Cenntro Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation. The information set forth in this section contains certain “forward-looking statements”, including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering into future agreements with companies, and plans to successfully develop and obtain approval to market our product. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Annual Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses. You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Annual Report. US Dollars are denoted herein by “USD”, “$” and “dollars”. Overview We are an emerging designer, manufacturer, distributor, and service provider of commercial vehicles powered by either electricity or hydrogen energy sources. Our commercial vehicles are designed to serve a variety of fleet and municipal organizations in support of city services, last-mile delivery and other commercial applications. As of December 31, 2022, we have developed six series of commercial vehicle models, Metro®, Logistar™, Logimax™, Avantier™, Teemak™ and Antric One. We have successfully begun to produce and deliver these models into the global markets. 64 Table of Contents We have also developed and introduced iChassis™: a programmable “smart” chassis that may be controlled by third-party software for various remote controlled or autonomous driving applications. We continue to leverage our technology, vehicle development, and vehicle distribution capabilities with a goal to become a leading provider in the electric commercial vehicle (“ECV”) market. Our greater mission is to provide commercial vehicles that may be powered by sustainable sources while building eco-chains to reduce carbon dioxide for a better environment and quality of life. With the global trend toward reducing the number of internal combustion engine (“ICE”) vehicles, electric-battery and fuel cell technologies stand out as strong alternatives. Prior to COVID-19, battery costs significantly decreased over the past decade. We expect that over the long term, prices will continue to fall. According to research service Bloomberg NEF (“BNEF”), lithium-ion battery pack prices decreased from above $1,200 per kilowatt-hour in 2010 to $132/kWh in 2021. In real terms, this represented a decline of approximately 89%. Although battery pack prices have recently increased and may continue to increase in the near-term due to the rising price of lithium as a result of COVID-19 and other factors, we anticipate that battery prices will continue to decrease in the long-term. BNEF further forecasts that by 2024, average prices are expected to fall to below $100/kWh, though such reductions in average price may be delayed due to higher raw material prices in the near term. By emphasizing investments in technology, supply-chains, vehicle distribution and aftermarket support, we have began making our own battery packs, preparing battery cell production, by building up vehicle distribution and service networks, and introducing our cloud-based parts distribution systems. As investment in battery technology continues to increase, we believe these cost reductions outlined by BNEF will continue to improve the economics of battery-powered ECVs, like ours. In addition to our investment in battery-technology, we have established an asset-light, distributed manufacturing business model through which we may distribute our vehicles in unassembled semi-knockdown vehicle kits (“vehicle kits”) for local assembly in addition to fully assembled vehicles. Some of our vehicle models have a modular design that allows for local assembly in micro factory facilities that require less capital investment. We manufacture our own vehicle kits for the Metro® in our facilities in China and leverage the economies of scale of and the supply-chain availability in China to manufacture vehicle kits and fully assembled vehicles in our assembly plants in United States and Germany. We believe our distributed manufacturing methodology allows us to execute our business plan with less capital than would be required by the traditional, vertically integrated automotive model and, in the long-term, drive higher profit margins. Our distributed manufacturing model allows us to focus our efforts on the design of ECV models and related technologies while outsourcing various portions of the manufacturing, assembly and marketing of our vehicles to qualified third parties, allowing the Company to operate with lower capital investment than traditional vertically integrated automotive companies. For the last several years, we relied substantially on private label channel partners to assemble and distribute the Metro® from vehicle kits that we manufactured in our facilities. With building our own distribution and service infrastructure, we have begun the process of shifting the manufacturing of our vehicle kits and in some cases fully assembled vehicles to third party Original Equipment Manufacturers (“OEMs”) manufacturing partners and, in the case of vehicle kits, assembling in our own facilities in North America and Europe. Our relationships with such third parties, our “manufacturing partners,” have allowed us to forego expensive capital investments in our own facilities and operate within our historic working capital limitations. Throughout 2022 we began to re-align our distribution and marketing strategy away from relying mainly on third-party channel partners to a distribution model that combines wholly-owned EV Centers with local dealers in order to improve overall operational efficiencies, product quality, brand value, market share, customer support and service. Additionally, to meet our anticipated demand in the United States, we have established local assembly facilities in Northern America as we have launched assembly facilities in Jacksonville, Florida and Freehold, New Jersey. We are also in the of process establishing additional assembly facility in Ontario, California. Additionally, we expect that our acquisition of CAE (f.k.a. TME) in 2023 will further expand our local assembly capacity in the European Union for production of our European ECV models, including the Teemak™ series, Antric products, in addition to the Metro®. 65 Table of Contents A. Key Components of Results of Operations Net revenues Up until end of 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 began to transform our go-to-market model from international channel partners to Cenntro Branded EV Centers globally. Historically (i.e., up until end of 2021), these revenues were generated solely through the sale of the Metro®. By the end of 2021, we began generating revenue from the sales of the Logistar™ 200 in Europe. Net revenues during the twelve months ended 2022 and 2021 were generated from (a) vehicles sales, which primarily represent net revenues from sales of Metro® vehicles (including vehicle kits) and Logistar™ 200, (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. We believe the average cost per vehicle may continue to decrease because we expect our cost of material and parts to decrease as our vehicle production volume increases. However, in the short term, certain components and materials may increase in price due to shortages in certain input components such as battery packs and semiconductors. We also anticipate the price of battery packs, the largest portion of our vehicle production cost, will decrease in the long-term, though prices have increased and may continue to increase in the near-term due to the rising price of lithium as a result of COVID-19 and other factors. 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. 66 Table of Contents Selling and Marketing Expenses Selling and marketing expenses consist primarily of employee compensation and related expenses, sales commissions, marketing programs, freight costs, travel and entertainment expenses and allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications and brand-building activities. We expect our selling and marketing expenses to increase as we introduce our new ECV models, further develop additional local dealership and service support networks to augment our expanding sales globally. General and Administrative Expenses General and administrative expenses consist primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, and fees for third-party professional services. While we will continue to monitor general and administrative expenses, we expect general and administrative expenses to materially increase over the next two years in connection with the execution of our growth strategy, including the regionalization of our manufacturing and supply chain and expanded product offerings and expenses relating to being a public company. Provision for doubtful accounts A provision for doubtful accounts is recorded for periods in which we determine a loss is probable, based on our assessment of specific factors, such as troubled collections, historical experience, accounts aging, ongoing business relations and other factors. Account balances are charged off against the provision after all means of collection have been exhausted and the potential for recovery is considered remote. Impairment loss for long-lived assets We evaluate the recoverability of long-lived assets or asset group with determinable useful lives whenever events or changes in circumstances indicate that an asset or a group of assets’ carrying amount may not be recoverable. We measure the carrying amount of long-lived asset against the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. The carrying amount of the long-lived asset or asset group is not recoverable when the sum of the undiscounted expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset group, when the market prices are not readily available. The adjusted carrying amount of the assets become a new cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Other income (expenses) Interest expense, net Interest expense, net, consists of interest on outstanding loans and the convertible promissory notes. Income(loss) from and impairment on equity method investments Entities over which we have the ability to exercise significant influence but do not have a controlling interest through investment in common shares, or in-substance common shares, are accounted for using the equity method. Under the equity method, we initially record our investment at cost and subsequently recognize our proportionate share of each such entity’s net income or loss after the date of investment into the statements of operations and comprehensive loss and accordingly adjust the carrying amount of the investment. When our share of losses in the equity of such entity equals or exceeds our interest in the equity of such entity, we do not recognize further losses, unless we have incurred obligations or made payments or guarantees on behalf of such entity. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The adjusted carrying amount of the assets become a new cost basis. 67 Table of Contents Key Operating Metrics We prepare and analyze operating and financial data to assess the performance of our business and allocate our resources. The following table sets forth our key performance indicators for the years ended December 31, 2022 and 2021. Year ended December 30 2022 2021 Gross margin of vehicle sales -0.27 % 15.5 % Gross margin of vehicle sales . Gross margin of vehicle sales is defined as gross profit of vehicle sales divided by total revenue of vehicle sales. Results of Operations The following table sets forth a summary of our statements of operations for the periods indicated: Year Ended December 31, 2022 2021 (Expressed in U.S. Dollars) Combined Statements of Operations Data: Net revenues 8,941,835 8,576,832 Cost of goods sold (9,455,805 ) (7,073,391 ) Gross profit/(loss) (513,970 ) 1,503,441 Operating Expenses: Selling and marketing expenses (6,525,255 ) (1,034,242 ) General and administrative expenses (32,822,709 ) (14,978,897 ) Research and development expenses (6,362,770 ) (1,478,256 ) Provision for doubtful accounts (5,986,308 ) (469,702 ) Reverse of Deferred tax liabilities 898,632 Impairment of ROU (371,695 ) - Impairment of Intangible assets (2,995,440 ) - Impairment of PPE (550,402 ) (6,215 ) Total operating expenses (54,715,947 ) (17,961,097 ) Loss from operations (55,229,917 ) (16,457,656 ) Other Income (Expense): Interest expense, net (844,231 ) (1,069,581 ) (Loss) Income from equity method investments (12,651 ) 15,167 Other (expense) income, net (924,867 ) 1,205,871 Loss on redemption of convertible promissory notes (7,435 ) - Change in fair value of convertible promissory notes and derivative liability (37,774,928 ) - Change in fair value of equity securities (240,805 ) - Convertible bond issuance cost (5,589,336 ) Foreign currency exchange loss, net (409,207 ) (115,608 ) Impairment of Goodwill (11,111,886 ) - Loss before income taxes (112,145,263 ) (16,421,807 ) Income tax expense — — Net loss (112,145,263 ) (16,421,807 ) Less: net loss attributable to non-controlling interests (2,057,022 ) — Net loss attributable to shareholders of the Company (110,088,241 ) ( 16,421,807 ) 68 Table of Contents Comparison of the Years Ended December 31, 2022 and 2021 Net Revenues The following table presents our net revenue components by amount and as a percentage of the total net revenues for the periods presented. Year Ended December 31, 2022 2021 Amount % Amount % (Expressed in U.S. Dollars) Net revenues: Vehicle Sales $ 8,235,053 92.10 % $ 7,287,478 84.97 % Spare-part sales 304,506 3.40 % 195,350 2.28 % Other sales 402,276 4.50 % 1,094,004 12.75 % Total net revenues $ 8,941,835 100.00 % $ 8,576,832 100.00 % Net revenues for the year ended December 31, 2022 were approximately $8.9 million, an increase of approximately $0.4 million or 4.3% from approximately $8.6 million for the year ended December 31, 2021. The increase in net revenues in 2022 was primarily attributed to an increase in vehicle sales by approximately $0.9 million due to the improvement of average selling price from approximately $8,000 to $17,980 and an increase in spare-part sales by approximately $0.1 million, offset by the decrease in service revenue of approximately $0.7 million. For the year ended December 31, 2022, we sold 458 ECVs, including 48 Metro® vehicle kits, 200 fully assembled Metro® units, 1 fully assembled Neibor® 150 unit, 205 fully assembled Logistar™ 200, one fully assembled Teemak™ and three fully assembled iChassis 100, compared with 918 ECVs for the year ended December 31, 2021, including 816 Metro® vehicle kits, 88 fully assembled Metro® vehicle units and 14 fully assembled Logistar™ 200 units. Geographically, the vast majority of our net revenues were generated from vehicle sales in the European Union during the years ended December 31, 2022 and 2021. For the year ended December 31, 2022, net revenues from Europe, North America, and Asia (including China) as a percentage of total revenues was 78.9%, 7.8%, and 13.3%, respectively, compared to 51.1%, 39.9%, and 8.5%, respectively for the corresponding period in 2021. For the year ended December 31, 2022, net revenues from vehicle sales in Europe, North America, and Asia (including China) as a percentage of total vehicle net revenues was 83.9%, 5.2%, and 10.9% , respectively, compared to 57.1%, 34.2%, and 8.1%, respectively, for the corresponding period in 2021. 69 Table of Contents Cost of goods sold The following table presents our cost of goods sold by amount and as a percentage of the total cost of goods sold for the periods presented. Year Ended December 31, 2022 2021 Amount % Amount % (Expressed in U.S. Dollars) Cost of goods sold: Vehicle Sales $ (6,852,852 ) 72.5 % $ (4,895,457 ) 69.21 % Spare-part sales (190,241 ) 2.0 % (189,664 ) 2.68 % Other sales (257,312 ) 2.7 % (722,380 ) 10.21 % Inventory write-down (2,155,400 ) 22.8 % (1,265,890 ) 17.90 % Total cost of goods sold $ (9,455,805 ) 100.00 % $ (7,073,391 ) 100.00 % Cost of goods sold for the year ended December 31, 2022 was approximately $9.5 million, an increase of approximately $2.4 million or approximately 33.7% from approximately $7.1 million for the year ended December 31, 2021. The increase in cost of goods sold in 2022 was primarily attributable to the increase of cost of vehicle sales and inventory write-down of approximately $1.5 million and $0.9 million respectively, the increase of cost of vehicle sales was mainly caused by the increased per vehicle cost of Logistar® 200 model, and the increase of per vehicle cost of the Metro® model with additional features were sold during the year 2022. 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. Inventory write-downs for the year ended December 31, 2022 were approximately $2.2 million, an increase of approximately $0.9 million or approximately 70.3% from approximately $1.3 million for the year ended December 31, 2021. The increase of cost related to inventory write-down was primarily attributed to the write-down provided to the ECV models of Teemak®, Neibor® 150, Metro®, and Neibor® 200 of approximately $0.5 million, $0.5 million, $0.2 million, and $0.1 million, respectively. Additional write-down was provided to Metro®’s and Neibor® 200’s raw material during the year 2022. Certain amount of the Company’s inventory suffered damages of rusting after longer than expected outdoor exposure due to the negative influence of the temporary closure of Shanghai Port from March to June causing the delay in ocean transportation, and the negative impact of reginal conflict in Europe distorting the market performance of newly introduced models in the European area. Gross Profit/(Loss) Gross loss for the year ended December 31, 2022 was approximately $0.5 million, a decrease of approximately $2.0 million from approximately $1.5 million of gross profit for the year ended December 31, 2021. For the years ended December 31, 2022 and 2021, our overall gross margin was approximately -5.7% and 17.5%, respectively. Our gross margin of vehicle sales for years ended December 31, 2022 and 2021 was -0.27% and 15.5%, respectively. The decrease of our gross profit was caused by (i) the additional inventory write-down of approximately $0.9 million, representing approximately 10.8% of revenues of vehicle sales; (ii) decreased in gross profit margin, excluding inventory write-down, of our Metro® model from a gross margin of approximately 32.6% in 2021 to a gross margin of approximately 12.7% in 2022 as we improved the quality of Metro® with additional cost per vehicle and additional fluctuated ocean transportation cost incurred during 2022. Also, the realized gross margin of our newly introduced model Logsitar®200 only began selling in 2022 was approximately 21.0%. The company adopts a competitive pricing strategy for Logsitar®200 to gain market acceptance. 70 Table of Contents Selling and Marketing Expenses Selling and marketing expenses for the year ended December 31, 2022 were approximately $6. 5 million, an increase of approximately $5.5 million or approximately 530.9% from approximately $1.0 million for the year ended December 31, 2021. The increase in selling and marketing expenses in 2022 was primarily attributed to the increase in marketing expense, salary expenses, and ocean freight costs related to marketing of approximately $2.2 million, $1.5 million, $0.7 million, respectively. General and Administrative Expenses General and administrative expenses for the year ended December 31, 2022 were approximately $32.8 million, an increase of approximately $17.9 million or approximately 119.2% from approximately $15.0 million for the year ended December 31, 2021. The increase in general and administrative expenses in 2022 was primarily attributed to (i) an increase in salary and social insurance of approximately $8.4 million, (ii) an increase in share-based compensation of approximately $2.3 million, (iii) an increase in office expense of approximately $2.2 million, and (iv) one-off fees of approximately $1.8 million related to the divestment of FOH. Additional tax surcharges and travelling expenses of approximately $0.8 million and $0.6 million were incurred as the Company expanded globally during 2022. Research and Development Expenses Research and development expenses for the year ended December 31, 2022 were approximately $6.4 million, an increase of approximately $4.9 million or approximately 330.4% from approximately $1.5 million for the year ended December 31, 2021. The increase in research and development expenses in 2022 was primarily attributed to the increase in design and development expenditures, salary expense, and additional quality improvement related expenditures of approximately $2.2 million, $1.4 million, and $0.5 million, respectively. Provision for doubtful accounts Provision for doubtful accounts for the year ended December 31, 2022 was approximately $6.0 million, an increase of approximately $5.5 million or approximately 1174.5% from approximately $0.5 million for the year ended December 31, 2021. The increase in the provision for doubtful accounts in 2022 primarily attributed to the provision of approximately $1.4 million provided to the Cenntro Automotive Europe GmbH’s (“CAE”) accounts receivable related to the sales prior to the acquisition of CAE and the provision of approximately $4.6 million provided to the loan made to Bendon Limited, given its default on several interest payments during the year 2022. Interest expense, net Interest expense, net, consists of interest on borrowings and convertible bonds. Net interest expense was approximately $0.8 million for the year ended December 31, 2022, a decrease of approximately $0.2 million or approximately 21.1% compared to the approximately $1.1 million in interest expense for the year ended December 31, 2021. The decrease was primarily attributable to (i) an increase in interest expense to convertible bonds of approximately $2.2 million (ii) offset by the increase in interest income of approximately $1.3 million from bank deposit and the decrease in interest expense of approximately $1.1 million paid to related parties and third parties loans. Loans from related parties and third parties were fully settled as of April 13, 2023. Other income (expense), net Other expense, net for the year ended December 31, 2022 was approximately $0.9 million, representing a change of approximately $2.1 million compared to approximately $1.2 million of other income, net for the year ended December 31, 2021. The change of other expense in 2022 compared to 2021 was primarily attributable to the contingent liability recognized in 2022 to pay the litigation compensation of approximately 1.6 million to Sevic Systems SE over IP dispute and a decrease of approximately $0.4 million in investment income from the Company’s fund investments and invested financial products during the year 2022. 71 Table of Contents Change in fair value of convertible promissory notes and derivative liability A loss in the change in fair value of convertible promissory notes and derivative liability for the year ended December 31, 2022 was approximately $37.8 million. The increased liability derived from fair value change was primarily caused by the continuing underperformance of the Company’s stock price, which increased the probability of exercising the mandatory redemption rights of the Company’s convertible promissory notes and cashless exercising the warrants. Change in fair value of equity securities A loss in the change in fair value of equity securities for the year ended December 31, 2022 was approximately $0.2 million. The loss was attributed to a downward adjustment of approximately 0.3 million due to the fair value change of our investment on participating shares in Micro Money Fund SPC with an original investment value of $5 million, offset by an upward adjustment of approximately $0.02 million from our investment on partnership shares in MineOne Fix Income Investment I L.P with an original investment value of $25 million. Convertible bond issuance cost Convertible bond issuance cost for the year ended December 31, 2022 was approximately $5.6 million. Foreign currency exchange loss, net Foreign currency exchange loss, net for the year ended December 31, 2022 was approximately $0.4 million, an increase of $0.3 million compared to approximately $0.1 million for the year ended December 31, 2021. Impairment of ROU, intangible assets, goodwill, and PPE and reversal of deferred tax liabilities Impairment of ROU, intangible assets, goodwill, and PPE of approximately $0.4 million, $3.0 million, $11.1 million, and $0.6 million respectively for the year 2022. The impaired ROU, intangible assets, goodwill and PPE were all related to the acquisition of CAE closed as of March 23, 2022. Impairments to these assets were provided due to the underperformance of CAE to earn revenue as projected during 2022, which was significantly and negatively influenced by the regional conflict in the European continent and distortion of energy prices during the year 2022. A Reversal of deferred tax liabilities of approximately $0.9 million was recognized given the impairment of intangible assets related to CAE being provided. Non-GAAP Financial Measures Adjusted EBITDA for the Years Ended December 31, 2022 and 2021 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: 72 Table of Contents • 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. 73 Table of Contents The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net loss: Year Ended December 31, 2022 2021 (Unaudited) Net loss $ (112,145,263 ) $ (16,421,807 ) Interest expense, net 844,231 1,069,581 Income tax expense — — Depreciation and amortization 953,872 632,256 Share-based compensation expense 4,031,629 1,128,325 Nasdaq listing related expenses — 6,559,095 Expenses related to TME Acquisition 348,987 - Expenses related to one-off payment inherited from the original Naked Brand Group 8,299,178 - Impairment of goodwill 11,111,886 - Convertible bond issuance cost 5,589,336 - Loss on redemption of convertible promissory notes 7,435 - Change in fair value of convertible promissory notes and derivative liability 37,774,928 - Adjusted EBITDA $ (43,183,781 ) $ (7,032,550 ) The following table reconciles the Group‘s audited balance sheet under U.S. GAAP with its audited balance sheet under IFRS as of 31 December 2022 and 2021, respectively: For the Year Ended 31 December 2022 31 December 2021 Balance Sheet: U.S. GAAP IFRS Difference IFRS U.S. GAAP IFRS Difference IFRS Current assets Cash and cash equivalents 153,966,777 - 153,966,777 261,069,414 - 261,069,414 Restricted cash 130,024 - 130,024 595,548 - 595,548 Accounts receivable, net 565,398 - 565,398 2,047,560 - 2,047,560 Inventories 31,843,371 - 31,843,371 8,139,816 - 8,139,816 Prepayment and other current assets 16,138,330 - 16,138,330 7,989,607 - 7,989,607 Amount due from related parties - current 366,936 - 366,936 1,232,634 - 1,232,634 Total current assets 203,010,836 - 203,010,836 281,074,579 - 281,074,579 Non-current assets Equity investments 5,325,741 - 5,325,741 329,197 - 329,197 Investment in equity securities 29,759,195 - 29,759,195 - - - Plants and equipment, net 14,962,591 - 14,962,591 1,301,226 - 1,301,226 Intangible assets, net 4,563,792 - 4,563,792 3,313 - 3,313 Right-of-use assets, net 8,187,149 - 8,187,149 1,669,381 - 1,669,381 Amount due from related parties – non-current - - - 4,834,973 - 4,834,973 Other non-current assets, net 2,039,012 - 2,039,012 2,151,700 - 2,151,700 Total non-current assets 64,837,480 - 64,837,480 10,289,790 - 10,289,790 Total assets 267,848,316 - 267,848,316 291,364,369 - 291,364,369 Current liabilities Accounts payable 3,383,021 - 3,383,021 3,678,823 - 3,678,823 Accrued expense and other current liabilities 5,048,641 - 5,048,641 4,183,263 - 4,183,263 Contractual liabilities 2,388,480 - 2,388,480 1,943,623 - 1,943,623 Operating lease liabilities, current 1,313,334 - 1,313,334 839,330 - 839,330 Convertible promissory notes 57,372,827 - 57,372,827 - - - Deferred government grant, current 26,533 - 26,533 - - - Amount due to related parties 716,372 - 716,372 15,756,028 - 15,756,028 Total current liabilities 70,249,208 - 70,249,208 26,401,067 - 26,401,067 Non-current liabilities Other non-current liabilities - - - 700,000 - 700,000 Deferred government grant, non current 497,484 - 497,484 - - - Derivative liability - Investor Warrant 14,334,104 - 14,334,104 - - - Derivative liability - Placement Agent Warrant 3,456,404 - 3,456,404 - - - Operating lease liabilities-non current 7,421,582 - 7,421,582 489,997 - 489,997 Total non-current liabilities 25,709,574 - 25,709,574 1,189,997 - 1,189,997 Total liabilities 95,958,782 - 95,958,782 27,591,064 - 27,591,064 Equity Ordinary Shares (No par value; 300,841,995 and 261,256,254 shares issued and outstanding as of December 31, 2022 and 2021, respectively) Additional paid-in capital 397,497,817 182,125,475 (1) 579,623,292 374,901,939 186,157,104 (1) 561,059,043 Accumulated other comprehensive loss (5,306,972 ) 5,306,972 - (1,392,699 ) 1,392,699 - Reserves - 21,997,484 (2) 21,997,484 - 21,880,128 (2) 21,880,128 Accumulated deficit (219,824,176 ) (209,429,931 ) (429,254,107 ) (109,735,935 ) (209,429,931 ) (319,165,866 ) Total Stockholders' Equity 172,366,669 172,366,669 263,773,305 263,773,305 Non-controlling interests (477,135 ) - (477,135 ) - - - Total Equity 171,889,534 171,889,534 263,773,305 263,773,305 Total Liabilities and Equity 267,848,316 267,848,316 291,364,369 291,364,369 74 Table of Contents (1) Includes $(27,304,456) (2021: $(23,272,827)) in share-based compensation payments and 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 $(5,306,972) (2021: $(1,392,699)) and (ii) a reclassification of Additional paid-in capital under U.S. GAAP of $27,304,456 (2021: $23,272,827) in share-based compensation payments to Reserves under IFRS. The following table reconciles the Group’s audited statement of operations under U.S. GAAP for the years ended 31 December 2022 and 2021 with its statement of operations under IFRS for the years ended 31 December 2022 and 2021, respectively: For the Year Ended 31 December 2022 31 December 2021 Statement of Operations: U.S. GAAP IFRS Difference IFRS U.S. GAAP IFRS Difference IFRS Net revenues 8,941,835 - 8,941,835 8,576,832 - 8,576,832 Cost of goods sold (9,455,805 ) - (9,455,805 ) (7,073,391 ) - (7,073,391 ) Gross (Loss) Profit (513,970 ) - (513,970 ) 1,503,441 - 1,503,441 Selling and marketing expenses (6,525,255 ) - (6,525,255 ) (1,034,242 ) - (1,034,242 ) General and administrative expenses (32,822,709 ) - (32,822,709 ) (14,972,682 ) - (14,972,682 ) Research and development expenses (6,362,770 ) - (6,362,770 ) (1,478,256 ) - (1,478,256 ) Provision for doubtful accounts (5,986,308 ) - (5,986,308 ) (469,702 ) - (469,702 ) Impairment loss of right of use (371,695 ) - (371,695 ) - - - Impairment loss of Intangible assets (2,995,440 ) - (2,995,440 ) - - - Impairment of Property, plant and equipment (550,402 ) - (550,402 ) (6,215) - (6,215) Reverse of Deferred tax liabilities 898,632 - 898,632 - - - Total operating expenses (54,715,947 ) - (54,715,947 ) (17,961,097 ) - (17,961,097 ) Loss from operations (55,229,917 ) - (55,229,917 ) (16,457,656 ) - (16,457,656 ) Interest expense, net (844,231 ) - (844,231 ) (1,069,581 ) - (1,069,581 ) Other (expense) income, net (924,867 ) - (924,867 ) 1,090,263 - 1,090,263 (Loss) income from and impairment on equity method investments (12,651 ) - (12,651 ) 15,167 - 15,167 Cost of listing on reverse acquisition - - - - (209,429,931 ) (209,429,931 ) Loss on redemption of convertible promissory notes (7,435 ) - (7,435 ) - - - Change in fair value of convertible promissory notes and derivative liability (37,774,928 ) - (37,774,928 ) - - - Change in fair value of equity securities (240,805 ) - (240,805 ) - - - Convertible bond issuance cost (5,589,336 ) (5,589,336 ) Foreign currency exchange loss, net (409,207 ) - (409,207 ) - - - Impairment of Goodwill (11,111,886 ) - (11,111,886 ) - - - Loss before income taxes (112,145,263 ) - (112,145,263 ) (16,421,807 ) - (225,851,738 ) Income tax expense - - - - - - Net loss (112,145,263 ) - (112,145,263 ) (16,421,807 ) - (225,851,738 ) Less: net loss attributable to non-controlling interests (2,057,022 ) - (2,057,022 ) - - - Net loss attributable to shareholders (110,088,241 ) - (110,088,241 ) (16,421,807 ) - (225,851,738 ) - Other comprehensive loss - - Foreign currency translation adjustment (3,889,706 ) - (3,889,706 ) 512,140 - 512,140 Total comprehensive loss (116,034,969 ) - (116,034,969 ) (15,909,667 ) - (225,339,598 ) Less: total comprehensive loss attributable to non-controlling interests (2,032,455 ) - (2,032,455 ) - - - Total comprehensive loss attributable to the Company’s shareholders (114,002,514 ) - (114,002,514 ) (15,909,667 ) - (225,339,598 ) 75 Table of Contents As set forth above, the material differences between the U.S. GAAP and IFRS presentation with respect to the Group’s combined balance sheet as of 31 December 2022 and combined balance sheet as of 31 December 2021 are as follows: a) The reclassification of “Accumulated other comprehensive loss” under U.S. GAAP to “Reserves” under IFRS; b) The reclassification of amounts of IFRS share-based payments from “Additional paid-in capital” under U.S. GAAP to “Reserves” under IFRS; c) Additional equity recognized from the difference between the total deemed transaction price and net assets acquired related to the Combination under IFRS; and d) In 2021, the Group was deemed to have incurred non-cash listing costs of approximately $209.4 million as a result of the IFRS accounting treatment of the Combination, as Cenntro was deemed to have received a 67% controlling interest in CEGL (formerly NBG) and the Group was deemed to have incurred listing costs 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 year ended 31 December 2022. B. Liquidity and Capital Resources We have historically funded working capital and other capital requirements primarily through bank loans, equity financings and short-term loans. Also, the reverse recapitalization we have completed at the end of December 2021 provided significant funding for the Company’s operations. Cash is required primarily to purchase raw materials, repay debts and pay salaries, office expenses and other operating expenses. As of December 31, 2022, we had approximately $154.0 million in cash and cash equivalents and approximately $0.6 million of accounts receivables as compared to approximately $ 261.1 million in cash and cash equivalents and $2.0 million in accounts receivable as of December 31, 2021. For the years ended December 31, 2022 and 2021, net cash used in operating activities was approximately $69.4 million and $21.5 million, respectively. 76 Table of Contents Short-Term Liquidity Requirements We believe our cash and cash equivalents will be sufficient for us to continue to execute our business strategy over the twelve months period following the date of issuance of our annual report . Our current business strategy for the next twelve months includes (i) the continued rollout of our new ECV models 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 factory. Actual results could vary materially as a result of a number of factors, including: • The costs of bringing our new facilities into operation; • The timing and costs involved in rolling out new ECV models to market; • Our ability to manage the costs of manufacturing our ECVs; • The costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities; • Revenues received from sales of our ECVs; • The costs of additional general and administrative personnel, including accounting and finance, legal and human resources, as well as costs related to litigation, investigations, or settlements; • Our ability to collect future revenues; and • Other risks discussed in the section titled “ Risk Factors .” For the twelve months from the date hereof, we also plan to continue implementing measures to increase revenues and control operating costs and expenses, implementing comprehensive budget controls and operational assessments, implementing enhanced vendor review and selection processes as well as enhancing internal controls. Long-Term Liquidity Requirements In the long-term, we plan to regionalize the manufacturing and supply chain relating to certain components of our ECVs in the geographic markets in which our ECVs are sold. In the long-term, through our supply chain development know-how, we intend to establish supply chain relationships in North America and the European Union to support anticipated manufacturing and assembly needs in these markets, thereby reducing the time in transit and potentially other landed costs elements associated with importing our components and spare parts from China. Currently, the majority of our revenues is derived from the sale of ECVs by private label channel partners that assemble our vehicle kits in their own facilities. As part of our growth strategy, we plan to expand our channel partner network, and local assembly facilities to regionalize our manufacturing and supply chains to better serve our global customers especially to expand our after-sales-market services offerings. We intend to further expand our technology through continued investment in research and development. Since inception in 2013 through December 31, 2022, we have spent over approximately $ 81.5 million in research and development activities related to our operations. We plan to increase our research and development expenditure over the long term as we build on our technologies in vehicle development, driving control, cloud-based platforms, and innovations for promoting sustainable energy. For our long-term business plan, we plan to fund current and future planned operations mainly through cash on hand, cash flow from operations, lines of credit and additional equity and debt financings to the extent available on commercially favorable terms. Working Capital As of December 31, 2022, our working capital was approximately $132.8 million, as compared to a working capital of approximately $254.7 million as of December 31, 2021. The approximately $121.9 million decrease in working capital during 2022 was primarily due to (i) the decrease of cash and cash equivalents of approximately $107.1 million, offset by the increase in inventories, convertible bonds and prepayment and other current assets of approximately $23.7 million, $57.4 million and $8.2 million, respectively and (ii) a decrease in amounts due to related parties of approximately $15.0 million. 77 Table of Contents Borrowings Prior to December 2020, we had six working capital loans outstanding, consisting of three loans from China Construction Bank Shengzhou Branch and three loans from Agricultural Bank of China Shengzhou Economic Development Zone Branch in the aggregate amount of approximately $15.4 million. The bank loans were secured by a lien on our land use rights and properties, which were sold in November 2020. As of December 31, 2020, we paid off in full all outstanding bank loans and do not have any debt facilities available with any financial institutions. In addition, historically, we received additional debt financing from related parties and third parties. As of December 31, 2021, the outstanding amounts owed to related parties and third parties including accrued and unpaid interest, was approximately $2.2 million representing a decrease of approximately $4.5 million from approximately $6.7 million as of December 31, 2020. The decrease was primarily due to the repayment of the outstanding loans after acquired the aggregate $30 million loan from NBG prior to the Combination. As of May 11, 2023, we paid off all outstanding borrowings due to third parties and related parties. Cash Flow Year Ended December 31, 2022 2021 Net cash used in operating activities $ (69,401,126 ) $ (21,475,586 ) Net cash (used in) provided by investing activities (56,883,397 ) 7,234,639 Net cash provided by financing activities 19,452,636 271,151,309 Effect of exchange rate changes on cash (736,274 ) 205,566 Net (decrease) increase in cash, cash equivalents, and restricted cash (107,568,161 ) 257,115,928 Cash and cash equivalents, and restricted cash at beginning of the year 261,664,962 4,549,034 Cash and cash equivalents, and restricted cash at end of the period $ 154,096, 801 $ 261,664,962 Operating Activities Our net cash used in operating activities was approximately $ 69.4 million, $21.4 million for the years ended December 31, 2022 and 2021, respectively. Net cash used in operating activities for the year ended December 31, 2022 was primarily attributable to (i) our net loss of approximately $112.0 million and adjusted for non-cash items of approximately $72.8 million, which primarily consisted of impairment of goodwill, share based compensation expense, convertible bond issuance cost, impairment of PPE and intangible assets, allowance for doubtful receivables and changes in fair value of convertible promissory notes and derivative liability of approximately $11.1 million, $4.0 million, $5.6 million, $2.6 million, $6.0 million and $37.8 million, respectively, (ii) the decrease in accrued expense and other current liabilities, operating lease liabilities and accounts payable of approximately $0.2 million, $1.0 million and $2.1 million, respectively, (iii) increase in inventories and prepayments and other assets of $20.5 million and $6.5 million, respectively, and (iv) increase of amounts due from related parties of approximately $1.5 million offset by the increase of amount due to related parties of approximately $0.3 million. Our operations for the year of 2022 were significantly adversely affected by the COVID-19 pandemic as previously discussed. We had limited cash flow generated from operating activities due to deferred sales orders and shipments, and our operating expense increased because of reverse recapitalization. 78 Table of Contents Investing Activities Net cash used in investing activities was approximately $56.9 million for the year ended December 31, 2022. Net cash used in investing activities for the year ended December 31, 2022 was primarily attributable to cash paid for equity securities in 2022 in the amount of approximately $30 million and approximately $16.5 million in purchase of land use rights and property, additions in long-term investments as a minority interest of approximately $ 4.3 million, approximately $3.3 million in purchase of plant and equipment and approximately $2. million net cash paid in acquisition of 65% of CAE's share and including related expenses . Financing Activities Net cash provided by financing activities was approximately $19.5 million for the year ended December 31, 2022. Net cash provided by financing activities for the year ended December 31, 2022 was primarily attributable to the receipt of approximately $54.1 million in issuance of convertible bonds, offset by approximately $1.7 million in repayment of loans to related parties, approximately $13.9 million related to the deduction of capital investment prior to the closing of the combination paid in the year of 2022, approximately $13.2 million paid for the purchase of CAE's shareholder loan, and approximately $3.7 million paid due to redemption of convertible bonds. Contractual Obligations In December 2020, we signed a non-cancellable operating lease agreement for approximately 165,800 square feet for its ECV manufacturing facility in Changxing, China. The lease period began in April 2021 and ends in March 2024. Pursuant to the agreement, we prepaid the first year of our rent obligations in February 2021 and thereafter will be obligated to pay rent in advance semiannually. The annual base rent for this facility is $487,008. 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 February 2022. The annual base rent for this facility is $119,925. We currently lease the Willowbrook facility on a month-to-month basis at the same annual base rent. 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 2023. 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 $170,617 for the term ending May 2022 and $186,866 for the term ending May 2023. In June 2021, NBG signed a non-cancellable operating lease agreement for approximately 1,130 square feet of one suite of an office building in Sydney, Australia. The lease period for lease agreement began in July 2021 and ends in June 2023. Pursuant to the agreement, NBG paid $92,493 in June 2021 as lease guarantee and we are obligated to make monthly rental payments in advance. The total annual base rent under the lease agreement is $105,046 for the term ending June 2022 and $144,263 for the term ending June 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 €238,800 (or approximately $210,991) 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 January 20, 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. 79 Table of Contents We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our Audited Financial Statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements, the reported amounts of revenue and expenses during the reporting period and the related disclosures in the consolidated and combined financial statements and accompanying footnotes. Out of our significant accounting policies, which are described in “Note 2—Summary of Significant Accounting Policies” of our consolidated and combined financial statements for the year ended December 31, 2021, included elsewhere in this Annual Report, certain accounting policies are deemed “critical,” as they require management’s highest degree of judgment, estimates and assumptions. While management believes its judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those estimates under different assumptions and conditions. Basis of presentation The consolidated and combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). As an Australian public limited company, the Company is subject to the Corporations Act 2001 (the “Corporations Act”), which requires financial statements be prepared and audited in accordance with Australian Auditing Standards (“AAS”) and International Financial Reporting Standards (“IFRS”). The consolidated and combined financial statements are not financial statements for the purposes of the Corporations Act and are considered “non-IFRS financial information” under the Australian Securities and Investment Commission’s Regulatory guide 230: ‘Disclosing non-IFRS financial information.’ Such non-IFRS financial information may not be comparable to similarly titled information presented by other entities and should not be construed as an alternative to other financial information prepared in accordance with AAS or IFRS. The combined financial statements include the combined financial statements of Cenntro from the dates they were acquired or incorporated, which includes (a) the combined statements of operations and comprehensive loss, changes in equity and cash flows for the periods from January 1, 2021 to December 30, 2021. The consolidated financial statements include (a) the consolidated balance sheet as of December 31, 2022 and 2021; and (b) consolidated statements of operations and comprehensive loss, changes in equity and cash flows for the period from December 31, 2021 to December 31, 2022. All intercompany balances and transactions have been eliminated in consolidation and combination. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company continually evaluates these estimates and assumptions based on the most recently available information, historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Significant accounting estimates reflected in the Company’s consolidated and combined financial statements include, but are not limited to, estimates and judgments applied in determination of provision for doubtful accounts, lower of cost and net realizable value of inventories, impairment losses for long-lived assets and investments, valuation allowance for deferred tax assets and fair value measurement for share-based compensation expense, convertible promissory notes and warrants. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. 80 Table of Contents Fair value measurement ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. These tiers include: Level 1—defined as observable inputs such as quoted prices in active markets; Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3—defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s financial instruments not reported at fair value primarily consist of cash and cash equivalents, restricted cash, accounts receivable, prepayments and other current assets, amount due from and due to related parties, accounts payable and accrued expenses and other current liabilities. The carrying value of cash and cash equivalents, restricted cash, accounts receivable, prepayment and other current assets, accounts payable, accrued expenses and other current liabilities and amount due from and due to related party, current approximate fair value because of the short-term nature of these items. The estimated fair values of loan from third party, and amount due from related party, non-current were not materially different from their carrying value as presented due to the brief maturities and because the interest rates on these borrowings approximate those that would have been available for loans of similar remaining maturities and risk profiles. The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company has elected to apply the fair value option to convertible promissory notes due to the complexity of the various conversion and settlement options available to notes holders. The convertible promissory notes accounted for under the fair value option election are each a debt host financial instrument containing embedded features that would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements in accordance with GAAP. Notwithstanding, when the fair value option election is applied to financial liabilities, bifurcation of an embedded derivative is not required, and the financial liability is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis as of each reporting period date. The portion of the change in fair value attributed to a change in the instrument-specific credit risk is recognized as a component of other comprehensive income and the remaining amount of the fair value adjustment is recognized as changes in fair value of convertible promissory notes and derivative liabilities in the Company’s consolidated statement of operations. The estimated fair value adjustment is presented in a respective single line item within other income (expense) in the consolidated statement of operations because the change in fair value of the convertible notes was not attributable to instrument-specific credit risk. In connection with the issuances of convertible promissory notes, the Company issued investor warrants and placement agent warrants to purchase ordinary shares of the Company. The Company utilizes a Binomial model to estimate the fair value of the warrants and are considered a Level 3 fair value measurement. The warrants are measured at each reporting period, with changes in fair value recognized in the statement of operations. 81 Table of Contents As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of its certain fund investment. The Company’s investments valued at NAV as a practical expedient are private equity funds, which represent the investment in equity securities on the consolidated balance sheet. Business combination The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 “Business Combinations.” The cost of an acquisition is measured as the aggregate of the acquisition date fair value of the assets transferred to the sellers, liabilities incurred by the Company and equity instruments issued by the Company. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets acquired and liabilities assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the acquisition date amounts of the identifiable net assets of the acquiree is recorded as goodwill. Cash and cash equivalents and restricted cash The Company considers highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Restricted cash consists of cash restricted as to withdrawal or use. Such restricted cash relates to certain credit card and lease guarantees. Revenue recognition We adopted ASC Topic 606 Revenue from Contracts with Customers with a date of the initial application of January 1, 2018 using the modified retrospective method. We recognize revenue when goods or services are transferred to customers in an amount that reflects the consideration which we expect to receive in exchange for those goods. In determining when and how revenue is recognized from contracts with customers, we perform 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) we satisfy each performance obligation. We generate 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 we have determined that the customer has obtained control over the product. Control is typically deemed to have been transferred to the customer when the performance obligation is fulfilled, usually at the time of delivery, at the net sales price (transaction price). Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Cost of goods sold Cost of goods sold mainly consists of production related costs including costs of raw materials, consumables, direct labor, overhead costs, depreciation of property, plant and equipment, manufacturing waste treatment processing fees and inventory write-downs. 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. 82 Table of Contents Government grants The Company’s PRC based subsidiaries received government subsidies from certain local governments. The Company’s government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has provided for a specific purpose, such as land fulfillment costs. Other subsidies are the subsidies that the local government has not specified its purpose for and are not tied to future trends or performance of the Company, receipt of such subsidy income is not contingent upon any further actions or performance of the Company and the amounts do not have to be refunded under any circumstances. Specific subsidies relating to land use rights are accounted for as an income with the subsidy benefit reflected over the related asset useful life. Other subsidies are recognized as other income upon receipt as further performance by the Company is not required. Accounts receivable and provision for doubtful accounts Accounts receivable are recognized and carried at net realizable value. Provision for doubtful accounts is recorded for periods in which we determine a loss is probable, based on its 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. Provision for doubtful accounts are $6.0 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively. Inventories Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined on the basis of weighted average. The cost of finished goods is determined on the basis of weighted average and comprises direct materials, direct labor cost and an appropriate proportion of overhead. Net realizable value is based on estimated selling prices less selling expenses and any further costs of completion. Adjustments to reduce the cost of inventory to net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. Write-downs are recorded in the consolidated and combined statements of operations and comprehensive loss. Inventories were written down by $2.2 million and $1.3 million to reflect the lower of cost or net realizable value for the years ended December 31, 2022 and 2021, respectively. Investment in equity securities For investments in equity securities with a variable interest rate indexed to the performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in the consolidated statements of operations and comprehensive loss. The Company determines the appropriate classification of its investments in equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. The private equity funds are measured at fair value with gains and losses recognized in earnings. As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of the Fund. The Company evaluates whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include the market value of the security in relation to its cost basis, the financial condition of the investee, and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment. 83 Table of Contents Property, plant and equipment, net Property, plant and equipment are carried at cost less accumulated depreciation and any impairment. Depreciation is calculated over the asset’s estimated useful life, using the straight-line method. Leasehold improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are as follows: Buildings 20 years Machinery and equipment 5-10 years Office equipment 5 years Motor vehicles 3-5 years Leasehold improvement 3-10 years Others 3 years The Company reassesses the reasonableness of the estimates of useful lives and residual values of long-lived assets when events or changes in circumstances indicate that the useful lives and residual values of a major asset or a major category of assets may not be reasonable. Factors that the Company considers in deciding when to perform an analysis of useful lives and residual values of long-lived assets include, but are not limited to, significant variance of a business or product line in relation to expectations, significant deviation from industry or economic trends, and significant changes or planned changes in the use of the assets. The analysis will be performed at the asset or asset category with the reference to the assets’ conditions, current technologies, market, and future plan of usage and the useful lives of major competitors. The costs and related accumulated depreciation of assets sold or otherwise retired are eliminated from the Company’s accounts and any gain or loss is included in the consolidated and combined statements of operations and comprehensive loss. The cost of maintenance and repair is charged to expenses as incurred, whereas significant renewals and betterments are capitalized. The Company constructs certain of its property including recodifications and improvement of its office buildings and plant. Depreciation is recorded at the time assets are ready for the intended use. Intangible assets, net Intangible assets are carried at cost less accumulated amortization and any recorded impairment. Intangible assets are amortized using the straight-line approach over the estimated economic useful lives of the assets as follows: Category Estimated useful life Land use rights 45.75 years Software 3 years Impairment of long-lived assets The Company evaluates the recoverability of long-lived assets or asset group with determinable useful lives whenever events or changes in circumstances indicate that an asset or a group of assets’ carrying amount may not be recoverable. The Company measures the carrying amount of long-lived asset against the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. The carrying amount of the long-lived asset or asset group is not recoverable when the sum of the undiscounted expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset group, when the market prices are not readily available. The adjusted carrying amount of the assets become a new cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The impairment test is performed at the asset group level. Impairment loss for long-lived assets of $3,917,537 and $6,215 were recorded in the Company’s consolidated and combined statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021, respectively. 84 Table of Contents Goodwill Goodwill represents the future economic benefits arising from other assets acquired in a business combination. Goodwill acquired in a business combination is tested for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company performs impairment analysis on goodwill as of December 31 every year either beginning with a qualitative assessment, or starting with the quantitative assessment instead. The quantitative goodwill impairment test compares the fair values of each reporting unit to its carrying amount, including goodwill. A reporting unit constitutes a business for which discrete profit and loss financial information is available. The fair value of each reporting unit is established using a combination of expected present value of future cash flows. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company adopted ASU No. 2017-14, simplifying the Test for Goodwill Impairment on January 1, 2022. The Company has the option to choose whether it will apply the qualitative assessment first and then the quantitative assessment, if necessary, or to apply the quantitative assessment directly. If the Company chooses to apply a qualitative assessment first, it starts the goodwill impairment test by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of comparison of the fair value of a reporting unit to its carrying amount. Application of a goodwill impairment test requires significant management judgments, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. Impairment loss for goodwill of $11,111,886 and nil were recorded for the years ended December 31, 2022 and 2021, respectively. Investment in equity investees Investee companies over which the Company has the ability to exercise significant influence but does not have a controlling interest through investment in common shares or in substance common shares are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%, and other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate. Under the equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s proportionate share of each equity investee’s net income or loss after the date of investment into the consolidated and combined statements of operations and comprehensive loss and accordingly adjusts the carrying amount of the investment. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee. The Company reviews its equity method investments for impairment whenever an event or circumstance indicates that other-than-temporary impairment has occurred. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its equity method investments. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The adjusted carrying amount of the assets become a new cost basis. 85 Table of Contents Income taxes The Company accounts for income tax using an asset and liability approach, which allows for the recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect for the years in which the differences are expected to reverse. The accounting for deferred tax calculation represents management’s best estimate of the most likely future tax consequences of events that have been recognized in our financial statements or tax returns and related future anticipation. A valuation allowance is recorded to reduce the deferred tax assets to an amount that is more likely than not to be realized after considering all available evidence, both positive and negative. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Net operating losses are carried forward and credited by applying enacted statutory tax rates applicable to future years when the reported amounts of the asset or liability are expected to be recovered or settled, respectively. Deferred tax assets are reduced by a valuation allowance when, based upon the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. As required by applicable tax law, interest on non-payment of income taxes and penalties associated with tax positions when a tax position does not meet the minimum statutory threshold to avoid payment of penalties recognized, if any, will be classified as a component of the provisions for income taxes. The tax returns of the Company’s Hong Kong and PRC subsidiaries are subject to examination by the relevant local tax authorities. According to the Departmental Interpretation and Practice Notes No.11 (Revised) of the Hong Kong Inland Revenue Ordinance (the “HK tax laws”), an investigation normally covers the six years of the assessment prior to the year of the assessment in which the investigation commences. In the case of fraud and willful evasion, the investigation is extended to cover ten years of assessment. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. U.S. federal tax matters are open to examination for years 2014 through 2022. For the years ended December 31, 2022 and 2021, the Company did not have any material interest or penalties associated with tax positions. The Company did not have any significant unrecognized uncertain tax positions as of December 31, 2022 or 2021. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months. Foreign currency translation and transaction The consolidated and combined financial statements are presented in United States dollars (“USD” or “$”). The functional currency of certain of CEGL’s PRC subsidiaries is the Renminbi (“RMB”). The functional currency of CEA is the EUR, and CEGL and its other subsidiaries outside of PRC is the USD. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the reporting period. Capital accounts of the consolidated and combined financial statements are translated into USD from RMB at their historical exchange rates when the capital transactions occurred. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of accumulated other comprehensive loss in the balance sheets. The rates are obtained from H.10 statistical release of the U.S. Federal Reserve Board. For the Years Ended December 31, 2022 2021 Period end USD: RMB exchange rate 　 　 6.8972 　 　 　 6.3726 　 Average USD: RMB exchange rate 　 　 6.7290 　 　 　 6.4508 　 Period end USD: EUR exchange rate 0.9348 0.8835 Average USD: EUR exchange rate 0.9493 0.8453 86 Table of Contents Foreign currency transactions denominated in currencies other than functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and from re-measurement at year-end are recognized in foreign currency exchange gain/loss, net on the consolidated and combined statement of operations. Comprehensive loss Comprehensive loss includes all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive loss are required to be reported in a financial statement that is presented with the same prominence as other financial statements. For the years presented, comprehensive loss includes net loss and the foreign currency translation changes. Segments In accordance with ASC 280-10, Segment Reporting, the Company’s chief operating decision maker (“CODM”), identified as the Company’s Chief Executive Officer, relies upon the consolidated and combined results of operations as a whole when making decisions about allocating resources and assessing the performance of the Company. As a result of the assessment made by CODM, the Company has only one reportable segment. The Company does not distinguish between markets or segments for the purpose of internal reporting. The Company’s long-lived assets are substantially located in the PRC and United States. The following table presents long-lived assets by geographic segment as of December 31, 2022 and 2021. Long-lived assets December 31, 2022 2021 PRC $ 18,018,954 $ 2,177,091 US 9,125,535 527,469 Dominican 469,740 - Others 99,303 269,360 Total $ 27,713,532 $ 2,973,920 Share-based compensation expense The Company’s share-based compensation expenses are recorded in accordance with ASC 718 and ASC 710. Share-based awards to employees are measured based on the grant date fair value of the equity instrument issued and recognized as compensation expense net of a forfeiture rate on a straight-line basis, over the requisite service period, with a corresponding impact reflected in additional paid-in capital. The estimate of forfeiture rate will be adjusted over the requisite service period to the extent that the actual forfeiture rate differs, or is expected to differ, from such estimates. Changes in estimated forfeiture rate will be recognized through a cumulative catch-up adjustment in the period of change. 87 Table of Contents Convertible promissory notes The Company has elected the fair value option to account for its convertible promissory notes issued during 2022. In accordance with ASC 825, the convertible promissory notes are marked-to-market at each reporting date with changes in fair value recorded as a component of other income (expense), in the consolidated statements of operations and comprehensive loss. We disclose the nature and terms, the income statement effects, the valuation methods and assumptions of the convertible promissory notes in Note 15 to our consolidated financial statements. Derivative liability Warrants recorded as liabilities at fair value in accordance with ASC 480 “Distinguishing Liabilities from Equity”. The liability remeasured every reporting period with any change to fair value recorded in the consolidated and combined statements of operations. We disclose the nature and terms, the income statement effects, the valuation methods and assumptions of the warrants in Note 15 to our consolidated financial statements. Operating lease The Company adopted the new lease accounting standard, ASC Topic 842, Leases (“ASC 842”) as of January 1, 2019, using the non-comparative transition option pursuant to ASU 2018-11. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things (i) allowed the Company to carry forward the historical lease classification; (ii) did not require the Company to reassess whether any expired or existing contracts are or contain leases and (iii) did not require the Company to reassess initial direct costs for any existing leases. Therefore, the Company did not consider its existing land use right that was not previously accounted for as leases under Topic 840. For all operating leases except for short-term leases, the Company recognized operating right-of-use assets and operating lease liabilities. Leases with an initial term of 12 months or less were short-term leases and not recognized as right-of-use assets and lease liabilities on the consolidated and combined balance sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, determined by class of underlying asset, to discount the lease payments. The operating lease right-of-use assets also include lease payments made before commencement and exclude lease incentives. Some of the Company’s lease agreements contained renewal options; however, the Company did not recognize right-of-use assets or lease liabilities for renewal periods unless it was determined that the Company was reasonably certain of renewing the lease at inception or when a triggering event occurred. The Company’s lease agreements did not contain any material residual value guarantees or material restrictive covenants. Non-controlling Interest A non-controlling interest in subsidiaries represents the portion of the equity (net assets) in the subsidiaries not directly or indirectly attributable to the Company’s shareholders. Non-controlling interests are presented as a separate component of equity on the consolidated balance sheets and consolidated and combined statements of operations and other comprehensive loss are attributed to controlling and non-controlling interests. Recently issued accounting standards pronouncements The Group is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses”, which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Subsequently, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02 to provide additional guidance on the credit losses standard. For all other entities, the amendments for ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Adoption of the ASUs is on a modified retrospective basis. The Group will adopt ASU 2016-13 from January 1, 2023. The Group expects the adoption of this guidance does not have a material impact on the consolidated financial statements. 88 Table of Contents Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent standards that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.