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. 54 Table of Contents Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses. You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Annual Report. US Dollars are denoted herein by “USD”, “$” and “dollars”. Overview We are an emerging designer, manufacturer, distributor, and service provider of commercial vehicles powered by either electricity or hydrogen energy sources. Our commercial vehicles are designed to serve a variety of fleet and municipal organizations in support of city services, last-mile delivery and other commercial applications. As of December 31, 2023, we have developed six series of commercial vehicle models, Metro®, Logistar™, Logimax™, Avantier™, Teemak™ and Antric One. We have successfully begun to produce and deliver these models into the global markets, apart from Logimax™. We have also developed and introduced iChassis™: a programmable “smart” chassis that may be controlled by third-party software for various remote controlled or autonomous driving applications. We continue to leverage our technology, vehicle development, and vehicle distribution capabilities with a goal to become a leading provider in the electric commercial vehicle (“ECV”) market. Our greater mission is to provide commercial vehicles that may be powered by sustainable sources while building eco-chains to reduce carbon dioxide for a better environment and quality of life. With the global trend toward reducing the number of internal combustion engine (“ICE”) vehicles, electric-battery and fuel cell technologies stand out as strong alternatives. Prior to COVID-19, battery costs significantly decreased over the past decade. We expect that over the long term, prices will continue to fall. According to research service Bloomberg NEF (“BNEF”), lithium-ion battery pack prices decreased from above $1,200 per kilowatt-hour in 2010 to $132/kWh in 2021. In real terms, this represented a decline of approximately 89%. Although battery pack prices have recently increased and may continue to increase in the near-term due to the rising price of lithium as a result of COVID-19 and other factors, we anticipate that battery prices will continue to decrease in the long-term. BNEF further forecasts that by 2024, average prices are expected to fall to below $100/kWh, though such reductions in average price may be delayed due to higher raw material prices in the near term. Additionally, while prices for key battery metals like lithium, nickel and cobalt have moderated slightly in recent months, BNEF expects average battery pack prices to remain elevated in 2023 at $152/kWh (in real 2022 dollars). BNEF expects battery price to start dropping again in 2024, when lithium prices are expected to ease as more extraction and refining capacity comes online. Based on the updated observed learning rate, BNEF’s 2022 Battery Price Survey predicts that average pack prices should fall below $100/kWh by 2026. By emphasizing investments in technology, supply-chains, vehicle distribution and aftermarket support, we have begun making our own battery packs, preparing battery cell production, by building up vehicle distribution and service networks, and introducing our cloud-based parts distribution systems. As investment in battery technology continues to increase, we believe these cost reductions outlined by BNEF will continue to improve the economics of battery-powered ECVs, like ours. In addition to our investment in battery-technology, we have established an asset-light, distributed manufacturing business model through which we may distribute our vehicles in unassembled semi-knockdown vehicle kits (“vehicle kits”) for local assembly in addition to fully assembled vehicles. Some of our vehicle models have a modular design that allows for local assembly in micro factory facilities that require less capital investment. We manufacture our own vehicle kits for the Metro® in our facilities in China and leverage the economies of scale of and the supply-chain availability in China to manufacture vehicle kits and fully assembled vehicles in our assembly plants in United States and Germany. We believe our distributed manufacturing methodology allows us to execute our business plan with less capital than would be required by the traditional, vertically integrated automotive model and, in the long-term, drive higher profit margins. Our distributed manufacturing model allows us to focus our efforts on the design of ECV models and related technologies while outsourcing various portions of the manufacturing, assembly and marketing of our vehicles to qualified third parties, allowing the Company to operate with lower capital investment than traditional vertically integrated automotive companies. For the last several years, we relied substantially on private label channel partners to assemble and distribute the Metro® from vehicle kits that we manufactured in our facilities. Our vehicle kits and in some cases fully assembled vehicles are completed by third party Original Equipment Manufacturers (“OEMs”) manufacturing partners and, in the case of vehicle kits, assembled in our own facilities in North America and Europe. Our relationships with such third parties, our “manufacturing partners,” have allowed us to forego expensive capital investments in our own facilities and operate within our historic working capital limitations. Throughout 2022 we began to re-align our distribution and marketing strategy away from relying mainly on third-party channel partners to a distribution model that combines wholly-owned EV Centers with local dealers in order to improve overall operational efficiencies, product quality, brand value, market share, customer support and service. Throughout 2023 we have relied on our local EV Centers to develop local dealer networks that directly sell to local customers in order to improve overall operational efficiencies, product quality, brand value, market share, customer support and service. 55 Table of Contents Additionally, to meet our anticipated demand in the United States, we have established local assembly facilities in Northern America as we have launched assembly facilities in Jacksonville, Florida and Freehold, New Jersey. We are also in the of process establishing additional assembly facility in Ontario, California. Additionally, we expect that our step acquisition of CAE (f.k.a. TME) in 2023 will further expand our local assembly capacity in the European Union for production of some of our ECV models, including the Teemak™ series, Antric products, in addition to the Metro®. A. Key Components of Results of Operations Net revenues Up until December 31, 2021, we generate revenue primarily through the sale of ECVs to our channel partners. Starting in 2022, especially after the acquisition of CAE and the termination of the channel partners in North America, we have started to transform our go-to-market model to also include Cenntro Branded EV Centers globally. Historically (i.e. up until end of 2021), these revenues were generated solely by the sale of the Metro®. Starting from the last quarter of 2021, we began generating revenue from the sales of the Logistar™ 200, Logistar™ 100, Logistar™ 260, Teemak™ and Neibor® 150 in Europe. Net revenues ended December 31, 2023 and 2022 were generated from (a) vehicles sales, which primarily represent net revenues from sales of Metro® vehicles (including vehicle kits), Logistar™ 200, Logistar™ 260 and Logistar™ 100, (b) sales of ECV spare-parts related to our Metro® vehicles, and (c) other sales, which primarily were: (i) the sales of inventory of outsourced ECV batteries and (ii) charges on services provided to channel partners for technical developments and assistance with vehicle homologation or certification . Cost of goods sold Cost of goods sold mainly consists of production-related costs including costs of raw materials, consumables, direct labor, overhead costs, depreciation of plants and equipment, manufacturing waste treatment processing fees and inventory write-downs. We incur cost of goods sold in relation to (i) vehicle sales and spare-part sales, including, among others, purchases of raw materials, labor costs, and manufacturing expenses that related to ECVs, and (ii) other sales, including cost and expenses that are not related to ECV sales. Cost of goods sold also includes inventory write-downs. Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined on the basis of weighted average. The cost of finished goods is determined on the basis of weighted average and is comprised of direct materials, direct labor cost and an appropriate proportion of overhead. Net realizable value is based on estimated selling prices less selling expenses and any further costs of completion. Adjustments to reduce the cost of inventory to net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. Write-downs are recorded in the cost of goods sold in our statements of operations and comprehensive loss. Operating expenses Our operating expenses consist of general and administrative, selling and marketing expenses, and research and development expenses. General and administrative expenses are the most significant components of our operating expenses. Operating expenses also include provision for doubtful accounts and impairment loss for long- lived assets. Research and Development Expenses Research and development expenses consist primarily of employee compensation and related expenses, prototype expenses, costs associated with assets acquired for research and development, product development costs, production inspection and testing expenses, product strategic advisory fees, third-party engineering and contractor support costs and allocated overhead. We expect our research and development expenses to increase as we continue to invest in new ECV models, new materials and techniques, vehicle management and control systems, digital control capabilities and other technologies. Selling and Marketing Expenses Selling and marketing expenses consist primarily of employee compensation and related expenses, sales commissions, marketing programs, freight costs, travel and entertainment expenses and allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications and brand-building activities. We expect our selling and marketing expenses to increase as we introduce our new ECV models, further develop additional local dealership and service support networks to augment our expanding sales globally. 56 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, and fees for third-party professional services. While we will continue to monitor general and administrative expenses, we expect general and administrative expenses to materially increase over the next two years in connection with the execution of our growth strategy, including the regionalization of our manufacturing and supply chain and expanded product offerings and expenses relating to being a public company. Provision for doubtful accounts A provision for doubtful accounts is recorded for periods in which we determine a loss is probable, based on our assessment of specific factors, such as troubled collections, historical experience, accounts aging, ongoing business relations and other factors. Account balances are charged off against the provision after all means of collection have been exhausted and the potential for recovery is considered remote. Impairment loss for long-lived assets We evaluate the recoverability of long-lived assets or asset group with determinable useful lives whenever events or changes in circumstances indicate that an asset or a group of assets’ carrying amount may not be recoverable. We measure the carrying amount of long-lived asset against the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. The carrying amount of the long-lived asset or asset group is not recoverable when the sum of the undiscounted expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset group, when the market prices are not readily available. The adjusted carrying amount of the assets become a new cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Other income (expenses) Interest expense, net Interest expense, net, consists of interest on outstanding loans and the convertible promissory notes. Income(loss) from and impairment on equity method investments Entities over which we have the ability to exercise significant influence but do not have a controlling interest through investment in common shares, or in-substance common shares, are accounted for using the equity method. Under the equity method, we initially record our investment at cost and subsequently recognize our proportionate share of each such entity’s net income or loss after the date of investment into the statements of operations and comprehensive loss and accordingly adjust the carrying amount of the investment. When our share of losses in the equity of such entity equals or exceeds our interest in the equity of such entity, we do not recognize further losses, unless we have incurred obligations or made payments or guarantees on behalf of such entity. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The adjusted carrying amount of the assets become a new cost basis. Key Operating Metrics We prepare and analyze operating and financial data to assess the performance of our business and allocate our resources. The following table sets forth our key performance indicators for the years ended December 31, 2023 and 2022. Year ended December 31 2023 2022 Gross margin of vehicle sales 11.7 % -0.27 % Gross margin of vehicle sales . Gross margin of vehicle sales is defined as gross profit of vehicle sales divided by total revenue of vehicle sales 57 Table of Contents Results of Operations The following table sets forth a summary of our statements of operations for the periods indicated: Year Ended December 31, 2023 2022 (Expressed in U.S. Dollars) Combined Statements of Operations Data: Net revenues 22,079,905 8,941,835 Cost of goods sold (19,821,645 ) (9,455,805 ) Gross profit/(loss) 2,258,260 (513,970 ) Operating Expenses: Selling and marketing expenses (7,868,773 ) (6,525,255 ) General and administrative expenses (35,768,786 ) (32,822,709 ) Research and development expenses (8,469,241 ) (6,362,770 ) Provision for doubtful accounts — (5,986,308 ) Reverse of Deferred tax liabilities — 898,632 Impairment of ROU — (371,695 ) Impairment of Intangible assets — (2,995,440 ) Impairment of PPE (431,319 ) (550,402 ) Total operating expenses (52,538,119 ) (54,715,947 ) Loss from operations (50,279,859 ) (55,229,917 ) Other Income (Expense): Interest expense, net 402,414 (844,231 ) (Loss) Income from equity method investments (222,349 ) (12,651 ) Other (expense) income, net 621,633 (924,867 ) Loss on redemption of convertible promissory notes 12,507 (7,435 ) Change in fair value of convertible promissory notes and derivative liability 75,341 (37,774,928 ) Change in fair value of equity securities (2,600,721 ) (240,805 ) Convertible bond issuance cost — (5,589,336 ) Foreign currency exchange loss, net (848,781 ) (409,207 ) Impairment of Goodwill — (11,111,886 ) Gain (loss)from cross-currency swaps 8,664 — Impairment of Long-term investments (1,155,411 ) loss from acquisition of Antric (136,302 ) Loss on exercise of warrants (228,903 ) — Loss before income taxes (54,351,767 ) (112,145,263 ) Income tax expense (8,988 ) — Net loss (54,360,755 ) (112,145,263 ) Less: net loss attributable to non-controlling interests (161,430 ) (2,057,022 ) Net loss attributable to shareholders of the Company (54,199,325 ) (110,088,241 ) Comparison of the Years Ended December 31, 2023 and 2022 Net Revenues The following table presents our net revenue components by amount and as a percentage of the total net revenues for the periods presented. Year Ended December 31, 2023 2022 Amount % Amount % (Expressed in U.S. Dollars) Net revenues: Vehicle Sales $ 20,344,889 92.1 % $ 8,235,053 92.1 % Spare-part sales 1,554,311 7.1 % 304,506 3.4 % Other sales 180,705 0.8 % 402,276 4.5 % Total net revenues $ 22,079,905 100.00 % $ 8,941,835 100.00 % Net revenues for the year ended December 31, 2023 were approximately $22.1 million, an increase of approximately $13.1 million or 146.9% from approximately $8.9 million for the year ended December 31, 2022. The increase in net revenues in 2023 was primarily attributed to an increase in vehicle sales by approximately $12.1 million and an increase in spare-part sales by approximately $1.2 million, offset by the decrease in service revenue of approximately $0.2 million. 58 Table of Contents For the year ended December 31, 2023, we sold 1,135 ECVs, including 261 fully assembled Metro® units, 172 fully assembled Logistar™ 200 units, 214 fully assembled Logistar™ 100 units, 13 fully assembled Teemak™ units, 210 fully assembled Logistar™ 260 units, one fully assembled Logistar™ 400 units, 193 fully assembled Avantier™ units, 8 Neibor® 150 units, 42 Clubcar units and 21 Antric® V5 units, compared with 458 ECVs for the year ended December 31, 2022, including 48 Metro® vehicle kits, 200 fully assembled Metro® units, one fully assembled Neibor® 150 unit, 205 fully assembled Logistar™ 200, one fully assembled Teemak™ and three fully assembled iChassis 100. Geographically, the vast majority of our net revenues were generated from vehicle sales in the European Union during the years ended December 31, 2023 and 2022. For the year ended December 31, 2023, net revenues from Europe, North America, Asia (including China) and Latin America as a percentage of total revenues was 73.4%, 4.6%, 21.8% and 0.2%, respectively, compared to 78.9%, 7.8%, 13.3% and nil, respectively for the corresponding period in 2022. Cost of goods sold The following table presents our cost of goods sold by amount and as a percentage of the total cost of goods sold for the periods presented. Year Ended December 31, 2023 2022 Amount % Amount % (Expressed in U.S. Dollars) Cost of goods sold: Vehicle Sales $ (17,375,714 ) 87.7 % $ (6,852,852 ) 72.5 % Spare-part sales (1,534,172 ) 7.7 % (190,241 ) 2.0 % Other sales (253,136 ) 1.3 % (257,312 ) 2.7 % Inventory write-down (658,622 ) 3.3 % (2,155,400 ) 22.8 % Total cost of goods sold $ (19,821,645 ) 100.00 % $ (9,455,805 ) 100.00 % Cost of goods sold for the year ended December 31, 2023 was approximately $19.8 million, an increase of approximately $10.4 million or approximately 109.6% from approximately $9.5 million for the year ended December 31, 2022. The increase in cost of goods sold in 2023 was primarily attributable to the increase of cost of vehicle sales of approximately $10.5 million. The increase of cost of vehicle sales was mainly caused by the increased vehicle sales during the year 2023. The increase cost per vehicle was also partly attributable to the additional ocean shipping between continents, as the Company shift from recognizing revenue with FOB terms to recording revenue on local direct pricing in the European and the US market which covered ocean shipping. Gross Profit/(Loss) Gross profit for the year ended December 31, 2023 was approximately $2.3 million, an increase of approximately $2.8 million from approximately $0.5 million of gross loss for the year ended December 31, 2022. For the years ended December 31, 2023 and 2022, our overall gross margin was approximately 10.2% and -5.7%, respectively. Our gross margin of vehicle sales for years ended December 31, 2023 and 2022 was 11.7% and -0.27%, respectively. The increase of our gross profit was caused by (i) the decrease in inventory write-down of approximately $1.5 million; (ii) the realized gross margin of Logsitar®100 and our newly introduced Logsitar®260 was approximately 25.4% and 18.8%, respectively. Both of the models only began sales in 2023. Selling and Marketing Expenses Selling and marketing expenses for the year ended December 31, 2023 were approximately $7.9 million, an increase of approximately $1.3 million or approximately 20.6% from approximately $6.5 million for the year ended December 31, 2022. The increase in selling and marketing expenses in 2023 was primarily attributed to the increase in service fees related to European market and distribution channel research and salary and social insurance of approximately $1.6 million and $0.7 million, respectively, offset by a decrease in marketing expense of approximately $1.1 million. General and Administrative Expenses General and administrative expenses for the year ended December 31, 2023 were approximately $35. 8 million, an increase of approximately $2. 9 million or approximately 9.0 % from approximately $32.8 million for the year ended December 31, 2022. The increase in general and administrative expenses in 2023 was primarily attributed to (i) an increase in share-based compensation of approximately $1.4 million, (ii) an increase in ROU amortization of approximately $2.1 million, (iii) an increase in ROU interest expense of approximately $1.0 million, (iv) an increase in office expense of approximately $0.6 million, (v) an increase in others of approximately $0.4 million, which mainly related to garage liability insurance fee, and (vi) the increase in rental expense, travelling fee, freight and depreciation of approximately $0.6 million, $0.3 million, $0.3 million and $0.6 million, respectively, offset by the decrease in salary and social care expense and FOH stripping fee of approximately $2.8 million and $1.8 million, respectively. 59 Table of Contents Research and Development Expenses Research and development expenses for the year ended December 31, 2023 were approximately $8.5 million, an increase of approximately $2.1 million or approximately 33.1% from approximately $6.4 million for the year ended December 31, 2022. The increase in research and development expenses in 2023 was primarily attributed to the increase in design and development expenditures and salary expense of approximately $1.0 million and $1.4 million, respectively, offset by a decrease in development fee related to enhancing quality of approximately $0.5 million. Interest income (expense), net Interest income (expense), net, consists of interest income on deposit and short-term products and interest expense on convertible bonds. Net interest income was approximately $0.4 million for the year ended December 31, 2023, a change of approximately $1.2 million or approximately 146.3% compared to the approximately $0.8 million in interest expense for the year ended December 31, 2022. The change was primarily attributable to (i) a decrease in interest expense to convertible bonds of approximately $1.1 million; (ii) the increase in interest income of approximately $0.7 million from short-term money market investment; (iii) offset by a decrease in interest income of approximately $0.6 million from bank deposit. Other income (expense), net Other income net for the year ended December 31, 2023 was approximately $0.6 million, representing a change of approximately $1.5 million compared to approximately $0.9 million of other expense, net for the year ended December 31, 2022. The change of other income in 2023 compared to 2022 was primarily attributable to the decrease in litigation compensation of approximately $1.3 million paid to Sevic Systems SE over IP dispute and an increase of approximately $0.3 million in liquidation income from Shengzhou Cenntro Machinery Co., Ltd. and Zhejiang Xbean Tech Co. Ltd. during the year 2023. Change in fair value of convertible promissory notes and derivative liability An income in the change in fair value of convertible promissory notes and derivative liability for the year ended December 31, 2023 was approximately $0.08 million compared to approximately $37.8 million of a loss in the change in fair value of convertible promissory notes and derivative liability for the year ended December 31, 2022. The less loss derived from fair value change was primarily caused by the reduced volatility of Company’s stock price, which stabilizes the probability of exercising the mandatory redemption rights of the Company’s convertible promissory notes and cashless exercising the warrants. Change in fair value of equity securities A loss in the change in fair value of equity securities for the year ended December 31, 2023 was approximately $2.6 million compared to approximately $0.2 million of a loss in the change in fair value of equity securities for the year ended December 31, 2022. The increased loss was attributed to a downward adjustment of approximately $2.3 million due to the fair value change of our investment on participating shares in Micro Money Fund SPC with an original investment value of $5 million, and a loss of $1.4 million related to the redemption of $1 million of Micro Money Fund, offset by an upward adjustment of approximately $1.0 million from our investment on partnership shares in MineOne Fix Income Investment IL.P with an original investment value of $25 million. Foreign currency exchange loss, net Foreign currency exchange loss, net for the year ended December 31, 2023 was approximately $0.8 million, an increase of $0.4 million compared with approximately $0.4 million for the year ended December 31, 2022. Impairment of ROU, intangible assets, goodwill, PPE and reversal of deferred tax liabilities Impairment of ROU, intangible assets, goodwill, and PPE of approximately were nil, nil, nil, $0.4 million for the year 2023 compared to approximately $0.4 million, $3.0 million, $11.1 million, and $0.6 million respectively for the year 2022. The impaired ROU, intangible assets, goodwill and PPE were one-off events all related to the acquisition of CAE closed as of March 23, 2022. Impairments to these assets were provided due to the underperformance of CAE to earn revenue as projected during 2022, which was significantly and negatively influenced by the regional conflict in the European continent and distortion of energy prices during the year 2022. A Reversal of deferred tax liabilities of approximately $0.9 million was recognized given the impairment of intangible assets related to CAE being provided during the year 2022, no deferred tax liabilities were reversed during the year 2023. 60 Table of Contents Impairment of long-term investments Impairment of Long-term investments for the year ended December 31, 2023 was approximately $1.2 million compared to nil of impairment of long-term investments for the year ended December 31, 2022. The impairment was attributed to a downward adjustment of the fair value on the 25% acquisition of Antric. Loss from acquisition of Antric Loss from acquisition of Antric for the year ended December 31, 2023 was approximately $ 0.1 million compared to nil of loss from acquisition of Antric for the year ended December 31, 2022. Non-GAAP Financial Measures Adjusted EBITDA for the Years Ended December 31, 2023 and 2022 In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure is useful in evaluating operational performance. We use Adjusted EBITDA to evaluate ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing operating performance. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. We define Adjusted EBITDA as net income (or net loss) before net interest expense, income tax expense, depreciation and amortization as further adjusted to exclude the impact of stock-based compensation expense and other non-recurring expenses including expenses related to TME Acquisition, expenses related to one-off payment inherited from the original Naked Brand Group, impairment of goodwill, convertible bond issuance fee, loss on redemption of convertible promissory notes, loss on exercise of warrants, and change in fair value of convertible promissory notes and derivative liability. We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. Management uses Adjusted EBITDA: • as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations; • for planning purposes, including the preparation of our internal annual operating budget and financial projections; • to evaluate the performance and effectiveness of our operational strategies; and • to evaluate our capacity to expand our business. By providing this non-GAAP financial measure, together with the reconciliation, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors because not all companies and analysts calculate Adjusted EBITDA in the same manner. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our financial statements as indicators of financial performance. Some of the limitations are: • such measures do not reflect our cash expenditures; • such measures do not reflect changes in, or cash requirements for, our working capital needs; • although depreciation and amortization are recurring, non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and • the exclusion of stock-based compensation expense, which has been a significant recurring expense and will continue to constitute a significant recurring expense for the foreseeable future, as equity awards are expected to continue to be an important component of our compensation strategy. 61 Table of Contents Due to these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments to exclude the impact of stock-based compensation expense and material infrequent items. It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and may complicate comparisons of our internal operating results and operating results of other companies over time. In addition, Adjusted EBITDA may include adjustments for other items that we do not expect to regularly occur in future reporting periods. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations. The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net loss: Year Ended December 31, 2023 2022 (Unaudited) Net loss $ ( 54 , 360 , 755 ) $ (112,145,263 ) Interest expense, net (402,414 ) 844,231 Income tax expense 24,919 — Depreciation and amortization 1,570,313 953,872 Share-based compensation expense 5,230,273 4,031,629 Expenses related to TME Acquisition — 348,987 Expenses related to one-off payment inherited from the original Naked Brand Group — 8,299,178 Impairment of goodwill — 11,111,886 Convertible bond issuance cost — 5,589,336 Loss on redemption of convertible promissory notes (12,507 ) 7,435 Loss on exercise of warrants 228,903 — Change in fair value of convertible promissory notes and derivative liability (75,341 ) 37,774,928 Loss from acquisition of Antric 136,302 — Adjusted EBITDA $ (47,575,571 ) $ (43,183,781 ) 62 Table of Contents The following table reconciles the Group‘s audited balance sheet under U.S. GAAP with its audited balance sheet under IFRS as of 31 December 2023 and 2022, respectively: For the Year Ended 31 December 2023 31 December 2022 Balance Sheet: U.S. GAAP IFRS Difference IFRS U.S. GAAP IFRS Difference IFRS Current assets Cash and cash equivalents 29,375,727 - 29,375,727 153,966,777 - 153,966,777 Restricted cash 196,170 - 196,170 130,024 - 130,024 Short-term investment 4,236,588 - 4,236,588 - - - Accounts receivable, net 6,530,801 - 6,530,801 565,398 - 565,398 Inventories 43,909,564 - 43,909,564 31,843,371 - 31,843,371 Prepayment and other current assets 20,391,150 - 20,391,150 16,138,330 - 16,138,330 Amount due from related parties - current 287,439 - 287,439 366,936 - 366,936 Total current assets 104,927,439 - 104,927,439 203,010,836 - 203,010,836 Non-current assets Long-term investments 4,685,984 - 4,685,984 5,325,741 - 5,325,741 Investment in equity securities 26,158,474 - 26,158,474 29,759,195 - 29,759,195 Property, plants and equipment, net 20,401,521 - 20,401,521 14,962,591 - 14,962,591 Goodwill 223,494 - 223,494 - - - Intangible assets, net 6,873,781 - 6,873,781 4,563,792 - 4,563,792 Right-of-use assets 20,039,625 - 20,039,625 8,187,149 - 8,187,149 Other non-current assets, net 2,227,672 - 2,227,672 2,039,012 - 2,039,012 Total non-current assets 80,610,551 - 80,610,551 64,837,480 - 64,837,480 Total assets 185,537,990 - 185,537,990 267,848,316 - 267,848,316 Current liabilities Accounts payable 6,797,852 - 6,797,852 3,383,021 - 3,383,021 Accrued expense and other current liabilities 4,263,887 - 4,263,887 5,048,641 - 5,048,641 Contractual liabilities 3,394,044 - 3,394,044 2,388,480 - 2,388,480 Operating lease liabilities, current 4,741,599 - 4,741,599 1,313,334 - 1,313,334 Convertible promissory notes 9,956,000 - 9,956,000 57,372,827 - 57,372,827 Contingent liabilities 26,669 - 26,669 - - - Deferred government grant, current 108,717 - 108,717 26,533 - 26,533 Amount due to related parties 10,468 - 10,468 716,372 - 716,372 Total current liabilities 29,299,236 - 29,299,236 70,249,208 - 70,249,208 Non-current liabilities Contingent liabilities – non-current 230,063 - 230,063 - - - Deferred tax liabilities 228,086 - 228,086 - - - Deferred government grant, non current 1,929,733 - 1,929,733 497,484 - 497,484 Derivative liability - investor warrant 12,189,508 - 12,189,508 14,334,104 - 14,334,104 Derivative liability - placement agent warrant 3,456,578 - 3,456,578 3,456,404 - 3,456,404 Operating lease liabilities, non current 16,339,619 - 16,339,619 7,421,582 - 7,421,582 Total non-current liabilities 34,373,587 - 34,373,587 25,709,574 - 25,709,574 Total liabilities 63,672,823 - 63,672,823 95,958,782 - 95,958,782 Equity Ordinary shares (No par value; 30,828,778 and 30,084,200 shares issued and outstanding as of 31 December 2023 and 2022, respectively) - - - - - - Additional paid-in capital 402,337,393 176,895,202 (1) 579,232,595 397,497,817 182,125,475 (1) 579,623,292 Accumulated other comprehensive loss (6,444,485 ) 6,444,485 - (5,306,972 ) 5,306,972 - Reserves - 26,090,244 (2) 26,090,244 - 21,997,484 (2) 21,997,484 Accumulated deficit (274,023,501 ) (209,429,931 ) (483,453,432 ) (219,824,176 ) (209,429,931 ) (429,254,107 ) Total equity attributable to shareholders 121,869,407 121,869,407 172,366,669 172,366,669 Non-controlling interests (4,240 ) (4,240 ) (477,135 ) - (477,135 ) Total Equity 121,865,167 121,865,167 171,889,534 171,889,534 Total Liabilities and Equity 185,537,990 185,537,990 267,848,316 267,848,316 (1) Includes $(32,534,729) (2022: $(27,304,456)) in share-based compensation payments and additional equity of $209,429,931 recognised in 2021 from the difference between the deemed transaction price and net assets acquired related to the Combination under IFRS. (2) Includes (i) a reclassification of Accumulated other comprehensive loss under U.S. GAAP of $(6,444,485) (2022: $(5,306,972)) and (ii) a reclassification of Additional paid-in capital under U.S. GAAP of $32,534,729 (2022: $27,304,456) in share-based compensation payments to Reserves under IFRS. 63 Table of Contents The following table reconciles the Group’s audited statement of operations under U.S. GAAP for the years ended 31 December 2023 and 2022 with its statement of operations under IFRS for the years ended 31 December 2023 and 2022, respectively: For the Year Ended 31 December 2023 31 December 2022 Statement of Operations: U.S. GAAP IFRS Difference IFRS U.S. GAAP IFRS Difference IFRS Net revenues 22,079,905 - 22,079,905 8,941,835 - 8,941,835 Cost of goods sold (19,821,645 ) - (19,821,645 ) (9,455,805 ) - (9,455,805 ) Gross profit (loss) 2,258,260 - 2,258,260 (513,970 ) - (513,970 ) OPERATING EXPENSE Selling and marketing expenses (7,868,773 ) - (7,868,773 ) (6,525,255 ) - (6,525,255 ) General and administrative expenses (35,768,786 ) - (35,768,786 ) (32,822,709 ) - (32,822,709 ) Research and development expenses (8,469,241 ) - (8,469,241 ) (6,362,770 ) - (6,362,770 ) Provision for doubtful accounts - - - (5,986,308 ) - (5,986,308 ) Impairment loss of right-of-use assets - - - (371,695 ) - (371,695 ) Impairment loss of intangible assets - - - (2,995,440 ) - (2,995,440 ) Impairment of property, plant and equipment (431,319 ) - (431,319 ) (550,402 ) - (550,402 ) Reverse of deferred tax liabilities - - - 898,632 - 898,632 Total operating expenses (52,538,119 ) - (52,538,119 ) (54,715,947 ) - (54,715,947 ) Loss from operations (50,279,859 ) - (50,279,859 ) (55,229,917 ) - (55,229,917 ) OTHER EXPENSE: Interest income/(expense), net 402,414 - 402,414 (844,231 ) - (844,231 ) Gain (loss) on redemption of convertible promissory notes 12,507 - 12,507 (7,435 ) - (7,435 ) (Loss) income from long-term investments (1,377,760 ) - (1,377,760 ) (12,651 ) - (12,651 ) Change in fair value of convertible promissory notes and derivative liability 75,341 - 75,341 (37,774,928 ) - (37,774,928 ) Change in fair value of equity securities (2,600,721 ) - (2,600,721 ) (240,805 ) - (240,805 ) Convertible bond issuance cost - - (5,589,336 ) (5,589,336 ) Foreign currency exchange loss, net (848,781 ) - (848,781 ) (409,207 ) - (409,207 ) Impairment loss of goodwill - - - (11,111,886 ) - (11,111,886 ) Loss from acquisition of Antric (136,302 ) - (136,302 ) - - - Loss on exercise of warrants (228,903 ) (228,903 ) - - - Gain from cross-currency swaps 8,664 8,664 - - - Other (expense) income, net 621,633 - 621,633 (924,867 ) - (924,867 ) Loss before income taxes (54,351,767 ) - (54,351,767 ) (112,145,263 ) - (112,145,263 ) Income tax expense (8,988 ) - (8,988 ) - - - Net loss (54,360,755 ) - (54,360,755 ) (112,145,263 ) - (112,145,263 ) Less: Net loss attributable to non-controlling interests (161,430 ) - (161,430 ) (2,057,022 ) - (2,057,022 ) Net loss attributable to the Company’s shareholders (54,199,325 ) - (54,199,325 ) (110,088,241 ) - (110,088,241 ) OTHER COMPREHENSIVE LOSS Foreign currency translation adjustment (1,162,080 ) - (1,162,080 ) (3,889,706 ) - (3,889,706 ) Total comprehensive loss (55,522,835 ) - (55,522,835 ) (116,034,969 ) - (116,034,969 ) Less: total comprehensive loss attributable to non-controlling interests (185,997 ) - (185,997 ) (2,032,455 ) - (2,032,455 ) Total comprehensive loss attributable to the Group’s shareholders (55,336,838 ) - (55,336,838 ) (114,002,514 ) - (114,002,514 ) As set forth above, the material differences between the U.S. GAAP and IFRS presentation with respect to the Group’s combined balance sheet as of 31 December 2023 and combined balance sheet as of 31 December 2022 are as follows: a) The reclassification of “Accumulated other comprehensive loss” under U.S. GAAP to “Reserves” under IFRS; b) The reclassification of amounts of IFRS share-based payments from “Additional paid-in capital” under U.S. GAAP to “Reserves” under IFRS; and c) Additional equity recognized from the difference between the total deemed transaction price and net assets acquired related to the Combination under IFRS. d) In 2021, the Group was deemed to have incurred non-cash listing costs of approximately $209.4 million as a result of the IFRS accounting treatment of the Combination, as Cenntro was deemed to have received a 67% controlling interest in CEGL (formerly NBG) and the Group was deemed to have incurred listing costs equalling the difference between the total deemed transaction price and total net assets. Under U.S. GAAP, the Combination is accounted for as a reverse recapitalisation, which is equivalent to the issuance of shares by Cenntro for the net assets of CEGL (formerly NBG), accompanied by a recapitalisation). As set forth above, there is no difference between the U.S. GAAP and IFRS presentation as it relates to our combined statement of operations and comprehensive loss for the year ended December 31 2023. 64 Table of Contents B. Liquidity and Capital Resources We have historically funded working capital and other capital requirements primarily through bank loans, equity financings and short-term loans. Also, the reverse recapitalization we have completed at the end of December 2021 provided significant funding for the Company’s operations. Cash is required primarily to purchase raw materials, repay debts and pay salaries, office expenses and other operating expenses. As of December 31, 2023, we had approximately $29.4 million in cash and cash equivalents, approximately $4.2 million in short-term investment and approximately $6.5 million of accounts receivables as compared to approximately $154.0 million in cash and cash equivalents, nil in short-term investment and $0.6 million in accounts receivable as of December 31, 2022. For the years ended December 31, 2023 and 2022, net cash used in operating activities was approximately $58.5 million and $69.4 million, respectively. Short-Term Liquidity Requirements We believe our cash and cash equivalents will be sufficient for us to continue to execute our business strategy over the twelve months period following the date of issuance of our annual report. Our current business strategy for the next twelve months includes (i) the continued rollout of our new ECV models and green energy related products in North America and Europe, as applicable and (ii) the establishment and development of local distribution channels in the United States and the European Union. Actual results could vary materially as a result of a number of factors, including: • The costs of bringing our new facilities into operation; • The timing and costs involved in rolling out new ECV models to market; • Our ability to manage the costs of manufacturing our ECVs; • The costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities; • Revenues received from sales of our ECVs; • The costs of additional general and administrative personnel, including accounting and finance, legal and human resources, as well as costs related to litigation, investigations, or settlements; • Our ability to collect future revenues; and • Other risks discussed in the section titled “ Risk Factors .” For the twelve months from the date hereof, we also plan to continue implementing measures to increase revenues and control operating costs and expenses, implementing comprehensive budget controls and operational assessments, implementing enhanced vendor review and selection processes as well as enhancing internal controls. 65 Table of Contents Long-Term Liquidity Requirements In the long-term, we plan to regionalize the manufacturing and supply chain relating to certain components of our ECVs in the geographic markets in which our ECVs are sold. In the long-term, through our supply chain development know-how, we intend to establish supply chain relationships in North America and the European Union to support anticipated manufacturing and assembly needs in these markets, thereby reducing the time in transit and potentially other landed costs elements associated with importing our components and spare parts from China. Currently, the majority of our revenues is derived from the sale of ECVs by private label channel partners that assemble our vehicle kits in their own facilities. As part of our growth strategy, we plan to expand our channel partner network, and local assembly facilities to regionalize our manufacturing and supply chains to better serve our global customers especially to expand our after-sales-market services offerings. We intend to further expand our technology through continued investment in research and development. Since inception in 2013 through December 31, 2023, we have spent over approximately $90.0 million in research and development activities related to our operations. We plan to increase our research and development expenditure over the long term as we build on our technologies in vehicle development, driving control, cloud-based platforms, and innovations for promoting sustainable energy. For our long-term business plan, we plan to fund current and future planned operations mainly through cash on hand, cash flow from operations, lines of credit and additional equity and debt financings to the extent available on commercially favorable terms. Working Capital As of December 31, 2023, our working capital was approximately $75. 6 million, as compared to a working capital of approximately $132.8 million as of December 31, 2022. The approximately $57.1 million decrease in working capital during 2022 was primarily due to (i) the decrease of cash and cash equivalents of approximately $124.6 million, offset by the increase in inventories, accounts receivable and short-term investment of approximately $12.1 million, $6.0 million and $4.2 million, respectively and (ii) a decrease in convertible bonds of approximately $47.4 million. Cash Flow Year Ended December 31, 2023 2022 Net cash used in operating activities $ (58,457,164 ) $ (69,401,126 ) Net cash (used in) provided by investing activities (16,388,156 ) (56,883,397 ) Net cash provided by financing activities (48,135,595 ) 19,452,636 Effect of exchange rate changes on cash (1,543,989 ) (736,274 ) Net (decrease) increase in cash, cash equivalents, and restricted cash (124,524,904 ) (107,568,161 ) Cash and cash equivalents, and restricted cash at beginning of the year 154,096,801 261,664,962 Cash and cash equivalents, and restricted cash at end of the period $ 29,571,897 $ 154,096, 801 Operating Activities Our net cash used in operating activities was approximately $58.5 million and $69.4 million for the years ended December 31, 2023 and 2022, respectively. Net cash used in operating activities for the year ended December 31, 2023 was primarily attributable to (i) our net loss of approximately $5 4.4 million and adjusted for non-cash items of approximately $18.3 million, which primarily consisted of amortization of operating lease right-of-use asset, share based compensation expense, impairment of long-term investments, depreciation and amortization, loss (gain) on disposal of long-term investment, loss from equity securities investment , foreign currency exchange loss, impairment of slow-moving inventories, impairment of PPE and intangible assets, loss on exercise of warrants, equity pick up loss of the investment and changes in fair value of equity securities of approximately $4.5 million, $5.2 million, $1.2 million, $1. 7 million,$ 0.1 million, $1.4 million, $1.5 million, $0.7 million, $0.4 million, $0.2 million, $0.2 million and $1.2 million, respectively, (ii) the decrease in accrued expense and other current liabilities and operating lease liabilities of approximately $1.1 million and $4.0 million respectively, (iii) increase in account receivable, accounts payable, deferred revenue, inventories and prepayments and other assets of approximately $5.9 million, $3.1 million, $2.5 million, $12.2 million and $4.6 million, respectively. 66 Table of Contents Investing Activities Net cash used in investing activities was approximately $16.4 million for the year ended December 31, 2023. Net cash used in investing activities for the year ended December 31, 2023 was primarily attributable to cash paid for regular financial investments in 2023 in the amount of approximately $4.2 million and approximately $1.1 million in purchase of land use rights and property, additions in long-term investments as a minority interest of approximately $0.9 million, approximately $7.6 million in purchase of plant and equipment and approximately $1.9 million net cash paid in acquisition of 35% of CAE's share and including related expenses. Financing Activities Net cash used by financing activities was approximately $48.1 million for the year ended December 31, 2023. Net cash provided by financing activities for the year ended December 31, 2023 was primarily attributable to the redemption of convertible bonds of approximately $47.5 million and the repayments to bank loans of approximately $0.6 million. Contractual Obligations In February 2021, we signed a non-cancellable operating lease agreement for warehouse and trial production use in Freehold, New Jersey (Willowbrook Road) of approximately 9,750 square feet. The lease period began in February 2021 and ends in January 2025. The annual base rent for this facility is $175,500 starting from February 2023. The lease rent fee will be adjusted upward by 3% annually afterwards. We signed the first addendum to lease on December 7, 2022 and the renewal period is two years commencing on February 1, 2023 and terminating on January 31, 2025, the annual base rent for the first twelve months the period is $175,500 and the annual base rent for the second twelve months the period is $180,765. In June 2021, we signed two non-cancellable operating lease agreements for approximately 11,690 square feet and 3,767 square feet, respectively, of two floors of an office building in Hangzhou, China. The lease period for each lease agreement began in June 2021 and ends in May 2025. Pursuant to each agreement, we paid the first six months of our rent obligations in June 2021 and thereafter will be obligated to make rental payments in advance semi-annually. The total annual base rent under these two lease agreements is $171,397 for the term ending May 2022 and $173,987 for the term ending May 2023. On December 4, 2021, we entered into an entrustment agreement with Cedar Europe GmbH, a company organized under the laws of Germany (“Cedar”) pursuant to which we entrusted Cedar to, in Cedar’s name, obtain a lease agreement for facilities in Germany and operate such lease facility under Cedar’s name in exchange for the Cenntro’s responsibility for all expenditures and costs of the lease. On December 24, 2021, Cedar entered into a lease agreement for an approximately 27,220 square feet facility in Dusseldorf, Germany, where we now house our European Operations Facility. The lease period began on January 1, 2022 and ends on December 31, 2024. Pursuant to such lease agreement, the total annual base rent is €354,787 (or approximately $383,512) for the lease term. Cedar transferred the leasing property to CEGE on February 1, 2023. On January 20, 2022, we entered into an operating lease agreement (the “Jacksonville Lease”), between CAC, as tenant, the Company, as guarantor, and JAX Industrial One, LTD., a Florida limited liability company, as landlord, for a facility of approximately 100,000 square feet in Jacksonville, Florida. The lease period commenced on May, 2022 and ends 120 months following a five-month rent abatement period. Pursuant to the Jacksonville Lease, minimum annual rent is approximately $695,000, $722,800, and $751,710, for the first three years, sequentially, and rising thereafter. On July 28, 2022, we signed a non-cancellable operating lease agreement for approximately 12,000 square feet as an EV center in Jacksonville, Florida. The lease period began on September 1, 2022 and ends on August 31, 2029, the first annual base rent is $150,000 and the annual increase is 4%. On August 4, 2022, we signed a non-cancellable operating lease agreement in Mexico as a facility. For the first 12 months, the rentable area is 58,413 square feet. Starting on the month 13 to month 18, the rentable area is 85,554 square feet, and as of month 19 of the Rent Commencement Date and for the remainder of the initial term, the rentable area is 112,694 square feet. The lease period commenced on January, 2023 and ends 8.5 years. The monthly rent is $29,225.38 and the annual increase is the higher of a) the consumer price index, or b) 2.5%. On December 15, 2022, we signed a non-cancellable operating lease agreement for approximately 41,160 square feet as a facility in Howell, New Jersey. The lease period began on February 1, 2023 and ends five years, the first annual base rent is $493,920 and the annual increase is 3%. On December 29, 2022, we signed a non-cancellable operating lease agreement with BAL Freeway Associates, LLC for approximately 64,000 square feet as a facility. The lease period commenced on April 1, 2023 and ends five years following a one-month rent abatement period. The base rent for the first year is $115,200 per month. The monthly rent for the following four years is $119,808, $124,600.32, $129,584.33 and $134,767.71, respectively. On November 28, 2022, we signed a non-cancellable operating lease agreement for approximately 6,510 square feet as an EV center in Dominica Republic. The lease period commenced on December 1, 2022 and ends five years. The rent is $9,000 per month and the annual increase is 5%. 67 Table of Contents On December 8, 2022, we signed a non-cancellable operating lease agreement for approximately 10,656 square feet as a headquarters and service center in Dominica Republic. The lease period commenced on February 15, 2023 and ends five years. The rent is $9,000 per month and the annual increase is 5%. On March 22, 2023, we signed a non-cancellable operating lease agreement for approximately 26,579 square feet as a local plant in Colombia, the lease period began on May 1, 2023 and the lease term is two years. The rent is COP 46,796,001.49 (or approximately $10,344.77) per month and the value of the lease fee shall be readjusted in a proportion equal to the consumer price index (CPl) certified by DANE as of December 31 of the immediately preceding year, plus two (2) points. On May 19, 2023, we completed the acquisition with Cenntro Elecautomotiv, S.L., our EVC in Spain. On April 3, 2023, Cenntro Elecautomotiv, S.L. signed a non-cancellable operating lease agreement for approximately 1,765 square feet as a local office in Barcelona, Spain, the lease period began on April 3, 2023 and the lease term is five years. The monthly rent is €1,776 (or approximately $1,919.9) plus value-added tax with a two-month rent abatement period. In addition, Cenntro Elecautomotiv, S.L. signed a non-cancellable operating lease agreement for approximately 3,471 square feet as a service center in Barcelona, Spain on August 9, 2022, the lease period began on August 1, 2022 and the lease term is ten years. The annual rent is €36,000 (or approximately $38,916) and shall be readjusted depending on the changes of the consumer price index (CPl) determined by the National Bureau of Statistics and its substitute institutions. Legal defense is €6,000 (or approximately $6,486). On April 4, 2023, we signed a non-cancellable operating lease agreement for approximately 2,500 square feet in Freehold, New Jersey. The lease period commenced on July 17, 2023 and ends on July 31, 2025. The annual base rent for the first twelve months of the period is $33,525 and the annual base rent for the second twelve months of the period is $35,201. On February 16, 2022, we signed a non-cancellable operating lease agreement for apartment 53D in the building at 555 Tenth Avenue, New York, NY 10018. The term is one year and one month, beginning on March 5, 2022 and ending on April 4, 2023. The monthly rent is $5,750. On February 1, 2023, we signed a renewal lease agreement. The term of this lease is one year, beginning on April 5, 2023 and ending on April 4, 2024. The monthly rent is $5,950. On March 25, 2022, we completed the acquisition of TME, and change its name to Cenntro Automotive Europe GmbH ("CAE”). TME signed a non-cancellable operating lease agreement for approximately 5,212 square meters in 2019, the lease period starts on July 1, 2019 and ends on June 30, 2024, the monthly rent is €18,891 (or approximately $20,468). On August 31, 2023, we completed the acquisition with Antric GmbH in Germany. On July 20, 2022, Antric signed a non-cancellable operating lease agreement for approximately 4,361 square feet in Bochum, Germany, the lease period ends on December 31, 2026. The monthly rent is €3,605.26 (or approximately $3,988.14). On September 1, 2022, the lease area increased to 7,326 square feet and the monthly rent increased to €6,000.32 (or approximately $6,637.55). The additional deposit is €18,000.96 (or approximately $19,912.66). On January 20, 2023, Antric signed another non-cancellable operating lease agreement for approximately 252 square feet in Bochum, Germany, the lease period starts on February 1, 2023 and ends on December 31, 2026. The monthly rent increased to €6,315.38 (or approximately $6,986.07). On March 27, 2023, Antric signed another non-cancellable operating lease agreement for approximately 2,949 square feet in Bochum, Germany, the lease period starts on April 1, 2023 and ends on December 31, 2026. The monthly rent increased to €8,597.80 (or approximately $9,510.89). We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our Audited Financial Statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements, the reported amounts of revenue and expenses during the reporting period and the related disclosures in the consolidated and combined financial statements and accompanying footnotes. Out of our significant accounting policies, which are described in “Note 2—Summary of Significant Accounting Policies” of our consolidated and combined financial statements for the year ended December 31, 2022, included elsewhere in this Annual Report, certain accounting policies are deemed “critical,” as they require management’s highest degree of judgment, estimates and assumptions. While management believes its judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those estimates under different assumptions and conditions. 68 Table of Contents Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). As an Australian public limited company, the Company is subject to the Corporations Act 2001 (the “Corporations Act”), which requires financial statements be prepared and audited in accordance with Australian Auditing Standards (“AAS”) and International Financial Reporting Standards (“IFRS”). The consolidated financial statements are not financial statements for the purposes of the Corporations Act and are considered “non-IFRS financial information” under the Australian Securities and Investment Commission’s Regulatory guide 230: ‘Disclosing non-IFRS financial information.’ Such non-IFRS financial information may not be comparable to similarly titled information presented by other entities and should not be construed as an alternative to other financial information prepared in accordance with AAS or IFRS. All intercompany balances and transactions have been eliminated in consolidation and combination. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company continually evaluates these estimates and assumptions based on the most recently available information, historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Significant accounting estimates reflected in the Company’s consolidated financial statements include, but are not limited to, estimates and judgments applied in determination of provision for doubtful accounts, lower of cost and net realizable value of inventories, impairment losses for long-lived assets and investments, goodwill, valuation allowance for deferred tax assets and fair value measurement for share-based compensation expense, convertible promissory notes and warrants. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates Fair value measurement ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. These tiers include: Level 1—defined as observable inputs such as quoted prices in active markets; Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3—defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s financial instruments not reported at fair value primarily consist of cash and cash equivalents, restricted cash, accounts receivable, prepayments and other current assets, amount due from and due to related parties, accounts payable and accrued expenses and other current liabilities. The carrying value of cash and cash equivalents, restricted cash, wealth management products, accounts receivable, prepayment, goodwill and other current assets, accounts payable, accrued expenses and other current liabilities and amount due from and due to related party, current were approximate fair value because of the short-term nature of these items. The estimated fair values of loan from third party, and amount due from related party, non-current were not materially different from their carrying value as presented due to the brief maturities and because the interest rates on these borrowings approximate those that would have been available for loans of similar remaining maturities and risk profiles. Available-for-sale investments and currency-cross swap were classified within Level 1 of the fair value hierarchy because they were valued using quoted prices in active markets. Our debt security investments are classified within Level 3 of the fair value hierarchy. As the Issuer is not yet listed and there are no similar companies in the market at the same stage of development for comparison, the Issuer is difficult to value, and the valuation is not considered reliable. Therefore, the Company develop own assumption by future cash flow forecast, which contains principle paid and interests accrued. The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company has elected to apply the fair value option to: i) convertible promissory notes payable due to the complexity of the various conversion and settlement options available to notes holders; ii) convertible loan receivable, which was recognized as debt security in long-term investments, and iii) cross-currency swap, which was recognized as short-term investments. The convertible promissory notes payable accounted for under the fair value option election are each a debt host financial instrument containing embedded features that would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements in accordance with GAAP. Notwithstanding, when the fair value option election is applied to financial liabilities, bifurcation of an embedded derivative is not required, and the financial liability is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis as of each reporting period date. The portion of the change in fair value attributed to a change in the instrument-specific credit risk is recognized as a component of other comprehensive income and the remaining amount of the fair value adjustment is recognized as changes in fair value of convertible promissory notes and derivative liabilities in the Company’s consolidated statement of operations. The estimated fair value adjustment is presented in a respective single line item within other expense in the consolidated statement of operations because the change in fair value of the convertible notes was not attributable to instrument-specific credit risk. 69 Table of Contents In connection with the issuances of convertible promissory notes, the Company issued investor warrants and placement agent warrants to purchase ordinary shares of the Company. The Company utilizes a Binomial model to estimate the fair value of the warrants and are considered a Level 3 fair value measurement. The warrants are measured at each reporting period, with changes in fair value recognized in the statement of operations. As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of its certain fund investment. The Company’s investments valued at NAV as a practical expedient are: i) private equity funds, which represent the investment in equity securities on the consolidated balance sheet; ii) wealth management products purchased from banks, which represents the available-for-sale investments in short-term investments on the consolidated balance sheet. Business combination The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 “Business Combinations.” The cost of an acquisition is measured as the aggregate of the acquisition date fair value of the assets transferred to the sellers, liabilities incurred by the Company and equity instruments issued by the Company. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets acquired and liabilities assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the acquisition date amounts of the identifiable net assets of the acquiree is recorded as goodwill. Cash and cash equivalents and restricted cash The Company considers highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Restricted cash consists of cash restricted as to withdrawal or use. Such restricted cash relates to certain credit card and lease guarantees. Accounts receivable and provision for doubtful accounts Accounts receivable are recognized and carried at net realizable value. The Company adopted ASC 326 Financial Instruments – Credit Losses using the modified retrospective approach through a cumulative-effect adjustment to accumulated deficit from January 1, 2023 and interim periods therein. Management used an expected credit loss model for the impairment of accounts receivable as of period ends. Management believes the aging of accounts receivable is a reasonable parameter to estimate expected credit loss, and determines expected credit losses for accounts receivables using an aging schedule as of period ends. The expected credit loss rates under each aging schedule were developed on basis of the average historical loss rates from previous years, and adjusted to reflect the effects of those differences in current conditions and forecasted changes. Management measured the expected credit losses of accounts receivable on a collective basis. When an accounts receivable does not share risk characteristics with other accounts receivables, management will evaluate such accounts receivable for expected credit loss on an individual basis. Doubtful accounts balances are written off and deducted from allowance, when receivables are deemed uncollectible, after all collection efforts have been exhausted and the potential for recovery is considered remote. Inventories Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined on the basis of weighted average. The cost of finished goods is determined on the basis of weighted average and comprises direct materials, direct labor cost and an appropriate proportion of overhead. Net realizable value is based on estimated selling prices less selling expenses and any further costs of completion. Adjustments to reduce the cost of inventory to net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. Write-downs are recorded in the consolidated statements of operations and comprehensive loss. Available-for-sale investments and Debt Security investments The Company’s available-for-sale investment consist of wealth management products purchased from banks and convertible loans. The Company’s short-term available-for-sale investment are classified as short-term investments on the consolidated balance sheets based on the contractual maturity date which is less than one year. The wealth management products purchased from banks are stated at the net asset value The Company’s debt security investments consist of convertible loan. At any time on or after the maturity date, the convertible loan will convert into shares equal to the quotient obtained by dividing the outstanding principal balance and unpaid accrued interest of the convertible loan as of the date of such conversion by the applicable conversion price. The convertible loans are stated at fair value. The Company reviews its investments for other-than-temporary impairment (“OTTI”) based on the specific identification method. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an investment exceeds the investment’s fair value, the Company considers, among other factors, general market conditions, expected future performance of the investees, the duration and the extent to which the fair value of the investment is less than the cost, and the Company’s intent and ability to hold the investment. OTTI is recognized as a loss in the statement of operations. There is no OTTI recognized during the years ended December 31, 2023 and 2022. Cross-currency swap The Company used cross-currency swap contracts to manage its exposures to movements in foreign exchange rates primarily related to the RMB or Renminbi. The use of these cross-currency swap modifies the Company’s exposure to these risks with the goal of reducing the risk or cost to the Company. The Company does not use derivatives for trading purposes and is not a party to leveraged derivative contracts. 70 Table of Contents Depending on the nature of the underlying risk being hedged, these cross-currency swap are accounted for either as cash flow, net investment or mark to market hedges against changes in the value of the hedged item. Derivatives are recorded in the Consolidated Balance Sheets at fair value. The fair value is based upon either market quotes for actively traded instruments or independent bids for nonexchange traded instruments. The accounting for changes in fair value of a derivative instrument depends on whether the instrument has been designated and qualifies as part of a hedging relationship. The Company determines whether a derivative instrument meets the criteria for cash flow or net investment hedge accounting treatment on the date the derivative is executed. Derivatives accounted for as mark to market hedges are not designated as hedges for accounting purposes. Economic Hedges A derivative instrument whose change in fair value is used to hedge against changes in the value of a hedged item, but which is not designated as a hedge under ASC815 “Derivative Instruments and Hedging Activities”, is accounted for as an economic hedge. These derivatives are recorded at fair value in the Consolidated Balance Sheets when the hedged item is recorded as an asset or liability and then are revalued each accounting period. Changes in the fair value of derivatives accounted for as economic hedges are reported in the “Gain from cross-currency swaps” lines under “Other expense” in the Consolidated Statements of Operations. Cash flows from derivatives not designated as hedges are classified as cash flows from operating activities in the Consolidated Statements of Cash Flows. For the year ended December 31, 2023, all of the cross-currency swap contracts were accounted for as economic hedges. Investment in equity securities For investments in equity securities with a variable interest rate indexed to the performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in the consolidated statements of operations and comprehensive loss. The Company determines the appropriate classification of its investments in equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. The private equity funds are measured at fair value with gains and losses recognized in earnings. As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of the Fund. The Company evaluates whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include the market value of the security in relation to its cost basis, the financial condition of the investee, and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment. Property, plant and equipment, net Property, plant and equipment are carried at cost less accumulated depreciation and any impairment. Depreciation is calculated over the asset’s estimated useful life, using the straight-line method. Leasehold improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are as follows: Buildings 20 years Machinery and equipment 5-10 years Office equipment 5 years Motor vehicles 3-5 years Leasehold improvement 3-10 years Others 3 years The Company reassesses the reasonableness of the estimates of useful lives and residual values of long-lived assets when events or changes in circumstances indicate that the useful lives and residual values of a major asset or a major category of assets may not be reasonable. Factors that the Company considers in deciding when to perform an analysis of useful lives and residual values of long-lived assets include, but are not limited to, significant variance of a business or product line in relation to expectations, significant deviation from industry or economic trends, and significant changes or planned changes in the use of the assets. The analysis will be performed at the asset or asset category with the reference to the assets’ conditions, current technologies, market, and future plan of usage and the useful lives of major competitors. The costs and related accumulated depreciation of assets sold or otherwise retired are eliminated from the Company’s accounts and any gain or loss is included in the consolidated statements of operations and comprehensive loss. The cost of maintenance and repair is charged to expenses as incurred, whereas significant renewals and betterments are capitalized. The Company constructs certain of its property including recodifications and improvement of its office buildings and plant. Depreciation is recorded at the time assets are ready for the intended use. 71 Table of Contents Intangible assets, net Intangible assets are carried at cost less accumulated amortization and any recorded impairment. Intangible assets are amortized using the straight-line approach over the estimated economic useful lives of the assets as follows: Category Estimated useful life Land use rights 45.75-50 years Software 3 years Technology 5 years Trademark 5 years Impairment of long-lived assets The Company evaluates the recoverability of long-lived assets or asset group with determinable useful lives whenever events or changes in circumstances indicate that an asset or a group of assets’ carrying amount may not be recoverable. The Company measures the carrying amount of long-lived asset against the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. The carrying amount of the long-lived asset or asset group is not recoverable when the sum of the undiscounted expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets or asset group, when the market prices are not readily available. The adjusted carrying amount of the assets become new cost basis and are depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The impairment test is performed at the asset group level. Impairment loss for long-lived assets of $431,319 and $3,917,537 were recorded in the Company’s consolidated statements of operations and comprehensive loss for the years ended December 31, 2023 and 2022, respectively. Goodwill Goodwill represents the future economic benefits arising from other assets acquired in a business combination. Goodwill acquired in a business combination is tested for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company performs impairment analysis on goodwill as of December 31 every year either beginning with a qualitative assessment, or starting with the quantitative assessment instead. The quantitative goodwill impairment test compares the fair values of each reporting unit to its carrying amount, including goodwill. A reporting unit constitutes a business for which discrete profit and loss financial information is available. The fair value of each reporting unit is established using a combination of expected present value of future cash flows. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is "more-likely-than not" that the fair value is less than the carrying value, a quantitative assessment of goodwill is required. The quantitative impairment test requires significant management judgments, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. Impairment loss for goodwill of $nil and $11,111,886 were recorded for the years ended December 31, 2023 and 2022, respectively. Long-term investment Equity method investments Investee companies over which the Company has the ability to exercise significant influence but does not have a controlling interest through investment in common shares or in substance common shares are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%, and other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate. Under the equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s proportionate share of each equity investee’s net income or loss after the date of investment into the consolidated statements of operations and comprehensive loss and accordingly adjusts the carrying amount of the investment. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee. Equity investments without readily determinable fair values For investments in an investee over which the Company does not have significant influence, the Company carries the investment at cost and recognizes income as any dividends declared from distribution of investee’s earnings. The Company reviews the equity investments without readily determinable fair values for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. An impairment loss is recognized in earnings equal to the difference between the investment’s carrying amount and its fair value at the balance sheet date of the reporting period for which the assessment is made. All equity investments, except those accounted for under the equity method of accounting or those resulting in the consolidation of the investee, be accounted for at fair value with all fair value changes recognized in income. For equity investments that do not have readily determinable fair values the Company measures the equity investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company. 72 Table of Contents Impairment for long-term investment The Company reviews its long-term investments for impairment whenever an event or circumstance indicates that other-than-temporary impairment has occurred. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its long-term investments. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The adjusted carrying amount of the assets become new cost basis. Revenue recognition The Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of a contract with the customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company generates revenue primarily through sales of light-duty ECVs, sales of ECV parts, and sales of off-road electric vehicles. Revenue is recognized at a point in time once the Company has determined that the customer has obtained control over the product. Revenue is recognized net of return allowance and any taxes collected from customers, which are subsequently remitted to governmental authorities. Significant judgement is required to estimate return allowances. The Company reasonably estimate the possibility of return based on the historical experience, changes in judgments on these assumptions and estimates could materially impact the amount of net revenues recognized. Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods are accounted for as fulfilment costs rather than separate performance obligations and recorded as sales and marketing expenses. The following table disaggregates the Company’s revenues by product line for the years ended December 31, 2023 and 2022: For the Years Ended December 31, 2023 2022 Vehicles sales 　 $ 20,344,889 　 　 $ 8,235,053 　 Spare-parts sales 　 　 1,554,311 　 　 　 304,506 　 Other service income 　 　 180,705 　 　 　 402,276 　 Net revenues 　 $ 22,079,905 　 　 $ 8,941,835 　 The Company’s revenues are primarily derived from Europe, America and Asia. The following table sets forth disaggregation of revenue by customer location. For the Years Ended December 31, 2023 2022 Primary geographical markets 　 　 　 　 Europe $ 16,218,398 $ 7,052,452 Asia 4,805,312 1,191,931 America 　 　 1,056,195 　 　 　 697,452 　 Total 　 $ 22,079,905 　 　 $ 8,941,835 　 Contract Balances Timing of revenue recognition was once the Company has determined that the customer has obtained control over the product. Accounts receivable represent revenue recognized for the amounts invoiced and/or prior to invoicing when the Company has satisfied its performance obligation and has an unconditional right to the payment. Contractual liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration. The consideration received remains a contractual liability until goods or services have been provided to the customer. For the years ended December 31, 2023 and 2022, the Company recognized $464,636 and $1,105,076 revenue that was included in contractual liabilities as of January 1, 2023 and 2022, respectively. The following table provides information about receivables and contractual liabilities from contracts with customers: December 31, 2023 December 31, 2022 Accounts receivable, net $ 6,530,801 $ 565,398 Contractual liabilities $ 3,394,044 $ 2,388,480 73 Table of Contents Cost of goods sold Cost of goods sold mainly consists of production related costs including costs of raw materials, consumables, direct labor, overhead costs, depreciation of property, plant and equipment, manufacturing waste treatment processing fees and inventory write-downs. Government grants The Company’s PRC based subsidiaries received government subsidies from certain local governments. The Company’s government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has provided for a specific purpose, such as land fulfillment costs. Other subsidies are the subsidies that the local government has not specified its purpose for and are not tied to future trends or performance of the Company, receipt of such subsidy income is not contingent upon any further actions or performance of the Company and the amounts do not have to be refunded under any circumstances. Specific subsidies relating to land use rights are accounted for as an income with the subsidy benefit reflected over the related asset useful life. Other subsidies are recognized as other income upon receipt as further performance by the Company is not required. Income taxes The Company accounts for income tax using an asset and liability approach, which allows for the recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect for the years in which the differences are expected to reverse. The accounting for deferred tax calculation represents management’s best estimate of the most likely future tax consequences of events that have been recognized in our financial statements or tax returns and related future anticipation. A valuation allowance is recorded to reduce the deferred tax assets to an amount that is more likely than not to be realized after considering all available evidence, both positive and negative. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Net operating losses are carried forward and credited by applying enacted statutory tax rates applicable to future years when the reported amounts of the asset or liability are expected to be recovered or settled, respectively. Deferred tax assets are reduced by a valuation allowance when, based upon the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. As required by applicable tax law, interest on non-payment of income taxes and penalties associated with tax positions when a tax position does not meet the minimum statutory threshold to avoid payment of penalties recognized, if any, will be classified as a component of the provisions for income taxes. The tax returns of the Company and its Germany, Hong Kong and PRC subsidiaries are subject to examination by the relevant local tax authorities. The standard period in which Australian Taxation Office can amend an assessment is four years and there is no statute of limitation in the case of fraud or evasion. The statutory limitation period in Germany for the issue or correction of assessments is four years from the end of the year in which the return was filed. In the case of fraud and willful evasion, the investigation is extended to cover ten years of assessment. According to the Departmental Interpretation and Practice Notes No.11 (Revised) of the Hong Kong Inland Revenue Ordinance (the “HK tax laws”), an investigation normally covers the six years of the assessment prior to the year of the assessment in which the investigation commences. In the case of fraud and willful evasion, the investigation is extended to cover ten years of assessment. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. U.S. federal tax matters are open to examination for years 2015 through 2023. For the years ended December 31, 2023 and 2022, the Company did not have any material interest or penalties associated with tax positions. The Company did not have any significant unrecognized uncertain tax positions as of December 31, 2023 or 2022. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months. Foreign currency translation and transaction The consolidated financial statements are presented in United States dollars (“USD” or “$”). The functional currency of certain of CEGL’s PRC subsidiaries is the Renminbi (“RMB”). The functional currency of CEA is the EUR, and CEGL and its other subsidiaries in US is the USD. The functional currency of Cenntro Electric CICS,SRL was DOP. The functional currency of Cenntro Automotive S.A.S. and Cenntro Electric Colombia S.A.S. was COP. The functional currency of Cenntro Elektromobilite Araçlar A.Ş was TRY. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the reporting period. Capital accounts of the consolidated financial statements are translated into USD from RMB, EUR, DOP, COP and TRY at their historical exchange rates when the capital transactions occurred. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of accumulated other comprehensive loss in the balance sheets. The rates are obtained from H.10 statistical release of the U.S. Federal Reserve Board. For the Years Ended December 31, 2023 2022 Period end USD: RMB exchange rate 　 　 7.0999 　 　 　 6.8972 　 Average USD: RMB exchange rate 　 　 7.0809 　 　 　 6.7290 　 Period end USD: EUR exchange rate 1.1062 0.9348 Average USD: EUR exchange rate 1.0817 0.9493 74 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 statement of operations. Comprehensive loss Comprehensive loss includes all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive loss are required to be reported in a financial statement that is presented with the same prominence as other financial statements. For the years presented, comprehensive loss includes net loss and the foreign currency translation changes. Segments In accordance with ASC 280-10, Segment Reporting, the Company’s chief operating decision maker (“CODM”), identified as the Company’s Chief Executive Officer, relies upon the consolidated results of operations as a whole when making decisions about allocating resources and assessing the performance of the Company. As a result of the assessment made by CODM, the Company has only one reportable segment. The Company does not distinguish between markets or segments for the purpose of internal reporting. The Company’s long-lived assets are substantially located in the PRC and United States. The following table presents long-lived assets by geographic segment as of December 31, 2023 and 2022. Long-lived assets December 31, 2023 2022 PRC $ 19,900,770 $ 18,018,954 US 19,730,650 9,125,535 Mexico 4,238,942 Dominican 808,346 469,740 Others 2,636,219 99,303 Total $ 47,314,927 $ 27,713,532 Share-based compensation expenses The Company’s share-based compensation expenses are recorded in accordance with ASC 718 and ASC 710. Share-based awards to employees are measured based on the grant date fair value of the equity instrument issued and recognized as compensation expense net of a forfeiture rate on a straight-line basis, over the requisite service period, with a corresponding impact reflected in additional paid-in capital. The estimate of forfeiture rate will be adjusted over the requisite service period to the extent that the actual forfeiture rate differs, or is expected to differ, from such estimates. Changes in estimated forfeiture rate will be recognized through a cumulative catch-up adjustment in the period of change. Convertible promissory notes The Company has elected the fair value option to account for its convertible promissory notes issued during 2022. In accordance with ASC 825, the convertible promissory notes are marked-to-market at each reporting date with changes in fair value recorded as a component of other income (expense), in the consolidated statements of operations and comprehensive loss. We disclose the nature and terms, the income statement effects, the valuation methods and assumptions of the convertible promissory notes in Note 15 to our consolidated financial statements. Derivative liability Warrants recorded as liabilities at fair value in accordance with ASC 480 “Distinguishing Liabilities from Equity”. The liability remeasured every reporting period with any change to fair value recorded in the consolidated statements of operations. Operating lease The Company accounts for its lease under ASC 842 Leases, and identifies lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. For all operating leases except for short-term leases, the Company recognizes operating right-of-use assets and operating lease liabilities. Leases with an initial term of 12 months or less are short-term lease and not recognized as right-of-use assets and lease liabilities on the consolidated balance sheet. The Company recognizes lease expense for short-term leases on a straight-line basis over the lease term. The operating lease liabilities are recognized based on the present value of the lease payments not yet paid, discounted using the Company’s incremental borrowing rate over a similar term of the lease payments at lease commencement. Some of the Company’s lease agreements contain renewal options; however, the Company do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs. The right-of-use assets consist of the amount of the measurement of the lease liabilities and any prepaid lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. 75 Table of Contents Non-controlling Interest A non-controlling interest in subsidiaries represents the portion of the equity (net assets) in the subsidiaries not directly or indirectly attributable to the Company’s shareholders. Non-controlling interests are presented as a separate component of equity on the consolidated balance sheets and consolidated statements of operations and other comprehensive loss are attributed to controlling and non-controlling interests. Recently issued accounting standards pronouncements In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method”. The new accounting rules allow entities to expand the use of the portfolio layer method to all financial assets and designate multiple hedged layers within a single closed portfolio. The new accounting rules also clarify guidance related to hedge basis adjustments and the related disclosures for these adjustments. The new accounting rules were effective for the Company starting January 1, 2023. As the Company does not currently have any fair value hedging programs that leverage the portfolio layer method, the adoption of the new accounting rules did not have any impact on the Company’s financial condition, results of operations, cash flows or disclosures. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.