CBAK Energy(CBAT) - 2020 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements. This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020 Condensed Consolidated Balance Sheets Total assets slightly decreased while total equity increased between December 2019 and June 2020 | Metric | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:---| | Total Assets | 95,583,557 | 92,407,808 | | Total Current Assets | 28,488,995 | 27,503,370 | | Total Liabilities | 81,925,501 | 77,284,571 | | Total Current Liabilities | 58,998,150 | 64,213,897 | | Total Equity | 13,658,056 | 15,123,237 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net revenues increased and net loss significantly reduced for the three and six months ended June 30, 2020 | Metric | 3 Months Ended Jun 30, 2019 (US$) | 3 Months Ended Jun 30, 2020 (US$) | 6 Months Ended Jun 30, 2019 (US$) | 6 Months Ended Jun 30, 2020 (US$) | |:---|:---|:---|:---|:---| | Net Revenues | 4,270,936 | 4,624,247 | 9,442,611 | 11,525,521 | | Gross (Loss) Profit | (219,576) | 87,610 | (448,584) | 293,613 | | Operating Loss | (2,065,985) | (909,783) | (4,604,380) | (2,885,285) | | Net Loss | (2,334,174) | (1,198,167) | (5,141,507) | (3,552,278) | | Basic and Diluted Loss per Share | (0.07) | (0.02) | (0.16) | (0.06) | Condensed Consolidated Statements of Changes in Shareholders' Equity (Deficit) Shareholders' equity increased to $15.12 million by June 30, 2020, driven by common stock issuance despite a net loss | Metric | Jan 1, 2020 (US$) | Jun 30, 2020 (US$) | |:---|:---|:---| | Total Shareholders' Equity | 13,658,056 | 15,123,237 | | Common Stock Issued (shares) | 53,220,902 | 63,802,338 | | Additional Paid-in Capital | 180,208,610 | 185,487,657 | | Accumulated Deficit | (176,177,413) | (179,734,609) | Condensed Consolidated Statements of Cash Flows Operating activities generated positive cash flow in H1 2020, a significant reversal from a cash outflow in H1 2019 | Cash Flow Activity | 6 Months Ended Jun 30, 2019 (US$) | 6 Months Ended Jun 30, 2020 (US$) | |:---|:---|:---| | Net Cash (Used in) Provided by Operating Activities | (4,892,178) | 1,981,672 | | Net Cash Used in Investing Activities | (1,406,484) | (779,064) | | Net Cash Provided by (Used in) Financing Activities | 6,090,395 | (2,077,522) | | Net Decrease in Cash and Cash Equivalents | (166,231) | (962,962) | | Cash and Cash Equivalents at End of Period | 17,523,262 | 6,170,986 | Notes to the Condensed Consolidated Financial Statements Detailed notes explain the company's business, accounting policies, debt, equity, and legal contingencies 1. Principal Activities, Basis of Presentation and Organization The company manufactures high-power lithium-ion batteries and faces going concern doubts due to recurring net losses - CBAK Energy Technology, Inc. focuses on manufacturing and distributing high-power lithium-ion rechargeable batteries for various applications including electric vehicles and uninterruptible power supplies[15] - The company has established new subsidiaries to expand its business in developing, manufacturing, and selling new energy high-power lithium batteries[37] - As of June 30, 2020, the company's working capital deficiency and recurring net losses raise substantial doubts about its ability to continue as a going concern[46] - The company has engaged in multiple debt-to-equity conversion agreements with various creditors and investors to manage its debt and raise capital[54][56][59] 2. Pledged deposits Pledged deposits increased to $6.02 million by June 2020, primarily securing bills payable and legal disputes | Pledged Deposits | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | For Bills Payable | 4,021,255 | 4,622,244 | | For Others (Legal Disputes) | 1,499,736 | 1,392,933 | | Total Pledged Deposits | 5,520,991 | 6,015,177 | - Several bank deposits were frozen due to lawsuits and arbitrations, with some settlements leading to the release of funds[92][93][94][95][96][97][98] 3. Trade Accounts and Bills Receivable, net Net trade accounts and bills receivable increased by 45.2% to $11.55 million in the first half of 2020 | Metric | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Trade Accounts Receivable | 12,517,626 | 16,464,428 | | Allowance for Doubtful Accounts | (4,650,686) | (5,009,230) | | Net Trade Accounts Receivable | 7,866,940 | 11,455,198 | | Bills Receivable | 85,480 | 92,261 | | Total Trade Accounts and Bills Receivable, net | 7,952,420 | 11,547,459 | | Allowance for Doubtful Accounts | Jun 30, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Balance at Beginning of Period | 3,657,173 | 4,650,686 | | Provision for the Period | 605,098 | 968,627 | | Reversal - Recoveries by Cash | (281,160) | (540,925) | | Charged to Consolidated Statements of Operations | 323,938 | 427,702 | | Foreign Exchange Adjustment | 2,939 | (69,158) | | Balance at End of Period | 3,984,050 | 5,009,230 | 4. Inventories Total inventories decreased by 38.2% to $5.36 million, mainly due to a reduction in finished goods | Inventory Category | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Raw Materials | 482,836 | 542,413 | | Work in Progress | 1,254,490 | 1,042,250 | | Finished Goods | 6,929,388 | 3,774,913 | | Total Inventories | 8,666,714 | 5,359,576 | - Write-downs of obsolete inventories charged to cost of revenues were $457,039 for the six months ended June 30, 2020[102][103] 5. Prepayments and Other Receivables Prepayments and other receivables decreased slightly to $4.43 million due to lower value-added tax recoverable | Category | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Value Added Tax Recoverable | 4,124,624 | 3,520,903 | | Prepayments to Suppliers | 60,090 | 301,964 | | Prepaid Operating Expenses | 317,151 | 381,525 | | Total Prepayments and Other Receivables, net | 4,735,913 | 4,425,349 | 6. Payables to Former Subsidiaries, net Payables to former subsidiaries remained stable at approximately $1.51 million as of June 30, 2020 | Former Subsidiary | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | BAK Tianjin | - | 10,936 | | BAK Shenzhen | 1,483,352 | 1,497,587 | | Total Payables to Former Subsidiaries | 1,483,352 | 1,508,523 | - Shenzhen BAK assigned its rights to $4.3 million in unpaid inventory costs owed by CBAK Power, which was subsequently converted into common stock[106] 7. Property, Plant and Equipment, net Net property, plant, and equipment decreased by 6.7% to $35.62 million due to accumulated depreciation | Category | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Buildings | 27,262,301 | 26,012,510 | | Machinery and Equipment | 22,719,932 | 22,391,950 | | Accumulated Depreciation | (8,044,692) | (9,046,208) | | Carrying Amount | 38,177,565 | 35,622,684 | - The company has not yet obtained property ownership certificates for buildings with a carrying amount of $23.11 million as of June 2020[108] 8. Construction in Progress Construction in progress increased to $22.26 million, primarily for facilities and production lines | Category | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Construction in Progress | 21,613,577 | 22,154,205 | | Prepayment for Acquisition of Property, Plant and Equipment | 94,047 | 104,449 | | Carrying Amount | 21,707,624 | 22,258,654 | - Capitalized interest for construction in progress was $620,222 for the six months ended June 30, 2020[111] 9. Right-of-use assets Right-of-use assets, mainly prepaid land leases, decreased to $7.01 million due to amortization | Metric | Amount (US$) | |:---|:--- | | Balance as of January 1, 2020 | 7,194,195 | | Amortization Charge for the Period | (79,881) | | Foreign Exchange Adjustment | (103,601) | | Balance as of June 30, 2020 | 7,010,713 | 10. Intangible Assets, net Net intangible assets, consisting of computer software, decreased to $12,387 due to amortization | Metric | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Computer Software at Cost | 30,648 | 30,205 | | Accumulated Amortization | (15,470) | (17,818) | | Net Intangible Assets | 15,178 | 12,387 | - Amortization expenses were $2,582 for the six months ended June 30, 2020[113] 11. Trade Accounts and Bills Payable Trade accounts and bills payable remained stable at $14.76 million as of June 30, 2020 | Category | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Trade Accounts Payable | 11,157,014 | 9,509,354 | | Bank Acceptance Bills | 3,915,094 | 4,583,372 | | Commercial Acceptance Bills | - | 670,679 | | Total Trade Accounts and Bills Payable | 15,072,108 | 14,763,405 | - All bills payable are of a trading nature and mature within one year, with bank acceptance bills pledged by bank deposits[114][115] 12. Loans Total bank loans decreased slightly to $25.56 million, with a significant portion reclassified as current | Loan Type | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Short-term Bank Loan | 5,730,289 | 5,647,478 | | Current Maturities of Long-term Bank Loans | 10,844,463 | 19,914,792 | | Long-term Bank Borrowings | 9,519,029 | - | | Total Bank Loans | 26,093,781 | 25,562,270 | | Other Short-term Loans | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Advances from Related Parties | 399,149 | 467,273 | | Advances from Unrelated Third Party | 6,952,438 | 4,672,237 | | Total Other Short-term Loans | 7,351,587 | 5,139,510 | - The company obtained banking facilities from China Everbright Bank for RMB200 million (approx $28.3 million) with a repayment schedule extending to June 2021[115][117] - Other short-term loans from related and unrelated parties totaled $5.14 million as of June 30, 2020[127] 13. Accrued Expenses and Other Payables Accrued expenses and other payables decreased to $14.66 million due to reduced construction costs payable | Category | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Construction Costs Payable | 1,335,483 | 424,275 | | Equipment Purchase Payable | 7,440,131 | 7,434,478 | | Accrued Staff Costs | 2,485,384 | 2,672,735 | | Other Payables and Accruals | 2,346,403 | 2,599,088 | | Total Accrued Expenses and Other Payables | 15,527,589 | 14,664,868 | - The company has a remaining provision of $159,000 for accrued liquidated damages related to past registration rights agreements[135][137] 14. Deferred Government Grants Deferred government grants decreased to $4.13 million as a portion was recognized as income or offset expenses | Category | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Total Government Grants | 4,260,833 | 4,129,272 | | Less: Current Portion | (142,026) | (139,974) | | Non-current Portion | 4,118,807 | 3,989,298 | - Government grants of $70,307 for the six months ended June 30, 2020, were offset against depreciation expenses[140] 15. Product Warranty Provision The company maintains a product warranty provision for new battery products with coverage up to eight years - Warranty coverage ranges from six months to eight years depending on the battery product type[141] 16. Notes payable Two promissory notes with Atlas Sciences, LLC have been partially converted into common stock through exchanges | Metric | 3 Months Ended Jun 30, 2020 (US$) | 6 Months Ended Jun 30, 2020 (US$) | |:---|:---|:--- | | Note I: Amortization of Debt Discount | 31,597 | 63,194 | | Note I: Coupon Interest | 26,944 | 59,262 | | Note II: Amortization of Debt Discount | 37,917 | 75,417 | | Note II: Coupon Interest | 41,883 | 83,964 | - Note I, with an original principal of $1,395,000, has seen $650,000 of principal converted into common stock[143][144][145][146][147][148] - Note II, with an original principal of $1,670,000, had $250,000 of its principal exchanged for common stock[152][153] 17. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities The company reported no income tax expense due to net losses and maintains a full valuation allowance against deferred tax assets | Deferred Tax Assets | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | Net Operating Loss Carried Forward | 29,361,274 | 30,094,323 | | Valuation Allowance | (32,944,381) | (33,541,535) | | Deferred Tax Assets, Non-current | - | - | - No provision for income taxes was made as the company had no taxable income[160] - Subsidiary CBAK Power is entitled to a preferential tax rate of 15% as a 'High-new technology enterprise'[162] - The company has U.S. net operating loss carryforwards of $103.58 million and PRC net operating loss carryforwards of $33.37 million[165] 18. Share-based Compensation The company recognized non-cash share-based compensation expenses from restricted shares granted under its 2015 Equity Incentive Plan | Non-vested Restricted Share Units (August 23, 2019 grant) | Number of Shares | |:---|:--- | | Non-vested shares as of January 1, 2020 | 1,505,833 | | Vested | (293,498) | | Forfeited | (58,333) | | Non-vested shares as of June 30, 2020 | 1,154,002 | - Non-cash share-based compensation expenses were $454,096 for the six months ended June 30, 2020[176] - As of June 30, 2020, unrecognized stock-based compensation associated with restricted shares totaled $510,732[176] 19. Loss Per Share Basic and diluted loss per share decreased in H1 2020 due to a lower net loss and more shares outstanding | Metric | 3 Months Ended Jun 30, 2019 | 3 Months Ended Jun 30, 2020 | 6 Months Ended Jun 30, 2019 | 6 Months Ended Jun 30, 2020 | |:---|:---|:---|:---|:--- | | Net Loss Attributable to Shareholders | (2,317,384) | (1,197,215) | (5,104,776) | (3,557,196) | | Weighted Average Shares (Basic and Diluted) | 35,379,994 | 60,430,255 | 32,095,479 | 56,877,900 | | Loss Per Share – Basic and Diluted | (0.07) | (0.02) | (0.16) | (0.06) | - For the six months ended June 30, 2020, 1,154,002 unvested restricted shares were anti-dilutive and excluded from the diluted EPS computation[179] 20. Fair Value of Financial Instruments The carrying amounts of the company's financial instruments approximate their fair values - The company classifies fair value measurements into a three-level hierarchy based on observable and unobservable inputs[180][181] - Carrying amounts of most financial assets and liabilities approximate their fair values due to short maturity or market interest rates[182] 21. Commitments and Contingencies The company has significant capital commitments and is involved in numerous legal proceedings over unpaid costs | Capital Commitments | Dec 31, 2019 (US$) | Jun 30, 2020 (US$) | |:---|:---|:--- | | For Construction of Buildings | 3,397,961 | 1,729,629 | | For Purchases of Equipment | - | 303,976 | | Capital Injection to CBAK Power, CBAK Trading and CBAK Energy | 83,900,000 | 82,565,000 | | Total Contracted Capital Commitments | 87,297,961 | 84,598,605 | - The company is involved in multiple lawsuits and arbitrations concerning unpaid fees, leading to bank deposit freezes in several instances[185][188][192][194][195][197][198][199][200][201][203] - A significant legal dispute with Anyuan Bus for $2.47 million remains in the enforcement phase[187] 22. Concentrations and Credit Risk The company faces significant customer and supplier concentration risk | Top Customers (3 Months Ended Jun 30, 2020) | Net Revenue (US$) | % of Total | |:---|:---|:--- | | Customer B | 2,584,606 | 55.89% | | Customer D | 1,626,944 | 35.18% | | Top Customers (6 Months Ended Jun 30, 2020) | Net Revenue (US$) | % of Total | |:---|:---|:--- | | Customer B | 4,677,699 | 41.04% | | Customer D | 2,009,845 | 17.44% | | Customer E | 3,767,605 | 32.69% | | Top Customers (Accounts Receivable Jun 30, 2020) | Accounts Receivable (US$) | % of Total | |:---|:---|:--- | | Customer B | 1,740,448 | 15.19% | | Customer C | 1,519,014 | 13.26% | | Customer E | 4,103,268 | 35.82% | - Shenzhen BAK was a significant supplier, accounting for 64.96% of net purchases for the six months ended June 30, 2020[209] 23. Segment Information The company operates in a single segment, with revenues shifting towards uninterruptible power supplies | Product Application | 3 Months Ended Jun 30, 2019 (US$) | 3 Months Ended Jun 30, 2020 (US$) | 6 Months Ended Jun 30, 2019 (US$) | 6 Months Ended Jun 30, 2020 (US$) | |:---|:---|:---|:---|:--- | | Electric Vehicles | 326,484 | 118,737 | 1,540,570 | 333,855 | | Light Electric Vehicles | - | 2,593 | - | 3,344 | | Uninterruptable Supplies | 3,944,452 | 4,502,917 | 7,902,041 | 11,188,322 | | Total Net Revenues | 4,270,936 | 4,624,247 | 9,442,611 | 11,525,521 | - The company operates as a single business segment producing high-power lithium battery cells[215] - Mainland China accounts for the vast majority of net revenues[216] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses improved financial results, ongoing liquidity management, and expansion efforts amid market challenges Overview The company manufactures high-power lithium batteries and saw revenue growth driven by uninterruptible power supply sales | Metric | 3 Months Ended Jun 30, 2019 (US$) | 3 Months Ended Jun 30, 2020 (US$) | |:---|:---|:--- | | Revenues | 4.3 million | 4.6 million | | Net Loss | 2.3 million | 1.2 million | - The company's core business is developing and manufacturing new energy high-power lithium batteries[222] - Business is conducted through wholly-owned operating subsidiaries in China[224][225] - Revenue grew by $2.1 million (22.1%) for the six months ended June 30, 2020, driven by increased sales of batteries for uninterruptible power supplies (UPS)[228] Recent Developments Key developments include a major investment agreement, ongoing debt-to-equity conversions, and new subsidiary formations - BAK Asia entered a framework investment agreement to develop lithium battery projects with a production capacity of 8Gwh[230] - The company continued to engage in debt-to-equity exchange agreements with Atlas Sciences, LLC[232][233][234] - Two new subsidiaries were formed in China to expand the new energy high-power lithium battery business[236] Financial Performance Highlights for the Quarter Ended June 30, 2020 The company reported an 8% revenue increase and significant reductions in operating and net losses for Q2 2020 | Metric | Q2 2019 (US$) | Q2 2020 (US$) | Change (US$) | Change (%) | |:---|:---|:---|:---|:--- | | Net Revenues | 4.3 million | 4.6 million | 0.3 million | 8% | | Gross Profit (Loss) | (0.2 million) | 0.1 million | 0.3 million | (140)% | | Operating Loss | (2.1 million) | (0.9 million) | 1.2 million | 56% | | Net Loss | (2.3 million) | (1.2 million) | 1.1 million | 49% | | Fully Diluted Loss per Share | (0.07) | (0.02) | - | - | Financial Statement Presentation This section outlines the company's revenue recognition policy and defines key expense categories - Revenue from product sales is recognized when the customer obtains control of the product, typically upon delivery[241][242][243][244] - Cost of revenues includes material costs, employee remuneration, depreciation, and inventory write-downs[245] - Operating expenses are categorized into research and development, sales and marketing, and general and administrative expenses[246][247][248] Results of Operations Financial performance improved in H1 2020 with increased revenues and reduced losses, driven by strong UPS battery sales Comparison of Three Months Ended June 30, 2019 and 2020 Net revenues increased 8% to $4.6 million in Q2 2020, while the company achieved a gross profit and reduced its net loss by 49% | Metric | Q2 2019 (US$ thousands) | Q2 2020 (US$ thousands) | Change (US$ thousands) | Change (%) | |:---|:---|:---|:---|:--- | | Net Revenues | 4,271 | 4,625 | 354 | 8 | | Gross (Loss) Profit | (220) | 88 | 308 | (140) | | Operating Loss | (2,067) | (910) | 1,157 | 56 | | Net Loss | (2,335) | (1,198) | 1,137 | 49 | | High Power Lithium Batteries Used In | Q2 2019 (US$ thousands) | Q2 2020 (US$ thousands) | Change (US$ thousands) | Change (%) | |:---|:---|:---|:---|:--- | | Electric Vehicles | 326 | 119 | (207) | (63) | | Uninterruptable Supplies | 3,945 | 4,503 | 558 | 14% | - Research and development expenses decreased by 25% due to lower salaries and government relief measures[255] - Sales and marketing expenses decreased by 62%, and general and administrative expenses decreased by 7% due to cost control[256][258] Comparison of Six Months Ended June 30, 2019 and 2020 Net revenues increased 22% to $11.5 million in H1 2020, while the company achieved a gross profit and reduced its net loss by 31% | Metric | H1 2019 (US$ thousands) | H1 2020 (US$ thousands) | Change (US$ thousands) | Change (%) | |:---|:---|:---|:---|:--- | | Net Revenues | 9,443 | 11,526 | 2,083 | 22 | | Gross (Loss) Profit | (449) | 294 | 743 | 166 | | Operating Loss | (4,605) | (2,885) | 1,720 | 37 | | Net Loss | (5,142) | (3,552) | 1,590 | 31 | | High Power Lithium Batteries Used In | H1 2019 (US$ thousands) | H1 2020 (US$ thousands) | Change (US$ thousands) | Change (%) | |:---|:---|:---|:---|:--- | | Electric Vehicles | 1,541 | 334 | (1,207) | (78) | | Uninterruptable Supplies | 7,902 | 11,189 | 3,287 | 42 | - Gross profit improved significantly due to enhanced product quality and cost control[267][269] - All operating expense categories decreased, primarily due to reduced salaries and government relief measures[270][271][272] Liquidity and Capital Resources The company faces significant liquidity challenges and relies on external financing and debt conversions to fund operations - As of June 30, 2020, the company had a working capital deficiency of $36.7 million and an accumulated deficit of $179.7 million[279] - The company has obtained and renewed various banking facilities, including a RMB200 million (approx $28.3 million) facility[280][281] - The company has utilized debt-to-equity conversions to manage its liabilities, converting approximately $18.7 million in various debts into common stock[291][293][296][299][306] - Capital expenditures for H1 2020 were $0.8 million, with an estimated $4.0 million for the full year to expand manufacturing lines[325] - The company plans to raise additional funds through bank borrowings and equity financing to meet cash demands and finance expansion[313][315] Contractual Obligations and Commercial Commitments Total contractual obligations were $126.5 million as of June 30, 2020, all due within one year | Contractual Obligations | Total (US$ thousands) | Less than 1 year (US$ thousands) | |:---|:---|:--- | | Current Maturities of Long-term Bank Loans | 19,915 | 19,915 | | Short-term Bank Loans | 5,647 | 5,647 | | Bills Payable | 5,254 | 5,254 | | Other Short-term Loans | 5,140 | 5,140 | | Notes Payable | 2,722 | 2,722 | | 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 | | Total | 126,518 | 126,518 | Off-Balance Sheet Transactions The company has not engaged in any off-balance sheet transactions or arrangements - The company has not entered into any off-balance sheet transactions[330] Critical Accounting Policies Financial statements are prepared under U.S. GAAP, with no material changes to critical accounting policies - The preparation of financial statements under U.S. GAAP involves significant judgments, estimates, and assumptions[331] - No material changes were made to the critical accounting policies previously disclosed in the 2019 Annual Report[332] Changes in Accounting Standards The company adopted a new standard for fair value measurement and is evaluating others for future implementation - The company applied ASU 2018-13, Fair Value Measurement, beginning January 1, 2020[87] - The company is evaluating the impact of ASU No. 2016-13 (Credit Losses) and ASU 2019-12 (Income Taxes)[88][89] Item 3. Quantitative and Qualitative Disclosures About Market Risk. No quantitative and qualitative disclosures about market risk are applicable for the reported period - The company has no applicable quantitative and qualitative disclosures about market risk for the period[335] Item 4. Controls and Procedures. Management concluded that disclosure controls and procedures were ineffective due to material weaknesses in internal control - The company's disclosure controls and procedures were deemed ineffective as of June 30, 2020[337] - Material weaknesses identified include a lack of appropriate accounting policies and insufficient skilled accounting personnel with U.S. GAAP experience[338][339] - Remediation measures include hiring a permanent Chief Financial Officer and providing staff training[339][340] PART II OTHER INFORMATION Item 1. Legal Proceedings. The company is involved in numerous legal proceedings related to unpaid construction, equipment, and material costs - The company is a party to various lawsuits and arbitrations with suppliers and contractors[343][345][346][349][352][353][354][355][356][357][358][359][360][361] - Many legal actions involve claims for unpaid contract amounts, often leading to court orders to freeze the company's bank deposits[343][347][349][350][352][353][354][357][360] - Some cases have reached settlements or final judgments, while others remain ongoing[344][353] Item 1A. Risk Factors. There are no material changes to the risk factors previously disclosed in the 2019 Annual Report - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019[363] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. No unregistered sales of equity securities or stock repurchases occurred during the period, other than previously reported - No unregistered sales of equity securities or repurchase of common stock occurred during the reporting period, other than those previously disclosed in Form 8-K[364] Item 3. Defaults Upon Senior Securities. There were no defaults upon senior securities during the period - There were no defaults upon senior securities[364] Item 4. Mine Safety Disclosures. Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[364] Item 5. Other Information. There is no other information to report for the period - No other information to report[364] Item 6. Exhibits. This section lists the certifications and XBRL documents filed as exhibits with the report - Exhibits include Certifications of Principal Executive Officer and Principal Financial Officer and XBRL documents[365][368]