UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10−Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2020

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the transition period from _____________ to _____________

 

Commission File Number: 001-32898

 

CBAK ENERGY TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   88-0442833
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

BAK Industrial Park, Meigui Street
Huayuankou Economic Zone
Dalian City, Liaoning Province,
People’s Republic of China, 116450

(Address of principal executive offices, Zip Code)

 

(86)(411)-3918-5985

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on
which registered
Common Stock, $0.001 par value   CBAT   Nasdaq Capital Market

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☐   Smaller reporting company ☒
    Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 13, 2020 is as follows:

 

Class of Securities   Shares Outstanding
Common Stock, $0.001 par value   66,467,285

 

 

 

 

 

 

 

CBAK ENERGY TECHNOLOGY, INC.

 

TABLE OF CONTENTS

 

PART I
FINANCIAL INFORMATION
Item 1. Financial Statements. 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 45 
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 60
Item 4. Controls and Procedures. 60
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. 62 
Item 1A. Risk Factors. 66
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 66
Item 3. Defaults Upon Senior Securities. 66
Item 4. Mine Safety Disclosures. 66
Item 5. Other Information. 66
Item 6. Exhibits. 66

 

i

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

CBAK ENERGY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020

 

Contents   Page(s)
Condensed Consolidated Balance Sheets as of December 31, 2019 and September 30, 2020 (unaudited)   2
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2020 (unaudited)   3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2019 and 2020 (unaudited)   4-5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2020 (unaudited)   6
Notes to the Condensed Consolidated Financial Statements (unaudited)   7-44

 

1

 

 

CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated balance sheets
As of December 31, 2019 and September 30, 2020
(Unaudited)
(In US$ except for number of shares)  

 

          December 31,     September 30,  
    Note     2019     2020  
Assets                  
Current assets                  
Cash and cash equivalents           $ 1,612,957     $ 1,299,013  
Pledged deposits     2       5,520,991       6,603,422  
Trade accounts and bills receivable, net     3       7,952,420       18,829,832  
Inventories     4       8,666,714       3,619,532  
Prepayments and other receivables     5       4,735,913       4,354,800  
Total current assets             28,488,995       34,706,599  
                         
Property, plant and equipment, net     7       38,177,565       44,644,938  
Construction in progress     8       21,707,624       15,454,225  
Right-of-use assets     9       7,194,195       7,253,386  
Intangible assets, net     10       15,178       12,007  
                         
Total assets           $ 95,583,557     $ 102,071,155  
                         
Liabilities                        
Current liabilities                        
Current maturities of long-term bank loans     12     $ 10,844,463     $ 20,721,649  
Short-term bank borrowings     12       5,730,289       5,876,289  
Other short-term loans     12       7,351,587       5,269,367  
Trade accounts and bills payable     11       15,072,108       19,278,113  
Notes payable     16       2,846,736       1,614,583  
Accrued expenses and other payables     13       15,527,589       13,961,339  
Payables to former subsidiaries, net     6       1,483,352       1,676,333  
Deferred government grants, current     14       142,026       3,091,153  
Total current liabilities             58,998,150       71,488,826  
                         
Long-term bank loans, net of current maturities     12       9,519,029       -  
Deferred government grants, non-current     14       4,118,807       4,114,515  
Product warranty provision     15       2,246,933       2,207,374  
Long term tax payable     17       7,042,582       7,222,018  
                         
Total liabilities             81,925,501       85,032,733  
                         
Commitments and contingencies     21                  
                         
Shareholders’ equity                        
Common stock $0.001 par value; 500,000,000 authorized ; 53,220,902 issued and 53,076,696 outstanding as of December 31, 2019, 65,293,896 issued and 65,149,690 outstanding as of September 30, 2020             53,222       65,294  
Donated shares             14,101,689       14,101,689  
Additional paid-in capital             180,208,610       186,512,941  
Statutory reserves             1,230,511       1,230,511  
Accumulated deficit             (176,177,413 )     (179,690,362 )
Accumulated other comprehensive loss             (1,744,730 )     (1,168,448 )
              17,671,889       21,051,625  
Less: Treasury shares             (4,066,610 )     (4,066,610 )
Total shareholders’ equity             13,605,279       16,985,015  
Non-controlling interests             52,777       53,407  
Total equity             13,658,056       17,038,422  
                         
Total liabilities and shareholders’ equity           $ 95,583,557     $ 102,071,155  

 

See accompanying notes to the condensed consolidated financial statements.

 

2

 

 

CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of operations and comprehensive income (loss)
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

          Three months ended
September 30,
    Nine months ended
September 30,
 
    Note     2019     2020     2019     2020  
Net revenues     23     $ 8,089,804     $ 10,620,656     $ 17,532,415     $ 22,146,177  
Cost of revenues             (7,431,039 )     (9,245,811 )     (17,322,234 )     (20,477,719 )
Gross profit             658,765       1,374,845       210,181       1,668,458  
Operating expenses:                                        
Research and development expenses             (478,096 )     (446,162 )     (1,425,029 )     (1,130,316 )
Sales and marketing expenses             (279,454 )     (157,485 )     (905,875 )     (351,963 )
General and administrative expenses             (1,282,183 )     (741,785 )     (3,540,686 )     (2,614,349 )
(Provision for) recovery of doubtful accounts             (119,081 )     364,168       (443,020 )     (63,534 )
Total operating expenses             (2,158,814 )     (981,264 )     (6,314,610 )     (4,160,162 )
Operating profit (loss)             (1,500,049 )     393,581       (6,104,429 )     (2,491,704 )
Finance expenses, net             (324,522 )     (357,739 )     (973,504 )     (1,171,030 )
Other income, net             37,503       5,873       149,358       152,171  
Income (Loss) before income tax             (1,787,068 )     41,715       (6,928,575 )     (3,510,563 )
Income tax expense     17       -       -       -       -  
Net income (loss)             (1,787,068 )     41,715       (6,928,575 )     (3,510,563 )
Less: Net loss (profit) attributable to non-controlling interests             14,446       2,532       51,177       (2,386 )
Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc.           $ (1,772,622 )   $ 44,247     $ (6,877,398 )   $ (3,512,949 )
                                         
Net income (loss)             (1,787,068 )     41,715       (6,928,575 )     (3,510,563 )
Other comprehensive income (loss)                                        
– Foreign currency translation adjustment             (754,349 )     846,695       (817,888 )     574,526  
Comprehensive income (loss)             (2,541,417 )     888,410       (7,746,463 )     (2,936,037 )
Less: Comprehensive loss (income) attributable to non-controlling interests             19,285       3,465       58,421       (630 )
Comprehensive income (loss) attributable to CBAK Energy Technology, Inc.           $ (2,522,132 )   $ 891,875     $ (7,688,042 )   $ (2,936,667 )
                                         
Income (Loss) per share     19                                  
– Basic           $ (0.04 )   $ 0.00     $ (0.19 )   $ (0.06 )
– Diluted           $ (0.04 )   $ 0.00     $ (0.19 )   $ (0.06 )
                                         
Weighted average number of shares of common stock:     19                                  
– Basic             42,262,408      

64,909,894

      35,508,896      

59,569,498

 
– Diluted             42,262,408      

65,400,058

      35,508,896      

59,569,498

 

 

See accompanying notes to the condensed consolidated financial statements.

 

3

 

 

CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of changes in shareholders’ equity
For the three months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

    Common stock                             Accumulated                    
    issued           Additional                 other     Non-     Treasury shares     Total  
    Number           Donated     paid-in     Statutory     Accumulated     comprehensive     controlling     Number           shareholders’  
    of shares     Amount     shares     capital     reserves     deficit     loss     interests     of shares     Amount     equity  
Balance as of July 1, 2019     37,095,629     $ 37,096     $ 14,101,689     $ 166,884,602     $ 1,230,511     $ (170,514,666 )   $ (1,560,074 )   $ 61,432       (144,206 )   $ (4,066,610 )   $ 6,173,980  
Capital contribution from non-controlling interests of a subsidiary     -       -       -       -       -       -       -       30,259       -       -       30,259  
Net loss     -       -       -       -       -       (1,772,622 )     -       (14,446 )     -       -       (1,787,068 )
Share-based compensation for employee and director stock awards     -       -       -       396,144       -       -       -       -       -       -       396,144  
Common stock issued to employees and directors for stock awards     131,839       132       -       (132 )     -       -       -       -       -       -       -  
Common stock issued to investors     7,092,219       7,092       -       7,439,738       -       -       -       -       -       -       7,446,830  
Foreign currency translation adjustment     -       -       -       -       -       -       (749,510 )     (4,839 )     -       -       (754,349 )
                                                                                         
Balance as of September 30, 2019     44,319,687     $ 44,320     $ 14,101,689     $ 174,720,352     $ 1,230,511     $ (172,287,288 )   $ (2,309,584 )   $ 72,406       (144,206 )   $ (4,066,610 )   $ 11,505,796  
                                                                                         
Balance as of July 1, 2020     63,802,338     $ 63,803     $ 14,101,689     $ 185,487,657     $ 1,230,511     $ (179,734,609 )   $ (2,016,076 )   $ 56,872       (144,206 )   $ (4,066,610 )   $ 15,123,237  
Net income (loss)     -       -       -               -       44,247       -       (2,532 )     -       -       41,715  
Share-based compensation for employee and director stock awards     -       -       -       161,775       -       -       -               -       -       161,775  
Common stock issued to investors     1,491,558       1,491       -       863,509       -       -       -               -       -       865,000  
Foreign currency translation adjustment     -       -       -       -       -       -       847,628       (933 )     -       -       846,695  
                                                                                         
Balance as of September 30, 2020     65,293,896     $ 65,294     $ 14,101,689     $ 186,512,941     $ 1,230,511     $ (179,690,362 )   $ (1,168,448 )   $ 53,407       (144,206 )   $ (4,066,610 )   $ 17,038,422  

 

4

 

 

CBAK Energy Technology, Inc. and Subsidiaries
Condensed consolidated statements of changes in shareholders’ equity
For the nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

    Common stock                             Accumulated                    
    issued           Additional                 other     Non-     Treasury shares     Total  
    Number           Donated     paid-in     Statutory     Accumulated     comprehensive     controlling     Number           shareholders’  
    of shares     Amount     shares     capital     reserves     deficit     loss     interests     of shares     Amount     equity  
Balance as of January 1, 2019     26,791,684     $ 26,792     $ 14,101,689     $ 155,931,770     $ 1,230,511     $ (165,409,890 )   $ (1,498,940 )   $ 11,977       (144,206 )   $ (4,066,610 )   $ 327,299  
Capital contribution from non-controlling interests of a subsidiary     -       -       -       -       -       -       -       118,850       -       -       118,850  
Net loss     -       -       -       -       -       (6,877,398 )     -       (51,177 )     -       -       (6,928,575 )
Share-based compensation for employee and director stock awards     -       -       -       432,785       -       -       -       -       -       -       432,785  
Common stock issued to employees and directors for stock awards     131,839       132       -       (132 )     -       -       -       -       -       -       -  
Common stock issued to investors     17,396,164       17,396       -       18,355,929       -       -       -       -       -       -       18,373,325  
Foreign currency translation adjustment     -       -       -       -       -       -       (810,644 )     (7,244 )     -       -       (817,888 )
                                                                                         
Balance as of September 30, 2019     44,319,687     $ 44,320     $ 14,101,689     $ 174,720,352     $ 1,230,511     $ (172,287,288 )   $ (2,309,584 )   $ 72,406       (144,206 )   $ (4,066,610 )   $ 11,505,796  
                                                                                         
Balance as of January 1, 2020     53,220,902     $ 53,222       14,101,689     $ 180,208,610     $ 1,230,511     $ (176,177,413 )   $ (1,744,730 )   $ 52,777       (144,206 )   $ (4,066,610 )   $ 13,658,056  
Net income (loss)     -       -       -               -       (3,512,949 )     -       2,386       -       -       (3,510,563 )
Share-based compensation for employee and director stock awards     -       -       -       615,871       -       -       -       -       -       -       615,871  
Common stock issued to employees and directors for stock awards     293,498       293       -       (293 )     -       -       -       -       -       -       -  
Common stock issued to investors     11,779,496       11,779       -       5,688,753       -       -       -       -       -               5,700,532  
Foreign currency translation adjustment     -       -       -       -       -       -       576,282       (1,756 )     -       -       574,526  
                                                                                         
Balance as of September 30, 2020     65,293,896     $ 65,294     $ 14,101,689     $ 186,512,941     $ 1,230,511     $ (179,690,362 )   $ (1,168,448 )   $ 53,407       (144,206 )   $ (4,066,610 )   $ 17,038,422  

 

See accompanying notes to the condensed consolidated financial statements.

 

5

 

 

CBAK Energy Technology, Inc. and subsidiaries
Condensed consolidated statements of cash flows
For the nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

    Nine months ended
September 30,
 
    2019     2020  
Cash flows from operating activities            
Net loss   $ (6,928,575 )   $ (3,510,563 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:                
Depreciation and amortization     2,083,489       1,856,246  
Provision for doubtful debts     443,020       63,534  
Write-down of inventories     557,668       724,156  
Share-based compensation     432,785       615,871  
Loss on disposal of property, plant and equipment     236,360       21,035  
Changes in operating assets and liabilities:                
Trade accounts and bills receivable     4,008,929       (10,424,301 )
Inventories     (2,254,761 )     4,388,522  
Prepayments and other receivables     1,735,548       587,158  
Trade accounts and bills payable     (12,128,474 )     3,582,377  
Accrued expenses and other payables     1,357,021       (317,352 )
Trade receivable from and payables to former subsidiaries     (3,449,078 )     4,454,118  
Government grants     -       2,858,858  
Net cash (used in) provided by operating activities     (13,906,068 )     4,899,659  
                 
Cash flows from investing activities                
Purchases of property, plant and equipment and construction in progress     (1,998,476 )     (2,033,349 )
Net cash used in investing activities     (1,998,476 )     (2,033,349 )
                 
Cash flows from financing activities                
Capital injection from non-controlling interests     118,850       -  
Repayment of bank borrowings     (3,545,966 )     (155,951 )
Proceeds from issue of promissory note     1,250,000       -  
Borrowings from unrelated parties     6,397,925       3,459,218  
Repayment of borrowings from unrelated parties     (145,739 )     (5,660,539 )
Borrowings from related parties     431,630       -  
Repayment of borrowings from related parties     (535,967 )     -  
Borrowings from shareholders     4,080,681       268,733  
Repayment of borrowings from shareholders     -      

(240,687

)
Repayment of earnest money to shareholders     (760,721 )     -  
Net cash provided by (used in) financing activities     7,290,693       (2,329,226 )
Effect of exchange rate changes on cash and cash equivalents and restricted cash     (494,264 )     231,403  
Net (decrease) increase in cash and cash equivalents and restricted cash     (9,108,115 )     768,487  
Cash and cash equivalents and restricted cash at the beginning of period     17,689,493       7,133,948  
Cash and cash equivalents and restricted cash at the end of period   $ 8,581,378     $ 7,902,435  
Supplemental non-cash investing and financing activities:                
Transfer of construction in progress to property, plant and equipment   $ 777,324     $ 8,224,147  
Issuance of common stock (note 1):                
– offset short-term borrowings (First Debt, Second Debt and Third Debt)   $ 15,056,304     $ -  
– offset construction cost payable (Fourth Debt)   $ 3,317,021     $ -  
- offset repayment of promissory note   $ -     $ 1,415,000  
- offset payable to Shenzhen BAK (Sixth Debt)   $ -     $ 4,285,532  
                 
Cash paid during the period for:                
Income taxes   $ -     $ -  
Interest, net of amounts capitalized   $ 1,087,390     $ 783,159  

 

See accompanying notes to the condensed consolidated financial statements.

 

6

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization

 

Principal Activities

 

CBAK Energy Technology, Inc. (“CBAK” or the “Company”) is a corporation formed in the State of Nevada on October 4, 1999 as Medina Copy, Inc. The Company changed its name to Medina Coffee, Inc. on October 6, 1999 and subsequently changed its name to China BAK Battery, Inc. on February 14, 2005. CBAK and its subsidiaries (hereinafter, collectively referred to as the “Company”) are principally engaged in the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion (known as “Li-ion” or “Li-ion cell”) high power rechargeable batteries. Prior to the disposal of BAK International Limited (“BAK International”) and its subsidiaries (see below), the batteries produced by the Company were for use in cellular telephones, as well as various other portable electronic applications, including high-power handset telephones, laptop computers, power tools, digital cameras, video camcorders, MP3 players, electric bicycles, hybrid/electric vehicles, and general industrial applications. After the disposal of BAK International and its subsidiaries on June 30, 2014, the Company focuses on the manufacture, commercialization and distribution of high power lithium ion rechargeable batteries for use in cordless power tools, light electric vehicles, hybrid electric vehicles, electric cars, electric busses, uninterruptable power supplies and other high power applications.

 

The shares of the Company traded in the over-the-counter market through the Over-the-Counter Bulletin Board from 2005 until May 31, 2006, when the Company obtained approval to list its common stock on The NASDAQ Global Market, and trading commenced that same date under the symbol “CBAK”. 

 

On January 10, 2017, the Company filed Articles of Merger with the Secretary of State of Nevada to effectuate a merger between the Company and the Company’s newly formed, wholly owned subsidiary, CBAK Merger Sub, Inc. (the “Merger Sub”). According to the Articles of Merger, effective January 16, 2017, the Merger Sub merged with and into the Company with the Company being the surviving entity (the “Merger”). As permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the Merger was to effect a change of the Company’s name.

 

Effective November 30, 2018, the trading symbol for common stock of the Company was changed from CBAK to CBAT. Effective at the opening of business on June 21, 2019, the Company’s common stock started trading on the Nasdaq Capital Market.

 

Basis of Presentation and Organization

 

On November 6, 2004, BAK International, a non-operating holding company that had substantially the same shareholders as Shenzhen BAK Battery Co., Ltd (“Shenzhen BAK”), entered into a share swap transaction with the shareholders of Shenzhen BAK for the purpose of the subsequent reverse acquisition of the Company. The share swap transaction between BAK International and the shareholders of Shenzhen BAK was accounted for as a reverse acquisition of Shenzhen BAK with no adjustment to the historical basis of the assets and liabilities of Shenzhen BAK.

 

On January 20, 2005, the Company completed a share swap transaction with the shareholders of BAK International. The share swap transaction, also referred to as the “reverse acquisition” of the Company, was consummated under Nevada law pursuant to the terms of a Securities Exchange Agreement entered by and among CBAK, BAK International and the shareholders of BAK International. 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.

 

7

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Basis of Presentation and Organization (continued)

 

Also on January 20, 2005, immediately prior to consummating the share swap transaction, BAK International executed a private placement of its common stock with unrelated investors whereby it issued an aggregate of 1,720,087 shares of common stock for gross proceeds of $17,000,000. In conjunction with this financing, Mr. Xiangqian Li, the Chairman and Chief Executive Officer of the Company (“Mr. Li”), agreed to place 435,910 shares of the Company’s common stock owned by him into an escrow account pursuant to an Escrow Agreement dated January 20, 2005 (the “Escrow Agreement”). Pursuant to the Escrow Agreement, 50% of the escrowed shares were to be released to the investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2005 was not at least $12,000,000, and the remaining 50% was to be released to investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2006 was not at least $27,000,000. If the audited net income of the Company for the fiscal years ended September 30, 2005 and 2006 reached the above-mentioned targets, the 435,910 shares would be released to Mr. Li in the amount of 50% upon reaching the 2005 target and the remaining 50% upon reaching the 2006 target.

 

Under accounting principles generally accepted in the United States of America (“US GAAP”), escrow agreements such as the one established by Mr. Li generally constitute compensation if, following attainment of a performance threshold, shares are returned to a company officer. The Company determined that without consideration of the compensation charge, the performance thresholds for the year ended September 30, 2005 would be achieved. However, after consideration of a related compensation charge, the Company determined that such thresholds would not have been achieved. The Company also determined that, even without consideration of a compensation charge, the performance thresholds for the year ended September 30, 2006 would not be achieved.

 

While the 217,955 escrow shares relating to the 2005 performance threshold were previously released to Mr. Li, Mr. Li executed a further undertaking on August 21, 2006 to return those shares to the escrow agent for the distribution to the relevant investors. However, such shares were not returned to the escrow agent, but, pursuant to a Delivery of Make Good Shares, Settlement and Release Agreement between the Company, BAK International and Mr. Li entered into on October 22, 2007 (the “Li Settlement Agreement”), such shares were ultimately delivered to the Company as described below. Because the Company failed to satisfy the performance threshold for the fiscal year ended September 30, 2006, the remaining 217,955 escrow shares relating to the fiscal year 2006 performance threshold were released to the relevant investors. As Mr. Li has not retained any of the shares placed into escrow, and as the investors party to the Escrow Agreement were only shareholders of the Company and did not have and were 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 were not be restated. This share transfer has been reflected in these financial statements by reclassifying the balances of certain items as of October 1, 2007. The balances of donated shares and additional paid-in capital as of October 1, 2007 were credited and debited by $7,955,358 respectively, as set out in the consolidated statements of changes in shareholders’ equity.

 

In November 2007, Mr. Li delivered the 217,955 shares related to the 2005 performance threshold to BAK International pursuant to the Li Settlement Agreement; BAK International in turn delivered the shares to the Company. Such shares (other than those issued to investors pursuant to the 2008 Settlement Agreements, as described below) are now held by the Company. Upon receipt of these shares, the Company and BAK International released all claims and causes of action against Mr. Li regarding the shares, and Mr. Li released all claims and causes of action against the Company and BAK International regarding the shares. Under the terms of the Li Settlement Agreement, the Company commenced negotiations with the investors who participated in the Company’s January 2005 private placement in order to achieve a complete settlement of BAK International’s obligations (and the Company’s obligations to the extent it has any) under the applicable agreements with such investors.

 

Beginning on March 13, 2008, the Company entered into settlement agreements (the “2008 Settlement Agreements”) with certain investors in the January 2005 private placement. Since the other investors have never submitted any claims regarding this matter, the Company did not reach any settlement with them.

 

8

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Basis of Presentation and Organization (continued)

 

Pursuant to the 2008 Settlement Agreements, the Company and the settling investors have agreed, without any admission of liability, to a settlement and mutual release from all claims relating to the January 2005 private placement, including all claims relating to the escrow shares related to the 2005 performance threshold that had been placed into escrow by Mr. Li, as well as all claims, including claims for liquidated damages relating to registration rights granted in connection with the January 2005 private placement. Under the 2008 Settlement Agreement, the Company has made settlement payments to each of the settling investors of the number of shares of the Company’s common stock equivalent to 50% of the number of the escrow shares related to the 2005 performance threshold these investors had claimed; aggregate settlement payments as of June 30, 2015 amounted to 73,749 shares. Share payments to date have been made in reliance upon the exemptions from registration provided by Section 4(a)(2) and/or other applicable provisions of the Securities Act of 1933, as amended. In accordance with the 2008 Settlement Agreements, the Company filed a registration statement covering the resale of such shares which was declared effective by the SEC on June 26, 2008.

 

Pursuant to the Li Settlement Agreement, the 2008 Settlement Agreements and upon the release of the 217,955 escrow shares relating to the fiscal year 2006 performance threshold to the relevant investors, neither Mr. Li or the Company have any obligations to the investors who participated in the Company’s January 2005 private placement relating to the escrow shares.

 

As of September 30, 2020, the Company had not received any claim from the other investors who have not been covered by the “2008 Settlement Agreements” in the January 2005 private placement. 

 

As the Company has transferred the 217,955 shares related to the 2006 performance threshold to the relevant investors in fiscal year 2007 and transferred 73,749 shares relating to the 2005 performance threshold to the investors in fiscal year 2008, pursuant to “Li Settlement Agreement” and “2008 Settlement Agreements”, neither Mr. Li nor the Company has any remaining obligations to those related investors who participated in the Company’s January 2005 private placement relating to the escrow shares.

 

On August 14, 2013, Dalian BAK Trading Co., Ltd was established as a wholly owned subsidiary of China BAK Asia Holding Limited (“BAK Asia”) with a registered capital of $500,000. On March 7, 2017, the name of Dalian BAK Trading Co., Ltd was changed to Dalian CBAK Trading Co., Ltd (“CBAK Trading”). On August 5, 2019, CBAK Trading’s registered capital was increased to $5,000,000. Pursuant to CBAK Trading’s amendment articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Trading on or before August 1, 2033. Up to the date of this report, the Company has contributed $2,435,000 to CBAK Trading in cash.

 

On December 27, 2013, Dalian BAK Power Battery Co., Ltd was established as a wholly owned subsidiary of BAK Asia with a registered capital of $30,000,000. On March 7, 2017, the name of Dalian BAK Power Battery Co., Ltd was changed to Dalian CBAK Power Battery Co., Ltd (“CBAK Power”). On July 10, 2018, CBAK Power’s registered capital was increased to $50,000,000. On October 29, 2019, CBAK Power’s registered capital was further increased to $60,000,000. Pursuant to CBAK Power’s amendment articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Power on or before December 31, 2021. Up to the date of this report, the Company has contributed $29,999,978 to CBAK Power through injection of a series of patents and cash.

 

On May 4, 2018, CBAK New Energy (Suzhou) Co., Ltd (“CBAK Suzhou”) was established as a 90% owned subsidiary of CBAK Power with a registered capital of RMB10,000,000 (approximately $1.4 million). The remaining 10% equity interest was held by certain employees of CBAK Suzhou. Pursuant to CBAK Suzhou’s articles of association, each shareholder is entitled to the right of the profit distribution or responsible for the loss according to its proportion to the capital contribution. Pursuant to CBAK Suzhou’s articles of association and relevant PRC regulations, CBAK Power was required to contribute the capital to CBAK Suzhou on or before December 31, 2019. Up to the date of this report, the Company has contributed RMB9.0 million (approximately $1.3 million), and the other shareholders have contributed RMB1 million (approximately $0.1 million) to CBAK Suzhou through injection of a series of cash.  CBAK Suzhou is intended to be engaged in development and manufacture of new energy high power battery packs. 

 

On November 21, 2019, Dalian CBAK Energy Technology Co., Ltd (“CBAK Energy”) was established as a wholly owned subsidiary of BAK Asia with a registered capital of $50,000,000. Pursuant to CBAK Energy’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Energy on or before November 20, 2022. Up to the date of this report, the Company has contributed nil to CBAK Energy. CBAK Energy will be focus on manufacture and sale of lithium batteries and lithium batteries’ materials.

 

On July 14, 2020, the Company acquired BAK Asia Investments Limited (“BAK Investments”), a company incorporated under Hong Kong laws, from Mr. Xiangqian Li, the Company’s former CEO, for a cash consideration of HK$1.00. BAK Asia Investments Limited is a holding company without any business operations.

 

9

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Basis of Presentation and Organization (continued)

 

On July 31, 2020, BAK Investments formed a wholly owned subsidiary CBAK New Energy (Nanjing) Co., Ltd. (“CBAK Nanjing”) in China with a registered capital of $100,000,000. Pursuant to CBAK Nanjing’s articles of association and relevant PRC regulations, BAK Investments was required to contribute the capital to CBAK Nanjing on or before July 29, 2040. Up to the date of this report, the Company has contributed nil to CBAK Nanjing.

 

On August 6, 2020, Nanjing CBAK New Energy Technology Co., Ltd. (“Nanjing CBAK”) was established as a wholly owned subsidiary of CBAK Nanjing with a registered capital of RMB700,000,000 (approximately $103 million). Pursuant to Nanjing CBAK’s articles of association and relevant PRC regulations, CBAK Nanjing was required to contribute the capital to Nanjing CBAK on or before August 5, 2040. Up to the date of this report, the Company has contributed nil to Nanjing CBAK. CBAK Nanjing and Nanjing CBAK were established to expand the Company’s business of developing, manufacturing and selling new energy high power lithium batteries.

 

On November 9, 2020, Nanjing Daxin New Energy Automobile Industry Co., Ltd (“Nanjing Daxin”) was established as a wholly owned subsidiary of CBAK Nanjing with a register capital of RMB50,000,000 (approximately $7.4 million).

 

The Company’s condensed consolidated financial statements have been prepared under US GAAP.

 

These condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these condensed consolidated financial statements, which are of a normal and recurring nature, have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The following (a) condensed consolidated balance sheet as of December 31, 2019, which was derived from the Company’s audited financial statements, and (b) the unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to those rules and regulations, though the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying footnotes of the Company for the year ended December 31, 2019.

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company’s principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liability established in the PRC or Hong Kong. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books of account of the Company’s subsidiaries to present them in conformity with US GAAP.

 

After the disposal of BAK International Limited and its subsidiaries, namely Shenzhen BAK, Shenzhen BAK Power Battery Co., Ltd (formerly BAK Battery (Shenzhen) Co., Ltd.) (“BAK Shenzhen”), BAK International (Tianjin) Ltd. (“BAK Tianjin”), Tianjin Chenhao Technological Development Limited (a subsidiary of BAK Tianjin established on May 8, 2014, “Tianjin Chenhao”), BAK Battery Canada Ltd. (“BAK Canada”), BAK Europe GmbH (“BAK Europe”) and BAK Telecom India Private Limited (“BAK India”), effective on June 30, 2014, and as of September 30, 2020, the Company’s subsidiaries consisted of: i) China BAK Asia Holdings Limited (“BAK Asia”), a wholly owned limited liability company incorporated in Hong Kong on July 9, 2013; ii) Dalian CBAK Trading Co., Ltd. (“CBAK Trading”), a wholly owned limited company established on August 14, 2013 in the PRC; iii) Dalian CBAK Power Battery Co., Ltd. (“CBAK Power”), a wholly owned limited liability company established on December 27, 2013 in the PRC; and iv) CBAK New Energy (Suzhou) Co., Ltd. (“CBAK Suzhou”), a 90% owned limited liability company established on May 4, 2018 in the PRC, (v) Dalian CBAK Energy Technology Co, Ltd (“CBAK Energy”), a wholly owned limited liability company established on November 21, 2019 in the PRC, (vi) BAK Asia Investments Limited (“BAK Investments”), a wholly owned limited liability company incorporated in Hong Kong acquired on July 14, 2020, (vii) CBAK New Energy (Nanjing) Co., Ltd. (“CBAK Nanjing”), a wholly owned limited liability company established on July 31, 2020 in the PRC and (viii) Nanjing CBAK New Energy Technology Co., Ltd, (“Nanjing CBAK”), a wholly owned limited liability company established on August 6, 2020 in the PRC.

 

The Company continued its business and continued to generate revenues from sale of batteries via subcontracting the production to BAK Tianjin and BAK Shenzhen, former subsidiaries before the completion of construction and operation of its facility in Dalian. BAK Tianjin was 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.

 

10

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Basis of Presentation and Organization (continued)

 

As of the date of this report, Mr. Xiangqian Li is no longer a director of BAK International and BAK Tianjin. He remained as a director of Shenzhen BAK and BAK Shenzhen.

 

On and effective March 1, 2016, Mr. Xiangqian Li resigned as Chairman, director, Chief Executive Officer, President and Secretary of the Company. On the same date, the Board of Directors of the Company appointed Mr. Yunfei Li as Chairman, Chief Executive Officer, President and Secretary of the Company. On March 4, 2016, Mr. Xiangqian Li transferred 3,000,000 shares to Mr. Yunfei Li for a price of $2.4 per share. After the share transfer, Mr. Yunfei Li held 3,000,000 shares or 17.3% and Mr. Xiangqian Li held 760,557 shares at 4.4% of the Company’s outstanding stock, respectively. As of September 30, 2020, Mr. Yunfei Li held 10,719,205 shares or 16.5% of the Company’s outstanding stock, and Mr. Xiangqian Li held none of the Company’s outstanding stock.

 

The Company had a working capital deficiency, accumulated deficit from recurring net losses and short-term debt obligations as of December 31, 2019 and September 30, 2020. These factors raise substantial doubts about the Company’s ability to continue as a going concern.

 

In June and July 2015, the Company received advances of approximately $9.8 million from potential investors. On September 29, 2015, the Company entered into a Debt Conversion Agreement with these investors. Pursuant to the terms of the Debt Conversion Agreement, each of the creditors agreed to convert existing loan principal of $9,847,644 into an aggregate 4,376,731 shares of common stock of the Company (“the Shares”) at a conversion price of $2.25 per share. Upon receipt of the Shares on October 16, 2015, the creditors released the Company from all claims, demands and other obligations relating to the debts. As such, no interest was recognized by the Company on the advances from investors pursuant to the supplemental agreements with investors and the Debt Conversion Agreement.

 

In June 2016, the Company received further advances in the aggregate of $2.9 million from Mr. Jiping Zhou and Mr. Dawei Li. These advances were unsecured, non-interest bearing and repayable on demand. On July 8, 2016, the Company received further advances of $2.6 million from Mr. Jiping Zhou. On July 28, 2016, the Company entered into securities purchase agreements with Mr. Jiping Zhou and Mr. Dawei Li to issue and sell an aggregate of 2,206,640 shares of common stock of the Company, at $2.5 per share, for an aggregate consideration of approximately $5.52 million. On August 17, 2016, the Company issued these shares to the investors.

 

On February 17, 2017, the Company signed investment agreements with eight investors (including Mr. Yunfei Li, the Company’s CEO, and seven of the Company’s existing shareholders) whereby the investors agreed to subscribe new shares of the Company totaling $10 million. Pursuant to the investment agreements, in January 2017, eight investors paid the Company a total of $2.06 million as earnest money which need to be returned to the investors after the investment amount was delivered. Mr. Yunfei Li agrees to subscribe new shares of the Company totaled $1,120,000 and paid the earnest money of $225,784 in January 2017. On April 1, April 21, April 26 and May 10, 2017, the Company received $1,999,910, $3,499,888, $1,119,982 and $2,985,497 from these investors, respectively. On May 31, 2017, the Company entered into a securities purchase agreement with these investors, pursuant to which the Company agreed to issue an aggregate of 6,403,518 shares of common stock to these investors, at a purchase price of $1.50 per share, for an aggregate price of $9.6 million, among which 746,018 shares issued to Mr. Yunfei Li. On June 22, 2017, the Company issued the shares to the investors.

 

In 2019, according to the investment agreements and agreed by the investors, the Company returned partial earnest money of $949,317 (approximately RMB6.7 million) to these investors.

 

On January 7, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $3.4 million (RMB23,980,950) and $1.6 million (RMB11,647,890) (totaled $5.0 million, the “First Debt”) to Mr. Dawei Li and Mr. Yunfei Li, respectively.

 

On January 7, 2019, the Company entered into a cancellation agreement with Mr. Dawei Li and Mr. Yunfei Li. Pursuant to the terms of the cancellation agreement, Mr. Dawei Li and Mr. Yunfei Li agreed to cancel the First Debt in exchange for 3,431,373 and 1,666,667 shares of common stock of the Company, respectively, at an exchange price of $1.02 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the First Debt.

 

11

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Basis of Presentation and Organization (continued)

 

On April 26, 2019, each of Mr. Jun Lang, Ms. Jing Shi and Asia EVK Energy Auto Limited (“Asia EVK”) entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $0.3 million (RMB2,225,082), $0.1 million (RMB 912,204) and $5.3 million (RMB35,406,036) (collectively $5.7 million, the “Second Debt”) to Mr. Jun Lang, Ms. Jing Shi and Asia EVK, respectively.

 

On April 26, 2019, the Company entered into a cancellation agreement with Mr. Jun Lang, Ms. Jing Shi and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, the creditors agreed to cancel the Second Debt in exchange for 300,534, 123,208 and 4,782,163 shares of common stock of the Company, respectively, at an exchange price of $1.1 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Second Debt.

 

On June 28, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power to loans approximately $1.4 million (RMB10,000,000) and $2.6 million (RMB18,000,000) respectively to CBAK Power for a term of six months (collectively $4.0 million, the “Third Debt”). The loan was unsecured, non-interest bearing and repayable on demand.

 

On July 16, 2019, each of Asia EVK and Mr. Yunfei Li entered into an agreement with CBAK Power and Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. (the Company’s construction contractor) whereby Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. assigned its rights to the unpaid construction fees owed by CBAK Power of approximately $2.9 million (RMB20,000,000) and $0.5 million (RMB2,813,810) (collectively $3.4 million, the “Fourth Debt”) to Asia EVK and Mr. Yunfei Li, respectively.

 

On July 26, 2019, the Company entered into a cancellation agreement with Mr. Dawei Li, Mr. Yunfei Li and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Dawei Li, Mr. Yunfei Li and Asia EVK agreed to cancel the Third Debt and Fourth Debt in exchange for 1,384,717, 2,938,067 and 2,769,435 shares of common stock of the Company, respectively, at an exchange price of $1.05 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Third Debt and Fourth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

 

On July 24, 2019, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note”) to the Lender. The Note has an original principal amount of $1,395,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,250,000 after an original issue discount of $125,000 and payment of Lender’s expenses of $20,000.

 

On October 10, 2019, each of Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen entered into an agreement with CBAK Power and Zhengzhou BAK New Energy Vehicle Co., Ltd. (the Company’s supplier of which Mr. Xiangqian Li, the former CEO, is a director of this company) whereby Zhengzhou BAK New Energy Vehicle Co., Ltd. assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $2.1 million (RMB15,000,000), $1.0 million (RMB7,380,000) and $1.0 million (RMB7,380,000) (collectively $4.2 million, the “Fifth Debt”) to Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen, respectively.

 

On October 14, 2019, the Company entered into a cancellation agreement with Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen agreed to cancel and convert the Fifth Debt and the Unpaid Earnest Money in exchange for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of $0.6 per share. Upon receipt of the shares, the creditors will release the Company from any claims, demands and other obligations relating to the Fifth Debt and the Unpaid Earnest Money. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

 

12

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Basis of Presentation and Organization (continued)

 

On December 30, 2019, the Company entered into a second securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note II”) to the Lender. The Note II has an original principal amount of $1,670,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,500,000 after an original issue discount of $150,000 and payment of Lender’s expenses of $20,000.

 

On January 27, 2020, the Company entered into an exchange agreement (the “First Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 160,256 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On February 20, 2020, the Company entered into a second exchange agreement (the “Second Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 207,641 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On April 10, 2020, each of Mr. Yunfei Li, Mr. Ping Shen and Asia EVK entered into an agreement with CBAK Power and Shenzhen BAK, whereby Shenzhen BAK assigned its rights to the unpaid inventories cost (note 6) owed by CBAK Power of approximately $1.0 million (RMB7,000,000), $2.3 million (RMB16,000,000) and $1.0 million (RMB7,300,000) (collectively $4.3 million, the “Sixth Debt”) to Mr. Yunfei Li, Mr. Ping Shen and Asia EVK, respectively.

 

On April 27, 2020, the Company entered into a cancellation agreement with Mr. Yunfei Li, Mr. Ping Shen and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Yunfei Li, Mr. Ping Shen and Asia EVK agreed to cancel the Sixth Debt in exchange for 2,062,619, 4,714,557 and 2,151,017 shares of common stock of the Company, respectively, at an exchange price of $0.48 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Sixth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

 

On April 28, 2020, the Company entered into a third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On June 8, 2020, the Company entered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

13

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Basis of Presentation and Organization (continued)

 

On June 10, 2020, the Company entered into a Fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 407,609 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On July 6, 2020, the Company entered into a Sixth exchange agreement (the “Sixth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 461,595 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On July 8, 2020, the Company entered into a First exchange agreement for Note II (the “First Exchange Agreement- Note II”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on December 30, 2019, which has an original principal amount of $1,670,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 453,161 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On July 29, 2020, the Company entered into a Seventh exchange agreement (the “Seventh Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $365,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 576,802 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On October 12, 2020, the Company entered into an Amendment to Promissory Notes (the “Amendment”) with Atlas Sciences, LLC (the Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding the foregoing, in no event will the Conversion Price be less than $1.00.

 

According to the Amendment, on October 13, 2020, the Company exchange $371,275 principal and coupon interest under the Note I and $775,000 principal under the Note II for the issuance of 229,750 and 479,579 shares of the Company’s common stock, par value $0.001 per share to the Lender, respectively.

 

On October 20, 2020, the Company further exchange $778,252 principal and coupon interests under Note II for the issuance of 329,768 shares of the Company’s common stock, par value $0.001 per share to the Lender. Up to the date of this report, the Company has fully repaid the principal and coupon interests of Note I and Note II.

 

As of September 30, 2020, the Company had aggregate interest-bearing bank loans of approximately $26.6 million, due in 2020 to 2021, in addition to approximately $45.1 million of other current liabilities.

 

As of September 30, 2020, the Company had unutilized committed banking facilities of $7.1 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. 

 

14

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Basis of Presentation and Organization (continued)

 

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, it 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 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty related to the Company’s ability to continue as a going concern.

 

Beginning in 2020, a strain of novel coronavirus (“COVID-19”) has spread globally and at this point, the extent to which the COVID-19 may adversely impact the operations of the Company is uncertain. The extent of the adverse impact of the COVID-19 on the Company’s business and operations will depend on several factors, such as the duration, severity, and geographic spread of the pandemic, development of the testing and treatment and stimulus measures of the government. The Company is monitoring and assessing the evolving situation closely and evaluating its potential exposure. The operating results for the nine months ended September 30, 2020 may not be indicative of the future operating results for the fiscal year ending December 31, 2020 or other future periods, particularly in light of the uncertain impact COVID-19 could have on the Company’s business.

 

Revenue Recognition

 

The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.  

 

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.

 

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers.

 

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the categories: discounts and returns. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company’s customer.

 

Recently Adopted Accounting Standards

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The Company applied the new standard beginning January 1, 2020.

 

Recently Issued Accounting Standards

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

 

15

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

1. Principal Activities, Basis of Presentation and Organization (continued)

 

Recently Issued Accounting Standards (continued)

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this update will have on its financial statements.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (Topic 718): Improvemen20-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.

 

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. 

 

For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period.  The Company is currently evaluating the impact that ASU 2020-06 may have on its condensed consolidated financial statements and related disclosures.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.

 

16

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

2. Pledged deposits

 

Pledged deposits as of December 31, 2019 and September 30, 2020 consisted of the following:

 

    December 31,     September 30,  
    2019     2020  
Pledged deposits with bank for:            
Bills payable   $ 4,021,255     $ 6,488,306  
Others*     1,499,736       115,116  
    $ 5,520,991     $ 6,603,422  

 

* On July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’ Court of Zhuanghe City, Dalian for the failure to pay pursuant to the terms of the contract and for entrusting part of the project to a third party without their prior consent. The plaintiff sought a total amount of $1,241,648 (RMB8,430,792), including construction costs of $0.9 million (RMB6.1 million), interest of $29,455 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million), which were already accrued for as of September 30, 2016. On September 7, 2016, upon the request of Shenzhen Huijie, the Court froze CBAK Power’s bank deposits totaling $1,241,648 (RMB8,430,792) for a period of one year. On September 1, 2017, upon the request of Shenzhen Huijie, the Court froze the bank deposits for another one year until August 31, 2018. The Court further froze the bank deposits for another one year until August 27, 2019 upon the request of Shenzhen Huijie on August 27, 2018. On August 27, 2019, the Court again froze the bank deposits for another one year until August 27, 2020, upon the request of Shenzhen Huijie. On June 28, 2020, the Court of Dalian entered the final judgement and the frozen bank deposit was released in July 2020.

 

On July 25, 2019, CBAK Power received notice from Shenzhen Court of International Arbitration that Shenzhen Xinjiatuo Automobile Technology Co., Ltd filed arbitration against the Company for the failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.16 million (RMB1,112,269), including equipment cost of $0.14 million (RMB976,000) and interest of $0.02 million (RMB136,269). On August 9, 2019, upon the request of Shenzhen Xinjiatuo Automobile Technology Co., Ltd, Shenzhen Court of International Arbitration froze CBAK Power’s bank deposits totaling $0.16 million (RMB1,117,269) for a period of one year to August 2020. In early July 2020, Shenzhen Court of International Arbitration made arbitration award dismissing the plaintiff’s claim and CBAK Power’s counterclaim and the bank deposits was released in early August 2020.

 

In early September of 2019, several employees of CBAK Suzhou filed arbitration with Suzhou Industrial Park Labor Disputes Arbitration Commission against CBAK Suzhou for failure to pay their salaries in time. The employees seek for a payment including salaries of $94,015 (RMB638,359) and compensation of $79,971 (RMB543,000), totaling $0.17 million (RMB1,181,359). In addition, upon the request of the employees for property preservation, bank deposit of $0.17 million (RMB1,181,359) was frozen by the court of Suzhou for a period of one year. On September 5, 2019, CBAK Suzhou and the employees reached an agreement that CBAK Suzhou will pay these salaries and compensation. In February 2020, the Company fully repaid the salaries and compensation. As of September 30, 2020, $6 (RMB43) was frozen by bank.

 

In November 2019, CBAK Suzhou received notice from Court of Suzhou city that Suzhou Industrial Park Security Service Co., Ltd (“Suzhou Security”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $20,576 (RMB139,713), including services expenses amount of $20,458 (RMB138,908) and interest of $119 (RMB805). Upon the request of Suzhou Security for property preservation, the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB150,000) for a period of one year. As of September 30, 2020, $4,857 (RMB32,980) was frozen by bank and the Company had accrued the service cost of $20,576 (RMB139,713).

 

In December 2019, CBAK Power received notice from Court of Zhuanghe that Dalian Construction Electrical Installation Engineering Co., Ltd. (“Dalian Construction”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the construction contract. Dalian Construction sought a total amount of $101,780 (RMB691,086) and interest $1,905 (RMB12,934). As of December 31, 2019, the Company has accrued the construction cost of $101,780 (RMB691,086). Upon the request of Dalian Construction for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $103,685 (RMB704,020) for a period of one year to December 2020. As of December 31, 2019, $97,384 (RMB661,240) was frozen by bank. In January 2020, CBAK Power and Dalian Construction have come to a settlement, and the bank deposit was then released. CBAK Power has settled the construction cost and related interests as of September 30, 2020.

 

17

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

2. Pledged deposits (continued)

 

On March 20, 2020, CBAK Power received notice from Court of Nanpi County, Hebei Province that Cangzhou Huibang Engineering Manufacturing Co., Ltd (“Cangzhou Huibang”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.3 million (RMB2,029,594), including materials purchase cost of $0.3 million (RMB1,932,947), and interest of $14,234 (RMB96,647). As of September 30, 2020, the Company has accrued materials purchase cost of $0.3 million (RMB1,932,947). Upon the request of Cangzhou Huibang for property preservation, the Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $0.4 million (RMB2,650,000) for a period of one year to March 3, 2020. As of September 30, 2020, $3,280 (RMB22,270) was frozen by bank.

 

In May 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Tianjin Changxing Metal Co., Ltd (“Tianjin Changxing”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Tianjin Changxing sought a total amount of $28,511 (RMB193,588). On August 24, 2020, upon the request of Tianjin Changxing for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits totaling $31,648 (RMB214,892) for a period of one year. As of September 30, 2020, $1,691 (RMB11,479) was frozen by bank and the Company had accrued the material purchase cost of $28,511 (RMB193,588).

 

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Nanjing Jinlong Chemical Co., Ltd. (“Nanjing Jinlong”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Nanjing Jinlong sought a total amount of $121,060 (RMB822,000). Upon the request of Nanjing Jinlong for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits totaling $121,060 (RMB822,000) for a period of one year. As of September 30, 2020, $16 (RMB107) was frozen by bank and the Company had accrued the material purchase cost of $121,060 (RMB822,000).

 

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Xi’an Anpu New Energy Technology Co. LTD (“Xi’an Anpu”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the equipment purchase contract. Xi’an Anpu sought a total amount of $124,294 (RMB843,954), including RMB768,000 for equipment cost and RMB75,954 for liquidated damages). As of September 30, 2020, the Company has accrued the equipment cost of $113,108 (RMB768,000). Upon the request of Xi’an Anpu for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits $0.1 million (RMB843,954) for a period to May 11, 2021. As of September 30, 2020, $92,727 (RMB629,620) was frozen by bank and the Company had accrued the equipment purchase cost of $113,108 (RMB768,000).

 

In May 2020, CBAK Power received notice from Court of Wuqing District, Tianjin that Tianjin Changyuan Electric Material Co., Ltd (“Tianjin Changyuan”) filed lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. The plaintiff sought a total amount of $12,538 (RMB85,136), including material cost of $11,698 (RMB79,429) and interest of $840 (RMB5,707). In July, 2020, upon the request of the plaintiff for property preservation, the Court of Wuqing District, Tianjin ordered to freeze CBAK Power’s bank deposits totaling $12,538 (RMB85,136) for a period of one year. As of September 30, 2020, $12,538 (RMB85,136) was frozen by bank and the Company had accrued the material purchase cost of $12,538 (RMB85,136).

 

18

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

3. Trade Accounts and Bills Receivable, net

 

Trade accounts and bills receivable as of December 31, 2019 and September 30, 2020 consisted of the following:

 

    December 31,     September 30,  
    2019     2020  
Trade accounts receivable   $ 12,517,626     $ 23,664,220  
Less: Allowance for doubtful accounts     (4,650,686 )     (4,834,640 )
      7,866,940       18,829,580  
Bills receivable     85,480       252  
    $ 7,952,420     $ 18,829,832  

 

Included in trade accounts and bills receivables are retention receivables of $2,159,356 and $2,200,583 as of December 31, 2019 and September 30, 2020. Retention receivables are interest-free and recoverable at the end of the retention period of three to five years.

 

An analysis of the allowance for doubtful accounts is as follows:

 

    September 30,     September 30,  
    2019     2020  
Balance at beginning of period   $ 3,657,173     $ 4,650,686  
Provision for the period     735,619       981,241  
Reversal - recoveries by cash     (292,599 )     (917,707 )
Charged to consolidated statements of operations and comprehensive (loss) income     443,020       63,534  
Foreign exchange adjustment     (156,210 )     120,420  
Balance at end of period   $ 3,943,983     $ 4,834,640  

 

4. Inventories

 

Inventories as of December 31, 2019 and September 30, 2020 consisted of the following:

 

    December 31,     September 30,  
    2019     2020  
Raw materials   $ 482,836     $ 408,288  
Work in progress     1,254,490       931,717  
Finished goods     6,929,388       2,279,527  
    $ 8,666,714     $ 3,619,532  

 

During the three months ended September 30, 2019 and 2020, write-downs of inventories to lower of cost or net realizable value of nil and $267,117, respectively, were charged to cost of revenues.

 

During the nine months ended September 30, 2019 and 2020, write-downs of inventories to lower of cost or net realizable value of $557,668 and $724,156, respectively, were charged to cost of revenues.

 

5. Prepayments and Other Receivables

 

Prepayments and other receivables as of December 31, 2019 and September 30, 2020 consisted of the following:

 

    December 31,     September 30,  
    2019     2020  
Value added tax recoverable   $ 4,124,624     $ 3,319,168  
Prepayments to suppliers     60,090       319,056  
Deposits     63,184       42,907  
Staff advances     53,731       69,407  
Prepaid operating expenses     317,151       484,230  
Others     124,133       127,032  
      4,742,913       4,361,800  
Less: Allowance for doubtful accounts     (7,000 )     (7,000 )
    $ 4,735,913     $ 4,354,800  

 

19

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

6.

Payables to Former Subsidiaries, net

 

Payable to former subsidiaries, net as of December 31, 2019 and September 30, 2020 consisted of the following:

 

    December 31,     September 30,  
    2019     2020  
BAK Tianjin   $ -     $ 44,762  
Shenzhen BAK     -       -  
BAK Shenzhen     1,483,352       1,631,571  
    $ 1,483,352     $ 1,676,333  

 

Balance as of December 31, 2019 and September 30, 2020 consisted of payables for purchase of inventories from BAK Tianjin and BAK Shenzhen. From time to time, to meet the needs of its customers, the Company purchased products from these former subsidiaries that it did not produce to meet the needs of its customers.

 

On April 10, 2020, each of Mr. Yunfei Li, Mr. Ping Shen and Asia EVK entered into an agreement with CBAK Power and Shenzhen BAK, whereby Shenzhen BAK assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $1.0 million (RMB7,000,000), $2.3 million (RMB16,000,000) and $1.0 million (RMB7,300,000) (collectively $4.3 million, the “Sixth Debt”) to Mr. Yunfei Li, Mr. Ping Shen and Asia EVK, respectively (see Note 1).

  

7. Property, Plant and Equipment, net

 

Property, plant and equipment as of December 31, 2019 and September 30, 2020 consisted of the following:

 

    December 31,     September 30,  
    2019     2020  
Buildings   $ 27,262,301     $ 27,066,419  
Machinery and equipment     22,719,932       31,481,636  
Office equipment     204,196       212,499  
Motor vehicles     161,980       177,912  
      50,348,409       58,938,466  
Impairment     (4,126,152 )     (4,219,008 )
Accumulated depreciation     (8,044,692 )     (10,074,520 )
Carrying amount   $ 38,177,565     $ 44,644,938  

 

During the three months ended September 30, 2019 and 2020, the Company incurred depreciation expense of $681,089 and $695,950, respectively

 

During the nine months ended September 30, 2019 and 2020, the Company incurred depreciation expense of $2,064,576 and $1,838,357, respectively

 

The Company has not yet obtained the property ownership certificates of the buildings in its Dalian manufacturing facilities with a carrying amount of $24,671,045 and $23,853,446 as of December 31, 2019 and September 30, 2020, respectively. The Company built its facilities on the land for which it had already obtained the related land use right. The Company has submitted applications to the Chinese government for the ownership certificates on the completed buildings located on these lands. However, the application process takes longer than the Company expected and it has not obtained the certificates as of the date of this report. However, since the Company has obtained the land use right in relation to the land, the management believe the Company has legal title to the buildings thereon albeit the lack of ownership certificates.

 

During the course of the Company’s strategic review of its operations, the Company assessed the recoverability of the carrying value of the Company’s property, plant and equipment. The impairment charge, if any, represented the excess of carrying amounts of the Company’s property, plant and equipment over the estimated discounted cash flows expected to be generated by the Company’s production facilities. The Company believes that there was no impairment during the three and nine months ended September 30, 2019 and 2020.

  

20

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

8. Construction in Progress

 

Construction in progress as of December 31, 2019 and September 30, 2020 consisted of the following:

 

    December 31,     September 30,  
    2019     2020  
Construction in progress   $ 21,613,577     $ 15,051,124  
Prepayment for acquisition of property, plant and equipment     94,047       403,101  
Carrying amount   $ 21,707,624     $ 15,454,225  

 

Construction in progress as of December 31, 2019 and September 30, 2020 was mainly comprised of capital expenditures for the construction of the facilities and production lines of CBAK Power.

 

For the three months ended September 30, 2019 and 2020, the Company capitalized interest of $385,850 and $315,177, respectively, to the cost of construction in progress.

 

For the nine months ended September 30, 2019 and 2020, the Company capitalized interest of $1,099,687 and $935,399, respectively, to the cost of construction in progress.

 

9. Right-of-use assets

 

Right-of-use assets as of September 30, 2020 consisted of the followings:

 

    Prepaid land lease payments  
Balance as of January 1, 2020   $ 7,194,195  
Amortization charge for the period     (120,457 )
Foreign exchange adjustment     179,648  
Balance as of September 30, 2020   $ 7,253,386  

 

Lump sum payments were made upfront to acquire the leased land from the owners with lease period for 50 years up to August 9, 2064, and no ongoing payments will be made under the terms of these land leases. 

 

10. Intangible Assets, net

 

Intangible assets as of December 31, 2019 and September 30, 2020 consisted of the followings:

 

    December 31,     September 30,  
    2019     2020  
Computer software at cost   $ 30,648     $ 31,429  
Accumulated amortization     (15,470 )     (19,422 )
    $ 15,178     $ 12,007  

 

Amortization expenses were $1,291 and $870 for the three months ended September 30, 2019 and 2020 and $4,195 and $3,452 for the nine months ended September 30, 2019 and 2020, respectively.

 

21

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

11. Trade Accounts and Bills Payable

 

Trade accounts and bills payable as of December 31, 2019 and September 30, 2020 consisted of the followings:

 

    December 31,     September 30,  
    2019     2020  
Trade accounts payable   $ 11,157,014     $ 12,613,088  
Bills payable                
-      Bank acceptance bills (Notes 12)     3,915,094       6,482,637  
-      Commercial acceptance bills     -       182,388  
    $ 15,072,108     $ 19,278,113  

 

All the bills payable are of trading nature and will mature within six months to one year from the issue date.

 

The bank acceptance bills were pledged by the Company’s bank deposits (Note 2)

 

12. Loans

 

Bank loans:

 

Bank borrowings as of December 31, 2019 and September 30, 2020 consisted of the followings

 

    December 31,     September 30,  
    2019     2020  
Short-term bank loan   $ 5,730,289     $ 5,876,289  
Current maturities of long-term bank loans     10,844,463       20,721,649  
Long-term bank borrowings     9,519,029       -  
    $ 26,093,781     $ 26,597,938  

 

On June 4, 2018, the Company obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB200 million (approximately $29.5 million) with the term from June 12, 2018 to June 10, 2021, bearing interest at 130% of benchmark rate of the People’s Bank of China (“PBOC”) for three-year long-term loans, at current rate 6.175% per annum. The loans are repayable in six installments of RMB0.8 million ($0.12 million) on December 10, 2018, RMB24.3 million ($3.58 million) on June 10, 2019, RMB0.8 million ($0.12 million) on December 10, 2019, RMB74.7 million ($11.0 million) on June 10, 2020, RMB0.8 million ($0.12 million) on December 10, 2020 and RMB66.3 million ($9.8 million) on June 10, 2021. Under the facilities, the Company borrowed RMB140.7 million (approximately $20.7 million) as of September 30, 2020. The facilities were secured by the Company’s land use rights, buildings, machinery and equipment. The Company repaid the bank loan of RMB0.8 million ($0.12 million), RMB24.3 million ($3.58 million), RMB0.8 million ($0.12 million) and RMB1.09 million ($0.16 million) in December 2018, June 2019, December 2019 and June 2020 respectively.

 

On June 28, 2020, the Company entered into a supplemental agreement with China Everbright Bank Dalian Branch to change the repayment schedule. According to the modification agreement, the remaining RMB141.8 million (approximately $20.88 million) loans are repayable in eight instalments consisting of RMB1.09 million ($0.16 million) on June 10, 2020, RMB 1 million ($0.15 million) on December 10, 2020, RMB2 million ($0.29 million) on January 10, 2021, RMB2 million ($0.29 million) on February 10, 2021, RMB2 million ($0.29 million) on March 10, 2021, RMB2 million ($0.29 million) on April 10, 2021, RMB2 million ($0.29 million) on May 10, 2021, and RMB129.7 million ($19.1 million) on June 10, 2021, respectively.

 

22

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

12. Loans (continued)

 

Bank loans: (continued)

   

In August 2018, the Company borrowed a total of RMB60 million (approximately $8.8 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until August 14, 2019, which was secured by the Company’s cash totaled $8.8 million. The Company discounted these two bills payable of even date to China Everbright Bank at a rate of 4.0%. The Company repaid these bills payable in August 2019.

 

On August 22, 2018, the Company obtained one-year term facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB100 million (approximately $14.7 million) including revolving loans, trade finance, notes discount, and acceptance of commercial bills etc. Any amount drawn under the facilities requires security in the form of cash or banking acceptance bills receivables of at least the same amount. The Company borrowed a series of bank acceptance bills totaled RMB28.8 million (approximately $4.24 million) for a term until March 7, 2019. The Company repaid the bank acceptance bills on March 7, 2019.

 

In November 2018, the Company borrowed a total of RMB100 million (approximately $14.7 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until November 12, 2019, which was secured by the Company’s cash totaled RMB50 million (approximately $7.4 million) and the 100% equity in CBAK Power held by BAK Asia. The Company discounted the bills payable of even date to China Everbright Bank at a rate of 4.0%. The Company repaid the bills payable in November 2019.

 

The Company also borrowed a series of acceptance bills from Industrial Bank Co., Ltd. Dalian Branch totaled RMB1.5 million (approximately $0.2 million) for various terms through May 21, 2019, which was secured by bills receivable of RMB1.5 million (approximately $0.2 million). The Company repaid the bank acceptance bills on May 21, 2019.

 

On October 15, 2019, the Company borrowed a total of RMB28 million (approximately $4.12 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until October 15, 2020, which was secured by the Company’s cash totaled RMB28 million (approximately $4.12 million). The Company discounted the bills payable of even date to China Everbright Bank at a rate of 3.3%. The Company repaid the bills on October 15, 2020.

 

In December 2019, the Company obtained banking facilities from China Everbright Bank Dalian Friendship Branch totaled RMB39.9 million (approximately $5.9 million) for a term until November 6, 2020,  bearing interest at 5.655% per annum. The facility was secured by 100% equity in CBAK Power held by BAK Asia and buildings of Hubei BAK Real Estate Co., Ltd., which Mr. Yunfei Li (“Mr. Li”), the Company’s CEO holding 15% equity interest. Under the facilities, the Company borrowed RMB39.9 million (approximately $5.9 million) on December 30, 2019.

 

In May to September 2020, the Company borrowed a series of acceptance bills from China Merchants Bank totaled RMB16.1 million (approximately $2.4 million) for various terms through November 2020 to March 2021, which was secured by the Company’s cash totaled RMB16.1 million (approximately $2.4 million).

 

The facilities were also secured by the Company’s assets with the following carrying amounts:

 

    December 31,     September 30,  
    2019     2020  
Pledged deposits (note 2)   $ 4,021,255     $ 6,488,306  
Right-of-use assets (note 9)     7,194,195       7,253,386  
Buildings     17,683,961       16,855,060  
Machinery and equipment     7,196,810       6,563,940  
    $ 36,096,221     $ 37,160,692  

 

As of September 30, 2020, the Company had unutilized committed facilities from banks and Jilin Province Trust Co., Ltd (see “Other Short-term Loans” below) totaled $7.1 million.

 

During the three months ended September 30, 2019 and 2020, interest of $485,179 and $402,268, respectively, was incurred on the Company’s bank borrowings.

 

During the nine months ended September 30, 2019 and 2020, interest of $1,633,731 and $1,190,629, respectively, was incurred on the Company’s bank borrowings.

 

23

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

12. Loans (continued)

  

Other Short-term Loans

 

Other short-term loans as of December 31, 2019 and September 30, 2020 consisted of the following:

 

        December 31,     September 30,  
    Note   2019     2020  
Advance from related parties                
– Mr. Xiangqian Li, the Company’s Former CEO   (a)     100,000       100,000  
– Mr. Yunfei Li   (b)     212,470       218,943  
– Shareholders   (c)     86,679       88,888  
          399,149       407,831  
Advances from unrelated third party                    
– Mr. Wenwu Yu   (d)     30,135       30,903  
– Mr. Longqian Peng   (d)     646,273       662,739  
– Mr. Shulin Yu.   (e)     517,018       530,191  
– Jilin Province Trust Co. Ltd   (f)     5,687,204       3,564,065  
– Suzhou Zhengyuanwei Needle Ce Co., Ltd   (g)     71,808       73,638  
          6,952,438       4,861,536  
        $ 7,351,587     $ 5,269,367  

  

  (a) Advances from Mr. Xiangqian Li, the Company’s former CEO, was unsecured, non-interest bearing and repayable on demand.
     
  (b) Advances from Mr. Yunfei Li, the Company’s CEO, was unsecured, non-interest bearing and repayable on demand.

 

  (c)

The earnest money paid by certain shareholders in relation to share purchase (note 1) were unsecured, non-interest bearing and repayable on demand.

 

In 2019, according to the investment agreements and agreed by the investors, the Company returned earnest money of $949,317 (approximately RMB6.7 million) to these investors.

 

24

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

12. Loans (continued)

 

Other Short-term Loans (continued)

 

 

On October 14, 2019, the Company entered into a cancellation agreement with Mr. Shangdong Liu, Ms. Lijuan Wang and Mr. Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Ms. Lijuan Wang and Mr. Ping Shen agreed to convert the earnest money in exchange for 528,053, 528,053 and 528,053 shares of common stock of the Company, respectively, at an exchange price of $0.6 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the earnest money. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

 

As of September 30, 2020, earnest money of $88,888 remained outstanding.

 

     
  (d) Advances from unrelated third parties were unsecured, non-interest bearing and repayable on demand.
     
  (e) On June 25, 2019, the Company entered into a loan agreement with Mr. Shulin Yu, an unrelated party, to loan RMB3.6 million (approximately $0.5 million) for a term of one year, bearing annual interest of 10% which was guaranteed by Mr. Yunfei Li (the Company’s CEO) and Mr. Wenwu Wang (the Company’s former CFO). On June 22, 2020, the Company and Mr. Shulin Yu entered into a supplemental agreement to extend the loan for one year to June 24, 2021. As of September 30, 2020, the Company borrowed RMB3.6 million (approximately $0.5 million).
     
  (f)

In January 2019, the Company obtained one-year term facilities from Jilin Province Trust Co. Ltd. with a maximum amount of RMB40.0 million (approximately $5.9 million), which was secured by land use rights and buildings of Eodos Liga Energy Co., Ltd. Under the facilities, the Company borrowed a total of RMB39.6 million ($5.7 million) in 2019, bearing annual interest from 11.3% to 11.6%. The Company fully repaid the loan principal and accrued interest in March 2020.

 

In March 2020, the Company obtained additional one-year term facilities from Jilin Province Trust Co. Ltd with a maximum amount of RMB40.0 million (approximately $5.9 million), which was secured by land use rights and buildings of Eodos Liga Energy Co., Ltd. Under the facilities, the Company borrowed RMB24.2 million ($3.6 million) on March 13, 2020, bearing annual interest of 13.5%.

     
  (g) In 2019, the Company entered into a short term loan agreement with Suzhou Zhengyuanwei Needle Ce Co., Ltd, an unrelated party to loan RMB0.6 million (approximately $0.1 million), bearing annual interest rate of 12%. As of September 30, 2020, loan amount of RMB0.5 million ($73,638) remained outstanding.

 

13. Accrued Expenses and Other Payables

 

Accrued expenses and other payables as of December 31, 2019 and September 30, 2020 consisted of the following:

 

    December 31,     September 30,  
    2019     2020  
Construction costs payable (note 1)   $ 1,335,483     $ 278,618  
Equipment purchase payable     7,440,131       7,229,540  
Liquidated damages (note a)     1,210,119       1,210,119  
Accrued staff costs     2,485,384       1,826,855  
Compensation costs     109,311       -  
Customer deposits     600,758       680,915  
Other payables and accruals (note 16)     2,346,403       2,735,292  
    $ 15,527,589     $ 13,961,339  

 

  (a) On August 15, 2006, the SEC declared effective a post-effective amendment that the Company had filed on August 4, 2006, terminating the effectiveness of a resale registration statement on Form SB-2 that had been filed pursuant to a registration rights agreement with certain shareholders to register the resale of shares held by those shareholders. The Company subsequently filed Form S-1 for these shareholders. On December 8, 2006, the Company filed its Annual Report on Form 10-K for the year ended September 30, 2006 (the “2006 Form 10-K”). After the filing of the 2006 Form 10-K, the Company’s previously filed registration statement on Form S-1 was no longer available for resale by the selling shareholders whose shares were included in such Form S-1. Under the registration rights agreement, those selling shareholders became eligible for liquidated damages from the Company relating to the above two events totaling approximately $1,051,000. As of December 31, 2019 and September 30, 2020, no liquidated damages relating to both events have been paid.

 

25

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

13. Accrued Expenses and Other Payables (continued)

 

    On November 9, 2007, the Company completed a private placement for the gross proceeds to the Company of $13,650,000 by selling 3,500,000 shares of common stock at the price of $3.90 per share. Roth Capital Partners, LLC acted as the Company’s exclusive financial advisor and placement agent in connection with the private placement and received a cash fee of $819,000. The Company may have become liable for liquidated damages to certain shareholders whose shares were included in a resale registration statement on Form S-3 that the Company filed pursuant to a registration rights agreement that the Company entered into with such shareholders in November 2007. Under the registration rights agreement, among other things, if a registration statement filed pursuant thereto was not declared effective by the SEC by the 100th calendar day after the closing of the Company’s private placement on November 9, 2007, or the “Effectiveness Deadline”, then the Company would be liable to pay partial liquidated damages to each such investor of (a) 1.5% of the aggregate purchase price paid by such investor for the shares it purchased on the one month anniversary of the Effectiveness Deadline; (b) an additional 1.5% of the aggregate purchase price paid by such investor every thirtieth day thereafter (pro rated for periods totaling less than thirty days) until the earliest of the effectiveness of the registration statement, the ten-month anniversary of the Effectiveness Deadline and the time that the Company is no longer required to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations; and (c) 0.5% of the aggregate purchase price paid by such investor for the shares it purchased in the Company’s November 2007 private placement on each of the following dates: the ten-month anniversary of the Effectiveness Deadline and every thirtieth day thereafter (prorated for periods totaling less than thirty days), until the earlier of the effectiveness of the registration statement and the time that the Company no longer is required to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations. Such liquidated damages would bear interest at the rate of 1% per month (prorated for partial months) until paid in full.
     
    On December 21, 2007, pursuant to the registration rights agreement, the Company filed a registration statement on Form S-3, which was declared effective by the SEC on May 7, 2008. As a result, the Company estimated liquidated damages amounting to $561,174 for the November 2007 registration rights agreement. As of December 31, 2019 and September 30, 2020, the Company had settled the liquidated damages with all the investors and the remaining provision of approximately $1,210,119 was included in other payables and accruals.

 

14. Deferred Government Grants

 

Deferred government grants as of December 31, 2019 and September 30, 2020 consist of the following:

 

    December 31,     September 30,  
    2019     2020  
Total government grants   $ 4,260,833     $ 7,205,668  
Less: Current portion     (142,026 )     (3,091,153 )
Non-current portion   $ 4,118,807     $ 4,114,515  

 

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 the three and nine months ended September 30, 2019 and 2020.

 

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 $35,219 and $35,713 for the three months ended September 30, 2019 and 2020 and $108,094 and $106,020 for the nine months ended September 30, 2019 and 2020, respectively, against depreciation expenses of the Dalian facilities.

 

On June 23, 2020, BAK Asia, the Company wholly-owned Hong Kong subsidiary, entered into a framework investment agreement with Jiangsu Gaochun Economic Development Zone Development Group Company (“Gaochun EDZ”), pursuant to which the Company intended to develop certain lithium battery projects that aim to have a production capacity of 8Gwh. Gaochun EDZ agreed to provide various support to facilitate the development and operation of the projects. As of the date of this report, the Company received RMB20 million (approximately $2.9 million) subsidy from Gaochun EDZ.

  

26

 

  

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

15. Product Warranty Provision

 

The Company maintains a policy of providing after sales support for certain of its new EV and LEV battery products introduced since October 1, 2015 by way of a warranty program. The limited cover covers a period of six to twelve months for battery cells, a period of twelve to twenty seven months for battery modules for light electric vehicles (LEV) such as electric bicycles, and a period of three years to eight years (or 120,000 or 200,000 km if reached sooner) for battery modules for electric vehicles (EV). The Company accrues an estimate of its exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability at least annually and adjusts the amounts as necessary.

 

  16. Notes payable

 

Notes payable as of December 31, 2019 and September 30, 2020 consist of the following:

 

    December 31,     September 30,  
    2019     2020  
Notes payable, net of debt discount   $ 2,846,736     $ 1,614,583  

 

Note I

 

On July 24, 2019, the Company entered into a securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note I”) to the Lender. The Note has an original principal amount of $1,395,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,250,000 after an original issue discount of $125,000 and payment of Lender’s expenses of $20,000. Beginning on the date that is six months after July 24, 2019, Lender shall have the right, exercisable at any time in its sole and absolute discretion, to redeem any amount of this Note up to $250,000.00 per calendar month by providing written notice to Borrower.

 

The Company recorded the $125,000 as debt discount and is being amortized as interest expense over 12 months period. The Company did not assign any value to the redemption feature of the Note because the redemption of the Note has no value on the redemption portion as of September 30, 2020.

 

27

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

16. Notes payable (continued)

 

On January 27, 2020, the Company entered into an exchange agreement (the “First Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 160,256 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On February 20, 2020, the Company entered into a second exchange agreement (the “Second Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 207,641 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On April 28, 2020, the Company entered into a third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On June 8, 2020, the Company entered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On June 10, 2020, the Company entered into a fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 407,609 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On July 6, 2020, the Company entered into a Sixth exchange agreement (the “Sixth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 461,595 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On July 29, 2020, the Company entered into a Seventh exchange agreement (the “Seventh Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $365,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 576,802 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On October 12, 2020, the Company entered into an amendment to Promissory Notes (the “Amendment”) with Atlas Sciences, LLC (the Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding the foregoing, in no event will the Conversion Price be less than $1.00.

 

28

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

16. Notes payable (continued)

 

According to the amendment, on October 13, 2020, the Company exchanged $371,275 in principal and coupon interests under the Note I for the issuance of 229,750 shares of the Company’s common stock, par value $0.001 per share to the Lender. As of the date of this report, the Company has fully repaid the principal and coupon interests of Note I.

 

The Company recorded $23,630 and $26,371 to interest expense from the amortization of debt discount and coupon interest, respectively, for the three and nine months ended September 30, 2019.

 

The Company recorded $5,903 and $9,235 to interest expense from the amortization of debt discount and coupon interest for Note I, respectively, for the three months ended September 30, 2020.

 

The Company recorded $69,097 and $68,497 to interest expense from the amortization of debt discount and coupon interest for Note I, respectively, for the nine months ended September 30, 2020.

 

As of December 31, 2019 and September 30, 2020, accrued coupon interest of $62,387 and $130,884 on the Note I was included in other payables and accruals (note 13), respectively. 

 

Note II

 

On December 30, 2019, the Company entered into a securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note II”) to the Lender. The Note has an original principal amount of $1,670,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,500,000 after an original issue discount of $150,000 and payment of Lender’s expenses of $20,000. Beginning on the date that is six months after June 30, 2020, Lender shall have the right, exercisable at any time in its sole and absolute discretion, to redeem any amount of this Note up to $250,000.00 per calendar month by providing written notice to Borrower. The Company recorded the $150,000 as debt discount and is being amortized as interest expense over 12 months period. The Company did not assign any value to the redemption feature of the Note because the redemption of the Note has no value on the redemption portion as of December 31, 2019 and September 30, 2020.

 

On July 8, 2020, the Company entered into a First exchange agreement for Note II (the “First Exchange Agreement- Note II”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on December 30, 2019, which has an original principal amount of $1,670,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 453,161 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On October 12, 2020, the Company entered into an amendment to Promissory Notes (the “Amendment”) with Atlas Sciences, LLC (the Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding the foregoing, in no event will the Conversion Price be less than $1.00.

 

According to the amendment, on October 13, 2020, the Company exchanged $775,000 in principal under the Note II for the issuance of 479,579 shares of the Company’s common stock, par value $0.001 per share to the Lender, On October 20, 2020, the Company exchanged additional $778,252 in principal and coupon interests under Note II for the issuance of 329,768 shares of the Company’s common stock, par value $0.001 per share to the Lender, As of the date of this report, the Company has fully repaid the principal and coupon interests of Note II.

 

The Company recorded $38,333 and $35,847 to interest expense from the amortization of debt discount and coupon interest for Note II, respectively, for the three months ended September 30, 2020.

 

The Company recorded $113,750 and $119,811 to interest expense from the amortization of debt discount and coupon interest for Note II, respectively, for the nine months ended September 30, 2020.

 

As of December 31, 2019 and September 30, 2020, accrued coupon interest of $597 and $120,408 on the Note II was included in other payables and accruals (note 13), respectively.

 

29

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

  17. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

 

  (a) Income taxes in the condensed consolidated statements of comprehensive loss (income)

 

The Company’s provision for income taxes expenses consisted of:

 

      Three months ended
September 30,
      Nine months ended
September 30,
 
      2019       2020       2019       2020  
PRC income tax:                                
Current   $ -     $ -     $ -     $ -  
Deferred     -       -       -       -  
    $ -     $ -     $ -     $ -  

 

United States Tax

 

CBAK is a Nevada corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump sum.

  

30

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

17. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued)

 

  (a) Income taxes in the condensed consolidated statements of comprehensive loss (income) (continued)

 

The U.S. Tax Reform also includes provisions for a new tax on GILTI effective for tax years of foreign corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations.

 

The Company’s management is still evaluating the effect of the U.S. Tax Reform on CBAK. Management may update its judgment of that effect based on its continuing evaluation and on future regulations or guidance issued by the U.S. Department of the Treasury, and specific actions the Company may take in the future.

 

To the extent that portions of CBAK’s U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that CBAK receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations, CBAK will generally not be required to pay U.S. corporate income tax on those dividends. Any liabilities for U.S. corporate income tax will be accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments will be made when required by U.S. law.

 

No provision for income taxes in the United States or elsewhere has been made as CBAK had no taxable income for the three and nine months ended September 30, 2019 and 2020.

 

Hong Kong Tax

 

The Company’s subsidiaries in Hong Kong are subject to Hong Kong profits tax rate of 16.5% and did not have any assessable profits arising in or derived from Hong Kong for the three and nine months ended September 30, 2019 and 2020 and accordingly no provision for Hong Kong profits tax was made in these periods.

 

PRC Tax

 

The Company’s subsidiaries in China are subject to enterprise income tax at 25% for the three months and nine months ended September 30, 2019 and 2020.

 

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
September 30,
    Nine months ended
September 30,
 
    2019     2020     2019     2020  
Income (Loss) before income taxes   $ (1,787,068 )   $ 41,715     $ (6,928,575 )   $ (3,510,563 )
United States federal corporate income tax rate     21 %     21 %     21 %     21 %
Income tax (credit) expenses computed at United States statutory corporate income tax rate     (375,285 )      8,760       (1,455,001 )     (737,218 )
Reconciling items:                                
Rate differential for PRC earnings     (42,412 )     15,480       (228,917 )     (79,959 )
Non-deductible expenses     69,240       38,529       162,110       187,432  
Share based payments     83,190       33,973       90,885       129,333  
Valuation allowance on deferred tax assets     265,267       (96,742 )     1,430,923       500,412  
Income tax expenses   $ -     $ -     $ -     $ -  

  

31

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

17. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued)

 

  (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, 2019 and September 30, 2020 are presented below:

 

    December 31,     September 30,  
    2019     2020  
Deferred tax assets            
Trade accounts receivable   $ 1,225,916     $ 1,263,658  
Inventories     1,026,483       476,490  
Property, plant and equipment     768,975       418,043  
Provision for product warranty     561,733       551,844  
Net operating loss carried forward     29,361,274       30,734,758  
Valuation allowance     (32,944,381 )     (33,444,793 )
Deferred tax assets, non-current   $ -     $ -  
                 
Deferred tax liabilities, non-current   $ -     $ -  

 

As of December 31, 2019 and September 30, 2020, the Company’s U.S. entity had net operating loss carry forwards of $103,580,741, of which $102,293 available to reduce future taxable income which will expire in various years through 2035 and $103,478,448 available to offset capital gains recognized in the succeeding 5 tax years and the Company’s PRC subsidiaries had net operating loss carry forwards of $30,437,270 and $35,931,211, respectively, which will expire in various years through 2023 to 2029. Management believes it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.

 

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.

 

The impact of an uncertain income tax positions on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.

 

The significant uncertain tax position arose from the subsidies granted by the local government for the Company’s PRC subsidiary, which may be modified or challenged by the central government or the tax authority. A reconciliation of January 1, 2020 through September 30, 2020 amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) is as follows:

 

    Gross UTB     Surcharge     Net UTB  
Balance as of January 1, 2020   $ 7,042,582     $        -     $ 7,042,582  
Increase in unrecognized tax benefits taken in current period     179,436       -       179,436  
Balance as of September 30, 2020   $ 7,222,018     $ -     $ 7,222,018  

 

As of December 31, 2019 and September 30, 2020, the Company had not accrued any interest and penalties related to unrecognized tax benefits.

  

32

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

18. Share-based Compensation

 

Restricted Shares

 

Restricted shares granted on June 30, 2015

 

On June 12, 2015, the Board of Director approved the CBAK Energy Technology, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) for Employees, Directors and Consultants of the Company and its Affiliates. The maximum aggregate number of Shares that may be issued under the Plan is ten million (10,000,000) Shares.

 

On June 30, 2015, pursuant to the 2015 Plan, the Compensation Committee of the Company’s Board of Directors granted an aggregate of 690,000 restricted shares of the Company’s common stock, par value $0.001, to certain employees, officers and directors of the Company with a fair value of $3.24 per share on June 30, 2015. In accordance with the vesting schedule of the grant, the restricted shares will vest in twelve equal quarterly installments on the last day of each fiscal quarter beginning on June 30, 2015 (i.e. last vesting period: quarter ended March 31, 2018). The Company recognizes the share-based compensation expenses on a graded-vesting method.

 

All the restricted shares granted in respect of the restricted shares granted on June 30, 2015 has been vested on March 31, 2018.

 

As of September 30, 2020, there was no unrecognized stock-based compensation associated with the above restricted shares. As of September 30, 2020, 1,667 vested shares were to be issued.

  

33

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

18. Share-based Compensation (continued)

 

Restricted Shares (continued)

 

Restricted shares granted on April 19, 2016

 

On April 19, 2016, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee granted an aggregate of 500,000 restricted shares of the Company’s common stock to certain employees, officers and directors of the Company, of which 220,000 restricted shares were granted to the Company’s executive officers and directors. There are three types of vesting schedules. First, if the number of restricted shares granted is below 3,000, the shares will vest annually in 2 equal installments over a two year period with the first vesting on June 30, 2017. Second, if the number of restricted shares granted is larger than or equal to 3,000 and 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 nil and $36,641 for the three and nine months ended September 30, 2019, in respect of the restricted shares granted on April 19, 2016, respectively.

 

No such non-cash share-based compensation expense was recognized for the three and nine months ended September 30, 2020, in respect of the restricted shares granted on April 19, 2016.

 

As of September 30, 2020, there was no unrecognized stock-based compensation associated with the above restricted shares and 4,167 vested shares were to be issued.

   

34

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

  

18. Share-based Compensation (continued)

 

Restricted Shares (continued)

 

Restricted shares granted on August 23, 2019

 

On August 23, 2019, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee granted an aggregate of 1,887,000 restricted share units of the Company’s common stock to certain employees, officers and directors of the Company, of which 710,000 restricted share units were granted to the Company’s executive officers and directors. There are two types of vesting schedules, (i) the share units will vest semi-annually in 6 equal installments over a three year period with the first vesting on September 30, 2019; (ii) the share units will vest annual in 3 equal installments over a three year period with the first vesting on March 31, 2021. The fair value of these restricted shares was $0.9 per share on August 23, 2019. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting method.

 

The Company recorded non-cash share-based compensation expense of $396,144 for the three and nine months ended September 30, 2019, in respect of the restricted shares granted on August 23, 2019.

 

The Company recorded non-cash share-based compensation expense of $161,775 and $615,871 for the three and nine months ended September 30, 2020, respectively, in respect of the restricted shares granted on August 23, 2020, respectively.

 

As of September 30, 2020, non-vested restricted share units granted on August 23, 2019 are as follows:

 

Non-vested share units as of January 1, 2020     1,505,833  
Granted     -  
Vested     (571,996 )
Forfeited     (78,333 )
Non-vested share units as of September 30, 2020     855,504  

 

As of September 30, 2020, there was unrecognized stock-based compensation $348,957 associated with the above restricted share units. As of September 30, 2020, 278,498 vested shares were to be issued.

 

As the Company itself is an investment holding company which is not expected to generate operating profits to realize the tax benefits arising from its net operating loss carried forward, no income tax benefits were recognized for such stock-based compensation cost under the stock option plan for the three and nine months ended September 30, 2020.

  

35

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

19. Income (Loss) Per Share

 

The following is the calculation of income (loss) per share:

 

    Three months ended
September 30,
    Nine months ended
September 30,
 
    2019     2020     2019     2020  
Net income (loss)   $ (1,787,068 )   $ 41,715     $ (6,928,575 )   $ (3,510,563 )
Less: Net loss (income) attributable to non-controlling interests     14,446       2,532       51,177       (2,386 )
Net (loss) income attributable to shareholders of CBAK Energy Technology, Inc.     (1,772,622 )     44,247       (6,877,398 )     (3,512,949 )
                                 
Weighted average shares outstanding – basic (note)     42,262,408       64,909,894       35,508,896       59,569,498  
Dilutive unvested restricted stock     -       490,164       -       -  
Weighted average shares outstanding – diluted     42,262,408      

65,400,058

      35,508,896      

59,569,498

 
                                 
Income (loss) per share of common stock                                
Basic   $ (0.04 )   $ 0.00     $ (0.19 )   $ (0.06 )
Diluted   $ (0.04 )   $ 0.00     $ (0.19 )   $ (0.06 )

 

  Note: Including 307,000 vested restricted shares granted pursuant to the 2015 Plan that were not yet issued for the three and nine months ended September 30, 2019; and 284,332 vested restricted shares granted pursuant to the 2015 Plan that were not yet issued for the three and nine months ended September 30, 2020.

 

For the three and nine months ended September 30, 2019, 1,580,000 unvested restricted shares were anti-dilutive and excluded from shares used in the diluted computation.

 

For the nine months ended September 30, 2020, 855,504 unvested restricted shares were anti-dilutive and excluded from shares used in the diluted computation.

 

20. Fair Value of Financial Instruments

 

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
     
  Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
     
  Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, pledged deposits, trade accounts and bills receivable and payable, other receivables, balances with former subsidiaries, other short-term loans, short-term and long-term bank loans and other payables approximate their fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market rate of interest.

  

36

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

21. Commitments and Contingencies

 

  (i) Capital Commitments

 

As of December 31, 2019 and September 30, 2020, the Company had the following contracted capital commitments:

 

    December 31,   September 30,
    2019   2020
For construction of buildings   $ 3,397,961     $ 1,799,705  
For purchases of equipment     -       348,346  
Capital injection     83,900,000       285,657,784  
    $ 87,297,961     $ 287,805,835  

 

  (ii) Litigation 

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Other than the legal proceeding set forth below, the Company is currently not aware of any such legal proceedings or claims that the Company believe will have an adverse effect on our business, financial condition or operating results.

 

On July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’ Court of Zhuanghe City, Dalian, (the “Court of Zhuanghe”) for the failure to pay pursuant to the terms of the contract and entrusting part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,241,648 (RMB8,430,792), including construction costs of $0.9 million (RMB6.1 million, which the Company already accrued for at June 30, 2016), interest of $29,455 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million). On September 7, 2016, upon the request of Shenzhen Huijie for property preservation, the Court of Zhuanghe froze CBAK Power’s bank deposits totaling $1,241,648 (RMB8,430,792) for a period of one year. On September 1, 2017, upon the request of Shenzhen Huijie, the Court of Zhuanghe froze the bank deposits for another one year until August 31, 2018. The Court further froze the bank deposits for another one year until August 27, 2019 upon the request of Shenzhen Huijie on August 27, 2018. On August 27, 2019, the Court froze the bank deposits for another year until August 27, 2020, upon the request of Shenzhen Huijie. On June 28, 2020, the Court of Dalian entered the final judgement as described below and the frozen bank deposit was released in July 2020.

 

37

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

21. Commitments and Contingencies (continued)

 

  (ii) Litigation (continued) 

 

On June 30, 2017, according to the trial of first instance, the Court of Zhuanghe ruled that CBAK Power should pay the remaining contract amount of RMB6,135,860 (approximately $0.9 million) claimed by Shenzhen Huijie as well as other expenses incurred including deferred interest, discounted charge on bills payable, litigation fee and property preservation fee totaled $0.1 million. The Company has accrued for these amounts as of December 31, 2017. On July 24, 2017, CBAK Power filed an appellate petition to the Intermediate Peoples’ Court of Dalian (“Court of Dalian)” to appeal the adjudication dated on June 30, 2017. On November 17, 2017, the Court of Dalian rescinded the original judgement and remanded the case to the Court of Zhuanghe for retrial. The Court of Zhuanghe conducted a retrial and requested an appraisal to be performed by a third-party appraisal institution on the construction cost incurred and completed by Shenzhen Huijie on the subject project. On November 8, 2018, the Company received from the Court of Zhuanghe the construction-cost-appraisal report which determined that the construction cost incurred and completed by Shenzhen Huijie for the subject project to be $1,344,605 (RMB9,129,868). On May 20, 2019, the Court of Zhuanghe entered a judgment that Shenzhen Huijie should pay back to CBAK Power $261,316 (RMB1,774,337) (the amount CBAK Power paid in excess of the construction cost appraised by the appraisal institution) and the interest incurred since April 2, 2019. Shenzhen Huijie filed an appellate petition to the Court of Dalian. On June 28, 2020, the Court of Dalian entered the final judgment that Shenzhen Huijie should pay back to CBAK Power $245,530 (RMB1,667,146) (the amount CBAK Power paid in excess of the construction cost appraised by the appraisal institution) and the interest incurred since April 2, 2019, and reimburse the litigation fees totaling $30,826 (RMB209,312) that CBAK Power has paid. As of September 30, 2020, the Company did not received the final judgement amount totaled $276,356 from Shenzhen Huijie.

 

In May 2017, CBAK Power filed a lawsuit in the Court of Zhuanghe against Pingxiang Anyuan Tourism Bus Manufacturing Co., Ltd., (“Anyuan Bus”) one of CBAK Power’s customers, for failure to pay pursuant to the terms of the sales contract. CBAK Power sought a total amount of RMB18,279,858 ($2,692,173), including goods amount of RMB17,428,000 ($2,566,716) and interest of RMB851,858 ($125,458). On December 19, 2017, the Court of Zhuanghe determined that Anyuan Bus should pay the goods amount of RMB17,428,000 ($2,566,716) and the interest until the goods amount was paid off, and a litigation fee of RMB131,480 ($19,364). Anyuan Bus did not appeal and as a result, the judgment is currently in the enforcement phase. On June 29, 2018, the Company filed application petition with the Court of Zhuanghe for enforcement of the judgement against all of Anyuan Bus’s shareholders, including Jiangxi Zhixin Automobile Co., Ltd, Anyuan Bus Manufacturing Co., Ltd, Anyuan Coal Group Co., Ltd, Qian Ronghua, Qian Bo and Li Junfu. On October 22, 2018, the Court of Zhuanghe issued a judgment supporting the Company’s petition that all the Anyuan Bus’s shareholders should be liable to pay the Company the debt as confirmed under the trial. On November 9, 2018, all the shareholders of Anyuan Bus appealed against the judgment after receiving the notice from the Court. On March 29, 2019, the Company received judgment from the Court of Zhuanghe that all these six shareholders cannot be added as judgment debtors. On April 11, 2019, the Company filed appellate petition to the Intermediate Peoples’ Court of Dalian challenging the judgment from the Court of Zhuanghe. On October 9, 2019, the Intermediate Peoples’ Court of Dalian dismissed the appeal by the Company and affirmed the original judgment. As of December 31, 2019 and September 30, 2020, the Company had made a full provision against the receivable from Anyuan Bus of RMB 17,428,000 ($2,566,716).

 

On July 25, 2019, CBAK Power received notice from Shenzhen Court of International Arbitration that Shenzhen Xinjiatuo Automobile Technology Co., Ltd filed arbitration against the Company for the failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.16 million (RMB1,112,269), including equipment cost of $0.14 million (RMB976,000) and interest of $0.02 million (RMB136,269).

 

On August 9, 2019, upon the request of Shenzhen Xinjiatuo Automobile Technology Co., Ltd, Shenzhen Court of International Arbitration froze CBAK Power’s bank deposits totaling $0.16 million (RMB1,117,269), including equipment cost $0.14 million (RMB976,000), interest $0.02 million (RMB136,269) and litigation fees of $736 (RMB5,000) for a period of one year to August 2020. The Company believe that the plaintiff’s claims are without merit and are vigorously defending ourselves in this proceeding.

 

On August 7, 2019, CBAK Power filed counter claim arbitration against Shenzhen Xinjiatuo Automobile Technology Co., Ltd for return of the prepayment due to the unqualified equipment, and sought a total amount of $0.29 million (RMB1,986,400), including return of prepayment of $0.2 million (RMB1,440,000), liquidated damages of $70,692 (RMB480,000) and litigation fees of $9,785 (RMB66,440). In early July 2020, Shenzhen Court of International Arbitration made arbitration award dismissing the plaintiff’s claim and CBAK Power’s counterclaim and the frozen bank deposits were released in early August 2020.

 

38

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

21. Commitments and Contingencies (continued)

 

  (ii) Litigation (continued) 

 

In November 2019, CBAK Suzhou received notice from Court of Suzhou city that Suzhou Industrial Park Security Service Co., Ltd (“Suzhou Security”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $20,576 (RMB139,713), including services expenses amount of $20,458 (RMB138,908) and interest of $119 (RMB805). Upon the request of Suzhou Security for property preservation, the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB150,000) for a period of one year. As of September 30, 2020, $4,857 (RMB32,980) was frozen by bank and the Company had accrued the service cost of $20,576 (RMB139,713).

 

In early September of 2019, several employees of CBAK Suzhou filed arbitration with Suzhou Industrial Park Labor Disputes Arbitration Commission against CBAK Suzhou for failure to pay their salaries in time. The employees seek for a payment including salaries of $94,015 (RMB638,359) and compensation of $79,971 (RMB543,000), totaling $0.17 million (RMB1,181,359). In addition, upon the request of the employees for property preservation, bank deposit of $0.17 million (RMB1,181,359) was frozen by the court of Suzhou for a period of one year. On September 5, 2019, CBAK Suzhou and the employees reached an agreement that CBAK Suzhou will pay these salaries and compensation. In February 2020, the Company fully repaid the salaries and compensation. As of September 30, 2020, $6 (RMB43) was frozen by bank.

 

In October 2019, CBAK Power received notice from Court of Zhuanghe City that Hunan Zhongke Xingcheng Co., Ltd (“Hunan Zhongke”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Hunan Zhongke sought a total amount of $148,074 (RMB1,005,425). In 2020, CBAK Power has settled $36,819 (RMB250,000). Upon the request of Hunan Zhongke for property preservation, the Court of Zhuanghe City ordered to freeze CBAK Power’s bank deposits totaling $0.1 million (RMB768,876) for a period of one year to September 2021. As of September 30, 2020, the Company had accrued the material purchase cost of $11,255 (RMB755,425) and nil was frozen by bank.

 

In October 2019, CBAK Power received notice from Court of Changshou District, Chongqing that Chongqing Zhongrun Chemistry Co., Ltd (“Chongqing Zhongrun”) filed arbitration against the Company for the failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.4 million (RMB2,484,948), including material cost of $0.4 million (RMB2,397,660) and interest of $12,855 (RMB87,288). On October 31, 2019, CBAK Power and Chongqing Zhongrun reached an agreement that CBAK Power would pay the material cost by the end of December 31, 2019. In 2020, CBAK Power had settled $190,515 (RMB1,293,600). As of September 30, 2020, the Company has accrued the remaining material purchase cost of $0.16 million (RMB1,104,060). In August 2020, upon the request of Chongqing Zhongrun for property preservation, the Court of Changshou District ordered to freeze CBAK Power’s bank deposits totaling $0.2 million (RMB1,249,836) for a period of one year to August 2021. As of September 30, 2020, nil was frozen by bank.

 

In December 2019, CBAK Power received notice from Court of Zhuanghe that Dalian Construction Electrical Installation Engineering Co., Ltd. (“Dalian Construction”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the construction contract. Dalian Construction sought a total amount of $101,780 (RMB691,086) and interest $1,905 (RMB12,934). As of December 31, 2019, the Company has accrued the construction cost of $101,780 (RMB691,086). Upon the request of Dalian Construction for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $103,685 (RMB704,020) for a period of one year to December 2020. As of December 31, 2019, $97,384 (RMB661,240) was frozen by bank. In January 2020, CBAK Power and Dalian Construction have come to a settlement, and the bank deposit was then released. CBAK Power has settled all the construction cost and related interests as of September 30, 2020.

 

In February 2020, CBAK Power received notice from Court of Zhuanghe that Dongguan Shanshan Battery Material Co., Ltd (“Dongguan Shanshan”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Dongguan Shanshan sought a total amount of $0.6 million (RMB4,434,209), which have already been accrued for as of September 30, 2020. Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.6 million (RMB4,434,209) for a period of one year to December 17, 2020. In July 2020, CBAK Power and Dongguan Shanshan have come to a settlement amount of $0.5 million (RMB3,635,192) and the bank deposit was then released. In October 2020, CBAK Power fail to pay according to the settlement, Dongguan Shanshan sought a total amount of $0.5 million (RMB3,635,192). Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe  ordered to freeze CBAK Power’s bank deposits totaling $0.5 million (RMB3,365,192) for a period of one year to October 21, 2021.

 

39

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

21. Commitments and Contingencies (continued)

 

  (ii) Litigation (continued) 

 

On March 20, 2020, CBAK Power received notice from Court of Nanpi County, Hebei Province that Cangzhou Huibang Engineering Manufacturing Co., Ltd (“Cangzhou Huibang”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.3 million (RMB2,029,594), including materials purchase cost of $0.3 million (RMB1,932,947), and interest of $14,234 (RMB96,647). As of September 30, 2020, the Company has accrued materials purchase cost of $0.3 million (RMB1,932,947). Upon the request of Cangzhou Huibang for property preservation, the Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $0.4 million (RMB2,650,000) for a period of one year to March 3, 2020. As of September 30, 2020, $3,280 (RMB22,270) was frozen by bank.

 

In April 2020, CBAK Power received notice from Court of Nanshan District of Shenzhen that Shenzhen Klclear Technology Co., Ltd. (“Shenzhen Klclear”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the materials purchase contract. Shenzhen Klclear  sought a total amount of $1 million (RMB6,250,764), which the Company had already accrued for as of September 30, 2020.

 

In May 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Tianjin Changxing Metal Co., Ltd (“Tianjin Changxing”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Tianjin Changxing sought a total amount of $28,511 (RMB193,588). On August 24, 2020, upon the request of Tianjin Changxing for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits totaling $31,648 (RMB214,892) for a period of one year. As of September 30, 2020, $1,691 (RMB11,479) was frozen by bank and the Company had accrued the material purchase cost of $28,511 (RMB193,588).

 

In May 2020, CBAK Power received notice from Court of Wuqing District, Tianjin that Tianjin Changyuan Electric Material Co., Ltd (“Tianjin Changyuan”) filed lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. The plaintiff sought a total amount of $12,538 (RMB85,136), including material cost of $11,698 (RMB79,429) and interest of $840 (RMB5,707). In July, 2020, upon the request of the plaintiff for property preservation, the Court of Wuqing District, Tianjin ordered to freeze CBAK Power’s bank deposits totaling $12,538 (RMB85,136) for a period of one year. As of September 30, 2020, $12,538 (RMB85,136) was frozen by bank and the Company had accrued the material purchase cost of $12,538 (RMB85,136).

 

In June 2020, CBAK Suzhou received notice from Court of Suzhou Industrial Park that Ligao (Shandong) New Energy Technology Co., Ltd (“Ligao”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the purchase contract. Ligao  sought a total amount of $11,384 (RMB77,599), including contract amount of $10,807 (RMB73,380) and interest of $621 (RMB4,219). As of September 30, 2020, the Company had accrued the material purchase cost of $10,807 (RMB73,380).

 

In June 2020, CBAK Suzhou received notice from Court of Yushui District, Xinyu City that Jiangxi Ganfeng Battery Technology Co., Ltd (“Ganfeng Battery”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the purchase contract. Ganfeng Battery sought a total amount of $111,308 (RMB755,780), including contract amount of $107,954 (RMB733,009) and interest of $3,354 (RMB22,771). Upon the request of Ganfeng Battery for property preservation, the Court of Yushui froze CBAK Suzhou’s bank deposits totaling $113,401 (RMB769,994) for a period of one year. As of September 30, 2020, nil was frozen by bank and CBAK Suzhou had accrued the material purchase cost of $107,954 (RMB733,009).

 

40

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

21. Commitments and Contingencies (continued)

 

  (ii) Litigation (continued) 

 

In June 2020, CBAK Suzhou received notice from Court of Suzhou Industrial Park that Suzhou Jihongkai Machine Equipment Co., Ltd (“Jihongkai”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the purchase contract. Jihongkai  sought contract amount of $25,880 (RMB175,722) and interest as accrued until settlement. As of September 30, 2020, the Company had accrued the material purchase cost of $25,880 (RMB175,722).

 

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Nanjing Jinlong Chemical Co., Ltd. (“Nanjing Jinlong”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Nanjing Jinlong sought a total amount of $121,060 (RMB822,000). Upon the request of Nanjing Jinlong for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits totaling $121,060 (RMB822,000) for a period of one year. As of September 30, 2020, $16 (RMB107) was frozen by bank and the Company had accrued the material purchase cost of $121,060 (RMB822,000).

 

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Xi’an Anpu New Energy Technology Co. LTD (“Xi’an Anpu”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the equipment purchase contract. Xi’an Anpu sought a total amount of 124,294 (RMB843,954), including RMB768,000 for equipment cost and RMB75,954 for liquidated damages). Upon the request of Xi’an Anpu for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits $0.1 million (RMB843,954) for a period to May 11, 2022. As of September 30, 2020, $97,727 (RMB629,620) was frozen by bank and the Company had accrued the equipment purchase cost of $113,108 (RMB768,000).

 

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Shenzhen Gd Laser Technology Co., Ltd. (“Shenzhen Gd”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Shenzhen Gd sought a total amount of $23,762 (RMB161,346), including equipment cost of $22,091 (RMB150,000) and interest amount of $1,671 (RMB11,346).

 

41

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

22. Concentrations and Credit Risk

 

  (a) Concentrations

 

The Company had the following customers that individually comprised 10% or more of net revenue for the three months ended September 30, 2019 and 2020 as follows:

 

    Three months ended
September 30,
 
    2019     2020  
Sales of finished goods and raw materials                        
Customer A   $ 2,118,783       26.19 %   $ 1,588,192       14.95 %
Customer B     2,264,415       27.99 %      *        
Customer C       *       *       1,278,893       12.04 %
Zhengzhou BAK Battery Co., Ltd (note a)     1,941,101       23.99 %     4,269,312       40.2 %
Zhengzhou BAK New Energy Technology Co., Ltd (note b)     *       * %     1,896,207       17.85 %

 

  * Comprised less than 10% of net revenue for the respective period.

 

The Company had the following customers that individually comprised 10% or more of net revenue for the nine months ended September 30, 2019 and 2020 as follows:

 

    Nine months ended
September 30,
 
    2019     2020  
Sales of finished goods and raw materials                        
Customer A   $ 5,994,110       34.19 %   $ 5,793,828       26.16 %
Customer B     3,330,675       19.00 %     *       *  
Customer C     *       *       2,908,728       13.13 %
Customer D     *       *       3,787,585       17.10 %
Zhengzhou BAK Battery Co., Ltd (note a)     1,941,101       11.07 %     4,269,312       19.28  

 

  * 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 (net) as of December 31, 2019 and September 30, 2020 as follows:

 

    December 31,
2019
    September 30,
2020
 
Customer A   $ 1,725,293       21.93 %   $ 2,087,657       11.09 %
Customer B     1,713,628       21.78 %     *       *  
Customer D     *       *       4,373,326       23.23 %
Customer E     902,309       11.47 %     *       *  
Customer F     830,821       10.56 %     *       *  
Zhengzhou BAK New Energy Technology Co., Ltd (note b)     *       *       2,103,771       11.17 %
Zhengzhou BAK Battery Co., Ltd (note a)     *       *       4,970,545       26.40 %

 

  * Comprised less than 10% of account receivable (net) for the respective period.

 

42

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

22. Concentrations and Credit Risk (continued)

 

  (a) Concentrations (continued)

 

 The Company had the following suppliers that individually comprised 10% or more of net purchase for the three months ended September 30, 2019 and 2020 as follows:

 

    Three months ended September 30,  
    2019     2020  
Supplier A   $ 1,949,106       22.67 %   $ *       *  
Supplier B     *       *       4,329,602       72.65 %
Zhengzhou BAK New Energy Vehicle Co., Ltd (note b)     3,838,213       44.64 %     *       *  

 

The Company had the following suppliers that individually comprised 10% or more of net purchase for the nine months ended September 30, 2019 and 2020 as follows:

 

    Nine months ended September 30,  
    2019     2020  
Supplier A   $ 2,940,420       20.43 %   $ *       *  
Supplier B     *       *       4,329,602       36.47 %
Shenzhen BAK (note c)     *       *       3,841,680       32.35 %
Zhengzhou BAK New Energy Vehicle Co., Ltd (note b)     3,838,213       26.67     *       *  

 

  * Comprised less than 10% of net purchase for the respective period.

 

The Company had the following suppliers that individually comprised 10% or more of accounts payable as of December 31, 2019 and September 30, 2020 as follows:

 

    December 31, 2019     September 30, 2020  
Supplier B     *       *       4,798,233       38.04 %
Supplier C   $ 1,126,582       10.10 %   $ *       *  

 

Apart from the above, for the three and nine months ended September 30, 2019 and 2020, the Company recorded the following transactions:

 

    Three months ended
September 30,
    Nine months ended
September 30,
 
    2019     2020     2019     2020  
Purchase of inventories from                        
BAK Shenzhen (note c)   $ -     $     $ 65,102     $  
                                 
Sales of finished goods and raw materials to                                
BAK Shenzhen (note c)     -             769,052        
Zhengzhou BAK New Energy Technology Co., Ltd (note b)            1,896,207              1,896,207   

 

  Notes:  
  a Mr. Xiangqian Li, the Company’s former CEO, is a director of Zhengzhou BAK Battery Co., Ltd.
  b Mr. Xiangqian Li, is a director of Zhengzhou BAK New Energy Vehicle Co., Ltd, which has 29% equity interests in Zhengzhou BAK New Energy Technology Co., Ltd
  c Mr. Xiangqian Li is a director of BAK Shenzhen and Shenzhen BAK

 

43

 

 

CBAK Energy Technology, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three and nine months ended September 30, 2019 and 2020
(Unaudited)
(In US$ except for number of shares)

 

22. Concentrations and Credit Risk (continued)

 

  (b) Credit Risk

 

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and pledged deposits. As of December 31, 2019 and September 30, 2020, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.

 

For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.

 

23. Segment Information

 

The Company used to engage in one business segment, the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion rechargeable batteries for use in a wide array of applications. The Company manufactured five types of Li-ion rechargeable batteries: aluminum-case cell, battery pack, cylindrical cell, lithium polymer cell and high-power lithium battery cell. The Company’s products are sold to packing plants operated by third parties primarily for use in mobile phones and other electronic devices.

 

After the disposal of BAK International and its subsidiaries (see Note 1), the Company focused on producing high-power lithium battery cells. Net revenues for the three and nine months ended September 30, 2019 and 2020 were as follows:

 

Net revenues by product:

 

    Three months ended
September 30,
    Nine months ended
September 30,
 
    2019     2020     2019     2020  
High power lithium batteries used in:                        
Electric vehicles   $ 2,885,305     $ 407,802     $ 4,425,875     $ 741,657  
Light electric vehicles     -       22,859       -       26,203  
Uninterruptable supplies     5,204,499       5,920,683       13,106,540       17,109,005  
      8,089,804       6,351,344       17,532,415       17,876,865  
Raw materials used in lithium batteries     -       4,269,312       -       4,269,312  
Total   $ 8,089,804     $ 10,620,656     $ 17,532,415     $ 22,146,177  

 

Net revenues by geographic area:

 

    Three months ended
September 30,
    Nine months ended
September 30,
 
    2019     2020     2019     2020  
Mainland China   $ 8,016,931     $ 10,007,044     $ 17,034,593     $ 21,243,763  
USA     (3,638 )     -       219,827       -  
Europe     -       506,606       -       770,406  
PRC Taiwan     (7 )     -       445       -  
Israel     (1,980 )     -       119,698       -  
Others     78,498       107,006       157,852       132,008  
Total   $ 8,089,804     $ 10,620,656     $ 17,532,415     $ 22,146,177  

 

Substantially all of the Company’s long-lived assets are located in the PRC.

 

44

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.

 

Special Note Regarding Forward Looking Statements

 

Statements contained in this report include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A, “Risk Factors” described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

 

Use of Terms

 

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

 

  “Company”, “we”, “us” and “our” are to the combined business of CBAK Energy Technology, Inc., a Nevada corporation, and its consolidated subsidiaries;

 

  “BAK Asia” are to our Hong Kong subsidiary, China BAK Asia Holdings Limited;

 

  “CBAK Trading” are to our PRC subsidiary, Dalian CBAK Trading Co., Ltd.;

 

  “CBAK Power” are to our PRC subsidiary, Dalian CBAK Power Battery Co., Ltd;

 

  “CBAK Suzhou” are to our PRC subsidiary, CBAK New Energy (Suzhou) Co., Ltd;

 

  “CBAK Energy” are to our PRC subsidiary, Dalian CBAK Energy Technology Co., Ltd.

 

  “BAK Investments” are to our Hong Kong subsidiary, BAK Asia Investments Limited;

 

  “CBAK Nanjing” are to our PRC subsidiary, CBAK New Energy (Nanjing) Co., Ltd;

 

  “Nanjing CBAK” are to our PRC subsidiary, Nanjing CBAK New Energy Technology Co., Ltd.

 

  “Nanjing Daxin” are to our PRC subsidiary, Nanjing Daxin New Energy Automobile Industry Co., Ltd.
     
  “China” and “PRC” are to the People’s Republic of China;

 

  “RMB” are to Renminbi, the legal currency of China;

 

  “U.S. dollar”, “$” and “US$” are to the legal currency of the United States;

 

  “SEC” are to the United States Securities and Exchange Commission;

 

  “Securities Act” are to the Securities Act of 1933, as amended; and

 

  “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

 

45

 

 

Overview

 

We are 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 acquired 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. For now, we have equipped with complete production equipment which can fulfil most of our customers’ needs.

 

We currently conduct our business through (i) three wholly-owned operating subsidiaries in China that we own through BAK Asia, an investment holding company formed under the laws of Hong Kong on July 9, 2013; (ii) one wholly-owned operating subsidiary in China that we own through BAK Investments, an investment holding company formed under the laws of Hong Kong that we acquired on July 14, 2020; (iii) CBAK Suzhou, a 90% owned subsidiary of CBAK Power, one of our wholly-owned PRC operating subsidiaries; (iv) Nanjing CBAK, a 100% owned subsidiary of CBAK Nanjing, one of our wholly-owned PRC operating subsidiaries; and (v) Nanjing Daxin, a 100% owned subsidiary of CBAK Nanjing, one of our wholly-owned PRC operating subsidiaries:

 

  CBAK Trading, wholly-owned by BAK Asia, located in Dalian, China, incorporated on August 14, 2013, focuses on the wholesale of lithium batteries and lithium batteries’ materials, import & export business and related technology consulting service.
     
  CBAK Power, wholly-owned by BAK Asia, located in Dalian, China, incorporated on December 27, 2013, focuses on the development and manufacture of high-power lithium batteries.
     
  CBAK Suzhou, 90% owned by CBAK Power, located in Suzhou, China, incorporated on May 4, 2018, focuses on the development and manufacture of new energy high power battery packs.
     
 

CBAK Energy, wholly-owned by BAK Asia, located in Dalian, China, incorporated on November 21, 2019, focuses on the development and manufacture of lithium batteries, wholesale of lithium batteries and lithium batteries’ materials, import & export business and related technology consulting service. 

     
  CBAK Nanjing, wholly-owned by BAK Investments located in Nanjing, China, incorporated on July 31, 2020, focuses on the development and manufacture of lithium batteries, wholesale of lithium batteries and lithium batteries’ materials, import & export business and related technology consulting service. 
     
  Nanjing CBAK, wholly owned by CBAK Nanjing, located in Nanjing, China, incorporated on August 6, 2020, focuses on the development and manufacture of lithium batteries, wholesale of lithium batteries and lithium batteries’ materials, import & export business and related technology consulting service. 
     
  Nanjing Daxin, wholly-owned by CBAK Nanjing, incorporated on November 9, 2020, has not commenced operations.

 

We generated revenues of $10.6 million and $8.1 million for the three months ended September 30, 2020 and 2019, respectively. We had a net profit of $41,715 and a net loss of $1.8 million in the three months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $179.7 million and net assets of $17.0 million. We had a working capital deficiency and accumulated deficit from recurring net losses and short-term debt obligations maturing in less than one year as of September 30, 2020.

 

Due to the growing environmental pollution problem, the Chinese government has been providing support to the development of new energy facilities and vehicles. However, the Chinese government has significantly reduced the amount of subsidies available to electric vehicle makers over the years and this trend continues for the next three years. Given the changing market environment, we plan to continue to focus our resources on the existing cylindrical batteries for UPS market, temporarily reduce the investment on R&D of new products for electric vehicle market and cut down the production of EV batteries. We believe that with the booming market demand in high power lithium ion products, we can continue as a going concern and return to profitability.

 

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Although the COVID-19 pandemic has caused disruptions to our operations, so far it has had limited adverse impacts on our operating results, and our revenue grew by $4.6 million, or 26% for the nine months ended September 30, 2020, compared to the same period of 2019, and our gross profit grew by $1.5 million, or 694% for the nine months ended September 30, 2020 compared to the same period of 2019.

 

Recent Developments

 

New Investment

 

On June 23, 2020, BAK Asia, our wholly-owned Hong Kong subsidiary, entered into a framework investment agreement with Jiangsu Gaochun Economic Development Zone Development Group Company (“Gaochun EDZ”), pursuant to which we intend to develop certain lithium battery projects that aim to have a production capacity of 8Gwh. Gaochun EDZ agreed to provide various support to facilitate the development and operation of the projects. As of the date of this report, we have received RMB20 million (approximately $2.9 million) subsidy from Gaochun EDZ. On September 24, 2020, BAK Investments, our wholly-owned Hong Kong subsidiary, entered into another framework investment agreement with Gaochun EDZ, under which we intend to develop light electric vehicle projects.

 

Financing Activities

 

The following developments in our financing activities should be read in conjunction with the “Liquidity and Capital Resources” section below, which provides the context and history of these events.

 

On October 12, 2020, we entered into an amendment to promissory notes (the “Amendment”) with Atlas Sciences, LLC (the Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding the foregoing, in no event will the Conversion Price be less than $1.00.

 

According to the Amendment, on October 13, 2020, we exchanged $371,275 principal and coupon interests under the Note I (as defined below) and $775,000 in principal under the Note II (as defined below) for the issuance of 229,750 shares and 479,579 shares of the Company’s common stock to the Lender, respectively. Also, on October 20, 2020, we exchanged additional $778,252 in principal and coupon interests under the Note II for the issuance of 329,768 shares of the Company’s common stock to the Lender. As of the date of this report, the Company has fully repaid the principal and coupon interests of Note I and Note II.

 

New Subsidiaries

 

On July 14, 2020, we acquired BAK Asia Investments Limited, a company incorporated under Hong Kong laws, from Xiangqian Li, our former CEO, for a cash consideration of HK$1.00. BAK Asia Investments Limited is a holding company without any business operations. On July 31, 2020, BAK Asia Investments Limited formed CBAK New Energy (Nanjing) Co., Ltd., or CBAK Nanjing in China, which in turn formed Nanjing CBAK New Energy Technology Co., Ltd., or Nanjing CBAK and Nanjing Daxin New Energy Automobile Industry Co., Ltd., or Nanjing Daxin. in China on August 6, 2020 and November 9, 2020, respectively. CBAK Nanjing, Nanjing CBAK and Nanjing Daxin were established to expand our business of developing, manufacturing and selling new energy high power lithium batteries as well as light electric vehicles.  As of the date of this report, Nanjing CBAK and Nanjing Daxin have yet to commence business operations as of the date of this report. 

 

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Financial Performance Highlights for the Quarter Ended September 30, 2020

 

The following are some financial highlights for the quarter ended September 30, 2020:

 

  Net revenues: Net revenues increased by $2.5 million, or 31%, to $10.6 million for the three months ended September 30, 2020, from $8.1 million for the same period in 2019.
     
  Gross profit: Gross profit was $1.4 million, representing an increase of $0.7 million, for the three months ended September 30, 2020, from gross profit of $0.7 million for the same period in 2019.
     
  Operating profit (loss): Operating profit was $0.4 million for the three months ended September 30, 2020, reflecting an increase of $1.9 million from an operating loss of $1.5 million for the same period in 2019.
     
  Net profit (loss): Net profit was $41,715 for the three months ended September 30, 2020, compared to a net loss of $1.8 million for the same period in 2019.
     
  Fully diluted income per share: Fully diluted income per share was $0.0007 for the three months ended September 30, 2020, as compared to fully diluted loss per share of $0.04 for the same period in 2019.

 

Financial Statement Presentation

 

Net revenues. The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

 

Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.

 

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.

 

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the categories: discounts and returns. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company’s customer.

 

Cost of revenues. Cost of revenues consists primarily of material costs, employee remuneration for staff engaged in production activity, share-based compensation, depreciation and related expenses that are directly attributable to the production of products. Cost of revenues also includes write-downs of inventory to lower of cost and net realizable value.

 

Research and development expenses. Research and development expenses primarily consist of remuneration for R&D staff, share-based compensation, depreciation and maintenance expenses relating to R&D equipment, and R&D material costs.

 

Sales and marketing expenses. Sales and marketing expenses consist primarily of remuneration for staff involved in selling and marketing efforts, including staff engaged in the packaging of goods for shipment, 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, benefits, general office expenses, depreciation, liquidated damage charges and bad debt expenses.

 

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Finance expense, 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 PRC (Hong Kong), the entity had not paid any such tax.

 

Results of Operations

 

Comparison of Three Months Ended September 30, 2019 and 2020

 

The following tables set forth key components of our results of operations for the periods indicated.

 

(All amounts, other than percentages, in thousands of U.S. dollars)

 

    Three Months ended
September 30,
    Change  
    2019     2020     $     %  
Net revenues   $ 8,089     $ 10,620       2,531       31  
Cost of revenues     (7,430 )     (9,246 )     (1,816 )     (24 )
Gross profit     659       1,374       715       108  
Operating expenses:                                
Research and development expenses     (478 )     (446 )     32       7  
Sales and marketing expenses     (279 )     (158 )     121       43  
General and administrative expenses     (1,283 )     (741 )     542       42  
(Provision for) recovery of doubtful accounts     (119 )     364       483       406  
Total operating expenses     (2,159 )     (981 )     1,178       55  
Operating profit (loss)     (1,500 )     393       1,893       126  
Finance expenses, net     (324 )     (358 )     (34 )     (10 )
Other income, net     37       6       (31 )     (84 )
Income (Loss) before income tax     (1,787 )     41       1,828       102  
Income tax expenses     -       -       -       -  
Net income (loss)     (1,787 )     41       1,828       102  
Less: Net loss attributable to non-controlling interests     14       3       (11 )     (79 )
Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc.   $ (1,773 )   $ 44       1,817       102  

 

Net revenues. Net revenues were $10.6 million for the three months ended September 30, 2020, as compared to $8.1 million for the same period in 2019, representing an increase of $2.5 million, or 31%.

 

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The following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries.

 

(All amounts in thousands of U.S. dollars other than percentages)

 

    Three months ended
September 30,
    Change  
    2019     2020     $     %  
High power lithium batteries used in:                        
Electric vehicles   $ 2,885     $ 408       (2,477 )     (86 )
Light electric vehicles     -       23       23       -  
Uninterruptable supplies     5,204       5,920       716       14  
    $ 8,089     $ 6,351       (1,738 )        
Raw materials used in lithium batteries     -       4,269       4,269       -  
Total   $ 8,089     $ 10,620       2,531       31  

 

Net revenues from sales of batteries for electric vehicles were $0.4 million for the three months ended September 30, 2020 as compared to $2.9 million in the same period of 2019, representing a decrease of $2.5  million, or 86%.

 

Our revenues have been adversely impacted by the reduction of government subsidy for new energy vehicles. Pursuant to the “Notice on further completing the Policy of Financial Subsidy for the Promotion and Application of New Energy Vehicles” (Notice 2019), jointly released by the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology and the National Development and Reform Commission of the PRC on March 26, 2019, new subsidy standards have been implemented for new energy vehicles sold in China after June 25, 2019. As a result, new energy vehicles will receive different subsidies based on their driving range and technical performance. New energy vehicles providing long driving range and high technical performance will get higher subsidies. We believe the above policies will in long term encourage the production of new energy vehicles, optimize the structure of the new energy vehicles industry, enhance technical standards of the industry and strengthen its core competitiveness, and ultimately foster strategic development of the new energy vehicles.

 

Net revenues from sales of batteries for uninterruptable power supplies was $5.9 million for the three months ended September 30, 2020, as compared with $5.2 million in the same period in 2019, representing an increase of $0.7 million, or 14%. As we continued to focus more on this market, sale of batteries for uninterruptable power supplies increased significantly.

 

Net revenues from sales of raw materials used in lithium batteries were $4.3 million for the three months ended September 30, 2020, as compared with nil in the same period in 2019, representing an increase of $4.3 million. We obtained favorable prices on bulk purchase of raw materials from certain suppliers, and generated gross profit in the three months ended September 30, 2020.

 

Cost of revenues. Cost of revenues was $9.2 million for the three months ended September 30, 2020, as compared with $7.4 million in the same period in 2019. Included in cost of revenues was write-down of obsolete inventories of $0.3 million for three months ended September 30, 2020, while write-down of obsolete inventories was nil for the same period in 2019. We write down the inventory value whenever there is an indication that it is impaired.  However, further write-down may be necessary if market conditions continue to deteriorate.

 

Gross profit. Gross profit for the three months ended September 30, 2020 was $1.4 million, or 13% of net revenues, as compared to $0.7 million, or 8% of net revenues for the same period in 2019. With our sustained efforts, the quality passing rate of our product has improved through cost control and enhancement on production lines. As a result, we recorded a higher gross profit for the three months ended September 30, 2020 as compared with the same period in 2019.

 

Research and development expenses. Research and development expenses decreased to $0.4 million for the three months ended September 30, 2020, as compared to $0.5 million for the same period in 2019, a decrease of $0.1 million, or 7%.

 

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Sales and marketing expenses. Sales and marketing expenses decreased to $0.2 million for the three months ended September 30, 2020, as compared to approximately $0.3 million for the same period in 2019, a decrease of approximately $0.1 million, or 43%. Our managers have implemented a new control policy over the sales and marketing expenses, which reduced travel and transportation expenses.

 

General and administrative expenses. General and administrative expenses decreased to $0.7 million for the three months ended September 30, 2020, as compared to approximately $1.3 million for the same period in 2019, a decrease of approximately $0.5 million, or 42%. The decrease was primarily resulted from the decrease of salaries and social insurance, as a result of the Chinese government’s social security relief for enterprises, in response to COVID-19. We also continued to tighten cost control in order to improve profitability.

 

Provision for (recovery of) doubtful accounts. Recovery of doubtful accounts was $0.4 million for the three months ended September 30, 2020, as compared to a provision for doubtful accounts of $0.1 million for the same period in 2019. We determine the allowance based on historical write-off experience, customer specific facts and economic conditions. We have recovered $0.4 million of cash from customers for the three months ended September 30, 2020.

 

Operating profit (loss). As a result of the above, our operating profit totaled $0.4 million for the three months ended September 30, 2020, as compared to an operating loss of $1.5 million for the same period in 2019, representing an increase in operating profit of $1.9 million, or 126%.

 

Finance expenses, net. Finance expenses, net consist primarily of interest on bank and other loans, net of capitalized interest and interest income. Interest expenses increased slightly from $324,522 in the third quarter of 2019 to $357,739 in the same quarter of 2020 as a result of our higher average loan balances in 2020. 

 

Other income: Other income was $5,873 for the three months ended September 30, 2020, as compared to other income of approximately $37,503 for the same period 2019.

 

Income tax. Income tax was nil for both three months ended September 30, 2020 and 2019. 

 

Net income (loss). As a result of the foregoing, we had a net income of $41,715 for the three months ended September 30, 2020, compared to a net loss of $1.8 million for the same period in 2019.

 

Comparison of Nine Months Ended September 30, 2019 and 2020

 

The following tables set forth key components of our results of operations for the periods indicated.

 

(All amounts, other than percentages, in thousands of U.S. dollars)

 

    Nine Months ended
September 30,
    Change  
    2019     2020     $     %  
Net revenues   $ 17,532     $ 22,146       4,614       26  
Cost of revenues     (17,322 )     (20,478 )     (3,156 )     (18 )
Gross profit     210       1,668       1,458       694  
Operating expenses:                                
Research and development expenses     (1,425 )     (1,130 )     295       21  
Sales and marketing expenses     (906 )     (352 )     554       61  
General and administrative expenses     (3,541 )     (2,614 )     927       26  
Provision for doubtful accounts     (443 )     (64 )     379       86  
Total operating expenses     (6,315 )     (4,160 )     2,155       34  
Operating loss     (6,105 )     (2,492 )     3,613       59  
Finance expenses, net     (973 )     (1,171 )     (198 )     (20 )
Other income, net     149       152       3       2  
Loss before income tax     (6,929 )     (3,511 )     3,418       49  
Income tax expenses     -       -       -       -  
Net loss     (6,929 )     (3,511 )     3,418       49  
Less: Net loss (profit) attributable to non-controlling interests     51       (2 )     (53 )     (104 )
Net loss attributable to shareholders of CBAK Energy Technology, Inc.     (6,878 )     (3,513 )     3,365       49  

 

Net revenues. Net revenues were $22.1 million for the nine months ended September 30, 2020, as compared to $17.5 million for the same period in 2019, representing an increase of $4.6 million, or 26%.

 

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The following table sets forth the breakdown of our net revenues by end-product applications derived from high-power lithium batteries.

 

(All amounts in thousands of U.S. dollars other than percentages)

 

    Nine months ended
September 30,
    Change  
    2019     2020     $     %  
High power lithium batteries used in:                        
Electric vehicles   $ 4,426     $ 742       (3,684 )     (83 )
Light electric vehicles     -       26       26       -  
Uninterruptable supplies     13,106       17,109       4,003       31  
      17,532       17,877       345       2  

Raw materials used in lithium batteries

    -       4,269       4,269       -  
Total   $ 17,532     $ 22,146       4,614       26  

 

Net revenues from sales of batteries for electric vehicles was $0.1 million for the nine months ended September 30, 2020 as compared to $4.4 million in the same period of 2019, representing a decrease of $3.7 million, or 83%.

Our revenues have been adversely impacted by the reduction of government subsidy for new energy vehicles. Pursuant to the “Notice on further completing the Policy of Financial Subsidy for the Promotion and Application of New Energy Vehicles” (Notice 2019), jointly released by the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology and the National Development and Reform Commission of the PRC on March 26, 2019, new subsidy standards have been implemented for new energy vehicles sold in China after June 25, 2019. As a result, new energy vehicles will receive different subsidies based on their driving range and technical performance. New energy vehicles providing long driving range and high technical performance will get higher subsidies. We believe the above policies will in long term encourage the production of new energy vehicles, optimize the structure of the new energy vehicles industry, enhance technical standards of the industry and strengthen its core competitiveness, and ultimately foster strategic development of the new energy vehicles.

 

Net revenues from sales of batteries for uninterruptable power supplies was $17.1 million in the nine months ended September 30, 2020, as compared with $13.1 million in the same period in 2019, representing an increase of $4.0 million, or 31%. As we continued to focus more on this market, sale of batteries for uninterruptable power supplies increased significantly.

 

Net revenues from sales of raw materials used in lithium batteries were $4.3 million for the nine months ended September 30, 2020.  We obtained favorable prices from certain suppliers, and we generated gross profit in the nine months ended September 30, 2020. We may continue to have material sales if we can get gross profit in this market.

 

Cost of revenues. Cost of revenues increased to $20.5 million for the nine months ended September 30, 2020, as compared to $17.3 million for the same period in 2019, an increase of $3.2 million, or 18%. Cost of revenues included write-down of obsolete inventories of $0.7 million for nine months ended September 30, 2020, as compared to $0.6 million for the same period in 2019. We write down the inventory value whenever there is an indication that it is impaired.  However, further write-down may be necessary if market conditions continue to deteriorate.

 

Gross profit. Gross profit for the nine months ended September 30, 2020 was $1.7 million, or 7.5% of net revenues as compared to $0.2 million, or 1.2% of net revenues, for the same period in 2019, representing an increase in gross profit of $1.5 million. With our sustained effort, the quality passing rate of our product has improved through cost control and enhancement works on production lines. As a result, we recorded a higher gross profit for the nine months ended September 30, 2020.

 

Research and development expenses. Research and development expenses decreased to approximately $1.1 million for the nine months ended September 30, 2020, as compared to approximately $1.4 million for the same period in 2019, a decrease of $0.3 million, or 21%. The decrease was primarily resulted from the decrease of salaries and social insurance expenses by approximately $0.3 million due to the suspension of our operations in the first quarter of 2020 and the Chinese government’s social security relief for enterprises, in response to COVID-19. 

 

Sales and marketing expenses. Sales and marketing expenses were $0.4 million for the nine months ended September 30, 2020, as compared to $0.9 million for the same period in 2019, a decrease of $0.5 million, or 61%. As a percentage of revenues, sales and marketing expenses were 1.6% and 5.2% for the nine months ended September 30, 2020 and 2019, respectively. The decrease was resulted from the decrease of salaries and social insurance expenses by approximately $0.2 million due to the suspension of our operations in the first quarter of 2020 and the Chinese government’s social security relief for enterprises, in response to COVID-19 and decrease of $0.2 million in product certification expenses.

 

General and administrative expenses. General and administrative expenses decreased to $2.6 million for the nine months ended September 30, 2020, as compared to $3.5 million for the same period in 2019, representing a decrease of $0.9 million, or 26%. The decrease was primarily resulted from the decrease of salaries and social insurance expenses by approximately $0.6 million due to the suspension of our operations in the first quarter of 2020 and the Chinese government’s social security relief for enterprises, in response to COVID-19. We also continued to tighten cost control in order to improve profitability, we achieved a decrease of $0.2 million expenses for the nine months ended September 30, 2020.

 

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Provision for doubtful accounts. Provision for doubtful accounts was $63,534 for the nine months ended September 30, 2020, as compared to $0.4 million for the same period in 2019. We determine the allowance based on historical write-off experience, customer specific facts and economic conditions.

 

Operating loss. As a result of the above, our operating loss totaled $2.5 million for the nine months ended September 30, 2020, as compared to $6.1 million for the same period in 2019, representing a decrease of $3.6 million, or 59%.

 

Finance expenses, net. Finance expenses, net consist primarily of interest on bank and other loans, net of capitalized interest and interest income. Finance expenses increased to $1.2 million for the nine months ended September 30, 2020, as compared to approximately $1 million for the same period last year, an increase of $0.2 million, or 20%. Interest expenses increased as a result of our higher average loan balances.  

 

Other income. Other income was $152,171 for the nine months ended September 30, 2020, as compared to approximately $149,358 for the same period 2019.

 

Income tax. Income tax was nil for the nine months ended September 30, 2020 and 2019.

 

Net loss. As a result of the foregoing, we had a net loss of $3.5 million for the nine months ended September 30, 2020, compared to $6.9 million for the same period in 2019.

 

Liquidity and Capital Resources

 

We have financed our liquidity requirements from short-term bank loans, other short-term loans and bills payable under bank credit agreements, advances from our related and unrelated parties, investors and issuance of capital stock.

 

We incurred a net loss of $3.5 million for the nine months ended September 30, 2020. As of September 30, 2020, we had cash and cash equivalents of $7.9 million. Our total current assets were $34.7 million and our total current liabilities were $71.5 million, resulting in a net working capital deficiency of $36.8 million. These factors raise substantial doubts about our ability to continue as a going concern.

 

We have obtained banking facilities from various local banks in China. On June 4, 2018, we obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB200 million (approximately $29.5 million) with the term from June 12, 2018 to June 10, 2021, bearing interest at 130% of benchmark rate of the People’s Bank of China (“PBOC”) for three-year long-term loans, at current rate 6.175% per annum. The loans are repayable in six installments of RMB0.8 million ($0.12 million) on December 10, 2018, RMB24.3 million ($3.58 million) on June 10, 2019, RMB0.8 million ($0.12 million) on December 10, 2019, RMB74.7 million ($11.0 million) on June 10, 2020, RMB0.8 million ($0.12 million) on December 10, 2020 and RMB66.3 million ($9.8 million) on June 10, 2021.

 

On June 28, 2020, we entered into a supplemental agreement with China Everbright Bank Dalian Branch to change the repayment schedule. According to the modification agreement, the remaining RMB141.8 million (approximately $20.88 million) loans are repayable in eight instalments of RMB1.09 million ($0.16 million) on June 10, 2020, RMB 1 million ($0.15 million) on December 10, 2020, RMB2 million ($0.29 million) on January 10, 2021, RMB2 million ($0.29 million) on February 10, 2021, RMB2 million ($0.29 million) on March 10, 2021, RMB2 million ($0.29 million) on April 10, 2021, RMB2 million ($0.29 million) on May 10, 2021, RMB129.7 million ($19.1 million) on June 10, 2021, respectively.

 

Under the facilities with China Everbright Bank Dalian Branch, we borrowed RMB140.7 million (approximately $20.7 million) as of September 30, 2020. The facilities were secured by our land use rights, buildings, machinery and equipment. We repaid the bank loan of RMB0.8 million ($0.12 million), RMB24.3 million ($3.58 million), RMB0.8 ($0.12 million) and RMB1.09 million ($0.16 million) in December 2018, June 2019, December 2019 and June 2020, respectively.

 

In October 2019, we borrowed a total of RMB28 million (approximately $4.12 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until October 15, 2020, which was secured by the Company’s cash totaled RMB28 million (approximately $4.12 million). We discounted these bills payable of even date to China Everbright Bank at a rate of 3.30%. We repaid the bills in October, 2020.

 

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In December 2019, we obtained banking facilities from China Everbright Bank Dalian Friendship Branch totaled RMB39.9 million (approximately $5.9 million) for a term until November 6, 2020, bearing interest at 5.655% per annum. The facility was secured by 100% equity in CBAK Power held by BAK Asia and buildings of Hubei BAK Real Estate Co., Ltd., which our CEO Mr. Yunfei Li holds 15% equity interest. Under the facilities, the Company borrowed RMB39.9 million (approximately $5.9 million) on December 30, 2019.

 

From May to September 2020, we borrowed a series of acceptance bills from China Merchants Bank totaled RMB16.1 million (approximately $2.4 million) for various terms through November 2020 to March 2021, which was secured by the Company’s cash totaled RMB16.1 million (approximately $2.4 million).

 

In January 2019, we obtained one-year term facilities from Jilin Province Trust Co. Ltd. with a maximum amount of RMB40.0 million (approximately $5.9 million), which was secured by land use rights and buildings of Eodos Liga Energy Co., Ltd. Under the facilities, we borrowed a total of RMB39.6 million ($5.7 million) in 2019, bearing annual interest from 11.3% to 11.6%. We fully repaid the loan principal and accrued interest in March 2020.

 

In March 2020, we obtained additional one-year term facilities from Jilin Province Trust Co. Ltd. with a maximum amount of RMB40.0 million (approximately $5.9 million), which was secured by land use rights and buildings of Eodos Liga Energy Co., Ltd. Under the facilities, we borrowed RMB24.2 million ($3.6 million) on March 13, 2020, bearing annual interest of 13.5%.

 

As of September 30, 2020, we had unutilized committed banking facilities of $7.1 million. We plan to renew these loans upon maturity and intend to raise additional funds through bank borrowings in the future to meet our daily cash demands, if required.

 

In addition, we have obtained funds through private placements and equity financings.

 

On January 7, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $3.5 million (RMB23,980,950) and $1.7 million (RMB11,647,890) (totaled $5.2 million, the “First Debt”) to Mr. Dawei Li and Mr. Yunfei Li, respectively.

 

On January 7, 2019, we entered into a cancellation agreement with Mr. Dawei Li and Mr. Yunfei Li. Pursuant to the terms of the cancellation agreement, Mr. Dawei Li and Mr. Yunfei Li agreed to cancel the First Debt in exchange for 3,431,373 and 1,666,667 shares of common stock of the Company, respectively at an exchange price of $1.02 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the First Debt.

 

On April 26, 2019, each of Mr. Jun Lang, Ms. Jing Shi and Asia EVK Energy Auto Limited (Asia EVK) entered into an agreement with CBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans to CBAK Power of approximately $0.3 million (RMB2,225,082), $0.1 million (RMB 912,204) and $5.3 million (RMB35,406,036) (collectively $5.7 million, the “Second Debt”) to Mr. Jun Lang, Ms. Jing Shi and Asia EVK, respectively.

 

On April 26, 2019, we entered into a cancellation agreement with Mr. Jun Lang, Ms. Jing Shi and Asia EVK (the creditors). Pursuant to the terms of the Cancellation Agreement, the creditors agreed to cancel the Second Debt in exchange for 300,534, 123,208 and 4,782,163 shares of common stock of the Company, respectively, at an exchange price of $1.1 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Second Debt.

 

On June 28, 2019, each of Mr. Dawei Li and Mr. Yunfei Li entered into an agreement with CBAK Power to loan approximately $1.4 million (RMB10,000,000) and $2.6 million (RMB18,000,000) respectively to CBAK Power for a term of six months (collectively $3.9 million, the “Third Debt”). The loan was unsecured, non-interest bearing and repayable on demand.

 

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On July 16, 2019, each of Asia EVK and Mr. Yunfei Li entered into an agreement with CBAK Power and Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. (the Company’s construction contractor) whereby Dalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. assigned its rights to the unpaid construction fees owed by CBAK Power of approximately $2.9 million (RMB20,000,000) and $0.5 million (RMB2,813,810) (collectively $3.4 million, the “Fourth Debt”) to Asia EVK and Mr. Yunfei Li, respectively.

 

On July 26, 2019, we entered into a cancellation agreement with Mr. Dawei Li, Mr. Yunfei Li and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Dawei Li, Mr. Yunfei Li and Asia EVK agreed to cancel the Third Debt and Fourth Debt in exchange for 1,384,717, 2,938,067 and 2,769,435 shares of common stock of the Company, respectively, at an exchange price of $1.05 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Third Debt and Fourth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

 

On July 24, 2019, we entered into a securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company issued a promissory note (the “Note I”) to the Lender. The Note has an original principal amount of $1,395,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of $1,250,000 after an original issue discount of $125,000 and payment of Lender’s expenses of $20,000.

 

On October 10, 2019, each of Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen entered into an agreement with CBAK Power and Zhengzhou BAK New Energy Vehicle Co., Ltd. (the Company’s supplier of which Mr. Xiangqian Li, the former CEO, is a director of this company) whereby Zhengzhou BAK New Energy Vehicle Co., Ltd. assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $2.1 million (RMB15,000,000), $1.0 million (RMB7,380,000) and $1.0 million (RMB7,380,000) (collectively $4.1 million, the “Fifth Debt”) to Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen, respectively.

 

On October 14, 2019, we entered into a cancellation agreement with Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang and Mr. Ping Shen agreed to cancel and convert the Fifth Debt and the Unpaid Earnest Money of approximately $0.9 million (RMB6,720,000) in exchange for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of $0.6 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Fifth Debt and the Unpaid Earnest Money. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

 

On December 30, 2019, we entered into a second securities purchase agreement with Atlas Sciences, LLC (the “Lender”), pursuant to which we issued a promissory note (the “Note II”) to the Lender. The Note II has an original principal amount of $1,670,000, bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. We received proceeds of $1,500,000 after an original issue discount of $150,000 and payment of Lender’s expenses of $20,000.

 

On January 27, 2020, we entered into an exchange agreement (the “First Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 160,256 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On February 20, 2020, we entered into a second exchange agreement (the “Second Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 207,641 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

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On April 10, 2020, each of Mr. Yunfei Li, Mr. Ping Shen and Asia EVK entered into an agreement with CBAK Power and Shenzhen BAK, whereby Shenzhen BAK assigned its rights to the unpaid inventories cost owed by CBAK Power of approximately $1.0 million (RMB7,000,000), $2.3 million (RMB16,000,000) and $1.0 million (RMB7,300,000) (collectively $4.3 million, the “Sixth Debt”) to Mr. Yunfei Li, Mr. Ping Shen and Asia EVK, respectively.

 

On April 27, 2020, we entered into a cancellation agreement with Mr. Yunfei Li, Mr. Ping Shen and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Yunfei Li, Mr. Ping Shen and Asia EVK agreed to cancel the Sixth Debt in exchange for 2,062,619, 4,714,557 and 2,151,017 shares of common stock of the Company, respectively, at an exchange price of $0.48 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Sixth Debt. The cancellation agreement contains customary representations and warranties of the creditors. The creditors do not have registration rights with respect to the shares.

 

On April 28, 2020, we entered into a third exchange agreement (the “Third Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On June 8, 2020, we entered into a fourth exchange agreement (the “Fourth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $100,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 271,739 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On June 10, 2020, we entered into a fifth exchange agreement (the “Fifth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $150,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 407,609 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On July 6, 2020, we entered into a Sixth exchange agreement (the “Sixth Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 461,595 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On July 8, 2020, we entered into a First exchange agreement for Note II (the “First Exchange Agreement- Note II”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $250,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on December 30, 2019, which has an original principal amount of $1,670,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 453,161 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

On July 29, 2020, we entered into a Seventh exchange agreement (the “Seventh Exchange Agreement”) with Atlas Sciences, LLC (the “Lender”), pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to $365,000 (the “Partitioned Promissory Note”) from the outstanding balance of certain promissory note that the Company issued to the Lender on July 24, 2019, which has an original principal amount of $1,395,000, and (ii) exchange the Partitioned Promissory Note for the issuance of 576,802 shares of the Company’s common stock, par value $0.001 per share to the Lender.

 

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On October 12, 2020, we entered into an amendment to promissory notes (the “Amendment”) with Atlas Sciences, LLC (the Lender), pursuant to which the Lender has the right at any time until the outstanding balance of the Notes has been paid in full, at its election, to convert all or any portion of the outstanding balance of the Notes into shares of common stock of the Company. The conversion price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company common stock during the ten (10) trading days immediately preceding the applicable conversion (the “Conversion Price”). Notwithstanding the foregoing, in no event will the Conversion Price be less than $1.00.

 

According to the Amendment, on October 13, 2020, the company exchanged $371,275 of principal and coupon interests under the Note I and $775,000 in principal under the Note II for the issuance of 229,750 shares and 479,579 shares of the Company’s common stock, par value $0.001 per share to the Lender, respectively.

 

On October 20, 2020, we further exchanged $778,251 of principal and coupon interests under the Note II for the issuance of 329,768 shares of the Company’s common stock, par value $0.001 per share to the Lender. As of the date of this report, we have fully repaid the principal and coupon interests of Note I and Note II.

 

We are currently expanding our product lines and manufacturing capacity in our Dalian and Nanjing 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.

 

In the meanwhile, due to the growing environmental pollution problem, the Chinese government is currently providing support to 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 the booming future market demand in high power lithium ion products, we can continue as a going concern and sustainably 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.

 

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The following table sets forth a summary of our cash flows for the periods indicated:

 

(All amounts in thousands of U.S. dollars)

 

    Nine Months Ended
September 30,
 
    2019     2020  
Net cash (used in) provided by operating activities   $ (13,906 )   $ 4,899  
Net cash used in investing activities     (1,999 )     (2,033 )
Net cash provided by (used in) financing activities     7,291       (2,329 )
Effect of exchange rate changes on cash and cash equivalents     (494 )     231  
Net (decrease) increase in cash and cash equivalents and restricted cash     (9,108 )     768  
Cash and cash equivalents and restricted cash at the beginning of period     17,689       7,134  
Cash and cash equivalents and restricted cash at the end of period   $ 8,581     $ 7,902  

 

Operating Activities

 

Net cash provided by operating activities was $4.9 million in the nine months ended September 30, 2020, as compared to net cash used in operating activities of $13.9 million in the same period in 2019. The net cash provided by operating activities in the nine months ended September 30, 2020 was mainly attributable to a decrease of $4.4 million in inventories, an increase of $3.6 million in trade accounts and bills payables, an increase of $4.5 million of trade payables to former subsidiaries, and proceed of government grants of $2.9 million partially offset by our net loss (excluding non-cash depreciation and amortization, provision for doubtful debts, write-down of inventories and share-based compensation) of $0.3 million and an increase of $10.4 million increase in trade accounts and bills receivable.

 

Net cash used in operating activities was $13.9 in the nine months ended September 30, 2019 was mainly attributable to our net loss (before loss on disposal of property, plant and equipment, and excluding non-cash depreciation and amortization) of $4.6 million, $12.1 million on settlement of trade accounts and bills payable and $3.4 million on settlement paid to our former subsidiaries, partially offset by an increase of $4.0 million for trade accounts and bills receivable, a decrease of $1.7 million for prepayments and other receivables and an increase of $1.4 million for accrued expenses and other payables. 

 

Investing Activities

 

Net cash used in investing activities was $2.0 million for the nine months ended September 30, 2020, as compared to $2.0 million in the same period of 2019. The net cash used in investing activities in 2019 and 2020 mainly include purchase of property, plant and equipment and construction in progress.

 

Financing Activities

 

Net cash used in financing activities was $2.3 million in the nine months ended September 30, 2020, compared to a net cash provided by financing activities $7.3 million during the same period in 2019. The net cash used in financing activities in the nine months ended September 30, 2020 was mainly attributable to repayment of borrowings of $5.6 million to Jilin Province Trust Co. Ltd. and $0.2 million to banks, partially offset by borrowing of $3.5 million from Jilin Province Trust Co. Ltd. under a renewed credit facility and borrowings of $0.3 million from our shareholders.

 

Net cash provided by financing activities was $7.3 million in the nine months ended September 30, 2019 The net cash provided by financing activities in the nine months ended September 30, 2019 mainly comprised borrowings from unrelated parties of $6.4 million, proceeds from issue of promissory note of $1.3 million and advances from shareholders of $4.1 million, partially offset by repayment of bank borrowings of $3.6 million and repayment of earnest money to shareholders of $0.8 million.

 

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As of September 30, 2020, the principal amounts outstanding under our credit facilities and lines of credit were as follows:

 

(All amounts in thousands of U.S. dollars)

 

    Maximum amount available     Amount borrowed  
Long-term credit facilities:            
China Everbright Bank   $ 25,464     $ 20,722  
                 
Other lines of credit:                
China Everbright Bank   $ 9,994     $ 9,994  
China Merchants Bank     2,365       2,365  
      12,359       12,359  
Other short-term loam:                
Jinlin Province Trust Co., Ltd   $ 5,891       3,564  
                 
Total   $ 43,714     $ 36,645  

 

Capital Expenditures

 

We incurred capital expenditures of $2.0 million in the nine months ended September 30, 2019 and 2020. Our capital expenditures were used to construct our manufacturing facilities in Dalian and Nanjing.

 

We estimate that our total capital expenditures for the year ending December 31, 2020 will reach approximately $4.0 million. Such funds will be used to 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 September 30, 2020:

 

(All amounts in thousands of U.S. dollars)

 

    Payments Due by Period  
    Total     Less than
1 year
    1 - 3 years     3 - 5 years     More than
5 years
 
Contractual Obligations                              
Current maturities of long-term bank loans   $ 20,722     $ 20,722     $         -               -     $         -  
Short-term bank loans     5,876       5,876       -       -       -  
Bills payable     6,665       6,665       -       -       -  
Notes payable     1,615       1,615       -       -       -  
Payable to former subsidiaries     1,676       1,676       -       -       -  
Other short-term loans     5,269       5,269       -       -       -  
Capital injection to CBAK Trading     2,565       2,565       -       -       -  
Capital injection to CBAK Power     30,000       30,000       -       -       -  
Capital injection to CBAK Energy     50,000       50,000       -       -       -  
Capital injection to CBAK Nanjing     100,000       100,000       -       -       -  
Capital injection to Nanjing CBAK     103,093       103,093       -       -       -  
Capital commitments for construction of buildings     1,798       1,798       -       -       -  
Capital commitments for purchase of equipment     348       348       -       -       -  
Future interest payment on notes payable     10       10       -       -       -  
Future interest payment on bank loans     906       906       -       -       -  
Future interest payment on other short-term loan     256       256       -       -       -  
Total   $ 330,799     $ 330,799     $ -       -     $ -  

 

Other than the contractual obligations and commercial commitments set forth above, we did not have any other long-term debt obligations, operating lease obligations, capital commitments, purchase obligations or other long-term liabilities as of September 30, 2020.

 

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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 were no material changes to the critical accounting policies previously disclosed in our audited consolidated financial statements for the year ended December 31, 2019 included in the Annual Report on Form 10-K filed on May 14, 2020.

 

Changes in Accounting Standards

 

Please refer to note 1 to our condensed consolidated financial statements, “Principal Activities, Basis of Presentation and Organization –Recently Issued Accounting Standards,” for a discussion of relevant pronouncements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer and our Interim Chief Financial Officer. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of September 30, 2020.

 

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As we disclosed in our Annual Report on Form 10-K filed with the SEC on May 14, 2020, during our assessment of the effectiveness of internal control over financial reporting as of December 31, 2019, management identified the following material weakness in our internal control over financial reporting:

 

  We did not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements.

 

  We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements.

 

In order to cure the foregoing material weaknesses, we plan to make necessary changes by providing training to our financial team and our other relevant personnel on the U.S. GAAP accounting guidelines applicable to our financial reporting requirements. We are also in the process of hiring a permanent chief financial officer with significant U.S. GAAP and SEC reporting experience.

 

We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weakness that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

 

Changes in Internal Control over Financial Reporting

 

Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Other than the legal proceedings set forth below, we are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results:

 

On July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’ Court of Zhuanghe City, Dalian, (the “Court of Zhuanghe”) for the failure to pay pursuant to the terms of the contract and entrusting part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,241,648 (RMB8,430,792), including construction costs of $0.9 million (RMB6.1 million, which the Company already accrued for at June 30, 2016), interest of $29,455 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million). On September 7, 2016, upon the request of Shenzhen Huijie for property preservation, the Court of Zhuanghe froze CBAK Power’s bank deposits totaling $1,241,648 (RMB8,430,792) for a period of one year. On September 1, 2017, upon the request of Shenzhen Huijie, the Court of Zhuanghe froze the bank deposits for another one year until August 31, 2018. The Court further froze the bank deposits for another one year until August 27, 2019 upon the request of Shenzhen Huijie on August 27, 2018. On August 27, 2019, the Court froze the bank deposits for another year until August 27, 2020, upon the request of Shenzhen Huijie. On June 28, 2020, the Court of Dalian entered the final judgement as described below and the frozen bank deposit was released in July 2020.

 

On June 30, 2017, according to the trial of first instance, the Court of Zhuanghe ruled that CBAK Power should pay the remaining contract amount of RMB6,135,860 (approximately $0.9 million) claimed by Shenzhen Huijie as well as other expenses incurred including deferred interest, discounted charge on bills payable, litigation fee and property preservation fee totaled $0.1 million. The Company has accrued for these amounts as of December 31, 2017. On July 24, 2017, CBAK Power filed an appellate petition to the Intermediate Peoples’ Court of Dalian (“Court of Dalian)” to appeal the adjudication dated on June 30, 2017. On November 17, 2017, the Court of Dalian rescinded the original judgement and remanded the case to the Court of Zhuanghe for retrial. The Court of Zhuanghe conducted a retrial and requested an appraisal to be performed by a third-party appraisal institution on the construction cost incurred and completed by Shenzhen Huijie on the subject project. On November 8, 2018, the Company received from the Court of Zhuanghe the construction-cost-appraisal report which determined that the construction cost incurred and completed by Shenzhen Huijie for the subject project to be $1,344,605 (RMB9,129,868). On May 20, 2019, the Court of Zhuanghe entered a judgment that Shenzhen Huijie should pay back to CBAK Power $261,316 (RMB1,774,337) (the amount CBAK Power paid in excess of the construction cost appraised by the appraisal institution) and the interest incurred since April 2, 2019. Shenzhen Huijie filed an appellate petition to the Court of Dalian. On June 28, 2020, the Court of Dalian entered the final judgment that Shenzhen Huijie should pay back to CBAK Power $245,530 (RMB1,667,146) (the amount CBAK Power paid in excess of the construction cost appraised by the appraisal institution) and the interest incurred since April 2, 2019, and reimburse the litigation fees totaling $30,826 (RMB209,312) that CBAK Power has paid. As of September 30, 2020, we have not received the final judgement amount totaled $276,356 from Shenzhen Huijie.

 

In May 2017, CBAK Power filed a lawsuit in the Court of Zhuanghe against Pingxiang Anyuan Tourism Bus Manufacturing Co., Ltd., (“Anyuan Bus”) one of CBAK Power’s customers, for failure to pay pursuant to the terms of the sales contract. CBAK Power sought a total amount of RMB18,279,858 ($2,692,173), including goods amount of RMB17,428,000 ($2,566,716) and interest of RMB851,858 ($125,458). On December 19, 2017, the Court of Zhuanghe determined that Anyuan Bus should pay the goods amount of RMB17,428,000 ($2,566,716) and the interest until the goods amount was paid off, and a litigation fee of RMB131,480 ($19,364). Anyuan Bus did not appeal and as a result, the judgment is currently in the enforcement phase. On June 29, 2018, the Company filed application petition with the Court of Zhuanghe for enforcement of the judgement against all of Anyuan Bus’s shareholders, including Jiangxi Zhixin Automobile Co., Ltd, Anyuan Bus Manufacturing Co., Ltd, Anyuan Coal Group Co., Ltd, Qian Ronghua, Qian Bo and Li Junfu. On October 22, 2018, the Court of Zhuanghe issued a judgment supporting the Company’s petition that all the Anyuan Bus’s shareholders should be liable to pay the Company the debt as confirmed under the trial. On November 9, 2018, all the shareholders of Anyuan Bus appealed against the judgment after receiving the notice from the Court. On March 29, 2019, the Company received judgment from the Court of Zhuanghe that all these six shareholders cannot be added as judgment debtors. On April 11, 2019, the Company filed appellate petition to the Intermediate Peoples’ Court of Dalian challenging the judgment from the Court of Zhuanghe. On October 9, 2019, the Intermediate Peoples’ Court of Dalian dismissed the appeal by the Company and affirmed the original judgment. As of December 31, 2019 and September 30, 2020, we had made a full provision against the receivable from Anyuan Bus of RMB 17,428,000 ($2,566,716).  

 

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On July 25, 2019, CBAK Power received notice from Shenzhen Court of International Arbitration that Shenzhen Xinjiatuo Automobile Technology Co., Ltd filed arbitration against the Company for the failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.16 million (RMB1,112,269), including equipment cost of $0.14 million (RMB976,000) and interest of $0.02 million (RMB136,269).

 

On August 9, 2019, upon the request of Shenzhen Xinjiatuo Automobile Technology Co., Ltd, Shenzhen Court of International Arbitration froze CBAK Power’s bank deposits totaling $0.16 million (RMB1,117,269), including equipment cost $0.14 million (RMB976,000), interest $0.02 million (RMB136,269) and litigation fees of $736 (RMB5,000) for a period of one year to August 2020. We believe that the plaintiff’s claims are without merit and are vigorously defending ourselves in this proceeding.

 

On August 7, 2019, CBAK Power filed counter claim arbitration against Shenzhen Xinjiatuo Automobile Technology Co., Ltd for return of the prepayment due to the unqualified equipment, and sought a total amount of $0.29 million (RMB1,986,400), including return of prepayment of $0.2 million (RMB1,440,000), liquidated damages of $70,692 (RMB480,000) and litigation fees of $9,785 (RMB66,440). In early July 2020, Shenzhen Court of International Arbitration made arbitration award dismissing the plaintiff’s claim and CBAK Power’s counterclaim and the frozen bank deposits were released in early August 2020.

 

In November 2019, CBAK Suzhou received notice from Court of Suzhou city that Suzhou Industrial Park Security Service Co., Ltd (“Suzhou Security”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the sales contract. Suzhou Security sought a total amount of $20,576 (RMB139,713), including services expenses amount of $20,458 (RMB138,908) and interest of $119 (RMB805). Upon the request of Suzhou Security for property preservation, the Court of Suzhou froze CBAK Suzhou’s bank deposits totaling $0.02 million (RMB150,000) for a period of one year. As of September 30, 2020, $4,857 (RMB32,980) was frozen by bank and the Company had accrued the service cost of $20,576 (RMB139,713).

 

In early September of 2019, several employees of CBAK Suzhou filed arbitration with Suzhou Industrial Park Labor Disputes Arbitration Commission against CBAK Suzhou for failure to pay their salaries in time. The employees seek for a payment including salaries of $94,015 (RMB638,359) and compensation of $79,971 (RMB543,000), totaling $0.17 million (RMB1,181,359). In addition, upon the request of the employees for property preservation, bank deposit of $0.17 million (RMB1,181,359) was frozen by the court of Suzhou for a period of one year. On September 5, 2019, CBAK Suzhou and the employees reached an agreement that CBAK Suzhou will pay these salaries and compensation. In February 2020, we fully repaid the salaries and compensation. As of September 30, 2020, $6 (RMB43) was frozen by bank.

 

In October 2019, CBAK Power received notice from Court of Changshou District, Chongqing that Chongqing Zhongrun Chemistry Co., Ltd (“Chongqing Zhongrun”) filed arbitration claims against the Company for the failure to pay pursuant to the terms of the contract. The plaintiff sought a total amount of $0.4 million (RMB2,484,948), including material cost of $0.4 million (RMB2,397,660) and interest of $12,855 (RMB87,288). On October 31, 2019, CBAK Power and Chongqing Zhongrun reached an agreement that CBAK Power would pay the material cost by the end of December 31, 2019. In 2020, CBAK Power had paid $190,515 (RMB1,293,600). As of September 30, 2020, the Company has accrued the remaining material purchase cost of $0.16 million (RMB1,104,060). In August 2020, upon the request of Chongqing Zhongrun for property preservation, the Court of Changshou District ordered to freeze CBAK Power’s bank deposits totaling $0.2 million (RMB1,249,836) for a period of one year to August 2021. As of September 30, 2020, nil was frozen by bank.

 

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In October 2019, CBAK Power received notice from Court of Zhuanghe City that Hunan Zhongke Xingcheng Co., Ltd (“Hunan Zhongke”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Hunan Zhongke sought a total amount of $148,074 (RMB1,005,425). In 2020, we have paid $36,819 (RMB250,000). Upon the request of Hunan Zhongke for property preservation, the Court of Zhuanghe City ordered to freeze CBAK Power’s bank deposits totaling $0.1 million (RMB768,876) for a period of one year to September 2021. As of September 30, 2020, we have accrued the remaining material purchase cost of $111,255 (RMB755,425) and nil was frozen by bank.

 

In December 2019, CBAK Power received notice from Court of Zhuanghe that Dalian Construction Electrical Installation Engineering Co., Ltd. (“Dalian Construction”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the construction contract. Dalian Construction sought a total amount of $101,780 (RMB691,086) and interest $1,905 (RMB12,934). As of December 31, 2019, the Company has accrued the construction cost of $101,780 (RMB691,086). Upon the request of Dalian Construction for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $103,685 (RMB704,020) for a period of one year to December 2020. As of December 31, 2019, $97,384 (RMB661,240) was frozen by bank. In January 2020, CBAK Power and Dalian Construction have come to a settlement, and the bank deposit was then released. We have paid all the construction cost as of September 30, 2020.

 

In February 2020, CBAK Power received notice from Court of Zhuanghe that Dongguan Shanshan Battery Material Co., Ltd (“Dongguan Shanshan”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Dongguan Shanshan sought a total amount of $0.6 million (RMB4,434,209), which have already been accrued for as of September 30, 2020. Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.6 million (RMB4,434,209) for a period of one year to December 17, 2020. In July 2020, CBAK Power and Dongguan Shanshan have come to a settlement amount of $0.5 million (RMB3,635,192) and the bank deposit was then released. In October 2020, we fail to pay according to the settlement, Dongguan Shanshan sought a total amount of $0.5 million (RMB3,635,192). Upon the request of Dongguan Shanshan for property preservation, the Court of Zhuanghe ordered to freeze CBAK Power’s bank deposits totaling $0.5 million (RMB3,365,192) for a period of one year to October 21, 2021.

 

On March 20, 2020, CBAK Power received notice from Court of Nanpi County, Hebei Province that Cangzhou Huibang Engineering Manufacturing Co., Ltd (“Cangzhou Huibang”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Cangzhou Huibang sought a total amount of $0.3 million (RMB2,029,594), including materials purchase cost of $0.3 million (RMB1,932,947), and interest of $14,234 (RMB96,647). As of September 30, 2020, the Company has accrued materials purchase cost of $0.3 million (RMB1,932,947). Upon the request of Cangzhou Huibang for property preservation, the Court of Nanpi ordered to freeze CBAK Power’s bank deposits totaling $0.4 million (RMB2,650,000) for a period of one year to March 3, 2021. As of September 30, 2020, $3,280 (RMB22,270) was frozen by bank.

 

In April 2020, CBAK Power received notice from Court of Nanshan District of Shenzhen that Shenzhen Klclear Technology Co., Ltd. (“Shenzhen Klclear”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the materials purchase contract. Shenzhen Klclear  sought a total amount of $1 million (RMB6,250,764), which we have already accrued for as of September 30, 2020.

 

In May 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Tianjin Changxing Metal Co., Ltd (“Tianjin Changxing”) filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. Tianjin Changxing sought a total amount of $28,511 (RMB193,588). On August 24, 2020, upon the request of Tianjin Changxing for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits totaling $31,648 (RMB214,892) for a period of one year. As of September 30, 2020, $1,691 (RMB11,479) was frozen by bank and we have accrued the material purchase cost of $28,511 (RMB193,588).

 

In May 2020, CBAK Power received notice from Court of Wuqing District, Tianjin that Tianjin Changyuan Electric Material Co., Ltd (“Tianjin Changyuan”) filed lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract. The plaintiff sought a total amount of $12,538 (RMB85,136), including material cost of $11,698 (RMB79,429) and interest of $840 (RMB5,707). In July, 2020, upon the request of the plaintiff for property preservation, the Court of Wuqing District, Tianjin ordered to freeze CBAK Power’s bank deposits totaling $12,538 (RMB85,136) for a period of one year. As of September 30, 2020, $12,538 (RMB85,136) was frozen by bank and the Company had accrued the material purchase cost of $12,538 (RMB85,136).

 

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In June 2020, CBAK Suzhou received notice from Court of Suzhou Industrial Park that Ligao (Shandong) New Energy Technology Co., Ltd (“Ligao”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the purchase contract. Ligao  sought a total amount of $11,384 (RMB77,599), including contract amount of $10,807 (RMB73,380) and interest of $621 (RMB4,219). As of September 30, 2020, we had accrued the material purchase cost of $10,807 (RMB73,380).

 

In June 2020, CBAK Suzhou received notice from Court of Yushui District, Xinyu City that Jiangxi Ganfeng Battery Technology Co., Ltd (“Ganfeng Battery”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the purchase contract. Ganfeng Battery sought a total amount of $111,308 (RMB755,780), including contract amount of $107,954 (RMB733,009) and interest of $3,354 (RMB22,771). Upon the request of Ganfeng Battery for property preservation, the Court of Yushui ordered to freeze CBAK Suzhou’s bank deposits totaling $113,401 (RMB769,994) for a period of one year. As of September 30, 2020, nil was frozen by bank and we had accrued the material purchase cost of $107,954 (RMB733,009).

 

In June 2020, CBAK Suzhou received notice from Court of Suzhou Industrial Park that Suzhou Jihongkai Machine Equipment Co., Ltd (“Jihongkai”) filed a lawsuit against CBAK Suzhou for the failure to pay pursuant to the terms of the purchase contract. Jihongkai  sought contract amount of $25,880 (RMB175,722) and interest as accrued until settlement. As of September 30, 2020, the Company had accrued the material purchase cost of $25,880 (RMB175,722).

 

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Nanjing Jinlong Chemical Co., Ltd. (“Nanjing Jinlong”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Nanjing Jinlong sought a total amount of $121,060 (RMB822,000). Upon the request of Nanjing Jinlong for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits totaling $121,060 (RMB822,000) for a period of one year. As of September 30, 2020, $16 (RMB107) was frozen by bank and we have accrued the material purchase cost of $121,060 (RMB822,000).

 

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Xi’an Anpu New Energy Technology Co. LTD (“Xi’an Anpu”) filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the equipment purchase contract. Xi’an Anpu sought a total amount of 124,294 (RMB843,954), including RMB768,000 for equipment cost and RMB75,954 for liquidated damages. Upon the request of Xi’an Anpu for property preservation, the Court of Dalian Economic and Technology Development Zone ordered to freeze CBAK Power’s bank deposits $0.1 million (RMB843,954) for a period to May 11, 2021. As of September 30, 2020, $97,727 (RMB629,620) was frozen by bank and we have accrued the equipment purchase cost of $113,108 (RMB768,000).

 

In June 2020, CBAK Power received notice from Court of Dalian Economic and Technology Development Zone that Shenzhen Gd Laser Technology Co., Ltd. (“Shenzhen Gd”) filed lawsuit against CBAK Power for the failure to pay pursuant to the terms of the purchase contract. Shenzhen Gd sought a total amount of $23,762 (RMB161,346), including equipment cost of $22,091 (RMB150,000) and interest amount of $1,671 (RMB11,346). 

 

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ITEM 1A. RISK FACTORS.

 

There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

Other than as previously disclosed in current reports on Form 8-K, there were no unregistered sales of equity securities or repurchase of common stock during the period covered by this report. 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

The following exhibits are filed as part of this report or incorporated by reference:

 

Exhibit No.   Description
     
31.1   Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 16, 2020

 

  CBAK ENERGY TECHNOLOGY, INC.
     
  By: /s/ Yunfei Li
    Yunfei Li
    Chief Executive Officer
     
  By: /s/ Xiangyu Pei
    Xiangyu Pei
    Interim Chief Financial Officer

 

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EXHIBIT INDEX

  

Exhibit No.   Description
     
31.1   Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

 

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