UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
For the transition period from _____________ to _____________
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
People’s Republic
of
(Address of principal executive offices, Zip Code)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
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Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of each of the issuer’s classes of common stock, as of November 11, 2022 is as follows:
| Class of Securities | Shares Outstanding | |
| Common Stock, $0.001 par value |
CBAK ENERGY TECHNOLOGY, INC.
TABLE OF CONTENTS
| PART I | ||
| FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements. | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 47 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 60 |
| Item 4. | Controls and Procedures. | 60 |
| PART II | ||
| OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 62 |
| Item 1A. | Risk Factors. | 62 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 62 |
| Item 3. | Defaults Upon Senior Securities. | 62 |
| Item 4. | Mine Safety Disclosures. | 62 |
| Item 5. | Other Information. | 62 |
| Item 6. | Exhibits. | 62 |
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CBAK ENERGY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2022
1
CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated balance sheets
As of December 31, 2021 and September 30, 2022
(Unaudited)
(In US$ except for number of shares)
| December 31, | September 30, | |||||||||
| Note | 2021 | 2022 | ||||||||
| Assets | (Unaudited) | |||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | |||||||||
| Pledged deposits | 2 | |||||||||
| Trade and bills receivable, net | 3 | |||||||||
| Inventories | 4 | |||||||||
| Prepayments and other receivables | 5 | |||||||||
| Receivables from former subsidiary | 16 | |||||||||
| Amount due from non-controlling interest, current | 16 | |||||||||
| Amount due from related party | 16 | |||||||||
| Income tax recoverable | ||||||||||
| Investment in sales-type lease, net | 9 | |||||||||
| Total current assets | ||||||||||
| Property, plant and equipment, net | 6 | |||||||||
| Construction in progress | 7 | |||||||||
| Long-term investments, net | 8 | |||||||||
| Prepaid land use right- non current | 9 | |||||||||
| Intangible assets, net | 10 | |||||||||
| Operating lease right-of-use assets, net | ||||||||||
| Investment in sales-type lease, net | 9 | |||||||||
| Amount due from non-controlling interest, non-current | 16 | |||||||||
| Deferred tax assets, net | 19 | |||||||||
| Goodwill | 12 | |||||||||
| Total assets | $ | $ | ||||||||
| Liabilities | ||||||||||
| Current liabilities | ||||||||||
| Trade and bills payable | 13 | $ | $ | |||||||
| Short-term bank loans | 14 | |||||||||
| Other short-term loans | 14 | |||||||||
| Accrued expenses and other payables | 15 | |||||||||
| Payables to former subsidiaries, net | 16 | |||||||||
| Deferred government grants, current | 17 | |||||||||
| Product warranty provisions | 18 | |||||||||
| Operating lease liability, current | 9 | |||||||||
| Finance lease liability, current | 9 | |||||||||
| Warrants liability | 25 | |||||||||
| Total current liabilities | ||||||||||
| Deferred government grants, non-current | 17 | |||||||||
| Operating lease liability, non-current | 9 | |||||||||
| Product warranty provision | 18 | |||||||||
| Total liabilities | ||||||||||
| Commitments and contingencies | 26 | |||||||||
| Shareholders’ equity | ||||||||||
| Common stock $ | ||||||||||
| Donated shares | ||||||||||
| Additional paid-in capital | ||||||||||
| Statutory reserves | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||||
| Less: Treasury shares | ( | ) | ( | ) | ||||||
| Total shareholders’ equities | ||||||||||
| Non-controlling interests | ||||||||||
| Total of equities | ||||||||||
| Total liabilities and shareholders’ equity | ||||||||||
See accompanying notes to the condensed consolidated financial statements.
2
CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of operations and comprehensive income (loss)
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
| Three months ended | Nine months ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| Note | 2021 | 2022 | 2021 | 2022 | ||||||||||||||
| Net revenues | 28 | $ | $ | $ | ||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross profit | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Sales and marketing expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Recovery of (provision for) doubtful accounts | ( | ) | ||||||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Finance income, net | ||||||||||||||||||
| Other income (expenses), net | ( | ) | ( | ) | ||||||||||||||
| Impairment of non-marketable equity securities | ( | ) | ( | ) | ||||||||||||||
| Change in fair value of warrants | ||||||||||||||||||
| Income (loss) before income tax | ( | ) | ||||||||||||||||
| Income tax credit (expenses) | 19 | ( | ) | |||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||||
| Less: Net (income) loss attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||||
| Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc. | $ | ( | ) | $ | $ | |||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||||
| – Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||||
| Less: Comprehensive loss (income) attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||||
| Comprehensive income (loss) attributable to CBAK Energy Technology, Inc. | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| Income (Loss) per share | 24 | |||||||||||||||||
| – Basic | $ | $ | * | $ | $ | |||||||||||||
| – Diluted | $ | $ | * | $ | $ | |||||||||||||
| Weighted average number of shares of common stock: | 24 | |||||||||||||||||
| – Basic | ||||||||||||||||||
| – Diluted | ||||||||||||||||||
| * |
See accompanying notes to the condensed consolidated financial statements.
3
CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of changes in shareholders’ equity
For the three months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
Common stock | Additional | Accumulated other | Non- | Treasury shares | Total | |||||||||||||||||||||||||||||||||||||||
| Number | Donated | paid-in | Statutory | Accumulated | comprehensive | controlling | Number | shareholders’ | ||||||||||||||||||||||||||||||||||||
| of shares | Amount | shares | capital | reserves | deficit | Income (loss) | interests | of shares | Amount | Equity | ||||||||||||||||||||||||||||||||||
| Balance as of July 1,2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net income (loss) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation for employee and director stock awards | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to employees and directors for stock awards | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance as of July 1, 2022 | $ | $ | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||
| Share-based compensation for employee and director stock awards | - | - | - | | ||||||||||||||||||||||||||||||||||||||||
| Capital injection | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
4
CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of changes in shareholders’ equity
For the nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
| Common stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
| Issued | Additional | other | Non- | Treasury shares | Total | |||||||||||||||||||||||||||||||||||||||
| Number | Donated | paid-in | Statutory | Accumulated | comprehensive | controlling | Number | shareholders’ | ||||||||||||||||||||||||||||||||||||
| of shares | Amount | shares | capital | reserves | deficit | Income (loss) | interests | of shares | Amount | equity | ||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation for employee and director stock awards | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to employees and directors for stock awards | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued to investors | - | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | - | - | |||||||||||||||||||||||||||||||||||
| Share-based compensation for employee and director stock awards | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to employees and directors for stock awards | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||
| Capital injection | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
5
CBAK Energy Technology, Inc. and subsidiaries
Condensed consolidated statements of cash flows
For the nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2021 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| (Recovery of ) provision for doubtful debts | ( | ) | ||||||
| Write-down of inventories | ||||||||
| Share-based compensation | ||||||||
| Loss on disposal of property, plant and equipment | ||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Impairment charge - Investment | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade and bills receivable | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepayments and other receivables | ( | ) | ||||||
| Trade and bills payable | ( | ) | ||||||
| Accrued expenses and other payables | ( | ) | ||||||
| Investment in sales-type lease | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Trade receivable from and payables to former subsidiaries | ( | ) | ( | ) | ||||
| Government grants | ||||||||
| Income tax recoverable | ( | ) | ||||||
| Deferred tax assets | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| Deposit paid for acquisition of a subsidiary | ( | ) | ||||||
| Purchase of non-marketable equity securities | ( | ) | ||||||
| Hitrans Loan | ( | ) | ||||||
| Proceeds on disposal of property, plant and equipment | ||||||||
| Purchases of property, plant and equipment and construction in progress | ( | ) | ( | ) | ||||
| Investment in equity method investment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from bank borrowings | ||||||||
| Repayment of bank borrowings | ( | ) | ( | ) | ||||
| Borrowings from unrelated parties | ||||||||
| Repayment of borrowings from unrelated parties | ( | ) | ||||||
| Repayment of borrowings from related parties | ( | ) | ||||||
| Borrowings from a related party | ||||||||
| Proceeds from issuance of shares | ||||||||
| Repayment of borrowings from Mr. Ye Junnan | ( | ) | ||||||
| Capital injection from non-controlling interests | ||||||||
| Proceeds from finance lease | - | |||||||
| Principal payments on finance leases | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents and restricted cash at the beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at the end of period | $ | $ | ||||||
| Supplemental non-cash investing and financing activities: | ||||||||
| Transfer of construction in progress to property, plant and equipment | $ | $ | ||||||
| Non-cash payment for purchase of property, plant and equipment and construction in progress by new vehicles | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
| Cash paid during the period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest, net of amounts capitalized | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
6
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization
Principal Activities
CBAK Energy Technology, Inc. (formerly known as China BAK Battery, Inc.) (“CBAK” or the “Company”) is a corporation formed in the State of Nevada on October 4, 1999 as Medina Copy, Inc. The Company changed its name to Medina Coffee, Inc. on October 6, 1999 and subsequently changed its name to China BAK Battery, Inc. on February 14, 2005. CBAK and its subsidiaries (hereinafter, collectively referred to as the “Company”) are principally engaged in the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion (known as “Li-ion” or “Li-ion cell”) high power rechargeable batteries. Prior to the disposal of BAK International Limited (“BAK International”) and its subsidiaries (see below), the batteries produced by the Company were for use in cellular telephones, as well as various other portable electronic applications, including high-power handset telephones, laptop computers, power tools, digital cameras, video camcorders, MP3 players, electric bicycles, hybrid/electric vehicles, and general industrial applications. After the disposal of BAK International and its subsidiaries on June 30, 2014, the Company will focus on the manufacture, commercialization and distribution of high power lithium ion rechargeable batteries for use in cordless power tools, light electric vehicles, hybrid electric vehicles, electric cars, electric busses, uninterruptable power supplies and other high power applications.
The shares of the Company traded in the over-the-counter market through the Over-the-Counter Bulletin Board from 2005 until May 31, 2006, when the Company obtained approval to list its common stock on The NASDAQ Global Market, and trading commenced that same date under the symbol “CBAK”.
On January 10, 2017, the Company filed Articles of Merger with the Secretary of State of Nevada to effectuate a merger between the Company and the Company’s newly formed, wholly owned subsidiary, CBAK Merger Sub, Inc. (the “Merger Sub”). According to the Articles of Merger, effective January 16, 2017, the Merger Sub merged with and into the Company with the Company being the surviving entity (the “Merger”). As permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the Merger was to effect a change of the Company’s name.
Effective November 30, 2018, the trading symbol for common stock of the Company was changed from CBAK to CBAT. Effective at the opening of business on June 21, 2019, the Company’s common stock started trading on the Nasdaq Capital Market.
Basis of Presentation and Organization
On November 6, 2004, BAK International, a non-operating holding company that had substantially the same shareholders as Shenzhen BAK Battery Co., Ltd (“Shenzhen BAK”), entered into a share swap transaction with the shareholders of Shenzhen BAK for the purpose of the subsequent reverse acquisition of the Company. The share swap transaction between BAK International and the shareholders of Shenzhen BAK was accounted for as a reverse acquisition of Shenzhen BAK with no adjustment to the historical basis of the assets and liabilities of Shenzhen BAK.
On January 20, 2005, the Company completed a share swap transaction with the shareholders of BAK International. The share swap transaction, also referred to as the “reverse acquisition” of the Company, was consummated under Nevada law pursuant to the terms of a Securities Exchange Agreement entered by and among CBAK, BAK International and the shareholders of BAK International on January, 2005. The share swap transaction has been accounted for as a capital-raising transaction of the Company whereby the historical financial statements and operations of Shenzhen BAK are consolidated using historical carrying amounts.
7
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization (continued)
Basis of Presentation and Organization (continued)
Also on January 20, 2005, immediately prior to consummating
the share swap transaction, BAK International executed a private placement of its common stock with unrelated investors whereby it issued
an aggregate of
Under accounting principles generally accepted in the United States of America (“US GAAP”), escrow agreements such as the one established by Mr. Li generally constitute compensation if, following attainment of a performance threshold, shares are returned to a company officer. The Company determined that without consideration of the compensation charge, the performance thresholds for the year ended September 30, 2005 would be achieved. However, after consideration of a related compensation charge, the Company determined that such thresholds would not have been achieved. The Company also determined that, even without consideration of a compensation charge, the performance thresholds for the year ended September 30, 2006 would not be achieved.
While the
At the time the escrow shares relating to the 2006 performance
threshold were transferred to the investors in fiscal year 2007, the Company should have recognized a credit to donated shares and a debit
to additional paid-in capital, both of which are elements of shareholders’ equity. This entry is not material because total ordinary
shares issued and outstanding, total shareholders’ equity and total assets do not change; nor is there any impact on income or earnings
per share. Therefore, previously filed consolidated financial statements for the fiscal year ended September 30, 2007 will not be restated.
This share transfer has been reflected in these financial statements by reclassifying the balances of certain items as of October 1, 2007.
The balances of donated shares and additional paid-in capital as of October 1, 2007 were credited and debited by $
In November 2007, Mr. Li delivered the
Beginning on March 13, 2008, the Company entered into settlement agreements (the “2008 Settlement Agreements”) with certain investors in the January 2005 private placement. Since the other investors have never submitted any claims regarding this matter, the Company did not reach any settlement with them.
8
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization (continued)
Basis of Presentation and Organization (continued)
Pursuant to the 2008 Settlement Agreements, the Company
and the settling investors have agreed, without any admission of liability, to a settlement and mutual release from all claims relating
to the January 2005 private placement, including all claims relating to the escrow shares related to the 2005 performance threshold that
had been placed into escrow by Mr. Li, as well as all claims, including claims for liquidated damages relating to registration rights
granted in connection with the January 2005 private placement. Under the 2008 Settlement Agreement, the Company has made settlement payments
to each of the settling investors of the number of shares of the Company’s common stock equivalent to
Pursuant to the Li Settlement Agreement, the 2008 Settlement
Agreements and upon the release of the
As of September 30, 2022, the Company had not received any claim from the other investors who have not been covered by the “2008 Settlement Agreements” in the January 2005 private placement.
As the Company has transferred the
On August 14, 2013, Dalian BAK Trading Co., Ltd was established
as a wholly owned subsidiary of China BAK Asia Holding Limited (“BAK Asia”) with a registered capital of $
On December 27, 2013, Dalian BAK Power Battery Co., Ltd
was established as a wholly owned subsidiary of BAK Asia with a registered capital of $
On
May 4, 2018, CBAK New Energy (Suzhou) Co., Ltd (“CBAK Suzhou”) was established as a
On November 21, 2019, Dalian CBAK Energy Technology Co.,
Ltd (“CBAK Energy”) was established as a wholly owned subsidiary of BAK Asia with a registered capital of $
On July 14, 2020, the Company acquired BAK Asia Investments
Limited (“BAK Investments”), a company incorporated under Hong Kong laws, from Mr. Xiangqian Li, the Company’s former
CEO, for a cash consideration of HK$
On July 31, 2020, BAK Investments formed a wholly owned
subsidiary CBAK New Energy (Nanjing) Co., Ltd. (“CBAK Nanjing”) in China with a registered capital of $
9
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization (continued)
Basis of Presentation and Organization (continued)
On August 6, 2020, Nanjing CBAK New Energy Technology Co., Ltd. (“Nanjing
CBAK”) was established as a wholly owned subsidiary of CBAK Nanjing with a registered capital of RMB
On November 9, 2020, Nanjing Daxin New Energy Automobile Industry
Co., Ltd (“Nanjing Daxin”) was established as a wholly owned subsidiary of CBAK Nanjing with a register capital of RMB
On April 21, 2021, CBAK Power, along with Shenzhen BAK Power
Battery Co., Ltd (BAK SZ), Shenzhen Asian Plastics Technology Co., Ltd (SZ Asian Plastics) and Xiaoxia Liu, entered into an investment
agreement with Junxiu Li, Hunan Xintao New Energy Technology Partnership, Xingyu Zhu, and Jiangsu Saideli Pharmaceutical Machinery Manufacturing
Co., Ltd for an investment in Hunan DJY Technology Co., Ltd (“DJY”). CBAK Power has paid $
On August 4, 2021, Daxin New Energy Automobile Technology
( Jiangsu) Co., Ltd (“Jiangsu Daxin”) was established as a wholly owned subsidiary of Nanjing CBAK with a register capital
of RMB
On July 20, 2021, CBAK Power entered into a framework agreement
relating to CBAK Power’s investment in Zhejiang Hitrans Lithium Battery Technology Co., Ltd (“Hitrans”, formerly known
as Zhejiang Meidu Hitrans Lithium Battery Technology Co., Ltd), pursuant to which CBAK Power agreed to acquire
On July 8, 2022, Hitrans held its second shareholder meeting (“the shareholder meeting”) in 2022 to pass a resolution to increase the registered capital of Hitrans from RMB40 million to RMB44 million (approximately $6.2 million) and to accept an investment of RMB22 million (approximately $3.1 million) from Shaoxing Haiji Enterprise Management & Consulting Partnership (“Shaoxing Haiji”) and an investment of RMB18 million (approximately $2.5 million) from Mr. Haijun Wu (collectively “management shareholder”). Under the resolution, 10% of the investment injection (RMB4 million or $0.5 million) will be contributed towards Hitrans’s registered capital and the remaining 90% (RMB36 million or $5.1 million) will be treated as additional paid-in capital contribution of Hitrans. 25% of the investments from the management shareholder were required to be in place before August 15, 2022. As of September 30, 2022, RMB10 million (approximately $1.4 million), representing the 25% of the investments were received. The other 25% of the investments (RMB10 million) and the 50% balance (RMB20 million) were required to be received before December 31, 2022 and June 30, 2024, respectively. CBAK Power has injected RMB20 million (approximately $2.8 million) to Hitrans subsequent to the new investment, representing RMB2 million ($0.3 million) towards Hitrans’s registered capital and RMB18 million ($2.5 million) as additional paid-in capital contribution of Hitrans . As of September 30, 2022, CBAK Power’s equity interests in Hitrans was 74.15% and representing 74.72% of paid up capital.
Subsequent to September 30, 2022, CBAK Power has further inject RMB35 million (approximately $4.9 million) to Hitrans, representing RMB3.5 million ($0.5 million) towards Hitrans’s registered capital and RMB31.5 million ($4.4 million) towards Hitrans additional paid-in capital. As of the report date, CBAK Power’s equity interests in Hitrans was 74.15%, representing 77.25% of paid-up capital .
On July 6, 2018, Guangdong Meidu Hitrans Resources Recycling Technology Co., Ltd. (“Guangdong Hitrans”) was established as a 80% owned subsidiary of Hitrans with a registered capital of RMB10 million (approximately $1.6million). The remaining 20% registered equity interest was held by Shenzhen Baijun Technology Co., Ltd. Pursuant to Guangdong Hitrans’s articles of association, each shareholder is entitled to the right of the profit distribution or responsible for the loss according to its proportion to the capital contribution. Pursuant to Guangdong Hitrans’s articles of association and relevant PRC regulations, Hitrans was required to contribute the capital to Guangdong Hitrans on or before December 30, 2038. Up to the date of this report, Hitrans has contributed RMB1.72 million (approximately $0.3 million), and the other shareholder has contributed RMB0.25 million (approximately $0.04 million) to Guangdong Hitrans through injection of a series of cash. Guangdong Hitrans was established under the laws of the People’s Republic of China as a limited liability company on July 6, 2018 with a registered capital RMB10 million (approximately $1.5 million). Guangdong Hitrans is based in Dongguan, Guangdong Province, and is principally engaged in the business of resource recycling, waste processing, and R&D, manufacturing and sales of battery materials.
On October 9, 2021, Shaoxing Haisheng International Trading
Co., Ltd.
10
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization (continued)
Basis of Presentation and Organization (continued)
In August 2022
The Company’s condensed consolidated financial statements have been prepared under US GAAP.
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company’s principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liability established in the PRC or Hong Kong. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books of account of the Company’s subsidiaries to present them in conformity with US GAAP.
The interim condensed consolidated financial information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 have been prepared without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures, which are normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim condensed consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, previously filed with the SEC on April 15, 2022.
In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s interim condensed consolidated financial position as of September 30, 2022, its interim condensed consolidated results of operations and cash flows for the three months ended September 30, 2022 and 2021, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The Company continued its business and continued to generate revenues from sale of batteries via subcontracting the production to BAK Tianjin and BAK Shenzhen, former subsidiaries before the completion of construction and operation of its facility in Dalian. BAK Shenzhen is now customer of Hitrans.
11
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization (continued)
Basis of Presentation and Organization (continued)
As of the date of this report, Mr. Xiangqian Li is no longer a director of BAK International and BAK Tianjin. He remained as a director of Shenzhen BAK and BAK Shenzhen.
On December 8, 2020, the Company entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company issued in a registered direct offering, an aggregate of 9,489,800 shares of common stock of the Company at a per share purchase price of $5.18, and warrants to purchase an aggregate of 3,795,920 shares of common stock of the Company at an exercise price of $6.46 per share exercisable for 36 months from the date of issuance, for gross proceeds of approximately $49.16 million, before deducting fees to the placement agent and other offering expenses of $3.81 million. In addition, the placement agent for this transaction also received warrants (“Placement Agent Warrants”) for the purchase of up to 379,592 shares of the Company’s common stock at an exercise price of $6.475 per share exercisable for 36 months after 6 months from the issuance.
On February 8, 2021, the Company entered into another securities purchase agreement with the same investors, pursuant to which the Company issued in a registered direct offering, an aggregate of 8,939,976 shares of common stock of the Company at a per share purchase price of $7.83. In addition, the Company issued to the investors (i) in a concurrent private placement, the Series A-1 warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.67 and exercisable for 42 months from the date of issuance; (ii) in the registered direct offering, the Series B warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.83 and exercisable for 90 days from the date of issuance; and (iii) in the registered direct offering, the Series A-2 warrants to purchase up to 2,234,992 shares of common stock, at a per share exercise price of $7.67 and exercisable for 45 months from the date of issuance. The Company received gross proceeds of approximately $70 million from the registered direct offering and the concurrent private placement, before deducting fees to the placement agent and other offering expenses of $5.0 million. In addition, the placement agent for this transaction also received warrants (“Placement Agent Warrants”) for the purchase of up to 446,999 shares of the Company’s common stock at an exercise price of $9.204 per share exercisable for 36 months after 6 months from the issuance.
On May 10, 2021, the Company entered into that Amendment No. 1 to the Series B Warrant (the “Series B Warrant Amendment”) with each of the holders of the Company’s outstanding Series B warrants. Pursuant to the Series B Warrant Amendment, the term of the Series B warrants was extended from May 11, 2021 to August 31, 2021.
As of August 31, 2021, the Company had not received any notices from the investors to exercise Series B warrants. As of the date of this report, Series B warrants, along with Series A-2 warrants, had both expired.
As of September 30, 2022, the Company had $
The Company is currently expanding its product lines and manufacturing capacity in its Dalian Nanjing and Zhejiang plant, which requires more funding to finance the expansion. The Company plans to raise additional funds through banks borrowing and equity financing in the future to meet its daily cash demands, if required.
COVID-19
The World Health Organization declared the novel coronavirus (“COVID-19”) outbreak as a pandemic in March 2020. The COVID-19 pandemic has not caused any disruptions to our operations in the first nine months in 2022. Because of the significant uncertainties surrounding the COVID-19 pandemic, business interruption and the related financial impact caused by government policies remain possible.
Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has accumulated deficit from recurring net losses incurred for the prior years and significant short-term debt obligations maturing in less than one year as of September 30, 2022. These conditions raise substantial doubt about the Company ability to continue as a going concern. The Company’s plan for continuing as a going concern included improving its profitability, and obtaining additional debt financing, loans from existing directors and shareholders for additional funding to meet its operating needs. There can be no assurance that the Company will be successful in the plans described above or in attracting equity or alternative financing on acceptable terms, or if at all. These condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
12
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization (continued)
Revenue Recognition
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the categories: discounts and returns. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company’s customer.
Recently Adopted Accounting Standards
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s condensed consolidated financial statement presentation or disclosures.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is to be adopted on a modified retrospective basis. As a smaller reporting company, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. In March 2022, the FASB issued ASU 2022-02, Topic 326. The ASU eliminates the accounting guidance for trouble debt restructurings by creditors in Subtopic 310-40, and enhances the disclosure requirements for modifications of loans to borrowers experiencing financial difficulty. Additionally, the ASU requires disclosure of gross write offs of receivables by year of origination for receivables within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. This ASU is effective for periods beginning after December 15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2016-13 and ASU 2022-02 will have on its condensed consolidated financial statement presentations and disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the two-step goodwill impairment test, under which a goodwill impairment loss was measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss is measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). Adoption of the ASUs is on a modified retrospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2017-04 will have on its condensed consolidated financial statement presentation or disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. This creates an exception to the general recognition and measurement principles in ASC 805. As a smaller reporting company, ASU 2021-08 will be effective for the Company for interim and annual reporting periods beginning after December 15, 2023, with early adoption permitted. The amendments in this ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company does not anticipate that the adoption of this guidance will have a material impact on the condensed consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This update is effective for annual periods beginning after December 15, 2021, and early application is permitted. This guidance should be applied either prospectively to all transactions that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or retrospectively to those transactions. The Company is currently gathering the information and evaluating the future impact on the Company’s financial statement annual disclosures.
13
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization (continued)
Recently Issued But Not Yet Adopted Accounting Pronouncements (continued)
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
2. Pledged deposits
Pledged deposits as of December 31, 2021 and September 30, 2022 consisted of pledged deposits with banks for bills payable (note 13).
3. Trade and Bills Receivable, net
Trade and bills receivable as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Trade receivable | $ | $ | ||||||
| Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Bills receivable | ||||||||
| $ | $ | |||||||
Included in trade and bills receivables are retention receivables
of $
An analysis of the allowance for doubtful accounts is as follows:
| September 30, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Provision for the period | ||||||||
| Reversal - recoveries by cash | ( | ) | ( | ) | ||||
| Charged to consolidated statements of operations and comprehensive income (loss) | ( | ) | ||||||
| Foreign exchange adjustment | ( | ) | ||||||
| Balance at end of period | $ | $ | ||||||
4. Inventories
Inventories as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
During the three months ended September 30, 2021 and 2022,
write-downs of inventories to lower of cost or net realizable value of $
During the nine months ended September 30, 2021 and 2022,
write-downs of inventories to lower of cost or net realizable value of $
14
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
5. Prepayments and Other Receivables
Prepayments and other receivables as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Value added tax recoverable | $ | $ | ||||||
| Prepayments to suppliers | ||||||||
| Deposits | ||||||||
| Staff advances | ||||||||
| Prepaid operating expenses | ||||||||
| Others | ||||||||
| Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| $ | $ | |||||||
6. Property, Plant and Equipment, net
Property, plant and equipment as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, 2021 | September 30, 2022 | |||||||
| Buildings | $ | $ | ||||||
| Leasehold Improvements | ||||||||
| Machinery and equipment | ||||||||
| Office equipment | ||||||||
| Motor vehicles | ||||||||
| Impairment | ( | ) | ( | ) | ||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Carrying amount | $ | $ | ||||||
The Company has not yet obtained the property ownership certificates
of the buildings in its Dalian manufacturing facilities with a carrying amount of $
During the course of the Company’s strategic review of its operations, the Company assessed the recoverability of the carrying value of the Company’s property, plant and equipment. The impairment charge, if any, represented the excess of carrying amounts of the Company’s property, plant and equipment over the estimated discounted cash flows expected to be generated by the Company’s production facilities. The Company believes that there was no impairment during the three and nine months ended September 30, 2021 and 2022.
15
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
7. Construction in Progress
Construction in progress as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Construction in progress | $ | $ | ||||||
| Prepayment for acquisition of property, plant and equipment | ||||||||
| Carrying amount | $ | $ | ||||||
Construction in progress as of December 31, 2021 and September 30, 2022 was mainly comprised of capital expenditures for the construction of the facilities and production lines of CBAK Power, Nanjing CBAK and Hitrans.
For the three months ended September 30, 2021 and 2022,
the Company capitalized interest of $
For the nine months ended September 30, 2021 and 2022, the Company
capitalized interest of $
8. Long-term investments, net
Long-term investments as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, 2021 | September 30, 2022 | |||||||
| Investments in equity method investees | $ | $ | ||||||
| Investments in non-marketable equity | ||||||||
| $ | $ | |||||||
Investments in equity method investees
| Balance as of January 1, 2022 | $ | |||
| Investments made | ||||
| Income (loss) from investment | ||||
| Foreign exchange adjustment | ( | ) | ||
| Balance as of September 30, 2022 |
In August 2022, Nanjing CBAK, along with two unrelated third parties
of the Company, Guangxi Guiwu Recycle Resources Company Limited (“Guangxi Guiwu”) and Mr. Weidong Xu, an unrelated
third party entered into an investment agreement to jointly set up a new company - Guangxi Guiwu CBAK New Energy Technology Co., Ltd
(“Guangxi Guiwu CBAK”) in which each party holding
Guangxi Guiwu CBAK has not commenced operations as of the date of this report. For the three and nine months ended September 30, 2022, income (loss) from the above investment was recorded.
Investments in non-marketable equity
| December 31, 2021 | September 30, 2022 | |||||||
| Cost | $ | $ | ||||||
| Impairment | ( | ) | ( | ) | ||||
| Carrying amount | $ | $ | ||||||
16
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
8. Long-term investments, net (continued)
On April 21, 2021, CBAK Power, along with Shenzhen BAK Power Battery
Co., Ltd (BAK Shenzhen), Shenzhen Asian Plastics Technology Co., Ltd (SZ Asian Plastics) and Xiaoxia Liu (collectively the “Investors”),
entered into an investment agreement with Junxiu Li, Hunan Xintao New Energy Technology Partnership, Xingyu Zhu, and Jiangsu Saideli Pharmaceutical
Machinery Manufacturing Co., Ltd for an investment in Hunan DJY Technology Co., Ltd ("DJY"), a privately held company. CBAK
Power has paid $
Non-marketable equity securities are investments in privately held companies without readily determinable market value. The Company measures investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis. The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3. The Company adjusts the carrying value of non-marketable equity securities which have been remeasured during the period and recognize resulting gains or losses as a component of other operating income (expense), net.
The Company recognized $
9. Lease
| (a) | Prepaid land use rights |
| Prepaid land
lease payments | ||||
| Balance as of January 1, 2021 | $ | |||
| Addition for the year | ||||
| Amortization charge for the year | ( | ) | ||
| Foreign exchange adjustment | ||||
| Balance as of December 31, 2021 | ||||
| Amortization charge for the period | ( | ) | ||
| Foreign exchange adjustment | ( | ) | ||
| Balance as of September 30, 2022 | $ | |||
In August 2014 and November 2021, the Group acquired land use rights to build factories of the Company in Dalian, PRC and Zhejiang, PRC.
Lump sum payments were made upfront to acquire the leased land from
the owners with lease periods of
Amortization expenses of the prepaid land use rights were $
No impairment loss was made to the carrying amounts of the prepaid land use right for the three and nine months ended September 30, 2021 and 2022.
17
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
9. Lease (continued)
| (b) | Company as Lessor |
The Company derives a portion of its revenue from leasing arrangements of these vehicles to end users. Such arrangements provide for monthly payments covering the vehicles sales and interest. These arrangements meet the criteria to be accounted for as sales-type leases. Accordingly, vehicle sale net of cost is recorded as other income and recognized upon delivery of the vehicle and its acceptance by the end user. Upon the recognition of such revenue, an asset is established for the investment in sales-type leases. Interests are recognized monthly over the lease term. The components of the net investment in sales-type leases as of December 31, 2021 and September 30, 2022 are as follows:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Total future minimum lease payments receivable | $ | $ | ||||||
| Less: unearned income, representing interest | ( | ) | ( | ) | ||||
| Present value of minimum lease payments receivables | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
Loss on vehicle sale net of cost recognized in
other income from vehicle leasing was $
Loss on vehicle sale net of cost recognized in
other income from vehicle leasing was $
Interest income from vehicle leasing was $
Interest income from vehicle leasing was $
The future minimum lease payments receivable for sales type leases are as follows:
| Total | ||||||||||||
| Minimum | ||||||||||||
| Lease | Net | |||||||||||
| Payments | Amortization | Investment | ||||||||||
| to be | of Unearned | in Sales | ||||||||||
| Fiscal years ending | Received | Income | Type Leases | |||||||||
| Remainder of 2022 | $ | $ | $ | |||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 | ||||||||||||
| Thereafter | ||||||||||||
| $ | $ | $ | ||||||||||
| (c) | Company as lessee - Operating lease |
On April, 2018, Hitrans entered into a lease agreement for staff quarters
spaces in Zhejiang with a five year term, commencing on May 1, 2018 and expiring on
18
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
9. Lease (continued)
On June 1, 2021, Hitrans entered into a lease agreement with liquid
gas supplier for a five year term for supplying liquid nitrogen and oxygen, commencing on July 1, 2021. The monthly rental payment is
approximately RMB
On August 1, 2022, Hitrans entered into a lease agreement
for warehouse spaces in Zhejiang with a one and half years term, commencing on August 1, 2022 and expiring on January 31, 2024. The monthly
rental payment is RMB
Operating lease expenses for the three and nine months ended September 30, 2021 and 2022 for the capitation agreement was as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||
| Operating lease cost – straight line | $ | $ | $ | $ | ||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
| (d) | Company as lessee - Finance lease |
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Property, plant and equipment, at cost | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ||||||
| Property, plant and equipment, net under finance lease | ||||||||
| Finance lease liabilities, current | ||||||||
| Finance lease liabilities, non-current | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
The components of finance lease expenses were as follows:
| Three months
ended September 30, | Nine months
ended September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||
| Finance lease cost: | ||||||||||||||||
| Depreciation of assets | $ | $ | $ | $ | ||||||||||||
| Interest of lease liabilities | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
19
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
9. Lease (continued)
The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2022:
| Operating leases | Finance leases | |||||||
| Remainder of 2022 | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total undiscounted cash flows | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Present value of lease liabilities | $ | $ | ||||||
Lease term and discount rate:
| December 31,
2021 | September 30,
2022 | |||||||
| Weighted-average remaining lease term | ||||||||
| Land use rights | ||||||||
| Operating leases | ||||||||
| Finance leases | - | |||||||
| Weighted-average discount rate | ||||||||
| Land use rights | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | - | % | ||||||
Supplemental cash flow information related to leases where the Company was the lessee for the three and nine months ended September 30, 2021 and 2022 was as follows:
| Nine months ended September 30, | ||||||||
| 2021 | 2022 | |||||||
| Operating cash outflows from operating assets | $ | $ | ||||||
20
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
10. Intangible Assets, net
Intangible assets as of December 31, 2021 and September 30, 2022 consisted of the followings:
| December 31, 2021 | September 30, 2022 | |||||||
| Computer software at cost | $ | $ | ||||||
| Sewage discharge permit* | | |||||||
| | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Amortization expenses were $
Amortization expenses were $
11. Acquisition of subsidiaries
On April 1, 2021, CBAK Power entered into a framework
investment agreement with Hangzhou Juzhong Daxin Asset Management Co., Ltd. (“Juzhong Daxin”) for a potential acquisition
of Hitrans. Juzhong Daxin is the trustee of
On July 20, 2021, CBAK Power entered into a framework
agreement relating to CBAK Power’s investment in Hitrans, pursuant to which CBAK Power will acquire
21
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
11. Acquisition of subsidiaries (continued)
As of the date of the Acquisition Agreement,
the
In addition, as of the date of the Acquisition
Agreement, Meidu Graphene’s
As a part of the transaction, CBAK Power entered
into a loan agreement with Hitrans to lend Hitrans approximately RMB
CBAK Power shall pay all other fees due to Juzhong
Daxin in accordance with the Letter of Intent. According to the Acquisition Agreement, Mr. Ye will first acquire
The transfer of
22
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
11. Acquisition of subsidiaries (continued)
Upon the closing of the Acquisition, CBAK Power
became the largest shareholder of Hitrans holding
The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, November 26, 2021.
| Cash and bank | $ | |||
| Debts product | ||||
| Trade and bills receivable, net | ||||
| Inventories | ||||
| Prepayments and other receivables | ||||
| Income tax recoverable | ||||
| Amount due from trustee | ||||
| Property, plant and equipment, net | ||||
| Construction in progress | ||||
| Intangible assets, net | ||||
| Prepaid land use rights, non- current | ||||
| Leased assets, net | ||||
| Deferred tax assets | ||||
| Short term bank loan | ( | ) | ||
| Other short term loans – CBAK Power | ( | ) | ||
| Trade accounts and bills payable | ( | ) | ||
| Accrued expenses and other payables | ( | ) | ||
| Deferred government grants | ( | ) | ||
| Land appreciation tax | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Less: Waiver of dividend payable | ||||
| Total net assets acquired | ||||
| Non-controlling interest (24.43%) | ( | ) | ||
| Goodwill | ||||
| Total identifiable net assets | $ |
The components of the consideration transferred to effect the Acquisition are as follows:
| RMB | USD | |||||||
| Cash consideration for | ||||||||
| Cash consideration for | ||||||||
| Total Purchase Consideration | ||||||||
The transaction resulted in a purchase price
allocation of $
23
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
12. Goodwill
| Balance as of January 1, 2021 | $ | |||
| Acquisition of Hitrans | ||||
| Foreign exchange adjustment | ||||
| Balance as of January 1, 2022 | ||||
| Foreign exchange adjustment | ( | ) | ||
| Balance as of September 30, 2022 | $ |
The Company performed goodwill impairment test at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change indicating the asset might be impaired. No impairment loss of Goodwill of the reporting unit of Hitrans was recognized for the three and nine months ended September 30, 2022.
13. Trade and Bills Payable
Trade and bills payable as of December 31, 2021 and September 30, 2022 consisted of the followings:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Trade payable | $ | $ | ||||||
| Bills payable | ||||||||
| - Bank acceptance bills (Note 14) | ||||||||
| $ | $ | |||||||
All the bills payable are of trading nature and will mature within six months from the issue date.
The bank acceptance bills were pledged by:
| (i) | the Company’s bank deposits (Note 2); |
| (ii) | $ |
| (iii) | the Company’s prepaid land use rights (note 9) |
14. Loans
Bank loans:
Bank borrowings as of December 31, 2021 and September 30, 2022 consisted of the followings
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Short-term bank borrowings | $ | $ | ||||||
On June 4, 2018, the Company obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB200 million (approximately $30.63 million) bearing interest at 130% of benchmark rate of the People’s Bank of China (“PBOC”) for three-year long-term loans with the term from June 12, 2018 to June 10, 2021, at current rate 6.175% per annum. The facilities were secured by the Company’s land use rights, buildings, machinery and equipment. According to the original repayment schedule, the loans are repayable in six installments of RMB0.8 million ($0.12 million) on December 10, 2018, RMB24.3 million ($3.72 million) on June 10, 2019, RMB0.8 million ($0.12 million) on December 10, 2019, RMB74.7 million ($11.44 million) on June 10, 2020, RMB0.8 million ($0.12 million) on December 10, 2020 and RMB66.3 million ($10.16 million) on June 10, 2021. The Company repaid the bank loan of RMB0.8 million ($0.12 million), RMB24.3 million ($3.72 million) and RMB0.8 million ($0.12 million) in December 2018, June 2019 and December 2019, respectively.
24
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
14. Loans (continued)
On June 28, 2020, the Company entered into a supplemental agreement with China Everbright Bank Dalian Branch to change the repayment schedule. According to the modification agreement, the remaining RMB141.8 million (approximately $21.72 million) loans are repayable in eight instalments consisting of RMB1.09 million ($0.17 million) on June 10, 2020, RMB1 million ($0.15 million) on December 10, 2020, RMB2 million ($0.31 million) on January 10, 2021, RMB2 million ($0.31 million) on February 10, 2021, RMB2 million ($0.31 million) on March 10, 2021, RMB2 million ($0.31 million) on April 10, 2021, RMB2 million ($0.31 million) on May 10, 2021, and RMB129.7 million ($19.9 million) on June 10, 2021, respectively. As of June 30, 2021, the Company repaid all the bank loan.
On November 16, 2021, the Company obtained banking facilities from Shaoxing Branch of Bank of Communications Co., Ltd with a maximum amount of RMB120.1 million (approximately $16.9 million) with the term from November 18, 2021 to November 18, 2026. The facility was secured by the Company’s land use rights and buildings. Under the facility, the Company has borrowed a total of RMB56.0 million (approximately $8.8 million) and RMB76.1 million (approximately $10.7 million) as of December 31, 2021 and September 30, 2022, respectively, for varying terms ending between November 16, 2022 and May 16, 2023, bearing interest at 4.15% - 4.35% per annum. Subsequent to September 30, 2022, the Company has repaid RMB56 million (approximately $7.9 million) and drawn down another RMB56 million (approximately $7.9 million) under the same facility for an annual interest rate at 4.15%, repayable by May 16, 2023.
In October to December 2020, the Company borrowed a series of acceptance bills from China Merchants Bank totaled RMB13.5 million (approximately $2.07 million) for various terms through April to June 2021, which was secured by the Company’s cash totaled RMB13.5 million (approximately $2.07 million). The Company repaid the bills through April to June 2021.
On April 19, 2021, the Company obtained five-year acceptance bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB84.4 million (approximately $13.2 million). Any amount drawn under the facilities requires security in the form of cash or bank acceptance bills receivable of at least the same amount. Under the facilities, as of December 31, 2021, the Company borrowed a total of RMB10 million (approximately $1.6 million) from Bank of Ningbo Co., Ltd in the form of bills payable for a various term expiring from January to February 2022, which was secured by the Company’s cash totaled RMB10 million (approximately $1.6 million). The Company repaid the bills in January to February 2022.
On March 21, 2022, the Company renewed the above acceptance bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB71.6 million ($10.1 million) with other terms remain the same. Under the facilities, as of September 30, 2022, the Company borrowed a total of RMB11.5 million (approximately $1.6 million) in the form of bills payable for various terms expiring from November 2022 to March 2023, which was secured by the Company’s cash totaling RMB11.5 million (approximately $1.6 million) (Note 2).
On January 17, 2022, the Company obtained a one-year term facility from Agricultural Bank of China with a maximum amount of RMB10 million (approximately $1.4 million) bearing interest at 105% of benchmark rate of the People’s Bank of China (“PBOC”) for short-term loans, which is 3.85% per annum. The facility was guaranteed by the Company’s CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. The Company borrowed RMB10 million (approximately $1.4 million) on the same date for a term until January 16, 2023.
On February 9, 2022, the Company obtained a one-year term facility from Jiangsu Gaochun Rural Commercial Bank with a maximum amount of RMB10 million (approximately $1.4 million) bearing interest at 124% of benchmark rate of the People’s Bank of China (“PBOC”) for short-term loans, which is 4.94% per annum. The facility was guaranteed by 100% equity in CBAK Nanjing held by BAK Investment and the Company’s CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. The Company borrowed RMB10 million (approximately $1.4 million) on the same date for a term until January 28, 2023.
On March 8, 2022
25
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
14. Loans (continued)
On April 28, 2022, the Company obtained a three-year term
facility from Industrial and Commercial Bank of China Nanjing Gaochun branch, with a maximum amount of RMB12 million (approximately $1.7
million) with the term from April 21, 2022 to April 21, 2025.
The Company borrowed a series of acceptance bills from Agricultural
Bank of China totaling RMB
The Company borrowed a series of acceptance bills from China Zheshang
Bank Co. Ltd Shangyu Branch totaling RMB
The Company borrowed a series of acceptance bills from China Zheshang
Bank Co. Ltd Shenyang Branch totaling RMB
The Company borrowed a series of acceptance bills from Shaoxing Branch
of Bank of Communications Co., Ltd totaling RMB
The Company borrowed a series of acceptance bills from China Merchants
Bank Dalian Branch totaling RMB
The facilities were also secured by the Company’s assets with the following carrying amounts:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Pledged deposits (note 2) | $ | $ | ||||||
| Bills receivable (note 3) | ||||||||
| Prepaid land use rights (note 9) | ||||||||
| Buildings | ||||||||
| $ | $ | |||||||
As of September 30, 2022, the Company had unutilized committed
banking facilities totaled $
During the three months ended September 30, 2021 and 2022,
interest of $
During the nine months ended September 30, 2021 and 2022,
interest of $
26
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
14. Loans (continued)
Other Short-term Loans
Other short-term loans as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, | September 30, | |||||||||
| Note | 2021 | 2022 | ||||||||
| Advance from related parties | ||||||||||
| – Mr. Xiangqian Li, the Company’s Former CEO | (a) | |||||||||
| – Mr. Yunfei Li | (b) | |||||||||
| – Ms. Xiangyu Pei | (c) | |||||||||
| – Shareholders | (d) | |||||||||
| – Mr. Junnan Ye (note 11) | ||||||||||
| Advances from unrelated third party | ||||||||||
| – Mr. Wenwu Yu | (e) | |||||||||
| – Mr. Longqian Peng | (e) | |||||||||
| – Ms. Xia Liu | (e) | |||||||||
| – Ms. Xiaojuan Liu | (e) | |||||||||
| – Suzhou Zhengyuanwei Needle Ce Co., Ltd | (f) | |||||||||
| $ | $ | |||||||||
| (a) | Advances from Mr. Xiangqian Li, the Company’s former CEO, was unsecured, non-interest bearing and repayable on demand. |
| (b) | Advances from Mr. Yunfei Li, the Company’s CEO, was unsecured, non-interest bearing and repayable on demand. |
| (c) | Advances from Ms. Xiangyu Pei, the Company’s Interim CFO, was unsecured, non-interest bearing and repayable on demand. |
| (d) | The earnest money paid by certain shareholders in relation to share purchase (note 1) were unsecured, non-interest bearing and repayable on demand. |
| (e) | Advances from unrelated third parties were unsecured, non-interest bearing and repayable on demand. |
During the three months ended September 30, 2021 and 2022,
interest of $
During the nine months ended September 30, 2021 and 2022,
interest of $
27
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
15. Accrued Expenses and Other Payables
Accrued expenses and other payables as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Construction costs payable | $ | $ | ||||||
| Equipment purchase payable | ||||||||
| Liquidated damages (note a) | ||||||||
| Accrued staff costs | ||||||||
| Customer deposits | ||||||||
| Deferred revenue | ||||||||
| Accrued expenses | ||||||||
| Dividend payable to non-controlling interest (note 16) | ||||||||
| Other payables | ||||||||
| $ | $ | |||||||
| (a) | On August 15, 2006, the SEC declared effective a post-effective amendment that the Company had filed on August 4, 2006, terminating the effectiveness of a resale registration statement on Form SB-2 that had been filed pursuant to a registration rights agreement with certain shareholders to register the resale of shares held by those shareholders. The Company subsequently filed Form S-1 for these shareholders. On December 8, 2006, the Company filed its Annual Report on Form 10-K for the year ended September 30, 2006 (the “2006 Form 10-K”). After the filing of the 2006 Form 10-K, the Company’s previously filed registration statement on Form S-1 was no longer available for resale by the selling shareholders whose shares were included in such Form S-1. Under the registration rights agreement, those selling shareholders became eligible for liquidated damages from the Company relating to the above two events totaling approximately $ |
On November 9, 2007, the Company completed a private placement
for the gross proceeds to the Company of $
28
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
15. Accrued Expenses and Other Payables (continued)
On December 21, 2007, pursuant to the registration rights
agreement, the Company filed a registration statement on Form S-3, which was declared effective by the SEC on May 7, 2008. As a result,
the Company estimated liquidated damages amounting to $
16. Balances and Transactions With Related Parties
The principal related parties with which the Company had transactions during the years presented are as follows:
| Name of Entity or Individual | Relationship with the Company | |
| New Era Group Zhejiang New Energy Materials Co., Ltd. | ||
| Shenzhen Baijun Technology Co., Ltd | ||
| Zhengzhou BAK Battery Co., Ltd | ||
| Zhengzhou BAK New Energy Technology Co., Ltd | ||
| Zhengzhou BAK Electronics Co., Ltd | ||
| Shenzhen BAK Battery Co., Ltd | ||
| Shenzhen BAK Power Battery Co., Ltd | ||
| Hangzhou Juzhong Daxin Asset Management Co., Ltd |
| (a) | Mr. Xiangqian Li, the Company’s former CEO, is a director of Zhengzhou BAK Battery Co., Ltd. |
| (b) | Mr. Xiangqian Li is a director of Zhengzhou BAK New Energy Vehicle Co., Ltd, which has |
| (c) | Shenzhen BAK Power Battery Co., Ltd has |
| (d) | Mr. Xiangqian Li is a director of Shenzhen BAK Battery Co., Ltd and Shenzhen BAK Power Battery Co., Ltd |
| (e) | Hangzhou Juzhong Daxin Asset Management Co., Ltd. is the trustee of |
Related party transactions:
The Company entered into the following significant related party transactions:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||
| Purchase of finished goods from Zhengzhou BAK Battery Co., Ltd | $ | $ | $ | |||||||||||||
| Sales of finished goods and raw materials to Zhengzhou BAK Battery Co., Ltd | $ | $ | $ | |||||||||||||
| Sales of finished goods and raw materials to Zhengzhou BAK Electronics Co., Ltd | $ | $ | $ | - | ||||||||||||
| Sales of finished goods and raw materials to Shenzhen BAK Power Battery Co., Ltd | $ | - | $ | $ | ||||||||||||
29
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
16. Balances and Transactions With Related Parties (continued)
Related party balances:
Apart from the above, the Company recorded the following significant related party balances as of December 31, 2021 and September 30, 2022:
Receivables from former subsidiary
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Receivables from Shenzhen BAK Power Battery Co., Ltd | $ | $ | ||||||
Balance as of December 31, 2021 and September 30, 2022 consisted of
receivable for sales of cathode and precursor to Shenzhen BAK Power Battery Co., Ltd. Up to the date of this report, Shenzhen BAK Power
Battery Co., Ltd repaid $
Amount due from non-controlling interest
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Shenzhen Baijun Technology Co., Ltd | ||||||||
| Current | $ | $ | ||||||
| Non-current | ||||||||
| $ | $ | |||||||
In August 2018,
Amount due from related parties
| December 31, 2021 | September 30, 2022 | |||||||
| Hangzhou Juzhong Daxin Asset Management Co., Ltd (Note 11) | $ | $ | ||||||
The above balances are due on demand, interest-free and unsecured.
Other balances due from/ (to) related parties
| December 31, 2021 | September 30, 2022 | |||||||
| Trade receivable, net – Zhengzhou BAK Battery Co., Ltd. (i) | $ | $ | ||||||
| Trade receivable, net – Zhengzhou BAK New Energy Technology Co., Ltd. | $ | $ | ||||||
| Trade payable, net – Zhengzhou BAK Battery Co., Ltd | $ | ( | ) | $ | ( | ) | ||
| Dividend payable to non-controlling interest of Hitrans (note 15) | $ | ( | ) | $ | ( | ) | ||
| (i) |
30
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
16. Balances and Transactions With Related Parties (continued)
Payables to former subsidiaries
Payables to former subsidiaries as of December 31, 2021 and September 30, 2022 consisted of the following:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Payables to Shenzhen BAK Power Battery Co., Ltd | $ | ( | ) | $ | ( | ) | ||
Balance as of December 31, 2021 and September 30, 2022 consisted of payables for purchase of inventories from BAK International (Tianjin) Limited and Shenzhen BAK Power Battery Co., Ltd. From time to time, to meet the needs of its customers, the Company purchased products from these former subsidiaries that it did not produce to meet the needs of its customers.
17. Deferred Government Grants
Deferred government grants as of December 31, 2021 and September 30, 2022 consist of the following:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Total government grants | $ | $ | ||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
On October 17, 2014, the Company received a subsidy of RMB
On June 23, 2020, BAK Asia, the Company wholly-owned Hong Kong subsidiary,
entered into a framework investment agreement with Jiangsu Gaochun Economic Development Zone Development Group Company (“Gaochun
EDZ”), pursuant to which the Company intended to develop certain lithium battery projects that aim to have a production capacity
of 8Gwh. Gaochun EDZ agreed to provide various support to facilitate the development and operation of the projects. As of the date of
this report, the Company received RMB30 million (approximately $
For the year
ended December 31, 2021, the Company recognized RMB
The Company
offset government grants of $
The Company
offset government grants of $
31
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
18. Product Warranty Provision
The Company maintains a policy of providing after sales support for certain of its new EV and LEV battery products introduced since October 1, 2015 by way of a warranty program. The limited cover covers a period of six to twelve months for battery cells, a period of twelve to twenty seven months for battery modules for light electric vehicles (LEV) such as electric bicycles, and a period of three years to eight years (or 120,000 or 200,000 km if reached sooner) for battery modules for electric vehicles (EV). The Company accrues an estimate of its exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability at least annually and adjusts the amounts as necessary.
| December 31, 2021 | September 30, 2022 | |||||||
| Balance at beginning of year | $ | $ | ||||||
| Warranty costs incurred | ( | ) | ( | ) | ||||
| Provision for the year | ||||||||
| Foreign exchange adjustment | ( | ) | ||||||
| Balance at end of year | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
19. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
| (a) | Income taxes in the condensed consolidated statements of comprehensive loss (income) |
The Company’s provision for income taxes expenses consisted of:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||
| PRC income tax: | ||||||||||||||||
| Current | $ | $ | $ | $ | ||||||||||||
| Deferred | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
United States Tax
CBAK is a Nevada corporation that is subject to U.S. corporate
income tax on its taxable income at a rate of up to
32
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
19. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued)
| (a) | Income taxes in the condensed consolidated statements of comprehensive loss (income) (continued) |
The U.S. Tax Reform also includes provisions for a new tax
on GILTI effective for tax years of foreign corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign
income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible
use of foreign tax credits and a deduction equal to
To the extent that portions of CBAK’s U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that CBAK receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations, CBAK will generally not be required to pay U.S. corporate income tax on those dividends. Any liabilities for U.S. corporate income tax will be accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments will be made when required by U.S. law.
No provision for income taxes in the United States or elsewhere has been made as CBAK had no taxable income for the three and nine months ended September 30, 2022 and 2021.
Hong Kong Tax
The Company’s subsidiaries in Hong Kong are subject
to Hong Kong profits tax rate of
PRC Tax
The CIT Law in China applies an income tax rate of 25% to all enterprises but grants preferential tax treatment to High-New Technology Enterprises. CBAK Power was regarded as a “High-new technology enterprise” pursuant to a certificate jointly issued by the relevant Dalian Government authorities. The certificate was valid for three years commencing from year 2021. Under the preferential tax treatment, CBAK Power was entitled to enjoy a tax rate of 15% for the years from 2021 to 2024 provided that the qualifying conditions as a High-new technology enterprise were met. Hitrans was regarded as a “High-new technology enterprise” pursuant to a certificate jointly issued by the relevant Zhejiang Government authorities. The certificate was valid for three years commencing from year 2021. Under the preferential tax treatment, Hitrans was entitled to enjoy a tax rate of 15% for the years from 2021 to 2024 provided that the qualifying conditions as a High-new technology enterprise were met.
A reconciliation of the provision for income taxes determined at the statutory income tax rate to the Company’s income taxes is as follows:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||
| Income (Loss) before income taxes | $ | $ | ( | ) | $ | $ | ||||||||||
| United States federal corporate income tax rate | % | % | % | % | ||||||||||||
| Income tax (credit) expenses computed at United States statutory corporate income tax rate | ( | ) | ||||||||||||||
| Reconciling items: | ||||||||||||||||
| Rate differential for PRC earnings | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Tax effect of entity at preferential tax rate | - | - | ||||||||||||||
| Non-deductible expenses (non-taxable income) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Share based payments | ||||||||||||||||
| Under provision of tax losses | - | ( | ) | - | ||||||||||||
| Utilization of tax losses | - | - | ( | ) | ||||||||||||
| Valuation allowance on deferred tax assets | ||||||||||||||||
| Income tax expenses | $ | $ | $ | |||||||||||||
33
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
19. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued)
| (a) | Deferred tax assets and deferred tax liabilities |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2021 and September 30, 2022 are presented below:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Deferred tax assets | ||||||||
| Trade receivable | $ | $ | ||||||
| Inventories | ||||||||
| Property, plant and equipment | ||||||||
| Equity investment | ||||||||
| Intangible assets | ||||||||
| Accrued expenses, payroll and others | ||||||||
| Provision for product warranty | ||||||||
| Net operating loss carried forward | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, non-current | $ | $ | ||||||
| Deferred tax liabilities, non-current | ||||||||
| Long-lived assets arising from acquisitions | $ | $ | ||||||
According to
The impact of an uncertain income tax positions on the income tax
return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority.
An uncertain income tax position will not be recognized if it has less than a
20. Statutory reserves
As stipulated by the relevant laws and regulations
in the PRC, company established in the PRC (the “PRC subsidiary”) is required to maintain a statutory reserve made out of
profit for the year based on the PRC subsidiary’ statutory financial statements which are prepared in accordance with the accounting
principles generally accepted in the PRC. The amount and allocation basis are decided by the director of the PRC subsidiary annually
and is not to be less than
In addition, as a result of the relevant PRC
laws and regulations which impose restriction on distribution or transfer of assets out of the PRC statutory reserve, $
34
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
21. Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Valuation of debt products depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, and other relevant terms of the debt. Other factors that may be considered include the borrower’s ability to adequately service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s debt investments. The fair value of these debt products classified as Level 2 is established by reference to the prices quoted by respective fund administrators.
The fair value of warrants was determined using the Binomial Model, with level 3 inputs (Note 25).
The fair value of share options was determined using the Binomial Model, with level 3 inputs (Note 23).
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, pledged deposits, trade accounts and bills receivable, other receivables, balances with former subsidiaries, notes payable, other short-term loans, short-term and long-term bank loans and other payables approximate their fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market rate of interest.
22. Employee Benefit Plan
Full time employees of the Company in the PRC
participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing
fund and other welfare benefits are provided to the employees. The Company accrues for these benefits based on certain percentages of
the employees’ salaries, up to a maximum amount specified by the local government. The total employee benefits expensed as incurred
were $
35
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
23. Share-based Compensation
Restricted Shares
Restricted shares granted on June 30, 2015
On June 12, 2015, the Board of Director approved the CBAK
Energy Technology, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) for Employees, Directors and Consultants of the Company
and its Affiliates. The maximum aggregate number of Shares that may be issued under the Plan is ten million (
On June 30, 2015, pursuant to the 2015 Plan, the Compensation
Committee of the Company’s Board of Directors granted an aggregate of
All the restricted shares granted in respect of the restricted shares granted on June 30, 2015 has been vested on March 31, 2018.
As of September 30, 2022, there was no unrecognized stock-based
compensation associated with the above restricted shares and
Restricted shares granted on April 19, 2016
On April 19, 2016, pursuant
All the restricted shares granted in respect of the restricted shares granted on April 19, 2016 had been vested on June 30, 2019.
As of September 30, 2022, there was no unrecognized stock-based
compensation associated with the above restricted shares and
36
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
23. Share-based Compensation (continued)
Restricted Shares (continued)
Restricted shares granted on August 23, 2019
On August 23, 2019, pursuant to
The Company recorded non-cash share-based compensation expense
of $
The Company recorded non-cash share-based compensation expense
of $
As of September 30, 2022, non-vested restricted share units granted on August 23, 2019 are as follows:
| Non-vested share units as of January 1, 2022 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Forfeited | ( | ) | ||
| Non-vested share units as of September 30, 2022 |
As of September 30, 2022, there was no unrecognized stock-based compensation associated with the above restricted share units.
Restricted shares granted on October 23, 2020
On October 23, 2020, pursuant to the Company’s 2015 Plan, the Compensation Committee granted an aggregate of
The Company recorded non-cash share-based compensation expense
of $
The Company recorded non-cash share-based compensation expense
of $
As of September 30, 2022, non-vested restricted share units granted on October 23, 2020 are as follows:
| Non-vested shares as of January 1, 2022 | ||||
| Vested | ( | ) | ||
| Forfeited | ||||
| Non-vested shares as of September 30, 2022 |
As of September 30, 2022, there was unrecognized stock-based compensation
of $
37
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
23. Share-based Compensation (continued)
Restricted Shares (continued)
Employees Stock Ownership Program on November 29, 2021
The fair value of the stock options granted to directors
of the Company is estimated on the date of the grant using the Binomial Model. The fair value of the options was calculated using the
following assumptions: estimated life of six months to five years, volatility of 106.41%, risk free interest rate of 1.26%, and dividend
yield of 0%.
Stock option activity under the Company’s stock-based compensation plans is shown below:
| Number of Shares | Average Exercise Price per Share | Aggregate Intrinsic Value* | Weighted Average Remaining Contractual Term in Years | |||||||||||||
| Outstanding at January 1, 2022 | $ | $ | ||||||||||||||
| Exercisable at January 1, 2022 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Outstanding at September 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at September 30 2022 | $ | $ | ||||||||||||||
| * | The intrinsic value of the stock options at September 30, 2022
is the amount by which the market value of the Company’s common stock of $ |
As the Company itself is an investment holding company which is not expected to generate operating profits to realize the tax benefits arising from its net operating loss carried forward, no income tax benefits were recognized for such stock-based compensation cost under the stock option plan for the three and nine months ended September 30, 2021 and 2022.
38
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
24. Income (Loss) Per Share
The following is the calculation of income (loss) per share:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ||||||||||
| Less: Net (income) loss attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc. | $ | $ | ( | ) | $ | $ | ||||||||||
| Weighted average shares outstanding – basic (note) | ||||||||||||||||
| Dilutive unvested restricted stock | - | |||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
| Income (loss) per share | ||||||||||||||||
| - Basic | $ | $ | ( | )* | $ | $ | ||||||||||
| - Diluted | $ | $ | ( | )* | $ | $ | ||||||||||
| * | Less than $ |
| Note: | Including |
For the three and nine months ended September 30, 2021,
For the three and nine months ended September 30, 2022,
25. Warrants
On December 8, 2020, the Company entered in a securities
purchase agreement with certain institutional investors, pursuant to which the Company issued in a registered direct offering, an aggregate
of
On February 8, 2021, the Company entered into another securities purchase agreement with the same investors, pursuant to which the Company issued in a registered direct offering, an aggregate of 8,939,976 shares of common stock of the Company at a per share purchase price of $7.83. In addition, the Company issued to the investors (i) in a concurrent private placement, the Series A-1 warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.67 and exercisable for 42 months from the date of issuance; (ii) in the registered direct offering, the Series B warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.83 and exercisable for 90 days from the date of issuance; and (iii) in the registered direct offering, the Series A-2 warrants to purchase up to 2,234,992 shares of common stock, at a per share exercise price of $7.67 and exercisable for 45 months from the date of issuance. The Company received gross proceeds of approximately $70 million from the registered direct offering and the concurrent private placement, before deducting fees to the placement agent and other estimated offering expenses of $5.0 million payable by the Company. In addition, the placement agent for this transaction also received warrants (“Placement Agent Warrants”) for the purchase of up to 446,999 shares of the Company’s common stock at an exercise price of $9.204 per share exercisable for 36 months after 6 months from the issuance.
On May 10, 2021, the Company entered into that Amendment No. 1 to the Series B Warrant (the “Series B Warrant Amendment”) with each of the holders of the Company’s outstanding Series B warrants. Pursuant to the Series B Warrant Amendment, the term of the Series B warrants was extended from May 11, 2021 to August 31, 2021.
39
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
25. Warrants (continued)
The Company has performed a thorough reassessment of the terms of its warrants with reference to the provisions of ASC Topic 815-40-15-7I, regarding its exposure to changes in currency exchange rates. This reassessment has led to the management’s conclusion that the Company’s warrants issued to the investors should not be considered indexed to the Company’s own stock because the warrants are denominated in U.S. dollar, which is different from the Company’s functional currency, Renminbi. Warrants are remeasured at fair value with changes in fair value recorded in earnings in each reporting period.
As of the date of this report, Series B warrant, along with Series A-2 warrants, had both expired.
There was a total of
The fair value of the outstanding warrants was calculated using Binomial Model based on backward induction with the following assumptions:
Warrants issued in the 2020 Financing
Warrants holder
| Investor Warrants | Placement Agent Warrants | |||||||
| Appraisal Date | December 31, 2021 | December 31, 2021 | ||||||
| Market price per share (USD/share) | $ | $ | ||||||
| Exercise price (USD/price) | ||||||||
| Risk free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term/ Contractual life (years) | ||||||||
| Expected volatility | % | % | ||||||
| Appraisal Date | September 30, 2022 | September 30, 2022 | ||||||
| Market price per share (USD/share) | $ | $ | ||||||
| Exercise price (USD/price) | ||||||||
| Risk free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term/ Contractual life (years) | ||||||||
| Expected volatility | % | % | ||||||
Warrants issued in the 2021 Financing
| Warrants holder | Investor Warrants | Placement Agent Warrants | ||||||
| Appraisal Date | Series A1 December 31, 2021 | December 31, 2021 | ||||||
| Market price per share (USD/share) | ||||||||
| Exercise price (USD/price) | ||||||||
| Risk free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term/ Contractual life (years) | ||||||||
| Expected volatility | % | % | ||||||
40
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
25. Warrants (continued)
Warrants issued in the 2021 Financing (continued)
| Warrants holder | Investor Warrants | Placement Agent Warrants | ||||||
| Appraisal Date | Series A1 September 30, 2022 | September 30, 2022 | ||||||
| Market price per share (USD/share) | ||||||||
| Exercise price (USD/price) | ||||||||
| Risk free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term/ Contractual life (years) | ||||||||
| Expected volatility | % | % | ||||||
The following is a reconciliation of the beginning and ending balances of warrants liability measured at fair value on a recurring basis using Level 3 inputs:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| Balance at the beginning of period | $ | $ | ||||||
| Warrants issued to institution investors | - | |||||||
| Warrants issued to placement agent | - | |||||||
| Warrants redeemed | ||||||||
| Fair value change of warrants included in earnings | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The following is a summary of the warrant activity:
| Weighted | ||||||||||||
| Average | ||||||||||||
| Remaining | ||||||||||||
| Contractual | ||||||||||||
| Number of | Average | Term in | ||||||||||
| Warrants | Exercise Price | Years | ||||||||||
| Outstanding at January 1, 2022 | $ | |||||||||||
| Exercisable at January 1, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised / surrendered | ||||||||||||
| Expired | ||||||||||||
| Outstanding at September 30, 2022 | ||||||||||||
| Exercisable at September 30, 2022 | ||||||||||||
41
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
26. Commitments and Contingencies
| (i) | Capital Commitments |
As of December 31, 2021 and September 30, 2022, the Company had the following contracted capital commitments:
| December 31, | September 30, | |||||||
| 2021 | 2022 | |||||||
| For construction of buildings | $ | $ | ||||||
| For purchases of equipment | ||||||||
| Capital injection | ||||||||
| $ | $ | |||||||
| (ii) | Litigation |
During its normal course of business, the Company may become involved in various lawsuits and legal proceedings. However, litigation is subject to inherent uncertainties, and an adverse result may arise from time to time will affect its operation. Other than the legal proceeding set forth below, the Company is currently not aware of any such legal proceedings or claims that the Company believe will have an adverse effect on the Company’s operation, financial condition or operating results.
On June 30, 2017, according to the trial of first instance, the Court
of Zhuanghe ruled that CBAK Power should pay the remaining contract amount of RMB
In December 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Shenzhen Haoneng Technology Co., Ltd. (“Haoneng”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Haoneng sought a total amount of $
42
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
27. Concentrations and Credit Risk
| (a) | Concentrations |
The Company had the following customers that individually comprised
| Three months ended September 30, | ||||||||||||||||
| 2021 | 2022 | |||||||||||||||
| Sales of finished goods and raw materials | ||||||||||||||||
| Customer A | $ | % | $ | |||||||||||||
| Customer C | % | |||||||||||||||
| Customer D | % | |||||||||||||||
| Customer E | % | |||||||||||||||
| Customer F | % | |||||||||||||||
| * | Comprised less than |
The Company had the following customers that individually comprised
| Nine months ended September 30, | ||||||||||||||||
| 2021 | 2022 | |||||||||||||||
| Sales of finished goods and raw materials | ||||||||||||||||
| Customer A | $ | % | $ | |||||||||||||
| Customer B | % | |||||||||||||||
| Customer C | % | |||||||||||||||
| Customer D | % | |||||||||||||||
| Customer E | % | |||||||||||||||
| Customer F | % | |||||||||||||||
| Customer G | % | |||||||||||||||
| Customer H | % | |||||||||||||||
| Zhengzhou BAK Battery Co., Ltd (note a) | % | |||||||||||||||
| * | Comprised less than |
The Company had the following customers that individually comprised
| December 31, | September 30, | |||||||||||||||
| 2021 | 2022 | |||||||||||||||
| Customer B | $ | % | $ | |||||||||||||
| Zhengzhou BAK Battery Co., Ltd (note 16) | % | % | ||||||||||||||
| * | Comprised less than |
The Company had the following suppliers that individually comprised
| Three months ended September 30, | ||||||||||||||||
| 2021 | 2022 | |||||||||||||||
| Supplier C | $ | * | * | $ | % | |||||||||||
| Supplier D | % | |||||||||||||||
| Supplier F | % | * | * | |||||||||||||
| Supplier G | % | * | * | |||||||||||||
| Zhengzhou BAK Battery Co., Ltd (note 16) | * | * | % | |||||||||||||
43
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
27. Concentrations and Credit Risk (continued)
| (a) | Concentrations (continued) |
The Company had the following
suppliers that individually comprised
| Nine months ended September 30, | ||||||||||||||||
| 2021 | 2022 | |||||||||||||||
| Supplier A | $ | $ | % | |||||||||||||
| Shenzhen BAK (note b) | * | * | % | |||||||||||||
| Zhengzhou BAK Battery Co., Ltd (note 16) | * | * | % | |||||||||||||
| * | Comprised less than |
The Company had the following suppliers that individually comprised
| December 31, | September 30, | |||||||||||||||
| 2021 | 2022 | |||||||||||||||
| Supplier A | $ | % | $ | % | ||||||||||||
| Supplier B | % | |||||||||||||||
| Supplier C | % | |||||||||||||||
| Supplier E | % | |||||||||||||||
| (b) | Credit Risk |
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and pledged deposits. As of December 31, 2021 and September 30, 2022, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.
For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.
28. Segment Information
The Group’s chief operating decision maker has been identified as the Chief Executive Officer (“CEO”) who reviews financial information of operating segments based on US GAAP amounts when making decisions about allocating resources and assessing performance of the Company.
As a result of the Hitrans acquisition discussed in Note 11, the Group determined that Hitrans met the criteria for separate reportable segment given its financial information is separately reviewed by the Group’s CEO. As a result, the Group determined that it operated in two operating segments namely CBAT and Hitrans upon completion of acquisition. CBAT’s segment mainly includes the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion rechargeable batteries for use in a wide array of applications. Hitrans’ segment mainly includes the development and manufacturing of NCM precursor and cathode materials.
The Company primarily operates in the PRC and substantially all of the Company’s long-lived assets are located in the PRC.
The Company’s chief operating decision maker evaluates performance based on each reporting segment’s net revenue, cost of revenues, operating expenses, operating income, finance income (expense), other income and net income. Net revenue, cost of revenues, operating expenses, operating income, finance income (expense), other income and net income by segment for the three and nine months ended September 30, 2021 and 2022 were as follows:
| For the three months ended September 30, 2021 | CBAT | Corporate unallocated (note) | Consolidated | |||||||||
| Net revenues | $ | $ | $ | |||||||||
| Cost of revenues | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Finance income, net | ||||||||||||
| Other income, net | ||||||||||||
| Income tax (expense) credit | - | |||||||||||
| Net (loss) income | ( | ) | ||||||||||
44
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
28. Segment Information (continued)
| For the three months ended September 30, 2022 | CBAT | Hitrans | Corporate unallocated (note) | Consolidated | ||||||||||||
| Net revenues | $ | $ | $ | - | $ | |||||||||||
| Cost of revenues | ( | ) | ( | ) | - | ( | ) | |||||||||
| Gross profit | - | |||||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Finance income (expenses), net | ( | ) | ||||||||||||||
| Other (expenses) income, net | ( | ) | ( | ) | ||||||||||||
| Income tax credit | - | - | ||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| For the nine months ended September 30, 2021 | CBAT | Corporate unallocated (note) | Consolidated | |||||||||
| Net revenues | $ | $ | - | $ | ||||||||
| Cost of revenues | ( | ) | - | ( | ) | |||||||
| Gross profit | - | |||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Finance income, net | ||||||||||||
| Other income, net | ||||||||||||
| Income tax (expense) credit | - | |||||||||||
| Net (loss) income | ( | ) | ||||||||||
| For the nine months ended September 30, 2022 | CBAT | Hitrans | Corporate unallocated (note) | Consolidated | ||||||||||||
| Net revenues | $ | $ | $ | - | $ | |||||||||||
| Cost of revenues | ( | ) | ( | ) | - | ( | ) | |||||||||
| Gross profit | - | |||||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Finance income (expenses), net | ( | ) | ( | ) | ||||||||||||
| Other (expenses) income, net | ( | ) | ||||||||||||||
| Income tax expenses | - | ( | ) | - | ( | ) | ||||||||||
| Net (loss) income | ( | ) | ( | ) | ||||||||||||
| As of September 30, 2022 | ||||||||||||||||
| Identifiable long-lived assets | ||||||||||||||||
| Total assets | ||||||||||||||||
| Note: | The Company does not allocate its assets located and expenses incurred outside China to its reportable segments because these assets and activities are managed at a corporate level. |
45
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
28. Segment Information (continued)
Net revenues by product:
The Company’s products can be categorized into high power lithium batteries and materials used in manufacturing of lithium batteries. For the product sales of high power lithium batteries, the Company manufactured five types of Li-ion rechargeable batteries: aluminum-case cell, battery pack, cylindrical cell, lithium polymer cell and high-power lithium battery cell. The Company’s battery products are sold to packing plants operated by third parties primarily for use in mobile phones and other electronic devices. For the product sales of materials used in manufacturing of lithium batteries, the Company, via its subsidiary, Hitrans, manufactured cathode materials and precursor for use in manufacturing of cathode. Revenue from these products is as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||
| High power lithium batteries used in: | ||||||||||||||||
| Electric vehicles | $ | $ | $ | $ | ||||||||||||
| Light electric vehicles | ||||||||||||||||
| Uninterruptable supplies | ||||||||||||||||
| Trading of raw material used in lithium batteries | ( | ) | ||||||||||||||
| Materials used in manufacturing of lithium batteries | ||||||||||||||||
| Cathode | ||||||||||||||||
| Precursor | ||||||||||||||||
| Total consolidated revenue | $ | $ | $ | $ | ||||||||||||
Net revenues by geographic area:
The Company’s operations are located in the PRC. The following table provides an analysis of the Company’s sales by geographical markets based on locations of customers:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||
| Mainland China | $ | $ | $ | |||||||||||||
| Europe | ||||||||||||||||
| Others | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Substantially all of the Company’s long-lived assets are located in the PRC.
29. Subsequent events
In October 2022, the Company has repaid RMB
46
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
Special Note Regarding Forward Looking Statements
Statements contained in this report include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A, “Risk Factors” described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:
| ● | “Company”, “we”, “us” and “our” are to the combined business of CBAK Energy Technology, Inc., a Nevada corporation, and its consolidated subsidiaries; |
| ● | “BAK Asia” are to our Hong Kong subsidiary, China BAK Asia Holdings Limited; |
| ● | “CBAK Trading” are to our PRC subsidiary, Dalian CBAK Trading Co., Ltd.; |
| ● | “CBAK Power” are to our PRC subsidiary, Dalian CBAK Power Battery Co., Ltd; |
| ● | “CBAK Suzhou” are to our PRC subsidiary, CBAK New Energy (Suzhou) Co., Ltd; |
| ● | “CBAK Energy” are to our PRC subsidiary, Dalian CBAK Energy Technology Co., Ltd. |
| ● | “BAK Investments” are to our Hong Kong subsidiary, BAK Asia Investments Limited; |
| ● | “CBAK Nanjing” are to our PRC subsidiary, CBAK New Energy (Nanjing) Co., Ltd; |
| ● | “Nanjing CBAK” are to our PRC subsidiary, Nanjing CBAK New Energy Technology Co., Ltd. |
| ● | “Nanjing Daxin” are to our PRC subsidiary, Nanjing Daxin New Energy Automobile Industry Co., Ltd. |
| ● | “Jiangsu Daxin” are to our PRC subsidiary, Daxin New Energy Automobile Technology (Jiangsu) Co., Ltd. |
| ● | “Hitrans” are to our 74.15% owned PRC subsidiary, Zhejiang Hitrans Lithium Battery Technology (we, through CBAK Power, hold 74.15% of registered equity interests of Hitrans, representing 74.72% of paid-up capital); |
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| ● | “Guangdong Hitrans” are to Hitrans’s 80% owned PRC subsidiary, Guangdong Meidu Hitrans Resources Recycling Technology Co., Ltd.; |
| ● | “Haisheng” are to Hitrans’s wholly-owned PRC subsidiary, Shaoxing Haisheng International Trading Co., Ltd.; |
| ● | “China” and “PRC” are to the People’s Republic of China; |
| ● | “RMB” are to Renminbi, the legal currency of China; |
| ● | “U.S. dollar”, “$” and “US$” are to the legal currency of the United States; |
| ● | “SEC” are to the United States Securities and Exchange Commission; |
| ● | “Securities Act” are to the Securities Act of 1933, as amended; and |
| ● | “Exchange Act” are to the Securities Exchange Act of 1934, as amended. |
Overview
We are a manufacturer of new energy high power lithium batteries that are mainly used in light electric vehicles, electric vehicles, electric tools, energy storage (such as uninterruptible power supply (UPS) applications) and other high-power applications. Our primary product offering consists of new energy high power lithium batteries, but we are also seeking to expand into the production and sale of light electric vehicles. After completing the acquisition of Hitrans in November 2021, we entered into the business of developing and manufacturing NCM precursor and cathode materials. Hitrans is a leading developer and manufacturer of ternary precursor and cathode materials in China, whose products have a wide range of applications including electric vehicles, electric tools, high-end digital products and storage, among others.
We acquired our operating assets, including customers, employees, patents and technologies from our former subsidiary BAK International (Tianjin) Ltd. (“BAK Tianjin”) in June 2014, in exchange for a reduction in accounts receivable from our former subsidiaries that were disposed of at the same time.
As of September 30, 2022, we report financial and operational information in two segments: (i) production of high-power lithium battery cells and (ii) manufacture and sales of materials used in lithium batteries.
We currently conduct our business through (i) three wholly-owned operating subsidiaries in China that we own through BAK Asia, an investment holding company formed under the laws of Hong Kong on July 9, 2013; (ii) CBAK Nanjing, a wholly-owned subsidiary in China that we own through BAK Investments, an investment holding company formed under the laws of Hong Kong and acquired by us on July 14, 2020; (iii) Nanjing CBAK, a 100% owned subsidiary of CBAK Nanjing; (iv) Nanjing Daxin, a 100% owned subsidiary of CBAK Nanjing; and (v) Hitrans, a subsidiary of CBAK Power, which we own 74.15% of its registered equity interests (representing 74.72% of paid-up capital) through CBAK Power.
As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on April 15, 2022 and other reports filed with the SEC, we completed capital intensive construction undertakings in Nanjing to expand the Company’s manufacturing capabilities for lithium batteries in the second half of 2021. In addition, we have been expanding our business by developing new products, fostering new partnerships and strategic acquisition of companies that complement and augment our business.
Due to the growing environmental pollution problem, the Chinese government has been providing support to the development of new energy facilities and vehicles for several years. It is expected that we will be able to secure more potential orders from the new energy market. We believe that with the booming market demand in high power lithium-iron products, we can continue as a going concern and return to sustainable profitability.
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Financial Performance Highlights for the Quarter Ended September 30, 2022
The following are some financial highlights for the quarter ended September 30, 2022:
| ● | Net revenues: Net revenues increased by $48.2 million, or 504%, to $57.7 million for the three months ended September 30, 2022, from $9.6 million for the same period in 2021. |
| ● | Gross profit: Gross profit was $3.5 million, representing an increase of $2.3 million, or 206%, for the three months ended September 30, 2022, from gross profit of $1.1 million for the same period in 2021. |
| ● | Operating loss: Operating loss was $1.5 million for the three months ended September 30, 2022, reflecting a decrease of $1.7 million, or 53%, in loss from an operating loss of $3.2 million for the same period in 2021. |
| ● | Net profit (loss): Net loss was $0.8 million for the three months ended September 30, 2022, compared to a net profit of $20.0 million for the same period in 2021, reflecting a decrease of $20.8 million, or 104%. |
| ● | Fully diluted income (loss) per share: Fully diluted loss per share was $0.00 for the three months ended September 30, 2022, as compared to fully diluted income per share of $0.23 for the same period in 2021. |
Financial Statement Presentation
Net revenues. The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the categories: discounts and returns. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company’s customer.
Cost of revenues. Cost of revenues consists primarily of material costs, employee remuneration for staff engaged in production activity, share-based compensation, depreciation and related expenses that are directly attributable to the production of products. Cost of revenues also includes write-downs of inventory to lower of cost and net realizable value.
Research and development expenses. Research and development expenses primarily consist of remuneration for R&D staff, share-based compensation, depreciation and maintenance expenses relating to R&D equipment, and R&D material costs.
Sales and marketing expenses. Sales and marketing expenses consist primarily of remuneration for staff involved in selling and marketing efforts, including staff engaged in the packaging of goods for shipment, advertising cost, depreciation, share-based compensation, travel and entertainment expenses and product warranty expense. We do not pay slotting fees to retail companies for displaying our products, engage in cooperative advertising programs, participate in buy-down programs or similar arrangements.
General and administrative expenses. General and administrative expenses consist primarily of employee remuneration, share-based compensation, professional fees, insurance, benefits, general office expenses, depreciation, liquidated damage charges and bad debt expenses.
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Finance expense, net. Finance costs consist primarily of interest income and interest on bank loans, net of capitalized interest.
Impairment of non-marketable equity securities. Non-marketable equity securities are investments in privately held companies without readily determinable market value. We measure investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis.
Change in fair value of warrants liability. We issued warrants in the financings we consummated in December 2020 and February 2021, respectively. These warrants should be accounted for as derivative liabilities, as the warrants are denominated in a currency (U.S. dollar) other than our functional currency.
Income tax expenses. Our subsidiaries in PRC are subject to income tax at a rate of 25%, except that Hitrans and CBAK Power are recognized as a “High and New Technology Enterprise” and enjoy a preferential tax rate of 15% from 2021 to 2023. Our Hong Kong subsidiaries are subject to a profits tax at a rate of 16.5%. However, since we did not have any assessable income derived from or arising in Hong Kong, the subsidiaries had not paid any such tax.
Results of Operations
Comparison of Three Months Ended September 30, 2021 and 2022
The following tables set forth key components of our results of operations for the periods indicated.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Three Months ended September 30, |
Change | |||||||||||||||
| 2021 | 2022 | $ | % | |||||||||||||
| Net revenues | $ | 9,562 | $ | 57,722 | 48,160 | 504 | ||||||||||
| Cost of revenues | (8,430 | ) | (54,262 | ) | (45,832 | ) | 544 | |||||||||
| Gross profit | 1,132 | 3,460 | 2,328 | 206 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development expenses | 1,816 | 2,385 | 569 | 31 | ||||||||||||
| Sales and marketing expenses | 510 | 835 | 325 | 64 | ||||||||||||
| General and administrative expenses | 2,159 | 1,866 | (293 | ) | -14 | |||||||||||
| Recovery of doubtful accounts | (178 | ) | (143 | ) | 35 | -20 | ||||||||||
| Total operating expenses | 4,307 | 4,943 | 636 | 15 | ||||||||||||
| Operating profit (loss) | (3,175 | ) | (1,483 | ) | 1,692 | -53 | ||||||||||
| Finance income, net | 129 | 687 | 558 | 433 | ||||||||||||
| Other income (expenses), net | 70 | (991 | ) | (1,061 | ) | -1,516 | ||||||||||
| Impairment of non-marketable equity securities | 1 | - | (1 | ) | -100 | |||||||||||
| Change in fair value of warrants | 22,998 | 936 | (22,062 | ) | -96 | |||||||||||
| Income (loss) before income tax | 20,023 | (851 | ) | (20,874 | ) | -104 | ||||||||||
| Income tax credit | - | 2 | 2 | n/a | ||||||||||||
| Net income (loss) | 20,023 | (849 | ) | (20,872 | ) | -104 | ||||||||||
| Less: Net (income) loss attributable to non-controlling interests | (4 | ) | 848 | 852 | -21,300 | |||||||||||
| Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc. | $ | 20,019 | $ | (1 | ) | (20,020 | ) | -100 | ||||||||
Net revenues. Net revenues were $57.7 million for the three months ended September 30, 2022, as compared to $9.6 million for the same period in 2021, representing an increase of $48.2 million, or 504%.
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The following table sets forth the breakdown of our net revenues by end-product applications or product types.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Three months ended September 30, | Change | |||||||||||||||
| 2021 | 2022 | $ | % | |||||||||||||
| High power lithium batteries used in: | ||||||||||||||||
| Electric vehicles | $ | - | 20 | 20 | n/a | |||||||||||
| Light electric vehicles | 227 | 1,147 | 920 | 405 | ||||||||||||
| Uninterruptable supplies | 9,336 | 24,679 | 15,343 | 164 | ||||||||||||
| Trading of raw materials used in lithium batteries | -1 | - | 1 | -100 | ||||||||||||
| 9,562 | 25,846 | 16,284 | 170 | |||||||||||||
| Materials used in manufacturing of lithium batteries | ||||||||||||||||
| Cathode | - | 11,195 | 11,195 | n/a | ||||||||||||
| Precursor | - | 20,681 | 20,681 | n/a | ||||||||||||
| - | 31,876 | 31,876 | n/a | |||||||||||||
| Total | $ | 9,562 | $ | 57,722 | 48,160 | 504 | ||||||||||
Net revenues from sales of batteries for electric vehicles were $0.02 million for the three months ended September 30, 2022 as compared to nil in the same period of 2021, representing a 100% increase.
Net revenues from sales of batteries for light electric vehicles were $1.1 million for the three months ended September 30, 2022, as compared to $0.2 million in the same period of 2021, marking an increase of $0.9 million, or 405%. We will continue to penetrate the market for batteries used in light electric vehicles.
Net revenues from sales of batteries for uninterruptable power supplies were $24.7 million for the three months ended September 30, 2022, as compared with $9.3 million in the same period in 2021, representing an increase of $15.3 million, or 164%. We maintain our focus on this market, and sales of batteries for uninterruptable power supplies continue to grow fast.
Overall, net revenues from sales of high power lithium batteries totaled $25.8 million for the three months ended September 30, 2022, representing a year-over-year growth of 170% compared to $9.6 million for the same period of 2021.
Net revenues from sales of materials used in manufacturing of lithium batteries were $31.9 million for the three months ended September 30, 2022, as compared to nil for the same period of 2021. Revenue from sales of battery raw materials was attributable to the newly acquired subsidiary, Hitrans, a leading producer of raw materials such as cathode and precursor for lithium batteries. We aim to strengthen the battery production ecosystem as we seek stable raw material supply and drive greater revenue for our business.
Cost of revenues. Cost of revenues was $54.3 million for the three months ended September 30, 2022, as compared with $8.4 million in the same period in 2021. Cost of revenues includes write-down of obsolete inventories which was $0.3 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively. We write down the inventory value whenever there is an indication that it is impaired. However, further write-down may be necessary if market conditions deteriorate.
Gross profit. Gross profit for the three months ended September 30, 2022 was $3.5 million, or 6% of net revenues, as compared to $1.1 million, or 12% of net revenues for the same period in 2021. Gross profit margin decreased mainly due to the increase in raw material prices and the sales of materials used in manufacturing lithium batteries which have a lower profit margin.
Research and development expenses. Research and development expenses increased to $2.4 million for the three months ended September 30, 2022, as compared to $1.8 million for the same period in 2021, an increase of $0.6 million, or 31%. The increase was primarily resulted from the increase in R&D employees’ salaries and benefit expenses by approximately $0.3 million. R&D employees’ salaries and benefit expenses increased due to incorporating R&D personnel of Hitrans and a growing number of employees at Nanjing CBAK. In addition, we incurred expenses for materials used in research and development of $0.2 million and $29,357 for the three months ended September 30, 2022 and 2021, respectively, as a result of our efforts to research and develop upgraded products with lower costs and better performance.
Sales and marketing expenses. Sales and marketing expenses increased to $0.8 million for the three months ended September 30, 2022, as compared to approximately $0.5 million for the same period in 2021, an increase of approximately $0.3 million, or 64%. As a percentage of revenues, sales and marketing expenses were 1.5% and 5% of net revenues for the three months ended September 30, 2022 and 2021, respectively. We incurred shipping and custom declaration expenses of $0.3 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, as we secured more overseas orders for the three months ended September 30, 2022 compared to 2021.
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General and administrative expenses. General and administrative expenses decreased to $1.9 million for the three months ended September 30, 2022, as compared to approximately $2.2 million for the same period in 2021, a decrease of approximately $0.3 million, or 14%. The decrease was primarily a result of the decrease in legal fee and listing related fees incurred as a Nasdaq listed public company.
Recovery of doubtful accounts. Recovery of doubtful accounts was $0.2 million for both of the three months ended September 30, 2022 and 2021. We determine the allowance based on historical write-off experience, customer specific facts and economic conditions. We have recovered $0.2 million of cash from customers for both of the three months ended September 30, 2022 and 2021.
Operating loss. As a result of the above, our operating loss totaled $1.5 million for the three months ended September 30, 2022, as compared to an operating loss of $3.2 million for the same period in 2021, representing a decrease in operating loss of $1.7 million.
Finance income, net. Finance income, net was $0.7 million for the three months ended September 30, 2022, as compared to finance income of $0.1 million for the same period in 2021, representing an increase in income of $0.6 million, or 433%. The increase was mainly resulted from the change of exchange rates.
Other income (expenses), net. Other expenses were $1 million for the three months ended September 30, 2022, as compared to other income of $69,970 for the same period 2021. The other expenses were mainly resulted from the $2.1 million loss from dismantlement of Hitrans buildings offset by $0.6 million debts release from our suppliers.
Changes in fair value of warrants liability. We issued warrants in the financings we consummated in December 2020 and February 2021, respectively. We determined that these warrants should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency. The change in fair value of warrants liability is mainly due to the share price decline.
Income tax. Income tax credit was $2,012 and nil for the three months ended September 30, 2022 and 2021, respectively.
Net income. As a result of the foregoing, we had a net loss of $290 for the three months ended September 30, 2022, compared to a net income of $20.0 million for the same period in 2021.
Comparison of Nine Months Ended September 30, 2021 and 2022
The following tables set forth key components of our results of operations for the periods indicated.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Nine Months ended September 30, | Change | |||||||||||||||
| 2021 | 2022 | $ | % | |||||||||||||
| Net revenues | $ | 24,867 | $ | 194,268 | 169,401 | 681 | ||||||||||
| Cost of revenues | (20,798 | ) | (179,956 | ) | (159,158 | ) | 765 | |||||||||
| Gross profit | 4,069 | 14,312 | 10,243 | 252 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development expenses | 3,345 | 7,998 | 4,653 | 139 | ||||||||||||
| Sales and marketing expenses | 1,263 | 2,362 | 1,099 | 87 | ||||||||||||
| General and administrative expenses | 5,824 | 6,557 | 733 | 13 | ||||||||||||
| (Recovery of) provision for doubtful accounts | (437 | ) | 69 | 506 | -116 | |||||||||||
| Total operating expenses | 9,995 | 16,986 | 6,991 | 70 | ||||||||||||
| Operating loss | (5,926 | ) | (2,674 | ) | 3,252 | -55 | ||||||||||
| Finance income, net | 174 | 72 | (102 | ) | -59 | |||||||||||
| Other income (expenses), net | 1,619 | (1,165 | ) | (2,784 | ) | -172 | ||||||||||
| Impairment of non-marketable equity securities | (690 | ) | - | 690 | -100 | |||||||||||
| Change in fair value of warrants | 57,174 | 4,699 | (52,475 | ) | -92 | |||||||||||
| Income before income tax | 52,351 | 932 | (51,419 | ) | -98 | |||||||||||
| Income tax expenses | - | (84 | ) | (84 | ) | n/a | ||||||||||
| Net income | 52,351 | 848 | (51,503 | ) | -98 | |||||||||||
| Less: Net (income) loss attributable to non-controlling interests | (22 | ) | 401 | 423 | -1,923 | |||||||||||
| Net income attributable to shareholders of CBAK Energy Technology, Inc. | 52,329 | 1,249 | (51,080 | ) | -98 | |||||||||||
Net revenues. Net revenues were $194 million for the nine months ended September 30, 2022, as compared to $24.9 million for the same period in 2021, representing an increase of $169.4 million, or 681%.
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The following table sets forth the breakdown of our net revenues by end-product applications or product type.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Nine months ended September 30, | Change | |||||||||||||||
| 2021 | 2022 | $ | % | |||||||||||||
| High power lithium batteries used in: | ||||||||||||||||
| Electric vehicles | $ | 101 | 20 | -81 | -80 | |||||||||||
| Light electric vehicles | 336 | 1,907 | 1,571 | 468 | ||||||||||||
| Uninterruptable supplies | 23,912 | 64,655 | 40,743 | 170 | ||||||||||||
| Trading of raw materials used in lithium batteries | 518 | - | -518 | -100 | ||||||||||||
| 24,867 | 66,582 | 41,715 | 168 | |||||||||||||
| Materials used in manufacturing of lithium batteries | ||||||||||||||||
| Cathode | - | 66,083 | 66,083 | n/a | ||||||||||||
| Precursor | - | 61,603 | 61,603 | n/a | ||||||||||||
| - | 127,686 | 127,686 | n/a | |||||||||||||
| Total | $ | 24,867 | $ | 194,268 | 169,401 | 681 | ||||||||||
Net revenues from sales of batteries for electric vehicles were $19,991 for the nine months ended September 30, 2022 as compared to $0.1 million in the same period of 2021, representing a decrease of $81,387, or 80%.
Net revenues from sales of batteries for light electric vehicles were $1.9 million for the nine months ended September 30, 2022, as compared to $0.3 million in the same period of 2021, marking an increase of $1.6 million, or 468%. We will continue to penetrate the market for batteries used in light electric vehicles.
Net revenues from sales of batteries for uninterruptable power supplies were $64.7 million in the nine months ended September 30, 2022, as compared with $23.9 million in the same period in 2021, representing an increase of $40.7 million, or 170%. We maintain our focus on this market, and sales of batteries for uninterruptable power supplies continue to grow fast.
Net revenues from sales of materials used in manufacturing of lithium batteries were $127.7 million for the nine months ended September 30, 2022, as compared to nil for the same period of 2021. Revenue from sales of battery raw materials was attributable to the newly acquired subsidiary, Hitrans, a leading producer of raw materials such as cathode and precursor for lithium batteries. We aim to strengthen the battery production ecosystem as we seek stable raw material supply and drive greater revenue for our business.
Cost of revenues. Cost of revenues increased to $180.0 million for the nine months ended September 30, 2022, as compared to $20.8 million for the same period in 2021, an increase of $159.2 million, or 765%. Cost of revenues included write-down of obsolete inventories which were $1.2 million for both nine months ended September 30, 2022 and 2021. We write down the inventory value whenever there is an indication that it is impaired. However, further write-down may be necessary if market conditions deteriorate.
Gross profit. Gross profit for the nine months ended September 30, 2022 was $14.3 million, or 7.4% of net revenues as compared to $4.1 million, or 16% of net revenues, for the same period in 2021, representing an increase in gross profit of $10.2 million. Gross profit margin decreased mainly due to the increase in raw material prices and the sales of materials used in manufacturing lithium batteries which have a lower profit margin.
Research and development expenses. Research and development expenses increased to approximately $8.0 million for the nine months ended September 30, 2022, as compared to approximately $3.3 million for the same period in 2021, an increase of $4.7 million, or 139%. The increase was primarily resulted from an increase in R&D employees’ salaries and benefit expenses by approximately $1.8 million. R&D employees’ benefit expenses increased due to incorporating Hitrans’s personnel and a growing number of employees at Nanjing CBAK. In addition, we incurred $2.0 million in materials, testing and development cost for the manufacture and sale of materials used in high-power lithium battery cells segment and $0.5 million of R&D operating expenses by incorporating Hitrans’s R&D expenses during the nine months ended September 30, 2022.
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Sales and marketing expenses. Sales and marketing expenses were $2.4 million for the nine months ended September 30, 2022, as compared to $1.3 million for the same period in 2021, an increase of $1.1 million, or 87%. As a percentage of revenues, sales and marketing expenses were 1.2% and 5.1% of revenues for the nine months ended September 30, 2022 and 2021, respectively. The increase mainly resulted from an increase in salary and benefit expenses for sales and marketing employees by approximately $0.3 million. Such increase is due to (i) incorporating sales and marketing personnel of Hitrans, (ii) a growing number of employees at Nanjing CBAK and (iii) pay raises for sales and marketing employees for growth in revenue. In addition, we incurred shipping and custom declaration expenses of $0.8 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively, as we secured more overseas orders for the nine months ended September 30, 2022 compared to 2021.
General and administrative expenses. General and administrative expenses increased to $6.6 million for the nine months ended September 30, 2022, as compared to $5.8 million for the same period in 2021, representing an increase of $0.7 million, or 13%. The increase was primarily resulted from a significant increase in administrative employees’ salaries and benefit expenses by approximately $1.0 million. Administrative employees’ salary and benefit expenses increased due to incorporating general and administrative personnel of Hitrans, and a growing number of employees at Nanjing CBAK offset by the decrease of $0.6 million in legal and professional fees for the nine months ended September 30, 2022 compared to $0.9 million for the same period in 2021.
Provision for(recovery of) doubtful accounts. Provision for doubtful accounts was $68,651 for the nine months ended September 30, 2022, as compared to a recovery of doubtful accounts of $437,475 for the same period in 2021. We determine the allowance based on historical write-off experience, customer specific facts and economic conditions.
Operating loss. As a result of the above, our operating loss totaled $2.7 million for the nine months ended September 30, 2022, as compared to $5.9 million for the same period in 2021, representing a decrease of $3.3 million in loss, or 55%.
Finance income, net. Finance income, net decreased to $71,869 for the nine months ended September 30, 2022, as compared to finance income approximately $0.2 million for the same period last year, representing a decrease of $0.1 million in finance income, or 59% as a result of the change of exchange rates and increase of interest expenses due to increase of loan balances.
Other income (expenses), net. Other expenses were $1.2 million for the nine months ended September 30, 2022, as compared to other income, net of $1.6 million for the same period of 2021. The decrease was primarily resulted from a $2.7 million loss from dismantlement of Hitrans’s buildings and disposal of assets.
Impairment of non-marketable equity securities. In April 2021, we invested RMB9 million (approximately $1.4 million) to acquire approximately 9.7% of the equity interests of DJY. We assessed the carrying value of non-marketable equity securities during the nine months ended September 30, 2021 and recognized an impairment of non-marketable equity securities of $690,585.
Changes in fair value of warrants liability. We issued warrants in the financing we consummated in December 2020 and February 2021. We determined that these warrants should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency. The change in fair value of warrants liability is mainly due to the share price decline.
Income tax. Income tax was nil and nil for the nine months ended September 30, 2022 and 2021, respectively.
Net income. As a result of the foregoing, we had a net income of $1.3 million for the nine months ended September 30, 2022, compared to a net income of $52.4 million for the same period in 2021.
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Liquidity and Capital Resources
We had financed our liquidity requirements from a variety of sources, including short-term bank loans, other short-term loans and bills payable under bank credit agreements, advance from our related and unrelated parties, investors and issuance of capital stock and other equity-linked securities.
We generated a net income of $1.3 million for the nine months ended September 30, 2022. As of September 30, 2022, we had cash and cash equivalents and restricted cash of $41.6 million. Our total current assets were $129.2 million and our total current liabilities were $115.9 million, resulting in a net working capital of $13.3 million.
As of September 30, 2022, we had an accumulated deficit of $121.2 million. We had an accumulated deficit from recurring net losses incurred for the prior years and significant short-term debt obligations maturing in less than one year as of September 30, 2022. The report from our independent registered public accounting firm for the year ended December 31, 2021 included an explanatory paragraph in respect of the substantial doubt of our ability to continue as a going concern.
These condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Lending from Financial Institutions
On June 4, 2018, we obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB200 million (approximately $30.63 million), bearing interest at 130% of benchmark rate of the People’s Bank of China (“PBOC”) for three-year long-term loans with the term of June 12, 2018 to June 10, 2021, which is currently 6.175% per annum. Under the facilities, we borrowed RMB126.0 million ($18.1 million), RMB23.3 million ($3.3 million), RMB9.0 million ($1.3 million) and RMB9.5 million ($1.4 million) on June 12, June 20, September 20, and October 19, 2018, respectively. The loans are repayable in six installments of RMB0.8 million ($0.12 million) on December 10, 2018, RMB24.3 million ($3.50 million) on June 10, 2019, RMB0.8 million ($0.12 million) on December 10, 2019, RMB74.7 million ($10.7 million) on June 10, 2020, RMB0.8 million ($0.12 million) on December 10, 2020 and RMB66.3 million ($9.6 million) on June 10, 2021. We repaid the bank loan of RMB0.8 million ($0.12 million), RMB24.3 million ($3.72 million) and RMB0.8 million ($0.12 million) in December 2018, June 2019 and December 2019, respectively.
On June 28, 2020, we entered into a supplemental agreement with China Everbright Bank Dalian Branch to change the repayment schedule. According to the supplemental agreement, the remaining RMB141.8 million (approximately $21.72 million) loans are repayable in eight instalments consisting of RMB1.09 million ($0.17 million) on June 10, 2020, RMB1 million ($0.15 million) on December 10, 2020, RMB2 million ($0.31 million) on January 10, 2021, RMB2 million ($0.31 million) on February 10, 2021, RMB2 million ($0.31 million) on March 10, 2021, RMB2 million ($0.31 million) on April 10, 2021, RMB2 million ($0.31 million) on May 10, 2021, and RMB129.7 million ($19.9 million) on June 10, 2021, respectively. As of June 30, 2021, we repaid all the bank loans.
On November 16, 2021, we obtained banking facilities from Shaoxing Branch of Bank of Communications Co., Ltd with a maximum amount of RMB120.1 million (approximately $17.9 million) with the term from November 18, 2021 to November 18, 2026. The facility was secured by the Company’s land use rights and buildings. Under the facility, we have borrowed a total of RMB56.0 million (approximately $8.8 million) and RMB76.1 million (approximately $10.7 million) as of December 31, 2021 and September 30, 2022, respectively, for varying terms ending between November 16, 2022 and May 16, 2023, bearing interest at 4.15% - 4.35% per annum. Subsequent to September 30, 2022, we have repaid RMB56 million (approximately $7.9 million) and drawn down another RMB56 million (approximately $7.9 million) under the same facility for an annual interest rate at 4.15%, repayable by May 16, 2023.
In October to December 2020, we borrowed a series of acceptance bills from China Merchants Bank totaled RMB13.5 million (approximately $2.07 million) for various terms through April to June 2021, which was secured by the Company’s cash totaled RMB13.5 million (approximately $2.07 million). We repaid the bills through April to June 2021.
On April 19, 2021, we obtained five-year acceptance bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB84.4 million (approximately $13.2 million). Any amount drawn under the facilities requires security in the form of cash or bank acceptance bills receivable of at least the same amount. Under the facilities, as of December 31, 2021, we borrowed a total of RMB10 million (approximately $1.6 million) from Bank of Ningbo Co., Ltd in the form of bills payable for a various term expiring from January to February 2022, which was secured by the Company’s cash totaled RMB10 million (approximately $1.6 million). We repaid the bills in January to February 2022.
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On March 21, 2022, we renewed the above acceptance bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB71.6 million ($10.1 million) with other terms remain the same. Under the facilities, as of September 30, 2022, we borrowed a total of RMB11.5 million (approximately $1.6 million) in the form of bills payable for various terms expiring from November 2022 to March 2023, which was secured by our cash totaling RMB11.5 million (approximately $1.6 million).
On January 17, 2022, we obtained a one-year term facility from Agricultural Bank of China with a maximum amount of RMB10 million (approximately $1.4 million) bearing interest at 105% of benchmark rate of the PBOC for short-term loans, which is 3.85% per annum. The facility was guaranteed by our CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. We borrowed RMB10 million (approximately $1.4 million) on the same date for a term until January 16, 2023.
On February 9, 2022, we obtained a one-year term facility from Jiangsu Gaochun Rural Commercial Bank with a maximum amount of RMB10 million (approximately $1.4 million) bearing interest at 124% of benchmark rate of the PBOC for short-term loans, which is 4.94% per annum. The facility was guaranteed by 100% equity in CBAK Nanjing held by BAK Investment and our CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. We borrowed RMB10 million (approximately $1.4 million) on the same date for a term until January 28, 2023.
On March 8, 2022, we obtained a one-year term facility from China Zheshang Bank Co., Ltd. Shangyu Branch with a maximum amount of RMB10 million (approximately $1.4 million) bearing interest at 5.5% per annum. The facility was guaranteed by 100% equity in CBAK Power held by BAK Asia and the Company’s CEO, Mr. Yunfei Li. We borrowed RMB10 million (approximately $1.4 million) on the same date. On May 17, 2022, we repaid the loan principal and related loan interests.
On April 28, 2022, we obtained a three-year term facility from Industrial and Commercial Bank of China Nanjing Gaochun branch, with a maximum amount of RMB12 million (approximately $1.7 million) with the term from April 21, 2022 to April 21, 2025. The facilities were guaranteed by our CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. Under the facility, we borrowed RMB10 million (approximately $1.4 million) on April 29, 2022, bearing interest at 3.95% per annum for a term until April 29, 2023.
On June 22, 2022, we obtained another one-year term facility from China Zheshang Bank Co., Ltd. Shangyu Branch with a maximum amount of RMB10 million (approximately $1.4 million) bearing interest at 4.5% per annum. The facility was guaranteed by 100% equity in CBAK Power held by BAK Asia and our CEO, Mr. Yunfei Li. The Company borrowed RMB10 million (approximately $1.4 million) on the same date for a term until June 21, 2023.
On September 25, 2022, we entered into a new one-year term facility with Jiangsu Gaochun Rural Commercial Bank with a maximum amount of RMB9 million (approximately $1.3 million) bearing interest rate at 4.81% per annum. The facility was guaranteed by 100% equity in CBAK Nanjing held by BAK Investment and our CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. We borrowed RMB9 million (approximately $1.3 million) on September 27, 2022 for a term until September 24, 2023.
Wey borrowed a series of acceptance bills from Agricultural Bank of China totaling RMB80.0 million (approximately $11.2 million) for various terms through October 2022 to March 2023, which was secured by our cash totaling RMB80.0 million (approximately $11.2 million).
We borrowed a series of acceptance bills from China Zheshang Bank Co. Ltd Shangyu Branch totaling RMB55.8 million (approximately $7.8 million) for various terms through October 2022 to March 2023, which was secured by the Company’s cash totaling RMB53.3 million (approximately $7.5 million) and our bills receivable totaling RMB4.0 million (approximately $0.6 million).
We borrowed a series of acceptance bills from China Zheshang Bank Co. Ltd Shenyang Branch totaling RMB28.8 million (approximately $4.0 million) for various terms through October to November 2022, which was secured by our cash totaling RMB28.8 million (approximately $4.0 million).
We borrowed a series of acceptance bills from Shaoxing Branch of Bank of Communications Co., Ltd totaling RMB5.5 million (approximately $0.8 million) for various terms ending in March 2023, which was secured by our cash totaling RMB5.5 million (approximately $0.8 million).
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We borrowed a series of acceptance bills from China Merchants Bank Dalian Branch totaling RMB91.2 million (approximately $12.8 million) for various terms through November 2022 to March 2023, which was secured by our cash totaling RMB91.2 million (approximately $12.8 million).
As of September 30, 2022, we had unutilized committed banking facilities of $6.2 million. We plan to renew these loans upon maturity and intend to raise additional funds through bank borrowings in the future to meet our daily cash demands, if required.
Equity and Debt Financings from Investors
We have also obtained funds through private placements, registered direct offerings and other equity and debt financings.
On December 8, 2020, we entered into a securities purchase agreement with certain institutional investors, pursuant to which we issued in a registered direct offering, an aggregate of 9,489,800 shares of common stock of the Company at a per share purchase price of $5.18, and warrants to purchase an aggregate of 3,795,920 shares of common stock of the Company at an exercise price of $6.46 per share exercisable for 36 months from the date of issuance, for gross proceeds of approximately $49.16 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company.
On February 8, 2021, we entered into another securities purchase agreement with the same investors, pursuant to which we issued in a registered direct offering, an aggregate of 8,939,976 shares of common stock of the Company at a per share purchase price of $7.83. In addition, we issued to the investors (i) in a concurrent private placement, the Series A-1 warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.67 and exercisable for 42 months from the date of issuance; (ii) in the registered direct offering, the Series B warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.83 and exercisable for 90 days from the date of issuance; and (iii) in the registered direct offering, the Series A-2 warrants to purchase up to 2,234,992 shares of common stock, at a per share exercise price of $7.67 and exercisable for 45 months from the date of issuance. We received gross proceeds of approximately $70 million from the registered direct offering and the concurrent private placement, before deducting fees to the placement agent and other estimated offering expenses payable by the Company.
On May 10, 2021, we entered into that Amendment No. 1 to the Series B Warrant (the “Series B Warrant Amendment”) with each of the holders of the Company’s outstanding Series B warrants. Pursuant to the Series B Warrant Amendment, the term of the Series B warrants was extended from May 11, 2021 to August 31, 2021.
As of August 31, 2021, we had not received any notices from the investors to exercise Series B warrants. Series B warrants, along with Series A-2 warrants, had both expired on September 1, 2021.
We currently are expanding our product lines and manufacturing capacity and developing the new business of producing light electric vehicles in our Dalian and Nanjing plants, which requires additional funding to finance the expansion. We may also require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. We may renew our bank loans upon maturity, if required, and plan to raise additional funds through bank borrowings and equity or debt financing in the future to meet our daily cash demands, if required. However, there can be no assurance that we will be successful in obtaining such financing. If our existing cash and bank borrowing are insufficient to meet our requirements, we may seek to sell equity securities, debt securities or borrow from other lending institutions. We can make no assurance that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of equity securities, including convertible debt securities, would dilute the interests of our current shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.
The accompanying condensed consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty related to our ability to continue as a going concern.
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The following table sets forth a summary of our cash flows for the periods indicated:
(All amounts in thousands of U.S. dollars)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2022 | |||||||
| Net cash (used in) provided by operating activities | $ | (7,240 | ) | $ | 16,695 | |||
| Net cash used in investing activities | (47,504 | ) | (9,923 | ) | ||||
| Net cash (used in) provided by financing activities | 51,049 | 12,401 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 570 | (3,890 | ) | |||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | (3,125 | ) | 15,282 | |||||
| Cash and cash equivalents and restricted cash at the beginning of period | 20,671 | 26,354 | ||||||
| Cash and cash equivalents and restricted cash at the end of period | $ | 17,546 | 41,636 | |||||
Operating Activities
Net cash provided by operating activities was $17.0 million in the nine months ended September 30, 2022, as compared to net cash used in operating activities of $7.2 million in the same period in 2021. The net cash provided by operating activities in the nine months ended September 30, 2022 was mainly attributable to our net income of $5.9 million (before loss on disposal of property, plant and equipment, non-cash depreciation and amortization, recovery of doubtful debts, write-down of inventories, share-based compensation and change in fair value of warrant liability), a decrease of $24.4 million in trade accounts, an increase of $6.8 million of prepayments and other receivables, an increase of $29.0 million in inventory and an increase of $4.7 million receivable from our former subsidiary, partially offset by $13.1 million decrease of trade and bills payables.
Net cash used in operating activities in the nine months ended September 30, 2021 was mainly attributable to an increase of $4.6 million in inventories, an increase of $2.2 million in prepayments and other receivables and a decrease of $7.6 million in trade accounts and bills payable partially offset by our net loss of $1.5 million (before loss on disposal of property, plant and equipment, non-cash depreciation and amortization, recovery of doubtful debts, write-down of inventories, share-based compensation, change in fair value of warrant liability and impairment of non-marketable equity securities), an increase of $8.1 million in trade accounts and bills and $1.5 million of government grants received.
Investing Activities
Net cash used in investing activities was $9.9 million for the nine months ended September 30, 2022, as compared to $47.5 million in the same period of 2021. The net cash used in investing activities comprised the purchases of property, plant and equipment and construction in progress.
Net cash used in investing activities for the nine months ended September 30, 2021 mainly consisted of deposit paid for acquisition of a majority-owned subsidiary of $8.3 million, purchase of non-marketable equity securities of $1.4 million and purchase of property, plant and equipment and construction in progress of $17.5 million and loan to Hitrans of $20.2 million.
Financing Activities
Net cash provided by financing activities was $10.9 million in the nine months ended September 30, 2022, compared to net cash provided by financing activities of $51.0 million during the same period in 2021. The net cash provided by financing activities in the nine months ended September 30, 2022 mainly comprised proceeds of $12.0 million from bank borrowings, $1.5 million borrowings from shareholders and $1.5 million borrowings from unrelated parties and $1.4 million injection from non-controlling interests, partially offset by repayment of bank borrowings of $1.5 million and repayment of borrowings from Mr. Ye Junnan of $3.8 million.
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Net cash provided by financing activities in the nine months ended September 30, 2021 mainly comprised proceeds of $65.5 million from issuance of shares, partially offset by repayment of bank borrowings of $13.9 million, repayment of borrowings from unrelated and related parties of $0.4 million and $0.2 million, respectively.
As of September 30, 2022, the principal amounts outstanding under our credit facilities and lines of credit were as follows:
(All amounts in thousands of U.S. dollars)
| Maximum amount available | Amount borrowed | |||||||
| Long-term credit facilities: | ||||||||
| Shaoxing Branch of Bank of Communications Co., Ltd | $ | 16,961 | $ | 11,072 | ||||
| Industrial and Commercial Bank of China Limited | 1,686 | 1,405 | ||||||
| 18,647 | 12,477 | |||||||
| Short-term credit facilities: | ||||||||
| China Zheshang Bank Co., Ltd | 1,405 | 1,405 | ||||||
| Jiangsu Gaochun Rural Commercial Bank | 2,670 | 2,670 | ||||||
| Agricultural Bank of China | 1,405 | 1,405 | ||||||
| 5,480 | 5,480 | |||||||
| Other lines of credit: | ||||||||
| Shaoxing Branch of Bank of Communications Co., Ltd | 384 | 384 | ||||||
| Agricultural Bank of China | 11,239 | 11,239 | ||||||
| Bank of Ningbo. Nanjing Gaochun Branch | 1,619 | 1,619 | ||||||
| China Zheshang Bank Co., Ltd | 11,892 | 11,892 | ||||||
| China Merchants Bank Co., Ltd, Dalian Development Zone Branch | 12,812 | 12,812 | ||||||
| 37,946 | 37,946 | |||||||
| Total | $ | 62,073 | $ | 55,903 | ||||
Capital Expenditures
We incurred capital expenditures of $17.5 million and $9.8 million in the nine months ended September 30, 2021 and 2022, respectively. Our capital expenditures were used to construct and upgrade our manufacturing facilities in Dalian and Nanjing.
We estimate that our total capital expenditures for the year ending December 31, 2022 will reach approximately $12 million. Such funds are primarily used to expand new automatic manufacturing lines of battery as well as light electric vehicle production lines.
Off-Balance Sheet Transactions
(i) We have not entered into any transactions, agreements or other contractual arrangements to which an entity unconsolidated with us is a party and under which we have any obligation under a guarantee, (ii) any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity, (iii) any obligation under derivative instruments that are indexed to our shares and classified as shareholders’ equity in our consolidated balance sheets, or (iv) any obligation arising out of a variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
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Critical Accounting Policies
Our condensed consolidated financial information has been prepared in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (1) the reported amounts of our assets and liabilities, (2) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (3) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
There were no material changes to the critical accounting policies previously disclosed in our audited consolidated financial statements for the year ended December 31, 2021 included in the Annual Report on Form 10-K filed on April 15, 2022.
Changes in Accounting Standards
Please refer to note 1 to our condensed consolidated financial statements, “Principal Activities, Basis of Presentation and Organization – Recently Issued Accounting Standards,” for a discussion of relevant pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer and our Interim Chief Financial Officer. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of September 30, 2022.
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As we disclosed in our Annual Report on Form 10-K filed with the SEC on April 15, 2022, during our assessment of the effectiveness of internal control over financial reporting as of December 31, 2021, management identified the following material weakness in our internal control over financial reporting:
| ● | We did not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements. |
| ● | We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements. |
In order to cure the foregoing material weakness, we have taken or are taking the following remediation measures:
| ● | We are in the process of hiring a permanent chief financial officer with significant U.S. GAAP and SEC reporting experience. Ms. Xiangyu Pei was appointed by the Board of Directors of the Company as the Interim Chief Financial Officer on August 23, 2019. |
| ● | Since September 2016, we have regularly offered our financial personnel trainings on internal control and risk management. Since November 2016, we have regularly provided trainings to our financial personnel on U.S. GAAP accounting guidelines. We plan to continue to provide trainings to our financial team and our other relevant personnel on the U.S. GAAP accounting guidelines applicable to our financial reporting requirements. |
We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weakness that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
Changes in Internal Control over Financial Reporting
Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The information set forth in Note 23 “Commitments and Contingencies—(ii) Litigation” to our condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q is incorporated by reference herein.
ITEM 1A. RISK FACTORS.
There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on April 15, 2022, as amended by Amendment No.1 on Form 10-K/A filed on November 10, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Other than as previously disclosed in current reports on Form 8-K, there were no unregistered sales of equity securities or repurchase of common stock during the period covered by this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The following exhibits are filed as part of this report or incorporated by reference:
| Exhibit No. | Description | |
| 31.1 | Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL document). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: November 14, 2022 | ||
| CBAK ENERGY TECHNOLOGY, INC. | ||
| By: | /s/ Yunfei Li | |
| Yunfei Li | ||
| Chief Executive Officer | ||
| By: | /s/ Xiangyu Pei | |
| Xiangyu Pei | ||
| Interim Chief Financial Officer |
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