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, 2023
OR
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ______ to _______.
Commission file number: 001-38544
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (732 ) 820-6757
Securities registered under Section 12(b) of the Exchange Act:
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Title of each class:
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Trading Symbol(s)
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Name of each exchange on which registered:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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☒
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
The registrant had 304,449,091 ordinary shares
outstanding as of August 11, 2023.
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Forward-Looking Statements
This Quarterly Report of Cenntro Electric Group Limited ACN 619 054 938 (“we,” “us,” “our,” “Cenntro” and the “Company”) contains statements that constitute
“forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical facts may be deemed to be forward-looking statements.
These statements appear in several different places in this Quarterly Report and, in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “contemplates”, “intends”, “believes”, “plans”, “may”, “will” or
their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this Quarterly Report may include, but are not limited to, statements and/or information related
to: our financial performance and projections; our business prospects and opportunities; our business strategy and future operations; the projection of timing and delivery of products in the future; projected costs; expected production capacity;
expectations regarding demand and acceptance of our products; estimated costs of machinery to equip a new production facility; trends in the market in which we operate; the plans and objectives of management; our liquidity and capital requirements,
including cash flows and uses of cash; trends relating to our industry; plans relating to our electric vehicles (“EVs”); and plans and intentions to regain compliance with the listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”),
including, among other things, through a reverse stock split.
We have based these forward-looking statements on our current expectations about future events on information that is available as of the date of this Quarterly
Report, and any forward-looking statements made by us speak only as of the date on which they are made. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of
which are beyond our control. Our actual future results may differ materially from those discussed or implied in our forward-looking statements for various reasons, including, our ability to change the direction of the Company; our ability to keep
pace with new technology and changing market needs; our capital needs, and the competitive environment of our business. Additional Factors that could contribute to such differences include, but are not limited to:
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general economic and business conditions, including changes in interest rates;
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prices of other EVs, costs associated with manufacturing EVs and other economic conditions;
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the effect of an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, on the Company’s business (natural phenomena, including the
lingering effects of the COVID-19 pandemic);
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the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations, and our ability to maintain or broaden
our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;
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the ability of our information technology systems or information security systems to operate effectively;
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actions by government authorities, including changes in government regulation;
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uncertainties associated with legal proceedings;
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changes in the size of the EV market;
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future decisions by management in response to changing conditions;
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the Company’s ability to execute prospective business plans;
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misjudgments in the course of preparing forward-looking statements;
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the Company’s ability to raise sufficient funds to carry out its proposed business plan;
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inability to keep up with advances in EV and battery technology;
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inability to design, develop, market and sell new EVs and services that address additional market opportunities to generate revenue and positive cash flows;
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dependency on certain key personnel and any inability to retain and attract qualified personnel;
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inexperience in mass-producing EVs;
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inability to succeed in establishing, maintaining and strengthening the Cenntro brand;
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disruption of supply or shortage of raw materials;
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the unavailability, reduction or elimination of government and economic incentives;
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failure to manage future growth effectively; and
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the other risks and uncertainties detailed from time to time in our filings with the Security and Exchange Commission (“SEC”), including but not limited to those described under
“Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K as amended for the year ended December 31, 2022, filed with the SEC on June 30, 2023 and as amended on July 6, 2023 (the “Form 10-K/A”).
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Although management has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking
statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There is no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially
from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. These cautionary remarks expressly qualify, in their entirety, all forward-looking statements
attributable to our Company or persons acting on our Company’s behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements, except as,
and to the extent required by, applicable securities laws.
CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
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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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2023
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2022
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2023
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2022
|
||||||||||||||||
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Net revenues
|
2(c)
|
|
$
|
|
$
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|
$
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|
$
|
|
||||||||||
|
Cost of goods sold
|
(
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)
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(
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)
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(
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)
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(
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)
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||||||||||||
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Gross profit
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|
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||||||||||||||||
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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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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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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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OTHER EXPENSE:
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||||||||||||||||||||
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Interest income (expense), net
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(
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)
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|
|||||||||||||||
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(Loss) income from long-term investment
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(
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)
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(
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)
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|
||||||||||||||
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Impairment of long-term investment
|
7(1)
|
|
(
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)
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(
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)
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|
||||||||||||
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Gain (loss) on redemption of convertible promissory notes
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|
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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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||||||||||||||
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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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8
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|
|
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|
|||||||||||||||
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Other (expense) income, net
|
(
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)
|
|
(
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)
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||||||||||||||
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Loss before income taxes
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(
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)
|
(
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)
|
(
|
)
|
(
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)
|
||||||||||||
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Income tax (expense) benefit
|
11
|
(
|
)
|
|
(
|
)
|
|
|||||||||||||
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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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Less: net loss attributable to non-controlling interests
|
(
|
)
|
(
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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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OTHER COMPREHENSIVE LOSS
|
||||||||||||||||||||
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Foreign currency translation adjustment
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
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Total comprehensive loss
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(
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)
|
(
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)
|
(
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)
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(
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)
|
||||||||||||
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Less: total comprehensive loss attributable to non-controlling interests
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Total comprehensive loss to the Company’s shareholders
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
Note
|
June 30,
2023
|
December 31,
2022
|
||||||||||
|
(Unaudited)
|
||||||||||||
|
ASSETS
|
||||||||||||
|
Current assets:
|
||||||||||||
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Cash and cash equivalents
|
$
|
|
$
|
|
||||||||
|
Restricted cash
|
|
|
||||||||||
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Accounts receivable, net
|
4
|
|
|
|||||||||
|
Inventories
|
5
|
|
|
|||||||||
|
Prepayment and other current assets
|
6
|
|
|
|||||||||
| Deferred cost- current |
||||||||||||
|
|
16
|
|
|
|||||||||
|
Total current assets
|
|
|
||||||||||
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Non-current assets:
|
||||||||||||
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Long-term investment, net
|
7
|
|
|
|||||||||
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Investment in equity securities
|
8
|
|
|
|||||||||
|
Property, plant and equipment, net
|
9
|
|
|
|||||||||
|
Intangible assets, net
|
10 |
|
|
|||||||||
|
Right-of-use assets
|
12
|
|
|
|||||||||
| Deferred cost - non-current |
||||||||||||
|
Other non-current assets, net
|
|
|
||||||||||
|
Total non-current assets
|
|
|
||||||||||
|
Total Assets
|
$
|
|
$
|
|
||||||||
|
LIABILITIES AND EQUITY
|
||||||||||||
|
LIABILITIES
|
||||||||||||
|
Current liabilities:
|
||||||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||||||
|
Accrued expenses and other current liabilities
|
|
|
||||||||||
|
Contractual liabilities
|
|
|
||||||||||
|
Operating lease liabilities, current
|
12
|
|
|
|||||||||
|
Convertible promissory notes
|
13
|
|
|
|||||||||
|
Deferred government grant, current
|
|
|
||||||||||
|
|
16
|
|
|
|||||||||
|
Total current liabilities
|
|
|
||||||||||
|
Non-current liabilities:
|
||||||||||||
|
Deferred government grant, non-current
|
|
|
||||||||||
|
Derivative liability - investor warrant
|
13
|
|
|
|||||||||
|
Derivative liability - placement agent warrant
|
13
|
|
|
|||||||||
|
Operating lease liabilities, non-current
|
12
|
|
|
|||||||||
|
Total non-current liabilities
|
|
|
||||||||||
|
Total Liabilities
|
$
|
|
$
|
|
||||||||
|
Commitments and contingencies
|
15
|
|||||||||||
|
EQUITY
|
||||||||||||
|
Ordinary shares (
|
|
|
||||||||||
|
Additional paid in capital
|
|
|
||||||||||
|
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||||||
|
Total equity attributable to shareholders
|
|
|
||||||||||
|
Non-controlling interests
|
(
|
)
|
(
|
)
|
||||||||
|
Total Equity
|
$
|
|
$
|
|
||||||||
|
Total Liabilities and Equity
|
$
|
|
$
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
For the Six Months Ended June
30,
|
||||||||
|
2023
|
2022
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net cash used in operating activities
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase of equity investment
|
(
|
)
|
|
|||||
|
Purchase of plant and equipment
|
(
|
)
|
(
|
)
|
||||
|
Purchase of land use right and property
|
(
|
)
|
(
|
)
|
||||
|
Acquisition of CAE’s equity interests
|
(
|
)
|
(
|
)
|
||||
|
Cash acquired from acquisition of CAE
|
||||||||
|
Payment of expense for Acquisition of CAE’s equity interests
|
( |
) | ||||||
|
Proceeds from disposal of property, plant and equipment
|
|
|
||||||
|
Loans provided to third parties
|
(
|
)
|
(
|
)
|
||||
|
Repayment of loans from related parties
|
||||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Repayment of loans to related parties
|
|
(
|
)
|
|||||
|
Repayment of loans to third parties
|
|
(
|
)
|
|||||
|
Purchase of CAE’s loan
|
|
(
|
)
|
|||||
|
Reduction of capital
|
|
(
|
)
|
|||||
|
Redemption of convertible promissory notes
|
(
|
)
|
|
|||||
|
Payment of expense for the reverse recapitalization
|
|
(
|
)
|
|||||
|
Net cash 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:
|
||||||||
|
Right of use assets obtained in exchange for operating lease obligations
|
$ |
$ |
||||||
|
Cashless exercise of warrants
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CENNTRO ELECTRIC GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
|
Ordinary shares
|
Additional
paid in capital
|
Accumulated
deficit
|
Accumulated
other
comprehensive
loss
|
Total
shareholders’
equity
|
Non-
controlling
interest
|
Total equity
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance as of December 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Acquisition of
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||
|
Balance as of June 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
|
Ordinary shares
|
Additional
paid in capital
|
Accumulated
deficit
|
Accumulated
other
comprehensive
loss
|
Total
shareholders’
equity
|
Non-
controlling
interest
|
Total equity
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance as of December 31, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
|
Share-based compensation
|
-
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Net loss
|
-
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Acquisition of
|
-
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Balance as of June 30, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CENNTRO ELECTRIC GROUP LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
Historical and principal activities
Cenntro Automotive Group Limited (“CAG Cayman”) was formed in the Cayman Islands on August 22, 2014. CAG Cayman was the former parent of Cenntro (as defined below),
prior to the closing of the Combination (as defined below).
Cenntro Automotive Corporation (“CAC”) was incorporated in the state of Delaware on March 22, 2013. CAC became CAG Cayman’s wholly owned company on May 26, 2016.
Cenntro Automotive Group Limited (“CAG HK”) was established by CAG Cayman on February 15, 2016 in Hong Kong. CAG HK is a non-operating, investment holding company,
which conducts business through its subsidiaries in mainland China and Hong Kong.
Cenntro Electric Group, Inc. (“CEG”) was incorporated in the state of Delaware by CAG Cayman on March 9, 2020.
Cenntro Electric Group Limited ACN 619 054 938, formerly known as Naked Brand Group Limited (“NBG”), was incorporated in Australia on May 11, 2017, and is the parent
company of Cenntro. NBG changed its name to Cenntro Electric Group Limited (“CEGL”) on December 30, 2021, in connection with the closing of the Combination.
CAC, CEG and CAG HK and its consolidated subsidiaries are collectively known as “Cenntro”; CEGL and Cenntro are collectively known as the “Company”. The Company
designs and manufactures purpose–built, electric commercial vehicles (“ECVs”) used primarily in last mile delivery and industrial applications.
On March 25, 2022 and January 31, 2023, the Company entered into Share Purchase Agreements to acquire 65 % and 35 % of the issued and outstanding shares in Cenntro
Automotive Europe GmbH (“CAE”), formerly known as Tropos Motors Europe GmbH. For information of the Share Purchase Agreements, see Note 3 of this Annual Report, “Business Combination”.
Reverse recapitalization
On December 30, 2021, the Company consummated a stock purchase transaction (the “Combination”) pursuant to that certain stock purchase agreement, dated as of November
5, 2021 (the “Acquisition Agreement”) by and among CEGL (at the time, NBG), CAG Cayman, CAC, CEG and CAG HK, whereby CEGL purchased from CAG Cayman (i) all of the issued and outstanding ordinary shares of CAG HK, (ii) all of the issued and
outstanding shares of common stock, par value $0.001 per share, of CAC, and (iii) all of the issued and outstanding shares of common
stock, par value $0.01 per share, of CEG, in exchange for an aggregate purchase price of (i) 174,853,546 newly issuing ordinary shares of CEGL and (ii) the assumption of options to purchase an aggregate of 9,225,271 ordinary shares under the Cenntro Electric Group Limited Amended & Restated 2016 Incentive Stock Option Plan (the “Amended 2016 Plan”). The Combination closed on
December 30, 2021. Immediately prior to the consummation of the Combination, there were 86,402,708
Promptly following the closing of the Combination, CAG Cayman distributed the Acquisition Shares to the holders of its capital stock in accordance with (i) the
distribution described in the Acquisition Agreement and (ii) CAG Cayman’s Third Amended and Restated Memorandum and Articles of Association. Pursuant to the Acquisition Agreement, at the closing of the Combination, NBG assumed the Amended 2016 Plan
and each CAG Cayman employee stock option outstanding immediately prior to the closing of the Combination under the Amended 2016 Plan was converted into an option to purchase a number of ordinary shares equal to the aggregate number of CAG Cayman
shares for which such stock option was exercisable immediately prior to the closing of the Combination multiplied by the exchange ratio of 0.71536
(the “Exchange Ratio”), as determined in accordance with the Acquisition Agreement, at an option exercise price equal to the exercise price per share of such stock option immediately prior to the closing of the Combination divided by the Exchange
Ratio.
5
Cenntro was deemed to be the accounting acquirer given Cenntro effectively controlled the consolidated entity after the Combination. Under U.S. generally accepted
accounting principles, the Combination is accounted for as a reverse recapitalization, which is equivalent to the issuance of shares by Cenntro for the net monetary assets of CEGL, accompanied by a recapitalization. Cenntro is deemed to be the
predecessor for accounting purposes and the historical financial statements of Cenntro became CEGL’s historical financial statements, with retrospective adjustments to give effect to the reverse recapitalization. The financial statements for
periods prior to the consummation of the reverse recapitalization are the combined financial statements of CAC, CEG and CAG HK and its consolidated subsidiaries.
As of June 30, 2023, CEGL’s subsidiaries are as follows:
|
Name
|
Date of
Incorporation
|
Place of
Incorporation
|
Percentage of direct or
indirect economic
interest
|
|||
|
Cenntro Automotive Corporation (“CAC”)
|
|
|
|
|||
|
Cenntro Electric Group, Inc. (“CEG”)
|
|
|
|
|||
|
Cennatic Power, Inc. (“Cennatic Power”)
|
|
|
|
|||
|
Teemak Power Corporation
|
|
|
|
|||
|
Avantier Motors Corporation
|
|
|
|
|||
|
Cenntro Electric CICS, SRL
|
|
|
|
|||
|
Cennatic Energy S. de R.L. de C.V.
|
|
|
|
|||
|
Cenntro Automotive S.A.S.
|
|
|
|
|||
|
Cenntro Electric Colombia S.A.S.
|
|
|
|
|||
|
Cenntro Automotive Group Limited (“CAG HK”)
|
|
|
|
|||
|
Hangzhou Ronda Tech Co., Limited (“Hangzhou Ronda”)
|
|
|
|
|||
|
Hangzhou Cenntro Autotech Co., Limited (“Cenntro Hangzhou”)
|
|
|
|
|||
|
Zhejiang Cenntro Machinery Co., Limited
|
|
|
|
|||
|
Jiangsu Tooniu Tech Co., Limited
|
|
|
|
|||
|
Hangzhou Hengzhong Tech Co., Limited
|
|
|
|
|||
|
Teemak Power (Hong Kong) Limited (HK)
|
|
|
|
|||
|
Avantier Motors (Hong Kong) Limited
|
|
|
|
|||
|
Cenntro Automotive Europe GmbH (“CAE”)
|
|
|
|
|||
|
Cenntro Electric B.V.
|
|
|
|
|||
|
Cenntro Elektromobilite Araçlar A.Ş
|
|
|
|
|||
|
Cenntro Elecautomotiv, S.L.
|
|
|
|
|||
|
Cenntro Electric Group (Europe) GmbH (“Cenntro Electric”)
|
|
|
|
|||
|
Simachinery Equipment Limited (“Simachinery HK”)
|
|
|
|
|||
|
Zhejiang Sinomachinery Co., Limited (“Sinomachinery Zhejiang”)
|
|
|
|
|||
|
Shengzhou Cenntro Machinery Co., Limited (“Cenntro Machinery”)
|
|
|
|
|||
|
Cenntro EV Center Italy S.R.L.
|
|
|
|
6
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| (a) |
Basis of presentation
|
The accompanying consolidated balance sheet as of December 31, 2022, which has been derived from audited financial statements, and the unaudited condensed consolidated
financial statements as of June 30, 2023 and for the six months ended June 30, 2023 and 2022 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. Management believes that the disclosures made are adequate to provide a fair presentation. The interim financial information should be
read in conjunction with the financial statements and the notes for the fiscal year ended December 31, 2022. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results for the full year or any
future periods.
| (b) |
Use of estimates
|
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include provision for doubtful accounts, lower of cost and net
realizable value of inventories, impairment losses for long-lived assets and investments, valuation allowance for deferred tax assets and fair value measurement for share-based compensation expense, convertible promissory notes and warrants.
Changes in facts and circumstances may result in revised estimates. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
| (c) |
Revenue recognition
|
The Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange
for those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of a contract with the customer; (ii) determination of
performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company generates revenue primarily through sales of light-duty ECVs, sales of ECV parts, and sales of off-road electric vehicles. Revenue is recognized at a point
in time once the Company has determined that the customer has obtained control over the product. Revenue is recognized net of return allowance and any taxes collected from customers, which are subsequently remitted to governmental authorities.
Significant judgement is required to estimate return allowances. The Company reasonably 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, 2023 and 2022:
|
For the Six Months
Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Vehicles sales
|
$
|
|
$
|
|
||||
|
Spare-parts sales
|
|
|
||||||
|
Other service income
|
|
|
||||||
|
Net revenues
|
$
|
|
$
|
|
||||
7
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,
|
||||||||
|
2023
|
2022
|
|||||||
|
Primary geographical markets
|
|
|||||||
|
Europe
|
$
|
|
$
|
|
||||
|
Asia
|
|
|
||||||
|
America
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Contract Balances
Timing of revenue recognition was once the Company has determined that the customer has obtained control over the product. Accounts receivable represent revenue
recognized for the amounts invoiced and/or prior to invoicing when the Company has satisfied its performance obligation and has an unconditional right to the payment.
Contractual liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received
consideration. The consideration received remains a contractual liability until goods or services have been provided to the customer. For the six months ended June 30, 2023 and 2022, the Company recognized $479,499 and $1,038,005 revenue that was included in contractual
liabilities as of December 31, 2022 and 2021, respectively.
The following table provides information about receivables and contractual liabilities from contracts with customers:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
Accounts receivable, net
|
$
|
|
$
|
|
||||
|
Contractual liabilities
|
$
|
|
$
|
|
||||
| (d) |
Recently issued accounting standards pronouncement
|
Except for the ASUs (“Accounting Standards Updates”) issued but not yet adopted disclosed in “Note 2 (z) Recent Accounting Standards” of the Company 2022 Form 10-K,
there is no ASU issued by the FASB that is expected to have a material impact on the Company’s consolidated results of operations or financial position.
NOTE 3 - BUSINESS COMBINATION
On March 5, 2022, the Company entered into a Share and Loan Purchase Agreement (the “Purchase Agreement I”) with Mosolf SE & Co. KG, a limited liability
partnership incorporated under the laws of Germany (“Seller” or “Mosolf” and, together with CEGL and CEG, the “Parties”), pursuant to which Mosolf agreed to sell to the Company (i) 65 % of the issued and outstanding shares (the “TME Shares”) in Cenntro Automotive Europe GmbH, previously known as Tropos Motors Europe GmbH, a German limited liability company (“CAE”), and
(ii) 100 % of the shareholder loan (the “Shareholder Loan”) which Mosolf previously provided to CAE (the “CAE Transaction”). CAE was one
of Cenntro’s private label channel partners and has been one of Cenntro’s largest customers since 2019.
8
The CAE Transaction closed on March 25, 2022. At closing of the CAE Transaction, the Company paid Mosolf EUR3,250,000 (or approximately USD$3.6 million) for the purchase of the TME Shares
and EUR11,900,000 (or approximately USD$13.0
million) for the purchase of the Shareholder Loan, for total aggregate consideration of EUR15,150,000 (or approximately USD$16.6 million). An aggregate of EUR3,000,000
(or approximately USD$3.3 million) of the purchase price is held in escrow to satisfy amounts payable to any of the buyer indemnified
parties in accordance with the terms of the Purchase Agreement I.
The transaction constitutes a business combination for accounting purposes and is accounted for using the acquisition method under ASC 805. The Company is deemed to be
the accounting acquirer and the assets and liabilities of CAE are recorded at the fair value as of the date of the closing.
On December 13, 2022, the Company entered into another Share Purchase Agreement (the “Purchase Agreement II”) with Mosolf, pursuant to which Mosolf agreed to sell to
the Company its remaining 35 % of the issued and outstanding shares in CAE in exchange for a purchase price of EUR1,750,000 (or approximately USD$1.86
million) (the “Transaction”). The Transaction was closed on January 31, 2023, as a result, CAE became a wholly-owned subsidiary of the Company. This transaction was accounted for as equity transactions, no gain or loss was recognized in
consolidated statement of operations. The difference between the fair value of the consideration paid and the amount by which the noncontrolling interest was adjusted was recognized in equity attributable to the Company.
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net is summarized as follows:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
Accounts receivable
|
$
|
|
$
|
|
||||
|
Less: provision for doubtful accounts
|
(
|
)
|
(
|
)
|
||||
|
Accounts receivable, net
|
$
|
|
$
|
|
||||
The changes in the provision for doubtful accounts are as follows:
|
For the Six Months
Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Balance at the beginning of the period
|
$
|
|
$
|
|
||||
|
Additions
|
|
|
||||||
|
Write-off
|
(
|
)
|
(
|
)
|
||||
|
Foreign exchange
|
|
(
|
)
|
|||||
|
Balance at the end of the year
|
$
|
|
$
|
|
||||
NOTE 5 - INVENTORIES
Inventories are summarized as follows:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
Raw material
|
$
|
|
$
|
|
||||
|
Work-in-progress
|
|
|
||||||
|
Goods in transit
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
Inventories
|
$
|
|
$
|
|
||||
For the six months ended June 30, 2023 and 2022, the impairment loss recognized by the Company for slow-moving inventory with cost lower than net realizable value
was and $598,467 ,
respectively.
9
NOTE 6 - PREPAYMENT AND OTHER CURRENT
ASSETS
Prepayment and other current assets consisted of the following:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
Advance to suppliers
|
$
|
|
$
|
|
||||
|
Deductible input value added tax
|
|
|
||||||
|
Receivable from third parties
|
|
|
||||||
|
Loans to a third party
|
|
|
||||||
|
Others
|
|
|
||||||
|
Prepayment and other current assets
|
$
|
|
$
|
|
||||
NOTE 7 - LONG-TERM INVESTMENT, NET
Equity method investments, net
The Company had the following equity method investments:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
Antric GmbH (1)
|
$
|
|
$
|
|
||||
|
Hangzhou Entropy Yu Equity Investment Partnership (Limited Partnership) (“Entropy Yu”) (2)
|
|
|
||||||
|
Hangzhou Hezhe Energy Technology Co., Ltd. (“Hangzhou Hezhe”) (3)
|
|
|
||||||
|
Able 2rent GmbH (DEU) (4)
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
| (3) |
|
| (4) |
|
10
Equity investment without readily determinable fair value
The Company had the following equity investment without readily determinable fair value:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
HW Electro Co., Ltd. (1)
|
$ |
|
$ |
|
||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|
NOTE 8 - INVESTMENT IN EQUITY SECURITIES
As of June 30, 2023, the balance consisted of the following two equity investments:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
MineOne Fix Income Investment I L.P
|
$
|
|
$
|
|
||||
|
Micro Money Fund SPC
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
For the six months ended June 30, 2023 and 2022, the Company recorded upward adjustments for changes in fair value of both equity investments of $713,468 and , respectively.
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
At cost:
|
||||||||
|
Plant and building (1)
|
$
|
|
$
|
|
||||
|
Machinery and equipment
|
|
|
||||||
|
Leasehold improvement
|
|
|
||||||
|
Office equipment
|
|
|
||||||
|
Motor vehicles
|
|
|
||||||
|
Property, plant and equipment, gross
|
|
|
||||||
|
Less: accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Property, plant and equipment, net
|
$
|
|
$
|
|
||||
Depreciation expenses for the six months ended June 30, 2023 and 2022 were $732,510 and $318,806 , respectively.
Impairment loss for the six months ended June 30, 2023 and 2022 were $160,626
and , respectively.
NOTE 10 - INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
At cost:
|
||||||||
|
Land use right
|
$
|
|
$
|
|
||||
|
Software
|
|
|
||||||
|
Total
|
|
|
||||||
|
Less: accumulated amortization
|
(
|
)
|
(
|
)
|
||||
|
Intangible assets, net
|
$
|
|
$
|
|
||||
Amortization expenses for the six months ended June 30, 2023 and 2022 were $53,901 and $166,130 , respectively.
11
NOTE 11 - INCOME TAXES
Australia
CEGL is subject to a tax rate of 30 %.
United States
U.S. subsidiaries CEG, Cennatic Power Inc. and CAC are subject to a federal tax rate of 21 %.
Germany
CAE and Cenntro Electric is subject to a tax rate of 30 %.
Hong Kong
In accordance with the relevant tax laws and regulations of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong Kong at the applicable
tax rate on taxable income. Effective from April 1, 2018, a two-tier corporate income tax system was officially implemented in Hong Kong, which is 8.25 %
for the first HK$2.0 million profits, and 16.5 % for the subsequent profits, it is exempted from the Hong Kong income tax on its
foreign-derived income. CEG’s subsidiaries, CAG HK and Sinomachinery HK, are registered in Hong Kong as intermediate holding companies, subject to an income tax rate of 16.5 % for taxable income earned in Hong Kong. Payments of dividends from Hong Kong subsidiaries to CEG are not subject to any Hong Kong withholding tax.
PRC
Pursuant to the tax laws and regulations of the PRC, the Company’s applicable enterprise income tax (“EIT”) rate is 25 %. Zhejiang Tooniu Tech Co., Ltd, Hangzhou Hengzhong Tech Co., Ltd and. Zhejiang Xbean Tech Co., Ltd qualify as Small and micro enterprises in the PRC, and are entitled to
pay a reduced income tax rate of 2.5 %, 2.5 %
and 5 % in 2022 and 2023.
Income tax expenses for the six months ended June 30, 2023 was $25,468 and income tax benefit for the six months ended June 30, 2022 was $48,861 .
The components of losses before income taxes are summarized as follows:
|
For the Six Months Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
PRC
|
$
|
|
|
|||||
|
US
|
|
|
||||||
|
Australia
|
|
|
||||||
| Europe |
|
|
||||||
|
Others
|
|
|
||||||
|
Total
|
$
|
|
|
|||||
12
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 Six Months
Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Operating leases cost excluding short-term rental expense
|
$
|
|
$
|
|
||||
|
Short-term lease cost
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
A summary of supplemental information related to operating leases is as follows:
|
June 30,
2023
|
June 30,
2022
|
|||||||
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
|
$
|
|
||||
|
Weighted average remaining lease term
|
|
|
||||||
|
Weighted average discount rate
|
|
%
|
|
%
|
||||
The Company’s lease agreements do not have a discount rate that is readily determinable. The incremental borrowing rate is determined at lease commencement or lease
modification and represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and an amount equal to the lease payments in a similar economic environment.
The following table summarizes the maturity of lease liabilities under operating leases as of June 30, 2023:
|
Operating
Leases
|
||||
|
For the remaining of 2023
|
$
|
|
||
|
Years ended December 31,
|
||||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028 and thereafter
|
|
|||
|
Total lease payments
|
|
|||
|
Less: imputed interest
|
|
|||
|
Total
|
|
|||
|
Less: current portion
|
|
|||
|
Non-current portion
|
$
|
|
||
13
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, unless earlier repurchased, converted or redeemed. The Note bears interest at a rate of 8 % per annum, and the net proceed after deducting issuance expenses was $54,069,000 .
The main terms of the Note are summarized as follows:
Conversion feature
At any time after the issue date until the Note is no longer outstanding, this Note shall be convertible, in whole or in part, into ordinary shares at the option of
the holder, at any time and from time to time.
Redemption feature
If the Company shall carry out one or more subsequent financings in excess of US$25,000,000 in gross proceeds, the holder shall have the right to (i) require the Company to first use up to 10 % of the gross proceeds of such subsequent financing if the aggregate outstanding principal amount of the Note is in excess of US$30,000,000 and (ii) require the Company to first use up to 20 % of the gross
proceeds of such subsequent financing if the outstanding principal amount of the Note is US$30,000,000 or less to redeem all or a portion
of this Note for an amount in cash equal to the Mandatory Redemption Amount equal to 1.08 multiplied by the sum of principal amount
subject to the mandatory redemption, plus accrued but unpaid interest, plus liquidated damages, if any, and any other amounts.
In addition, if the closing price of the ordinary shares on the principal trading market is below the floor price of $1.00 per share for a period of ten consecutive trading days, the
holder shall have the right to require the Company to redeem the sum of principal amount plus accrued but unpaid interest under the Note.
Contingent interest feature
The Note is subject to certain customary events of default. If any event of default occurs, the outstanding principal amount, plus accrued but unpaid interest,
liquidated damages and other amounts owing, shall become immediately due and payable, and at the holder’s election, in cash at the mandatory default amount or in ordinary shares at the mandatory default amount at a conversion price equal to 85 % of the 10-day volume weighted
average price. Commencing 5 days after the occurrence of any event of default, the interest shall accrue at an interest rate equal to
the lesser of 10 % per annum or the maximum rate permitted under applicable law.
The financial liability was initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each
reporting period date. The remaining estimated fair value adjustment is presented as other expense in the consolidated statement of operations, change in fair value of convertible notes.
The movement of Note during the six months ended June 30, 2023 are as follows:
|
Liability component
|
||||
|
As of December 31, 2022
|
$
|
|
||
|
Convertible promissory notes issued during the year
|
|
|||
|
Redemption of convertible promissory notes
|
(
|
)
|
||
|
Fair value change recognized
|
|
|||
|
As of June 30, 2023
|
|
|||
The estimated fair value of the Note upon issuance date December 31, 2022 and as of June 30, 2023 was computed using a Monte Carlo Simulation Model, which incorporates
significant inputs that are not observable in the market, and thus represents a Level 3 measurement. The unobservable inputs utilized for measuring the fair value of the Note reflects our assumptions about the assumptions that market participants
would use in valuing the Note as of the issuance date and subsequent reporting period.
14
We determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
|
Fair Value Assumptions - Convertible Promissory Note
|
June 30,
2023
|
December 31,
2022
|
||||||
|
Face value principal payable
|
|
|
||||||
|
Original conversion price
|
|
|
||||||
|
Interest Rate
|
|
%
|
|
%
|
||||
|
Expected term (years)
|
|
|
||||||
|
Volatility
|
|
%
|
|
%
|
||||
|
Market yield (range)
|
|
%
|
|
%
|
||||
|
Risk free rate
|
|
%
|
|
%
|
||||
|
Issue date
|
|
|
||||||
|
Maturity date
|
|
|
||||||
Warrant
Accompany with the Note, the Company issued to the same investor warrants to purchase up to 24,733,336 ordinary shares of the Company, with an exercise price of $1.61 per
share, which may be exercised by the holders on a cashless basis by using Black-Scholes model to determine the net settlement shares.
Additionally, after the Company completed the above Note financing, the Company issued to the placement agent warrants to purchase 2,473,334 ordinary shares of the Company at a same day, as part of the underwriter’s commission. The warrants
were issued with an exercise price of $1.77 per share.
Both warrants are exercisable from the date of issuance and have a term of five years from the date of issuance. They were presented as liabilities on the consolidated balance sheet at fair value in accordance with ASC 480 “Distinguishing Liabilities from Equity”.
The liabilities then, will be remeasured every reporting period with any change to fair value recorded as other income (expense) in the consolidated statement of operations.
The movement of warrants during the six months ended June 30, 2023 are as follows:
|
Investor warrants
component
|
Placement agent
warrants component
|
|||||||
|
As of December 31, 2022
|
$
|
|
$
|
|
||||
|
Warrants issued during the year
|
|
|
||||||
|
Exercise of warrants
|
(
|
)
|
|
|||||
|
Fair value change recognized
|
(
|
)
|
(
|
)
|
||||
|
As of June 30, 2023
|
|
|
||||||
The fair value for these two warrants were computed
using the Binomial model with the following assumptions:
|
Fair Value Assumptions – Warrants
|
June 30,
2023
|
December 31,
2022
|
||||||
|
Expected term (years)
|
|
|
||||||
|
Volatility
|
|
%
|
|
%
|
||||
|
Risk free rate
|
|
%
|
|
%
|
||||
15
NOTE 14- CONCENTRATIONS
| (a) |
Customers
|
The following table sets forth information as to each customer that accounted for 10% or more of net revenue for the six months ended June 30, 2023 and 2022.
|
Six months ended
|
Six months ended
|
|||||||||||||||
|
June 30, 2023,
|
June 30, 2022,
|
|||||||||||||||
|
Customer
|
Amount
|
% of Total |
Amount
|
% of Total |
||||||||||||
|
A
|
$ |
|
|
%
|
$ |
|
|
%
|
||||||||
|
B
|
|
|
|
|
%
|
|||||||||||
|
C
|
|
|
|
|
%
|
|||||||||||
|
D
|
|
|
|
|
%
|
|||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
| * |
|
The following table sets forth information as to each customer that accounted for 10% or more of total gross accounts receivable as of June 30, 2023 and December 31,
2022.
|
As of June 30, 2023,
|
As of December 31, 2022,
|
|||||||||||||||
| Customer |
Amount
|
% of Total |
Amount
|
% of Total |
||||||||||||
| C |
$
|
|
|
%
|
$
|
|
|
|||||||||
| D |
|
|
|
%
|
||||||||||||
| E |
|
|
%
|
|
||||||||||||
| F |
|
|
%
|
|
|
%
|
||||||||||
| G |
% | % | ||||||||||||||
| Total |
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
| * |
Indicates below 10%.
|
| (b) |
Suppliers
|
For the six months ended June 30, 2023 and 2022, the Company’s material suppliers, each of whom accounted for more than 10% of the Company’s total purchases, were as
follows:
|
Six months ended
June 30, 2023,
|
Six months ended
June 30, 2022,
|
|||||||||||||||
|
Supplier
|
Amount
|
% of Total
|
Amount
|
% of Total
|
||||||||||||
|
A
|
$
|
|
|
%
|
$
|
|
|
|||||||||
|
B
|
|
|
%
|
|
|
|||||||||||
| C |
% | |||||||||||||||
| D |
% | |||||||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
| * |
Indicates below 10%.
|
The following table sets forth information as to each supplier that accounted for 10% or more of total accounts payable as of June 30, 2023 and December 31, 2022.
|
As of June 30, 2023,
|
As of December 31, 2022,
|
|||||||||||||||
|
Supplier
|
Amount
|
% of Total
|
Amount
|
% of Total
|
||||||||||||
|
E
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
|
D
|
|
|
%
|
|
|
%
|
||||||||||
|
Total
|
$
|
|
|
%
|
$
|
|
|
%
|
||||||||
16
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be involved in various legal proceedings, claims and other disputes arising from the commercial operations, projects, employees and other matters
which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be
reasonably estimated. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or
liquidity.
In October 2021, Sevic Systems SE (“Sevic”), a former channel partner, commenced a
lawsuit against Shengzhou Machinery, one of Cenntro’s wholly owned subsidiaries, relating to a breach of contract for the sale of goods (the “Sevic Lawsuit”). Sevic filed its complaint with the People’s Court of Keqiao District, Shaoxing City,
Light Textile City (the “People’s Court”). In the Sevic Lawsuit, Sevic alleges that the Shengzhou Machinery provided it with certain unmarketable goods and requests that the People’s Court (i) terminate two signed purchase orders signed on July 22, 2019 under its sales contract with Shengzhou Machinery signed on August 13, 2019 and (ii) award Sevic money damages for the
cost of goods of $465,400 , as well as interest and incidental losses, including freight and storage costs, for total damages of
approximately $628,109 . The parties entered into mediation and on July 27, 2023, the People’s Court issued a civil
mediation letter stating that i) both Sevic and Shengzhou Machinery agreed to terminate (x) two purchase orders signed on July 22, 2019
and (y) the sales contract signed on August 13, 2019; ii) Shengzhou Machinery shall pay Sevic a sum of approximately $13,908 by August 7,
2023; iii) Sevic voluntarily waived all other claims; and iv) Sevic shall pay the case acceptance fee and the property preservation application fee totaling approximately $3,429 . After the completion of the meditation, no other disputes were outstanding between the two parties.
On March 25, 2022, Shengzhou Hengzhong Machinery Co., Ltd. (“Shengzhou Machinery”), an affiliate of Cenntro Automotive Corporation, filed a demand for arbitration
against Tropos Technologies, Inc. with the American Arbitration Association (“AAA”), asserting claims for breach of contract and unjust enrichment. Shengzhou Machinery is seeking payment of $1,126,640 (exclusive of interest, costs, and attorneys’ fees) for outstanding invoices owed by Tropos Technologies, Inc. to Shengzhou Machinery. As of the date of, Tropos Technologies, Inc.
has not yet formally responded to the demand. On February 16, 2023, AAA appointed an arbitrator and both parties are waiting for further proceedings under the arbitration process. On April 25, 2023, Tropos Technologies, Inc. filed a motion to
dismiss the arbitration demand. On May 23, 2023, Shengzhou Machinery filed a response in opposition to the motion to dismiss the arbitration demand. As of the date of this report, the parties are awaiting further proceedings under the arbitration
process.
In June 2022, Sevic Systems SE (“Sevic”) filed for injunctive relief in a corporate court in Brussels, Belgium, alleging CAE infringement of Sevic’s intellectual
property (“IP”) rights. The injunctive action was also directed against LEIE Center SRL (“LEIE”) and Cedar Europe GmbH (“Cedar”), two
distribution partners of CAE. There, Sevic claims it acquired all IP rights to an electric vehicle, the so-called CITELEC model (“CITELEC”), fully and exclusively from the French company SH2M Sarl (“SH2M”) under Mr. Pierre Millet. Sevic claims
these rights were acquired under a 2019 IP transfer agreement. According to Sevic, the METRO model (“METRO”) produced by Cenntro Electro Group Ltd. (“Cenntro”) and distributed by CAE derives directly from the CITELEC. The distribution of the METRO,
therefore, allegedly infringes on Sevic’s IP rights. In its action, Sevic relies on (Belgian) copyright law and unfair business practices. On February 2, 2023, the president of the commercial court of Brussels rendered a judgment, declaring i) the
claim against Cedar was inadmissible and ii) The main claim against CAE and LEIE was founded. According to the president’s opinion the CITELEC-model can enjoy copyright protection and determined it was sufficiently proven that Sevic acquired the
copyrights of the CITELEC-model. The president then concluded that the distribution of the METRO-model in Belgium constituted a violation of article XI. 165 §1 of the Belgian Code of Economic Law and thereby ordered the cessation of the
distribution of the METRO-model, a penalty in the form of a fine of EUR20,000.00 per sold vehicle in Belgium and EUR5,000.00 for each other infringement in Belgium after the judgement was served with a maximum fine of EUR500,000.00 for LEIE and EUR1,000,000.00 fine for CAE. Because CAE
has not sold any METRO-models in Belgium, the Company believes the judgement is incorrect and intends to appeal it, however, the Company has accrued the related liability according to the judgement made.
17
On July 22, 2022, Xiongjian Chen (the “Plaintiff”) filed a complaint against Cenntro Electric Group Limited (“CENN”), Cenntro Automotive Group Limited (“CAG”), Cenntro
Enterprise Limited (“CEL”) and Peter Z. Wang (“Wang,” together with CENN, CAG and CEL, the “Defendants”) in the United States District Court for the District of New Jersey. The complaint alleges eleven causes of action sounding in contract and tort against the Defendants, all pertaining to stock options issued to Mr. Chen pursuant to his employment as Chief Operating
Officer of CAG. With respect to the four contract claims, Plaintiff alleges breach of contract claims pertaining to an employment
agreement between Plaintiff and CAG and a purported letter agreement between Plaintiff and CEL. With respect to the seven tort claims,
Plaintiff alleges claims regarding purported misrepresentations and promises made concerning the treatment of Plaintiff’s stock options upon a corporate transaction, including claims for tortious interference, fraud, promissory estoppel, negligent
misrepresentation, unjust enrichment and conversion. The complaint seeks, among other things, money damages (including compensatory and consequential damages) in the amount of $19 million, plus interest, attorneys’ fees and expenses. Defendants moved to dismiss the complaint against all Defendants for failure to state a claim and for lack of personal jurisdiction
over defendants CAG and CEL. On April 30, 2023, the District Court dismissed the claims against CAG and CEL for lack of personal jurisdiction. In addition, the District Court dismissed all the claims against Wang and CENN without prejudice and
permitted the Plaintiff to amend his complaint within 30 days to address the deficiencies in his claims against Wang and CENN. On May
28, 2023, Plaintiff filed an amended complaint. On July 20, 2023 the Defendants filed a motion seeking the dismissal of that amended complaint.
As of the date of this report on Form 10-Q, there are three ongoing civil litigation cases between Hangzhou Ronda Tech Co., Limited (“Ronda”), one of Cenntro’s wholly owned subsidiaries, and Fujian Newlongma Automotive Co., Ltd.
(“Newlongma”), one of Ronda’s suppliers:
(a) On February 6, 2023, Ronda commenced a lawsuit against Newlongma in the Hangzhou Yuhang District People’s Court, under which Ronda plead
for (i) the termination of the vehicle purchase orders that Ronda placed with Newlongma on February 26, 2022; (ii) recovery of advance payments for total amount of approximately $438,702 ; and (iii) compensation for damages caused equal to approximately $453,290 .
The case mediation date was March 3, 2023 and was subsequently docketed on July 3, 2023. Since then, Newlongma filed a jurisdictional objection and the Court dismissed that jurisdictional objection. As of the date of this report on Form 10-Q, the
proceeding trial date has not been set.
(b) On March 30, 2023, Ronda filed a lawsuit against Newlongma in the Hangzhou Yuhang District People’s Court, pleading for compensation of
damages for cost of auto parts for approximately $301,514 . The case was docketed on July 19, 2023. and the trial date was set on August
15, 2023.
(c) On May 8, 2023, Newlongma filed a complaint against Ronda in the Longyan Yongding District People’s Court, pleading for (i) termination
of the cooperation agreement between Ronda and Newlongma; (ii) retention of the advance payments by Ronda for total amount of approximately $543,977 ;
and (iii) Ronda’s payment of outstanding bills for $604,396 . Ronda filed a jurisdictional objection and the Court dismissed that
jurisdictional objection. Ronda has since appealed that ruling. As of the date of this report on Form 10-Q, the proceeding trial date has not been set yet.
18
NOTE 16 - RELATED PARTY TRANSACTIONS
The table below sets forth the major related parties and their relationships with the Company:
|
Name of related parties:
|
Relationship with the Company
|
|
|
Mr. Yeung Heung Yeung
|
|
|
|
Shenzhen Yuanzheng Investment Development Co. Ltd (“Shenzhen Yuanzheng“)
|
|
|
|
Zhejiang RAP
|
|
|
|
Jiangsu Rongyuan
|
|
|
|
Hangzhou Hezhe Energy Technology Co., Ltd (“Hangzhou Hezhe”)
|
|
|
| Bendon Limited | ||
|
Shanghai Hengyu Enterprise Management Consulting Co., Ltd (“Shanghai Hengyu”)
|
|
|
|
Antric GmbH
|
|
Related party transactions
During the six months ended June 30, 2023 and 2022, the Company had the following material related party transactions.
|
For the Six Months Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
|
||||||||
|
Zhejiang RAP
|
$ |
|
$ |
|
||||
|
Bendon Limited
|
|
|||||||
|
Purchase of raw materials from related parties
|
||||||||
|
Hangzhou Hezhe
|
|
|
|
|
||||
|
Service provided by a related party
|
||||||||
|
Shanghai Hengyu
|
|
|||||||
|
Zhejiang Zhongchai
|
|
|||||||
|
|
||||||||
|
Mr. Yeung Heung Yeung
|
|
|
||||||
| Others |
|
|||||||
|
Payment on the purchase of the raw materials
|
||||||||
|
Hangzhou Hezhe
|
|
|||||||
|
Repayment of interest-bearing Loan from related parties
|
||||||||
| Shenzhen Yuanzheng |
||||||||
| Yeung Hueng Yeung | ||||||||
Amounts due from a related party
The following table presents amounts due from related parties as of June 30, 2023 and December 31, 2022.
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
Hangzhou Hezhe (1)
|
$ |
|
$ |
|
||||
|
Total
|
$ |
|
$ |
|
||||
| (1) |
|
19
Amounts due to related parties
The following table presents amounts due to related parties as of June 30, 2023 and December 31, 2022.
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
Zhejiang RAP
|
$
|
|
$
|
|
||||
|
Jiangsu Rongyuan
|
|
|
||||||
|
Shanghai Hengyu
|
|
|
||||||
|
Antric GmbH
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
NOTE 17 - SUBSEQUENT EVENT
The Company has evaluated subsequent events through the date of issuance of the condensed consolidated financial statements, and aside from
the following there were no subsequent events with material financial impact on the condensed consolidated financial statements: On August 11, 2023 the Company entered into an amendment agreement to retroactively amend the maturity date of the
outstanding principal in the amount of $9,953,281 pursuant to a convertible promissory note for an additional six months from July 19,
2023 to January 19, 2024, the terms and conditions of which are outlined in Note 13 of this quarterly report on Form 10-Q.
CENNTRO ELECTRIC GROUP LIMITED
MANAGEMENT’S DISCUSSION AND ANALYSIS
(Unaudited)
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Introductory Note
Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to the “Company,” “Cenntro,” “we,” “us” or “our” are references to the combined
business Cenntro Electric Group Limited ACN 619 054 938 and its subsidiaries. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting our results
of operations, liquidity, capital resources and contractual obligations. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included
elsewhere herein.
A. Key Components of Results of Operations
Net revenues
Up until December 31, 2021, we generated revenue primarily through the sale of ECVs to our channel partners. Starting in 2022, especially after the
acquisition of CAE and the termination of the channel partners in North America, we have started to transform our go-to-market model to also include Cenntro Branded EV Centers globally. Historically (i.e. up until end of 2021), these revenues
were generated solely by the sale of the Metro®. Starting from the last quarter of 2021, we began generating revenue from the sales of the Logistar™ 200, Logistar™ 100, Logistar™ 260, Teemak™ and
Neibor® 150 in Europe.
Net revenues ended June 30, 2023 and 2022 were generated from (a) vehicles sales, which primarily represent net revenues from sales of Metro® vehicles (including vehicle
kits), Logistar™ 200, Logistar™ 260 and Logistar™ 100, (b) sales of ECV spare-parts related to our Metro® vehicles, and (c) other sales, which primarily were: (i) the sales of inventory of outsourced ECV batteries and (ii) charges on services
provided to channel partners for technical developments and assistance with vehicle homologation or certification.
Cost of goods sold
Cost of goods sold mainly consists of production-related costs including costs of raw materials, consumables, direct labor, overhead costs, depreciation of plants and
equipment, manufacturing waste treatment processing fees and inventory write-downs. We incur cost of goods sold in relation to (i) vehicle sales and spare-part sales, including, among others, purchases of raw materials, labor costs, and
manufacturing expenses that related to ECVs, and (ii) other sales, including cost and expenses that are not related to ECV sales.
Cost of goods sold also includes inventory write-downs. Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined on the
basis of weighted average. The cost of finished goods is determined on the basis of weighted average and is comprised of direct materials, direct labor cost and an appropriate proportion of overhead. Net realizable value is based on estimated
selling prices less selling expenses and any further costs of completion. Adjustments to reduce the cost of inventory to net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. Write-downs are
recorded in the cost of goods sold in our statements of operations and comprehensive loss.
Operating expenses
Our operating expenses consist of general and administrative, selling and marketing expenses, and research and development expenses. General and
administrative expenses are the most significant components of our operating expenses. Operating expenses also include provision for doubtful accounts and impairment loss for long-lived assets.
Research and Development Expenses
Research and development expenses consist primarily of employee compensation and related expenses, prototype expenses, costs associated with assets acquired for research
and development, product development costs, production inspection and testing expenses, product strategic advisory fees, third-party engineering and contractor support costs and allocated overhead. We expect our research and development expenses
to increase as we continue to invest in new ECV models, new materials and techniques, vehicle management and control systems, digital control capabilities and other technologies.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of employee compensation and related expenses, sales commissions, marketing programs, freight costs, travel and
entertainment expenses and allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications and brand-building activities. We expect our selling and marketing expenses to increase as we introduce our new
ECV models, further develop additional local dealership and service support networks to augment our expanding sales globally.
General and Administrative Expenses
General and administrative expenses consist primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources,
and fees for third-party professional services. While we will continue to monitor general and administrative expenses, we expect general and administrative expenses to materially increase over the next two years in connection with the execution
of our growth strategy, including the regionalization of our manufacturing and supply chain and expanded product offerings and expenses relating to being a public company.
Provision for doubtful accounts
A provision for doubtful accounts is recorded for periods in which we determine a loss is probable, based on our assessment of specific factors, such as troubled
collections, historical experience, accounts aging, ongoing business relations and other factors. Account balances are charged off against the provision after all means of collection have been exhausted and the potential for recovery is
considered remote.
Impairment loss for long-lived assets
We evaluate the recoverability of long-lived assets or asset group with determinable useful lives whenever events or changes in circumstances indicate that an asset or a
group of assets’ carrying amount may not be recoverable. We measure the carrying amount of long-lived asset against the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual
disposition. The carrying amount of the long-lived asset or asset group is not recoverable when the sum of the undiscounted expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated
as the amount by which the carrying value of the asset exceeds its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset group, when the market prices are not readily
available. The adjusted carrying amount of the assets become new cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other assets and liabilities.
Other income (expenses)
Interest expense, net
Interest expense, net, consists of interest on outstanding loans and the convertible promissory notes.
Income(loss) from and impairment on equity method investments
Entities over which we have the ability to exercise significant influence but do not have a controlling interest through investment in common shares, or in-substance common
shares, are accounted for using the equity method. Under the equity method, we initially record our investment at cost and subsequently recognize our proportionate share of each such entity’s net income or loss after the date of investment into
the statements of operations and comprehensive loss and accordingly adjust the carrying amount of the investment. When our share of losses in the equity of such entity equals or exceeds our interest in the equity of such entity, we do not
recognize further losses, unless we have incurred obligations or made payments or guarantees on behalf of such entity. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is
determined to be other-than-temporary. The adjusted carrying amount of the assets become new cost basis.
Key Operating Metrics
We prepare and analyze operating and financial data to assess the performance of our business and allocate our resources. The following table sets forth our key performance
indicators for the six months ended June 30, 2023 and 2022.
|
Six Months ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
|||||||
|
Gross margin of vehicle sales
|
16.7
|
%
|
8.7
|
%
|
||||
Gross margin of vehicle sales. Gross margin of vehicle sales is defined as gross profit of vehicle sales divided by total revenue of vehicle sales.
Results of Operations
The following table sets forth a summary of our statements of operations for the periods indicated:
|
Three Months ended June 30,
|
Six Months ended June 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||
|
Combined Statements of Operations Data:
|
||||||||||||||||
|
Net revenues
|
4,237,520
|
3,204,689
|
7,708,064
|
5,035,322
|
||||||||||||
|
Cost of goods sold
|
(3,090,275
|
)
|
(3,036,237
|
)
|
(6,366,075
|
)
|
(4,503,840
|
)
|
||||||||
|
Gross profit/(loss)
|
1,147,245
|
168,452
|
1,341,989
|
531,482
|
||||||||||||
|
Operating Expenses:
|
||||||||||||||||
|
Selling and marketing expenses
|
(2,742,749
|
)
|
(1,531,460
|
)
|
(4,611,734
|
)
|
(2,626,568
|
)
|
||||||||
|
General and administrative expenses
|
(9,285,213
|
)
|
(12,014,453
|
)
|
(16,643,477
|
)
|
(20,226,284
|
)
|
||||||||
|
Research and development expenses
|
(2,143,070
|
)
|
(1,389,153
|
)
|
(3,712,989
|
)
|
(1,814,512
|
)
|
||||||||
|
Total operating expenses
|
(14,171,032
|
)
|
(14,935,066
|
)
|
(24,968,200
|
)
|
(24,667,364
|
)
|
||||||||
|
Loss from operations
|
(13,023,787
|
)
|
(14,766,614
|
)
|
(23,626,211
|
)
|
(24,135,882
|
)
|
||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Interest expense, net
|
1,262
|
222,672
|
(53,153
|
)
|
286,873
|
|||||||||||
|
(Loss) Income from equity method investments
|
(148,645
|
)
|
4,941
|
(129,603
|
)
|
10,878
|
||||||||||
|
Other (expense) income, net
|
(1,119,295
|
)
|
784,220
|
(761,219
|
)
|
734,981
|
||||||||||
|
Loss on redemption of convertible promissory notes
|
1,900
|
(101
|
)
|
-
|
||||||||||||
|
Loss on exercise of warrants
|
(14,745
|
)
|
(227,615
|
)
|
-
|
|||||||||||
|
Change in fair value of convertible promissory notes and derivative liability
|
199,698
|
73,425
|
-
|
|||||||||||||
|
Change in fair value of equity securities
|
60,452
|
713,468
|
-
|
|||||||||||||
|
Impairment of Long-term investments
|
(8,538
|
)
|
(1,154,666
|
)
|
-
|
|||||||||||
|
Loss before income taxes
|
(14,051,698
|
)
|
(13,754,781
|
)
|
(25,165,675
|
)
|
(23,103,150
|
)
|
||||||||
|
Income tax expense
|
(25,468
|
)
|
48,861
|
(25,468
|
)
|
48,861
|
||||||||||
|
Net loss
|
(14,077,166
|
)
|
(13,705,920
|
)
|
(25,191,143
|
)
|
(23,054,289
|
)
|
||||||||
|
Less: net loss attributable to non-controlling interests
|
(2,682
|
)
|
(633,922
|
)
|
(158,710
|
)
|
(670,641
|
)
|
||||||||
|
Net loss attributable to shareholders of the Company
|
(14,074,484
|
)
|
(13,071,998
|
)
|
(25,032,433
|
)
|
(22,383,648
|
)
|
||||||||
Comparison of the Three and Six months ended June 30, 2023 and 2022
Net Revenues
The following table presents our net revenue components by amount and as a percentage of the total net revenues for the periods presented.
|
Three Months ended June 30,
|
Six Months ended June 30,
|
|||||||||||||||||||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||||||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||||||||
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||||||||||||||||||
|
Net revenues:
|
||||||||||||||||||||||||||||||||
|
Vehicle Sales
|
$
|
4,385,086
|
103.5
|
%
|
$
|
3,134,559
|
97.8
|
%
|
$
|
7,226,049
|
93.7
|
%
|
$
|
4,852,930
|
96.4
|
%
|
||||||||||||||||
|
Spare-part sales
|
-253,334
|
-6.0
|
%
|
-16,798
|
-0.5
|
%
|
344,702
|
4.5
|
%
|
84,626
|
1.7
|
%
|
||||||||||||||||||||
|
Other sales
|
105,768
|
2.5
|
%
|
86,928
|
2.7
|
%
|
137,313
|
1.8
|
%
|
97,766
|
1.9
|
%
|
||||||||||||||||||||
|
Total net revenues
|
$
|
4,237,520
|
$
|
3,204,689
|
100.00
|
%
|
$
|
7,708,064
|
100.00
|
%
|
$
|
5,035,322
|
100.00
|
%
|
||||||||||||||||||
Net revenues for the six months ended June 30, 2023 were approximately $7.7 million, an increase of approximately $2.7 million or 53.1% from approximately $5.0 million for
the six months ended June 30, 2022. The increase in net revenues in 2023 was primarily attributed to an increase in vehicle sales by approximately $2.4 million due to the improvement of average selling price from approximately $14,400 to $19,797
and an increase in spare-part sales by approximately $0.3 million.
Net revenues for the three months ended June 30, 2023 were approximately $4.2 million, an increase of approximately $1.0 million or 32.2% from approximately $3.2 million
for the three months ended June 30, 2022. The increase in net revenues in 2023 was primarily attributed to an increase in vehicle sales by approximately $1.3 million due to the improvement of average selling price from approximately $16,852 to
$18,581, offset by a decrease in spare-part sales by approximately $0.2 million.
For the six months ended June 30, 2023, we sold 364 ECVs, including 156 fully assembled Metro® units, 102 fully
assembled Logistar™ 200, 49 fully assembled Logistar™ 100, 2 fully assembled Teemak™, 47 fully assembled Logistar™ 260 and 8 Neibor® 150 units , compared with 337 ECVs for the six months ended June 30, 2022, including 155 fully assembled Metro® vehicle units, 48 vehicle kits, 132 fully assembled Logistar™ 200 units,
one fully assembled Teemak™ unit and one fully assembled Neibor® 150 unit.
For the three months ended June 30, 2023, we sold 235 ECVs, including 139 fully assembled Metro® units, 54 fully assembled Logistar™ 200, 10 fully assembled Logistar™ 100,
one fully assembled Teemak™, 23 fully assembled Logistar™ 260 and 8 Neibor® 150 units, compared with 186 ECVs for the three months ended June 30, 2022, including 115 fully assembled Metro® vehicle units, 70 fully assembled Logistar™ 200 units,
one fully assembled Teemak™ unit.
Geographically, the vast majority of our net revenues were generated from vehicle sales in the European Union during the six months ended June 30, 2023 and 2022.
For the six months ended June 30, 2023, net revenues from Europe, North America, and Asia (including China) as a percentage of total revenues was 71.8%, 1.3%, and 27.0%, respectively, compared to 58.9%,
8.5%, and 32.7%, respectively for the corresponding period in 2022.
The vast majority of our net revenues were generated from vehicle sales in the European Union during the three months ended June 30, 2023 and 2022. For the three months ended
June 30, 2023, net revenues from Europe, North America, and Asia (including China) as a percentage of total revenues was 58.3%, 1.5%, and 40.2%, respectively, compared to 73.2%, 0.3%, and 26.5%, respectively for the corresponding period in 2022.
For the six months ended June 30, 2023, net revenues from vehicle sales in Europe, North America, and Asia (including China) as a percentage of total vehicle net revenues
was 74.8%, 0.8%, and 24.4%, respectively, compared to 59.1%, 8.8%, and 32.1%, respectively, for the corresponding period in 2022.
For the three months ended June 30, 2023, net revenues from vehicle sales in Europe, North America, and Asia (including China) as a percentage of total vehicle net revenues
was 62.5%, 0.6%, and 36.9%, respectively, compared to 72.2%, 0.3%, and 27.5%, respectively, for the corresponding period in 2022.
Cost of goods sold
The following table presents our cost of goods sold by amount and as a percentage of the total cost of goods sold for the periods presented.
|
Three Months ended June 30,
|
Six Months ended June 30,
|
|||||||||||||||||||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||||||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||||||||
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||||||||||||||||||
|
Cost of goods sold:
|
||||||||||||||||||||||||||||||||
|
Vehicle Sales
|
$
|
(3,228,346
|
)
|
104.5
|
%
|
$
|
(2,452,858
|
)
|
80.8
|
%
|
$
|
(6,023,108
|
)
|
94.6
|
%
|
$
|
(3,832,462
|
)
|
85.1
|
%
|
||||||||||||
|
Spare-part sales
|
263,139
|
-8.5
|
%
|
51,385
|
-1.7
|
%
|
(201,085
|
)
|
3.2
|
%
|
(46,639
|
)
|
1.0
|
%
|
||||||||||||||||||
|
Other sales
|
(125,068
|
)
|
4.0
|
%
|
(36,297
|
)
|
1.2
|
%
|
(141,882
|
)
|
2.2
|
%
|
(26,272
|
)
|
0.6
|
%
|
||||||||||||||||
|
Inventory write-down
|
(598,467
|
)
|
19.7
|
%
|
-
|
-
|
(598,467
|
)
|
13.3
|
%
|
||||||||||||||||||||||
|
Total cost of goods sold
|
$
|
(3,090,275
|
)
|
100.00
|
%
|
(3,036,237
|
)
|
100.00
|
%
|
$
|
(6,366,075
|
)
|
100.00
|
%
|
$
|
(4,503,840
|
)
|
100.00
|
%
|
|||||||||||||
Cost of goods sold for the six months ended June 30, 2023 was approximately $6.4 million, an increase of approximately $1.9 million or approximately 41.3% from
approximately $4.5 million for the six months ended June 30, 2022. The increase of cost of vehicle sales was mainly caused by the increased per vehicle cost of newly introduced model of Logistar® 200 and Logistar® 260. The increase cost per
vehicle was also partly attributable to the additional ocean shipping between continents, as the Company shift from recognizing revenue with FOB terms to recording revenue on local direct pricing in the European and the US market which covered
ocean shipping, offset by the decrease of inventory write down of approximately $0.6 million.
Cost of goods sold for the three months ended June 30, 2023 was approximately $3.1 million, a slight decrease of approximately $0.05 million or approximately 1.8% from
approximately $3.0 million for the three months ended June 30, 2022.
Gross Profit/(Loss)
Gross Profit for the six months ended June 30, 2023 was approximately $1.3 million, an increase of approximately $0.8 million from approximately $0.5 million
of gross profit for the six months ended June 30, 2022. For the six months ended June 30, 2023 and 2022, our overall gross margin was approximately 17.4% and 10.6%, respectively. Our gross margin of vehicle sales for the six months ended June
30, 2023 and 2022 was 16.7% and 8.7%, respectively. The increase of our overall gross profit was caused by less impairment of inventory recognized in the six months ended June 30, 2023 compared with the same period in 2022. The increase of our
gross profit for vehicle sales was mainly attributed to i) the realized gross margin of Teemak™ and our newly introduced Logsitar®260 was approximately 25% and 12%, respectively. Both of the models only
began sales in 2023; ii) there was no inventory write-down to Metro® for the six months ended June 30, 2023 compared to an inventory write-down to Metro® of approximately $0.6 million in the same period of 2022.
Gross Profit for the three months ended June 30, 2023 was approximately $1.1 million, an increase of approximately $1.0 million from approximately $0.2 million of gross
profit for the three months ended June 30, 2022. For the three months ended June 30, 2023 and 2022, our overall gross margin was approximately 27.1% and 5.3%, respectively. Our gross margin of vehicle sales for the three months ended June 30,
2023 and 2022 was 26.4% and 2.7%, respectively. The increase of our overall gross profit was caused by less impairment of inventory recognized in the three months ended June 30, 2023 compared with the same period in 2022. The increase of our
gross profit for vehicle sales was mainly attributed to i) the realized gross margin of Metro® was approximately 17.8% for the three months ended June 30, 2023 compared to -12.8% in the same period of 2022 including an inventory write-down of
approximately $0.6 million for the period, and ii) the realized gross margin of the newly introduced Logsitar®260 for the three months ended June 30, 2023 was approximately 37.1%. Logsitar®260 only began sales in 2023.
Selling and Marketing Expenses
Selling and marketing expenses for the six months ended June 30, 2023 were approximately $4.6 million, an increase of approximately $2.0 million or approximately 75.6% from
approximately $2.6 million for the six months ended June 30, 2022. The increase in selling and marketing expenses in 2023 was primarily attributed to the increase in salary expenses, share-based compensations and legal and professional fee of
approximately $1.5 million, $0.2 million and $0.2 million, respectively.
Selling and marketing expenses for the three months ended June 30, 2023 were approximately $2.7 million, an increase of approximately $1.2 million or approximately 79.1%
from approximately $1.5 million for the three months ended June 30, 2022. The increase in selling and marketing expenses in 2023 was primarily attributed to the increase in salary expenses and legal and professional fee of approximately $1.0
million and $0.2 million, respectively
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2023 were approximately $16.6 million, a decrease of approximately $3.6 million or approximately 17.7%
from approximately $20.2 million for the six months ended June 30, 2022. The decrease in general and administrative expenses in 2023 was primarily attributed to a decrease in in salary and social insurance of approximately $5.2 million, offset by
the increase in share-based compensation, ROU amortization and office expenses of approximately $0.8 million, $0.7 million and $1.9 million, respectively.
General and administrative expenses for the three months ended June 30, 2023 were approximately $9.3 million, a decrease of approximately $2.7 million or approximately
22.7% from approximately $12.0 million for the three months ended June 30, 2022. The decrease in general and administrative expenses in 2023 was primarily attributed to a decrease in salary and social insurance and legal and professional of
approximately $4.8 million and $1.1 million, respectively, offset by i) the increase in freight, ROU interest expense, rental expense, depreciation, ROU amortization and office expenses of approximately $0.4 million, $0.3 million, $0.2 million,
$0.2 million, $0.4 million and $1.1 million, respectively, and ii) the increase in others of approximately $0.4 million mainly including compensation insurance and tax expense on deposit interest income.
Research and Development Expenses
Research and development expenses for the six months ended June 30, 2023 were approximately $3.7 million, an increase of approximately $1.9 million or approximately 104.6%
from approximately $1.8 million for the six months ended June 30, 2022. The increase in research and development expenses in 2023 was primarily attributed to the increase in design and development expenditures and salary expense of approximately
$1.2 million and $0.8 million, respectively.
Research and development expenses for the three months ended June 30, 2023 were approximately $2.1 million, an increase of approximately $0.8 million or approximately 54.3%
from approximately $1.4 million for the three months ended June 30, 2022. The increase in research and development expenses in 2023 was primarily attributed to i) the increase in design and development expenditures and salary expense of
approximately $0.8 million and $0.2 million, respectively, offset by the decrease in legal and professional fee of approximately $0.2 million.
Interest income (expense), net
Interest expense, net, mainly consists of interest on convertible bonds. Net interest expense was approximately $0.05 million for the six months ended
June 30, 2023, an increase of approximately $0.3 million or approximately 118.5% compared to the approximately $0.3 million in interest income for the six months ended June 30, 2022. The increase was primarily attributable to (i) an increase in
interest expense to convertible bonds of approximately $0.7 million (ii) offset by the increase in interest income of approximately $0.3 million from bank deposit and $0.09 million from HWE. Loans from related parties and third parties were fully
settled as of April 13, 2023.
Interest expense, net, mainly consists of interest on convertible bonds. Net interest expense was approximately one thousand U.S dollar for the three
months ended June 30, 2023, an increase of approximately $0.2 million or approximately 99.4% compared to the approximately $0.2 million in interest income for the three months ended June 30, 2022. The increase was primarily attributable to (i) an
increase in interest expense to convertible bonds of approximately $0.3 million, offset by the increase in interest income of approximately $0.1 million.
Other income (expense), net
Other expense, net for the six months ended June 30, 2023 was approximately $0.8 million, representing a change of approximately $1.5 million compared to approximately $0.7
million of other income, net for the six months ended June 30, 2022. The change of other income in 2023 compared to 2022 was primarily attributable to (i) an increase of approximately $0.3 million in interest income from commercial bank's
financing products during the first half year in 2023, offset by an increase of approximately $1.9 million in loss on foreign currency exchange.
Other expense, net for the three months ended June 30, 2023 was approximately $1.1 million, representing a change of approximately $1.9 million compared to approximately
$0.8 million of other income, net for the three months ended June 30, 2022. The change of other income in 2023 compared to 2022 was primarily attributable to (i) an increase of approximately $0.2 million in interest income from commercial bank's
financing products during the first half year in 2023, offset by an increase of approximately $2.0 million in loss on foreign currency exchange.
Change in fair value of convertible promissory notes and derivative liability
A gain in the change in fair value of convertible promissory notes and derivative liability for the six and three months ended June 30, 2023 was approximately $0.07 million
and $0.2 million, respectively. The implied price volatility of the convertible promissory notes and derivative liability were relatively stable during the 6 months ended 2023.
Change in fair value of equity securities
A gain in the change in fair value of equity securities for the six months ended June 30, 2023 was approximately $0.7 million. The gain was attributed to an upward
adjustment of approximately $0.2 million due to the fair value change of our investment on participating shares in Micro Money Fund SPC with an original investment value of $5 million and an upward adjustment of approximately $0.5 million from
our investment on partnership shares in MineOne Fix Income Investment I L.P with an original investment value of $25 million.
A gain in the change in fair value of equity securities for the three months ended June 30, 2023 was approximately $0.06 million. The gain was attributed to a downward
adjustment of approximately $0.2 million due to the fair value change of our investment on participating shares in Micro Money Fund SPC with an original investment value of $5 million, offset by an upward adjustment of approximately $0.3 million
from our investment on partnership shares in MineOne Fix Income Investment I L.P with an original investment value of $25 million.
Non-GAAP Financial Measures
Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022
In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure is useful in evaluating operational performance. We use
Adjusted EBITDA to evaluate ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing operating performance.
Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a
measurement of our financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. We define Adjusted EBITDA as net income (or net loss) before net
interest expense, income tax expense, depreciation and amortization as further adjusted to exclude the impact of stock-based compensation expense and other non-recurring expenses including expenses related to TME Acquisition, expenses related
to one-off payment inherited from the original Naked Brand Group, impairment of goodwill, convertible bond issuance fee, loss on redemption of convertible promissory notes, loss on exercise of warrants, and change in fair value of
convertible promissory notes and derivative liability.
We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts,
investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for
comparing our ongoing results of operations. Management uses Adjusted EBITDA:
| • |
as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations;
|
| • |
for planning purposes, including the preparation of our internal annual operating budget and financial projections;
|
| • |
to evaluate the performance and effectiveness of our operational strategies; and
|
| • |
to evaluate our capacity to expand our business.
|
By providing this non-GAAP financial measure, together with the reconciliation, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as
assisting investors in evaluating how well we are executing our strategic initiatives. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by our
competitors because not all companies and analysts calculate Adjusted EBITDA in the same manner. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for net
income or other financial statement data presented in our financial statements as indicators of financial performance. Some of the limitations are:
| • |
such measures do not reflect our cash expenditures;
|
| • |
such measures do not reflect changes in, or cash requirements for, our working capital needs;
|
| • |
although depreciation and amortization are recurring, non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements;
and
|
| • |
the exclusion of stock-based compensation expense, which has been a significant recurring expense and will continue to constitute a significant recurring expense for the foreseeable future, as equity awards are expected to continue to be
an important component of our compensation strategy.
|
Due to these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by
relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments to exclude the impact of stock-based compensation expense and material infrequent items.
It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing
operations of our business and may complicate comparisons of our internal operating results and operating results of other companies over time. In addition, Adjusted EBITDA may include adjustments for other items that we do not expect to regularly
occur in future reporting periods. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time by
removing items that are not related to day-to-day operations.
The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net loss:
|
|
Three Months ended June 30,
|
Six Months ended June 30,
|
||||||||||||||
|
|
2023
|
2022
|
2023
|
2022
|
||||||||||||
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||
|
Net loss
|
$
|
(14,077,166
|
)
|
$
|
(13,705,920
|
)
|
$
|
(25,191,143
|
)
|
$
|
(23,054,289
|
)
|
||||
|
Interest expense, net
|
(1,262
|
)
|
(222,672
|
)
|
53,153
|
(286,873
|
)
|
|||||||||
|
Income tax expense
|
25,468
|
(48,861
|
)
|
25,468
|
(48,861
|
)
|
||||||||||
|
Depreciation and amortization
|
455,779
|
344,507
|
786,411
|
484,937
|
||||||||||||
|
Share-based compensation expense
|
1,256,484
|
1,110,440
|
2,410,291
|
1,309,856
|
||||||||||||
|
Loss on redemption of convertible promissory notes
|
(1,900
|
)
|
101
|
-
|
||||||||||||
|
Loss on exercise of warrants
|
14,745
|
227,615
|
||||||||||||||
|
Change in fair value of convertible promissory notes and derivative liability
|
(199,697
|
)
|
(73,425
|
)
|
-
|
|||||||||||
|
Expenses related to TME Acquisition
|
348,987
|
348,987
|
||||||||||||||
|
Expenses related to one-off payment inherited from the original Naked Brand Group
|
8,299,178
|
|||||||||||||||
|
Adjusted EBITDA
|
(12,527,549
|
)
|
(12,173,520
|
)
|
$
|
(21,761,529
|
)
|
$
|
(12,947,065
|
)
|
||||||
B. Liquidity and Capital Resources
We have historically funded working capital and other capital requirements primarily through bank loans, equity financings and short-term loans. Also, the reverse
recapitalization we have completed at the end of December 2021 provided significant funding for the Company’s operations. Cash is required primarily to purchase raw materials, repay debts and pay salaries, office expenses and other operating
expenses.
As of June 30, 2023, we had approximately $60.4 million in cash and cash equivalents, approximately $2.6 million of accounts receivables, and approximately
$41.8 million of inventory, and approximately $30.5 million in investment in equity securities as compared to approximately $183.0 million in cash and cash equivalents, $2.5 million in accounts
receivable, and $20.9 million in inventory as of June 30, 2022. For the six months ended June 30, 2023 and 2022, net cash used in operating activities was approximately $35.5 million and $29.1 million,
respectively.
Short-Term Liquidity Requirements
We are looking at measures to generate operating efficiency as well as increasing the inventory turns in containing the growth of working capital for reducing
negative net cash used in operating activities. With the cash improvement initiatives, we believe our cash and cash equivalents will be sufficient for us to continue to execute our business strategy over the twelve months period following the
date of issuance of this 10Q. Our current business strategy for the next twelve months includes (i) the continued rollout of our new ECV models in North America and Europe, as applicable, (ii) the
establishment of local assembly facilities in the United States and the European Union and (iii) additional plants and equipment for the expansion of our Changxing factory1. Actual results could vary materially as a result of a number of factors, including:
| • |
The costs of bringing our new facilities into operation;
|
| • |
The timing and costs involved in rolling out new ECV models to market;
|
| • |
Our ability to manage the costs of manufacturing our ECVs;
|
| • |
The costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
|
| • |
Revenues received from sales of our ECVs;
|
| • |
The costs of additional general and administrative personnel, including accounting and finance, legal and human resources, as well as costs related to litigation, investigations, or settlements;
|
| • |
Our ability to collect future revenues; and
|
| • |
Other risks discussed in the section titled “Risk Factors.”
|
1 NTD: Company to provide any additional business plans requiring material capital over the next twelve months.
For the twelve months from the date hereof, we also plan to continue implementing measures to increase revenues and control operating costs and expenses, implementing
comprehensive budget controls and operational assessments, implementing enhanced vendor review and selection processes as well as enhancing internal controls.
Long-Term Liquidity Requirements
In the long-term, we plan to regionalize the manufacturing and supply chain relating to certain components of our ECVs in the geographic markets in which our ECVs are sold.
In the long-term, through our supply chain development know-how, we intend to establish supply chain relationships in North America and the European Union to support anticipated manufacturing and assembly needs in these markets, thereby reducing
the time in transit and potentially other landed costs elements associated with importing our components and spare parts from China. Currently, the majority of our revenues is derived from the sale of ECVs by private label channel partners that
assemble our vehicle kits in their own facilities. As part of our growth strategy, we plan to expand our channel partner network, and local assembly facilities to regionalize our manufacturing and supply chains to better serve our global
customers especially to expand our after-sales-market services offerings.
We intend to further expand our technology through continued investment in research and development. Since inception in 2013 through June 30, 2023, we have
spent over approximately $85.2 million in research and development activities related to our operations. We plan to increase our research and development expenditure over the long term as we build on
our technologies in vehicle development, driving control, cloud-based platforms, and innovations for promoting sustainable energy.
For our long-term business plan, we plan to fund current and future planned operations mainly through cash on hand, cash flow from operations, lines of credit and
additional equity and debt financings to the extent available on commercially favorable terms.
Working Capital
As of June 30, 2023, our working capital was approximately $97.0 million, as compared to a working capital of approximately $206.8 million as of June 30, 2022. The
approximately $109.6 million decrease in working capital during 2023 was primarily due to the decrease of cash and cash equivalents and prepayment and other current assets of approximately $122.6 million and $3.2 million, respectively, offset by
the increase in inventories and convertible bonds of approximately $20.9 million and $11.9 million, respectively.
Cash Flow
|
Six Months Ended June 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
|||||||
|
Net cash used in operating activities
|
$
|
(35,499,138
|
)
|
$
|
(29,071,262
|
)
|
||
|
Net cash (used in) provided by investing activities
|
(9,988,522
|
)
|
(17,112,002
|
)
|
||||
|
Net cash provided by financing activities
|
(45,583,321
|
)
|
(30,960,641
|
)
|
||||
|
Effect of exchange rate changes on cash
|
(2,543,188
|
)
|
(981,467
|
)
|
||||
|
Net (decrease) increase in cash, cash equivalents, and restricted cash
|
(93,614,168
|
)
|
(78,125,372
|
)
|
||||
|
Cash and cash equivalents, and restricted cash at beginning of the year
|
154,096,801
|
261,664,962
|
||||||
|
Cash and cash equivalents, and restricted cash at end of the period
|
$
|
60,482,633
|
$
|
183,539,590
|
||||
Operating Activities
Our net cash used in operating activities was approximately $35.6 million, $29.1 million for the six months ended
June 30, 2023 and 2022, respectively.
Net cash used in operating activities for the six months ended June 30, 2023 was primarily attributable to (i) our net loss of approximately $25.2 million and
adjusted for non-cash items of approximately $7.3 million, which primarily consisted of impairment of long-term investments, share based compensation expense, depreciation and amortization and amortization of operating lease right-of-use asset of
approximately $1.2 million, $2.4 million, $0.8 million and $1.8 million, respectively, (ii) the increase in inventories, accounts receivable, prepayment and other current assets and operating lease
liabilities and of approximately $10.4 million, $2.1 million, $3.9 million and $1.8 million, respectively, (iii) increase in deferred revenue of approximately $1.5 million.
Investing Activities
Net cash used in investing activities was approximately $10.0 million for the six months ended June 30, 2023. Net cash used in investing activities for the six
months ended June 30, 2023 was primarily attributable to cash paid purchase for land use rights and property of approximately $2.2 million, additions in long-term investments as a minority interest of approximately $0.7 million, approximately
$5.1 million in purchase of plant and equipment and approximately $1.9 million net cash paid in acquisition of 35% of CAE's share and including related expenses.
Financing Activities
Net cash provided by financing activities was approximately $45.6 million for the six months ended June 30, 2023. Net cash provided by financing activities for the six months
ended June 30, 2023 was primarily attributable to approximately $45.6 million paid due to redemption of convertible bonds.
Contractual Obligations
In February 2021, we signed a non-cancellable operating lease agreement for warehouse and trial production use in Freehold, New Jersey (Willowbrook Road) of approximately
9,750 square feet. The lease period began in February 2021 and ends in January 2025. The annual base rent for this facility is $175,500 starting from February 2023. The lease rent fee will be adjusted upward by 3% annually afterwards.
In June 2021, we signed two non-cancellable operating lease agreements for approximately 11,700 square feet and 3,767 square feet, respectively, of two floors of an office
building in Hangzhou, China. The lease period for each lease agreement began in June 2021 and ends in May 2025. Pursuant to each agreement, we paid the first six months of our rent obligations in June 2021 and thereafter will be obligated to make
rental payments in advance semi-annually. The total annual base rent under these two lease agreements is $171,397 for the term ending May 2022 and $173,987 for the term ending May 2023.
On December 4, 2021, we entered into an entrustment agreement with Cedar Europe GmbH, a company organized under the laws of Germany (“Cedar”) pursuant to which we entrusted
Cedar to, in Cedar’s name, obtain a lease agreement for facilities in Germany and operate such lease facility under Cedar’s name in exchange for the Cenntro’s responsibility for all expenditures and costs of the lease. On December 24, 2021, Cedar
entered into a lease agreement for an approximately 27,220 square feet facility in Dusseldorf, Germany, where we now house our European Operations Facility. The lease period began on January 1, 2022 and ends on December 31, 2024. Pursuant to such
lease agreement, the total annual base rent is €354,787 (or approximately $383,512) for the lease term.
On January 20, 2022, we entered into an operating lease agreement (the “Jacksonville Lease”), between CAC, as tenant, the Company, as guarantor, and JAX Industrial One, LTD.,
a Florida limited liability company, as landlord, for a facility of approximately 100,000 square feet in Jacksonville, Florida. The lease period commenced on May, 2022 and ends 120 months following a five-month rent abatement period. Pursuant to
the Jacksonville Lease, minimum annual rent is approximately $695,000, $722,800, and $751,710, for the first three years, sequentially, and rising thereafter.
On July 28, 2022, we signed a non-cancellable operating lease agreement for approximately 12,000 square feet as an EV center in Jacksonville, Florida. The lease period began on September 1, 2022 and ends on August 31, 2029, the first annual base rent is $150,000 and the annual increase is 4%.
On August 4, 2022, we signed a non-cancellable operating lease agreement in Mexico as a facility. For the first 12 months, the rentable area is 58,413 square feet. Starting
on the month 13 to month 18, the rentable area is 85,554 square feet, and as of month 19 of the Rent Commencement Date and for the remainder of the initial term, the rentable area is 112,694 square feet. The lease period commenced on January,
2023 and ends 8.5 years. The monthly rent is $29,225.38 and the annual increase is the higher of a) the consumer price index, or b) 2.5%.
On December 15, 2022, we signed a non-cancellable operating lease agreement for approximately 41,160 square feet as a facility in Howell, New Jersey. The lease period began on February 1, 2023 and ends five years, the first annual base rent is $493,920 and the annual increase is 3%
On December 29, 2022, we signed a non-cancellable operating lease agreement with BAL Freeway Associates, LLC for approximately 64,000 square feet as a facility. The lease
period commenced on April 1, 2023 and ends five years following a one-month rent abatement period. The base rent for the first year is $115,200 per month. The monthly rent for the following four years is $119,808, $124,600.32, $129,584.33 and
$134,767.71, respectively.
On November 28, 2022, we signed a non-cancellable operating lease agreement for approximately 6,510 square feet as an EV center in Dominica Republic. The lease period
commenced on December 1, 2022 and ends five years. The rent is $9,000 per month and the annual increase is 5%.
On December 8, 2022, we signed a non-cancellable operating lease agreement for approximately 10,656 square feet as a headquarters and service center in Dominica Republic. The
lease period commenced on February 15, 2023 and ends five years. The rent is $9,000 per month and the annual increase is 5%.
On March 22, 2023, we signed a non-cancellable operating lease agreement for approximately 26,579 square feet as a local plant in Colombia, the lease period began on May 1,
2023 and the lease term is two years. The rent is COP 46,796,001.49 (or approximately $10,344.77) per month and the value of the lease fee shall be readjusted in a proportion equal to the consumer price index (CPl) certified by DANE as of
December 31 of the immediately preceding year, plus two (2) points.
On May 19, 2023, we completed the acquisition with Cenntro Elecautomotiv, S.L., our EVC in Spain. On April 3, 2023, Cenntro Elecautomotiv, S.L. signed a
non-cancellable operating lease agreement for approximately 1,765 square feet as a local office in Barcelona, Spain, the lease period began on April 3, 2023 and the lease term is five years. The monthly
rent is €1,776 (or approximately $1,919.9) plus value-added tax with a two-month rent abatement period. In addition, Cenntro Elecautomotiv, S.L. signed a non-cancellable operating lease agreement for approximately 3,471 square feet as a service
center in Barcelona, Spain on August 9, 2022, the lease period began on August 1, 2022 and the lease term is ten years. The annual rent is €36,000 (or approximately $38,916) and shall be readjusted depending on the changes of the consumer price
index (CPl) determined by the National Bureau of Statistics and its substitute institutions. Legal defense is €6,000 (or approximately $6,486).
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have
not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our Audited Financial Statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit
support to us or engages in leasing, hedging or product development services with us.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements, the reported amounts of revenue and expenses during the reporting period and the related
disclosures in the consolidated and combined financial statements and accompanying footnotes. Out of our significant accounting policies, which are described in “Note 2—Summary of Significant Accounting Policies” of our consolidated and
combined financial statements for the six months ended June 30, 2023, included elsewhere in this Semi-annual Report, certain accounting policies are deemed “critical,” as they require management’s
highest degree of judgment, estimates and assumptions. While management believes its judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those
estimates under different assumptions and conditions.
Basis of presentation
The accompanying consolidated balance sheet as of December 31, 2022, which has been derived from audited financial statements, and the unaudited condensed consolidated financial statements as of
June 30, 2023 and for the six months ended June 30, 2023 and 2022 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. Management believes that the disclosures made are adequate to provide a fair presentation. The interim financial information should be read in
conjunction with the financial statements and the notes for the fiscal year ended December 31, 2022. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results for the full year or any future
periods.
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.
Recently issued accounting standards pronouncement
Except for the ASUs (“Accounting Standards Updates”) issued but not yet adopted disclosed in “Note 2 (z) Recent Accounting Standards” of the Company 2022 Form 10-K, there is
no ASU issued by the FASB that is expected to have a material impact on the Company’s consolidated results of operations or financial position.
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, 2023 and 2022:
|
For the Six Months Ended June
30, |
||||||||
|
2023
|
2022
|
|||||||
|
Vehicles sales
|
|
$
|
7,226,049
|
|
|
$
|
4,852,930
|
|
|
Spare-parts sales
|
|
|
344,702
|
|
|
|
84,626
|
|
|
Other service income
|
|
|
137,313
|
|
|
|
97,766
|
|
|
Net revenues
|
|
$
|
7,708,064
|
|
|
$
|
5,035,322
|
|
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,
|
||||||||
|
2023
|
2022
|
|||||||
|
Primary geographical markets
|
|
|
|
|
||||
|
Europe
|
$
|
5,531,486
|
$
|
2,963,630
|
||||
|
Asia
|
2,079,876
|
1,644,209
|
||||||
|
America
|
|
|
96,702
|
|
|
|
427,483
|
|
|
Total
|
|
$
|
7,708,064
|
|
|
$
|
5,035,322
|
|
Contract Balances
Timing of revenue recognition was once the Company has determined that the customer has obtained control over the product. Accounts receivable represent revenue recognized
for the amounts invoiced and/or prior to invoicing when the Company has satisfied its performance obligation and has an unconditional right to the payment.
Contractual liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration.
The consideration received remains a contractual liability until goods or services have been provided to the customer. For the six months ended June 30, 2023 and 2022, the Company recognized $479,499 and $1,038,005 revenue that was included in
contractual liabilities as of December 31, 2022 and 2021, respectively.
The following table provides information about receivables and contractual liabilities from contracts with customers:
|
June 30,
2023
|
December 31,
2022
|
|||||||
|
Accounts receivable, net
|
$
|
2,646,333
|
$
|
565,398
|
||||
|
Contractual liabilities
|
$
|
3,314,661
|
$
|
2,388,480
|
||||
Recently issued accounting standards pronouncement
Except for the ASUs (“Accounting Standards Updates”) issued but not yet adopted disclosed in “Note 2 (z) Recent Accounting Standards” of the Company 2022 Form 10-K, there is
no ASU issued by the FASB that is expected to have a material impact on the Company’s consolidated results of operations or financial position.
The following table reconciles the Company‘s balance sheet under U.S. GAAP with its balance sheet under IFRS as of 30 June 2023 and audited balance sheet as of 31 December 2022, respectively:
|
For the Periods Ended
|
||||||||||||||||||||||||
|
Unaudited 30 June 2023
|
31 December 2022
|
|||||||||||||||||||||||
|
Balance Sheet:
|
U.S. GAAP
|
IFRS
Difference
|
IFRS
|
U.S. GAAP
|
IFRS
Difference
|
IFRS
|
||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||||
|
Cash and cash equivalents
|
60,390,172
|
-
|
60,390,172
|
153,966,777
|
-
|
153,966,777
|
||||||||||||||||||
|
Restricted cash
|
92,461
|
-
|
92,461
|
130,024
|
-
|
130,024
|
||||||||||||||||||
|
Accounts receivable, net
|
2,646,333
|
-
|
2,646,333
|
565,398
|
-
|
565,398
|
||||||||||||||||||
|
Inventories
|
41,798,511
|
-
|
41,798,511
|
31,843,371
|
-
|
31,843,371
|
||||||||||||||||||
|
Prepayment and other current assets
|
18,339,914
|
-
|
18,339,914
|
16,138,330
|
-
|
16,138,330
|
||||||||||||||||||
|
Deferred cost-current
|
10,273
|
-
|
10,273
|
-
|
-
|
-
|
||||||||||||||||||
|
Amount due from a related party
|
212,320
|
-
|
212,320
|
366,936
|
-
|
366,936
|
||||||||||||||||||
|
Total current assets
|
123,489,984
|
-
|
123,489,984
|
203,010,836
|
-
|
203,010,836
|
||||||||||||||||||
|
Non-current assets
|
||||||||||||||||||||||||
|
Long-term investment, net
|
4,959,769
|
-
|
4,959,769
|
5,325,741
|
-
|
5,325,741
|
||||||||||||||||||
|
Investment in equity securities
|
30,472,663
|
-
|
30,472,663
|
29,759,195
|
-
|
29,759,195
|
||||||||||||||||||
|
Property, plant and equipment, net
|
18,508,847
|
-
|
18,508,847
|
14,962,591
|
-
|
14,962,591
|
||||||||||||||||||
|
Intangible assets, net
|
6,439,333
|
-
|
6,439,333
|
4,563,792
|
-
|
4,563,792
|
||||||||||||||||||
|
Right-of-use assets
|
19,734,961
|
-
|
19,734,961
|
8,187,149
|
-
|
8,187,149
|
||||||||||||||||||
|
Deferred cost - non-current
|
207,974
|
-
|
207,974
|
-
|
-
|
-
|
||||||||||||||||||
|
Other non-current assets, net
|
2,232,206
|
-
|
2,232,206
|
2,039,012
|
-
|
2,039,012
|
||||||||||||||||||
|
Total non-current assets
|
82,555,753
|
-
|
82,555,753
|
64,837,480
|
-
|
64,837,480
|
||||||||||||||||||
|
Total assets
|
206,045,737
|
-
|
206,045,737
|
267,848,316
|
-
|
267,848,316
|
||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||
|
Accounts payable
|
3,364,228
|
-
|
3,364,228
|
3,383,021
|
-
|
3,383,021
|
||||||||||||||||||
|
Accrued expense and other current liabilities
|
3,543,840
|
-
|
3,543,840
|
5,048,641
|
-
|
5,048,641
|
||||||||||||||||||
|
Contractual liabilities
|
3,314,661
|
-
|
3,314,661
|
2,388,480
|
-
|
2,388,480
|
||||||||||||||||||
|
Operating lease liabilities, current
|
4,303,890
|
-
|
4,303,890
|
1,313,334
|
-
|
1,313,334
|
||||||||||||||||||
|
Convertible promissory notes
|
11,904,153
|
-
|
11,904,153
|
57,372,827
|
-
|
57,372,827
|
||||||||||||||||||
|
Deferred government grant, current
|
53,046
|
-
|
53,046
|
26,533
|
-
|
26,533
|
||||||||||||||||||
|
Amount due to related parties
|
41,302
|
-
|
41,302
|
716,372
|
-
|
716,372
|
||||||||||||||||||
|
Total current liabilities
|
26,525,120
|
-
|
26,525,120
|
70,249,208
|
-
|
70,249,208
|
||||||||||||||||||
|
Non-current liabilities
|
||||||||||||||||||||||||
|
Deferred government grant, non-current
|
968,079
|
-
|
968,079
|
497,484
|
-
|
497,484
|
||||||||||||||||||
|
Derivative liability - investor warrant
|
12,205,830
|
-
|
12,205,830
|
14,334,104
|
-
|
14,334,104
|
||||||||||||||||||
|
Derivative liability - placement agent warrant
|
3,456,137
|
-
|
3,456,137
|
3,456,404
|
-
|
3,456,404
|
||||||||||||||||||
|
Operating lease liabilities, non-current
|
16,001,387
|
-
|
16,001,387
|
7,421,582
|
-
|
7,421,582
|
||||||||||||||||||
|
Total non-current liabilities
|
32,631,433
|
-
|
32,631,433
|
25,709,574
|
-
|
25,709,574
|
||||||||||||||||||
|
Total liabilities
|
59,156,553
|
-
|
59,156,553
|
95,958,782
|
-
|
95,958,782
|
||||||||||||||||||
|
Equity
|
||||||||||||||||||||||||
|
Ordinary shares (No par value; 304,449,091 and 300,841,995 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Additional paid-in capital
|
399,517,411
|
182,274,066
|
(1)
|
581,791,477
|
397,497,817
|
182,125,475
|
(1)
|
579,623,292
|
||||||||||||||||
|
Accumulated other comprehensive loss
|
(7,770,097
|
)
|
7,770,097
|
-
|
(5,306,972
|
)
|
5,306,972
|
-
|
||||||||||||||||
|
Reserves
|
-
|
19,385,768
|
(2)
|
19,385,768
|
-
|
21,997,484
|
(2)
|
21,997,484
|
||||||||||||||||
|
Accumulated deficit
|
(244,856,609
|
)
|
(209,429,931
|
)
|
(454,286,540
|
)
|
(219,824,176
|
)
|
(209,429,931
|
)
|
(429,254,107
|
)
|
||||||||||||
|
Total Stockholders' Equity
|
146,890,705
|
-
|
146,890,705
|
172,366,669
|
-
|
172,366,669
|
||||||||||||||||||
|
Non-controlling interests
|
(1,521
|
)
|
-
|
(1,521
|
)
|
(477,135
|
)
|
-
|
(477,135
|
)
|
||||||||||||||
|
Total Equity
|
146,889,184
|
-
|
146,889,184
|
171,889,534
|
-
|
171,889,534
|
||||||||||||||||||
|
Total Liabilities and Equity
|
206,045,737
|
-
|
206,045,737
|
267,848,316
|
-
|
267,848,316
|
||||||||||||||||||
| (1) |
Includes (i) $(29,714,747) (2022: $(27,304,456)) in share-based compensation payments. (ii) $2,558,882 recognized in 2023 from the acquisition of 35% of CAE’s equity interest, and (iii) additional equity of $209,429,931 recognized in
2021 from the difference between the deemed transaction price and net assets acquired related to the Combination under IFRS.
|
| (2) |
Includes (i) a reclassification of Accumulated other comprehensive loss under U.S. GAAP of $(7,770,097) (2022: $(5,306,972)), (ii) a reclassification of Additional paid-in capital under U.S. GAAP of $29,714,747 (2022: $27,304,456) in
share-based compensation payments to Reserves under IFRS, and (iii) a reclassification of Additional paid-in capital under U.S. GAAP of $(2,558,882) recognized in 2023 from the acquisition of 35% of CAE’s equity interest to Reserve under
IFRS.
|
The following table reconciles the Company’s statement of operations under U.S. GAAP for the three months ended 30 June 2023 and 2022 with its statement of operations under IFRS for the three months ended 30 June
2023 and 2022, respectively:
|
For the Three Months Ended
|
||||||||||||||||||||||||
|
Unaudited 30 June 2023
|
Unaudited 30 June 2022
|
|||||||||||||||||||||||
|
|
U.S. GAAP
|
IFRS
Difference
|
IFRS
|
U.S. GAAP
|
IFRS
Difference
|
IFRS
|
||||||||||||||||||
|
Net revenues
|
4,237,520
|
-
|
4,237,520
|
3,204,689
|
-
|
3,204,689
|
||||||||||||||||||
|
Cost of goods sold
|
(3,090,275
|
)
|
-
|
(3,090,275
|
)
|
(3,036,237
|
)
|
-
|
(3,036,237
|
)
|
||||||||||||||
|
Gross profit
|
1,147,245
|
-
|
1,147,245
|
168,452
|
-
|
168,452
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Selling and marketing expenses
|
(2,742,749
|
)
|
-
|
(2,742,749
|
)
|
(1,531,460
|
)
|
-
|
(1,531,460
|
)
|
||||||||||||||
|
General and administrative expenses
|
(9,285,213
|
)
|
-
|
(9,285,213
|
)
|
(12,014,453
|
)
|
-
|
(12,014,453
|
)
|
||||||||||||||
|
Research and development expenses
|
(2,143,070
|
)
|
-
|
(2,143,070
|
)
|
(1,389,153
|
)
|
-
|
(1,389,153
|
)
|
||||||||||||||
|
Total operating expenses
|
(14,171,032
|
)
|
-
|
(14,171,032
|
)
|
(14,935,066
|
)
|
-
|
(14,935,066
|
)
|
||||||||||||||
|
|
||||||||||||||||||||||||
|
Loss from operations
|
(13,023,787
|
)
|
-
|
(13,023,787
|
)
|
(14,766,614
|
)
|
-
|
(14,766,614
|
)
|
||||||||||||||
|
|
||||||||||||||||||||||||
|
Interest income (expense), net
|
1,262
|
-
|
1,262
|
222,672
|
-
|
222,672
|
||||||||||||||||||
|
(Loss) income from long-term investment
|
(148,645
|
)
|
-
|
(148,645
|
)
|
4,941
|
-
|
4,941
|
||||||||||||||||
|
Impairment of long-term investment
|
(8,538
|
)
|
(8,538
|
)
|
-
|
-
|
-
|
|||||||||||||||||
|
Gain (loss) on redemption of convertible promissory notes
|
1,900
|
-
|
1,900
|
-
|
-
|
-
|
||||||||||||||||||
|
Loss on exercise of warrants
|
(14,745
|
)
|
-
|
(14,745
|
)
|
-
|
-
|
-
|
||||||||||||||||
|
Change in fair value of convertible promissory notes and derivative liability
|
199,698
|
-
|
199,698
|
-
|
-
|
-
|
||||||||||||||||||
|
Change in fair value of equity securities
|
60,452
|
60,452
|
-
|
-
|
-
|
|||||||||||||||||||
|
Other (expense) income, net
|
(1,119,295
|
)
|
-
|
(1,119,295
|
)
|
784,220
|
-
|
784,220
|
||||||||||||||||
|
Loss before income taxes
|
(14,051,698
|
)
|
-
|
(14,051,698
|
)
|
(13,754,781
|
)
|
-
|
(13,754,781
|
)
|
||||||||||||||
|
Income tax expense
|
(25,468
|
)
|
-
|
(25,468
|
)
|
48,861
|
-
|
48,861
|
||||||||||||||||
|
Net loss
|
(14,077,166
|
)
|
-
|
(14,077,166
|
)
|
(13,705,920
|
)
|
-
|
(13,705,920
|
)
|
||||||||||||||
|
Less: net loss attributable to non-controlling interests
|
(2,682
|
)
|
-
|
(2,682
|
)
|
(633,922
|
)
|
-
|
(633,922
|
)
|
||||||||||||||
|
Net loss attributable to the Company’s shareholders
|
(14,074,484
|
)
|
-
|
(14,074,484
|
)
|
(13,071,998
|
)
|
-
|
(13,071,998
|
)
|
||||||||||||||
|
|
-
|
|||||||||||||||||||||||
|
Other comprehensive loss
|
-
|
|||||||||||||||||||||||
|
Foreign currency translation adjustment
|
(2,824,971
|
)
|
-
|
(2,824,971
|
)
|
(4,078,240
|
)
|
-
|
(4,078,240
|
)
|
||||||||||||||
|
Total comprehensive loss
|
(16,902,137
|
)
|
-
|
(16,902,137
|
)
|
(17,784,160
|
)
|
-
|
(17,784,160
|
)
|
||||||||||||||
|
Less: total comprehensive loss attributable to non-controlling interests
|
(2,683
|
)
|
-
|
(2,683
|
)
|
(483,216
|
)
|
-
|
(483,216
|
)
|
||||||||||||||
|
Total comprehensive loss attributable to the Company’s shareholders
|
(16,899,454
|
)
|
-
|
(16,899,454
|
)
|
(17,300,944
|
)
|
-
|
(17,300,944
|
)
|
||||||||||||||
The following table reconciles the Company’s statement of operations under U.S. GAAP for the six months ended 30 June 2023 and 2022 with its statement of operations under IFRS for the six months ended 30 June 2023
and 2022, respectively:
|
|
For the Six Months Ended
|
|||||||||||||||||||||||
|
|
Unaudited 30 June 2023
|
Unaudited 30 June 2022
|
||||||||||||||||||||||
|
|
U.S. GAAP
|
IFRS
Difference
|
IFRS
|
U.S. GAAP
|
IFRS
Difference
|
IFRS
|
||||||||||||||||||
|
Net revenues
|
7,708,064
|
-
|
7,708,064
|
5,035,322
|
-
|
5,035,322
|
||||||||||||||||||
|
Cost of goods sold
|
(6,366,075
|
)
|
-
|
(6,366,075
|
)
|
(4,503,840
|
)
|
-
|
(4,503,840
|
)
|
||||||||||||||
|
Gross (Loss) Profit
|
1,341,989
|
-
|
1,341,989
|
531,482
|
-
|
531,482
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Selling and marketing expenses
|
(4,611,734
|
)
|
-
|
(4,611,734
|
)
|
(2,626,568
|
)
|
-
|
(2,626,568
|
)
|
||||||||||||||
|
General and administrative expenses
|
(16,643,477
|
)
|
-
|
(16,643,477
|
)
|
(20,226,284
|
)
|
-
|
(20,226,284
|
)
|
||||||||||||||
|
Research and development expenses
|
(3,712,989
|
)
|
-
|
(3,712,989
|
)
|
(1,814,512
|
)
|
-
|
(1,814,512
|
)
|
||||||||||||||
|
Total operating expenses
|
(24,968,200
|
)
|
-
|
(24,968,200
|
)
|
(24,667,364
|
)
|
-
|
(24,667,364
|
)
|
||||||||||||||
|
|
||||||||||||||||||||||||
|
Loss from operations
|
(23,626,211
|
)
|
-
|
(23,626,211
|
)
|
(24,135,882
|
)
|
-
|
(24,135,882
|
)
|
||||||||||||||
|
|
||||||||||||||||||||||||
|
Interest (expense) income, net
|
(53,153
|
)
|
-
|
(53,153
|
)
|
286,873
|
-
|
286,873
|
||||||||||||||||
|
(Loss) income from long-term investment
|
(129,603
|
)
|
-
|
(129,603
|
)
|
10,878
|
-
|
10,878
|
||||||||||||||||
|
Impairment of long-term investment
|
(1,154,666
|
)
|
(1,154,666
|
)
|
-
|
-
|
-
|
|||||||||||||||||
|
Loss on redemption of convertible promissory notes
|
(101
|
)
|
-
|
(101
|
)
|
-
|
-
|
-
|
||||||||||||||||
|
Loss on exercise of warrants
|
(227,615
|
)
|
(227,615
|
)
|
-
|
-
|
-
|
|||||||||||||||||
|
Change in fair value of convertible promissory notes and derivative liability
|
73,425
|
-
|
73,425
|
-
|
-
|
-
|
||||||||||||||||||
|
Change in fair value of equity securities
|
713,468
|
713,468
|
-
|
-
|
-
|
|||||||||||||||||||
|
Other (expense) income, net
|
(761,219
|
)
|
-
|
(761,219
|
)
|
734,981
|
-
|
734,981
|
||||||||||||||||
|
Loss before income taxes
|
(25,165,675
|
)
|
-
|
(25,165,675
|
)
|
(23,103,150
|
)
|
-
|
(23,103,150
|
)
|
||||||||||||||
|
Income tax expense
|
(25,468
|
)
|
-
|
(25,468
|
)
|
48,861
|
-
|
48,861
|
||||||||||||||||
|
Net loss
|
(25,191,143
|
)
|
-
|
(25,191,143
|
)
|
(23,054,289
|
)
|
-
|
(23,054,289
|
)
|
||||||||||||||
|
Less: net loss attributable to non-controlling interests
|
(158,710
|
)
|
-
|
(158,710
|
)
|
(670,641
|
)
|
-
|
(670,641
|
)
|
||||||||||||||
|
Net loss attributable to the Company’s shareholders
|
(25,032,433
|
)
|
-
|
(25,032,433
|
)
|
(22,383,648
|
)
|
-
|
(22,383,648
|
)
|
||||||||||||||
|
|
-
|
|||||||||||||||||||||||
|
Other comprehensive loss
|
-
|
|||||||||||||||||||||||
|
Foreign currency translation adjustment
|
(2,487,693
|
)
|
-
|
(2,487,693
|
)
|
(3,825,086
|
)
|
-
|
(3,825,086
|
)
|
||||||||||||||
|
Total comprehensive loss
|
(27,678,836
|
)
|
-
|
(27,678,836
|
)
|
(26,879,375
|
)
|
-
|
(26,879,375
|
)
|
||||||||||||||
|
Less: total comprehensive loss attributable to non-controlling interests
|
(183,278
|
)
|
-
|
(183,278
|
)
|
(540,805
|
)
|
-
|
(540,805
|
)
|
||||||||||||||
|
Total comprehensive loss attributable to the Company’s shareholders
|
(27,495,558
|
)
|
-
|
(27,495,558
|
)
|
(26,338,570
|
)
|
-
|
(26,338,570
|
)
|
||||||||||||||
As set forth above, the material differences between the U.S. GAAP and IFRS presentation with respect to the Group’s combined balance sheet as of 30 June 2023 and combined balance sheet as of 31
December 2022 are as follows:
| a) |
The reclassification of “Accumulated other comprehensive loss” under U.S. GAAP to “Reserves” under IFRS;
|
| b) |
The reclassification of amounts of share-based payments from “Additional paid-in capital” under U.S. GAAP to “Reserves” under IFRS;
|
| c) |
The reclassification of the amount recognized from the acquisition of 35% of CAE’s equity interest from “Additional paid-in capital” under U.S. GAAP to “Reserves” under IFRS; and
|
| d) |
Additional equity recognized from the difference between the total deemed transaction price and net assets acquired related to the Combination under IFRS.
|
| e) |
In 2021, the Company was deemed to have incurred non-cash listing costs of approximately $209.4 million as a result of the IFRS accounting treatment of the Combination, as Cenntro was deemed to have received a 67% controlling interest in
CEGL (formerly NBG) and the Group was deemed to have incurred listing costs equaling the difference between the total deemed transaction price and total net assets. Under U.S. GAAP, the Combination is accounted for as a reverse
recapitalization, which is equivalent to the issuance of shares by Cenntro for the net assets of CEGL (formerly NBG), accompanied by a recapitalization).
|
As set forth above, there is no difference between the U.S. GAAP and IFRS presentation as it relates to our combined statement of operations and comprehensive loss for the six months ended 30 June 2023.
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
As a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required
by this item.
| ITEM 4. |
CONTROLS AND PROCEDURES
|
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Roles 12a-15(e) or 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023, as required by paragraph (b) of Rules 13a-15
or 15d-15 under the Exchange Act. Based on this evaluation, management concluded that the Company's disclosure controls and procedures was not effective as of June 30, 2023, due to material weaknesses in the Company’s internal control over
financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) that have been previously identified but continue to exist. See Part II, Item 9A of the 2022 Form 10-K/A for additional information.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the first quarter of fiscal 2023 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Remediation
As previously described in Part II, Item 9A of our Annual Report on Form 10-K/A for the fiscal year ended December 31,2022, we began implementing a remediation plan to address the material
weakness mentioned above. The weakness will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
| ITEM 1. |
LEGAL PROCEEDINGS
|
From time to time, we may be subject to various legal claims and proceedings that arise from the normal course of business activities, including, third party intellectual property infringement
claims against us in the form of letters and other forms of communication. Litigation or any other legal or administrative proceeding, regardless of the outcome, could result in substantial cost, diversion of our resources, including management’s
time and attention, and, depending on the nature of the claims, reputational harm. In addition, if any litigation results in an unfavorable outcome, there exists the possibility of a material adverse impact on our results of operations, prospects,
cash flows, financial position and brand. Please refer to the description as contained in “Item 8 Financial Statements and Supplementary Data” on page F-1 of our Annual Report and the information described below.
In October 2021, Sevic Systems SE (“Sevic”), a former channel partner, commenced a lawsuit against Shengzhou Machinery, one of Cenntro’s wholly owned subsidiaries, relating to a contract for the
sale of goods (the “Sevic Lawsuit”). Sevic filed its complaint with the People’s Court of Keqiao District, Shaoxing City, Light Textile City (the “People’s Court”). In the Sevic Lawsuit, Sevic alleges that the Shengzhou Machinery provided it with
certain unmarketable goods and requests that the People’s Court (i) terminate two signed purchase orders signed on July 22, 2019 under its sales contract with Shengzhou Machinery signed on August 13, 2019 and (ii) award Sevic money damages for the
cost of goods of $465,400, as well as interest and incidental losses, including freight and storage costs, for total damages of approximately $628,109. The parties entered into mediation and on July 27, 2023, the People’s Court issued a civil
mediation letter stating that i) both Sevic and Shengzhou Machinery agreed to terminate (x) two purchase orders signed on July 22, 2019 and (y) the sales contract signed on August 13, 2019; ii) Shengzhou Machinery shall pay Sevic a sum of
approximately $13,908 by August 7, 2023; iii) Sevic voluntarily waived all other claims; and iv) Sevic shall pay the case acceptance fee and the property preservation application fee totaling approximately $3,429. After the completion of the
meditation, no other disputes were outstanding between the two parties.
On March 25, 2022, Shengzhou Hengzhong Machinery Co., Ltd. (“Shengzhou Machinery”), an affiliate of Cenntro Automotive Corporation, filed a demand for arbitration against Tropos Technologies,
Inc., a non-affiliated entity, with the American Arbitration Association (“AAA”), asserting claims for breach of contract and unjust enrichment. Shengzhou Machinery is seeking payment of $1,126,640 (exclusive of interest, costs, and attorneys’
fees) for outstanding invoices owed by Tropos Technologies, Inc. to Shengzhou Machinery. On February 16, 2023, AAA appointed an arbitrator and on April 25, 2023, Tropos Technologies, Inc. filed a motion to dismiss the arbitration demand. On May 23,
2023, Shengzhou Machinery filed a response in opposition to the motion to dismiss the arbitration demand. As of the date of this report, the parties are awaiting further proceedings under the arbitration process.
On July 22, 2022, Xiongjian Chen (the “Plaintiff") filed a complaint against Cenntro Electric Group Limited (“CENN”), Cenntro Automotive Group Limited (“CAG”), Cenntro Enterprise Limited (“CEL”)
and Peter Z. Wang (“Wang,” together with CENN, CAG and CEL, the “Defendants”) in the United States District Court for the District of New Jersey. The complaint alleges eleven causes of action sounding in contract and tort against the Defendants,
all pertaining to stock options issued to Mr. Chen pursuant to his employment as Chief Operating Officer of CAG. With respect to the four contract claims, Plaintiff alleges breach of contract claims pertaining to an employment agreement between
Plaintiff and CAG and a purported letter agreement between Plaintiff and CEL. With respect to the seven tort claims, Plaintiff alleges claims regarding purported misrepresentations and promises made concerning the treatment of Plaintiff’s stock
options upon a corporate transaction, including claims for tortious interference, fraud, promissory estoppel, negligent misrepresentation, unjust enrichment and conversion. The complaint seeks, among other things, money damages (including
compensatory and consequential damages) in the amount of $19 million, plus interest, attorneys’ fees and expenses. Defendants moved to dismiss the complaint against all Defendants for failure to state a claim and for lack of personal jurisdiction
over defendants CAG and CEL. On April 30, 2023, the District Court dismissed the claims against CAG and CEL for lack of personal jurisdiction. In addition, the District Court dismissed all the claims against Wang and CENN without prejudice and
permitted the Plaintiff to amend his complaint within 30 days to address the deficiencies in his claims against Wang and CENN. On May 28, 2023, Plaintiff filed an amended complaint. On July 20, 2023 the Defendants filed a motion seeking the
dismissal of that amended complaint.
As of the date of this report on Form 10-Q, there are three ongoing civil litigation cases between Hangzhou Ronda Tech Co., Limited (“Ronda”), one of Cenntro’s wholly owned subsidiaries, and
Fujian Newlongma Automotive Co., Ltd. (“Newlongma”), one of Ronda’s suppliers:
| 1) |
On February 6, 2023, Ronda commenced a lawsuit against Newlongma in the Hangzhou Yuhang District People's Court, under which Ronda plead for (i) the termination of the vehicle purchase orders that Ronda
placed with Newlongma on February 26, 2022; (ii) recovery of advance payments for total amount of approximately $438,702; and (iii) compensation for damages caused equal to approximately $453,290. The case mediation date was March 3, 2023
and was subsequently docketed on July 3, 2023. Since then, Newlongma filed a jurisdictional objection and the Court dismissed that jurisdictional objection. As of the date of this report on Form 10-Q, the proceeding trial date has not been
set.
|
| 2) |
On March 30, 2023, Ronda filed a lawsuit against Newlongma in the Hangzhou Yuhang District People's Court, pleading for compensation of damages for cost of auto parts for approximately $301,514. The case was
docketed on July 19, 2023. and the trial date was set on August 15, 2023.
|
| 3) |
On May 8, 2023, Newlongma filed a complaint against Ronda in the Longyan Yongding District People's Court, pleading for (i) termination of the cooperation agreement between Ronda and Newlongma; (ii) retention
of the advance payments by Ronda for total amount of approximately $543,977; and (iii) Ronda’s payment of outstanding bills for $604,396. Ronda filed a jurisdictional objection and the Court dismissed that jurisdictional objection. Ronda
has since appealed that ruling. As of the date of this report on Form 10-Q, the proceeding trial date has not been set yet.
|
| ITEM 1A. |
RISK FACTORS
|
You should carefully consider the risks discussed in the section entitled “Risk Factors” in the 2022 Form 10-K/A, which could materially affect our business, financial condition, or future
results. The risks described in the 2022 Form 10-K/A are not the only risks facing the company. Additional risks and uncertainties not currently known to us or that we do not currently deem material, may also materially adversely affect our
business, results of operations, cash flows, and financial position.
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
There have been no sales of unregistered equity securities that we have not previously disclosed in filings with the U.S. Securities and Exchange Commission.
| ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES
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None.
| ITEM 4. |
MINE SAFETY DISCLOSURES
|
Not applicable.
| ITEM 5. |
OTHER INFORMATION
|
None.
| ITEM 6. |
Exhibits
|
EXHIBIT INDEX
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Exhibit
No.
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Description of Exhibit
|
|
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Certification of Principal Executive Officer required by Rule 13a-14(a).
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Certification of Principal Financial Officer required by Rule 13a-14(a).
|
||
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Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
||
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101.INS*
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
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|
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101.SCH*
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Inline XBRL Taxonomy Extension Schema Document
|
|
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101.CAL*
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Inline XBRL Taxonomy Extension Calculation Linkbase Document
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|
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101.DEF*
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
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|
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101.LAB*
|
Inline XBRL Taxonomy Extension Label Linkbase Document
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|
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101.PRE*
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Inline XBRL Taxonomy Extension Presentation Linkbase Document
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|
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104*
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)
|
| * |
Filed herewith.
|
| ** |
Furnished herewith.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CENNTRO ELECTRIC GROUP LIMITED
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Dated: August 14, 2023.
|
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CENNTRO ELECTRIC GROUP LIMITED
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By:
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/s/ Peter Z. Wang
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Peter Z. Wang
|
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Chief Executive Officer
|
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(Principal Executive Officer)
|
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By:
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/s/ Edmond Cheng
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Edmond Cheng
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Chief Financial Officer
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(Principal Accounting Officer)
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42
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter Z. Wang, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cenntro Electric Group Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| (b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| (c) |
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| (d) |
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
|
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
| (a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the company’s ability to record, process, summarize and report financial information; and
|
| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial
reporting.
|
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Dated: August 14, 2023
|
||
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By:
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/s/ Peter Z. Wang
|
|
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Peter Z. Wang
|
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Chairman and Chief Executive Officer
|
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(Principal Executive Officer)
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Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Edmond Cheng, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cenntro Electric Group Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| (b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| (c) |
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| (d) |
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
|
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
| (a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and report financial information; and
|
| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial
reporting.
|
|
Dated: August 14, 2023
|
||
|
By:
|
/s/ Edmond Cheng
|
|
|
Edmond Cheng
|
||
|
Chief Financial Officer
|
||
|
(Principal Accounting Officer and Principal Financial Officer)
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Cenntro Electric Group Limited (the “Company”) on Form 10-Q for the quarterly period ended
March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.
|
Dated: August 14, 2023
|
||
|
By:
|
/s/ Peter Z. Wang
|
|
|
Peter Z. Wang
|
||
|
Chairman and Chief Executive Officer
|
||
|
By:
|
/s/ Edmond Cheng
|
|
|
Edmond Cheng
|
||
|
Chief Financial Officer
|