ITEM 1. FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS
CBAK ENERGY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTNS ENDED
MARCH 31, 2022 AND 2023
CBAK ENERGY TECHNOLOGY, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated Balance Sheets
As of December 31, 2022 and March 31, 2023
(Unaudited)
(In US$ except for number of shares)
| |
Note | | |
December 31, 2022 | | |
March 31, 2023 | |
| |
| | |
| | |
(Unaudited) | |
Assets | |
| | |
| | |
| |
Current assets | |
| | |
| | |
| |
Cash and cash equivalents | |
| | | |
$ | 6,519,212 | | |
$ | 7,535,193 | |
Pledged deposits | |
| 2 | | |
| 30,836,864 | | |
| 35,601,854 | |
Trade and bills receivable, net | |
| 3 | | |
| 27,413,575 | | |
| 28,109,643 | |
Inventories | |
| 4 | | |
| 49,446,291 | | |
| 50,777,816 | |
Prepayments and other receivables | |
| 5 | | |
| 5,915,080 | | |
| 6,121,156 | |
Receivables from a former subsidiary, net | |
| 15 | | |
| 5,518,052 | | |
| 1,818,269 | |
Income tax recoverable | |
| | | |
| 57,934 | | |
| 58,273 | |
Total current assets | |
| | | |
| 125,707,008 | | |
| 130,022,204 | |
| |
| | | |
| | | |
| | |
Property, plant and equipment, net | |
| 6 | | |
| 90,004,527 | | |
| 88,433,232 | |
Construction in progress | |
| 7 | | |
| 9,954,202 | | |
| 15,174,189 | |
Long-term investments, net | |
| 8 | | |
| 945,237 | | |
| 950,770 | |
Prepaid land use rights | |
| 9 | | |
| 12,361,163 | | |
| 12,350,586 | |
Intangible assets, net | |
| 10 | | |
| 1,309,058 | | |
| 1,195,435 | |
Operating lease right-of-use assets, net | |
| | | |
| 1,264,560 | | |
| 1,140,996 | |
Deferred tax assets, net | |
| 19 | | |
| 2,486,979 | | |
| 2,902,856 | |
Total assets | |
| | | |
$ | 244,032,734 | | |
$ | 252,170,268 | |
| |
| | | |
| | | |
| | |
Liabilities | |
| | | |
| | | |
| | |
Current liabilities | |
| | | |
| | | |
| | |
Trade and bills payable | |
| 13 | | |
$ | 67,491,435 | | |
$ | 77,765,458 | |
Short-term bank borrowings | |
| 14 | | |
| 14,907,875 | | |
| 18,634,717 | |
Other short-term loans | |
| 14 | | |
| 689,096 | | |
| 602,337 | |
Accrued expenses and other payables | |
| 15 | | |
| 25,605,661 | | |
| 22,372,971 | |
Payables to a former subsidiary, net | |
| 16 | | |
| 358,067 | | |
| 355,913 | |
Deferred government grants, current | |
| 17 | | |
| 1,299,715 | | |
| 847,584 | |
Product warranty provisions | |
| 18 | | |
| 26,215 | | |
| 24,663 | |
Warrants liability | |
| 25 | | |
| 136,000 | | |
| 51,000 | |
Operating lease liability, current | |
| 9 | | |
| 575,496 | | |
| 479,875 | |
Finance lease liability, current | |
| 9 | | |
| 844,297 | | |
| 485,279 | |
Total current liabilities | |
| | | |
| 111,933,857 | | |
| 121,619,797 | |
| |
| | | |
| | | |
| | |
Deferred government grants, non-current | |
| 17 | | |
| 5,577,020 | | |
| 5,513,425 | |
Product warranty provisions | |
| 18 | | |
| 450,613 | | |
| 471,016 | |
Operating lease liability, non-current | |
| 9 | | |
| 607,222 | | |
| 546,461 | |
Accrued expenses and other payables, non-current | |
| 15 | | |
| 1,085,525 | | |
| 1,091,878 | |
Total liabilities | |
| | | |
| 119,654,237 | | |
| 129,242,577 | |
| |
| | | |
| | | |
| | |
Commitments and contingencies | |
| 26 | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Shareholders’ equity | |
| | | |
| | | |
| | |
Common stock $0.001 par value; 500,000,000 authorized; 89,135,064 issued and 88,990,858 outstanding as of December 31, 2022; 89,151,731 issued and 89,007,525 outstanding as of March 31, 2023 | |
| | | |
| 89,135 | | |
| 89,151 | |
Donated shares | |
| | | |
| 14,101,689 | | |
| 14,101,689 | |
Additional paid-in capital | |
| | | |
| 246,240,998 | | |
| 246,245,879 | |
Statutory reserves | |
| | | |
| 1,230,511 | | |
| 1,230,511 | |
Accumulated deficit | |
| | | |
| (131,946,705 | ) | |
| (133,327,060 | ) |
Accumulated other comprehensive loss | |
| | | |
| (8,153,644 | ) | |
| (7,498,971 | ) |
| |
| | | |
| 121,561,984 | | |
| 120,841,199 | |
Less: Treasury shares | |
| | | |
| (4,066,610 | ) | |
| (4,066,610 | ) |
Total shareholders’ equity | |
| | | |
| 117,495,374 | | |
| 116,774,589 | |
Non-controlling interests | |
| | | |
| 6,883,123 | | |
| 6,153,102 | |
Total equity | |
| | | |
| 124,378,497 | | |
| 122,927,691 | |
| |
| | | |
| | | |
| | |
Total liabilities and shareholder’s equity | |
| | | |
$ | 244,032,734 | | |
$ | 252,170,268 | |
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 months ended March 31, 2022 and
2023
(Unaudited)
(In US$ except for number of shares)
| |
| | |
Three months ended March 31, | |
| |
Note | | |
2022 | | |
2023 | |
Net revenues | |
| 28 | | |
$ | 80,196,298 | | |
$ | 42,396,701 | |
Cost of revenues | |
| | | |
| (74,879,944 | ) | |
| (39,490,957 | ) |
Gross profit | |
| | | |
| 5,316,354 | | |
| 2,905,744 | |
Operating expenses: | |
| | | |
| | | |
| | |
Research and development expenses | |
| | | |
| (3,313,124 | ) | |
| (2,455,328 | ) |
Sales and marketing expenses | |
| | | |
| (829,674 | ) | |
| (721,004 | ) |
General and administrative expenses | |
| | | |
| (2,237,374 | ) | |
| (2,479,135 | ) |
Provision for doubtful accounts | |
| | | |
| (271,443 | ) | |
| (131,167 | ) |
Total operating expenses | |
| | | |
| (6,651,615 | ) | |
| (5,786,634 | ) |
Operating loss | |
| | | |
| (1,335,261 | ) | |
| (2,880,890 | ) |
Finance income, net | |
| | | |
| 5,014 | | |
| 5,311 | |
Other income, net | |
| | | |
| 285,204 | | |
| 183,213 | |
Changes in fair value of warrants liability | |
| | | |
| 1,632,000 | | |
| 85,000 | |
Income (loss) before income tax | |
| | | |
| 586,957 | | |
| (2,607,366 | ) |
Income tax credit | |
| 19 | | |
| 93,546 | | |
| 402,884 | |
Net income (loss) | |
| | | |
| 680,503 | | |
| (2,204,482 | ) |
Less: Net (income) loss attributable to non-controlling interests | |
| | | |
| (236,050 | ) | |
| 824,127 | |
Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc. | |
| | | |
$ | 444,453 | | |
$ | (1,380,355 | ) |
| |
| | | |
| | | |
| | |
Net income (loss) | |
| | | |
| 680,503 | | |
| (2,204,482 | ) |
Other comprehensive income | |
| | | |
| | | |
| | |
– Foreign currency translation adjustment | |
| | | |
| 432,193 | | |
| 748,779 | |
Comprehensive income (loss) | |
| | | |
| 1,112,696 | | |
| (1,455,703 | ) |
Less: Comprehensive (income) loss attributable to non-controlling interests | |
| | | |
| (277,059 | ) | |
| 730,021 | |
Comprehensive income (loss) attributable to CBAK Energy Technology, Inc. | |
| | | |
$ | 835,637 | | |
$ | (725,682 | ) |
| |
| | | |
| | | |
| | |
Income (loss) per share | |
| 24 | | |
| | | |
| | |
– Basic | |
| | | |
$ | 0.01 | | |
$ | (0.02 | ) |
– Diluted | |
| | | |
$ | 0.01 | | |
$ | (0.02 | ) |
| |
| | | |
| | | |
| | |
Weighted average number of shares of common stock: | |
| 24 | | |
| | | |
| | |
– Basic | |
| | | |
| 88,713,841 | | |
| 89,013,359 | |
– Diluted | |
| | | |
| 88,734,957 | | |
| 89,013,359 | |
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 March 31, 2022 and
2023
(Unaudited)
(In US$ except for number of shares)
|
|
Common
stock issued |
|
|
|
|
|
Additional |
|
|
Statutory |
|
|
|
|
|
Accumulated
other |
|
|
Non- |
|
|
Treasury
shares |
|
|
Total |
|
|
|
Number |
|
|
|
|
|
Donated |
|
|
paid-in |
|
|
reserves |
|
|
Accumulated |
|
|
comprehensive |
|
|
controlling |
|
|
Number |
|
|
|
|
|
shareholders’ |
|
|
|
of shares |
|
|
Amount |
|
|
shares |
|
|
capital |
|
|
(Note 20) |
|
|
deficit |
|
|
Income
(loss) |
|
|
interests |
|
|
of shares |
|
|
Amount |
|
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
444,453 |
|
|
|
- |
|
|
|
236,050 |
|
|
|
- |
|
|
|
- |
|
|
|
680,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation for employee and director stock awards |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
34,779 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
34,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
391,184 |
|
|
|
41,009 |
|
|
|
- |
|
|
|
- |
|
|
|
432,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2022 |
|
|
88,849,222 |
|
|
$ |
88,849 |
|
|
$ |
14,101,689 |
|
|
$ |
241,981,141 |
|
|
$ |
1,230,511 |
|
|
$ |
(122,053,806 |
) |
|
$ |
2,880,201 |
|
|
$ |
7,870,073 |
|
|
|
(144,206 |
) |
|
$ |
(4,066,610 |
) |
|
$ |
142,032,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2023 |
|
|
89,135,064 |
|
|
$ |
89,135 |
|
|
$ |
14,101,689 |
|
|
$ |
246,240,998 |
|
|
$ |
1,230,511 |
|
|
$ |
(131,946,705 |
) |
|
$ |
(8,153,644 |
) |
|
$ |
6,883,123 |
|
|
|
(144,206 |
) |
|
$ |
(4,066,610 |
) |
|
$ |
124,378,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,380,355 |
) |
|
|
- |
|
|
|
(824,127 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,204,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation for employee and director stock awards |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,897 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to employees for stock award |
|
|
16,667 |
|
|
|
16 |
|
|
|
- |
|
|
|
(16 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
654,673 |
|
|
|
94,106 |
|
|
|
- |
|
|
|
- |
|
|
|
748,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2023 |
|
|
89,151,731 |
|
|
$ |
89,151 |
|
|
$ |
14,101,689 |
|
|
$ |
246,245,879 |
|
|
$ |
1,230,511 |
|
|
$ |
(133,327,060 |
) |
|
$ |
(7,498,971 |
) |
|
$ |
6,153,102 |
|
|
|
(144,206 |
) |
|
$ |
(4,066,610 |
) |
|
$ |
122,927,691 |
|
See accompanying Notes to the condensed consolidated
financial statements.
CBAK Energy Technology, Inc. and subsidiaries
Condensed consolidated statements of cash flows
For the three months ended March 31, 2022 and
2023
(Unaudited)
(In US$)
| |
Three months ended March 31, | |
| |
2022 | | |
2023 | |
Cash flows from operating activities | |
| | |
| |
Net income (loss) | |
$ | 680,503 | | |
| (2,204,482 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 1,925,584 | | |
| 2,185,763 | |
Provision for doubtful accounts and bad debts written off | |
| 271,443 | | |
| 116,014 | |
Amortization of operating lease | |
| 187,697 | | |
| 131,474 | |
Write-down of inventories | |
| 406,152 | | |
| 979,633 | |
Share-based compensation | |
| 34,779 | | |
| 4,897 | |
Changes in fair value of warrants liability | |
| (1,632,000 | ) | |
| (85,000 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Trade and bills receivable | |
| (519,629 | ) | |
| (601,557 | ) |
Inventories | |
| (12,064,192 | ) | |
| (2,025,827 | ) |
Prepayments and other receivables | |
| (1,743,638 | ) | |
| (312,927 | ) |
Investment in sales-type lease | |
| 125,303 | | |
| - | |
Trade and bills payable | |
| 13,733,854 | | |
| 9,917,436 | |
Accrued expenses and other payables and product warranty provisions | |
| 2,613,310 | | |
| (1,753,004 | ) |
Operating lease liabilities | |
| (7,600 | ) | |
| (158,824 | ) |
Trade receivable from and payables to a former subsidiary | |
| 1,133,083 | | |
| 3,729,807 | |
Deferred tax assets | |
| (93,546 | ) | |
| (402,883 | ) |
Net cash provided by operating activities | |
| 5,051,103 | | |
| 9,520,520 | |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchases of property, plant and equipment and construction in progress | |
| (2,717,822 | ) | |
| (7,216,890 | ) |
Net cash used in investing activities | |
| (2,717,822 | ) | |
| (7,216,890 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Borrowings from banks | |
| 5,836,818 | | |
| 13,153,472 | |
Repayment of bank borrowings | |
| - | | |
| (9,499,730 | ) |
Repayment of borrowings from Mr. Ye Junnan | |
| (3,938,062 | ) | |
| - | |
Borrowings from a shareholder | |
| - | | |
| 199,942 | |
Repayment of borrowings to a shareholder | |
| - | | |
| (72,052 | ) |
Repayment of borrowings from a unrelated party | |
| - | | |
| (219,225 | ) |
Principal payments of finance leases | |
| - | | |
| (370,489 | ) |
Net cash provided by financing activities | |
| 1,898,756 | | |
| 3,191,918 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | |
| 163,901 | | |
| 285,423 | |
Net increase in cash and cash equivalents and restricted cash | |
| 4,395,938 | | |
| 5,780,971 | |
Cash and cash equivalents and restricted cash at the beginning of period | |
| 26,354,624 | | |
| 37,356,076 | |
Cash and cash equivalents and restricted cash at the end of period | |
$ | 30,750,562 | | |
$ | 43,137,047 | |
Supplemental non-cash investing and financing activities: | |
| | | |
| | |
Transfer of construction in progress to property, plant and equipment | |
$ | 430,973 | | |
$ | 414,210 | |
Lease liabilities arising from obtaining right-of-use assets | |
$ | 111,834 | | |
$ | - | |
| |
| | | |
| | |
Cash paid during the year for: | |
| | | |
| | |
Income taxes | |
$ | - | | |
$ | - | |
Interest, net of amounts capitalized | |
$ | 125,336 | | |
$ | 66,446 | |
See accompanying notes to the condensed consolidated
financial statements.
CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial
statements
For the three months ended March 31, 2022 and
2023
(Unaudited)
(In US$ except for number of shares)
1. Principal Activities, Basis of Presentation and Organization
Principal Activities
CBAK Energy Technology, Inc. (formerly known as
China BAK Battery, Inc.) (“CBAK” or the “Company”) is a corporation formed in the State of Nevada on October 4,
1999 as Medina Copy, Inc. The Company changed its name to Medina Coffee, Inc. on October 6, 1999 and subsequently changed its name to
China BAK Battery, Inc. on February 14, 2005. CBAK and its subsidiaries (hereinafter, collectively referred to as the “Company”)
are principally engaged in the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion
(known as “Li-ion” or “Li-ion cell”) high power rechargeable batteries. Prior to the disposal of BAK International
Limited (“BAK International”) and its subsidiaries (see below), the batteries produced by the Company were for use in cellular
telephones, as well as various other portable electronic applications, including high-power handset telephones, laptop computers, power
tools, digital cameras, video camcorders, MP3 players, electric bicycles, hybrid/electric vehicles, and general industrial applications.
After the disposal of BAK International and its subsidiaries on June 30, 2014, the Company will focus on the manufacture, commercialization
and distribution of high power lithium ion rechargeable batteries for use in cordless power tools, light electric vehicles, hybrid electric
vehicles, electric cars, electric busses, uninterruptable power supplies and other high power applications.
The shares of the Company traded in the over-the-counter
market through the Over-the-Counter Bulletin Board from 2005 until May 31, 2006, when the Company obtained approval to list its common
stock on The NASDAQ Global Market, and trading commenced that same date under the symbol “CBAK”.
On January 10, 2017, the Company filed Articles
of Merger with the Secretary of State of Nevada to effectuate a merger between the Company and the Company’s newly formed, wholly
owned subsidiary, CBAK Merger Sub, Inc. (the “Merger Sub”). According to the Articles of Merger, effective January 16, 2017,
the Merger Sub merged with and into the Company with the Company being the surviving entity (the “Merger”). As permitted by
Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the Merger was to effect a change of the Company’s name.
Effective November 30, 2018, the trading symbol
for common stock of the Company was changed from CBAK to CBAT. Effective at the opening of business on June 21, 2019, the Company’s
common stock started trading on the Nasdaq Capital Market.
Basis of Presentation and Organization
On November 6, 2004, BAK International, a non-operating
holding company that had substantially the same shareholders as Shenzhen BAK Battery Co., Ltd (“Shenzhen BAK”), entered into
a share swap transaction with the shareholders of Shenzhen BAK for the purpose of the subsequent reverse acquisition of the Company. The
share swap transaction between BAK International and the shareholders of Shenzhen BAK was accounted for as a reverse acquisition of Shenzhen
BAK with no adjustment to the historical basis of the assets and liabilities of Shenzhen BAK.
On January 20, 2005, the Company completed a share
swap transaction with the shareholders of BAK International. The share swap transaction, also referred to as the “reverse acquisition”
of the Company, was consummated under Nevada law pursuant to the terms of a Securities Exchange Agreement entered by and among CBAK, BAK
International and the shareholders of BAK International on January 20, 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.
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”) until March 1, 2016, 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.
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, 2015amounted
to 73,749 shares. Share payments to date have been made in reliance upon the exemptions from registration provided by Section 4(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 March 31, 2023, 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 Settlement 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 March 7, 2017, the name of Dalian BAK Trading Co., Ltd was changed to Dalian CBAK Trading
Co., Ltd (“CBAK Trading”). 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. The Company has paid 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. CBAK Suzhou is dormant as of the date of this report.
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, the Company has extended the paid up time to January 31, 2054. Up to the date of this report,
the Company has contributed $23,519,880 to CBAK Energy.
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.
On May 16, 2022, CBAK Nanjing’s registered capital was further increased to $200,000,000. 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. Up to the date of this report, the Company has contributed $55,489,915 to CBAK Nanjing.
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 $110 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
RMB352,538,138 (approximately $55.6 million) to Nanjing CBAK.
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 $7.9 million). On March 6, 2023, Nanjing Daxin changed its name to Nanjing BFD Energy Technology
Co., Ltd (“Nanjing BFD”) . Up to the date of this report, the Company has contributed RMB42.5 million (approximately $6.5
million) to Nanjing BFD.
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 RMB16.6 million (approximately $2.4 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 Zhejinag
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). After the completion of the Acquisition, Hitrans became a 81.56% registered equity interests (representing 75.57% of paid up
capital) owned subsidiary of the Company.
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 $6.4 million) and to accept an investment of RMB22 million (approximately $3.2 million) from Shaoxing
Haiji Enterprise Management & Consulting Partnership (“Shaoxing Haiji”) and an investment of RMB18 million (approximately
$2.6 million) from Mr. Haijun Wu (collectively “management shareholder”). Under the resolution, 10% of the investment injection
(RMB4 million or $0.6 million) contributed towards Hitrans’s registered capital and the remaining 90% (RMB36 million or $5.2 million)
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, 25% of the investments were required to be in place before December 31, 2022 and the 50% balance (RMB20
million) were required to be received June 30, 2024. As of March 31, 2023, RMB10 million (approximately $1.5 million), representing the
25% of the investments were received.
On December 8, 2022, CBAK Power entered into equity
interest transfer agreements with five individuals to disposal in aggregate 6.82% of Hitrans equity interests for a total consideration
of RMB30,000,000 (approximately $4.3 million). The transaction was completed on December 30, 2022. As of March 31, 2023, CBAK Power’s
equity interests in Hitrans was 67.33% (representing 69.12% of paid up capital).
On March 10, 2023, CBAK Power entered into an
agreement with Nanjing BFD to transfer the 67.33% equity interests CBAK Power holds in Hitrans to Nanjing BFD. As of the date of this
report, the registration of the equity transfer with the local government is still in process. Following the transaction, Nanjing BFD
shall become the controlling shareholder of Hitrans, while CBAK Power no longer holds any of Hitrans’s equity interests.
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. Guangdong Hitrans
is dormant as of the date of this report.
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.
The Company’s condensed consolidated financial
statements have been prepared under US GAAP.
The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates. This basis of accounting differs in certain material respects
from that used for the preparation of the books of account of the Company and its 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 condensed 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.
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
March 31, 2023, 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; iv) CBAK New Energy (Suzhou) Co., Ltd. (“CBAK
Suzhou”), a 90% owned limited liability company established on May 4, 2018 in the PRC; v) Dalian CBAK Energy Technology Co., Ltd
(“CBAK Energy”), a wholly owned limited liability company established on November 21, 2019 in the PRC; (vi) BAK Asia Investments
Limited (“BAK Investments”), a wholly owned limited liability company incorporated in Hong Kong acquired on July 14, 2020;
(vii) CBAK New Energy (Nanjing) Co., Ltd. (“CBAK Nanjing”), a wholly owned limited liability company established on July 31,
2020 in the PRC; (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 BFD Energy Technology Co., Ltd. (“Nanjing BFD”), a wholly owned limited
liability company established on November 9, 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 67.33% registered equity interests (representing 69.12% 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 60.3% owned
limited liability company established on July 6, 2018 in the PRC and (xiii) Shaoxing Haisheng International Trading Co., Ltd. (“Haisheng”),
a 67.33% registered equity interests (representing 69.12% of paid-up capital) owned limited liability company established on October 9,
2021 in the PRC.
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 estimated offering
expenses of $3.81 million payable by the Company. In addition, the placement agent for this transaction also received warrants (“Placement
Agent Warrants”) for the purchase of up to 379,592 shares of the Company’s common stock at an exercise price of $6.475 per
share exercisable for 36 months after 6 months from the issuance.
On February 8, 2021, the Company entered into
another securities purchase agreement with the same investors, pursuant to which the Company issued in a registered direct offering, an
aggregate of 8,939,976 shares of common stock of the Company at a per share purchase price of $7.83. In addition, the Company issued to
the investors (i) in a concurrent private placement, the Series A-1 warrants to purchase a total of 4,469,988 shares of common stock,
at a per share exercise price of $7.67 and exercisable for 42 months from the date of issuance; (ii) in the registered direct offering,
the Series B warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.83 and exercisable
for 90 days from the date of issuance; and (iii) in the registered direct offering, the Series A-2 warrants to purchase up to 2,234,992
shares of common stock, at a per share exercise price of $7.67 and exercisable for 45 months from the date of issuance. The Company received
gross proceeds of approximately $70 million from the registered direct offering and the concurrent private placement, before deducting
fees to the placement agent and other estimated offering expenses of $5.0 million payable by the Company. In addition, the placement agent
for this transaction also received warrants (“Placement Agent Warrants”) for the purchase of up to 446,999 shares of the Company’s
common stock at an exercise price of $9.204 per share exercisable for 36 months after 6 months from the issuance.
On May 10, 2021, the Company entered into that
Amendment No. 1 to the Series B Warrant (the “Series B Warrant Amendment”) with each of the holders of the Company’s
outstanding Series B warrants. Pursuant to the Series B Warrant Amendment, the term of the Series B warrants was extended from May 11,
2021 to August 31, 2021.
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 March 31, 2023, the Company had $18.6 million
bank loans and approximately $102.9 million of other current liabilities (excluding warrants liability).
The Company is currently expanding its product
lines and manufacturing capacity in its Dalian, Nanjing and Zhejiang plant which requires more funding to finance the expansion. The Company
plans to raise additional funds through banks borrowings and equity financing in the future to meet its daily cash demands, if required.
COVID-19
The Company business has been and may continue
to be adversely affected by the COVID-19 pandemic or other health epidemics and outbreaks. A wave of infections caused by the Omicron
variant emerged in Shanghai in early 2022, and a series of restrictions and quarantines were implemented to contain the spread in Shanghai
and other regions. The Company’s manufacturing facilities in Dalian, Nanjing and Shaoxing were not producing at full capacity when
restrictive measures were in force during 2022, which negatively affected our operational and financial results. China began to modify
its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December 2022.
The extent of the impact of the COVID-19 pandemic
that will continue to have on the Company’s business is highly uncertain and difficult to predict and quantify, as the actions that
the Company, other businesses and governments may take to contain the spread of COVID-19 continue to evolve. Because of the significant
uncertainties surrounding the COVID-19 pandemic, the extent of the future business interruption and the related financial impact cannot
be reasonably estimated at this time.
The severity of the impact of the COVID-19 pandemic
on the Company’s business will continue to depend on a number of factors, including, but not limited to, the duration and severity
of the pandemic, the new variants of COVID-19, the efficacy and distribution of COVID-19 vaccines and the extent and severity of the impact
on the global supply chain and the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be
reasonably predicted at this time. As of the date of issuance of the Company’s condensed consolidated financial statements, the
extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results
of operations is uncertain. The Company is monitoring and assessing the evolving situation closely and evaluating its potential exposure.
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 and significant short-term debt obligations maturing in less than one year as of March 31, 2023. These conditions raise substantial
doubt about the Company ability to continue as a going concern. The Company’s plan for continuing as a going concern included improving
its profitability, and obtaining additional debt financing, loans from existing directors and shareholders for additional funding to meet
its operating needs. There can be no assurance that the Company will be successful in the plans described above or in attracting equity
or alternative financing on acceptable terms, or if at all. These condensed consolidated financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
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.
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 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. In March 2023, the FASB issued ASU
2023-02, 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 writeoffs 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 applied
the new standard beginning January 1, 2023 using the modified retrospective method. This adoption did not have material impact on the
Company’s condensed consolidated financial statements.
Recently Issued But Not Yet Adopted Accounting
Pronouncements
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, 2023. 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.
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, 2022 and March
31, 2023 consisted pledged deposits with banks for bills payable (note 12).
3. Trade and Bills Receivable, net
Trade and bills receivable as of December 31,
2022 and March 31, 2023:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Trade receivable | |
$ | 23,422,733 | | |
$ | 25,501,022 | |
Less: Allowance for credit losses | |
| (2,274,513 | ) | |
| (2,351,419 | ) |
| |
| 21,148,220 | | |
| 23,149,603 | |
Bills receivable | |
| 6,265,355 | | |
| 4,960,040 | |
| |
$ | 27,413,575 | | |
$ | 28,109,643 | |
Included in trade and bills receivables are retention
receivables of $1,066,146 and $629,819 as of December 31, 2022 and March 31, 2023. 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 credit losses
are as follows:
Balance as at December 31, 2022 | |
$ | 2,274,513 | |
Adoption of ASC Topic 326 | |
| - | |
Balance as at January 1, 2023 | |
| 2,274,513 | |
Current period provision, net | |
| 78,995 | |
Current period write off | |
| (15,153 | ) |
Foreign exchange adjustment | |
| 13,064 | |
Balance as at March 31, 2023 | |
$ | 2,351,419 | |
4. Inventories
Inventories as of December 31, 2022 and March
31, 2023 consisted of the following:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Raw materials | |
$ | 7,101,426 | | |
$ | 4,871,755 | |
Work in progress | |
| 17,274,033 | | |
| 15,207,838 | |
Finished goods | |
| 25,070,832 | | |
| 30,698,223 | |
| |
$ | 49,446,291 | | |
$ | 50,777,816 | |
During the three months ended March 31, 2022 and 2023, write-downs
of obsolete inventories to lower of cost or net realizable value of $406,152 and $979,633, respectively, were charged to cost of revenues.
5. Prepayments and Other Receivables
Prepayments and other receivables as of December
31, 2022 and March 31, 2023 consisted of the following:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Value added tax recoverable | |
$ | 4,234,082 | | |
$ | 4,293,598 | |
Prepayments to suppliers | |
| 220,671 | | |
| 493,717 | |
Deposits | |
| 43,914 | | |
| 269,597 | |
Staff advances | |
| 51,826 | | |
| 104,371 | |
Prepaid operating expenses | |
| 706,190 | | |
| 551,216 | |
Receivables from sales of vehicles | |
| 371,105 | | |
| 154,901 | |
Others | |
| 294,292 | | |
| 296,011 | |
| |
| 5,922,080 | | |
| 6,163,411 | |
Less: Allowance for credit losses | |
| (7,000 | ) | |
| (42,255 | ) |
| |
$ | 5,915,080 | | |
$ | 6,121,156 | |
An analysis of the allowance for credit losses
are as follows:
Balance as at December 31, 2022 | |
$ | 7,000 | |
Adoption of ASC Topic 326 | |
| - | |
Balance as at January 1, 2023 | |
| 7,000 | |
Current period provision, net | |
| 35,392 | |
Foreign exchange adjustment | |
| (137 | ) |
Balance as at March 31, 2023 | |
$ | 42,255 | |
6. Property, Plant and Equipment, net
Property, plant and equipment as of December 31,
2022 and March 31, 2023 consisted of the following:
| |
December 31, 2022 | | |
March 31, 2023 | |
Buildings | |
$ | 47,086,680 | | |
$ | 47,365,000 | |
Leasehold Improvements | |
| 5,156,705 | | |
| 5,186,885 | |
Machinery and equipment | |
| 71,665,842 | | |
| 72,471,801 | |
Office equipment | |
| 1,545,026 | | |
| 1,593,077 | |
Motor vehicles | |
| 507,882 | | |
| 513,585 | |
| |
| 125,962,135 | | |
| 127,130,348 | |
Impairment | |
| (13,025,161 | ) | |
| (13,100,735 | ) |
Accumulated depreciation | |
| (22,932,447 | ) | |
| (25,596,381 | ) |
Carrying amount | |
$ | 90,004,527 | | |
$ | 88,433,232 | |
During the three months ended March 31, 2022 and
2023, the Company incurred depreciation expense of $2,271,267 and $2,539,631, respectively.
The Company has not yet obtained the property ownership certificates
of the buildings in its Dalian manufacturing facilities with a carrying amount of $7,360,242 and $6,762,165 as of December 31, 2022 and
March 31, 2023, 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 months ended March 31, 2022 and 2023.
7. Construction in Progress
Construction in progress as of December 31, 2022
and March 31, 2023 consisted of the following:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Construction in progress | |
$ | 7,828,975 | | |
$ | 9,681,515 | |
Prepayment for acquisition of property, plant and equipment | |
| 2,125,227 | | |
| 5,492,674 | |
Carrying amount | |
$ | 9,954,202 | | |
$ | 15,174,189 | |
Construction in progress as of December 31, 2022
and March 31, 2023 mainly comprised capital expenditures for the construction of the facilities and production lines of CBAK Power, Nanjing
CBAK and Hitrans.
For the three months ended March 31, 2022 and
2023, the Company capitalized interest of nil and $112,274 respectively to the cost of construction in progress.
8. Long-term investments, net
Long-term investments as of December 31, 2022
and March 31, 2023 consisted of the following:
| |
December 31,
2022 | | |
March 31,
2023 | |
Investments in equity method investees | |
$ | 289,473 | | |
$ | 291,167 | |
Investments in non-marketable equity | |
| 655,764 | | |
| 659,603 | |
| |
$ | 945,237 | | |
$ | 950,770 | |
Investments in equity method investees
Balance as of January 1, 2022 | |
$ | - | |
Investments made | |
| 297,336 | |
Income from investment | |
| - | |
Foreign exchange adjustment | |
| (7,863 | ) |
Balance as of December 31, 2022 | |
$ | 289,473 | |
Foreign exchange adjustment | |
| 1,694 | |
Balance as of March 31, 2023 | |
$ | 291,167 | |
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 March 31, 2023 and current, Nanjing CBAK, Guanxi Guiwu and Mr. Weidong Xu had contributed
capital of $0.3 million (RMB2 million), $0.9 million (RMB6 million) and $0.3 million (RMB2 million), respectively.
Guangxi Guiwu CBAK commenced operations in 2023.
For the period ended March 31, 2023, no income from the above investment was recorded.
Investments in non-marketable equity
| |
December 31, 2022 | | |
March 31, 2023 | |
Cost | |
$ | 1,302,630 | | |
$ | 1,310,253 | |
Impairment | |
| (646,866 | ) | |
| (650,650 | ) |
Carrying amount | |
$ | 655,764 | | |
$ | 659,603 | |
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 have appointed one director on behalf of the Investors to the Board of Directors of DJY.
DJY is 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.
On
November 28, 2022, Nanjing CBAK along with Shenzhen Education for Industry Investment Co., Ltd. and Wenyuan Liu, an individual investor,
set up Nanjing CBAK Education For Industry Technology Co., Ltd (“CBAK Education”) with a registered capital of RMB5 million
(approximately $0.7 million), in which each party holding 10%, 60% and 30% equity interests of CBAK Education, respectively. The investment
is for training skillful workforce for Nanjing CBAK. CBAK Education commenced its operation in 2023, nil capital contribution was made
by Nanjing CBAK as of the report date.
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 nil impairment loss for the three months period ended March 31, 2022 and 2023.
9. Lease
(a)
Prepaid land use rights
| |
Prepaid | |
| |
land | |
| |
lease payments | |
Balance as of January 1, 2022 | |
$ | 13,797,230 | |
Amortization charge for the year | |
| (338,706 | ) |
Foreign exchange adjustment | |
| (1,097,361 | ) |
Balance as of December 31, 2022 | |
| 12,361,163 | |
Amortization charge for the period | |
| (83,242 | ) |
Foreign exchange adjustment | |
| 72,665 | |
Balance as of March 31, 2023 | |
$ | 12,350,586 | |
In August 2014 and November 2021, the Group acquired
land use rights to build a factory of the Company in Dalian, PRC and Zhejiang, PRC.
Lump sum payments were made upfront to acquire
the leased land from the owners with lease periods of 36 to 50 years, and no ongoing payments will be made under the terms of these land
leases.
No impairment loss was made to the carrying amounts
of the prepaid land use right for the three months ended March 31, 2022 and 2023.
(b)
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 ($2,621) 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 RMB73,143 ($10,648) 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 RMB97,743 ($14,230) per month.
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 RMB238,095 ($34,663) per month for the first year and approximately RMB277,778
($40,440) per month from the second year. In May 2022, Nanjing Daxin early terminated the lease after one-year non-cancellable period.
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 ($773) per month.
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 RMB10,400 ($1,514) per month for the first year, RMB10,608 ($1,544) and RMB10, 820
($1,575) 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 three year term, commencing on March 1, 2022 and expiring on February 28,
2027. The monthly rental payment is approximately RMB15,840 ($2,306) 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 ($8,792) per month.
On October 20, 2022, CBAK Power entered into a
lease agreement for staff quarters spaces in Dalian with a five year term, commencing on October 20, 2022 and expiring on October 19,
2025. The monthly rental payment is RMB61,905 ($9,012) per month.
On December 20, 2022, Hitrans entered into a lease
agreement for extra staff quarters spaces in Zhejiang with a five year term commencing on December 20, 2022 and expiring on December 19,
2027. The monthly rental payment is RMB52,000 ($7,570) per month for the first year, with 2% increase per year.
On December 30, 2022, Hitrans entered into a lease
agreement with liquid gas supplier for a five year term for supplying liquid nitrogen and oxygen to December 29, 2027 The monthly rental
payment is approximately RMB7,265 ($1,058) per month.
Operating lease expenses for the three months
ended March 31, 2022 and 2023 for the capitation agreement was as follows:
| |
March 31, 2022 | | |
March 31, 2023 | |
Operating lease cost – straight line | |
$ | 212,691 | | |
$ | 137,317 | |
(c) Company as lessee - Finance lease
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Property, plant and equipment, at cost | |
$ | 1,890,396 | | |
$ | 1,893,191 | |
Accumulated depreciation | |
| (251,626 | ) | |
| (270,027 | ) |
Impairment | |
| (662,006 | ) | |
| (662,985 | ) |
Property, plant and equipment, net under finance lease | |
| 976,764 | | |
| 960,179 | |
| |
| | | |
| | |
Finance lease liabilities, current | |
| 844,297 | | |
| 485,279 | |
Finance lease liabilities, non-current | |
| - | | |
| - | |
Total finance lease liabilities | |
$ | 844,297 | | |
$ | 485,279 | |
The components of finance lease expenses were as follows:
| |
2022 | | |
2023 | |
Finance lease cost: | |
| | |
| |
Depreciation of assets | |
$ | - | | |
$ | 45,335 | |
Interest of lease liabilities | |
| - | | |
| 5,115 | |
Total lease expense | |
$ | - | | |
$ | 50,450 | |
The following is a schedule, by years, of maturities of lease liabilities
as of March 31, 2023:
| |
Operating leases | | |
Finance leases | |
| |
| | |
| |
Remainder of 2023 | |
$ | 459,700 | | |
$ | 492,073 | |
2024 | |
| 253,421 | | |
| - | |
2025 | |
| 228,850 | | |
| - | |
2026 | |
| 145,617 | | |
| - | |
2027 | |
| 12,692 | | |
| - | |
Thereafter | |
| - | | |
| - | |
Total undiscounted cash flows | |
| 1,100,280 | | |
| 492,073 | |
Less: imputed interest | |
| (73,944 | ) | |
| (6,794 | ) |
Present value of lease liabilities | |
$ | 1,026,336 | | |
$ | 485,279 | |
Lease term and discount rate:
| |
December 31, 2022 | | |
March 31, 2023 | |
Weighted-average remaining lease term | |
| | |
| |
Land use rights | |
| 37.9 | | |
| 37.7 | |
Operating lease | |
| 3.39 | | |
| 3.12 | |
Finance lease | |
| 0.5 | | |
| 0.25 | |
| |
| | | |
| | |
Weighted-average discount rate | |
| | | |
| | |
Land use rights | |
| Nil | | |
| Nil | |
Operating lease | |
| 4.94 | % | |
| 4.97 | % |
Finance lease | |
| 1.40 | % | |
| 1.40 | % |
Supplemental cash flow information related to
leases where the Company was the lessee for the three months ended March 31, 2022 and 2023 was as follows:
| |
March 31, 2022 | | |
March 31, 2023 | |
Operating cash outflows from operating assets | |
$ | 32,451 | | |
$ | 178,006 | |
10. Intangible Assets, net
Intangible assets as of December 31, 2022 and
March 31, 2023 consisted of the followings:
| |
December 31, 2022 | | |
March 31, 2023 | |
Computer software at cost | |
$ | 104,211 | | |
$ | 104,821 | |
Sewage discharge permit | |
| 1,762,129 | | |
| 1,772,440 | |
| |
| 1,866,340 | | |
| 1,877,261 | |
Accumulated amortization | |
| (557,282 | ) | |
| (681,826 | ) |
| |
$ | 1,309,058 | | |
$ | 1,195,435 | |
Amortization expenses were $131,571 and $121,754
for the three months ended March 31, 2022 and 2023, respectively.
Total future amortization expenses for finite-lived
intangible assets as of March 31, 2023 were estimated as follows:
Remainder of 2023 | |
$ | 364,345 | |
2024 | |
| 483,835 | |
2025 | |
| 321,775 | |
2026 | |
| 6,077 | |
2027 | |
| 4,555 | |
Thereafter | |
| 14,848 | |
Total | |
$ | 1,195,435 | |
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 acquires 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 acquires 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”),
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”) continue to hold 15% registered equity interests (representing 21.05% of paid-up capital) of Hitrans
after the acquisition.
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, 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 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 RMB3 million ($0.5 million) had not yet been repaid by
Juzhong Daxin 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.
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 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 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, 2023, 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.
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 | ) |
NAV | |
| 29,642,812 | |
Less: Waiver of dividend payable | |
| 1,250,181 | |
Total NAV 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.
The Company performed Goodwill impairment test
at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change indicating the asset
might be impaired. Goodwill was fully impaired as of December 31, 2022. No impairment loss of Goodwill of the reporting unit of Hitrans
was recognized for the three months ended March 31, 2022.
12. Goodwill
Balance as of January 1, 2022 | |
$ | 1,645,232 | |
Impairment of goodwill | |
| (1,556,078 | ) |
Foreign exchange adjustment | |
| (89,154 | ) |
Balance as of December 31, 2022 | |
| - | |
Impairment of goodwill | |
| - | |
Foreign exchange adjustment | |
| - | |
Balance as of March 31, 2023 | |
$ | - | |
The Company performed goodwill impairment test
at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change indicating the asset
might be impaired. As of December 31, 2022, the Company performed testing on reporting unit of NCM precursor and cathode materials products
(“Hitrans Reporting unit”)
The Company first assessed qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For those reporting
units where it is determined that it is more likely than not that their fair values are less than the units’ carrying amounts, the
Company will perform the first step of a two-step quantitative goodwill impairment test. After performing the assessment, if the carrying
amounts of the reporting units are higher than their fair values, the Company will perform the second step of the two-step quantitative
goodwill impairment test.
In 2022 and 2021, the Company performed qualitative
assessments for Hitrans reporting unit. Based on the requirements of ASC 350-20-35-3C through ASC 350-20-35-3G, the Company evaluated
all relevant factors, weighed all factors in their totality. For the year ended December 31, 2022, as the financial performance of Hitrans
reporting unit was below original expectations, fair value of this reporting unit was indicated to be lower than its carrying value. For
this reporting unit, where it was determined that it was more likely than not that its fair value was less than the units’ carrying
amount after performing the qualitative assessment, as a result, the Company performed the two-step quantitative goodwill impairment test
for these two reporting units.
For the two-step goodwill impairment test, the
Company estimated the fair value with either income approach or asset approach for specific reporting unit components. With the income
approach, the Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are
based on the best estimate of future net sales and operating expenses, based primarily on expected expansion, pricing, market share, and
general economic conditions. Certain estimates of discounted cash flows involve businesses with limited financial history and developing
revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any. Asset based approach
is used in evaluating the fair value of some specific components which is deemed as the most prudent approach due to the unpredictability
of future cash flows.
The result of step one impairment test for the
Hitrans reporting unit failed, with its determined fair value lower than the book value. The Company performed step two impairment test,
applying the income approach, resulting an impairment loss of goodwill of $1,556,078 for the year ended December 31, 2022. The impairment
loss of goodwill was primarily attributable to the impairment related to Hitrans reporting unit as the financial performance of the reporting
unit of Hitrans continued to fall below the Company’s original expectations.
13. Trade and Bills Payable
Trade and bills payable as of December 31, 2022
and March 31, 2023 consisted of the followings:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Trade accounts payable | |
$ | 32,516,445 | | |
$ | 35,722,384 | |
Bills payable | |
| | | |
| | |
– Bank acceptance bills | |
| 34,974,990 | | |
| 41,824,698 | |
– Letter of credit | |
| - | | |
| 218,376 | |
| |
$ | 67,491,435 | | |
$ | 77,765,458 | |
All the bills payable are of trading nature and will mature within
one year from the issue date.
The bank acceptance bills were pledged by:
|
(i) |
the Company’s bank deposits (Note 2); |
| (ii) | $3.4 million and $4.9 million of the Company’s bills receivable as of December 31, 2022 and March 31, 2023, respectively (Note 3). |
|
(iii) |
the Company’s prepaid land use rights (note 9) |
14. Loans
Bank loans:
Bank borrowings as of December 31, 2022 and March
31, 2023 consisted of the followings:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Short-term bank borrowings | |
$ | 14,907,875 | | |
$ | 18,634,717 | |
On November 16, 2021, the Company obtained banking
facilities from Shaoxing Branch of Bank of Communications Co., Ltd with a maximum amount of RMB120.1 million (approximately $17.5 million)
with the term from November 18, 2021 to November 18, 2026. The facility was secured by the Company’s land use rights and buildings.
Under the facility, the Company has borrowed RMB59.0 million (approximately $8.5 million) and RMB74.0 million (approximately $10.8 million)
as of December 31, 2022 and March 31, 2023, respectively, for varying terms ending between May 2023 to March 2024, bearing interest at
3.65% to 4.15% per annum.
On April 19, 2021, the Company obtained five-year
acceptance bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB84.4 million (approximately $13.2 million). Any
amount drawn under the facilities requires security in the form of cash or bank acceptance bills receivable of at least the same amount.
Under the facilities, as of December 31, 2021, the Company borrowed a total of RMB10 million (approximately $1.6 million) from Bank of
Ningbo Co., Ltd in the form of bills payable for a various term expiring from January to February 2022, which was secured by the Company’s
cash totaled RMB10 million (approximately $1.6 million). The Company repaid the bills in January to February 2022.
On March 21, 2022, the Company renewed the above
acceptance bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB71.6 million ($10.4 million) with other terms remain
the same. Under the facilities, as of December 31, 2022 and March 31, 2023, the Company borrowed a total of RMB15.9 million (approximately
$2.3 million) and RMB21.3 million (approximately $3.1 million), respectively, in the form of bills payable for various terms expiring
from April to September 2023, which was secured by the Company’s cash totaling RMB15.9 million (approximately $2.3 million) and
RMB21.3 million (approximately $3.1 million) (Note 2), respectively.
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 and secured by an unrelated
third party, Jiangsu Credits Financing Guarantee Co., Ltd. The Company borrowed RMB10 million (approximately $1.4 million) on January
20, 2022 for a term until January 16, 2023. The Company early repaid RMB10 million (approximately $1.5 million) on January 5, 2023. On
January 5, 2023, the Company obtained a one-year term loan of RMB10 million (approximately $1.5 million) for a period of one year to
January 4, 2023, bearing interest at 120% of benchmark rate of the PBOC for short-term loans, which is 3.85% per annum, while other terms
and guarantee remain the same. The Company borrowed RMB10 million (approximately $1.5 million) on January 6, 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 the Company’s CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. The Company
borrowed RMB10 million (approximately $1.5 million) on February 17, 2022 for a term until January 28, 2023. The Company repaid RMB10
million (approximately $1.4 million) on January 16, 2023. On January 14, 2023 , the Company obtained a one-year loan of RMB10 million
(approximately $1.5 million) bearing interest at 129% of benchmark rate of PBOC for short-term loans, which is 4.70% per annum. The Company
borrowed RMB10 million (approximately $1.5 million) on January 17, 2023 for a term until January 13, 2024..
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 $1.5 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 $1.5 million) on the same date. On May 17, 2022, the Company early repaid
the loan principal and related loan interests.
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 facility was 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 $1.5 million) on April 29, 2022,
bearing interest at 3.95% per annum for a term until April 29, 2023. The Company repaid RMB10 million (approximately $1.5 million) on
April 19, 2023. On April 19, 2023, the Company obtained an other one-year loan of RMB10 million (approximately $1.5 million) bearing interest
at 102.5% of benchmark rate of PBOC for short-term loans, which is 3.90% per annum. The Company borrowed RMB10 million (approximately
$1.5 million) on April 20, 2023 for a term until April 19, 2024.
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 $1.5 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 $1.5 million) on the same date for a term until June 21, 2023.
On November 10, 2022, the Company early repaid the loan principal and the related loan interests.
On September 25, 2022, the Company entered into
another 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.
On November 8, 2022, the Company entered into
a short-term loan agreement with China CITIC Bank Shaoxing Branch to August 9, 2023 with a maximum amount of RMB10 million (approximately
$1.5 million) bearing interest rate at 4.35% per annum. The Company borrowed RMB10 million (approximately $1.5 million) on the same date.
The Company has repaid RMB5 million (approximately $0.7 million) and RMB0.2 million (approximately $0.1 million) on November 16, 2022
and December 27, 2022, respectively. Subsequent to the repayment, the Company entered into another short-term loan agreement with China
CITIC Bank Shaoxing Branch for a one-year short-term loan agreement with a maximum amount of RMB0.2 million (approximately $0.1 million)
for December 27, 2022 to December 27, 2023, bearing interest rate at 4.20% per annum.
On December 9, 2022, the Company obtained a RMB5
million (approximately $0.7 million) letter of credit from China CITIC Bank for a period to October 30, 2024 for settlement of Hitrans
purchase. The Company utilized RMB1.5 million (approximately $0.2 million) letter of credit at an interest rate of 2.7% for a period
of one year to January 5, 2024.
On January 7, 2023, the Company obtained a two-year
term facility from Postal Savings Bank of China, Nanjing Gaochun Branch with a maximum amount of RMB10 million (approximately $1.5 million)
for a period from January 7, 2023 to January 6, 2025. The facility was guaranteed by the Company’s CEO, Mr. Yunfei Li, Mr. Yunfei
Li’s wife Ms. Qinghui Yuan and CBAK New Energy (Nanjing) Co., Ltd. The Company borrowed RMB5 million (approximately $0.7 million)
on January 12, 2023 for a term of one year until January 11, 2024, bearing interest at 3.65% per annum.
On March 29, 2023, the Company and Bank of China
Limited entered into a short-term loan agreement for one year from March 29, 2023 to March 28, 2024 for a maximum loan amount to RMB5
million (approximately $0.7 million) bearing interest rate at 3.65% per annum. The Company borrowed RMB5 million (approximately $0.7
million) on the same date. The loan was secured by the Company’s land use rights and buildings in Dalian.
The Company borrowed a series of acceptance bills
from Agricultural Bank of China totaled RMB9.8 million (approximately $1.4 million) for various terms expiring in September 2023, which
was secured by the Company’s cash totaled RMB9.8 million (approximately $1.4 million) (Note 2).
The Company borrowed a series of acceptance bills
from China Zheshang Bank Co. Ltd Shenyang Branch totaled RMB78.4 million (approximately $11.4 million) for various terms through April
to September 2023, which was secured by the Company’s cash totaled RMB50.5 million (approximately $7.4 million) (Note 2) and the
Company’s bills receivable totaled RMB33.5 million (approximately $4.9 million) (Note 3).
The Company borrowed a series of acceptance bills
from Shaoxing Branch of Bank of Communications Co., Ltd totaling RMB32.4 million (approximately $4.7 million) for various terms ending
through May to September 2023, which was secured by the Company’s cash totaling RMB17.4 million (approximately $2.5 million) (Note
2) and the Company’s land use rights and buildings in Zhejiang.
The Company borrowed a series of acceptance bills
from China Merchants Bank Dalian Branch totaling RMB102.6 million (approximately $14.9 million) for various terms through April to September
2023, which was secured by the Company’s cash totaling RMB102.6 million (approximately $14.9 million) (Note 2).
The
Company borrowed a series of acceptance bills from Bank of China Limited totaling RMB20.7 million (approximately $3.0 million) for
various terms through September 2023, which was secured by the Company’s cash totaling RMB20.7 million (approximately $3.0
million) (Note 2).
The Company borrowed a series of acceptance bills
from Jiangsu Gaochun Rural Commercial Bank totaling RMB22.2 million (approximately $3.2 million) for various terms through April to August
2023, which was secured by the Company’s cash totaling RMB22.2 million (approximately $3.2 million) (Note 2).
The facilities were also secured by the Company’s assets with
the following carrying amounts:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Pledged deposits (note 2) | |
$ | 30,836,864 | | |
$ | 35,601,854 | |
Bills receivables (note 3) | |
| 3,383,130 | | |
| 4,874,528 | |
Right-of-use assets (note 9) | |
| 5,598,716 | | |
| 5,589,456 | |
Buildings | |
| 4,419,749 | | |
| 6,603,907 | |
| |
$ | 44,238,459 | | |
$ | 52,669,745 | |
As of March 31, 2023, the Company had unutilized
committed banking facilities totaled $3.6 million.
During the three months ended March 31, 2022
and 2023, interest of $122,973 and $171,412 were incurred on the Company’s bank borrowings, respectively.
Other short-term loans:
Other short-term loans as of December 31, 2022
and March 31, 2023 consisted of the following:
| |
| |
December 31, | | |
March 31, | |
| |
Note | |
2022 | | |
2023 | |
Advance from related parties | |
| |
| | |
| |
– Mr. Xiangqian Li, the Company’s Former CEO | |
(a) | |
$ | 100,000 | | |
$ | 100,000 | |
– Mr. Yunfei Li | |
(b) | |
| 223,927 | | |
| 353,406 | |
| |
| |
| 323,927 | | |
| 453,406 | |
Advances from unrelated third party | |
| |
| | | |
| | |
– Mr. Wenwu Yu | |
(c) | |
| 15,896 | | |
| 15,989 | |
– Ms. Longqian Peng | |
(c) | |
| 276,905 | | |
| 60,150 | |
– Suzhou Zhengyuanwei Needle Ce Co., Ltd | |
(d) | |
| 72,368 | | |
| 72,792 | |
| |
| |
| 365,169 | | |
| 148,931 | |
| |
| |
$ | 689,096 | | |
$ | 602,337 | |
| (a) | Advances from Mr. Xiangqian Li, the Company’s former CEO, was unsecured, non-interest bearing and repayable on demand. |
| (b) | Advances from Mr. Yunfei Li, the Company’s CEO, was unsecured, non-interest bearing and repayable on demand. |
| (c) | Advances from unrelated third parties were unsecured, non-interest bearing and repayable on demand. |
| (d) | In 2019, the Company entered into a short term loan agreement with Suzhou Zhengyuanwei Needle Ce Co., Ltd, an unrelated party to loan RMB0.6 million (approximately $0.1 million), bearing annual interest rate of 12%. As of March 31, 2023, loan amount of RMB0.5 million ($0.1 million) remained outstanding. |
During the three months ended March 31, 2022
and 2023, interest of $2,363 and $2,192 were incurred on the Company’s borrowings from unrelated parties, respectively.
15. Accrued Expenses and Other Payables
Accrued expenses and other payables as of December
31, 2022 and March 31, 2023 consisted of the following:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Construction costs payable | |
$ | 2,143,730 | | |
$ | 2,644,968 | |
Equipment purchase payable | |
| 9,710,187 | | |
| 7,772,923 | |
Liquidated damages* | |
| 1,210,119 | | |
| 1,210,119 | |
Accrued staff costs | |
| 2,961,781 | | |
| 2,663,831 | |
Customer deposits | |
| 4,845,382 | | |
| 3,785,547 | |
Deferred revenue | |
| 1,869,525 | | |
| 1,875,878 | |
Accrued operating expenses | |
| 1,755,170 | | |
| 1,436,616 | |
Dividend payable to non-controlling interest (Note 16) | |
| 1,290,942 | | |
| 1,298,497 | |
Other tax payables | |
| 721,709 | | |
| 631,529 | |
Other payables | |
| 182,641 | | |
| 144,941 | |
| |
| 26,691,186 | | |
| 23,464,849 | |
Less: non-current portion | |
| | | |
| | |
Deferred revenue | |
| 1,085,525 | | |
| 1,091,878 | |
| |
$ | 25,605,661 | | |
$ | 22,372,971 | |
* | On August 15, 2006, the SEC declared effective a post-effective amendment that the Company had filed on August 4, 2006, terminating the effectiveness of a resale registration statement on Form SB-2 that had been filed pursuant to a registration rights agreement with certain shareholders to register the resale of shares held by those shareholders. The Company subsequently filed Form S-1 for these shareholders. On December 8, 2006, the Company filed its Annual Report on Form 10-K for the year ended September 30, 2006 (the “2006 Form 10-K”). After the filing of the 2006 Form 10-K, the Company’s previously filed registration statement on Form S-1 was no longer available for resale by the selling shareholders whose shares were included in such Form S-1. Under the registration rights agreement, those selling shareholders became eligible for liquidated damages from the Company relating to the above two events totaling approximately $1,051,000. As of December 31, 2022 and March 31, 2023, no liquidated damages relating to both events have been paid. |
On November 9, 2007, the Company completed a
private placement for the gross proceeds to the Company of $13,650,000 by selling 3,500,000 shares of common stock at the price of $3.90
per share. Roth Capital Partners, LLC acted as the Company’s exclusive financial advisor and placement agent in connection with
the private placement and received a cash fee of $819,000. The Company may have become liable for liquidated damages to certain shareholders
whose shares were included in a resale registration statement on Form S-3 that the Company filed pursuant to a registration rights agreement
that the Company entered into with such shareholders in November 2007. Under the registration rights agreement, among other things, if
a registration statement filed pursuant thereto was not declared effective by the SEC by the 100th calendar day after the closing of
the Company’s private placement on November 9, 2007, or the “Effectiveness Deadline”, then the Company would be liable
to pay partial liquidated damages to each such investor of (a) 1.5% of the aggregate purchase price paid by such investor for the shares
it purchased on the one month anniversary of the Effectiveness Deadline; (b) an additional 1.5% of the aggregate purchase price paid
by such investor every thirtieth day thereafter (pro rated for periods totaling less than thirty days) until the earliest of the effectiveness
of the registration statement, the ten-month anniversary of the Effectiveness Deadline and the time that the Company is no longer required
to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders
may sell their shares pursuant to Rule 144 without volume limitations; and (c) 0.5% of the aggregate purchase price paid by such investor
for the shares it purchased in the Company’s November 2007 private placement on each of the following dates: the ten-month anniversary
of the Effectiveness Deadline and every thirtieth day thereafter (prorated for periods totaling less than thirty days), until the earlier
of the effectiveness of the registration statement and the time that the Company no longer is required to keep such resale registration
statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant
to Rule 144 without volume limitations. Such liquidated damages would bear interest at the rate of 1% per month (prorated for partial
months) until paid in full.
On December 21, 2007, pursuant to the registration
rights agreement, the Company filed a registration statement on Form S-3, which was declared effective by the SEC on May 7, 2008. As
a result, the Company estimated liquidated damages amounting to $561,174 for the November 2007 registration rights agreement. As of December
31, 2022 and March 31, 2023, the Company had settled the liquidated damages with all the investors and the remaining provision of approximately
$159,000 was included in other payables and accruals.
16. Balances and Transactions With Related Parties
The principal related parties with which the
Company had transactions during the years presented are as follows:
Name of Entity or Individual |
|
Relationship with the Company |
New Era Group Zhejiang New Energy Materials Co., Ltd. |
|
Shareholder of company’s subsidiary |
Zhengzhou BAK Battery Co., Ltd |
|
Note a |
Shenzhen BAK Battery Co., Ltd |
|
Former subsidiary and refer to Note b |
Shenzhen BAK Power Battery Co., Ltd |
|
Former subsidiary and refer to Note b |
|
(a) |
Mr. Xiangqian Li, the Company’s
former CEO, is a director of Zhengzhou BAK Battery Co., Ltd. |
|
(b) |
Mr. Xiangqian Li is a director
of Shenzhen BAK Battery Co., Ltd and Shenzhen BAK Power Battery Co., Ltd |
Related party transactions:
The Company entered into the following significant
related party transactions:
| |
For the three months ended March 31, | |
| |
2022 | | |
2023 | |
| |
| | |
| |
Purchase of batteries from Zhengzhou BAK Battery Co., Ltd | |
$ | 5,164,433 | | |
$ | 3,161,173 | |
Sales of cathode raw materials to Zhengzhou BAK Battery Co., Ltd | |
| 25,823,532 | | |
| 9,323,839 | |
Sales of cathode raw materials to Shenzhen BAK Power Battery Co., Ltd | |
| 112,468 | | |
| - | |
Related party balances:
Apart from the above, the Company recorded the
following significant related party balances as of December 31, 2022 and March 31, 2023:
Receivables from a former subsidiary, net
| |
December 31, 2022 | | |
March 31, 2023 | |
| |
| | |
| |
Receivables from Shenzhen BAK Power Battery Co., Ltd | |
$ | 5,518,052 | | |
$ | 1,834,983 | |
Less: Allowance for credit losses | |
| - | | |
| (16,714 | ) |
| |
$ | 5,518,052 | | |
| 1,818,269 | |
An analysis of the allowance for credit losses
are as follows:
Balance as at December 31, 2022 | |
$ | - | |
Adoption of ASC Topic 326 | |
| - | |
Balance as at January 1, 2023 | |
| - | |
Current period provision, net | |
| 16,779 | |
Foreign exchange adjustment | |
| (65 | ) |
Balance as at March 31, 2023 | |
$ | 16,714 | |
Balance as of December 31, 2022 and March 31,
2023 consisted of receivable for sales of cathode materials to Shenzhen BAK Power Battery Co., Ltd. Up to the date of this report, Shenzhen
BAK Power Battery Co., Ltd repaid $1.8 million to the Company.
Other balances due from/ (to) related
parties
| |
December 31, 2022 | | |
March 31, 2023 | |
| |
| | |
| |
Trade receivable, net – Zhengzhou BAK Battery Co., Ltd. (i) | |
$ | 9,156,383 | | |
$ | 14,251,802 | |
| |
| | | |
| | |
Bills receivable – Issued by Zhengzhou BAK Battery Co., Ltd (ii) | |
$ | 2,941,683 | | |
$ | 2,246,742 | |
| |
| | | |
| | |
Trade payable, net – Zhengzhou BAK Battery Co., Ltd (iii) | |
$ | 5,629,343 | | |
$ | 3,307,343 | |
| |
| | | |
| | |
Dividend payable to non-controlling interest of Hitrans (note 14) | |
$ | 1,290,942 | | |
$ | 1,298,497 | |
| (i) | Representing trade receivables from sales of cathode raw materials to Zhengzhou BAK Battery Co., Ltd. Up to the date of this report, Zhengzhou BAK Battery Co., Ltd. repaid $5.2 million to the Company. |
| (ii) | Representing bills receivable issued by Zhengzhou BAK Battery Co., Ltd. The Company endorsed the bills receivable as of December 31, 2022 to suppliers for settling trade payables subsequent to December 31, 2022. Bills receivable as of March 31, 2023 were pledged to bank as security for issuance of bills payable (note 12). |
| (iii) | Representing
trade payables on purchase of batteries from Zhengzhou BAK Battery Co., Ltd. |
Payables to a former subsidiary
Payables to a former subsidiary as of December
31, 2022 and March 31, 2023 consisted of the following:
| |
December 31, 2022 | | |
March 31, 2023 | |
Payables to Shenzhen BAK Power Battery Co., Ltd | |
$ | (358,067 | ) | |
$ | (355,913 | ) |
Balance as of December 31, 2022 and March 31,
2023 consisted of payables for purchase of inventories from Shenzhen BAK Power Battery Co., Ltd.
17. Deferred Government Grants
Deferred government grants as of December 31,
2022 and March 31, 2023 consist of the following:
| |
December 31, | | |
March 31, | |
| |
2022 | | |
2023 | |
Total government grants | |
$ | 6,876,735 | | |
$ | 6,361,009 | |
Less: Current portion | |
| (1,299,715 | ) | |
| (847,584 | ) |
Non-current portion | |
$ | 5,577,020 | | |
$ | 5,513,425 | |
Government grants that are received in advance
are deferred and recognized in the consolidated statements of operations over the period necessary to match them with the costs that
they are intended to compensate. Government grants in relation to the achievement of stages of research and development projects are
recognized in the consolidated statements of operations when amounts have been received and all attached conditions have been met. Non-refundable
grants received without any further obligations or conditions attached are recognized immediately in the consolidated statements of operations.
On October 17, 2014, the Company received a subsidy
of RMB46,150,000 pursuant to an agreement with the Management Committee dated July 2, 2013 for costs of land use rights and to be used
to construct the new manufacturing site in Dalian. Part of the facilities had been completed and was operated in July 2015 and the Company
has initiated amortization on a straight-line basis over the estimated useful lives of the depreciable facilities constructed thereon.
On June 23, 2020, BAK Asia, the Company wholly-owned
Hong Kong subsidiary, entered into a framework investment agreement with Jiangsu Gaochun Economic Development Zone Development Group Company
(“Gaochun EDZ”), pursuant to which the Company intended to develop certain lithium battery projects that aim to have a production
capacity of 8Gwh. Gaochun EDZ agreed to provide various support to facilitate the development and operation of the projects. From 2020
to the report date, the Company received RMB10 million (approximately $1.6 million) to finance the costs incurred for moving; RMB20 million
(approximately $3.2 million) to finance the costs incurred in construction works; and RMB17.1 million (approximately $2.7 million) to
finance equipment purchases from Gaochun EDZ in Nanjing. The Company recognize the government subsidies as income or offsets them against
the related expenditures when there are no present or future obligations for the subsidized projects.
For
the year ended December 31, 2021, the Company recognized RMB10 million ($1.6 million) as other income after moving of the Company facilities
to Nanjing. Remaining subsidy of RMB37.1 million (approximately $5.9 million) was granted to facilities the construction works and equipment
in Nanjing. The construction works have been completed in November 2021 and the production line was fully operated in January 2023, the
Company has initiated amortization on a straight-line basis over the estimated useful lives of the depreciable facilities constructed
thereon.
| |
Three months ended
March 31, | |
| |
2022 | | |
2023 | |
| |
| | |
| |
Cost of revenues | |
$ | 551,663 | | |
$ | 544,660 | |
Research and development expenses | |
| 10,656 | | |
| 9,886 | |
General and administrative expenses | |
| 4,654 | | |
| 4,318 | |
Other income (expenses), net | |
| 734,435 | | |
| 99,042 | |
| |
$ | 1,301,408 | | |
$ | 657,906 | |
18. Product Warranty Provisions
The Company maintains a policy of providing after
sales support for certain of its new EV and LEV battery products introduced since October 1, 2015 by way of a warranty program. The limited
cover covers a period of six to twenty four months for battery cells, a period of twelve to twenty seven months for battery modules for
light electric vehicles (LEV) such as electric bicycles, and a period of three years to eight years (or 120,000 or 200,000 km if reached
sooner) for battery modules for electric vehicles (EV). The Company accrues an estimate of its exposure to warranty claims based on both
current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability
at least annually and adjusts the amounts as necessary.
Warranty expense is recorded as a component of
sales and marketing expenses. Accrued warranty activity consisted of the following:
| |
December 31, 2022 | | |
March 31, 2023 | |
Balance at beginning of year | |
$ | 2,028,266 | | |
$ | 476,828 | |
Warranty costs incurred | |
| (81,954 | ) | |
| (11,387 | ) |
(Reversal) provision for the year | |
| (1,344,572 | ) | |
| 27,511 | |
Foreign exchange adjustment | |
| (124,912 | ) | |
| 2,727 | |
Balance at end of year | |
| 476,828 | | |
| 495,679 | |
Less: Current portion | |
| (26,215 | ) | |
| (24,663 | ) |
Non-current portion | |
$ | 450,613 | | |
$ | 471,016 | |
19. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities
(a) Income taxes in the condensed consolidated statements of comprehensive
income (loss)
The Company’s provision for income taxes
credit consisted of:
| |
Three months ended March 31, | |
| |
2022 | | |
2023 | |
PRC income tax | |
| | |
| |
Current income tax | |
$ | - | | |
$ | - | |
Deferred income tax credit | |
| 93,546 | | |
| 402,884 | |
| |
$ | 93,546 | | |
$ | 402,884 | |
United States Tax
CBAK is a Nevada corporation that is subject
to U.S. federal tax and state tax. On December 31, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to
as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including,
but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to
pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate
income taxes on dividends from foreign subsidiaries; (4) providing modification to subpart F provisions and new taxes on certain foreign
earnings such as Global Intangible Low-Taxed Income (GILTI). Except for the one-time transition tax, most of these provisions go into
effect starting January 1, 2018.
On December 22, 2017, the U.S. enacted the Tax
Cuts and Jobs Act (the "Tax Act"), which significantly changed U.S. tax law and included a provision to tax global intangible
low-taxed income (GILTI) of foreign subsidiaries. The Company recognizes taxes due under the GILTI provision as a current period expense.
As of December 31, 2022 and March 31, 2023, the Company does not have any aggregated positive tested income; and as such, does not have
additional provision amount recorded for GILTI tax.
No provision for income taxes in the United States
has been made as CBAK had no taxable income for the three months ended March 31, 2022 and 2023.
Hong Kong Tax
BAK Asia and BAK Investment are subject to Hong
Kong profits tax rate of 16.5% and did not have any assessable profits arising in or derived from Hong Kong For the three months ended
March 31, 2022 and 2023 and accordingly no provision for Hong Kong profits tax was made in these periods.
PRC Tax
The CIT Law in China applies an income tax rate
of 25% to all enterprises but grants preferential tax treatment to High-New Technology Enterprises. CBAK Power was regarded as a “High-new
technology enterprise” pursuant to a certificate jointly issued by the relevant Dalian Government authorities. The certificate
was valid for three years commencing from year 2021. Under the preferential tax treatment, CBAK Power was entitled to enjoy a tax rate
of 15% for the years from 2021 to 2024 provided that the qualifying conditions as a High-new technology enterprise were met. Hitrans
was regarded as a “High-new technology enterprise” pursuant to a certificate jointly issued by the relevant Zhejiang Government
authorities. The certificate was valid for three years commencing from year 2021. Under the preferential tax treatment, Hitrans was entitled
to enjoy a tax rate of 15% for the years from 2021 to 2024 provided that the qualifying conditions as a High-new technology enterprise
were met.
A reconciliation of the provision for income
taxes determined at the statutory income tax rate to the Company’s income taxes is as follows:
| |
Three months ended March 31, | |
| |
2022 | | |
2023 | |
Income (loss) before income taxes | |
$ | 586,957 | | |
$ | (2,607,366 | ) |
United States federal corporate income tax rate | |
| 21 | % | |
| 21 | % |
Income tax expenses (credit) computed at United States statutory corporate income tax rate | |
| 123,261 | | |
| (547,547 | ) |
Reconciling items: | |
| | | |
| | |
Rate differential for PRC earnings | |
| (25,584 | ) | |
| (102,559 | ) |
Tax effect of entity at preferential tax rate | |
| (9,972 | ) | |
| 88,661 | |
Non-taxable (income) expenses | |
| (264,922 | ) | |
| 8,068 | |
Share based payments | |
| 7,304 | | |
| 1,028 | |
Valuation allowance on deferred tax assets | |
| 76,367 | | |
| 144,465 | |
Income tax credit | |
$ | (93,546 | ) | |
$ | (402,884 | ) |
(b) Deferred tax assets and deferred tax liabilities
The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2022 and March 31, 2023 are presented
below:
| |
December 31, 2022 | | |
March 31, 2023 | |
Deferred tax assets | |
| | |
| |
Trade receivable | |
$ | 1,976,354 | | |
$ | 1,345,136 | |
Inventories | |
| 554,041 | | |
| 669,619 | |
Property, plant and equipment | |
| 2,353,141 | | |
| 2,142,003 | |
Long-term investments, net | |
| 161,716 | | |
| 162,663 | |
Intangible assets | |
| 97,468 | | |
| 103,542 | |
Accrued expenses, payroll and others | |
| 224,795 | | |
| 223,400 | |
Provision for product warranty | |
| 119,207 | | |
| 123,920 | |
Net operating loss carried forward | |
| 34,379,188 | | |
| 34,573,895 | |
Valuation allowance | |
| (37,122,551 | ) | |
| (36,287,803 | ) |
Deferred tax assets, non-current | |
$ | 2,743,359 | | |
$ | 3,056,375 | |
| |
| | | |
| | |
Deferred tax liabilities, non-current | |
| | | |
| | |
Long-lived assets arising from acquisitions | |
$ | 256,380 | | |
$ | 153,519 | |
As of December 31, 2022 and March 31, 2023, the
Company’s U.S. entity had net operating loss carry forwards of $103,580,741 of which $102,293 available to reduce future taxable
income which will expire in various years through 2035 and $103,478,448 available to offset capital gains recognized in the succeeding
5 tax years. As of December 31, 2022 and March 31, 2023, the Company’s PRC subsidiaries had net operating loss carry forwards of
$52,187,090 and $53,976,415, respectively, which will expire in various years through 2023 to 2031. Management believes it is more likely than
not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the
foreseeable future. As a result, a valuation allowance of $37,122,551 and $36,287,803 as of December 31, 2022 and March 31, 2023, respectively,
were provided against subsidiaries which were not estimated to generate operating profits to utilize the potential tax benefits.
According to the PRC Tax Administration and Collection
Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its
withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the
case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.
The impact of an uncertain income tax positions
on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant
tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest
and penalties on income taxes will be classified as a component of the provisions for income taxes.
20. Statutory reserves
As stipulated by the relevant laws and regulations
in the PRC, company established in the PRC (the “PRC subsidiary”) is required to maintain a statutory reserve made out of
profit for the year based on the PRC subsidiary’ statutory financial statements which are prepared in accordance with the accounting
principles generally accepted in the PRC. The amount and allocation basis are decided by the director of the PRC subsidiary annually
and is not to be less than 10% of the profit for the year of the PRC subsidiary. The aggregate amount allocated to the reserves will
be limited to 50% of registered capital for certain subsidiaries. Statutory reserve can be used for expanding the capital base of the
PRC subsidiary by means of capitalization issue.
In addition, as a result of the relevant PRC
laws and regulations which impose restriction on distribution or transfer of assets out of the PRC statutory reserve, $1,230,511 representing
the PRC statutory reserve of the subsidiary as of December 31, 2022 and March 31, 2023, are also considered under restriction for distribution.
21. Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement and
Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable
inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their
carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments
and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available.
The three levels of valuation hierarchy are defined as follows:
|
● |
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
|
|
|
● |
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets
or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
|
|
|
|
● |
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value measurement. |
Valuation of debt products depends upon a number
of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, and other relevant
terms of the debt. Other factors that may be considered include the borrower’s ability to adequately service its debt, the fair
market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s
debt investments. The fair value of these debt products classified as Level 2 is established by reference to the prices quoted by respective
fund administrators.
The fair value of warrants was determined using
the Binomial Model, with level 3 inputs (Note 24).
The fair value of share options was determined
using the Binomial Model, with level 3 inputs (Note 22).
The carrying amounts of financial assets and
liabilities, such as cash and cash equivalents, pledged deposits, trade accounts and bills receivable, other receivables, balances with
former subsidiaries, notes payable, other short-term loans, short-term and long-term bank loans and other payables approximate their
fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market rate
of interest.
22. Employee Benefit Plan
Full time employees of the Company in the PRC
participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing
fund and other welfare benefits are provided to the employees. The Company accrues for these benefits based on certain percentages of
the employees’ salaries, up to a maximum amount specified by the local government. The total employee benefits expensed as incurred
were $569,536 (RMB3,615,587) and $617,793 (RMB4,227,123) for the three months ended March 31, 2022 and 2023, respectively.
23. Share-based Compensation
Restricted Shares and Restricted Share Units
Restricted shares granted on June 30, 2015
On June 12, 2015, the Board of Director approved
the CBAK Energy Technology, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) for Employees, Directors and Consultants of
the Company and its Affiliates. The maximum aggregate number of Shares that may be issued under the Plan is ten million (10,000,000)
Shares.
On June 30, 2015, pursuant to the 2015 Plan,
the Compensation Committee of the Company’s Board of Directors granted an aggregate of 690,000 restricted shares of the Company’s
common stock, par value $0.001, to certain employees, officers and directors of the Company with a fair value of $3.24 per share on June
30, 2015. In accordance with the vesting schedule of the grant, the restricted shares will vest in twelve equal quarterly installments
on the last day of each fiscal quarter beginning on June 30, 2015 (i.e. last vesting period: quarter ended March 31, 2018). The Company
recognizes the share-based compensation expenses on a graded-vesting method.
All the restricted shares granted in respect
of the restricted shares granted on June 30, 2015 have been vested on March 31, 2018.
As of March 31, 2023, there was no unrecognized
stock-based compensation associated with the above restricted shares and 1,667 vested shares were to be issued.
Restricted shares granted on April 19, 2016
On April 19, 2016, pursuant to the Company’s
2015 Plan, the Compensation Committee of the Board of Directors of the Company granted an aggregate of 500,000 restricted shares of the
Company’s common stock, par value $0.001 , to certain employees, officers and directors of the Company, of which 220,000 restricted
shares were granted to the Company’s executive officers and directors. There are three types of vesting schedules. First, if the
number of restricted shares granted is below 3,000, the shares will vest annually in 2 equal installments over a two year period with
the first vesting on June 30, 2017. Second, if the number of restricted shares granted is larger than or equal to 3,000 and is below
10,000, the shares will vest annually in 3 equal installments over a three year period with the first vesting on June 30, 2017. Third,
if the number of restricted shares granted is above or equal to 10,000, the shares will vest semi-annually in 6 equal installments over
a three year period with the first vesting on December 31, 2016. The fair value of these restricted shares was $2.68 per share on April
19, 2016. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a
graded-vesting method.
All the restricted shares granted in respect
of the restricted shares granted on April 16, 2016 had been vested on June 30, 2019.
As of March 31, 2023, there was no unrecognized
stock-based compensation associated with the above restricted shares and 4,167 vested shares were to be issued.
Restricted share units granted on August 23,
2019
On August 23, 2019, pursuant to the Company’s
2015 Plan, the Compensation Committee granted an aggregate of 1,887,000 restricted share units of the Company’s common stock to
certain employees, officers and directors of the Company, of which 710,000 restricted share units were granted to the Company’s
executive officers and directors. There are two types of vesting schedules, (i) the share units will vest semi-annually in 6 equal installments
over a three year period with the first vesting on September 30, 2019; (ii) the share units will vest annual in 3 equal installments
over a three year period with the first vesting on March 31, 2021. The fair value of these restricted shares was $0.9 per share on August
23, 2019. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a
graded-vesting method.
The Company recorded non-cash share-based compensation
expense of $23,778 and nil for three months ended March 31, 2022 and 2023, in respect of the restricted shares granted on August 23,
2019
All the restricted share units granted in respect
of the restricted share units granted on August 23, 2019 had been vested on March 31, 2022. As of March 31, 2023, there was no unrecognized
stock-based compensation associated with the above restricted share units.
Restricted share units granted on October
23, 2020
On October 23, 2020, pursuant to the Company’s
2015 Plan, the Compensation Committee granted an aggregate of 100,000 restricted share units to an employee of the Company. In accordance
with the vesting schedule of the grant, the restricted share units will vest semi-annually in 6 equal installments over a three year
period with the first vesting on October 30, 2020. The fair value of these restricted share units was $3 per share on October 23, 2020.
The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting
method.
The Company recorded non-cash share-based compensation
expense of $11,001 and $4,897 for the three months ended March 31, 2022 and 2023, in respect of the restricted share units granted on
October 23, 2020 of which allocated to research and development expenses.
As of March 31, 2023, non-vested restricted share
units granted on October 23, 2020 are as follows:
Non-vested share units as of January 1, 2023 | |
| 16,665 | |
Granted | |
| - | |
Vested | |
| - | |
Non-vested share units as of March 31, 2023 | |
| 16,665 | |
As of March 31, 2023, there was unrecognized
stock-based compensation $1,632 associated with the above restricted share units and no vested shares were to be issued.
Employees Stock Ownership Program on November
29, 2021
On November 29, 2021, pursuant to the Company’s
2015 Plan, the Compensation Committee granted options to obtain an aggregate of 2,750,002 share units of the Company’s common stock
to certain employees, officers and directors of the Company, of which options to obtain 350,000 share units were given to the Company’s
executive officers and directors with an option exercise price of $1.96 based on fair market value. The vesting of shares each year is
subject to certain financial performance indicators. The shares will be vested semi-annually in 10 equal installments over a five year
period with the first vesting on May 30, 2023. The options will expire on the 70-month anniversary of the grant date.
The fair value of the stock options granted to
directors of the Company is estimated on the date of the grant using the Binomial Model. The fair value of the options was calculated
using the following assumptions: estimated life of six months to five years, volatility of 106.41%, risk free interest rate of 1.26%,
and dividend yield of 0%. The fair value of 350,000 stock options to directors of the Company was $479,599 at the grant date. For the
three months ended March 31, 2022 and 2023, the Company recorded nil as stock compensation expenses.
The fair value of the stock options granted to
certain employees and officers of the Company is estimated on the date of the grant using the Binomial Model. The fair value of the options
was calculated using the following assumptions: estimated life of six months to five years, volatility of 106.41%, risk-free interest
rate of 1.26% and dividend yield of 0%. The fair value of 2,400,002 stock options to certain employees and officers of the Company was
$2,805,624 at the grant date. During the three months ended March 31, 2022 and 2023, the Company recorded nil as stock compensation expenses.
Stock option activity under the Company’s
stock-based compensation plans is shown below:
| |
Number of Shares | | |
Average Exercise Price per Share | | |
Aggregate Intrinsic Value* | | |
Weighted Average Remaining Contractual Term in Years | |
| |
| | |
| | |
| | |
| |
Outstanding at January 1, 2023 | |
| 2,200,044 | | |
$ | 1.96 | | |
$ | - | | |
| 4.7 | |
Exercisable at January 1, 2023 | |
| - | | |
| - | | |
$ | - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding at March 31, 2023 | |
| 2,200,044 | | |
$ | 1.96 | | |
$ | - | | |
| 4.45 | |
Exercisable at March 31, 2023 | |
| 549,958 | | |
$ | 1.96 | | |
$ | - | | |
| 4.45 | |
* | The intrinsic value of the stock options at March 31, 2023 is the amount by which the market value of the Company’s common stock of $0.88 as of March 31, 2023 exceeds the exercise price of the option. |
As the Company itself is an investment holding
company which is not expected to generate operating profits to realize the tax benefits arising from its net operating loss carried forward,
no income tax benefits were recognized for such stock-based compensation cost under the stock option plan for the three months ended
March 31, 2022 and 2023.
24. Income (Loss) Per Share
The following is the calculation of income (loss)
per share:
| |
Three months ended March 31, | |
| |
2022 | | |
2023 | |
Net income (loss) | |
$ | 680,503 | | |
$ | (2,204,482 | ) |
Less: Net (income) loss attributable to non-controlling interests | |
| (236,050 | ) | |
| 824,127 | |
Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc. | |
| 444,453 | | |
| (1,380,355 | ) |
| |
| | | |
| | |
Weighted average shares outstanding – basic | |
| 88,713,841 | | |
| 89,013,359 | |
Dilutive unvested restricted stock | |
| 21,116 | | |
| - | |
Weighted average shares outstanding – diluted (note) | |
| 88,734,957 | | |
| 89,013,359 | |
| |
| | | |
| | |
Income (loss) per share of common stock | |
| | | |
| | |
Basic | |
$ | 0.01 | | |
$ | (0.02 | ) |
Diluted | |
$ | 0.01 | | |
$ | (0.02 | ) |
Note: | Including 269,175 and nil vested restricted shares granted pursuant to the 2015 Plan that were not yet issued as of March 31, 2022 and 2023, respectively. |
For the three months ended March 31, 2022, 2,750,002
unvested options and all the outstanding warrants were anti-dilutive and excluded from shares used in the diluted computation.
For the three months ended March 31, 2023, all
the outstanding warrants were anti-dilutive and excluded from shares used in the diluted computation.
25. Warrants
On December 8, 2020, the Company entered in a
securities purchase agreement with certain institutional investors, pursuant to which the Company issued in a registered direct offering,
an aggregate of 9,489,800 shares of its common stock at a price of $5.18 per share, for aggregate gross proceeds to the Company of approximately
$49 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. As part of the
transaction, the institutional investors also received warrants (“Investor Warrants”) for the purchase of up to 3,795,920
shares of the Company’s common stock at an exercise price of $6.46 per share exercisable for 36 months from the date of issuance.
In addition, the placement agent for this transaction also received warrants (“Placement Agent Warrants”) for the purchase
of up to 379,592 shares of the Company’s common stock at an exercise price of $6.475 per share exercisable for 36 months after
6 months from the issuance. The Company has performed a thorough reassessment of the terms of its warrants with reference to the provisions
of ASC Topic 815-40-15-7I, regarding its exposure to changes in currency exchange rates. This reassessment has led to the management’s
conclusion that the Company’s warrants issued to the investors should not be considered indexed to the Company’s own stock
because the warrants are denominated in U.S. dollar, which is different from the Company’s functional currency, Renminbi. Warrants
are remeasured at fair value with changes in fair value recorded in earnings in each reporting period.
On February 8, 2021, the Company entered into
another securities purchase agreement with the same investors, pursuant to which the Company issued in a registered direct offering,
an aggregate of 8,939,976 shares of common stock of the Company at a per share purchase price of $7.83. In addition, the Company issued
to the investors (i) in a concurrent private placement, the Series A-1 warrants to purchase a total of 4,469,988 shares of common stock,
at a per share exercise price of $7.67 and exercisable for 42 months from the date of issuance; (ii) in the registered direct offering,
the Series B warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.83 and exercisable
for 90 days from the date of issuance; and (iii) in the registered direct offering, the Series A-2 warrants to purchase up to 2,234,992
shares of common stock, at a per share exercise price of $7.67 and exercisable for 45 months from the date of issuance. The Company received
gross proceeds of approximately $70 million from the registered direct offering and the concurrent private placement, before deducting
fees to the placement agent and other estimated offering expenses of $5.0 million payable by the Company. In addition, the placement
agent for this transaction also received warrants (“Placement Agent Warrants”) for the purchase of up to 446,999 shares of
the Company’s common stock at an exercise price of $9.204 per share exercisable for 36 months after 6 months from the issuance.
On May 10, 2021, the Company entered into that
Amendment No. 1 to the Series B Warrant (the “Series B Warrant Amendment”) with each of the holders of the Company’s
outstanding Series B warrants. Pursuant to the Series B Warrant Amendment, the term of the Series B warrants was extended from May 11,
2021 to August 31, 2021.
As of the date of this report, Series B warrant, along with Series
A-2 warrants, had both expired.
There was a total of 9,092,499 warrants issued
and outstanding as of March 31, 2023.
The fair value of the outstanding warrants was
calculated using Binomial Model based on backward induction with the following assumptions:
Warrants issued in the 2020 Financing
Appraisal Date | |
December 31, 2022 | | |
December 31, 2022 | |
Market price per share (USD/share) | |
$ | 0.99 | | |
$ | 0.99 | |
Exercise price (USD/price) | |
| 6.46 | | |
| 6.475 | |
Risk free rate | |
| 4.7 | % | |
| 4.6 | % |
Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
Expected term/ Contractual life (years) | |
| 0.9 years | | |
| 1.4 years | |
Expected volatility | |
| 75.6 | % | |
| 82.7 | % |
Appraisal Date | |
March 31, 2023 | | |
March 31, 2023 | |
Market price per share (USD/share) | |
$ | 0.88 | | |
$ | 0.88 | |
Exercise price (USD/price) | |
| 6.46 | | |
| 6.475 | |
Risk free rate | |
| 4.8 | % | |
| 4.5 | % |
Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
Expected term/ Contractual life (years) | |
| 0.7 years | | |
| 1.2 years | |
Expected volatility | |
| 53.5 | % | |
| 70.1 | % |
Warrants issued in the 2021 Financing
Warrants holder
| |
Investor
Warrants
Series A1 | | |
Placement
Agent
Warrants | |
Appraisal Date | |
December 31,
2022 | | |
December 31,
2022 | |
Market price per share (USD/share) | |
| 0.99 | | |
| 0.99 | |
Exercise price (USD/price) | |
| 7.67 | | |
| 9.204 | |
Risk free rate | |
| 4.5 | % | |
| 4.5 | % |
Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
Expected term/ Contractual life (years) | |
| 1.6 years | | |
| 1.6 years | |
Expected volatility | |
| 80.4 | % | |
| 80.4 | % |
Warrants holder
| |
Investor Warrants
Series A1 | | |
Placement
Agent Warrants | |
Appraisal Date | |
March 31,
2023 | | |
March 31,
2023 | |
Market price per share (USD/share) | |
| 0.88 | | |
| 0.88 | |
Exercise price (USD/price) | |
| 7.67 | | |
| 9.204 | |
Risk free rate | |
| 4.4 | % | |
| 4.4 | % |
Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
Expected term/ Contractual life (years) | |
| 1.4 years | | |
| 1.4 years | |
Expected volatility | |
| 82.5 | % | |
| 82.5 | % |
The following is a reconciliation of the beginning
and ending balances of warrants liability measured at fair value on a recurring basis using Level 3 inputs:
| |
December 31, 2022 | | |
March 31, 2023 | |
Balance at the beginning of the year/ period | |
$ | 5,846,000 | | |
$ | 136,000 | |
Warrants issued to institution investors | |
| - | | |
| - | |
Warrants issued to placement agent | |
| - | | |
| - | |
Warrants redeemed | |
| - | | |
| - | |
Fair value change of the issued warrants included in earnings | |
| (5,710,000 | ) | |
| (85,000 | ) |
Balance at end of year/ period | |
| 136,000 | | |
| 51,000 | |
The following is a summary of the warrant activity:
| |
Number of Warrants | | |
Average Exercise Price | | |
Weighted Average Remaining Contractual Term in Years | |
| |
| | |
| | |
| |
Outstanding at January 1, 2023 | |
| 9,092,499 | | |
$ | 7.19 | | |
| 1.33 | |
Exercisable at January 1, 2023 | |
| 9,092,499 | | |
$ | 7.19 | | |
| 1.33 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised / surrendered | |
| - | | |
| - | | |
| - | |
Expired | |
| - | | |
| - | | |
| - | |
Outstanding at March 31, 2023 | |
| 9,092,499 | | |
| 7.19 | | |
| 1.08 | |
Exercisable at March 31, 2023 | |
| 9,092,499 | | |
| 7.19 | | |
| 1.08 | |
26. Commitments and Contingencies
As of December 31, 2022 and March 31, 2023, the
Company had the following contracted capital commitments:
| |
December 31, 2022 | | |
March 31, 2023 | |
For construction of buildings | |
$ | 21,406,584 | | |
$ | 20,827,822 | |
For purchases of equipment | |
| 4,249,801 | | |
| 7,374,728 | |
Capital injection | |
| 137,739,785 | | |
| 236,385,624 | |
| |
$ | 163,396,170 | | |
$ | 264,588,174 | |
During its normal course of business, the Company
may become involved in various lawsuits and legal proceedings. However, litigation is subject to inherent uncertainties, and an adverse
result may arise from time to time will affect its operation. Other than the legal proceedings set forth below, the Company is currently
not aware of any such legal proceedings or claims that the Company believe will have an adverse effect on the Company’s operation,
financial condition or operating results.
On July 7, 2016, Shenzhen Huijie Purification
System Engineering Co., Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against CBAK Power
in the Peoples’ Court of Zhuanghe City, Dalian, (the “Court of Zhuanghe”) for failure to pay pursuant to the terms
of the contract and entrusting part of the project of the contract to a third party without their prior consent. The plaintiff sought
a total amount of $1,241,648 (RMB8,430,792), including construction costs of $0.9 million (RMB6.1 million, which the Company already
accrued for at June 30, 2016), interest of $29,812 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million). On September 7,
2016, upon the request of Shenzhen Huijie for property preservation, the Court of Zhuanghe froze CBAK Power’s bank deposits totaling
$1,210,799 (RMB8,430,792) for a period of one year. On September 1, 2017, upon the request of Shenzhen Huijie, the Court of Zhuanghe
froze the bank deposits for another one year until August 31, 2018. The Court further froze the bank deposits for another one year until
August 27, 2019 upon the request of Shenzhen Huijie on August 27, 2018. On August 27, 2019, the Court froze the bank deposits for another
year until August 27, 2020, upon the request of Shenzhen Huijie. On June 28, 2020, the Court of Dalian entered the final judgement as
described below and the frozen bank deposit was released in July 2020.
On June 30, 2017, according to the trial of first
instance, the Court of Zhuanghe ruled that CBAK Power should pay the remaining contract amount of RMB6,135,860 (approximately $0.9 million)
claimed by Shenzhen Huijie as well as other expenses incurred including deferred interest, discounted charge on bills payable, litigation
fee and property preservation fee totaled $0.1 million. The Company has accrued for these amounts as of December 31, 2017. On July 24,
2017, CBAK Power filed an appellate petition to the Intermediate Peoples’ Court of Dalian (“Court of Dalian)” to appeal
the adjudication dated on June 30, 2017. On November 17, 2017, the Court of Dalian rescinded the original judgement and remanded the
case to the Court of Zhuanghe for retrial. The Court of Zhuanghe conducted a retrial and requested an appraisal to be performed by a
third-party appraisal institution on the construction cost incurred and completed by Shenzhen Huijie on the subject project. On November
8, 2018, the Company received from the Court of Zhuanghe the construction-cost-appraisal report which determined that the construction
cost incurred and completed by Shenzhen Huijie for the subject project to be $1,344,605 (RMB9,129,868). On May 20, 2019, the Court of
Zhuanghe entered a judgment that Shenzhen Huijie should pay back to CBAK Power $261,316 (RMB1,774,337) (the amount CBAK Power paid in
excess of the construction cost appraised by the appraisal institution) and the interest incurred since April 2, 2019. Shenzhen Huijie
filed an appellate petition to the Court of Dalian. On June 28, 2020, the Court of Dalian entered the final judgment that Shenzhen Huijie
should pay back to CBAK Power $245,530 (RMB1,667,146) (the amount CBAK Power paid in excess of the construction cost appraised by the
appraisal institution) and the interest incurred since April 2, 2019, and reimburse the litigation fees totaling $30,826 (RMB209,312)
that CBAK Power has paid. As of December 31, 2022, CBAK Power have not received the final judgement amount totaled $276,356 (RMB 1,876,458)
from Shenzhen Huijie. Shenzhen Huijie filed an appellate petition to High Peoples’ Court of Liaoning (“Court of Liaoning”)
to appeal the adjudication dated on June 28, 2020. In April 2021, the Court of Liaoning rescinded the original judgement and remanded
the case to the Court of Dalian for retrial. On December 21, 2021, the Court of Dalian remanded the case to the Court of Zhuanghe for
retrial. Upon receiving the notice from the Court of Liaoning, CBAK Power has accrued the construction cost of $0.9 million (RMB6,135,860)
as of March 31, 2023.
In December 2020, CBAK Power received notice
from Court of Dalian Economic and Technology Development Zone that Haoneng filed another lawsuit against CBAK Power for failure to pay
pursuant to the terms of the purchase contract. Haoneng sought a total amount of $1,613,984 (RMB10,257,030), including equipment cost
of $1,427,515 (RMB9,072,000) and interest amount of $186,469 (RMB1,185,030). In August 2021, CBAK Power and Haoneng reached an agreement
that the term of the purchase contract will be extended to December 31, 2023 under which CBAK Power and its related parties shall execute
the purchase of equipment in an amount not lower than $2.4 million (RMB15,120,000) from Haoneng, or CBAK Power has to pay 15% of the
amount equal to RMB15,120,000 ($2.4 million) net of the purchased amount to Haoneng. Haoneng withdrew the filed lawsuit after the agreement.
As of March 31, 2023, the equipment was not received by CBAK Power, CBAK Power has included the equipment cost of $2.2 million (RMB15,120,000)
under capital commitments.
27. Concentrations and Credit Risk
(a) Concentrations
The Company had the following customers that
individually comprised 10% or more of net revenue for the three months ended March 31, 2022 and 2023 as follows:
| |
Three months ended March 31, | |
Sales of finished goods and raw materials | |
2022 | | |
2023 | |
Customer A | |
* | | |
* | | |
13,947,344 | | |
32.90 | % |
Customer B | |
| 27,993,072 | | |
| 34.91 | % | |
| * | | |
| * | |
Zhengzhou BAK Battery Co., Ltd (note 15) | |
| 25,823,532 | | |
| 32.20 | % | |
| 9,323,839 | | |
| 21.99 | % |
| * | Comprised less than 10% of net revenue for the respective period. |
The Company had the following customers that
individually comprised 10% or more of net trade receivable (included VAT) as of December 31, 2022 and March 31, 2023 as follows:
| |
December 31, 2022 | | |
March 31, 2023 | |
Customer A | |
$ | 4,004,880 | | |
| 18.94 | % | |
$ | * | | |
| * | |
Customer C | |
| * | | |
| * | | |
| 3,283,494 | | |
| 14.18 | % |
Zhengzhou BAK Battery Co., Ltd (note 15) | |
| 9,156,383 | | |
| 43.30 | % | |
| 14,251,802 | | |
| 61.56 | % |
* | Comprised less than 10% of net accounts receivable for the respective period. |
The Company had the following suppliers that
individually comprised 10% or more of net purchase for the three months ended March 31, 2022 and 2023 as follows:
| |
Three months ended March 31, | |
| |
2022 | | |
2023 | |
Supplier A | |
$ | * | | |
| * | | |
$ | 5,532,709 | | |
| 15.38 | % |
Supplier B | |
| 20,631,815 | | |
| 25.30 | % | |
| * | | |
| * | |
Supplier C | |
| 19,332,674 | | |
| 23.71 | % | |
| 6,580,232 | | |
| 18.29 | % |
* | Comprised less than 10% of net purchase for the respective period. |
The Company had the following suppliers that
individually comprised 10% or more of trade payable as of December 31, 2022 and March 31, 2023 as follows:
| |
December 31, 2022 | | |
March 31, 2023 | |
Supplier A | |
$ | 4,064,942 | | |
| 12.50 | % | |
$ | 4,702,179 | | |
| 13.16 | % |
Supplier C | |
| * | | |
| * | | |
| 5,612,973 | | |
| 15.71 | % |
Zhengzhou BAK Battery Co., Ltd (note 15) | |
| 5,629,343 | | |
| 17.31 | % | |
| * | | |
| * | |
(b) Credit Risk
Financial instruments that potentially subject
the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and pledged deposits. As of
December 31, 2022 and March 31, 2023, substantially all of the Company’s cash and cash equivalents were held by major financial
institutions and online payment platforms located in the PRC, which management believes are of high credit quality. The Company has not
experienced any losses on cash and cash equivalents to date. The Company does not require collateral or other securities to support financial
instruments that are subject to credit risk.
For the credit risk related to trade accounts
receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit
losses.
28. Segment Information
The Group’s chief
operating decision maker has been identified as the Chief Executive Officer (“CEO”) who reviews financial information of
operating segments based on US GAAP amounts when making decisions about allocating resources and assessing performance of the Company.
As a result of the Hitrans
acquisition discussed in Note 11, the Group determined that Hitrans met the criteria for separate reportable segment given its financial
information is separately reviewed by the Group’s CEO. As a result, the Group determined that it operated in two operating
segments namely CBAK and Hitrans upon completion of acquisition. CBAK’s segment mainly includes the manufacture, commercialization
and distribution of a wide variety of standard and customized lithium ion rechargeable batteries for use in a wide array of applications.
Hitrans’ segment mainly includes the development and manufacturing of NCM precursor and cathode materials.
The Company primarily
operates in the PRC and substantially all of the Company’s long-lived assets are located in the PRC.
The Company’s
chief operating decision maker evaluates performance based on each reporting segment’s net revenue, cost of revenues, operating
expenses, operating income, finance income (expense), other income and net income. Net revenue, cost of revenues, operating expenses,
operating income, finance income (expense), other income and net income by segment for the three months ended March 31, 2022 and 2023
were as follows:
For the three months ended March 31, 2022 | |
CBAT | | |
Hitrans | | |
Corporate unallocated (note) | | |
Consolidated | |
Net revenues | |
$ | 15,020,686 | | |
$ | 65,175,612 | | |
$ | - | | |
$ | 80,196,298 | |
Cost of revenues | |
| (14,037,762 | ) | |
| (60,842,182 | ) | |
| - | | |
| (74,879,944 | ) |
Gross profit | |
| 982,924 | | |
| 4,333,430 | | |
| - | | |
| 5,316,354 | |
Total operating expenses | |
| (3,108,736 | ) | |
| (3,137,747 | ) | |
| (405,132 | ) | |
| (6,651,615 | ) |
Operating (loss) income | |
| (2,125,812 | ) | |
| 1,195,683 | | |
| (405,132 | ) | |
| (1,335,261 | ) |
Finance income (expense), net | |
| 107,870 | | |
| (102,708 | ) | |
| (148 | ) | |
| 5,014 | |
Other income (expense),net | |
| 503,156 | | |
| (217,952 | ) | |
| 1,632,000 | | |
| 1,917,204 | |
Income tax credit | |
| - | | |
| 93,546 | | |
| - | | |
| 93,546 | |
Net (loss) income | |
| (1,514,786 | ) | |
| 968,569 | | |
| 1,226,720 | | |
| 680,503 | |
For the three months ended March 31, 2023 | |
CBAT | | |
Hitrans | | |
Corporate unallocated (note) | | |
Consolidated | |
Net revenues | |
$ | 29,603,383 | | |
$ | 12,793,318 | | |
$ | - | | |
$ | 42,396,701 | |
Cost of revenues | |
| (26,390,025 | ) | |
| (13,100,932 | ) | |
| - | | |
| (39,490,957 | ) |
Gross profit (loss) | |
| 3,213,358 | | |
| (307,614 | ) | |
| - | | |
| 2,905,744 | |
Total operating expenses | |
| (3,227,946 | ) | |
| (2,430,412 | ) | |
| (128,276 | ) | |
| (5,786,634 | ) |
Operating loss | |
| (14,588 | ) | |
| (2,738,026 | ) | |
| (128,276 | ) | |
| (2,880,890 | ) |
Finance income (expenses), net | |
| 32,982 | | |
| (27,619 | ) | |
| (52 | ) | |
| 5,311 | |
Other income, net | |
| 90,530 | | |
| 92,683 | | |
| 85,000 | | |
| 268,213 | |
Income tax credit | |
| - | | |
| 402,884 | | |
| - | | |
| 402,884 | |
Net income (loss) | |
| 108,924 | | |
| (2,270,078 | ) | |
| (43,328 | ) | |
| (2,204,482 | ) |
| |
| | | |
| | | |
| | | |
| | |
As of March 31, 2023 | |
| | | |
| | | |
| | | |
| | |
Identifiable long-lived assets | |
| 94,912,129 | | |
| 23,382,309 | | |
| - | | |
| 118,294,438 | |
Total assets | |
| 178,749,980 | | |
| 73,306,835 | | |
| 113,453 | | |
| 252,170,268 | |
| Note: | The Company does not allocate its assets located and expenses
incurred outside China to its reportable segments because these assets and activities are managed at a corporate level. |
Net revenues by product:
The Company’s products can be categorized
into high power lithium batteries and materials used in manufacturing of lithium batteries. For the product sales of high power lithium
batteries, the Company manufactured five types of Li-ion rechargeable batteries: aluminum-case cell, battery pack, cylindrical cell,
lithium polymer cell and high-power lithium battery cell. The Company’s battery products are sold to packing plants operated by
third parties primarily for use in mobile phones and other electronic devices. For the product sales of materials used in manufacturing
of lithium batteries, the Company, via its subsidiary, Hitrans, manufactured cathode materials and Precursor for use in manufacturing
of cathode. Revenue from these products is as follows:
| |
Three months ended March 31, | |
| |
2022 | | |
2023 | |
High power lithium batteries used in: | |
| | |
| |
Electric vehicles | |
$ | 309 | | |
$ | 1,820,248 | |
Light electric vehicles | |
| 88,764 | | |
| 1,968,057 | |
Uninterruptable supplies | |
| 14,931,613 | | |
| 25,815,078 | |
| |
| 15,020,686 | | |
| 29,603,383 | |
| |
| | | |
| | |
Materials used in manufacturing of lithium batteries | |
| | | |
| | |
Cathode | |
| 28,362,877 | | |
| 10,621,073 | |
Precursor | |
| 36,812,735 | | |
| 2,172,245 | |
| |
| 65,175,612 | | |
| 12,793,318 | |
Total consolidated revenue | |
$ | 80,196,298 | | |
$ | 42,396,701 | |
Net revenues by geographic area:
The Company’s operations are located in
the PRC. The following table provides an analysis of the Company’s sales by geographical markets based on locations of customers:
|
|
Three
months ended
March 31, |
|
|
|
2022 |
|
|
2023 |
|
Mainland China |
|
$ |
71,996,013 |
|
|
$ |
24,546,737 |
|
Europe |
|
|
8,134,906 |
|
|
|
17,259,288 |
|
Others |
|
|
65,379 |
|
|
|
590,676 |
|
Total |
|
$ |
80,196,298 |
|
|
$ |
42,396,701 |
|
Substantially all of the Company’s long-lived
assets are located in the PRC.
29. Subsequent events
The Company has evaluated subsequent
events from March 31, 2023 to the date the financial statements were issued and has determined that there are no items to disclose.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion
and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing
elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
Special Note Regarding Forward Looking Statements
Statements contained in this report include “forward-looking
statements” within the meaning of such term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,”
“target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar
expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market
and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins
or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding
future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events.
You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties,
including those identified in Item 1A, “Risk Factors” described in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2022, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the
Company to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider
the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties
of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking
statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide
updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Use of Terms
Except as otherwise indicated by the context and
for the purposes of this report only, references in this report to:
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● |
“Company”, “we”, “us” and “our” are to the combined business of CBAK Energy Technology, Inc., a Nevada corporation, and its consolidated subsidiaries; |
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“BAK Asia” are to our Hong Kong subsidiary, China BAK Asia Holdings Limited; |
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“CBAK Trading” are to our PRC subsidiary, Dalian CBAK Trading Co., Ltd.; |
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“CBAK Power” are to our PRC subsidiary, Dalian CBAK Power Battery Co., Ltd.; |
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“CBAK Suzhou” are to our PRC subsidiary, CBAK New Energy (Suzhou) Co., Ltd.; |
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“CBAK Energy” are to our PRC subsidiary, Dalian CBAK Energy Technology Co., Ltd.; |
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“BAK Investments” are to our Hong Kong subsidiary, BAK Asia Investments Limited; |
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“CBAK Nanjing” are to our PRC subsidiary, CBAK New Energy (Nanjing) Co., Ltd; |
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“Nanjing CBAK” are to our PRC subsidiary, Nanjing CBAK New Energy Technology Co., Ltd.; |
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“Nanjing BFD” are to our PRC subsidiary,
Nanjing BFD New Energy Technology Co., Ltd., a company that was previously named Nanjing Daxin New Energy Automobile Industry Co., Ltd.;
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● |
“Hitrans” are to our 67.33% owned PRC subsidiary, Zhejiang Hitrans Lithium Battery Technology (we hold 67.33% of registered equity interests of Hitrans, representing 69.12% of paid-up capital, through CBAK Power previously. On March 10, 2023, CBAK Power entered into an agreement with Nanjing BFD to transfer the 67.33% equity interests CBAK Power holds in Hitrans to Nanjing BFD. As of the date of this report, the registration of the equity transfer with the local government is still in process. Following the transaction, Nanjing BFD shall become the controlling shareholder of Hitrans, while CBAK Power no longer holds any of Hitrans’s equity interests); |
|
● |
“Guangdong Hitrans” are to Hitrans’s
80% owned PRC subsidiary, Guangdong Meidu Hitrans Resources Recycling Technology Co., Ltd.;
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● |
“Haisheng” are to Hitrans’s
wholly-owned PRC subsidiary, Shaoxing Haisheng International Trading Co., Ltd.;
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“China” and “PRC” are to the People’s Republic of China; |
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“RMB” are to Renminbi, the legal currency of China; |
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“U.S. dollar”, “$” and “US$” are to the legal currency of the United States; |
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“SEC” are to the United States Securities and Exchange Commission; |
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“Securities Act” is to the Securities Act of 1933, as amended; and |
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“Exchange Act” are to the Securities Exchange Act of 1934, as amended. |
Overview
We are a manufacturer of new energy high power
lithium batteries that are mainly used in light electric vehicles, electric vehicles, electric tools, energy storage (such as uninterruptible
power supply (UPS) applications) and other high-power applications. Our primary product offering consists of new energy high power lithium
batteries, but we are also seeking to expand into the production and sale of light electric vehicles. After completing the acquisition
of 81.56% of registered equity interests (representing 75.57% of paid-up capital) of Hitrans in November 2021, we entered into the business
of developing and manufacturing NCM precursor and cathode materials. Hitrans is a leading developer and manufacturer of ternary precursor
and cathode materials in China, whose products have a wide range of applications including electric vehicles, electric tools, high-end
digital products and storage, among others.
We acquired most of our operating assets, including
customers, employees, patents and technologies from our former subsidiary BAK International (Tianjin) Ltd. (“BAK Tianjin”).
We acquired these assets in exchange for a reduction in accounts receivable from our former subsidiaries that were disposed of in June
2014.
As of March 31, 2023, we report financial and
operational information in two segments: (i) production of high-power lithium battery cells and (ii) manufacture and sale of materials
used in high-power lithium battery cells.
We
currently conduct our business through (i) three wholly-owned operating subsidiaries in China that we own through BAK Asia, an investment
holding company formed under the laws of Hong Kong on July 9, 2013; (ii) CBAK Nanjing, a wholly-owned subsidiary in China that we own
through BAK Investments, an investment holding company formed under the laws of Hong Kong and acquired by us on July 14, 2020; (iii)
Nanjing CBAK, a 100% owned subsidiary of CBAK Nanjing; (iv) Nanjing BFD, a 100% owned subsidiary of CBAK Nanjing; and (v) Hitrans, a
subsidiary of CBAK Power, which we own 67.33% of its registered equity interests (representing 69.12% of paid-up capital) through CBAK
Power. As of March 31, 2023, our equity interests in Hitrans had reduced to 67.33% as a result of Hitrans’s subsequent equity financings and our
transfer of some of our equity interests in Hitrans to certain investors.
As disclosed in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2022 filed on April 14, 2023 and other reports filed with the SEC, we started construction of our
Nanjing facilities to expand our lithium battery manufacturing capabilities in 2020. The project comprises two phases: Phase I, encompassing
an area of approximately 27,173 square meters, was put into operation in the second half of 2021. Since then, we have been steadily increasing
Phase I’s production capacity, which currently stands at 2 GWh; and Phase II, whose construction was launched in 2022, is anticipated to complete
infrastructure for the initial 60,494 square meters in the third quarter of 2023. We expect to commence Phase I’s operations in the last quarter
of 2023. Once fully operational, the Nanjing facilities are projected to provide a total capacity of 20 GWh to support our customers’
growing demand. In addition, we have been expanding our business by developing new products, fostering new partnerships and strategic
acquisition of companies that complement and augment our business.
Due to the growing environmental pollution problem,
the Chinese government has been providing support to the development of new energy facilities and vehicles for the past several years.
It is expected that we will be able to secure more potential orders from the new energy market. We believe that with the booming market
demand for high power lithium-iron products, we can continue as a going concern and return to profitability sustainably.
Financial Performance Highlights for the Quarter
Ended March 31, 2023
The following are some financial highlights for
the quarter ended March 31, 2023:
|
● |
Net revenues: Net revenues decreased by $37.8 million, or 47%, to $42.4 million for the three months ended March 31, 2023, from $80.2 million for the same period in 2022. |
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|
● |
Gross profit: Gross profit was $2.9 million, representing a decrease of $2.4 million, for the three months ended March 31, 2023, from gross profit of $5.3 million for the same period in 2022. |
|
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|
● |
Operating loss: Operating loss was $2.9 million for the three months ended March 31, 2023, reflecting an increase of $1.5 million from an operating loss of $1.3 million for the same period in 2022. |
|
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|
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Net income (loss): Net loss was $2.2 million for the three months ended March 31, 2023, compared to a net income of $0.7 million for the same period in 2022. |
|
|
|
|
● |
Fully diluted income per
share: Fully diluted loss per share was $0.02 for the three months ended March 31, 2023,
as compared to fully diluted income per share of $0.01 for the same period in 2022. |
Financial Statement Presentation
Net revenues. The Company recognizes
revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects
to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09:
(i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy
the performance obligation.
Revenues from product sales are recognized when
the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental
costs of obtaining a contract as and when incurred it the expected amortization period of the asset that it would have recognized is on
year or less or the amount is immaterial.
Revenue from product sales is recorded net of
reserves established for applicable discounts and allowances that are offered within contracts with our customers.
Product revenue reserves, which are classified
as a reduction in product revenues, are generally characterized in the categories: discounts and returns. These reserves are based on
estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount
is payable to the Company’s customer.
Cost of revenues. Cost of revenues
consists primarily of material costs, employee remuneration for staff engaged in production activity, share-based compensation, depreciation
and related expenses that are directly attributable to the production of products. Cost of revenues also includes write-downs of inventory
to lower of cost and net realizable value.
Research and development expenses. Research
and development expenses primarily consist of remuneration for R&D staff, share-based compensation, depreciation and maintenance expenses
relating to R&D equipment, and R&D material costs.
Sales and marketing expenses. Sales
and marketing expenses consist primarily of remuneration for staff involved in selling and marketing efforts, including staff engaged
in the packaging of goods for shipment, warranty expenses, advertising cost, depreciation, share-based compensation and travel and entertainment
expenses. We do not pay slotting fees to retail companies for displaying our products, engage in cooperative advertising programs, participate
in buy-down programs or similar arrangements.
General and administrative expenses. General
and administrative expenses consist primarily of employee remuneration, share-based compensation, professional fees, insurance, benefits,
general office expenses, depreciation, liquidated damage charges and bad debt expenses.
Finance costs, net. Finance costs
consist primarily of interest income and interest on bank loans, net of capitalized interest.
Income tax expenses. Our subsidiaries
in PRC are subject to an income tax rate of 25%, except that Hitrans and CBAK Power were each recognized as a “High and New Technology
Enterprise” and enjoyed a preferential tax rate of 15% from 2021 to 2024. Our Hong Kong subsidiaries are subject to profits tax
at a rate of 16.5%. However, because we did not have any assessable income derived from or arising in Hong Kong, the entities had not
paid any such tax.
Results of Operations
Comparison of Three Months Ended March 31,
2022 and 2023
The following tables set forth key components
of our results of operations for the periods indicated.
(All amounts, other than percentages, in thousands
of U.S. dollars)
| |
Three Months Ended March 31, | | |
Change | |
| |
2022 | | |
2023 | | |
$ | | |
% | |
Net revenues | |
$ | 80,196 | | |
| 42,397 | | |
| (37,799 | ) | |
| (47 | )% |
Cost of revenues | |
| (74,880 | ) | |
| (39,491 | ) | |
| 35,389 | | |
| (47 | )% |
Gross profit | |
| 5,316 | | |
| 2,906 | | |
| (2,410 | ) | |
| (45 | )% |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development expenses | |
| 3,313 | | |
| 2,455 | | |
| (858 | ) | |
| (26 | )% |
Sales and marketing expenses | |
| 830 | | |
| 721 | | |
| (109 | ) | |
| (13 | )% |
General and administrative expenses | |
| 2,237 | | |
| 2,481 | | |
| 244 | | |
| 11 | % |
Provision for doubtful accounts | |
| 271 | | |
| 130 | | |
| (141 | ) | |
| (52 | )% |
Total operating expenses | |
| 6,651 | | |
| 5,787 | | |
| (864 | ) | |
| (13 | )% |
Operating loss | |
| (1,335 | ) | |
| (2,881 | ) | |
| (1,546 | ) | |
| (116 | )% |
Finance income, net | |
| 5 | | |
| 5 | | |
| - | | |
| (0 | )% |
Other income, net | |
| 285 | | |
| 183 | | |
| (102 | ) | |
| (36 | )% |
Change in fair value of warrants liability | |
| 1,632 | | |
| 85 | | |
| (1,547 | ) | |
| (95 | )% |
Income before income tax | |
| 587 | | |
| (2,608 | ) | |
| (3,195 | ) | |
| (544 | )% |
Income tax credit | |
| 94 | | |
| 403 | | |
| 309 | | |
| (329 | ) |
Net income (loss) | |
| 681 | | |
| (2,205 | ) | |
| (2,886 | ) | |
| (424 | )% |
Less: Net (income) loss attributable to non-controlling interests | |
| (236 | ) | |
| 824 | | |
| 1,060 | | |
| (449 | )% |
Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc. | |
$ | 445 | | |
| (1,381 | ) | |
| (1,826 | ) | |
| (410 | )% |
Net revenues. Net revenues decreased
by $37.8 million, or 47%, to $42.4 million for the three months ended March 31, 2023, from $80.2 million for the same period in 2022.
The following table sets forth the breakdown of
our net revenues by end-product applications.
(All amounts in thousands of U.S. dollars other
than percentages)
| |
Three months ended March 31, | | |
Change | |
| |
2022 | | |
2023 | | |
$ | | |
% | |
High power lithium batteries used in: | |
| | |
| | |
| | |
| |
Electric vehicles | |
$ | - | | |
| 1,820 | | |
| 1,820 | | |
| n/a | |
Light electric vehicles | |
| 89 | | |
| 1,968 | | |
| 1,879 | | |
| 2,111 | % |
Uninterruptable supplies | |
| 14,931 | | |
| 25,815 | | |
| 10,884 | | |
| 73 | % |
| |
| 15,020 | | |
| 29,603 | | |
| 14,583 | | |
| 97 | % |
| |
| | | |
| | | |
| | | |
| | |
Materials used in manufacturing of lithium batteries | |
| | | |
| | | |
| | | |
| | |
Cathode | |
| 28,363 | | |
| 10,621 | | |
| (17,742 | ) | |
| (63 | )% |
Precursor | |
| 36,813 | | |
| 2,173 | | |
| (34,640 | ) | |
| (94 | )% |
| |
| 65,176 | | |
| 12,794 | | |
| (52,382 | ) | |
| (80 | )% |
Total | |
$ | 80,196 | | |
$ | 42,397 | | |
| (37,799 | ) | |
| (47 | )% |
Net revenues from sales of batteries for electric
vehicles were $1.8 million for the three months ended March 31, 2023 as compared to nil in the same period of 2022, representing an increase
of $1.8 million. This was partly because our batteries now have improved features and higher quality, making them more attractive to electric
vehicle manufacturers. Additionally, the downstream market for electric vehicles continued to grow in 2023, leading to an increase in
demand for EV battery products. As a result, we were able to secure more orders and increase our sales volume.
Net revenues from sales of batteries for light
electric vehicles were $2.0 million for the three months ended March 31, 2023, as compared to $88,764 in the same period of 2022, marking
an increase of $1.9 million, or 2,111%. The light electric vehicle market continued to experience strong growth in 2023 due to various
factors. First, the upgrading of electric bicycles to comply with new “national standards” in China led to increased demand
for our batteries. Second, the COVID-19 pandemic spurred a fast development of the food delivery industry, which in turn drove the growth
of the shared electric bicycle market in China. Such growth continues even after the pandemic subsided. Last, there has been an increased
popularity of electric scooters, motors, and bicycles in China, Southeast Asia, and European markets as people seek ways to reduce carbon
emissions and pollution. With the favorable market conditions, we were able to continue to grow our sales in the first quarter of 2023.
We strive to continue to penetrate the market for batteries used in light electric vehicles.
Net revenues from sales of batteries for uninterruptable
power supplies were $25.8 million in the three months ended March 31, 2023, as compared with $14.9 million in the same period in 2022,
representing an increase of $10.9 million, or 73%. The increase in sales of batteries for uninterruptable supplies can be attributed to
a combination of factors including growing demand for renewable energy sources, and our development of reliable and low-cost products.
As more businesses and households switch to renewable energy, there has been a growing demand for renewable energy sources and the need
for energy storage solutions to support these sources. Additionally, our focus on research and development has allowed us to develop innovative
and reliable energy storage products at competitive pricing. As we continue to invest in R&D and improve our product offerings, we
expect to remain a leader in the energy storage industry and see continued growth in sales.
Net revenues from sales of materials used in manufacturing
of lithium batteries were $l2.8 million for the three months ended March 31, 2023, as compared to $65.2 million for the same period of
2022. This primarily resulted from a rapid decrease in raw material prices during the first quarter of 2023, which led to significant
downward pressure on the pricing of our battery material products.
Cost of revenues. Cost of revenues
decreased to $39.5 million for the three months ended March 31, 2023, as compared to $74.9 million for the same period in 2022, a decrease
of $35.4 million, or 47%. The decrease in cost of revenues was in line with the decrease of net revenues. The cost of revenues includes
write-down of obsolete inventories of $1.0 million for three months ended March 31, 2023, as compared to $0.4 million for the same period
in 2022. We write down the inventory value whenever there is an indication that it is impaired.
Gross profit. Gross profit for the
three months ended March 31, 2023 was $2.9 million, or 6.9% of net revenues as compared to gross profit of $5.3 million, or 6.6% of net
revenues, for the same period in 2022. Gross profit margin was higher mainly resulted from the cost control performance from our batteries
segment.
Research and development expenses.
Research and development expenses decreased to approximately $2.5 million for the three months ended March 31, 2023, as compared to approximately
$3.3 million for the same period in 2022, a decrease of $0.9 million, or 26%. The decrease resulted from a decrease of materials used
in research and development activities of $0.5 million for the three months ended March 31, 2023. We will continue to invest in research
and development for advanced battery products and materials, focusing on high-power lithium battery cells that offer improved performance
and lower costs. We incurred $0.1 million in testing and development cost for the manufacture and sale of materials used in high-power
lithium battery cells during the three months ended March 31, 2023 compared to $0.5 million during the three months ended March 31, 2022.
Sales and marketing expenses. Sales
and marketing expenses decreased to approximately $0.7 million for the three months ended March 31, 2023, as compared to approximately
$0.8 million for the same period in 2022, a decrease of approximately $0.1 million, or 13%. As a percentage of revenues, sales and marketing
expenses were 2% and 1% for the three months ended March 31, 2023 and 2022, respectively. The slight decrease mainly resulted from a $0.2
million decrease in shipping and declaration expenses corresponding to the decrease of sales offset by $0.1 million increase of marketing
expenses, as compared to the three months ended March 31, 2022. We have participated in more exhibitions in 2023 after the lift of travel
restrictions and quarantine requirements.
General and administrative expenses. General
and administrative expenses increased to $2.5 million, or 5.9% of revenues, for the three months ended March 31, 2023, as compared to
$2.2 million, or 2.8% of revenues, for the same period in 2022, representing an increase of $0.2 million, or 11%. The increase primarily
resulted from salaries and social insurance expenses due to a growing number of employees at Nanjing CBAK. We incurred $1.3 million in
salaries and social insurance cost during the three months ended March 31, 2023 compared to $1.1 million during the three months ended
March 31, 2022.
Provision for doubtful accounts.
Provision for doubtful accounts was $0.1 million for the three months ended March 31, 2023, as compared to $0.3 million for the same period
in 2022. We determine the allowance based on the current expected credit loss model. The allowance for credit losses is adjusted each
period for changes in expected lifetime credit losses.
Operating loss. As a result of the
above, our operating loss totaled $2.9 million for the three months ended March 31, 2023, as compared to $1.3 million for the same period
in 2022, representing an increase of $1.5 million, or 116%.
Finance income, net. Finance
income, net was $5,311 for the three months ended March 31, 2023, as compared to finance income of $5,014 for the same period in 2022.
Other income, net. Other income
was $0.2 million for the three months ended March 31, 2023, as compared to $0.3 million for the same period in 2022. For the three months
ended March 31, 2023, we received government assistances of $0.1 million and generated $0.1 million of services income for technical development
of lithium battery For the three months ended March 31, 2022, we received government assistances of $0.7 million offset by $0.2 million
loss from electric bicycles samples sales and $0.2 million of non-operating expenses.
Changes in fair value of warrants liability.
We issued warrants in the financing we consummated in December 2020 and February 2022. We determined that these warrants should
be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency.
The change in fair value of warrants liability is mainly due to the share price decline.
Income tax. Income tax credit was
$0.4 million and $93,546 for the three months ended March 31, 2023 and 2022, respectively.
Net income (loss). As a result of
the foregoing, we had a net loss of $2.2 million for the three months ended March 31, 2023, compared to net income of $0.7 million for
the same period in 2022.
Liquidity and Capital Resources
We had financed our liquidity requirements from
a variety of sources, including short-term bank loans, other short-term loans and bills payable under bank credit agreements, advance
from our related and unrelated parties, investors and issuance of capital stock and other equity-linked securities.
We incurred a net loss of $2.2 million for the
three months ended March 31, 2023. As of March 31, 2023, we had cash and cash equivalents of $43.1 million. Our total current assets were
$130.0 million and our total current liabilities were $121.6 million as of March 31, 2023, resulting in a net working capital of $8.4
million.
As of March 31, 2023, we had an accumulated deficit
of $133.3 million. We had an accumulated deficit from recurring net losses and significant short-term debt obligations maturing in less
than one year as of March 31, 2023. These factors raise substantial doubts about our ability to continue as a going concern. The report
from our independent registered public accounting firm for the year ended December 31, 2022 included an explanatory paragraph in
respect of the substantial doubt of our ability to continue as a going concern.
These condensed consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Lending from Financial Institutions
On November 16, 2021, we obtained banking facilities
from Shaoxing Branch of Bank of Communications Co., Ltd with a maximum amount of RMB120.1 million (approximately $17.5 million) with the
term from November 18, 2021 to November 18, 2026. The facility was secured by our land use rights and buildings. Under the facility, we
have borrowed RMB59.0 million (approximately $8.5 million) and RMB74.0 million (approximately $10.8 million) as of December 31, 2022 and
March 31, 2023, respectively, for varying terms ending between May 2023 to March 2024, bearing interest at 3.65% to 4.15% per annum.
On April 19, 2021, we obtained five-year acceptance
bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB84.4 million (approximately $13.2 million). Any amount drawn
under the facilities requires security in the form of cash or bank acceptance bills receivable of at least the same amount. Under the
facilities, as of December 31, 2021, we borrowed a total of RMB10 million (approximately $1.6 million) from Bank of Ningbo Co., Ltd in
the form of bills payable for a various term expiring from January to February 2022, which was secured by our cash totaled RMB10 million
(approximately $1.6 million). We repaid the bills in January to February 2022.
On March 21, 2022, we renewed the above acceptance
bills facilities from Bank of Ningbo Co., Ltd with a maximum amount of RMB71.6 million ($10.4 million) with other terms remain the same.
Under the facilities, as of December 31, 2022 and March 31, 2023, we borrowed a total of RMB15.9 million (approximately $2.3 million)
and RMB21.3 million (approximately $3.1 million), respectively, in the form of bills payable for various terms expiring from April to
September 2023, which was secured by our cash totaling RMB15.9 million (approximately $2.3 million) and RMB21.3 million (approximately
$3.1 million), respectively.
On January 17, 2022, we obtained a one-year term
facility from Agricultural Bank of China with a maximum amount of RMB10 million (approximately $1.4 million) bearing interest at 105%
of benchmark rate of the People’s Bank of China (“PBOC”) for short-term loans, which is 3.85% per annum. The facility
was guaranteed by our CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan and secured by an unrelated third party, Jiangsu
Credits Financing Guarantee Co., Ltd. We borrowed RMB10 million (approximately $1.4 million) on January 20, 2022 for a term until January
16, 2023. We early repaid RMB10 million (approximately $1.5 million) on January 5, 2023. On January 5, 2023, the Company obtained a one-year
term loan of RMB10 million (approximately $1.5 million) for a period of one year to January 4, 2023, bearing interest at 120% of benchmark
rate of the PBOC for short-term loans, which is 3.85% per annum, while other terms and guarantee remain the same. We borrowed RMB10 million
(approximately $1.5 million) on January 6, 2023.
On February 9, 2022, we obtained a one-year term
facility from Jiangsu Gaochun Rural Commercial Bank with a maximum amount of RMB10 million (approximately $1.4 million) bearing interest
at 124% of benchmark rate of the People’s Bank of China (“PBOC”) for short-term loans, which is 4.94% per annum. The
facility was guaranteed by the Company’s CEO, Mr. Yunfei Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. We borrowed RMB10 million
(approximately $1.5 million) on February 17, 2022 for a term until January 28, 2023. We repaid RMB10 million (approximately $1.4 million)
on January 16, 2023. On January 14, 2023 , we obtained a one-year loan of RMB10 million (approximately $1.5 million) bearing interest
at 129% of benchmark rate of PBOC for short-term loans, which is 4.70% per annum. We borrowed RMB10 million (approximately $1.5 million)
on January 17, 2023 for a term until January 13, 2024..
On March 8, 2022, we obtained a one-year term
facility from China Zheshang Bank Co., Ltd. Shangyu Branch with a maximum amount of RMB10 million (approximately $1.5 million) bearing
interest at 5.5% per annum. The facility was guaranteed by 100% equity in CBAK Power held by BAK Asia and our CEO, Mr. Yunfei Li. We borrowed
RMB10 million (approximately $1.5 million) on the same date. On May 17, 2022, we early repaid the loan principal and related loan interests.
On April 28, 2022, we obtained a three-year term
facility from Industrial and Commercial Bank of China Nanjing Gaochun branch, with a maximum amount of RMB12 million (approximately $1.7
million) with the term from April 21, 2022 to April 21, 2025. The facility was guaranteed by the Company’s CEO, Mr. Yunfei Li and
Mr. Yunfei Li’s wife Ms. Qinghui Yuan. Under the facility, we borrowed RMB10 million (approximately $1.5 million) on April 29, 2022,
bearing interest at 3.95% per annum for a term until April 29, 2023. We repaid RMB10 million (approximately $1.5 million) on April 19,
2023. On April 19, 2023, we obtained another one-year loan of RMB10 million (approximately $1.5 million) bearing interest at 102.5% of
benchmark rate of PBOC for short-term loans, which is 3.90% per annum. We borrowed RMB10 million (approximately $1.5 million) on April
20, 2023 for a term until April 19, 2024.
On June 22, 2022, we obtained another one-year
term facility from China Zheshang Bank Co., Ltd. Shangyu Branch with a maximum amount of RMB10 million (approximately $1.5 million) bearing
interest at 4.5% per annum. The facility was guaranteed by 100% equity in CBAK Power held by BAK Asia and our CEO, Mr. Yunfei Li. We borrowed
RMB10 million (approximately $1.5 million) on the same date for a term until June 21, 2023. On November 10, 2022, we early repaid the
loan principal and the related loan interests.
On September 25, 2022, we entered into another
one-year term facility with Jiangsu Gaochun Rural Commercial Bank with a maximum amount of RMB9 million (approximately $1.3 million) bearing
interest rate at 4.81% per annum. The facility was guaranteed by 100% equity in CBAK Nanjing held by BAK Investment and our CEO, Mr. Yunfei
Li and Mr. Yunfei Li’s wife Ms. Qinghui Yuan. We borrowed RMB9 million (approximately $1.3 million) on September 27, 2022 for a
term until September 24, 2023.
On November 8, 2022, we entered into a short-term
loan agreement with China CITIC Bank Shaoxing Branch to August 9, 2023 with a maximum amount of RMB10 million (approximately $1.5 million)
bearing interest rate at 4.35% per annum. We borrowed RMB10 million (approximately $1.5 million) on the same date. We have repaid RMB5
million (approximately $0.7 million) and RMB0.2 million (approximately $0.1 million) on November 16, 2022 and December 27, 2022, respectively.
Subsequent to the repayment, we entered into another short-term loan agreement with China CITIC Bank Shaoxing Branch for a one-year short-term
loan agreement with a maximum amount of RMB0.2 million (approximately $0.1 million) for December 27, 2022 to December 27, 2023, bearing
interest rate at 4.20% per annum.
On December 9, 2022, we obtained a RMB5 million
(approximately $0.7 million) letter of credit from China CITIC Bank for a period to October 30, 2024 for settlement of Hitrans purchase.
We utilized RMB1.5 million (approximately $0.2 million) letter of credit at an interest rate of 2.7% for a period of one year to January
5, 2024.
On January 7, 2023, we obtained a two-year term
facility from Postal Savings Bank of China, Nanjing Gaochun Branch with a maximum amount of RMB10 million (approximately $1.5 million)
for a period from January 7, 2023 to January 6, 2025. The facility was guaranteed by the Company’s CEO, Mr. Yunfei Li, Mr. Yunfei
Li’s wife Ms. Qinghui Yuan and CBAK New Energy (Nanjing) Co., Ltd. We borrowed RMB5 million (approximately $0.7 million) on January
12, 2023 for a term of one year until January 11, 2024, bearing interest at 3.65% per annum.
On March 29, 2023, we and Bank of China Limited
entered into a short-term loan agreement for one year from March 29, 2023 to March 28, 2024 for a maximum loan amount to RMB5 million
(approximately $0.7 million) bearing interest rate at 3.65% per annum. We borrowed RMB5 million (approximately $0.7 million) on the same
date. The loan was secured by the Company’s land use rights and buildings in Dalian.
We borrowed a series of acceptance bills from
Agricultural Bank of China totaled RMB9.8 million (approximately $1.4 million) for various terms expiring in September 2023, which was
secured by our cash totaled RMB9.8 million (approximately $1.4 million).
We borrowed a series of acceptance bills from
China Zheshang Bank Co. Ltd Shenyang Branch totaled RMB78.4 million (approximately $11.4 million) for various terms through April to September
2023, which was secured by our cash totaled RMB50.5 million (approximately $7.4 million) and bills receivable totaled RMB33.5 million
(approximately $4.9 million).
We borrowed a series of acceptance bills from
Shaoxing Branch of Bank of Communications Co., Ltd totaling RMB32.4 million (approximately $4.7 million) for various terms ending through
May to September 2023, which was secured by our cash totaling RMB17.4 million (approximately $2.5 million) and land use rights and buildings
in Zhejiang.
We borrowed a series of acceptance bills from
China Merchants Bank Dalian Branch totaling RMB102.6 million (approximately $14.9 million) for various terms through April to September
2023, which was secured by the Company’s cash totaling RMB102.6 million (approximately $14.9 million).
We borrowed a series of acceptance bills from
Bank of China Limited totaling RMB20.7 million (approximately $3.0 million) for various terms through September 2023, which was secured
by our cash totaling RMB20.7 million (approximately $3.0 million).
We borrowed a series of acceptance bills from Jiangsu Gaochun Rural
Commercial Bank totaling RMB22.2 million (approximately $3.2 million) for various terms through April to August 2023, which was secured
by our cash totaling RMB22.2 million (approximately $3.2 million).
As of March 31, 2023, we had unutilized committed
banking facilities of $3.6 million. We plan to renew these loans upon maturity and intend to raise additional funds through bank borrowings
in the future to meet our daily cash demands, if required.
Equity and Debt Financings from Investors
We have also obtained funds through private placements,
registered direct offerings and other equity and note financings.
On December 8, 2020, we entered into a securities
purchase agreement with certain institutional investors, pursuant to which we issued in a registered direct offering, an aggregate of
9,489,800 shares of common stock of the Company at a per share purchase price of $5.18, and warrants to purchase an aggregate of 3,795,920
shares of common stock of the Company at an exercise price of $6.46 per share exercisable for 36 months from the date of issuance, for
gross proceeds of approximately $49.16 million, before deducting fees to the placement agent and other offering expenses payable by the
Company.
On February 8, 2021, we entered into another securities
purchase agreement with the same investors, pursuant to which we issued in a registered direct offering, an aggregate of 8,939,976 shares
of common stock of the Company at a per share purchase price of $7.83. In addition, we issued to the investors (i) in a concurrent private
placement, the Series A-1 warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.67 and
exercisable for 42 months from the date of issuance; (ii) in the registered direct offering, the Series B warrants to purchase a total
of 4,469,988 shares of common stock, at a per share exercise price of $7.83 and exercisable for 90 days from the date of issuance; and
(iii) in the registered direct offering, the Series A-2 warrants to purchase up to 2,234,992 shares of common stock, at a per share exercise
price of $7.67 and exercisable for 45 months from the date of issuance. We received gross proceeds of approximately $70 million from the
registered direct offering and the concurrent private placement, before deducting fees to the placement agent and other offering expenses
payable by the Company.
On May 10, 2021, we entered into the Series B
Warrant Amendment with each of the holders of the Company’s outstanding Series B warrants. Pursuant to the Series B Warrant Amendment,
the term of the Series B warrants was extended from May 11, 2021 to August 31, 2021.
As of August 31, 2021, we had not received any
notices from the investors to exercise Series B warrants. Series B warrants, along with Series A-2 warrants, had both expired on September
1, 2021.
We currently are expanding our product lines and
manufacturing capacity in our Dalian and Nanjing plants, which requires additional funding to finance the expansion. We may also require
additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide
to pursue. We plan to renew these loans upon maturity, if required, and plan to raise additional funds through bank borrowings and equity
financing in the future to meet our daily cash demands, if required. However, there can be no assurance that we will be successful in
obtaining this financing. If our existing cash and bank borrowing are insufficient to meet our requirements, we may seek to sell equity
securities, debt securities or borrow from lending institutions. We can make no assurance that financing will be available in the amounts
we need or on terms acceptable to us, if at all. The sale of equity securities, including convertible debt securities, would dilute the
interests of our current shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service
debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to
our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may
suffer.
The accompanying condensed consolidated financial
statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and
the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty related to our ability to continue as a going concern.
The following table sets forth a summary of our
cash flows for the periods indicated:
(All amounts in thousands of U.S. dollars)
| |
Three Months Ended March 31, | |
| |
2022 | | |
2023 | |
Net cash provided by operating activities | |
$ | 5,051 | | |
$ | 9,521 | |
Net cash used in investing activities | |
| (2,718 | ) | |
| (7,217 | ) |
Net cash provided by financing activities | |
| 1,899 | | |
| 3,192 | |
Effect of exchange rate changes on cash and cash equivalents | |
| 164 | | |
| 285 | |
Net increase in cash and cash equivalents and restricted cash | |
| 4,396 | | |
| 5,781 | |
Cash and cash equivalents and restricted cash at the beginning of period | |
| 26,355 | | |
| 37,356 | |
Cash and cash equivalents and restricted cash at the end of period | |
$ | 30,751 | | |
$ | 43,137 | |
Operating Activities
Net cash provided by operating activities was
$9.5 million in the three months ended March 31, 2023, as compared with $5.0 million in the same period in 2022. The net cash provided
by operating activities for the three months ended March 31, 2023 was mainly attributable to our increase of trade and bills payable of
$9.9 million, a decrease of trade receivables from a former subsidiary of $3.7 million offset by an increase of trade and bills receivable
of $0.6 million, an increase in inventories of $2.0 million and a decrease of accrued expenses and other payables of $1.8 million.
The net cash provided by operating activities
was $5.0 million for the three months ended March 31, 2022, mainly attributable to our net profit (before non-cash depreciation and
amortization, provision for doubtful debts, write-down of inventories, share-based compensation and changes in fair value of warrants
liability) of $1.6 million, an increase of trade and bills payable of $13.8 million and an increase of accrued expenses and other payables
of $2.6 million offset by an increase of trade accounts and bills receivable of $0.5 million, an increase in inventories of $12.1 million,
an increase of $1.7 million of prepayments and other receivables.
Investing Activities
Net cash used in investing activities was $7.2
million for the three months ended March 31, 2023, as compared to $2.7 million in the same period of 2022. The net cash used in investing
activities comprised the purchases of property, plant and equipment and construction in progress.
Financing Activities
Net cash provided by financing activities was
$3.2 million in the three months ended March 31, 2023, as compared to net cash provided by financing activities of $1.9 million in the
same period in 2022. The net cash provided by financing activities for the three months ended March 31, 2023 was mainly attributable to
$13.2 million advances from bank borrowings offset by repayment of bank borrowings of $9.5 million and repayment of borrowings from a
unrelated party $0.2 million and $0.4 million of principal payments on finance leases.
Net cash provided by financing activities was
$1.9 million in the three months ended March 31, 2022. The net cash provided by financing activities for the three months ended March
31, 2022 was mainly attributable to $5.8 million advances from bank borrowings offset by repayment of borrowings from Mr. Ye Junnan of
$4.0 million.
As of March 31, 2023, the principal amounts outstanding
under our credit facilities and lines of credit were as follows:
(All amounts in thousands of U.S. dollars)
| |
Maximum amount available | | |
Amount borrowed | |
Long-term credit facilities: | |
| | |
| |
Shaoxing Branch of Bank of Communications Co., Ltd | |
$ | 12,850 | | |
$ | 10,773 | |
Industrial and Commercial Bank of China Limited | |
| 1,747 | | |
| 1,456 | |
Postal Savings Bank of China Nanjing Gaochun Branch | |
| 1,456 | | |
| 728 | |
| |
| 16,053 | | |
| 12,957 | |
| |
| | | |
| | |
Short-term credit facilities: | |
| | | |
| | |
China CITIC Bank | |
| 728 | | |
| 728 | |
Jiangsu Gaochun Rural Commercial Bank | |
| 2,766 | | |
| 2,766 | |
Agricultural Bank of China | |
| 1,456 | | |
| 1,456 | |
Bank of China Dalian Jinpu New Area Branch | |
| 728 | | |
| 728 | |
| |
| 5,678 | | |
| 5,678 | |
Other lines of credit: | |
| | | |
| | |
Shaoxing Branch of Bank of Communications Co., Ltd | |
$ | 4,720 | | |
$ | 4,720 | |
Agricultural Bank of China | |
| 1,428 | | |
| 1,428 | |
Jiangsu Gaochun Rural Commercial Bank | |
| 3,227 | | |
| 3,227 | |
Bank of Ningbo Nanjing Gaochun Branch | |
| 3,097 | | |
| 3,097 | |
China Zheshang Bank Co., Ltd | |
| 11,409 | | |
| 11,409 | |
China Merchants Bank Co., Ltd Dalian Development Zone Branch | |
| 14,930 | | |
| 14,930 | |
Bank of China Dalian Jinzhou Branch | |
| 3,014 | | |
| 3,014 | |
China CITIC Bank Shaoxing Shengzhong Branch | |
| 728 | | |
| 218 | |
| |
| 42,553 | | |
| 42,043 | |
Total | |
$ | 64,284 | | |
$ | 60,678 | |
Capital Expenditures
We incurred capital expenditures of $2.7 million
and $7.2 million in the three months ended March 31, 2022 and 2023, respectively. Our capital expenditures were used primarily to construct
or upgrade our Dalian, Nanjing and Zhejiang facilities.
We estimate that our total capital expenditures
in fiscal year 2023 will reach approximately $80 million. Such funds will be mainly used to construct new plants with new product lines
and battery module packing lines.
Critical Accounting Policies
Our condensed consolidated financial information
has been prepared in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (1) the reported
amounts of our assets and liabilities, (2) the disclosure of our contingent assets and liabilities at the end of each fiscal period and
(3) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these estimates based on our own
historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based
on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily
apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results
could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
There were no material changes to the critical
accounting policies previously disclosed in our audited consolidated financial statements for the year ended December 31, 2022 included
in the Annual Report on Form 10-K filed on April 14, 2023.
Changes in Accounting Standards
Please refer to Note 1 to our condensed consolidated
financial statements, “Principal Activities, Basis of Presentation and Organization—Recently Adopted Accounting Standards”
and “—Recently Issued But Not Yet Adopted Accounting Pronouncements” for a discussion of relevant pronouncements.