Item 1.
|
Financial Statements.
|
CBAK ENERGY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2016 AND 2017
F-1
CBAK Energy Technology, Inc. and Subsidiaries
Condensed
consolidated balance sheets
As of December 31, 2016 and June 30, 2017
(In US$)
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
Note
|
|
|
2016
|
|
|
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
408,713
|
|
$
|
1,968,964
|
|
Pledged deposits
|
2
|
|
|
4,278,144
|
|
|
4,626,395
|
|
Trade accounts and bills
receivable, net
|
3
|
|
|
2,468,387
|
|
|
10,151,215
|
|
Inventories
|
4
|
|
|
17,094,922
|
|
|
16,752,670
|
|
Prepayments and other
receivables
|
5
|
|
|
6,675,351
|
|
|
6,874,515
|
|
Prepaid land use rights, current portion
|
9
|
|
|
161,790
|
|
|
165,706
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
31,087,307
|
|
|
40,539,465
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
7
|
|
|
20,010,903
|
|
|
21,772,170
|
|
Construction in progress
|
8
|
|
|
33,457,043
|
|
|
34,010,928
|
|
Prepaid land use rights, non-current
|
9
|
|
|
7,536,733
|
|
|
7,636,279
|
|
Intangible assets, net
|
10
|
|
|
21,344
|
|
|
20,549
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
92,113,330
|
|
$
|
103,979,391
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Trade accounts and bills
payable
|
|
|
$
|
15,580,655
|
|
$
|
19,094,270
|
|
Short-term bank loans
|
11
|
|
|
1,439,947
|
|
|
1,474,796
|
|
Other short-term loans
|
12
|
|
|
10,524,778
|
|
|
13,291,027
|
|
Accrued expenses and other payables
|
13
|
|
|
19,382,593
|
|
|
15,547,730
|
|
Payables to former
subsidiaries, net
|
6
|
|
|
2,488,859
|
|
|
7,225,946
|
|
Deferred government grants, current
|
14
|
|
|
142,400
|
|
|
145,847
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
49,559,232
|
|
|
56,779,616
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
|
11
|
|
|
18,258,528
|
|
|
18,700,410
|
|
Deferred government grants,
non-current
|
14
|
|
|
4,556,861
|
|
|
4,594,220
|
|
Long term tax payable
|
15
|
|
|
7,061,140
|
|
|
6,614,604
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
79,435,761
|
|
|
86,688,850
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' (deficit) equity
|
|
|
|
|
|
|
|
|
Common stock $0.001 par
value; 500,000,000 authorized; 19,744,605 issued and 19,600,469
outstanding as of December 31, 2016; 26,259,692 issued and 26,115,486
outstanding as of June 30, 2017
|
|
|
|
19,745
|
|
|
26,260
|
|
Donated shares
|
|
|
|
14,101,689
|
|
|
14,101,689
|
|
Additional paid-in capital
|
|
|
|
145,353,067
|
|
|
155,443,076
|
|
Statutory reserves
|
|
|
|
1,230,511
|
|
|
1,230,511
|
|
Accumulated deficit
|
|
|
|
(141,999,372
|
)
|
|
(147,820,968
|
)
|
Accumulated other comprehensive loss
|
|
|
|
(1,961,461
|
)
|
|
(1,623,417
|
)
|
|
|
|
|
16,744,179
|
|
|
21,357,151
|
|
Less: Treasury shares
|
|
|
|
(4,066,610
|
)
|
|
(4,066,610
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
|
12,677,569
|
|
|
17,290,541
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
$
|
92,113,330
|
|
$
|
103,979,391
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-2
CBAK Energy Technology, Inc. and Subsidiaries
Condensed
consolidated statements of operations and comprehensive loss
For the three
and six months ended June 30, 2016 and 2017
(Unaudited)
(In US$
except for number of shares)
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
Note
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
Net revenues
|
21
|
|
$
|
1,362,295
|
|
$
|
6,339,259
|
|
$
|
4,561,208
|
|
$
|
10,055,403
|
|
Cost of revenues
|
|
|
|
(1,915,890
|
)
|
|
(7,830,396
|
)
|
|
(5,214,097
|
)
|
|
(11,963,717
|
)
|
Gross loss
|
|
|
|
(553,595
|
)
|
|
(1,491,137
|
)
|
|
(652,889
|
)
|
|
(1,908,314
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development expenses
|
|
|
|
(312,024
|
)
|
|
(533,171
|
)
|
|
(672,564
|
)
|
|
(963,515
|
)
|
Sales and marketing expenses
|
|
|
|
(205,654
|
)
|
|
(449,757
|
)
|
|
(504,738
|
)
|
|
(684,637
|
)
|
General and
administrative expenses
|
|
|
|
(1,811,464
|
)
|
|
(1,158,255
|
)
|
|
(2,983,037
|
)
|
|
(2,142,731
|
)
|
Total operating expenses
|
|
|
|
(2,329,142
|
)
|
|
(2,141,183
|
)
|
|
(4,160,339
|
)
|
|
(3,790,883
|
)
|
Operating loss
|
|
|
|
(2,882,737
|
)
|
|
(3,632,320
|
)
|
|
(4,813,228
|
)
|
|
(5,699,197
|
)
|
Finance expenses, net
|
|
|
|
(15,358
|
)
|
|
(93,035
|
)
|
|
(52,550
|
)
|
|
(95,763
|
)
|
Other income (expenses), net
|
|
|
|
229,403
|
|
|
(28,025
|
)
|
|
236,687
|
|
|
(26,636
|
)
|
Loss before income tax
|
|
|
|
(2,668,692
|
)
|
|
(3,753,380
|
)
|
|
(4,629,091
|
)
|
|
(5,821,596
|
)
|
Income tax credit
|
15
|
|
|
51
|
|
|
-
|
|
|
57,292
|
|
|
-
|
|
Net loss
|
|
|
|
(2,668,641
|
)
|
|
(3,753,380
|
)
|
|
(4,571,799
|
)
|
|
(5,821,596
|
)
|
Other comprehensive (loss)
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
(579,454
|
)
|
|
357,690
|
|
|
(434,799
|
)
|
|
338,044
|
|
Comprehensive loss
|
|
|
$
|
(3,248,095
|
)
|
$
|
(3,395,690
|
)
|
$
|
(5,006,598
|
)
|
$
|
(5,483,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
$
|
(0.15
|
)
|
$
|
(0.18
|
)
|
$
|
(0.26
|
)
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock:
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
|
17,284,432
|
|
|
20,402,083
|
|
|
17,256,932
|
|
|
20,059,236
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-3
CBAK
Energy
Technology,
Inc. and
Subsidiaries
Condensed
consolidated
statements
of
changes
in
shareholders
equity
For the six
months
ended
June 30, 2016 and 2017
(Unaudited)
(In US$ except for number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
other
|
|
|
Treasury shares
|
|
|
Total
|
|
|
|
Number
|
|
|
|
|
|
Donated
|
|
|
paid-in
|
|
|
Statutory
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
Number
|
|
|
|
|
|
shareholders
|
|
|
|
of shares
|
|
|
Amount
|
|
|
shares
|
|
|
capital
|
|
|
reserves
|
|
|
deficit
|
|
|
loss
|
|
|
of shares
|
|
|
Amount
|
|
|
equity
|
|
Balance as of January
1, 2016
|
|
17,289,699
|
|
$
|
17,290
|
|
$
|
14,101,689
|
|
$
|
138,405,110
|
|
$
|
1,230,511
|
|
$
|
(129,285,454
|
)
|
$
|
(979,048
|
)
|
|
(144,206
|
)
|
$
|
(4,066,610
|
)
|
$
|
19,423,488
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,571,799
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,571,799
|
)
|
Share-based compensation for
employee and director stock awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
698,100
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
698,100
|
|
Common stock issued to
employees and
directors for stock awards
|
|
142,501
|
|
|
142
|
|
|
-
|
|
|
(142
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Foreign currency translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(434,799
|
)
|
|
-
|
|
|
-
|
|
|
(434,799
|
)
|
Balance as of June 30,
2016
|
|
17,432,200
|
|
$
|
17,432
|
|
$
|
14,101,689
|
|
$
|
139,103,068
|
|
$
|
1,230,511
|
|
$
|
(133,857,253
|
)
|
$
|
(1,413,847
|
)
|
|
(144,206
|
)
|
$
|
(4,066,610
|
)
|
$
|
15,114,990
|
|
Balance as of January
1, 2017
|
|
19,744,675
|
|
$
|
19,745
|
|
$
|
14,101,689
|
|
$
|
145,353,067
|
|
$
|
1,230,511
|
|
$
|
(141,999,372
|
)
|
$
|
(1,961,461
|
)
|
|
(144,206
|
)
|
$
|
(4,066,610
|
)
|
$
|
12,677,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,821,596
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,821,596
|
)
|
Common stock issued to investors
|
|
6,403,518
|
|
|
6,403
|
|
|
-
|
|
|
9,598,874
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,605,277
|
|
Share-based compensation for
employee and director stock awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
491,247
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
491,247
|
|
Common stock issued to employees and
directors for stock awards
|
|
111,499
|
|
|
112
|
|
|
-
|
|
|
(112
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Foreign currency translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
338,044
|
|
|
-
|
|
|
-
|
|
|
338,044
|
|
Balance as of June 30,
2017
|
|
26,259,692
|
|
$
|
26,260
|
|
$
|
14,101,689
|
|
$
|
155,443,076
|
|
$
|
1,230,511
|
|
$
|
(147,820,968
|
)
|
$
|
(1,623,417
|
)
|
|
(144,206
|
)
|
$
|
(4,066,610
|
)
|
$
|
17,290,541
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-4
CBAK Energy Technology, Inc. and subsidiaries
Condensed
consolidated statements of cash flows For the six months ended June 30, 2016 and
2017
(Unaudited)
(In US$)
|
|
Six months
ended June 30,
|
|
|
|
2016
|
|
|
2017
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
Net loss
|
$
|
(4,571,799
|
)
|
|
(5,821,596
|
)
|
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
542,606
|
|
|
631,781
|
|
Provision for doubtful debts
|
|
585,968
|
|
|
380,808
|
|
Write-down of inventories
|
|
213,293
|
|
|
998,403
|
|
Share-based compensation
|
|
698,100
|
|
|
491,247
|
|
Deferred tax assets
|
|
(57,292
|
)
|
|
-
|
|
Exchange loss (gain)
|
|
22,855
|
|
|
(63,014
|
)
|
Changes in operating assets
and liabilities:
|
|
|
|
|
|
|
Trade accounts and bills
receivable
|
|
(1,347,959
|
)
|
|
(7,898,896
|
)
|
Inventories
|
|
(6,987,353
|
)
|
|
(252,756
|
)
|
Prepayments and other
receivables
|
|
(2,125,822
|
)
|
|
(34,144
|
)
|
Trade accounts
and bills payable
|
|
6,182,378
|
|
|
3,093,339
|
|
Accrued expenses and other
payables
|
|
938,017
|
|
|
969,912
|
|
Income taxes
payable
|
|
(462,429
|
)
|
|
(608,922
|
)
|
Trade receivable from and
payables to former subsidiaries
|
|
7,768,021
|
|
|
4,629,774
|
|
Net cash provided by (used
in) operating activities
|
|
1,398,584
|
|
|
(3,484,064
|
)
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
Increase (Decrease) in pledged deposits
|
|
600,158
|
|
|
(241,343
|
)
|
Purchases of property, plant
and equipment and construction in progress
|
|
(7,618,814
|
)
|
|
(6,808,832
|
)
|
Net cash used in investing activities
|
|
(7,018,656
|
)
|
|
(7,050,175
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Advances from investors
|
|
-
|
|
|
2,036,275
|
|
Proceeds from bank borrowings
|
|
13,024,446
|
|
|
-
|
|
Repayment of bank borrowings
|
|
(11,629,181
|
)
|
|
-
|
|
Borrowings from unrelated parties
|
|
6,411,182
|
|
|
4,363,446
|
|
Repayment of borrowings from
unrelated parties
|
|
(77,068
|
)
|
|
(4,746,539
|
)
|
Borrowings from related parties
|
|
1,088,196
|
|
|
1,873,373
|
|
Repayment of borrowings from
related parties
|
|
-
|
|
|
(1,047,227
|
)
|
Proceeds from issuance of common stock
|
|
-
|
|
|
9,605,277
|
|
Net cash provided by
financing activities
|
|
8,817,575
|
|
|
12,084,605
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents
|
|
(152,766
|
)
|
|
9,885
|
|
Net increase in cash and cash
equivalents
|
|
3,044,737
|
|
|
1,560,251
|
|
Cash and cash equivalents
at the beginning of period
|
|
80,711
|
|
|
408,713
|
|
Cash and cash equivalents at the end of
period
|
$
|
3,125,448
|
|
|
1,968,964
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
Transfer of construction in
progress to property, plant and equipment
|
$
|
333,272
|
|
|
1,880,081
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Income taxes
|
$
|
462,429
|
|
|
608,922
|
|
Interest, net of amounts capitalized
|
$
|
-
|
|
|
-
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-5
CBAK Energy Technology, Inc. and subsidiaries
Notes to
the condensed consolidated financial statements
For the three and six months
ended June 30, 2016 and 2017
(Unaudited)
(In US$ except for number
of shares)
1.
|
Principal Activities, Basis of Presentation and
Organization
|
Principal Activities
On January 10, 2017, China BAK Battery, Inc. (China BAK or
the "Company") filed Articles of Merger with the Secretary of State of Nevada to
effectuate a merger between the Company and the Companys newly formed, wholly
owned subsidiary, CBAK Merger Sub, Inc. (the Merger Sub). According to the
Articles of Merger, effective January 16, 2017, the Merger Sub merged with and
into the Company with the Company being the surviving entity (the "Merger"). As
permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the
Merger was to effect a change of the Company's name.
Effective January 16, 2017, the name of the Company was changed
to CBAK Energy Technology, Inc. The trading symbol of the Company's common stock
remains as "CBAK".
On January 16, 2017, the Board of Directors of the Company
approved a change in the Companys fiscal year end from September 30 to December
31. Accordingly, the Companys next Annual Report on Form 10-K will be for the
fiscal year ending December 31, 2017. With this fiscal year end change, the
Company files a transition report on Form 10-Q for the period from October 1,
2016 through December 31, 2016.
China BAK is a corporation formed in the State of Nevada on
October 4, 1999 as Medina Copy, Inc. The Company changed its name to Medina
Coffee, Inc. on October 6, 1999 and subsequently changed its name to China BAK
Battery, Inc. on February 14, 2005. China BAK 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".
Basis of Presentation and Organization
On November 6, 2004, BAK International, a non-operating holding
company that had substantially the same shareholders as Shenzhen BAK Battery
Co., Ltd (Shenzhen BAK), entered into a share swap transaction with the
shareholders of Shenzhen BAK for the purpose of the subsequent reverse
acquisition of the Company. The share swap transaction between BAK International
and the shareholders of Shenzhen BAK was accounted for as a reverse acquisition
of Shenzhen BAK with no adjustment to the historical basis of the assets and
liabilities of Shenzhen BAK.
On January 20, 2005, the Company completed a share swap
transaction with the shareholders of BAK International. The share swap
transaction, also referred to as the reverse acquisition of the Company, was
consummated under Nevada law pursuant to the terms of a Securities Exchange
Agreement entered by and among China BAK, 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 $27,000,000. If the audited net income of the Company for the
fiscal years ended September 30, 2005 and 2006 reached the above-mentioned
targets, the 435,910 shares would be released to Mr. Li in the amount of 50%
upon reaching the 2005 target and the remaining 50% upon reaching the 2006
target.
F-6
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
1.
|
Principal Activities, Basis of Presentation and
Organization
(continued)
|
Basis of Presentation and Organization
(continued)
Under accounting principles generally accepted in the United
States of America (US GAAP), escrow agreements such as the one established by
Mr. Li generally constitute compensation if, following attainment of a
performance threshold, shares are returned to a company officer. The Company
determined that without consideration of the compensation charge, the
performance thresholds for the year ended September 30, 2005 would be achieved.
However, after consideration of a related compensation charge, the Company
determined that such thresholds would not have been achieved. The Company also
determined that, even without consideration of a compensation charge, the
performance thresholds for the year ended September 30, 2006 would not be
achieved.
While the 217,955 escrow shares relating to the 2005
performance threshold were previously released to Mr. Li, Mr. Li executed a
further undertaking on August 21, 2006 to return those shares to the escrow
agent for the distribution to the relevant investors. However, such shares were
not returned to the escrow agent, but, pursuant to a Delivery of Make Good
Shares, Settlement and Release Agreement between the Company, BAK International
and Mr. Li entered into on October 22, 2007 (the Li Settlement Agreement),
such shares were ultimately delivered to the Company as described below. Because
the Company failed to satisfy the performance threshold for the fiscal year
ended September 30, 2006, the remaining 217,955 escrow shares relating to the
fiscal year 2006 performance threshold were released to the relevant investors.
As Mr. Li has not retained any of the shares placed into escrow, and as the
investors party to the Escrow Agreement are only shareholders of the Company and
do not have and are not expected to have any other relationship to the Company,
the Company has not recorded a compensation charge for the years ended September
30, 2005 and 2006.
At the time the escrow shares relating to the 2006 performance
threshold were transferred to the investors in fiscal year 2007, the Company
should have recognized a credit to donated shares and a debit to additional
paid-in capital, both of which are elements of shareholders equity. This entry
is not material because total ordinary shares issued and outstanding, total
shareholders equity and total assets do not change; nor is there any impact on
income or earnings per share. Therefore, previously filed consolidated financial
statements for the fiscal year ended September 30, 2007 will not be restated.
This share transfer has been reflected in these financial statements by
reclassifying the balances of certain items as of October 1, 2007. The balances
of donated shares and additional paid-in capital as of October 1, 2007 were
credited and debited by $7,955,358 respectively, as set out in the consolidated
statements of changes in shareholders equity.
In November 2007, Mr. Li delivered the 217,955 shares related
to the 2005 performance threshold to BAK International pursuant to the Li
Settlement Agreement; BAK International in turn delivered the shares to the
Company. Such shares (other than those issued to investors pursuant to the 2008
Settlement Agreements, as described below) are now held by the Company. Upon
receipt of these shares, the Company and BAK International released all claims
and causes of action against Mr. Li regarding the shares, and Mr. Li released
all claims and causes of action against the Company and BAK International
regarding the shares. Under the terms of the Li Settlement Agreement, the
Company commenced negotiations with the investors who participated in the
Companys January 2005 private placement in order to achieve a complete
settlement of BAK Internationals obligations (and the Companys 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
Companys common stock equivalent to 50% of the number of the escrow shares
related to the 2005 performance threshold these investors had claimed; aggregate
settlement payments as of June 30, 2015 amounted to 73,749 shares. Share
payments to date have been made in reliance upon the exemptions from
registration provided by Section 4(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
Companys January 2005 private placement relating to the escrow shares.
F-7
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
1.
|
Principal Activities, Basis of Presentation and
Organization
(continued)
|
Basis of Presentation and Organization
(continued)
As of June 30, 2017, 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
we 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 Companys January
2005 private placement relating to the escrow shares.
On August 14, 2013, Dalian BAK Trading Co., Ltd (Dalian BAK
Trading) was established as a wholly owned subsidiary of China BAK Asia Holding
Limited (BAK Asia) with a registered capital of $500,000 (Note 19(i)).
Pursuant to Dalian BAK Tradings articles of association and relevant PRC
regulations, BAK Asia was required to contribute the capital to Dalian BAK
Trading on or before August 14, 2015. On March 7, 2017, the Company changed the
name of Dalian BAK Trading Co.,Ltd to Dalian CBAK Trading Co., Ltd (CBAK
Trading). Up to the date of this report, the Company has contributed $100,000
to CBAK Trading in cash.
On December 27, 2013, Dalian BAK Power Battery Co., Ltd
(Dalian BAK Power) was established as a wholly owned subsidiary of BAK Asia
with a registered capital of $30,000,000 (Note 19(i)). Pursuant to Dalian BAK
Powers articles of association and relevant PRC regulations, BAK Asia was
required to contribute the capital to Dalian BAK Power on or before December 27,
2015. On March 7, 2017, the Company changed the name of Dalian BAK Power Battery
Co., Ltd to Dalian CBAK Power Battery Co., Ltd (CBAK Power). 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 of $24,999,978.
The Companys condensed consolidated financial statements have
been prepared under US GAAP.
These condensed consolidated financial statements are
unaudited. In the opinion of management, all adjustments and disclosures
necessary for a fair presentation of these condensed consolidated financial
statements, which are of a normal and recurring nature, have been included. The
results reported in the condensed consolidated financial statements for any
interim periods are not necessarily indicative of the results that may be
reported for the entire year. The following (a) condensed consolidated balance
sheet as of September 30, 2016, which was derived from the Companys audited
financial statements, and (b) the unaudited condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with US
GAAP have been condensed or omitted pursuant to those rules and regulations,
though the Company believes that the disclosures made are adequate to make the
information not misleading. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and accompanying footnotes of the Company for the year ended
September 30, 2016.
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 Companys 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 Battery), 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, 2016 and June 30, 2017, the Companys 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; and iii) Dalian CBAK Power Battery Co., Ltd.
(CBAK Power), a wholly owned limited liability company established on December
27, 2013 in the PRC.
F-8
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
1.
|
Principal Activities, Basis of Presentation and
Organization
(continued)
|
Basis of Presentation and Organization
(continued)
The Company continued its business and continued to generate
revenues from sale of batteries via subcontracting the production to BAK
Tianjin, a former subsidiary before the completion of construction and operation
of its facility in Dalian. BAK Tianjin had become a supplier of the Company
until September 2016 when BAK Tianjin ceased production, and the Company does
not have any significant benefits or liability from the operating results of BAK
Tianjin except the normal risk with any major supplier.
As of the date of this report, Mr. Xiangqian Li is no longer a
director of BAK International and BAK Tianjin. He remained as a director of
Shenzhen BAK and BAK Battery.
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 Companys outstanding stock, respectively. As of June 30, 2017, Mr.
Yunfei Li held 3,781,018 shares or 14.5% of the Companys outstanding stock, and
Mr. Xiangqian Li held none of the Companys outstanding stock.
The Company had a working capital deficiency, accumulated
deficit from recurring net losses and short-term debt obligations As of December
31, 2016 and June 30, 2017. These factors raise substantial doubts about the
Companys 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 Companys CEO, and seven of
the Companys existing shareholders) whereby the investors agreed to subscribe
new shares of the Company totaling $10 million. The issue price will be
determined with reference to the market price prior to the issuance of new
shares. 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 made down payment
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, par
value $0.001 per share to these investors, at a purchase price of $1.50 per
share, for an aggregate price of $9.6 million, including 746,018 shares issued
to Mr. Yunfei Li, the Companys CEO. On June 22, 2017, the Company issued the
shares to the investors.
On June 14, 2016, the Company renewed its banking facilities
from Bank of Dandong for loans with a maximum amount of RMB130 million
(approximately $19.2 million), including three-year long-term loans and
three-year revolving bank acceptance and letters of credit bills for the period
from June 13, 2016 to June 12, 2019. The banking facilities were guaranteed by
Mr. Yunfei Li (Mr. Li), the Companys CEO, and Ms. Qinghui Yuan, Mr. Lis
wife, Mr. Xianqian Li, the Companys former CEO, Ms. Xiaoqiu Yu, the wife of the
Companys former CEO, Shenzhen BAK Battery Co., Ltd., the Companys former
subsidiary (Shenzhen BAK). The facilities were also secured by part of the
Companys Dalian sites prepaid land use rights, buildings, construction in
progress, machinery and equipment and pledged deposits. Under the banking
facilities, as of June 30, 2017, the Company borrowed various three-year term
bank loans that totaled RMB126.8 million (approximately $18.7 million), bearing
fixed interest at 7.2% per annum. The Company also borrowed a series of
revolving bank acceptance totaled $0.4 million from Bank of Dandong under the
credit facilities, and bank deposit of 50% was required to secure against these
bank acceptance bills.
F-9
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
On July 6, 2016, the Company obtained banking facilities from
Bank of Dalian for loans with a maximum amount of RMB10 million (approximately
$1.5 million) and bank acceptance bills of RMB40 million (approximately $5.9
million) to July 2017. The banking facilities were guaranteed by Mr. Li, the
CompanyS CEO, and Ms. Qinghui Yuan, Mr. Lis wife, and Shenzhen BAK. Under the
banking facilities, on July 6, 2016 the Company borrowed one year short-term
loan of RMB10 million (approximately $1.5 million), bearing a fixed interest
rate at 6.525% per annum. The Company also borrowed revolving bank acceptance
totaled $5.9 million, and bank deposit of 50% was required to secure against
these bank acceptance bills. The Company repaid the loan in July 2017 and it is still in progress to extend the
banking facilities.
During the second quarter of 2017, the Company obtained banking
facilities from China Merchants Bank with bank acceptance bills of RMB2.1
million (approximately $0.3 million) to October 10, 2017. The banking facilities
were pledged by the Companys bills receivables totaled $0.3 million. Under the
facilities, on April 10, 2017, the Company borrowed bank acceptance totaled $0.3
million.
As of June 30, 2017, the Company had also borrowed $1.0
million, $0.9 million and $1.8 million of notes payable outside the credit
facility from ICBC, China Merchants Bank and China Construction Bank,
respectively.
As of June 30, 2017, the Company had unutilized committed
banking facilities of $0.1 million
The Company is currently expanding its product lines and
manufacturing capacity in its Dalian plant, which requires more funding to
finance the expansion. The Company plans to raise additional funds through banks
borrowings and equity financing in the future to meet its daily cash demands, if
required.
However, there can be no assurance that the Company will be
successful in obtaining further financing. The Company expects that it will be
able to secure more potential orders from the new energy market, especially from
the electric car market. The Company believes that with the booming future
market demand in high power lithium ion products, they can continue as a going
concern and return to profitability.
The accompanying condensed consolidated financial statements
have been prepared assuming the Company will continue to operate as a going
concern, which contemplates the realization of assets and the settlement of
liabilities in the normal course of business. The condensed consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty related to the Companys ability to continue as a going concern.
Recently Issued Accounting Standards
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic
330) - Simplifying the Measurement of Inventory, which requires that inventory
within the scope of the guidance be measured at the lower of cost and net
realizable value. Net realizable value is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. The Company adopted ASU 2015-11 effective January
1, 2017 and it did not have a material effect on the Companys consolidated
financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification
of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the
presentation and classification of certain cash receipts and cash payments in
the statement of cash flows. This ASU is effective for public business entities
for fiscal years, and interim periods within those years, beginning after
December 15, 2017. Early adoption is permitted. The Company is currently
assessing the potential impact of ASU 2016-15 on its financial statements and
related disclosures.
In October 2016, the FASB issued ASU No. 2016-16Income Taxes
(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU
improves the accounting for the income tax consequences of intra-entity
transfers of assets other than inventory. This ASU is effective for fiscal years
and interim periods within those years beginning after December 15, 2017. Early
adoption is permitted. The Company does not anticipate that the adoption of this
ASU to have a significant impact on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-17, Consolidation
(Topic 810): Interests Held through Related Parties That Are Under Common
Control. The amendments in this ASU change how a reporting entity that is the
single decision maker of a variable interest entity should treat indirect
interests in the entity held through related parties that are under common
control with the reporting entity when determining whether it is the primary
beneficiary of that variable interest entity. The ASU is effective for fiscal
years and interim periods within those years beginning after December 15, 2016.
The Company does not expect the adoption of this ASU to have a material impact
on its consolidated financial statements.
F-10
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
1.
|
Principal Activities, Basis of Presentation and
Organization
(continued)
|
Basis of Presentation and Organization
(continued)
In November 2016, the FASB issued Accounting Standards Update
2016-18 (ASU 2016-18), Statement of Cash Flows: Restricted Cash. This ASU
provides guidance on the classification of restricted cash in the statement of
cash flows. The amendments in this ASU are effective for interim and annual
periods beginning after December 15, 2017. Early adoption is permitted. The
amendments in the ASU should be adopted on a retrospective basis. The Company
does not expect that adoption of this ASU to have a material effect on its
consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business, which
clarifies the definition of a business with the objective of adding guidance to
assist entities with evaluating whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. The standard is effective for
fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years. Early adoption is permitted. The standard should be applied
prospectively on or after the effective date. The Company will evaluate the
impact of adopting this standard prospectively upon any transactions of
acquisitions or disposals of assets or businesses.
In January 2017, the FASB issued ASU 2017-04, Simplifying the
Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill
impairment test, which requires a hypothetical purchase price allocation. A
goodwill impairment will now be the amount by which a reporting units carrying
value exceeds its fair value, not to exceed the carrying amount of goodwill. The
guidance should be adopted on a prospective basis for the annual or any interim
goodwill impairment tests beginning after December 15, 2019. Early adoption is
permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. The Company is currently evaluating the impact of
adopting this standard on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, "Compensation Stock
Compensation (Topic 718): Scope of Modification Accounting," which provides
guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting in ASC 718. Under the
new guidance, modification accounting is required only if the fair value, the
vesting conditions, or the classification of the award (as equity or liability)
changes as a result of the change in terms or conditions. The new guidance is
effective prospectively for us for the year ending March 31, 2019 and interim
reporting periods during the year ending March 31, 2019. Early adoption is
permitted. The Company is evaluating the effects, if any, of the adoption of
this guidance on our financial position, results of operations and cash flows.
Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the Companys
consolidated financial statements upon adoption.
Pledged deposits as of December 31,
2016 and June 30, 2017 consisted of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Pledged deposits for:
|
|
|
|
|
|
|
|
Bills payable
|
$
|
3,064,155
|
|
$
|
3,383,025
|
|
|
Others *
|
|
1,213,989
|
|
|
1,243,370
|
|
|
|
$
|
4,278,144
|
|
$
|
4,626,395
|
|
|
*
|
On July 7, 2016, Shenzhen Huijie Purification System
Engineering Co., Ltd (Shenzhen Huijie), one of the Companys
contractors, filed a lawsuit against Dalian BAK Power in the Peoples
Court of Zhuanghe City, Dalian for the failure to pay pursuant to the
terms of the contract and entrusted part of the project of the contract to
a third party without their prior consent. The plaintiff sought a total
amount of $1,243,370 (RMB 8,430,792), including construction costs of $0.9
million (RMB6.3 million), interest of $30,195 (RMB0.2 million) and
compensation of $0.3 million (RMB1.9 million). On September 7, 2016, upon
the request of Shenzhen Huijie, the Court froze Dalian BAK Powers bank
deposits totaling $1,243,370 (RMB 8,430,792) for a period of one year.
|
F-11
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
3.
|
Trade Accounts and Bills Receivable,
net
|
Trade accounts and bills receivable as
of December 31, 2016 and June 30, 2017 consisted of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Trade accounts receivable
|
$
|
5,169,593
|
|
$
|
13,049,235
|
|
|
Less: Allowance for doubtful accounts
|
|
(2,761,144
|
)
|
|
(3,214,094
|
)
|
|
|
|
2,408,449
|
|
|
9,835,141
|
|
|
Bills receivable
|
|
59,938
|
|
|
316,074
|
|
|
|
$
|
2,468,387
|
|
$
|
10,151,215
|
|
An analysis of the allowance for
doubtful accounts is as follows:
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Balance at beginning of period
|
$
|
165,441
|
|
$
|
2,761,144
|
|
|
Provision for the period
|
|
637,034
|
|
|
457,946
|
|
|
Reversal by cash for the period
|
|
(51,066
|
)
|
|
(77,138
|
)
|
|
Charged to consolidated statements of operations and
comprehensive loss
|
|
585,968
|
|
|
380,808
|
|
|
Foreign exchange adjustment
|
|
(17,317
|
)
|
|
72,142
|
|
|
Balance at end of period
|
$
|
734,092
|
|
$
|
3,214,094
|
|
Inventories as of December 31, 2016 and
June 30, 2017 consisted of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Raw materials
|
$
|
2,570,942
|
|
$
|
2,135,145
|
|
|
Work in progress
|
|
1,333,949
|
|
|
1,407,126
|
|
|
Finished goods
|
|
13,190,031
|
|
|
13,210,399
|
|
|
|
$
|
17,094,922
|
|
$
|
16,752,670
|
|
During the three months ended June 30,
2016 and 2017, write-downs of obsolete inventories to lower of cost or market of
$116,383 and $848,247, respectively, were charged to cost of revenues.
During the six months ended June 30,
2016 and 2017, write-downs of obsolete inventories to lower of cost or market of
$213,293 and $998,403, respectively, were charged to cost of revenues.
5.
|
Prepayments and Other
Receivables
|
Prepayments and other receivables as of
December 31, 2016 and June 30, 2017 consisted of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Value added tax recoverable
|
$
|
6,238,056
|
|
$
|
5,859,507
|
|
|
Prepayments to suppliers
|
|
148,247
|
|
|
44,731
|
|
|
Deposits
|
|
28,763
|
|
|
63,978
|
|
|
Staff advances
|
|
46,572
|
|
|
108,034
|
|
|
Prepaid operating expenses
|
|
220,713
|
|
|
298,010
|
|
|
Advances to unrelated parties
|
|
-
|
|
|
507,255
|
|
|
|
|
6,682,351
|
|
|
6,881,515
|
|
|
Less: Allowance for doubtful accounts
|
|
(7,000
|
)
|
|
(7,000
|
)
|
|
|
$
|
6,675,351
|
|
$
|
6,874,515
|
|
Advances to unrelated parties were unsecured and non-interest bearing. Advances of $337,000 was repayable by September 30, 2017, and the remaining balance was repayable on demand.
F-12
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
6.
|
Payables to Former
Subsidiaries
|
Payable to former subsidiaries as of
December 31, 2016 and June 30, 2017 consisted of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
BAK Tianjin
|
$
|
194,774
|
|
$
|
230,988
|
|
|
Shenzhen BAK
|
|
2,294,085
|
|
|
6,994,958
|
|
|
|
|
2,488,859
|
|
|
7,225,946
|
|
Balance as of December 31, 2016 and
June 30, 2017 consisted of payables for purchase of inventories from BAK Tianjin
and Shenzhen BAK. From time to time, the Company purchased products from these
former subsidiaries that they did not produce to meet the needs of its
customers.
7.
|
Property, Plant and Equipment,
net
|
Property, plant and equipment as of
December 31, 2016 and June 30, 2017 consisted of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Buildings
|
$
|
16,877,909
|
|
$
|
17,286,378
|
|
|
Machinery and equipment
|
|
4,473,631
|
|
|
6,467,301
|
|
|
Office equipment
|
|
96,655
|
|
|
119,931
|
|
|
Motor vehicles
|
|
193,165
|
|
|
197,840
|
|
|
|
|
21,641,360
|
|
|
24,071,450
|
|
|
Accumulated depreciation
|
|
(1,630,457
|
)
|
|
(2,299,280
|
)
|
|
Carrying amount
|
$
|
20,010,903
|
|
$
|
21,772,170
|
|
F-13
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
7.
|
Property, Plant and Equipment, net
(continued)
|
During the three months period ended
June 30, 2016 and 2017, the Company incurred depreciation expense of $298,652
and $328,823, respectively.
During the six months period ended June
30, 2016 and 2017, the Company incurred depreciation expense of $571,674 and
$620,695, respectively.
The Company has not yet obtained the
property ownership certificates of the buildings in its Dalian manufacturing
facilities with a carrying amount of $16,178,549 and $16,335,138 as of December
31, 2016 and June 30, 2017, respectively. The Company built its facilities on
the land for which it had already obtained the related land use right. The
Company has submitted applications to the Chinese government for the ownership
certificates on the completed buildings located on these lands. However, the
application process takes longer than the Company expected and it has not
obtained the certificates as of the date of this report. However, since the
Company has obtained the land use right in relation to the land, the management
believe the Company has legal title to the buildings thereon albeit the lack of
ownership certificates. As soon as the Chinese government completes its
formalities, the Company will obtain the ownership certificates. As of June 30,
2017, the Company had the permission to obtain the ownership certificate of the
completed buildings, however, as the Company is in the process to obtain
additional loans from Bank of Dandong which requires the Company to pledge more
buildings including the constructions in progress of Dalian site, if the Company
obtained the ownership certificate of the completed buildings, the remaining
buildings which are still under construction in progress will not be pledged
until all of the buildings complete the construction. The Company and Bank of
Dandong decided to delay the acquisition of the ownership certificate of the
completed buildings.
During the course of the Companys
strategic review of its operations, the Company assessed the recoverability of
the carrying value of the Companys property, plant and equipment. The
impairment charge, if any, represented the excess of carrying amounts of the
Companys property, plant and equipment over the estimated discounted cash flows
expected to be generated by the Companys production facilities. The Company
believes that there was no impairment of its property, plant and equipment as of
December 31, 2016 and June 30, 2017.
8.
|
Construction in Progress
|
Construction in progress as of December
31, 2016 and June 30, 2017 consisted of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Construction in progress
|
$
|
33,277,338
|
|
$
|
33,610,343
|
|
|
Prepayment for acquisition of property, plant and
|
|
|
|
|
|
|
|
equipment
|
|
179,705
|
|
|
400,585
|
|
|
Carrying amount
|
$
|
33,457,043
|
|
$
|
34,010,928
|
|
Construction in progress as of December
31, 2016 and June 30, 2017 was mainly comprised of capital expenditures for the
construction of the facilities and production lines of Dalian BAK Power.
For the three months ended June 30,
2016 and 2017, the Company capitalized interest of $241,652 and $344,552
respectively, to the cost of construction in progress.
For the six months ended June 30, 2016
and 2017, the Company capitalized interest of $483,990 and $703,512,
respectively, to the cost of construction in progress.
F-14
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
9.
|
Prepaid Land Use Rights,
net
|
Prepaid land use rights as of December
31, 2016 and June 30, 2017 consisted of the followings:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Prepaid land use rights
|
$
|
8,089,516
|
|
$
|
8,285,294
|
|
|
Accumulated amortization
|
|
(390,993
|
)
|
|
(483,309
|
)
|
|
|
$
|
7,698,523
|
|
$
|
7,801,985
|
|
|
Less: Classified as current assets
|
|
(161,790
|
)
|
|
(165,706
|
)
|
|
|
$
|
7,536,733
|
|
$
|
7,636,279
|
|
Pursuant to a land use rights
acquisition agreement dated August 10, 2014, the Company acquired the rights to
use a piece of land with an area of 153,832 m
2
in Dalian Economic
Zone for 50 years up to August 9, 2064, at a total consideration of $7,826,741
(RMB53.1 million). Other incidental costs incurred totaled $458,553 (RMB3.1
million).
Amortization expenses of the prepaid
land use rights were $42,997 and $40,934 for the three months ended June 30,
2016 and 2017 and $85,933 and $81,712 for the six months ended June 30, 2016 and
2017, respectively.
10.
|
Intangible Assets, net
|
Intangible assets as of December 31,
2016 and June 30, 2017 consisted of the followings:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Computer software at cost
|
$
|
25,613
|
|
$
|
26,233
|
|
|
Accumulated amortization
|
|
(4,269
|
)
|
|
(5,684
|
)
|
|
|
$
|
21,344
|
|
$
|
20,549
|
|
Amortization expenses were $680 and
$647 for the three months ended June 30, 2016 and 2017 and $1,359 and $1,293 for
the six months ended June 30, 2016 and 2017, respectively.
Bank borrowings as of December 31, 2016
and June 30, 2017 consisted of the followings:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Short-term bank borrowings
|
$
|
1,439,947
|
|
$
|
1,474,796
|
|
|
Long-term bank borrowings
|
|
18,258,528
|
|
|
18,700,410
|
|
|
|
$
|
19,698,475
|
|
$
|
20,175,206
|
|
On June 10 and 15, 2016, the Company
repaid Bank of Dandong the one-year short term loans of RMB30 million and RMB50
million, respectively, obtained under its banking facilities in June 2015. On
June 14, 2016, the Company renewed its banking facilities from Bank of Dandong
to provide a maximum amount of RMB130 million (approximately $19.2 million),
including three-year long-term loans and three-year revolving bank acceptance
and letters of credit bills for the period from June 13, 2016 to June 12, 2019.
Under the banking facilities, from June to September 2016, the Company borrowed
various three-year bank loans that totaled RMB126.8 million (approximately $18.7
million), bearing fixed interest at 7.2% per annum. The banking facilities were
guaranteed by Mr. Xianqian Li, our former CEO, Ms. Xiaoqiu Yu, the wife of the
Companys former CEO, Shenzhen BAK, Mr. Yunfei Li, the Companys CEO, and Ms.
Qinghui Yuan, Mr. Yunfei Lis wife.
On July 6, 2016, the Company obtained
new banking facilities from Bank of Dalian to provide a maximum loan amount of
RMB10 million (approximately $1.5 million) and bank acceptance of RMB40 million
(approximately $5.9 million) to July 2017. The banking facilities were
guaranteed by Shenzhen BAK, Mr. Yunfei Li, our CEO, and Ms. Qinghui Yuan, Mr.
Yunfei Lis wife. On July 6, 2016, the Company borrowed a one-year term bank
loan of RMB10 million (approximately $1.5 million), bearing fixed interest at
6.525% per annum. The Company repaid the loan in July 2017 and it was still in progress to extend the banking
facilities.
F-15
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
11.
|
Bank Loans
(continued)
|
The facilities were also secured by the
Companys assets with the following carrying amounts:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Pledged deposits (note 2)
|
$
|
3,064,155
|
|
$
|
3,383,025
|
|
|
Prepaid land use rights (note 9)
|
|
7,698,523
|
|
|
7,801,985
|
|
|
Buildings
|
|
11,729,172
|
|
|
11,740,821
|
|
|
Machinery and equipment
|
|
2,598,882
|
|
|
2,920,192
|
|
|
Construction in progress
|
|
6,156,488
|
|
|
6,206,535
|
|
|
|
|
31,247,220
|
|
|
32,052,558
|
|
As of June 30, 2017, the Company had
unutilized committed banking facilities of $0.1 million.
During the three months ended June 30,
2016 and 2017, interest of $241,652 and $344,552, respectively, was incurred on
the Company's bank borrowings.
During the six months ended June 30,
2016 and 2017, interest of $483,990 and $703,512, respectively, was incurred on
the Company's bank borrowings.
12.
|
Other Short-term Loans
|
Other short-term loans as of December
31, 2016 and June 30, 2017 consisted of the following:
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
Note
|
|
|
2016
|
|
|
2017
|
|
|
Advance from related parties
|
|
|
|
|
|
|
|
|
|
- Tianjin BAK New
Energy Research Institute Co., Ltd (Tianjin New Energy)
|
(a)
|
|
$
|
9,252,127
|
|
$
|
10,313,726
|
|
|
- Mr. Xiangqian Li, the
Companys Former CEO
|
(b)
|
|
|
100,000
|
|
|
100,000
|
|
|
-
Shareholders (note 1)
|
(c)
|
|
|
-
|
|
|
2,064,714
|
|
|
|
|
|
|
9,352,127
|
|
|
12,478,440
|
|
|
Advances from unrelated third parties
|
|
|
|
|
|
|
|
|
|
Mr. Guozhu Liang
|
(d)
|
|
$
|
14,399
|
|
|
-
|
|
|
Mr. Wenwu
Yu
|
(d)
|
|
|
145,410
|
|
|
148,929
|
|
|
Mr. Mingzhe Li
|
(d)
|
|
|
796,850
|
|
|
-
|
|
|
Ms.
Longqian Peng
|
(d)
|
|
|
215,992
|
|
|
663,658
|
|
|
|
|
|
|
1,172,651
|
|
|
812,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,524,778
|
|
$
|
13,291,027
|
|
|
(a)
|
The Company received advances from Tianjin New Energy, a
related company under the control of Mr. Xiangqian Li, the Companys
former CEO, which was unsecured, non-interest bearing and repayable on
demand. On November 1, 2016, Mr. Xiangqian Li ceased to be a shareholder
but remained as a general manager of Tianjin New Energy. As of December
31, 2016 and June 30, 2017, the payable to Tianjin New Energy of $20,384
and $0, respectively, was included in trade accounts and bills
payable.
|
|
|
|
|
(b)
|
Advances from Mr. Xiangqian Li, the Companys former CEO,
was unsecured, non-interest bearing and repayable on demand.
|
|
|
|
|
(c)
|
The refundable deposits paid by certain shareholders in
relation to share purchase (note 1) were unsecured, non-interest bearing
and repayable on demand.
|
|
|
|
|
(d)
|
Advances from unrelated third parties were unsecured,
non-interest bearing and repayable on demand.
|
F-16
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
13.
|
Accrued Expenses and Other
Payables
|
Accrued expenses and other payables as
of December 31, 2016 and June 30, 2017 consisted of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Construction costs payable
|
$
|
7,322,941
|
|
$
|
1,976,953
|
|
|
Equipment purchase payable
|
|
8,229,828
|
|
|
8,698,806
|
|
|
Liquidated damages (note a)
|
|
1,210,119
|
|
|
1,210,119
|
|
|
Accrued staff costs
|
|
1,532,802
|
|
|
1,542,454
|
|
|
Compensation costs (note 19(ii))
|
|
309,974
|
|
|
112,251
|
|
|
Product warranty (note b)
|
|
205,404
|
|
|
594,552
|
|
|
Customer deposits
|
|
62,231
|
|
|
816,893
|
|
|
Other payables and accruals
|
|
509,294
|
|
|
595,702
|
|
|
|
$
|
19,382,593
|
|
$
|
15,547,730
|
|
|
(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 Companys 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, 2016 and June
30, 2017, 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 Companys 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 Companys 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 Companys 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, 2016 and June 30, 2017,
the Company had settled the liquidated damages with all the investors and
the remaining provision of approximately $159,000 was included in other
payables and accruals.
|
F-17
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
13.
|
Accrued Expenses and Other Payables
(continued)
|
|
(b)
|
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 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. The Company recognized warranty
expenses amounting to $63,759 and $245,182 for the quarters ended June
30, 2016 and 2017 and $194,943 and $385,746 for the six months ended
June 30, 2016 and 2017, respectively, which are included in its sales and
marketing expenses.
|
14.
|
Deferred Government Grants
|
Deferred government grants as of
December 31, 2016 and June 30, 2017 consist of the following:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Total government grants
|
$
|
4,699,261
|
|
$
|
4,740,067
|
|
|
Less: Current portion
|
|
(142,400
|
)
|
|
(145,847
|
)
|
|
Non-current portion
|
$
|
4,556,861
|
|
$
|
4,594,220
|
|
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 fiscal
2016 and 2017.
On October 17, 2014, the Company
received a subsidy of RMB46,150,000 pursuant to an agreement with the Management
Committee dated July 2, 2013 for costs of land use rights and to be used to
construct the new manufacturing site in Dalian. Part of the facilities had been
completed and was operated in July 2015 and the Company has initiated
amortization on a straight-line basis over the estimated useful lives of the
depreciable facilities constructed thereon.
The Company offset government grants of
$72,271 and $36,029 for the three months ended June 30, 2016 and 2017 and
$116,360 and $71,919 for the six months ended June 30, 2016 and 2017,
respectively, against depreciation expenses of the Dalian facilities.
15.
|
Income Taxes, Deferred Tax Assets and Deferred Tax
Liabilities
|
|
(a)
|
Income taxes in the condensed consolidated statements
of comprehensive loss (income)
|
The Companys provision for income
taxes expenses (credit) consisted of:
|
|
|
Three months ended June30,
|
|
|
Six months ended June30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
PRC income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Deferred
|
|
(51
|
)
|
|
-
|
|
|
(57,292
|
)
|
|
-
|
|
|
|
$
|
(51
|
)
|
$
|
-
|
|
$
|
(57,292
|
)
|
$
|
-
|
|
United States Tax
China BAK is subject to a statutory tax
rate of 35% under United States of America tax law. No provision for income
taxes in the United States or elsewhere has been made as China BAK had no
taxable income for the three months and six months ended June 30, 2016 and 2017.
Hong Kong Tax
BAK Asia is subject to Hong Kong
profits tax rate of 16.5% and did not have any assessable profits arising in or
derived from Hong Kong for the three months and six months ended June 30, 2016
and 2017 and accordingly no provision for Hong Kong profits tax was made in
these periods.
PRC Tax
The Companys subsidiaries in China are
subject to enterprise income tax at 25% for the three months and six months
ended June 30, 2016 and 2017.
F-18
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
15.
|
Income Taxes, Deferred Tax Assets and Deferred Tax
Liabilities
(continued)
|
A reconciliation of the provision for
income taxes determined at the statutory income tax rate to the Company's income
taxes is as follows:
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
Loss before income taxes
|
$
|
(2,668,692
|
)
|
$
|
(3,753,380
|
)
|
$
|
(4,629,091
|
)
|
$
|
(5,821,596
|
)
|
|
United States federal corporate income tax rate
|
|
35%
|
|
|
35%
|
|
|
35%
|
|
|
35%
|
|
|
Income tax credit computed at United States
statutory corporate income tax rate
|
|
(934,042
|
)
|
|
(1,313,683
|
)
|
|
(1,620,181
|
)
|
|
(2,037,559
|
)
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate differential for PRC earnings
|
|
219,389
|
|
|
344,337
|
|
|
365,823
|
|
|
505,764
|
|
|
Non-deductible expenses
|
|
39,032
|
|
|
25,245
|
|
|
105,527
|
|
|
95,768
|
|
|
Share based payments
|
|
131,860
|
|
|
83,565
|
|
|
244,335
|
|
|
171,936
|
|
|
Valuation allowance on deferred tax assets
|
|
489,723
|
|
|
860,536
|
|
|
826,630
|
|
|
1,264,091
|
|
|
Others
|
|
53,987
|
|
|
-
|
|
|
20,574
|
|
|
-
|
|
|
Income tax expenses
|
$
|
(51
|
)
|
$
|
-
|
|
$
|
(57,292
|
)
|
$
|
-
|
|
(a)
|
Deferred tax assets and deferred tax
liabilities
|
The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets
and liabilities as of December 31, 2016 and June 30, 2017 are presented below:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
692,736
|
|
$
|
805,973
|
|
|
Inventories
|
|
254,852
|
|
|
514,107
|
|
|
Property, plant and equipment
|
|
373,287
|
|
|
382,321
|
|
|
Net operating loss carried forward
|
|
38,055,264
|
|
|
38,937,828
|
|
|
Valuation allowance
|
|
(39,376,139
|
)
|
|
(40,640,229
|
)
|
|
Deferred tax assets, non-current
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, non-current
|
$
|
-
|
|
$
|
-
|
|
As of December 31, 2016 and June 30,
2017, the Companys U.S. entity had net operating loss carry forwards of
$103,580,741, of which $102,293 available to reduce future taxable income which
will expire in various years through 2035 and $103,478,448 available to offset
capital gains recognized in the succeeding 5 tax years and the Companys PRC
subsidiaries had net operating loss carry forwards of $7,213,329 and
$10,738,275, respectively, which will expire in various years through 2021.
Management believes it is more likely than not that the Company will not realize
these potential tax benefits as these operations will not generate any operating
profits in the foreseeable future. As a result, a valuation allowance was
provided against the full amount of the potential tax benefits.
The Company did not provide for
deferred income taxes and foreign withholding taxes on the cumulative
undistributed earnings of foreign subsidiaries As of December 31, 2016 and June
30, 2017 of approximately of $2.0 million and $0 million, respectively. The
cumulative distributed earnings of foreign subsidiaries were included in
accumulated deficit and will continue to be indefinitely reinvested in
international operations. Accordingly, no provision has been made for U.S.
deferred taxes or applicable withholding taxes, related to future repatriation
of these earnings, nor is it practicable to estimate the amount of income taxes
that would have to be provided if management concluded that such earnings will
be remitted in the future.
According to the PRC Tax Administration
and Collection Law, the statute of limitations is three years if the
underpayment of taxes is due to computational errors made by the taxpayer or its
withholding agent. The statute of limitations extends to five years under
special circumstances, which are not clearly defined. In the case of a related
party transaction, the statute of limitations is ten years. There is no statute
of limitations in the case of tax evasion.
The impact of an uncertain income tax
positions on the income tax return must be recognized at the largest amount that
is more likely than not to be sustained upon audit by the relevant tax
authority. An uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained. Interest and penalties on income
taxes will be classified as a component of the provisions for income taxes.
F-19
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
15.
|
Income Taxes, Deferred Tax Assets and Deferred Tax
Liabilities
(continued)
|
The significant uncertain tax position
arose from the subsidies granted by the local government for the Companys PRC
subsidiary, which may be modified or challenged by the central government or the
tax authority. A reconciliation of January 1, 2017 through June 30, 2017 amount
of unrecognized tax benefits excluding interest and penalties ("Gross UTB") is
as follows:
|
|
|
Gross UTB
|
|
|
Surcharge
|
|
|
Net UTB
|
|
|
Balance as of January 1, 2017
|
$
|
7,061,140
|
|
$
|
-
|
|
$
|
7,061,140
|
|
|
Decrease in unrecognized tax benefits taken in current period
|
|
|
|
|
-
|
|
|
(446,536)
|
|
|
Balance As of June 30, 2017
|
$
|
6,614,604
|
|
$
|
-
|
|
$
|
6,614,604
|
|
As of December 31, 2016 and June 30,
2017, the Company had not accrued any interest and penalties related to
unrecognized tax benefits.
16.
|
Share-based Compensation
|
Restricted Shares
Restricted shares granted on June 30,
2015
On June 12, 2015, the Board of Director
approved the China BAK Battery, 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 Companys Board of Directors granted an
aggregate of 690,000 restricted shares of the Companys common stock, par value
$0.001, to certain employees, officers and directors of the Company with a fair
value of $3.24 per share on June 30, 2015. In accordance with the vesting
schedule of the grant, the restricted shares will vest in twelve equal quarterly
installments on the last day of each fiscal quarter beginning on June 30, 2015
(i.e. last vesting period: quarter ended March 31, 2018). The Company recognizes
the share-based compensation expenses on a graded-vesting method.
The Company recorded non-cash
share-based compensation expense of $210,129 and $531,484 for the three and six
months ended June 30, 2016, in respect of the restricted shares granted on June
30, 2015, respectively.
The Company recorded non-cash
share-based compensation expense of $76,151 and $175,985 for three and six
months ended June 30, 2017, in respect of the restricted shares granted on June
30, 2015, respectively.
As of June 30, 2017, non-vested
restricted shares granted on June 30, 2015 are as follows:
|
Non-vested shares as of January 1,
2017
|
|
275,000
|
|
|
Granted
|
|
-
|
|
|
Vested
|
|
(110,000
|
)
|
|
Forfeited
|
|
-
|
|
|
Non-vested shares as of June 30, 2017
|
|
165,000
|
|
As of June 30, 2017, there was
unrecognized stock-based compensation of $105,281 associated with the above
restricted shares. As of June 30, 2017, 55,000 vested shares were to be issued.
F-20
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
16.
|
Share-based Compensation
(continued)
|
Restricted shares granted on April 19,
2016
On April 19, 2016, pursuant to the
Companys 2015 Equity Incentive Plan, the Compensation Committee of the Board of
Directors of the Company (the Compensation Committee) granted an aggregate of
500,000 restricted shares of the Companys common stock, par value $0.001 (the
Restricted Shares), to certain employees, officers and directors of the
Company, of which 220,000 restricted shares were granted to the Companys
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 $166,616 for the three and six months ended
June 30, 2016, in respect of the restricted shares granted on April 19, 2016,
respectively.
The Company recorded non-cash
share-based compensation expense of $162,608 and $315,262 for the three and six
months ended June 30, 2017, in respect of the restricted shares granted on April
19, 2016, respectively.
As of June 30, 2017, non-vested
restricted shares granted on April 19, 2016 are as follows:
|
Non-vested shares as of January 1,
2017
|
|
433,500
|
|
|
Granted
|
|
-
|
|
|
Vested
|
|
(108,834
|
)`
|
|
Forfeited
Note
|
|
(10,000
|
)
|
|
Non-vested shares as of June 30, 2017
|
|
314,666
|
|
Note: During the six months ended June
30, 2017, 10,000 restricted shares were forfeited following the resignation of
three employees in June 2017. Unrecognized compensation cost of $9,729 was
recognized as non-cash share-based compensation expenses to sales and marketing
expenses for the six months ended June 30, 2017.
As of June 30, 2017, there was
unrecognized stock-based compensation of $420,586 associated with the above
restricted shares.
As the Company itself is an investment
holding company which is not expected to generate operating profits to realize
the tax benefits arising from its net operating loss carried forward, no income
tax benefits were recognized for such stock-based compensation cost under the
stock option plan for the three and six months ended June 30, 2016 and 2017.
The following is the calculation of
loss per share:
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
Net loss
|
$
|
(2,668,641
|
)
|
$
|
(3,753,380
|
)
|
$
|
(4,571,799
|
)
|
$
|
(5,821,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in basic and
diluted computation (note)
|
|
17,284,432
|
|
|
20,402,083
|
|
|
17,256,932
|
|
|
20,059,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
$
|
(0.15
|
)
|
$
|
(0.18
|
)
|
$
|
(0.26
|
)
|
$
|
(0.29
|
)
|
|
Note:
|
Including 50,835 vested restricted shares granted
pursuant to the 2015 Plan that were not yet issued for the three and six
months ended June 30, 2016 and 218,834 vested restricted shares granted
pursuant to the 2015 plan that were not yet issued for the three and six
months ended June 30, 2017.
|
|
|
|
|
|
|
F-21
|
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
For the three and six months ended June
30, 2016 and 2017, 885,000 and 479,666 unvested restricted shares were
anti-dilutive and excluded from shares used in the diluted computation.
F-22
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
18.
|
Fair Value of Financial
Instruments
|
ASC Topic 820,
Fair Value
Measurement and Disclosures
, defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. This
topic also establishes a fair value hierarchy, which requires classification
based on observable and unobservable inputs when measuring fair value. Certain
current assets and current liabilities are financial instruments. Management
believes their carrying amounts are a reasonable estimate of fair value because
of the short period of time between the origination of such instruments and
their expected realization and, if applicable, their current interest rates are
equivalent to interest rates currently available. The three levels of valuation
hierarchy are defined as follows:
|
|
Level 1 inputs to the valuation methodology are quoted
prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
Level 2 inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active markets, and
inputs that are observable for the assets or liability, either directly or
indirectly, for substantially the full term of the financial instruments.
|
|
|
Level 3 inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
|
The carrying amounts of financial
assets and liabilities, such as cash and cash equivalents, pledged deposits,
trade accounts and bills receivable and payable, other receivables, balances
with former subsidiaries, other short-term loans, short-term and long-term bank
loans and other payables approximate their fair values because of the short
maturity of these instruments or the rate of interest of these instruments
approximate the market rate of interest.
19.
|
Commitments and
Contingencies
|
As of December 31, 2016 and June 30,
2017, the Company had the following contracted capital commitments:
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
For construction of buildings
|
$
|
2,225,978
|
|
$
|
2,514,537
|
|
|
For purchases of equipment
|
|
451,063
|
|
|
166,726
|
|
|
Capital injection to Dalian BAK Power and
Dalian BAK Trading Note
|
|
9,895,996
|
|
|
400,000
|
|
|
|
$
|
12,573,037
|
|
$
|
3,081,263
|
|
|
Note:
|
Initially, BAK Asia was required to pay the remaining
capital within two years, of the date of issuance of the subsidiarys
business license according to PRC registration capital management rules.
According to the revised PRC Companies Law which became effective on March
2014, the time requirement of the registered capital contribution has been
abolished. As such, BAK Asia has its discretion to consider the timing of
the registered capital contributions. On April and May 2017, Dalian BAK
Power received $9,495,974 injected from BAK Asia.
|
On July 7, 2016, Shenzhen Huijie
Purification System Engineering Co., Ltd (Shenzhen Huijie), one of the
Companys contractors, filed a lawsuit against Dalian BAK Power in the Peoples
Court of Zhuanghe City, Dalian for the failure to pay pursuant to the terms of
the contract and entrusted part of the project of the contract to a third party
without their prior consent. The plaintiff sought a total amount of
$1,223,858(RMB 8,430,792), including construction costs of $0.9 million (RMB6.3
million), interest of $30,938 (RMB0.2 million) and compensation of $0.3 million
(RMB1.9 million), which the Company already accrued for as of September 30,
2016. On September 7, 2016, upon the request of Shenzhen Huijie, the Court froze
Dalian BAKs bank deposits totaling $1,223,858 (RMB 8,430,792) for a period of
one year. On June 30, 2017, according to the first instance, the court ruled
that CBAK Power should pay the remaining contract amount of RMB6,135,860
(approximately $0.9 million) claimed by Shenzhen Huijie as well as other
expenses incurred including deferred interest, discounted charge on bills
payable, litigation fee and property preservation fee totaled $0.1 million. On
July 24, 2017, Dalian CBAK Power filed an appeal to Dalian Intermediate Peoples
Court challenging the lower courts judgment rendered on June 30, 2017. The
Company intends to continue vigorously defend ourselves in this lawsuit.
F-23
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
20.
|
Concentrations and Credit
Risk
|
The Company had the following customers
that individually comprised 10% or more of net revenue for the three months
ended June 30, 2016 and 2017 as follows:
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Customer A
|
$
|
238,959
|
|
|
17.54%
|
|
$
|
*
|
|
|
*
|
|
|
Customer B
|
|
236,598
|
|
|
17.37%
|
|
|
*
|
|
|
*
|
|
|
Customer C
|
|
231,862
|
|
|
17.02%
|
|
|
*
|
|
|
*
|
|
|
Customer D
|
|
225,754
|
|
|
16.57%
|
|
|
*
|
|
|
*
|
|
|
Customer E
|
|
164,931
|
|
|
12.11%
|
|
|
*
|
|
|
*
|
|
|
Customer F
|
|
137,305
|
|
|
10.08%
|
|
|
*
|
|
|
*
|
|
|
Customer G
|
|
*
|
|
|
*
|
|
|
5,536,377
|
|
|
87.33%
|
|
|
*
|
Comprised less than 10% of net revenue for the respective
period.
|
|
|
|
|
|
The Company had the following customers that individually
comprised 10% or more of net revenue for the three months ended June 30,
2016 and 2017 as follows:
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Customer A
|
$
|
1,338,093
|
|
|
29.34%
|
|
$
|
*
|
|
|
*
|
|
|
Customer B
|
|
1,257,359
|
|
|
27.57%
|
|
|
*
|
|
|
*
|
|
|
Customer C
|
|
537,494
|
|
|
11.78%
|
|
|
*
|
|
|
*
|
|
|
Customer G
|
$
|
*
|
|
|
*
|
|
|
8,647,056
|
|
|
85.99%
|
|
|
*
|
Comprised less than 10% of net revenue for the respective
period.
|
|
|
|
|
|
The Company had the following customers that individually
comprised 10% or more of accounts receivable As of December 31, 2016 and
June 30, 2017 as follows:
|
|
|
|
December 31, 2016
|
|
|
June 30, 2017
|
|
|
Customer A
|
$
|
857,180
|
|
|
34.73%
|
|
$
|
*
|
|
|
*
|
|
|
Customer G
|
|
1,286,206
|
|
|
52.11%
|
|
|
9,113,817
|
|
|
89.78%
|
|
|
*
|
Comprised less than 10% of account receivable for the
respective period.
|
|
|
|
|
|
For the three months and six months ended June 30, 2016
and 2017, the Company recorded the following
transactions:
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
Purchase of inventories from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAK Tianjin
|
$
|
49,095
|
|
$
|
-
|
|
$
|
189,496
|
|
$
|
-
|
|
|
Shenzhen BAK
|
|
2,677,785
|
|
|
1,916,928
|
|
|
2,689,672
|
|
|
4,279,372
|
|
|
Zhengzhou BAK Battery
Co., Ltd*
|
|
-
|
|
|
9,074
|
|
|
-
|
|
|
21,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of finished goods to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAK Tianjin
|
|
236,598
|
|
|
16,154
|
|
|
263,605
|
|
|
42,700
|
|
|
Shenzhen BAK
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,797
|
|
|
Zhengzhou BAK Battery Co., Ltd*
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of raw materials to Shenzhen BAK
|
|
(2,844
|
)
|
|
-
|
|
|
226,354
|
|
|
-
|
|
*Mr. Xiangqian Li, the former CEO, is a
director of this company.
F-24
CBAK Energy Technology, Inc. and subsidiaries
Notes
to the condensed consolidated financial statements
For the three and six
months ended June 30, 2016 and 2017
(Unaudited)
(In US$ except
for number of shares)
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,
2016 and June 30, 2017, substantially all of the Companys cash and cash
equivalents were held by major financial institutions located in the PRC, which
management believes are of high credit quality.
For the credit risk related to trade
accounts receivable, the Company performs ongoing credit evaluations of its
customers and, if necessary, maintains reserves for potential credit losses.
Historically, such losses have been within managements expectations.
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 Companys products
are sold to packing plants operated by third parties primarily for use in mobile
phones and other electronic devices.
After the disposal of BAK International
and its subsidiaries (see Note 1), the Company focused on producing high-power
lithium battery cells. Net revenues for the three months and six months ended
June 30, 2016 and 2017 were as follows:
Net revenues by product:
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
High power lithium batteries used in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric vehicles
|
$
|
89,022
|
|
$
|
5,806,971
|
|
$
|
2,831,977
|
|
$
|
9,064,743
|
|
|
Light electric vehicles
|
|
412,112
|
|
|
61,663
|
|
|
465,479
|
|
|
203,023
|
|
|
Uninterruptable supplies
|
|
861,161
|
|
|
470,625
|
|
|
1,263,752
|
|
|
787,637
|
|
|
|
$
|
1,362,295
|
|
$
|
6,339,259
|
|
$
|
4,561,208
|
|
$
|
10,055,403
|
|
Net revenues by geographic area:
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
PRC Mainland
|
$
|
867,730
|
|
$
|
6,039,679
|
|
$
|
3,639,270
|
|
$
|
9,447,002
|
|
|
PRC Taiwan
|
|
102,850
|
|
|
134,562
|
|
|
278,908
|
|
|
219,373
|
|
|
Israel
|
|
225,754
|
|
|
114,817
|
|
|
225,754
|
|
|
217,359
|
|
|
Europe
|
|
-
|
|
|
49,253
|
|
|
251,206
|
|
|
170,721
|
|
|
South Korea
|
|
164,930
|
|
|
-
|
|
|
165,051
|
|
|
-
|
|
|
Others
|
|
1,031
|
|
|
948
|
|
|
1,019
|
|
|
948
|
|
|
|
$
|
1,362,295
|
|
$
|
6,339,259
|
|
$
|
4,561,208
|
|
$
|
10,055,403
|
|
Substantially all of the Companys
long-lived assets are located in the PRC.
F-25
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
|
The following managements discussion and analysis should be
read in conjunction with our financial statements and the notes thereto and the
other financial information appearing elsewhere in this report. Our financial
statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
Special Note Regarding Forward Looking Statements
In addition to historical information, this transition report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We use words such as believe, expect, anticipate,
project, target, plan, optimistic, intend, aim, will or similar
expressions which are intended to identify forward-looking statements. Such
statements include, among others, those concerning market and industry segment
growth and demand and acceptance of new and existing products; any projections
of sales, earnings, revenue, margins or other financial items; any statements of
the plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; as well as all
assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including
those identified in Item 1A, Risk Factors described in our Annual Report on
Form 10-K for the fiscal year ended September 30, 2016, as well as assumptions,
which, if they were to ever materialize or prove incorrect, could cause the
results of the Company to differ materially from those expressed or implied by
such forward-looking statements.
Readers are urged to carefully review and consider the various
disclosures made by us in this report and our other filings with the SEC. These
reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and
prospects. The forward-looking statements made in this report speak only as of
the date hereof and we disclaim any obligation, except as required by law, to
provide updates, revisions or amendments to any forward-looking statements to
reflect changes in our expectations or future events.
Use of Terms
Except as otherwise indicated by the context and for the
purposes of this report only, references in this report to:
|
|
Company, we, us and our are to the
combined business of CBAK Energy Technology, Inc., a Nevada corporation,
and its consolidated subsidiaries;
|
|
|
|
|
|
BAK Asia are to our Hong Kong subsidiary,
China BAK Asia Holdings Limited;
|
|
|
|
|
|
CBAK Trading are to our PRC subsidiary,
Dalian CBAK Trading Co., Ltd.;
|
|
|
|
|
|
CBAK Power are to our PRC subsidiary, Dalian
CBAK Power Battery Co., Ltd;
|
|
|
|
|
|
China and PRC are to the Peoples Republic
of China;
|
|
|
|
|
|
RMB are to Renminbi, the legal currency of
China;
|
|
|
|
|
|
U.S. dollar, $ and US$ are to the legal
currency of the United States;
|
|
|
|
|
|
SEC are to the United States Securities and
Exchange Commission;
|
|
|
|
|
|
Securities Act are to the Securities Act of
1933, as amended; and
|
|
|
|
|
|
Exchange Act are to the Securities Exchange
Act of 1934, as amended.
|
On January 10, 2017, CBAK Energy Technology, Inc. (formerly
China BAK Battery, Inc.) (the "Company") filed Articles of Merger with the
Secretary of State of Nevada to effectuate a merger between the Company and the
Companys 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").
1
As permitted by Chapter 92A.180 of Nevada Revised Statutes, the
sole purpose of the Merger was to effect a change of the Company's name. Upon
the effectiveness of the filing of Articles of Merger with the Secretary of
State of Nevada, which is January 16, 2017, the Company's Articles of
Incorporation were deemed amended to reflect the change in the Company's
corporate name.
On March 7, 2017, the names of our subsidiaries CBAK Power
Battery Co., Ltd and Dalian BAK Trading Co., Ltd., were changed to Dalian CBAK
Power Battery Co., Ltd and Dalian CBAK Trading Co., Ltd, respectively.
Overview
Our Dalian manufacturing facilities began its partial
commercial operations in July 2015. We are now engaged in the business of
developing, manufacturing and selling new energy high power lithium batteries,
which are mainly used in the following applications:
|
|
Electric vehicles (EV), such as electric
cars, electric buses, hybrid electric cars and buses;
|
|
|
Light electric vehicles (LEV), such as
electric bicycles, electric motors, sight-seeing cars; and
|
|
|
Electric tools, energy storage, uninterruptible
power supply, and other high power applications.
|
We have received most of the operating assets, including
customers, employees, patents and technologies of our former subsidiary, BAK
International (Tianjin) Ltd. (BAK Tianjin). Such assets were acquired in
exchange for a reduction in receivables from our former subsidiaries that were
disposed in June 2014. We have outsourced and will continue to outsource our
production to other manufacturers until our Dalian manufacturing facility can
fulfill our customers needs, if necessary.
We generated revenues of $1.4 million and $6.3 million for the
three months ended June 30, 2016 and 2017, respectively. We had a net loss of
$2.7 million and $3.8 million in the three months ended June 30, 2016 and 2017
respectively. As of June 30, 2017, we had an accumulated deficit of $147.8
million and net assets of $17.3 million. We had a working capital deficiency and
accumulated deficit from recurring net losses and short-term debt obligations
maturing in less than one year as of June 30, 2017.
On June 14, 2016, we renewed our banking facilities from Bank
of Dandong for loans with a maximum amount of RMB130 million (approximately
$19.2 million), including three-year long-term loans and three-year revolving
bank acceptance and letters of credit bills for the period from June 13, 2016 to
June 12, 2019. The banking facilities were guaranteed by Mr. Yunfei Li (Mr.
Li), our CEO, and Ms. Qinghui Yuan, Mr. Lis wife, Mr. Xianqian Li, our former
CEO, Ms. Xiaoqiu Yu, the wife of our former CEO, Shenzhen BAK Battery Co., Ltd.,
our former subsidiary (Shenzhen BAK). The facilities were also secured by part
of our Dalian sites prepaid land use rights, buildings, construction in
progress, machinery and equipment and pledged deposits. Under the banking
facilities, as of June 30, 2017, we borrowed various three-year term bank loans
that totaled RMB126.8 million (approximately $18.7 million), bearing fixed
interest at 7.2% per annum. We also borrowed a series of revolving bank
acceptance totaled $0.4 million from Bank of Dandong under the credit
facilities, and bank deposit of 50% was required to secure against these bank
acceptance bills.
On July 6, 2016, we obtained banking facilities from Bank of
Dalian for loans with a maximum amount of RMB10 million (approximately $1.5
million) and bank acceptance bills of RMB40 million (approximately $5.9 million)
to July 2017. The banking facilities were guaranteed by Mr. Li, our CEO, and Ms.
Qinghui Yuan, Mr. Lis wife, and Shenzhen BAK. Under the banking facilities, on
July 6, 2016 we borrowed one year short-term loan of RMB10 million
(approximately $1.5 million), bearing a fixed interest rate at 6.525% per annum.
We also borrowed revolving bank acceptance totaled $5.9 million, and bank
deposit of 50% was required to secure against these bank acceptance bills. We
repaid the loan in
July 2017and we are still in progress to extend the banking facilities.
During the second quarter of 2017, we obtained banking
facilities from China Merchants Bank with bank acceptance bills of RMB2.1
million (approximately $0.3 million) for a term until October 10, 2017. The
banking facilities were pledged by our bills receivables totaled $0.3 million.
Under the facilities, on April 10, 2017, we borrowed bank acceptance totaled
$0.3 million.
As of June 30, 2017, we had also borrowed $1.0 million, $0.9
million and $1.8 million of notes payable outside any the credit facility from
ICBC, China Merchants Bank and China Construction Bank, respectively.
2
As of June 30, 2017, we had unutilized committed banking
facilities of $0.1 million. We plan to renew these loans upon maturity, and
intend to raise additional funds through bank borrowings and equity financing in
the future to meet our daily cash demands, if required.
In June 2016, we received advances in the aggregate of $2.9
million from Mr. Jiping Zhou and Mr. Dawei Li. These advances were unsecured,
non-interest bearing and repayable on demand. On July 8, 2016, we received
further advances of $2.6 million from Mr. Jiping Zhou. On July 28, 2016, to
convert these advances into equity interests in our Company, we entered into
securities purchase agreements with Mr. Jiping Zhou and Mr. Dawei Li to issue
and sell an aggregate of 2,206,640 shares of our common stock, at $2.5 per
share, for an aggregate consideration of approximately $5.52 million. On August
17, 2016, we issued these shares to the investors.
On February 17, 2017, we signed a letter of understanding with
each of eight individual investors, who are also our current shareholders,
including our CEO, Mr. Yunfei Li, whereby these shareholders agreed in principle
to subscribe for new shares of our common stock totaling $10 million. The issue
price will be determined with reference to the market price prior to the
issuance of new shares In January 2017, the shareholders paid us a total of $2.1
million as refundable deposits, among which, Mr. Yunfei Li agreed to subscribe
new shares totaling $1.12 million and pay a refundable deposit of $0.2 million. In April and May 2017, we received cash
of $9.6 million from these shareholders. On May 31, 2017, we entered into a
securities purchase agreement with these investors, pursuant to which we agreed
to issue an aggregate of 6,403,518 shares of common stock, par value $0.001 per
share to these investors, at a purchase price of $1.50 per share, for an
aggregate price of $9.6 million, including 764,018 shares were issued to Mr. Yunfei Li, our CEO. On June 22, 2017, we issued the shares to the investors. The
issuance of the shares to the investors was made in reliance on the exemption
provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for the
offer and sale of securities not involving a public offering, and Regulation S
promulgated thereunder.
In the meanwhile, due to the growing environmental pollution
problem, the Chinese government is currently providing vigorous support to the
new energy facilities and vehicles. It is expected that we will be able to
secure more potential orders from the new energy market, especially from the
electric car market. We believe with that the booming market demand in high
power lithium ion products, we can continue as a going concern and return to
profitability.
To promote the development of new energy electric vehicles, in
April 2015, the central government of China issued Notice of Financial Support
Policies for the Promotion of New Energy Vehicles in 2016-2020, which regulated
favorable government subsidies for the new energy electric vehicles for years
from 2016 to 2020. It led to the explosive growth in the production and selling
of new electric vehicles in 2015. However, in January 2016, as it was reported
that there were widespread frauds involved in obtaining government subsidies,
the central government launched investigations among the electric vehicles
industry. Before the completion of the investigation, the subsidies for 2015
were ceased to be granted to the manufacturers of electric vehicles, and it was
said that the subsidies policy for 2016 to 2020 would be revised accordingly.
Due to the continued investigation and unclear government policies, almost all
the new energy electric vehicle manufacturers suspended or decreased the
production and selling of electric vehicles in 2016. Accordingly, the production
and selling of power batteries for use in electric vehicles dramatically
decreased in 2016. In November 2016 the central government announced the result
of investigation, including the list of manufacturers of electric vehicles who
committed alleged frauds and the related penalties. On December 29, 2016, the
Ministry of Finance of China finally issued the revised subsidy policy named
Notice of Revision to Financial Support Policies for the Promotion of New Energy
Vehicles in 2016-2020, which revised the subsidies standard to be based on cost
and technology of the power batteries, and set up the maximum amount of the
subsidies from the central and local governments. The revised subsidy policy
also raised the standard and threshold for the quality of electric vehicles and
power batteries, confirmed the responsibility of the manufacturers of electric
vehicles, and strengthened the penalty system.
In March 2015, the Ministry of Industry and Information
Technology of China (the MIIT) issued the Requirements of the Industry
Standards for the Auto Power Storage Batteries ("Requirements"), which are
applicable to auto power battery manufacturers located in China. In order to be
certified as qualified manufacturers under Requirements, manufacturers are
required to be examined by quality inspecting agencies appointed by
Administration of Quality Inspection under Requirements after the manufacturers
have obtained the following reports and certificates:
1.
|
Environmental Acceptance Report;
|
2.
|
Fire Acceptance Report;
|
3.
|
New National Standard Certificate of Power Battery: GB/T
31484-2015, GB/T 31485-2015 and GB/T 31486-2015;
|
3
4.
|
OHSAS 18001 Occupational Health and Safety Management
System;
|
5.
|
ISO14001 Environmental Management System; and
|
6.
|
Occupational Health Report Occupational Health
Report.
|
We have obtained all the above listed required reports and
certificates. While we believe that we meet all of the conditions listed under
the Requirements, there is no assurance that the certification will be granted
to us by the MIIT. During the transition period in 2015 and the beginning of
2016, electric automobile manufacturers were able to obtain subsidies from the
governments even though their power battery suppliers were not as qualified
manufacturers under the Requirements. Subsequent to that period and prior to
obtaining the certification from the MIIT, we have been cooperating with
Shenzhen BAK, our former subsidiary, or other qualified companies under the
Requirements, by selling our key materials to those battery manufacturers for
them to manufacture, pack, test and use their own process produce and sell end
products in compliance with the Requirements to electric automobile
manufacturers. From September 2016, the MIIT ceased to certify auto power
battery manufacturers under the Requirements. Also it is reported that the
compliance with Requirements will not be deemed as a precondition for qualified
manufacturers of power batteries for use in electric vehicles. In the newly
issued Notice of Revision to Financial Support Policies for the Promotion of New
Energy Vehicles in 2016-2020, compliance with the Requirements was not listed as
a precondition for qualified manufacturers of power batteries to be used in
electric vehicles to obtain government subsidies.
Financial Performance Highlights for the Quarter Ended June
30, 2017
The following are some financial highlights for the quarter
ended June 30, 2017:
|
|
Net revenues
: Net revenues increased by $5
million, or 365%, to $6.3 million for the three months ended June 30,
2017, from $1.4 million for the same period in 2016.
|
|
|
|
|
|
Gross loss
: Gross loss was $1.5 million,
representing an increase of $0.9 million, for the three months ended June
30, 2017, from gross loss of $0.6 million for the same period in 2016.
|
|
|
|
|
|
Operating loss
: Operating loss was $3.6
million for the three months ended June 30, 2017, reflecting an increase
of $0.7 million from an operating loss of $2.9 million for the same period
in 2016.
|
|
|
|
|
|
Net loss:
Net loss was $3.8 million for the
three months ended June 30, 2017, representing an increase of $1.1 million
from net loss of $2.7 million for the same period in 2016.
|
|
|
|
|
|
Fully diluted loss per share
: Fully diluted
loss per share was $0.18 for the three months ended June 30, 2017, as
compared to fully diluted loss per share of $0.15 for the same period in
2016.
|
Financial Statement Presentation
Net revenues.
Our net revenues represent the
invoiced value of our products sold, net of value added taxes, or VAT, sales
returns, trade discounts and allowances. We are subject to VAT, which is levied
on most of our products at the rate of 17% on the invoiced value of our
products. Provision for sales returns are recorded as a reduction of revenue in
the same period that revenue is recognized. The provision for sales returns
represents our best estimate of the amount of goods that will be returned from
our customers based on historical sales return data.
Pursuant to the Provisional Regulation of China on Value Added
Tax and its implementing rules, all entities and individuals that are engaged in
the sale of goods, the provision of repairs and replacement services and the
importation of goods in China are generally required to pay VAT at a rate of 17%
of the gross sales proceeds received, less any deductible VAT already paid or
borne by the taxpayer. Further, when exporting goods, the exporter is entitled
to some or all of the refund of VAT that it has already paid or borne. Our
imported raw materials that are used for manufacturing exported products and
deposited in bonded warehouses are exempt from import VAT.
Cost of revenues.
Cost of revenues consists
primarily of material costs, employee remuneration for staff engaged in
production activity, share-based compensation, depreciation and related expenses
that are directly attributable to the production of products. Cost of revenues
also includes write-downs of inventory to lower of cost and net realizable
value.
Research and development expenses.
Research and
development expenses primarily consist of remuneration for R&D staff,
share-based compensation, depreciation and maintenance expenses relating to
R&D equipment, and R&D material costs.
4
Sales and marketing expenses.
Sales and marketing
expenses consist primarily of remuneration for staff involved in selling and
marketing efforts, including staff engaged in the packaging of goods for
shipment, advertising cost, depreciation, share-based compensation, travel and
entertainment expenses and product warranty expense. We do not pay slotting fees
to retail companies for displaying our products, engage in cooperative
advertising programs, participate in buy-down programs or similar arrangements.
General and administrative expenses.
General and
administrative expenses consist primarily of employee remuneration, share-based
compensation, professional fees, insurance, staff benefits, general office
expenses, depreciation and liquidated damage charges.
Government grant income.
We present the
government subsidies received as 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, we match
and offset 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.
Finance costs, net.
Finance costs consist
primarily of interest income and interest on bank loans, net of capitalized
interest.
Income tax expenses.
Our subsidiaries in PRC are
subject to income tax at a rate of 25%. Our Hong Kong subsidiary BAK Asia is
subject to a profits tax at a rate of 16.5% . However, because we did not have
any assessable income derived from or arising in the region, the entity had not
paid any such tax.
Results of Operations
Comparison of Three Months Ended June 30, 2016 and
2017
The following tables set forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of net
revenues.
(All amounts, other than percentages, in thousands of U.S.
dollars)
|
|
Three months ended June 30,
|
|
|
Change
|
|
|
|
2016
|
|
|
2017
|
|
|
$
|
|
|
%
|
|
Net revenues
|
$
|
1,362
|
|
$
|
6,339
|
|
|
4,977
|
|
|
365.42
|
|
Cost of revenues
|
|
(1,916
|
)
|
|
(7,830
|
)
|
|
(5,914
|
)
|
|
( 308.66
|
)
|
Gross loss
|
|
(554
|
)
|
|
(1,491
|
)
|
|
(937
|
)
|
|
(169.13
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
312
|
|
|
533
|
|
|
221
|
|
|
70.83
|
|
Sales and marketing expenses
|
|
206
|
|
|
450
|
|
|
244
|
|
|
118.45
|
|
General and administrative expenses
|
|
1,811
|
|
|
1,158
|
|
|
(653
|
)
|
|
(36.06
|
)
|
Total operating expenses
|
|
2,329
|
|
|
2,141
|
|
|
(188
|
)
|
|
(8.07
|
)
|
Operating loss
|
|
(2,883
|
)
|
|
(3,632
|
)
|
|
(749
|
)
|
|
(25.98
|
)
|
Finance expense, net
|
|
(15
|
)
|
|
(93
|
)
|
|
(78
|
)
|
|
(520.00
|
)
|
Other income (expense), net
|
|
229
|
|
|
(28
|
)
|
|
(257
|
)
|
|
(112.23
|
)
|
Loss before income tax
|
|
(2,669
|
)
|
|
(3,753
|
)
|
|
(1,084
|
)
|
|
( 40.61
|
)
|
Income tax expense
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net loss
|
|
(2,669
|
)
|
|
(3,753
|
)
|
|
(1,084
|
)
|
|
(40.61
|
)
|
Net revenues
. Net revenues were $6.34 million for
the three months ended June 30, 2017, as compared to $1.36 million for the same
period in 2016, representing an increase of $5.0 million, or 365.4% .
The following table sets forth the breakdown of our net
revenues by end-product applications derived from high-power lithium batteries.
(All amounts in thousands of U.S. dollars other than
percentages)
5
|
|
Three months ended June 30,
|
|
|
Change
|
|
|
|
2016
|
|
|
2017
|
|
|
$
|
|
|
%
|
|
High power lithium batteries used in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric vehicles
|
$
|
89
|
|
$
|
5,807
|
|
|
5,718
|
|
|
6,424.72
|
|
Light electric vehicles
|
|
412
|
|
|
62
|
|
|
(350
|
)
|
|
(84.95
|
)
|
Uninterruptable supplies
|
|
861
|
|
|
470
|
|
|
(391
|
)
|
|
(45.41
|
)
|
|
$
|
1,362
|
|
$
|
6,339
|
|
|
4,977
|
|
|
365.42
|
|
Net revenues from sales of batteries for electric vehicles were
$5.8 million for the three months ended June 30, 2017 as compared to $0.1
million in the same period of 2016, representing an increase of $5.7 million, or
6,424.7% . Since the announcement of government subsidy policy for electric
vehicle manufactures issued at the end of calendar year 2016, we received more
orders from electric vehicle manufacturers in year 2017. In year 2017, we
reached strategic cooperation agreement with certain automakers to provide them
substantial battery module used in electric vehicles.
Net revenues from sales of batteries for light electric
vehicles was approximately $62,000 for the three months ended June 30, 2017,
compared to approximately $0.4 million in the same period of 2016, representing
a decrease of $0.35 million, or 85.0% . Since we face fierce competition in
light electric vehicles, our orders from light electric vehicles decreased.
Net revenues from sales of batteries for uninterruptable power
supplies was $0.5 million in the three months ended June 30, 2017, as compared
with $0.9 million in the same period in 2016, representing a decrease of $0.4
million, or 45.4% . As we focused more on electric vehicle market in 2017, sale
of batteries for uninterruptable power supplies sold decreased.
Cost of revenues.
Cost of revenues increased to
$7.8 million for the three months ended June 30, 2017, as compared to $1.9
million for the same period in 2016, an increase of $5.9 million, or 308.66% .
Included in cost of revenues were write down of obsolete inventories of $848,247
for three months ended June 30, 2017, while it was $116,383 for the same period
in 2016. We write down the inventory value whenever there is an indication that
it is impaired, the increase in provision of inventory is mainly due to the
increase of inventory with ageing over 1 year. However, further write-down may
be necessary if market conditions continue to deteriorate.
Gross loss.
Gross loss for the three months ended
June 30, 2017 was $1.5 million, or 23.52% of net revenues as compared to gross
loss of $0.6 million, or 40.6% of net revenues, for the same period in 2016. Our
new Dalian facilities commenced manufacturing activities in July 2015.
Inefficiency was inevitably caused by the operation of the newly installed
machinery and newly hired production staff. In particular, we need to maintain a
high level of skilled production staff, in anticipation of the increased demand
for our products following the release of the government subsidy policy of new
energy vehicles in 2017. As a result, we incurred a gross loss in the quarter
ended June 30, 2017.
Research and development expenses
. Research and
development expenses increased to approximately $0.5 million for the three
months ended June 30, 2017, as compared to approximately $0.3 million for the
same period in 2016, an increase of $0.2 million, or 70.83% . The increase was
primarily resulted from the salary and wages increased by approximately $64,000
and the materials and consumable expenses increased by approximately $124,000.
We expanded our research and development team to improve our product to fulfill
our customers requirements and expand our market shares. We have monthly
average 83 research and development employees for the three months ended June 30,
2017 as compared to a monthly average headcount of 69 for the same period of
2016.
Sales and marketing expenses
. Sales and marketing
expenses increased to approximately $0.5 million for the three months ended June
30, 2017, as compared to approximately $0.2 million for the same period in 2016,
an increase of approximately $0.2 million, or 118.5% . The increase was mainly
resulted from an increase of $0.2 million provision for our product warranty,
resulting from the increase in sales in this quarter.
General and administrative expenses
. General and
administrative expenses decreased to $1.2 million, or 18.3% of revenues, for the
three months ended June 30, 2017, as compared to $1.8 million, or 133.0% of
revenues, for the same period in 2016, a decrease of $0.7 million, or 36.1% .
The decrease in general and administrative expenses was mainly resulted from a
decrease of $0.1 million of share based compensation, a decrease of $0.3 million
provision for doubtful debts, and $0.2 million reversal of compensation costs in
relation to a litigation with Shenzhen Huijie. As disclosed further below,
according to the judgement rendered on June 30, 2017, the court ruled that CBAK
Power should pay the remaining contract amount of RMB6,135,860 (approximately
$0.9 million) claimed by Shenzhen Huijie as well as other expenses incurred including deferred interest, discounted charge on
bills payable, litigation fee and property preservation fee totaled $0.1
million.
6
Operating loss
. As a result of the above, our
operating loss totaled $3.6 million for the three months ended June 30, 2017, as
compared to $2.9 million for the same period in 2016, representing an increase
of $0.7 million, or 26.0% .
Net loss.
As a result of the foregoing, we had a
net loss of $3.8 million for the three months ended June 30, 2017, compared to
net loss of $2.7 million for the same period in 2016.
Comparison of Six Months Ended June 30, 2016 and
2017
The following tables set forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of net
revenues.
(All amounts, other than percentages, in thousands of U.S.
dollars)
|
|
Six months ended June 30,
|
|
|
Change
|
|
|
|
2016
|
|
|
2017
|
|
|
$
|
|
|
%
|
|
Net revenues
|
$
|
4,561
|
|
$
|
10,055
|
|
|
5,494
|
|
|
120.46
|
|
Cost of revenues
|
|
(5,214
|
)
|
|
(11,964
|
)
|
|
(6,750
|
)
|
|
(129.46
|
)
|
Gross loss
|
|
(653
|
)
|
|
(1,909
|
)
|
|
(1,256
|
)
|
|
(192.34
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
672
|
|
|
963
|
|
|
291
|
|
|
43.30
|
|
Sales and marketing expenses
|
|
505
|
|
|
685
|
|
|
180
|
|
|
35.64
|
|
General and administrative expenses
|
|
2,983
|
|
|
2,142
|
|
|
(841
|
)
|
|
(28.19
|
)
|
Total operating expenses
|
|
4,160
|
|
|
3,790
|
|
|
(370
|
)
|
|
(8.89
|
)
|
Operating loss
|
|
(4,813
|
)
|
|
(5,699
|
)
|
|
(886
|
)
|
|
(18.41
|
)
|
Finance expense, net
|
|
(53
|
)
|
|
(96
|
)
|
|
(43
|
)
|
|
(81.13
|
)
|
Other income (expense), net
|
|
237
|
|
|
(27
|
)
|
|
(264
|
)
|
|
(111.39
|
)
|
Loss before income tax
|
|
(4,629
|
)
|
|
(5,822
|
)
|
|
(1,193
|
)
|
|
(25.77
|
)
|
Income tax credit
|
|
57
|
|
|
-
|
|
|
(57
|
)
|
|
(100
|
)
|
Net loss
|
|
(4,572
|
)
|
|
(5,822
|
)
|
|
(1,250
|
)
|
|
( 27.34
|
)
|
Net revenues
. Net revenues were $10.1 million for
the six months ended June 30, 2017, as compared to $4.6 million for the same
period in 2016, representing an increase of $5.5 million, or 120.5% .
The following table sets forth the breakdown of our net
revenues by end-product applications derived from high-power lithium batteries.
(All amounts in thousands of U.S. dollars other than
percentages)
|
|
Six months ended June 30,
|
|
|
Change
|
|
|
|
2016
|
|
|
2017
|
|
|
$
|
|
|
%
|
|
High power lithium batteries used in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric vehicles
|
$
|
2,832
|
|
$
|
9,065
|
|
|
6,233
|
|
|
220.09
|
|
Light electric vehicles
|
|
465
|
|
|
203
|
|
|
(262
|
)
|
|
(56.34
|
)
|
Uninterruptable supplies
|
|
1,264
|
|
|
787
|
|
|
(477
|
)
|
|
(37.74
|
)
|
|
$
|
4,561
|
|
$
|
10,055
|
|
|
5,494
|
|
|
120.46
|
|
Net revenues from sales of batteries for electric vehicles were
$9.1 million for the six months ended June 30, 2017 as compared to $2.8 million
in the same period of 2016. Since the announcement of government subsidy policy
for electric vehicle manufactures issued at the end of calendar year 2016, we
received more orders from electric vehicle manufacturers in year 2017. In year
2017, we reached strategic cooperation agreement with certain automakers to
provide them substantial battery module used in electric vehicles.
7
Net revenues from sales of batteries for light electric
vehicles was $0.2 million for the six months ended June 30, 2017, compared to
$0.5 in the same period of 2016, representing a decrease of $0.3 million, or
56.3% . This change was mainly because we face fierce competition in light
electric vehicles, our orders from light electric vehicles decreased.
Net revenues from sales of batteries for uninterruptable power
supplies was $0.8 million in the three months ended June 30, 2017, as compared
with $1.3 million in the same period in 2016, representing a decrease of $0.5
million, or 37.7% . As we focused more on electric vehicle market in 2017, sale
of batteries for uninterruptable power supplies sold decreased.
Cost of revenues.
Cost of revenues increased to
$11.9 million for the six months ended June 30, 2017, as compared to $5.2
million for the same period in 2016, an increase of $6.8 million, or 129.46% .
Included in cost of revenues were write down of obsolete inventories of $998,403
for the six months ended June 30, 2017, while it was $213,293 for the same
period in 2016. We write down the inventory value whenever there is an
indication that it is impaired the increase in provision of inventory is mainly
due to the increase of inventory with ageing over 1 year. However, further
write-down may be necessary if market conditions continue to deteriorate.
Gross loss.
Gross loss for the six months ended
June 30, 2017 was $1.9 million, or 19.0% of net revenues as compared to gross
loss of $0.7 million, or 14.3% of net revenues, for the same period in 2016. Our
new Dalian facilities commenced manufacturing activities in July 2015.
Inefficiency was inevitably caused by the operation of the newly installed
machinery and newly hired production staff. In particular, we need to maintain a
high level of skilled production staff, in anticipation of the increased demand
for our products following the release of the government subsidy policy of new
energy vehicles in 2017. As a result, we incurred a gross loss in the six months
ended June 30, 2017.
Research and development expenses
. Research and
development expenses increased to approximately $1.0 million for the six months
ended June 30, 2017, as compared to approximately $0.7 million for the same
period in 2016, an increase of $0.3 million, or 43.3% . The increase was
primarily resulted from the salary and wages increased by $0.1 million and the
materials and consumable expenses increased by $0.2 million. We expanded our
research and development team to improve our product to fulfill our customers
requirements and expand our market shares. We have monthly average 85 research
and development employees for the six months ended June 30, 2017 as compared to
a monthly average of 64 for the same period last year.
Sales and marketing expenses
. Sales and marketing
expenses increased to $0.7 million for the six months ended June 30, 2017, as
compared to $0.5 million for the same period in 2016, an increase of $0.2
million, or 35.6% . The increase was mainly resulted from an increase of $0.2
million provision for our product warranty, resulting from the increase in sales in 2017.
General and administrative expenses
. General and
administrative expenses decreased to $2.1 million, or 21.3% of revenues, for the
six months ended June 30, 2017, as compared to $3.0 million, or 65.4% of
revenues, for the same period in 2016, a decrease of $0.8 million, or 28.2% .
The decrease in general and administrative expenses was mainly resulted from a
decrease of $0.3 million of salary and wages including share based compensation,
decrease of $0.2 million provision for doubtful debts, and $0.2 million reversal
of compensation costs in relation to a litigation with Shenzhen Huijie.
Operating loss
. As a result of the above, our
operating loss totaled $5.7 million for the six months ended June 30, 2017, as
compared to $4.8 million for the same period in 2016, representing an increase
of $0.9 million, or 18.4% .
Net loss.
As a result of the foregoing, we had a
net loss of $5.8 million for the six months ended June 30, 2017, compared to net
loss of $4.6 million for the same period in 2016.
Liquidity and Capital Resources
We have financed our liquidity requirements from short-term
bank loans and bills payable under bank credit agreements and issuance of
capital stock.
We incurred a net loss of $3.8 million for the three months
ended June 30, 2017. As of June 30, 2017, we had cash and cash equivalents of
$2.0 million. Our total current assets were $40.5 million and our total current
liabilities were $56.8 million, resulting in a net working capital deficiency of
$16.3 million. These factors raise substantial doubts about our ability to
continue as a going concern.
In June 2016, we received advances in the aggregate of $2.9
million from Mr. Jiping Zhou and Mr. Dawei Li. These advances were unsecured,
non-interest bearing and repayable on demand. On July 8, 2016, we received
further advances of $2.6 million from Mr. Jiping Zhou. On July 28, 2016, to convert
these advances into equity interests in our Company, we entered into securities
purchase agreements with Mr. Jiping Zhou and Mr. Dawei Li to issue and sell an
aggregate of 2,206,640 shares of our common stock, at $2.5 per share, for an
aggregate consideration of approximately $5.52 million. On August 17, 2016, we
issued these shares to the investors.
8
On February 17, 2017, we signed a letter of understanding with
each of eight individual investors, who are also our current shareholders,
including our CEO, Mr. Yunfei Li, whereby these shareholders agreed in principle
to subscribe for new shares of our common stock totaling $10 million. The issue
price will be determined with reference to the market price prior to the
issuance of new shares. In January 2017, the shareholders paid us a total of
$2.06 million as refundable deposits, among which, Mr. Yunfei Li agreed to
subscribe new shares totaling $1.12 million and pay a deposit of approximately
$225,784. In April and May 2017, we
received cash of $9.6 million from these shareholders. On May 31, 2017, we
entered into a securities purchase agreement with these investors, pursuant to
which, we agreed to issue an aggregate of 6,403,518 shares of common stock, par
value $0.001 per share to these investors, at a purchase price of $1.50 per
share, for an aggregate price of $9.6 million, including 764,018 shares were
issued to Mr. Yunfei Li, our CEO. On June 22, 2017, we issued the shares to the
investors relying on the exemption provided by Section 4(a)(2) of the Securities
Act of 1933, as amended, for the offer and sale of securities not involving a
public offering, and Regulation S promulgated thereunder.
On June 14, 2016, we renewed our banking facilities from Bank
of Dandong for loans with a maximum amount of RMB130 million (approximately
$19.2 million), including three-year long-term loans and three-year revolving
bank acceptance and letters of credit bills for the period from June 13, 2016 to
June 12, 2019. The banking facilities were guaranteed by Mr. Yunfei Li (Mr.
Li), our CEO, and Ms. Qinghui Yuan, Mr. Lis wife, Mr. Xianqian Li, our former
CEO, Ms. Xiaoqiu Yu, the wife of our former CEO, Shenzhen BAK Battery Co., Ltd.,
our former subsidiary (Shenzhen BAK). The facilities were also secured by part
of our Dalian sites prepaid land use rights, buildings, construction in
progress, machinery and equipment and pledged deposits. Under the banking
facilities, as of June 30, 2017, we borrowed various three-year term bank loans
that totaled RMB126.8 million (approximately $18.7 million), bearing fixed
interest at 7.2% per annum. We also borrowed a series of revolving bank
acceptance totaled $0.4 million from Bank of Dandong under the credit
facilities, and bank deposit of 50% was required to secure against these bank
acceptance bills.
On July 6, 2016, we obtained banking facilities from Bank of
Dalian for loans with a maximum amount of RMB10 million (approximately $1.5
million) and bank acceptance bills of RMB40 million (approximately $5.9 million)
to July 2017. The banking facilities were guaranteed by Mr. Li, our CEO, and Ms.
Qinghui Yuan, Mr. Lis wife, and Shenzhen BAK. Under the banking facilities, on
July 6, 2016 we borrowed one year short-term loan of RMB10 million
(approximately $1.5 million), bearing a fixed interest rate at 6.525% per annum.
We also borrowed revolving bank acceptance totaled $5.9 million, and bank
deposit of 50% was required to secure against these bank acceptance bills.
During the second quarter of 2017, we obtained banking
facilities from China Merchants Bank with bank acceptance bills of RMB2.1
million (approximately $0.3 million) for a term until October 10, 2017. The
banking facilities were pledged by our bills receivables totaled $0.3 million.
Under the facilities, on April 10, 2017, we borrowed bank acceptance totaled
$0.3 million.
As of June 30, 2017, we had unutilized committed banking
facilities of $0.1 million.
We are currently expanding our product lines and manufacturing
capacity in our Dalian plant, which require more funding to finance the
expansion. We may also require additional cash due to changing business
conditions or other future developments, including any investments or
acquisitions we may decide to pursue. We plan to renew these loans upon
maturity, if required, and plan to raise additional funds through bank
borrowings and equity financing in the future to meet our daily cash demands, if
required. However, there can be no assurance that we will be successful in
obtaining this financing. If our existing cash and bank borrowing are
insufficient to meet our requirements, we may seek to sell equity securities,
debt securities or borrow from lending institutions. We can make no assurance
that financing will be available in the amounts we need or on terms acceptable
to us, if at all. The sale of equity securities, including convertible debt
securities, would dilute the interests of our current shareholders. The
incurrence of debt would divert cash for working capital and capital
expenditures to service debt obligations and could result in operating and
financial covenants that restrict our operations and our ability to pay
dividends to our shareholders. If we are unable to obtain additional equity or
debt financing as required, our business operations and prospects may suffer.
9
In the meanwhile, due to the growing environmental pollution
problem, the Chinese government is currently providing vigorous support to the
new energy facilities and vehicle. It is expected that we will be able to secure
more potential orders from the new energy market, especially from the electric
car market. We believe with that the booming future market demand in high power
lithium ion products, we can continue as a going concern and return to
profitability.
The accompanying condensed consolidated financial statements
have been prepared assuming we will continue to operate as a going concern,
which contemplates the realization of assets and the settlement of liabilities
in the normal course of business. The condensed consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty related to our ability to continue as a going concern.
10
The following table sets forth a summary of our cash flows for
the periods indicated:
(All amounts in thousands of U.S. dollars)
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2017
|
|
Net cash provided by (used in) operating
activities
|
$
|
1,399
|
|
$
|
(3,484
|
)
|
Net cash used in investing activities
|
|
(7,019
|
)
|
|
(7,050
|
)
|
Net cash provided by financing activities
|
|
8,817
|
|
|
12,084
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
(153
|
)
|
|
10
|
|
Net increase in cash and cash equivalents
|
|
3,044
|
|
|
1,560
|
|
Cash and cash equivalents at the beginning of period
|
|
81
|
|
|
409
|
|
Cash and cash equivalents at the end of
period
|
$
|
3,125
|
|
$
|
1,969
|
|
Operating Activities
Net cash used in operating activities was $3.5 million in the
six months ended June 30, 2017, as compared to net cash provided by operating
activities of $1.4 million in the same period in 2016. The increase in operating
cash outflow of approximately $4.9 million was mainly attributable to the
increasing cash outflows of $6.6 million on trade accounts and bills
receivable, and decreasing cash inflows of $3.1 million on trade accounts and bills payable, $3.1 million on
trade balances with our former subsidiaries, offset by a decreasing cash outflow
of $6.7 million on inventories and $2.1 million on prepayments and other
receivables.
Investing Activities
Net cash used in investing activities was $7.1 million for the
six months ended June 30, 2017, as compared to $7.0 million in the same period
of 2016. The net cash used in investing activities in the six months ended June
30, 2017 mainly comprised cash payment of $6.8 million to on acquisition of
property, plant and equipment and construction in progress.
Financing Activities
Net cash provided by financing activities was $12.1 million in
the six months ended June 30, 2017, compared to $8.8 million during the same
period in 2016. The net cash provided by financing activities in the six months
ended June 30, 2017 was mainly from issuance of common stock of $9.6 million and
advances from investors of $2 million in the six months ended June 30, 2017.
As of June 30, 2017, the principal amounts outstanding under
our credit facilities and lines of credit were as follows:
(All amounts in thousands of U.S. dollars)
|
|
Maximum amount available
|
|
|
Amount borrowed
|
|
Long-term credit facilities:
|
|
|
|
|
|
|
Bank of Dandong
|
$
|
18,739
|
|
$
|
18,700
|
|
|
|
|
|
|
|
|
Short-term credit facilities:
|
|
|
|
|
|
|
Bank of Dandong
|
$
|
433
|
|
$
|
433
|
|
Bank of Dalian
|
|
7,374
|
|
|
7,374
|
|
China Merchants Bank
|
|
316
|
|
|
316
|
|
|
$
|
8,123
|
|
$
|
8,123
|
|
Other lines of credit:
|
|
|
|
|
|
|
Industrial and Commercial Bank of China
|
$
|
1,022
|
|
$
|
1,022
|
|
China Merchants Bank
|
|
892
|
|
|
892
|
|
China Construction Bank
|
|
1,763
|
|
|
1,763
|
|
|
$
|
3,677
|
|
$
|
3,677
|
|
|
|
|
|
|
|
|
Total
|
$
|
30,539
|
|
$
|
30,500
|
|
11
As of June 30, 2017, we had also borrowed $1.0 million, $0.9
million and $1.8 million of notes payable outside any credit facility from ICBC,
China Merchants Bank and China Construction Bank, respectively.
Capital Expenditures
We incurred capital expenditures of $6.8 million and $7.6
million in the three months ended June 30, 2017 and 2016, respectively. Our
capital expenditures were used primarily to construct our manufacturing
facilities in Dalian.
We estimate that our total capital expenditures for the year
ending December 31, 2017 will reach approximately $30.2 million. Such funds will
be used to construct new plants and expand new automatic manufacturing lines to
fulfill our customer demands.
Contractual Obligations and Commercial
Commitments
The following table sets forth our contractual obligations and
commercial commitments as of June 30, 2017:
(All amounts in thousands of U.S. dollars)
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
Less than 1 year
|
|
|
1 - 3 years
|
|
|
3 - 5 years
|
|
|
More than 5 years
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
$
|
1,475
|
|
$
|
1,475
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
Long-term bank loans
|
|
18,700
|
|
|
-
|
|
|
18,700
|
|
|
-
|
|
|
-
|
|
Bills payables
|
|
9,892
|
|
|
9,892
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Payable to former subsidiaries
|
|
7,226
|
|
|
7,226
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other short-term loans
|
|
13,291
|
|
|
13,291
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital injection to Dalian Trading
|
|
400
|
|
|
400
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital commitments for construction of
buildings
|
|
2,515
|
|
|
2,515
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Capital commitments for purchase of equipment
|
|
167
|
|
|
167
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Future interest payment on bank loans
|
|
2,664
|
|
|
1,347
|
|
|
1,317
|
|
|
-
|
|
|
-
|
|
Total
|
$
|
56,330
|
|
$
|
36,313
|
|
$
|
20,017
|
|
|
-
|
|
$
|
-
|
|
Other than the contractual obligations and commercial
commitments set forth above, we did not have any other long-term debt
obligations, operating lease obligations, capital commitments, purchase
obligations or other long-term liabilities as of June 30, 2017.
Off-Balance Sheet Transactions
We have not entered into any transactions, agreements or other
contractual arrangements to which an entity unconsolidated with us is a party
and under which we have (i) any obligation under a guarantee, (ii) any retained
or contingent interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity, (iii) any
obligation under derivative instruments that are indexed to our shares and
classified as shareholders equity in our consolidated balance sheets, or (iv)
any obligation arising out of a variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support to us or
engages in leasing, hedging or research and development services with us.
Critical Accounting Policies
Our condensed consolidated financial information has been
prepared in accordance with U.S. GAAP, which requires us to make judgments,
estimates and assumptions that affect (1) the reported amounts of our assets and
liabilities, (2) the disclosure of our contingent assets and liabilities at the
end of each fiscal period and (3) the reported amounts of revenues and expenses
during each fiscal period. We continually evaluate these estimates based on our
own historical experience, knowledge and assessment of current business and
other conditions, our expectations regarding the future based on available
information and reasonable assumptions, which together form our basis for making
judgments about matters that are not readily apparent from other sources. Since
the use of estimates is an integral component of the financial reporting
process, our actual results could differ from those estimates. Some of our
accounting policies require a higher degree of judgment than others in their application. There have been no
material changes to the critical accounting policies previously disclosed in our
Annual Report on Form 10-K for the fiscal year ended September 30, 2016.
12
Changes in Accounting Standards
Please refer to note 1 to our condensed consolidated financial
statements, Principal Activities, Basis of Presentation and Organization
Recently Issued Accounting Standards, for a discussion of relevant
pronouncements.