expense of or to the detriment of the Company;
(iv) his use of illegal substances;
(v) his abuse of alcohol continuing
after written notice from the board of directors or the Company’s Chief Executive Officer or ;
(vi) any fraudulent or dishonest conduct
by Executive or any other conduct by him, which damages the Company or any of its affiliates or their property, business or reputation;
(vii) a conviction of or plea of nolo contendere by Executive of (A) any felony or (B) any other crime involving fraud, theft,
embezzlement or use or possession of illegal substances; or
(viii) the admission by Executive of any matters set forth in Section 5(c)(vii) of this Agreement.
(d) Executive’s resignation prior to the
expiration of the Term, other than for Good Reason shall be treated in the same manner as a termination for cause. The term “Good Reason” shall mean:
|
(i)
|
Any material breach by the Company of its obligations under this Agreement which are not cured within ten (10) business days after notice from Executive which sets forth in
reasonable detail the nature of the breach.
|
| (ii) |
Any change in Executive’s duties such that Executive is no longer the Company’s Chief Financial Officer, unless such change was made with his consent.
|
| (iii) |
Any action on the part of the Company which impairs Executive’s ability to exercise his duties as the Company’s Chief Financial Officer.
|
6. Trade Secrets and Proprietary Information. Executive recognizes and acknowledges that the Company, through the expenditure of considerable time and money, has developed and will continue to
develop in the future information concerning customers, clients, marketing, products, services, business, research and development activities and operational methods of the Company and its customers or clients, contracts, financial or other data,
technical data or any other confidential or proprietary information possessed, owned or used by the Company, the disclosure of which could or does have a material adverse effect on the Company, its business, any business it proposes to engage in,
its operations, financial condition or prospects and that the same are confidential and proprietary and considered “confidential information” of the Company for the purposes of this Agreement. In consideration of his employment and engagement as
Chief Financial Officer, Executive agrees that he will not, during or after the Term, without the consent of the Company’s Chief Executive Officer, make any disclosure of confidential information now or hereafter possessed by the Company, to any
person, partnership, corporation or entity either during or after the term here of, except that nothing in this Agreement shall be construed to prohibit him from using or disclosing such information (a) if such disclosure is necessary in the normal
course of the Company’s business in accordance with Company policies or instructions or authorization from the board of directors or executive committee, (b) such information shall become public knowledge other than by or as a result of disclosure
by a person not having a right to make such disclosure, (c) complying with legal process; provided, that in the event he is required to make disclosure pursuant to legal process, he shall give the Company prompt notice thereof and the opportunity
to object to the disclosure, or (d) subsequent to the Term, if such information shall have either (i) been developed by him independent of any of the Company’s confidential or proprietary information or (ii) been disclosed to him by a person not
subject to a confidentiality agreement with or other obligation of confidentiality to the Company. For the purposes of Sections 6 and 7 of this Agreement, the term “Company” shall include the Company, its parent, its subsidiaries and its
affiliates.
7. Covenant Not To Solicit or Compete.
(a) During the period from the date of this
Agreement until two (2) years following the date on which Executive’s employment is terminated, he will not, directly or indirectly:
(i) Be employed by or otherwise
serve (including but not limited to as a director of the board, a founder or co-founder) in any other entities in the industry or business of electric vehicles;
(ii) Persuade or attempt to persuade
any person or entity which is or was a customer, client or supplier of the Company to cease doing business with the Company, or to reduce the amount of business it does with the Company (the terms “customer” and “client” as used in this Section 7
to include any potential customer or client to whom the Company submitted bids or proposals, or with whom the Company conducted negotiations, during the term of Executive’s employment hereunder or during the twelve (12) months preceding the
termination of his employment);
(iii) solicit for himself or any other
person or entity other than the Company the business of any person or entity which is a customer or client of the Company, or was a customer or client of the Company within one (1) year prior to the termination of his employment; or
(iv) persuade or attempt to persuade
any employee of the Company, or any individual who was an employee of the Company during the two (2) year period prior to the lawful and proper termination of this Agreement, to leave the Company’s employ, or to become employed by any person or
entity other than the Company.
(b) Executive acknowledges that the
restrictive covenants (the “Restrictive Covenants”) contained in Sections 6 and 7 of this Agreement are a condition of his employment are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines
that any of the Restrictive Covenants, or any part of any of the Restrictive Covenants, is invalid or unenforceable, the remainder of the Restrictive Covenants and parts thereof shall not thereby be affected and shall remain in full force and
effect, without regard to the invalid portion. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable because of the geographic or temporal scope of such provision, such court shall have the
power to reduce the geographic or temporal scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable.
8. Miscellaneous.
(a) Executive represents, warrants, covenants
and agrees that he has a right to enter into this Agreement, that he is not a party to any agreement or understanding, oral or written, which would prohibit performance of his obligations under this Agreement, and that he will not use in the
performance of his obligations hereunder any proprietary information of any other party which he is legally prohibited from using.
(b) This Agreement shall in all respects be
construed and interpreted in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware applicable to contracts executed and to be performed wholly within such State, without regard to principles of
conflicts of laws.
(c) If any term, covenant or condition of
this Agreement or the application thereof to any party or circumstance shall, to any extent, be determined to be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law, and any
court having jurisdiction may reduce the scope of any provision of this Agreement, including the geographic and temporal restrictions set forth in Section 7 of this Agreement, so that it complies with applicable law.
(d) This Agreement constitutes the entire
agreement of the Company and Executive as to the subject matter hereof, superseding all prior or contemporaneous written or oral understandings or agreements, including any and all previous employment agreements or understandings, all of which are
hereby terminated, with respect to the subject matter covered in this Agreement. This Agreement may not be modified or amended, nor may any right be waived, except by a writing which expressly refers to this Agreement, states that it is intended to
be a modification, amendment or waiver and is signed by both parties in the case of a modification or amendment or by the party granting the waiver. No course of conduct or dealing between the parties and no custom or trade usage shall be relied
upon to vary the terms of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(e) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and permitted assigns.
[The remainder of this page has been
intentionally left blank.]
IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date first above written.
|
CENNTRO AUTOMOTIVE GROUP LIMITED
|
| By: /s/ Peter Z. Wang |
||
| Name: | Peter Z. Wang | |
| Title: |
Chairman, and Chief Executive Officer | |
| Executive: /s/ Ming He | ||
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is dated as of the 20th day of August, 2017 by and between Cenntro Automotive Corporation, a Delaware corporation (the “Company”), and, Mr. Tony Wen Tsai (“Executive”).
W I T N E S S E T H:
WHEREAS, the Company is desirous of engaging Mr. Tony Wen Tsai as its VP of Corporate Affairs and he is agreeable to being so appointed on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement, the parties agree as follows:
1. Effective Date of Agreement. This Agreement and the obligations of the parties to adhere to the terms and conditions contained herein shall not be deemed effective until (i) the earlier of 30 days from
the date of this Agreement, or (ii) the date that the Executive has resolved any prior conflicts with his ability to assume his duties under the terms of this Agreement.
2. Employment and Duties.
(a) Subject to the terms and conditions hereinafter set forth, the Company hereby employs Tony Wen Tsai as its VP of Corporate Affairs. During the Term, as hereinafter defined, Executive shall report to the Company’s Chief Executive Officer.
Executive shall also perform such other duties and responsibilities as may be determined by the Company’s board of directors and Chief Executive Officer, as long as such duties and responsibilities are consistent with those of the Company’s VP
of Corporate Affairs.
(b) Unless terminated earlier as provided in Section 5 of this Agreement, this Agreement shall have an initial term (the “Initial Term”) commencing as of (i) the earlier of 30 days from the date of this Agreement, or (ii) the date that the
Executive has resolved any prior conflicts with his ability to assume his duties under the terms of this Agreement, and expiring on July 11, 2019, and continuing on a year-to-year basis thereafter unless terminated by either party on not less
than thirty (30) days notice prior to the expiration of the Initial Term or any one-year extension. The Initial Term and the one-year extensions are collectively referred to as the “Term.”
3. Performance. Executive hereby accepts the employment contemplated by this Agreement. During the Term, he shall devote substantially all of his business time to the performance of his duties under this Agreement,
and shall perform such duties diligently, in good faith and in a manner consistent with the best interests of the Company.
4. Compensation and Other Benefits.
For his services to the Company during the Term, the Company shall (a) pay Executive an annual salary (“Salary”), and (b) grant to Executive an option (“Option”) to purchase the Company’s common
stock. Executive’s Salary and terms of the Option will be discussed and determined separately.
All Salary payments shall be payable in equal monthly installments at the end of each calendar month, as the Company regularly pays its employees in accordance with normal payroll practices.
The Company shall reimburse Executive, upon presentation of proper expense statements, for all authorized, ordinary and necessary out-of-pocket expenses reasonably incurred by Executive during the
Term in connection with the performance of his services pursuant to this Agreement hereunder in accordance with the Company’s expense reimbursement policy.
5. Termination of Employment.
(a) This Agreement and Executive’s employment hereunder shall terminate immediately upon his death.
(b) This Agreement and Executive’s employment pursuant to this Agreement, may be terminated by him or the Company on not less than thirty (30) days’ written notice in the event of Executive’s Disability. The term “Disability” shall mean any
illness, disability or incapacity of Executive which prevents him from substantially performing his regular duties for a period of two (2) consecutive months or three (3) months, even though not consecutive, in any twelve (12) month period.
(c) The Company may terminate this Agreement and Executive’s employment pursuant to this Agreement for cause with no notice. The term “cause” shall mean:
(i) Repeated failure to perform material instructions from the Company’s board of directors and/or Chief Executive Office, provided that such instructions are reasonable and consistent with his duties as set forth in Section 1 of this Agreement
or any other failure or refusal by Executive to perform his duties required by said Section 1; provided, however, that Executive shall have received notice from the Board specifying the nature of such failure in reasonable detail and he shall have
failed to cure the failure within ten (10) business days after receipt of such notice:
(ii) a breach of Section 6 or 7 of this Agreement;
(iii) a breach of trust whereby Executive obtains personal gain or benefit at the expense of or to the detriment of the Company;
(iv) his use of illegal substances;
(v) his abuse of alcohol continuing after written notice from the board of directors or the Company’s Chief Executive Officer or ;
(vi) any fraudulent or dishonest conduct by Executive or any other conduct by him, which damages the Company or any of its affiliates or their property, business or reputation;
(vii) a conviction of or plea of nolo contendere by Executive of (A) any felony or (B) any other crime involving fraud, theft, embezzlement or use or possession of illegal substances; or
(viii) the admission by Executive of any matters set forth in Section 5(c)(vii) of this Agreement.
(d) Executive’s resignation prior to the expiration of the Term, other than for Good Reason shall be treated in the same manner as a termination for cause. The term “Good Reason” shall mean:
(i) Any material breach by the Company of its obligations under this Agreement which are not cured within ten (10) business days after notice from Executive which sets forth in reasonable detail the nature of the breach.
(ii) Any change in Executive’s duties such that Executive is no longer the Company’s VP of Corporate Affairs, unless such change was made with his consent.
(iii) Any action on the part of the Company which impairs Executive’s ability to exercise his duties as the Company’s VP of Corporate Affairs.
6. Trade Secrets and Proprietary Information. Executive recognizes and acknowledges that the Company, through the expenditure of considerable time and money, has developed and will
continue to develop in the future information concerning customers, clients, marketing, products, services, business, research and development activities and operational methods of the Company and its customers or clients, contracts, financial or
other data, technical data or any other confidential or proprietary information possessed, owned or used by the Company, the disclosure of which could or does have a material adverse effect on the Company, its business, any business it proposes to
engage in, its operations, financial condition or prospects and that the same are confidential and proprietary and considered “confidential information” of the Company for the purposes of this Agreement. In consideration of his employment and
engagement as VP of Corporate Affairs, Executive agrees that he will not, during or after the Term, without the consent of the Company’s Chief Executive Officer, make any disclosure of confidential information now or hereafter possessed by the
Company, to any person, partnership, corporation or entity either during or after the term here of, except that nothing in this Agreement shall be construed to prohibit him from using or disclosing such information (a) if such disclosure is
necessary in the normal course of the Company’s business in accordance with Company policies or instructions or authorization from the board of directors or executive committee, (b) such information shall become public knowledge other than by or as
a result of disclosure by a person not having a right to make such disclosure, (c) complying with legal process; provided, that in the event he is required to make disclosure pursuant to legal process, he shall give the Company prompt notice
thereof and the opportunity to object to the disclosure, or (d) subsequent to the Term, if such information shall have either (i) been developed by him independent of any of the Company’s confidential or proprietary information or (ii) been
disclosed to him by a person not subject to a confidentiality agreement with or other obligation of confidentiality to the Company. For the purposes of Sections 6 and 7 of this Agreement, the term “Company” shall include the Company, its parent,
its subsidiaries and its affiliates.
7. Covenant Not To Solicit or Compete.
(a) During the period from the date of this Agreement until two (2) years following the date on which Executive’s employment is terminated, he will not, directly or indirectly:
(i) Be employed by or otherwise serve (including but not limited to as a director of the board, a founder or co-founder) in any other entities in the industry or business of electric vehicles;
(ii) Persuade or attempt to persuade any person or entity which is or was a customer, client or supplier of the Company to cease doing business with the Company, or to reduce the amount of business it does with the
Company (the terms “customer” and “client” as used in this Section 7 to include any potential customer or client to whom the Company submitted bids or proposals, or with whom the Company conducted negotiations, during the term of Executive’s
employment hereunder or during the twelve (12) months preceding the termination of his employment);
(iii) solicit for himself or any other person or entity other than the Company the business of any person or entity which is a customer or client of the Company, or was a customer or client of the Company within one
(1) year prior to the termination of his employment; or
(iv) persuade or attempt to persuade any employee of the Company, or any individual who was an employee of the Company during the two (2) year period prior to the lawful and proper termination of this Agreement, to leave the Company’s employ, or
to become employed by any person or entity other than the Company.
(b) Executive acknowledges that the restrictive covenants (the “Restrictive Covenants”) contained in Sections 6 and 7 of this Agreement are a condition of his employment are reasonable and valid in geographical and temporal scope and in all
other respects. If any court determines that any of the Restrictive Covenants, or any part of any of the Restrictive Covenants, is invalid or unenforceable, the remainder of the Restrictive Covenants and parts thereof shall not thereby be affected
and shall remain in full force and effect, without regard to the invalid portion. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable because of the geographic or temporal scope of such
provision, such court shall have the power to reduce the geographic or temporal scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable.
8. Miscellaneous.
(a) Executive represents, warrants, covenants and agrees that he has a right to enter into this Agreement, that he is not a party to any agreement or understanding, oral or written, which would prohibit performance of his obligations under this
Agreement, and that he will not use in the performance of his obligations hereunder any proprietary information of any other party which he is legally prohibited from using.
(b) This Agreement shall in all respects be construed and interpreted in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware applicable to contracts executed and to
be performed wholly within such State, without regard to principles of conflicts of laws.
(c) If any term, covenant or condition of this Agreement or the application thereof to any party or circumstance shall, to any extent, be determined to be invalid or unenforceable, the remainder of this Agreement, or the application of such
term, covenant or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the
fullest extent permitted by law, and any court having jurisdiction may reduce the scope of any provision of this Agreement, including the geographic and temporal restrictions set forth in Section 7 of this Agreement, so that it complies with
applicable law.
(d) This Agreement constitutes the entire agreement of the Company and Executive as to the subject matter hereof, superseding all prior or contemporaneous written or oral understandings or agreements, including any and all previous employment
agreements or understandings, all of which are hereby terminated, with respect to the subject matter covered in this Agreement. This Agreement may not be modified or amended, nor may any right be waived, except by a writing which expressly refers
to this Agreement, states that it is intended to be a modification, amendment or waiver and is signed by both parties in the case of a modification or amendment or by the party granting the waiver. No course of conduct or dealing between the
parties and no custom or trade usage shall be relied upon to vary the terms of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
(e) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and permitted assigns.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
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CENNTRO AUTOMOTIVE CORPORATION
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By: /s/ Peter Z. Wang
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Name
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Peter Z. Wang
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Title:
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Chairman, and Chief Executive Officer
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Executive: /s/ Tony Wen Tsai
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Exhibit 19
Cenntro Inc. Insider Trading Policy
This Insider Trading Policy describes the standards of Cenntro Inc. and its subsidiaries (the "Company") on trading, and causing the trading of, the Company's
securities or securities of certain other publicly traded companies while in possession of confidential information. This Policy is divided into two parts: the first part prohibits trading in certain circumstances and applies to all directors,
officers and employees and their respective immediate family members of the Company and the second part imposes special additional trading restrictions and applies to all (i) directors of the Company, (ii) executive officers of the Company
(together with the directors, "Company Insiders"), and (iii) certain other employees that the Company may designate from time to time as "Covered Persons" because of their position, responsibilities or their
actual or potential access to material information.
One of the principal purposes of the federal securities laws is to prohibit so-called "insider trading." Simply stated, insider trading occurs when a person uses material nonpublic information
obtained through involvement with the Company to make decisions to purchase, sell, give away or otherwise trade the Company's securities or the securities of certain other companies or to provide that information to others outside the Company. The
prohibitions against insider trading apply to trades, tips and recommendations by virtually any person, including all persons associated with the Company, if the information involved is "material" and "nonpublic." These terms are defined in this
Policy under Part I, Section 3 below. The prohibitions would apply to any director, officer or employee who buys or sells securities on the basis of material nonpublic information that he or she obtained about the Company, its customers, suppliers,
partners, competitors or other companies with which the Company has contractual relationships or may be negotiating transactions.
PART I
1. Applicability
This Policy applies to all trading or other transactions in (i) the Company's securities, including common stock, options and any other securities that the Company may issue, such as preferred stock,
notes, bonds and convertible securities, as well as to derivative securities relating to any of the Company's securities, whether or not issued by the Company and (ii) the securities of certain other companies, including common stock, options and
other securities issued by those companies as well as derivative securities relating to any of those companies' securities.
This Policy applies to all employees of the Company, all officers of the Company and all members of the Company's board of directors, officers, employees, and their respective family members.
2. General Policy: No Trading or Causing Trading While in Possession of Material Nonpublic Information
(a) No director, officer or employee or any of their immediate family members may purchase or sell, or offer to purchase or sell, any Company security, whether
or not issued by the Company, while in possession of material nonpublic information about the Company. (The terms "material" and "nonpublic" are defined in Part I, Section 3(a) and (b) below.)
(b) No director, officer or employee or any of their immediate family members who knows of any material nonpublic information about the Company may communicate
that information to ("tip") any other person, including family members and friends, or otherwise disclose such information without the Company’s authorization.
(c) No director, officer or employee or any of their immediate family members may purchase or sell any security of any other publicly-traded company while in
possession of material nonpublic information that was obtained in the course of his or her involvement with the Company. No director, officer or employee or any of their immediate family members who knows of any such material nonpublic information
may communicate that information to, or tip, any other person, including family members and friends, or otherwise disclose such information without the Company's authorization.
(d) For compliance purposes, you should never trade, tip or recommend securities (or otherwise cause the purchase or sale of securities) while in possession of
information that you have reason to believe is material and nonpublic unless you first consult with, and obtain the advance approval of, the Compliance Officer (which is defined in Part I, Section 3(c) below).
(e) Covered Persons must "pre-clear" all trading in securities of the Company in accordance with the procedures set forth in Part II, Section 3 below.
3. Definitions
(a) Material. Insider trading restrictions come into play only if the information you possess is "material." Materiality, however, involves a relatively
low threshold. Information is generally regarded as "material" if it has market significance, that is, if its public dissemination is likely to affect the market price of securities, or if it otherwise is information that a reasonable investor
would want to know before making an investment decision.
Information dealing with the following subjects is reasonably likely to be found material in particular situations:
(i) significant changes in the Company's prospects;
(ii) significant write-downs in assets or increases in reserves;
(iii) developments regarding significant litigation or government agency investigations;
(iv) liquidity problems;
(v) changes in earnings estimates or unusual gains or losses in major operations;
(vi) major changes in the Company's management or the board of directors;
(vii) changes in dividends;
(viii) extraordinary borrowings;
(ix) major changes in accounting methods or policies;
(x) award or loss of a significant contract;
(xi) cybersecurity risks and incidents, including vulnerabilities and breaches;
(xii) changes in debt ratings;
(xiii) proposals, plans or agreements, even if preliminary in nature, involving mergers, acquisitions, divestitures, recapitalizations, strategic alliances, licensing arrangements, or purchases or
sales of substantial assets; and
(xiv) offerings of Company securities.
Material information is not limited to historical facts but may also include projections and forecasts. With respect to a future event, such as a merger, acquisition or introduction of a new product,
the point at which negotiations or product development are determined to be material is determined by balancing the probability that the event will occur against the magnitude of the effect the event would have on a company's operations or stock
price should it occur. Thus, information concerning an event that would have a large effect on stock price, such as a merger, may be material even if the possibility that the event will occur is relatively small. When in doubt about whether
particular nonpublic information is material, you should presume it is material. If you are unsure whether information is material, you should either consult the Compliance Officer before making any decision to
disclose such information (other than to persons who need to know it) or to trade in or recommend securities to which that information relates or assume that the information is material.
(b) Nonpublic. Insider trading prohibitions come into play only when you possess information that is material
and "nonpublic." The fact that information has been disclosed to a few members of the public does not make it public for insider trading purposes. To be "public" the information must have been disseminated in a manner designed to reach investors
generally, and the investors must be given the opportunity to absorb the information. Even after public disclosure of information about the Company, you must wait until the close of business on the second trading day after the information was
publicly disclosed before you can treat the information as public.
Nonpublic information may include:
(i) information available to a select group of analysts or brokers or institutional investors;
(ii) undisclosed facts that are the subject of rumors, even if the rumors are widely circulated; and
(iii) information that has been entrusted to the Company on a confidential basis until a public announcement of the information has been made and enough time has elapsed for the market to respond to a
public announcement of the information, normally two trading days.
As with questions of materiality, if you are not sure whether information is considered public, you should either consult with the Compliance Officer or assume that the information
is nonpublic and treat it as confidential.
(c) Compliance Officer. The Company has appointed the Chief Financial Officer as the Compliance Officer for this Policy. The duties of the Compliance
Officer include, but are not limited to, the following:
(i) assisting with implementation and enforcement of this Policy;
(ii) circulating this Policy to all employees and ensuring that this Policy is amended as necessary to remain up-to-date with insider trading laws;
(iii) pre-clearing all trading in securities of the Company by Covered Persons in accordance with the procedures set forth in Part II, Section 3 below; and
(iv) providing approval of any Rule 10b5-1 plans under Part II, Section 1(c) below and any prohibited transactions under Part II, Section 4 below.
(v) providing a reporting system with an effective whistleblower protection mechanism.
4. Exceptions
The trading restrictions of this Policy do not apply to exercising stock options granted under the Company's current or future equity incentive plans or option plans for cash or the delivery of
previously owned Company stock. However, the sale of any shares issued on the exercise of Company-granted stock options and any cashless exercise of Company-granted stock options are subject to trading restrictions under this Policy.
5. Violations of Insider Trading Laws
Penalties for trading on or communicating material nonpublic information can be severe, both for individuals involved in such unlawful conduct and their employers and supervisors, and may include jail
terms, criminal fines, civil penalties and civil enforcement injunctions. Given the severity of the potential penalties, compliance with this Policy is absolutely mandatory.
(a) Legal Penalties. A person who violates insider trading laws by engaging in transactions in a company's securities when he or she has material
nonpublic information can be sentenced to a substantial jail term and required to pay a criminal penalty of several times the amount of profits gained or losses avoided.
In addition, a person who tips others may also be liable for transactions by the tippees to whom he or she has disclosed material nonpublic information. Tippers can be subject to the same penalties
and sanctions as the tippees, and the SEC has imposed large penalties even when the tipper did not profit from the transaction.
The SEC can also seek substantial civil penalties from any person who, at the time of an insider trading violation, "directly or indirectly controlled the person who committed such violation," which
would apply to the Company and/or management and supervisory personnel. These control persons may be held liable for up to the greater of $1 million or three times the amount of the profits gained or losses avoided. Even for violations that result
in a small or no profit, the SEC can seek penalties from a company and/or its management and supervisory personnel as control persons.
(b) Company-Imposed Penalties. Employees who violate this Policy may be subject to disciplinary action by the Company, including dismissal for cause. Any
exceptions to the Policy, if permitted, may only be granted by the Compliance Officer and must be provided before any activity contrary to the above requirements takes place.
6. Inquiries
If you have any questions regarding any of the provisions of this Policy, please contact the Compliance Officer at (732) 820-6757 or 501 Okerson Road, Freehold, New Jersey 07728.
PART II
1. Blackout Periods
All Covered Persons are prohibited from trading in the Company's securities during blackout periods as defined below.
(a) Quarterly Blackout Periods. Trading in the Company's securities is prohibited during the period beginning at the close of the market on two weeks
before the end of each fiscal quarter and ending at the close of business on the second trading day following the date the Company's financial results are publicly disclosed. During these periods, Covered Persons generally possess or are presumed
to possess material nonpublic information about the Company's financial results.
(b) Other Blackout Periods. From time to time, other types of material nonpublic information regarding the Company (such as negotiation of mergers,
acquisitions or dispositions, investigation and assessment of cybersecurity incidents or new product developments) may be pending and not be publicly disclosed. While such material nonpublic information is pending, the Company may impose special
blackout periods during which Covered Persons are prohibited from trading in the Company's securities. If the Company imposes a special blackout period, it will notify the Covered Persons affected.
(c) Exception. These trading restrictions do not apply to transactions under a pre-existing written plan, contract, instruction, or arrangement under
Rule 10b5-1 under the Securities Exchange Act of 1934 (an "Approved 10b5-1 Plan") that:
(i) has been reviewed and approved at least one month in advance of any trades thereunder by the Compliance Officer (or, if revised or amended, such revisions or amendments have been reviewed and
approved by the Compliance Officer at least one month in advance of any subsequent trades);
(ii) was entered into in good faith by the Covered Person at a time when the Covered Person was not in possession of material nonpublic information about the Company; and
(iii) gives a third party the discretionary authority to execute such purchases and sales, outside the control of the Covered Person, so long as such third party does not possess any material
nonpublic information about the Company; or explicitly specifies the security or securities to be purchased or sold, the number of shares, the prices and/or dates of transactions, or other formula(s) describing such transactions.
2. Trading Window
Covered Persons are permitted to trade in the Company's securities when no blackout period is in effect. Generally, this means that Covered Persons can trade during the period beginning on DAY THAT
BLACKOUT PERIOD UNDER SECTION 1(A) ENDS and ending on DAY THAT NEXT BLACKOUT PERIOD UNDER SECTION 1(A) BEGINS. However, even during this trading window, a Covered Person who is in possession of any material nonpublic information should not trade in
the Company's securities until the information has been made publicly available or is no longer material. In addition, the Company may close this trading window if a special blackout period under Part II, Section 1(b) above is imposed and will
re-open the trading window once the special blackout period has ended.
3. Pre-Clearance of Securities Transactions
(a) Because Company Insiders are likely to obtain material nonpublic information on a regular basis, the Company requires all such persons to refrain from
trading, even during a trading window under Part II, Section 2 above, without first pre-clearing all transactions in the Company's securities.
(b) Subject to the exemption in subsection (d) below, no Company Insider may, directly or indirectly, purchase or sell (or otherwise make any transfer, gift,
pledge or loan of) any Company security at any time without first obtaining prior approval from the Compliance Officer. These procedures also apply to transactions by such person's spouse, other persons living in such person’s household and minor
children and to transactions by entities over which such person exercises control.
(c) The Compliance Officer shall record the date each request is received and the date and time each request is approved or disapproved. Unless revoked, a
grant of permission will normally remain valid until the close of trading two business days following the day on which it was granted. If the transaction does not occur during the two-day period, pre-clearance of the transaction must be
re-requested.
(d) Pre-clearance is not required for purchases and sales of securities under an Approved 10b5-1 Plan. With respect to any purchase or sale under an Approved
10b5-1 Plan, the third party effecting transactions on behalf of the Company Insider should be instructed to send duplicate confirmations of all such transactions to the Compliance Officer.
4. Prohibited Transactions
(a) Company Insiders are prohibited from trading in the Company's equity securities during a blackout period imposed under an "individual account" retirement
or pension plan of the Company, during which at least 50% of the plan participants are unable to purchase, sell or otherwise acquire or transfer an interest in equity securities of the Company, due to a temporary suspension of trading by the
Company or the plan fiduciary.
(b) Covered Persons, including any person's spouse, other persons living in such person's household and minor children and entities over which such person
exercises control, are prohibited from engaging in the following transactions in the Company's securities unless advance approval is obtained from the Compliance Officer:
(i) Short-term trading. Company Insiders who purchase Company securities may not sell any Company securities of the same class for at least six months after the purchase;
(ii) Short sales. Company Insiders/Covered Persons may not sell the Company's securities short;
(iii) Options trading. Covered Persons may not buy or sell puts or calls or other derivative securities on the Company's securities;
(iv) Trading on margin or pledging. Covered Persons may not hold Company securities in a margin account or pledge Company securities as collateral for a loan; and
(v) Hedging. Covered Persons may not enter into hedging or monetization transactions or similar arrangements with respect to Company securities.
5. Acknowledgment and Certification
All Covered Persons are required to sign the attached acknowledgment and certification.
ACKNOWLEDGMENT AND CERTIFICATION
The undersigned does hereby acknowledge receipt of the Company's Insider Trading Policy. The undersigned has read and understands (or has had explained) such Policy and agrees to be governed by such
Policy at all times in connection with the purchase and sale of securities and the confidentiality of nonpublic information.
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(Signature)
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(Please print name)
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Date:
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Exhibit 21.1
SUBSIDIARIES OF CENNTRO INC.
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Subsidiaries
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Jurisdiction of Incorporation
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Able2rent GmbH
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Germany
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Avantier Motors Corporation
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USA
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Cenntro Automotive Corporation
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The United States of America
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Cennatic Power, Inc.
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The United States of America
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Cennatic Energy S. de R.L. de C.V.
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Mexico
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Cenntro Automotive Europe GmbH
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Germany
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Cenntro Automotive Group Limited
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Hong Kong, People’s Republic of China
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Cenntro Automotive S.A.S.
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Columbia
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Cenntro Electric Group Limited ACN 619 054 938
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Australia
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Cenntro Elecautomotiv, S.L.
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Spain
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Cenntro Electric B.V.
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Netherlands
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Cenntro Electric CICS, SRL
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Dominican Republic
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Centro Electric Group, Inc.
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The United States of America
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Cenntro Elektromobilite Araçlar A.Ş
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Turkey
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Cenntro Electric Group (Europe) GmbH, (f.k.a Blitz F22-1 GmbH)
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Germany
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Cenntro EV Center Italy S.R.L.
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Italy
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Cenntro Technology Corporation
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The United States of America
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Hangzhou Cenntro Autotech Co., Ltd.
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People’s Republic of China
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Hangzhou Hengzhong Tech Co., Ltd
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People’s Republic of China
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Hangzhou Ronda Tech Co., Ltd.
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People’s Republic of China
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Pikka Electric Corporation
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The United States of America
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Shengzhou Cenntro Machinery Co., Ltd.
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People’s Republic of China
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Simachinery Equipment Limited
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Hong Kong, People’s Republic of China
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Teemak Power Corporation
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USA
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Teemak Power (Hong Kong) Limited
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Hong Kong, People’s Republic of China
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Zhejiang Cenntro Machinery Co., Ltd.
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People’s Republic of China
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Zhejiang Sinomachinery Co., Ltd.
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People’s Republic of China
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Zhejiang Tooniu Tech Co., Ltd.
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People’s Republic of China
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Zhejiang Xbean Tech Co., Ltd.
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People’s Republic of China
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter Z. Wang, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cenntro Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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| (b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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| (c) |
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
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| (d) |
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting; and
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5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit
committee of the company’s board of directors (or persons performing the equivalent functions):
| (a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information; and
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| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
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Dated: April 1, 2024
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By:
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/s/ Peter Z. Wang
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Peter Z. Wang
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Chairman and Chief Executive Officer
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(Principal Executive Officer)
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Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Edward Ye, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cenntro Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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| (b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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| (c) |
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
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| (d) |
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting; and
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5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit
committee of the company’s board of directors (or persons performing the equivalent functions):
| (a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information; and
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| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
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Dated: April 1, 2024
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By:
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/s/ Edward Ye
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Edward Ye
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Acting Chief Financial Officer
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(Principal Accounting Officer and Principal Financial Officer)
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cenntro Inc. (the “Company”) on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
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Dated: April 1, 2024
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By:
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/s/ Peter Z. Wang
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Peter Z. Wang
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Chairman and Chief Executive Officer
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By:
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/s/ Edward Ye
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Edward Ye
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Acting Chief Financial Officer
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Exhibit 97
CENNTRO INC.
EXECUTIVE COMPENSATION RECOVERY POLICY
This policy of Cenntro Inc., a Nevada corporation (the “Company”) outlines the Company’s Covered Officers (as defined herein) and explains when the Company will be required or authorized, as applicable, to
seek recovery of Incentive Compensation (as defined herein) awarded or paid to Covered Officers (the “Policy”). Please refer to Exhibit A attached hereto (the “Definitions Exhibit”) for
the definitions of capitalized terms used throughout this Policy.
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1.
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Miscalculation of Financial Performance Measure Results. In the event of a Restatement, the Company will seek to recover,
reasonably promptly, all Recoverable Incentive Compensation from a Covered Officer during the Applicable Period. Such recovery, in the case of a Restatement, will be made without regard to any individual knowledge or responsibility
related to the Restatement or the Recoverable Incentive Compensation. Notwithstanding the foregoing, if the Company is required to undertake a Restatement, the Company will not be required to recover the Recoverable Incentive Compensation
if the Compensation Committee determines it Impracticable to do so, after exercising a normal due process review of all the relevant facts and circumstances. he Company will seek to recover all Recoverable Incentive Compensation that was
awarded or paid in accordance with the definition of “Recoverable Incentive Compensation” set forth on the Definitions Exhibit. If such Recoverable Incentive Compensation was not awarded or paid on a formulaic basis, the Company will seek
to recover the amount that the Compensation Committee determines in good faith should be recouped.
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| 2. |
Legal and Compliance Violations. Compliance with the law and the Company’s Standards of Business Conduct and other corporate policies is a pre-condition to earning Incentive Compensation. If the
Company in its sole discretion concludes that a Covered Officer (1) committed a significant legal or compliance violation in connection with the Covered Officer’s employment, including a violation of the Company’s corporate policies or the
Company’s Standards of Business Conduct (each, “Misconduct”), or (2) was aware of or willfully blind to Misconduct that occurred in an area over which the Covered Officer had supervisory authority, the Company may, at the direction
of the Compensation Committee, seek recovery of all or a portion of the Recoverable Incentive Compensation awarded or paid to the Covered Officer for the Applicable Period in which the violation occurred. In addition, the Company may, at
the direction of the Compensation Committee, conclude that any unpaid or unvested Incentive Compensation has not been earned and must be forfeited.
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In the event of Misconduct, the Company may seek recovery of Recoverable Incentive Compensation even if the Misconduct did not result in an award or payment greater than would have been awarded or
paid absent the Misconduct.
In the event of Misconduct, in determining whether to seek recovery and the amount, if any, by which the payment or award should be reduced, the Compensation Committee may consider—among other
things— the seriousness of the Misconduct, whether the Covered Officer was unjustly enriched, whether seeking the recovery would prejudice the Company’s interests in any way, including in a proceeding or investigation, and any other factors it
deems relevant to the determination.
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Other Actions. The Compensation Committee may, subject to applicable law, seek recovery in the manner it chooses, including by seeking reimbursement from the Covered Officer of all or part of the
compensation awarded or paid, by electing to withhold unpaid compensation, by set-off, or by rescinding or canceling unvested stock.
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In the reasonable exercise of its business judgment under this Policy, the Compensation Committee may in its sole discretion determine whether and to what extent additional action is appropriate to
address the circumstances surrounding a Restatement or Misconduct to minimize the likelihood of any recurrence and to impose such other discipline as it deems appropriate.
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No Indemnification or Reimbursement. Notwithstanding the terms of any other policy, program, agreement or arrangement, in no event will the Company or any of its affiliates indemnify or reimburse
a Covered Officer for any loss under this Policy and in no event will the Company or any of its affiliates pay premiums on any insurance policy that would cover a Covered Officer’s potential obligations with respect to Recoverable Incentive
Compensation under this Policy.
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| 5. |
Administration of Policy. The Compensation Committee will have full authority to administer this Policy. Actions of the Compensation Committee pursuant to this Policy will be taken by the vote of
a majority of its members. The Compensation Committee will, subject to the provisions of this Policy and Rule 10D-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company’s applicable exchange
listing standards, make such determinations and interpretations and take such actions in connection with this Policy as it deems necessary, appropriate or advisable. All determinations and interpretations made by the Compensation Committee
will be final, binding and conclusive.
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| 6. |
Other Claims and Rights. The remedies under this Policy are in addition to, and not in lieu of, any legal and equitable claims the Company or any of its affiliates may have or any actions that may
be imposed by law enforcement agencies, regulators, administrative bodies, or other authorities. Further, the exercise by the Compensation Committee of any rights pursuant to this Policy will not impact any other rights that the Company or
any of its affiliates may have with respect to any Covered Officer subject to this Policy.
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| 7. |
Condition to Eligibility for Incentive Compensation. All Incentive Compensation subject to this Policy will not be earned, even if already paid, until the Policy ceases to apply to such Incentive
Compensation and any other vesting conditions applicable to such Incentive Compensation are satisfied.
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| 8. |
Amendment; Termination. The Board or the Compensation Committee may amend or terminate this Policy at any time.
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| 9. |
Effectiveness. Except as otherwise determined in writing by the Compensation Committee, this Policy will apply to any Incentive Compensation that (a) in the case of any Restatement, is Received by
Covered Officers prior to, on or following the Effective Date, and (b) in the case of Misconduct, is awarded or paid to a Covered Officer on or after the Effective Date. This Policy will survive and continue notwithstanding any termination
of a Covered Officer’s employment with the Company and its affiliates.
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| 10. |
Successors. This Policy shall be binding and enforceable against all Covered Officers and their successors, beneficiaries, heirs, executors, administrators, or other legal representatives.
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| 11. |
Governing Law. To the extent not preempted by U.S. federal law, this Policy will be governed by and construed in accordance with the laws of the State of New York, without reference to principles
of conflict of laws.
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EXHIBIT A
Definitions Pertaining to
The Executive Compensation Recovery Policy
of Cenntro Inc.
“Applicable Period” means (a) in the case of any Restatement, the three completed fiscal years of the Company immediately preceding the earlier of (i) the date the Board, a committee of the Board, or the
officer or officers of the Company authorized to take such action if Board action is not required, concludes (or reasonably should have concluded) that a Restatement is required or (ii) the date a regulator, court or other legally authorized
entity directs the Company to undertake a Restatement, and (b) in the case of any Misconduct, such period as the Compensation Committee or Board determines to be appropriate in light of the scope and nature of the Misconduct. The “Applicable
Period” also includes any transition period (that results from a change in the Company’s fiscal year) within or immediately following the three completed fiscal years identified in the preceding sentence.
“Board” means the Board of Directors of the Company.
“Compensation Committee” means the Company’s committee of independent directors responsible for executive compensation decisions, or in the absence of such a committee, a majority of the independent
directors serving on the Board.
“Covered Officer” means (a) in the case of any Restatement, any person who is, or was at any time, during the Applicable Period, an Executive Officer of the Company, and (b) in the case of any
Misconduct, any person who was an Executive Officer at the time of the Misconduct. For the avoidance of doubt, a Covered Officer may include a former Executive Officer that left the Company, retired, or transitioned to an employee role
(including after serving as an Executive Officer in an interim capacity) during the Applicable Period.
“Effective Date” means October 31, 2023 or December 1, 2023, whichever is earlier.
“Executive Officer” means the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president in charge of a
principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person (including an officer of the Company’s parent(s) or subsidiaries) who
performs similar policy-making functions for the Company.
“Financial Performance Measure” means a measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements (including “non-GAAP”
financial measures, such as those appearing in the Company’s earnings releases or Management Discussion and Analysis), and any measure that is derived wholly or in part from such measure. Stock price and total shareholder return (and any
measures derived wholly or in part therefrom) shall be considered Financial Performance Measures.
“Impracticable.” The Compensation Committee may determine in good faith that recovery of Recoverable Incentive Compensation is “Impracticable” (a) in the case of any Restatement, if: (i) pursuing such
recovery would violate the law of the jurisdiction of incorporation of the Company where that law was adopted prior to October 2, 2023 and the Company provides an opinion of counsel to that effect acceptable to the Company’s listing exchange;
(ii) the direct expense paid to a third party to assist in enforcing this Policy would exceed the Recoverable Incentive Compensation and the Company has (A) made a reasonable attempt to recover such amounts and (B) provided documentation of
such attempts to recover to the Company’s applicable listing exchange; or (iii) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet
the requirements of the Internal Revenue Code of 1986, as amended, and (b) in the case of any Misconduct, in its sole discretion, in light of the scope and nature of the Misconduct.
“Incentive Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a Financial Performance Measure. Incentive Compensation does not include
any base salaries (except with respect to any salary increases earned wholly or in part based on the attainment of a Financial Performance Measure performance goal); bonuses paid solely at the discretion of the Compensation Committee or Board
that are not paid from a “bonus pool” that is determined by satisfying a Financial Performance Measure performance goal; bonuses paid solely upon satisfying one or more subjective standards and/or completion of a specified employment period;
non-equity incentive plan awards earned solely upon satisfying one or more strategic measures or operational measures; and equity awards that vest solely based on the passage of time and/or attaining one or more non-Financial Performance
Measures. Notwithstanding the foregoing, in the case of any Misconduct, Incentive Compensation will include all forms of cash and equity incentive compensation, including, without limitation, cash bonuses and equity awards that are received
or vest solely based on the passage of time and/or attaining one or more non-Financial Performance Measures.
“Received.” Incentive Compensation is deemed “Received” in the Company’s fiscal period during which the Financial Performance Measure specified in the Incentive Compensation award is attained, even if
the payment or grant of the Incentive Compensation occurs after the end of that period.
“Recoverable Incentive Compensation” means (a) in the case of any Restatement, the amount of any Incentive Compensation (calculated on a pre-tax basis) Received by a Covered Officer during the Applicable
Period that is in excess of the amount that otherwise would have been Received if the calculation were based on the Restatement, and (b) in the case of any Misconduct, the amount of any Incentive Compensation (calculated on a pre-tax basis)
awarded or paid to a Covered Officer during the Applicable Period that the Compensation Committee determines, in its sole discretion, to be appropriate in light of the scope and nature of the Misconduct. For the avoidance of doubt, in the
case of any Restatement, Recoverable Incentive Compensation does not include any Incentive Compensation Received by a person (i) before such person began service as a Covered Officer and (ii) who did not serve as a Covered Officer at any time
during the performance period for that Incentive Compensation. For the avoidance of doubt, in the case of any Restatement, Recoverable Incentive Compensation may include Incentive Compensation Received by a person while serving as an employee
if such person previously served as a Covered Officer and then transitioned to an employee role. For Incentive Compensation based on (or derived from) stock price or total shareholder return where the amount of Recoverable Incentive
Compensation is not subject to mathematical recalculation directly from the information in the applicable Restatement, the amount will be determined by the Compensation Committee based on a reasonable estimate of the effect of the Restatement
on the stock price or total shareholder return upon which the Incentive Compensation was Received (in which case, the Company will maintain documentation of such determination of that reasonable estimate and provide such documentation to the
Company’s applicable listing exchange).
“Restatement” means an accounting restatement of any of the Company’s financial statements filed with the Securities and Exchange Commission under the Exchange Act, or the Securities Act of 1933, as
amended, due to the Company’s material noncompliance with any financial reporting requirement under U.S. securities laws, regardless of whether the Company or Covered Officer misconduct was the cause for such restatement. “Restatement”
includes any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements (commonly referred to as “Big R” restatements), or that would result in
a material misstatement if the error were corrected in the current period or left uncorrected in the current period (commonly referred to as “little r” restatements).