UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended: June 30, 2024
OR
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ______ to _______.
Commission file number: 001-38544
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code (732 ) 820-6757
Securities registered under Section 12(b) of the Exchange Act:
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Title of each class:
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Trading Symbol(s)
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Name of each exchange on which registered:
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The
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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☒
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
The registrant had 30,828,795 of the registrant’s common stock par value $0.0001 per share, issued and outstanding as of August 9, 2024.
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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:
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general economic and business conditions, including changes in interest rates;
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prices of other EVs, costs associated with manufacturing EVs and other economic conditions;
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the effect of an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, on the Company’s business (natural phenomena, including the
lingering effects of the COVID-19 pandemic);
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the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations, and our ability to maintain or broaden
our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;
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breaches in data security, failure of information security systems, cyber-attacks or other security or privacy-related incidents affecting us or our suppliers;
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the ability of our information technology systems or information security systems to operate effectively;
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actions by government authorities, including changes in government regulation;
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uncertainties associated with legal proceedings;
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changes in the size of the EV market;
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future decisions by management in response to changing conditions;
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the Company’s ability to execute prospective business plans;
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misjudgments in the course of preparing forward-looking statements;
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the Company’s ability to raise sufficient funds to carry out its proposed business plan;
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inability to keep up with advances in EV and battery technology;
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inability to design, develop, market and sell new EVs and services that address additional market opportunities to generate revenue and positive cash flows;
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dependency on certain key personnel and any inability to retain and attract qualified personnel;
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inexperience in mass-producing EVs;
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inability to succeed in establishing, maintaining and strengthening the Cenntro brand;
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disruption of supply or shortage of raw materials;
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the unavailability, reduction or elimination of government and economic incentives;
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failure to manage future growth effectively; and
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the other risks and uncertainties detailed from time to time in our filings with the Security and Exchange Commission (“SEC”), including but not limited to those
described under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K as amended for the year ended December 31, 2023, filed with the SEC on April 1, 2024 (the “Form 10-K”).
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Although management has attempted to identify important factors that could cause actual results to differ materially from those contained in
forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There is no assurance that forward-looking statements will prove to be accurate, as actual results and future events could
differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. These cautionary remarks expressly qualify, in their entirety, all forward-looking
statements attributable to our Company or persons acting on our Company’s behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such
statements, except as, and to the extent required by, applicable securities laws.
INDEX
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Page
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Item 1. Interim Financial Statements
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1
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1
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2
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3
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4
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5
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CENNTRO INC.
(Expressed in U.S. dollars, except for the number of shares)
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For the Three Months Ended June 30,
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For the Six Months Ended June 30,
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|||||||||||||||||||
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Note
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2024
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2023
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2024
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2023
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||||||||||||||||
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Net revenues
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2(d
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)
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Cost of goods sold
|
(
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)
|
(
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)
|
(
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)
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(
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)
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||||||||||||
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Gross profit
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||||||||||||||||
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|
||||||||||||||||||||
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OPERATING EXPENSES:
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||||||||||||||||||||
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Selling and marketing expenses
|
(
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)
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(
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)
|
(
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)
|
(
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)
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||||||||||||
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General and administrative expenses
|
(
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)
|
(
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)
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(
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)
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(
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)
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||||||||||||
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Research and development expenses
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(
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)
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(
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)
|
(
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)
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(
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)
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||||||||||||
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Total operating expenses
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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||||||||||||||||||||
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Loss from operations
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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||||||||||||||||||||
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OTHER (EXPENSE) INCOME:
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||||||||||||||||||||
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Interest (expense) income, net
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(
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)
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(
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)
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(
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)
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|||||||||||||
| Loss from long-term investment |
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Impairment of long-term investment
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|
(
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)
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(
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)
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||||||||||||||
| Gain (loss) on redemption of convertible promissory notes |
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(
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)
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|||||||||||||||
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Loss on exercise of warrants
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|
(
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)
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(
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)
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||||||||||||||
| Loss from acquisition of Hezhe |
( |
) | ( |
) | ||||||||||||||||
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Change in fair value of convertible promissory notes and derivative liability
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|
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||||||||||||||||
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Change in fair value of equity securities
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|
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||||||||||||||||
| Foreign currency exchange loss, net |
(
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)
|
(
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)
|
(
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)
|
(
|
)
|
||||||||||||
| Loss (gain) from cross-currency swaps |
( |
) | ||||||||||||||||||
| Other (expense) income, net |
( |
) | ||||||||||||||||||
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Loss before income taxes
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Income tax benefit (expense)
|
12
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|
(
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)
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(
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)
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|||||||||||||
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Net loss
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Less: net loss attributable to non-controlling interests
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(
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)
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(
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)
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(
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)
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(
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)
|
||||||||||||
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Net loss attributable to the Company’s shareholders
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$
|
(
|
)
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$
|
(
|
)
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$
|
(
|
)
|
$
|
(
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)
|
||||||||
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|
||||||||||||||||||||
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OTHER COMPREHENSIVE LOSS
|
||||||||||||||||||||
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Foreign currency translation adjustment
|
(
|
)
|
(
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)
|
(
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)
|
(
|
)
|
||||||||||||
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Total comprehensive loss
|
(
|
)
|
(
|
)
|
(
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)
|
(
|
)
|
||||||||||||
|
|
||||||||||||||||||||
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Less: total comprehensive loss attributable to non-controlling interests
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Total comprehensive loss to the Company’s shareholders
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||||
| Weighted average number of shares outstanding, basic and diluted * | ||||||||||||||||||||
| Loss per share, basic and diluted | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
* 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 unaudited condensed consolidated financial statements.
CENNTRO INC.
(Expressed in U.S. dollars, except for the number of shares)
|
Note
|
June 30,
2024
|
December 31,
2023
|
||||||||||
|
(Unaudited)
|
||||||||||||
|
ASSETS
|
||||||||||||
|
Current assets:
|
||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||||||
|
Restricted cash
|
|
|
||||||||||
| Short-term investment |
3 | |||||||||||
|
Accounts receivable, net
|
4
|
|
|
|||||||||
|
Inventories, net
|
5
|
|
|
|||||||||
|
Prepayment and other current assets
|
6
|
|
|
|||||||||
|
|
17
|
|
|
|||||||||
|
Total current assets
|
|
|
||||||||||
|
Non-current assets:
|
||||||||||||
|
Long-term investments
|
7
|
|
|
|||||||||
|
Investment in equity securities
|
8
|
|
|
|||||||||
|
Property, plant and equipment, net
|
9
|
|
|
|||||||||
| Goodwill |
||||||||||||
|
Intangible assets, net
|
10 |
|
|
|||||||||
|
Right-of-use assets, net
|
13
|
|
|
|||||||||
|
Other non-current assets
|
|
|
||||||||||
|
Total non-current assets
|
|
|
||||||||||
|
Total Assets
|
$
|
|
$
|
|
||||||||
|
LIABILITIES AND EQUITY
|
||||||||||||
|
LIABILITIES
|
||||||||||||
|
Current liabilities:
|
||||||||||||
|
Accounts payable
|
|
|
||||||||||
| Current portion of long-term bank loans |
11 |
|||||||||||
|
Accrued expenses and other current liabilities
|
|
|
||||||||||
|
Contract liabilities
|
|
|
||||||||||
|
Operating lease liabilities, current
|
13
|
|
|
|||||||||
|
Convertible promissory notes
|
14
|
|
|
|||||||||
| Contingent liabilities, current |
||||||||||||
|
Deferred government grant, current
|
|
|
||||||||||
|
|
17
|
|
|
|||||||||
|
Total current liabilities
|
|
|
||||||||||
|
Non-current liabilities:
|
||||||||||||
| Long-term bank loans |
11 |
|||||||||||
| Contingent liabilities, non-current |
||||||||||||
| Deferred tax liabilities |
||||||||||||
|
Deferred government grant, non-current
|
|
|
||||||||||
|
Derivative liability - investor warrant
|
14
|
|
|
|||||||||
|
Derivative liability - placement agent warrant
|
14
|
|
|
|||||||||
|
Operating lease liabilities, non-current
|
13
|
|
|
|||||||||
|
Total non-current liabilities
|
|
|
||||||||||
|
Total Liabilities
|
$
|
|
$
|
|
||||||||
|
Commitments and contingencies
|
16
|
|||||||||||
|
EQUITY
|
||||||||||||
|
Ordinary shares (
|
|
|
||||||||||
|
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 unaudited condensed 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 December 31, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Acquisition of
|
-
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Exercise of warrants
|
||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Balance as of June 30, 2023 (unaudited)
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
|
Ordinary shares
|
Additional
paid in capital
|
Accumulated
deficit
|
Accumulated
other
comprehensive
loss
|
Total
shareholders’
equity
|
Non-
controlling
interest
|
Total equity
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance as of December 31, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Acquisition of
|
- | |||||||||||||||||||||||||||||||
|
Fractional shares issued due to reverse stock split
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Balance as of June 30, 2024 (unaudited)
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
* 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 unaudited condensed consolidated financial statements.
CENNTRO INC.
(Expressed in U.S. dollars, except for number of shares)
|
For the Six Months Ended June 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net cash used in operating activities
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase of equity investment
|
|
(
|
)
|
|||||
|
Purchase of plant and equipment
|
(
|
)
|
(
|
)
|
||||
|
Purchase of land use right and land
|
|
(
|
)
|
|||||
|
Acquisition of CAE’s equity interests
|
|
(
|
)
|
|||||
| Net of cash acquired of |
( |
) | ||||||
| Cash dividend from long-term investment |
||||||||
|
Proceeds from disposal of property, plant and equipment
|
|
|
||||||
|
Loans provided to third parties
|
|
(
|
)
|
|||||
| Proceeds from interest and redemption of equity securities |
||||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
| Proceeds from bank loans |
||||||||
| Repayment of bank loans |
( |
) | ||||||
|
Redemption of convertible promissory notes
|
|
(
|
)
|
|||||
|
Net cash provided by (used in) financing activities
|
|
(
|
)
|
|||||
|
Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
||||
|
Net decrease in cash, cash equivalents and restricted cash
|
(
|
)
|
(
|
)
|
||||
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
||||||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
|
$
|
|
||||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
|
Interest paid
|
$
|
|
$
|
|
||||
|
Income tax paid
|
$ | $ | ||||||
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
|
Cashless exercise of warrants
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CENNTRO INC.
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, 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. CEGL changed its name to Cenntro Electric Group Pty Limited on June 14, 2024.
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 the Company 2023 Form 10-K, “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 June 30, 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 Pty Limited (“CEGL”) | |||
|
Cenntro Automotive Corporation (“CAC”)
|
|
|
|
|
Cenntro Electric Group, Inc. (“CEG”)
|
|
|
|
|
Cennatic Power, Inc. (“Cennatic Power”)
|
|
|
|
| Cenntro Electric Group (Europe) GmbH | |||
|
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
|
|
||
| Hangzhou Hezhe Energy Technology Co., Ltd. (“Hangzhou Hezhe”) |
* As of the issuance date of this report on Form 10-Q, Sinomachinery Zhejiang and Cenntro Machinery were in the process of being deregistered.
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 June 30, 2024 and for the six months ended June 30, 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 six months ended June 30, 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 of 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 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.
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 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 condensed consolidated balance sheet; ii) wealth management products purchased from banks, which represents
the available-for-sale investments in short-term investments on the condensed consolidated balance sheet.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| (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 six months ended June 30, 2024 and 2023:
|
For the Six Months Ended
June 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
(Unaudited)
|
(Unaudited) | |||||||
|
Vehicles sales
|
$
|
|
$
|
|
||||
|
Spare-parts sales
|
|
|
||||||
|
Other service income
|
|
|
||||||
|
Net revenues
|
$
|
|
$
|
|
||||
The Company’s revenues are derived from Europe, Asia and America. The following table sets forth disaggregation of revenue by customer location.
|
For the Six Months Ended
June 30,
|
||||||||
|
2024
|
2023
|
|||||||
| (Unaudited) | (Unaudited) | |||||||
|
Primary geographical markets
|
|
|||||||
|
America
|
$
|
|
$
|
|
||||
|
Europe
|
|
|
||||||
|
Asia
|
|
|
||||||
|
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.
Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received有 consideration. The
consideration received remains a contract liability until goods or services have been provided to the customer. For the six months ended June 30, 2024 and 2023, the Company recognized $923,815 and $479,499 revenue that was included in contract
liabilities as of December 31, 2023 and 2022, respectively.
The following table provides information about receivables and contractual liabilities from contracts with customers:
|
June 30,
2024
|
December 31,
2023
|
|||||||
|
Accounts receivable, net
|
$
|
|
$
|
|
||||
|
Contract liabilities
|
$
|
|
$
|
|
||||
| (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
|
|
June 30,
2024
(Unaudited)
|
December 31,
2023
|
||||||
|
Available-for-sale investment (1)
|
$
|
|
$
|
|
||||
|
Cross-currency swap (2)
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
(1)
|
|
|
(2)
|
|
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net is summarized as follows:
|
June 30,
2024
(Unaudited)
|
December 31,
2023
|
|||||||
|
Accounts receivable
|
$
|
|
$
|
|
||||
|
Less: allowance for
credit losses
|
(
|
)
|
(
|
)
|
||||
|
Accounts receivable, net
|
$
|
|
$
|
|
||||
The changes in the allowance for
credit losses are as follows:
|
For the Six Months Ended
June 30,
|
||||||||
|
2024
|
2023
|
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
|
Balance at the beginning of the period
|
$
|
|
$
|
|
||||
|
Write-off
|
(
|
)
|
(
|
)
|
||||
|
Foreign exchange
|
(
|
)
|
|
|||||
|
Balance at the end of the period
|
$
|
|
$
|
|
||||
NOTE 5 - INVENTORIES, NET
Inventories, net are summarized as follows:
|
June 30,
2024
(Unaudited)
|
December 31,
2023
|
|||||||
|
Raw material
|
$
|
|
$
|
|
||||
|
Work-in-progress
|
|
|
||||||
|
Goods in transit
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
Inventories, gross
|
|
|
||||||
| Less: Inventory valuation allowance |
( |
) | ( |
) | ||||
| Inventories, net |
$ | $ | ||||||
The changes in inventory valuation allowance are as
follows:
|
For the Six Months Ended
June 30,
|
||||||||
|
2024
|
2023
|
|||||||
| (Unaudited) | (Unaudited) | |||||||
|
Balance at the beginning of the period
|
$
|
|
$
|
|
||||
| Addition during the period |
||||||||
|
Write-off
|
(
|
)
|
(
|
)
|
||||
| Foreign exchange |
(
|
)
|
(
|
)
|
||||
|
Balance at the end of the period
|
$
|
|
$
|
|
||||
NOTE 6 - PREPAYMENT AND OTHER CURRENT
ASSETS
Prepayment and other current assets consisted of the following:
|
June 30,
2024
(Unaudited)
|
December 31,
2023
|
|||||||
|
Advance to suppliers
|
$
|
|
$
|
|
||||
|
Deductible input value added tax
|
|
|
||||||
|
Receivable from third parties
|
|
|
||||||
|
Others
|
|
|
||||||
|
Prepayment and other current assets
|
$
|
|
$
|
|
||||
NOTE 7 - LONG-TERM INVESTMENT, NET
Equity method investments, net
The Company had the following equity method investments:
|
June 30,
2024
(Unaudited)
|
December 31,
2023
|
|||||||
|
Hangzhou Entropy Yu Equity Investment Partnership (Limited Partnership) (“Entropy Yu”) (1)
|
$
|
|
$
|
|
||||
|
Hangzhou Hezhe Energy Technology Co., Ltd. (“Hangzhou Hezhe”) (2)
|
|
|
||||||
|
Able 2rent GmbH (DEU) (3)
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
| (3) |
|
Equity investment
without readily determinable fair value
The Company had the following equity investment without readily determinable fair value:
|
June 30,
2024
(Unaudited)
|
December 31,
2023
|
|||||||
|
HW Electro Co., Ltd. (1)
|
$
|
|
$
|
|
||||
|
Robostreet Inc. (2)
|
||||||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|