UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10−Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 20212022

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 001-32898

CBAK ENERGY TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada88-0442833
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)(I.R.S. Employer
Identification No.)

BAK Industrial Park, Meigui Street

Huayuankou Economic Zone

Dalian City, Liaoning Province,

People’s Republic of China, 116450

(Address of principal executive offices, Zip Code)

(86)(411)-3918-5985

(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 classTrading Symbol(s)

Name of each exchange on

which registered

Common Stock, $0.001 par valueCBATNasdaq Capital Market

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) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

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 was required to submit such files). Yes ☒ No ☐

 

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 ☐
Non-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 12, 202111, 2022 is as follows:

 

Class of SecuritiesShares Outstanding
Common Stock, $0.001 par value 88,705,01688,990,858

 

 

 

 

 

 

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.4247
Item 3.Quantitative and Qualitative Disclosures About Market Risk.5560
Item 4.Controls and Procedures.5560
PART II
OTHER INFORMATION
Item 1.Legal Proceedings.5762
Item 1A.Risk Factors.5762
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.5762
Item 3.Defaults Upon Senior Securities.5762
Item 4.Mine Safety Disclosures.5762
Item 5.Other Information.5762
Item 6.Exhibits.5762

i

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS.

ITEM 1. FINANCIAL STATEMENTS.

 

CBAK ENERGY TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20202021 AND 20212022

 

Contents Page(s)
Condensed Consolidated Balance Sheets as of December 31, 20202021 and September 30, 20212022 (unaudited) 2
Condensed Consolidated Statements of Operations and Comprehensive LossIncome (Loss) for the three and nine months ended September 30, 20202021 and 2021 2022 (unaudited) 3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 20202021 and 20212022 (unaudited) 4-5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20202021 and 20212022 (unaudited) 6
Notes to the Condensed Consolidated Financial Statements (unaudited) 7-417-46


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  $7,357,875   4,045,329 
Pledged deposits 2  18,996,749   37,591,281 
Trade and bills receivable, net 3  49,907,129   21,902,180 
Inventories 4  30,133,340   52,709,868 
Prepayments and other receivables 5  12,746,990   5,457,532 
Receivables from former subsidiary 16  2,263,955   6,341,988 
Amount due from non-controlling interest, current 16  125,883   112,424 
Amount due from related party 16  472,061   210,796 
Income tax recoverable    47,189   56,251 
Investment in sales-type lease, net 9  790,516   815,013 
Total current assets    122,841,687   129,242,662 
           
Property, plant and equipment, net 6  90,042,773   88,154,577 
Construction in progress 7  27,343,092   15,839,191 
Long-term investments, net 8  712,930   917,768 
Prepaid land use right- non current 9  13,797,230   12,081,968 
Intangible assets, net 10  1,961,739   1,383,789 
Operating lease right-of-use assets, net    1,968,032   571,851 
Investment in sales-type lease, net 9  838,528   317,279 
Amount due from non-controlling interest, non-current 16  62,941   56,212 
Deferred tax assets, net 19  1,403,813   1,175,624 
Goodwill 12  1,645,232   1,470,904 
Total assets   $262,617,997  $251,211,825 
           
Liabilities          
Current liabilities          
Trade and bills payable 13 $65,376,212  $70,532,360 
Short-term bank loans 14  8,811,820   17,573,866 
Other short-term loans 14  4,679,122   3,482,583 
Accrued expenses and other payables 15  22,963,700   19,602,212 
Payables to former subsidiaries, net 16  326,507   368,772 
Deferred government grants, current 17  3,834,481   1,613,838 
Product warranty provisions 18  127,837   104,053 
Operating lease liability, current 9  801,797   304,574 
Finance lease liability, current 9  -   1,173,589 
Warrants liability 25  5,846,000   1,147,000 
Total current liabilities    112,767,476   115,902,847 
           
Deferred government grants, non-current 17  6,189,196   5,809,485 
Operating lease liability, non-current 9  876,323   120,101 
Product warranty provision 18  1,900,429   1,776,912 
Total liabilities    121,733,424   123,609,345 
           
Commitments and contingencies 26        
           
Shareholders’ equity          
Common stock $0.001 par value; 500,000,000 authorized; 88,849,222 issued and 88,705,016 outstanding as of December 31, 2021, 89,135,064 issued and 88,990,858 outstanding as of September 30, 2022    88,849   89,135 
Donated shares    14,101,689   14,101,689 
Additional paid-in capital    241,946,362   243,053,288 
Statutory reserves    1,230,511   1,230,511 
Accumulated deficit    (122,498,259)  (121,248,906)
Accumulated other comprehensive income (loss)    2,489,017   (12,382,483)
     137,358,169   124,843,234 
Less: Treasury shares    (4,066,610)  (4,066,610)
Total shareholders’ equities    133,291,559   120,776,624 
Non-controlling interests    7,593,014   6,825,856 
Total of equities    140,884,573   127,602,480 
           
Total liabilities and shareholders’ equity    262,617,997   251,211,825 

See accompanying notes to the condensed consolidated financial statements.


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 $9,562,190   57,721,692  $24,867,393  $194,267,650 
Cost of revenues    (8,430,808)  (54,261,244)  (20,798,931)  (179,955,540)
Gross profit    1,131,382   3,460,448   4,068,462   14,312,110 
                   
Operating expenses:                  
Research and development expenses    (1,815,756)  (2,385,591)  (3,344,817)  (7,998,181)
Sales and marketing expenses    (510,386)  (834,501)  (1,262,999)  (2,361,839)
General and administrative expenses    (2,158,183)  (1,866,055)  (5,823,560)  (6,556,944)
Recovery of (provision for) doubtful accounts    178,897   142,966   437,475   (68,651)
Total operating expenses    (4,305,428)  (4,943,181)  (9,993,901)  (16,985,615)
Operating loss    (3,174,046)  (1,482,733)  (5,925,439)  (2,673,505)
Finance income, net    129,340   687,345   174,442   71,869 
Other income (expenses), net    69,970   (991,352)  1,619,194   (1,165,094)
Impairment of non-marketable equity securities    (43)  -   (690,585)  - 
Change in fair value of warrants    22,998,000   936,000   57,174,000   4,699,000 
Income (loss) before income tax    20,023,221   (850,740)  52,351,612   932,270 
Income tax credit (expenses) 19  -   2,012   -   (84,230)
Net income (loss)    20,023,221   (848,728)  52,351,612   848,040 
Less: Net (income) loss attributable to non-controlling interests    (3,487)  848,438   (21,995)  401,313 
Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc.   $20,019,734   (290) $52,329,617  $1,249,353 
                   
Other comprehensive income (loss)                  
Net income (loss)    20,023,221   (848,728)  52,351,612   848,040 
– Foreign currency translation adjustment    243,258   (8,925,745)  1,473,992   (15,620,472)
Comprehensive income (loss)    20,266,479   (9,774,473)  53,825,604   (14,772,432)
Less: Comprehensive loss (income) attributable to non-controlling interests    (3,404)  1,632,419   (16,024)  1,150,285 
Comprehensive income (loss) attributable to CBAK Energy Technology, Inc.   $20,263,075   (8,142,054) $53,809,580  $(13,622,147)
                   
Income (Loss) per share 24                
– Basic   $0.23  $0.00* $0.60  $0.01 
– Diluted   $0.23  $0.00* $0.60  $0.01 
                   
Weighted average number of shares of common stock: 24                
– Basic    88,419,998   88,996,692   87,043,490   88,900,977 
– Diluted    88,709,210   88,996,692   87,349,010   88,923,265 

*Less than $0.01 per share

See accompanying notes to the condensed consolidated financial statements.


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
Issued

     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  88,538,723   88,538   14,101,689   241,141,468   1,230,511   (151,674,428)  997,013   20,355   (144,206)  (4,066,610)  101,838,536 
Net income (loss)                      20,019,734       3,487           20,023,221 
Share-based compensation for employee and director stock awards              90,793                           90,793 
Common stock issued to employees and directors for stock awards  16,667   17       (17)                            
Foreign currency translation adjustment                          243,341   (83)          243,258 
Balance as of September 30, 2021  88,555,390   88,555   14,101,689   241,232,244   1,230,511   (131,654,694)  1,240,354   23,759   (144,206)  (4,066,610)  122,195,808 
                                             
Balance as of July 1, 2022  89,135,064  $89,135  $14,101,689  $ 241,991,981  $1,230,511  $(121,248,616) $(4,240,719) $8,075,148   (144,206) $(4,066,610) $135,932,519 
Net loss  -   -   -   -   -   (290)   -  (848,438)   -   -  (848,728) 
Share-based compensation for employee and director stock awards  -   -   -   11,247   -   -   -   -   -   -    11,247 
Capital injection  -   -   -   1,050,060   -   -   -   383,127   -   -   1,433,187 
Foreign currency translation adjustment  -   -   -   -   -   -   (8,141,764)  (783,981)  -   -   (8,925,745)
Balance as of September 30, 2022  89,135,064  $89,135  $14,101,689  $243,053,288  $1,230,511  $(121,248,906) $(12,382,483) $6,825,856   (144,206) $(4,066,610) $127,602,480 

 


 

 

CBAK Energy Technology, Inc. and Subsidiaries

Condensed consolidated balance sheets
As of December 31, 2020 and September 30, 2021
(Unaudited)
(In US$ except for number of shares)  

    December 31,  September 30, 
  Note 2020  2021 
Assets        
Current assets        
Cash and cash equivalents   $11,681,750  $1,993,531 
Pledged deposits 2  8,989,748   15,552,996 
Trade accounts and bills receivable, net 3  29,571,274   22,231,442 
Inventories 4  5,252,845   9,249,455 
Prepayments and other receivables 5  7,439,544   9,715,578 
Investment in sales-type lease, net 11  235,245   838,649 
Total current assets    63,170,406   59,581,651 
           
Property, plant and equipment, net 8  41,040,370   42,050,589 
Construction in progress 9  30,193,309   49,246,115 
Non-marketable equity securities 10  -   702,807 
Hitrans loan 6  -   20,326,775 
Deposit paid for acquisition of a subsidiary 6  -   8,349,118 
Operating lease right-of-use assets, net    -   1,981,422 
Prepaid land use right- non current 11  7,500,780   7,465,426 
Intangible assets, net 12  11,807   21,418 
Investment in sales-type lease, net 11  850,407   980,731 
Total assets   $142,767,079  $190,706,052 
           
Liabilities          
Current liabilities          
Trade accounts and bills payable 13 $28,352,292  $21,050,320 
Current maturities of long-term bank loans 14  13,739,546   - 
Other short-term loans 14  1,253,869   680,563 
Accrued expenses and other payables 15  11,645,459   15,796,594 
Payables to former subsidiaries, net 7  626,990   361,874 
Deferred government grants, current 16  151,476   153,402 
Product warranty provisions 17  155,888   124,670 
Operating lease liability, current 11  -   753,404 
Warrants liability 21  17,783,000   10,474,000 
Total current liabilities    73,708,520   49,394,827 
           
Deferred government grants, non-current 16  7,304,832   8,833,848 
Operating lease liability 11  -   801,266 
Product warranty provision 17  1,835,717   1,873,626 
Long term tax payable 18  7,511,182   7,606,677 
           
Total liabilities    90,360,251   68,510,244 
           
Commitments and contingencies 23        
           
Shareholders’ equity          
Common stock $0.001 par value; 500,000,000 authorized ; 79,310,249 issued and 79,166,043 outstanding as of December 31, 2020, 88,555,390 issued and 88,411,184 outstanding as of September 30, 2021    79,310   88,555 
Donated shares    14,101,689   14,101,689 
Additional paid-in capital    225,278,113   241,232,244 
Statutory reserves    1,230,511   1,230,511 
Accumulated deficit    (183,984,311)  (131,654,694)
Accumulated other comprehensive loss    (239,609)  1,240,354 
     56,465,703   126,238,659 
Less: Treasury shares    (4,066,610)  (4,066,610)
Total shareholders’ equities    52,399,093   122,172,049 
Non-controlling interests    7,735   23,759 
Total of equities    52,406,828   122,195,808 
           
Total liabilities and shareholders’ equity   $142,767,079  $190,706,052 

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  79,310,249  $79,310   14,101,689  $225,278,113  $1,230,511  $(183,984,311) $(239,609) $7,735   (144,206) $(4,066,610) $52,406,828 
Net income (loss)  -   -   -       -   52,329,617   -   21,995   -   -   52,351,612 
Share-based compensation for employee and director stock awards  -   -   -   333,365   -   -   -   -   -   -   333,365 
Common stock issued to employees and directors for stock awards  305,165   305   -   (305)  -   -   -   -   -   -   - 
Common stock issued to investors  8,939,976   8,940   -   15,621,071   -   -   -   -   -       15,630,011 
Foreign currency translation adjustment  -   -   -   -   -   -   1,479,963   (5,971)  -   -   1,473,992 
Balance as of September 30, 2021  88,555,390  $88,555  $14,101,689  $241,232,244  $1,230,511  $(131,654,694) $1,240,354 $23,759   (144,206) $(4,066,610) $122,195,808 
                                             
Balance as of January 1, 2022  88,849,222  $88,849  $14,101,689  $241,946,362  $1,230,511  $(122,498,259) $2,489,017  $7,593,014   (144,206) $(4,066,610) $140,884,573 
Net income (loss)  -   -   -       -   1,249,353   -   (401,313)  -   -   848,040 
Share-based compensation for employee and director stock awards  -   -   -   57,152   -   -   -   -   -   -   57,152 
Common stock issued to employees and directors for stock awards  285,842   286   -   (286)  -   -   -   -   -   -   - 
Capital injection  -   -   -   1,050,060   -   -   -   383,127   -   -   1,433,187 
Foreign currency translation adjustment  -   -   -   -   -   -   (14,871,500)  (748,972)  -   -   (15,620,472)
Balance as of September 30, 2022  89,135,064  $89,135  $14,101,689  $243,053,288  $1,230,511  $(121,248,906) $(12,382,483) $6,825,856   (144,206) $(4,066,610) $127,602,480 

See accompanying notes to the condensed consolidated financial statements.


 

 

CBAK Energy Technology, Inc. and subsidiaries

CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of operations and comprehensive income (loss)
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

Condensed consolidated statements of cash flows

For the nine months ended September 30, 2021 and 2022

    Three months ended
September 30,		  Nine months ended
September 30,		 
  Note 2020  2021  2020  2021 
Net revenues 25 $10,620,656  $9,562,190  $22,146,177  $24,867,393 
Cost of revenues    (9,245,811)  (8,430,808)  (20,477,719)  (20,798,931)
Gross profit    1,374,845   1,131,382   1,668,458   4,068,462 
Operating expenses:                  
Research and development expenses    (446,162)  (1,815,756)  (1,130,316)  (3,344,817)
Sales and marketing expenses    (157,485)  (510,386)  (351,963)  (1,262,999)
General and administrative expenses    (741,785)  (2,158,183)  (2,614,349)  (5,823,560)
Recovery of (provision for) doubtful accounts    364,168   178,897   (63,534)  437,475 
Total operating expenses    (981,264)  (4,305,428)  (4,160,162)  (9,993,901)
Operating profit (loss)    393,581   (3,174,046)  (2,491,704)  (5,925,439)
Finance (expenses) income, net    (357,739)  129,340   (1,171,030)  174,442 
Other income, net    5,873   69,970   152,171   1,619,194 
Impairment of non-marketable equity securities    -   (43)  -   (690,585)
Change in fair value of warrants    -   22,998,000   -   57,174,000 
Income (loss) before income tax    41,715   20,023,221   (3,510,563)  52,351,612 
Income tax expense 18  -   -   -   - 
Net income (loss)    41,715   20,023,221   (3,510,563)  52,351,612 
Less: Net income (loss) attributable to non-controlling interests    2,532   (3,487)  (2,386)  (21,995)
Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc.   $44,247  $20,019,734  $(3,512,949) $52,329,617 
                   
Other comprehensive income (loss)                  
Net loss    41,715   20,023,221   (3,510,563)  52,351,612 
– Foreign currency translation adjustment    846,695   243,258   574,526   1,473,992 
Comprehensive income (loss)    888,410   20,266,479   (2,936,037)  53,825,604 
Less: Comprehensive loss (income) attributable to non-controlling interests    3,465   (3,404)  (630)  (16,024)
Comprehensive income (loss) attributable to CBAK Energy Technology, Inc.   $891,875  $20,263,075  $(2,936,667) $53,809,580 
                   
Income (Loss) per share 20                
– Basic   $0.00  $0.23  $(0.06) $0.60 
– Diluted   $0.00  $0.23  $(0.06) $0.60 
                   
Weighted average number of shares of common stock: 20                
– Basic    64,909,894   88,419,998   59,569,498   87,043,490 
– Diluted    65,400,058   88,709,210   59,569,498   87,349,010 

(Unaudited)

(In US$ except for number of shares)

  Nine months ended 
  September 30, 
  2021  2022 
Cash flows from operating activities      
Net income $52,351,612  $848,040 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:        
Depreciation and amortization  2,013,729   5,726,020 
(Recovery of ) provision for doubtful debts  (437,475)  68,651 
Write-down of inventories  663,041   1,177,891 
Share-based compensation  333,365   57,152 
Loss on disposal of property, plant and equipment  9,613   2,705,233 
Change in fair value of warrant liability  (57,174,000)  (4,699,000)
Impairment charge - Investment  690,585   - 
Amortization of operating lease right-of-use assets  290,051   437,502 
Changes in operating assets and liabilities:        
Trade and bills receivable  8,062,046   24,379,828 
Inventories  (4,578,372)  (29,001,132)
Prepayments and other receivables  (2,191,300)  6,752,833 
Trade and bills payable  (7,632,763)  13,099,248 
Accrued expenses and other payables  323,174   (303,703)
Investment in sales-type lease  (717,138)  347,903 
Lease liabilities  (715,150)  (310,756)
Trade receivable from and payables to former subsidiaries  (75,718)  (4,659,713)
Government grants  1,545,189   - 
Income tax recoverable  -   (15,215)
Deferred tax assets  -   84,230 
Net cash (used in) provided by operating activities  (7,239,511)  16,695,012 
         
Cash flows from investing activities        
Deposit paid for acquisition of a subsidiary  (8,316,787)  - 
Purchase of non-marketable equity securities  (1,390,670)  - 
Hitrans Loan  (20,248,061)  - 
Proceeds on disposal of property, plant and equipment  -   140,831 
Purchases of property, plant and equipment and construction in progress  (17,548,901)  (9,761,089)
Investment in equity method investment  -   (303,122)
Net cash used in investing activities  (47,504,419)  (9,923,380)
         
Cash flows from financing activities        
Proceeds from bank borrowings  -   11,981,490 
Repayment of bank borrowings  (13,860,346)  (1,515,611)
Borrowings from unrelated parties  -   1,515,611 
Repayment of borrowings from unrelated parties  (399,715)  - 
Repayment of borrowings from related parties  (185,985)  - 
Borrowings from a related party  -   1,515,611 
Proceeds from issuance of shares  65,495,011   - 
Repayment of borrowings from Mr. Ye Junnan  -   (3,789,027)
Capital injection from non-controlling interests  -   1,433,187 
Proceeds from finance lease  -   1,515,611 
Principal payments on finance leases  -   (256,138)
Net cash provided by financing activities  51,048,965   12,400,734 
         
Effect of exchange rate changes on cash and cash equivalents and restricted cash  569,994   (3,890,380)
Net (decrease) increase in cash and cash equivalents and restricted cash  (3,124,971)  15,281,986 
Cash and cash equivalents and restricted cash at the beginning of period  20,671,498   26,354,624 
Cash and cash equivalents and restricted cash at the end of period $17,546,527  $41,636,610 
         
Supplemental non-cash investing and financing activities:        
Transfer of construction in progress to property, plant and equipment $3,556,965  $22,287,410 
Non-cash payment for purchase of property, plant and equipment and construction in progress by new vehicles $61,344  $- 
Lease liabilities arising from obtaining right-of-use assets $1,946,939  $213,677 
         
Cash paid during the period for:        
Income taxes $-  $60,666 
Interest, net of amounts capitalized $7,031  $476,298 

 

See accompanying notes to the condensed consolidated financial statements.


 

CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of changes in shareholders’ equity
For the three months ended September 30, 2020 and 2021
(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  loss  interests  of shares  Amount  Equity 
Balance as of July 1, 2020  63,802,338  $63,803  $14,101,689  $185,487,657  $1,230,511  $(179,734,609) $(2,016,076) $56,872   (144,206) $(4,066,610) $15,123,237 
Net income (loss)  -   -   -       -   44,247   -   (2,532)  -   -   41,715 
Share-based compensation for employee and director stock awards  -   -   -   161,775   -   -   -       -   -   161,775 
Common stock issued to employees and directors for stock awards  1,491,558   1,491   -   863,509   -   -   -       -   -   865,000 
Foreign currency translation adjustment  -   -   -   -   -   -   847,628   (933)  -   -   846,695 
                                             
Balance as of September 30, 2020  65,293,896  $65,294  $14,101,689  $186,512,941  $1,230,511  $(179,690,362) $(1,168,448) $53,407   (144,206) $(4,066,610) $17,038,422 
                                             
Balance as of July 1, 2021  88,538,723  $88,538  $14,101,689  $241,141,468  $1,230,511  $(151,674,428) $997,013  $20,355   (144,206) $(4,066,610) $101,838,536 
Net income  -   -   -     �� -   20,019,734   -   3,487   -   -   20,023,221 
Share-based compensation for employee and director stock awards  -   -   -   90,793   -   -   -       -   -   90,793 
Common stock
issued to
employees and
directors for
stock awards		  16,667   17   -   (17)  -   -   -       -   -   - 
Foreign currency translation adjustment  -   -   -   -   -   -   243,341   (83)  -   -   243,258 
                                             
Balance as of September 30, 2021  88,555,390  $88,555  $14,101,689  $241,232,244  $1,230,511  $(131,654,694) $1,240,354  $23,759   (144,206) $(4,066,610) $122,195,808 


CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of changes in shareholders’ equity
For the nine months ended September 30, 2020 and 2021
(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  loss  interests  of shares  Amount  equity 
Balance as of January 1, 2020  53,220,902  $53,222   14,101,689  $180,208,610  $1,230,511  $(176,177,413) $(1,744,730) $52,777   (144,206) $(4,066,610) $13,658,056 
Net income (loss)  -   -   -       -   (3,512,949)  -   2,386   -   -   (3,510,563)
Share-based compensation for employee and director stock awards  -   -   -   615,871   -   -   -   -   -   -   615,871 
Common stock issued to employees and directors for stock awards  293,498   293   -   (293)  -   -   -   -   -   -   - 
Common stock issued to investors  11,779,496   11,779   -   5,688,753   -   -   -   -   -       5,700,532 
Foreign currency translation adjustment  -   -   -   -   -   -   576,282   (1,756)  -   -   574,526 
                                             
Balance as of September 30, 2020  65,293,896  $65,294  $14,101,689  $186,512,941  $1,230,511  $(179,690,362) $(1,168,448) $53,407   (144,206) $(4,066,610) $17,038,422 
                                             
Balance as of January 1, 2021  79,310,249  $79,310  $14,101,689  $225,278,113  $1,230,511  $(183,984,311) $(239,609) $7,735   (144,206) $(4,066,610) $52,406,828 
Net income  -   -   -       -   52,329,617   -   21,995   -   -   52,351,612 
Share-based compensation for employee and director stock awards  -   -   -   333,365   -   -   -   -   -   -   333,365 
Common stock issued to employees and directors for stock awards  305,165   305   -   (305)  -   -   -   -   -   -   - 
Issuance of
common stock
and warrants		  8,939,976   8,940   -   15,621,071   -   -   -   -   -       15,630,011 
Foreign currency translation adjustment  -   -   -   -   -   -   1,479,963   (5,971)  -   -   1,473,992 
                                             
Balance as of September 30, 2021  88,555,390  $88,555  $14,101,689  $241,232,244  $1,230,511  $(131,654,694) $1,240,354  $23,759   (144,206) $(4,066,610) $122,195,808 

CBAK Energy Technology, Inc. and subsidiaries

See accompanying notesNotes to the condensed consolidated financial statements.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

 

CBAK Energy Technology, Inc. and subsidiaries
Condensed consolidated statements of cash flows
For the nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

  Nine months ended
September 30,		 
  2020  2021 
Cash flows from operating activities      
Net (loss) income $(3,510,563) $52,351,612 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation and amortization  1,856,246   2,013,729 
Provision for doubtful debts  63,534   (437,475)
Write-down of inventories  724,156   663,041 
Share-based compensation  615,871   333,365 
Loss on disposal of property, plant and equipment  21,035   9,613 
Change in fair value of warrant liability  -   (57,174,000)
Impairment charge - Investment  -   690,585 
Amortization of operating lease right-of-use assets  -   290,051 
Changes in operating assets and liabilities:        
Trade accounts and bills receivable  (10,424,301)  8,062,046 
Inventories  4,388,522   (4,578,372)
Prepayments and other receivables  587,158   (2,191,300)
Trade accounts and bills payable  3,582,377   (7,632,763)
Accrued expenses and other payables  (317,352)  323,174 
Investment in sales-type lease  -   (717,138)
Operating lease liabilities  -   (715,150)
Trade receivable from and payables to former subsidiaries  4,454,118   (75,718)
Government grants   2,858,858    1,545,189 
Net cash provided by (used in) operating activities  4,899,659   (7,239,511)
         
Cash flows from investing activities        
Deposit paid for acquisition of a subsidiary  -   (8,316,787)
Purchase of non-marketable equity securities  -   (1,390,670)
Hitrans Loan  -   (20,248,061)
Purchases of property, plant and equipment and construction in progress  (2,033,349)  (17,548,901)
Net cash used in investing activities  (2,033,349)  (47,504,419)
         
Cash flows from financing activities        
Repayment of bank borrowings  (155,951)  (13,860,346)
Borrowings from unrelated parties  3,459,218   - 
Repayment of borrowings from unrelated parties  (5,660,539)  (399,715)
Repayment of borrowings from related parties  -   (185,985)
Borrowings from shareholders  268,733   - 
Repayment of borrowings from shareholders  (240,687)  - 
Proceeds from issuance of shares  -   65,495,011 
Net cash (used in) provided by financing activities  (2,329,226)  51,048,965 
Effect of exchange rate changes on cash and cash equivalents and restricted cash  231,403   569,994 
Net (decrease) increase in cash and cash equivalents and restricted cash  768,487   (3,124,971)
Cash and cash equivalents and restricted cash at the beginning of period  7,133,948   20,671,498 
Cash and cash equivalents and restricted cash at the end of period $7,902,435  $17,546,527 
         
Supplemental non-cash investing and financing activities:        
Transfer of construction in progress to property, plant and equipment $8,224,147  $3,556,965 
Non-cash payment for purchase of property, plant and equipment and construction in progress by new vehicles $-  $61,344 
         
Issuance of common stock (note 1):        
- offset repayment of promissory note $1,415,000  $- 
- offset payable to Shenzhen BAK (Sixth Debt) $4,285,532  $- 
         
Cash paid during the period for:        
Income taxes $-  $- 
Interest, net of amounts capitalized $783,159  $7,031 

See accompanying notes to the condensed consolidated financial statements.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(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.

 


 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

 

1.Principal Activities, Basis of Presentation and Organization (continued)

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 1,720,087 shares of common stock for gross proceeds of $17,000,000. In conjunction with this financing, Mr. Xiangqian Li, the Chairman and Chief Executive Officer of the Company (“Mr. Li”), agreed to place 435,910 shares of the Company’s common stock owned by him into an escrow account pursuant to an Escrow Agreement dated January 20, 2005 (the “Escrow Agreement”). Pursuant to the Escrow Agreement, 50% of the escrowed shares were to be released to the investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2005 was not at least $12,000,000, and the remaining 50% was to be released to investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2006 was not at least $27,000,000. If the audited net income of the Company for the fiscal years ended September 30, 2005 and 2006 reached the above-mentioned targets, the 435,910 shares would be released to Mr. Li in the amount of 50% upon reaching the 2005 target and the remaining 50% upon reaching the 2006 target.

 

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 217,955 escrow shares relating to the 2005 performance threshold were previously released to Mr. Li, Mr. Li executed a further undertaking on August 21, 2006 to return those shares to the escrow agent for the distribution to the relevant investors. However, such shares were not returned to the escrow agent, but, pursuant to a Delivery of Make Good Shares, Settlement and Release Agreement between the Company, BAK International and Mr. Li entered into on October 22, 2007 (the “Li Settlement Agreement”), such shares were ultimately delivered to the Company as described below. Because the Company failed to satisfy the performance threshold for the fiscal year ended September 30, 2006, the remaining 217,955 escrow shares relating to the fiscal year 2006 performance threshold were released to the relevant investors. As Mr. Li has not retained any of the shares placed into escrow, and as the investors party to the Escrow Agreement are only shareholders of the Company and do not have and are not expected to have any other relationship to the Company, the Company has not recorded a compensation charge for the years ended September 30, 2005 and 2006.

 

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 $7,955,358 respectively, as set out in the consolidated statements of changes in shareholders’ equity.

 

In November 2007, Mr. Li delivered the 217,955 shares related to the 2005 performance threshold to BAK International pursuant to the Li Settlement Agreement; BAK International in turn delivered the shares to the Company. Such shares (other than those issued to investors pursuant to the 2008 Settlement Agreements, as described below) are now held by the Company. Upon receipt of these shares, the Company and BAK International released all claims and causes of action against Mr. Li regarding the shares, and Mr. Li released all claims and causes of action against the Company and BAK International regarding the shares. Under the terms of the Li Settlement Agreement, the Company commenced negotiations with the investors who participated in the Company’s January 2005 private placement in order to achieve a complete settlement of BAK International’s obligations (and the Company’s obligations to the extent it has any) under the applicable agreements with such investors.

 

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.

 


 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

 

1.Principal Activities, Basis of Presentation and Organization (continued)

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 50% of the number of the escrow shares related to the 2005 performance threshold these investors had claimed; aggregate settlement payments as of June 30, 2015 amounted to 73,749 shares. Share payments to date have been made in reliance upon the exemptions from registration provided by Section 4(a)(2) and/or other applicable provisions of the Securities Act of 1933, as amended. In accordance with the 2008 Settlement Agreements, the Company filed a registration statement covering the resale of such shares which was declared effective by the SEC on June 26, 2008.

 

Pursuant to the Li Settlement Agreement, the 2008 Settlement Agreements and upon the release of the 217,955 escrow shares relating to the fiscal year 2006 performance threshold to the relevant investors, neither Mr. Li or the Company have any obligations to the investors who participated in the Company’s January 2005 private placement relating to the escrow shares.

 

As of September 30, 2021,2022, 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 217,955 shares related to the 2006 performance threshold to the relevant investors in fiscal year 2007 and the Company also have transferred 73,749 shares relating to the 2005 performance threshold to the investors who had entered the "2008“2008 Settlement Agreements"Agreements” with us in fiscal year 2008, pursuant to “Li Settlement Agreement” and “2008 Settlement Agreements”, neither Mr. Li nor the Company had any remaining obligations to those related investors who participated in the Company’s January 2005 private placement relating to the escrow shares.

 

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 $500,000. Pursuant to CBAK Trading’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Trading on or before August 14, 2015. On August 5, 2019, CBAK Trading’s registered capital was increased to $5,000,000. Pursuant to CBAK Trading’s amendment articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Trading on or before August 1, 2033. Up to the date of this report, the Company has contributed $2,435,000 to CBAK Trading in cash.

 

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 $30,000,000. Pursuant to CBAK Power’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Power on or before December 27, 2015. On March 7, 2017, the name of Dalian BAK Power Battery Co., Ltd was changed to Dalian CBAK Power Battery Co., Ltd (“CBAK Power”). On July 10, 2018, CBAK Power’s registered capital was increased to $50,000,000. On October 29, 2019, CBAK Power’s registered capital was further increased to $60,000,000. Pursuant to CBAK Power’s amendment articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Power on or before December 31, 2021. Up to the date of this report, theThe Company has contributed $60,000,000paid in full to CBAK Power through injection of a series of patents and cash.

 

On May 4, 2018, CBAK New Energy (Suzhou) Co., Ltd (“CBAK Suzhou”) was established as a 90% owned subsidiary of CBAK Power with a registered capital of RMB10,000,000 (approximately $1.5 million). The remaining 10% equity interest was held by certain employees of CBAK Suzhou. Pursuant to CBAK Suzhou’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 CBAK Suzhou’s articles of association and relevant PRC regulations, CBAK Power was required to contribute the capital to CBAK Suzhou on or before December 31, 2019. Up to the date of this report, the Company has contributed RMB9.0 million (approximately $1.3 million), and the other shareholders have contributed RMB1.0 million (approximately $0.1 million) to CBAK Suzhou through injection of a series of cash.  The Company plan to dissolve CBAK Suzhou in 2021. 

 

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 $50,000,000. Pursuant to CBAK Energy’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Energy on or before November 20, 2022. Up to the date of this report, the Company has contributed $23,519,972$23,519,880 to CBAK Energy. CBAK Energy will be focus on manufacture and sale of lithium batteries and lithium batteries’ materials.

 

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$1.00. BAK Asia Investments Limited is a holding company without any other business operations.

 

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 $100,000,000. Pursuant to CBAK Nanjing’s articles of association and relevant PRC regulations, BAK Investments was required to contribute the capital to CBAK Nanjing on or before July 29, 2040. On May 13, 2022, CBAK Nanjing’s registered capital was further increased to $200,000,000 with the same paid up date. Up to the date of this report, the Company has contributed $55,289,915 to CBAK Nanjing.

 


 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

CBAK Energy Technology, Inc. and subsidiaries

1.Principal Activities, Basis of Presentation and Organization (continued)

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 RMB700,000,000 (approximately $107$98 million). Pursuant to Nanjing CBAK’s articles of association and relevant PRC regulations, CBAK Nanjing was required to contribute the capital to Nanjing CBAK on or before August 5, 2040. Up to the date of this report, the Company has contributed RMB334,036,155RMB352,538,138 (approximately $51.3$49.5 million) to Nanjing CBAK through injection of a series of cash and machines.

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 RMB50,000,000 (approximately $7.6$7.0 million). Up to the date of this report, the Company has contributed RMB16,416,000RMB37,000,000 (approximately $2.54$5.2 million) to Nanjing Daxin. On January 18, 2021, Nanjing Daxin established a branch in Tianjin City.

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 $1.4 million (RMB9,000,000) to acquire 9.74% of the equity interests of DJY. CBAK Power has appointed one director to the Board of Directors of DJY. DJY is an unrelated third party of the Company engaging in researching and manufacturing of raw materials and equipment.

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 30,000,000 (approximately $4.7 million). Pursuant to Jiangsu Daxin’s articles of association and relevant PRC regulations, Nanjing Daxin was required to contribute the capital to Jiangsu Daxin on or before July 30, 2061. Up to the date of this report the Company has contributed nilRMB11,584,000 (approximately to $1.7 million) to Jiangsu Daxin.

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 81.56% of registered equity interests (representing 75.57% of paid-up capital)of Hitrans (the “Acquisition”). The Acquisition was completed on November 26, 2021 (Note 11).

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. (“Haisheng”) was established as a wholly owned subsidiary of Hitrans with a register capital of RMB5 million (approximately $0.8 million). Pursuant to Haisheng’s articles of association and relevant PRC regulations, Hitrans was required to contribute the capital to Haisheng on or before May 31, 2025. Up to the date of this report, Hitrans has contributed RMB3.5 million (approximately $0.5 million) to Haisheng.


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, Nanjing CBAK, along with two unrelated third parties of the Company, Guangxi Guiwu Recycle Resources Company Limited (“Guangxi Guiwu”) and Mr. Weidong Xu to 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 20%, 60% and 20% equity interests and voting rights, respectively. Guangxi Guiwu engages in the business of recycling power batteries. The Company applies the equity method of accounting to account for the equity investments in common stock, over which it has significant influence but does not own a majority equity interest or otherwise control. Pursuant to the Company’s articles of association and relevant PRC regulations, each party was required to contribute the capital on or before December 31, 2023. As of September 30, 2022 and current, Nanjing CBAK, Guanxi Guiwu and Mr. Weidong have had paid $0.3 million (RMB2 million), $0.8 million (RMB6 million) and $0.3 million (RMB2 million), respectively. Guangxi Guiwu CBAK has not commenced operations as of the date of the approval of this report.

The Company’s condensed consolidated financial statements have been prepared under US GAAP.

These condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these condensed consolidated financial statements, which are of a normal and recurring nature, have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The following (a) condensed consolidated balance sheet as of December 31, 2020, which was derived from the Company’s audited financial statements, and (b) the unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to those rules and regulations, though the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying footnotes of the Company for the year ended December 31, 2020 filed with the SEC on April 13, 2021.

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.

After the disposal of BAK International Limited and its subsidiaries, namely Shenzhen BAK, Shenzhen BAK Power Battery Co., Ltd (formerly BAK Battery (Shenzhen) Co., Ltd.) (“BAK Shenzhen”), BAK International (Tianjin) Ltd. (“BAK Tianjin”), Tianjin Chenhao Technological Development Limited (a subsidiary of BAK Tianjin established on May 8, 2014, “Tianjin Chenhao”), BAK Battery Canada Ltd. (“BAK Canada”), BAK Europe GmbH (“BAK Europe”) and BAK Telecom India Private Limited (“BAK India”), effective on June 30, 2014, and as of September 30, 2021,2022, the Company’s subsidiaries consisted of: i) China BAK Asia Holdings Limited (“BAK Asia”), a wholly owned limited liability company incorporated in Hong Kong on July 9, 2013; ii) Dalian CBAK Trading Co., Ltd. (“CBAK Trading”), a wholly owned limited company established on August 14, 2013 in the PRC; iii) Dalian CBAK Power Battery Co., Ltd. (“CBAK Power”), a wholly owned limited liability company established on December 27, 2013 in the PRC; and iv) CBAK New Energy (Suzhou) Co., Ltd. (“CBAK Suzhou”), a 90% owned limited liability company established on May 4, 2018 in the PRC,PRC; (v) Dalian CBAK Energy Technology Co,Co., Ltd (“CBAK Energy”), a wholly owned limited liability company established on November 21, 2019 in the PRC,PRC; (vi) BAK Asia Investments Limited (“BAK Investments”), a wholly owned limited liability company incorporated in Hong Kong acquired on July 14, 2020,2020; (vii) CBAK New Energy (Nanjing) Co., Ltd. (“CBAK Nanjing”), a wholly owned limited liability company established on July 31, 2020 in the PRC andPRC; (viii) Nanjing CBAK New Energy Technology Co., Ltd, (“Nanjing CBAK”), a wholly owned limited liability company established on August 6, 2020 in the PRC; (ix) Nanjing Daxin New Energy Automobile Industry Co., Ltd (“Nanjing Daxin”), a wholly owned limited liability company established on November 9, 2020 in the PRC; (iix)2020; (x) Daxin New Energy Automobile Technology ( Jiangsu) Co., Ltd (“Jiangsu Daxin”), a wholly owned limited liability company established on August 4, 2021 in the PRC; (xi) Zhejiang Hitrans Lithium Battery Technology Co., Ltd (“Hitrans”), a 74.15% registered equity interests (representing 74.72% of paid-up capital) owned limited liability company established on December 16, 2015 in the PRC; (xii) Guangdong Meidu Hitrans Resources Recycling Technology Co., Ltd., a 59.32% owned limited liability company established on July 6, 2018 in the PRC and (xiii) Shaoxing Haisheng International Trading Co., Ltd. (“Haisheng”), a 74.15% registered equity interests (representing 74.72% of paid-up capital ) owned limited liability company established on October 9, 2021 in the PRC.

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 Tianjin and BAK Shenzhen areis now supplierscustomer of the Company until September 2016 when BAK Tianjin ceased production, and the Company does not have any significant benefits or liability from the operating results of BAK Tianjin and BAK Shenzhen except the normal risk with any major supplier.Hitrans.


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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)

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 and effective March 1, 2016, Mr. Xiangqian Li resigned as Chairman, director, Chief Executive Officer, President and Secretary of the Company. On the same date, the Board of Directors of the Company appointed Mr. Yunfei Li as Chairman, Chief Executive Officer, President and Secretary of the Company. On March 4, 2016, Mr. Xiangqian Li transferred 3,000,000 shares to Mr. Yunfei Li for a price of $2.4 per share. After the share transfer, Mr. Yunfei Li held 3,000,000 shares or 17.3% and Mr. Xiangqian Li held 760,557 shares at 4.4% of the Company’s outstanding stock, respectively. As of September 30, 2021, Mr. Yunfei Li held 10,852,539 shares or 12.3% of the Company’s outstanding stock, and Mr. Xiangqian Li held none of the Company’s outstanding stock.

The Company had an accumulated deficit from recurring losses from operations and short-term debt obligations as of December 31, 2020 and September 30, 2021. As of December 31, 2020, the Company has a working capital deficiency of $10.5 million. These factors raise substantial doubts about the Company’s ability to continue as a going concern.

In June and July 2015, the Company received advances of approximately $9.8 million from potential investors. On September 29, 2015, the Company entered into a Debt Conversion Agreement with these investors. Pursuant to the terms of the Debt Conversion Agreement, each of the creditors agreed to convert existing loan principal of $9,847,644 into an aggregate 4,376,731 shares of common stock of the Company (“the Shares”) at a conversion price of $2.25 per share. Upon receipt of the Shares on October 16, 2015, the creditors released the Company from all claims, demands and other obligations relating to the debts. As such, no interest was recognized by the Company on the advances from investors pursuant to the supplemental agreements with investors and the Debt Conversion Agreement.

In June 2016, the Company received further advances in the aggregate of $2.9 million from Mr. Jiping Zhou and Mr. Dawei Li. These advances were unsecured, non-interest bearing and repayable on demand. On July 8, 2016, the Company received further advances of $2.6 million from Mr. Jiping Zhou. On July 28, 2018, the Company entered into securities purchase agreements with Mr. Jiping Zhou and Mr. Dawei Li to issue and sell an aggregate of 2,206,640 shares of common stock of the Company, at $2.5 per share, for an aggregate consideration of approximately $5.52 million. On August 17, 2016, the Company issued these shares to the investors.

On February 17, 2017, the Company signed investment agreements with eight investors (including Mr. Yunfei Li, the Company’s CEO, and seven of the Company’s existing shareholders) whereby the investors agreed to subscribe new shares of the Company totaling $10 million. Pursuant to the investment agreements, in January 2017, the 8 investors paid the Company a total of $2.06 million as down payments. Mr. Yunfei Li agrees to subscribe new shares of the Company totaled $1,120,000 and paid the earnest money of $225,784 in January 2017. On April 1, April 21, April 26 and May 10, 2017, the Company received $1,999,910, $3,499,888, $1,119,982 and $2,985,497 from the 8 investors, respectively. On May 31, 2017, the Company entered into a securities purchase agreement with these investors, pursuant to which the Company agreed to issue an aggregate of 6,403,518 shares of common stock to these investors, at a purchase price of $1.50 per share, for an aggregate price of $9.6 million, among which 746,018 shares issued to Mr. Yunfei Li. On June 22, 2017, the Company issued the shares to the investors.

In 2019, according to the investment agreements and agreed by the investors, the Company returned partial earnest money of $966,579 (approximately RMB6.7 million) to these investors.

On January 7, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $3.4 million (RMB23,980,950) and $1.7 million (RMB11,647,890) (totaled $5.0 million, the “First Debt”) to Mr. Dawei Li and Mr. Yunfei Li, respectively.

On January 7, 2019, the Company entered into a cancellation agreement with Mr. Dawei Li and Mr. Yunfei Li. Pursuant to the terms of the cancellation agreement, Mr. Dawei Li and Mr. Yunfei Li agreed to cancel the First Debt in exchange for 3,431,373 and 1,666,667 shares of common stock of the Company, respectively, at an exchange price of $1.02 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the First Debt.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

1.Principal Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

On April 26, 2019, each of Mr. Jun Lang, Ms. Jing Shi and Asia EVK Energy Auto Limited (“Asia EVK”) entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $0.3 million (RMB2,225,082), $0.1 million (RMB 912,204) and $5.3 million (RMB35,406,036) (collectively $5.7 million, the “Second Debt”) to Mr. Jun Lang, Ms. Jing Shi and Asia EVK, respectively.

On April 26, 2019, the Company entered into a cancellation agreement with Mr. Jun Lang, Ms. Jing Shi and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, the creditors agreed to cancel the Second Debt in exchange for 300,534, 123,208 and 4,782,163 shares of common stock of the Company, respectively, at an exchange price of $1.1 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Second Debt.

On June 28, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power to loans approximately $1.4 million (RMB10,000,000) and $2.6 million (RMB18,000,000) respectively to CBAK Power for a term of six months (collectively $4.0 million, the “Third Debt”). The loan was unsecured, non-interest bearing and repayable on demand.

On July 16, 2019, each of Asia EVK and Mr. Yunfei Li entered into an agreement with CBAK Power and Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. (the Company’s construction contractor) whereby Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. assigned its rights to the unpaid construction fees owed by CBAK Power of approximately $2.8 million (RMB20,000,000) and $0.4 million (RMB2,813,810) (collectively $3.2 million, the “Fourth Debt”) to Asia EVK and Mr. Yunfei Li, respectively.

On July 26, 2019, the Company entered into a cancellation agreement with Mr. Dawei Li, Mr. Yunfei Li and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Dawei Li, Mr. Yunfei Li and Asia EVK agreed to cancel the Third Debt and Fourth Debt in exchange for 1,384,717, 2,938,067 and 2,769,435 shares of common stock of the Company, respectively, at an exchange price of $1.05 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Third Debt and Fourth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

On July 24, 2019, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note 1”) to the Lender. The Note has an original principal amount of $1,395,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,250,000 after an original issue discount of $125,000 and payment of Lender’s expenses of $20,000.

On October 10, 2019, each of Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen entered into an agreement with CBAK Power and Zhengzhou BAK New Energy Vehicle Co., Ltd. (the Company’s supplier of which Mr. Xiangqian Li, the former CEO, is a director of this company) whereby Zhengzhou BAK New Energy Vehicle Co., Ltd. assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $2.1 million (RMB15,000,000), $1.0 million (RMB7,380,000) and $1.0 million (RMB7,380,000) (collectively $4.2 million, the “Fifth Debt”) to Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen, respectively.

On October 14, 2019, the Company entered into a cancellation agreement with Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen agreed to cancel and convert the Fifth Debt and the Unpaid Earnest Money of approximately $1 million (RMB6,720,000) in exchange for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of $0.6 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Fifth Debt and the Unpaid Earnest Money. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

1.Principal Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

On December 30, 2019, the Company entered into a second securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note II”) to the Lender. The Note II has an original principal amount of $1,670,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,500,000 after an original issue discount of $150,000 and payment of Lender’s expenses of $20,000.

On January 27, 2020, the Company entered into an exchange agreement (the “First Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 160,256 shares of the Company’s common stock, par value $0.001 per share to the Lender.

On February 20, 2020, the Company entered into a second exchange agreement (the “Second Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 207,641 shares of the Company’s common stock, par value $0.001 per share to the Lender.

On April 10, 2020, each of Mr. Yunfei Li, Mr. Ping Shen and Asia EVK entered into an agreement with CBAK Power and Shenzhen BAK, whereby Shenzhen BAK assigned its rights to the unpaid inventories cost (note 6) owed by CBAK Power of approximately $1.0 million (RMB7,000,000), $2.3 million (RMB16,000,000) and $1.0 million (RMB7,300,000) (collectively $4.3 million, the “Sixth Debt”) to Mr. Yunfei Li, Mr. Ping Shen and Asia EVK, respectively.

On April 27, 2020, the Company entered into a cancellation agreement with Mr. Yunfei Li, Mr. Ping Shen and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Yunfei Li, Mr. Ping Shen and Asia EVK agreed to cancel the Sixth Debt in exchange for 2,062,619, 4,714,557 and 2,151,017 shares of common stock of the Company, respectively, at an exchange price of $0.48 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Sixth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

On April 28, 2020, the Company entered into a third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company’s common stock, par value $0.001 per share to the Lender.

On June 8, 2020, the Company entered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to the Lender.

On June 10, 2020, the Company entered into a Fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 407,609 shares of the Company’s common stock, par value $0.001 per share to the Lender.

On July 6, 2020, the Company entered into a Sixth exchange agreement (the “Sixth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 461,595 shares of the Company’s common stock, par value $0.001 per share to the Lender.

On July 8, 2020, the Company entered into a First exchange agreement for Note II (the “First Exchange Agreement- Note II”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on December 30, 2019, which has an original principal amount of $1,670,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 453,161 shares of the Company’s common stock, par value $0.001 per share to the Lender.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

1.Principal Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

On July 29, 2020, the Company entered into a Seventh exchange agreement (the “Seventh Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $365,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 576,802 shares of the Company’s common stock, par value $0.001 per share to the Lender.

On October 12, 2020, the Company entered into an Amendment to Promissory Notes (the “Amendment”) with Atlas Sciences, LLC (the Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding the foregoing, in no event will the Conversion Price be less than $1.00.

According to the Amendment, on October 13, 2020, the Company exchange $230,000 in principal and $141,275 coupon interest under the Note I and $775,000 principal under the Note II for the issuance of 229,750 and 479,579 shares of the Company’s common stock, par value $0.001 per share to the Lender, respectively.

On October 20, 2020, the Company further exchange $645,000 in principal and $133,252 coupon interests under Note II for the issuance of 329,768 shares of the Company’s common stock, par value $0.001 per share to the Lender. Up to the date of this report, the Company has fully repaid the principal and coupon interests of Note I and Note II.

On November 5, 2020, each of Tillicum Investment Company Limited, an unrelated party, entered into an agreement with CBAK Nanjing and Shenzhen ESTAR Industrial Company Limited, whereby Shenzhen ESTAR Industrial Company Limited assigned its rights to the unpaid equipment cost owed by CBAK Nanjing of approximately $11.17 million (RMB75,000,000) (the “Seventh Debt”) to Tillicum Investment Company Limited.

On November 11, 2020, the Company entered into a cancellation agreement with Tillicum Investment Company Limited (the “creditor”). Pursuant to the terms of the cancellation agreement, Tillicum Investment Company Limited agreed to cancel the Seventh Debt in exchange for 3,192,291 shares of common stock of the Company, at an exchange price of $3.5 per share. Upon receipt of the shares, the creditor released the Company from any claims, demands and other obligations relating to the Seventh Debt. The cancellation agreement contains customary representations and warranties of the creditor. The creditor does not have registration rights with respect to the shares.

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, 2021,2022, the Company had nil$17.6 million bank loans and approximately $38.9$97.2 million of other current liabilities (excluding warrants derivative liability).

The Company is currently expanding its product lines and manufacturing capacity in its Dalian Nanjing and NanjingZhejiang 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.

However, there can be no assurance thatCOVID-19

The World Health Organization declared the Company will be successful in obtaining further financing. The Company expects that it will be able to secure more potential orders from the new energy market, especially from the electric car market. The Company believes that with the booming future market demand in high power lithium ion products, it can continuenovel coronavirus (“COVID-19”) outbreak as a going concernpandemic 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 return to profitability.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 operatecontinue as a going concern. The Company’s plan for continuing as a going concern which contemplatesincluded 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 realization of assets and the settlement of liabilitiesCompany will be successful in the normal course of business. Theplans 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 reflect the possible future effects on the recoverability and classification of assets or therecorded asset amounts and classification of liabilities that may result frommight be necessary should the outcome of this uncertainty related to the Company’s abilityCompany be unable to continue as a going concern.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

1.Principal Activities, Basis of Presentation and Organization (continued)

Revenue Recognition

 

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.

 


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 December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company applied the new standard beginning January 1, 2021. The adoption of ASU 2019-12 did not have any impact on the Company’s condensed consolidated financial statement presentation or disclosures.

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s condensed consolidated financial statement presentation or disclosures.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), 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. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is 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.The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

 

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.


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 condensed consolidated financial statements upon adoption.

 

2. Pledged deposits


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

2.Pledged deposits

 

Pledged deposits as of December 31, 20202021 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, 
  2020  2021 
Pledged deposits with bank for:      
Bills payable $8,791,499  $15,552,996 
Others*  198,249   - 
  $8,989,748  $15,552,996 
  December 31,  September 30, 
  2021  2022 
Trade receivable $48,707,457  $24,519,211 
Less: Allowance for doubtful accounts  (4,618,269)  (4,188,159)
   44,089,188   20,331,052 
Bills receivable  5,817,941   1,571,128 
  $49,907,129  $21,902,180 

 

In November 2019, CBAK Suzhou received notice from Court of Suzhou city that Suzhou Industrial Park Security Service Co., Ltd (“Suzhou Security”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $21,672 (RMB139,713), including services expenses amount of $21,547 (RMB138,908) and interest of $125 (RMB805). Upon the request of Suzhou Security for property preservation, the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB150,000) for a period of one year. As of December 31, 2020, $5,062 (RMB33,048) was frozen by bank. CBAK Power settled the amount due in July 2021, and the frozen bank deposits were then released.

On March 20, 2020, CBAK Power received notice from Court of Nanpi County, Hebei Province that Cangzhou Huibang Engineering Manufacturing Co., Ltd (“Cangzhou Huibang”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.31 million (RMB2,029,594), including materials purchase cost of $0.3 million (RMB1,932,947), and interest of $14,804 (RMB96,647). As of December 31, 2020, the Company has accrued materials purchase cost of $0.3 million (RMB1,932,947). Upon the request of Cangzhou Huibang for property preservation, the Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $0.4 million (RMB2,650,000) for a period of two year to March 2, 2022. As of December 31, 2020, $18,518 (RMB120,898) was frozen by bank. In March 2021, CBAK Power had made full payment and bank deposit was released.

In February 2020, CBAK Power received notice from Court of Zhuanghe that Dongguan Shanshan Battery Material Co., Ltd (“Dongguan Shanshan”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Dongguan Shanshan sought a total amount of $0.7 million (RMB4,434,209). Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.7 million (RMB4,434,209) for a period of one year to December 17, 2020. In July 2020, CBAK Power and Dongguan Shanshan have come to a settlement amount of $0.6 million (RMB3,635,192) and the bank deposit was then released. In October 2020, CBAK Power fail to pay according to the settlement, Dongguan Shanshan sought a total amount of $0.6 million (RMB3,635,192). Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.6 million (RMB3,365,192) for a period of one year to October 21, 2021. As of December 31, 2020, $55,230 (RMB360,576) was frozen by bank. In late February 2021, CBAK Power and Dongguan Shanshan entered into a settlement agreement that CBAK would pay $260,393, $76,586, $76,586, $76,586, and $32,088 (RMB1,700,000, RMB500,000, RMB500,000, RMB500,000 and RMB209,487) by March 5, March 31, April 30, May 31 and June 30, 2021, respectively, and after the first payment of RMB 1,700,000 by March 5, 2021, Dongguan Shanshan would release all the enforcement measures against CBAK Power. CBAK Power had made full payment on time and the bank deposit was then release.

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Nanjing Jinlong Chemical Co., Ltd. (“Nanjing Jinlong”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Nanjing Jinlong sought a total amount of $125,443 (RMB822,000). Upon the request of Nanjing Jinlong for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits totaling $125,443 (RMB822,000) for a period of one year. As of December 31, 2020, $16 (RMB107) was frozen by bank and the Company had accrued the material purchase cost of $125,443 (RMB822,000). In April 2021, CBAK Power has mad full settlement to Nanjing Jinlong and the property preservation was then released.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

2.Pledged deposits (continued)

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Xi’an Anpu New Energy Technology Co. LTD (“Xi’an Anpu”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the equipment purchase contract. Xi’an Anpu sought a total amount of $129,270 (RMB843,954), including $117,636 (RMB768,000) for equipment cost and $11,634 (RMB75,954) for liquidated damages. Upon the request of Xi’an Anpu for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits $0.1 million (RMB843,954) for a period to May 11, 2021. As of December 31, 2020, $98,284 (RMB641,656) was frozen by bank. The property preservation was released on February 25, 2021 upon CBAK Power settlement.

In May 2020, CBAK Power received notice from Court of Wuqing District, Tianjin that Tianjin Changyuan Electric Material Co., Ltd (“Tianjin Changyuan”) filed lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. The plaintiff sought a total amount of $13,040 (RMB85,136), including material cost of $12,166 (RMB79,429) and interest of $874 (RMB5,707). In July, 2020, upon the request of the plaintiff for property preservation, the Court of Wuqing District, Tianjin ordered to freeze CBAK Power’s bank deposits totaling $13,041 (RMB85,136) for a period of one year. As of December 31, 2020, $13,041 (RMB85,136) was frozen by bank. CBAK Power had made full payment in March, 2021 and the property preservation was then released.

In October 2020, CBAK Power received a notice from Court of Dalian Economic and Technology Development Zone that Jiuzhao New Energy Technology Co., Ltd. (“Jiuzhao”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of certain purchase contract. Jiuzhao sought a total amount of $0.9 million (RMB6.0 million), including material cost of $0.9 million (RMB5,870,267) and interest of $19,871 (RMB129,732). Upon the request of the plaintiff for property preservation, the Court of Dalian Economic and Technology Development Zone, Jiuzhao ordered to freeze CBAK Power’s bank deposits totaling $0.9 million (RMB6.0 million) for a period to September 17, 2021. As of December 31, 2020, $5,874 (RMB38,346) was frozen by bank. CBAK Power has fully paid off the debts to Jiuzhao, and the frozen bank deposits were released in April 2021.

In October 2019, CBAK Power received notice from Court of Changshou District, Chongqing that Chongqing Zhongrun Chemistry Co., Ltd (“Chongqing Zhongrun”) filed arbitration claims against the Company for failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.4 million (RMB2,484,948), including material cost of $0.4 million (RMB2,397,660) and interest of $13,370 (RMB87,288). On October 31, 2019, CBAK Power and Chongqing Zhongrun reached an agreement that CBAK Power would pay the material cost by the end of December 31, 2019. In 2020, CBAK Power had paid $198,144 (RMB1,293,600). In August 2020, upon the request of Chongqing Zhongrun for property preservation, the Court of Changshou District ordered to freeze CBAK Power’s bank deposits totaling $0.2 million (RMB1,249,836) for a period of one year to August 2021. As of December 31, 2020, the Company has accrued the remaining material purchase cost of $0.2 million (RMB1,104,007) and $2,224 (RMB14,521) was frozen by bank. The property preservation was released in March, 2021 upon CBAK Power settlement.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

3.Trade Accounts and Bills Receivable, net

Trade accounts and bills receivable as of December 31, 2020 and September 30, 2021 consisted of the following:

  December 31,  September 30, 
  2020  2021 
Trade accounts receivable $33,305,997  $26,874,297 
Less: Allowance for doubtful accounts  (5,266,828)  (4,894,614)
   28,039,169   21,979,683 
Bills receivable  1,532,105   251,759 
  $29,571,274  $22,231,442 

Included in trade accounts and bills receivables are retention receivables of $1,896,068$1,944,034 and $1,897,891$1,726,491 as of December 31, 20202021 and September 30, 2021.2022. Retention receivables are interest-free and recoverable either at the end of the retention period of three to five years since the sales of the EV batteries or 200,000 km since the sales of the motor vehicles (whichever comes first).

An analysis of the allowance for doubtful accounts is as follows:

 

 September 30, September 30,  September 30, September 30, 
 2020  2021  2021  2022 
Balance at beginning of period $4,650,686  $5,266,828  $5,266,828  $4,618,269 
Provision for the period  981,241   -   -   205,387 
Reversal - recoveries by cash  (917,707)  (437,475)  (437,475)  (136,736)
Charged to consolidated statements of operations and comprehensive (loss) income  63,534   (437,475)
Charged to consolidated statements of operations and comprehensive income (loss)  (437,475)  68,651 
Foreign exchange adjustment  120,420   65,261   65,261   (498,761)
Balance at end of period $4,834,640  $4,894,614  $4,894,614  $4,188,159 

4.Inventories

4. Inventories

Inventories as of December 31, 20202021 and September 30, 20212022 consisted of the following:

 

 December 31, September 30,  December 31, September 30, 
 2020  2021  2021  2022 
Raw materials $757,857  $2,820,938  $11,323,638  $7,359,155 
Work in progress  2,338,342   3,597,165   8,093,002   14,137,116 
Finished goods  2,156,646   2,831,352   10,716,700   31,213,597 
 $5,252,845  $9,249,455  $30,133,340  $52,709,868 

During the three months ended September 30, 20202021 and 2021,2022, write-downs of inventories to lower of cost or net realizable value of $267,117$324,984 and $324,984,$278,603, respectively, were charged to cost of revenues.

During the nine months ended September 30, 20202021 and 2021,2022, write-downs of inventories to lower of cost or net realizable value of $724,156$663,041 and $663,041,$1,177,891, respectively, were charged to cost of revenues.

5.Prepayments and Other Receivables

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, 20202021 and September 30, 2021 consisted of the following:

  December 31,  September 30, 
  2020  2021 
Value added tax recoverable $4,524,475  $5,016,628 
Loan receivables *  1,358,637   - 
Prepayments to suppliers  424,311   2,831,442 
Deposits  17,385   3,226 
Staff advances  67,867   79,380 
Prepaid operating expenses  529,401   766,274 
Others  524,468   1,025,628 
   7,446,544   9,722,578 
Less: Allowance for doubtful accounts  (7,000)  (7,000)
  $7,439,544  $9,715,578 

*Nanjing CBAK entered into a loan agreement with Shen Zhen Asian Plastics Technology Co., Ltd (SZ Asian Plastics), to loan SZ Asian Plastics a total amount of $1.4 million (RMB8,870,000) for a period of 6 months from December 1, 2020 to May 31, 2021. The loan was unsecured and bearing fixed interest at 6% per annum. The Company’s shareholder Mr. Jiping Zhao, holding 2.39% equity interest in the Company, at the same time held 79.13% equity interests in SZ Asian Plastics. In March 2021, SZ Asian Plastics has fully repaid the loan principal.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

6.Acquisition of a subsidiary and Hitrans Loan

  December 31,  September 30, 
  2020  2021 
Deposits paid for acquisition of a subsidiary $          -  $8,349,118 

  December 31,  September 30, 
  2020  2021 
Hitrans Loan $                 -  $20,326,775 

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 Zhejiang Hitrans Lithium Battery Technology Co., Ltd (“Hitrans”, formerly known as Zhejinag MeiduHitrans Lithium Battery Technology Co., Ltd). Juzhong Daxin is the trustee of 85% of equity interests of Hitrans and has the voting right and right to dividend over the 85% of equity interests. Subject to definitive acquisition agreements to be entered into among the parties, including shareholders owning the 85% of equity interests of Hitrans, CBAK Power intends to acquire 85% of equity interests of Hitrans in cash in 2021. CBAK Power has paid $3.10 million (RMB20,000,000) to Juzhong Daxin as a security deposit in April 2021. Hitrans is an unrelated third party of the Company engaging in researching, manufacturing and trading of raw materials and is one of the major suppliers of the Company in fiscal 2020.

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 81.56% of the equity interests of Hitrans (the “Acquisition Agreement”). Under the Acquisition Agreement, CBAK Power will acquire 60% ownership of Hitrans from Zhejiang Meidu Graphene Technology Co., Ltd. (“Meidu Graphene”) valued at RMB118 million ($18.30 million) and 21.56% ownership of Hitrans from Hitrans’s management shareholders valued at approximately RMB40.74 million ($6.32 million). Two individuals among Hitrans management shareholders, including Hitrans’s CEO, Mr. Haijun Wu (“Mr. Wu”), will keep 2.50% ownership of Hitrans and New Era Group Zhejiang New Energy Materials Co., Ltd. (“New Era”) will continue to hold 15% ownership of Hitrans after the acquisition.

As of the date of the Acquisition Agreement, the 25% ownership of Hitrans held by Hitrans management shareholders was frozen as a result of a litigation arising from the default by Hitrans management shareholders on debts borrowed from Zhejiang Meidu Pawn Co., Ltd. (“Pawn Co.”) whereby the 25% ownership of Hitrans was pledged as collateral. Mr. Junnan Ye (“Mr. Ye”), acting as an intermediary, will first acquire 22.5% ownership of Hitrans, free of any encumbrances, from Hitrans management shareholders. Pursuant to the Acquisition Agreement, within five days of CBAK Power’s obtaining 21.56% ownership of Hitrans from Mr. Ye, CBAK Power will pay approximately RMB40.74 million ($6.32 million) in cash, which amount shall be used toward the repayment of debts due to Pawn Co. On July 23, 2021, CBAK Power paid RMB40.74 million (approximately $6.32 million) in cash to Mr. Ye.

In addition, as of the date of the Acquisition Agreement, Meidu Graphene’s 60% ownership of Hitrans was frozen as a result of a litigation arising from Hitrans’s failure to make payments to New Era in connection with the purchase of land use rights, plants, equipment, pollution discharge permit and other assets (the “Assets”) under certain asset transfer agreements as well as Meidu Graphene’s guarantee for Hitrans’s payment obligations thereunder. As a part of the transaction, CBAK Power entered into a loan agreement with Hitrans to lend Hitrans approximately RMB131 million ($20.32 million) (the “Hitrans Loan”) by remitting approximately RMB131 million ($20.32 million) into the account of Shaoxing Intermediate People’s Court (the “Court”) to remove the freeze on Meidu Graphene’s 60% ownership of Hitrans. Moreover, Juzhong Daxin will return RMB15 million ($2.33 million) of the security deposit to CBAK Power before CBAK Power wires approximately RMB131 million ($20.32 million) to the Court and will retain RMB5 million ($0.78 million) as commission for facilitating the acquisition. As of September 30, 2021, Juzhong Daxin returned RMB7 million ($1.1 million) of the security deposit to CBAK Power.

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 60% ownership of Hitrans, free of any encumbrances, from Meidu Graphene. Thereafter, CBAK Power will assign RMB118 million ($18.30 million) of the Hitrans Loan to Mr. Junnan Ye as consideration for the acquisition of 60% ownership of Hitrans from Mr. Ye (the “Assignment”). Hitrans shall repay RMB118 million ($18.27 million) to Mr. Ye in accordance with a separate loan repayment agreement (the “Loan Repayment Agreement”) to be entered into among Mr. Ye, Hitrans, CBAK Power and Mr. Wu. Under the Loan Repayment Agreement, Hitrans shall repay Mr. Ye at least RMB70 million ($10.86 million) within two months of obtaining the title to the Assets from New Era and the remaining balance by December 31, 2021, with a fixed interest of RMB3.5 million ($0.54 million) which can be reduced by up to RMB1 million ($0.15 million) if the loan is settled before its due date. CBAK Power provides guarantee to Mr. Ye on Hitrans’s repayment obligations under the Loan Repayment Agreement. Hitrans shall repay the remaining approximately RMB13 million ($2.02 million) of the Hitrans Loan to CBAK Power at an interest rate of 6% per annum, maturing in one year from the date of the Assignment. For the three and nine months ended September 30, 2021, the Company recorded interest income of $19,890.

As of the date of this report, the transfer of 81.56% ownership of Hitrans to CBAK Power has been registered with the local government and CBAK Power has paid approximately RMB40.74 million (approximately $6.32 million) in cash to Mr. Ye. In addition, CBAK Power has wired approximately RMB131 million (approximately $20.32 million) to the Court and Juzhong Daxin returned RMB7 million ($1.1 million) of the security deposit to CBAK Power.. CBAK Power expects to close the acquisition of 81.56% ownership of Hitrans upon the satisfaction of all closing conditions in the Acquisition Agreement, including that Hitrans obtains the title to all the assets.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

7.Payables to Former Subsidiaries, net

Payable to former subsidiaries, net as of December 31, 2020 and September 30, 20212022 consisted of the following:

 

  December 31,  September 30, 
  2020  2021 
BAK Tianjin $29,852  $7,970 
BAK Shenzhen  597,138   353,904 
  $626,990  $361,874 

Balance as of December 31, 2020 and September 30, 2021 consisted of payables for purchase of inventories from BAK Tianjin and BAK Shenzhen. 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.

The above balance is unsecured and non-interest bearing and repayable on demand.

  December 31,  September 30, 
  2021  2022 
Value added tax recoverable $7,144,712  $4,072,035 
Prepayments to suppliers  4,663,431   211,360 
Deposits  75,179   75,334 
Staff advances  122,531   63,190 
Prepaid operating expenses  683,648   700,943 
Others  64,489   341,670 
   12,753,990   5,464,532 
Less: Allowance for doubtful accounts  (7,000)  (7,000)
  $12,746,990  $5,457,532 

 

8.Property, Plant and Equipment, net

6. Property, Plant and Equipment, net

 

Property, plant and equipment as of December 31, 20202021 and September 30, 20212022 consisted of the following:

 

 December 31, September 30, 
 2020  2021  December 31,
2021		  September 30,
2022		 
Buildings $28,150,137  $28,531,939  $48,418,782  $40,796,906 
Leasehold Improvements  5,543,792   5,057,194 
Machinery and equipment  32,753,952   33,979,680   58,899,248   68,511,294 
Office equipment  258,458   467,293   1,200,758   1,133,481 
Motor vehicles  197,790   330,801   486,570   379,318 
Leasehold improvements  -   1,216,573 
  61,360,337   64,526,286   114,549,150   115,878,193 
Impairment  (8,980,020)  (9,063,579)  (9,194,132)  (8,079,718)
Accumulated depreciation  (11,339,947)  (13,412,118)  (15,312,245)  (19,643,898)
Carrying amount $41,040,370  $42,050,589  $90,042,773  $88,154,577 

 

During the three months ended September 30, 20202021 and 2021,2022, the Company incurred depreciation expense of $695,950$604,201 and $604,201,$2,397,857, respectively

 

During the nine months ended September 30, 20202021 and 2021,2022, the Company incurred depreciation expense of $1,838,357$1,993,929 and $1,993,929,$6,718,591, respectively

 

The Company has not yet obtained the property ownership certificates of the buildings in its Dalian manufacturing facilities with a carrying amount of $24,611,468$7,548,239 and $24,349,395$6,626,701 as of December 31, 20202021 and September 30, 2021,2022, respectively. The Company built its facilities on the land for which it had already obtained the related land use right. The Company has submitted applications to the Chinese government for the ownership certificates on the completed buildings located on these lands. However, the application process takes longer than the Company expected and it has not obtained the certificates as of the date of this report. However, since the Company has obtained the land use right in relation to the land, the management believe the Company has legal title to the buildings thereon albeit the lack of ownership certificates.

 

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, 20202021 and 2021.2022.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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.Construction in Progress

7. Construction in Progress

 

Construction in progress as of December 31, 20202021 and September 30, 20212022 consisted of the following:

 

 December 31, September 30,  December 31, September 30, 
 2020  2021  2021  2022 
Construction in progress $27,070,916  $45,917,555  $21,619,522  $11,901,590 
Prepayment for acquisition of property, plant and equipment  3,122,393   3,328,560   5,723,570   3,937,601 
Carrying amount $30,193,309  $49,246,115  $27,343,092  $15,839,191 

 

Construction in progress as of December 31, 20202021 and September 30, 20212022 was mainly comprised of capital expenditures for the construction of the facilities and production lines of CBAK Power, Nanjing CBAK and Nanjing CBAK.Hitrans.

 

For the three months ended September 30, 20202021 and 2021,2022, the Company capitalized interest of $315,177$19 and $19,nil, respectively, to the cost of construction in progress.

 

For the nine months ended September 30, 20202021 and 2021,2022, the Company capitalized interest of $935,399$306,514 and $306,514,nil, respectively, to the cost of construction in progress.

 

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 $-  $281,061 
Investments in non-marketable equity  712,930   636,707 
  $712,930  $917,768 

Investments in equity method investees

10.Balance as of January 1, 2022Non-marketable equity securities$-
Investments made303,122
Income (loss) from investment-
Foreign exchange adjustment(22,061)
Balance as of September 30, 2022281,061

 

  December 31,  September 30, 
  2020  2021 
Cost $          -  $1,396,076 
Impairment  -   (693,269)
Carrying amount $-  $702,807 

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 20%, 60% and 20% equity interests and voting rights, respectively. Guangxi Guiwu engages in the business of recycling power batteries. The Company applies the equity method of accounting to account for the equity investments in common stock, over which it has significant influence but does not own a majority equity interest or otherwise control. Pursuant to the Company’s articles of association and relevant PRC regulations, each party was required to contribute the capital on or before December 31, 2023. As of September 30, 2022 and current, Nanjing CBAK, Guanxi Guiwu and Mr. Weidong had paid $0.3 million (RMB2 million), $0.8 million (RMB6 million) and $0.3 million (RMB2 million), respectively.

 

Guangxi Guiwu CBAK has not commenced operations as of the date of this report. For the three and nine months ended September 30, 2022, no income (loss) from the above investment was recorded.

Investments in non-marketable equity

　 December 31,
2021		  September 30,
2022		 
Cost $1,416,185  $1,264,773 
Impairment  (703,255)  (628,066)
Carrying amount $712,930  $636,707 


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 $1.40 million (RMB9,000,000) to acquire 9.74% of the equity interests of DJY. CBAK Power along with other three new investors has appointed one director on behalf of the Investors to the Board of Directors of DJY. DJY is an unrelated third party of the Company engaging in in research and development, production and sales of products and services to lithium battery positive cathode materials producers, including the raw materials, fine ceramics, equipment and industrial engineering.

 

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 an$43 and nil impairment loss of $43 and $690,585 on the non-marketable equity securities for the three and nine months period ended September 30, 2021 and 2022, respectively. The Company recognized $690,585 and nil impairment loss for the nine months period ended September 30, 2021 and 2022, respectively.

 

9. Lease

11.(a)LeasePrepaid land use rights

 

(a)Right-of-use assets
  Prepaid land lease
payments		 
Balance as of January 1, 2021 $7,500,780 
Addition for the year  6,188,764 
Amortization charge for the year  (189,044)
Foreign exchange adjustment  296,730 
Balance as of December 31, 2021  13,797,230 
Amortization charge for the period  (258,973)
Foreign exchange adjustment  (1,456,289)
Balance as of September 30, 2022 $12,081,968 

 

Right-of-use assets as of September 30,In August 2014 and November 2021, consistedthe Group acquired land use rights to build factories of the followings:Company in Dalian, PRC and Zhejiang, PRC.

  Prepaid
land lease
payments		 
Balance as of January 1, 2021 $7,500,780 
Amortization charge for the period  (130,211)
Foreign exchange adjustment  94,857 
Balance as of September 30, 2021 $7,465,426 

 

Lump sum payments were made upfront to acquire the leased land from the owners with lease period forperiods of 36 to 50 years, up to August 9, 2064, and no ongoing payments will be made under the terms of these land leases.

Amortization expenses of the prepaid land use rights were $43,409 and $83,066 for the three months ended September 30, 2021 and 2022 and $130,211 and $258,973 for the nine months ended September 30, 2021 and 2022, respectively.

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.

 


 

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)

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

11.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, 20202021 and September 30, 20212022 are as follows:

 December 31, September 30,  December 31, September 30, 
 2020  2021  2021  2022 
Total future minimum lease payments receivable $1,210,305  $1,950,163  $1,737,817  $1,203,502 
Less: unearned income, representing interest  (124,653)  (130,783)  (108,773)  (71,210)
Present value of minimum lease payments receivables  1,085,652   1,819,380   1,629,044   1,132,292 
Less: Current portion  (235,245)  (838,649)  (790,516)  (815,013)
Non-current portion $850,407  $980,731  $838,528  $317,279 

VehicleLoss on vehicle sale net of cost recognized in other income (expense) from vehicle leasing was $(6)$6 and $(91,999)nil for the three months ended September 30, 2021 and 2022, respectively.

Loss on vehicle sale net of cost recognized in other income from vehicle leasing was $91,999 and nil for the nine months ended September 30, 2021 and 2022, respectively.

Interest income from vehicle leasing was $25,674 and $96,702nil for the three months ended September 30, 2021 and 2022, respectively.

Interest income from vehicle leasing was $96,702 and $27,969 for the nine months ended September 30, 2021 respectivelyand 2022, respectively.

The future minimum lease payments receivable for sales type leases are as follows:

12 months ending September 30, Total
Minimum
Lease
Payments
to be
Received		  Amortization
of Unearned
Income		  Net
Investment
in Sales
Type Leases		 
2022 $919,238  $80,589  $838,649 
 Total      
 Minimum      
 Lease     Net 
 Payments Amortization Investment 
 to be of Unearned in Sales 
Fiscal years ending Received  Income  Type Leases 
Remainder of 2022 $422,153  $40,172  $381,981 
2023  678,840   42,903   635,937   610,464   28,743   581,721 
2024  352,085   7,291   344,794   170,885   2,295   168,590 
2025  -   -   -   -   -   - 
2026  -   -   -   -   -   - 
Thereafter  -   -   -   -   -   - 
 $1,950,163  $130,783  $1,819,380  $1,203,502  $71,210  $1,132,292 

 

(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 April 30, 2023 The monthly rental payment is approximately RMB18,000 ($2,530) per month. In 2018, lump sum payments were made to landlord for the rental of staff quarter spaces and no ongoing payments will be made under the terms of these leases.

 

On January 14, 2021, Nanjing Daxin entered into a lease agreement for manufacturing, warehouse and office space in Tianjing with a three year term, commencing on March 1, 2021 and expiring on February 29, 2024. The monthly rental payment is approximately $11,346$10,279 (RMB73,143) per month. On February 28, 2022, Nanjing Daxin early terminated the lease after one-year non-cancellable period.

 

On April 6, 2021, Nanjing CBAK entered into a lease agreement for warehouse space in Nanjing with a three year term, commencing on April 15, 2021 and expiring on April 14, 2024. The monthly rental payment is approximately $15,162$13,736 (RMB97,743) per month.

 


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, Nanjing Daxin entered into a lease agreement for manufacturing, warehouse and office space in Wuxi with a three year term, commencing on June 1, 2021 and expiring on May 31, 2024. The monthly rental payment is approximately $36,933$33,460 (RMB238,095) per month for the first year and approximately $43,089$39,036 (RMB277,778) per month from the second year.

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 RMB5,310 ($746) per month. In May, 2022, Nanjing Daxin early terminated the lease after one-year non-cancellable period.

On December 9, 2021, Hitrans entered into a lease agreement for extra staff quarters spaces in Zhejiang with a three year term, commencing on December 10, 2021 and expiring on December 9, 2024. The monthly rental payment is approximately RMB9,905 ($1,392) per month for the first year, RMB10,103 ($1,420) and RMB10,305 ($1,448) per month from the second year and third year, respectively.

On March 1, 2022, Hitrans entered into a lease agreement for extra staff quarters spaces in Zhejiang with a five year term, commencing on March 1, 2022 and expiring on February 28, 2027. The monthly rental payment is approximately RMB15,840 ($2,226) per month for the first year, with 2% increase per year.

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 RMB60,394 ($8,487) per month.

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 $175,932  $78,845  $290,051  $437,502 
Total lease expense $175,932  $78,845  $290,051  $437,502 

(d)Company as lessee - Finance lease

  December 31,  September 30, 
  2021  2022 
Property, plant and equipment, at cost $            -  $1,835,458 
Accumulated depreciation  -   (197,441)
Property, plant and equipment, net under finance lease  -   1,638,017 
         
Finance lease liabilities, current  -   1,173,589 
Finance lease liabilities, non-current  -   - 
Total finance lease liabilities $-  $1,173,589 

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 $        -  $31,343  $        -  $31,343 
Interest of lease liabilities  -   6,235   -   6,235 
Total lease expense $-  $37,578  $-  $37,578 


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, 2021:2022:

 Operating
leases		  Operating
leases		  Finance
leases		 
12 months ending September 30,   
2022 $835,158 
     
Remainder of 2022 $19,276  $356,245 
2023  835,158   320,255   831,237 
2024  -   36,746   - 
2025  -   37,301   - 
2026  33,390   - 
Thereafter  -   -   - 
Total undiscounted cash flows  1,670,316   446,968   1,187,482 
Less: imputed interest  (115,646)  (22,293)  (13,893)
Present value of lease liabilities $1,554,670  $424,675  $1,173,589 

Lease term and discount rate:

  December 31,
2021		  September 30,
2022		 
Weighted-average remaining lease term      
Land use rights  38.9   38.2 
Operating leases  2.32   2.33 
Finance leases  -   0.75 
         
Weighted-average discount rate        
Land use rights  Nil   Nil 
Operating leases  5.88%  5.15%
Finance leases  -   2.52%

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 $290,051  $268,740 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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 $108,560  $96,954 
Sewage discharge permit*  　1,915,740   1,710,918 
　  　2,024,300   1,807,872 
Accumulated amortization  　(62,561)  (424,083)
　 $1,961,739  $1,383,789 

Amortization expenses were $1,613 and $121,035 for the three months ended September 30, 2021 and 2022, respectively.

Amortization expenses were $4,195 and $397,114 for the nine months ended September 30, 2021 and 2022, respectively.

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 85% of registered equity interests (representing 78.95% of paid-up capital) of Hitrans and has the voting right over the 85% of registered equity interests. Subject to definitive acquisition agreements to be entered into among the parties, including shareholders owning the 85% of equity interests of Hitrans, CBAK Power intends to acquire 85% of equity interests of Hitrans in cash in 2021. CBAK Power has paid $3.10 million (RMB20,000,000) to Juzhong Daxin as a security deposit in April 2021. Hitrans is an unrelated third party of the Company engaging in researching, manufacturing and trading of raw materials and is one of the major suppliers of the Company in fiscal 2020.

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 81.56% of registered equity interests (or representing 75.57% of paid-up capital) of Hitrans (the “Acquisition Agreement”). Under the Acquisition Agreement, CBAK Power will acquire 60% of registered equity interests (representing 54.39% of paid-up capital) of Hitrans from Zhejiang Meidu Graphene Technology Co., Ltd. (“Meidu Graphene”) valued at RMB118 million ($18.30 million) and 21.56% of registered equity interests (representing 21.18% of paid-up capital) of Hitrans from Hitrans’s management shareholders valued at approximately RMB40.74 million ($6.32 million). Two individuals among Hitrans management shareholders, including Hitrans’s CEO, Mr. Haijun Wu (“Mr. Wu”), will keep 2.50% registered equity interests (representing 2.46% of paid-up capital) of Hitrans and New Era Group Zhejiang New Energy Materials Co., Ltd. (“New Era”) will continue to hold 15% registered equity interests (representing 21.05% of paid-up capital) of Hitrans after the acquisition.

11.Lease (continued)

(c)Operating lease (continued)

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 25% registered equity interests (representing 24.56% of paid-up capital) of Hitrans held by Hitrans management shareholders was frozen as a result of a litigation arising from the default by Hitrans management shareholders on debts borrowed from Zhejiang Meidu Pawn Co., Ltd. (“Pawn Co.”) whereby the 25% registered equity interests (representing 24.56% of paid-up capital) of Hitrans was pledged as collateral. Mr. Junnan Ye (“Mr. Ye”), acting as an intermediary, will first acquire 22.5% registered equity interests (representing 22.11% of paid-up capital) of Hitrans, free of any encumbrances, from Hitrans management shareholders. Pursuant to the Acquisition Agreement, within five days of CBAK Power’s obtaining 21.56% registered equity interests (representing 21.18% of paid-up capital) of Hitrans from Mr. Ye, CBAK Power will pay approximately RMB40.74 million ($6.32 million) in cash, which amount shall be used toward the repayment of debts due to Pawn Co. On July 23, 2021, CBAK Power paid RMB40.74 million (approximately $6.32 million) in cash to Mr. Ye.

In addition, as of the date of the Acquisition Agreement, Meidu Graphene’s 60% registered equity interests (representing 54.39% of paid-up capital) of Hitrans was frozen as a result of a litigation arising from Hitrans’s failure to make payments to New Era in connection with the purchase of land use rights, plants, equipment, pollution discharge permit and other assets (the “Assets”) under certain asset transfer agreements as well as Meidu Graphene’s guarantee for Hitrans’s payment obligations thereunder.

As a part of the transaction, CBAK Power entered into a loan agreement with Hitrans to lend Hitrans approximately RMB131 million ($20.6 million) (the “Hitrans Loan”) by remitting approximately RMB131 million ($20.6 million) into the account of Shaoxing Intermediate People’s Court (the “Court”) to remove the freeze on Meidu Graphene’s 60% registered equity interests (representing 54.39% of paid-up capital) of Hitrans. Moreover, Juzhong Daxin will return RMB10 million ($1.6 million) of the security deposit to CBAK Power before CBAK Power wires approximately RMB131 million ($20.6 million) to the Court. Juzhong Daxin retained RMB5 million ($0.78 million) as commission for facilitating the acquisition and RMB5 million ($0.78 million) recognized as compensation expense to another potential buyer. On July 27, 2021, Juzhong Daxin returned RMB7 million ($1.1 million) of the security deposit to CBAK Power. The remaining had not yet been repaid by Juzhong Daxin in full up to the date of this report (Note 16). The Company is still negotiating with Juzhong Daxin, as Juzhong Daxin believes that according to the Security Acquisition Framework Agreement entered into between CBAK Power and Juzhong Daxin, CBAK Power should pay RMB3 million ($0.5 million) as risk premium for facilitating the acquisition. CBAK Power believes it is not reasonable to pay any of the risk premium in accordance with the terms of the agreement and Juzhong Daxin should return RMB3 million ($0.5 million) to CBAK Power. CBAK Power has taken legal action for the outstanding balance. Juzhong Daxin had repaid RMB1.5 million ($0.3 million) up to the report date.

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 60% registered equity interests (representing 54.39% of paid-up capital) of Hitrans, free of any encumbrances, from Meidu Graphene. Thereafter, CBAK Power will assign RMB118 million ($18.30 million) of the Hitrans Loan to Mr. Junnan Ye as consideration for the acquisition of 60% registered equity interests (representing 54.39% of paid-up capital) of Hitrans from Mr. Ye (the “Assignment”). Hitrans shall repay RMB118 million ($18.27 million) to Mr. Ye in accordance with a separate loan repayment agreement (the “Loan Repayment Agreement”) entered into among Mr. Ye, Hitrans, CBAK Power and Mr. Wu in July 2021. Under the Loan Repayment Agreement, Hitrans shall repay Mr. Ye at least RMB70 million ($10.86 million) within two months of obtaining the title to the Assets from New Era and the remaining RMB 48 million ($7.41 million) by December 31, 2021, with a fixed interest of RMB3.5 million ($0.54 million) which can be reduced by up to RMB1 million ($0.15 million) if the loan is settled before its due date. CBAK Power provides guarantee to Mr. Ye on Hitrans’s repayment obligations under the Loan Repayment Agreement. Hitrans shall repay the remaining approximately RMB13 million ($2.02 million) of the Hitrans Loan to CBAK Power at an interest rate of 6% per annum, maturing in one year from the date of the Assignment. As of December 31, 2021, Hitrans has repaid RMB93 million ($14.6 million) and interest incurred was RMB0.9 million ($0.1 million) recorded as finance cost for the year ended December 31, 2021. As of January 29, 2022, Hitrans has repaid all the loan principals of RMB118 million ($18.3 million) and interests of RMB3.5 million ($0.54 million) to Mr. Ye (Note 14).

The transfer of 81.56% registered equity interests (representing 75.57% of paid-up capital) of Zhejiang Hitrans to CBAK Power has been registered with the local government and CBAK Power had paid approximately RMB40.74 million (approximately $6.32 million) in cash to Mr. Ye. In addition, CBAK Power had wired approximately RMB131 million (approximately $20.6 million) to the Court and Juzhong Daxin returned RMB7 million ($1.1 million) of the security deposit to CBAK Power. The Acquisition was completed on November 26, 2021.


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 81.56% of the Company’s registered equity interests (representing 75.57% of paid-up capital of the Company). As required by applicable Chinese laws, CBAK Power and Management Shareholders are obliged to make capital contributions of RMB11.1 million ($1.7 million) and RMB0.4 million ($0.06 million), respectively, for the unpaid portion of Hitrans’s registered capital in accordance with the articles of association of Hitrans.

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 $7,323,654 
Debts product  3,144 
Trade and bills receivable, net  37,759,688 
Inventories  13,616,922 
Prepayments and other receivables  1,384,029 
Income tax recoverable  47,138 
Amount due from trustee  11,788,931 
Property, plant and equipment, net  21,190,890 
Construction in progress  2,502,757 
Intangible assets, net  1,957,187 
Prepaid land use rights, non- current  6,276,898 
Leased assets, net  48,394 
Deferred tax assets  1,715,998 
Short term bank loan  (8,802,402)
Other short term loans – CBAK Power  (20,597,522)
Trade accounts and bills payable  (38,044,776)
Accrued expenses and other payables  (7,439,338)
Deferred government grants  (290,794)
Land appreciation tax  (464,162)
Deferred tax liabilities  (333,824)
   29,642,812 
Less: Waiver of dividend payable  1,250,181 
Total net assets acquired  30,892,993 
Non-controlling interest (24.43%)  (7,547,158)
Goodwill  1,606,518 
Total identifiable net assets $24,952,353 

The components of the consideration transferred to effect the Acquisition are as follows:

  RMB  USD 
Cash consideration for 60% registered equity interest (representing 54.39% of paid-up capital) of Hitrans from Meidu Graphene  118,000,000   18,547,918 
Cash consideration for 21.56% registered equity interest (representing 21.18% of paid-up capital) of Hitrans from Hitrans management  40,744,376   6,404,435 
Total Purchase Consideration  158,744,376   24,952,353 

The transaction resulted in a purchase price allocation of $1,606,518 to goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of Hitrans and the synergies expected from the combined operations of Hitrans and the Company, the assembled workforce and their knowledge and experience in provision of raw materials used in manufacturing of lithium batteries. The total amount of the goodwill acquired is not deductible for tax purposes.

 

Lease term and discount rate

September 30,

2021

Weighted-average remaining lease term - years2.69
Weighted-average discount rate (%)6.175%

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  1,606,518 
Foreign exchange adjustment  38,714 
Balance as of January 1, 2022  1,645,232 
Foreign exchange adjustment  (174,328)
Balance as of September 30, 2022 $1,470,904 

Operating lease expensesThe 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, 2020 and 2021 for the capitation agreement was as follows:

2022.

  Three months ended
September 30,		  Nine months ended
September 30,		 
  2020  2021  2020  2021 
             
Operating lease cost – straight line      -   175,932         -   290,051 
Total lease expense  -   175,932  $-  $290,051 

12.Intangible Assets, net

Intangible assets as of December 31, 2020 and September 30, 2021 consisted of the followings:

  December 31,  September 30, 
  2020  2021 
Computer software at cost $32,686  $44,634 
Accumulated amortization  (20,879)  (23,216)
  $11,807  $21,418 

Amortization expenses were $870 and $1,613 for the three months ended September 30, 2020 and 2021and $3,452 and $4,195 for the nine months ended September 30, 2020 and 2021, respectively.

13. Trade and Bills Payable

13.Trade Accounts and Bills Payable

Trade accounts and bills payable as of December 31, 20202021 and September 30, 20212022 consisted of the followings:

  December 31,  September 30, 
  2020  2021 
Trade accounts payable $19,560,793  $5,396,496 
Bills payable        
-      Bank acceptance bills (Note 14)  8,791,499   15,653,824 
  $28,352,292  $21,050,320 
  December 31,  September 30, 
  2021  2022 
Trade payable $40,352,638  $32,202,817 
Bills payable        
- Bank acceptance bills (Note 14)  25,023,574   38,329,543 
  $65,376,212  $70,532,360 

All the bills payable are of trading nature and will mature within six months to one year from the issue date.

The bank acceptance bills were pledged by:

(i)
(i)the Company’s bank deposits (Note 2);

(ii) $100,828 of the Company’s bills receivable as of September 30, 2021 (Note 3).

14.Loans

 

(ii)$4.4 million and $0.5 million of the Company’s bills receivable as of December 31, 2021 and September 30, 2022, respectively (Note 3).

(iii)the Company’s prepaid land use rights (note 9)

14. Loans

Bank loans:

 

Bank borrowings as of December 31, 20202021 and September 30, 20212022 consisted of the followings

 

  December 31,  September 30, 
  2020  2021 
Current maturities of long-term bank loans $13,739,546  $     - 
  December 31,  September 30, 
  2021  2022 
Short-term bank borrowings $8,811,820  $17,573,866 

 

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.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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)

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.

 

Bank loans: (continued)

On October 15, 2019, the Company borrowed a total of RMB28 million (approximately $4.12 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until October 15, 2020, which was secured by the Company’s cash totaled RMB28 million (approximately $4.12 million). The Company discounted the bills payable of even date to China Everbright Bank at a rate of 3.3%. The Company repaid the bills on October 15, 2020.

In December 2019,November 16, 2021, the Company obtained banking facilities from China EverbrightShaoxing Branch of Bank Dalian Friendship Branch totaled RMB39.9of Communications Co., Ltd with a maximum amount of RMB120.1 million (approximately $6.1$16.9 million) for awith the term untilfrom November 6, 2020, bearing interest at 5.655% per annum.18, 2021 to November 18, 2026. The facility was secured by 100% equity in CBAK Power held by BAK Asia and buildings of Hubei BAK Real Estate Co., Ltd., which Mr. Yunfei Li (“Mr. Li”), the Company’s CEO holding 15% equity interest.land use rights and buildings. Under the facilities,facility, the Company repaid the bank loanhas borrowed a total of RMB39.9RMB56.0 million (approximately $6.1$8.8 million) inand RMB76.1 million (approximately $10.7 million) as of December 2020.31, 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.

 

The Company borrowed a series of acceptance bills from Agricultural Bank of China totaled RMB31.0 million (approximately $4.8 million) for various terms to October 2021 to March 2022, which was secured by the Company’s cash totaled RMB31.0 million (approximately $4.81 million) (Note 2). 

The Company borrowed a series of acceptance bills from China Zheshang Bank Co. Ltd Shenyang Branch totaled RMB39.9 million (approximately $6.19 million) for various terms to October 2021 to March 2022, which was secured by the Company’s cash totaled RMB39.2 million (approximately $6.09 million) (Note 2) and the Company’s bills receivable totaled RMB0.7 million (approximately $0.1 million) (Note 3).

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 $13.1$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 September 30,December 31, 2021, the Company borrowed a total of RMB30RMB10 million (approximately $4.7$1.6 million) from Bank of Ningbo Co., Ltd in the form of bills payable for a various term expiring from October 2021January to February 2022, which was secured by the Company’s cash totaled RMB30RMB10 million (approximately $4.66$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, the Company 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. The Company borrowed RMB10 million (approximately $1.4 million) on the same date. On May 17, 2022, the Company early repaid the loan principal and related loan interests.


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 facilities were guaranteed by the Company’s CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. Under the facility, the Company 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, the Company 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 the Company’s 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, the Company 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 the Company’s CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. The Company borrowed RMB9 million (approximately $1.3 million) on September 27, 2022 for a term until September 24, 2023.

The Company 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 the Company’s cash totaling RMB80.0 million (approximately $11.2 million) (Note 2).

The Company 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) (Note 2) and the Company’s bills receivable totaled RMB4.0 million (approximately $0.6 million) (Note 3).

The Company 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 the Company’s cash totaling RMB28.8 million (approximately $4.0 million) (Note 2).

The Company 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 the Company’s cash totaling RMB5.5 million (approximately $0.8 million) (Note 2).

The Company 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 the Company’s cash totaling RMB91.2 million (approximately $12.8 million) (Note 2).

 

The facilities were also secured by the Company’s assets with the following carrying amounts:

 

 December 31, September 30,  December 31, September 30, 
 2020  2021  2021  2022 
Pledged deposits (note 2) $8,791,499  $15,552,996  $18,996,749  $37,591,281 
Bills receivable (note 3)  -   100,828   4,446,553   562,121 
Right-of-use assets (note 11)  7,500,780   - 
Prepaid land use rights (note 9)  6,268,473   5,476,575 
Buildings  16,721,178   -   8,565,837   5,442,571 
Machinery and equipment  4,926,886   - 
 $37,940,343  $15,653,824  $38,277,612  $49,072,548 

As of September 30, 2022, the Company had unutilized committed banking facilities totaled $6.2 million.

 

During the three months ended September 30, 20202021 and 2021,2022, interest of $402,268$19 and $19,$183,291, respectively, was incurred on the Company’s bank borrowings.

 

During the nine months ended September 30, 20202021 and 2021,2022, interest of $1,190,629$306,514 and $306,514,$469,402, respectively, was incurred on the Company’s bank borrowings.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

14.Loans (continued)

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, 20202021 and September 30, 20212022 consisted of the following:

 

   December 31, September 30,   December 31, September 30, 
 Note 2020  2021  Note 2021  2022 
Advance from related parties            
– Mr. Xiangqian Li, the Company’s Former CEO (a)  100,000   100,000  (a)  100,000   100,000 
– Mr. Yunfei Li (b)  278,739   95,574  (b)  153,300   132,601 
– Ms. Xiangyu Pei (c)  -   1,405,304 
– Shareholders (c)  92,446   93,622  (d)  94,971   84,817 
– Mr. Junnan Ye (note 11)    3,933,848   - 
    471,185   289,196     4,282,119   1,722,722 
Advances from unrelated third party                  
– Mr. Wenwu Yu (d)  16,823   17,037  (e)  17,282   15,434 
– Mr. Longqian Peng (d)  689,275   296,770  (e)  301,044   268,858 
– Ms. Xia Liu (e)  -   702,652 
– Ms. Xiaojuan Liu (e)  -   702,652 
– Suzhou Zhengyuanwei Needle Ce Co., Ltd (e)  76,586   77,560  (f)  78,677   70,265 
    782,684   391,367     397,003   1,759,861 
   $1,253,869  $680,563    $4,679,122  $3,482,583 

 

(a)Advances from Mr. Xiangqian Li, the Company’s former CEO, was unsecured, non-interest bearing and repayable on demand.

(b)
(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.

 

(c)(d)

The earnest money paid by certain shareholders in relation to share purchase (note 1) were unsecured, non-interest bearing and repayable on demand.

In 2019, according to the investment agreements and agreed by the investors, the Company returned earnest money of $949,317 (approximately RMB6.7 million) to these investors.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

14.Loans (continued)

Other Short-term Loans (continued)

On October 14, 2019, the Company entered into a cancellation agreement with Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen agreed to cancel and convert the Fifth Debt (note 1) and the Unpaid Earnest Money in exchange for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of $0.6 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Fifth Debt and the Unpaid Earnest Money.

As of September 30, 2021, earnest money of $93,622 remained outstanding.

 

(d)(e)Advances from unrelated third parties were unsecured, non-interest bearing and repayable on demand.

(f)
(e)In 2019, the Company entered into a short term loan agreement with Suzhou Zhengyuanwei Needle Ce Co., Ltd, an unrelated party to loan RMB0.6 million (approximately $0.1 million), bearing annual interest rate of 12%. As of September 30, 2021,2022, loan amount of RMB0.5 million ($77,560)0.1 million) remained outstanding.

 

During the three months ended September 30, 20202021 and 2021,2022, interest of $137,000$2,370 and $2,370$2,238 were incurred on the Company’s borrowings from unrelated parties, respectively.

 

During the nine months ended September 30, 20202021 and 2021,2022, interest of $427,769$7,031 and $7,031$6,896 were incurred on the Company’s borrowings from unrelated parties, respectively.

 

15.Accrued Expenses and Other Payables


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, 20202021 and September 30, 20212022 consisted of the following:

 

 December 31, September 30,  December 31, September 30, 
 2020  2021  2021  2022 
Construction costs payable (note 1) $273,279  $2,644,405 
Construction costs payable $2,036,008  $1,319,372 
Equipment purchase payable  5,431,132   6,824,049   8,697,637   7,423,498 
Liquidated damages (note a)  1,210,119   1,210,119   1,210,119   1,210,119 
Accrued staff costs  2,083,660   1,572,028   2,924,105   2,357,313 
Customer deposits  394,536   466,829   1,420,414   2,708,506 
Deferred revenue  -   784,000   784,000   784,000 
Other payables and accruals  2,252,733   2,295,164 
Accrued expenses  4,161,548   2,284,912 
Dividend payable to non-controlling interest (note 16)  1,444,737   1,289,075 
Other payables  285,132   225,417 
 $11,645,459  $15,796,594  $22,963,700  $19,602,212 

 

(a)(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 $1,051,000. As of December 31, 20202021 and September 30, 2021,2022, no liquidated damages relating to both events have been paid.

 

On November 9, 2007, the Company completed a private placement for the gross proceeds to the Company of $13,650,000 by selling 3,500,000 shares of common stock at the price of $3.90 per share. Roth Capital Partners, LLC acted as the Company’s exclusive financial advisor and placement agent in connection with the private placement and received a cash fee of $819,000. The Company may have become liable for liquidated damages to certain shareholders whose shares were included in a resale registration statement on Form S-3 that the Company filed pursuant to a registration rights agreement that the Company entered into with such shareholders in November 2007. Under the registration rights agreement, among other things, if a registration statement filed pursuant thereto was not declared effective by the SEC by the 100th calendar day after the closing of the Company’s private placement on November 9, 2007, or the “Effectiveness Deadline”, then the Company would be liable to pay partial liquidated damages to each such investor of (a) 1.5% of the aggregate purchase price paid by such investor for the shares it purchased on the one month anniversary of the Effectiveness Deadline; (b) an additional 1.5% of the aggregate purchase price paid by such investor every thirtieth day thereafter (pro rated for periods totaling less than thirty days) until the earliest of the effectiveness of the registration statement, the ten-month anniversary of the Effectiveness Deadline and the time that the Company is no longer required to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations; and (c) 0.5% of the aggregate purchase price paid by such investor for the shares it purchased in the Company’s November 2007 private placement on each of the following dates: the ten-month anniversary of the Effectiveness Deadline and every thirtieth day thereafter (prorated for periods totaling less than thirty days), until the earlier of the effectiveness of the registration statement and the time that the Company no longer is required to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations. Such liquidated damages would bear interest at the rate of 1% per month (prorated for partial months) until paid in full.


 

 

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 $561,174 for the November 2007 registration rights agreement. As of December 31, 2021 and September 30, 2022, the Company had settled the liquidated damages with all the investors and the remaining provision of approximately $159,000 was included in other payables and accruals.

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 IndividualRelationship with the Company
Notes to the condensed consolidated financial statementsNew Era Group Zhejiang New Energy Materials Co., Ltd.Shareholder of company’s subsidiary
For the three and nine months ended September 30, 2020 and 2021Shenzhen Baijun Technology Co., LtdShareholder of company’s subsidiary
(Unaudited)Zhengzhou BAK Battery Co., LtdNote a
(In US$ except for number of shares)Zhengzhou BAK New Energy Technology Co., LtdNote b
Zhengzhou BAK Electronics Co., LtdNote c
Shenzhen BAK Battery Co., LtdFormer subsidiary and refer to Note d
Shenzhen BAK Power Battery Co., LtdFormer subsidiary and refer to Note d
Hangzhou Juzhong Daxin Asset Management Co., LtdNote e

(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 29% equity interests in Zhengzhou BAK New Energy Technology Co., Ltd.

(c)Shenzhen BAK Power Battery Co., Ltd has 95% equity interests in Zhengzhou BAK Electronics Co., Ltd.

(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 85% of registered equity interests of Hitrans (note 11)

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 $477,185   10,624,282  $1,736,494  $25,743,966 
Sales of finished goods and raw materials to Zhengzhou BAK Battery Co., Ltd $6,982   5,454,367  $148,564  $52,064,148 
Sales of finished goods and raw materials to Zhengzhou BAK Electronics Co., Ltd $746   -  $413,099  $- 
Sales of finished goods and raw materials to Shenzhen BAK Power Battery Co., Ltd $-   3,540,494  $18,402  $8,269,441 


 

15.Accrued Expenses and Other Payables (continued)

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)

 

On November 9, 2007, the Company completed a private placement for the gross proceeds to the Company of $13,650,000 by selling 3,500,000 shares of common stock at the price of $3.90 per share. Roth Capital Partners, LLC acted as the Company’s exclusive financial advisor and placement agent in connection with the private placement and received a cash fee of $819,000. The Company may have become liable for liquidated damages to certain shareholders whose shares were included in a resale registration statement on Form S-3 that the Company filed pursuant to a registration rights agreement that the Company entered into with such shareholders in November 2007. Under the registration rights agreement, among other things, if a registration statement filed pursuant thereto was not declared effective by the SEC by the 100th calendar day after the closing of the Company’s private placement on November 9, 2007, or the “Effectiveness Deadline”, then the Company would be liable to pay partial liquidated damages to each such investor of (a) 1.5% of the aggregate purchase price paid by such investor for the shares it purchased on the one month anniversary of the Effectiveness Deadline; (b) an additional 1.5% of the aggregate purchase price paid by such investor every thirtieth day thereafter (pro rated for periods totaling less than thirty days) until the earliest of the effectiveness of the registration statement, the ten-month anniversary of the Effectiveness Deadline and the time that the Company is no longer required to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations; and (c) 0.5% of the aggregate purchase price paid by such investor for the shares it purchased in the Company’s November 2007 private placement on each of the following dates: the ten-month anniversary of the Effectiveness Deadline and every thirtieth day thereafter (prorated for periods totaling less than thirty days), until the earlier of the effectiveness of the registration statement and the time that the Company no longer is required to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations. Such liquidated damages would bear interest at the rate of 1% per month (prorated for partial months) until paid in full.
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 $561,174 for the November 2007 registration rights agreement. As of December 31, 2020 and September 30, 2021, the Company had settled the liquidated damages with all the investors and the remaining provision of approximately $159,000 was included in other payables and accruals.

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 $2,263,955  $6,341,988 

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 $1.2 million to the Company.

Amount due from non-controlling interest

  December 31,  September 30, 
  2021  2022 
Shenzhen Baijun Technology Co., Ltd      
Current $125,883  $112,424 
Non-current  62,941   56,212 
  $188,824  $168,636 

In August 2018, Guangdong Hitrans and Shenzhen Baijun entered into a services contract for the provision of consultancy service to assist Guangdong Hitrans to obtain the license for recycling solid wastes with a contract sum of RMB3,000,000 ($447,801). During August and September 2018, RMB1,500,000 ($223,901) was paid to Shenzhen Baijun as deposit. In 2020, Guangdong Hitrans and Shenzhen Baijun entered into supplemental agreement to cancel the services contract and Shenzhen Baijun agreed to refund the deposit paid by four installments from 2021 throughout 2023. The amount due from Shenzhen Baijun is interest fee and RMB300,000 ($44,780) repayable by December 2020, RMB400,000 ($59,707) repayable by December 30, 2021, RMB400,000 ($56,212) repayable by December 30, 2022 and RMB400,000 ($56,212) repayable by December 30, 2023.

Amount due from related parties

  December 31,
2021		  September 30,
2022		 
Hangzhou Juzhong Daxin Asset Management Co., Ltd (Note 11) 　 $472,061  $210,796 

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) $14,583,061  $10,894,917 
         
Trade receivable, net – Zhengzhou BAK New Energy Technology Co., Ltd. 　 $459,714  $- 
         
Trade payable, net – Zhengzhou BAK Battery Co., Ltd $(572,768) $(7,966,972)
         
Dividend payable to non-controlling interest of Hitrans (note 15)　 $(1,444,737) $(1,289,075)

16.Deferred Government Grants(i)

Up to the date of this report, Zhengzhou BAK Battery Co., Ltd. repaid $0.7 million to the Company


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 $(326,507) $(368,772)

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, 20202021 and September 30, 20212022 consist of the following:

 

  December 31,  September 30, 
  2020  2021 
Total government grants $7,456,308  $8,987,250 
Less: Current portion  (151,476)  (153,402)
Non-current portion $7,304,832  $8,833,848 

In September 2013, the Management Committee of Dalian Economic Zone Management Committee (the “Management Committee”) provided a subsidy of RMB150 million to finance the costs incurred in moving the Company facilities to Dalian, including the loss of sales while the new facilities were being constructed. For the year ended September 30, 2015, the Company recognized $23,103,427 as income after offset of the related removal expenditures of $1,004,027. No such income or offset was recognized in the three and nine months ended September 30, 2020 and 2021.

  December 31,  September 30, 
  2021  2022 
Total government grants $10,023,677  $7,423,323 
Less: Current portion  (3,834,481)  (1,613,838)
Non-current portion $6,189,196  $5,809,485 

 

On October 17, 2014, the Company received a subsidy of RMB46,150,000 pursuant to an agreement with the Management Committee dated July 2, 2013 for costs of land use rights and to be used to construct the new manufacturing site in Dalian. Part of the facilities had been completed and was operated in July 2015 and the Company has initiated amortization on a straight-line basis over the estimated useful lives of the depreciable facilities constructed thereon.

 

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 $4.7$4.2 million) subsidy from Gaochun EDZ. The Company will recognize the government subsidies as income or offsets them against the related expenditures when there are no present or future obligations for the subsidized projects.

 

For the year ended December 31, 2021, the Company recognized RMB10 million ($1.6 million) as other income after moving of the Company facilities to Nanjing. Remaining subsidy of RMB37.1 million (approximately $5.9 million) was granted to facilities the construction works and equipment in Nanjing. The construction works have been completed in November 2021 and the production line was fully operated in January 2022. The Company has initiated amortization on a straight-line basis over the estimated useful lives of the depreciable facilities constructed thereon.

The Company offset government grants of $35,713$38,207 and $38,207$537,040 for the three months ended September 30, 2020 and 2021 and $106,0202022, respectively, against depreciation expenses of the Dalian and Nanjing facilities.

The Company offset government grants of $114,606 and $1,648,658 for the nine months ended September 30, 20202021 and 2021,2022, respectively, against depreciation expenses of the Dalian and Nanjing facilities.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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)

 

17.Product Warranty Provision

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 $1,991,605  $2,028,266 
Warranty costs incurred  (34,439)  (49,662)
Provision for the year  16,995   124,673 
Foreign exchange adjustment  54,105   (222,312)
Balance at end of year  2,028,266   1,880,965 
Less: Current portion  (127,837)  (104,053)
Non-current portion $1,900,429  $1,776,912 

 

18.Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

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 
  

Three months ended
September 30,

   

Nine months ended
September 30,

  September 30,  September 30, 
  2020   2021   2020   2021  2021  2022  2021  2022 
PRC income tax:                         
Current $-  $   -  $-  $-  $            -  $-  $           -  $- 
Deferred  -   -   -   -   -   2,012   -   84,230 
 $-  $-  $-  $-  $-  $2,012  $-  $84,230 

 

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 21% for taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump sum.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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)

 

18.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 50 percent to offset the income tax liability, subject to some limitations.

The Company’s management is still evaluating the effect of the U.S. Tax Reform on CBAK. Management may update its judgment of that effect based on its continuing evaluation and on future regulations or guidance issued by the U.S. Department of the Treasury, and specific actions the Company may take in the future.

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, 20202022 and 2021.

Hong Kong Tax

The Company’s subsidiaries in Hong Kong are subject to Hong Kong profits tax rate of 16.5% and did not have any assessable profits arising in or derived from Hong Kong for the three and nine months ended September 30, 20192022 and 20202021 and accordingly no provision for Hong Kong profits tax was made in these periods.

PRC Tax

The Company’s subsidiariesCIT Law in China are subject to enterpriseapplies an income tax atrate 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 months and nine months ended September 30, 2020 andyears 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 
 Three months ended
September 30,		 Nine months ended
September 30,		  September 30,  September 30, 
 2020  2021  2020  2021  2021  2022  2021  2022 
Income (Loss) before income taxes $41,715  $20,023,221  $(3,510,563) $52,351,612  $20,023,221  $(850,740) $52,351,612  $932,270 
United States federal corporate income tax rate  21%  21%  21%  21%  21%  21%  21%  21%
Income tax (credit) expenses computed at United States statutory corporate income tax rate  8,760   4,204,877   (737,218)  10,993,839   4,204,877   (178,655)  10,993,839   195,777 
Reconciling items:                                
Rate differential for PRC earnings  15,480   (104,422)  (79,959)  (132,095)  (104,422)  (91,533)  (132,095)  (116,719)
Tax effect of entity at preferential tax rate  -   355,197   -   313,990 
Non-deductible expenses (non-taxable income)  38,529   (4,764,089)  187,432   (11,993,447)  (4,764,089)  (299,721)  (11,993,447)  (1,115,858)
Share based payments  33,973   19,067   129,333   70,007   19,067   2,362   70,007   12,002 
Under provision of tax losses  -   (47,004)  -   17,321 
Utilization of tax losses  -   175,188   -   (194,209)
Valuation allowance on deferred tax assets  (96,742)  644,567   500,412   1,061,696   644,567   82,154,   1,061,696   971,926 
Income tax expenses $-  $-  $-  $-  $-   2,012  $-  $84,230 

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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)

 

18.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, 20202021 and September 30, 20212022 are presented below:

 

 December 31, September 30,  December 31, September 30, 
 2020  2021  2021  2022 
Deferred tax assets             
Trade accounts receivable $1,354,762  $1,248,059 
Trade receivable $2,044,877  $1,690,630 
Inventories  575,575   646,198   624,372   504,892 
Property, plant and equipment  1,271,986   1,130,024   1,671,628   1,417,914 
Impairment on non-marketable equity securities  -   173,317 
Equity investment  175,813   157,017 
Intangible assets  82,174   89,324 
Accrued expenses, payroll and others  286,258   231,886 
Provision for product warranty  497,901   499,574   507,067   470,241 
Net operating loss carried forward  31,060,254   32,125,002   32,624,714   30,369,025 
Valuation allowance  (34,760,478)  (35,822,174)  (36,278,909)  (33,493,995)
Deferred tax assets, non-current $-  $-  $1,737,994  $1,436,934 
                
Deferred tax liabilities, non-current $-  $-         
Long-lived assets arising from acquisitions $334,181  $261,310 

 

As of December 31, 20202021 and September 30, 2021,2022, the Company’s U.S. entity had net operating loss carry forwards of $103,580,741, of which $102,293 available to reduce future taxable income which will expire in various years through 2035 and $103,478,448 available to offset capital gains recognized in the succeeding 5 tax years and the Company’s PRC subsidiaries had net operating loss carry forwards of $37,536,687$43,929,161 and $45,154,800,$49,881,467, respectively, which will expire in various years through 20232022 to 2029.2030. Management believes it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance wasof $36,278,909 and $33,493,905 as of December 31, 2021 and September 30, 2022, respectively, were provided against the full amount of the potential tax benefits.

 

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.

 

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 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.

 

The significant uncertain tax position arose from the subsidies granted by the local government for the Company’s PRC subsidiary, which may be modified or challenged by the central government or the tax authority. A reconciliation of January 1, 2021 through September 30, 2021 amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) is as follows:20. Statutory reserves

  Gross UTB  Surcharge  Net UTB 
Balance as of January 1, 2021 $7,511,182  $       -  $7,511,182 
Increase in unrecognized tax benefits taken in current period  95,495   -   95,495 
Balance as of September 30, 2021 $7,606,677  $-  $7,606,677 

 

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 10% of the profit for the year of the PRC subsidiary. The aggregate amount allocated to the reserves will be limited to 50% of registered capital for certain subsidiaries. Statutory reserve can be used for expanding the capital base of the PRC subsidiary by means of capitalization issue.

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, $1,230,511 representing the PRC statutory reserve of the subsidiary as of December 31, 20202021 and September 30, 2021, the Company had not accrued any interest and penalties related to unrecognized tax benefits.2022, are also considered under restriction for distribution.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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:

19.Share-based Compensation●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 $ 408,988 (RMB2,646,611) and $474,986 (RMB3,277,830) for the three months ended September 30, 2021 and 2022, respectively. The total employee benefits expensed as incurred were $997,066 (RMB6,452,712) and $1,652,336 (RMB10,902,111) for the nine months ended September 30, 2021 and 2022, respectively.


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 (10,000,000) Shares.

 

On June 30, 2015, pursuant to the 2015 Plan, the Compensation Committee of the Company’s Board of Directors granted an aggregate of 690,000 restricted shares of the Company’s common stock, par value $0.001, to certain employees, officers and directors of the Company with a fair value of $3.24 per share on June 30, 2015. In accordance with the vesting schedule of the grant, the restricted shares will vest in twelve equal quarterly installments on the last day of each fiscal quarter beginning on June 30, 2015 (i.e. last vesting period: quarter ended March 31, 2018). The Company recognizes the share-based compensation expenses on a graded-vesting method.

 

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, 2021,2022, there was no unrecognized stock-based compensation associated with the above restricted shares. As of September 30, 2021,shares and 1,667 vested shares were to be issued.

 

Restricted shares granted on April 19, 2016

 

On April 19, 2016, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee granted an aggregate of 500,000 restricted shares of the Company’s common stock to certain employees, officers and directors of the Company, of which 220,000 restricted shares were granted to the Company’s executive officers and directors. There are three types of vesting schedules. First, if the number of restricted shares granted is below 3,000, the shares will vest annually in 2 equal installments over a two year period with the first vesting on June 30, 2017. Second, if the number of restricted shares granted is larger than or equal to 3,000 and below 10,000, the shares will vest annually in 3 equal installments over a three year period with the first vesting on June 30, 2017. Third, if the number of restricted shares granted is above or equal to 10,000, the shares will vest semi-annually in 6 equal installments over a three year period with the first vesting on December 31, 2016. The fair value of these restricted shares was $2.68 per share on April 19, 2016. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting method.

 

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, 2021,2022, there was no unrecognized stock-based compensation associated with the above restricted shares and 4,167 vested shares were to be issued.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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)

19.Share-based Compensation (continued)

 

Restricted Shares (continued)

Restricted shares granted on August 23, 2019

 

On August 23, 2019, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee granted an aggregate of 1,887,000 restricted share units of the Company’s common stock to certain employees, officers and directors of the Company, of which 710,000 restricted share units were granted to the Company’s executive officers and directors. There are two types of vesting schedules, (i) the share units will vest semi-annually in 6 equal installments over a three year period with the first vesting on September 30, 2019; (ii) the share units will vest annual in 3 equal installments over a three year period with the first vesting on March 31, 2021. The fair value of these restricted shares was $0.9 per share on August 23, 2019. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting method.

 

The Company recorded non-cash share-based compensation expense of $161,775$54,845 and $615,871$202,880 for the three and nine months ended September 30, 2020,2021, respectively, in respect of the restricted shares granted on August 23, 2019.

 

The Company recorded non-cash share-based compensation expense of $54,845 and $202,880$23,778 for the three and nine months ended September 30, 2021, respectively,2022, in respect of the restricted shares granted on August 23, 2020.

 

As of September 30, 2021,2022, non-vested restricted share units granted on August 23, 2019 are as follows:

 

Non-vested share units as of January 1, 20212022  855,504277,173 
Granted  - 
Vested  (565,663269,175)
Forfeited  (12,6687,998)
Non-vested share units as of September 30, 20212022  277,173- 

 

As of September 30, 2021,2022, there was no unrecognized stock-based compensation $104,307 associated with the above restricted share units. As of September 30, 2021, 277,165 vested shares were to be issued.

 

Restricted shares granted on October 23, 2020

 

On October 23, 2020, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee granted an aggregate of 100,000 restricted share units of the Company’s common stock to an employee of the Company. In accordance with the vesting schedule of the grant, the restricted shares will vest semi-annually in 6 equal installments over a three year period with the first vesting on October 30, 2020. The fair value of these restricted shares was $3 per share on October 23, 2020. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting method.

 

The Company recorded non-cash share-based compensation expense of $35,948 and $130,485 for three and nine months ended September 30, 2021, respectively, in respect of the restricted shares granted on October 23, 2020.

 

The Company recorded non-cash share-based compensation expense of $11,247 and $33,374 for three and nine months ended September 30, 2022, respectively, in respect of the restricted shares granted on October 23, 2020.

As of September 30, 2021,2022, non-vested restricted share units granted on October 23, 2020 are as follows:

 

Non-vested shares as of January 1, 20212022  83,33349,999 
Vested  (16,667)
Forfeited  - 
Non-vested shares as of September 30, 20212022  66,66633,332 

 

As of September 30, 2021,2022, there was unrecognized stock-based compensation of $77,324$13,569 associated with the above restricted shares. As of September 30, 2021,shares units and nil vested shares were to be issued.


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

On November 29, 2021, pursuant to the Company’s 2015 Plan, the Compensation Committee granted options to obtain an aggregate of 2,750,002 share units of the Company’s common stock to certain employees, officers and directors of the Company, of which options to obtain 350,000 share units were given to the Company’s executive officers and directors with an option exercise price of $1.96 based on fair market value. The vesting of shares each year is subject to certain financial performance indicators. The shares will be vested semi-annually in 10 equal installments over a five year period with the first vesting on May 30, 2022. The options will expire on the 70-month anniversary of the grant date.

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%. The fair value of 350,000 stock options to directors of the Company was $479,599 at the grant date. For the three and nine months ended September 30, 2022, the Company recorded nil as stock compensation expenses.

The fair value of the stock options granted to certain employees and officers 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%. The fair value of 2,400,002 stock options to certain employees and officers of the Company was $2,805,624 at the grant date. During the three and nine months ended September 30, 2022, the Company recorded nil as stock compensation expenses.

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  2,750,002  $1.96  $-   5.7 
Exercisable at January 1, 2022  -   -  $-   - 
                 
Granted  -   -   -   - 
Exercised  -   -   -   - 
Forfeited  -   -   -   - 
Outstanding at September 30, 2022  2,750,002  $1.96  $-   5.0 
Exercisable at September 30 2022  549,958  $1.96  $                  -   5.0 

*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 $1.15 as of September 30, 2022 exceed the average exercise price of the option. As of September 30, 2022, the intrinsic value of the outstanding and exercisable stock options was $nil.

 

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, 2021.2021 and 2022.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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)

 

20.

24. Income (Loss) Per Share

Income (Loss) Per Share

The following is the calculation of income (loss) per share:

 

  Three months ended
September 30,		  Nine months ended
September 30,		 
  2020  2021  2020  2021 
Net income (loss) $41,715  $20,023,221  $(3,510,563) $52,351,612 
Less: Net loss (income) attributable to non-controlling interests  2,532   (3,487)  (2,386)  (21,995)
Net (loss) income attributable to shareholders of CBAK Energy Technology, Inc.  44,247   20,019,734   (3,512,949)  52,329,617 
                 
Weighted average shares outstanding – basic (note)  64,909,894   88,419,998   59,569,498   87,043,490 
Dilutive unvested restricted stock  490,164   289,212   -   305,520 
Weighted average shares outstanding – diluted  65,400,058   88,709,210   59,569,498   87,349,010 
                 
Income (loss) per share of common stock                
Basic $0.00 $0.23  $(0.06) $0.60 
Diluted $0.00 $0.23  $(0.06) $0.60 
  Three months ended
September 30,		  Nine months ended
September 30,		 
  2021  2022  2021  2022 
Net income (loss) $20,023,221  $(848,728) $52,351,612  $848,040 
Less: Net (income) loss attributable to non-controlling interests  (3,487)  848,438   (21,995)  401,313 
Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc. $20,019,734  $(290) $52,329,617  $1,249,353 
                 
Weighted average shares outstanding – basic (note)  88,419,998   88,996,692   87,043,490   88,900,977 
Dilutive unvested restricted stock  289,212   -   305,520   22,288 
Weighted average shares outstanding - diluted  88,709,210   88,996,692   87,349,010   88,923,265 
                 
Income (loss) per share                
- Basic $0.23  $(0.00)* $0.60  $0.01 
- Diluted $0.23  $(0.00)* $0.60  $0.01 

 

Note:*Less than $0.01 per share

Note:Including 284,3325,834 vested restricted shares granted pursuant to the 2015 Plan that were not yet issued for the three and nine months endedas of September 30, 2020;2021 and 282,999 vested restricted shares granted pursuant to the 2015 Plan that were not yet issued for the three and nine months ended September 30, 2021.2022.

 

For the three and nine months ended September 30, 2021, 9,092,499 shares purchasable under warrants were excluded from EPS calculation, as their effects were anti-dilutive.

For the three and nine months ended September 30, 2022, 2,750,002 unvested options and all the outstanding warrants were anti-dilutive and excluded from shares used in the diluted computation.

 

21.Warrants

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 9,489,800 shares of its common stock at a price of $5.18 per share, for aggregate gross proceeds to the Company of approximately $49 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. As part of the transaction, the institutional investors also received warrants (“Investor Warrants”) for the purchase of up to 3,795,920 shares of the Company’s common stock at an exercise price of $6.46 per share exercisable for 36 months from the date of issuance. 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 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.

 


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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.Warrants (continued)

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 9,092,499 warrants issued and outstanding as of September 30, 2021.2022.

 

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 (Inception Date) December 10,
2020		  December 10,
2020		 
Market price per share (USD/share) $5.36  $5.36 
Exercise price (USD/price)  6.46   6.475 
Risk free rate  0.2%  0.2%
Dividend yield  0.0%  0.0%
Expected term/ Contractual life (years)  3.0 years   3.5 years 
Expected volatility  211.5%  211.5%

Warrants holder

 

 Investor
Warrants		  Placement Agent
Warrants		 
Appraisal Date December 31,
2020		  December 31,
2020		  December 31,
2021		  December 31,
2021		 
Market price per share (USD/share) $5.06  $5.06  $1.56  $1.56 
Exercise price (USD/price)  6.46   6.475   6.46   6.475 
Risk free rate  0.2%  0.2%  0.7%  0.8%
Dividend yield  0.0%  0.0%  0.0%  0.0%
Expected term/ Contractual life (years)  2.9 years   3.4 years   1.9 years   2.4 years 
Expected volatility  187.6%  187.6%  140.3%  132.3%

 

Appraisal Date September 30,
2021		  September 30,
2021		  September 30,
2022		  September 30,
2022		 
Market price per share (USD/share) $2.33  $2.33  $1.15  $1.15 
Exercise price (USD/price)  6.46   6.475   6.46   6.475 
Risk free rate  0.3%  0.4%  4.0%  4.2%
Dividend yield  0.0%  0.0%  0.0%  0.0%
Expected term/ Contractual life (years)  2.2 years   2.7 years   1.2 years   1.7 years 
Expected volatility  133.5%  127.4%  88.1%  88.6%

 

Warrants issued in the 2021 Financing

 

Warrants holder Investor Warrants  Placement
Agent
Warrants		  Investor
Warrants		  Placement
Agent
Warrants		 
Appraisal Date (Inception Date) Series A1
February 10,
2021		  Series A2
February 10,
2021		  Series B February 10,
2021		  February 10,
2021		 
Appraisal Date Series A1
December 31,
2021		  December 31,
2021		 
Market price per share (USD/share) $7.36  $7.36  $7.36  $7.36   1.56   1.56 
Exercise price (USD/price)  7.67   7.67   7.83   9.204   7.67   9.204 
Risk free rate  0.2%  0.3%  0.0%  0.2%  0.9%  0.9%
Dividend yield  0.0%  0.0%  0.0%  0.0%  0.0%  0.0%
Expected term/ Contractual life (years)  3.5 years   3.8 years   0.3 years   3.5 years   2.6 years   2.6 years 
Expected volatility  121.8%  119.5%  214.5%  121.8%  129.2%  129.2%

 


 

 

CBAK Energy Technology, Inc. and subsidiaries

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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.Warrants (continued)

25. Warrants (continued)

 

Warrants issued in the 2021 Financing (continued)

 

Warrants holder Investor
Warrants		 Placement Agent
Warrants		  Investor
Warrants		  Placement
Agent
Warrants		 
Appraisal Date Series A1
September 30,
2021  		  September 30,
2021		  Series A1
September 30,
2022		  September 30,
2022		 
Market price per share (USD/share)  2.33   2.33   1.15   1.15 
Exercise price (USD/price)  7.67   9.204   7.67   9.204 
Risk free rate  0.5%  0.5%  4.2%  4.2%
Dividend yield  0.0%  0.0%  0.0%  0.0%
Expected term/ Contractual life (years)  2.9 years   2.9 years     1.9 years   1.9 years 
Expected volatility  126.9%  126.9%  112.8%  112.8%

 

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,  December 31, September 30, 
 2020  2021  2021  2022 
Balance at the beginning of period $-  $17,783,000  $17,783,000  $5,846,000 
Warrants issued to institution investors  17,980,000   47,519,000   47,519,000   - 
Warrants issued to placement agent  1,875,000   2,346,000   2,346,000   - 
Warrants redeemed  -   -   -   - 
Fair value change of warrants included in earnings  (2,072,000)  (57,174,000)  (61,802,000)  (4,699,000)
 $17,783,000  $10,474,000  $5,846,000  $1,147,000 

 

The following is a summary of the warrant activity:

 

  Number of
Warrants		  Average
Exercise Price		  Weighted
Average
Remaining
Contractual
Term in
Years		 
          
Outstanding at January 1, 2021  4,175,512  $6.46   3.0 
Exercisable at January 1, 2021  3,795,920  $6.46   2.9 
Granted  11,621,967   7.79   2.3 
Exercised / surrendered  -   -     
Expired  6,704,980   7.78   - 
Outstanding at September 30, 2021  9,092,499   7.19   2.58 
Exercisable at September 30, 2021  9,092,499   7.19   2.58 
        Weighted 
        Average 
        Remaining 
        Contractual 
  Number of  Average  Term in 
  Warrants  Exercise Price  Years 
          
Outstanding at January 1, 2022  9,092,499  $7.19   2.33 
Exercisable at January 1, 2022  9,092,499  $7.19   2.33 
Granted  -   -   - 
Exercised / surrendered  -   -   - 
Expired  -   -   - 
Outstanding at September 30, 2022  9,092,499   7.19   1.58 
Exercisable at September 30, 2022  9,092,499   7.19   1.58 

 

22.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.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, pledged deposits, trade accounts and bills receivable and payable, other receivables, balances with former subsidiaries, 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.


 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

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.Commitments and Contingencies

26. Commitments and Contingencies

 

(i)Capital Commitments

As of December 31, 20202021 and September 30, 2021,2022, the Company had the following contracted capital commitments:

 

 December 31, September 30,  December 31, September 30, 
 2020  2021  2021  2022 
For construction of buildings $2,465,092  $638,162  $1,199,606  $2,061,786 
For purchases of equipment  10,308,416   8,415,341   12,867,786   12,123,430 
Capital injection  228,115,914   140,386,490   159,905,519   241,431,235 
 $240,889,422  $149,439,993  $173,972,911  $255,616,451 

 

(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 July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’ Court of Zhuanghe City, Dalian, (the “Court of Zhuanghe”) for the failure to pay pursuant to the terms of the contract and entrusting part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,241,648 (RMB8,430,792), including construction costs of $0.9 million (RMB6.1 million, which the Company already accrued for at June 30, 2016), interest of $29,812 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million). On September 7, 2016, upon the request of Shenzhen Huijie for property preservation, the Court of Zhuanghe froze CBAK Power’s bank deposits totaling $1,210,799 (RMB8,430,792) for a period of one year. On September 1, 2017, upon the request of Shenzhen Huijie, the Court of Zhuanghe froze the bank deposits for another one year until August 31, 2018. The Court further froze the bank deposits for another one year until August 27, 2019 upon the request of Shenzhen Huijie on August 27, 2018. On August 27, 2019, the Court froze the bank deposits for another year until August 27, 2020, upon the request of Shenzhen Huijie. On June 28, 2020, the Court of Dalian entered the final judgement as described below and the frozen bank deposit was released in July 2020.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

23.Commitments and Contingencies (continued)

(ii)Litigation (continued) 

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 RMB6,135,860 (approximately $0.9 million) claimed by Shenzhen Huijie as well as other expenses incurred including deferred interest, discounted charge on bills payable, litigation fee and property preservation fee totaled $0.1 million. The Company has accrued for these amounts as of December 31, 2017. On July 24, 2017, CBAK Power filed an appellate petition to the Intermediate Peoples’ Court of Dalian (“Court of Dalian)” to appeal the adjudication dated on June 30, 2017. On November 17, 2017, the Court of Dalian rescinded the original judgement and remanded the case to the Court of Zhuanghe for retrial. The Court of Zhuanghe conducted a retrial and requested an appraisal to be performed by a third-party appraisal institution on the construction cost incurred and completed by Shenzhen Huijie on the subject project. On November 8, 2018, the Company received from the Court of Zhuanghe the construction-cost-appraisal report which determined that the construction cost incurred and completed by Shenzhen Huijie for the subject project to be $1,344,605 (RMB9,129,868). On May 20, 2019, the Court of Zhuanghe entered a judgment that Shenzhen Huijie should pay back to CBAK Power $261,316 (RMB1,774,337) (the amount CBAK Power paid in excess of the construction cost appraised by the appraisal institution) and the interest incurred since April 2, 2019. Shenzhen Huijie filed an appellate petition to the Court of Dalian. On June 28, 2020, the Court of Dalian entered the final judgment that Shenzhen Huijie should pay back to CBAK Power $245,530 (RMB1,667,146) (the amount CBAK Power paid in excess of the construction cost appraised by the appraisal institution) and the interest incurred since April 2, 2019, and reimburse the litigation fees totaling $30,826 (RMB209,312) that CBAK Power has paid. As of September 30, 2021, CBAK Power have not received the final judgement amount totaled $0.3 million (RMB 1,876,458) from Shenzhen Huijie. Shenzhen Huijie filed an appellate petition to High Peoples’ Court of Liaoning (“Court of Liaoning”) to appeal the adjudication dated on June 28, 2020. In April 2021, the Court of Liaoning rescinded the original judgement and remanded the case to the Court of Dalian for retrial. On December 21, 2021, the Court of Dalian remanded the case to the Court of Zhuanghe for retrial. Upon receiving the notice from the Court of Liaoning, CBAK Power has accrued the construction cost of $0.9 million (RMB6,135,860) as of September 30, 2021. 2022.

In May 2017, CBAK Power filed a lawsuit in the Court of Zhuanghe against Pingxiang Anyuan Tourism Bus Manufacturing Co., Ltd., (“Anyuan Bus”) one of CBAK Power’s customers, for failure to pay pursuant to the terms of the sales contract. CBAK Power sought a total amount of RMB18,279,858 ($2,692,173), including goods amount of RMB17,428,000 ($2,566,716) and interest of RMB851,858 ($125,458). On December 19, 2017, the Court of Zhuanghe determined that Anyuan Bus should pay the goods amount of RMB17,428,000 ($2,566,716) and the interest until the goods amount was paid off, and a litigation fee of RMB131,480 ($19,364). Anyuan Bus did not appeal and as a result, the judgment is currently in the enforcement phase. On June 29, 2018, the Company filed application petition with the Court of Zhuanghe for enforcement of the judgement against all of Anyuan Bus’s shareholders, including Jiangxi Zhixin Automobile Co., Ltd, Anyuan Bus Manufacturing Co., Ltd, Anyuan Coal Group Co., Ltd, Qian Ronghua, Qian Bo and Li Junfu. On October 22, 2018, the Court of Zhuanghe issued a judgment supporting the Company’s petition that all the Anyuan Bus’s shareholders should be liable to pay the Company the debt as confirmed under the trial. On November 9, 2018, all the shareholders of Anyuan Bus appealed against the judgment after receiving the notice from the Court. On March 29, 2019, the Company received judgment from the Court of Zhuanghe that all these six shareholders cannot be added as judgment debtors. On April 11, 2019, the Company filed appellate petition to the Intermediate Peoples’ Court of Dalian challenging the judgment from the Court of Zhuanghe. On October 9, 2019, the Intermediate Peoples’ Court of Dalian dismissed the appeal by the Company and affirmed the original judgment. As of December 31, 2020 and September 30, 2021, the Company had made a full provision against the receivable from Anyuan Bus of RMB 17,428,000 ($2,703,424).


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

23.Commitments and Contingencies (continued)

(ii)Litigation (continued) 

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 equipment purchase contract. Haoneng sought a total amount of $266,182 (RMB1,737,797), including equipment purchase cost of $267,428 (RMB1,724,000) and interest amount of $2,106 (RMB13,797). In August 2021, CBAK Power and Haoneng reached an agreement that CBAK Power would pay Haoneng $54,292 (RMB350,000) by end of each month starting from August 2021 and balance of $50,259 (RMB324,000) by end of December 2021 and Haoneng will waive the interest of CBAK Power follow the payment schedule as per the agreement. As of September 30, 2021, CBAK Power has accrued unpaid equipment purchase cost of $158,843 (RMB 1,024,000). In October, CBAK Power has further repaid $54,292 (RMB350,000) to Haoneng according to the payment schedule.

In December 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Haoneng filed another lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Haoneng sought a total amount of $1.57million$1.4 million (RMB10,257,030), including equipment cost of $1.4$1.3 million (RMB9,072,000) and interest amount of $0.17$0.1 million (RMB1,185,030). In August 2021, CBAK Power and Haoneng reached an agreement that the term of the purchase contract will be extended to December 31, 2023 under which CBAK Power and its related parties shall execute the purchase of equipment in an amount not lower than RMB 15,120,000$2.1 million (RMB15,120,000) from Haoneng, or CBAK Power has to pay 15% of the amount equal to RMB 15,120,000 lessRMB15,120,000 ($2.1 million) net of the purchased amount fromto Haoneng. Haoneng withdrew the filed lawsuit against CBAK Power after the agreement is signed.agreement. As of September 30, 2021,2022, the equipment was not received by CBAK Power and CBAK Power has included the equipment cost of $1.4$2.1 million (RMB9,072,000)(RMB15,120,000) under capital commitments.

 


 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

24.Concentrations and Credit Risk

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 10% or more of net revenue for the three months ended September 30, 20202021 and 20212022 as follows:

 

 Three months ended
September 30,		  Three months ended September 30, 
 2020 2021  2021  2022 
Sales of finished goods and raw materials                  
Customer A $1,588,192   14.95% $*  * $3,103,626   32.46% $*   * 
Customer C  1,278,893   12.04%  3,103,626   32.46%  *   *   5,935,356   10.28%
Customer D  *   *   1,081,071   11.31%  1,081,071   11.31%  *   * 
Zhengzhou BAK Battery Co., Ltd (note a)  4,269,312   40.20%  *   * 
Zhengzhou BAK New Energy Technology Co., Ltd (note d)  1,896,207   17.85%  *   * 
Customer E  *   *   9,097,887   15.76%
Customer F  *   *   16,259,769   28.17%

*Comprised less than 10% of net revenue for the respective period.

The Company had the following customers that individually comprised 10% or more of net revenue for the nine months ended September 30, 20202021 and 20212022 as follows:

 Nine months ended
September 30,		  Nine months ended September 30, 
 2020 2021  2021  2022 
Sales of finished goods and raw materials                  
Customer A $5,793,828   26.16% $2,583,245   10.39% $4,693,308   18.87% $*   * 
Customer B  *   *   2,777,456   11.17%  *   *   23,190,022   11.94%
Customer C  2,908,728   13.13%  4,693,308   18.87%  2,777,456   11.17%  *   * 
Customer D  *   *   3,360,174   13.51%  3,360,174   13.51%  *   * 
Customer E  3,787,585   17.10%  *   *   *   *   24,844,997   12.79%
Customer F  *   *   22,263,958   11.46%
Customer G  2,583,245   10.39%  *   * 
Customer H  2,541,248   10.22%  *   * 
Zhengzhou BAK Battery Co., Ltd (note a)  4,269,312   19.28

%

  *   *   *   *   52,064,148   26.80%

*Comprised less than 10% of net revenue for the respective period.

The Company had the following customers that individually comprised 10% or more of accounts receivable (net) as of December 31, 20202021 and September 30, 20212022 as follows:

  December 31,
2020		  September 30,
2021		 
Customer A $3,148,737   11.23% $2,845,127   12.94%
Customer C  *   *   3,538,038   16.10%
Zhengzhou BAK Battery Co., Ltd (note a)  15,258,164   54.42%  4,562,413   20.76%
  December 31,  September 30, 
  2021  2022 
Customer B $14,443,551   32.76% $*   * 
Zhengzhou BAK Battery Co., Ltd (note 16)  14,583,061   33.08%  10,894,917   53.59%

*Comprised less than 10% of account receivable (net) for the respective period.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

24.Concentrations and Credit Risk (continued)

(a)Concentrations (continued)

The Company had the following suppliers that individually comprised 10% or more of net purchase for the three months ended September 30, 20202021 and 20212022 as follows:

  Three months ended September 30, 
  2020  2021 
Supplier A $*  * $810,963   13.29%
Supplier B  4,329,602   72.65%  704,401   11.54%
  Three months ended September 30, 
  2021  2022 
Supplier C $*   *   $ 5,449,408   10.72%
Supplier D  *   *   5,271,460   10.37%
Supplier F  810,963   13.29%  *   * 
Supplier G  704,401   11.54%  *   * 
Zhengzhou BAK Battery Co., Ltd (note 16)  *   *   10,624,282   20.90%


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 10% or more of net purchase for the nine months ended September 30, 20202021 and 20212022 as follows:

 Nine months ended September 30,  Nine months ended September 30, 
 2020 2021  2021  2022 
Supplier B  4,329,602   36.47%  *   * 
Supplier A $*   *  $30,906,898   16.05%
Shenzhen BAK (note b)  3,841,680   32.35%  *   *   *   *   19,851,008   10.31%
Zhengzhou BAK Battery Co., Ltd (note 16)  *   *   25,743,966   13.37%

*Comprised less than 10% of net purchase for the respective period.

The Company had the following suppliers that individually comprised 10% or more of accounts payable as of December 31, 20202021 and September 30, 20212022 as follows:

 December 31,
2020		 September 30,
2021		  December 31,  September 30, 
 2021  2022 
Supplier A $6,837,722   16.94% $5,895,560   18.31%
Supplier B $9,272,478   47.40% $*  *  20,592,979   51.03%  *   * 
Supplier C  2,017,814   10.32%  970,564   17.99%  *   *   3,803,753   11.81%
Supplier D  *   *   709,952   13.16%
Supplier E  *   *   3,424,539   10.63%

Apart from the above, for the three and nine months ended September 30, 2020 and 2021, the Company recorded the following transactions:

  Three months ended
September 30,		  Nine months ended
September 30,		 
  2020  2021  2020  2021 
Purchase of inventories from            
Zhengzhou BAK Battery Co., Ltd (note a)  -   477,185   -   1,736,494 
                 
Sales of finished goods and raw materials to                
BAK Shenzhen (note b)  -   -       18,402 
Zhengzhou BAK Electronics Co., Ltd (note c)  -   746   -   413,099 
Zhengzhou BAK Battery Co., Ltd (note a)  -   6,982       148,564 

Apart from the above, the Company recorded the following as of December 31, 2020 and September 30, 2021:

  December 31,
2020		  September 30,
2021		 
Trade accounts and bills receivables, net      
Zhengzhou BAK Electronics Co., Ltd (note c) $  -   422,080 
Zhengzhou BAK New Energy Technology Co., Ltd (note d)  1,759,050   840,675 

Notes:
aMr. Xiangqian Li, the Company’s former CEO, is a director of Zhengzhou BAK Battery Co., Ltd.
bMr. Xiangqian Li is a director of BAK Shenzhen and Shenzhen BAK.
c

BAK Shenzhen has 95% equity interests in Zhengzhou BAK Electronics Co., Ltd. Up to the date of this report, Zhengzhou BAK Electronics Co., Ltd. repaid $27,839 to the Company.

d

Mr. Xiangqian Li, is a director of Zhengzhou BAK New Energy Technology Co., Ltd. Up to the date of this report, Zhengzhou BAK New Energy Technology Co., Ltd repaid $219,943 to the Company.


CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2020 and 2021
(Unaudited)
(In US$ except for number of shares)

24.Concentrations and Credit Risk (continued)

(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, 20202021 and September 30, 2021,2022, 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.

25.Segment Information

28. Segment Information

The Company used to engageGroup’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 1 businessNote 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 $9,562,190  $-  $9,562,190 
Cost of revenues  (8,430,808)  -   (8,430,808)
Gross profit  1,131,382   -   1,131,382 
Total operating expenses  (3,941,349)  (364,079)  (4,305,428)
Operating loss  (2,809,967)  (364,079)  (3,174,046)
Finance income, net  128,381   959   129,340 
Other income, net  69,970   22,997,957  23,067,927 
Income tax (expense) credit  -   -   - 
Net (loss) income  (2,611,616)  22,634,837   20,023,221 


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 $25,845,959  $31,875,733  $-  $57,721,692 
Cost of revenues  (23,603,029)  (30,658,215)  -   (54,261,244)
Gross profit  2,242,930   1,217,518   -   3,460,448 
Total operating expenses  (2,485,812)  (2,352,448)  (104,921)  (4,943,181)

Operating loss

  (242,882)  (1,134,930)  (104,921)  (1,482,733)
Finance income (expenses), net  214,947   (134,115)  606,513   687,345 
Other (expenses) income, net  1,092,252   (2,083,604)  936,000   (55,352)
Income tax credit  -   2,012   -   2,012 
Net income (loss)  1,064,317   (3,350,637)  1,437,592   (848,728)

For the nine months ended September 30, 2021 CBAT  Corporate
unallocated
(note)		  Consolidated 
Net revenues $24,867,393  $-  $24,867,393 
Cost of revenues  (20,798,931)  -   (20,798,931)
Gross profit  4,068,462   -   4,068,462 
Total operating expenses  (8,468,184)  (1,525,717)  (9,993,901)
Operating loss  (4,399,722)  (1,525,717)  (5,925,439)
Finance income, net  166,532   7,910   174,442 
Other income, net  1,619,194   56,483,415   58,102,609 
Income tax (expense) credit  -   -   - 
Net (loss) income  (2,613,996)  54,965,608   52,351,612 

For the nine months ended September 30, 2022 CBAT  Hitrans  Corporate
unallocated
(note)		  Consolidated 
Net revenues $66,582,060  $127,685,590  $-  $194,267,650 
Cost of revenues  (60,519,919)  (119,435,621)  -   (179,955,540)
Gross profit  6,062,141   8,249,969   -   14,312,110 
Total operating expenses  (8,754,644)  (7,382,703)  (848,268)  (16,985,615)
Operating (loss) income  (2,692,503)  867,266   (848,268)  (2,673,505)
Finance income (expenses), net  405,773   (333,680)  (224)  71,869 
Other (expenses) income, net  871,588   (2,036,682)  4,699,000   3,533,906 
Income tax expenses  -   (84,230)  -   (84,230)
Net (loss) income  (1,415,142)  (1,587,326)  3,850,508   848,040 
                 
As of September 30, 2022                
Identifiable long-lived assets  91,615,396   25,844,129   -   117,459,525 
Total assets  176,060,305   75,154,979   257,852   251,473,136 

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.


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 $6  $19,688  $101,378  $19,991 
Light electric vehicles  227,333   1,146,370   335,896   1,906,578 
Uninterruptable supplies  9,335,146   24,679,901   23,911,865   64,655,491 
Trading of raw material used in lithium batteries  (295)  -   518,254   - 
   9,562,190   25,845,959   24,867,393   66,582,060 
                 
Materials used in manufacturing of lithium batteries                
Cathode  -   11,195,810   -   66,082,467 
Precursor  -   20,679,923   -   61,603,123 
   -   31,875,733   -   127,685,590 
Total consolidated revenue $9,562,190  $57,721,692  $24,867,393  $194,267,650 

After the disposal of BAK International and its subsidiaries (see Note 1), the Company focused on producing high-power lithium battery cells. Net revenues for the three and nine months ended September 30, 2020 and 2021 were as follows:

Net revenues by product:

  Three months ended
September 30,		  Nine months ended
September 30,		 
  2020  2021  2020  2021 
High power lithium batteries used in:            
Electric vehicles $407,802  $6  $741,657  $101,378 
Light electric vehicles  22,859   227,333   26,203   335,896 
Uninterruptable supplies  5,920,683   9,335,146   17,109,005   23,911,865 
   6,351,344   9,562,485   17,876,865   24,349,139 
Raw materials used in lithium batteries  4,269,312   (295)  4,269,312   518,254 
Total $10,620,656  $9,562,190  $22,146,177  $24,867,393 

Net revenues by geographic area:

  Three months ended
September 30,		  Nine months ended
September 30,		 
  2020  2021  2020  2021 
Mainland China $10,007,044  $8,302,259  $21,243,763  $21,304,496 
Europe  506,606   1,042,996   770,406   3,322,534 
Others  107,006   216,935   132,008   240,363 
Total $10,620,656  $9,562,190  $22,146,177  $24,867,393 

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 $8,302,259   42,538,023  $21,304,496  $157,154,465 
Europe  1,042,996   15,033,148   3,322,534   36,908,248 
Others  216,935   150,521   240,363   204,937 
Total $9,562,190  $57,721,692  $24,867,393  $194,267,650 

Substantially all of the Company’s long-lived assets are located in the PRC.

29. Subsequent events

In October 2022, the Company has repaid RMB56 million (approximately $7.9 million) loan which obtained from Shaoxing Branch of Bank of Communications Co., Ltd and drawn down another RMB56 million (approximately $7.9 million) on the repayment date under the same facilities for an annual interest rate at 4.15%, repayable by May 16, 2023.


 

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, 2020,2021, 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);


●“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 most of our operating assets, including customers, employees, patents and technologies from our former subsidiary BAK International (Tianjin) Ltd. (“BAK Tianjin”). We acquired these assets in June 2014, in exchange for a reduction in accounts receivable from our former subsidiaries that were disposed of in June 2014.at the same time.

As of September 30, 2021,2022, we report financial and operational information in one segment:two segments: (i) production of high-power lithium battery cells production.and (ii) manufacture and sales of materials used in lithium batteries.

We currently conduct our business through seven(i) three wholly-owned operating subsidiaries in China. WeChina that we own these operating subsidiaries through BAK Asia, and BAK Investments, which arean investment holding companiescompany formed under the laws of Hong Kong.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, 20202021 filed on April 13, 202115, 2022 and other reports filed with the SEC, we have been expanding ourcompleted capital intensive construction undertakings in Nanjing to expand the Company’s manufacturing capabilities through constructionfor lithium batteries in the second half of new production lines in Nanjing and Dalian, China. To maintain our competitive position, we are also developing the model 32140 large-sized cylindrical “tabless” battery and the special 26650 lithium battery designed for application in ultra-low temperature.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 light electric vehicle business via our PRC subsidiary, Nanjing Daxin. On January 18, 2021, Nanjing Daxin established a branch in Tianjin City for the production of light electric vehicles. On August 4, 2021, Nanjing Daxin established a wholly owned subsidiary, Daxin New Energy Automobile Technology (Jiangsu) Co., Ltd., or Jiangsu Daxin, to focus on light electric vehicle technology.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 profitability sustainedly.sustainable profitability.

Recent Financing Activities

On February 8, 2021, we entered into a securities purchase agreement with certain 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. We completed another registered direct offering with the same investors in December 2020. See the “Liquidity and Capital Resources” section below for more details.

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 September 30, 2021, Series B warrants, together with Series A-2 warrants, all expired.

Recent Business Developments

Hitrans Acquisition

On April 1, 2021, CBAK Power entered into a framework investment agreement (the “Letter of Intent”) with Hangzhou Juzhong Daxin Asset Management Co., Ltd. ("Juzhong Daxin") for a potential acquisition of Zhejiang Hitrans Lithium Battery Technology Co., Ltd ("Hitrans," formerly known as Zhejiang Meidu Hitrans Lithium Battery Technology Co., Ltd). Juzhong Daxin was the trustee of 85% of equity interests of Hitrans and had the voting right and right to dividend over the 85% of equity interests. Subject to definitive acquisition agreements to be entered into among the parties, including shareholders owning the 85% equity interests of Hitrans, CBAK Power intended to acquire 85% of equity interests of Hitrans in cash in 2021, and CBAK Power paid $3.10 million (RMB20,000,000) to Juzhong Daxin as a security deposit in connection with the Letter of Intent. Hitrans is an unrelated third party of the Company engaging in researching, manufacturing and sale of battery raw materials and is one of the major suppliers of the Company in fiscal 2020.


 

On July 20, 2021, CBAK Power entered into that certain framework agreement relating to CBAK Power’s investment in Hitrans, pursuant to which CBAK Power will acquire 81.56% of the equity interests of Hitrans (the “Acquisition Agreement”). Under the Acquisition Agreement, CBAK Power will acquire 60% ownership of Hitrans from Zhejiang Meidu Graphene Technology Co., Ltd. (“Meidu Graphene”) valued at RMB118 million ($18.27 million) and 21.56% ownership of Hitrans from Hitrans’s management shareholders valued at approximately RMB40.74 million ($6.31 million). Two individuals among Hitrans management shareholders, including Hitrans’s CEO, Mr. Haijun Wu (“Mr. Wu”), will keep 2.50% ownership of Hitrans and New Era Group Zhejiang New Energy Materials Co., Ltd. (“New Era”) will continue to hold 15% ownership of Hitrans after the acquisition.

As of the date of the Acquisition Agreement, the 25% ownership of Hitrans held by Hitrans management shareholders was frozen as a result of a lawsuit arising from the default by Hitrans management shareholders on debts borrowed from Zhejiang Meidu Pawn Co., Ltd. (“Pawn Co.”) whereby the 25% ownership of Hitrans was pledged as collateral. Pursuant to the Acquisition Agreement, Mr. Junnan Ye (“Mr. Ye”), acting as an intermediary, shall first acquire 22.5% ownership of Hitrans, free of any encumbrances, from Hitrans management shareholders. Within five days of CBAK Power’s obtaining 21.56% ownership of Hitrans from Mr. Ye, CBAK Power shall pay approximately RMB40.74 million ($6.31 million) in cash, which amount shall be used toward the repayment of debts due to Pawn Co. On July 23, 2021, CBAK Power paid RMB40.74 million (approximately $6.31 million) in cash to Mr. Ye.

In addition, as of the date of the Acquisition Agreement, Meidu Graphene’s 60% ownership of Hitrans was frozen as a result of a court proceeding arising from Hitrans’s failure to make payments to New Era in connection with the purchase of land use rights, plants, equipment, pollution discharge permit and other assets (the “Assets”) under certain asset transfer agreements as well as Meidu Graphene’s guarantee for Hitrans’s payment obligations thereunder. As a part of the transaction, CBAK Power entered into a loan agreement with Hitrans to lend Hitrans approximately RMB131 million ($20.28 million) (the “Hitrans Loan”) by remitting approximately RMB131 million ($20.28 million) into the account of Shaoxing Intermediate People’s Court (the “Court”) to remove the freeze on Meidu Graphene’s 60% ownership of Hitrans. Pursuant to the Acquisition Agreement, Juzhong Daxin shall return RMB15 million ($2.32 million) of the security deposit to CBAK Power before CBAK Power wires approximately RMB131 million ($20.28 million) to the Court and will retain RMB5 million ($0.77 million) as commission for facilitating the acquisition. As of the date of this report, Juzhong Daxin returned RMB7 million ($1.1 million) of the security deposit to CBAK Power.

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 60% ownership of Hitrans, free of any encumbrances, from Meidu Graphene. Thereafter, CBAK Power will assign RMB118 million ($18.27 million) of the Hitrans Loan to Mr. Junnan Ye as consideration for the acquisition of 60% ownership of Hitrans from Mr. Ye (the “Assignment”). Hitrans shall repay RMB118 million ($18.27 million) to Mr. Ye in accordance with a separate loan repayment agreement (the “Loan Repayment Agreement”) to be entered into among Mr. Ye, Hitrans, CBAK Power and Mr. Haijun Wu, the CEO of Hitrans. Under the Loan Repayment Agreement, Hitrans shall repay Mr. Ye at least RMB70 million ($10.84 million) within two months of obtaining the title to the Assets from New Era and the remaining balance by December 31, 2021, with a fixed interest of RMB3.5 million ($0.54 million) which can be reduced by up to RMB1 million ($0.15 million) if the loan is repaid before its due date. CBAK Power provides guarantee to Mr. Ye on Hitrans’s repayment obligations under the Loan Repayment Agreement. Hitrans shall repay the remaining approximately RMB13 million ($2.01 million) of the Hitrans Loan to CBAK Power at an interest rate of 6% per annum, maturing in one year from the date of the Assignment.

We disclosed the terms of the Acquisition Agreement in a current report on Form 8-K filed on July 26, 2021. As of the date of this report, the transfer of 81.56% ownership of Hitrans to CBAK Power has been registered with the local government and CBAK Power has paid approximately RMB40.74 million (approximately $6.31 million) in cash to Mr. Ye. In addition, CBAK Power has wired approximately RMB131 million (approximately $20.28 million) to the Court and Juzhong Daxin returned RMB7 million ($1.1 million) of the security deposit to CBAK Power. We expect to close the acquisition of 81.56% ownership of Hitrans upon the satisfaction of all closing conditions in the Acquisition Agreement, including that Hitrans obtains the title to all the assets.


Financial Performance Highlights for the Quarter Ended September 30, 20212022

The following are some financial highlights for the quarter ended September 30, 2021:2022:

●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%.

 ●Net revenues:Fully diluted income (loss) per share: Net revenues decreased by $1.1 million, or 10.0%, to $9.6 millionFully diluted loss per share was $0.00 forthe three months ended September 30, 2021, from $10.6 million2022, as compared to fully diluted income per share of $0.23 for the same period in 2020. However, net revenues from sales of high power lithium batteries increased by 51% for the three months ended September 30, 2021 as compared to the same period of 2020.
●Gross profit: Gross profit was $1.1 million, representing a decrease of $0.3 million, for the three months ended September 30, 2021, from gross profit of $1.4 million for the same period in 2020.
●Operating profit (loss): Operating loss was $3.2 million for the three months ended September 30, 2021, reflecting an increase of $3.6 million in loss from an operating profit of $0.4 million for the same period in 2020.
●Net profit (loss): Net profit was $20.0 million for the three months ended September 30, 2021, compared to a net profit of $41,715 for the same period in 2020, reflecting an increase of $20.0 million, or 47,437%.
●Fully diluted income per share: Fully diluted income per share was $0.23 for the three months ended September 30, 2021, as compared to fully diluted loss per share of $0.0007 for the same period in 2020.2021.

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.


 

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 subsidiary BAK Asia and BAK Investmentssubsidiaries are subject to a profits tax at a rate of 16.5%. However, becausesince we did not have any assessable income derived from or arising in Hong Kong, PRC, our Hong Kongthe subsidiaries had not paid any such tax.

Results of Operations

Comparison of Three Months Ended September 30, 20202021 and 20212022

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  Three Months ended
September 30,		 Change 
 2020 2021 $ %  2021 2022 $ % 
Net revenues $10,620  $9,562   (1,058)  (10) $9,562 $57,722 48,160 504 
Cost of revenues  (9,246)  (8,430)  816   (9)  (8,430)  (54,262)  (45,832) 544 
Gross profit  1,374   1,132   (242)  (18) 1,132 3,460 2,328 206 
Operating expenses:                         
Research and development expenses  446   1,816   1,370   307  1,816 2,385 569 31 
Sales and marketing expenses  158   510   352   223  510 835 325 64 
General and administrative expenses  741   2,159   1,418   191  2,159 1,866 (293) -14 
Recovery of doubtful accounts  (364)  (178)  186   (51)  (178)  (143)  35 -20 
Total operating expenses  981   4,307   3,326   339   4,307  4,943  636 15 
Operating profit (loss)  393   (3,175)  (3,568)  (908) (3,175) (1,483) 1,692 -53 
Finance expenses, net  (358)  129   487   (136)
Other income, net  6   70   64   1067 
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   -  1 - (1) -100 
Change in fair value of warrants  -   22,998   22,998   -   22,998  936  (22,062) -96 

Income before income tax

  41   20,023   19,982   48,737 
Income tax expenses  -   -   -   - 
Net income  41   20,023   19,982   48,737 
Less: Net income (loss) attributable to non-controlling interests  3   (4)  (7)  (233)
Net income attributable to shareholders of CBAK Energy Technology, Inc. $44  $20,019   19,975   45,398 
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 $9.6$57.7 million for the three months ended September 30, 2021,2022, as compared to $10.6$9.6 million for the same period in 2020,2021, representing a decreasean increase of $1.06$48.2 million, or 10.0%504%.


 

The following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries.or product types.

(All amounts, other than percentages, in thousands of U.S. dollars other than percentages)dollars)

 Three months ended
September 30,		  Change  Three months ended
September 30,		  Change 
 2020  2021  $  %  2021  2022  $  % 
High power lithium batteries used in:                  
Electric vehicles $408  $1   (408)  (100) $-   20   20   n/a 
Light electric vehicles  23   227   204   887   227   1,147   920   405 
Uninterruptable supplies  5,920   9,336   3,416   58   9,336   24,679   15,343   164 
Trading of raw materials used in lithium batteries  -1   -   1   -100 
 $6,351  $9,563   3,212   51   9,562   25,846   16,284   170 
Raw materials used in lithium batteries  4,269   (1)  (4,270)  (100)
                
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 $10,620  $9,562   (1,058)  (10) $9,562  $57,722   48,160   504 

 

Net revenues from sales of batteries for electric vehicles were $6$0.02 million for the three months ended September 30, 20212022 as compared to $0.4 millionnil in the same period of 2020,2021, representing a decrease of $0.4 million, or 100%. increase.

Net revenues from sales of batteries for light electric vehicles was $0.2were $1.1 million for the three months ended September 30, 2021,2022, as compared to $22,859$0.2 million in the same period of 2020,2021, marking an increase of $0.2$0.9 million, or 887%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 was $9.3were $24.7 million for the three months ended September 30, 2021,2022, as compared with $5.9$9.3 million in the same period in 2020,2021, representing an increase of $3.4$15.3 million, or 58%164%. We maintain our focus on this market, and salesales of batteries for uninterruptable power supplies continue to grow fast.

 

Overall, net revenues from sales of high power lithium batteries totaled $9.6$25.8 million for the three months ended September 30, 2021,2022, representing a year-over-year growth of 51%170% compared to $9.6 million for the same period of 2020. The new production line installation in the Dalian plant had a temporarily adverse impact on its existing production during the three months ended September 30, 2021.

 

Net revenues from sales of raw materials used in manufacturing of lithium batteries were nil$31.9 million for the three months ended September 30, 2021,2022, as compared with $4.3 million into nil for the same period in 2020, representing a decrease of $4.3million. The Company did not make new2021. Revenue from sales of battery raw material trades in this quartermaterials was attributable to the newly acquired subsidiary, Hitrans, a leading producer of raw materials such as cathode and had a minor adjustment in revenues from previousprecursor for lithium batteries. We aim to strengthen the battery production ecosystem as we seek stable raw material trades.supply and drive greater revenue for our business.

 

Cost of revenues. Cost of revenues was $8.4$54.3 million for the three months ended September 30, 2021,2022, as compared with $9.2$8.4 million in the same period in 2020.2021. Cost of revenues includes write-down of obsolete inventories which was $0.3 million and $0.2 million for boththe three months ended September 30, 20212022 and 2020,2021, 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 continue to deteriorate.

Gross profit.

Gross profit.Gross profit for the three months ended September 30, 20212022 was $1.1$3.5 million, or 12%6% of net revenues, as compared to $1.4$1.1 million, or 13%12% of net revenues for the same period in 2020. The inflation2021. Gross profit margin decreased mainly due to the increase in raw material prices and the sales of the price of raw materials resultedused in an increase of costs. As a result, we recordedmanufacturing lithium batteries which have a lower gross profit margin for the three months ended September 30, 2021 as compared with the same period in 2020.margin.

Research and development expensesexpenses.. Research and development expenses increased to $1.8$2.4 million for the three months ended September 30, 2021,2022, as compared to $0.4$1.8 million for the same period in 2020,2021, an increase of $1.4$0.6 million, or 307%31%. The increase was primarily resulted from the increase in R&D employees’ salaries and social insurancebenefit expenses by approximately $0.6$0.3 million. R&D employees’ salaries and social insurancebenefit expenses increased due to incorporating R&D personnel of Hitrans and a growing number of R&D employees at Nanjing CBAK and Nanjing Daxin as well as the expiration of the Chinese government’s COVID-19 relief policy that alleviated corporations’ social insurance burdens. We also incurred design and development expenses relating to light electric vehicles of $0.4 million and nil for the three months ended September 30, 2021 and 2020, respectively.CBAK. In addition, we incurred expenses for materials used in battery research and development of $0.4$0.2 million and $29,357 for the three months ended September 30, 20212022 and 2020,2021, respectively, as a result of our efforts to research and develop upgraded battery products with lower costs and better performance.

Sales and marketing expenses.Sales and marketing expenses increased to $0.5$0.8 million for the three months ended September 30, 2021,2022, as compared to approximately $0.2$0.5 million for the same period in 2020,2021, an increaseincrease of approximately $0.3 million, or 223%64%. As a percentage of revenues, sales and marketing expenses were 5.3%1.5% and 1.5%5% of net revenues for the three months ended September 30, 2022 and 2021, respectively. We incurred shipping and 2020, respectively. The increase was resulted from an increasecustom declaration expenses of salaries, social insurance$0.3 million and staff welfare expenses$0.1 million for salesthe three months ended September 30, 2022 and marketing employees by approximately $0.2 million. Sales and marketing employees’ social insurance expenses increased in part due2021, respectively, as we secured more overseas orders for the three months ended September 30, 2022 compared to the expiration of the Chinese government’s COVID-19 relief policy that alleviated corporations’ social insurance burdens. Moreover, in light of our good revenue performance, we increased sales and marketing employees’ salaries and welfare.2021.


 

General and administrative expenses. General and administrative expenses increaseddecreased to $2.2$1.9 million for the three months ended September 30, 2021,2022, as compared to approximately $0.7$2.2 million for the same period in 2020, an increase2021, a decrease of approximately $1.5$0.3 million, or 191%14%. The increasedecrease was primarily a result of the significant increasedecrease in administrative employees’ salarieslegal fee and social insurance expenses by approximately $0.6 million. Administrative employees’ social insurance expenses increased due tolisting related fees incurred as a growing number of employees at Nanjing CBAK and Nanjing Daxin as well as the expiration of the Chinese government’s COVID-19 relief policy that alleviated corporations’ social insurance burdens. In addition, our rental expenses increased by approximately $0.2 million, as Nanjing CBAK and Nanjing Daxin rented warehouse and staff dormitory.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, 2021, as compared to a recovery of doubtful accounts of $0.4 million for the same period in 2020.2022 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 infor both of the three months ended September 30, 2022 and 2021.

 

Operating profit (loss)loss. As a result of the above, our operating loss totaled $3.2$1.5 million for the three months ended September 30, 2021,2022, as compared to an operating profitloss of $0.4$3.2 million for the same period in 2020,2021, representing a decrease in operating profitloss of $3.6$1.7 million.

 

Finance income, (expenses), net.Finance income, net was $0.1$0.7 million for the three months ended September 30, 2021,2022, as compared to finance expensesincome of $0.4$0.1 million for the same period in 2020,2021, representing an increase in income of $0.5$0.6 million, or 136% as a result433%. The increase was mainly resulted from the change of lower loan balances in 2021 and more interest income generated from vehicle leasing.exchange rates.

 

Other income (expenses), net.Other income was $69,970expenses were $1 million for the three months ended September 30, 2021,2022, as compared to other income of $5,873$69,970 for the same period 2020.2021. 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, and 2020, respectively.

Net income.As a result of the foregoing, we had a net incomeloss of $20.0 million$290 for the three months ended September 30, 2021,2022, compared to a net income of $41,715$20.0 million for the same period in 2020.2021.

Comparison of Nine Months Ended September 30, 20202021 and 20212022

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  Nine Months ended
September 30,		  Change 
 2020 2021 $ %  2021  2022  $  % 
Net revenues $22,146  $24,867   2,721   12  $24,867  $194,268   169,401   681 
Cost of revenues  (20,478)  (20,798)  (320)  2   (20,798)  (179,956)  (159,158)  765 
Gross profit  1,668   4,069   2,401   144   4,069   14,312   10,243   252 
Operating expenses:                                
Research and development expenses  1,130   3,345   2,215   196   3,345   7,998   4,653   139 
Sales and marketing expenses  352   1,263   911   259   1,263   2,362   1,099   87 
General and administrative expenses  2,614   5,824   3,210   123   5,824   6,557   733   13 
Provision for (recovery of) doubtful accounts  64   (437)  (501)  (783)
(Recovery of) provision for doubtful accounts  (437)  69   506   -116 
Total operating expenses  4,160   9,995   5,835   140   9,995   16,986   6,991   70 
Operating loss  (2,492)  (5,926)  (3,434)  (138)  (5,926)  (2,674)  3,252   -55 
Finance (expenses) income, net  (1,171)  174   1,345   115 
Other income, net  152   1,619   1,467   965 
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)  -   (690)  -   690   -100 
Change in fair value of warrants  -   57,174   57,174   -   57,174   4,699   (52,475)  -92 
(Loss) income before income tax  (3,511)  52,351   55,862   1591 
Income before income tax  52,351   932   (51,419)  -98 
Income tax expenses  -   -   -   -   -   (84)  (84)  n/a 
Net (loss) income  (3,511)  52,351   55,862   1591 
Less: Net loss attributable to non-controlling interests  (2)  (22)  (20)  (1000)
Net (loss) income attributable to shareholders of CBAK Energy Technology, Inc.  (3,513)  52,329   55,842   1590 
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 $24.9$194 million for the nine months ended September 30, 2021,2022, as compared to $22.1$24.9 million for the same period in 2020,2021, representing an increase of $2.7$169.4 million, or 12%681%.


 

The following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries.or product type.

(All amounts, other than percentages, in thousands of U.S. dollars other than percentages)dollars)

 Nine months ended
September 30,		 Change  Nine months ended
September 30,		  Change 
 2020 2021 $ %  2021  2022  $  % 
High power lithium batteries used in:                  
Electric vehicles $742  $101   (641)  (86) $101   20   -81   -80 
Light electric vehicles  26   336   310   1192   336   1,907   1,571   468 
Uninterruptable supplies  17,109   23,912   6,803   40   23,912   64,655   40,743   170 
Trading of raw materials used in lithium batteries  518   -   -518   -100 
  17,877   24,349   6,472   36   24,867   66,582   41,715   168 
Raw materials used in lithium batteries  4,269   518   (3,751)  (88)
                
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 $22,146  $24,867   2,721   12  $24,867  $194,268   169,401   681 

Net revenues from sales of batteries for electric vehicles was $0.1 millionwere $19,991 for the nine months ended September 30, 20212022 as compared to $0.7$0.1 million in the same period of 2020,2021, representing a decrease of $0.6 million,$81,387, or 86%80%.

Net revenues from sales of batteries for light electric vehicles was $0.3were $1.9 million for the nine months ended September 30, 2021,2022, as compared to $26,203$0.3 million in the same period of 2020,2021, marking an increase of $0.3$1.6 million, or 1,192%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 was $23.9were $64.7 million in the nine months ended September 30, 2021,2022, as compared with $17.1$23.9 million in the same period in 2020,2021, representing an increase of $6.8$40.7 million, or 40%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 raw materials used in manufacturing of lithium batteries were $0.5$127.7 million for the nine months ended September 30, 2021,2022, as compared with $4.2 million into nil for the same period in 2020, representingof 2021. Revenue from sales of battery raw materials was attributable to the newly acquired subsidiary, Hitrans, a decreaseleading producer of $3.8 million, or 88%.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 $20.8$180.0 million for the nine months ended September 30, 2021,2022, as compared to $20.5$20.8 million for the same period in 2020,2021, an increase of $0.3$159.2 million, or 2%765%. Cost of revenues included write-down of obsolete inventories which were $0.7$1.2 million for both nine months ended September 30, 20212022 and 2020.2021. 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 continue to deteriorate.

Gross profit. Gross profit for the nine months ended September 30, 20212022 was $4.1$14.3 million, or 16%7.4% of net revenues as compared to $1.7$4.1 million, or 8%16% of net revenues, for the same period in 2020,2021, representing an increase in gross profit of $2.4$10.2 million. Gross profit margin improveddecreased mainly due to productivitythe increase cost controlin raw material prices and upgrades to production lines.the sales of materials used in manufacturing lithium batteries which have a lower profit margin.

Research and development expensesexpenses.. Research and development expenses increased to approximately $3.3$8.0 million for the nine months ended September 30, 2021,2022, as compared to approximately $1.1$3.3 million for the same period in 2020,2021, an increase of $2.2$4.7 million, or 196%139%. The increase was primarily resulted from an increase in R&D employees’ salaries and social insurancebenefit expenses by approximately $1.1$1.8 million. R&D employees’ social insurancebenefit expenses increased due to incorporating Hitrans’s personnel and a growing number of employees at Nanjing CBAK and Nanjing Daxin as well as the expiration of Chinese government’s COVID-19 relief policy that alleviated corporations’ social insurance burdens. We alsoCBAK. In addition, we incurred design$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 relating to light electric vehicles of $0.6 million and nil forby incorporating Hitrans’s R&D expenses during the nine months ended September 30, 2021 and 2020, respectively. In addition, we incurred expenses for materials used in battery research and development of $0.4 million and $29,357 for the nine months ended September 30, 2021 and 2020, respectively, as a result of the Company’s efforts to research and develop upgraded battery products with lower costs and better performance.2022.


Sales and marketing expenses. Sales and marketing expenses were $1.3$2.4 million for the nine months ended September 30, 2021,2022, as compared to $0.4$1.3 million for the same period in 2020,2021, an increase of $0.9$1.1 million, or 259%87%. As a percentage of revenues, sales and marketing expenses were 5.1%1.2% and 1.6%5.1% of revenues for the nine months ended September 30, 20212022 and 2020,2021, respectively. The increase mainly resulted from an increase in salaries, social insurancesalary and staff welfarebenefit expenses for sales and marketing employees by approximately $0.4$0.3 million. Sales and marketing employees’ social insurance expenses increased in partSuch increase is due to the expiration of the Chinese government’s COVID-19 relief policy that alleviated corporations’ social insurance burdens. Moreover, given the growth in revenue, we increased(i) incorporating sales and marketing employees’ salariespersonnel of Hitrans, (ii) a growing number of employees at Nanjing CBAK and welfare.(iii) pay raises for sales and marketing employees for growth in revenue. In addition, we attended several exhibitions to increase our brand awarenessincurred shipping and incurred exhibitioncustom declaration expenses of approximately $0.2$0.8 million and $18,879$0.6 million for the nine months ended September 30, 2022 and 2021, and 2020, respectively. 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 $5.8$6.6 million for the nine months ended September 30, 2021,2022, as compared to $2.6$5.8 million for the same period in 2020,2021, representing an increase of $3.2$0.7 million, or 123%13%. The increase was primarily resulted from thea significant increase in administrative employees’ salaries and social insurancebenefit expenses by approximately $1.6$1.0 million. Administrative employees’ social insurancesalary 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 Nanjing Daxin as well as the expiration of the Chinese government’s COVID-19 relief policy that alleviated corporations’ social insurance burdens. In addition, our rental expenses increased by approximately $0.3 million, as Nanjing CBAK and Nanjing Daxin rented warehouse and staff dormitory. Moreover, our expenses increased by $0.8 million due to the numbers of shareholder meetings held, an increased number of issuance of shares and increase of consultancy and recruitment expenses in the nine months ended September 30, 2021, as compared to the same period in 2020.


Provision for(recovery of) doubtful accounts. Recovery of doubtful accounts was $437,475professional fees for the nine months ended September 30, 2021, as2022 compared to provision for doubtful accounts, $63,534,$0.9 million for the same period in 2020.2021.

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 $5.9$2.7 million for the nine months ended September 30, 2021,2022, as compared to $2.5$5.9 million for the same period in 2020,2021, representing an increasea decrease of $3.4$3.3 million in loss, or 138%55%.

Finance income, (expenses), net. Finance income, net increaseddecreased 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, 2021,2022, as compared to finance expenses approximately $1.2other income, net of $1.6 million for the same period last year, representing an increase of $1.3 million in finance income, or 115% as a result of lower loan balances in 2021 and more interest income generated from vehicle leasing.

Other income. Other income was $1,619,194 for the nine months ended September 30, 2021, as compared to approximately $152,171 for the same period 2020.2021. The increasedecrease was primarily resulted from debts reliefa $2.7 million loss from materialsdismantlement of Hitrans’s buildings and equipment suppliers.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, and 2020, respectively.

Net (loss) income.As a result of the foregoing, we had a net income of $52.4million$1.3 million for the nine months ended September 30, 2021,2022, compared to a net lossincome of $3.5$52.4 million for the same period in 2020.2021.


Liquidity and Capital Resources

We havehad financed our liquidity requirements from long-term anda variety of sources, including short-term bank loans, other short-term loans and bills payable under bank credit agreements, advancesadvance from our related and unrelated parties, investors and issuance of capital stock and other securities to investors.equity-linked securities.

We generated a net income of $52.4$1.3 million for the nine months ended September 30, 2021.2022. As of September 30, 2021,2022, we had cash and cash equivalents and restricted cash of $17.5$41.6 million. Our total current assets were $59.6$129.2 million and our total current liabilities were $49.4$115.9 million, resulting in a net working capital of $10.2$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 from operationsincurred for the prior years and significant short-term debt obligations maturing in less than one year as of December 31, 2020 and September 30, 2021. As of December 31, 2020, we had a working capital deficiency of $10.5 million. These factors raise substantial doubts about our ability to continue as a going concern.2022. The report from our independent registered public accounting firm for the year ended December 31, 20202021 included an explanatory paragraph in respect of the substantial doubt of our ability to continue as a going concern. We are currently 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 more funding to finance the expansion. We plan to renew our bank borrowings upon maturity and raise additional funds through bank borrowings and equity financing to meet our daily cash demands. However, there can be no assurance that we will be successful in obtaining such financing.

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.

FromOn 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 totalingtotaled RMB13.5 million (approximately $2.07 million) for various terms through April to June 2021, which werewas secured by ourthe Company’s cash totalingtotaled RMB13.5 million (approximately $2.07 million). We repaid the bills fromthrough April to June 2021.

We borrowed a series of acceptance bills from Agricultural Bank of China totaled RMB31.0 million (approximately $4.8 million) for various terms expiring from October 2021 to March 2022, which was secured by the Company’s cash totaled RMB31.0 million (approximately $4.81 million). 

We borrowed a series of acceptance bills from China Zheshang Bank Co. Ltd Shenyang Branch totaled RMB39.9 million (approximately $6.19 million) for various terms expiring from October 2021 to March 2022, which was secured by the Company’s cash totaled RMB39.2 million (approximately $6.09 million) and the Company’s bills receivable totaled RMB0.7 million (approximately $0.1 million).

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 $13.1$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 September 30,December 31, 2021, the Companywe borrowed a total of RMB30RMB10 million (approximately $4.7$1.6 million) from Bank of Ningbo Co., Ltd in the form of bills payable for a various termsterm expiring from October 2021January to February 2022, which was secured by the Company’s cash totaled RMB30RMB10 million (approximately $4.66$1.6 million). We repaid the bills in January to February 2022.

As of September 30, 2021, we had un-utilized committed banking facilities of $8.4 million.


 

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).


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 September 30,August 31, 2021, all ofwe had not received any notices from the investors to exercise Series B warrants. Series B warrants, andalong with Series A-2 warrants, had expired.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.


 

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,		  Nine Months Ended 
 2020 2021  September 30, 
Net cash provided by (used in) operating activities $4,899  $(7,240)
 2021  2022 
Net cash (used in) provided by operating activities $(7,240) $16,695 
Net cash used in investing activities  (2,033)  (47,504)  (47,504)  (9,923)
Net cash (used in) provided by financing activities  (2,329)  51,049   51,049   12,401 
Effect of exchange rate changes on cash and cash equivalents  231   570   570   (3,890)
Net increase (decrease) in cash and cash equivalents and restricted cash  768   (3,125)
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  7,134   20,671   20,671   26,354 
Cash and cash equivalents and restricted cash at the end of period $7,902  $17,546  $17,546   41,636 

Operating Activities

Net cash used inprovided by operating activities was $7.2$17.0 million in the nine months ended September 30, 2021,2022, 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 $4.9$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 the same periodtrade accounts, an increase of $6.8 million of prepayments and other receivables, an increase of $29.0 million in 2020. The netinventory 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.

Net cash provided by operating activities was $4.9 million in the nine months ended September 30, 2020 was mainly attributable to a decrease of $4.4 million in inventories, an increase of $3.6 million in trade accounts and bills payables, an increase of $4.5 million of trade payables to former subsidiaries, and proceed of government grants of $2.9 million partially offset by our net loss (excluding non-cash depreciation and amortization, provision for doubtful debts, write-down of inventories and share-based compensation) of $0.3 million and an increase of $10.4 million increase in trade accounts and bills receivable. 

Investing Activities

Net cash used in investing activities was $47.5$9.9 million for the nine months ended September 30, 2021,2022, as compared to $2.0$47.5 million in the same period of 2020.2021. 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.

Net cash used in investing activities was $2.0 million for the nine months ended September 30, 2020 mainly included purchase of property, plant and equipment and construction in progress.

Financing Activities

Net cash provided by financing activities was $51.0$10.9 million in the nine months ended September 30, 2021,2022, compared to net cash used inprovided by financing activities of $2.3$51.0 million during the same period in 2020.2021. 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.


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.

Net cash used in financing activities was $2.3 million in the nine months ended September 30, 2020 was mainly attributable to repayment of borrowings of $5.6 million to Jilin Province Trust Co. Ltd. and $0.2 million to banks, partially offset by borrowing of $3.5 million from Jilin Province Trust Co. Ltd. under a renewed credit facility and borrowings of $0.3 million from our shareholders.


As of September 30, 2021,2022, 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  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:             
Bank of Ningbo Co., Ltd $13,068  $4,645 
Shaoxing Branch of Bank of Communications Co., Ltd  384   384 
Agricultural Bank of China  4,802   4,802   11,239   11,239 
Bank of Ningbo. Nanjing Gaochun Branch  1,619   1,619 
China Zheshang Bank Co., Ltd  6,178   6,178   11,892   11,892 
China Merchants Bank Co., Ltd, Dalian Development Zone Branch  12,812   12,812 
  37,946   37,946 
Total $24,048  $15,625  $62,073  $55,903 

Capital Expenditures

We incurred capital expenditures of $2.0$17.5 million and $17.5$9.8 million in the nine months ended September 30, 20202021 and 2021,2022, 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, 20212022 will reach approximately $20.0$12 million. Such funds are primarily used to expand new automatic manufacturing lines of battery as well as light electric vehicle production lines.

Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations and commercial commitments as of September 30, 2021:

(All amounts in thousands of U.S. dollars)

  Payments Due by Period 
　 Total  Less than
1 year		  1 - 3 years  3 - 5 years  More than
5 years		 
Contractual Obligations               
Bills payable $15,654  $15,654  $    -  $       -  $        - 
Payable to former subsidiaries  362   362   -   -   - 
Other short-term loans  681   681   -   -   - 
Capital injection to CBAK Trading  2,565   2,565   -   -   - 
Capital injection to CBAK Energy  26,480   26,480   -   -   - 
Capital injection to CBAK Nanjing  44,710   44,710   -   -   - 
Capital injection to Nanjing CBAK  56,768   56,768   -   -   - 
Capital injection to Nanjing Daxin  5,209   5,209             
Capital injection to Juzhong Daxin  4,654   4,654             
Capital commitments for construction of buildings  638   638   -   -   - 
Capital commitments for purchase of equipment  8,415   8,415   -   -   - 
Operating lease obligations  1,670   835   835   -   - 
Total $167,806  $166,971  $835   -  $- 

Other than the contractual obligations and commercial commitments set forth above, we did not have any other long-term debt obligations, operating lease obligations, capital commitments, purchase obligations or other long-term liabilities as of September 30, 2021.


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 (i) 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.


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, 20202021 included in the Annual Report on Form 10-K filed on April 13, 2021.15, 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, 2021.2022. 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, 2021.2022.


 

As we disclosed in our Annual Report on Form 10-K filed with the SEC on April 13, 2021,15, 2022, during our assessment of the effectiveness of internal control over financial reporting as of December 31, 2020,2021, 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 weaknesses,weakness, we plan to make necessary changes by providing training to our financial team and our other relevant personnel onhave taken or are taking the U.S. GAAP accounting guidelines applicable to our financial reporting requirements. We are also in the process of hiring a permanent chief financial officer with significant U.S. GAAP and SEC reporting experience.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, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


 

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, 2020.2021 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).


 

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 15, 2021

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

58

63

 

0001117171 srt:MinimumMember 2017-12-31us-gaap:OfficeEquipmentMember 2021-12-31 iso4217:USD xbrli:shares