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)
Nevada | 88-0442833 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) |
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 class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.001 par value | CBAT | Nasdaq 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 Securities | Shares Outstanding | |
Common Stock, $0.001 par value |
CBAK ENERGY TECHNOLOGY, INC.
TABLE OF CONTENTS
PART I | |||
FINANCIAL INFORMATION | |||
Item 1. | Financial Statements. | 1 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | ||
Item 4. | Controls and Procedures. | ||
PART II | |||
OTHER INFORMATION | |||
Item 1. | Legal Proceedings. | ||
Item 1A. | Risk Factors. | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | ||
Item 3. | Defaults Upon Senior Securities. | ||
Item 4. | Mine Safety Disclosures. | ||
Item 5. | Other Information. | ||
Item 6. | Exhibits. |
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CBAK ENERGY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20202021 AND 20212022
CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated balance sheets
As of December 31, 2021 and September 30, 2022
(Unaudited)
(In US$ 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 | 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 |
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
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.
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 |
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
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.
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, 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 $7,955,358 respectively, as set out in the consolidated statements of changes in shareholders’ equity.
In November 2007, Mr. Li delivered the 217,955 shares related to the 2005 performance threshold to BAK International pursuant to the Li Settlement Agreement; BAK International in turn delivered the shares to the Company. Such shares (other than those issued to investors pursuant to the 2008 Settlement Agreements, as described below) are now held by the Company. Upon receipt of these shares, the Company and BAK International released all claims and causes of action against Mr. Li regarding the shares, and Mr. Li released all claims and causes of action against the Company and BAK International regarding the shares. Under the terms of the Li Settlement Agreement, the Company commenced negotiations with the investors who participated in the Company’s January 2005 private placement in order to achieve a complete settlement of BAK International’s obligations (and the Company’s obligations to the extent it has any) under the applicable agreements with such investors.
Beginning on March 13, 2008, the Company entered into settlement agreements (the “2008 Settlement Agreements”) with certain investors in the January 2005 private placement. Since the other investors have never submitted any claims regarding this matter, the Company did not reach any settlement with them.
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ 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 $55,289,915 to CBAK Nanjing.
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ 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, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization (continued)
Basis of Presentation and Organization (continued)
As of the date of this report, Mr. Xiangqian Li is no longer a director of BAK International and BAK Tianjin. He remained as a director of Shenzhen BAK and BAK Shenzhen.
On 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.
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.
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.
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.
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
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.
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.
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
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,$1,177,891, respectively, were charged to cost of revenues.
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ 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 |
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.
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 |
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$6,626,701 as of December 31, 20202021 and September 30, 2021,2022, respectively. The Company built its facilities on the land for which it had already obtained the related land use right. The Company has submitted applications to the Chinese government for the ownership certificates on the completed buildings located on these lands. However, the application process takes longer than the Company expected and it has not obtained the certificates as of the date of this report. However, since the Company has obtained the land use right in relation to the land, the management believe the Company has legal title to the buildings thereon albeit the lack of ownership certificates.
During the course of the Company’s strategic review of its operations, the Company assessed the recoverability of the carrying value of the Company’s property, plant and equipment. The impairment charge, if any, represented the excess of carrying amounts of the Company’s property, plant and equipment over the estimated discounted cash flows expected to be generated by the Company’s production facilities. The Company believes that there was no impairment during the three and nine months ended September 30, 20202021 and 2021.2022.
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ except for number of shares)
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
$ | - | |||
Investments made | 303,122 | |||
Income (loss) from investment | - | |||
Foreign exchange adjustment | (22,061 | ) | ||
Balance as of September 30, 2022 | 281,061 |
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
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)
(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, 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 ($6.32 million). Two individuals among Hitrans management shareholders, including Hitrans’s CEO, Mr. Haijun Wu (“Mr. Wu”), will keep 2.50% registered equity interests (representing 2.46% of paid-up capital) of Hitrans and New Era Group Zhejiang New Energy Materials Co., Ltd. (“New Era”) will continue to hold 15% registered equity interests (representing 21.05% of paid-up capital) of Hitrans after the acquisition.
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ 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 $1,606,518 to goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of Hitrans and the synergies expected from the combined operations of Hitrans and the Company, the assembled workforce and their knowledge and experience in provision of raw materials used in manufacturing of lithium batteries. The total amount of the goodwill acquired is not deductible for tax purposes.
| ||||
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2021 and 2022
(Unaudited)
(In US$ 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 |
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
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);
14. Loans Bank loans:
Bank borrowings as of December 31,
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 ($0.12 million) in December 2018, June 2019 and December 2019, respectively.
CBAK Energy Technology, Inc. and subsidiaries Notes to the condensed consolidated financial statements For the three and nine months ended September 30, 2021 and 2022 (Unaudited) (In US$ except for number of shares)
14. Loans (continued)
On June 28, 2020, the Company entered into a supplemental agreement with China Everbright Bank Dalian Branch to change the repayment schedule. According to the modification agreement, the remaining RMB141.8 million (approximately $21.72 million) loans are repayable in eight instalments consisting of RMB1.09 million ($0.17 million) on June 10, 2020, RMB1 million ($0.15 million) on December 10, 2020, RMB2 million ($0.31 million) on January 10, 2021, RMB2 million ($0.31 million) on February 10, 2021, RMB2 million ($0.31 million) on March 10, 2021, RMB2 million ($0.31 million) on April 10, 2021, RMB2 million ($0.31 million) on May 10, 2021, and RMB129.7 million ($19.9 million) on June 10, 2021, respectively. As of June 30, 2021, the Company repaid all the bank loan.
On
In October to December 2020, the Company borrowed a series of acceptance bills from China Merchants Bank totaled RMB13.5 million (approximately $2.07 million) for various terms through April to June 2021, which was secured by the Company’s cash totaled RMB13.5 million (approximately $2.07 million). The Company repaid the bills through April to June 2021.
On April 19, 2021, the Company obtained five-year acceptance bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB84.4 million (approximately 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:
As of September 30, 2022, the Company had unutilized committed banking facilities totaled $6.2 million.
During the three months ended September 30,
During the nine months ended September 30,
CBAK Energy Technology, Inc. and subsidiaries Notes to the condensed consolidated financial statements For the three and nine months ended September 30, 2021 and 2022 (Unaudited) (In US$ except for number of shares)
14. Loans (continued) Other Short-term Loans
Other short-term loans as of December 31,
During the three months ended September 30,
During the nine months ended September 30,
CBAK Energy Technology, Inc. and subsidiaries Notes to the condensed consolidated financial statements For the three and nine months ended September 30, 2021 and 2022 (Unaudited) (In US$ except for number of shares) 15. Accrued Expenses and Other Payables
Accrued expenses and other payables as of December 31,
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.
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