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CENNTRO ELECTRIC GROUP LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Expressed in U.S. dollar, except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(b)	Recent Accounting Pronouncements

Except for the accounting standards update (“ASU”) issued but not yet adopted as disclosed in Note 2 to the financial statements for the year ended December 31, 2021, there is no ASU issued by the Financial Accounting Standards Board (“FASB”) that is expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption.

NOTE 3 – BUSINESS ACQUISITION

On March 5, 2022, the Company entered into a Share and Loan Purchase Agreement (the “Purchase Agreement”) with Mosolf SE & Co. KG, a limited liability partnership incorporated under the laws of Germany (“Seller” or “Mosolf” and, together with CEGL and CEG, the “Parties”), pursuant to which Mosolf agreed to sell to the Company (i) 65% of the issued and outstanding shares (the “TME Shares”) in Tropos Motors Europe GmbH, a German limited liability company (“TME”), and (ii) 100% of the shareholder loan (the “Shareholder Loan”) which Mosolf previously provided to TME (the “TME Transaction”). TME is one of Cenntro’s private label channel partners. The Company has no revenue from sale to TME from January 1, 2022 until acquisition date.

The TME Transaction closed on March 25, 2022. At closing of the TME Transaction, the Company paid Mosolf €3.25 million (or approximately USD$3.6 million) for the purchase of the TME Shares and €11.90 million (or approximately USD$13.2 million) for the purchase of the Shareholder Loan, the total consideration of the TME transaction is €3.25 million (or approximately USD$3.6 million), the amount for the purchase of the Shareholder Loan was accounted for as loan to CEG.  The payment for the purchase of Shareholder Loan was not a part of consideration transferred. In addition, the consideration paid for the purchase of Shareholder Loan is presented as a financing cash outflow in a manner consistent with how it would present the repayment of the Company's own debt obligation outside of a business combination.

TME changed its name to Cenntro Automotive Europe GmbH (DEU) (“CAE”) on March 28, 2022, in connection with the closing of the Combination. This transaction was considered a business acquisition and therefore was recorded using the acquisition method of accounting. The acquired assets and liabilities were recorded at their fair values at the date of acquisition.

The tangible and intangible assets valuation for the acquisition was based on a valuation analysis prepared by the management with the assistance from an independent third-party appraiser. The identifiable intangible assets acquired upon acquisition was the customers relationship, which has an estimated useful life of approximately 5 years. All other current assets and current liabilities carrying value approximated fair value at the time of acquisition. The fair value of the intangible assets identified was determined by adopting the income approach.

The goodwill is attributable to intangible assets that cannot be recognized separately as identifiable assets under GAAP, and comprise of the expected but unidentifiable business growth as a result of the economy of scale, increase in cross-selling opportunities as well as synergy resulting from the acquisition.

In the one-year measurement period since the acquisition date, the Company can obtain the information it needs to identify and measure the consideration transferred, assets acquired, and liabilities assumed, as well as any previously held or noncontrolling interests.

On the acquisition date, the preliminary allocation of the consideration of the assets acquired and liabilities assumed based on their fair value was as follows:

(1) The inventories of $4,484,007 on the acquisition date was purchased from Cenntro during the year ended December 31, 2021 prior to the closing of the Combination. The transaction was based on arm’s length principle, recognized as sales revenue generated from independent third-party customer, and not considered as part of the acquisition transaction.

NOTE 4 – ACCOUNTS RECEIVABLE, NET

Accounts receivable, net is summarized as follows:

Movements of the provision for doubtful accounts are as follows:

NOTE 5 – INVENTORIES

Inventories are summarized as follows:

For the six months ended June 30, 2022 and 2021, the impairment loss recognized by the Company for slow-moving inventory with cost lower than net realizable value were $598,467 and $513,182, respectively.

CENNTRO ELECTRIC GROUP LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Expressed in U.S. dollar, except for number of shares)

NOTE 6– PREPAYMENT AND OTHER CURRENT ASSETS

Prepayment and other current assets, net as of June 30, 2022 and December 31, 2021 consisted of the following:

NOTE 7 – EQUITY METHOD INVESTMENTS

NOTE 8 – PROPERTIES AND EQUIPMENT, NET

Properties and equipment, net as of June 30, 2022 and December 31, 2021consisted of the following:

Depreciation expenses for the six months ended June 30, 2022 and 2021 were $318,806 and $374,328, respectively.

Impairment loss for the six months ended June 30, 2022 and 2021 were $nil and $6,193, respectively.

​		June 30, 2022				December 31, 2021
​		​(Unaudited)
Deposit		​$	570,789			$	564,007
Long-term prepayment(a)			10,527,630				1,587,693
Receivable from a third party(b)			2,239,441				2,353,827
Total			13,337,860				4,505,527
Less: provision for receivable from a third party (b)		​(2,239,441)					(2,353,827	)
Other non-current assets, net		​$	11,098,419			$	2,151,700

(a)	In 2022, the Company signed an agreement with Zhejiang HPWINNER Scientific Company Limited and prepaid $8,957,764 (RMB 60,000,000) to acquire its factory and machinery for the expansion of the Company’s productive capacity.

(b)

In 2018, the Company signed an agreement with Anhua Automotive Co. Ltd., (“Anhua”) and paid initial a non-refundable deposit to participate in Anhua’s bankruptcy recombination process to develop further production capacity in China. However, due to the irrecoverable deterioration of Anhua’s operation business and the Company’s shifted focus to Europe and America markets, further participation in the recombination was ceased. Therefore, the Company recorded full provision of the deposit for the year ended December 31, 2019. The difference between the provision for receivable from a third party as of December 31, 2021 and June 30, 2022 was due to changes in the exchange rate between USD and RMB.

​		June 30, 2022				December 31, 2021
		(Unaudited)
Accrued professional fee			2,760,242				2,429,843
Employee payroll and welfare payable			673,898				561,469
Loans from third parties (a)			-				419,642
Other tax payable			-				48,672
Credit card payable			-				510,151
Others			738,724				213,486
Total		​$	4,172,864			$	4,183,263

(a)	Loans from third parties represented combined aggregate interest-bearing loans of $nil and $419,642 as of June 30, 2022 and December 31, 2021, respectively, with the weighted average annual interest rate of nil and 11.17%, respectively.

​		For the Six Months Ended June 30,
​		2022				2021
		(Unaudited)				(Unaudited)
Operating leases cost excluding short-term rental expense		$	740,871			$	273,131
Short-term lease cost			38,277				2,764
Total		$	779,148			$	275,895

		For the Six Months Ended June 30,
		2022				2021
		(Unaudited)				(Unaudited)
Cash paid for amounts included in the measurement of lease liabilities		$	552,812			$	613,282
Weighted average remaining lease term		8.87 years				4.89 years
Weighted average discount rate			2.87	%			4.75	%

​		Operating Leases
Six months ending December 31, 2022		$​	712,746
Years ended December 31,
2023			1,446,782
2024			848,689
2025			759,227
2026			789,597
2027 and thereafter			5,189,668
Total lease payments			9,746,709
Less: imputed interest			1,241,421
Total			8,505,288
Less: current portion			1,426,428
Non-current portion		$​	7,078,860

​		Number of Share Options				Weighted Average Exercise Price US$				Weighted Average Remaining Contractual Years				Aggregate Intrinsic Value US$
Outstanding as of December 31, 2021			9,225,271				1.10				2.60				42,799,081
Granted			12,797,063				1.68
Exercised			-				-
Forfeited			-				-
Expired			-				-
Outstanding as of June 30, 2022 (unaudited)			22,022,334				1.44				6.54				6,182,920
Expected to vest as of June 30, 2022 (unaudited)			12,294,472				1.73				9.54				-
Exercisable as of June 30, 2022 (unaudited)			9,727,862				1.07				2.74				6,182,920

		Six months ended June 30,
​		2022								2021
Supplier		Amount				% of Total				Amount				% of Total
		(unaudited)								(unaudited)
A			$	4,030,226				45	%		$	-		​-
B				-				-		​ 128,658				​13%
C		​		*				-		​120,026				​12%
Total			$	4,030,226				​45	%		$	248,684		​25%

Name of related parties:	​	Relationship with the Company
Mr. Yeung Heung Yeung	​	A director and board member of CEG, and principal shareholder of CAG Cayman
Mr. Zhong Wei	​	Chief Technology Officer of CAG Cayman
CAG Cayman	​	Mr. Peter Wang is a principal shareholder
Hangzhou Hezhe Energy Technology Co., Ltd		Investee accounted for under equity method of accounting
Devirra Corporation Limited and its subsidiaries (Collectively referred to the “Devirra Group”)	​	Entities controlled by CAG Cayman
Zhejiang Zhongchai Machinery Co., Ltd (“Zhejiang Zhongchai”)	​	Ultimately controlled by Mr. Peter Wang
Zhejiang RAP	​	An entity significantly influenced by Hangzhou Ronda Tech Co., Limited
Jiangsu Rongyuan	​	An entity significantly influenced by Hangzhou Ronda Tech Co., Limited
Bendon Limited		Controlled by Mr. Justin Davis-Rice, a director of CEGL
Shenzhen Yuanzheng Investment Development Co. Ltd (“Shenzhen Yuanzheng”)	​	Controlled by Mr. Yeung Heung Yeung
Shanghai Hengyu Enterprise Management Consulting Co., Ltd (“Shanghai Hengyu”)	​	Ultimately controlled by Mr. Peter Wang
Mr. Justin Davis-Rice		NBG’s prior Executive Chairman and Chief Executive Officer
JADR consulting		Mr. Justin Davis-Rice’s affiliate entity

​		For the Six Months Ended June 30,
​		2022				2021
		(Unaudited)				(Unaudited)
Accrued compensation fee
JADR consulting		$	4,300,000			$	-
Mr. Justin Davis-Rice			550,000				-
Interest income from a related party
Zhejiang RAP			6,976				15,993
Bendon Limited			58,260				-
Purchase of raw materials from related parties
Hangzhou Hezhe Energy Technology Co., Ltd			1,254,934				-
Interest expense on loans provided by related parties
Mr. Yeung Heung Yeung			2,532				65,096
Mr. Zhong Wei			-				6,018
Shenzhen Yuanzheng			1,116				-
Service provided by a related party
Shanghai Hengyu			5,248				-
Zhejiang Zhongchai			4,322				-
Capital injection to a related party
Zhejiang RAP			-				906,601
Rental income from a related party
Devirra Group			-				122,196

		June 30, 2022				December 31, 2021
		(Unaudited)
Hangzhou Hezhe(1)			582,561				817,640
Zhejiang Zhongchai (2)			-				412,797
Shanghai Hengyu			-				2,197
Jiangsu Rongyuan(3)			158,800				166,911
Total			582,561				1,399,545
Less: provision for receivable from a related party (3)			(158,800	)			(166,911	)
Amounts due from related parties, net		$	582,561			$	1,232,634

	June 30, 2022				December 31, 2021
	(Unaudited)
Bendon Limited (1)		$	4,471,660			$	4,834,973
Total			4,471,660				4,834,973

(1)

The balance represents a 5-year loan principal and interest due from the related party with the interest of 2.5% annually which matures in August 2026.

		June 30, 2022				December 31, 2021
		(Unaudited)
JADR consulting (1)		$	4,300,000			$	-
Mr. Justin Davis-Rice (2)			550,000				-
Zhejiang RAP (3)			31,340				40,034
Jiangsu Rongyuan (4)			23,883				25,103
Shanghai Hengyu (5)			2,986				-
CAG Cayman (6)			-				13,945,823
Mr. Yeung Heung Yeung (7)			-				1,328,559
Shenzhen Yuanzheng (7)			-				416,509
Total		$	4,908,209			$	15,756,028

(1)	This balance represented  accrued compensation fee payable of $4,300,000 to JADR consulting, Mr. Justin Davis-Rice’s affiliate entity, as compensation for its service rendered to the Company, which was subsequently paid in July 2022.

(2)	This balance represented accrued compensation fee payable of $550,000 to Mr. Justin Davis-Rice, NBG’s prior Executive Chairman and Chief Executive Officer, as compensation for his service rendered to the Company, which was subsequently paid in July 2022.

(3)	As of June 30, 2022, the balances represented the net balance of equity investment payable of $355,474 and interest-bearing loan and interest receivable from Zhejiang RAP of $324,134, which is due on demand.

(4)	The balance represented the payable for purchase of raw material from this related party.

(5)	The balance represented the payable for consulting service provided by this related party.

(6)

CAG Cayman was the parent company of Cenntro before the closing of the reverse recapitalization. The balance as of December 31, 2021 represented the operating fund from related party with no interest of $15,823 and the reduction of capital investment of $13,930,000 before the reverse recapitalization.

(7)	The balance represented the interest-bearing loan provided by related parties to the Company. The weighted average annual interest rates for the loans were 12% as of December 31, 2021.