Centro(CENN) - 2025 Q2 - Quarterly Report

Forward-Looking Statements PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The company presents unaudited financial statements for H1 2025, showing a net loss alongside changes in revenue and balance sheet items Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported a reduced net loss of $15.56 million for H1 2025 despite an 11.5% revenue decrease from continuing operations Condensed Consolidated Statements of Operations and Comprehensive Loss (Six Months Ended June 30) | Metric | 2025 (Unaudited) | 2024 (Unaudited) | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $8,549,976 | $9,657,747 | $(1,107,771) | -11.5% | | Cost of goods sold | $(8,247,353) | $(7,910,923) | $(336,430) | 4.3% | | Gross (loss) profit | $302,623 | $1,746,824 | $(1,444,201) | -82.7% | | Total operating expenses | $(14,574,601) | $(16,741,724) | $2,167,123 | -12.9% | | Loss from operations | $(14,271,978) | $(14,994,900) | $722,922 | -4.8% | | Net loss from continuing operations | $(13,551,663) | $(15,458,812) | $1,907,149 | -12.3% | | Loss from discontinued operations, net of tax | $(2,009,202) | $(2,965,206) | $956,004 | -32.2% | | Net loss | $(15,560,865) | $(18,424,018) | $2,863,153 | -15.5% | | Net loss attributable to the Company's shareholders | $(15,543,673) | $(18,412,978) | $2,869,305 | -15.6% | | Loss per common share - basic and diluted | $(0.46) | $(0.60) | $0.14 | -23.3% | - Gross profit for the six months ended June 30, 2025, decreased significantly by 82.7% to $0.30 million from $1.75 million in the prior year, primarily due to a decrease in vehicle sales gross profit and spare-part sales gross profit, partially offset by a decrease in inventory write-down[15][204] - Net loss attributable to the Company's shareholders improved by 15.6% for the six months ended June 30, 2025, reaching $(15.54) million compared to $(18.41) million in the same period last year[15][186] Condensed Consolidated Balance Sheet Total assets decreased to $124.40 million due to lower cash, while total liabilities also declined significantly Condensed Consolidated Balance Sheet (As of June 30, 2025 vs. December 31, 2024) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $5,992,986 | $12,547,168 | | Total current assets | $58,601,262 | $65,916,446 | | Total non-current assets | $65,797,241 | $66,649,868 | | Total Assets | $124,398,503 | $132,566,314 | | LIABILITIES | | | | Total current liabilities | $32,622,266 | $29,114,024 | | Total non-current liabilities | $12,029,990 | $25,492,788 | | Total Liabilities | $44,652,256 | $54,606,812 | | EQUITY | | | | Total Equity attributable to shareholders | $79,627,518 | $77,837,290 | | Total Liabilities and Equity | $124,398,503 | $132,566,314 | - Cash and cash equivalents decreased by $6.55 million (52.2%) from $12.55 million at December 31, 2024, to $5.99 million at June 30, 2025[18][231] - Total non-current liabilities decreased significantly by $13.46 million (52.8%) from $25.49 million to $12.03 million, primarily due to the exercise of investor warrants and changes in derivative liabilities[18][120] Unaudited Condensed Consolidated Statements of Changes in Equity Total equity increased to $79.63 million, driven by warrant exercises and bond conversions that offset the net loss Changes in Equity (Six Months Ended June 30, 2025) | Item | Amount (USD) | | :--- | :--- | | Balance as of December 31, 2024 | $77,837,290 | | Share-based compensation | $1,459,588 | | Conversion of convertible bonds into shares | $1,826,131 | | Cashless exercise of warrant | $12,487,838 | | Net loss | $(15,543,673) | | Unrealized holding gains for available-for-sale securities | $15,000 | | Disposal of a subsidiary | $58,122 | | Foreign currency translation adjustment | $1,487,222 | | Balance as of June 30, 2025 | $79,627,518 | - The cashless exercise of warrants contributed $12.49 million to additional paid-in capital, reflecting a significant equity transaction during the period[19] - The conversion of convertible bonds into shares added $1.83 million to equity, indicating a shift from debt to equity[19] Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operations decreased to $9.36 million, while financing activities provided $2.93 million from loans Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2025 (Unaudited) | 2024 (Unaudited) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(9,360,191) | $(12,710,460) | $3,350,269 | | Net cash used in investing activities | $(601,069) | $(349,921) | $(251,148) | | Net cash provided by financing activities | $2,934,554 | $461,636 | $2,472,918 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | $157,307 | $(546,408) | $703,715 | | Net decrease in cash, cash equivalents and restricted cash | $(6,869,399) | $(13,145,153) | $6,275,754 | | Cash, cash equivalents and restricted cash at end of period | $6,091,089 | $16,426,744 | $(10,335,655) | - Net cash used in operating activities decreased by $3.35 million (26.3%) year-over-year, primarily due to adjustments for non-cash items and changes in working capital components[22][240][241] - Net cash provided by financing activities increased significantly by $2.47 million, driven by proceeds from bank loans ($1.35 million), third-party loans ($1.12 million), and related party loans ($1.00 million)[22][244] Notes to the Unaudited Condensed Consolidated Financial Statements These notes detail accounting policies, discontinued European operations, and specific financial statement line items NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES Cenntro Inc is a Nevada holding company that designs and manufactures ECVs and has restructured its European operations - Cenntro Inc was incorporated in Nevada on March 9, 2023, and operates through subsidiaries in the US, Australia, Europe, Mexico, Hong Kong, and PRC, focusing on designing and manufacturing purpose-built ECVs[23][31][32] - On February 27, 2024, CEGL completed redomiciliation, changing the ultimate parent company's incorporation jurisdiction from Australia to Nevada, making CEGL a subsidiary of Cenntro Inc[34][35] - In November 2024, the Company decided to restructure its European operations, phasing out the direct sales model for a centralized dealership distribution system, leading to the classification of CEGE, CAE, and Cenntro EV Center Italy S.R.L as discontinued operations[38][39][40] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the basis of presentation, use of estimates, fair value hierarchy, and revenue recognition policies - The financial statements are prepared in conformity with U.S GAAP, requiring management to make significant estimates and assumptions, particularly for credit losses, inventory valuation, impairment losses, deferred tax assets, and fair value measurements[44][46] - The Company applies the fair value option to convertible promissory notes, convertible loan receivables, and currency-cross swaps, measuring them at fair value on a recurring basis[51] - Revenue is recognized when control of goods or services is transferred to customers, primarily from sales of light-duty ECVs, ECV parts, and off-road electric vehicles, with consideration recorded net of sales returns and VAT[57][58][61] Net Revenues by Product Line (Six Months Ended June 30) | Product Line | 2025 (Unaudited) | 2024 (Unaudited) | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Vehicles sales | $7,976,499 | $9,610,536 | $(1,634,037) | -17.0% | | Spare-parts sales | $505,779 | $1,978,161 | $(1,472,382) | -74.4% | | Other service income | $229,877 | $123,794 | $106,083 | 85.7% | | Net revenues (total) | $8,712,155 | $11,712,491 | $(2,990,336) | -25.5% | | Less: Discontinued operations | $(162,179) | $(2,054,744) | $1,892,565 | -92.1% | | Net revenues (continuing operations) | $8,549,976 | $9,657,747 | $(1,107,771) | -11.5% | Net Revenues by Geographical Market (Continuing Operations, Six Months Ended June 30) | Market | 2025 (Unaudited) | 2024 (Unaudited) | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Asia | $1,931,593 | $2,294,674 | $(363,081) | -15.8% | | Europe | $5,786,495 | $3,654,430 | $2,132,065 | 58.3% | | America | $960,227 | $5,763,387 | $(4,803,160) | -83.3% | | Others | $33,840 | $- | $33,840 | N/A | | Total | $8,712,155 | $11,712,491 | $(2,990,336) | -25.5% | | Less: Discontinued operations | $(162,179) | $(2,054,744) | $1,892,565 | -92.1% | | Net revenues (continuing operations) | $8,549,976 | $9,657,747 | $(1,107,771) | -11.5% | NOTE 3 - ACCOUNTS RECEIVABLE, NET Net accounts receivable for continuing operations remained stable, while the provision for credit losses increased significantly Accounts Receivable, Net (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Accounts receivable, net | $3,236,747 | $3,281,865 | | Provision for credit losses (total) | $3,593,840 | $2,018,042 | | Provision for credit losses (continuing operations) | $1,410,296 | $485,016 | - The provision for credit losses for continuing operations increased from $485,016 at December 31, 2024, to $1,410,296 at June 30, 2025, reflecting significant additions of $1,346,762 during the period[75] NOTE 4 - INVENTORIES Net inventories for continuing operations increased to $25.44 million, with a corresponding rise in the valuation allowance Inventories, Net (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Inventories, net | $25,437,768 | $24,012,504 | | Inventory valuation allowance (total) | $9,096,992 | $8,255,880 | - Raw material inventory remained stable, while finished goods inventory slightly decreased; the overall increase in net inventories for continuing operations was $1.43 million[76] NOTE 5 – PREPAYMENT AND OTHER CURRENT ASSETS Prepayment and other current assets for continuing operations increased slightly to $18.61 million Prepayment and Other Current Assets (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Advance to suppliers | $12,916,541 | $13,435,558 | | Deductible input value added tax | $5,934,505 | $5,284,726 | | Others | $1,034,514 | $390,617 | | Total prepayment and other current assets (continuing operations) | $18,610,258 | $18,075,415 | NOTE 6 – LONG-TERM INVESTMENTS Long-term investments for continuing operations remained stable at approximately $3.11 million Long-Term Investments (Continuing Operations) | Investment Type | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Equity method investment, net | $2,108,108 | $2,068,951 | | Equity investment without readily determinable fair values, net | $1,000,000 | $1,000,000 | | Debt security investments | $656,712 | $641,712 | - The debt security investment in Acton, Inc (a $600,000 convertible note) had its maturity date extended to July 24, 2026[80] NOTE 7 – INVESTMENT IN EQUITY SECURITY The investment in MineOne Fix Income Investment I L.P increased to $27.12 million due to fair value adjustments Investment in Equity Security (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | MineOne Fix Income Investment I L.P | $27,120,596 | $26,604,319 | | Upward adjustment for changes in fair value (6 months) | $516,277 | $494,451 | NOTE 8 – PROPERTY, PLANT AND EQUIPMENT, NET Net property, plant, and equipment for continuing operations decreased slightly to $17.27 million Property, Plant and Equipment, Net (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Property, plant and equipment, net | $17,269,071 | $17,401,006 | | Accumulated depreciation | $(6,897,624) | $(6,019,046) | | Impairment | $(1,079,648) | $(949,485) | | Depreciation expenses (6 months) | $894,429 | $765,295 | NOTE 9 – INTANGIBLE ASSETS, NET Net intangible assets for continuing operations remained stable at $6.24 million Intangible Assets, Net (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Intangible assets, net | $6,244,650 | $6,225,302 | | Accumulated amortization | $(1,050,296) | $(766,239) | | Amortization expenses (6 months) | $211,496 | $202,949 | NOTE 10 – ACCOUNTS PAYABLE Accounts payable for continuing operations decreased to $3.92 million due to lower professional fees and supplier payables Accounts Payable (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Professional fees payable | $2,263,892 | $2,861,695 | | Payable to suppliers | $2,993,354 | $3,697,743 | | Total accounts payable (continuing operations) | $3,922,891 | $5,135,710 | NOTE 11 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses for continuing operations increased to $4.29 million, driven by higher third-party loans Accrued Expenses and Other Current Liabilities (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Accrued litigation compensation | $1,784,688 | $1,761,275 | | Loan from third parties | $1,403,178 | $626,516 | | Accrued interest for convertible promissory note | $51,349 | $270,690 | | Total accrued expenses and other current liabilities (continuing operations) | $4,294,403 | $3,647,503 | - Loans from third parties significantly increased from $626,516 to $1,403,178, including new interest-free loans and loans with interest rates ranging from 3.45% to 7.50%[88] NOTE 12 –SHORT-TERM AND LONG-TERM BANK LOANS Short-term loans for continuing operations increased to $1.22 million due to a new bank facility Short-Term and Long-Term Bank Loans (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Short-term loans and current portion of long-term loans | $1,221,453 | $249,614 | | Long-term loans | $- | $362,386 | | Total borrowings (continuing operations) | $1,221,453 | $612,000 | - A new bank facility of approximately $1.40 million (RMB10,000,000) was granted by the Industrial and Commercial Bank of China in May 2025, with $1.22 million borrowed and due in May and June 2026, secured by plants and building and land with a net value of approximately $16.78 million[91] NOTE 13 - INCOME TAXES The company is subject to varying income tax rates across jurisdictions, with total pre-tax losses of $13.58 million Losses Before Income Taxes by Region (Continuing Operations, Six Months Ended June 30) | Region | 2025 (Unaudited) | 2024 (Unaudited) | | :--- | :--- | :--- | | PRC | $5,217,096 | $4,842,423 | | US | $5,187,770 | $4,834,603 | | Europe | $3,401,675 | $6,359,899 | | Australia | $1,498,725 | $1,703,066 | | Others | $282,639 | $718,742 | | Total losses before income taxes | $15,587,905 | $18,458,733 | | Less: Discontinued operations | $(2,009,202) | $(2,983,173) | | Losses before income taxes (continuing operations) | $13,578,703 | $15,475,560 | - European operations saw a significant decrease in losses before income taxes for continuing operations, from $6.36 million in 2024 to $3.40 million in 2025[100] NOTE 14 - LEASES Operating lease costs for continuing operations decreased to $1.77 million, with a remaining lease term of 4.03 years Operating Lease Costs (Continuing Operations, Six Months Ended June 30) | Metric | 2025 (Unaudited) | 2024 (Unaudited) | | :--- | :--- | :--- | | Operating leases cost excluding short-term lease expenses | $1,703,582 | $2,235,290 | | Short-term lease expenses | $70,559 | $183,679 | | Total | $1,774,141 | $2,418,969 | - Total operating lease costs for continuing operations decreased by $0.64 million (26.7%) year-over-year[103] Operating Lease Supplemental Information (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | June 30, 2024 (Unaudited) | | :--- | :--- | :--- | | Cash paid for amounts included in lease liabilities | $754,386 | $1,531,851 | | Weighted average remaining lease term | 4.03 years | 5.99 years | | Weighted average discount rate | 7.35% | 6.36% | NOTE 15 - CONVERTIBLE PROMISSORY NOTE AND WARRANT The convertible note's due date was extended, and investor warrants were fully exercised during the period - The convertible promissory note's due date was extended to January 19, 2026, and its conversion floor price was amended to $0.202 per share[106][113] Convertible Promissory Note and Warrant Balances | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Convertible promissory notes (liability component) | $10,279,000 | $9,952,000 | | Investor warrants component | $- | $12,137,087 | | Placement agent warrants component | $3,456,797 | $3,455,829 | - Investor warrants, originally for 2,473,334 shares, were fully exercised during the six months ended June 30, 2025, resulting in a $12.49 million decrease in liability[120] NOTE 16- SHARE-BASED COMPENSATION Share-based compensation expenses decreased to $1.46 million for the first half of 2025 Share-Based Compensation Expenses (Six Months Ended June 30) | Expense Category | 2025 (Unaudited) | 2024 (Unaudited) | | :--- | :--- | :--- | | General and administrative expenses | $1,285,083 | $1,500,783 | | Selling and marketing expenses | $31,103 | $96,970 | | Research and development expenses | $143,402 | $175,367 | | Total share-based compensation expenses | $1,459,588 | $1,773,120 | - Total share-based compensation expenses decreased by $0.31 million (17.7%) year-over-year[124] Share Options Activity | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Outstanding share options | 1,647,568 | 1,733,052 | | Weighted average exercise price | $14.05 | $13.80 | | Unrecognized compensation cost | $2,159,811 | N/A | NOTE 17 - CONCENTRATIONS The company has significant customer and supplier concentrations for both continuing and discontinued operations Customer Concentration (Continuing Operations, Six Months Ended June 30, 2025) | Customer | % of Total Net Revenue | | :--- | :--- | | Customer A | 41% | | Total (top customers) | 41% | Supplier Concentration (Continuing Operations, Six Months Ended June 30, 2025) | Supplier | % of Total Purchases | | :--- | :--- | | Supplier A | 52% | | Total (top suppliers) | 52% | Customer Concentration (Discontinued Operations, Six Months Ended June 30, 2025) | Customer | % of Total Net Revenue | | :--- | :--- | | Customer I | 20% | | Customer J | 19% | | Customer K | 15% | | Customer L | 14% | | Customer M | 12% | | Total (top customers) | 80% | NOTE 18 - COMMITMENTS AND CONTINGENCIES The company is involved in various legal proceedings but does not expect a material adverse impact on its financials - CAE is involved in an IP infringement lawsuit in Belgium, where a court ruled against it, ordering cessation of METRO model distribution and imposing fines up to EUR1,000,000; CAE has filed an appeal[146][300] - A lawsuit filed by Xiongjian Chen against the Company and its CEO, Peter Z Wang, for stock options claims, will proceed solely on a promissory estoppel claim against Peter Wang, with remote financial consequences anticipated for the Company[147][301][302] - CAC is preparing for arbitration against Anhui Deepway Technology Co, Ltd for RMB320,000 in economic damages and continuation of a Strategic Cooperation Agreement[149] - BAL Freeway Associates, LLC filed an Unlawful Detainer against CAC for non-payment of rents, seeking damages no lower than $4,400,000, with negotiations ongoing[154] NOTE 19 - RELATED PARTY TRANSACTIONS AND BALANCES The company engaged in several transactions with related parties, including loans from and to entities controlled by the CEO Related Party Transactions (Six Months Ended June 30, 2025) | Transaction Type | Related Party | Amount (USD) | | :--- | :--- | :--- | | Interest expense | Zhongchai | $16,042 | | Interests-bearing loan from | Zhongchai | $1,000,000 | | Interests-bearing loan to | Greenland | $27,760 | | Prepayment of operating fund to | Billy Rafael Romero Del Rosario | $25,378 | | Reimbursement from | Billy Rafael Romero Del Rosario | $88,646 | Amounts Due From/To Related Parties (Continuing Operations) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Amounts due from related parties | $40,056 | $11,729 | | Amounts due to related parties | $1,016,042 | $26,226 | - A $1.0 million interest-bearing loan was received from Zhongchai Holding (Hongkong) Limited, controlled by the CEO, with a maturity date of April 14, 2026, and an interest rate of 7.50% per annum[163][164] NOTE 20 - SUBSEQUENT EVENT A portion of the company's convertible note was converted into common stock after the reporting period - On July 17, 2025, Investment Pte Ltd converted $1,165,180 of its convertible note into 2,000,000 shares of Cenntro Inc common stock[165] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results for H1 2025, highlighting decreased revenues, an improved net loss, and strategic operational shifts A. Key Components of Results of Operations Revenue is driven by ECV sales, with a strategic shift to a distributor model in Europe and ongoing cost management efforts - Net revenues are primarily generated from sales of various ECV models (e.g, Metro®, Logistar™, Avantier™) and ECV spare parts, as well as other services[169][170] - The company has returned to a distributor-focused model in Europe and implemented a hybrid approach (direct sales + distributor partnerships) in North America to optimize go-to-market strategies[169] - Operating expenses, particularly general and administrative, are expected to decrease over the next two years due to efficiency improvements, combining EV centers with local distribution networks, and utilizing proven OEMs and supply chains[177] - Provision for credit losses is expected to decrease in the future as the company shifts sales to FOB terms, requiring material payments before goods delivery[179] Key Operating Metrics The gross margin of vehicle sales declined significantly to 1.33% in H1 2025 from 21.4% in the prior year Key Performance Indicators (Six Months Ended June 30) | Metric | 2025 (Unaudited) | 2024 (Unaudited) | | :--- | :--- | :--- | | Gross margin of vehicle sales | 1.33% | 21.4% | - The gross margin of vehicle sales decreased substantially from 21.4% in 2024 to 1.33% in 2025, reflecting a significant decline in profitability from vehicle sales[185] Results of Operations H1 2025 net revenues fell 11.5% to $8.55 million, while gross profit dropped 82.7%, though operating expenses also decreased Net Revenues by Category (Six Months Ended June 30) | Category | 2025 (Unaudited) | 2024 (Unaudited) | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Vehicle Sales | $7,890,062 | $7,697,504 | $192,558 | 2.5% | | Spare-part sales | $430,037 | $1,885,903 | $(1,455,866) | -77.2% | | Other sales | $229,877 | $74,340 | $155,537 | 209.2% | | Total net revenues | $8,549,976 | $9,657,747 | $(1,107,771) | -11.5% | - Net revenues for the six months ended June 30, 2025, decreased by $1.1 million (11.5%) to $8.5 million, primarily due to a $1.5 million decrease in spare-part sales, partially offset by a $0.2 million increase in vehicle sales[188] Operating Expenses (Six Months Ended June 30) | Expense Category | 2025 (Unaudited) | 2024 (Unaudited) | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Selling and marketing expenses | $(1,004,297) | $(1,213,969) | $209,672 | -17.3% | | General and administrative expenses | $(10,101,922) | $(12,986,881) | $2,884,959 | -22.2% | | Research and development expenses | $(1,433,039) | $(2,540,874) | $1,107,835 | -43.6% | | Provision for credit losses | $(2,035,343) | $- | $(2,035,343) | N/A | - General and administrative expenses decreased by $2.9 million (22.2%), driven by reductions in salary, office, leasing, freight, rental expenses, and share-based compensation[208] - Research and development expenses decreased by $1.1 million (43.6%), mainly due to lower design and development expenditures and salary expenses[211] - The Company recognized a gain of approximately $1.2 million from the disposal of Cenntro Electric CICS, SRL's equity for the six months ended June 30, 2025[221] Non-GAAP Financial Measures Adjusted EBITDA improved to $(10.85) million in H1 2025 from $(15.68) million in the prior year, reflecting better core performance Adjusted EBITDA Reconciliation (Six Months Ended June 30) | Metric | 2025 (Unaudited) | 2024 (Unaudited) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net loss | $(15,560,865) | $(18,424,018) | $2,863,153 | | Interest expense, net | $275,084 | $24,546 | $250,538 | | Income tax benefit | $(27,040) | $(16,748) | $(10,292) | | Depreciation and amortization | $1,105,925 | $975,244 | $130,681 | | Share-based compensation expense | $1,459,588 | $1,773,120 | $(313,532) | | Change in fair value of convertible promissory notes and derivative liability | $137,290 | $(8,532) | $145,822 | | Gain from Note Amendment | $1,756,137 | $- | $1,756,137 | | Adjusted EBITDA | $(10,853,881) | $(15,676,388) | $4,622,807 | - Adjusted EBITDA improved by $4.62 million (29.5%) for the six months ended June 30, 2025, indicating a stronger core operating performance compared to the previous year[228] B. Liquidity and Capital Resources Cash decreased to $6.0 million, with the company focusing on operational efficiency and inventory management to meet liquidity needs - Cash and cash equivalents decreased to approximately $6.0 million as of June 30, 2025, from $12.5 million at December 31, 2024[231] - Working capital decreased by approximately $10.8 million to $26.0 million as of June 30, 2025, primarily due to decreased cash and increased inventories and various liabilities[237] - Short-term liquidity requirements will be met through operating efficiency, increased inventory turns, and existing cash, with plans for continued rollout of new ECV models and establishment of local assembly facilities[232][233] - Long-term liquidity plans include regionalizing manufacturing and supply chains, expanding the channel partner network, and increasing R&D expenditure, funded by cash on hand, operations, and future equity/debt financings[234][235][236] Cash Flow Net cash used in operations decreased to $9.36 million, while financing activities provided $2.93 million from loans Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2025 (Unaudited) | 2024 (Unaudited) | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,360,191) | $(12,710,460) | | Net cash used in investing activities | $(601,069) | $(349,921) | | Net cash provided by financing activities | $2,934,554 | $461,636 | | Net decrease in cash, cash equivalents, and restricted cash | $(6,869,399) | $(13,145,153) | - Net cash used in operating activities decreased by $3.35 million, primarily due to adjustments for non-cash items like share-based compensation, depreciation, and the gain from disposal of a subsidiary, partially offset by increases in inventories and accounts receivable[241] - Net cash provided by financing activities increased by $2.47 million, mainly from proceeds of $1.4 million from bank loans, $1.0 million from related parties, and $1.1 million from third parties[244] Contractual Obligations The company holds several non-cancellable operating leases for facilities in China, Germany, Mexico, and the US - The Company has non-cancellable operating lease agreements for facilities in Hangzhou, China (annual rent $144,528, ends May 2026), Dusseldorf, Germany (annual rent approx $373,630, ends December 2024), Ontario, California (first-year monthly rent $115,200, ends five years from April 2023), Howell, New Jersey (first annual rent $493,920, ends five years from February 2023), and Mexico (monthly rent $29,225.38, ends 8.5 years from January 2023)[245][246][250][251][252] - New lease agreements were signed in September 2024 for Jiangsu, China (monthly rent approx $22,435, ends December 2026), March 2025 for Barstow, California (first-year monthly rent $12,000, ends three years), and May 2025 for Barcelona, Spain (monthly rent approx $2,357, ends eighteen months)[254][255][256] - The Company has not entered into any off-balance sheet financial guarantees, other off-balance sheet commitments, or derivative contracts indexed to its shares[258] Critical Accounting Policies and Estimates Management relies on significant estimates for credit losses, inventory valuation, and fair value of complex financial instruments - Significant accounting estimates include provision for credit losses, lower of cost and net realizable value of inventories, impairment losses for long-lived assets and investments, valuation allowance for deferred tax assets, and fair value measurement for share-based compensation, convertible promissory notes, and warrants[263] - The Company applies the fair value option to convertible promissory notes, convertible loan receivables, and currency-cross swaps, using a three-tier fair value hierarchy (Level 1, 2, 3) for measurement[264][269] - Revenue recognition follows a five-step analysis, primarily from sales of light-duty ECVs, ECV parts, and off-road electric vehicles, with revenue recognized upon transfer of control to customers[274][275][277] - The Company adopted ASU 2023-07 (Segment Reporting) for the year ended December 31, 2024, with no significant impact, and is assessing the impact of ASU 2024-03 (Disaggregation of Income Statement Expenses) and ASU 2025-05 (Expected Credit Losses for Current Accounts Receivable)[286][288][289] Item 3. Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, Cenntro Inc is not required to provide these disclosures Item 4. Controls and Procedures Management concluded disclosure controls were not effective due to unresolved material weaknesses in internal control - As of June 30, 2025, the Company's disclosure controls and procedures were not effective due to existing material weaknesses in internal control over financial reporting[294] - The Company is implementing a remediation plan to address the material weaknesses, but they remain unresolved as of the reporting date[296] - Unremediated material weaknesses could lead to material misstatements, reporting delays, regulatory actions, and adverse impacts on stock valuation and business prospects[297] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings but expects no material adverse financial impact - CAE is facing an IP infringement lawsuit in Belgium, where a court ruled against it, ordering cessation of METRO model distribution and imposing fines up to EUR1,000,000; CAE has filed an appeal[146][300] - A lawsuit by Xiongjian Chen against the Company and its CEO, Peter Z Wang, for stock options claims, will proceed solely on a promissory estoppel claim against Peter Wang, with remote financial consequences anticipated for the Company[147][301][302] - CAC is preparing for arbitration against Anhui Deepway Technology Co, Ltd for RMB320,000 in economic damages and continuation of a Strategic Cooperation Agreement[149] - BAL Freeway Associates, LLC filed an Unlawful Detainer against CAC for non-payment of rents, seeking damages no lower than $4,400,000, with negotiations ongoing[154] Item 1A. Risk Factors Investors should consider the risks detailed in the company's Form 10-K, which could materially affect business results Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company made no previously undisclosed unregistered sales of equity securities during the reporting period Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the quarter ended June 30, 2025 Item 4. Mine Safety Disclosures This item is not applicable to the company Item 5. Other Information No directors or certain officers modified Rule 10b5-1 trading arrangements during the quarter - No Section 16 reporting persons (directors and certain officers) engaged in or modified Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[308] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - Exhibits include certifications (31.1, 31.2, 32.1) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[310] SIGNATURES