ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
FINANCIAL
STATEMENTS
CBAK
ENERGY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED
DECEMBER
31, 2019 AND 2020
CBAK
ENERGY TECHNOLOGY, INC.
AND
SUBSIDIARIES
TABLE
OF CONTENTS
Report
of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
CBAK Energy Technology, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of CBAK Energy Technology, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the
related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity and cash flows for
each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows
for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company
has a working capital deficiency, accumulated deficit from recurring net losses and significant short-term debt obligations maturing in
less than one year as of December 31, 2020. All these factors raise substantial doubt about its ability to continue as a going concern.
Management’s plans in regard to these matters are also discussed in Note 1 to the consolidated financial statements. These consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below
are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Going concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company
has a working capital deficiency, accumulated deficit from recurring net losses and significant short-term debt obligations maturing in
less than one year as of December 31, 2020. The Company has contractual obligations such as commitments for purchases of equipment, building
constructions cost, payable, capital injection to subsidiaries and short-term loan (collectively “obligations”). Currently
management’s forecasts and related assumptions illustrate their ability to meet the obligations through management of expenditures
and, if necessary, obtaining additional debt financing, loans from existing directors and shareholders and private placements of capital
stock for additional funding to meet its operating needs. Should there be constraints on the ability to access such financing, the Company
can manage cash outflows to meet the obligations through reductions in capital expenditures and other operating expenditures.
We identified management’s assessment of
the Company’s ability to continue as a going concern as a critical audit matter. Management made judgments to conclude that it
is probable that the Company’s plans will be effectively implemented and will provide the necessary cash flows to fund the Company’s
obligations as they become due. Specifically, the judgments with the highest degree of impact and subjectivity in determining it is probable
that the Company’s plans will be effectively implemented included the revenue growth and gross margin assumptions underlying its
forecast operating cash flows, its ability to reduce capital expenditures and other operating expenditures, its ability to access funding
from the capital market and its ability to obtaining loans from existing directors and shareholders. Auditing the judgments made by management
required a high degree of auditor judgment and an increased extent of audit effort.
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures
included the following, among others: (i) testing key assumptions underlying management’s forecast operating cash flows, including
revenue growth and gross margin assumptions; (ii) evaluating the probability that the Company will be able to access funding from the
capital market; (iii) evaluating the probability that the Company will be able to reduce capital expenditures and other operating expenditures
if required and (iv) evaluating the probability that the Company will be able to obtain the loan from existing directors and shareholders.
Inventory write-down
As described in Note 2 of the consolidated financial
statements, inventories are stated at the lower of cost or net realizable value, with cost determined on a weighted average cost method.
Write-down of potential obsolete or slow moving inventories is recorded based on management’s assumptions about future demands
and market conditions. For the year ended December 31, 2020, the Company recorded inventory impairment charges of $1.5 million. Inventories
include items that have been written down to the Company’s best estimate of their realizable value, which includes consideration
of various factors.
We identified the inventory write-down as a critical
audit matter. The Company’s determination of future markdowns is subjective. Specifically, there was a high degree of subjective
auditor judgment in evaluating how the Company’s merchandising strategy and related inventory markdown assumptions affected the
realizable value of inventory.
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures
included the following, among others: (i) observing the physical condition of inventories during inventory counts; (ii) evaluating the
appropriateness of management’s process for developing the estimates of net realizable value; (iii) testing the reasonableness
of the assumptions about quality, damages, future demand, selling prices and market conditions by considering with historical trends
and consistency with evidence obtained in other areas of the audit; and corroborating the assumptions with individuals within the product
team; and (iv) assessing the Company’s adjustments of inventory costs to net realizable value for slow-moving and obsolete inventories
by (1) comparing the historical estimate for net realizable value adjustments to actual adjustments of inventory costs, and (2) analyzing
sales subsequent to the measurement date.
Assessment of impairment
of long-lived assets
As discussed in Note 2 to the consolidated financial statements, the
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of these assets
may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Fair value is generally measured based on either quoted market prices, if available, or discounted
cash flow analyses. Based upon the analysis performed, the Company recognized impairment losses for long-lived assets of $4.3 million
for the year ended December 31, 2020.
We identified the assessment of impairment of
long-lived assets as a critical audit matter because of the significant estimates and assumptions management used in the projections
of future cash flows, including the expected production and sales volumes, production costs, operating expenses and discount rates applied
to these forecasted future cash flows. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions
required a high degree of auditor judgment and an increased extent of effort.
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures
included the following, among others: (i) comparing the methodology used by the Company, that is, recoverable amount calculations based
on future discounted cash flows, to industry practice and testing the completeness and accuracy of the underlying data used in the projections;
(ii) assessing the reasonableness of the significant assumptions used in the calculations, which comprised of, amongst others, expected
production and sales volumes, production costs, operating expenses and discount rates, by comparing them to external industry outlook
reports from a number of sources and by analyzing the historical accuracy of management’s estimates; and (iii) involving our valuation
specialists to assist us with assessing the appropriateness of the valuation methodologies and the reasonableness of assumptions used,
including the discount rates.
Assessment of allowances
for doubtful accounts
As discussed in Note 2 to the consolidated financial
statements, the allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s
existing trade accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific
facts and economic conditions. Outstanding accounts receivable balances are reviewed individually for collectability. Account balances
are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered
remote. Based upon the analysis performed, the Company recognized a provision for doubtful accounts of $0.7 million for the year ended
December 31, 2020.
We identified the assessment of allowances for
doubtful accounts as a critical audit matter. Specifically, the specific allowance is an estimate that involved assessing the likelihood
of collection of a customer’s accounts receivable by considering various factors such as the nature of any dispute, communications
from the customer, historical collections, and number of days accounts receivables have been outstanding. Subjective auditor judgment
was involved in evaluating the relevance and reliability of the evidence obtained in evaluating these factors.
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures
included the following, among others: (i) investigating significant fluctuations in the specific allowance as compared to net accounts
receivable and the prior year specific allowance; (ii) inquiring of Company personnel to evaluate the rationale for establishing a specific
allowance for certain customers; (iii) assessing the Company’s estimate of the specific customer allowance by evaluating the underlying
contractual documents, historical collection trends, communications with customers and other additional factors; and (iv) evaluating
subsequent collections occurring after the balance sheet date and considered the impact of potential subsequent events on the estimate
of the specific allowance.
/s/ Centurion ZD CPA & Co.
Centurion ZD CPA & Co.
We have served as the Company’s auditor
since 2016.
Hong Kong, China
April 13, 2021
CBAK
Energy Technology, Inc. and Subsidiaries
Consolidated
Balance Sheets
As
of December 31, 2019 and 2020
(In
US$ except for number of shares)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Note
|
|
2019
|
|
|
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
1,612,957
|
|
|
$
|
11,681,750
|
|
Pledged deposits
|
|
3
|
|
|
5,520,991
|
|
|
|
8,989,748
|
|
Trade accounts and bills receivable, net
|
|
4
|
|
|
7,952,420
|
|
|
|
29,571,274
|
|
Inventories
|
|
5
|
|
|
8,666,714
|
|
|
|
5,252,845
|
|
Prepayments and other receivables
|
|
6
|
|
|
4,735,913
|
|
|
|
7,439,544
|
|
Investment in sales-type lease, net
|
|
10
|
|
|
-
|
|
|
|
235,245
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
28,488,995
|
|
|
|
63,170,406
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
8
|
|
|
38,177,565
|
|
|
|
41,040,370
|
|
Construction in progress
|
|
9
|
|
|
21,707,624
|
|
|
|
30,193,309
|
|
Right-of-use assets
|
|
10
|
|
|
7,194,195
|
|
|
|
7,500,780
|
|
Intangible assets, net
|
|
11
|
|
|
15,178
|
|
|
|
11,807
|
|
Investment in sales-type lease, net
|
|
10
|
|
|
-
|
|
|
|
850,407
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
$
|
95,583,557
|
|
|
$
|
142,767,079
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Trade accounts and bills payable
|
|
12
|
|
$
|
15,072,108
|
|
|
$
|
28,352,292
|
|
Current maturities of long-term bank loans
|
|
13
|
|
|
16,574,752
|
|
|
|
13,739,546
|
|
Other short-term loans
|
|
13
|
|
|
7,351,587
|
|
|
|
1,253,869
|
|
Notes payables
|
|
17
|
|
|
2,846,736
|
|
|
|
-
|
|
Accrued expenses and other payables
|
|
14
|
|
|
15,527,589
|
|
|
|
11,645,459
|
|
Payables to former subsidiaries, net
|
|
7
|
|
|
1,483,352
|
|
|
|
626,990
|
|
Deferred government grants, current
|
|
15
|
|
|
142,026
|
|
|
|
151,476
|
|
Product warranty provisions
|
|
16
|
|
|
-
|
|
|
|
155,888
|
|
Warrants liability
|
|
21
|
|
|
-
|
|
|
|
17,783,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
58,998,150
|
|
|
|
73,708,520
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
|
|
13
|
|
|
9,519,029
|
|
|
|
-
|
|
Deferred government grants, non-current
|
|
15
|
|
|
4,118,807
|
|
|
|
7,304,832
|
|
Product warranty provisions
|
|
16
|
|
|
2,246,933
|
|
|
|
1,835,717
|
|
Long term tax payable
|
|
|
|
|
7,042,582
|
|
|
|
7,511,182
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
81,925,501
|
|
|
|
90,360,251
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
Common stock $0.001 par value; 500,000,000 authorized; 53,220,902 issued and 53,076,696 outstanding as of December 31, 2019; and 79,310,249 issued and 79,166,043 outstanding as of December 31, 2020
|
|
|
|
|
53,222
|
|
|
|
79,310
|
|
Donated shares
|
|
|
|
|
14,101,689
|
|
|
|
14,101,689
|
|
Additional paid-in capital
|
|
|
|
|
180,208,610
|
|
|
|
225,278,113
|
|
Statutory reserves
|
|
|
|
|
1,230,511
|
|
|
|
1,230,511
|
|
Accumulated deficit
|
|
|
|
|
(176,177,413
|
)
|
|
|
(183,984,311
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
(1,744,730
|
)
|
|
|
(239,609
|
)
|
|
|
|
|
|
17,671,889
|
|
|
|
56,465,703
|
|
Less: Treasury shares
|
|
|
|
|
(4,066,610
|
)
|
|
|
(4,066,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
13,605,279
|
|
|
|
52,399,093
|
|
Non-controlling interests
|
|
|
|
|
52,777
|
|
|
|
7,735
|
|
Total equity
|
|
|
|
|
13,658,056
|
|
|
|
52,406,828
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholder’s equity
|
|
|
|
$
|
95,583,557
|
|
|
$
|
142,767,079
|
|
See
accompanying notes to the consolidated financial statements.
CBAK
Energy Technology, Inc. and Subsidiaries
Consolidated
Statements of Operations and Comprehensive Income (Loss)
For
the years ended December 31, 2019 and 2020
(In
US$ except for number of shares)
|
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
Note
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Net revenues
|
|
25
|
|
$
|
22,194,348
|
|
|
$
|
37,566,152
|
|
Cost of revenues
|
|
|
|
|
(21,571,822
|
)
|
|
|
(34,852,132
|
)
|
Gross profit
|
|
|
|
|
622,526
|
|
|
|
2,714,020
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
|
|
(1,905,504
|
)
|
|
|
(1,678,895
|
)
|
Sales and marketing expenses
|
|
|
|
|
(1,020,929
|
)
|
|
|
(701,404
|
)
|
General and administrative expenses
|
|
|
|
|
(4,411,878
|
)
|
|
|
(3,745,676
|
)
|
Impairment charge on property, plant and equipment
|
|
8
|
|
|
(2,326,552
|
)
|
|
|
(4,345,811
|
)
|
Provision for doubtful accounts
|
|
4
|
|
|
(1,046,360
|
)
|
|
|
(721,737
|
)
|
Total operating expenses
|
|
|
|
|
(10,711,223
|
)
|
|
|
(11,193,523
|
)
|
Operating loss
|
|
|
|
|
(10,088,697
|
)
|
|
|
(8,479,503
|
)
|
Finance expenses, net
|
|
|
|
|
(1,384,904
|
)
|
|
|
(1,399,095
|
)
|
Other income (expenses), net
|
|
|
|
|
620,166
|
|
|
|
(40,170
|
)
|
Changes in fair value of warrants liability
|
|
|
|
|
-
|
|
|
|
2,072,000
|
|
Loss before income tax
|
|
|
|
|
(10,853,435
|
)
|
|
|
(7,846,768
|
)
|
Income tax expense
|
|
18
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
|
|
(10,853,435
|
)
|
|
|
(7,846,768
|
)
|
Less: Net loss attributable to non-controlling interests
|
|
|
|
|
85,912
|
|
|
|
39,870
|
|
Net loss attributable to shareholders of CBAK Energy Technology, Inc.
|
|
|
|
$
|
(10,767,523
|
)
|
|
$
|
(7,806,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
(10,853,435
|
)
|
|
|
(7,846,768
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
– Foreign currency translation adjustment
|
|
|
|
|
(246,416
|
)
|
|
|
1,499,949
|
|
Comprehensive loss
|
|
|
|
|
(11,099,851
|
)
|
|
|
(6,346,819
|
)
|
Less: Comprehensive loss attributable to non-controlling interests
|
|
|
|
|
86,538
|
|
|
|
45,042
|
|
Comprehensive loss attributable to CBAK Energy Technology, Inc.
|
|
|
|
$
|
(11,013,313
|
)
|
|
$
|
(6,301,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
20
|
|
|
|
|
|
|
|
|
– Basic and diluted
|
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock:
|
|
20
|
|
|
|
|
|
|
|
|
– Basic and diluted
|
|
|
|
|
38,965,564
|
|
|
|
61,992,386
|
|
See
accompanying notes to the consolidated financial statements.
CBAK
Energy Technology, Inc. and Subsidiaries
Consolidated
Statements of Changes in Shareholders’ Equity
For
the years ended 2019 and 2020
(In
US$ except for number of shares)
|
|
Common stock issued
|
|
|
|
|
|
Additional
|
|
|
Statutory
|
|
|
|
|
|
Accumulated other
|
|
|
Non-
|
|
|
Treasury shares
|
|
|
Total
|
|
|
|
Number
|
|
|
|
|
|
Donated
|
|
|
paid-in
|
|
|
reserves
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
controlling
|
|
|
Number
|
|
|
|
|
|
shareholders’
|
|
|
|
of shares
|
|
|
Amount
|
|
|
shares
|
|
|
capital
|
|
|
(Note 26)
|
|
|
deficit
|
|
|
loss
|
|
|
interests
|
|
|
of shares
|
|
|
Amount
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution from non-controlling interests of a subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,338
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,767,523
|
)
|
|
|
-
|
|
|
|
(85,912
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,853,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation for employee and director stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
770,113
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
770,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to employees and directors for stock award
|
|
|
433,337
|
|
|
|
434
|
|
|
|
-
|
|
|
|
(434
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to investors
|
|
|
25,995,881
|
|
|
|
25,996
|
|
|
|
-
|
|
|
|
23,507,161
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,533,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(245,790
|
)
|
|
|
(626
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(246,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,806,898
|
)
|
|
|
-
|
|
|
|
(39,870
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,846,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation for employee and director stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
803,931
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
803,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to employees and directors for stock award
|
|
|
588,663
|
|
|
|
588
|
|
|
|
-
|
|
|
|
(588
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to investors
|
|
|
16,010,884
|
|
|
|
16,010
|
|
|
|
-
|
|
|
|
18,782,068
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,798,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of shares and warrants for capital contribution
|
|
|
9,489,800
|
|
|
|
9,490
|
|
|
|
-
|
|
|
|
25,484,092
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,493,582
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,505,121
|
|
|
|
(5,172
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,499,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
|
79,310,249
|
|
|
$
|
79,310
|
|
|
$
|
14,101,689
|
|
|
$
|
225,278,113
|
|
|
$
|
1,230,511
|
|
|
$
|
(183,984,311
|
)
|
|
$
|
(239,609
|
)
|
|
$
|
7,735
|
|
|
|
(144,206
|
)
|
|
$
|
(4,066,610
|
)
|
|
$
|
52,406,828
|
|
See
accompanying notes to the consolidated financial statements.
CBAK
Energy Technology, Inc. and subsidiaries
Consolidated
statements of cash flows
For
the years ended December 31, 2019 and 2020
(In
US$)
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(10,853,435
|
)
|
|
$
|
(7,846,768
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,753,200
|
|
|
|
2,700,888
|
|
Provision
for doubtful accounts
|
|
|
1,046,360
|
|
|
|
721,737
|
|
Write-down
of inventories
|
|
|
834,362
|
|
|
|
1,450,182
|
|
Share-based
compensation
|
|
|
770,113
|
|
|
|
803,931
|
|
Changes
in fair value of warrants liability
|
|
|
-
|
|
|
|
(2,072,000
|
)
|
Loss
on disposal of property, plant and equipment
|
|
|
213,749
|
|
|
|
21,317
|
|
Impairment
charge
|
|
|
2,326,552
|
|
|
|
4,345,811
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade
accounts and bills receivable
|
|
|
10,313,229
|
|
|
|
(20,767,355
|
)
|
Inventories
|
|
|
11,044
|
|
|
|
2,305,697
|
|
Prepayments
and other receivables
|
|
|
2,808,375
|
|
|
|
(2,171,694
|
)
|
Investment
in sales-type lease
|
|
|
-
|
|
|
|
(1,026,739
|
)
|
Trade
accounts and bills payable
|
|
|
(30,530,773
|
)
|
|
|
11,088,116
|
|
Accrued
expenses and other payables and product warranty provisions
|
|
|
1,087,216
|
|
|
|
(975,687
|
)
|
Trade
receivable from and payables to former subsidiaries
|
|
|
(2,002,358
|
)
|
|
|
3,428,010
|
|
Government
grants
|
|
|
-
|
|
|
|
2,897,207
|
|
Net
cash used in operating activities
|
|
|
(21,222,366
|
)
|
|
|
(5,097,347
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds
on disposal of property, plant and equipment
|
|
|
32,719
|
|
|
|
-
|
|
Purchases
of property, plant and equipment and construction in progress
|
|
|
(2,452,907
|
)
|
|
|
(5,709,975
|
)
|
Net
cash used in investing activities
|
|
|
(2,420,188
|
)
|
|
|
(5,709,975
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Capital
injection from non-controlling interests
|
|
|
127,338
|
|
|
|
-
|
|
Proceeds
from bank borrowings
|
|
|
5,776,497
|
|
|
|
-
|
|
Repayment
of bank borrowings
|
|
|
(3,643,971
|
)
|
|
|
(13,325,849
|
)
|
Borrowings
from unrelated parties
|
|
|
6,341,117
|
|
|
|
3,505,621
|
|
Repayment
of borrowings from unrelated parties
|
|
|
(14,477
|
)
|
|
|
(9,778,074
|
)
|
Borrowings
from related parties
|
|
|
492,233
|
|
|
|
-
|
|
Repayment
of borrowings from related parties
|
|
|
(1,365,714
|
)
|
|
|
-
|
|
Borrowings
from shareholders
|
|
|
4,053,682
|
|
|
|
358,358
|
|
Repayment
of borrowings from shareholders
|
|
|
-
|
|
|
|
(281,676
|
)
|
Repayment
of earnest money to shareholders
|
|
|
(966,579
|
)
|
|
|
-
|
|
Proceeds
from issuance of shares
|
|
|
-
|
|
|
|
45,348,582
|
|
Proceeds
from issuance of promissory notes (Note 17)
|
|
|
2,750,000
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
13,550,126
|
|
|
|
25,826,962
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents and restricted cash
|
|
|
(463,117
|
)
|
|
|
(1,482,090
|
)
|
Net
increase (decrease) in cash and cash equivalents and restricted cash
|
|
|
(10,555,545
|
)
|
|
|
13,537,550
|
|
Cash
and cash equivalents and restricted cash at the beginning of year
|
|
|
17,689,493
|
|
|
|
7,133,948
|
|
Cash
and cash equivalents and restricted cash at the end of year
|
|
$
|
7,133,948
|
|
|
$
|
20,671,498
|
|
Supplemental
non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Transfer
of construction in progress to property, plant and equipment
|
|
$
|
5,975,163
|
|
|
$
|
8,434,331
|
|
Non-cash
payment for purchases of property, plant and equipment and construction in progress by new vehicles
|
|
$
|
-
|
|
|
$
|
644,917
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock (Note
1):
|
|
|
|
|
|
|
|
|
–
offset short term borrowings (First Debt, Second Debt and Third Debt)
|
|
$
|
15,029,948
|
|
|
$
|
-
|
|
–
offset construction cost payable (Fourth Debt)
|
|
$
|
3,343,378
|
|
|
$
|
-
|
|
–
offset accounts payable (Fifth Debt) and unpaid earnest money
|
|
$
|
5,159,831
|
|
|
$
|
-
|
|
–
offset repayment of promissory note
|
|
$
|
-
|
|
|
$
|
3,339,528
|
|
–
offset payable to Shenzhen Bak (Sixth Debt)
|
|
$
|
-
|
|
|
$
|
4,285,532
|
|
–
offset construction cost payable (Seventh Debt)
|
|
$
|
-
|
|
|
$
|
11,173,018
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest,
net of amounts capitalized
|
|
$
|
1,378,349
|
|
|
$
|
989,529
|
|
See
accompanying notes to the consolidated financial statements.
CBAK
Energy Technology, Inc. and subsidiaries
Notes to the consolidated financial statements
For the years ended December 31, 2019 and 2020
(In US$ except for number of shares)
1.
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Principal
Activities, Basis of Presentation and Organization
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Principal
Activities
CBAK
Energy Technology, Inc. (formerly known as China BAK Battery, Inc.) (“CBAK” or the “Company”) is a corporation
formed in the State of Nevada on October 4, 1999 as Medina Copy, Inc. The Company changed its name to Medina Coffee, Inc. on October
6, 1999 and subsequently changed its name to China BAK Battery, Inc. on February 14, 2005. CBAK and its subsidiaries (hereinafter, collectively
referred to as the “Company”) are principally engaged in the manufacture, commercialization and distribution of a wide variety
of standard and customized lithium ion (known as “Li-ion” or “Li-ion cell”) high power rechargeable batteries.
Prior to the disposal of BAK International Limited (“BAK International”) and its subsidiaries (see below), the batteries
produced by the Company were for use in cellular telephones, as well as various other portable electronic applications, including high-power
handset telephones, laptop computers, power tools, digital cameras, video camcorders, MP3 players, electric bicycles, hybrid/electric
vehicles, and general industrial applications. After the disposal of BAK International and its subsidiaries on June 30, 2014, the Company
will focus on the manufacture, commercialization and distribution of high power lithium ion rechargeable batteries for use in cordless
power tools, light electric vehicles, hybrid electric vehicles, electric cars, electric busses, uninterruptable power supplies and other
high power applications.
The
shares of the Company traded in the over-the-counter market through the Over-the-Counter Bulletin Board from 2005 until May 31, 2006,
when the Company obtained approval to list its common stock on The NASDAQ Global Market, and trading commenced that same date under the
symbol “CBAK”.
On
January 10, 2017, the Company filed Articles of Merger with the Secretary of State of Nevada to effectuate a merger between the Company
and the Company’s newly formed, wholly owned subsidiary, CBAK Merger Sub, Inc. (the “Merger Sub”). According to the
Articles of Merger, effective January 16, 2017, the Merger Sub merged with and into the Company with the Company being the surviving
entity (the “Merger”). As permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the Merger was to
effect a change of the Company’s name.
Effective
November 30, 2018, the trading symbol for common stock of the Company was changed from CBAK to CBAT. Effective at the opening of business
on June 21, 2019, the Company’s common stock started trading on the Nasdaq Capital Market.
Basis
of Presentation and Organization
On
November 6, 2004, BAK International, a non-operating holding company that had substantially the same shareholders as Shenzhen BAK Battery
Co., Ltd (“Shenzhen BAK”), entered into a share swap transaction with the shareholders of Shenzhen BAK for the purpose of
the subsequent reverse acquisition of the Company. The share swap transaction between BAK International and the shareholders of Shenzhen
BAK was accounted for as a reverse acquisition of Shenzhen BAK with no adjustment to the historical basis of the assets and liabilities
of Shenzhen BAK.
On
January 20, 2005, the Company completed a share swap transaction with the shareholders of BAK International. The share swap transaction,
also referred to as the “reverse acquisition” of the Company, was consummated under Nevada law pursuant to the terms of a
Securities Exchange Agreement entered by and among CBAK, BAK International and the shareholders of BAK International on January 20, 2005.
The share swap transaction has been accounted for as a capital-raising transaction of the Company whereby the historical financial statements
and operations of Shenzhen BAK are consolidated using historical carrying amounts.
Also
on January 20, 2005, immediately prior to consummating the share swap transaction, BAK International executed a private placement of
its common stock with unrelated investors whereby it issued an aggregate of 1,720,087 shares of common stock for gross proceeds of $17,000,000.
In conjunction with this financing, Mr. Xiangqian Li, the Chairman and Chief Executive Officer of the Company (“Mr. Li”),
agreed to place 435,910 shares of the Company’s common stock owned by him into an escrow account pursuant to an Escrow Agreement
dated January 20, 2005 (the “Escrow Agreement”). Pursuant to the Escrow Agreement, 50% of the escrowed shares were to be
released to the investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2005
was not at least $12,000,000, and the remaining 50% was to be released to investors in the private placement if audited net income of
the Company for the fiscal year ended September 30, 2006 was not at least $27,000,000. If the audited net income of the Company for the
fiscal years ended September 30, 2005 and 2006 reached the above-mentioned targets, the 435,910 shares would be released to Mr. Li in
the amount of 50% upon reaching the 2005 target and the remaining 50% upon reaching the 2006 target.
Under
accounting principles generally accepted in the United States of America (“US GAAP”), escrow agreements such as the one established
by Mr. Li generally constitute compensation if, following attainment of a performance threshold, shares are returned to a company officer.
The Company determined that without consideration of the compensation charge, the performance thresholds for the year ended September
30, 2005 would be achieved. However, after consideration of a related compensation charge, the Company determined that such thresholds
would not have been achieved. The Company also determined that, even without consideration of a compensation charge, the performance
thresholds for the year ended September 30, 2006 would not be achieved.
While
the 217,955 escrow shares relating to the 2005 performance threshold were previously released to Mr. Li, Mr. Li executed a further undertaking
on August 21, 2006 to return those shares to the escrow agent for the distribution to the relevant investors. However, such shares were
not returned to the escrow agent, but, pursuant to a Delivery of Make Good Shares, Settlement and Release Agreement between the Company,
BAK International and Mr. Li entered into on October 22, 2007 (the “Li Settlement Agreement”), such shares were ultimately
delivered to the Company as described below. Because the Company failed to satisfy the performance threshold for the fiscal year ended
September 30, 2006, the remaining 217,955 escrow shares relating to the fiscal year 2006 performance threshold were released to the relevant
investors. As Mr. Li has not retained any of the shares placed into escrow, and as the investors party to the Escrow Agreement are only
shareholders of the Company and do not have and are not expected to have any other relationship to the Company, the Company has not recorded
a compensation charge for the years ended September 30, 2005 and 2006.
At
the time the escrow shares relating to the 2006 performance threshold were transferred to the investors in fiscal year 2007, the Company
should have recognized a credit to donated shares and a debit to additional paid-in capital, both of which are elements of shareholders’
equity. This entry is not material because total ordinary shares issued and outstanding, total shareholders’ equity and total assets
do not change; nor is there any impact on income or earnings per share. Therefore, previously filed consolidated financial statements
for the fiscal year ended September 30, 2007 will not be restated. This share transfer has been reflected in these financial statements
by reclassifying the balances of certain items as of October 1, 2007. The balances of donated shares and additional paid-in capital as
of October 1, 2007 were credited and debited by $7,955,358 respectively, as set out in the consolidated statements of changes in shareholders’
equity.
In
November 2007, Mr. Li delivered the 217,955 shares related to the 2005 performance threshold to BAK International pursuant to the Li
Settlement Agreement; BAK International in turn delivered the shares to the Company. Such shares (other than those issued to investors
pursuant to the 2008 Settlement Agreements, as described below) are now held by the Company. Upon receipt of these shares, the Company
and BAK International released all claims and causes of action against Mr. Li regarding the shares, and Mr. Li released all claims and
causes of action against the Company and BAK International regarding the shares. Under the terms of the Li Settlement Agreement, the
Company commenced negotiations with the investors who participated in the Company’s January 2005 private placement in order to
achieve a complete settlement of BAK International’s obligations (and the Company’s obligations to the extent it has any)
under the applicable agreements with such investors.
Beginning
on March 13, 2008, the Company entered into settlement agreements (the “2008 Settlement Agreements”) with certain investors
in the January 2005 private placement. Since the other investors have never submitted any claims regarding this matter, the Company did
not reach any settlement with them.
Pursuant
to the 2008 Settlement Agreements, the Company and the settling investors have agreed, without any admission of liability, to a settlement
and mutual release from all claims relating to the January 2005 private placement, including all claims relating to the escrow shares
related to the 2005 performance threshold that had been placed into escrow by Mr. Li, as well as all claims, including claims for liquidated
damages relating to registration rights granted in connection with the January 2005 private placement. Under the 2008 Settlement Agreement,
the Company has made settlement payments to each of the settling investors of the number of shares of the Company’s common stock
equivalent to 50% of the number of the escrow shares related to the 2005 performance threshold these investors had claimed; aggregate
settlement payments as of June 30, 2015amounted to 73,749 shares. Share payments to date have been made in reliance upon the exemptions
from registration provided by Section 4(2) and/or other applicable provisions of the Securities Act of 1933, as amended. In accordance
with the 2008 Settlement Agreements, the Company filed a registration statement covering the resale of such shares which was declared
effective by the SEC on June 26, 2008.
Pursuant
to the Li Settlement Agreement, the 2008 Settlement Agreements and upon the release of the 217,955 escrow shares relating to the fiscal
year 2006 performance threshold to the relevant investors, neither Mr. Li or the Company have any obligations to the investors who participated
in the Company’s January 2005 private placement relating to the escrow shares.
As
of December 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 was established as a wholly owned subsidiary of China BAK Asia Holding Limited (“BAK
Asia”) with a registered capital of $500,000. Pursuant to CBAK Trading’s articles of association and relevant PRC regulations,
BAK Asia was required to contribute the capital to CBAK Trading on or before August 14, 2015. On March 7, 2017, the name of Dalian BAK
Trading Co., Ltd was changed to Dalian CBAK Trading Co., Ltd (“CBAK Trading”). On August 5, 2019, CBAK Trading’s registered
capital was increased to $5,000,000. Pursuant to CBAK Trading’s amendment articles of association and relevant PRC regulations,
BAK Asia was required to contribute the capital to CBAK Trading on or before August 1, 2033. Up to the date of this report, the Company
has contributed $2,435,000 to CBAK Trading in cash.
On
December 27, 2013, Dalian BAK Power Battery Co., Ltd was established as a wholly owned subsidiary of BAK Asia with a registered capital
of $30,000,000. Pursuant to CBAK Power’s articles of association and relevant PRC regulations, BAK Asia was required to contribute
the capital to CBAK Power on or before December 27, 2015. On March 7, 2017, the name of Dalian BAK Power Battery Co., Ltd was changed
to Dalian CBAK Power Battery Co., Ltd (“CBAK Power”). On July 10, 2018, CBAK Power’s registered capital was increased
to $50,000,000. On October 29, 2019, CBAK Power’s registered capital was further increased to $60,000,000. Pursuant to CBAK Power’s
amendment articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Power on or before
December 31, 2021. 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 cash.
On May 4, 2018, CBAK New Energy (Suzhou) Co.,
Ltd (“CBAK Suzhou”) was established as a 90% owned subsidiary of CBAK Power with a registered capital of RMB10,000,000 (approximately
$1.5 million). The remaining 10% equity interest was held by certain employees of CBAK Suzhou. Pursuant to CBAK Suzhou’s articles
of association, each shareholder is entitled to the right of the profit distribution or responsible for the loss according to its proportion
to the capital contribution. Pursuant to CBAK Suzhou’s articles of association and relevant PRC regulations, CBAK Power was required
to contribute the capital to CBAK Suzhou on or before December 31, 2019. Up to the date of this report, the Company has contributed RMB9.0
million (approximately $1.3 million), and the other shareholders have contributed RMB1.0 million (approximately $0.1 million) to CBAK
Suzhou through injection of a series of cash. The Company plan to dissolve CBAK Suzhou in 2021.
On November 21, 2019, Dalian CBAK Energy Technology
Co., Ltd (“CBAK Energy”) was established as a wholly owned subsidiary of BAK Asia with a registered capital of $50,000,000.
Pursuant to CBAK Energy’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital
to CBAK Energy on or before November 20, 2022. Up to the date of this report, the Company has contributed $6,920,000 to CBAK Energy.
On July 14, 2020, the Company acquired BAK Asia
Investments Limited (“BAK Investments”), a company incorporated under Hong Kong laws, from Mr. Xiangqian Li, the Company’s
former CEO, for a cash consideration of HK$1.00. BAK Asia Investments Limited is a holding company without any other business operations.
On July 31, 2020, BAK Investments formed a wholly
owned subsidiary CBAK New Energy (Nanjing) Co., Ltd. (“CBAK Nanjing”) in China with a registered capital of $100,000,000.
Pursuant to CBAK Nanjing’s articles of association and relevant PRC regulations, BAK Investments was required to contribute the
capital to CBAK Nanjing on or before July 29, 2040. Up to the date of this report, the Company has contributed $46,989,915 to CBAK Nanjing.
On August 6, 2020, Nanjing CBAK New Energy Technology
Co., Ltd. (“Nanjing CBAK”) was established as a wholly owned subsidiary of CBAK Nanjing with a registered capital of RMB700,000,000
(approximately $107 million). Pursuant to Nanjing CBAK’s articles of association and relevant PRC regulations, CBAK Nanjing was
required to contribute the capital to Nanjing CBAK on or before August 5, 2040. Up to the date of this report, the Company has contributed
RMB270,933,736 (approximately $41.5 million) to Nanjing CBAK.
On November 9, 2020, Nanjing Daxin New Energy
Automobile Industry Co., Ltd (“Nanjing Daxin”) was established as a wholly owned subsidiary of CBAK Nanjing with a register
capital of RMB50,000,000 (approximately $7.7 million). Up to the date of this report, the Company has contributed RMB10,000,000 (approximately
$1.55 million) to Nanjing Daxin.
The Company’s consolidated financial statements
have been prepared under US GAAP.
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This
basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company’s
principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable
to enterprises with limited liability established in the PRC or Hong Kong. The accompanying consolidated financial statements reflect
necessary adjustments not recorded in the books of account of the Company’s subsidiaries to present them in conformity with US
GAAP.
After the disposal of BAK International Limited
and its subsidiaries, namely Shenzhen BAK, Shenzhen BAK Power Battery Co., Ltd (formerly BAK Battery (Shenzhen) Co., Ltd.) (“BAK
Shenzhen”), BAK International (Tianjin) Ltd. (“BAK Tianjin”), Tianjin Chenhao Technological Development Limited (a
subsidiary of BAK Tianjin established on May 8, 2014, “Tianjin Chenhao”), BAK Battery Canada Ltd. (“BAK Canada”),
BAK Europe GmbH (“BAK Europe”) and BAK Telecom India Private Limited (“BAK India”), effective on June 30, 2014,
and as of December 31, 2019, the Company’s subsidiaries consisted of: i) China BAK Asia Holdings Limited (“BAK Asia”),
a wholly owned limited liability company incorporated in Hong Kong on July 9, 2013; ii) Dalian CBAK Trading Co., Ltd. (“CBAK Trading”),
a wholly owned limited company established on August 14, 2013 in the PRC; iii) Dalian CBAK Power Battery Co., Ltd. (“CBAK Power”),
a wholly owned limited liability company established on December 27, 2013 in the PRC; iv) CBAK New Energy (Suzhou) Co., Ltd. (“CBAK
Suzhou”), a 90% owned limited liability company established on May 4, 2018 in the PRC; v) Dalian CBAK Energy Technology Co., Ltd
(“CBAK Energy”), a wholly owned limited liability company established on November 21, 2019 in the PRC; (vi) BAK Asia Investments
Limited (“BAK Investments”), a wholly owned limited liability company incorporated in Hong Kong acquired on July 14, 2020;
(vii) CBAK New Energy (Nanjing) Co., Ltd. (“CBAK Nanjing”), a wholly owned limited liability company established on July
31, 2020 in the PRC; (viii) Nanjing CBAK New Energy Technology Co., Ltd, (“Nanjing CBAK”), a wholly owned limited liability
company established on August 6, 2020 in the PRC and (ix) Nanjing Daxin New Energy Automobile Industry Co., Ltd (“Nanjing Daxin”),
a wholly owned limited liability company established on November 9, 2020.
The
Company continued its business and continued to generate revenues from sale of batteries via subcontracting the production to BAK Tianjin
and BAK Shenzhen, former subsidiaries before the completion of construction and operation of its facility in Dalian. BAK Tianjin and
BAK Shenzhen are now suppliers of the Company 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 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 December 31, 2020, Mr. Yunfei Li held 10,785,872 shares or 13.62% 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 as of December 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.
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 8 investors paid the Company a total of $2.06 million as down payments.
Mr. Yunfei Li agrees to subscribe new shares of the Company totaled $1,120,000 and paid the earnest money of $225,784 in January 2017.
On April 1, April 21, April 26 and May 10, 2017, the Company received $1,999,910, $3,499,888, $1,119,982 and $2,985,497 from 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 issued to Mr. Yunfei Li. On June 22, 2017, the Company issued the
shares to the investors.
In
2019, according to the investment agreements and agreed by the investors, the Company returned partial earnest money of $966,579 (approximately
RMB6.7 million) to these investors.
On
January 7, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin
New Energy assigned its rights to loans to CBAK Power of approximately $3.4 million (RMB23,980,950) and $1.7 million (RMB11,647,890)
(totaled $5.1 million, the “First Debt”) to Mr. Dawei Li and Mr. Yunfei Li, respectively.
On January 7, 2019, the Company entered into
a cancellation agreement with Mr. Dawei Li and Mr. Yunfei Li. Pursuant to the terms of the cancellation agreement, Mr. Dawei Li and Mr.
Yunfei Li agreed to cancel the First Debt in exchange for 3,431,373 and 1,666,667 shares of common stock of the Company, respectively,
at an exchange price of $1.02 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and
other obligations relating to the First Debt.
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 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
released 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
released the Company from any claims, demands and other obligations relating to the Third Debt and Fourth Debt. The cancellation agreement
contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the
shares.
On
July 24, 2019, the Company entered into a securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant
to which the Company issued a promissory note (the “Note 1”) to the Lender. The Note has an original principal amount of
$1,395,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in
accordance with its terms. The Company received proceeds of $1,250,000 after an original issue discount of $125,000 and payment of Lender’s
expenses of $20,000.
On
October 10, 2019, each of Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen entered into an agreement with CBAK Power and Zhengzhou BAK
New Energy Vehicle Co., Ltd. (the Company’s supplier of which Mr. Xiangqian Li, the former CEO, is a director of this company)
whereby Zhengzhou BAK New Energy Vehicle Co., Ltd. assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately
$2.1 million (RMB15,000,000), $1.0 million (RMB7,380,000) and $1.0 million (RMB7,380,000) (collectively $4.2 million, the “Fifth
Debt”) to Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen, respectively.
On
October 14, 2019, the Company entered into a cancellation agreement with Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping
Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr.
Ping Shen agreed to cancel and convert the Fifth Debt and the Unpaid Earnest Money of approximately $1 million (RMB6,720,000) in exchange
for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of $0.6 per
share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the
Fifth Debt and the Unpaid Earnest Money. The cancellation agreement contains customary representations and warranties of the creditors.
The creditors do not have registration rights with respect to the shares.
On
December 30, 2019, the Company entered into a second securities purchase agreement with Atlas Sciences, LLC (the “Lender”),
pursuant to which the Company issued a promissory note (the “Note II”) to the Lender. The Note II has an original principal
amount of $1,670,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or
redeemed in accordance with its terms. The Company received proceeds of $1,500,000 after an original issue discount of $150,000 and payment
of Lender’s expenses of $20,000.
On
January 27, 2020, the Company entered into an exchange agreement (the “First Exchange Agreement”) with Atlas Sciences, LLC
(the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original
principal amount equal to $100,000 (the “Partitioned Promissory Note) from the outstanding balance of certain promissory note that
the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned
Promissory Note for the issuance of 160,256 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On
February 20, 2020, the Company entered into a second exchange agreement (the “Second Exchange Agreement”) with Atlas Sciences,
LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original
principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory
note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange
the Partitioned Promissory Note for the issuance of 207,641 shares of the Company’s common stock, par value $0.001 per share to
the Lender.
On
April 10, 2020, each of Mr. Yunfei Li, Mr. Ping Shen and Asia EVK entered into an agreement with CBAK Power and Shenzhen BAK, whereby
Shenzhen BAK assigned its rights to the unpaid inventories cost (note 7) owed by CBAK Power of approximately $1.0 million (RMB7,000,000),
$2.3 million (RMB16,000,000) and $1.0 million (RMB7,300,000) (collectively $4.3 million, the “Sixth Debt”) to Mr. Yunfei
Li, Mr. Ping Shen and Asia EVK, respectively.
On April 27, 2020, the Company entered into a
cancellation agreement with Mr. Yunfei Li, Mr. Ping Shen and Asia EVK (the “creditors”). Pursuant to the terms of the cancellation
agreement, Mr. Yunfei Li, Mr. Ping Shen and Asia EVK agreed to cancel the Sixth Debt in exchange for 2,062,619, 4,714,557 and 2,151,017
shares of common stock of the Company, respectively, at an exchange price of $0.48 per share. Upon receipt of the shares, the creditors
released the Company from any claims, demands and other obligations relating to the Sixth Debt. The cancellation agreement contains customary
representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.
On April 28, 2020, the Company entered into a
third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to
which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the
“Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender
on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance
of 312,500 shares of the Company’s common stock, par value $0.001 per share to the Lender.
On
June 8, 2020, the Company entered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences,
LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original
principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory
note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange
the Partitioned Promissory Note for the issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to
the Lender.
On
June 10, 2020, the Company entered into a Fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences,
LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original
principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory
note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange
the Partitioned Promissory Note for the issuance of 407,609 shares of the Company’s common stock, par value $0.001 per share to
the Lender.
On
July 6, 2020, the Company entered into a Sixth exchange agreement (the “Sixth Exchange Agreement”) with Atlas Sciences, LLC
(the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original
principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory
note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange
the Partitioned Promissory Note for the issuance of 461,595 shares of the Company’s common stock, par value $0.001 per share to
the Lender.
On
July 8, 2020, the Company entered into a First exchange agreement for Note II (the “First Exchange Agreement- Note II”) with
Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory
note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance
of certain promissory note that the Company issued to the Lender on December 30, 2019, which has an original principal amount of $1,670,000,
and (ii) exchange the Partitioned Promissory Note for the issuance of 453,161 shares of the Company’s common stock, par value $0.001
per share to the Lender.
On
July 29, 2020, the Company entered into a Seventh exchange agreement (the “Seventh Exchange Agreement”) with Atlas Sciences,
LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original
principal amount equal to $365,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory
note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange
the Partitioned Promissory Note for the issuance of 576,802 shares of the Company’s common stock, par value $0.001 per share to
the Lender.
On
October 12, 2020, the Company entered into an Amendment to Promissory Notes (the “Amendment”) with Atlas Sciences, LLC (the
Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at
its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion
price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company
common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding
the foregoing, in no event will the Conversion Price be less than $1.00.
According to the Amendment, on October 13, 2020,
the Company exchange $230,000 in principal and $141,275 coupon interest under the Note I and $775,000 principal under the Note II for
the issuance of 229,750 and 479,579 shares of the Company’s common stock, par value $0.001 per share to the Lender, respectively.
On October 20, 2020, the Company further exchange
$645,000 in principal and $133,252 coupon interests under Note II for the issuance of 329,768 shares of the Company’s common stock,
par value $0.001 per share to the Lender. Up to the date of this report, the Company has fully repaid the principal and coupon interests
of Note I and Note II.
On November 5, 2020, each of Tillicum Investment
Company Limited , an unrelated party, entered into an agreement with CBAK Nanjing and Shenzhen ESTAR Industrial Company Limited, whereby
Shenzhen ESTAR Industrial Company Limited assigned its rights to the unpaid equipment cost owed by CBAK Nanjing of approximately $11.17
million (RMB75,000,000) (the “Seventh Debt”) to Tillicum Investment Company Limited.
On November 11, 2020, the Company entered into
a cancellation agreement with Tillicum Investment Company Limited (the “creditor”). Pursuant to the terms of the cancellation
agreement, Tillicum Investment Company Limited agreed to cancel the Seventh Debt in exchange for 3,192,291 shares of common stock of
the Company, at an exchange price of $3.5 per share. Upon receipt of the shares, the creditor released the Company from any claims, demands
and other obligations relating to the Seventh Debt. The cancellation agreement contains customary representations and warranties of the
creditor. The creditor does not have registration rights with respect to the shares.
On December 8, 2020, the Company entered into
a securities purchase agreement with certain institutional investors, pursuant to which the Company issued in a registered direct offering,
an aggregate of 9,489,800 shares of common stock of the Company at a per share purchase price of $5.18, and warrants to purchase an aggregate
of 3,795,920 shares of common stock of the Company at an exercise price of $6.46 per share exercisable for 36 months from the date of
issuance, for gross proceeds of approximately $49.16 million, before deducting fees to the placement agent and other estimated offering
expenses of $3.81 million payable by the Company. In addition, the placement agent for this transaction also received warrants (“Placement
Agent Warrants”) for the purchase of up to 379,592 shares of the Company’s common stock at an exercise price of $6.475 per
share exercisable for 36 months after 6 months from the issuance.
On February 8, 2021, the Company entered into another securities purchase
agreement with the same investors, pursuant to which the Company issued in a registered direct offering, an aggregate of 8,939,976 shares
of common stock of the Company at a per share purchase price of $7.83. In addition, the Company issued to the investors (i) in a concurrent
private placement, the Series A-1 warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of $7.67
and exercisable for 42 months from the date of issuance; (ii) in the registered direct offering, the Series B warrants to purchase a total
of 4,469,988 shares of common stock, at a per share exercise price of $7.83 and exercisable for 90 days from the date of issuance; and
(iii) in the registered direct offering, the Series A-2 warrants to purchase up to 2,234,992 shares of common stock, at a per share exercise
price of $7.67 and exercisable for 45 months from the date of issuance. The Company received gross proceeds of approximately $70 million
from the registered direct offering and the concurrent private placement, before deducting fees to the placement agent and other estimated
offering expenses of $5.0 million payable by the Company. In addition, the placement agent for this transaction also received warrants
(“Placement Agent Warrants”) for the purchase of up to 446,999 shares of the Company’s common stock at an exercise price
of $9.204 per share exercisable for 36 months after 6 months from the issuance.
As of December 31, 2020, the Company had aggregate
interest-bearing bank loans of approximately $13.7 million, due in 2021, in addition to approximately $42.2 million of other current liabilities
(excluding warrants derivative liability).
As of December 31, 2020, the Company had unutilized
committed banking facilities from banks and Jilin Province Trust Co., Ltd (see “Other Short-term Loans” below) of $7.4 million.
The Company is currently expanding its product
lines and manufacturing capacity in its Dalian plant and Nanjing 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.
2.
|
Summary
of Significant Accounting Policies and Practices
|
(a)
Principles of Consolidation
The
consolidated financial statements include the financial statements of the Company and its subsidiaries up to the date of disposal. All
significant intercompany balances and transactions have been eliminated prior to consolidation.
(b)
Cash and Cash Equivalents
Cash
consists of cash on hand and in banks excluding pledged deposits. The Company considers all highly liquid debt instruments, with initial
terms of less than three months to be cash equivalents.
(c)
Trade Accounts and Bills Receivable
Trade
accounts and bills receivable are recorded at the invoiced amount, net of allowances for doubtful accounts and sales returns. The allowance
for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing trade
accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic
conditions.
Outstanding
accounts receivable balances are reviewed individually for collectability. Account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is considered remote.
(d)
Inventories
Inventories
are stated at the lower of cost or net realizable value. The cost of inventories is determined using the weighted average cost method,
and includes expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. In case of
finished goods and work in progress, the cost includes an appropriate share of production overhead based on normal operating capacity.
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 records adjustments to its inventory for estimated obsolescence or diminution in net realizable value equal to the difference
between the cost of the inventory and the estimated net realizable value. At the point of loss recognition, a new cost basis for that
inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly
established cost basis.
(e)
Property, Plant and Equipment
Property,
plant and equipment (except construction in progress) are stated at cost less accumulated depreciation and impairment charges. Depreciation
is calculated based on the straight-line method (after taking into account their respective estimated residual values) over the estimated
useful lives of the assets as follows:
Buildings
|
|
5
– 35 years
|
Machinery
and equipment
|
|
1
– 15 years
|
Office
equipment
|
|
1
– 5 years
|
Motor
vehicles
|
|
5
– 10 years
|
The
cost and accumulated depreciation of property, plant and equipment sold are removed from the consolidated balance sheets and resulting
gains or losses are recognized in the consolidated statements of operations and comprehensive loss.
Construction
in progress mainly represents expenditures in respect of the Company’s corporate campus, including offices, factories and staff
dormitories, under construction. All direct costs relating to the acquisition or construction of the Company’s corporate campus
and equipment, including interest charges on borrowings, are capitalized as construction in progress. No depreciation is provided in
respect of construction in progress.
A
long-lived asset to be disposed of by abandonment continues to be classified as held and used until it is disposed of.
(f) Lease
Prior to the adoption of Accounting Standards
Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), land use rights are carried at cost and amortized
on a straight-line basis over the period of rights of 50 years. Upon the adoption of ASC 842 on January 1, 2019, land use rights acquired
are assessed in accordance with ASC 842 and recognized in right-of-use assets if they meet the definition of lease.
|
(ii)
|
Net Investment
in Sales Type Leases
|
The Company derives a portion of its revenue
from vehicles leasing arrangements. Such arrangements provide for monthly payments covering the vehicles sales and interest. These arrangements
meet the criteria to be accounted for as sales-type leases. A lease is classified as a sales-type lease if at least one of the following
criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to
purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining
economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of
the fair value of the underlying assets, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative
use to the lessor at the end of the lease term. Accordingly, vehicle sale net of cost is recorded as other income and recognized upon
delivery of the vehicle and its acceptance by the customer. Upon the recognition of such revenue, an asset is established for the investment
in sales-type leases. Interests are recognized monthly over the lease term.
(g)
Foreign Currency Transactions and Translation
The
reporting currency of the Company is the United States dollar (“US dollar”). The financial records of the Company’s
PRC operating subsidiaries are maintained in their local currency, the Renminbi (“RMB”), which is the functional currency.
The financial records of the Company’s subsidiaries established in other countries are maintained in their local currencies. Assets
and liabilities of the subsidiaries are translated into the reporting currency at the exchange rates at the balance sheet date, equity
accounts are translated at historical exchange rates, and income and expense items are translated using the average rate for the period.
The translation adjustments are recorded in accumulated other comprehensive loss under shareholders’ equity.
Monetary
assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currencies
at the prevailing rates of exchange at the balance sheet date. Nonmonetary assets and liabilities are remeasured into the applicable
functional currencies at historical exchange rates. Transactions in currencies other than the applicable functional currencies during
the period are converted into the functional currencies at the applicable rates of exchange prevailing at the transaction dates. Transaction
gains and losses are recognized in the consolidated statements of operations.
RMB
is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s
Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted
for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand.
Translation of amounts from RMB into US dollars has been made at the following exchange rates for the respective periods:
Year
ended December 31, 2019
|
|
|
|
Balance
sheet, except for equity accounts
|
|
RMB
6.9630 to US$1.00
|
|
Income
statement and cash flows
|
|
RMB
6.9073 to US$1.00
|
|
Year
ended December 31, 2020
|
|
|
|
Balance
sheet, except for equity accounts
|
|
RMB
6.5286 to US$1.00
|
|
Income
statement and cash flows
|
|
RMB
6.9032 to US$1.00
|
|
(h)
Intangible Assets
Intangible
assets are stated in the balance sheet at cost less accumulated amortization and impairment, if any. The costs of the intangible assets
are amortized on a straight-line basis over their estimated useful lives. The respective amortization periods for the intangible assets
are as follows:
Computer
software
|
|
10
years
|
|
(i)
Impairment of Long-lived Assets
Long-lived
assets, which include property, plant and equipment, prepaid land use rights and intangible assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability
of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future
cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Fair value is generally measured based on either quoted market prices, if available, or discounted cash flow analyses.
(j)
Revenue Recognition
The
Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration
which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under
ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues
when (or as) we satisfy the performance obligation.
Revenues
from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time,
typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected
amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenues
from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts
with the Company’s customers.
Product
revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the categories: discounts and
returns. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions
of accounts receivable as the amount is payable to the Company’s customer.
(k)
Cost of Revenues
Cost
of revenues consists primarily of material costs, employee compensation, depreciation and related expenses, which are directly attributable
to the production of products. Write-down of inventories to lower of cost or market is also recorded in cost of revenues.
(l)
Income Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance to the extent management
concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted
tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations and comprehensive loss in
the period that includes the enactment date.
The
impact of an uncertain income tax positions on the income tax return must be recognized at the largest amount that is more likely than
not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less
than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions
for income taxes.
The
significant uncertain tax position arose from the subsidies granted by the local government for the Company’s PRC subsidiary, which
may be modified or challenged by the central government or the tax authority. A reconciliation of January 1, 2019, through December 31,
2020 amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) is as follows:
|
|
Gross UTB
|
|
|
Surcharge
|
|
|
Net UTB
|
|
Balance as of January
1, 2019
|
|
$
|
7,129,285
|
|
|
|
-
|
|
|
|
7,129,285
|
|
Decrease in
unrecognized tax benefits taken in current period
|
|
|
(86,703
|
)
|
|
|
-
|
|
|
|
(86,703
|
)
|
Balance as of December 31, 2019
|
|
|
7,042,582
|
|
|
|
-
|
|
|
|
7,042,582
|
|
Increase in
unrecognized tax benefits taken in current year
|
|
|
468,600
|
|
|
|
-
|
|
|
|
468,600
|
|
Balance as of
December 31, 2020
|
|
$
|
7,511,182
|
|
|
$
|
-
|
|
|
$
|
7,511,182
|
|
As
of December 31, 2019 and 2020, the Company had not accrued any interest and penalties related to unrecognized tax benefits.
(m)
Research and Development and Advertising Expenses
Research
and development and advertising expenses are expensed as incurred. Research and development expenses consist primarily of remuneration
for research and development staff, depreciation and material costs for research and development.
(n)
Bills Payable
Bills
payable represent bills issued by financial institutions to the Company’s vendors. The Company’s vendors receive payments
from the financial institutions directly upon maturity of the bills and the Company is obliged to repay the face value of the bills to
the financial institutions.
(o)
Warranties
The Company provides a manufacturer’s warranty
on all its products. It accrues a warranty reserve for the products sold, which includes management’s best estimate of the projected
costs to repair or replace items under warranty. These estimates are based on actual claims incurred to date and an estimate of the nature,
frequency and costs of future claims. These estimates are inherently uncertain given the Company’s relatively short history of
sales of its current products, and changes to its historical or projected warranty experience may cause material changes to the warranty
reserve in the future.
(p)
Government Grants
The
Company’s subsidiaries in China receive government subsidies from local Chinese government agencies in accordance with relevant
Chinese government policies. In general, the Company presents the government subsidies received as part of other income unless the subsidies
received are earmarked to compensate a specific expense, which have been accounted for by offsetting the specific expense, such as research
and development expense, interest expenses and removal costs. Unearned government subsidies received are deferred for recognition until
the criteria for such recognition could be met.
Grants
applicable to land are amortized over the life of the depreciable facilities constructed on it. For research and development expenses,
the Company matches and offsets the government grants with the expenses of the research and development activities as specified in the
grant approval document in the corresponding period when such expenses are incurred.
(q)
Share-based Compensation
The
Company adopted the provisions of ASC Topic 718 which requires the Company to measure and recognize compensation expenses for an award
of an equity instrument based on the grant-date fair value. The cost is recognized over the vesting period (or the requisite service
period). ASC Topic 718 also requires the Company to measure the cost of a liability classified award based on its current fair value.
The fair value of the award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value
during the requisite service period are recognized as compensation cost over that period. Further, ASC Topic 718 requires the Company
to estimate forfeitures in calculating the expense related to stock-based compensation.
The
fair value of each option award is estimated on the date of grant using the Black-Scholes Option Valuation Model. The expected volatility
was based on the historical volatilities of the Company’s listed common stocks in the United States and other relevant market information.
The Company uses historical data to estimate share option exercises and employee departure behavior used in the valuation model. The
expected terms of share options granted is derived from the output of the option pricing model and represents the period of time that
share options granted are expected to be outstanding. Since the share options once exercised will primarily trade in the U.S. capital
market, the risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury yield curve in effect
at the time of grant.
(r)
Retirement and Other Postretirement Benefits
Contributions
to retirement schemes (which are defined contribution plans) are charged to cost of revenues, research and development expenses, sales
and marketing expenses and general and administrative expenses in the statement of operations and comprehensive loss as and when the
related employee service is provided.
(s)
Loss per Share
Basic
and diluted loss per share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the
year.
(t)
Use of Estimates
The preparation of the consolidated financial
statements in accordance with US GAAP requires management of the Company to make a number of estimates and assumptions relating to the
reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant
items subject to such estimates and assumptions include revenue recognition, the recoverability of the carrying amount of long-lived
assets, unrecognized tax benefits, impairment on inventories, valuation allowance for receivables and deferred tax assets, provision
for warranty and sales returns, valuation of share-based compensation expense and warrants liability. Actual results could differ from
those estimates.
(u)
Segment Reporting
The
Company uses the “management approach” in determining reportable operating segments. The management approach considers the
internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing
performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision
maker, reviews operating results solely by monthly revenue of li-ion rechargeable batteries (but not by sub product type or geographic
area) and operating results of the Company and, as such, the Company has determined that the Company has one operating segment as defined
by ASC Topic 280 “Segment Reporting”.
(v)
Commitments and Contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable
that a liability has been incurred and the amount of the assessment can be reasonably estimated.
(w)
Warrant Liability
For warrants that are not indexed to the Company’s stock, the
Company records the fair value of the issued warrants as a liability at each balance sheet date and records changes in the estimated fair
value as a non-cash gain or loss in the consolidated statement of operations and comprehensive income. The warrant liability is recognized
in the balance sheet at the fair value (level 3). The fair value of these warrants has been determined using the Binomial model.
Recently
Adopted Accounting Standards
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value
hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years,
with early adoption permitted for any eliminated or modified disclosures. The Company applied the new standard beginning January 1, 2020.
Recently Issued Accounting Standards
In May 2019, the Financial Accounting Standards
Board (“FASB”) issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement
of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments
in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification.
Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses
when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale
Debt Securities. The amendments in this ASU address those stakeholders’ concerns by providing an option to irrevocably elect the
fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition
relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar
financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments
in Update 2016-13 while still providing financial statement users with decision-useful information. ASU 2019-05 is effective for the
Company for fiscal year beginning after December 15, 2022. The Company is currently evaluating the impact of this new standard on its
condensed consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12,
Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC
740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities.
The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early
adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented
while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the
beginning of the fiscal year of adoption. The Company is evaluating the impact this update will have on its financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference
Rate Reform (Topic 848) (Topic 718): Improvemen20-04 contains practical expedients for reference rate reform related activities that
impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference
rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable
as changes in the market occur.
In August 2020, the FASB issued ASU 2020-06,
Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity
(Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”),
which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies
the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt:
Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features
in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in
ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified
in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260,
Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted
method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled
in cash or shares.
For SEC filers, excluding
smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within
those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities,
ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities
should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period.
The Company is currently evaluating the impact that ASU 2020-06 may have on its condensed consolidated financial statements and related
disclosures.
Other accounting standards
that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Pledged
deposits as of December 31, 2019 and 2020 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Pledged deposits with banks for:
|
|
|
|
|
|
|
Bills payable
|
|
$
|
4,021,255
|
|
|
$
|
8,791,499
|
|
Others*
|
|
|
1,499,736
|
|
|
|
198,249
|
|
|
|
$
|
5,520,991
|
|
|
$
|
8,989,748
|
|
*
|
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 $1,210,799 (RMB8,430,792), including construction costs
of $0.9 million (RMB6.1 million), interest of $29,812 (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 $1,210,799 (RMB8,430,792) for a period of one year. On September 1,
2017, upon the request of Shenzhen Huijie, the Court 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 again froze the bank deposits for another one year until August 27, 2020,
upon the request of Shenzhen Huijie. On June 28, 2020, the Court of Dalian entered the final
judgement and the frozen bank deposit was released in July 2020.
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). 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 July 2020, Shenzhen Court of International Arbitration made arbitration
award dismissing the plaintiff’s claim and CBAK Power’s counterclaim and the bank deposit was released in early August 2020.
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 $97,779 (RMB638,359) and compensation of $83,173 (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, the Company had made full payment. As of December 31, 2019, $6
(RMB43) was frozen by bank and bank deposit was released in October 2020.
In November 2019, CBAK Suzhou received notice
from Court of Suzhou city that Suzhou Industrial Park Security Service Co., Ltd (“Suzhou Security”) filed a lawsuit against
CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $21,400 (RMB139,713),
including services expenses amount of $21,277 (RMB138,908) and interest of $123 (RMB805). Upon the request of Suzhou Security for property
preservation, the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB150,000) for a period of one year.
As of December 31, 2020, $5,062 (RMB33,048) was frozen by bank and the Company had accrued the service cost of $21,277 (RMB138,908).
|
|
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 $101,780 (RMB691,086) and interest
$1,905 (RMB12,934). As of December 31, 2019, the Company has accrued the construction cost
of $101,780 (RMB691,086). Upon the request of Dalian Construction for property preservation,
the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $103,685
(RMB704,020) for a period of one year to December 2020. As of December 31, 2019, $97,384
(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. CBAK Power has settled the
construction cost and related interests as of December 31, 2020.
On March 20, 2020, CBAK Power received notice from Court of Nanpi County,
Hebei Province that Cangzhou Huibang Engineering Manufacturing Co., Ltd (“Cangzhou Huibang”) filed a lawsuit against CBAK
Power for the failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.31 million (RMB2,029,594),
including materials purchase cost of $0.3 million (RMB1,932,947), and interest of $14,804 (RMB96,647). As of December 31, 2020, the Company
has accrued materials purchase cost of $0.3 million (RMB1,932,947). Upon the request of Cangzhou Huibang for property preservation, the
Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $0.4 million (RMB2,650,000) for a period of two year to March
2, 2022. As of December 31, 2020, $18,518 (RMB120,898) was frozen by bank.
In February 2020, CBAK Power received notice from
Court of Zhuanghe that Dongguan Shanshan Battery Material Co., Ltd (“Dongguan Shanshan”) filed lawsuit against CBAK Power
for the failure to pay pursuant to the terms of the purchase contract. Dongguan Shanshan sought a total amount of $0.7 million (RMB4,434,209).
Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits
totaling $0.7 million (RMB4,434,209) for a period of one year to December 17, 2020. In July 2020, CBAK Power and Dongguan Shanshan have
come to a settlement amount of $0.6 million (RMB3,635,192) and the bank deposit was then released. In October 2020, CBAK Power fail to
pay according to the settlement, Dongguan Shanshan sought a total amount of $0.6 million (RMB3,635,192). Upon the request of Dongguan
Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.6 million (RMB3,365,192)
for a period of one year to October 21, 2021. As of December 31, 2020, $55,230 (RMB360,576) was frozen by bank and the Company has accrued
the material purchase cost of $516,865 (RMB3,374,403). Upto the date of this report, CBAK Power paid $336,979 (RMB2,20,00) to Dongguan
Shanshan and the frozen bank deposits were released in March 2021.
In June 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Nanjing Jinlong Chemical Co., Ltd. (“Nanjing Jinlong”) filed
a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Nanjing Jinlong sought a total amount
of $125,908 (RMB822,000). Upon the request of Nanjing Jinlong for property preservation, the Court of Dalian Economic and Technology Development
Zone ordered to freeze CBAK Power’s bank deposits totaling $125,908 (RMB822,000) for a period of one year. As of December 31, 2020,
$16 (RMB107) was frozen by bank and the Company had accrued the material purchase cost of $125,908 (RMB822,000).
In June 2020, CBAK Power received notice from Court of Dalian Economic
and Technology Development Zone that Xi’an Anpu New Energy Technology Co. LTD (“Xi’an Anpu”) filed a lawsuit against
CBAK Power for the failure to pay pursuant to the terms of the equipment purchase contract. Xi’an Anpu sought a total amount of
$129,270 (RMB843,954), including $117,636 (RMB768,000) for equipment cost and $11,634 (RMB75,954) for liquidated damages. Upon the request
of Xi’an Anpu for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s
bank deposits $0.1 million (RMB843,954) for a period to May 11, 2021. As of December 31, 2020, $98,284 (RMB641,656) was frozen by bank
and CBAK Power had accrued the equipment purchase cost of $117,636 (RMB768,000). The property preservation was released on February 25,
2021 upon CBAK Power settlement.
|
In May 2020, CBAK Power received notice from Court of Wuqing District,
Tianjin that Tianjin Changyuan Electric Material Co., Ltd (“Tianjin Changyuan”) filed lawsuit against CBAK Power for failure
to pay pursuant to the terms of the purchase contract. The plaintiff sought a total amount of $13,040 (RMB85,136), including material
cost of $12,166 (RMB79,429) and interest of $874 (RMB5,707). In July, 2020, upon the request of the plaintiff for property preservation,
the Court of Wuqing District, Tianjin ordered to freeze CBAK Power’s bank deposits totaling $13,041 (RMB85,136) for a period of
one year. As of December 31, 2020, $13,041 (RMB85,136) was frozen by bank and the Company had accrued the material purchase cost and interest
of $13,041 (RMB85,136).
In
October 2020, CBAK Power received a notice from Court of Dalian Economic and Technology Development Zone that Jiuzhao New Energy Technology
Co., Ltd. (“Jiuzhao”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of certain purchase contract.
Jiuzhao sought a total amount of $0.9 million (RMB6.0 million), including material cost of $0.9 million (RMB5,870,267) and interest of
$19,871 (RMB129,732). Upon the request of the plaintiff for property preservation, the Court of Dalian Economic and Technology Development
Zone, Jiuzhao ordered to freeze CBAK Power’s bank deposits totaling $0.9 million (RMB6.0 million) for a period to September 17,
2021. As of December 31, 2020, $5,874 (RMB38,346) was frozen by bank and the Company had accrued the material purchase cost of $0.9 million
(RMB5,870,267).
In October 2019, CBAK Power received notice from Court of Changshou
District, Chongqing that Chongqing Zhongrun Chemistry Co., Ltd (“Chongqing Zhongrun”) filed arbitration claims against the
Company for failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.4 million (RMB2,484,948),
including material cost of $0.4 million (RMB2,397,660) and interest of $13,370 (RMB87,288). On October 31, 2019, CBAK Power and Chongqing
Zhongrun reached an agreement that CBAK Power would pay the material cost by the end of December 31, 2019. In 2020, CBAK Power had paid
$198,144 (RMB1,293,600). In August 2020, upon the request of Chongqing Zhongrun for property preservation, the Court of Changshou District
ordered to freeze CBAK Power’s bank deposits totaling $0.2 million (RMB1,249,836) for a period of one year to August 2021. As of
December 31, 2020, the Company has accrued the remaining material purchase cost of $0.2 million (RMB1,104,007) and $2,224 (RMB14,521)
was frozen by bank. The property preservation was released in March, 2021 upon CBAK Power settlement.
4.
|
Trade
Accounts and Bills Receivable, net
|
Trade
accounts and bills receivable as of December 31, 2019 and 2020:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Trade accounts receivable
|
|
$
|
12,517,626
|
|
|
$
|
33,305,997
|
|
Less: Allowance for doubtful accounts
|
|
|
(4,650,686
|
)
|
|
|
(5,266,828
|
)
|
|
|
|
7,866,940
|
|
|
|
28,039,169
|
|
Bills receivable
|
|
|
85,480
|
|
|
|
1,532,105
|
|
|
|
$
|
7,952,420
|
|
|
$
|
29,571,274
|
|
Included in trade accounts and bills receivables
are retention receivables of $2,159,356 and $1,896,068 as of December 31, 2019 and 2020. Retention receivables are interest-free and
recoverable either at the end of the retention period of three to five years since the sales of the EV batteries or 200,000 km since
the sales of the motor vehicles (whichever comes first).
An
analysis of the allowance for doubtful accounts is as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Balance at beginning of year
|
|
$
|
3,657,173
|
|
|
$
|
4,650,686
|
|
Provision for the year
|
|
|
1,613,402
|
|
|
|
1,656,128
|
|
Reversal - recoveries by cash
|
|
|
(567,042
|
)
|
|
|
(934,391
|
)
|
Charged to consolidated statements of operations and comprehensive (loss) income
|
|
$
|
1,046,360
|
|
|
$
|
721,737
|
|
Write off
|
|
|
-
|
|
|
|
(431,684
|
)
|
Foreign exchange adjustment
|
|
|
(52,847
|
)
|
|
|
326,089
|
|
Balance at end of year
|
|
$
|
4,650,686
|
|
|
$
|
5,266,828
|
|
Inventories
as of December 31, 2019 and 2020 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Raw materials
|
|
$
|
482,836
|
|
|
$
|
757,857
|
|
Work in progress
|
|
|
1,254,490
|
|
|
|
2,338,342
|
|
Finished goods
|
|
|
6,929,388
|
|
|
|
2,156,646
|
|
|
|
$
|
8,666,714
|
|
|
$
|
5,252,845
|
|
During the years ended December 31, 2019 and
2020, write-downs of obsolete inventories to lower of cost or net realizable value of $834,362 and $1,450,182, respectively, were charged
to cost of revenues.
6.
|
Prepayments
and Other Receivables
|
Prepayments
and other receivables as of December 31, 2019 and 2020 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Value added tax recoverable
|
|
$
|
4,124,624
|
|
|
$
|
4,524,475
|
|
Loan receivables
|
|
|
-
|
|
|
|
1,358,637
|
|
Prepayments to suppliers
|
|
|
60,090
|
|
|
|
424,311
|
|
Deposits
|
|
|
63,184
|
|
|
|
17,385
|
|
Staff advances
|
|
|
53,731
|
|
|
|
67,867
|
|
Prepaid operating expenses
|
|
|
317,151
|
|
|
|
529,401
|
|
Others
|
|
|
124,133
|
|
|
|
524,468
|
|
|
|
|
4,742,913
|
|
|
|
7,446,544
|
|
Less: Allowance for doubtful accounts
|
|
|
(7,000
|
)
|
|
|
(7,000
|
)
|
|
|
$
|
4,735,913
|
|
|
$
|
7,439,544
|
|
Nanjing CBAK entered into a loan agreement with Shen Zhen Asian Plastics
Technology Co., Ltd (SZ Asian Plastics), to loan SZ Asian Plastics a total amount of $1.4 million (RMB8,870,000) for a period of 6 months
from December 1, 2020 to May 31, 2021. The loan is unsecured and bears fixed interest at 6% per annum. The Company’s shareholder
Mr. Jiping Zhao, holding 2.39% equity interest in the Company, at the same time held 79.13% equity interests in SZ Asian Plastics. In
March 2021, SZ Asian Plastics has fully repaid the loan principal.
7.
|
Payables
to former subsidiaries, net
|
Payables
to former subsidiaries as of December 31, 2019 and 2020 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
BAK Tianjin
|
|
$
|
-
|
|
|
$
|
29,852
|
|
BAK Shenzhen
|
|
|
1,483,352
|
|
|
|
597,138
|
|
|
|
$
|
1,483,352
|
|
|
$
|
626,990
|
|
Balance as of December 31, 2019 and December 31, 2020 consisted of
payables for purchase of inventories from BAK Tianjin and BAK Shenzhen. From time to time, to meet the needs of its customers, the Company
purchased products from these former subsidiaries that it did not produce to meet the needs of its customers.
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 (see Note 1).
The
above balance is unsecured and non-interest bearing and repayable on demand.
8.
|
Property,
Plant and Equipment, net
|
Property,
plant and equipment as of December 31, 2019 and 2020 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Buildings
|
|
$
|
27,262,301
|
|
|
$
|
28,150,137
|
|
Machinery and equipment
|
|
|
22,719,932
|
|
|
|
32,753,952
|
|
Office equipment
|
|
|
204,196
|
|
|
|
258,458
|
|
Motor vehicles
|
|
|
161,980
|
|
|
|
197,790
|
|
|
|
|
50,348,409
|
|
|
|
61,360,337
|
|
Impairment
|
|
|
(4,126,152
|
)
|
|
|
(8,980,020
|
)
|
Accumulated
depreciation
|
|
|
(8,044,692
|
)
|
|
|
(11,339,947
|
)
|
Carrying amount
|
|
$
|
38,177,565
|
|
|
$
|
41,040,370
|
|
During
the years ended December 31, 2019 and 2020, the Company incurred depreciation expense of $2,728,224 and $2,677,238, respectively.
The
Company has not yet obtained the property ownership certificates of the buildings in its Dalian manufacturing facilities with a carrying
amount of $24,671,045 and $24,611,468 as of December 31, 2019 and 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.
During
the course of the Company’s strategic review of its operations in the years ended December 31, 2019 and 2020, the Company assessed
the recoverability of the carrying value of certain property, plant and equipment which resulted in impairment losses of approximately
$2.3 million and $4.3 million, respectively. The impairment charge represented the excess of carrying amounts of the Company’s
property, plant and equipment over the estimated fair value of the Company’s production facilities in Dalian primarily for the
production of high-power lithium batteries.
9.
|
Construction
in Progress
|
Construction
in progress as of December 31, 2019 and 2020 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Construction in progress
|
|
$
|
21,613,577
|
|
|
$
|
27,070,916
|
|
Prepayment for acquisition of property, plant and equipment
|
|
|
94,047
|
|
|
|
3,122,393
|
|
Carrying amount
|
|
$
|
21,707,624
|
|
|
$
|
30,193,309
|
|
Construction in progress as of December 31, 2019
and 2020 mainly comprised capital expenditures for the construction of the facilities and production lines of CBAK Power and Nanjing
CBAK.
For the years ended December 31, 2019 and 2020,
the Company capitalized interest of $1,516,244 and $1,308,274, respectively, to the cost of construction in progress.
|
|
Prepaid
land lease
payments
|
|
Balance as of January
1, 2020
|
|
$
|
7,194,195
|
|
Amortization charge for the year
|
|
|
(162,763
|
)
|
Foreign exchange
adjustment
|
|
|
469,348
|
|
Balance as of
December 31, 2020
|
|
$
|
7,500,780
|
|
Lump sum payments were made upfront to acquire
the leased land from the owners with lease period for 50 years up to August 9, 2064, and no ongoing payments will be made under the terms
of these land leases.
The Company derives a portion of its revenue
from leasing arrangements of these vehicles to end users. Such arrangements provide for monthly payments covering the vehicles sales
and interest. These arrangements meet the criteria to be accounted for as sales-type leases. Accordingly, vehicle sale net of cost is
recorded as other income and recognized upon delivery of the vehicle and its acceptance by the end user. Upon the recognition of such
revenue, an asset is established for the investment in sales-type leases. Interests are recognized monthly over the lease term. The components
of the net investment in sales-type leases as of December 31, 2019 and 2020 are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Total future minimum lease payments receivable
|
|
$
|
-
|
|
|
|
1,210,305
|
|
Less: unearned income, representing interest
|
|
|
-
|
|
|
|
(124,653
|
)
|
Present value of minimum lease payments receivables
|
|
|
-
|
|
|
|
1,085,652
|
|
Less: Current portion
|
|
|
-
|
|
|
|
(235,245
|
)
|
Non-current portion
|
|
$
|
-
|
|
|
|
850,407
|
|
Vehicle sale net of cost recognized in other income
(expense) and interest income from vehicle leasing was $(410,774) and $13,106 for the year ended December 31, 2020, respectively.
The future minimum lease payments receivable
for sales type leases are as follows:
Fiscal years ending December
|
|
Total Minimum Lease Payments to be Received
|
|
|
Amortization of Unearned Income
|
|
|
Net Investment in Sales Type Leases
|
|
2021
|
|
$
|
299,850
|
|
|
$
|
64,605
|
|
|
$
|
235,245
|
|
2022
|
|
|
422,755
|
|
|
|
41,852
|
|
|
|
380,903
|
|
2023
|
|
|
422,755
|
|
|
|
17,654
|
|
|
|
405,101
|
|
2024
|
|
|
64,945
|
|
|
|
542
|
|
|
|
64,403
|
|
2025
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,210,305
|
|
|
|
124,653
|
|
|
|
1,085,652
|
|
11.
|
Intangible
Assets, net
|
Intangible
assets as of December 31, 2019 and 2020 consisted of the followings:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Computer software at cost
|
|
$
|
30,648
|
|
|
|
32,686
|
|
Accumulated amortization
|
|
|
(15,470
|
)
|
|
|
(20,879
|
)
|
|
|
$
|
15,178
|
|
|
|
11,807
|
|
Amortization expenses were $5,482 and $4,143
for the years ended December 31, 2019 and 2020, respectively.
12.
|
Trade
Accounts and Bills Payable
|
Trade
accounts and bills payable as of December 31, 2019 and 2020 consisted of the followings:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Trade accounts payable
|
|
$
|
11,157,014
|
|
|
$
|
19,560,793
|
|
Bills payable
|
|
|
|
|
|
|
|
|
– Bank acceptance bills
|
|
|
3,915,094
|
|
|
|
8,791,499
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,072,108
|
|
|
$
|
28,352,292
|
|
All the bills payable are of trading nature and will mature within
one year from the issue date.
The bank acceptance bills were pledged by the Company’s bank
deposits (Note 3).
Bank
loans:
Bank
borrowings as of December 31, 2019 and 2020 consisted of the followings:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Current maturities of long-term bank loans
|
|
$
|
16,574,752
|
|
|
$
|
13,739,546
|
|
Long-term bank borrowings
|
|
|
9,519,029
|
|
|
|
-
|
|
|
|
$
|
26,093,781
|
|
|
$
|
13,739,546
|
|
On June 4, 2018, the Company
obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB200 million (approximately $30.63 million)
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 facilities were secured by the Company’s land use rights,
buildings, machinery and equipment. According to the original repayment schedule, the loans are repayable in six installments of RMB0.8
million ($0.12 million) on December 10, 2018, RMB24.3 million ($3.72 million) on June 10, 2019, RMB0.8 million ($0.12 million) on December
10, 2019, RMB74.7 million ($11.44 million) on June 10, 2020, RMB0.8 million ($0.12 million) on December 10, 2020 and RMB66.3 million
($10.16 million) on June 10, 2021. The Company repaid the bank loan of RMB0.8 million ($0.12 million), RMB24.3 million ($3.72 million)
and RMB0.8 million ($0.12 million) in December 2018, June 2019 and December 2019, respectively.
On June 28, 2020, the Company
entered into a supplemental agreement with China Everbright Bank Dalian Branch to change the repayment schedule. According to the modification
agreement, the remaining RMB141.8 million (approximately $21.72 million) loans are repayable in eight instalments consisting of RMB1.09
million ($0.17 million) on June 10, 2020, RMB1 million ($0.15 million) on December 10, 2020, RMB2 million ($0.31 million) on January
10, 2021, RMB2 million ($0.31 million) on February 10, 2021, RMB2 million ($0.31 million) on March 10, 2021, RMB2 million ($0.31 million)
on April 10, 2021, RMB2 million ($0.31 million) on May 10, 2021, and RMB129.7 million ($19.9 million) on June 10, 2021, respectively.
The Company repaid the bank loan of RMB1.09 million ($0.17 million) and RMB51 million ($7.8 million) in June and December 2020, respectively.
Under the facilities, as
of December 31, 2020, outstanding loan balance owing to China Everbright Bank Dalian Branch was RMB89.7 million (approximately $13.7
million).
In
August 2018, the Company borrowed a total of RMB60 million (approximately $8.8 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 $8.8 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 facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB100
million (approximately $14.7 million) 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 least the same
amount. The Company borrowed a series of bank acceptance bills totaled RMB28.8 million (approximately $4.24 million) for a term until
March 7, 2019. The Company repaid the bank acceptance bills on March 7, 2019.
In
November 2018, the Company borrowed a total of RMB100 million (approximately $14.7 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 RMB50 million (approximately
$7.4 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 the 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 secured by bills receivable of RMB1.5 million (approximately $0.2 million).
The Company repaid the bank acceptance bills on May 21, 2019.
On
October 15, 2019, the Company borrowed a total of RMB28 million (approximately $4.12 million) in the form of bills payable from China
Everbright Bank Dalian Branch for a term until October 15, 2020, which was secured by the Company’s cash totaled RMB28 million
(approximately $4.12 million). The Company discounted the bills payable of even date to China Everbright Bank at a rate of 3.3%. The
Company repaid the bills on October 15, 2020.
In
December 2019, the Company obtained banking facilities from China Everbright Bank Dalian Friendship Branch totaled RMB39.9 million (approximately
$6.1 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. The Company repaid the bank loan of RMB39.9 million (approximately $6.1 million) in December 2020.
In
July to December 2020, the Company borrowed a series of acceptance bills from China Merchants Bank totaled RMB24.9 million (approximately
$3.82 million) for various terms through January to June 2021, which was secured by the Company’s cash totaled RMB24.9 million
(approximately $3.82 million) (Note 3).
In
December 2020, the Company borrowed a series of acceptance bills from Agricultural Bank of China totaled RMB32.5 million (approximately
$4.97 million) for various terms to June 2021, which was secured by the Company’s cash totaled RMB32.5 million (approximately $4.97
million) (Note 3).
The
facilities were secured by the Company’s assets with the following carrying amounts:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Pledged deposits (note 3)
|
|
$
|
4,021,255
|
|
|
$
|
8,791,499
|
|
Right-of-use assets (note 10)
|
|
|
7,194,195
|
|
|
|
7,500,780
|
|
Buildings
|
|
|
17,683,961
|
|
|
|
16,721,178
|
|
Machinery and equipment
|
|
|
7,196,810
|
|
|
|
4,926,886
|
|
|
|
$
|
36,096,221
|
|
|
$
|
37,940,343
|
|
As of December 31, 2020, the Company had unutilized committed banks
and Jilin Province Trust Co., Ltd (see “Other Short-term Loans” below) totaled $7.4 million.
During
the years ended December 31, 2019 and 2020, interest of $2,293,440 and $1,710,183 were incurred on the Company’s bank borrowings,
respectively.
Other
short-term loans:
Other
short-term loans as of December 31, 2019 and 2020 consisted of the following:
|
|
|
|
December 31,
|
|
|
December 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
|
|
|
|
278,739
|
|
– Shareholders
|
|
(c)
|
|
|
86,679
|
|
|
|
92,446
|
|
|
|
|
|
|
399,149
|
|
|
|
471,185
|
|
Advances from unrelated third party
|
|
|
|
|
|
|
|
|
|
|
– Mr. Wenwu Yu
|
|
(d)
|
|
|
30,135
|
|
|
|
16,823
|
|
– Ms. Longqian Peng
|
|
(d)
|
|
|
646,273
|
|
|
|
689,275
|
|
– Mr. Shulin Yu
|
|
(e)
|
|
|
517,018
|
|
|
|
-
|
|
– Jilin Province Trust Co. Ltd
|
|
(f)
|
|
|
5,687,204
|
|
|
|
-
|
|
– Suzhou Zhengyuanwei Needle Ce Co., Ltd
|
|
(g)
|
|
|
71,808
|
|
|
|
76,586
|
|
|
|
|
|
|
6,952,438
|
|
|
|
782,684
|
|
|
|
|
|
$
|
7,351,587
|
|
|
$
|
1,253,869
|
|
(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
earnest money paid by certain shareholders in relation to share purchase (note 1) were unsecured,
non-interest bearing and repayable on demand.
|
In
2019, according to the investment agreements and agreed by the investors, the Company returned partial earnest money of $966,579 (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 December 31, 2020, earnest
money of $92,446 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). 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. The Company fully repaid the loan principal and accrued interests in
October 2020.
|
(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 $5.8 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 interests 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 $5.9 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 ($3.6 million) on March 13, 2020, bearing annual interest of 13.5%. The Company fully repaid the
loan principal and accrued interests in December 2020.
(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 December 31, 2020, loan amount of RMB0.5
million ($76,586) remained outstanding.
|
During
the years ended December 31, 2019 and 2020, interest of $601,153 and $587,620 were incurred on the Company’s borrowings from unrelated
parties, respectively.
14.
|
Accrued
Expenses and Other Payables
|
Accrued
expenses and other payables as of December 31, 2019 and 2020 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Construction costs payable
|
|
$
|
1,335,483
|
|
|
$
|
273,279
|
|
Equipment purchase payable
|
|
|
7,440,131
|
|
|
|
5,431,132
|
|
Liquidated damages (note a)
|
|
|
1,210,119
|
|
|
|
1,210,119
|
|
Accrued staff costs
|
|
|
2,485,384
|
|
|
|
2,083,660
|
|
Compensation costs
|
|
|
109,311
|
|
|
|
-
|
|
Customer deposits
|
|
|
600,758
|
|
|
|
394,536
|
|
Other payables and accruals
|
|
|
2,346,403
|
|
|
|
2,252,733
|
|
|
|
$
|
15,527,589
|
|
|
$
|
11,645,459
|
|
(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, 2019 and 2020, no liquidated damages relating to both events
have been paid.
|
On
November 9, 2007, the Company completed a private placement for the gross proceeds to the Company of $13,650,000 by selling 3,500,000
shares of common stock at the price of $3.90 per share. Roth Capital Partners, LLC acted as the Company’s exclusive financial advisor
and placement agent in connection with the private placement and received a cash fee of $819,000. The Company may have become liable
for liquidated damages to certain shareholders whose shares were included in a resale registration statement on Form S-3 that the Company
filed pursuant to a registration rights agreement that the Company entered into with such shareholders in November 2007. Under the registration
rights agreement, among other things, if a registration statement filed pursuant thereto was not declared effective by the SEC by the
100th calendar day after the closing of the Company’s private placement on November 9, 2007, or the “Effectiveness Deadline”,
then the Company would be liable to pay partial liquidated damages to each such investor of (a) 1.5% of the aggregate purchase price
paid by such investor for the shares it purchased on the one month anniversary of the Effectiveness Deadline; (b) an additional 1.5%
of the aggregate purchase price paid by such investor every thirtieth day thereafter (pro rated for periods totaling less than thirty
days) until the earliest of the effectiveness of the registration statement, the ten-month anniversary of the Effectiveness Deadline
and the time that the Company is no longer required to keep such resale registration statement effective because either such shareholders
have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations; and (c) 0.5%
of the aggregate purchase price paid by such investor for the shares it purchased in the Company’s November 2007 private placement
on each of the following dates: the ten-month anniversary of the Effectiveness Deadline and every thirtieth day thereafter (prorated
for periods totaling less than thirty days), until the earlier of the effectiveness of the registration statement and the time that the
Company no longer is required to keep such resale registration statement effective because either such shareholders have sold all of
their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations. Such liquidated damages would
bear interest at the rate of 1% per month (prorated for partial months) until paid in full.
On
December 21, 2007, pursuant to the registration rights agreement, the Company filed a registration statement on Form S-3, which was declared
effective by the SEC on May 7, 2008. As a result, the Company estimated liquidated damages amounting to $561,174 for the November 2007
registration rights agreement. As of December 31, 2019 and 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.
15.
|
Deferred
Government Grants
|
Deferred
government grants as of December 31, 2019 and 2020 consist of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Total government grants
|
|
$
|
4,260,833
|
|
|
$
|
7,456,308
|
|
Less: Current portion
|
|
|
(142,026
|
)
|
|
|
(151,476
|
)
|
Non-current portion
|
|
$
|
4,118,807
|
|
|
$
|
7,304,832
|
|
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 our 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 years ended December 31, 2019 and 2020.
On October 17, 2014, the Company received a subsidy
of RMB46.2 million (approximately $6.7 million) pursuant to an agreement with the Management Committee dated July 2, 2013 for costs of
land use rights and to be used to construct the new manufacturing site in Dalian. Part of the facilities had been completed and was operated
in July 2015 and the Company has initiated amortization on a straight-line basis over the estimated useful lives of the depreciable facilities
constructed thereon.
On June 23, 2020, BAK Asia, the Company wholly-owned
Hong Kong subsidiary, entered into a framework investment agreement with Jiangsu Gaochun Economic Development Zone Development Group
Company (“Gaochun EDZ”), pursuant to which the Company intended to develop certain lithium battery projects that aim to have
a production capacity of 8Gwh. Gaochun EDZ agreed to provide various support to facilitate the development and operation of the projects.
As of the date of this report, the Company received RMB20 million (approximately $3.06 million) subsidy from Gaochun EDZ. The Company
will recognize the government subsidies as income or offsets them against the related expenditures when there are no present or future
obligations for the subsidized projects.
The Company offset government grants of $143,172
and $143,256 for the years ended December 31, 2019 and 2020, respectively, against depreciation expenses of the Dalian facilities.
16.
|
Product
Warranty Provisions
|
The
Company maintains a policy of providing after sales support for certain of its new EV and LEV battery products introduced since October
1, 2015 by way of a warranty program. The limited cover covers a period of six to twenty four months for battery cells, a period of twelve
to twenty seven months for battery modules for light electric vehicles (LEV) such as electric bicycles, and a period of three years to
eight years (or 120,000 or 200,000 km if reached sooner) for battery modules for electric vehicles (EV). The Company accrues an estimate
of its exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses
the adequacy of its recorded warranty liability at least annually and adjusts the amounts as necessary.
Warranty
expense is recorded as a component of sales and marketing expenses. Accrued warranty activity consisted of the following:
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Balance at beginning of year
|
|
$
|
2,250,615
|
|
|
$
|
2,246,933
|
|
Warranty costs incurred
|
|
|
(85,397
|
)
|
|
|
(395,864
|
)
|
Provision for the year
|
|
|
109,248
|
|
|
|
12,998
|
|
Foreign exchange adjustment
|
|
|
(27,533
|
)
|
|
|
127,538
|
|
Balance at end of year
|
|
|
2,246,933
|
|
|
|
1,991,605
|
|
Less: Current portion
|
|
|
-
|
|
|
|
(155,888
|
)
|
Non-current portion
|
|
$
|
2,246,933
|
|
|
$
|
1,835,717
|
|
Notes
payable as of December 31, 2019 and December 31, 2020 consist of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
Notes
payable, net of debt discount
|
|
$
|
2,846,736
|
|
|
$
|
-
|
|
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 $250,000.00 per calendar month by providing written notice
to Borrower.
The
Company recorded the $125,000 as debt discount and is 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, 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.
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.
On
July 6, 2020, the Company entered into a Sixth exchange agreement (the “Sixth Exchange Agreement”) with Atlas Sciences, LLC
(the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original
principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory
note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange
the Partitioned Promissory Note for the issuance of 461,595 shares of the Company’s common stock, par value $0.001 per share to
the Lender.
On
July 29, 2020, the Company entered into a Seventh exchange agreement (the “Seventh Exchange Agreement”) with Atlas Sciences,
LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original
principal amount equal to $365,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory
note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange
the Partitioned Promissory Note for the issuance of 576,802 shares of the Company’s common stock, par value $0.001 per share to
the Lender.
On
October 12, 2020, the Company entered into an amendment to Promissory Notes (the “Amendment”) with Atlas Sciences, LLC (the
Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at
its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion
price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company
common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding
the foregoing, in no event will the Conversion Price be less than $1.00.
According to the amendment, on October 13, 2020,
the Company exchanged $230,000 in principal and $141,275 coupon interests under the Note I for the issuance of 229,750 shares of the
Company’s common stock, par value $0.001 per share to the Lender. As of the date of this report, the Company has fully repaid the
principal and coupon interests of Note I.
The
Company recorded $66,097 and $78,888 to interest expense from the amortization of debt discount and coupon interest, respectively, for
the year ended December 31, 2020.
The
Company recorded $55,903 and $62,387 to interest expense from the amortization of debt discount and coupon interest for Note I, respectively,
for the year ended December 31, 2019.
As of December 31, 2019 and 2020, accrued coupon
interest of $55,903 and nil on the Note I was included in other payables and accruals (note 14), respectively.
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 September 30, 2020.
On
July 8, 2020, the Company entered into a First exchange agreement for Note II (the “First Exchange Agreement- Note II”) with
Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory
note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance
of certain promissory note that the Company issued to the Lender on December 30, 2019, which has an original principal amount of $1,670,000,
and (ii) exchange the Partitioned Promissory Note for the issuance of 453,161 shares of the Company’s common stock, par value $0.001
per share to the Lender.
On
October 12, 2020, the Company entered into an amendment to Promissory Notes (the “Amendment”) with Atlas Sciences, LLC (the
Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at
its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion
price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company
common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding
the foregoing, in no event will the Conversion Price be less than $1.00.
According to the amendment, on October 13, 2020,
the Company exchanged $775,000 in principal under the Note II for the issuance of 479,579 shares of the Company’s common stock,
par value $0.001 per share to the Lender, On October 20, 2020, the Company exchanged additional $645,000 in principal and $133,252 coupon
interests under Note II for the issuance of 329,768 shares of the Company’s common stock, par value $0.001 per share to the Lender,
As of the date of this report, the Company has fully repaid the principal and coupon interests of Note II.
The
Company recorded $149,167 and $132,324 to interest expense from the amortization of debt discount and coupon interest for Note II, respectively,
for the year ended December 31, 2020.
The Company recorded $833 and $597 to interest
expense from the amortization of debt discount and coupon interest for Note II, respectively, for the year ended December 31, 2019.
As of December 31, 2019 and 2020, accrued coupon
interest of $597 and nil on the Note II was included in other payables and accruals (note 14), respectively.
18.
|
Income
Taxes, Deferred Tax Assets and Deferred Tax Liabilities
|
|
(a)
|
Income
taxes in the consolidated statements of comprehensive loss(income)
|
The
Company’s provision for income taxes expenses (credit) consisted of:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2020
|
|
PRC income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
$
|
-
|
|
|
$
|
-
|
|
United
States Tax
CBAK
is a Nevada corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning
after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. The U.S. Tax Reform signed
into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S.
federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many
business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation
of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate
income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay
the one-time transition tax over eight years, or in a single lump sum.
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 loss and estimated tax payments will be made when required
by U.S. law.
No
provision for income taxes in the United States has been made as CBAK had no taxable income for the years ended December 31, 2019 and
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 years ended December 31, 2019 and 2020 and accordingly no provision for Hong Kong profits tax was made in these periods.
PRC
Tax
The CIT Law in China applies an income tax rate
of 25% to all enterprises but grants preferential tax treatment to High-New Technology Enterprises. CBAK Power was regarded as a “High-new
technology enterprise” pursuant to a certificate jointly issued by the relevant Dalian Government authorities. The certificate was
valid for three years commencing from year 2019. Under the preferential tax treatment, CBAK Power was entitled to enjoy a tax rate of
15% for the years from 2019 to 2021 provided that the qualifying conditions as a High-new technology enterprise were met.
A
reconciliation of the provision for income taxes determined at the statutory income tax rate to the Company’s income taxes is as
follows:
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2020
|
|
Loss before income taxes
|
|
$
|
(10,853,435
|
)
|
|
$
|
(7,846,768
|
)
|
United States federal corporate income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax credit computed at United States statutory corporate income tax rate
|
|
|
(2,279,221
|
)
|
|
|
(1,647,821
|
)
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Over provision of deferred taxation in prior year
|
|
|
|
|
|
|
|
|
Rate differential for PRC earnings
|
|
|
(372,518
|
)
|
|
|
(318,383
|
)
|
Non-taxable income
|
|
|
-
|
|
|
|
(435,120
|
)
|
Non-deductible expenses
|
|
|
161,576
|
|
|
|
241,843
|
|
Share based payments
|
|
|
161,724
|
|
|
|
168,826
|
|
(Under) Over provision of tax losses
|
|
|
(92,668
|
)
|
|
|
174,558
|
|
Valuation allowance on deferred tax assets
|
|
|
2,421,107
|
|
|
|
1,816,097
|
|
Income tax expenses
|
|
$
|
-
|
|
|
$
|
-
|
|
|
(b)
|
Deferred
tax assets and deferred tax liabilities
|
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 2019 and 2020 are presented below:
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Deferred tax assets
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
1,225,916
|
|
|
$
|
1,354,762
|
|
Inventories
|
|
|
1,026,483
|
|
|
|
575,575
|
|
Property, plant and equipment
|
|
|
768,975
|
|
|
|
1,271,986
|
|
Provision for product warranty
|
|
|
561,733
|
|
|
|
497,901
|
|
Net operating loss carried forward
|
|
|
29,361,274
|
|
|
|
31,060,254
|
|
Valuation allowance
|
|
|
(32,944,381
|
)
|
|
|
(34,760,478
|
)
|
Deferred tax assets, non-current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, non-current
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 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. As of December
31, 2020, the Company’s PRC subsidiaries had net operating loss carry forwards of $37,536,687, which will expire in various years
through 2021 to 2030. Management believes it is more likely than not that the Company will not realize these potential tax benefits as
these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against
the full amount of the potential tax benefits.
According to the PRC Tax Administration and Collection
Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its
withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the
case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.
19.
|
Share-based
Compensation
|
Restricted Shares and Restricted Share Units
Restricted
shares granted on June 30, 2015
On
June 12, 2015, the Board of Director approved the CBAK Energy Technology, Inc. 2015 Equity Incentive Plan (the “2015 Plan”)
for Employees, Directors and Consultants of the Company and its Affiliates. The maximum aggregate number of Shares that may be issued
under the Plan is ten million (10,000,000) Shares.
On
June 30, 2015, pursuant to the 2015 Plan, the Compensation Committee of the Company’s Board of Directors granted an aggregate of
690,000 restricted shares of the Company’s common stock, par value $0.001, to certain employees, officers and directors of the
Company with a fair value of $3.24 per share on June 30, 2015. In accordance with the vesting schedule of the grant, the restricted shares
will vest in twelve equal quarterly installments on the last day of each fiscal quarter beginning on June 30, 2015 (i.e. last vesting
period: quarter ended March 31, 2018). The Company recognizes the share-based compensation expenses on a graded-vesting method.
All the restricted shares granted in respect of
the restricted shares granted on June 30, 2015 have been vested on March 31, 2018.
As
of December 31, 2020, there was no unrecognized stock-based compensation associated with the above restricted shares. As of December
31, 2020, 1,667 vested shares were to be issued.
Restricted
shares granted on April 19, 2016
On April 19, 2016, pursuant to the Company’s
2015 Plan, the Compensation Committee of the Board of Directors of the Company granted an aggregate of 500,000 restricted shares of the
Company’s common stock, par value $0.001 , to certain employees, officers and directors of the Company, of which 220,000 restricted
shares were granted to the Company’s executive officers and directors. There are three types of vesting schedules. First, if the
number of restricted shares granted is below 3,000, the shares will vest annually in 2 equal installments over a two year period with
the first vesting on June 30, 2017. Second, if the number of restricted shares granted is larger than or equal to 3,000 and is below 10,000,
the shares will vest annually in 3 equal installments over a three year period with the first vesting on June 30, 2017. Third, if the
number of restricted shares granted is above or equal to 10,000, the shares will vest semi-annually in 6 equal installments over a three
year period with the first vesting on December 31, 2016. The fair value of these restricted shares was $2.68 per share on April 19, 2016.
The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting
method.
The
Company recorded non-cash share-based compensation expense of $36,641 for the year ended December 31,2019, in respect of the restricted
shares granted on April 19, 2016 of which $27,774, $4,763, $2,272 and $1,832 were allocated to general and administrative expenses, research
and development expenses, sales and marketing expenses and cost of revenues, respectively.
No
such non-cash share-based compensation expense was recognized for the year ended December 31, 2020, in respect of the restricted shares
granted on April 19, 2016.
As
of December 31, 2020, there was no unrecognized stock-based compensation associated with the above restricted shares and 4,167 vested
shares were to be issued.
Restricted
share units granted on August 23, 2019
On August 23, 2019, pursuant to the Company’s
2015 Plan, the Compensation Committee granted an aggregate of 1,887,000 restricted share units of the Company’s common stock to
certain employees, officers and directors of the Company, of which 710,000 restricted share units were granted to the Company’s
executive officers and directors. There are two types of vesting schedules, (i) the share units will vest semi-annually in 6 equal installments
over a three year period with the first vesting on September 30, 2019; (ii) the share units will vest annual in 3 equal installments over
a three year period with the first vesting on March 31, 2021. The fair value of these restricted shares was $0.9 per share on August 23,
2019. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting
method.
The
Company recorded non-cash share-based compensation expense of $711,740 for the year ended December 31, 2020, in respect of the restricted
shares granted on August 23, 2019 of which $575,200, $22,631 and $113,909 were allocated to general and administrative expenses, sales
and marketing expenses and research and development expenses.
The
Company recorded non-cash share-based compensation expense of $733,472 for the year ended December 31, 2019, in respect of the restricted
shares granted on August 23, 2019 of which $567,081, $21,822 and $144,569 were allocated to general and administrative expenses, sales
and marketing expenses and research and development expenses.
As
of December 31, 2020, non-vested restricted share units granted on August 23, 2019 are as follows:
Non-vested share units as of August 23, 2019
|
|
|
|
Granted
|
|
|
1,887,000
|
|
Vested
|
|
|
(307,000
|
)
|
Forfeited
|
|
|
(74,167
|
)
|
Non-vested share units as of January 1, 2020
|
|
|
1,505,833
|
|
Granted
|
|
|
-
|
|
Vested
|
|
|
(571,996
|
)
|
Forfeited
|
|
|
(78,333
|
)
|
Non-vested share units as of December 31, 2020
|
|
|
855,504
|
|
As
of December 31, 2020, there was unrecognized stock-based compensation $253,088 associated with the above restricted share units and no vested
shares were to be issued.
Restricted share units granted on October 23,
2020
On October 23, 2020, pursuant to the Company’s
2015 Plan, the Compensation Committee granted an aggregate of 100,000 restricted share units of the Company’s common stock to an
employee of the Company. In accordance with the vesting schedule of the grant, the restricted shares will vest semi-annually in 6 equal
installments over a three year period with the first vesting on October 30, 2020. The fair value of these restricted shares was $3 per
share on October 23, 2020. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service
period) on a graded-vesting method.
The
Company recorded non-cash share-based compensation expense of $92,191 for the year ended December 31, 2020, in respect of the restricted
shares granted on October 23, 2020 of which allocated to research and development expenses.
As
of December 31, 2020, non-vested restricted share units granted on October 23, 2020 are as follows:
Non-vested share units as of October
23, 2020
|
|
|
|
Granted
|
|
|
100,000
|
|
Vested
|
|
|
(16,667
|
)
|
Non-vested
share units as of December 31, 2020
|
|
|
83,333
|
|
As
of December 31, 2020, there was unrecognized stock-based compensation $207,809 associated with the above restricted share units and no 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 years ended December 31, 2019 and 2020.
The
following is the calculation of loss per share:
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2020
|
|
Net loss
|
|
$
|
(10,853,435
|
)
|
|
$
|
(7,846,768
|
)
|
Less: Net loss attributable to non-controlling interests
|
|
|
85,912
|
|
|
|
39,870
|
|
Net loss attributable to shareholders of CBAK Energy Technology, Inc.
|
|
|
(10,767,523
|
)
|
|
|
(7,806,898
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in basic and diluted computation
|
|
|
38,965,564
|
|
|
|
61,992,386
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.28
|
)
|
|
$
|
(0.10
|
)
|
Note:
|
Including
5,834 and nil vested restricted shares granted pursuant to the 2015 Plan that were not yet issued as of December 31, 2019 and 2020,
respectively.
|
For the years ended December 31, 2019 and 2020,
1,505,833 and 938,837 unvested restricted shares, respectively, and all the outstanding warrants were anti-dilutive and excluded from
shares used in the diluted computation.
On December 8, 2020, the
Company entered in a securities purchase agreement with certain institutional investors, pursuant to which the Company issued in a registered
direct offering, an aggregate of 9,489,800 shares of its common stock at a price of $5.18 per share, for aggregate gross proceeds to
the Company of approximately $49 million, before deducting fees to the placement agent and other estimated offering expenses payable
by the Company. As part of the transaction, the institutional investors also received warrants (“Investor Warrants”) for
the purchase of up to 3,795,920 shares of the Company’s common stock at an exercise price of $6.46 per share exercisable for 36
months from the date of issuance. In addition, the placement agent for this transaction also received warrants (“Placement Agent
Warrants”) for the purchase of up to 379,592 shares of the Company’s common stock at an exercise price of $6.475 per share
exercisable for 36 months after 6 months from the issuance. The Company has performed a thorough reassessment of the terms of its warrants
with reference to the provisions of ASC Topic 815-40-15-7I, regarding its exposure to changes in currency exchange rates. This reassessment
has led to the management’s conclusion that the Company’s warrants issued to the investors should not be considered indexed
to the Company’s own stock because the warrants are denominated in U.S. dollar, which is different from the Company’s functional
currency, Renminbi. Warrants are remeasured at fair value with changes in fair value recorded in earnings in each reporting period.
There was a total of 4,175,512 warrants issued
and outstanding as of December 31, 2020.
The fair value of the outstanding warrants was
calculated using Binomial Model based on backward induction with the following assumptions:
Warrants holder
|
|
Investor Warrants
|
|
|
Placement Agent Warrants
|
|
Appraisal Date (Inception Date)
|
|
December 10,
2020
|
|
|
December 10,
2020
|
|
Market price per share (USD/share)
|
|
$
|
5.36
|
|
|
$
|
5.36
|
|
Exercise price (USD/price)
|
|
|
6.46
|
|
|
|
6.475
|
|
Risk free rate
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected term/ Contractual life (years)
|
|
|
3.0
years
|
|
|
|
3.0
years
|
|
Expected volatility
|
|
|
211.5
|
%
|
|
|
211.5
|
%
|
Appraisal Date
|
|
December 31,
2020
|
|
|
December 31,
2020
|
|
Market price per share (USD/share)
|
|
$
|
5.06
|
|
|
$
|
5.06
|
|
Exercise price (USD/price)
|
|
|
6.46
|
|
|
|
6.475
|
|
Risk free rate
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected term/ Contractual life (years)
|
|
|
2.9
years
|
|
|
|
2.9
years
|
|
Expected volatility
|
|
|
187.6
|
%
|
|
|
187.6
|
%
|
The following is a reconciliation of the beginning
and ending balances of warrants liability measured at fair value on a recurring basis using Level 3 inputs:
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2020
|
|
Balance at the beginning of the year
|
|
$
|
-
|
|
|
$
|
-
|
|
Warrants issued to institution investors
|
|
|
-
|
|
|
|
17,980,000
|
|
Warrants issued to placement agent
|
|
|
-
|
|
|
|
1,875,000
|
|
Warrants redeemed
|
|
|
-
|
|
|
|
-
|
|
Fair value change of the issued warrants included in earnings
|
|
|
-
|
|
|
|
(2,072,000
|
)
|
Balance at end of year
|
|
|
-
|
|
|
|
17,783,000
|
|
The following is a summary of the warrant activity:
|
|
Number of
Warrants
|
|
|
Average
Exercise Price
|
|
|
Weighted Average Remaining Contractual
Term in Years
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Exercisable at January 1, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Granted
|
|
|
4,175,512
|
|
|
|
6.46
|
|
|
|
3
|
|
Exercised / surrendered
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
4,175,512
|
|
|
$
|
6.46
|
|
|
|
2.9
|
|
Exercisable at December 31, 2020
|
|
|
3,795,920
|
|
|
$
|
6.46
|
|
|
|
2.9
|
|
22.
|
Fair
Value of Financial Instruments
|
ASC
Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification
based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments.
Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination
of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates
currently available. The three levels of valuation hierarchy are defined as follows:
|
●
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The
carrying amounts of financial assets and liabilities, such as cash and cash equivalents, trade accounts and bills receivable, other receivables,
balances with former subsidiaries, notes payable, other short-term loans, short-term and long-term bank loans and other payables approximate
their fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market
rate of interest.
The fair value of warrants was determined using
the Binomial Model, with level 3 inputs (Note 21).
23.
|
Commitments
and Contingencies
|
As
of December 31, 2019 and 2020, the Company had the following contracted capital commitments:
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
For construction of buildings
|
|
$
|
3,397,961
|
|
|
$
|
2,465,092
|
|
For purchases of equipment
|
|
|
-
|
|
|
|
10,308,416
|
|
Capital injection
|
|
|
83,900,000
|
|
|
|
228,115,914
|
|
|
|
$
|
87,297,961
|
|
|
$
|
240,889,422
|
|
During its normal course of business, the Company may become involved
in various lawsuits and legal proceedings. However, litigation is subject to inherent uncertainties, and an adverse result may arise from
time to time will affect its operation. Other than the legal proceedings set forth below, the Company is currently not aware of any such
legal proceedings or claims that the Company believe will have an adverse effect on the Company’s operation, financial condition
or operating results.
On July 7, 2016, Shenzhen Huijie Purification System Engineering Co.,
Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’
Court of Zhuanghe City, Dalian, (the “Court of Zhuanghe”) for failure to pay pursuant to the terms of the contract and entrusting
part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,241,648 (RMB8,430,792),
including construction costs of $0.9 million (RMB6.1 million, which the Company already accrued for at June 30, 2016), interest of $29,812
(RMB0.2 million) and compensation of $0.3 million (RMB1.9 million). On September 7, 2016, upon the request of Shenzhen Huijie for property
preservation, the Court of Zhuanghe froze CBAK Power’s bank deposits totaling $1,210,799 (RMB8,430,792) for a period of one year.
On September 1, 2017, upon the request of Shenzhen Huijie, the Court of Zhuanghe froze the bank deposits for another one year until August
31, 2018. The Court further froze the bank deposits for another one year until August 27, 2019 upon the request of Shenzhen Huijie on
August 27, 2018. On August 27, 2019, the Court froze the bank deposits for another year until August 27, 2020, upon the request of Shenzhen
Huijie. On June 28, 2020, the Court of Dalian entered the final judgement as described below and the frozen bank deposit was released
in July 2020.
On June 30, 2017, according to the trial of first instance, the Court
of Zhuanghe ruled that CBAK Power should pay the remaining contract amount of RMB6,135,860 (approximately $0.9 million) claimed by Shenzhen
Huijie as well as other expenses incurred including deferred interest, discounted charge on bills payable, litigation fee and property
preservation fee totaled $0.1 million. The Company has accrued for these amounts as of December 31, 2017. On July 24, 2017, CBAK Power
filed an appellate petition to the Intermediate Peoples’ Court of Dalian (“Court of Dalian)” to appeal the adjudication
dated on June 30, 2017. On November 17, 2017, the Court of Dalian rescinded the original judgement and remanded the case to the Court
of Zhuanghe for retrial. The Court of Zhuanghe conducted a retrial and requested an appraisal to be performed by a third-party appraisal
institution on the construction cost incurred and completed by Shenzhen Huijie on the subject project. On November 8, 2018, the Company
received from the Court of Zhuanghe the construction-cost-appraisal report which determined that the construction cost incurred and completed
by Shenzhen Huijie for the subject project to be $1,344,605 (RMB9,129,868). On May 20, 2019, the Court of Zhuanghe entered a judgment
that Shenzhen Huijie should pay back to CBAK Power $261,316 (RMB1,774,337) (the amount CBAK Power paid in excess of the construction cost
appraised by the appraisal institution) and the interest incurred since April 2, 2019. Shenzhen Huijie filed an appellate petition to
the Court of Dalian. On June 28, 2020, the Court of Dalian entered the final judgment that Shenzhen Huijie should pay back to CBAK Power
$245,530 (RMB1,667,146) (the amount CBAK Power paid in excess of the construction cost appraised by the appraisal institution) and the
interest incurred since April 2, 2019, and reimburse the litigation fees totaling $30,826 (RMB209,312) that CBAK Power has paid. As of
December 31, 2020, CBAK Power have not received the final judgement amount totaled $276,356 (RMB 1,876,458) from 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 ($2,692,174), including goods amount of
RMB17,428,000 ($2,566,716) and interest of RMB851,858 ($125,458). On December 19, 2017, the Court of Zhuanghe determined that Anyuan Bus
should pay the goods amount of RMB17,428,000 ($2,566,716) and the interest until the goods amount was paid off, and a litigation fee of
RMB131,480 ($19,364). Anyuan Bus did not appeal and as a result, the judgment is currently in the enforcement phase. On June 29, 2018,
the Company filed application petition with the Court of Zhuanghe for enforcement of the judgement against all of Anyuan Bus’s shareholders,
including Jiangxi Zhixin Automobile Co., Ltd, Anyuan Bus Manufacturing Co., Ltd, Anyuan Coal Group Co., Ltd, Qian Ronghua, Qian Bo and
Li Junfu. On October 22, 2018, the Court of Zhuanghe issued a judgment supporting the Company’s petition that all the Anyuan Bus’s
shareholders should be liable to pay the Company the debt as confirmed under the trial. On November 9, 2018, all the shareholders of Anyuan
Bus appealed against the judgment after receiving the notice from the Court. On March 29, 2019, the Company received judgment from the
Court of Zhuanghe that all these six shareholders cannot be added as judgment debtors. On April 11, 2019, the Company filed appellate
petition to the Intermediate Peoples’ Court of Dalian challenging the judgment from the Court of Zhuanghe. On October 9, 2019, the
Intermediate Peoples’ Court of Dalian dismissed the appeal by the Company and affirmed the original judgment. As of December 31,
2019 and December 31, 2020, CBAK Power made a full provision against the receivable from Anyuan Bus of RMB 17,428,000 ($2,566,716).
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 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). 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 $736 (RMB5,000) for a
period of one year to August 2020. 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 $0.29 million (RMB1,986,440),
including return of prepayment of $0.2 million (RMB1,440,000), liquidated damages of $70,692 (RMB480,000) and litigation fees of $9,785
(RMB66,440). In early July 2020, Shenzhen Court of International Arbitration made arbitration award dismissing the plaintiff’s claim
and CBAK Power’s counterclaim and the frozen bank deposits were released in early August 2020.
In early September 2019, CBAK Power received
notice from Court of Nanshan District, Shenzhen that Shenzhen HSL Business Technology Co., Ltd (“HSL”) filed lawsuit against
CBAK Power for failure to pay pursuant to the terms of purchase contract. The plaintiff sought an amount of $44,751 (RMB292,164) for
material cost and interest as accrued until settlement. In late September 2019, CBAK Power and HSL reached agreement that CBAK Power
would pay $15,317 (RMB100,000), $7,659 (RMB50,000) and $21,775 (RMB142,164) by October 15, October 30 and November 30, 2019, respectively,
and CBAK Power would pay litigation fees of $550 (RMB 3,589) to HSL by the end of November 2019. The Company has settled $22,976 (RMB150,000)
in 2019, $11,794 (RMB77,005) in 2020. As of December 31, 2020, CBAK Power had not settled the remaining material purchase cost of $9,981
(RMB 65,159) and accrued the material purchase cost.
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 failure
to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $21,400 (RMB139,713), including services
expenses amount of $21,277 (RMB138,908) and interest of $123 (RMB805). Upon the request of Suzhou Security for property preservation,
the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB150,000) for a period of one year. As of December
31, 2020, $5,062 (RMB33,048) was frozen by bank and CBAK Suzhou accrued the service cost of $21,277 (RMB138,908).
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 $97,779 (RMB638,359) and compensation of $83,173 (RMB543,000),
totaling $0.18 million (RMB1,181,359). In addition, upon the request of the employees for property preservation, bank deposit of $0.18
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, CBAK Suzhou had made full payment and
the frozen bank deposit was released in October 2020.
In October 2019, CBAK Power received notice from
Court of Changshou District, Chongqing that Chongqing Zhongrun Chemistry Co., Ltd (“Chongqing Zhongrun”) filed arbitration
claims against the Company for failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.4 million
(RMB2,484,948), including material cost of $0.4 million (RMB2,397,660) and interest of $13,370 (RMB87,288). On October 31, 2019, CBAK
Power and Chongqing Zhongrun reached an agreement that CBAK Power would pay the material cost by the end of December 31, 2019. In 2020,
CBAK Power had paid $198,152 (RMB1,293,653). In August 2020, upon the request of Chongqing Zhongrun for property preservation, the Court
of Changshou District ordered to freeze CBAK Power’s bank deposits totaling $0.2 million (RMB1,249,836) for a period of one year
to August 2021. As of December 31, 2020, the Company has accrued the material purchase cost of $0.2 million (RMB1,104,007) and $2,224
(RMB14,521) was frozen by bank. In February 2021, CBAK Power and Chongqing Zhongrun entered into a settlement agreement that if CBAK Power
would pay $172,813 (RMB1,128,227, including RMB24,220 litigation expenses incurred) to Chongqing Zhongrun before March 5, 2021, Chongqing
Zhongrun would waive the claims on interests. Thereafter, CBAK Power fully repaid to Chongqing Zhongrun and the frozen bank deposits were
released in March 2021.
In October 2019, CBAK Power received notice from Court of Zhuanghe
City that Hunan Zhongke Xingcheng Co., Ltd (“Hunan Zhongke”) filed a lawsuit against CBAK Power for failure to pay pursuant
to the terms of the purchase contract. Hunan Zhongke sought a total amount of $154,003 (RMB1,005,425). In 2020, the Company have paid
$38,293 (RMB250,000). Upon the request of Hunan Zhongke for property preservation, the Court of Zhuanghe City ordered to freeze CBAK Power’s
bank deposits totaling $0.1 million (RMB768,876) for a period of one year to July 2021. As of December 31, 2020, the Company accrued the
remaining material purchase cost of $115,710 (RMB755,425) and nil was frozen by bank. In December 2020, CBAK Power and Hunan Zhongke entered
into a debt reduction agreement that if CBAK Power would pay $81,368 (RMB531,220) to Hunan Zhongke before January 10, 2021, Hunan Zhongke
would cancel the remaining debts of $34,342 (RMB224,205). Thereafter, CBAK Power fully paid $81,368 (RMB531,220) to Hunan Zhongke and
the frozen bank deposits were released in January 2021.
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 $101,780 (RMB691,086) and interest $1,905 (RMB12,934). As of December 31, 2019, the Company has accrued the construction cost of $101,780
(RMB691,086). Upon the request of Dalian Construction for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s
bank deposits totaling $103,685 (RMB704,020) for a period of one year to December 2020. As of December 31, 2019, $97,384 (RMB661,240)
was frozen by bank. In January 2020, CBAK Power and Dalian Construction reached a settlement agreement, and the bank deposit was then
released. The Company has repaid all the construction cost as of December 31, 2020.
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 failure to pay pursuant to the terms of the purchase contract. Dongguan Shanshan sought a total amount of $0.7 million (RMB4,434,209).
Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits
totaling $0.7 million (RMB4,434,209) for a period of one year to December 17, 2020. In July 2020, CBAK Power and Dongguan Shanshan have
agreed to a settlement amount of $0.5 million (RMB3,635,192) and the bank deposit was then released. In October 2020, because the Company
failed to pay according to the settlement, Dongguan Shanshan sought a total amount of $0.6 million (RMB3,635,192). Upon the request of
Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.6 million
(RMB3,365,192) for a period of one year to October 21, 2021. As of December 31, 2020, CBAK Power has accrued the materials purchase cost
of $0.5 million (RMB3.4 million) and $55,230 (RMB360,576) was frozen by bank. In late February 2021, CBAK Power and Dongguan Shanshan
entered into a settlement agreement that CBAK would pay $260,393, $76,586, $76,586, $76,586, and $32,088 (RMB 1,700,000, RMB 500,000,
RMB 500,000, RMB 500,000 and RMB 209,487) by March 5, March 31, April 30, May 31 and June 30, 2021, respectively, and after the first
payment of RMB 1,700,000 by March 5, 2021, Dongguan Shanshan would release all the enforcement measures against CBAK Power. As of the
date of this report, CBAK Power paid $336,979 (RMB2,200,000) to Dongguan Shanshan and the frozen bank deposits were released in March
2021.
In March 2020, CBAK Power received notice from Court
of Baodi District, Tianjin that BTR Tianjin Nanomaterial Manufacturing Co., Ltd (“Tianjin BTR”) filed lawsuit against CBAK
Power for failure to pay pursuant to the terms of purchase contract. The plaintiff sought an amount of $49,398 (RMB322,500) for material
cost that CBAK Power owed to Tianjin BTR and its related party Shenzhen BTR Nanomaterial Technology Co., Ltd (“Shenzhen BTR”)
(together “BTRs”) and interest as accrued until settlement. In April 2020, CBAK Power and BTRs reached an agreement that CBAK
Power would pay BTR $7,659, $19,912 and $21,827 (RMB 50,000, RMB130,000 and RMB142,500) by the end of April, May and June 2020, respectively,
and CBAK Power would pay litigation fees of $456 (RMB 2,975) to Tianjing BTR by the end of November, 2020. As of December 31, 2020, CBAK
Power has paid $15,317 (RMB100,000) to Tianjin BTR and accrued remaining materials cost $27,234 (RMB177,800) and $6,847 (RMB44,700) for
Tianjin BTR and Shenzhen BTR respectively. In late January 2021, CBAK Power and Tianjing BTR reached another settlement agreement to settle
all the outstanding debts (including $773 (RMB5,045) litigation expenses) by paying $13,253 (RMB86,525) in cash and return of LFP materials
at a value of $14,754 (RMB96,320) and CBAK Power and Shenzhen BTR reached a settlement agreement by returning LFP materials at a value
of $6,847 (RMB44,700). Thereafter, CBAK Power fully paid $13,253 (RMB 86,525) and delivered the LFP materials to BTRs, and the lawsuit
was settled in March 2021.
In May 2020, CBAK Power received notice from Court
of Dalian Economic and Technology Development Zone that United Winners Laser Co., Ltd (“United Winners”) filed 3 lawsuits
against CBAK Power for failure to pay pursuant to the terms of 3 purchase contracts. The plaintiff sought a total amount of $0.4 million
(RMB2,845,844), including equipment cost of $0.4 (RMB2,692,000) and interest of $23,565 (RMB153,844). In late December 2020, CBAK Power
and United Winners reached a settlement agreement to settle all the debts by paying $0.29 million (RMB1,884,400) by December 30, 2020
in cash and delivery of 3 electric vehicles to offset debt of $41,234 (RMB269,200), and the remaining debt of $82,468 (RMB538,400) would
be relieved. CBAK Power paid $0.29 million (RMB1,884,400) and delivered the 3 electric vehicles to United Winners in December 31, 2020,
and the lawsuit was settled in February 2021.
In June 2020, CBAK Power received notice from
Court of Tongzhou District, Beijing that Beijing Hongfa Electric Technology Co., Ltd (“Hongfa”) filed lawsuit against CBAK
Power for failure to pay pursuant to the terms of purchase contract. The plaintiff sought a total amount of $29,993 (RMB195,810) for
material cost and interest as accrued until settlement. In December 2020, CBAK Power and Hongfa reached debt reduction agreement that
CBAK Power would pay Hongfa $23,646 (RMB 154,375) by the January 10, 2021, and the remaining debt of $6,347 (RMB41,435) would be relieved.
As of December 31, 2020, CBAK Power repaid $22,976 (RMB150,000) and accrued materials cost of $7, 017 (RMB45,810). Thereafter, CBAK Power
fully paid to Hongfa, and the lawsuit was settled in January 2021.
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 failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.31 million (RMB2,029,594),
including materials purchase cost of $0.30 million (RMB1,932,947), and interest of $14,804 (RMB96,647). Upon the request of Cangzhou Huibang
for property preservation, the Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $0.4 million (RMB2,650,000)
for a period of one year to March 3, 2021. As of December 31, 2020, the Company has accrued materials purchase cost of $0.3 million (RMB1,932,947)
and $18,518 (RMB120,898) was frozen by bank. In late February 2021, CBAK Power and Cangzhou Huibang entered into a settlement agreement
that if CBAK Power would pay $0.3 million (RMB1,965,447) within 10 days from the signature date of the agreement, Cangzhou Huibang would
waive the remaining claims. Thereafter, CBAK Power paid $0.3 million (RMB1,965,447) to Cangzhou Huibang and the frozen bank deposits were
released in March 2021.
In early January 2020, CBAK Power received notice
from Court of Nanshan District of Shenzhen that Shenzhen Klclear Technology Co., Ltd. (“Shenzhen Klclear”) filed lawsuit against
CBAK Power for failure to pay pursuant to the terms of the materials purchase contract. Shenzhen Klclear sought a total amount of $1 million
(RMB6,250,764), which the Company have already accrued for as of December 31, 2020. In February 2020, the Court of Nanshan District ruled
that the Company should pay $0.8 million (RMB5,238,495) and the interest fees incurred from September 28, 2018. In April 2020, CBAK Power
filed an appellate petition to the Intermediate Peoples’ Court of Shenzhen to appeal the adjudication in February 2020. As of the
date of this report, the Intermediate Peoples’ Court of Shenzhen has not yet rendered the judgment.
In May 2020, CBAK Power received notice from Court
of Dalian Economic and Technology Development Zone that Tianjin Changxing Metal Co., Ltd (“Tianjin Changxing”) filed a lawsuit
against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Tianjin Changxing sought a total amount of $29,652
(RMB193,588). On August 24, 2020, upon the request of Tianjin Changxing for property preservation, the Court of Dalian Economic and Technology
Development Zone ordered to freeze CBAK Power’s bank deposits totaling $32,915 (RMB214,892) for a period of one year. As of December
31, 2020, nil was frozen by bank and CBAK Power accrued the material purchase cost of $29,652 (RMB193,588). In late December 2020, CBAK
Power and Tianjin Changxing entered into a debt reduction agreement that if CBAK Power would pay $26,755 (RMB174,671) to Tianjin Changxing,
Tianjin Changxing would cancel the remaining debts. Thereafter, CBAK Power fully paid to Tianjin Changxing and the frozen bank deposits
were released in January 2021.
In May 2020, CBAK Power received notice from Court of Wuqing District,
Tianjin that Tianjin Changyuan Electric Material Co., Ltd (“Tianjin Changyuan”) filed lawsuit against CBAK Power for failure
to pay pursuant to the terms of the purchase contract. The plaintiff sought a total amount of $13,040 (RMB85,136), including material
cost of $12,166 (RMB79,429) and interest of $874 (RMB5,707). In July, 2020, upon the request of the plaintiff for property preservation,
the Court of Wuqing District, Tianjin ordered to freeze CBAK Power’s bank deposits totaling $13,041 (RMB85,136) for a period of
one year. As of December 31, 2020, $13,041 (RMB85,136) was frozen by bank and the Company had accrued the material purchase cost and litigation
expenses of $12,314 (RMB80,393). In March 2021, CBAK Power and Tianjin Changyuan entered into a debt reduction agreement that if CBAK
Power would pay $9,851 (RMB 64,314) to Tianjin Changyuan before April 30, 2021, Tianjin Changyuan would cancel the remaining debts of
$2,463 (RMB16,079). CBAK Power has paid $9,851 (RMB 64,314) in March 2021.
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 failure to pay pursuant to the terms of the purchase contract. Ligao sought a total amount of $11,886 (RMB77,599), including
contract amount of $11,240 (RMB73,380) and interest of $646 (RMB4,219). As of December 31, 2020, CBAK Suzhou had accrued the material
purchase cost of $11,240 (RMB73,380). On December 31, 2020, CBAK Power, CBAK Suzhou and Ligao entered into a debt reduction agreement
that if CBAK Power would pay $7,961 (RMB51,975) to Ligao, Ligao would cancel all the remaining debts. Thereafter, CBAK Power fully paid
$7,961 (RMB51,975) to Ligao, and the lawsuit was settled in January 2021.
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 failure to pay pursuant to the terms of the purchase contract. Ganfeng Battery sought a total amount of $115,764
(RMB755,780), including contract amount of $112,277 (RMB733,009) and interest of $3,487 (RMB22,771). Upon the request of Ganfeng Battery
for property preservation, the Court of Yushui ordered to freeze CBAK Suzhou’s bank deposits totaling $115,764 (RMB755,780) for
a period of one year to May 2021. In October 2020, CBAK Power, Ganfeng Battery, CBAK Suzhou and Zhengzhou Jingfan New Energy Automobile
Co., Ltd entered into a settlement agreement that CBAK Power would deliver 7 eletric vehicles to Ganfeng Battery to offset all the CBAK
Suzhou’ debts to Ganfeng Battery and all vehicles were delivered to before December 31, 2020. As of December 31, 2020, nil was frozen
by bank.
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 failure to pay
pursuant to the terms of the purchase contract. Jihongkai sought contract amount of $26,916 (RMB175,722) and interest as accrued until
settlement. As of December 31, 2020, the Company had accrued the material purchase cost of $26,916 (RMB175,722). In January 2021, CBAK
Power, CBAK Suzhou and Jihongkai entered into a settlement agreement to settle all the debts and related litigation expenses by paying
$12,213 (RMB79,736) in cash and delivery of an electric vehicle at a value of $15,287 (RMB99,800) from CBAK Power to Jihongkai. Thereafter,
CBAK Power fully paid $12,213 (RMB79,736) and delivered the electric vehicle to Jihongkai, and the lawsuit was settled in January 2021.
In June 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Nanjing Jinlong Chemical Co., Ltd. (“Nanjing Jinlong”) filed
a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Nanjing Jinlong sought a total amount
of $125,908 (RMB822,000). Upon the request of Nanjing Jinlong for property preservation, the Court of Dalian Economic and Technology Development
Zone ordered to freeze CBAK Power’s bank deposits totaling $125,908 (RMB822,000) for a period of one year to May 2021. As of December
31, 2020, $16 (RMB107) was frozen by bank and CBAK Power accrued the material purchase cost of $125,908 (RMB822,000).
In June 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Xi’an Anpu New Energy Technology Co. LTD (“Xi’an Anpu”)
filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the equipment purchase contract. Xi’an Anpu sought
a total amount of $129,270 (RMB843,954), including $117,636 (RMB768,000) for equipment cost and $11,634 (RMB75,954) for liquidated damages.
Upon the request of Xi’an Anpu for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to
freeze CBAK Power’s bank deposits $129,270 (RMB843,954) for a period to May 11, 2021. As of December 31, 2020, $98,284 (RMB641,656)
was frozen by bank and CBAK Power accrued the equipment purchase cost of $117,636 (RMB768,000). In January 2021, CBAK Power and Xi’an
Anpu entered into a settlement agreement to settle all the debts by paying $64,406 (RMB420,478) in cash and delivery of 3 electric vehicles
at a value of $45,952 (RMB300,000). Thereafter, CBAK Power fully paid $64,406 (RMB420,479) and delivered the 3 electric vehicles to Xi’an
Anpu, and the lawsuit was settled in February 2021.
In June 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Shenzhen Gd Laser Technology Co., Ltd. (“Shenzhen Gd”) filed
lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Shenzhen Gd sought a total amount of $24,713
(RMB161,346), including equipment cost of $22,975 (RMB150,000) and interest amount of $1,738 (RMB11,346). As of December 31, 2020, the
equipment was not received by CBAK Power. CBAK Power has included the equipment cost of $22,975 (RMB150,000) under capital commitments.
In July 2020, CBAK Power received notice from
Court of Shandong Linyi Economic and Technology Development Zone (“Court of Shandong”) that Shandong Tianjiao New Energy Co.
LTD (“Tianjiao”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the equipment purchase contract.
Tianjiao sought an amount of $391,777 (RMB2,557,756) for equipment cost and interest as accrued until settlement. Upon the request of
Tianjiao for property preservation, the Court of Shandong ordered to freeze CBAK Power’s bank deposits $0.5 million (RMB3,000,000)
for a period of one year. In December 2020, CBAK and Tianjiao reached an agreement that CBAK would pay Tianjiao $45,952 (RMB300,000) by
the end of each month from December 2020 to July 2021, and RMB 157,756 by the end of August 2021. As of December 31, 2020, CBAK Power
accrued materials cost $315,191 (RMB2,057,756) and nil was frozen by bank. As of the date of this report, CBAK Power has repaid $183,807
(RMB1,200,000) to Tianjiao.
In October 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Shanghai Shengmeng Industrial Technology Co., Ltd. (“Shengmeng”)
filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Shengmeng sought a total amount
of $13,429 (RMB87,672) for material cost and interest as accrued until settlement. In November 2020, CBAK and Shengmeng reached an agreement
that CBAK would pay $4,595 (RMB30,000) by November 30, 2020 and $5,004 (RMB 32,672) by December 20, 2020, and CBAK would pay litigation
fees of $156 (RMB1,021) to Shengmeng. Thereafter, CBAK Power fully paid off the debts to Shengmeng, and the lawsuit was settled in March
2021.
In October 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Jiuzhao New Energy Technology Co., Ltd. (“Jiuzhao”) filed a
lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Jiuzhao sought a total amount of $0.9 million
(RMB6,000,000), including material cost of $0.9 million (RMB5,870,267) and interest amount of $19,871 (RMB129,733). In December 1, 2020,
CBAK and Jiuzhao reached an agreement that CBAK Power would pay Jiuzhao $76,586 (RMB500,000) by the end of each month from December 2020
to October 2021, and $56,715 (RMB370,267) by November 30, 2021, and CBAK would pay litigation fees of $4,886 (RMB 31,900) to Jiuzhao.
As of December 31, 2020, CBAK Power has accrued $899,162 (RMB5,870,267) material cost and $5,874 (RMB38,346) was frozen by bank. As of
the date of this report, CBAK Power has repaid $306,344 (RMB2,000,000) to Jiuzhao.
In November 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Dalian Tianda Metal Machinery Trade Co., Ltd. (“Tianda”) filed
a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Tianda sought a total amount of $27,365
(RMB178,655) for material cost and interest as accrued until settlement. In December 2020, CBAK Power and Tianda reached an agreement
that CBAK Power would pay Tianda $7,659 (RMB50,000) by the 30th of each month from November 2020 to January 2021, and $4,389 (RMB28,655)
by end of February 2021, and CBAK Power would pay litigation fees of $297 (RMB1,937) to Tianda by November 30, 2020. As of December 31,
2020, CBAK Power has accrued $18,358 (RMB119,855) material cost and nil was frozen by bank. Thereafter, CBAK Power fully paid off the
debts to Tianda, and the lawsuit was settled in February 2021.
In December 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Shenzhen Haoneng Technology Co., Ltd. (“Haoneng”) filed a lawsuit
against CBAK Power for failure to pay pursuant to the terms of the equipment purchase contract. Haoneng sought a total amount of $266,182
(RMB1,737,797), including equipment purchase cost of $264,069 (RMB1,724,000) and interest amount of $2,113 (RMB13,797). As of December
31, 2020, CBAK Power has accrued the equipment purchase cost of $264,069 (RMB 1,724,000).
In December 2020, CBAK Power received notice from
Court of Dalian Economic and Technology Development Zone that Haoneng filed another lawsuit against CBAK Power for failure to pay pursuant
to the terms of the purchase contract. Haoneng sought a total amount of $1,571,092 (RMB10,257,030), including equipment cost of $1,389,578
(RMB9,072,000) and interest amount of $181,514 (RMB1,185,030). As of December 31, 2020, the equipment was not received by CBAK Power,
CBAK Power has included the equipment cost of $1,389,578 (RMB9,072,000) under capital commitments.
In April 2020, CBAK Suzhou received notice from
Court of Suzhou Industrial Park that Suzhou Suwangda Plastic Product Co., Ltd (“Suwangda”) filed a lawsuit against CBAK Suzhou
for failure to pay pursuant to the terms of the purchase contract. Suwangda sought contract amount of $13,325 (RMB86,992) and interest
as accrued until settlement. As of December 31, 2020, the Company has accrued the material cost of $13,325 (RMB86,992). In March 2021,
CBAK Power, CBAK Suzhou and Suwangda entered into a settlement agreement to settle all the debts by paying $9,670 (RMB63,134) from CBAK
Power to Suwangda. Thereafter, CBAK Power fully paid $9,670 (RMB63,134) and the lawsuit was settled in March 2021. The remaining $3,654
(RMB23,858) was waived by Suwangda.
In June 2020, CBAK Power received notice from
Court of Pingyuan County, Shandong province that Shandong Hangewei New Energy Vehicle Control Co., Ltd (“Hangewei”) filed
a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Hangewei sought a total amount of $16,307
(RMB 106,464) and interest as accrued until settlement. In October 2020, CBAK Power and Hangewei entered into a settlement agreement to
settle all the debts by paying Hangewei $1,532 (RMB10,000) and $12,254 (RMB80,000) by the end of October and November 2020, respectively.
CBAK Power paid $13,786 (RMB90,000) before December 31, 2020 and the remaining $2,521 (RMB16,464) was waived by Hangewei.
24.
|
Concentrations
and Credit Risk
|
The
Company had the following customers that individually comprised 10% or more of net revenue for the years ended December 31, 2019 and
2020 as follows:
|
|
Year ended
|
|
|
Year ended
|
|
Sales of finished goods and raw materials
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Customer A
|
|
$
|
7,222,245
|
|
|
|
32.54
|
%
|
|
$
|
8,322,504
|
|
|
|
22.15
|
%
|
Customer B
|
|
|
*
|
|
|
|
*
|
|
|
|
3,806,110
|
|
|
|
10.13
|
%
|
Customer C
|
|
|
3,308,638
|
|
|
|
14.91
|
%
|
|
|
*
|
|
|
|
*
|
|
Zhengzhou BAK Battery Co., Ltd (note a)
|
|
|
3,961,050
|
|
|
|
17.85
|
%
|
|
|
12,770,075
|
|
|
|
33.99
|
%
|
|
*
|
Comprised
less than 10% of net revenue for the respective period.
|
The Company had the following customers that
individually comprised 10% or more of net accounts receivable (included VAT) as of December 31, 2019 and 2020 as follows:
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Customer A
|
|
$
|
1,725,293
|
|
|
|
21.93
|
%
|
|
$
|
3,148,737
|
|
|
|
11.23
|
%
|
Customer C
|
|
|
1,713,628
|
|
|
|
21.78
|
%
|
|
|
*
|
|
|
|
*
|
|
Customer D
|
|
|
902,309
|
|
|
|
11.47
|
%
|
|
|
*
|
|
|
|
*
|
|
Customer E
|
|
|
830,821
|
|
|
|
10.56
|
%
|
|
|
*
|
|
|
|
*
|
|
Zhengzhou BAK Battery Co., Ltd (note a)
|
|
|
*
|
|
|
|
*
|
|
|
|
15,258,164
|
|
|
|
54.42
|
%
|
*
|
Comprised
less than 10% of net accounts receivable for the respective period.
|
The
Company had the following suppliers that individually comprised 10% or more of net purchase for the years ended December 31, 2019 and
2020 as follows:
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2020
|
|
Supplier A
|
|
$
|
*
|
|
|
|
*
|
|
|
$
|
12,396,483
|
|
|
|
48.90
|
%
|
Supplier B
|
|
|
2,920,966
|
|
|
|
21.40
|
%
|
|
|
*
|
|
|
|
*
|
|
Zhengzhou BAK New Energy Vehicle Co., Ltd (note b)
|
|
|
3,812,819
|
|
|
|
27.93
|
%
|
|
|
*
|
|
|
|
*
|
|
Shenzhen BAK (note c)
|
|
|
*
|
|
|
|
*
|
|
|
|
3,884,309
|
|
|
|
15.32
|
%
|
|
*
|
Comprised
less than 10% of net purchase for the respective period.
|
The
Company had the following suppliers that individually comprised 10% or more of accounts payable as of December 31, 2019 and 2020 as follows:
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Supplier A
|
|
$
|
*
|
|
|
|
*
|
|
|
$
|
9,272,478
|
|
|
|
47.40
|
%
|
Supplier C
|
|
|
*
|
|
|
|
*
|
|
|
|
2,017,814
|
|
|
|
10.32
|
%
|
Supplier D
|
|
|
1,126,482
|
|
|
|
10.10
|
%
|
|
|
*
|
|
|
|
*
|
|
Apart
from the above, for the years ended December 31, 2019 and 2020, the Company recorded the following transactions:
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Purchase of inventories from
|
|
|
|
|
|
|
BAK Shenzhen (note c)
|
|
$
|
63,950
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Sales of finished goods and raw materials to
|
|
|
|
|
|
|
|
|
BAK Shenzhen (note c)
|
|
|
526,719
|
|
|
|
-
|
|
Zhengzhou BAK New Energy Technology Co., Ltd (note b)
|
|
|
-
|
|
|
|
1,562,637
|
|
Notes:
|
|
a
|
Mr. Xiangqian Li, the Company’s former CEO, is a director of Zhengzhou BAK Battery Co., Ltd. Up to the date of this report, Zhengzhou BAK Battery Co., Ltd. repaid $7,691,611 to the Company.
|
b
|
Mr. Xiangqian Li is a director of Zhengzhou BAK New Energy Vehicle
Co., Ltd, which has 29% equity interests in Zhengzhou BAK New Energy Technology Co., Ltd. As of December 31, 2019 and 2020, receivable
from Zhengzhou BAK New Energy Technology Co., Ltd were nil and $1,759,050, respectively, was included in trade accounts and bills receivable,
net. Up to the date of this report, Zhengzhou BAK New Energy Technology Co., Ltd repaid $741,353 to the Company.
|
c
|
Mr. Xiangqian Li is a director of Shenzhen BAK and BAK Shenzhen.
|
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, 2019 and 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.
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-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, the Company focused on producing high-power lithium battery cells. Net revenues from continuing operations
for the years ended December 31, 2019 and 2020 were as follows:
Net
revenues by product:
|
|
Year ended
|
|
|
Year ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
High power lithium batteries used in:
|
|
|
|
|
|
|
Electric vehicles
|
|
$
|
4,509,055
|
|
|
$
|
259,955
|
|
Light electric vehicles
|
|
|
16,147
|
|
|
|
39,428
|
|
Uninterruptable supplies
|
|
|
17,669,146
|
|
|
|
22,748,627
|
|
|
|
|
22,194,348
|
|
|
|
23,048,010
|
|
Raw materials used in lithium batteries
|
|
|
-
|
|
|
|
14,518,142
|
|
Total
|
|
$
|
22,194,348
|
|
|
$
|
37,566,152
|
|
Net
revenues by geographic area:
|
|
Year ended
|
|
|
Year ended
|
|
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Mainland China
|
|
$
|
21,632,637
|
|
|
|
35,464,245
|
|
Europe
|
|
|
-
|
|
|
|
1,776,000
|
|
Korea
|
|
|
-
|
|
|
|
246,453
|
|
Israel
|
|
|
118,906
|
|
|
|
-
|
|
USA
|
|
|
285,556
|
|
|
|
3,592
|
|
Others
|
|
|
157,249
|
|
|
|
75,862
|
|
Total
|
|
$
|
22,194,348
|
|
|
$
|
37,566,152
|
|
Substantially
all of the Company’s long-lived assets are located in the PRC.
26.
|
CBAK
Energy Technology, Inc. (Parent Company)
|
Under PRC regulations, subsidiaries in PRC (“the
PRC subsidiaries”) may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC GAAP. In addition,
the PRC subsidiaries are required to set aside at least 10% of their after tax net profits each year, if any, to fund the statutory general
reserve until the balance of the reserves reaches 50% of their registered capital. The statutory general reserves are not distributable
in the form of cash dividends to the Company and can be used to make up cumulative prior year losses, if any, and may be converted into
share capital by the issue of new shares to shareholders in proportion to their existing shareholdings, or by increasing the par value
of the shares currently held by them, provided that the reserve balance after such issue is not less than 25% of the registered capital.
As of December 31, 2019 and 2020, additional transfers of $56,269,489 and $164,388,965 were required before the statutory general reserve
reached 50% of the registered capital of the PRC subsidiaries. As of December 31, 2019 and 2020, there was $1,230,511 appropriation from
retained earnings and set aside for statutory general reserves by the PRC subsidiaries. The PRC subsidiaries did not have after tax net
profits since its incorporation and therefore no appropriation was made to fund its statutory general reserve as of December 31, 2019
and 2020.
Schedule
I of Article 504 of Regulation SX requires the condensed financial information of the registrant (Parent Company) to be filed when the
restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed
fiscal year. For purposes of this test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s
proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent
fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the
consent of a third party (i.e., lender, regulatory agency, foreign government, etc.).
SCHEDULE
I – CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CBAK
ENERGY TECHNOLOGY, INC.
PARENT
COMPANY STATEMENTS OF OPERATIONS
For
the years ended December 31, 2019 and 2020
(Unaudited)
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2020
|
|
REVENUE, net
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Salaries and consulting expenses
|
|
|
978,942
|
|
|
|
992,246
|
|
General and administrative
|
|
|
439,974
|
|
|
|
531,449
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(1,418,916
|
)
|
|
|
(1,523,695
|
)
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,418,916
|
)
|
|
|
(1,523,695
|
)
|
|
|
|
|
|
|
|
|
|
Finance expenses
|
|
|
(120,051
|
)
|
|
|
(429,741
|
)
|
Changes in fair value of warrants liability
|
|
|
-
|
|
|
|
2,072,000
|
|
|
|
|
|
|
|
|
|
|
(LOSS) PROFIT ATTRIBUTABLE TO PARENT COMPANY
|
|
|
(1,538,967
|
)
|
|
|
118,564
|
|
|
|
|
|
|
|
|
|
|
EQUITY IN LOSS OF SUBSIDIARIES
|
|
|
(9,228,556
|
)
|
|
|
(7,925,462
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO SHAREHOLDERS
|
|
$
|
(10,767,523
|
)
|
|
$
|
(7,806,898
|
)
|
CBAK
ENERGY TECHNOLOGY, INC.
PARENT
COMPANY BALANCE SHEETS
As
of December 31, 2019 and 2020
(Unaudited)
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests in subsidiaries
|
|
$
|
18,183,266
|
|
|
$
|
66,797,421
|
|
Cash and cash equivalents
|
|
|
-
|
|
|
|
5,107,486
|
|
Total assets
|
|
$
|
18,183,266
|
|
|
$
|
71,904,907
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
2,846,736
|
|
|
$
|
-
|
|
Accrued expenses and other payables
|
|
|
1,731,251
|
|
|
|
1,722,814
|
|
Warrants liability
|
|
|
-
|
|
|
|
17,783,000
|
|
Total current liabilities
|
|
|
4,577,987
|
|
|
|
19,505,814
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
13,605,279
|
|
|
|
52,399,093
|
|
Total liabilities and shareholders’ equity
|
|
$
|
18,183,266
|
|
|
$
|
71,904,907
|
|
CBAK
ENERGY TECHNOLOGY, INC.
PARENT
COMPANY STATEMENTS OF CASH FLOWS
For
the years ended December 31, 2019 and 2020
(Unaudited)
|
|
Year ended
December 31,
2019
|
|
|
Year ended
December 31,
2020
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,767,523
|
)
|
|
$
|
(7,806,898
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Equity in loss of subsidiaries
|
|
|
9,228,556
|
|
|
|
7,925,462
|
|
Share based compensation
|
|
|
770,113
|
|
|
|
803,931
|
|
Changes in fair value of warrants liability
|
|
|
-
|
|
|
|
(2,072,000
|
)
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other payable
|
|
|
89,080
|
|
|
|
(8,437
|
)
|
Net cash used in operating activities
|
|
|
(679,774
|
)
|
|
|
(1,157,942
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Decrease in interest in subsidiaries
|
|
|
(2,070,226
|
)
|
|
|
(39,083,154
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(2,070,226
|
)
|
|
|
(39,083,154
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of shares
|
|
|
-
|
|
|
|
45,348,582
|
|
Proceeds from issuance of promissory notes
|
|
|
2,750,000
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
2,750,000
|
|
|
|
45,348,582
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
-
|
|
|
|
5,107,486
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
$
|
-
|
|
|
$
|
5,107,486
|
|
The
condensed parent company financial statements have been prepared using the equity method to account for its subsidiaries. Refer to the
consolidated financial statements and notes presented above for additional information and disclosures with respect to these financial
statements.
On April 1, 2021, CBAK Power entered into a
framework investment agreement with Hangzhou Juzhong Daxin Asset Management Co., Ltd. ("Juzhong Daxin") for a potential acquisition
of Zhejiang Meidu Hitrans Lithium Battery Technology Co., Ltd ("Hitrans"). Juzhong Daxin is the trustee of 85% of equity interests
of Hitrans and has the voting right and right to dividend over the 85% of equity interests. Subject to definitive acquisition agreements
to be entered into among the parties, including shareholders owning the 85% of equity interests of Hitrans, CBAK Power intends to acquire
85% of equity interests of Hitrans in cash in 2021. As of date of this report, CBAK Power has paid $3.06 million (RMB20,000,000) to Juzhong
Daxin as a security deposit. Hitrans is an unrelated third party of the Company engaging in researching, manufacturing and trading of
raw materials and is one of the major suppliers of the Company in fiscal 2020.