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

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

For the quarterly period ended: March 31, 2024
OR


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

For the transition period from ______ to _______.

Commission file number: 001-38544
 
CENNTRO INC.
(Exact name of registrant as specified in its charter)

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

501 Okerson Road
 
Freehold, New Jersey 07728
 
(Address of principal executive offices, including zip code)
 
Registrant’s telephone number, including area code (732) 820-6757
 
Securities registered under Section 12(b) of the Exchange Act:
 
Title of each class:
 
Trading Symbol(s)
Name of each exchange on which registered:
Common Stock
 
CENN
The Nasdaq Capital Market

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

   
Emerging growth company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No ☒
 
The registrant had 30,828,795 of the registrant’s common stock per value $0.0001 per share, issued and outstanding as of May 14, 2024.



TABLE OF CONTENTS

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Forward-Looking Statements

This Quarterly Report of Cenntro Inc. (“we,” “us,” “our,” “Cenntro” and the “Company”) contains statements that constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in several different places in this Quarterly Report and, in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “contemplates”, “intends”, “believes”, “plans”, “may”, “will” or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this Quarterly Report may include, but are not limited to, statements and/or information related to: our financial performance and projections; our business prospects and opportunities; our business strategy and future operations; the projection of timing and delivery of products in the future; projected costs; expected production capacity; expectations regarding demand and acceptance of our products; estimated costs of machinery to equip a new production facility; trends in the market in which we operate; the plans and objectives of management; our liquidity and capital requirements, including cash flows and uses of cash; trends relating to our industry; plans relating to our electric vehicles (“EVs”); and plans and intentions to regain compliance with the listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”), including, among other things, through a reverse stock split.

We have based these forward-looking statements on our current expectations about future events on information that is available as of the date of this Quarterly Report, and any forward-looking statements made by us speak only as of the date on which they are made. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed or implied in our forward-looking statements for various reasons, including, our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; our capital needs, and the competitive environment of our business. Additional Factors that could contribute to such differences include, but are not limited to:
 
general economic and business conditions, including changes in interest rates;
prices of other EVs, costs associated with manufacturing EVs and other economic conditions;
the effect of an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, on the Company’s business (natural phenomena, including the lingering effects of the COVID-19 pandemic);
the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations, and our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;
breaches in data security, failure of information security systems, cyber-attacks or other security or privacy-related incidents affecting us or our suppliers;
the ability of our information technology systems or information security systems to operate effectively;
actions by government authorities, including changes in government regulation;
uncertainties associated with legal proceedings;
changes in the size of the EV market;
future decisions by management in response to changing conditions;
the Company’s ability to execute prospective business plans;
misjudgments in the course of preparing forward-looking statements;
the Company’s ability to raise sufficient funds to carry out its proposed business plan;
inability to keep up with advances in EV and battery technology;
inability to design, develop, market and sell new EVs and services that address additional market opportunities to generate revenue and positive cash flows;
dependency on certain key personnel and any inability to retain and attract qualified personnel;
inexperience in mass-producing EVs;
inability to succeed in establishing, maintaining and strengthening the Cenntro brand;
disruption of supply or shortage of raw materials;
the unavailability, reduction or elimination of government and economic incentives;
failure to manage future growth effectively; and
the other risks and uncertainties detailed from time to time in our filings with the Security and Exchange Commission (“SEC”), including but not limited to those described under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K as amended for the year ended December 31, 2023, filed with the SEC on April 1, 2023 (the “Form 10-K”).

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

INDEX

 
Page
Item 1. Interim Financial Statements
1
1
2
3
4
5
 
PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CENNTRO INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in U.S. dollars, except for number of shares)

         
For the Three Months Ended March 31,
 
   
Note
   
2024
   
2023
 
                   
Net revenues
   
2(d)

 
$
3,391,999
   
$
3,470,544
 
Cost of goods sold
           
(3,377,728
)
   
(3,275,800
)
Gross profit
           
14,271
     
194,744
 
                         
OPERATING EXPENSES:
                       
Selling and marketing expenses
           
(1,316,763
)
   
(1,868,985
)
General and administrative expenses
           
(6,361,196
)
   
(7,358,264
)
Research and development expenses
           
(1,727,830
)
   
(1,569,919
)
Total operating expenses
           
(9,405,789
)
   
(10,797,168
)
                         
Loss from operations
           
(9,391,518
)
   
(10,602,424
)
                         
OTHER EXPENSE:
                       
Interest income (expense), net
           
73,242
     
(54,415
)
(Loss) income from long-term investment
           
(13,520
)
   
19,042
 
Impairment of long-term investment
           
-
     
(1,146,128
)
Loss on redemption of convertible promissory notes
           
-
     
(2,001
)
Loss on exercise of warrants
           
-
     
(212,870
)
Change in fair value of convertible promissory notes and derivative liability
           
(705
)
   
(126,273
)
Change in fair value of equity securities
           
234,887
     
653,016
 
Foreign currency exchange loss, net             (359,217 )     -  
Gain from cross-currency swaps
            5,933       -  
Other income, net
           
190,643
     
358,076
 
Loss before income taxes
           
(9,260,255
)
   
(11,113,977
)
Income tax benefit
   
11
     
30,032
     
-
 
Net loss
           
(9,230,223
)
   
(11,113,977
)
Less: net loss attributable to non-controlling interests
           
(72
)
   
(156,028
)
Net loss attributable to the Company’s shareholders
         
$
(9,230,151
)
 
$
(10,957,949
)
                         
OTHER COMPREHENSIVE LOSS
                       
Foreign currency translation adjustment
           
(1,001,245
)
   
337,278
 
Total comprehensive loss
           
(10,231,468
)
   
(10,776,699
)
                         
Less: total comprehensive loss attributable to non-controlling interests
           
(144
)
   
(180,595
)
Total comprehensive loss to the Company’s shareholders
         
$
(10,231,324
)
 
$
(10,596,104
)
                         
Weighted average number of shares outstanding, basic and diluted *
            30,828,794
      30,309,574
 
                         
Loss per share, basic and diluted
            (0.30 )     (0.36 )

* 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 one-for-ten (1:10) basis with effect from December 8, 2023. The one-for-ten 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 unaudited consolidated financial statements.

CENNTRO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars, except for the number of shares)

   
Note
   
March 31,
2024
   
December 31,
2023
 
         
(Unaudited)
       
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
       
$
20,255,568
   
$
29,375,727
 
Restricted cash
         
329,185
     
196,170
 
Short-term investment
   3  
    4,195,117       4,236,588  
Accounts receivable, net
   
4
     
4,576,963
     
6,530,801
 
Inventories, net
   
5
     
43,768,940
     
43,909,564
 
Prepayment and other current assets
   
6
     
21,337,298
     
20,391,150
 
Amounts due from related parties - current
   
16
     
270,262
     
287,439
 
Total current assets
           
94,733,333
     
104,927,439
 
                         
Non-current assets:
                       
Long-term investments
   
7
     
4,580,164
     
4,685,984
 
Investment in equity securities
   
8
     
25,819,920
     
26,158,474
 
Property, plant and equipment, net
   
9
     
20,195,719
     
20,401,521
 
Goodwill
            218,019       223,494  
Intangible assets, net
    10      
6,643,051
     
6,873,781
 
Right-of-use assets, net
   
12
     
18,711,452
     
20,039,625
 
Other non-current assets
           
2,133,839
     
2,227,672
 
Total non-current assets
           
78,302,164
     
80,610,551
 
                         
Total Assets
         
$
173,035,497
   
$
185,537,990
 
                         
LIABILITIES AND EQUITY
                       
                         
LIABILITIES
                       
Current liabilities:
                       
Accounts payable
         
$
6,558,147
   
$
6,797,852
 
Accrued expenses and other current liabilities
           
3,453,089
     
4,263,887
 
Contract liabilities
           
2,664,191
     
3,394,044
 
Operating lease liabilities, current
   
12
     
4,471,010
     
4,741,599
 
Convertible promissory notes
   
13
     
9,958,000
     
9,956,000
 
Contingent liabilities, current
            26,015       26,669  
Deferred government grant, current
           
106,904
     
108,717
 
Amounts due to related parties
   
16
     
-
     
10,468
 
Total current liabilities
           
27,237,356
     
29,299,236
 
                         
Non-current liabilities:
                       
Contingent liabilities, non-current
            224,427       230,063  
Deferred tax liabilities
            210,579       228,086  
Deferred government grant, non-current
           
1,870,828
     
1,929,733
 
Derivative liability - investor warrant
   
13
     
12,188,515
     
12,189,508
 
Derivative liability - placement agent warrant
   
13
     
3,456,277
     
3,456,578
 
Operating lease liabilities, non-current
   
12
     
15,307,489
     
16,339,619
 
Total non-current liabilities
           
33,258,115
     
34,373,587
 
                         
Total Liabilities
         
$
60,495,471
   
$
63,672,823
 
                         
Commitments and contingencies
   
15
       
       
 
                         
EQUITY
                       
Ordinary shares (No par value;  30,828,795 and 30,828,778 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)
           
-
     
-
 
Additional paid in capital
           
403,243,720
     
402,337,393
 
Accumulated deficit
           
(283,253,652
)
   
(274,023,501
)
Accumulated other comprehensive loss
           
(7,445,658
)
   
(6,444,485
)
Total equity attributable to shareholders
           
112,544,410
     
121,869,407
 
Non-controlling interests
           
(4,384
)
   
(4,240
)
Total Equity
         
$
112,540,026
   
$
121,865,167
 
Total Liabilities and Equity
         
$
173,035,497
   
$
185,537,990
 

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

CENNTRO INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(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 December 31, 2022
   
30,084,200
   
$
-
   
$
397,497,817
   
$
(219,824,176
)
 
$
(5,306,972
)
 
$
172,366,669
   
$
(477,135
)
 
$
171,889,534
 
Share-based compensation
   
-
     
-
     
1,153,808
     
-
     
-
     
1,153,808
     
-
     
1,153,808
 
Net loss
   
-
     
-
     
-
     
(10,957,949
)
   
-
     
(10,957,949
)
   
(156,028
)
   
(11,113,977
)
Acquisition of 35% of CAE’s equity interests
   
-
     
-
     
(2,557,721
)
   
-
     
-
     
(2,557,721
)
   
657,730
     
(1,899,991
)
Exercise of warrants
    360,709       -       2,168,185       -       -       2,168,185       -       2,168,185  
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
361,845
     
361,845
     
(24,567
)
   
337,278
 
Balance as of March 31, 2023
   
30,444,909
   
$
-
   
$
398,262,089
   
$
(230,782,125
)
 
$
(4,945,127
)
 
$
162,534,837
   
$
-
   
$
162,534,837
 

   
Ordinary shares
   
Additional
paid in capital
   
Accumulated
deficit
   
Accumulated
other
comprehensive
loss
   
Total
shareholders’
equity
   
Non-
controlling
interest
   
Total equity
 
   
Shares
   
Amount
                                     
Balance as of December 31, 2023
   
30,828,778
   
$
-
   
$
402,337,393
   
$
(274,023,501
)
 
$
(6,444,485
)
 
$
121,869,407
   
$
(4,240
)
 
$
121,865,167
 
Share-based compensation
   
-
     
-
     
906,327
     
-
     
-
     
906,327
     
-
     
906,327
 
Net loss
   
-
     
-
     
-
     
(9,230,151
)
   
-
     
(9,230,151
)
   
(72
)
   
(9,230,223
)
Fractional shares issued due to reverse stock split
    17       -       -       -       -       -       -       -  
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
(1,001,173
)
   
(1,001,173
)
   
(72
)
   
(1,001,245
)
 Balance as of March 31, 2024
   
30,828,795
   
$
-
   
$
403,243,720
   
$
(283,253,652
)
 
$
(7,445,658
)
 
$
112,544,410
   
$
(4,384
)
 
$
112,540,026
 

* 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 one-for-ten (1:10) basis with effect from December 8, 2023. The one-for-ten 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 unaudited consolidated financial statements.        

CENNTRO INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
For the Three Months Ended March 31,
 
   
2024
   
2023
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net cash used in operating activities
 
$
(8,864,876
)
 
$
(17,363,332
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of equity investment
   
-
     
(622,917
)
Purchase of property, plant and equipment
   
(327,589
)
   
(2,577,292
)
Purchase of land use right
   
-
     
(268,993
)
Acquisition of CAE’s equity interests
   
-
     
(1,924,557
)
Cash dividend from long-term investment
    55,645       -  
Proceeds from disposal of property, plant and equipment
   
5,264
     
-
 
Loans provided to third parties
   
-
     
(100,000
)
Proceeds from interest and redemption of equity securities
    573,441       -  
Net cash provided by (used in) investing activities
   
306,761
     
(5,493,759
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Redemption of convertible promissory notes
   
-
     
(39,583,321
)
Net cash used in financing activities
   
-
     
(39,583,321
)
                 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
   
(429,029
)
   
283,806
 
                 
Net decrease in cash, cash equivalents and restricted cash
   
(8,987,144
)
   
(62,156,606
)
Cash, cash equivalents and restricted cash at beginning of period
   
29,571,897
     
154,096,801
 
Cash, cash equivalents and restricted cash at end of period
 
$
20,584,753
   
$
91,940,195
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Interest paid
 
$
130,500
   
$
-
 
Income tax paid
  $ -     $ -  
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
Cashless exercise of warrants
 
$
-
   
$
2,168,185
 

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

CENNTRO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

Historical and principal activities

Cenntro Inc. was incorporated in the State of Nevada on March 9, 2023, under The Nevada Revised Statutes (the “NRS”). 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.

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”; Cenntro Inc., 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.
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

As of March 31, 2024, Cenntro Inc’s subsidiaries are as follows:

Name
Date of
Incorporation
Place of
Incorporation
Percentage of direct or
indirect economic
interest
Cenntro Electric Group Limited (“CEGL”)
May 11, 2017
Australia
100% owned by Cenntro Inc.
Cenntro Automotive Corporation (“CAC”)
March 22, 2013
Delaware, U.S.
100% owned by Cenntro Inc.
Cenntro Electric Group, Inc. (“CEG”)
March 9, 2020
Delaware, U.S.
100% owned by Cenntro Inc.
Cennatic Power, Inc. (“Cennatic Power”)
June 8, 2022
Delaware, U.S.
100% owned by Cenntro Inc.
Teemak Power Corporation
January 31, 2023
Delaware, U.S.
100% owned by Cenntro Inc.
Avantier Motors Corporation
November 27, 2017
Delaware, U.S.
100% owned by Cenntro Inc.
Cenntro Electric CICS, SRL
November 30, 2022
Santo Domingo, Dominican Republic
99% owned by Cenntro Inc.
Cennatic Energy S. de R.L. de C.V.
August 24, 2022
Monterrey, Mexico
100% owned by Cenntro Inc
Cenntro Automotive S.A.S.
January 16, 2023
Galapa, Colombia
100% owned by Cenntro Inc
Cenntro Electric Colombia S.A.S.
March 29, 2023
Atlántico, Colombia
100% owned by Cenntro Inc
Cenntro Automotive Group Limited (“CAG HK”)
February 15, 2016
Hong Kong
100% owned by Cenntro Inc
Hangzhou Ronda Tech Co., Limited (“Hangzhou Ronda”)
June 5, 2017
PRC
100% owned by Cenntro Inc
Hangzhou Cenntro Autotech Co., Limited (“Cenntro Hangzhou”)
May 6, 2016
PRC
100% owned by Cenntro Inc
Zhejiang Cenntro Machinery Co., Limited
January 20, 2021
PRC
100% owned by Cenntro Inc
Jiangsu Tooniu Tech Co., Limited
December 19, 2018
PRC
100% owned by Cenntro Inc
Hangzhou Hengzhong Tech Co., Limited
December 16, 2014
PRC
100% owned by Cenntro Inc
Teemak Power (Hong Kong) Limited (HK)
May 17, 2023
Hong Kong
100% owned by Cenntro Inc
Avantier Motors (Hong Kong) Limited
March 13, 2023
Hong Kong
100% owned by Cenntro Inc
Cenntro Automotive Europe GmbH (“CAE”)
May 21, 2019
Herne, Germany
100% owned by Cenntro Inc
Cenntro Electric B.V.
December 12, 2022
Amsterdam, Netherlands
100% owned by Cenntro Inc
Cenntro Elektromobilite Araçlar A.Ş
February 21, 2023
Turkey
100% owned by Cenntro Inc
Cenntro Elecautomotiv, S.L.
July 5, 2022
Barcelona, Spain
100% owned by Cenntro Inc
Cenntro Electric Group (Europe) GmbH (“CEGE”)
January 13, 2022
Düsseldorf, Germany
100% owned by Cenntro Inc
Simachinery Equipment Limited (“Simachinery HK”)
June 2, 2011
Hong Kong
100% owned by Cenntro Inc
Zhejiang Sinomachinery Co., Limited (“Sinomachinery Zhejiang”)
June 16, 2011
PRC
100% owned by Cenntro Inc
Shengzhou Cenntro Machinery Co., Limited (“Cenntro Machinery”)
July 12, 2012
PRC
100% owned by Cenntro Inc
Cenntro EV Center Italy S.R.L.
May 8, 2023
Italy
100% owned by Cenntro Inc
Antric Gmbh
August 21, 2020 Germany  100% owned by Cenntro Inc
Pikka Electric Corporation
August 3, 2023 Delaware, U.S.  100% owned by Cenntro Inc
Centro Technology Corporation
August 24, 2023 California, U.S.  100% owned by Cenntro Inc

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Basis of presentation

The accompanying consolidated balance sheet as of December 31, 2023, which has been derived from audited financial statements, and the unaudited condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Certain information and disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. Management believes that the disclosures made are adequate to provide a fair presentation. The interim financial information should be read in conjunction with the financial statements and the notes for the fiscal year ended December 31, 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results for the full year or any future periods.

(b)
Use of estimates

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

(c)
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) currency-cross swap, which was recognized as derivative financial instruments in 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)
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 three months ended March 31, 2024 and 2023:

   
For the Three Months Ended
 March 31,
 
   
2024
   
2023
 
Vehicles sales
 
$
2,514,777
   
$
2,840,963
 
Spare-parts sales
   
828,785
     
598,036
 
Other service income
   
48,437
     
31,545
 
Net revenues
 
$
3,391,999
   
$
3,470,544
 

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

   
For the Three Months Ended
March 31,
 
   
2024
   
2023
 
Primary geographical markets
   
 
 
Europe
 
$
1,661,619
   
$
3,061,998
 
Asia
   
1,104,475
     
376,500
 
America
   
625,905
     
32,046
 
Total
 
$
3,391,999
   
$
3,470,544
 

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.

Contract 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 contract liability until goods or services have been provided to the customer. For the three months ended March 31, 2024 and 2023, the Company recognized $890,646 and $98,818 revenue that was included in contract liabilities as of December 31, 2023 and 2022, respectively.

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

   
March 31,
2024
   
December 31,
2023
 
Accounts receivable, net
 
$
4,576,963
   
$
6,530,801
 
Contract liabilities
 
$
2,664,191
   
$
3,394,044
 

(e)
Recently issued accounting standards pronouncement

Except for the ASUs (“Accounting Standards Updates”) issued but not yet adopted disclosed in “Note 2 (ab) Recently issued accounting standards pronouncements” of the Company 2023 Form 10-K, there is no ASU issued by the FASB that is expected to have a material impact on the Company’s unaudited condensed consolidated results of operations or financial position.


NOTE 3 - SHORT-TERM INVESTMENTS


 
 
March 31,
2024
(Unaudited)
   
December 31,
2023
 
Available-for-sale investment (1)
 
$
4,180,713
   
$
4,227,947
 
Cross-currency swap (2)
   
14,404
     
8,641
 
Total
 
$
4,195,117
   
$
4,236,588
 


(1)
Available-for-sale investment represented wealth management products purchased from banks, for which the contractual maturity dates are more than three months and less than one year.

(2)
Cross-currency swap was bought by the Company to manage its exposures to movements in foreign exchange rates primarily related to the RMB.

NOTE 4 - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net is summarized as follows:
   
March 31,
2024
(Unaudited)
   
December 31,
2023
 
Accounts receivable
 
$
6,272,558
   
$
8,443,069
 
Less: provision for doubtful accounts
   
(1,695,595
)
   
(1,912,268
)
Accounts receivable, net
 
$
4,576,963
   
$
6,530,801
 

The changes in the provision for doubtful accounts are as follows:
   
For the Three Months Ended
March 31,
 
   
2024
   
2023
 
    (Unaudited)
    (Unaudited)
 
Balance at the beginning of the period
 
$
1,912,268
   
$
1,961,034
 
Write-off
   
(173,731
)
   
(11,402
)
Foreign exchange
   
(42,942
)
   
4,269
 
Balance at the end of the year
 
$
1,695,595
   
$
1,953,901
 

NOTE 5 - INVENTORIES, NET

Inventories, net are summarized as follows:

   
March 31,
2024
(Unaudited)
   
December 31,
2023
 
Raw material
 
$
11,357,883
   
$
11,568,791
 
Work-in-progress
   
1,538,235
     
1,494,441
 
Goods in transit
   
3,619,328
     
3,774,310
 
Finished goods
   
30,728,733
     
30,576,355
 
Inventories, gross
   
47,244,179
     
47,413,897
 
Less: Inventory valuation allowance
    (3,475,239 )     (3,504,333 )
Inventories, net
  $ 43,768,940     $ 43,909,564  

The changes in inventory valuation allowance are as follows:

   
For the Three Months Ended
March 31,
 
   
2024
   
2023
 
    (Unaudited)     (Unaudited)  
Balance at the beginning of the period
 
$
3,504,333
   
$
3,218,765
 
Write-off
   
(480
)
   
(39
)
Foreign exchange    
(28,614
)
   
8,669
 
Balance at the end of the year
 
$
3,475,239
   
$
3,227,395
 

NOTE 6 - PREPAYMENT AND OTHER CURRENT ASSETS

Prepayment and other current assets consisted of the following:

   
March 31,
2024
(Unaudited)
   
December 31,
2023
 
Advance to suppliers
 
$
13,930,881
   
$
12,579,554
 
Deductible input value added tax
   
6,537,302
     
6,238,040
 
Receivable from third parties
   
-
     
1,000,000
 
Others
   
869,115
     
573,556
 
Prepayment and other current assets
 
$
21,337,298
   
$
20,391,150
 

NOTE 7 - LONG-TERM INVESTMENT, NET

(a)
Equity method investments, net

The Company had the following equity method investments:

   
March 31, 2024
(Unaudited)
   
December 31,
2023
 
Hangzhou Entropy Yu Equity Investment Partnership (Limited Partnership) (“Entropy Yu”) (1)
 
$
2,091,600
   
$
2,127,062
 
Hangzhou Hezhe Energy Technology Co., Ltd. (“Hangzhou Hezhe”) (2)
   
331,763
     
407,778
 
Able 2rent GmbH (DEU) (3)
   
87,589
     
89,432
 
Total
 
$
2,510,952
   
$
2,624,272
 

(1)
On September 25, 2022, the Company invested RMB15,400,000 (approximately $2,132,875) in Entropy Yu to acquire 99.355% of the partnership entity’s equity interest. The Company accounts for the investment under the equity method because the Company controls 50% of voting interests in partnership matters and material matters must be agreed upon by all partners. The Company has the ability to exercise significant influence over Entropy Yu.

(2)
On June 23, 2021, the Company invested RMB2,000,000 (approximately $276,997) in Hangzhou Hezhe to acquire 20% of its equity interest. The Company accounts for the investment under the equity method because the Company controls 33% of voting interests in board of directors, and has the ability to exercise significant influence over Hangzhou Hezhe. On January 24, 2024, Ronda received the dividend distributed by Hangzhou Hezhe, amounting RMB400,000(approximately $55,400).

(3)
On March 22, 2022, CAE invested EUR100,000 (approximately $107,910) in Able 2rent GmbH (DEU) to acquire 50% of its equity interest. The Company accounts for the investment under the equity method because it does not have control over Able 2rent GmbH (DEU) as the Company does not participate in its operation and does not serve as member of board of director.

(b)
Equity investment without readily determinable fair value

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

   
March 31,
2024
(Unaudited)
   
December 31,
2023
 
HW Electro Co., Ltd. (1)
 
$
1,000,000
   
$
1,000,000
 
Robostreet Inc. (2)
    450,000       450,000  
Total
 
$
1,450,000
   
$
1,450,000
 
 
(1)
On January 31, 2023, the Company entered into a debt convention agreement with HW Electro Co., Ltd., to convert the loan principal of $1,000,000 into HW Electro Co., Ltd.’s shares. The Company held 1,143,860 shares of HW Electro Co., Ltd.’s for a total of 3.00% of its equity interest.

(2) On July 12, 2023, the Company entered into a share sale and purchase agreement with Robostreet Inc., to acquire 176 shares of Robostreet Inc.’s for a total of 14.97% of its equity interest with a consideration of cash of $200,000 and three models of programmable smart chassis for an aggregate value of $250,000.

(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 March 31, 2024, the Company has paid $600,000 to the Issuer, the balance of debt investments was $619,212. 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.

NOTE 8 - INVESTMENT IN EQUITY SECURITIES

As of March 31, 2024, the balance consisted of the following two equity investments:

   
March 31,
2024
(Unaudited)
   
December 31,
2023
 
MineOne Fix Income Investment I L.P
 
$
25,819,920
   
$
26,060,355
 
Micro Money Fund SPC
   
-
     
98,119
 
Total
 
$
25,819,920
   
$
26,158,474
 

For the three months ended March 31, 2024 and 2023, the Company made redemption of $73,441 and nil of both equity investments, respectively.

For the three months ended March 31, 2024 and 2023, the Company received interest of $500,000 and nil of both equity investments, respectively.

For the three months ended March 31, 2024 and 2023, the Company recorded upward adjustments of $234,887 and $653,016 for changes in fair value of equity investments, respectively.

NOTE 9 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:
   
March 31,
2024
(Unaudited)
   
December 31,
2023
 
At cost:
           
Plant and building
 
$
11,363,200
   
$
11,549,755
 
Land
    1,063,270       1,063,270  
Machinery and equipment
   
3,439,443
     
3,437,783
 
Leasehold improvement
   
6,329,451
     
6,221,899
 
Office equipment
   
2,166,478
     
2,179,269
 
Motor vehicles
   
1,200,275
     
1,106,055
 
Construction in progress
    601,487       531,248  
Total
   
26,163,604
     
26,089,279
 
Less: accumulated depreciation
   
(4,982,402
)
   
(4,677,524
)
Impairment
    (985,483 )     (1,010,234 )
Property, plant and equipment, net
 
$
20,195,719
   
$
20,401,521
 

Depreciation expenses for the three months ended March 31, 2024 and 2023 were $385,144 and $305,262, respectively.

Impairment loss for the three months ended March 31, 2024 and 2023 were nil and $24,369, respectively.

NOTE 10 - INTANGIBLE ASSETS, NET

Intangible assets, net consisted of the following:
   
March 31,
2024
(Unaudited)
   
December 31,
2023
 
At cost:
           
Land use right
 
$
5,490,935
   
$
5,584,050
 
Trademark
    789,901       809,738  
Technology
    716,522       734,517  
Software
   
116,359
     
118,350
 
Total
   
7,113,717
     
7,246,655
 
Less: accumulated amortization
   
(470,666
)
   
(372,874
)
Intangible assets, net
 
$
6,643,051
   
$
6,873,781
 

Amortization expenses for the three months ended March 31, 2024 and 2023 were $105,397 and $25,370, respectively.

NOTE 11 - 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 and Hangzhou Hengzhong Tech Co., Ltd qualify as Small and micro enterprises in the PRC, and are entitled to pay a reduced income tax rate of 5% in 2024.

Income tax benefit for the three months ended March 31, 2024 and 2023 are $30,032 and nil, respectively.

The components of losses before income taxes are summarized as follows:
   
For the Three Months Ended March 31,
 
   
2024
   
2023
 
    (Unaudited)
    (Unaudited)
 
PRC
  $ 2,565,619       1,778,180  
US
   
3,690,213
     
3,554,955
 
Europe    
2,302,596
     
2,904,320
 
Australia
   
446,798
     
2,606,972
 
Others
   
255,029
     
269,550
 
Total
 
$
9,260,255
     
11,113,977
 

NOTE 12 - LEASES

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

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

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

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

 
For the Three Months Ended
March 31,
 
 
2024
 
2023
 
   (Unaudited)    (Unaudited)  
Operating leases cost excluding short-term rental expense
 
$
1,295,426
   
$
671,313
 
Short-term lease cost
   
112,457
     
268,721
 
Total
 
$
1,407,883
   
$
940,034
 

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

 
March 31,
2024
 
March 31,
2023
 
    (Unaudited)  
 
Cash paid for amounts included in the measurement of lease liabilities
 
$
1,178,716
   
$
671,109
 
Weighted average remaining lease term
6.02 years
 
7.26 years
 
Weighted average discount rate
   
6.32
%
   
5.41
%

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

The following table summarizes the maturity of lease liabilities under operating leases as of March 31, 2024:

   
Operating
Leases
 
For the remaining of 2024
 
$
3,597,094
 
Years ended December 31,
       
2025
   
4,003,959
 
2026
   
4,050,927
 
2027
   
4,099,617
 
2028
   
2,175,845
 
2029 and thereafter
   
5,781,298
 
Total lease payments
   
23,708,740
 
Less: imputed interest
   
(3,930,241
)
Total
   
19,778,499
 
Less: current portion    
4,471,010
 
Non-current portion
 
$
15,307,489
 

NOTE 13 - 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, un