UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10−Q
(Mark One)
☒[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:September 30, 2017 March 31, 2020
☐[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number:001-32898
CBAK ENERGY TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada | 88-0442833 | |
(State or other jurisdiction of | ||
incorporation or organization) | (I.R.S. Employer Identification No.) |
BAK Industrial Park, Meigui Street
Huayuankou Economic Zone
Dalian City, Liaoning Province,China, 116422 People’s Republic of China, 116450
(Address of principal executive offices, Zip Code)
(86)(411)-3918-5985
(Registrant’s telephone number, including area code)
China BAK Battery, Inc.(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes[X] No[ ] Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes[X] No[ ] Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | ||
Non-accelerated filer | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes[ ] Yes ☐ No [X]☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.001 par value | CBAT | Nasdaq Capital Market |
The number of shares outstanding of each of the issuer’s classes of common stock, as of November 16, 2017July 1, 2020 is as follows:
Class of Securities | Shares Outstanding | |
Common Stock, $0.001 par value | 63,658,132 |
CBAK ENERGY TECHNOLOGY, INC.
TABLE OF CONTENTS
i
EXPLANATORY NOTE
As previously disclosed on CBAK Energy Technology, Inc.’s (the “Company”) Form 8-K filed on May 15, 2020, the filing of this quarterly report on Form 10-Q for the quarter ended March 31, 2020 was delayed due to circumstances related to COVID-19 and its impact on the Company’s operations. All of the Company’s operating subsidiaries, employees, facilities and customers are located in China which has been affected by the outbreak of COVID-19 since December 2019. The COVID-19 pandemic has caused disruptions in the Company’s daily activities and impaired the Company’s ability to file the quarterly report by the original deadline of May 15, 2020. The Company relied on the SEC’s Order Under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies, dated March 25, 2020 (Release No. 34-88465), to delay the filing of this quarterly report.
ii
PART IPART IFINANCIAL INFORMATION
FINANCIAL INFORMATION
Item
ITEM 1. Financial Statements.FINANCIAL STATEMENTS.
CBAK ENERGY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016MARCH 31, 2019 AND 20172020
Assets Current assets Cash and cash equivalents Pledged deposits Trade accounts and bills receivable, net Inventories Prepayments and other receivables Prepaid land use rights, current portion Total current assets Property, plant and equipment, net Construction in progress Prepaid land use rights, non-current Intangible assets, net Total assets Liabilities Current liabilities Trade accounts and bills payable Short-term bank loans Other short-term loans Accrued expenses and other payables Payables to former subsidiaries, net Deferred government grants, current Total current liabilities Long-term bank loans Deferred government grants, non-current Long term tax payable Total liabilities Commitments and contingencies Shareholders' equity Common stock $0.001 par value; 500,000,000 authorized ; Donated shares Additional paid-in capital Statutory reserves Accumulated deficit Accumulated other comprehensive loss Less: Treasury shares Total shareholders' equity Total liabilities and shareholder's equityCBAK Energy Technology, Inc. and SubsidiariesCondensed consolidated balance sheetsAs of December 31, 2016 and September 30, 2017(Unaudited)(In US$)CBAK Energy Technology, Inc. and Subsidiaries December 31, September 30, Note 2016 2017 $ 408,713 $ 126,367 2 4,278,144 1,959,274 3 2,468,387 30,577,199 4 17,094,922 18,247,271 5 6,675,351 7,565,609 9 161,790 168,836 31,087,307 58,644,556 7 20,010,903 35,203,176 8 33,457,043 22,052,947 9 7,536,733 7,738,307 10 21,344 20,269 $ 92,113,330 $ 123,659,255 11 $ 15,580,655 $ 34,992,856 12 1,439,947 - 12 10,524,778 13,303,217 13 19,382,593 15,166,374 6 2,488,859 16,088,086 14 142,400 148,602 49,559,232 79,699,135 12 18,258,528 19,053,630 14 4,556,861 4,643,847 15 7,061,140 6,739,542 79,435,761 110,136,154 19
19,744,675 issued and 19,600,469 outstanding as of December 31,
2016; 26,367,523 issued and 26,223,317 outstanding as of
September 30, 201719,745 26,368 14,101,689 14,101,689 145,353,067 155,587,252 1,230,511 1,230,511 (141,999,372 ) (152,023,721 ) (1,961,461 ) (1,332,388 ) 16,744,179 17,589,711 (4,066,610 ) (4,066,610 ) 12,677,569 13,523,101 $ 92,113,330 $ 123,659,255
Condensed Consolidated Balance Sheets
As of December 31, 2019 and March 31, 2020
(Unaudited)
(In US$ except for number of shares)
December 31, | March 31, | |||||||||||
Note | 2019 | 2020 | ||||||||||
(Unaudited) | ||||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 1,612,957 | $ | 170,567 | ||||||||
Pledged deposits | 2 | 5,520,991 | 5,339,114 | |||||||||
Trade accounts and bills receivable, net | 3 | 7,952,420 | 10,739,325 | |||||||||
Inventories | 4 | 8,666,714 | 7,429,629 | |||||||||
Prepayments and other receivables | 5 | 4,735,913 | 4,639,167 | |||||||||
Total current assets | 28,488,995 | 28,317,802 | ||||||||||
Property, plant and equipment, net | 7 | 38,177,565 | 36,973,925 | |||||||||
Construction in progress | 8 | 21,707,624 | 21,859,350 | |||||||||
Right-of-use assets | 9 | 7,194,195 | 7,035,733 | |||||||||
Intangible assets, net | 10 | 15,178 | 13,644 | |||||||||
Total assets | $ | 95,583,557 | $ | 94,200,454 | ||||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Trade accounts and bills payable | 11 | $ | 15,072,108 | $ | 14,684,873 | |||||||
Short-term bank borrowings | 12 | 5,730,289 | 5,635,673 | |||||||||
Current maturities of long-term bank loans | 12 | 10,844,463 | 10,665,405 | |||||||||
Other short-term loans | 12 | 7,351,587 | 5,258,801 | |||||||||
Notes payable | 16 | 2,846,736 | 2,715,833 | |||||||||
Accrued expenses and other payables | 13 | 15,527,589 | 15,403,598 | |||||||||
Payables to former subsidiaries, net | 6 | 1,483,352 | 5,684,401 | |||||||||
Deferred government grants, current | 14 | 142,026 | 139,681 | |||||||||
Total current liabilities | 58,998,150 | 60,188,265 | ||||||||||
Long-term bank loans | 12 | 9,519,029 | 9,361,855 | |||||||||
Deferred government grants, non-current | 14 | 4,118,807 | 4,015,878 | |||||||||
Product warranty provision | 15 | 2,246,933 | 2,206,123 | |||||||||
Long term tax payable | 17 | 7,042,582 | 6,926,298 | |||||||||
Total liabilities | 81,925,501 | 82,698,419 | ||||||||||
Commitments and contingencies | 21 | |||||||||||
Shareholders’ equity(deficit) | ||||||||||||
Common stock $0.001 par value; 500,000,000 authorized; 53,220,902 issued and 53,076,696 outstanding as of December 31, 2019, 53,588,799 issued and 53,444,593 outstanding as of March 31, 2020 | 53,222 | 53,590 | ||||||||||
Donated shares | 14,101,689 | 14,101,689 | ||||||||||
Additional paid-in capital | 180,208,610 | 180,708,377 | ||||||||||
Statutory reserves | 1,230,511 | 1,230,511 | ||||||||||
Accumulated deficit | (176,177,413 | ) | (178,537,394 | ) | ||||||||
Accumulated other comprehensive loss | (1,744,730 | ) | (2,045,945 | ) | ||||||||
17,671,889 | 15,510,828 | |||||||||||
Less: Treasury shares | (4,066,610 | ) | (4,066,610 | ) | ||||||||
Total shareholders’ equity | 13,605,279 | 11,444,218 | ||||||||||
Non-controlling interests | 52,777 | 57,817 | ||||||||||
Total equity | 13,658,056 | 11,502,035 | ||||||||||
Total liabilities and shareholder’s equity | $ | 95,583,557 | $ | 94,200,454 |
See accompanying notes to the condensed consolidated financial statements.
CBAK Energy Technology, Inc. and Subsidiaries |
Condensed |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||
| Note | 2016 | 2017 | 2016 | 2017 | ||||||||||
Net revenues | 21 | $ | 307,647 | $ | 17,750,710 | $ | 4,868,855 | $ | 27,806,113 | ||||||
Cost of revenues | (1,226,648 | ) | (19,111,425 | ) | (6,440,745 | ) | (31,075,142 | ) | |||||||
Gross loss | (919,001 | ) | (1,360,715 | ) | (1,571,890 | ) | (3,269,029 | ) | |||||||
Operating expenses: | |||||||||||||||
Research and development expenses | (459,768 | ) | (372,041 | ) | (1,132,332 | ) | (1,335,556 | ) | |||||||
Sales and marketing expenses | (320,094 | ) | (1,135,992 | ) | (824,832 | ) | (1,820,629 | ) | |||||||
General and administrative expenses | (3,504,592 | ) | (1,328,653 | ) | (6,487,629 | ) | (3,471,384 | ) | |||||||
Total operating expenses | (4,284,454 | ) | (2,836,686 | ) | (8,444,793 | ) | (6,627,569 | ) | |||||||
Operating loss | (5,203,455 | ) | (4,197,401 | ) | (10,016,683 | ) | (9,896,598 | ) | |||||||
Finance income (expenses), net | (91,124 | ) | 8,943 | (143,674 | ) | (86,820 | ) | ||||||||
Other income (expenses), net | 4,662 | (14,295 | ) | 241,349 | (40,931 | ) | |||||||||
Loss before income tax | (5,289,917 | ) | (4,202,753 | ) | (9,919,008 | ) | (10,024,349 | ) | |||||||
Income tax expenses | 15 | (657,805 | ) | - | (600,513 | ) | - | ||||||||
Net loss | (5,947,722 | ) | (4,202,753 | ) | (10,519,521 | ) | (10,024,349 | ) | |||||||
Other comprehensive income (loss) | |||||||||||||||
– Foreign currency translation adjustment | 15,495 | 291,029 | (419,304 | ) | 629,073 | ||||||||||
Comprehensive loss | $ | (5,932,227 | ) | $ | (3,911,724 | ) | $ | (10,938,825 | ) | $ | (9,395,276 | ) | |||
| |||||||||||||||
Loss per share | 17 | ||||||||||||||
– Basic and diluted | $ | (0.34 | ) | $ | (0.16 | ) | $ | (0.61 | ) | $ | (0.45 | ) | |||
| |||||||||||||||
Weighted average number of shares of common stock: | 17 | ||||||||||||||
– Basic and diluted | 17,339,426 | 26,334,918 | 17,284,632 | 22,174,315 |
Three months ended March 31, | ||||||||||
Note | 2019 | 2020 | ||||||||
Net revenues | 23 | $ | 5,171,675 | $ | 6,901,274 | |||||
Cost of revenues | (5,400,683 | ) | (6,695,271 | ) | ||||||
Gross (loss) profit | (229,008 | ) | 206,003 | |||||||
Operating expenses: | ||||||||||
Research and development expenses | (433,516 | ) | (298,930 | ) | ||||||
Sales and marketing expenses | (364,014 | ) | (93,771 | ) | ||||||
General and administrative expenses | (1,440,695 | ) | (1,115,618 | ) | ||||||
Provision for doubtful accounts | 3 | (71,162 | ) | (673,186 | ) | |||||
Total operating expenses | (2,309,387 | ) | (2,181,505 | ) | ||||||
Operating loss | (2,538,395 | ) | (1,975,502 | ) | ||||||
Finance expenses, net | (287,000 | ) | (428,083 | ) | ||||||
Other income, net | 18,062 | 49,474 | ||||||||
Loss before income tax | (2,807,333 | ) | (2,354,111 | ) | ||||||
Income tax expense | 17 | - | - | |||||||
Net loss | $ | (2,807,333 | ) | $ | (2,354,111 | ) | ||||
Less: Net loss (profit) attributable to non-controlling interests | 19,941 | (5,870 | ) | |||||||
Net loss attribute to shareholders of CBAK Energy Technology, Inc. | $ | (2,787,392 | ) | $ | (2,359,981 | ) | ||||
Net loss | (2,807,333 | ) | (2,354,111 | ) | ||||||
Other comprehensive income (loss) | ||||||||||
– Foreign currency translation adjustment | 161,325 | (302,045 | ) | |||||||
Comprehensive loss | $ | (2,646,008 | ) | $ | (2,656,156 | ) | ||||
Less: Comprehensive loss (income) attributable to non-controlling interests | 22,303 | (5,040 | ) | |||||||
Comprehensive loss attributable to CBAK Energy Technology, Inc. | $ | (2,623,705 | ) | $ | (2,661,196 | ) | ||||
Loss per share | 19 | |||||||||
– Basic and diluted | $ | (0.10 | ) | $ | (0.04 | ) | ||||
Weighted average number of shares of common stock: | 19 | |||||||||
– Basic and diluted | 28,610,072 | 53,293,776 |
See accompanying notes to the condensed consolidated financial statements.
Balance as of January1, 2016 Net loss Share-based compensation for employee and director stock awards Common stock issued to employees and directors for stock awards Common stock issued to investors Foreign currency translation adjustment Balance as ofSeptember 30, 2016 Balance as of January 1,2017 Net loss Common stock issued to investors Share-based compensation for employee and director stock awards Common stock issued to employees and directors for stock awards Foreign currency translation adjustment Balance as of September 30,2017CBAK Energy Technology, Inc. and SubsidiariesCondensed consolidated statements of changes in shareholders’ equityFor the nine months ended September 30, 2016 and 2017(Unaudited)(In US$ except for number of shares) Accumulated Common stock issued Additional other Treasury shares Total Number Donated paid-in Statutory Accumulated comprehensive Number shareholders’ of shares Amount shares capital reserves deficit loss of shares Amount equity 17,289,699 $ 17,290 $ 14,101,689 $ 138,405,110 $ 1,230,511 $ (129,285,454 ) $ (979,048 ) (144,206 ) $ (4,066,610 ) $ 19,423,488 - - - - - (10,519,521 ) - - - (10,519,521 ) - - - 1,088,733 - - - - - 1,088,733 193,335 193 - (193 ) - - - - - - 2,206,640 2,207 - 5,514,393 - - - - - 5,516,600 - - - - - - (419,304 ) - - (419,304 ) �� 19,689,674 $ 19,690 $ 14,101,689 $ 145,008,043 $ 1,230,511 $ (139,804,975 ) $ (1,398,352 ) (144,206 ) $ (4,066,610 ) $ 15,089,996 19,744,675 $ 19,745 $ 14,101,689 $ 145,353,067 $ 1,230,511 (141,999,372 ) $ (1,961,461 ) (144,206 ) $ (4,066,610 ) $ 12,677,569 - - - - - (10,024,349 ) - - - (10,024,349 ) 6,403,518 6,404 - 9,598,874 - - - - - 9,605,278 - - - 635,530 - - - - - 635,530 219,330 219 - (219 ) - - - - - - - - - - - - 629,073 - - 629,073 26,367,523 $ 26,368 $ 14,101,689 $ 155,587,252 $ 1,230,511 $ (152,023,721 ) $ (1,332,388 ) (144,206 ) $ (4,066,610 ) $ 13,523,101
Condensed Consolidated Statements of Changes in Shareholders’ Equity
For the three months ended March 31, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)
Common stock issued | Additional | Accumulated other | Non- | Treasury shares | Total shareholders’ | |||||||||||||||||||||||||||||||||||||||
Number | Donated | paid-in | Statutory | Accumulated | comprehensive | controlling | Number | equity | ||||||||||||||||||||||||||||||||||||
of shares | Amount | shares | capital | reserves | deficit | loss | interests | of shares | Amount | (deficit) | ||||||||||||||||||||||||||||||||||
Balance as of January 1, 2019 | 26,791,684 | $ | 26,792 | $ | 14,101,689 | $ | 155,931,770 | $ | 1,230,511 | $ | (165,409,890 | ) | $ | (1,498,940 | ) | $ | 11,977 | (144,206 | ) | $ | (4,066,610 | ) | $ | 327,299 | ||||||||||||||||||||
Net loss | - | - | - | - | - | (2,787,392 | ) | - | (19,941 | ) | - | - | (2,807,333 | ) | ||||||||||||||||||||||||||||||
Capital contribution from non-controlling interests of a subsidiary | - | - | - | - | - | - | - | 56,704 | - | - | 56,704 | |||||||||||||||||||||||||||||||||
Share-based compensation for employee and director stock awards | - | - | - | 18,219 | - | - | - | - | - | 18,219 | ||||||||||||||||||||||||||||||||||
Common stock issued to investors | 5,098,040 | 5,098 | - | 5,194,902 | - | - | - | - | - | 5,200,000 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | 163,687 | (2,362 | ) | - | - | 161,325 | ||||||||||||||||||||||||||||||||
Balance as of March 31, 2019 | 31,889,724 | $ | 31,890 | $ | 14,101,689 | $ | 161,144,891 | $ | 1,230,511 | $ | (168,197,282 | ) | $ | (1,335,253 | ) | $ | 46,378 | (144,206 | ) | $ | (4,066,610 | ) | $ | 2,956,214 | ||||||||||||||||||||
Balance as of January 1, 2020 | 53,220,902 | $ | 53,222 | $ | 14,101,689 | $ | 180,208,610 | $ | 1,230,511 | $ | (176,177,413 | ) | $ | (1,744,730 | ) | $ | 52,777 | (144,206 | ) | $ | (4,066,610 | ) | $ | 13,658,056 | ||||||||||||||||||||
Net (loss) profit | - | - | - | - | - | (2,359,981 | ) | - | 5,870 | - | - | (2,354,111 | ) | |||||||||||||||||||||||||||||||
Share-based compensation for employee and director stock awards | - | - | - | 300,135 | - | - | - | - | - | 300,135 | ||||||||||||||||||||||||||||||||||
Common stock issued to investors | 367,897 | 368 | - | 199,632 | - | - | - | - | - | 200,000 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | (301,215 | ) | (830 | ) | - | - | (302,045 | ) | ||||||||||||||||||||||||||||||
Balance as of March 31, 2020 | 53,588,799 | $ | 53,590 | $ | 14,101,689 | $ | 180,708,377 | $ | 1,230,511 | $ | (178,537,394 | ) | $ | (2,045,945 | ) | $ | 57,817 | (144,206 | ) | $ | (4,066,610 | ) | $ | 11,502,035 |
See accompanying notes to the condensed consolidated financial statements.
Cash flows from operating activities Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Provision for doubtful debts Write-down of inventories Share-based compensation Deferred tax liabilities Exchange loss (gain) Changes in operating assets and liabilities: Trade accounts and bills receivable Inventories Prepayments and other receivables Trade accounts and bills payable Accrued expenses and other payables Income taxes payable Trade receivable from and payables to former subsidiaries Net cash used in operating activities Cash flows from investing activities (Increase) Decrease in pledged deposits Purchases of property, plant and equipment and construction in progress Net cash used in investing activities Cash flows from financing activities Advances from investors Advances from former subsidiary Proceeds from bank borrowings Repayment of bank borrowings Borrowings from unrelated parties Repayment of borrowings from unrelated parties Borrowings from related parties Repayment of borrowings from related parties Proceeds from issuance of common stock Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalents at the end of period Non-cash transactions: Transfer of construction in progress to property, plant and equipment Cash paid during the period for: Income taxes Interest, net of amounts capitalizedCBAK Energy Technology, Inc. and subsidiariesCondensed consolidated statements of cash flowsFor the nine months ended September 30, 2016 and 2017(Unaudited)(In US$)CBAK Energy Technology, Inc. and subsidiaries Nine months ended September 30, 2016 2017 $ (10,519,521 ) (10,024,349 ) 831,868 1,006,122 2,732,810 361,217 296,943 1,359,182 1,088,733 635,530 (168,860 ) - 105,856 (37,511 ) (445,081 ) (27,736,858 ) (12,747,322 ) (1,757,900 ) (3,566,182 ) (583,517 ) 278,080 18,315,114 852,202 1,438,167 310,108 (615,031 ) 8,396,737 11,163,618 (12,553,629 ) (6,476,216 ) (2,580,562 ) 2,449,193 (1,329,822 ) (8,738,549 ) (3,910,384 ) (6,289,356 ) - 2,056,706 - 2,056,706 19,410,639 - (10,715,653 ) (1,469,076 ) 87,230 5,530,190 (76,540 ) (5,874,816 ) 4,289,084 2,083,150 - (1,522,697 ) 5,516,600 9,605,277 18,511,360 12,465,440 (174,763 ) 17,786 1,872,584 (282,346 ) 80,711 408,713 $ 1,953,295 126,367 $ 602,109 14,990,191 $ 459,265 615,031 $ - -
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)
Three months ended March 31, | ||||||||
2019 | 2020 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (2,807,333 | ) | $ | (2,354,111 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 681,408 | 587,615 | ||||||
Provision for doubtful debts | 71,162 | 673,186 | ||||||
Write-down of inventories | 62,772 | 409,062 | ||||||
Share-based compensation | 18,219 | 300,135 | ||||||
Loss on disposal of property, plant and equipment | 273,117 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts and bills receivable | 5,372,834 | (3,633,248 | ) | |||||
Inventories | 577,665 | 701,957 | ||||||
Prepayments and other receivables | 1,275,562 | 51,905 | ||||||
Trade accounts and bills payable | (8,269,290 | ) | (237,779 | ) | ||||
Accrued expenses and other payables | (155,161 | ) | (86,889 | ) | ||||
Trade receivable from and payables to former subsidiaries | (1,124,827 | ) | 4,273,976 | |||||
Net cash (used in) provided by operating activities | (4,023,872 | ) | 685,809 | |||||
Cash flows from investing activities | ||||||||
Purchases of property, plant and equipment and construction in progress | (1,222,149 | ) | (261,031 | ) | ||||
Net cash used in investing activities | (1,222,149 | ) | (261,031 | ) | ||||
Cash flows from financing activities | ||||||||
Capital injection from non-controlling interests | 56,704 | - | ||||||
Borrowings from related parties | 266,671 | - | ||||||
Borrowings from shareholders | - | 269,349 | ||||||
Borrowings from an unrelated party | 5,866,754 | 3,467,148 | ||||||
Repayment of borrowing from an unrelated party | - | (5,673,515 | ) | |||||
Repayment of borrowings from related parties | (407,168 | ) | - | |||||
Repayment of earnest money to shareholders (note 1) | (773,310 | ) | - | |||||
Net cash provided by (used in) financing activities | 5,009,651 | (1,937,018 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents, and restricted cash | 438,891 | (112,027 | ) | |||||
Net increase (decrease) in cash and cash equivalents, and restricted cash | 202,521 | (1,624,267 | ) | |||||
Cash and cash equivalents, and restricted cash at the beginning of period | 17,689,493 | 7,133,948 | ||||||
Cash and cash equivalents, and restricted cash at the end of period | $ | 17,892,014 | $ | 5,509,681 | ||||
Supplemental non-cash investing and financing activities: | ||||||||
Transfer of construction in progress to property, plant and equipment | $ | 5,218,383 | $ | - | ||||
Issuance of common stock (note 1): | ||||||||
- offset repayment of promissory notes | $ | - | $ | 200,000 | ||||
- offset short-term borrowings from unrelated parties | $ | 5,200,000 | $ | - | ||||
Cash paid during the period for: | ||||||||
Interest, net of amounts capitalized | $ | 347,144 | $ | 269,019 |
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 |
(Unaudited) |
(In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization |
Principal Activities
On January 10, 2017,
CBAK Energy Technology, Inc. (formerly known as China BAK Battery, Inc.) (“China BAK”CBAK” or the "Company"“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 January 16, 2017, the name of the Company was changed to CBAK Energy Technology, Inc. The trading symbol of the Company's common stock remains as "CBAK".
On January 16, 2017, the Board of Directors of the Company approved a change in the Company’s fiscal year end from September 30 to December 31. Accordingly, the Company’s next Annual Report on Form 10-K will be for the fiscal year ending December 31, 2017. With this fiscal year end change, the Company files a transition report on Form 10-Q for the period from October 1, 2016 through December 31, 2016.
China BAK 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. China BAKCBAK 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"“Li-ion” or "Li-ion cell"“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"“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 China BAK,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”), agreed to place 435,910 shares of the Company'sCompany’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 $27,000,000. If the audited net income of the Company for the fiscal years ended September 30, 2005 and 2006 reached the above-mentioned targets, the 435,910 shares would be released to Mr. Li in the amount of 50% upon reaching the 2005 target and the remaining 50% upon reaching the 2006 target.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization(continued) |
Basis of Presentation and Organization (continued) (continued)
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.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization(continued) |
Basis of Presentation and Organization (continued)(continued)
As of September 30, 2017,March 31, 2020, 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 (“Dalian BAK Trading”) was established as a wholly owned subsidiary of China BAK Asia Holding Limited (“BAK Asia”) with a registered capital of $500,000 (Note 19(i)).$500,000. Pursuant to Dalian BAKCBAK Trading’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to Dalian BAKCBAK Trading on or before August 14, 2015. On March 7, 2017,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 Company changed the name of Dalian BAK Trading Co.,Ltdcapital to Dalian CBAK Trading Co., Ltd(“CBAK Trading”).on or before August 1, 2033. Up to the date of this report, the Company has contributed $100,000$2,435,000 to CBAK Trading in cash.
On December 27, 2013, Dalian BAK Power Battery Co., Ltd (“Dalian BAK Power”) was established as a wholly owned subsidiary of BAK AsiawithAsia with a registered capital of $30,000,000 (Note 19(i)).$30,000,000. Pursuant to Dalian BAKCBAK Power’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to Dalian BAKCBAK Power on or before December 27, 2015. On March 7, 2017, the Company changed the name of Dalian BAK Power Battery Co., Ltd was changed to Dalian CBAK Power Battery Co., Ltd (“CBAK Power”). On July 10, 2018, CBAK Power’s registered capital was increased to $50,000,000. On October 29, 2019, CBAK Power’s registered capital was further increased to $60,000,000. Pursuant to CBAK Power’s amendment articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Power on or before December 31, 2021. Up to the date of this report, the Company has contributed $29,999,978 to CBAK Power through injection of a series of patents and cashcash.
On May 4, 2018, CBAK New Energy (Suzhou) Co., Ltd (“CBAK Suzhou”) was established as a 90% owned subsidiary of $24,999,978.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.
On November 21, 2019, Dalian CBAK Energy Technology Co., Ltd (“CBAK Energy”) was established as a wholly owned subsidiary of BAK Asia with a registered capital of $50,000,000. Pursuant to CBAK Energy’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Energy on or before November 20, 2022. Up to the date of this report, the Company has contributed nil to CBAK Energy. CBAK Energy will be focus on manufacture and sale of lithium batteries and lithium batteries’ materials.
The Company’s condensed consolidated financial statements have been prepared under US GAAP.
These condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these condensed consolidated financial statements, which are of a normal and recurring nature, have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The following (a) condensed consolidated balance sheet as of September 30, 2016,December 31, 2019, which was derived from the Company’s audited financial statements, and (b) the unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to those rules and regulations, though the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying footnotes of the Company for the year ended September 30, 2016.December 31, 2019.
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company’s principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liability established in the PRC or Hong Kong. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books of account of the Company'sCompany’s subsidiaries to present them in conformity with US GAAP.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization (continued) |
Basis of Presentation and Organization (continued)
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 Battery”Shenzhen”), BAK International (Tianjin) Ltd. (“BAK Tianjin”), Tianjin Chenhao Technological Development Limited (a subsidiary of BAK Tianjin established on May 8, 2014,“Tianjin “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 December 31, 2016 and September 30, 2017,2019and March 31, 2020, the Company’s subsidiaries consisted of: i) China BAK Asia Holdings Limited (“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; and iii) Dalian CBAK Power Battery Co., Ltd. (“CBAK Power”), a wholly owned limited liability company established on December 27, 2013 in the PRC; and iv) CBAK New Energy (Suzhou) Co., Ltd. (“CBAK Suzhou”), a 90% owned limited liability company established on May 4, 2018 in the PRC and v) Dalian CBAK Energy Technology Co., Ltd (“CBAK Energy”), a wholly owned limited liability company established on November 21, 2019 in the PRC.
|
Basis of Presentation and Organization(continued)
The Company continued its business and continued to generate revenues from sale of batteries via subcontracting the production to BAK Tianjin aand BAK Shenzhen, former subsidiarysubsidiaries before the completion of construction and operation of its facility in Dalian. BAK Tianjin had become a supplierand BAK Shenzhen are now suppliers of the Company, until September 2016 when BAK Tianjin ceased production, and the Company does not have any significant benefits or liability from the operating results of BAK Tianjin and BAK Shenzhen except the normal risk with any major supplier.
As of the date of this report, Mr. Xiangqian Li is no longer a director of BAK International and BAK Tianjin. He remained as a director of Shenzhen BAK and BAK Battery.Shenzhen.
On and effective March 1, 2016, Mr. Xiangqian Li resigned as Chairman, director, Chief Executive Officer, President and Secretary of the Company. On the same date, the Board of Directors of the Company appointed Mr. Yunfei Li as Chairman, Chief Executive Officer, President and Secretary of the Company. On March 4, 2016, Mr. Xiangqian Li transferred 3,000,000 shares to Mr. Yunfei Li for a price of $2.4 per share. After the share transfer, Mr. Yunfei Li held 3,000,000 shares or 17.3% and Mr. Xiangqian Li held 760,557 shares at 4.4% of the Company’s outstanding stock, respectively. As of September30, 2017,March 31, 2020, Mr. Yunfei Li held 3,806,0188,589,919 shares or 14.5%16.1% of the Company’s outstanding stock, and Mr. Xiangqian Li held none of the Company’s outstanding stock.
The Company had a working capital deficiency, accumulated deficit from recurring net losses and short-term debt obligations Asas of December 31, 20162019 and September30, 2017.March 31, 2020. These factors raise substantial doubts about the Company’s ability to continue as a going concern.
In June and July 2015, the Company received advances of approximately $9.8 million from potential investors. On September 29, 2015, the Company entered into a Debt Conversion Agreement with these investors. Pursuant to the terms of the Debt Conversion Agreement, each of the creditors agreed to convert existing loan principal of $9,847,644 into an aggregate 4,376,731 shares of common stock of the Company (“the Shares”) at a conversion price of $2.25 per share. Upon receipt of the Shares on October 16, 2015, the creditors released the Company from all claims, demands and other obligations relating to the Debts. As such, no interest was recognized by the Company on the advances from investors pursuant to the supplemental agreements with investors and the Debt Conversion Agreement.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization (continued) |
Basis of Presentation and Organization (continued)
In June 2016, the Company received further advances in the aggregate of $2.9 million from Mr. Jiping Zhou and Mr. Dawei Li. These advances were unsecured, non-interest bearing and repayable on demand. On July 8, 2018, the Company received further advances of $2.6 million from Mr. Jiping Zhou. On July 28, 2016, the Company entered into securities purchase agreements with Mr. Jiping Zhou and Mr. Dawei Li to issue and sell an aggregate of 2,206,640 shares of common stock of the Company, at $2.5 per share, for an aggregate consideration of approximately $5.52 million. On August 17, 2016, the Company issued these shares to the investors.
On February 17, 2017, the Company signed investment agreements with eight investors (including Mr. Yunfei Li, the Company’s CEO, and seven of the Company’s existing shareholders) whereby the investors agreed to subscribe new shares of the Company totaling $10 million. Pursuant to the investment agreements, in January 2017 the 8eight investors paid the Company a total of $2.06 million as down payments. Mr. Yunfei Li agreesagreed to subscribe new shares of the Company totaled $1,120,000 and made down paymentpaid the earnings money of $225,784 in January 2017. On April 1, April 21, April 26 and May 10, 2017, the Company received investment of $1,999,910, $3,499,888, $1,119,982 and $2,985,497 from these investors, respectively. On May 31, 2017, the Company entered into a securities purchase agreement with the eight investors, pursuant to which the Company agreed to issue an aggregate of 6,403,518 shares of common stock to these investors, at a purchase price of $1.50 per share, for an aggregate price of $9.6 million, among which 746,018 shares to be issued to Mr. Yunfei Li. On June 22, 2017, the Company issued the shares to the investors.
On June 14, 2016,
In 2019, according to the investment agreements and agreed by the investors, the Company renewed its banking facilities from Bankreturned partial earnest money of Dandong for loans with a maximum amount$966,579 (approximately RMB6.7 million) to these investors.
On January 7, 2019, each of RMB130 million (approximately $19.5 million), including three-year long-term loansMr. Dawei Li and three-year revolving bank acceptance and letters of credit bills for the period from June 13, 2016 to June 12, 2019. The banking facilities were guaranteed by Mr. Yunfei Li (“entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $3.4 million (RMB23,980,950) and $1.6 million (RMB11,647,890) (totaled $5.0 million, the “First Debt”) to Mr. Li”), the Company’s CEO,Dawei Li and Ms. Qinghui Yuan, Mr. Li’s wife, Mr. XianqianYunfei Li, the Company’s former CEO, Ms. Xiaoqiu Yu, the wife of the Company’s former CEO, Shenzhen BAK Battery Co., Ltd., the Company’s former subsidiary (“Shenzhen BAK”). The facilities were also secured by part of the Company’s Dalian site’s prepaid land use rights, buildings, construction in progress, machinery and equipment and pledged deposits. Under the banking facilities, as of September 30, 2017, the Company borrowed various three-year term bank loans that totaled RMB126.8 million (approximately $19.1 million), bearing fixed interest at 7.2% per annum. The Company also borrowed a series of revolving bank acceptance totaled $0.8 million from Bank of Dandong under the credit facilities, and bank deposit of 50% was required to secure against these bank acceptance bills.respectively.
On July 6, 2016, the Company obtained banking facilities from Bank of Dalian for loans with a maximum amount of RMB10 million (approximately $1.5 million) and bank acceptance bills of RMB40 million (approximately $6.0 million) to July 2017. The banking facilities were guaranteed by Mr. Li, its CEO, and Ms. Qinghui Yuan, Mr. Li’s wife, and Shenzhen BAK. Under the banking facilities, on July 6, 2016 the Company borrowed one year short-term loan of RMB10 million (approximately $1.5 million), bearing a fixed interest rate at 6.525% per annum. The Company also borrowed revolving bank acceptance totaled $6.0 million, and bank deposit of 50% was required to secure against these bank acceptance bills. The Company repaid the loan and bank acceptance bills in July and August 2017 and the Company is in process to renew the banking facilities.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization (continued) |
Basis of Presentation and Organization (continued)
On August 2, 2017,January 7, 2019, the Company obtained one-year term facilitiesentered into a cancellation agreement with Mr. Dawei Li and Mr. Yunfei Li. Pursuant to the terms of the cancellation agreement, Mr. Dawei Li and Mr. Yunfei Li agreed to cancel the First Debt in exchange for 3,431,373 and 1,666,667 shares of common stock of the Company, respectively, at an exchange price of $1.02 per share. Upon receipt of the shares, the creditors released the Company from China Merchants Bankany claims, demands and other obligations relating to the First Debt.
On April 26, 2019, each of Mr. Jun Lang, Ms. Jing Shi and Asia EVK Energy Auto Limited (“Asia EVK”) entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $0.3 million (RMB2,225,082), $0.1 million (RMB 912,204) and $5.0 million (RMB35,406,036) (collectively $5.4 million, the “Second Debt”) to Mr. Jun Lang, Ms. Jing Shi and Asia EVK, respectively.
On April 26, 2019, the Company entered into a maximumcancellation agreement with Mr. Jun Lang, Ms. Jing Shi and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, the creditors agreed to cancel the Second Debt in exchange for 300,534, 123,208 and 4,782,163 shares of common stock of the Company, respectively, at an exchange price of $1.1 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Second Debt.
On June 28, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power to loan approximately $1.4 million (RMB10,000,000) and $2.5 million (RMB18,000,000) respectively to CBAK Power for a terms of six months (collectively $3.9 million, the “Third Debt”). The loan was unsecured, non-interest bearing and repayable on demand.
On July 16, 2019, each of Asia EVK and Mr. Yunfei Li entered into an agreement with CBAK Power and Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. (the Company’s construction contractor) whereby Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. assigned its rights to the unpaid construction fees owed by CBAK Power of approximately $2.8 million (RMB20,000,000) and $0.4 million (RMB2,813,810) (collectively $3.2 million, the “Fourth Debt”) to Asia EVK and Mr. Yunfei Li, respectively.
On July 26, 2019, the Company entered into a cancellation agreement with Mr. Dawei Li, Mr. Yunfei Li and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Dawei Li, Mr. Yunfei Li and Asia EVK agreed to cancel the Third Debt and Fourth Debt in exchange for 1,384,717, 2,938,067 and 2,769,435 shares of common stock of the Company, respectively, at an exchange price of $1.05 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Third Debt and Fourth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.
On July 24, 2019, the Company entered into a securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note 1”) to the Lender. The Note has an original principal amount of RMB100$1,395,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,250,000 after an original issue discount of $125,000 and payment of Lender’s expenses of $20,000.
On October 10, 2019, each of Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen entered into an agreement with CBAK Power and Zhengzhou BAK New Energy Vehicle Co., Ltd. (the Company’s supplier of which Mr. Xiangqian Li, the former CEO, is a director of this company) whereby Zhengzhou BAK New Energy Vehicle Co., Ltd. assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $2.1 million (approximately $15.0 million) including revolving loans, trade finance, notes(RMB15,000,000), $1.0 million (RMB7,380,000) and $1.0 million (RMB7,380,000) (collectively $4.1 million, the “Fifth Debt”) to Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen, respectively.
On October 14, 2019, the Company entered into a cancellation agreement with Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen agreed to cancel and convert the Fifth Debt and the Unpaid Earnest Money of approximately $0.9 million (RMB6,720,000) in exchange for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of $0.6 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Fifth Debt and the Unpaid Earnest Money. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.
On December 30, 2019, the Company entered into a second securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note II”) to the Lender. The Note II has an original principal amount of $1,670,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,500,000 after an original issue discount acceptance of commercial bills etc. Any amount drawn under$150,000 and payment of Lender’s expenses of $20,000.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization (continued) |
Basis of Presentation and Organization (continued)
On January 27, 2020, the facilities requires securityCompany entered into an exchange agreement (the “First Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the formoriginal principal amount equal to $100,000 (the “Partitioned Promissory Note) from the outstanding balance of cash or banking acceptance bills receivable of at least the same amount. Under the facilities, as of September 30, 2017,certain promissory note that the Company borrowedissued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 160,256 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On February 20, 2020, the Company entered into a seriessecond exchange agreement (the “Second Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 207,641 shares of the Company’s common stock, par value $0.001 per share to the Lender.
At March 31, 2020, the Company had aggregate interest-bearing bank acceptance bills totaled $4.8loans of approximately $25.7 million, from China Merchants Bank and pledged $0.3due in 2020 to 2021, in addition to approximately $43.9 million of bank deposit and $5.4 million of its bills receivables and the remaining $0.9 million pledged bills was available for further borrowings.other current liabilities.
During the third quarter of 2017, the Company also obtained banking facilities from Bank of Dandong with bank acceptance bills of RMB47.7 million (approximately $7.2 million) for a term until March 14, 2018. The banking facilities were pledged by its bills receivables totaled $7.2 million. Under the facilities, the Company borrowed bank acceptance bills totaled $7.2 million from Bank of Dandong.
As of September 30, 2017, the Company had also borrowed $1.2 million of bank acceptance bills outside any the credit facility from China Merchants Bank. The bank acceptance bills were pledged by $1.2 million of its bills receivable.
As of September 30, 2017,March 31, 2020, the Company had unutilized committed banking facilities of $10.3$6.8 million.
On April 10, 2020, each of Mr. Yunfei Li, Mr. Ping Shen and Asia EVK entered into an agreement with CBAK Power and Shenzhen BAK, whereby Shenzhen BAK assigned its rights to the unpaid inventories cost (note 6) owed by CBAK Power of approximately $1.0 million (RMB7,000,000), $2.3 million (RMB16,000,000) and $1.0 million (RMB7,300,000) (collectively $4.3 million, the “Sixth Debt”) to Mr. Yunfei Li, Mr. Ping Shen and Asia EVK, respectively.
On April 27, 2020, the Company entered into a cancellation agreement with Mr. Yunfei Li, Mr. Ping Shen and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Yunfei Li, Mr. Ping Shen and Asia EVK agreed to cancel the Sixth Debt in exchange for 2,062,619, 4,714,557 and 2,151,017 shares of common stock of the Company, respectively, at an exchange price of $0.48 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Sixth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.
On April 28, 2020, the Company entered into a third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On June 8, 2020, the Company entered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On June 10, 2020, the Company entered into a Fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 407,609 shares of the Company’s common stock, par value $0.001 per share to the Lender.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization (continued) |
Basis of Presentation and Organization (continued)
The Company is currently expanding its product lines and manufacturing capacity in its Dalian 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.
However, there can be no assurance that the Company will be successful in obtaining further financing. The Company expects that it will be able to secure more potential orders from the new energy market, especially from the electric car market and UPS market. The Company believes that with the booming future market demand in high power lithium ion products, theyit can continue as a going concern and return to profitability.
The accompanying condensed consolidated financial statements have been prepared assuming the Company 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 the Company’s ability to continue as a going concern.
Recently Issued Accounting StandardsRevenue Recognition
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330) – Simplifying the Measurement of Inventory,” which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
The Company adopted ASU 2015-11 effective January 1, 2017 and it did not have a material effect on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transferrecognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to customers.receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU 2014-09 will replace most existingNo. 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 recognition guidancereserves, which are classified as a reduction in U.S. GAAP when it becomes effective. 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.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
1. | Principal Activities, Basis of Presentation and Organization (continued) |
Recently Adopted Accounting Standards
In July 2015,August 2018, the FASB approved a one-year deferral ofissued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the effective date ofDisclosure Requirements for Fair Value Measurement, which modifies the new revenue recognition standard.disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The amendments in ASU 2014-09 areguidance is effective for public companies for fiscal years beginning after December 15, 2017, including2019, and interim periods within those fiscal years. The standard permits the use of either the retrospectiveyears, with early adoption permitted for any eliminated or cumulative effect transition method. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These ASUs clarify the implementation guidance on a few narrow areas and adds some practical expedients to the guidance Topic 606. The Company is evaluating the effect the ASUs will have on its consolidated financial statements and relatedmodified disclosures. The Company has not yet selected a transition method nor has it determinedapplied the effect of these standards on its ongoing financial reporting.new standard beginning January 1, 2020.
|
Basis of Presentation and OrganizationRecently Issued Accounting Standards(continued)
In June 2016, the FASB issued Accounting Standards Update(“ASU”)ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326),: which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidanceAdoption of the ASUs is on a modified retrospective basis. As a smaller reporting company, the standard will be effective for fiscal years,the Company for interim and interimannual reporting periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.2022. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
In August 2016,December 2019, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies2019-12, Simplifying the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effectiveAccounting for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16—Income Taxes, (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improveswhich simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the income tax consequences of intra-entity transfers of assets other than inventory. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU to have a significant impact on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control. The amendments in this ASU change how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The adoption of this ASU did not have a material impact on its consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update 2016-18 (ASU 2016-18), Statement of Cash Flows: Restricted Cash. This ASU provides guidance on the classification of restricted cash in the statement of cash flows. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The amendments in the ASU should be adopted on a retrospective basis. The Company does not expect that adoption of this ASU to have a material effect on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of addingcurrent guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses.promote consistent application among reporting entities. The standardguidance is effective for fiscal years beginning after December 15, 2017, including2020, and interim periods within those fiscal years. Earlyyears, with early adoption is permitted. The standard should be applied prospectively on or afterUpon adoption, the effective date. The Company will evaluate the impactmust apply certain aspects of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Testretrospectively for Goodwill Impairment. The guidance removes Step 2all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now bebeginning of the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amountfiscal year of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The amendments clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments in this update are effective at the same time as the amendments in ASU 2014-09.adoption. The Company is evaluating the effectimpact this ASUupdate will have on its consolidated financial statements and related disclosures.statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new guidance is effective prospectively for us for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted. The Company is evaluating the effects, if any, of the adoption of this guidance on our financial position, results of operations and cash flows.
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.
|
Pledged deposits as of December 31, 2016 and September 30, 2017consisted of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Pledged deposits for: | |||||||
Bills payable | $ | 3,064,155 | $ | 692,419 | |||
Others * | 1,213,989 | 1,266,855 | |||||
| $ | 4,278,144 | $ | 1,959,274 |
*On July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against Dalian BAK Power in the Peoples’ Court of Zhuanghe City, Dalian for the failure to pay pursuant to the terms of the contract and entrusted part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,266,850(RMB 8,430,792), including construction costs of $0.9 million (RMB6.3 million), interest of $30,766 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million). On September 7, 2016, upon the request of Shenzhen Huijie, the Court froze Dalian BAK Power’s bank deposits totaling $1,266,855(RMB 8,430,792) for a period of one year. Further on September 1, 2017, upon the request of Shenzhen Huijie, the Court froze the bank deposits for another one year until August 31, 2018.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
2. | Pledged deposits |
Pledged deposits as of December 31, 2019 and March 31, 2020 consisted of the following:
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Pledged deposits with bank for: | ||||||||
Bills payable | $ | 4,021,255 | $ | 3,954,858 | ||||
Others* | 1,499,736 | 1,384,256 | ||||||
$ | 5,520,991 | $ | 5,339,114 |
* | 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 for the failure to pay pursuant to the terms of the contract and for entrusting part of the project to a third party without their prior consent. The plaintiff sought a total amount of $1,190,807 (RMB8,430,792), including construction costs of $0.9 million (RMB6.3 million), interest of $28,249 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million), which were already accrued for as of September 30, 2016. On September 7, 2016, upon the request of Shenzhen Huijie, the Court froze CBAK Power’s bank deposits totaling $1,190,807 (RMB8,430,792) for a period of one year. Further on September 1, 2017, upon the request of Shenzhen Huijie, the Court froze the bank deposits for another year until August 31, 2018. The Court further froze the bank deposits for another year until August 27, 2019 upon the request of Shenzhen Huijie on August 27, 2018. On August 27, 2019, the Court again froze the bank deposits for another year until August 27, 2020, upon the request of Shenzhen Huijie. On July 25, 2019, CBAK Power received notice from Shenzhen Court of International Arbitration that Shenzhen Xinjiatuo Automobile Technology Co., Ltd filed arbitration against the Company for the failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.16 million (RMB1,112,269), including equipment cost of $0.14 million (RMB976,000) and interest of $0.02 million (RMB136,269). As of March 31, 2020, the Company has accrued for the equipment cost of $0.14 million (RMB976,000). On August 9, 2019, upon the request of Shenzhen Xinjiatuo Automobile Technology Co., Ltd, Shenzhen Court of International Arbitration froze CBAK Power’s bank deposits totaling $0.16 million (RMB1,117,269) for a period of one year to August 2020. In early September 2019, several employees of CBAK Suzhou files arbitration with Suzhou Industrial Park Labor Disputes Arbitration Commission against CBAK Suzhou for failure to pay their salaries in time. The employees seek for a payment including salaries of $90,165 (RMB 638,359) and compensation of $76,696 (RMB 543,000), totaling $0.17 million (RMB 1,181,359). In addition, upon the request of the employees, the court of Suzhou Industrial Park ruled that bank deposits of CBAK Suzhou totaling $0.17 million (RMB 1,181,359) should be frozen for a period of one year. In February 2020, the Company has fully repaid the salaries and compensation. As of March 31, 2020, $6 (RMB43) was frozen by bank. In November 2019, CBAK Suzhou received notice from Court of Suzhou city that Suzhou Industrial Park Security Service Co., Ltd (“Suzhou Security”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $19,734 (RMB139,713), including services expenses amount of $19,620 (RMB138,908) and interest of $114 (RMB805). Upon the request of Suzhou Security for property preservation, the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB 150,000) for a period of one year. As of March 31, 2020, $31 (RMB218) was frozen by bank and the Company had accrued the service cost of $19,734 (RMB139,713). In December 2019, CBAK Power received notice from Court of Zhuanghe that Dalian Construction Electrical Installation Engineering Co., Ltd. (“Dalian Construction”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the construction contract. Dalian Construction sought a total amount of $97,612 (RMB691,086) and interest $1,827 (RMB12,934). As of December 31, 2019, the Company has accrued the construction cost of $97,612 (RMB691,086). Upon the request of Dalian Construction for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $99,439 (RMB704,020) for a period of one year to December 2020. As of December 31, 2019, $93,397 (RMB661,240) was frozen by bank. In January 2020, CBAK Power and Dalian Construction have come to a settlement, and the bank deposit was then released. In February 2020, CBAK Power received notice from Court of Zhuanghe that Dongguan Shanshan Battery Material Co., Ltd (“Dongguan Shanshan”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Dongguan Shanshan sought a total amount of $0.6 million (RMB 4,434,209), which was already accrued for as of December 31, 2019. Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.6 million (RMB4,434,209) for a period of one year to December 17, 2020. As of March 31, 2020, $32,979 (RMB233,490) was frozen by bank. On March 20, 2020, CBAK Power received notice from Court of Nanpi County, Hebei Province that Cangzhou Huibang Engineering Manufacturing Co., Ltd (“Cangzhou Huibang”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.3 million (RMB 2,029,594), including materials purchase cost of $0.3 million (RMB 1,932,947), and interest of $13,651 (RMB 96,647). As of March 31, 2020, the Company has accrued materials purchase cost of $0.3 million (RMB1,932,947). Upon the request of Cangzhou Huibang for property preservation, the Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $ 0.3 million (RMB 2,029,594) for a period of one year to March 3, 2020. As of March 31, 2020, the Company has accrued materials purchase cost of $0.3 million (RMB1,932,947). As of March 31, 2020, $2,622 (RMB18,562) was frozen by bank. |
15
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
3. | Trade Accounts and Bills Receivable, net |
Trade accounts and bills receivable as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Trade accounts receivable | $ | 5,169,593 | $ | 19,723,861 | |||
Less: Allowance for doubtful accounts | (2,761,144 | ) | (3,250,856 | ) | |||
| 2,408,449 | 16,473,005 | |||||
Bills receivable (Note 1) | 59,938 | 14,104,194 | |||||
| $ | 2,468,387 | $ | 30,577,199 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Trade accounts receivable | $ | 12,517,626 | $ | 15,893,702 | ||||
Less: Allowance for doubtful accounts | (4,650,686 | ) | (5,237,564 | ) | ||||
7,866,940 | 10,656,138 | |||||||
Bills receivable | 85,480 | 83,187 | ||||||
$ | 7,952,420 | $ | 10,739,325 |
Included in trade accounts and bills receivables are retention receivables of $2,159,356 and $2,123,701 as of December 31, 2019 and March 31, 2020. Retention receivables are interest-free and recoverable at the end of the retention period of three to five years.
An analysis of the allowance for doubtful accounts is as follows:
| September 30, | September 30, | |||||
| 2016 | 2017 | |||||
Balance at January 1 | $ | 165,441 | $ | 2,761,144 | |||
Provision for the period | 2,786,928 | 442,663 | |||||
Reversal by cash for the period | (54,118 | ) | (81,446 | ) | |||
Charged to consolidated statements of operations and comprehensive loss | 2,732,810 | 361,217 | |||||
Foreign exchange adjustment | (60,274 | ) | 128,495 | ||||
Balance at September 30 | $ | 2,837,977 | $ | 3,250,856 |
March 31, | March 31, | |||||||
2019 | 2020 | |||||||
Balance at beginning of period | $ | 3,657,173 | $ | 4,650,686 | ||||
Provision for the period | 241,549 | 871,483 | ||||||
Reversal – recoveries by cash | (170,387 | ) | (198,297 | ) | ||||
Charged to consolidated statements of operations and comprehensive (loss) income | 71,162 | 673,186 | ||||||
Foreign exchange adjustment | 91,389 | (86,308 | ) | |||||
Balance at end of period | $ | 3,819,724 | $ | 5,237,564 |
4. | Inventories |
Inventories as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Raw materials | $ | 2,570,942 | $ | 1,999,072 | |||
Work in progress | 1,333,949 | 4,756,237 | |||||
Finished goods | 13,190,031 | 11,491,962 | |||||
| $ | 17,094,922 | $ | 18,247,271 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Raw materials | $ | 482,836 | $ | 598,039 | ||||
Work in progress | 1,254,490 | 1,718,101 | ||||||
Finished goods | 6,929,388 | 5,113,489 | ||||||
$ | 8,666,714 | $ | 7,429,629 |
During the three months ended September 30, 2016March 31, 2019 and 2017,2020, write-downs of obsolete inventories to lower of cost or net realizable valuemarket of $83,650$62,772 and $360,778,$409,062, respectively, were charged to cost of revenues.
During the nine months ended September 30, 2016 and 2017, write-downs of obsolete inventories to lower of cost or net realizable value of $296,943 and $1,359,181, respectively, were charged to cost of revenues.
5. | Prepayments and Other Receivables |
Prepayments and other receivables as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Value added tax recoverable | $ | 6,238,056 | $ | 6,390,365 | |||
Prepayments to suppliers | 148,247 | 269,708 | |||||
Deposits | 28,763 | 77,019 | |||||
Staff advances | 46,572 | 121,195 | |||||
Prepaid operating expenses | 220,713 | 371,190 | |||||
Advances to unrelated parties | - | 343,132 | |||||
| 6,682,351 | 7,572,609 | |||||
Less: Allowance for doubtful accounts | (7,000 | ) | (7,000 | ) | |||
| $ | 6,675,351 | $ | 7,565,609 |
Advances to unrelated parties were unsecured, non-interest bearing and repayable on demand.
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Value added tax recoverable | $ | 4,124,624 | $ | 3,930,095 | ||||
Prepayments to suppliers | 60,090 | 150,244 | ||||||
Deposits | 63,184 | 34,745 | ||||||
Staff advances | 53,731 | 45,413 | ||||||
Prepaid operating expenses | 317,151 | 327,749 | ||||||
Others | 124,133 | 157,921 | ||||||
4,742,913 | 4,646,167 | |||||||
Less: Allowance for doubtful accounts | (7,000 | ) | (7,000 | ) | ||||
$ | 4,735,913 | $ | 4,639,167 |
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
6. | Payables to Former Subsidiaries |
Payable to former subsidiaries as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
BAK Tianjin | $ | 194,744 | $ | 168,581 | |||
Shenzhen BAK | 2,294,085 | 15,919,505 | |||||
| 2,488,829 | 16,088,086 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
BAK Tianjin | $ | - | $ | 10,288 | ||||
BAK Shenzhen | 1,483,352 | 1,394,391 | ||||||
Shenzhen BAK (note 1) | - | 4,279,722 | ||||||
1,483,352 | 5,684,401 |
Balance as of December 31, 20162019 and September 30, 2017primarilyMarch 31, 2020 consisted of payables for purchase of inventories from BAK Tianjin, BAK Shenzhen and Shenzhen BAK. From time to time, the Company purchased products from these former subsidiaries that they did not produce to meet the needs of its customers.
As of December 31, 2016 and September 30, 2017, payables to Shenzhen BAK also consisted of advances from Shenzhen BAK of $nil and $2,104,000, respectively. The balance was unsecured, non-interest bearing and repayable by December 31, 2017.
7. | Property, Plant and Equipment, net |
Property, plant and equipment as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Buildings | $ | 16,877,909 | $ | 24,419,965 | |||
Machinery and equipment | 4,473,631 | 13,138,140 | |||||
Office equipment | 96,655 | 156,888 | |||||
Motor vehicles | 193,165 | 201,577 | |||||
| 21,641,360 | 37,916,570 | |||||
Accumulated depreciation | (1,630,457 | ) | (2,713,394 | ) | |||
Carrying amount | $ | 20,010,903 | $ | 35,203,176 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Buildings | $ | 27,262,301 | $ | 26,812,159 | ||||
Machinery and equipment | 22,719,932 | 22,344,791 | ||||||
Office equipment | 204,196 | 200,824 | ||||||
Motor vehicles | 161,980 | 159,305 | ||||||
50,348,409 | 49,517,079 | |||||||
Impairment | (4,126,152 | ) | (4,058,023 | ) | ||||
Accumulated depreciation | (8,044,692 | ) | (8,485,131 | ) | ||||
Carrying amount | $ | 38,177,565 | $ | 36,973,925 |
During the three months period ended September 30, 2016March 31, 2019 and 2017,2020, the Company incurred depreciation expense of $286,836$674,847 and $368,630,$581,491, respectively.
During the nine months period ended September 30, 2016 and 2017, the Company incurred depreciation expense of $858,510 and $989,325, respectively.
The Company has not yet obtained the property ownership certificates of the buildings in its Dalian manufacturing facilities with a carrying amount of $16,178,549$24,671,045 and $23,310,165as$24,075,465 as of December 31, 20162019 and September 30, 2017,March 31, 2020, 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. As soon as the Chinese government completes its formalities, the Company will obtain the ownership certificates. As of September 30, 2017, the Company had the permission to obtain the ownership certificate of the completed buildings, however, as the Company is in the process to obtain additional loans from Bank of Dandong which requires the Company to pledge more buildings including the constructions in progress of Dalian site, if the Company obtained the ownership certificate of the completed buildings, the remaining buildings which are still under construction in progress will not be pledged until all of the buildings complete the construction. The Company and Bank of Dandong decided to delay the acquisition of the ownership certificate of the completed buildings.
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 of its property, plantduring the three months ended March 31, 2019 and equipment as of December 31, 2016 and September 30, 2017.2020.
8. | Construction in Progress |
Construction in progress as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Construction in progress | $ | 33,277,338 | $ | 21,617,201 | |||
Prepayment for acquisition of property, plant and equipment | 179,705 | 435,746 | |||||
Carrying amount | $ | 33,457,043 | $ | 22,052,947 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Construction in progress | $ | 21,613,577 | $ | 21,710,182 | ||||
Prepayment for acquisition of property, plant and equipment | 94,047 | 149,168 | ||||||
Carrying amount | $ | 21,707,624 | $ | 21,859,350 |
Construction in progress as of December 31, 20162019 and September 30, 2017March 31, 2020 was mainly comprised of capital expenditures for the construction of the facilities and production lines of Dalian BAKCBAK Power.
For the three months ended September 30, 2016March 31, 2019 and 2017,2020, the Company capitalized interest of $314,220$350,672 and $346,962$316,168, respectively, to the cost of construction in progress.
For the nine months ended September 30, 2016 and 2017, the Company capitalized interest of $798,210 and $1,050,474 ,respectively, to the cost of construction in progress.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
|
9. | Right-of-use assets |
Prepaid land use rights as of DecemberMarch 31, 2016 and September 30, 20172020 consisted of the followings:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Prepaid land use rights | $ | 8,089,516 | $ | 8,441,790 | |||
Accumulated amortization | (390,993 | ) | (534,647 | ) | |||
| $ | 7,698,523 | $ | 7,907,143 | |||
Less: Classified as current assets | (161,790 | ) | (168,836 | ) | |||
| $ | 7,536,733 | $ | 7,738,307 |
Pursuant
Prepaid land | ||||
lease payments | ||||
Balance as of January 1, 2020 | $ | 7,194,195 | ||
Amortization charge for the period | (40,244 | ) | ||
Foreign exchange adjustment | (118,218 | ) | ||
Balance as of March 31, 2020 | $ | 7,035,733 |
Lump sum payments was made upfront to aacquire the leased land use rights acquisition agreement dated August 10, 2014,from the Company acquired the rights to use a piece of landowners with an area of 153,832m2in Dalian Economic Zonelease period for 50 years up to August 9, 2064, at a total considerationand no ongoing payments will be made under the terms of $7,974,575 (RMB53.1 million). Other incidental costs incurred totaled $467,214 (RMB3.1 million).these land leases.
Amortization expenses of the prepaid land use rights were $42,111 and $42,085 for the three months ended September 30, 2016 and 2017 and $128,044 and $123,797 for the nine months ended September 30, 2016 and 2017, respectively.
10. | Intangible Assets, net |
Intangible assets as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the followings:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Computer software at cost | $ | 25,613 | $ | 26,728 | |||
Accumulated amortization | (4,269 | ) | (6,459 | ) | |||
| $ | 21,344 | $ | 20,269 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Computer software at cost | $ | 30,648 | $ | 30,142 | ||||
Accumulated amortization | (15,470 | ) | (16,498 | ) | ||||
$ | 15,178 | $ | 13,644 |
Amortization expenses were $667$1,574 and $666$1,301 for the three months ended September 30, 2016March 31, 2019 and 2017 and $2,026 and $1,959 for the nine months ended September 30, 2016 and 2017,2020, respectively.
11. | Trade Accounts and Bills Payable |
Trade accounts and bills payable as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the followings:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Trade accounts payable | $ | 8,308,753 | $ | 19,606,214 | |||
Bills payable | |||||||
- Bank acceptance bills (Note 1) | 6,128,310 | 13,947,484 | |||||
- Commercial acceptance bills | 1,143,592 | 1,439,158 | |||||
| $ | 15,580,655 | $ | 34,992,856 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Trade accounts payable | $ | 11,157,014 | $ | 10,801,796 | ||||
Bills payable | ||||||||
– Bank acceptance bills | 3,915,094 | 3,883,077 | ||||||
– Commercial acceptance bills | - | - | ||||||
$ | 15,072,108 | $ | 14,684,873 |
All the bills payable are of trading nature and will mature within six monthsone year from the issue date.
The bank acceptance bills were pledged by the Company’s bank deposits (Note 2).
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
|
12. | Loans |
Bank loans:
Bank borrowings as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the followings
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Short-term bank borrowings | $ | 1,439,947 | $ | - | |||
Long-term bank borrowings | 18,258,528 | 19,053,630 | |||||
| $ | 19,698,475 | $ | 19,053,630 |
December 31, 2019 | March 31, 2020 | |||||||
Short-term bank loan | $ | 5,730,289 | $ | 5,635,673 | ||||
Current maturities of long-term bank loans | 10,844,463 | 10,665,405 | ||||||
Long-term bank borrowings | 9,519,029 | 9,361,855 | ||||||
$ | 26,093,781 | $ | 25,662,933 |
On June 10 and 15, 2016,4, 2018, the Company repaid Bank of Dandong the one-year short term loans of RMB30 million and RMB50 million, respectively, obtained under its banking facilities in June 2015. On June 14, 2016, the Company renewed its banking facilities from China Everbright Bank of Dandong to provideDalian Branch with a maximum amount of RMB130RMB200 million (approximately $19.5$28.3 million), including with the term from June 12, 2018 to June 10, 2021, bearing interest at 130% of benchmark rate of the People’s Bank of China (“PBOC”) for three-year long-term loans, at current rate 6.175% per annum. The loans are repayable in six installments of RMB0.8 million ($0.11 million) on December 10, 2018, RMB24.3 million ($3.43 million) on June 10, 2019, RMB0.8 million ($0.11 million) on December 10, 2019, RMB74.7 million ($10.6 million) on June 10, 2020, RMB0.8 million ($0.11 million) on December 10, 2020 and three-year revolving bank acceptance and letters of credit bills for the period fromRMB66.3 million ($9.4 million) on June 13, 2016 to June 12, 2019.10, 2021. Under the banking facilities, from June to September 2016, the Company borrowed various three-year bank loans that totaled RMB126.8RMB141.8 million (approximately $19.1$20.03 million) as of March 31, 2020. The facilities were secured by the Company’s land use rights, buildings, machinery and equipment. The Company repaid the bank loan of RMB0.8 million ($0.11 million), bearing fixed interest at 7.2% per annum. The banking facilities were guaranteed by Mr. Xianqian Li, our former CEO, Ms. Xiaoqiu Yu, the wife of the Company’s former CEO, Shenzhen BAK, Mr. Yunfei Li, the Company’s CEO,RMB24.3 million ($3.43 million) and Ms. Qinghui Yuan, Mr. Yunfei Li’s wife.RMB0.8 million ($0.11 million) on December 2018, June 2019 and December 2019 respectively.
On July 6, 2016,June 28, 2020, the Company obtained new banking facilities fromentered into a supplemental agreement with China Everbright Bank of Dalian Branch to provide a maximum loan amount of RMB10change the repayment schedule. According to the agreement, RMB141.8 million (approximately $1.5$20.03 million) loans are repayable in eight instalments consisting of RMB1.09 million ($0.15 million) on June 10, 2020, RMB 1 million ($0.14 million) on December 10, 2020, RMB2 million ($0.28 million) on January 10, 2021, RMB2 million ($0.28 million) on February 10, 2021, RMB2 million ($0.28 million) on March 10, 2021, RMB2 million ($0.28 million) on April 10, 2021, RMB2 million ($0.28 million) on May 10, 2021, and bank acceptance of RMB40RMB129.7 million (approximately $6.0($18.3 million) to July 2017.on June 10, 2021, respectively. The banking facilities were guaranteed by Shenzhen BAK, Mr. Yunfei Li, our CEO, and Ms. Qinghui Yuan, Mr. Yunfei Li’s wife. On July 6, 2016,Company repaid RMB1.09 million ($0.15 million) on June 28, 2020.
Further, in August 2018, the Company borrowed a total of RMB60 million (approximately $8.5 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until August 14, 2019, which was secured by the Company’s cash totaled $8.5 million. The Company discounted these two bills payable of even date to China Everbright Bank at a rate of 4.0%. The Company repaid these bills payable in August 2019.
On August 22, 2018, the Company obtained one-year term bank loanfacilities from China Everbright Bank Dalian Branch with a maximum amount of RMB10RMB100 million (approximately $1.5$14.1 million), bearing fixed interest including revolving loans, trade finance, notes discount, and acceptance of commercial bills etc. Any amount drawn under the facilities requires security in the form of cash or banking acceptance bills receivables of at 6.525% per annum. On July 5, 2017,least the same amount. Under the facilities, as of December 31, 2018, the Company borrowed a series of bank acceptance bills totaled RMB28.8 million (approximately $4.1 million) for a term until March 7, 2019, which was secured by bills receivable of $4.1 million. The Company repaid the loanbank acceptance bills on March 7, 2019.
In November 2018, the Company borrowed a total of RMB10RMB100 million (approximately $1.5$14.1 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until November 12, 2019, which was secured by the Company’s cash totaled RMB 50 million (approximately $7.1 million) and the 100% equity in CBAK Power held by BAK Asia. The Company discounted the bills payable of even date to China Everbright Bank at a rate of 4.0%. The Company repaid these bills payable in November 2019.
The Company also borrowed a series of acceptance bills from Industrial Bank Co., Ltd. Dalian Branch totaled RMB1.5 million (approximately $0.2 million) for various terms through May 21, 2019, which was still in progress to renewsecured by bills receivable of RMB1.5 million (approximately $0.2 million). The Company repaid the bank facilities.acceptance bills on May 21, 2019.
In October 2019, the Company borrowed a total of RMB28 million (approximately $4.0 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until October 15, 2020, which was secured by the Company’s cash totaled RMB28 million (approximately $4.0 million). The Company discounted these bills payable of even date to China Everbright Bank at a rate of 3.30%.
In December 2019, the Company obtained banking facilities from China Everbright Bank Dalian Friendship Branch totaled RMB39.9 million (approximately $5.6 million) for a term until November 6, 2020, bearing interest at 5.655% per annum. The facility was secured by 100% equity in CBAK Power held by BAK Asia and buildings of Hubei BAK Real Estate Co., Ltd., which Mr. Yunfei Li (“Mr. Li”), the Company’s CEO holding 15% equity interest. Under the facilities, the Company borrowed RMB39.9 million (approximately $5.6 million) on December 30, 2019.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
12. | Loans (continued) |
The bank loansfacilities were also secured by the Company’s assets with the following carrying amounts:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Pledged deposits (note 2) | $ | 3,064,155 | $ | 692,419 | |||
Prepaid land use rights (note 9) | 7,698,523 | 7,907,143 | |||||
Buildings | 11,729,172 | 18,252,861 | |||||
Machinery and equipment | 2,598,882 | 2,754,734 | |||||
Construction in progress | 6,156,488 | 94,231 | |||||
| $ | 31,247,220 | $ | 29,701,388 |
December 31, 2019 | March 31, 2020 | |||||||
Pledged deposits (note 2) | $ | 4,021,255 | $ | 3,954,858 | ||||
Right-of-use assets (note 9) | 7,194,195 | 7,035,733 | ||||||
Buildings | 17,683,961 | 17,257,055 | ||||||
Machinery and equipment | 7,196,810 | 6,888,037 | ||||||
$ | 36,096,221 | $ | 35,135,683 |
As of September 30, 2017,March 31, 2020, the Company had unutilized committed banking facilities of $10.3 million (Note 1).$6.8 million.
During the three months ended September 30, 2016March 31, 2019 and 2017,2020, interest of $314,220$381,275 and $346,962,$397,206, respectively, was incurred on the Company'sCompany’s bank borrowings.
During the nine months ended September 30, 2016 and 2017, interest of $798,210 and $1,050,474, respectively, was incurred on the Company's bank borrowings.
Other Short-term Loans
Other short-term loans as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the following:
| December 31, | September 30, | ||||||||
| Note | 2016 | 2017 | |||||||
Advance from related parties | ||||||||||
– Tianjin BAK New Energy Research Institute Co., Ltd (“Tianjin New Energy”) | (a) | $ | 9,252,127 | $ | 10,228,290 | |||||
– Mr. Xiangqian Li, the Company’s Former CEO | (b) | 100,000 | 100,000 | |||||||
– Shareholders | (c) | - | 2,103,714 | |||||||
| 9,352,127 | 12,432,004 | ||||||||
Advances from unrelated third party | ||||||||||
– Mr. Guozhu Liang | (d) | $ | 14,399 | - | ||||||
– Mr. Wenwu Yu | (d) | 145,410 | 151,742 | |||||||
– Mr. Mingzhe Li | (d) | 796,850 | 43,278 | |||||||
– Ms. Longqian Peng | (d) | 215,992 | 676,193 | |||||||
| 1,172,651 | 871,213 | ||||||||
| ||||||||||
| $ | 10,524,778 | $ | 13,303,217 |
December 31, | March 31, | |||||||||
Note | 2019 | 2020 | ||||||||
Advance from related parties | ||||||||||
– Mr. Xiangqian Li, the Company’s Former CEO | (a) | 100,000 | 100,000 | |||||||
– Mr. Yunfei Li | (b) | 212,470 | 411,083 | |||||||
– Shareholders | (c) | 86,679 | 85,248 | |||||||
399,149 | 596,331 | |||||||||
Advances from unrelated third party | ||||||||||
– Mr. Wenwu Yu | (d) | 30,135 | 29,637 | |||||||
– Mr. Longqian Peng | (d) | 646,273 | 635,602 | |||||||
– Mr. Shulin Yu | (e) | 517,018 | 508,482 | |||||||
– Jilin Province Trust Co. Ltd | (f) | 5,687,204 | 3,418,127 | |||||||
– Suzhou Zhengyuanwei Needle Ce Co., Ltd | (g) | 71,808 | 70,622 | |||||||
6,952,438 | 4,662,470 | |||||||||
$ | 7,351,587 | $ | 5,258,801 |
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
12. | Loans (continued) |
(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) | The In 2019, according to the investment agreements and agreed by the investors, the Company returned partial earnest money of $943,015 (approximately RMB6.7 million) to these investors. On October 14, 2019, the Company entered into a cancellation agreement with Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen agreed to cancel and convert the Fifth Debt (note 1) and the Unpaid Earnest Money in exchange for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of $0.6 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Fifth Debt and the Unpaid Earnest Money. As of March 31, 2020, earnest money of $85,248 remained outstanding. | |
(d) | Advances from unrelated third parties were unsecured, non-interest bearing and repayable on demand. |
(e) | On June 25, 2019, the Company entered into a loan agreement with Mr. Shulin Yu, an unrelated party, to loan RMB3.6 million (approximately $0.5 million) for a term of one year, bearing annual interest of 10% and the repayment was guaranteed by Mr. Yunfei Li (the Company’s CEO) and Mr. Wenwu Wang (the Company’s former CFO). As of March 31, 2020, the Company borrowed RMB3.6 million (approximately $0.5 million). On June 22, 2020, the Company and Mr. Shulin Yu entered into a supplemental agreement to extend the loan for one year to June 24, 2021. | |
(f) | In January 2019, the Company obtained one-year term facilities from Jilin Province Trust Co. Ltd. with a maximum amount of RMB40.0 million (approximately $5.7 million), which was secured by land use rights and buildings of Eodos Liga Energy Co., Ltd. Under the facilities, the Company borrowed a total of RMB39.6 million ($5.7 million) in 2019, bearing annual interest from 11.3% to 11.6%. The Company fully repaid the loan principal and accrued interest in March 2020. In March 2020, the Company obtained additional one-year term facilities from Jilin Province Trust Co. Ltd with a maximum amount of RMB40.0 million (approximately $5.7 million), which was secured by land use rights and buildings of Eodos Liga Energy Co., Ltd. Under the facilities, the Company borrowed RMB24.2 million ($3.4 million) on March 13, 2020, bearing annual interest of 13.5%. | |
(g) | 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, 2020, loan amount of RMB0.5 million ($70,622) remained outstanding. |
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
13. | Accrued Expenses and Other Payables |
Accrued expenses and other payables as of December 31, 20162019 and September 30, 2017March 31, 2020 consisted of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Construction costs payable | $ | 7,322,941 | $ | 1,601,697 | |||
Equipment purchase payable | 8,229,828 | 8,161,826 | |||||
Liquidated damages (note a) | 1,210,119 | 1,210,119 | |||||
Accrued staff costs | 1,532,802 | 1,818,990 | |||||
Compensation costs (note 19(ii)) | 309,974 | 114,372 | |||||
Product warranty (note b) | 205,404 | 1,339,637 | |||||
Customer deposits | 62,231 | 24,412 | |||||
Other payables and accruals | 509,294 | 895,321 | |||||
| $ | 19,382,593 | $ | 15,166,374 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Construction costs payable | $ | 1,335,483 | $ | 1,316,883 | ||||
Equipment purchase payable | 7,440,131 | 7,566,645 | ||||||
Liquidated damages (note a) | 1,210,119 | 1,210,119 | ||||||
Accrued staff costs | 2,485,384 | 2,321,541 | ||||||
Compensation costs | 109,311 | 107,506 | ||||||
Customer deposits | 600,758 | 529,579 | ||||||
Other payables and accruals | 2,346,403 | 2,351,325 | ||||||
$ | 15,527,589 | $ | 15,403,598 |
(a) | On August 15, 2006, the SEC declared effective a post-effective amendment that the Company had filed on August 4, 2006, terminating the effectiveness of a resale registration statement on Form SB-2 that had been filed pursuant to a registration rights agreement with certain shareholders to register the resale of shares held by those shareholders. The Company subsequently filed Form S-1 for these shareholders. On December 8, 2006, the Company filed its Annual Report on Form 10-K for the year ended September 30, 2006 (the “2006 Form 10-K”). After the filing of the 2006 Form 10-K, the Company’s previously filed registration statement on Form S-1 was no longer available for resale by the selling shareholders whose shares were included in such Form S-1. Under the registration rights agreement, those selling shareholders became eligible for liquidated damages from the Company relating to the above two events totaling approximately $1,051,000. As of December 31, | |
| ||
|
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, 2019 and March 31, 2020, the Company had settled the liquidated damages with all the investors and the remaining provision of approximately $159,000 was included in other payables and accruals.
22
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
|
14. |
|
Deferred Government Grants |
Deferred government grants as of December 31, 20162019 and September 30, 2017March 31, 2020 consist of the following:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Total government grants | $ | 4,699,261 | $ | 4,792,449 | |||
Less: Current portion | (142,400 | ) | (148,602 | ) | |||
Non-current portion | $ | 4,556,861 | $ | 4,643,847 |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Total government grants | $ | 4,260,833 | $ | 4,155,559 | ||||
Less: Current portion | (142,026 | ) | (139,681 | ) | ||||
Non-current portion | $ | 4,118,807 | $ | 4,015,878 |
In September 2013, the Management Committee of Dalian Economic Zone Management Committee (the “Management Committee”) provided a subsidy of RMB150 million to finance the costs incurred in moving ourthe Company facilities to Dalian, including the loss of sales while the new facilities were being constructed. For the year ended September 30, 2015, the Company recognized $23,103,427 as income after offset of the related removal expenditures of $1,004,027. No such income or offset was recognized in fiscal 2016the three months ended March 31, 2019 and 2017.2020.
On October 17, 2014, the Company received a subsidy of RMB46.2 millionRMB46,150,000 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.
The Company offset government grants of $40,352$36,628 and $36,029$35,421 for the three months ended September 30, 2016March 31, 2019 and 2017 and $156,712 and $108,959 for the nine months ended September 30, 2016 and 2017,2020, respectively, against depreciation expenses of the Dalian facilities.
15. | Product Warranty Provision |
The Company maintains a policy of providing after sales support for certain of its new EV and LEV battery products introduced since October 1, 2015 by way of a warranty program. The limited cover covers a period of six to 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.
16. | Notes payable |
Notes payable as of December 31, 2019 and March 31, 2020 consist of the following:
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Notes payable, net of debt discount | $ | 2,846,736 | $ | 2,715,833 |
Note I
On July 24, 2019, the Company entered into a securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note I”) to the Lender. The Note has an original principal amount of $1,395,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,250,000 after an original issue discount of $125,000 and payment of Lender’s expenses of $20,000. Beginning on the date that is six months after July 24, 2019, Lender shall have the right, exercisable at any time in its sole and absolute discretion, to redeem any amount of this Note up to $250,000 per calendar month by providing written notice to Borrower. The Company recorded the $125,000 as debt discount and is being amortized as interest expense over 12 months period. The Company did not assign any value to the redemption feature of the Note because the redemption of the Note has no value on the redemption portion as of December 31, 2019 and March 31, 2020.
On January 27, 2020, the Company entered into an exchange agreement (the “First Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 160,256 shares of the Company’s common stock, par value $0.001 per share to the Lender.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
16. | Notes payable(continued) |
On February 20, 2020, the Company entered into a second exchange agreement (the “Second Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 207,641 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On April 28, 2020, the Company entered into a third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On June 8, 2020, the Company entered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On June 10, 2020, the Company entered into a fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 407,609 shares of the Company’s common stock, par value $0.001 per share to the Lender.
Note II
On December 30, 2019, the Company entered into a securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note II”) to the Lender. The Note has an original principal amount of $1,670,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,500,000 after an original issue discount of $150,000 and payment of Lender’s expenses of $20,000. Beginning on the date that is six months after June 30, 2020, Lender shall have the right, exercisable at any time in its sole and absolute discretion, to redeem any amount of this Note up to $250,000.00 per calendar month by providing written notice to Borrower. The Company recorded the $150,000 as debt discount and is being amortized as interest expense over 12 months period. The Company did not assign any value to the redemption feature of the Note because the redemption of the Note has no value on the redemption portion as of December 31, 2019 and March 31, 2020.
The Company recorded $31,597 and $32,318 to interest expense from the amortization of debt discount and coupon interest for Note I, respectively, for the three months ended March 31, 2020.
The Company recorded $37,500 and $42,081 to interest expense from the amortization of debt discount and coupon interest for Note II, respectively, for the three months ended March 31, 2020.
17. | Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities |
(a) | Income taxes in the condensed consolidated statements of comprehensive |
The Company’s provision for income taxes creditexpenses consisted of:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2016 | 2017 | 2016 | 2017 | |||||||||
PRC income tax: | |||||||||||||
Current | $ | 769,373 | $ | - $ | 769,373 | $ | - | ||||||
Deferred | (111,568 | ) | - | (168,860 | ) | - | |||||||
| $ | 657,805 | $ | - $ | 600,513 | $ | - |
Three months ended March 31, | ||||||||
2019 | 2020 | |||||||
PRC income tax: | ||||||||
Current | $ | - | $ | - | ||||
Deferred | - | - | ||||||
$ | - | $ | - |
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
17. | Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued) |
United States TaxChina BAK
CBAK is a Nevada corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of 35% under United Statespreviously deferred foreign earnings of Americacertain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump sum.
The U.S. Tax Reform also includes provisions for a new tax on GILTI effective for tax years of foreign corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations.
To the extent that portions of CBAK’s U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, the Company may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that CBAK receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations, CBAK will generally not be required to pay U.S. corporate income tax on those dividends. Any liabilities for U.S. corporate income tax will be accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments will be made when required by U.S. law.
No provision for income taxes in the United States or elsewhere has been made as China BAKCBAK had no taxable income for the three and nine months ended September 30, 2016March 31, 2019 and 2017.2020.
Hong Kong Tax
BAK Asia is subject to Hong Kong profits tax rate of 16.5% and did not have any assessable profits arising in or derived from Hong Kong for the three and nine months ended September 30, 2016March 31, 2019 and 20172020 and accordingly no provision for Hong Kong profits tax was made in these periods.
PRC Tax
The Company’s subsidiariesCIT Law in China are subject to enterpriseapplies an income tax atrate of 25% to all enterprises but grants preferential tax treatment to High-New Technology Enterprises. CBAK Power was regarded as a “High-new technology enterprise” pursuant to a certificate jointly issued by the relevant Dalian Government authorities. The certificate was valid for three years commencing from year 2018. Under the preferential tax treatment, CBAK Power was entitled to enjoy a tax rate of 15% for the three and nine months ended September 30, 2016 and 2017.years from 2018 to 2020 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'sCompany’s income taxes is as follows:
| Three months ended September30, | Nine months ended September30, | |||||||||||
| 2016 | 2017 | 2016 | 2017 | |||||||||
Loss before income taxes | $ | (5,289,917 | ) | $ | (4,202,753 | ) | $ | (9,919,008 | ) | $ | (10,024,349 | ) | |
United States federal corporate income tax rate | 35% | 35% | 35% | 35% | |||||||||
Income tax credit computed at United States statutory corporate income tax rate | (1,851,472 | ) | (1,470,963 | ) | (3,471,653 | ) | (3,508,522 | ) | |||||
Reconciling items: | |||||||||||||
Rate differential for PRC earnings | 486,224 | 391,875 | 852,047 | 897,639 | |||||||||
Non-deductible expenses | 5,685 | 48,901 | 111,212 | 144,669 | |||||||||
Share based payments | 136,722 | 50,500 | 381,057 | 222,436 | |||||||||
ASC 740-10 uncertain tax position | 769,373 | - | 769,373 | - | |||||||||
Valuation allowance on deferred tax assets | 1,213,025 | 979,687 | 2,039,655 | 2,243,778 | |||||||||
Over provision of deferred taxation in prior year | (96,793 | ) | - | (96,793 | ) | - | |||||||
Others | (4,959 | ) | - | 15,615 | - | ||||||||
Income tax expenses | $ | 657,805 | $ | - | $ | 600,513 | $ | - |
Three months ended March 31, | ||||||||
2019 | 2020 | |||||||
Loss before income taxes | $ | (2,807,333 | ) | $ | (2,354,111) | |||
United States federal corporate income tax rate | 21 | % | 21 | % | ||||
Income tax credit computed at United States statutory corporate income tax rate | (589,540 | ) | (494,363) | |||||
Reconciling items: | ||||||||
Rate differential for PRC earnings | (99,031 | ) | (69,225) | |||||
Non-deductible expenses | 65,802 | 67,679 | ||||||
Share based payments | 3,826 | 63,028 | ||||||
Valuation allowance on deferred tax assets | 618,943 | 432,881 | ||||||
Income tax expenses | $ | - | $ | - |
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
17. | Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued) |
A reconciliation of the provision for income taxes determined at the statutory income tax rate to the Company’s income taxes is as follows:
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, 20162019 and September 30, 2017March 31, 2020 are presented below:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
Deferred tax assets | |||||||
Trade accounts receivable | $ | 748,949 | $ | 978,942 | |||
Inventories | 254,852 | 613,512 | |||||
Property, plant and equipment | 373,287 | 389,542 | |||||
Provision for product warranty | 51,351 | 334,909 | |||||
Net operating loss carried forward | 38,055,264 | 39,303,013 | |||||
Valuation allowance | (39,483,703 | ) | (41,619,918 | ) | |||
Deferred tax assets, non-current | $ | - | $ | - | |||
Deferred tax liabilities, non-current | $ | - | $ | - |
December 31, | March 31, | |||||||
2019 | 2020 | |||||||
Deferred tax assets | ||||||||
Trade accounts receivable | $ | 1,225,916 | $ | 1,360,621 | ||||
Inventories | 1,026,483 | 940,801 | ||||||
Property, plant and equipment | 768,975 | 763,598 | ||||||
Provision for product warranty | 561,733 | 551,531 | ||||||
Net operating loss carried forward | 29,361,274 | 29,760,711 | ||||||
Valuation allowance | (32,944,381 | ) | (33,377,262) | |||||
Deferred tax assets, non-current | $ | - | $ | - | ||||
Deferred tax liabilities, non-current | $ | - | $ | - |
As of December 31, 20162019 and September 30, 2017,March 31, 2020, the Company’s U.S. entity had net operating loss carry forwards of $103,580,741, of which $102,293 available to reduce future taxable income which will expire in various years through 2035 and $103,478,448 available to offset capital gains recognized in the succeeding 5 tax years and the Company’s PRC subsidiaries had net operating loss carry forwards of $7,213,329$30,437,270 and $12,199,014,$32,035,020, respectively, which will expire in various years through 2021.2028. 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 was provided against the full amount of the potential tax benefits.
The Company did not provide for deferred income taxes and foreign withholding taxes on the cumulative undistributed earnings of foreign subsidiaries as of December 31, 2016 and September 30, 2017 of approximately of $2.0 million and $0 million, respectively. The cumulative distributed earnings of foreign subsidiaries were included in accumulated deficit and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes or applicable withholding taxes, related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if management concluded that such earnings will be remitted in the future.
According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.
The impact of an uncertain income tax positions on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities(continued) |
The significant uncertain tax position arose from the subsidies granted by the local government for the Company’s PRC subsidiary, which may be modified or challenged by the central government or the tax authority. A reconciliation of January 1, 20172020 through September 30, 2017March 31, 2020 amount of unrecognized tax benefits excluding interest and penalties ("(“Gross UTB"UTB”) is as follows:
| Gross UTB | Surcharge | Net UTB | |||||||
Balance as of January 1, 2017 | $ | 7,061,140 | $ | - | $ | 7,061,140 | ||||
Decrease in unrecognized tax benefits taken | ||||||||||
in current period | (321,598 | ) | - | (321,598 | ) | |||||
Balance as of September 30, 2017 | $ | 6,739,542 | $ | - | $ | 6,739,542 |
Gross UTB | Surcharge | Net UTB | ||||||||||
Balance as of January 1, 2020 | $ | 7,042,582 | $ | - | $ | 7,042,582 | ||||||
Increase in unrecognized tax benefits taken in current period | (116,284 | ) | - | (116,284 | ) | |||||||
Balance as of March 31, 2020 | $ | 6,926,298 | $ | - | $ | 6,926,298 |
As of December 31, 20162019 and September 30, 2017,March 31, 2020, the Company had not accrued any interest and penalties related to unrecognized tax benefits.
Share-based Compensation |
Restricted Shares
Restricted shares granted on June 30, 2015
On June 12, 2015, the Board of Director approved the China BAK Battery,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.
The Company recorded non-cash share-based compensation expense of $167,538 and $699,022 for
All the three and nine months ended September 30, 2016,restricted shares granted in respect of the restricted shares granted on June 30, 2015 respectively.
had been vested on March 31, 2018. The Company recorded non-cash share-based compensation expense of $54,320 and $230,305nil for three and nine months ended September 30, 2017, in respect of the restricted shares granted on June 30, 2015, respectively.March 31, 2019 and 2020.
As of September 30, 2017, non-vested restricted shares granted on June 30, 2015 are as follows:
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As of September 30, 2017,March 31, 2020, there was no unrecognized stock-based compensation of $50,960 associated with the above restricted shares. As of September 30, 2017, 165,000March 31, 2020, 1,667 vested shares were to be issued.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
|
18. | Share-based Compensation (continued) |
Restricted shares granted on April 19, 2016
On April 19, 2016, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) granted an aggregate of 500,000 restricted shares of the Company’s common stock, par value $0.001 (the “Restricted Shares”), 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.
The Company recorded non-cash share-based compensation expense of $223,095 and $389,711$18,219 for the three and nine months ended September 30, 2016,March 31, 2019, in respect of the restricted shares granted on April 19, 2016, respectively.2016.
The Company recorded non-cash share-based compensation expense of $89,963 and $405,225nil for the three and nine months ended September 30, 2017,March 31, 2020, in respect of the restricted shares granted on April 19, 2016, respectively.2016.
As of September 30, 2017, non-vested restricted shares granted on April 19, 2016 are as follows:
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As of September 30, 2017,March 31, 2020, there was no unrecognized stock-based compensation of $330,623 associated with the above restricted shares. As of September 30, 2017, 1,003March 31, 2020, 4,167 vested shares were to be issued.
Restricted shares granted on August 23, 2019
On August 23, 2019, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee granted an aggregate of 1,887,000 restricted share units of the Company’s common stock to certain employees, officers and directors of the Company, of which 710,000 restricted share units were granted to the Company’s executive officers and directors. There are two types of vesting schedules, (i) the share units will vest semi-annually in 6 equal installments over a three year period with the first vesting on September 30, 2019; (ii) the share units will vest annual in 3 equal installments over a three year period with the first vesting on March 31, 2021. The fair value of these restricted shares was $0.9 per share on August 23, 2019. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting method.
The Company recorded non-cash share-based compensation expense of $300,135 for three months ended March 31, 2020, in respect of the restricted shares granted on August 23, 2019 of which $254,890, $9,125 and $36,120 were allocated to general and administrative expenses, sales and marketing expenses and research and development expenses.
As of March 31, 2020, non-vested restricted share units granted on August 23, 2019 are as follows:
Non-vested shares as of January 1, 2020 | 1,505,833 | |||
Granted | - | |||
Vested | (293,498) | |||
Forfeited | (58,333) | |||
Non-vested shares as of March 31, 2020 | 1,154,002 |
As of March 31, 2020, there was unrecognized stock-based compensation of $664,693 associated with the above restricted shares. As of March 31, 2020, 293,498 vested shares were to be issued.
As the Company itself is an investment holding company which is not expected to generate operating profits to realize the tax benefits arising from its net operating loss carried forward, no income tax benefits were recognized for such stock-based compensation cost under the stock option plan for the three and nine months ended September 30, 2016March 31, 2019 and 2017.2020.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
Loss Per Share |
The following is the calculation of loss per share:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2016 | 2017 | 2016 | 2017 | |||||||||
Net loss | $ | (5,947,722 | ) | $ | (4,202,753 | ) | $ | (10,519,521 | ) | $ | (10,024,349 | ) | |
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Weighted average shares used in basic and diluted computation (note) | 17,339,426 | 26,334,918 | 17,284,632 | 22,174,315 | |||||||||
| |||||||||||||
Loss per share | $ | (0.34 | ) | $ | (0.16 | ) | $ | (0.61 | ) | $ | (0.45 | ) |
Three months ended March 31, | ||||||||
2019 | 2020 | |||||||
Net loss | $ | (2,807,333 | ) | $ | (2,354,111 | ) | ||
Less: Net loss (profit) attributable to non-controlling interests | 19,941 | (5,870 | ) | |||||
Net loss attributable to shareholders of CBAK Energy Technology, Inc. | $ | (2,787,392 | ) | $ | (2,359,981 | ) | ||
Weighted average shares used in basic and diluted computation | 28,610,072 | 53,293,776 | ||||||
Loss per share – basic and diluted | $ | (0.10 | ) | $ | (0.04 | ) |
Note: | Including |
For the three and nine months ended September 30, 2016March 31, 2019 and 2017, 822,0002020, and 424,66684,830 and 1,154,002 unvested restricted shares were anti-dilutive and excluded from shares used in the diluted computation.
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
20. | Fair Value of Financial Instruments |
ASC Topic 820,Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | ||
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | ||
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, pledged deposits, trade accounts and bills receivable and payable, other receivables, balances with former subsidiaries, other short-term loans, short-term and long-term bank loans and other payables approximate their fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market rate of interest.
Commitments and Contingencies |
(i) | Capital Commitments |
As of December 31, 20162019 and September 30, 2017,March 31, 2020, the Company had the following contracted capital commitments:
| December 31, | September 30, | |||||
| 2016 | 2017 | |||||
For construction of buildings | $ | 2,225,978 | $ | 2,461,807 | |||
For purchases of equipment | 451,063 | 169,875 | |||||
Capital injection to Dalian BAK Power and Dalian BAK TradingNote | 9,895,996 | 400,000 | |||||
| $ | 12,573,037 | $ | 3,031,682 |
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(ii) | Litigation |
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Other than the legal proceeding set forth below, the Company is currently not aware of any such legal proceedings or claims that the Company believe will have an adverse effect on our business, 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 Dalian BAKCBAK Power in the Peoples’ Court of Zhuanghe City, Dalian, (the “Court of Zhuanghe”) for the failure to pay pursuant to the terms of the contract and entrusted part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,266,855(RMB$1,190,807 (RMB 8,430,792), including construction costs of $0.9 million (RMB6.3 million)(RMB6.1 million, which the Company already accrued for at June 30, 2016), interest of $30,972(RMB0.2$28,249 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million), which the Company already accrued for as of September 30, 2016.. On September 7, 2016, upon the request of Shenzhen Huijie for property preservation, the Court of Zhuanghe froze Dalian BAK’sCBAK Power’s bank deposits totaling $1,266,855$1,190,807 (RMB 8,430,792) for a period of one year. Further onOn September 1, 2017, upon the request of Shenzhen Huijie, the Court of Zhuanghe froze the bank deposits for another one year until August 31, 2018. The Court further froze the bank deposits for another one year until August 27, 2019 upon the request of Shenzhen Huijie on August 27, 2018. On August 27, 2019, the Court froze the bank deposits for another year until August 27, 2020, upon the request of Shenzhen Huijie.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
21. | Commitments and Contingencies (continued) |
On June 30, 2017, according to the trial of first instance, the courtCourt 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.million, the Company has accrued for these amounts as of December 31, 2017. On July 24, 2017, Dalian CBAK Power filed an appellate petition to theIntermediatePeoples’ Court of Dalian (“Court of Dalian)” to defend 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 did 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 $1,289,548 (RMB9,129,868). On May 20, 2019, the Court of Zhuanghe entered a judgment that Shenzhen Huijie should pay back to CBAK Power $250,616 (RMB 1,774,337) (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 $235,475 (RMB 1,667,146) (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 $29,564 (RMB 209,312.00) that CBAK Power has paid. As of March 31, 2020, the Company has already paid RMB 10,962,140 (approximately $1,548,347) and accrued $0.9 million (RMB 6.1 million) for the construction cost incurred and completed by Shenzhen Huijie.
In May 2017, CBAK Power filed a lawsuit in the Court of Zhuanghe against Pingxiang Anyuan Tourism Bus Manufacturing Co., Ltd., (“Anyuan Bus”) one of CBAK Power’s customers, for failure to pay pursuant to the terms of the sales contract. CBAK Power sought a total amount of RMB18,279,858 ($2,581,937), including goods amount of RMB17,428,000 ($2,461,617) and interest of RMB851,858 ($120,321). On December 19, 2017, the Court of Zhuanghe determined that Anyuan Bus should pay the goods amount of RMB17,428,000 ($2,461,617) and the interest until the goods amount was paid off, and a litigation fee of RMB131,480 ($18,571). Anyuan Bus did not appeal and as a result, the judgment is currently in the enforcement phase. On June 29, 2018, the Company filed application petition with the Court of Zhuanghe for enforcement of the judgement against all of AnyuanBus’ shareholders, including Jiangxi Zhixin Automobile Co., Ltd, Anyuan Bus Manufacturing Co., Ltd, Anyuan Coal Group Co., Ltd, Qian Ronghua, Qian Bo and Li Junfu. On October 22, 2018, the Court of Zhuanghe issued a judgment supporting the Company’s petition that all the AnyuanBus’ shareholders should be liable to pay the Company the debt as confirmed under the trial. On November 9, 2018, all the shareholders appealed against the judgment after receiving the notice from the Court. On March 29, 2019, the Company received judgment from the Court of Zhuanghe that all these six shareholders cannot be added as judgment debtors. On April 11, 2019, the Company have filed appellate petition to the Intermediate Peoples’ Court of Dalian challenging the judgment from the Court of Zhuanghe. On October 9, 2019, the Intermediate Peoples’ Court of Dalian dismissed the appeal by the Company and affirmed the original judgment.
As of December 31, 2019 and March 31, 2020, the Company had made a full provision against the receivable from Anyuan Bus of RMB 17,428,000 ($2,461,617).
On July 25, 2019, CBAK Power received notice from Shenzhen Court of International Arbitration that Shenzhen Xinjiatuo Automobile Technology Co., Ltd filed arbitration against the Company for the failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.16 million (RMB1,112,269), including equipment cost of $0.14 million (RMB976,000) and interest of $0.02 million (RMB136,269). As of March 31, 2020, the Company have accrued the equipment cost of $0.14 million (RMB976,000).
On August 9, 2019, upon the request of Shenzhen Xinjiatuo Automobile Technology Co., Ltd, Shenzhen Court of International Arbitration froze CBAK Power’s bank deposits totaling $0.16 million (RMB1,117,269), including equipment cost $0.14 million (RMB976,000), interest $0.02 million (RMB136,269) and litigation fees of $706 (RMB5,000) for a period of one year to August 2020. The Company believes that the plaintiff’s claims are without merit and are vigorously defending themselves in this proceeding.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
Commitments and Contingencies (continued) |
On August 7, 2019, CBAK Power filed counter claim arbitration against Shenzhen Xinjiatuo Automobile Technology Co., Ltd for return of the prepayment due to the unqualified equipment, and sought a total amount of $0.28 million (RMB1,986,400), including return of prepayment of $0.2 million (RMB1,440,000), liquidated damages of $67,798 (RMB480,000) and litigation fees of $9,384 (RMB66,440).
In November 2019, CBAK Suzhou received notice from Court of Suzhou city that Suzhou Industrial Park Security Service Co., Ltd (“Suzhou Security”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $19,734 (RMB139,713), including services expenses amount of $19,620 (RMB138,908) and interest of $114 (RMB805). Upon the request of Suzhou Security for property preservation, the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB 150,000) for a period of one year. As of March 31, 2020, $31 (RMB218) was frozen by bank and the Company had accrued the service cost of $19,734 (RMB139,713).
In December, 2019, CBAK Power received notice from Court of Zhuanghe that Dalian Construction Electrical Installation Engineering Co., Ltd. (“Dalian Construction”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the construction contract. Dalian Construction sought a total amount of $97,612 (RMB691,086) and interest $1,827 (RMB12,934). As of December 31, 2019, the Company has accrued the construction cost of $97,612 (RMB691,086). Upon the request of Dalian Construction for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $99,439 (RMB704,020) for a period of one year to December 2020. As of December 31, 2019, $93,397 (RMB661,240) was frozen by bank. In January 2020, CBAK Power and Dalian Construction have come to a settlement, and the bank deposit was then released.
In February 2020, CBAK Power received notice from Court of Zhuanghe that Dongguan Shanshan Battery Material Co., Ltd (“Dongguan Shanshan”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Dongguan Shanshan sought a total amount of $0.6 million (RMB 4,434,209), which have already been accrued for as of March 31, 2020. Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered freeze CBAK Power’s bank deposits totaling $0.6 million (RMB4,434,209) for a period of one year to December 17, 2020. As of March 31, 2020, $32,979 (RMB233,490) was frozen by bank.
On March 20, 2020, CBAK Power received notice from Court of Nanpi County, Hebei Province that Cangzhou Huibang Engineering Manufacturing Co., Ltd (“Cangzhou Huibang”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.3 million (RMB2,029,594), including materials purchase cost of $0.3 million (RMB 1,932,947), and interest of $13,651 (RMB96,647). As of March 31, 2020, the Company has accrued materials purchase cost of $0.3 million (RMB1,932,947).Upon the request of Cangzhou Huibang for property preservation, the Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $0.3 million (RMB 2,029,594) for a period of one year to March 3, 2020. As of March 31, 2020, $2,622 (RMB18,562) was frozen by bank.
In June 2020, CBAK Suzhou received notice from Court of Suzhou Industrial Park that Ligao (Shandong) New Energy Technology Co., Ltd (“Ligao”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Ligao sought a total amount of $10,961 (RMB77,599), including contract amount of $10,365 (RMB73,380) and interest of $596 (RMB4,219). As of March 31, 2020, the Company had accrued the material purchase cost of $10,961 (RMB77,599).
In June 2020, CBAK Suzhou received notice from Court of Yushui District, Xinyu City that Jiangxi Ganfeng Battery Technology Co., Ltd (“Ganfeng Battery”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Ganfeng Battery sought a total amount of $ 106,750 (RMB755,780), including contract amount of $103,534 (RMB733,009) and interest of $3,216 (RMB22,771). Upon the request of Ganfeng Battery for property preservation, the Court of Yushui froze CBAK Suzhou’s bank deposits totaling $108,758 (RMB769,994) for a period of one year. As of March 31, 2020, nil was frozen by bank and the Company had accrued the material purchase cost of $103,534 (RMB 733,009).
In June 2020, CBAK Suzhou received notice from Court of Suzhou Industrial Park that Suzhou Jihongkai Machine Equipment Co., Ltd (“Jihongkai”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Jihongkai sought contract amount of $24,820 (RMB175,722) and interest as accrued until settlement. As of March 31, 2020, the Company had accrued the material purchase cost of $24,820 (RMB175,722).
In early September, 2019, several employees of CBAK Suzhou files arbitration with Suzhou Industrial Park Labor Disputes Arbitration Commission against CBAK Suzhou for failure to pay their salaries in time. The employees seek for a payment including salaries of $90,165 (RMB638,359) and compensation of $76,696 (RMB543,000), totaling $0.17 million (RMB 1,181,359). In addition, upon the request of the employees for property preservation, bank deposit of $0.17 million (RMB 1,181,359) was frozen by the court of Suzhou for a period of one year. On September 5, 2019, CBAK Suzhou and the employees reached an agreement that CBAK Suzhou will pay these salaries and compensation. In February 2020, the Company fully repaid the salaries and compensation. As of March 31, 2020, $6 (RMB43) was frozen by bank.
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(Unaudited) (In US$ except for number of shares) |
22. | Concentrations and Credit Risk |
(a) | Concentrations |
The Company had the following customers that individually comprised 10% or more of net revenue for the three months ended September 30, 2016March 31, 2019 and 20172020 as follows:
Three months ended September 30, | |||||||
| 2016 | 2017 | |||||
Customer A | 34.09% | * | |||||
Customer B | 21.64% | 53.39% | |||||
Customer C (Shenzhen BAK) | 16.39% | * | |||||
Customer D | * | 41.51% |
Three months ended March 31, | ||||||||||||||||
2019 | 2020 | |||||||||||||||
Customer A | $ | 1,321,428 | 25.55 | % | $ | * | * | |||||||||
Customer B | 1,241,675 | 24.01 | % | 2,093,093 | 30.33 | % | ||||||||||
Customer C | 1,071,820 | 20.72 | % | * | * | |||||||||||
Customer D | 735,494 | 14.22 | % | * | * | |||||||||||
Customer E | * | * | 3,796,267 | 55.01 | % |
* Comprised less than 10% of net revenue for the respective period.
The Company had the following customers that individually comprised 10% or more of net revenue for the nine months ended September 30, 2016 and 2017 as follows:
| |||||||
| |||||||
| |||||||
|
* Comprised less than 10% of net revenue for the respective period.
The Company had the following customers that individually comprised 10% or more of accounts receivable as of December 31, 20162019 and September 30, 2017March 31, 2020 as follows:
| December 31, 2016 | September 30, 2017 | |||||||||||
Customer B | $ | 857,180 | 35.59% | $ | 10,471,824 | 63.57% | |||||||
Customer D | * | * | 5,095,410 | 30.93% | |||||||||
Customer F | 1,286,206 | 53.40% | * | * |
December 31, 2019 | March 31, 2020 | |||||||||||||||
Customer A | $ | 902,309 | 11.47 | % | $ | * | * | |||||||||
Customer B | 1,725,293 | 21.93 | % | 1,617,568 | 15.18 | % | ||||||||||
Customer C | 1,713,628 | 21.78 | % | 1,544,088 | 14.49 | % | ||||||||||
Customer E | * | * | 4,193,562 | 39.35 | % | |||||||||||
Customer F | 830,821 | 10.56 | % | * | * |
The Company had the following suppliers that individually comprised 10% or more of net purchase for the three months ended March 31, 2019 and 2020 as follows:
Three months ended March 31, | ||||||||||||||||
2019 | 2020 | |||||||||||||||
Supplier A | $ | 996,484 | 32.66 | % | $ | * | * | |||||||||
Shenzhen BAK | * | * | 3,841,680 | 82.43 | % |
* Comprised less than 10% of account receivablenet purchase for the respective period.
The Company had the following suppliers that individually comprised 10% or more of accounts payable as of December 31, 2019 and March 31, 2020 as follows:
December 31, 2019 | March 31, 2020 | |||||||||||||||
Supplier B | $ | 1,126,582 | 10.10 | % | $ | 1,107,981 | 10.26 | % |
For the three months ended March 31, 2019 and nine months ended September 30, 2016 and 2017,2020, the Company recorded the following transactions:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2016 | 2017 | 2016 | 2017 | |||||||||
Purchase of inventories from | |||||||||||||
BAK Tianjin | $ | (490,783 | ) | $ | - | $ | (301,287 | ) | $ | - | |||
Shenzhen BAK | 2,870,445 | 9,248,609 | 5,560,117 | 13,527,981 | |||||||||
Zhengzhou BAK Battery Co., Ltd* | - | - | - | ||||||||||
| |||||||||||||
Sales of finished goods to | |||||||||||||
BAK Tianjin | 31,496 | 55,533 | 295,101 | 98,233 | |||||||||
Shenzhen BAK | 102,322 | 728 | 102,322 | 61,525 | |||||||||
Zhengzhou BAK Battery Co., Ltd* | 576 | 163 | $ | 576 | 13,811 | ||||||||
| |||||||||||||
Sales of raw materials to Shenzhen BAK | 238,106 | - | 11,752 | - |
Three months ended March 31, | ||||||||
2019 | 2020 | |||||||
Purchase of inventories from | ||||||||
Shenzhen BAK* | $ | - | $ | 3,841,680 | ||||
Sales of finished goods to | ||||||||
BAK Shenzhen* | $ | 83,841 | $ | 69,226 |
*Mr. Xiangqian Li, the former CEO, is a director of this company.
|
CBAK Energy Technology, Inc. and subsidiaries |
Notes to the condensed consolidated financial statements |
For the three |
(Unaudited) |
(In US$ except for number of shares) |
22. | Concentrations and Credit Risk (continued) |
(b) | Credit Risk |
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and pledged deposits. As of December 31, 20162019 and September 30, 2017,March 31, 2020, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.
For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.
Segment Information |
The Company used to engage in one business segment, 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. The Company manufactured five types of Li-ion rechargeable batteries: aluminum-casealuminium-case cell, battery pack, cylindrical cell, lithium polymer cell and high-power lithium battery cell. The Company’s products are sold to packing plants operated by third parties primarily for use in mobile phones and other electronic devices.
After the disposal of BAK International and its subsidiaries (see Note 1), the Company focused on producing high-power lithium battery cells. Net revenues for the three months ended March 31, 2019 and nine months ended September 30, 2016 and 20172020 were as follows:
Net revenues by product:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2016 | 2017 | 2016 | 2017 | |||||||||
High power lithium batteries used in: | |||||||||||||
Electric vehicles | $ | - | $ | 16,934,181 | $ | 2,831,977 | $ | 25,998,924 | |||||
Light electric vehicles | - | 281,978 | 465,479 | 485,001 | |||||||||
Uninterruptable supplies | 307,647 | 534,551 | 1,571,399 | 1,322,188 | |||||||||
| $ | 307,647 | $ | 17,750,710 | $ | 4,868,855 | $ | 27,806,113 |
Three months ended March 31, | ||||||||
2019 | 2020 | |||||||
High power lithium batteries used in: | ||||||||
Electric vehicles | $ | 1,214,086 | $ | 215,118 | ||||
Light electric vehicles | - | 751 | ||||||
Uninterruptable supplies | 3,957,589 | 6,685,405 | ||||||
Total | $ | 5,171,675 | $ | 6,901,274 |
Net revenues by geographic area:
Three months ended March 31, | ||||||||
2019 | 2020 | |||||||
Mainland China | $ | 4,746,726 | $ | 6,876,789 | ||||
PRC Taiwan | 452 | - | ||||||
Israel | 121,678 | - | ||||||
USA | 223,465 | - | ||||||
India | 79,354 | 24,485 | ||||||
Total | $ | 5,171,675 | $ | 6,901,274 |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2016 | 2017 | 2016 | 2017 | |||||||||
PRC Mainland | $ | - | $ | 17,529,058 | $ | 3,639,270 | $ | 26,976,060 | |||||
PRC Taiwan | 23,391 | 2,201 | 302,299 | 221,574 | |||||||||
Israel | - | 26,763 | 225,754 | 244,122 | |||||||||
Europe | 195,591 | 123,601 | 446,797 | 294,322 | |||||||||
South Korea | 88,665 | - | 253,716 | ||||||||||
Others | - | 69,087 | 1,019 | 70,035 | |||||||||
| $ | 307,647 | $ | 17,750,710 | $ | 4,868,855 | $ | 27,806,113 |
Substantially all of the Company’s long-lived assets are located in the PRC.
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2019 and 2020 |
(In US$ except for number of shares) |
On October 20, 2017,
24. | Subsequent Events |
Coronavirus (COVID-19)
An outbreak of respiratory illness caused by COVID-19 emerged in late 2019 and has spread within the PRC and globally. The coronavirus is considered to be highly contagious and poses a serious public health threat. Any outbreak of health epidemics or other outbreaks of diseases in the PRC or elsewhere in the world may materially and adversely affect the global economy, the markets and the Company obtained banking facilities from China Everbright Bank with a maximum amountbusiness. In the first quarter of RMB100 million (approximately $15.0 million) for a period from November 9, 2017 to November 7, 2018. The facilities were secured by 100% equity interest2020, the COVID-19 outbreak has caused disruptions in CBAK Power held by BAK Asia. The facilities also required 50% bank deposit to secure against each borrowings. Under the facilities, on November 10, 2017, the Company borrowed RMB100 million ($15.0 million)manufacturing operations and temporary closure of its offices. The disruption in the procurement, manufacturing and assembly process within the Company’s production facilities has resulted in delays in the shipment of its products to customers, increased costs and reduced revenue. As of the date of this quarterly report, the Company has fully resumed operations.
As the coronavirus epidemic expands globally, the world economy is suffering a noticeable slowdown. The duration and intensity of disruptions resulting from China Everbright Bankthe coronavirus outbreak is uncertain. It is unclear as to when the outbreak will be contained, and the Company also cannot predict if the impact will be short-lived or long-lasting. Because of the significant uncertainties surrounding the COVID-19 pandemic, the extent of the business interruption and the related financial impact cannot be reasonably estimated at a rate of 4.505% per annum with a periodthis time.
The Company has analyzed its operations subsequent to March 31, 2020 to the date these condensed consolidated financial statements were issued and has determined that apart from November 10, 2017those disclosed elsewhere in these financial statements, it does not have any other material subsequent events to November 5, 2018.disclose in these condensed consolidated financial statements.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF 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
In addition to historical information,
Statements contained in this report contains forward-looking statementsinclude “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 September 30, 2016,December 31, 2019, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:
“Company”, “we”, “us” and “our” are to the combined business of CBAK Energy Technology, Inc., a Nevada corporation, and its consolidated subsidiaries; |
● | ||
“BAK Asia” are to our Hong Kong subsidiary, China BAK Asia Holdings Limited; |
● | ||
“CBAK Trading” are to our PRC subsidiary, Dalian CBAK Trading Co., Ltd.; |
● | ||
“CBAK Power” are to our PRC subsidiary, Dalian CBAK Power Battery Co., Ltd; | ||
“CBAK Suzhou” are to our PRC subsidiary, CBAK New Energy (Suzhou) Co., Ltd. | ||
● | “CBAK Energy” are to our PRC subsidiary, Dalian CBAK Energy Technology Co., Ltd.; |
● | “China” and “PRC” are to the People’s Republic of China; |
● | ||
“RMB” are to Renminbi, the legal currency of China; |
● | ||
“U.S. dollar”, “$” and “US$” are to the legal currency of the United States; |
● | ||
“SEC” are to the United States Securities and Exchange Commission; |
● | ||
“Securities Act” are to the Securities Act of 1933, as amended; and |
● | ||
“Exchange Act” are to the Securities Exchange Act of 1934, as amended. |
On January 10, 2017, we 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").Overview
1
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. Upon the effectiveness of the filing of Articles of Merger with the Secretary of State of Nevada, which is January 16, 2017, the Company's Articles of Incorporation were deemed amended to reflect the change in the Company's corporate name.
On March 7, 2017, the names of our subsidiaries CBAK Power Battery Co., Ltd and Dalian BAK Trading Co., Ltd., were changed to Dalian CBAK Power Battery Co., Ltd and Dalian CBAK Trading Co., Ltd, respectively.
Overview
Our Dalian manufacturing facilities began its partial commercial operations in July 2015. We are now engaged in the business of developing, manufacturing and selling new energy high power lithium batteries, which are mainly used in the following applications:
Electric vehicles (“EV”), such as electric cars, electric buses, hybrid electric cars and buses; |
Light electric vehicles (“LEV”), such as electric bicycles, electric motors, sight-seeing cars; and |
Electric tools, energy storage, uninterruptible power supply, and other high power applications. |
We have receivedacquired most of the operating assets, including customers, employees, patents and technologies of our former subsidiary, BAK International (Tianjin) Ltd. (“BAK Tianjin”). Such assets were acquired in exchange for a reduction in receivables from our former subsidiaries that were disposed in June 2014. WeFor now, we have outsourced and will continue to outsource ourequipped with complete production to other manufacturers until our Dalian manufacturing facilityequipment which can fulfillfulfil most of our customers’ needs, if necessary.needs.
We currently conduct our business through three wholly-owned operating subsidiaries in China that we own through BAK Asia, a holding company formed under the laws of Hong Kong on July 9, 2013, and CBAK Suzhou, a 90% owned subsidiary of CBAK Power, one of our wholly-owned PRC operating subsidiaries:
● | CBAK Trading, wholly-owned by BAK Asia, located in Dalian, China, incorporated on August 14, 2013, focuses on the wholesale of lithium batteries and lithium batteries’ materials, import & export business and related technology consulting service; and | |
● | CBAK Power, wholly-owned by BAK Asia, located in Dalian, China, incorporated on December 27, 2013, focuses on the development and manufacture of high-power lithium batteries. | |
● | CBAK Suzhou, 90% owned by CBAK Power, located in Suzhou, China, incorporated on May 4, 2018, focuses on the development and manufacture of new energy high power battery packs; and | |
● | CBAK Energy, wholly-owned by BAK Asia, located in Dalian, China, incorporated on November 21, 2019, focuses on the development and manufacture of lithium batteries, wholesale of lithium batteries and lithium batteries’ materials, import & export business and related technology consulting service. |
We generated revenues of $0.3$6.9 million and $17.8$5.2 million for the three months ended September 30, 2016March 31, 2020 and 2017,2019, respectively. We had a net loss of $5.9$2.4 million and $4.2$2.8 million in the three months ended September 30, 2016March 31, 2020 and 20172019 respectively. As of September 30, 2017,March 31, 2020, we had an accumulated deficit of $152.0$178.5 million and net assets of $13.5$11.5 million. We had a working capital deficiency and accumulated deficit from recurring net losses and short-term debt obligations maturing in less than one year as of September 30, 2017.March 31, 2020.
On June 14, 2016, we renewed our banking facilities from Bank of Dandong for loans with a maximum amount of RMB130 million (approximately $19.5 million), including three-year long-term loans and three-year revolving bank acceptance and letters of credit bills for the period from June 13, 2016 to June 12, 2019. The banking facilities were guaranteed by Mr. Yunfei Li (“Mr. Li”), our CEO, and Ms. Qinghui Yuan, Mr. Li’s wife, Mr. Xianqian Li, our former CEO, Ms. Xiaoqiu Yu, the wife of our former CEO, Shenzhen BAK Battery Co., Ltd., our former subsidiary (“Shenzhen BAK”). The facilities were also secured by part of our Dalian site’s prepaid land use rights, buildings, construction in progress, machinery and equipment and pledged deposits. Under the banking facilities, as of September 30, 2017, we borrowed various three-year term bank loans that totaled RMB126.8 million (approximately $19.1 million), bearing fixed interest at 7.2% per annum. We also borrowed a series of revolving bank acceptance totaled $0.8 million from Bank of Dandong under the credit facilities, and bank deposit of 50% was required to secure against these bank acceptance bills.
On July 6, 2016, we obtained banking facilities from Bank of Dalian for loans with a maximum amount of RMB10 million (approximately $1.5 million) and bank acceptance bills of RMB40 million (approximately $6.0 million) to July 2017. The banking facilities were guaranteed by Mr. Li, our CEO, and Ms. Qinghui Yuan, Mr. Li’s wife, and Shenzhen BAK. Under the banking facilities, on July 6, 2016 we borrowed one year short-term loan of RMB10 million (approximately $1.5 million), bearing a fixed interest rate at 6.525% per annum. We also borrowed revolving bank acceptance totaled $6.0 million, and bank deposit of 50% was required to secure against these bank acceptance bills. We repaid the loan and bank acceptance bills in July and August 2017 and we are in process to renew the banking facilities.
On August 2, 2017, we obtained one-year term facilities from China Merchants Bank with a maximum amount of RMB100 million (approximately $15.0 million) including revolving loans, trade finance, notes discount, acceptance of commercial bills etc. Any amount drawn under the facilities requires security in the form of cash or banking acceptance bills receivable of at least the same amount. Under the facilities, as of September 30, 2017, we borrowed a series of bank acceptance bills totaled $4.8 million from China Merchants Bank and pledged $0.3 million of our bank deposit and $5.4 million of our bills receivables.
During the third quarter of 2017, we also obtained banking facilities from Bank of Dandong with bank acceptance bills of RMB47.7 million (approximately $7.2 million) for a term until March 14, 2018. The banking facilities were pledged by our bills receivables totaled $7.2 million. Under the facilities, on September 26 and 27, 2017, we borrowed bank acceptance bills totaled $7.2 million from Bank of Dandong.
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As of September 30, 2017, we had also borrowed $1.2 million of bank acceptance bills outside any the credit facility from China Merchants Bank. The bank acceptance bills were pledged by $1.2 million of its bills receivable.
As of September 30, 2017, we had unutilized committed banking facilities of $10.3 million. We plan to renew these loans upon maturity, and intend to raise additional funds through bank borrowings and equity financing in the future to meet our daily cash demands, if required.
On October 20, 2017, we obtained banking facilities from China Everbright Bank with a maximum amount of RMB100 million (approximately $15.0 million) for a period from November 9, 2017 to November 7, 2018. The facilities were secured by 100% equity interest in CBAK Power held by BAK Asia. The facilities also required 50% bank deposit to secure against each borrowing. Under the facilities, on November 10, 2017, we borrowed RMB100 million ($15.0 million) from China Everbright Bank at a rate of 4.505% per annum with a period from November 10, 2017 to November 5, 2018.
In June 2016, we received advances in the aggregate of $2.9 million from Mr. Jiping Zhou and Mr. Dawei Li. These advances were unsecured, non-interest bearing and repayable on demand. On July 8, 2016, we received further advances of $2.6 million from Mr. Jiping Zhou. On July 28, 2016, to convert these advances into equity interests in our Company, we entered into securities purchase agreements with Mr. Jiping Zhou and Mr. Dawei Li to issue and sell an aggregate of 2,206,640 shares of our common stock, at $2.5 per share, for an aggregate consideration of approximately $5.52 million. On August 17, 2016, we issued these shares to the investors.
On February 17, 2017, we signed a letter of understanding with each of eight individual investors, who are also our current shareholders, including our CEO, Mr. Yunfei Li, whereby these shareholders agreed in principle to subscribe for new shares of our common stock totaling $10 million. In January 2017, the shareholders paid us a total of $2.1 million as refundable deposits, among which, Mr. Yunfei Li agreed to subscribe new shares totaling $1.12 million and pay a refundable deposit of $0.2 million. In April and May 2017, we received cash of $9.6 million from these shareholders. On May 31, 2017, we entered into a securities purchase agreement with these investors, pursuant to which we agreed to issue an aggregate of 6,403,518 shares of common stock to these investors, at a purchase price of $1.50 per share, for an aggregate price of $9.6 million, among which 764,018 shares were issued to Mr. Yunfei Li. On June 22, 2017, we issued the shares to the investors. The issuance of the shares to the investors was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for the offer and sale of securities not involving a public offering, and Regulation S promulgated thereunder.
In the meanwhile, dueDue to the growing environmental pollution problem, the Chinese government is currentlyhas been providing vigorous support to the development of new energy facilities and vehicles. It is expected thatHowever, the Chinese government has significantly reduced the amount of subsidies available to electric vehicle makers over the years and this trend continues for the next three years. Given the changing market environment, we will be ableplan to secure more potential orders fromcontinue to focus our resources on the existing cylindrical batteries for UPS market, temporarily reduce the investment on R&D of new energyproducts for electric vehicle market especially fromand cut down the electric car market.production of EV batteries. We believe that with that the booming market demand in high power lithium ion products, we can continue as a going concern and return to profitability.
Although the COVID-19 pandemic has caused disruptions to our operations, so far it has had limited adverse impacts on our operating results, and our revenue grew by $1.7 million, or 33% for the first quarter of 2020, compared to the same period of 2019. This revenue increase was primarily attributable to an increase of $2.7 million, or 69% in sales of batteries for uninterruptable power supplies (“UPS”).
Recent Developments
New Investment
On June 23, 2020, BAK Asia, our 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 we intend 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.
Financing Activities
The following developments in our financing activities should be read in conjunction with the “Liquidity and Capital Resources” section below, which provides the context and history of these events.
On April 10, 2020, each of Mr. Yunfei Li, Mr. Ping Shen and Asia EVK entered into an agreement with CBAK Power and BAK SZ, whereby BAK SZ assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $1.0 million (RMB7,000,000), $2.3 million (RMB16,000,000) and $1.0 million (RMB7,300,000) (collectively $4.3 million, the “Sixth Debt”) to Mr. Yunfei Li, Mr. Ping Shen and Asia EVK, respectively.
On April 27, 2020, the Company entered into a cancellation agreement with Mr. Yunfei Li, Mr. Ping Shen and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Yunfei Li, Mr. Ping Shen and Asia EVK agreed to cancel the Sixth Debt in exchange for 2,062,619, 4,714,557 and 2,151,017 shares of common stock of the Company, respectively, at an exchange price of $0.48 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Sixth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.
On April 28, 2020, the Company entered into a third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On June 8, 2020, the Company entered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On June 10, 2020, the Company entered into a fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 407,609 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On June 28, 2020, we entered into a supplemental agreement with China Everbright Bank Dalian Branch to change the repayment schedule. According to the agreement, RMB141.8 million (approximately $20.03 million) loans are repayable in eight instalments consisting of RMB1.09 million ($0.15 million) on June 10, 2020, RMB 1 million ($0.14 million) on December 10, 2020, RMB2 million ($0.28 million) on January 10, 2021, RMB2 million ($0.28 million) on February 10, 2021, RMB2 million ($0.28 million) on March 10, 2021, RMB2 million ($0.28 million) on April 10, 2021, RMB2 million ($0.28 million) on May 10, 2021, and RMB129.7 million ($18.3 million) on June 10, 2021, respectively. We repaid RMB1.09 million ($0.15 million) on June 28, 2020.
Financial Performance Highlights for the Quarter Ended September 30, 2017March 31, 2020
The following are some financial highlights for the quarter ended September 30, 2017:March 31, 2020:
Net | ||
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Gross profit (loss):Gross profit was $0.2 million, representing an increase of $0.4 million, for the three months ended March 31, 2020, from gross loss of $0.2 million for the same period in 2019. | ||
● | Operating loss:Operating loss was $2.0 million for the three months ended March 31, 2020, reflecting a decrease of $0.5 million from an operating loss of $2.5 million for the same period in 2019. | |
● | Net loss:Net loss was | |
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Financial Statement Presentation
Net revenues.Our netThe Company recognizes revenues representwhen its customer obtains control of promised goods or services, in an amount that reflects the invoiced valueconsideration 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 products sold,product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenues from product sales are recorded net of value added taxes, or VAT, sales returns, tradereserves established for applicable discounts and allowances. Weallowances that are subject to VAT,offered within contracts with our customers.
Product revenue reserves, which is levied on most of our products at the rate of 17% on the invoiced value of our products. Provision for sales returns are recordedclassified as a reduction of revenuein product revenues, are generally characterized in the same period that revenue is recognized. The provision for sales returns represents our best estimatecategories: 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 of goods that will be returned from our customers based on historical sales return data.
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Pursuantis payable to the Provisional Regulation of China on Value Added Tax and its implementing rules, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer. Further, when exporting goods, the exporter is entitled to some or all of the refund of VAT that it has already paid or borne. Our imported raw materials that are used for manufacturing exported products and deposited in bonded warehouses are exempt from import VAT.Company’s customer.
Cost of revenues.Cost of revenues consists primarily of material costs, employee remuneration for staff engaged in production activity, share-based compensation, depreciation and related expenses that are directly attributable to the production of products. Cost of revenues also includes write-downs of inventory to lower of cost and net realizable value.
Research and development expenses.Research and development expenses primarily consist of remuneration for R&D staff, share-based compensation, depreciation and maintenance expenses relating to R&D equipment, and R&D material costs.
Sales and marketing expenses.Sales and marketing expenses consist primarily of remuneration for staff involved in selling and marketing efforts, including staff engaged in the packaging of goods for shipment, advertising cost, depreciation, share-based compensation, travel and entertainment expenses and product warranty expense. We do not pay slotting fees to retail companies for displaying our products, engage in cooperative advertising programs, participate in buy-down programs or similar arrangements.
General and administrative expenses.General and administrative expenses consist primarily of employee remuneration, share-based compensation, professional fees, insurance, staff benefits, general office expenses, depreciation, and liquidated damage charges.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 income tax at a rate of 25%. Our Hong Kong subsidiary BAK Asia is subject to a profits tax at a rate of 16.5%. However, because we did not have any assessable income derived from or arising in the region, the entity had not paid any such tax.
Results of Operations
Comparison of Three Months Ended September 30, 2016March 31, 2019 and 20172020
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Three months ended September 30, | Change | ||||||||||
| 2016 | 2017 | $ | % | ||||||||
Net revenues | $ | 308 | $ | 17,751 | 17,443 | 5,663.31 | ||||||
Cost of revenues | (1,227 | ) | (19,111 | ) | (17,884 | ) | (1,457.54 | ) | ||||
Gross loss | (919 | ) | (1,360 | ) | (441 | ) | (47.99 | ) | ||||
Operating expenses: | ||||||||||||
Research and development expenses | 460 | 372 | (88 | ) | (19.13 | ) | ||||||
Sales and marketing expenses | 320 | 1,136 | 816 | 255.00 | ||||||||
General and administrative expenses | 3,505 | 1,329 | (2,176 | ) | (62.08 | ) | ||||||
Total operating expenses | 4,285 | 2,837 | (1,448 | ) | (33.79 | ) | ||||||
Operating loss | (5,204 | ) | (4,197 | ) | 1,007 | 19.35 | ||||||
Finance income (expense), net | (91 | ) | 9 | 100 | 109.89 | |||||||
Other income (expense), net | 5 | (14 | ) | (19 | ) | (380 | ) | |||||
Loss before income tax | (5,290 | ) | (4,202 | ) | 1,088 | 20.57 | ||||||
Income tax expenses | (658 | ) | - | 658 | 100 | |||||||
Net loss | (5,948 | ) | (4,202 | ) | 1,746 | 29.35 |
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Three Months ended March 31, | Change | |||||||||||||||
2019 | 2020 | $ | % | |||||||||||||
Net revenues | $ | 5,172 | $ | 6,901 | 1,729 | 33 | ||||||||||
Cost of revenues | (5,401 | ) | (6,695 | ) | (1,294 | ) | 24 | |||||||||
Gross (loss) profit | (229 | ) | 206 | 435 | 190 | |||||||||||
Operating expenses: | ||||||||||||||||
Research and development expenses | 433 | 299 | (134 | ) | (31 | ) | ||||||||||
Sales and marketing expenses | 364 | 94 | (270 | ) | (74 | ) | ||||||||||
General and administrative expenses | 1,441 | 1,115 | (326 | ) | (23 | ) | ||||||||||
Provision for doubtful accounts | 71 | 673 | 602 | 848 | ||||||||||||
Total operating expenses | 2,309 | 2,181 | (128 | ) | (6 | ) | ||||||||||
Operating loss | (2,538 | ) | (1,975 | ) | 563 | 22 | ||||||||||
Finance expenses, net | (287 | ) | (428 | ) | (141 | ) | (49 | ) | ||||||||
Other income, net | 18 | 49 | 31 | 172 | ||||||||||||
Loss before income tax | (2,807 | ) | (2,354 | ) | 453 | 16 | ||||||||||
Income tax expenses | - | - | - | |||||||||||||
Net loss | $ | (2,807 | ) | $ | (2,354 | ) | 453 | 16 | ||||||||
Less: Net loss (profit) attributable to non-controlling interests | 20 | (6 | ) | (26 | ) | (130 | ) | |||||||||
Net loss attributable to shareholders of CBAK Energy Technology, Inc. | (2,787 | ) | (2,360 | ) | 427 | 15 |
Net revenues. Net revenues were $17.75$6.9 million for the three months ended September 30, 2017,March 31, 2020, as compared to $0.31$5.2 million for the same period in 2016,2019, representing an increase of $17.44$1.7 million, or 5,663.3% ..33%. Although the COVID-19 pandemic has caused disruptions to our operations, so far it has had limited adverse impacts on our net revenue.
The following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries.
(All amounts in thousands of U.S. dollars other than percentages)
| Three months ended September 30, | Change | ||||||||||
| 2016 | 2017 | $ | % | ||||||||
High power lithium batteries used in: | ||||||||||||
Electric vehicles | $ | - | $ | 16,934 | 16,934 | |||||||
Light electric vehicles | - | 282 | 282 | |||||||||
Uninterruptable supplies | 308 | 535 | 227 | 73.70 | ||||||||
| $ | 308 | $ | 17,751 | 17,443 | 5,663.31 |
Three months ended March 31, | Change | |||||||||||||||
2019 | 2020 | $ | % | |||||||||||||
High power lithium batteries used in: | ||||||||||||||||
Electric vehicles | $ | 1,214 | $ | 215 | (999 | ) | (82 | ) | ||||||||
Light electric vehicles | - | 1 | 1 | 100 | ||||||||||||
Uninterruptable supplies | 3,958 | 6,685 | 2,727 | 69 | ||||||||||||
Total | $ | 5,172 | $ | 6,901 | 1,729 | 33 |
Net revenues from sales of batteries for electric vehicles were $16.9$0.2 million for the three months ended September 30, 2017March 31, 2020 as compared to nil$1.2 million in the same period of 2016,2019, representing an increasea decrease of $16.9 million. Since$1.0 million, or 82%. Pursuant to the announcement“Notice on further completing the Policy of government subsidy policy for electric vehicle manufactures at the end of calendar year 2016, we received more orders from electric vehicle manufacturers in year 2017. In year 2017, we reached strategic cooperation agreements with certain automakers to provide them substantial battery module used in electric vehicles.
Net revenues from sales of batteries for light electric vehicles was $0.3 millionFinancial Subsidy for the three months ended September 30, 2017, compared to nilPromotion and Application of New Energy Vehicles” (Notice 2019), jointly released by the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology and the National Development and Reform Commission of the PRC on March 26, 2019, new subsidy standards have been implemented for new energy vehicles sold in China after June 25, 2019. As a result, new energy vehicles will receive different subsidies based on their driving range and technical performance. New energy vehicles providing long driving range and high technical performance will get higher subsidies. We believe the same periodabove policies will in long term encourage the production of 2016, representing an increasenew energy vehicles, optimize the structure of $0.3 million.the new energy vehicles industry, enhance technical standards of the industry and strengthen its core competitiveness, and ultimately foster strategic development of the new energy vehicles.
Net revenues from sales of batteries for uninterruptable power supplies (“UPS”) was $0.5$6.7 million in the three months ended September 30, 2017,March 31, 2020, as compared with $0.3$4.0 million in the same period in 2016,2019, representing an increase of $0.2$2.7 million, or 73.7% 69%. As we continued to focus more on this market, sale of batteries for uninterruptable power supplies increased significantly.
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Cost of revenues.Cost of revenues increased to $19.1$6.7 million for the three months ended September 30, 2017,March 31, 2020, as compared to $1.2$5.4 million for the same period in 2016,2019, an increase of $17.9$1.3 million, or 1,457.5% 24%. The increase was primarily driven by the increase in sales. Included in cost of revenues were write down of obsolete inventories of $360,778$0.4 million for three months ended September 30, 2017,March 31, 2020, while it was $83,650$62,772 for the same period in 2016.2019. We write down the inventory value whenever there is an indication that it is impaired. The increase in provision of inventory is mainly due to the increase of inventory with ageing over 1 year. However, further write-down may be necessary if market conditions continue to deteriorate.
Gross loss.profit (loss).Gross lossprofit for the three months ended September 30, 2017March 31, 2020 was $1.36$0.2 million, or 7.7%3.0% of net revenues as compared to gross loss of $0.92$0.2 million, or 298.4%4.4% of net revenues, for the same period in 2016.2019. Our new Dalian facilities commenced manufacturing activities in July 2015. Inefficiency was inevitably caused byWith our sustained effort, the operationquality passing rate of the newly installed machineryour product has improved due to cost control and newly hiredenhancement construction on production staff. In particular, we need to maintain a high level of skilled production staff, in anticipation of the increased demand for our products following the release of the government subsidy policy of new energy vehicles in 2017.line. As a result, we incurredrecorded a gross loss inprofit for the quartersthree months ended September 30, 2017 and 2016.March 31, 2020.
Research and development expenses. Research and development expenses decreased to approximately $0.4$0.3 million for the three months ended September 30, 2017,March 31, 2020, as compared to approximately $0.5$0.4 million for the same period in 2016,2019, a decrease of $0.1 million, or 19.13% 31%. The decrease was primarily resulted from the materialsdecrease of salaries and consumablesocial insurance expenses decreased by approximately $73,000.$0.1 million due to the suspension of our operations in the first quarter of 2020 caused by COVID-19.
Sales and marketing expenses. Sales and marketing expenses increaseddecreased to approximately $1.1$0.1 million for the three months ended September 30, 2017,March 31, 2020, as compared to approximately $0.3$0.4 million for the same period in 2016, an increase2019, a decrease of approximately $0.8$0.3 million, or 255.0% 74%. As a percentage of revenues, sales and marketing expenses were 1.4% and 7.0% for the three months ended March 31, 2020 and 2019, respectively. The increasedecrease was mainlyprimarily resulted from an increasethe decrease of $0.7salaries and social insurance expenses by approximately $0.1 million due to the suspension of provision for our product warranty and an increaseoperations in the first quarter of $0.2 million of travelling and transportation expenses, both resulting from the increase in sales in 2017.2020 caused by COVID-19.
General and administrative expenses. General and administrative expenses decreased to $1.3$1.1 million, or 7.5%16.2% of revenues, for the three months ended September 30, 2017,March 31, 2020, as compared to $3.5$1.4 million, or 1,138.0%27.9% of revenues, for the same period in 2016,2019, representing a decrease of $2.2$0.3 million, or 62.1% 23%. The decrease was mainlyprimarily resulted from athe decrease of $2.2salaries and social insurance expenses by approximately $0.3 million due to the suspension of our operations in provisionthe first quarter of 2020 caused by COVID-19.
Provision for doubtful accounts. Provision for doubtful accounts increased to $0.7 million for the three months ended March 31, 2020, as compared to $0.1 million for the same period in 2019. We determine the allowance based on historical write-off experience, customer specific facts and economic conditions.
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Operating loss. As a result of the above, our operating loss totaled $4.2$2.0 million for the three months ended September 30, 2017,March 31, 2020, as compared to $5.2$2.5 million for the same period in 2016,2019, representing a decrease of $1.0$0.5 million, or 19.4% 22%.
Finance expenses, net. Finance expense, net was $0.4 million for the three months ended March 31, 2020, as compared to $0.3 million for the same period in 2019, representing an increase of $0.1 million. Interest expenses increased as a result of our higher average loan balances.
Income tax expense.tax.Income tax expense was nil for the three months ended September 30, 2017, as compared to $0.7 million for the same period 2016. Income tax for the three months ended September 30, 2016 primarily due to the significant uncertain tax position arising from the subsidies granted by the local government to the Company’s PRC subsidiary.March 31, 2020 and 2019.
Net loss.As a result of the foregoing, we had a net loss of $4.2$2.4 million for the three months ended September 30, 2017,March 31, 2020, compared to a net loss of $5.9$2.8 million for the same period in 2016.2019.
Comparison of Nine Months Ended September 30, 2016 and 2017
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in thousands of U.S. dollars)
| Nine months ended September 30, | Change | ||||||||||
| 2016 | 2017 | $ | % | ||||||||
Net revenues | $ | 4,869 | $ | 27,806 | 22,937 | 471.08 | ||||||
Cost of revenues | (6,441 | ) | (31,075 | ) | (24,634 | ) | (382.46 | ) | ||||
Gross loss | (1,572 | ) | (3,269 | ) | (1,697 | ) | (107.95 | ) | ||||
Operating expenses: | ||||||||||||
Research and development expenses | 1,132 | 1,336 | 204 | 18.02 | ||||||||
Sales and marketing expenses | 825 | 1,821 | 996 | 120.73 | ||||||||
General and administrative expenses | 6,488 | 3,471 | (3,017 | ) | (46.50 | ) | ||||||
Total operating expenses | 8,445 | 6,628 | (1,817 | ) | (21.52 | ) | ||||||
Operating loss | (10,017 | ) | (9,897 | ) | 120 | 1.20 | ||||||
Finance expense, net | (143 | ) | (87 | ) | 56 | 39.16 | ||||||
Other income (expense), net | 241 | (40 | ) | (281 | ) | (116.60 | ) | |||||
Loss before income tax | (9,919 | ) | (10,024 | ) | (105 | ) | (1.06 | ) | ||||
Income tax expenses | (601 | ) | - | 601 | 100.00 | |||||||
Net loss | (10,520 | ) | (10,024 | ) | 496 | 4.71 |
Net revenues. Net revenues were $27.8 million for the nine months ended September 30, 2017, as compared to $4.9 million for the same period in 2016, representing an increase of $22.9 million, or 471.1% .
The following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries.
(All amounts in thousands of U.S. dollars other than percentages)
| Nine months ended September 30, | Change | ||||||||||
| 2016 | 2017 | $ | % | ||||||||
High power lithium batteries used in: | ||||||||||||
Electric vehicles | $ | 2,832 | $ | 25,999 | 23,167 | 818.04 | ||||||
Light electric vehicles | 465 | 485 | 20 | 4.30 | ||||||||
Uninterruptable supplies | 1,572 | 1,322 | (250 | ) | (15.90 | ) | ||||||
| $ | 4,869 | $ | 27,806 | 22,937 | 471.08 |
Net revenues from sales of batteries for electric vehicles were $26.0 million for the nine months ended September 30, 2017 as compared to $2.8 million in the same period of 2016, an increase of $23.2 million, or 818.0% . Since the announcement of government subsidy policy for electric vehicle manufactures at the end of calendar year 2016, we received more orders from electric vehicle manufacturers in year 2017. In year 2017, we reached strategic cooperation agreements with certain automakers to provide them substantial battery module used in electric vehicles.
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Net revenues from sales of batteries for light electric vehicles was $0.5 million for the nine months ended September 30, 2017, compared to $0.5 million in the same period of 2016.
Net revenues from sales of batteries for uninterruptable power supplies was $1.3 million in the nine months ended September 30, 2017, as compared with $1.6 million in the same period in 2016, representing a decrease of $0.3 million, or 15.9% . As we focused more on electric vehicle market in 2017, sale of batteries for uninterruptable power supplies decreased.
Cost of revenues.Cost of revenues increased to $31.1 million for the nine months ended September 30, 2017, as compared to $6.4 million for the same period in 2016, an increase of $24.6 million, or 382.5% . The increase was primarily driven by the increase in sales. Included in cost of revenues were write down of obsolete inventories of $1,359,181 for the nine months ended September 30, 2017, while it was $296,943 for the same period in 2016. We write down the inventory value whenever there is an indication that it is impaired. The increase in provision of inventory is mainly due to the increase of inventory with ageing over 1 year. However, further write-down may be necessary if market conditions continue to deteriorate.
Gross loss.Gross loss for the nine months ended September 30, 2017 was $3.3 million, or 11.8% of net revenues as compared to gross loss of $1.6 million, or 32.3% of net revenues, for the same period in 2016. Our new Dalian facilities commenced manufacturing activities in July 2015. Inefficiency was inevitably caused by the operation of the newly installed machinery and newly hired production staff. In particular, we need to maintain a high level of skilled production staff, in anticipation of the increased demand for our products following the release of the government subsidy policy of new energy vehicles in 2017. As a result, we incurred a gross loss in the nine months ended September 30, 2017 and 2016.
Research and development expenses. Research and development expenses increased to approximately $1.3 million for the nine months ended September 30, 2017, as compared to approximately $1.1 million for the same period in 2016, an increase of $0.2 million, or 18.0% . The increase was primarily resulted from the increase in the salary and wages and materials and consumable expenses by $0.1 million and $0.1 million, respectively. We expanded our research and development team to improve our product to fulfill our customers’ requirements and expand our market shares. We have a monthly average 86 research and development employees for the nine months ended September 30, 2017 as compared to a monthly average of 76 for the same period last year.
Sales and marketing expenses. Sales and marketing expenses increased to $1.8 million for the nine months ended September 30, 2017, as compared to $0.8 million for the same period in 2016, an increase of $1.0 million, or 120.7% . The increase was mainly resulted from an increase of $0.9 million in provision for product warranty expenses as well as an increase of $0.2 million in travelling and transportation expenses, both resulting from the increase in sales in 2017.
General and administrative expenses. General and administrative expenses decreased to $3.5 million, or 12.5% of revenues, for the nine months ended September 30, 2017, as compared to $6.5 million, or 133.3% of revenues, for the same period in 2016, a decrease of $3.0 million, or 46.5% . The decrease in general and administrative expenses was mainly resulted from a decrease of $2.4 million provision for doubtful debts, a decrease of $0.5 million of salary and wages including share based compensation, and $0.2 million reversal of compensation costs in relation to a litigation with Shenzhen Huijie. As disclosed further below, according to the judgement rendered on June 30, 2017, the court 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.
Operating loss. As a result of the above, our operating loss totaled $9.9 million for the nine months ended September 30, 2017, as compared to $10.0 million for the same period in 2016, representing a decrease of $0.1 million, or 1.2% .
Income tax expense.Income tax expense was nil for the nine months ended September 30, 2017, as compared to $0.6 million for the same period 2016. Income tax for the nine months ended September 30, 2016 primarily due to the significant uncertain tax position arising from the subsidies granted by the local government to the Company’s PRC subsidiary.
7
Net loss.As a result of the foregoing, we had a net loss of $10.0 million for the nine months ended September 30, 2017, compared to net loss of $10.5 million for the same period in 2016.
Liquidity and Capital Resources
We have financed our liquidity requirements from short-term bank loans, other short-term loans and bills payable under bank credit agreements, advances from our related and unrelated parties, investment from investors and issuance of capital stock, and advances from related and unrelated parties.stock.
We incurred a net loss of $4.2$2.4 million for the three months ended September 30, 2017.March 31, 2020. As of September 30, 2017,March 31, 2020, we had cash and cash equivalents of $0.1$0.2 million. Our total current assets were $58.6$28.3 million and our total current liabilities were $79.7$60.2 million, resulting in a net working capital deficiency of $21.1$31.9 million. These factors raise substantial doubts about our ability to continue as a going concern.
We have obtained banking facilities from various local banks in China. On June 4, 2018, we obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB200 million (approximately $29.8 million) with the term from June 12, 2018 to June 10, 2021, bearing interest at 130% of benchmark rate of the People’s Bank of China (“PBOC”) for three-year long-term loans, at current rate 6.175% per annum. The loans are repayable in six installments of RMB0.8 million ($0.11 million) on December 10, 2018, RMB24.3 million ($3.43 million) on June 10, 2019, RMB0.8 million ($0.11 million) on December 10, 2019, RMB74.7 million ($10.6 million) on June 10, 2020, RMB0.8 million ($0.11 million) on December 10, 2020 and RMB66.3 million ($9.4 million) on June 10, 2021. Under the facilities, we borrowed RMB141.8 million (approximately $20.03 million) as of March 31, 2020. The facilities were secured by our land use rights, buildings, machinery and equipment. We repaid the bank loan of RMB0.8 million ($0.11 million), RMB24.3 million ($3.43 million) and RMB0.8 million ($0.11 million) on December 2018, June 2019 and December 2019, respectively.
On June 28, 2020, we entered into a supplemental agreement with China Everbright Bank Dalian Branch to change the repayment schedule. According to the modification agreement, the RMB141.8 million (approximately $20.03 million) loans are repayable in eight instalments of RMB1.09 million ($0.15 million) on June 10, 2020, RMB 1 million ($0.14 million) on December 10, 2020, RMB2 million ($0.28 million) on January 10, 2021, RMB2 million ($0.28 million) on February 10, 2021, RMB2 million ($0.28 million) on March 10, 2021, RMB2 million ($0.28 million) on April 10, 2021, RMB2 million ($0.28 million) on May 10, 2021, RMB129.7 million ($18.3 million) on June 10, 2021, respectively. We repaid RMB1.09 million ($0.15 million) on June 28, 2020.
In June 2016,October 2019, we received advancesborrowed a total of RMB28 million (approximately $4.0 million) in the aggregateform of $2.9bills payable from China Everbright Bank Dalian Branch for a term until October 15, 2020, which was secured by the Company’s cash totaled RMB28 million (approximately $4.0 million). We discounted these bills payable of even date to China Everbright Bank at a rate of 3.30%.
In December 2019, we obtained banking facilities from China Everbright Bank Dalian Friendship Branch totaled RMB39.9 million (approximately $5.6 million) for a term until November 6, 2020, bearing interest at 5.655% per annum. The facility was secured by 100% equity in CBAK Power held by BAK Asia and buildings of Hubei BAK Real Estate Co., Ltd., which our CEO Mr. Jiping ZhouYunfei Li holds 15% equity interest. Under the facilities, the Company borrowed RMB39.9 million (approximately $5.6 million) on December 30, 2019.
In January 2019, we obtained one-year term facilities from Jilin Province Trust Co. Ltd. with a maximum amount of RMB40.0 million (approximately $5.7 million), which was secured by land use rights and buildings of Eodos Liga Energy Co., Ltd. Under the facilities, we borrowed a total of RMB39.6 million ($5.7 million) in 2019, bearing annual interest from 11.3% to 11.6%. We fully repaid the loan principal and accrued interest in March 2020.
In March 2020, we obtained additional one-year term facilities from Jilin Province Trust Co. Ltd. with a maximum amount of RMB40.0 million (approximately $5.7 million), which was secured by land use rights and buildings of Eodos Liga Energy Co., Ltd. Under the facilities, we borrowed RMB24.2 million ($3.4 million) on March 13, 2020, bearing annual interest of 13.5%.
As of March 31, 2020, we had unutilized committed banking facilities of $6.8 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.
In addition, we have obtained funds through private placements and equity financings.
On January 7, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $3.4 million (RMB23,980,950) and $1.6 million (RMB11,647,890) (totaled $5.0 million, the “First Debt”) to Mr. Dawei Li and Mr. Yunfei Li, respectively.
On January 7, 2019, we entered into a cancellation agreement with Mr. Dawei Li and Mr. Yunfei Li. These advances werePursuant to the terms of the cancellation agreement, Mr. Dawei Li and Mr. Yunfei Li agreed to cancel the First Debt in exchange for 3,431,373 and 1,666,667 shares of common stock of the Company, respectively at an exchange price of $1.02 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the First Debt.
On April 26, 2019, each of Mr. Jun Lang, Ms. Jing Shi and Asia EVK Energy Auto Limited (Asia EVK) entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $0.3 million (RMB2,225,082), $0.1 million (RMB 912,204) and $5.0 million (RMB35,406,036) (collectively $5.4 million, the “Second Debt”) to Mr. Jun Lang, Ms. Jing Shi and Asia EVK, respectively.
On April 26, 2019, we entered into a cancellation agreement with Mr. Jun Lang, Ms. Jing Shi and Asia EVK (the creditors). Pursuant to the terms of the Cancellation Agreement, the creditors agreed to cancel the Second Debt in exchange for 300,534, 123,208 and 4,782,163 shares of common stock of the Company, respectively, at an exchange price of $1.1 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Second Debt.
On June 28, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power to loan approximately $1.4 million (RMB10,000,000) and $2.5 million (RMB18,000,000) respectively to CBAK Power for a term of six months (collectively $3.9 million, the “Third Debt”). The loan was unsecured, non-interest bearing and repayable on demand.
On July 8, 2016, we received further advances16, 2019, each of $2.6Asia EVK and Mr. Yunfei Li entered into an agreement with CBAK Power and Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. (the Company’s construction contractor) whereby Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. assigned its rights to the unpaid construction fees owed by CBAK Power of approximately $2.8 million from(RMB20,000,000) and $0.4 million (RMB2,813,810) (collectively $3.2 million, the “Fourth Debt”) to Asia EVK and Mr. Jiping Zhou. Yunfei Li, respectively.
On July 28, 2016, to convert these advances into equity interests in our Company,26, 2019, we entered into securities purchase agreementsa cancellation agreement with Mr. Jiping Zhou and Mr. Dawei Li, to issue and sell an aggregate of 2,206,640 shares of our common stock, at $2.5 per share, for an aggregate consideration of approximately $5.52 million. On August 17, 2016, we issued these shares to the investors.
On February 17, 2017, we signed a letter of understanding with each of eight individual investors, who are also our current shareholders, including our CEO, Mr. Yunfei Li whereby these shareholders agreed in principleand Asia EVK (the creditors). Pursuant to subscribe for new sharesthe terms of our common stock totaling $10 million. In January 2017, the shareholders paid us a total of $2.06 million as refundable deposits, among which,cancellation agreement, Mr. Dawei Li, Mr. Yunfei Li and Asia EVK agreed to subscribe newcancel the Third Debt and Fourth Debt in exchange for 1,384,717, 2,938,067 and 2,769,435 shares totaling $1.12 millionof common stock of the Company, respectively, at an exchange price of $1.05 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and pay a depositother obligations relating to the Third Debt and Fourth Debt. The cancellation agreement contains customary representations and warranties of approximately $225,784. In April and May 2017, we received cash of $9.6 million from these shareholders. the creditors. The creditors do not have registration rights with respect to the shares.
On May 31, 2017,July 24, 2019, we entered into a securities purchase agreement with these investors,Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note 1”) to the Lender. The Note has an original principal amount of $1,395,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,250,000 after an original issue discount of $125,000 and payment of Lender’s expenses of $20,000.
On October 10, 2019, each of Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen entered into an agreement with CBAK Power and Zhengzhou BAK New Energy Vehicle Co., Ltd. (the Company’s supplier of which Mr. Xiangqian Li, the former CEO, is a director of this company) whereby Zhengzhou BAK New Energy Vehicle Co., Ltd. assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $2.1 million (RMB15,000,000), $1.0 million (RMB7,380,000) and $1.0 million (RMB7,380,000) (collectively $4.1 million, the “Fifth Debt”) to Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen, respectively.
On October 14, 2019, we entered into a cancellation agreement with Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen agreed to cancel and convert the Fifth Debt and the Unpaid Earnest Money of approximately $0.9 million (RMB6,720,000) in exchange for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of $0.6 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Fifth Debt and the Unpaid Earnest Money. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.
On December 30, 2019, we entered into a second securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which we issued a promissory note (the “Note II”) to the Lender. The Note II has an original principal amount of $1,670,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. We received proceeds of $1,500,000 after an original issue discount of $150,000 and payment of Lender’s expenses of $20,000.
On January 27, 2020, we entered into an exchange agreement (the “First Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to issue(i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an aggregateoriginal principal amount of 6,403,518$1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 160,256 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On February 20, 2020, we entered into a second exchange agreement (the “Second Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 207,641 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On April 10, 2020, each of Mr. Yunfei Li, Mr. Ping Shen and Asia EVK entered into an agreement with CBAK Power and Shenzhen BAK, whereby Shenzhen BAK assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $1.0 million (RMB7,000,000), $2.3 million (RMB16,000,000) and $1.0 million (RMB7,300,000) (collectively $4.3 million, the “Sixth Debt”) to Mr. Yunfei Li, Mr. Ping Shen and Asia EVK, respectively.
On April 27, 2020, we entered into a cancellation agreement with Mr. Yunfei Li, Mr. Ping Shen and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Yunfei Li, Mr. Ping Shen and Asia EVK agreed to cancel the Sixth Debt in exchange for 2,062,619, 4,714,557 and 2,151,017 shares of common stock to these investors,of the Company, respectively, at a purchasean exchange price of $1.50$0.48 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Sixth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.
On April 28, 2020, we entered into a third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company’s common stock, par value $0.001 per share for an aggregate price of $9.6 million, among which 764,018 shares were issued to Mr. Yunfei Li. On June 22, 2017, we issued the shares to the investors relying on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for the offer and sale of securities not involving a public offering, and Regulation S promulgated thereunder.Lender.
On June 14, 2016,8, 2020, we renewed our banking facilitiesentered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from Bankthe outstanding balance of Dandong for loans with a maximumcertain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of RMB130 million (approximately $19.5 million), including three-year long-term loans$1,395,000, and three-year revolving bank acceptance and letters of credit bills(ii) exchange the Partitioned Promissory Note for the period from June 13, 2016issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to June 12, 2019. The banking facilities were guaranteed by Mr. Yunfei Li (“Mr. Li”), our CEO, and Ms. Qinghui Yuan, Mr. Li’s wife, Mr. Xianqian Li, our former CEO, Ms. Xiaoqiu Yu, the wife of our former CEO, Shenzhen BAK Battery Co., Ltd., our former subsidiary (“Shenzhen BAK”). The facilities were also secured by part of our Dalian site’s prepaid land use rights, buildings, construction in progress, machinery and equipment and pledged deposits. Under the banking facilities, as of September 30, 2017, we borrowed various three-year term bank loans that totaled RMB126.8 million (approximately $19.1 million), bearing fixed interest at 7.2% per annum. We also borrowed a series of revolving bank acceptance totaled $0.8 million from Bank of Dandong under the credit facilities, and bank deposit of 50% was required to secure against these bank acceptance bills.Lender.
On June 10, 2020, we entered into a fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 6, 2016, we obtained banking facilities from Bank of Dalian for loans with a maximum24, 2019, which has an original principal amount of RMB10 million (approximately $1.5 million)$1,395,000, and bank acceptance bills(ii) exchange the Partitioned Promissory Note for the issuance of RMB40 million (approximately $6.0 million)407,609 shares of the Company’s common stock, par value $0.001 per share to July 2017. The banking facilities were guaranteed by Mr. Li, our CEO, and Ms. Qinghui Yuan, Mr. Li’s wife, and Shenzhen BAK. Under the banking facilities, on July 6, 2016 we borrowed one year short-term loan of RMB10 million (approximately $1.5 million), bearing a fixed interest rate at 6.525% per annum. We also borrowed revolving bank acceptance totaled $6.0 million, and bank deposit of 50% was required to secure against these bank acceptance bills. We repaid the loan and bank acceptance bills in July and August 2017 and we are in process to renew the banking facilities.Lender.
On August 2, 2017, we obtained one-year term facilities from China Merchants Bank with a maximum amount of RMB100 million (approximately $15.0 million) including revolving loans, trade finance, notes discount, acceptance of commercial bills etc. Any amount drawn under the facilities requires security in the form of cash or banking acceptance bills receivable of at least the same amount. Under the facilities, as of September 30, 2017, we borrowed a series of bank acceptance bills from China Merchants Bank totaled $4.8 million and pledged $0.3 million of our bank deposit and $5.4 million of our bills receivables.
8
During the third quarter of 2017, we also obtained banking facilities from Bank of Dandong with bank acceptance bills of RMB47.7 million (approximately $7.2 million) for a term until March 14, 2018. The banking facilities were pledged by our bills receivables totaled $7.2 million. Under the facilities, on September 26 and 27, 2017, we borrowed bank acceptance totaled $7.2 million.
As of September 30, 2017, we had also borrowed $1.2 million of bank acceptance bills outside any the credit facility from China Merchants Bank. The bank acceptance bills were pledged by $1.2 million of its bills receivable.
As of September 30, 2017, we had unutilized committed banking facilities of $10.3 million.
On October 20, 2017, we obtained banking facilities from China Everbright Bank with a maximum amount of RMB100 million (approximately $15.0 million) for a period from November 9, 2017 to November 7, 2018. The facilities were secured by 100% equity interest in CBAK Power held by BAK Asia. The facilities also required 50% bank deposit to secure against each borrowing. Under the facilities, on November 10, 2017, we borrowed RMB100 million ($15.0 million) from China Everbright Bank at a rate of 4.505% per annum with a period from November 10, 2017 to November 5, 2018.
We are currently expanding our product lines and manufacturing capacity in our Dalian plant, which would require more 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.the financings. 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.
In the meanwhile, due to the growing environmental pollution problem, the Chinese government is currently providing vigorous support to the new energy facilities and vehicle. It is expected that we will be able to secure more potential orders from the new energy market, especially from the electric car market. We believe with that the booming future market demand in high power lithium ion products, we can continue as a going concern and return to profitability.
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.
9
The following table sets forth a summary of our cash flows for the periods indicated: (All
(All amounts in thousands of U.S. dollars)
| Nine Months Ended September 30, | |||||
| 2016 | 2017 | ||||
Net cash used in operating activities | $ | (12,554 | ) | $ | (6,476 | ) |
Net cash used in investing activities | (3,910 | ) | (6,289 | ) | ||
Net cash provided by financing activities | 18,511 | 12,465 | ||||
Effect of exchange rate changes on cash and cash equivalents | (174 | ) | 18 | |||
Net increase (decrease) in cash and cash equivalents | 1,873 | (282 | ) | |||
Cash and cash equivalents at the beginning of period | 80 | 408 | ||||
Cash and cash equivalents at the end of period | $ | 1,953 | $ | 126 |
Three Months Ended March 31, | ||||||||
2019 | 2020 | |||||||
Net cash (used in) provided by operating activities | $ | (4,024 | ) | $ | 686 | |||
Net cash used in investing activities | (1,222 | ) | (261 | ) | ||||
Net cash provided by (used in) financing activities | 5,010 | (1,937 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents, and restricted cash | 439 | (112 | ) | |||||
Net increase (decrease) in cash and cash equivalents, and restricted cash | 203 | (1,624 | ) | |||||
Cash and cash equivalents, and restricted cash at the beginning of period | 17,689 | 7,134 | ||||||
Cash and cash equivalents, and restricted cash at the end of period | $ | 17,892 | $ | 5,510 |
Operating Activities
Net cash used inprovided by operating activities was $6.5$0.7 million in the ninethree months ended September 30, 2017,March 31, 2020, as compared towith net cash used in operating activities of $12.6$4.0 million in the same period in 2016.2019. The decrease innet cash provided by operating cash outflow of approximately $6.1 millionactivities for the three months ended March 31, 2020 was mainly attributable to an increasing cash inflowincrease of $ 18.0$4.3 million onof trade payables to former subsidiaries and a decrease in inventories of $0.7 million, partially offset by our net loss (excluding non-cash depreciation and amortization, provision for doubtful debts, write-down of inventories and share-based compensation) of $0.4 million, a decrease of trade accounts and bills payable of $0.2 million, and $2.8an increase of $3.6 million in trade accounts and bills receivables.
The net cash used in operating activities for the three months ended March 31, 2019 was mainly attributable to settlement of trade accounts and bills payable of $8.3 million, our net loss (before loss on disposal of property, plant and equipment, and excluding non-cash depreciation and amortization) of $1.9 million and $1.1 million on settlement of trade balances with ourpayables to former subsidiaries, decreasing cash outflowpartially offset by a decrease of $11.0$1.3 million on inventories and $3.0 million onfor prepayments and other receivables and offset by the increasing cash outflowsa decrease of $27.3$5.4 million onfor trade accounts and bills receivable, and a decrease in provision for doubtful debts of $2.4 million.receivables.
Investing Activities
Net cash used in investing activities was $6.3$0.3 million for the ninethree months ended September 30, 2017,March 31, 2020, as compared to $3.9$1.2 million in the same period of 2016.2019. The net cash used in investing activities incomprised the nine months ended September 30, 2017 mainly comprised cash payment of $8.7 million on acquisitionpurchases of property, plant and equipment and construction in progress, offset by the decrease in pledged deposits of $2.4 million.progress.
Financing Activities
Net cash used in financing activities was $1.9 million in the three months ended March 31, 2020, as compared to net cash provided by financing activities was $12.5of $5.0 million in the nine months ended September 30, 2017, compared to $18.5 million during the same period in 2016.2019. The net cash used in financing activities for the three months ended March 31, 2020 was mainly attributable to repayment of borrowings of $5.7 million to Jilin Province Trust Co. Ltd., partially offset by borrowing of $3.5 million from Jilin Province Trust Co. Ltd. under a renewed credit facility. The net cash provided by financing activities in the ninethree months ended September 30, 2017 wasMarch 31, 2019 mainly comprised borrowing of $5.9 million from issuance of common stock of $9.6an unrelated party, $0.3 million advances from investors of $2.1 million and advances from former subsidiary of $2.1 million in the nine months ended September 30, 2017,related parties, partially offset by repayment of bank borrowingsborrowing of $1.5 million.$0.4 million from related parties and repaid $0.8 million of earnest money to our shareholders.
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As of September 30, 2017,March 31, 2020, 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: | ||||||
Bank of Dandong | $ | 19,534 | $ | 19,534 | ||
| ||||||
Short-term credit facilities: | ||||||
China Merchants Bank | $ | 15,027 | $ | 4,752 | ||
| ||||||
Other lines of credit: | ||||||
Bank acceptance bills: | ||||||
Bank of Dandong | $ | 7,166 | $ | 7,166 | ||
China Merchants Bank | 1,202 | 1,202 | ||||
| 8,368 | 8,368 | ||||
Commercial acceptance bills: | ||||||
Industrial and Commercial Bank of China | $ | 1,439 | $ | 1,439 | ||
| ||||||
Subtotal of other lines of credit | $ | 9,807 | $ | 9,807 | ||
| ||||||
Total | $ | 44,368 | $ | 34,093 |
Maximum amount available | Amount borrowed | |||||||
Long-term credit facilities: | ||||||||
China Everbright Bank | $ | 24,575 | $ | 20,027 | ||||
Other lines of credit: | ||||||||
China Everbright Bank | $ | 9,519 | $ | 9,519 | ||||
Other short term loan: | ||||||||
Jilin Province Trust Co. Ltd | $ | 5,650 | $ | 3,418 | ||||
Total | $ | 39,744 | $ | 32,964 |
Capital Expenditures
We incurred capital expenditures of $8.7$0.3 million and $1.3$1.2 million in the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. Our capital expenditures were used primarily to construct our manufacturing facilities in Dalian.
We estimate that our total capital expenditures for the year ending December 31, 20172020 will reach approximately $9.2$4.0 million. Such funds will be used to construct new plants and expand new automatic manufacturing lines to fulfillfulfil our customer demands.
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial commitments as of September 30, 2017:March 31, 2020:
(All amounts in thousands of U.S. dollars)
| Payments Due by Period | ||||||||||||||
| Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | ||||||||||
Contractual Obligations | |||||||||||||||
Short-term bank loans | $ | - | $ | - | $ | - | $ | - | $ | - | |||||
Long-term bank loans | 19,054 | - | 19,054 | - | - | ||||||||||
Bills payables | 15,387 | 15,387 | - | - | - | ||||||||||
Payable to former subsidiaries | 16,088 | 16,088 | - | - | - | ||||||||||
Other short-term loans | 13,303 | 13,303 | - | - | - | ||||||||||
Capital injection to Dalian Trading | 400 | 400 | - | - | - | ||||||||||
Capital commitments for construction of buildings | 2,462 | 2,462 | - | - | - | ||||||||||
Capital commitments for purchase of equipment | 170 | 170 | - | - | - | ||||||||||
Future interest payment on bank loans | 2,363 | 1,372 | 991 | - | - | ||||||||||
Total | $ | 69,227 | $ | 49,182 | $ | 20,045 | $ | - | $ | - |
Payments Due by Period | ||||||||||||||||||||
Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | ||||||||||||||||
Contractual Obligations | ||||||||||||||||||||
Short-term bank loans | $ | 5,636 | $ | 5,636 | $ | - | $ | - | $ | - | ||||||||||
Current maturities of long-term bank loans | 10,665 | 10,665 | - | - | - | |||||||||||||||
Long-term bank loans | 9,362 | - | 9,362 | - | - | |||||||||||||||
Bills payables | 3,883 | 3,883 | - | - | - | |||||||||||||||
Payable to former subsidiaries | 5,684 | 5,684 | - | - | - | |||||||||||||||
Other short-term loans | 5,259 | 5,259 | - | - | - | |||||||||||||||
Notes payable | 2,880 | 2,880 | - | - | - | |||||||||||||||
Capital injection to CBAK Trading | 2,565 | 2,565 | - | - | - | |||||||||||||||
Capital injection to CBAK Power | 30,000 | 30,000 | - | - | - | |||||||||||||||
Capital injection to CBAK Energy | 50,000 | 50,000 | - | - | - | |||||||||||||||
Capital commitments for construction of buildings | 3,342 | 3,342 | - | - | - | |||||||||||||||
Future interest payment on bank loans | 1,677 | 1,555 | 122 | - | - | |||||||||||||||
Future interest payment on other short-term loan | 405 | 405 | - | - | - | |||||||||||||||
Total | $ | 131,358 | $ | 121,874 | $ | 9,484 | $ | - | $ | - |
Other than the contractual obligations and commercial commitments set forth above, we did not have any other long-term debt obligations, operating lease obligations, capital commitments, purchase obligations or other long-term liabilities as of September 30, 2017.March 31, 2020.
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Off-Balance Sheet Transactions
11
We have not entered into any transactions, agreements or other contractual arrangements to which an entity unconsolidated with us is a party and under which we have (i) any obligation under a guarantee, (ii) any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity, (iii) any obligation under derivative instruments that are indexed to our shares and classified as shareholders’ equity in our consolidated balance sheets, or (iv) any obligation arising out of a variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Critical Accounting Policies
Our condensed consolidated financial information has been prepared in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (1) the reported amounts of our assets and liabilities, (2) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (3) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
There have beenwere no material changes to the critical accounting policies previously disclosed in our audited consolidated financial statements for the year ended December 31, 2019 included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2016.filed on May 14, 2020.
Changes in Accounting Standards
Please refer to note 1 to our condensed consolidated financial statements, “Principal Activities, Basis of Presentation and Organization –Recently– Recently Issued Accounting Standards,” for a discussion of relevant pronouncements.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017.March 31, 2020. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and interim chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer and our Interim Chief Financial Officer. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of September 30, 2017.March 31, 2020.
As we disclosed in our Annual Report on Form 10-K filed with the SEC on January 13, 2017,May 14, 2020, during our assessment of the effectiveness of internal control over financial reporting as of September 30, 2016,December 31, 2019, management identified the following material weakness in our internal control over financial reporting:
● | We did not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements. |
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● | We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements. |
In order to cure the foregoing material weakness, we have taken or are taking the following remediation measures:
| We are in the process of hiring a permanent chief financial officer with significant U.S. GAAP and SEC reporting experience. Ms. Xiangyu Pei was appointed by the Board of Directors of the Company as the Interim Chief Financial Officer on August |
We plan to make necessary changes by providing training to our financial team and our other relevant personnel on the U.S. GAAP accounting guidelines applicable to our financial reporting requirements. |
We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weakness that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
Changes in Internal Control over Financial Reporting
Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended September 30, 2017March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Other than the legal proceedings set forth below, we are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results:
On July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd (“Shenzhen Huijie”), one of ourthe Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’ Court of Zhuanghe City, Dalian (the “Court of Zhuanghe”) for the failure to pay pursuant to the terms of the contract and entrusted part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,266,893 (RMB8,430,792)$1,190,807 (RMB 8,430,792), including construction costs of $0.9 million (RMB6.3 million)(RMB6.1 million, which the Company already accrued for at June 30, 2016), interest of $0.03 million$28,249 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million), which we already accrued for as of September 30, 2017.. On September 7, 2016, upon the request of Shenzhen Huijie for property preservation, the Court of Zhuanghe froze Dalian BAK’sCBAK Power’s bank deposits totaling $1,266,893$1,190,807 (RMB 8,430,792) for a period of one year. Further 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. Further on August 27, 2018, the Court of Zhuanghe froze the bank deposits for another year until August 27, 2019, upon the request of Shenzhen Huijie. On SeptemberAugust 27, 2019, the Court of Zhuanghe froze the bank deposits for another year until August 27, 2020, upon the request of Shenzhen Huijie.
On June 30, 2017, according to the trial of first instance, the courtCourt 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.million, the Company has accrued for these amounts as of December 31, 2017. On July 24, 2017, Dalian CBAK Power filed an appealappellate petition to Dalianthe Intermediate Peoples’ Court challengingof Dalian (the “Court of Dalian)” to defend the lower court’s judgment renderedadjudication 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 did 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, we received from the Court of Zhuanghe that construction-cost-appraisal report which determined that the construction cost incurred and completed by Shenzhen Huijie for the subject project to be $1,289,548 (RMB9,129,868). On May 20, 2019, the Court of Zhuanghe entered a judgment that Shenzhen Huijie should pay back to CBAK Power $250,616 (RMB 1,774,337) (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 $235,475 (RMB 1,667,146) (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 $29,564 (RMB 209,312) that CBAK Power has paid. As of March 31, 2020, we have already paid RMB 10,962,140 (approximately $1,548,347) and accrued RMB6.1 million (approximately $0.9 million) for the construction cost incurred and completed by Shenzhen Huijie.
In May 2017, CBAK Power filed a lawsuit in the Court of Zhuanghe against PingxiangAnyuan Tourism Bus Manufacturing Co., Ltd., (“Anyuan Bus”) one of CBAK Power’s customers, for failure to pay pursuant to the terms of the sales contract. CBAK Power sought a total amount of RMB18,279,858 ($2,581,937), including goods amount of RMB17,428,000 ($2,461,617) and interest of RMB851,858 ($126,928). On December 19, 2017, the Court of Zhuanghe determined that Anyuan Bus should pay the goods amount of RMB17,428,000 ($2,596,792) and the interest until the goods amount was paid off, and a litigation fee of RMB131,480 ($19,591). Anyuan Bus did not appeal and as a result, the judgment is currently in the enforcement phase. On June 29, 2018, we filed a petition with the Court of Zhuanghe for enforcement of the judgement against all of Anyuan Bus’s shareholders, including Jiangxi Zhixin Automobile Co., Ltd, Anyuan Bus Manufacturing Co., Ltd, Anyuan Coal Group Co., Ltd, Qian Ronghua, Qian Bo and Li Junfu. On October 22, 2018, the Court of Zhuanghe issued a judgment supporting the our petition that all the Anyuan Bus’s shareholders should be liable to pay us the debt as confirmed under the trial. On November 9, 2018, all the shareholders appealed against the judgment after receiving the notice from the Court of Zhuanghe. On March 29, 2019, we received judgment from the Court of Zhuanghe that all these six shareholders cannot be added as judgment debtors. On April 11, 2019, we have filed an appellate petition to the Intermediate People’s Court of Dalian challenging the judgment from the Court of Zhuanghe. On October 9, 2019, the Intermediate Peoples’ Court of Dalian dismissed the appeal by us and affirmed the original judgment. As of March 31, 2019 and 2020, we had made a full provision against the receivable from Anyuan Bus of RMB17,428,000 ($2,461,617).
On July 25, 2019, CBAK Power received notice from Shenzhen Court of International Arbitration that Shenzhen Xinjiatuo Automobile Technology Co., Ltd filed arbitration against the Company for the failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.16 million (RMB1,112,269), including equipment cost of $0.14 million (RMB976,000) and interest of $0.02 million (RMB136,269). As of March 31, 2020, we have accrued the equipment cost of $0.14 million (RMB976,000).
On August 9, 2019, upon the request of Shenzhen Xinjiatuo Automobile Technology Co., Ltd, Shenzhen Court of International Arbitration froze CBAK Power’s bank deposits totaling $0.16 million (RMB1,117,269), including equipment cost $0.14 million (RMB976,000), interest $0.02 million (RMB136,269) and litigation fees of $706 (RMB5,000) for a period of one year to August 2020. We intend to continue tobelieve that the plaintiff’s claims are without merit and are vigorously defenddefending ourselves in this lawsuit.proceeding.
On August 7, 2019, CBAK Power filed counterclaim arbitration against Shenzhen Xinjiatuo Automobile Technology Co., Ltd for return of the prepayment due to the unqualified equipment, and sought a total amount of $0.28 million (RMB1,986,400), including return of prepayment of $0.2 million (RMB1,440,000), liquidated damages of $67,798 (RMB480,000) and litigation fees of $9,384 (RMB66,440).
In November 2019, CBAK Suzhou received notice from Court of Suzhou city that Suzhou Industrial Park Security Service Co., Ltd (“Suzhou Security”) filed lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $19,734 million (RMB139,713), including services expense of $19,620 million (RMB138,908) and interest of $114 (RMB805). Upon the request of Suzhou Security for property preservation, the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB 150,000) for a period of one year. As of March 31, 2020, nil was frozen by bank and we have accrued the service cost of $19,734 (RMB139,713).
In December 2019, CBAK Power received notice from Court of Zhuanghe that Dalian Construction Electrical Installation Engineering Co., Ltd. (“Dalian Construction”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the construction contract. Dalian Construction sought a total amount of $97,612 (RMB691,086) and interest $1,827 (RMB12,934). As of December 31, 2019, the Company has accrued the construction cost of $97,612 (RMB691,086). Upon the request of Dalian Construction for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $99,439 (RMB704,020) for a period of one year to December 2020. As of March 31, 2020, $94,965 (RMB661,240) was frozen by bank. In January 2020, CBAK Power and Dalian Construction have reached a settlement, and the bank deposit was then released.
In February 2020, CBAK Power received notice from Court of Zhuanghe that Dongguan Shanshan Battery Material Co., Ltd (“Dongguan Shanshan”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Dongguan Shanshan sought a total amount of $0.6 million (RMB4,434,209), which has already been accrued for as of March 31, 2020. Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.6 million (RMB4,434,209) for a period of one year to December 17, 2020. As of March 31, 2020, $32,979 (RMB233,490) was frozen by bank.
On March 20, 2020, CBAK Power received notice from Court of Nanpi County, Hebei Province that Cangzhou Huibang Engineering Manufacturing Co., Ltd (“Cangzhou Huibang”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.3 million (RMB2,029,594), including materials purchase cost of $0.3 million (RMB1,932,947), and interest of $13,651 (RMB96,647). As of March 31, 2020, we have accrued materials purchase cost of $0.3 million (RMB1,932,947). Upon the request of Cangzhou Huibang for property preservation, the Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $0.3 million (RMB2,029,594) for a period of one year to March 3, 2020. As of March 31, 2020, $2,622 (RMB18,562) was frozen by bank.
In June 2020, CBAK Suzhou received notice from Court of Suzhou Industrial Park that Ligao (Shandong) New Energy Technology Co., Ltd (“Ligao”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Ligao sought a total amount of $10,961 (RMB77,599), including contract amount of $10,365 (RMB73,380) and interest of $596 (RMB4,219). As of March 31, 2020, the Company had accrued the material purchase cost of $10,961 (RMB77,599).
In June 2020, CBAK Suzhou received notice from Court of Yushui District, Xinyu City that Jiangxi Ganfeng Battery Technology Co., Ltd (“Ganfeng Battery”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Ganfeng Battery sought a total amount of $ 106,750 (RMB755,780), including contract amount of $103,534 (RMB733,009) and interest of $3,216 (RMB22,771). Upon the request of Ganfeng Battery for property preservation, the Court of Yushui froze CBAK Suzhou’s bank deposits totaling $108,758 (RMB769,994) for a period of one year. As of March 31, 2020, nil was frozen by bank and the Company had accrued the material purchase cost of $103,534 (RMB 733,009).
In June 2020, CBAK Suzhou received notice from Court of Suzhou Industrial Park that Suzhou Jihongkai Machine Equipment Co., Ltd (“Jihongkai”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Jihongkai sought contract amount of $24,820 (RMB175,722) and interest as accrued until settlement. As of March 31, 2020, the Company had accrued the material purchase cost of $24,820 (RMB175,722).
In early September of 2019, several employees of CBAK Suzhou filed arbitration with Suzhou Industrial Park Labor Disputes Arbitration Commission against CBAK Suzhou for failure to pay their salaries in time. The employees seek for a payment including salaries of $90,165 (RMB638,359) and compensation of $76,696 (RMB543,000), totaling $0.17 million (RMB1,181,359). In addition, upon the request of the employees for property preservation, bank deposit of $0.17 million (RMB1,181,359) was frozen by the court of Suzhou for a period of one year. On September 5, 2019, CBAK Suzhou and the employees reached an agreement that CBAK Suzhou will pay these salaries and compensation. In February 2020, we fully repaid the salaries and compensation. As of March 31, 2020, $6 (RMB43) was frozen by bank.
ITEM 1A. | RISK FACTORS. |
There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.December 31, 2019.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
None.
13Other than as previously disclosed in current reports on Form 8-K, there were no unregistered sales of equity securities or repurchase of common stock during the period covered by this report.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | MINE SAFETY DISCLOSURES. |
14
Not applicable.
ITEM 5. | OTHER INFORMATION. |
None.
ITEM 6. | EXHIBITS. |
The following exhibits are filed as part of this report or incorporated by reference:
Exhibit No. | Description | |
31.1 | Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
15SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 20, 2017July 2, 2020
CBAK ENERGY TECHNOLOGY, INC. | ||
By: | /s/ Yunfei Li | |
Yunfei Li | ||
Chief Executive Officer | ||
By: | /s/ | |
Interim Chief Financial Officer |
16
EXHIBIT INDEX
Exhibit No. | Description | |
31.1 | Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
54