CBAK Energy(CBAT) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's analysis, market risk, and internal control evaluations ITEM 1. FINANCIAL STATEMENTS. This section presents the unaudited condensed consolidated financial statements, highlighting a shift to net loss, decreased assets, and going concern doubts - The company reported a net loss of $6.9 million for the nine months ended September 30, 2019, a significant decline from a net income of $1.9 million in the prior year[9] - The company faces substantial doubt about its ability to continue as a going concern due to a working capital deficiency of $34.3 million and recurring net losses[39][247] Key Financial Position Changes (Dec 31, 2018 vs. Sep 30, 2019) | Metric | Dec 31, 2018 (US$) | Sep 30, 2019 (US$) | Change (%) | | :---------------------------------- | :----------------- | :----------------- | :--------- | | Total Assets | 127,583,642 | 110,403,810 | -13.5% | | Total Liabilities | 127,256,343 | 98,898,014 | -22.3% | | Total Equity | 327,299 | 11,505,796 | 3414.0% | | Cash and cash equivalents | 449,670 | 198,671 | -55.8% | | Pledged deposits | 17,239,823 | 8,382,707 | -51.3% | | Trade accounts and bills receivable, net | 21,751,032 | 16,654,801 | -23.4% | | Inventories | 9,622,361 | 10,878,801 | 13.1% | | Current maturities of long-term bank loans | 3,659,324 | 10,562,506 | 188.6% | | Trade accounts and bills payable | 52,495,063 | 38,868,418 | -26.0% | Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (US$) | Metric | Dec 31, 2018 | Sep 30, 2019 | | :---------------------------------- | :----------- | :----------- | | Cash and cash equivalents | 449,670 | 198,671 | | Pledged deposits | 17,239,823 | 8,382,707 | | Trade accounts and bills receivable, net | 21,751,032 | 16,654,801 | | Inventories | 9,622,361 | 10,878,801 | | Total current assets | 56,369,692 | 42,110,452 | | Property, plant and equipment, net | 38,908,503 | 41,042,524 | | Construction in progress | 25,001,813 | 20,345,515 | | Total assets | 127,583,642 | 110,403,810 | | Current maturities of long-term bank loans | 3,659,324 | 10,562,506 | | Other short-term loans | 14,147,801 | 8,299,381 | | Trade accounts and bills payable | 52,495,063 | 38,868,418 | | Total current liabilities | 92,948,960 | 76,402,050 | | Total liabilities | 127,256,343 | 98,898,014 | | Total shareholders' equity | 315,322 | 11,433,390 | | Total equity | 327,299 | 11,505,796 | Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's revenues, expenses, and net income or loss over specific periods Condensed Consolidated Statements of Operations and Comprehensive Loss (US$ thousands) | Metric | 3 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net revenues | 5,589,371 | 8,089,804 | 14,952,470 | 17,532,415 | | Cost of revenues | (7,426,846) | (7,431,039) | (18,186,164) | (17,322,234) | | Gross profit (loss) | (1,837,475) | 658,765 | (3,233,694) | 210,181 | | Total operating expenses | (2,277,940) | (2,158,814) | (6,584,961) | (6,314,610) | | Operating loss | (4,115,415) | (1,500,049) | (9,818,655) | (6,104,429) | | Finance expenses, net | (299,591) | (324,522) | (605,756) | (973,504) | | Other income, net | 12,335,569 | 37,503 | 12,331,453 | 149,358 | | Income (Loss) before income tax | 7,920,563 | (1,787,068) | 1,907,042 | (6,928,575) | | Net income (loss) | 7,920,563 | (1,787,068) | 1,907,042 | (6,928,575) | | Net income (loss) attributable to shareholders | 7,928,527 | (1,772,622) | 1,918,499 | (6,877,398) | | Income (Loss) per share – Basic | 0.30 | (0.04) | 0.07 | (0.19) | | Income (Loss) per share – Diluted | 0.30 | (0.04) | 0.07 | (0.19) | Condensed Consolidated Statements of Changes in Shareholders' Equity (Deficit) This section outlines changes in the company's equity components, including common stock, retained earnings, and other comprehensive income Changes in Shareholders' Equity (Deficit) (US$) | Metric | Balance as of Jan 1, 2019 | Net loss | Share-based compensation | Common stock issued to investors | Foreign currency translation adjustment | Balance as of Sep 30, 2019 | | :---------------------------------- | :------------------------ | :--------- | :----------------------- | :----------------------------- | :-------------------------------------- | :------------------------- | | Common stock issued | 26,792 | - | - | 17,396 | - | 44,320 | | Additional paid-in capital | 155,931,770 | - | 432,785 | 18,355,929 | - | 174,720,352 | | Accumulated deficit | (165,409,890) | (6,877,398) | - | - | - | (172,287,288) | | Accumulated other comprehensive loss | (1,498,940) | - | - | - | (810,644) | (2,309,584) | | Total shareholders' equity | 327,299 | (6,928,575) | 432,785 | 18,373,325 | (817,888) | 11,505,796 | Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (US$ thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by (used in) operating activities | 9,140,725 | (13,906,068) | | Net cash used in investing activities | (6,561,028) | (1,998,476) | | Net cash provided by financing activities | 7,371,361 | 7,290,693 | | Effect of exchange rate changes on cash and cash equivalents and restricted cash | (1,052,946) | (494,264) | | Net increase (decrease) in cash and cash equivalents and restricted cash | 8,898,112 | (9,108,115) | | Cash and cash equivalents and restricted cash at the beginning of period | 10,748,713 | 17,689,493 | | Cash and cash equivalents and restricted cash at the end of period | 19,646,825 | 8,581,378 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. Principal Activities, Basis of Presentation and Organization This note describes the company's core business, its organizational structure, and the basis for preparing the financial statements - CBAK Energy Technology, Inc. focuses on the manufacture, commercialization, and distribution of high-power lithium-ion rechargeable batteries for various applications including cordless power tools, electric vehicles, and uninterruptible power supplies[17] - The company's common stock trading symbol changed from CBAK to CBAT on November 30, 2018, and began trading on the Nasdaq Capital Market on June 21, 2019[19] - The company has a working capital deficiency and accumulated deficit, raising substantial doubt about its ability to continue as a going concern, though management believes future market demand for high-power lithium-ion products will lead to profitability[39][50] - The company is evaluating the impact of new accounting standards ASU No. 2016-13 (Credit Losses) and ASU No. 2018-07 (Share-Based Payment Accounting) and intends to adopt ASU No. 2017-04 (Goodwill Impairment) for the fiscal year beginning January 1, 2020[55][57][58] 2. Pledged deposits This note details the company's pledged bank deposits, including amounts frozen due to legal disputes Pledged Deposits (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Pledged deposits with bank for bills payable | 16,014,118 | 6,994,110 | | Others* | 1,225,705 | 1,388,597 | | Total Pledged deposits | 17,239,823 | 8,382,707 | - A portion of bank deposits totaling $1,179,313 (RMB 8,430,792) was frozen until August 27, 2020, due to a lawsuit by Shenzhen Huijie Purification System Engineering Co., Ltd[60] - Additional bank deposits of $0.16 million (RMB1,117,269) and $52,990 (RMB378,820) were frozen due to arbitration cases with Shenzhen Xinjiatuo Automobile Technology Co., Ltd and CBAK Suzhou employees, respectively[61][63] 3. Trade Accounts and Bills Receivable, net This note provides a breakdown of trade accounts and bills receivable, net of allowances for doubtful accounts Trade Accounts and Bills Receivable, net (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :---------------------------------- | :----------- | :----------- | | Trade accounts receivable | 19,054,863 | 20,596,681 | | Less: Allowance for doubtful accounts | (3,657,173) | (3,943,983) | | Bills receivable | 6,353,342 | 2,103 | | Total | 21,751,032 | 16,654,801 | Allowance for Doubtful Accounts Analysis (US$) | Metric | Dec 31, 2018 | Sep 30, 2019 | | :----------------------------------------------------------------- | :----------- | :----------- | | Balance at beginning of period | 3,700,922 | 3,657,173 | | Provision for the period (9 months) | 474,950 | 735,619 | | Charged to consolidated statements of operations and comprehensive (loss) income (9 months) | 162,488 | 443,020 | | Balance at end of period | 3,657,173 | 3,943,983 | 4. Inventories This note details the composition of inventories and changes in inventory write-downs Inventories (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :----------------- | :----------- | :----------- | | Raw materials | 1,675,383 | 1,422,821 | | Work in progress | 2,737,415 | 1,089,938 | | Finished goods | 5,209,563 | 8,366,042 | | Total | 9,622,361 | 10,878,801 | - Write-downs of inventories to lower of cost or net realizable value decreased significantly for the three months ended September 30, 2019 (nil vs. $729,247 in 2018), but remained at $557,668 for the nine months ended September 30, 2019 ($730,446 in 2018)[67][68] 5. Prepayments and Other Receivables This note outlines the company's prepayments and other receivables, including value-added tax recoverable Prepayments and Other Receivables (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Value added tax recoverable | 5,359,275 | 4,906,241 | | Prepayments to suppliers | 1,157,966 | 32,040 | | Total | 7,143,454 | 5,838,302 | 6. Payables to Former Subsidiaries This note details outstanding payables owed to the company's former subsidiaries Payables to Former Subsidiaries (US$) | Subsidiary | Dec 31, 2018 | Sep 30, 2019 | | :----------------- | :----------- | :----------- | | BAK Tianjin | 972,913 | - | | BAK Shenzhen | 3,328,733 | 855,860 | | Total | 4,301,646 | 855,860 | 7. Property, Plant and Equipment, net This note presents the carrying amount of property, plant, and equipment, including depreciation and uncertified ownership Property, Plant and Equipment, net (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Buildings | 23,626,924 | 27,492,988 | | Machinery and equipment | 22,159,752 | 22,180,789 | | Carrying amount | 38,908,503 | 41,042,524 | - The company incurred depreciation expense of $2,064,576 for the nine months ended September 30, 2019, up from $1,749,608 in the same period of 2018[73] - The company has not yet obtained property ownership certificates for buildings with a carrying amount of $25,135,164 as of September 30, 2019, but management believes it has legal title due to land use rights[73] 8. Construction in Progress This note details the company's ongoing construction projects and capitalized interest expenses Construction in Progress (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :------------------------------------------------ | :----------- | :----------- | | Construction in progress | 23,562,557 | 20,211,782 | | Prepayment for acquisition of property, plant and equipment | 1,439,256 | 133,733 | | Carrying amount | 25,001,813 | 20,345,515 | - Capitalized interest for construction in progress increased to $1,099,687 for the nine months ended September 30, 2019, from $912,702 in the same period of 2018[76] 9. Prepaid Land Use Rights, net This note describes the company's prepaid land use rights, their amortization, and the non-current portion Prepaid Land Use Rights, net (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Prepaid land use rights | 8,167,587 | 7,858,480 | | Accumulated amortization | (721,470) | (812,043) | | Carrying amount | 7,446,117 | 7,046,437 | | Less: Classified as current assets | (163,352) | (157,170) | | Non-current portion | 7,282,765 | 6,889,267 | - The company acquired rights to use 153,832 m² of land in Dalian for 50 years, with amortization expenses of $122,812 for the nine months ended September 30, 2019[77][78] 10. Intangible Assets, net This note provides information on the company's intangible assets, primarily computer software, and their amortization Intangible Assets, net (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Computer software at cost | 31,025 | 29,850 | | Accumulated amortization | (10,156) | (13,798) | | Total | 20,869 | 16,052 | - Amortization expenses for intangible assets were $4,195 for the nine months ended September 30, 2019, up from $2,515 in the same period of 2018[79] 11. Trade Accounts and Bills Payable This note details the company's trade accounts and bills payable, including their nature and maturity Trade Accounts and Bills Payable (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Trade accounts payable | 23,134,269 | 24,946,847 | | Bank acceptance bills | 28,911,556 | 13,921,571 | | Commercial acceptance bills | 449,238 | - | | Total | 52,495,063 | 38,868,418 | - All bills payable are of a trading nature and mature within six months to one year from the issue date[80] 12. Loans This note provides a breakdown of the company's bank loans and other short-term loans, including debt cancellation activities Bank Loans (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :---------------------------------- | :----------- | :----------- | | Current maturities of long-term bank loans | 3,659,324 | 10,562,506 | | Long-term bank borrowings | 20,614,194 | 9,388,894 | | Total | 24,273,518 | 19,951,400 | - The company had unutilized committed banking facilities of $4.6 million as of September 30, 2019[92] - The company engaged in multiple debt cancellation agreements in 2019, converting approximately $14.5 million in various debts (First, Second, Third, Fourth, Fifth Debts, and Unpaid Earnest Money) into common stock issued to creditors[96][98][101][44][47] Other Short-term Loans (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------------------------------------------------------------- | :----------- | :----------- | | Advance from related parties – Tianjin New Energy | 11,095,070 | - | | Advance from related parties – Mr. Xiangqian Li | 100,000 | 100,000 | | Advance from related parties – Mr. Yunfei Li | 116,307 | 403,274 | | Advance from related parties – Shareholders | 2,035,381 | 1,024,434 | | Advances from unrelated third party – Jilin Province Trust Co. Ltd | - | 5,539,335 | | Total Other short-term loans | 14,147,801 | 8,299,381 | 13. Accrued Expenses and Other Payables This note details the company's accrued expenses and other payables, including construction costs and liquidated damages Accrued Expenses and Other Payables (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Construction costs payable | 5,950,746 | 2,172,282 | | Equipment purchase payable | 6,510,571 | 7,393,938 | | Liquidated damages | 1,210,119 | 1,210,119 | | Accrued staff costs | 2,362,466 | 2,516,972 | | Total | 18,201,351 | 16,383,921 | - The company has outstanding liquidated damages of $1,210,119 as of September 30, 2019, related to past registration rights agreements[105][106] 14. Deferred Government Grants This note explains the company's deferred government grants and their amortization against depreciation expenses Deferred Government Grants (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Total government grants | 4,457,064 | 4,184,634 | | Less: Current portion | (143,775) | (138,334) | | Non-current portion | 4,313,289 | 4,046,300 | - Government grants are amortized on a straight-line basis over the estimated useful lives of the depreciable facilities constructed, with $108,094 offset against depreciation expenses for the nine months ended September 30, 2019[111][112] 15. Product Warranty Provision This note describes the company's product warranty programs and the associated provision for potential claims - The company provides warranty programs for its EV and LEV battery products, with coverage periods ranging from six to twelve months for battery cells, twelve to twenty-seven months for LEV battery modules, and three to eight years (or 120,000-200,000 km) for EV battery modules[113] - The product warranty provision was $2,201,296 as of September 30, 2019, slightly down from $2,250,615 as of December 31, 2018[6][113] 16. Notes payable This note details the company's notes payable, including issuance terms, interest, and amortization of debt discount Notes Payable (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------- | :----------- | :----------- | | Notes payable, net of debt discount | - | 1,293,630 | - On July 24, 2019, the company issued a promissory note with an original principal amount of $1,395,000, bearing 10% interest and maturing in 12 months, receiving proceeds of $1,250,000 after discount and expenses[114] - The company recorded $23,630 from debt discount amortization and $26,371 from coupon interest as interest expense for the three months ended September 30, 2019[115] 17. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities This note discusses the company's income tax provisions, deferred tax assets, and unrecognized tax benefits - No provision for income taxes was made for the three and nine months ended September 30, 2018 and 2019, as the company had no taxable income in the United States or Hong Kong[116][123][124] - The company's PRC subsidiaries are subject to an enterprise income tax rate of 25%[125] Deferred Tax Assets (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :---------------------------------- | :----------- | :----------- | | Net operating loss carried forward | 26,595,654 | 28,502,024 | | Valuation allowance | (30,523,274) | (31,954,197) | | Deferred tax assets, non-current | - | - | - A full valuation allowance was provided against the company's net operating loss carryforwards ($103.6 million for US entity, $27.0 million for PRC subsidiaries as of Sep 30, 2019) due to management's belief that these tax benefits will not be realized in the foreseeable future[127] Unrecognized Tax Benefits (Gross UTB) (US$) | Metric | Jan 1, 2019 | Sep 30, 2019 | | :---------------------------------------------------- | :---------- | :---------- | | Balance as of period | 7,129,285 | 6,859,474 | | Decrease in unrecognized tax benefits taken in current period | (269,811) | (269,811) | 18. Share-based Compensation This note details the company's non-cash share-based compensation expenses and outstanding restricted share units - The company recorded non-cash share-based compensation expense of $396,144 for the three and nine months ended September 30, 2019, primarily from restricted share units granted on August 23, 2019[141] - As of September 30, 2019, 1,887,000 restricted share units were granted, with 1,580,000 non-vested units remaining and $1,302,156 in unrecognized stock-based compensation[140][141] - No income tax benefits were recognized for stock-based compensation cost due to the company's investment holding nature and unlikelihood of generating operating profits to realize tax benefits[142] 19. Income (Loss) Per Share This note presents the basic and diluted income (loss) per share, including the impact of anti-dilutive securities Income (Loss) Per Share (US$) | Metric | 3 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to shareholders of CBAK Energy Technology, Inc. | 7,928,527 | (1,772,622) | 1,918,499 | (6,877,398) | | Weighted average shares outstanding – basic | 26,660,814 | 42,262,408 | 26,642,749 | 35,508,896 | | Income (Loss) per share – Basic | 0.30 | (0.04) | 0.07 | (0.19) | | Income (Loss) per share – Diluted | 0.30 | (0.04) | 0.07 | (0.19) | - For the three and nine months ended September 30, 2019, 1,580,000 unvested restricted shares were anti-dilutive and excluded from diluted EPS computation[145] 20. Fair Value of Financial Instruments This note discusses the fair value measurements of financial instruments and their classification within a three-level hierarchy - The carrying amounts of financial assets and liabilities (cash, pledged deposits, receivables, payables, loans) approximate their fair values due to their short maturity or market interest rates[148] - Fair value measurements are classified into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[146][147] 21. Commitments and Contingencies This note outlines the company's capital commitments and ongoing legal contingencies, including frozen bank deposits Contracted Capital Commitments (US$) | Category | Dec 31, 2018 | Sep 30, 2019 | | :------------------------------------------------ | :----------- | :----------- | | For construction of buildings | 3,439,794 | 3,309,613 | | For purchases of equipment | 2,226,776 | 335,502 | | Capital injection to CBAK Power and CBAK Trading | 20,400,000 | 23,900,000 | | Total | 26,066,570 | 27,545,115 | - The company is involved in a lawsuit with Shenzhen Huijie, resulting in frozen bank deposits of $1,179,318 and ongoing appeals regarding construction costs[151][152] - A full provision of $2,437,867 was made against a receivable from Anyuan Bus, with the court affirming the original judgment against the company's appeal to add shareholders as debtors[154][155] - Bank deposits of $0.16 million were frozen due to arbitration with Shenzhen Xinjiatuo Automobile Technology Co., Ltd, against which the company filed a counterclaim[156] - Bank deposits of $0.17 million were frozen due to employee arbitration at CBAK Suzhou, with an agreement reached to pay salaries and compensation[157] 22. Concentrations and Credit Risk This note identifies significant customer concentrations and credit risk exposures, particularly regarding cash holdings Customer Concentration (Net Revenue) | Customer | 3 Months Ended Sep 30, 2019 (%) | 9 Months Ended Sep 30, 2019 (%) | | :---------------------------------- | :------------------------------ | :------------------------------ | | Customer A | 26.19% | 34.19% | | Customer D | 27.99% | 19.00% | | Zhengzhou BAK Battery Co., Ltd | 23.99% | 11.07% | Customer Concentration (Accounts Receivable, net) | Customer | Dec 31, 2018 (%) | Sep 30, 2019 (%) | | :---------------------------------- | :--------------- | :--------------- | | Customer A | 11.49% | 9.16% | | Customer C | 14.89% | 13.25% | | Zhengzhou BAK Battery Co., Ltd | * | 12.69% | | Customer E | 27.82% | * | - Substantially all of the company's cash and cash equivalents are held by major financial institutions located in the PRC[164] 23. Segment Information This note provides details on the company's single operating segment and its net revenues by product category and geographic area - The company operates in a single business segment: the manufacture, commercialization, and distribution of high-power lithium-ion rechargeable batteries[166][167] Net Revenues by Product (US$) | Product Category | 3 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Electric vehicles | 2,280,763 | 2,885,305 | 4,099,646 | 4,425,875 | | Light electric vehicles | 44,195 | - | 64,315 | - | | Uninterruptable supplies | 3,264,413 | 5,204,499 | 10,788,509 | 13,106,540 | | Total | 5,589,371 | 8,089,804 | 14,952,470 | 17,532,415 | Net Revenues by Geographic Area (US$) | Geographic Area | 3 Months Ended Sep 30, 2018 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Mainland China | 3,799,136 | 8,016,931 | 12,299,525 | 17,034,593 | | USA | 1,765,193 | (3,638) | 1,858,225 | 219,827 | | Total | 5,589,371 | 8,089,804 | 14,952,470 | 17,532,415 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management discusses financial condition and operations, highlighting revenue growth, net loss, liquidity challenges, and debt cancellation activities - Net revenues increased by 44.74% to $8.1 million for the three months and by 17.26% to $17.5 million for the nine months ended September 30, 2019, primarily driven by sales for uninterruptible power supplies and electric vehicles[218][235] - The company shifted from a gross loss to a gross profit for both the three and nine months ended September 30, 2019, due to improved production efficiency and cost control[228][239] - Net income shifted to a net loss of $1.8 million for the three months and $6.9 million for the nine months ended September 30, 2019, largely due to a significant decrease in other income (a one-time gain on technology transfer in 2018)[233][245] - The company executed multiple debt cancellation agreements in 2019, converting approximately $14.5 million in various debts into common stock to improve its capital structure[192][194][197][200] - A working capital deficiency of $34.3 million and recurring net losses raise substantial doubt about the company's ability to continue as a going concern, though management plans to secure additional financing and anticipates growth from the new energy market[247][249][250] Special Note Regarding Forward Looking Statements This note cautions readers about forward-looking statements, which involve risks and uncertainties, and disclaims any update obligation - The report contains forward-looking statements regarding market growth, product demand, financial projections, and management strategies, which involve risks and uncertainties[170] - Readers are cautioned to review disclosures in this report and other SEC filings, and the company disclaims any obligation to update forward-looking statements except as required by law[171] Use of Terms This note defines key terms used throughout the report and provides context for company entities and stock trading - This section defines key terms used throughout the report, including 'Company', 'BAK Asia', 'CBAK Trading', 'CBAK Power', 'CBAK Suzhou', 'China/PRC', 'RMB', 'U.S. dollar', 'SEC', 'Securities Act', and 'Exchange Act'[172] - CBAK New Energy (Suzhou) Co., Ltd. was established on May 4, 2018, focusing on new energy high-power battery packs[173] - The company's common stock trading symbol changed to CBAT on November 30, 2018, and began trading on the Nasdaq Capital Market on June 21, 2019[173] Overview This section provides a general overview of the company's operations, financial highlights, and going concern issues - The company's Dalian manufacturing facilities commenced commercial operations in July 2015, focusing on developing, manufacturing, and selling new energy high-power lithium batteries for electric vehicles, light electric vehicles, and other high-power applications[174] Financial Overview (3 Months Ended Sep 30) | Metric | 2018 (US$ million) | 2019 (US$ million) | Change (%) | | :----------------- | :----------------- | :----------------- | :--------- | | Net revenues | 5.6 | 8.1 | 45% | | Net profit (loss) | 7.9 | (1.8) | -122.8% | - As of September 30, 2019, the company had an accumulated deficit of $172.3 million and net assets of $11.5 million, with a working capital deficiency and short-term debt obligations raising substantial doubts about its ability to continue as a going concern[176] Bank Loans This section details the company's banking facilities, loan balances, repayments, and unutilized credit lines - The company has various banking facilities from Chinese banks, including long-term loans and revolving bank acceptance bills, secured by assets such as land use rights, buildings, machinery, equipment, and cash[181][184][186] - As of September 30, 2019, the company had RMB142.6 million (approximately $19.94 million) borrowed under a China Everbright Bank facility and $4.6 million in unutilized committed banking facilities[181][186] - The company repaid RMB0.8 million ($0.11 million) in December 2018 and RMB24.3 million ($3.4 million) in June 2019 for bank loans[181] - On October 15, 2019, the company borrowed RMB28 million (approximately $3.9 million) in bills payable from China Everbright Bank, secured by cash[186] Personal Loans and Debt Cancellation This section describes the company's debt cancellation agreements, converting various loans into common stock - In January 2019, the company converted $5.0 million (First Debt) in loans from Tianjin New Energy to Mr. Dawei Li and Mr. Yunfei Li into 5,098,040 shares of common stock[191][192] - In April 2019, $5.4 million (Second Debt) in loans from Tianjin New Energy was converted into 5,205,905 shares of common stock for Mr. Jun Lang, Ms. Jing Shi, and Asia EVK[193][194] - In July 2019, $3.9 million (Third Debt) and $3.2 million (Fourth Debt) totaling $7.1 million were converted into 7,092,219 shares of common stock for Mr. Dawei Li, Mr. Yunfei Li, and Asia EVK[195][196][197] - In October 2019, $4.2 million (Fifth Debt) and Unpaid Earnest Money were converted into 8,600,017 shares of common stock for Mr. Shangdong Liu, Mr. Shibin Mao, Ms. Lijuan Wang, and Mr. Ping Shen[199][200] - The Chinese government's subsidy policies for new energy vehicles, while promoting long-term development, led to a sharp decrease in EV battery prices and a temporary reduction in the company's R&D investment for new EV products[205] Financial Performance Highlights for the Quarter Ended September 30, 2019 This section summarizes key financial performance metrics for the quarter, including revenues, gross profit, and net loss Financial Highlights (3 Months Ended Sep 30) | Metric | 2018 (US$ million) | 2019 (US$ million) | Change (%) | | :---------------------------------- | :----------------- | :----------------- | :--------- | | Net revenues | 5.6 | 8.1 | 45% | | Gross profit (loss) | (1.8) | 0.7 | 138.9% | | Operating loss | (4.1) | (1.5) | 63.4% | | Net loss | (7.9) | (1.8) | -122.8% | | Fully diluted income (loss) per share | 0.30 | (0.04) | -113.3% | Financial Statement Presentation This section outlines the company's accounting policies for revenue recognition, cost of revenues, operating expenses, and income taxes - The company recognizes revenues following the five-step model prescribed under ASU No. 2014-09, typically upon delivery of products to the customer[209][210] - Cost of revenues includes material costs, employee remuneration, share-based compensation, depreciation, and inventory write-downs[213] - Operating expenses are categorized into research and development, sales and marketing, and general and administrative expenses[214][215][216] - Income tax expenses are applied at 25% for PRC subsidiaries, 16.5% for the Hong Kong subsidiary, and up to 21% for the U.S. entity, with no tax provision made due to lack of assessable income[217] Results of Operations This section analyzes the company's financial results, comparing performance across different periods Comparison of Three Months Ended September 30, 2018 and 2019 This section compares the company's financial performance for the three months ended September 30, 2018 and 2019 Results of Operations (3 Months Ended Sep 30, US$ thousands) | Metric | 2018 | 2019 | Change ($) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Net revenues | 5,589 | 8,089 | 2,500 | 44.74 | | Gross profit (loss) | (1,838) | 659 | 2,497 | 135.85 | | Operating loss | (4,115) | (1,500) | 2,615 | 63.55 | | Net income (loss) | 7,921 | (1,787) | (9,708) | (122.56) | | Net income (loss) attributable to shareholders | 7,929 | (1,773) | (9,702) | (122.36) | Net Revenues by Product (3 Months Ended Sep 30, US$ thousands) | Product Category | 2018 | 2019 | Change ($) | Change (%) | | :---------------------------------- | :--- | :--- | :--------- | :--------- | | Electric vehicles | 2,281 | 2,885 | 604 | 26.47 | | Light electric vehicles | 44 | - | (44) | (100) | | Uninterruptable supplies | 3,264 | 5,204 | 1,941 | 59.43 | - Gross profit improved significantly due to enhanced production line efficiency and cost control, shifting from a gross loss of $1.8 million in 2018 to a gross profit of $0.7 million in 2019[228] - Other income decreased by 99.70% to $0.04 million in 2019, primarily because of a $12.3 million gain on the transfer of patented proprietary technology recorded in 2018[219][233] Comparison of Nine Months Ended September 30, 2018 and 2019 This section compares the company's financial performance for the nine months ended September 30, 2018 and 2019 Results of Operations (9 Months Ended Sep 30, US$ thousands) | Metric | 2018 | 2019 | Change ($) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Net revenues | 14,952 | 17,532 | 2,580 | 17.26 | | Gross profit (loss) | (3,234) | 210 | 3,444 | 106.49 | | Operating loss | (9,819) | (6,105) | 3,714 | 37.82 | | Net income (loss) | 1,907 | (6,929) | (8,836) | (463.35) | | Net income (loss) attributable to shareholders | 1,918 | (6,878) | (8,796) | (458.60) | Net Revenues by Product (9 Months Ended Sep 30, US$ thousands) | Product Category | 2018 | 2019 | Change ($) | Change (%) | | :---------------------------------- | :--- | :--- | :--------- | :--------- | | Electric vehicles | 4,100 | 4,426 | 326 | 7.95 | | Light electric vehicles | 64 | - | (64) | (100) | | Uninterruptable supplies | 10,788 | 13,106 | 2,318 | 21.49 | - Finance expenses, net, increased by 60.82% to $1 million, primarily due to higher average bank loan balances and new borrowings from Jilin Province Trust Co. Ltd. in 2019[234][244] - Research and development expenses decreased by 27.6% to $1.4 million, partly due to reduced material usage and less R&D after the technology transfer in 2018[240] - General and administrative expenses increased by 9.7% to $4.0 million, mainly due to a $0.3 million increase in the allowance for doubtful accounts[242] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and plans for future financing and growth - As of September 30, 2019, the company had cash and cash equivalents of $0.2 million and a net working capital deficiency of $34.3 million, raising substantial doubts about its ability to continue as a going concern[247] - The company plans to expand product lines and manufacturing capacity, and intends to raise additional funds through bank borrowings and equity financing, anticipating increased orders from the new energy market[249][250] Cash Flow Summary (9 Months Ended Sep 30, US$ thousands) | Cash Flow Activity | 2018 | 2019 | | :---------------------------------------------------------------- | :--- | :--- | | Net cash provided by (used in) operating activities | 9,141 | (13,906) | | Net cash used in investing activities | (6,561) | (1,999) | | Net cash provided by financing activities | 7,371 | 7,291 | | Net increase (decrease) in cash and cash equivalents and restricted cash | 8,898 | (9,108) | | Cash and cash equivalents and restricted cash at the end of period | 19,647 | 8,581 | - Net cash used in operating activities was $13.9 million in 2019, a significant shift from $9.1 million provided in 2018, mainly due to net loss and settlements of payables[254] - Net cash provided by financing activities remained stable at $7.3 million in 2019, primarily from borrowings and a promissory note, offset by bank loan repayments[256] Capital Expenditures This section details the company's capital expenditures for manufacturing facilities and future expansion plans - Capital expenditures decreased to $2.0 million for the nine months ended September 30, 2019, from $6.6 million in the same period of 2018, primarily for the construction of Dalian manufacturing facilities[259] - The company estimates total capital expenditures for the year ending December 31, 2019, to be approximately $6.0 million, aimed at expanding new automatic manufacturing lines[259] Contractual Obligations and Commercial Commitments This section outlines the company's various contractual obligations and commercial commitments, including loans and capital injections Contractual Obligations and Commercial Commitments (As of Sep 30, 2019, US$ thousands) | Contractual Obligations | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :------------------------------------------------ | :---- | :--------------- | :---------- | :---------- | :---------------- | | Current maturities of long-term bank loans | 10,562 | 10,562 | - | - | - | | Long-term bank loans | 9,389 | - | 9,389 | - | - | | Bills payable | 13,922 | 13,922 | - | - | - | | Notes payable | 1,294 | 1,294 | - | - | - | | Other short-term loans | 8,299 | 8,299 | - | - | - | | Capital injection to CBAK Trading | 3,900 | 3,900 | - | - | - | | Capital injection to CBAK Power | 20,000 | 20,000 | - | - | - | | Capital commitments for construction of buildings | 3,310 | 3,310 | - | - | - | | Capital commitments for purchase of equipment | 336 | 336 | - | - | - | | Future interest payment on bank loans | 1,640 | 1,226 | 414 | - | - | | Total | 73,508 | 63,705 | 9,803 | - | - | Off-Balance Sheet Transactions This section confirms the absence of any off-balance sheet transactions or arrangements - The company has not entered into any off-balance sheet transactions, agreements, or contractual arrangements with unconsolidated entities[261] Critical Accounting Policies This section refers to the company's critical accounting policies and estimates, prepared under U.S. GAAP - The company's condensed consolidated financial information is prepared in accordance with U.S. GAAP, requiring significant judgments, estimates, and assumptions[262] - A detailed description of critical accounting policies and estimates is available in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018[263] Changes in Accounting Standards This section directs readers to Note 1 for details on recently issued accounting standards - Refer to Note 1 of the condensed consolidated financial statements for a discussion of recently issued accounting standards[264] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company - This item is marked as 'Not applicable'[265] ITEM 4. CONTROLS AND PROCEDURES. This section evaluates the effectiveness of disclosure controls and internal control over financial reporting, noting material weaknesses and remediation plans - Management concluded that the company's disclosure controls and procedures were ineffective as of September 30, 2019[267] - Material weaknesses identified include a lack of appropriate policies and procedures for evaluating accounting and disclosures of key documents, and insufficient skilled accounting personnel with US GAAP and SEC reporting experience[269][270] - Remediation plans involve providing training to the financial team and hiring a permanent chief financial officer with significant US GAAP and SEC reporting experience[271] Evaluation of Disclosure Controls and Procedures This section details the evaluation of disclosure controls, concluding their ineffectiveness due to material weaknesses - The Chief Executive Officer and Interim Chief Financial Officer concluded that disclosure controls and procedures were ineffective as of September 30, 2019[267] - Material weaknesses include the absence of appropriate policies for accounting and disclosures of key documents and agreements, and a shortage of skilled accounting personnel with US GAAP and SEC reporting experience[269][270] - Remediation efforts include providing training to the financial team and hiring a permanent CFO with relevant experience[271] Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting, aside from previously discussed weaknesses - No material changes in internal controls over financial reporting occurred during the quarter ended September 30, 2019, other than the material weaknesses previously discussed[273] PART II. OTHER INFORMATION This section provides disclosures on legal proceedings, risk factors, equity sales, and other miscellaneous information ITEM 1. LEGAL PROCEEDINGS. This section details ongoing legal proceedings, including lawsuits with contractors and customers, and employee arbitrations, resulting in frozen assets - A lawsuit with Shenzhen Huijie Purification System Engineering Co., Ltd. has resulted in CBAK Power's bank deposits of $1,179,318 being frozen until August 27, 2020, with ongoing appeals regarding construction costs[275][276] - The company made a full provision of $2,437,867 against a receivable from Pingxiang Anyuan Tourism Bus Manufacturing Co., Ltd. (Anyuan Bus), after the court affirmed the original judgment and dismissed the company's appeal to add shareholders as debtors[278][279] - Bank deposits of $0.16 million were frozen due to an arbitration with Shenzhen Xinjiatuo Automobile Technology Co., Ltd., against which the company filed a counterclaim for $0.28 million[280] - Bank deposits of $0.17 million were frozen due to employee arbitration at CBAK Suzhou for unpaid salaries and compensation, with an agreement subsequently reached for payment[281] ITEM 1A. RISK FACTORS. This section states that there are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - There are no material changes from the risk factors previously disclosed in Item 1A 'Risk Factors' of the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[283] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - This item is marked as 'None'[283] ITEM 3. DEFAULTS UPON SENIOR SECURITIES. This section states that there were no defaults upon senior securities to report for the period - This item is marked as 'None'[283] ITEM 4. MINE SAFETY DISCLOSURES. This section indicates that mine safety disclosures are not applicable to the company - This item is marked as 'Not applicable'[283] ITEM 5. OTHER INFORMATION. This section states that there is no other information to report for the period - This item is marked as 'None'[283] ITEM 6. EXHIBITS. This section lists the exhibits filed as part of the report, including certifications of principal executive and financial officers under the Sarbanes-Oxley Act and various XBRL documents - Exhibits include Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 and furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002[284] - XBRL documents (Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents) are also filed as exhibits[284] SIGNATURES This section confirms the official signing of the report by the company's principal executive and financial officers - The report was duly signed on November 19, 2019, by Yunfei Li, Chief Executive Officer, and Xiangyu Pei, Interim Chief Financial Officer, of CBAK Energy Technology, Inc[286] EXHIBIT INDEX This section provides a comprehensive list of all exhibits accompanying the report - This section provides a duplicate list of the exhibits filed with the report, consistent with Item 6[287]