CBAK Energy(CBAT) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements for Q1 2021 and 2022, with detailed notes Condensed Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and equity, at specific dates Condensed Consolidated Balance Sheets (as of Dec 31, 2021 and Mar 31, 2022) | Metric | Dec 31, 2021 (US$) | Mar 31, 2022 (US$) | | :----------------------------- | :----------------- | :----------------- | | Total Assets | 262,617,997 | 278,795,221 | | Total Liabilities | 121,733,424 | 136,763,173 | | Total Equity | 140,884,573 | 142,032,048 | | Current Assets | 122,841,687 | 139,976,970 | | Current Liabilities | 112,767,476 | 126,793,973 | | Cash and cash equivalents | 7,357,875 | 5,608,465 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This statement details the company's revenues, expenses, and net income or loss over the reporting periods Condensed Consolidated Statements of Operations (Three Months Ended March 31) | Metric | 2021 (US$) | 2022 (US$) | Change (US$) | Change (%) | | :-------------------------------------------------- | :--------- | :--------- | :----------- | :--------- | | Net revenues | 9,416,049 | 80,196,298 | 70,780,249 | 752% | | Gross profit | 1,839,429 | 5,316,354 | 3,476,925 | 189% | | Operating loss | (27,882) | (1,335,261) | (1,307,379) | 4689% | | Net income | 29,608,168 | 680,503 | (28,927,665) | -98% | | Net income attributable to shareholders | 29,609,282 | 444,453 | (29,164,829) | -98% | | Basic Income per share | 0.35 | 0.01 | (0.34) | -97% | | Diluted Income per share | 0.35 | 0.01 | (0.34) | -97% | - The significant decrease in net income for Q1 2022 compared to Q1 2021 was largely due to a substantial reduction in the gain from changes in the fair value of warrants liability, which dropped from $28.43 million in Q1 2021 to $1.63 million in Q1 2022[13] Condensed Consolidated Statements of Changes in Shareholders' Equity This statement outlines changes in the company's equity components, including capital and accumulated deficit Condensed Consolidated Statements of Changes in Shareholders' Equity (as of March 31) | Metric | 2021 (US$) | 2022 (US$) | | :----------------------------------- | :--------- | :--------- | | Total Shareholders' Equity | 97,882,963 | 142,032,048 | | Accumulated Deficit | (154,375,029) | (122,053,806) | | Additional Paid-in Capital | 241,048,002 | 241,981,141 | | Non-controlling interests | 1,718 | 7,870,073 | Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | Metric | 2021 (US$) | 2022 (US$) | | :------------------------------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | 763,859 | 5,051,103 | | Net cash used in investing activities | (5,681,131) | (2,717,822) | | Net cash provided by financing activities | 65,349,690 | 1,898,756 | | Net increase in cash and cash equivalents and restricted cash | 60,768,702 | 4,395,938 | | Cash and cash equivalents and restricted cash at end of period | 81,440,200 | 30,750,562 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Principal Activities, Basis of Presentation and Organization This note details core business, Hitrans acquisition, COVID-19 impact, going concern, and accounting policies - The company's core business is the manufacture, commercialization, and distribution of high-power lithium-ion rechargeable batteries for various applications[21] - CBAK Energy Technology, Inc. acquired 81.56% of Hitrans in November 2021, expanding into the NCM precursor and cathode materials business[45][55] - The COVID-19 pandemic caused operational disruptions in 2021, including facility suspensions, and is expected to continue to materially adversely impact product demand[58] - The company's accumulated deficit and significant short-term debt raise substantial doubt about its ability to continue as a going concern, with plans to improve profitability and secure additional financing[59] - The company adopted ASU 2021-04 (Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options) from January 1, 2022, with no material impact on financial statements[62] Note 2. Pledged deposits Pledged deposits increased to $25.14 million by March 31, 2022, primarily to secure bills payable Pledged Deposits (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :----------------------- | :----------- | :----------- | | Pledged deposits with banks for bills payable | 18,996,749 | 25,141,517 | | Others | - | 580 | | Total | 18,996,749 | 25,142,097 | Note 3. Trade and Bills Receivable, net Trade and bills receivable, net, increased to $50.27 million by March 31, 2022, with higher bills receivable Trade and Bills Receivable, net (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :----------------------------- | :----------- | :----------- | | Trade accounts receivable | 48,707,457 | 46,364,398 | | Less: Allowance for doubtful accounts | (4,618,269) | (4,904,450) | | Bills receivable | 5,817,941 | 8,805,836 | | Total | 49,907,129 | 50,265,784 | - The allowance for doubtful accounts increased from $4.62 million at December 31, 2021, to $4.90 million at March 31, 2022, with a provision of $322,928 for the period[74] Note 4. Inventories Inventories significantly increased to $41.87 million by March 31, 2022, across all categories Inventories (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :--------------- | :----------- | :----------- | | Raw materials | 11,323,638 | 15,484,667 | | Work in progress | 8,093,002 | 9,428,354 | | Finished goods | 10,716,700 | 16,958,128 | | Total | 30,133,340 | 41,871,149 | - Write-downs of obsolete inventories increased from $233,305 for the three months ended March 31, 2021, to $406,152 for the same period in 2022[77] Note 5. Prepayments and Other Receivables Prepayments and other receivables increased to $14.52 million by March 31, 2022, due to VAT and supplier prepayments Prepayments and Other Receivables (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :-------------------------- | :----------- | :----------- | | Value added tax recoverable | 7,144,712 | 8,332,545 | | Prepayments to suppliers | 4,663,431 | 5,060,156 | | Prepaid operating expenses | 683,648 | 758,411 | | Total (net) | 12,746,990 | 14,516,068 | Note 6. Property, Plant and Equipment, net Net property, plant, and equipment decreased to $88.53 million by March 31, 2022, due to depreciation Property, Plant and Equipment, net (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :-------------------------- | :----------- | :----------- | | Carrying amount | 90,042,773 | 88,532,811 | | Accumulated depreciation | (15,312,245) | (17,620,341) | | Depreciation expense (3 months ended Mar 31) | 698,618 (2021) | 2,271,267 (2022) | - The company believes there was no impairment of property, plant, and equipment during the three months ended March 31, 2021 and 2022[82] Note 7. Construction in Progress Construction in progress increased to $28.41 million by March 31, 2022, for facilities and production lines Construction in Progress (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :------------------------------------------------ | :----------- | :----------- | | Construction in progress | 21,619,522 | 22,277,466 | | Prepayment for acquisition of property, plant and equipment | 5,723,570 | 6,132,827 | | Carrying amount | 27,343,092 | 28,410,293 | - Capitalized interest for construction in progress was $213,583 for the three months ended March 31, 2021, but nil for the same period in 2022[85] Note 8. Non-marketable equity securities Non-marketable equity securities were valued at $714,504 as of March 31, 2022, with no impairment Non-marketable Equity Securities (US$) | Category | Mar 31, 2022 | | :--------------- | :----------- | | Cost | 1,419,312 | | Impairment | (704,808) | | Carrying amount | 714,504 | - CBAK Power acquired 9.74% of the equity interests of Hunan DJY Technology Co., Ltd. for $1.40 million in April 2021[86] - No impairment loss was recognized for non-marketable equity securities for the three months ended March 31, 2022[87] Note 9. Lease This note details prepaid land use rights, sales-type leases, and operating leases, with increased expenses Prepaid Land Use Rights (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :-------------------------- | :----------- | :----------- | | Balance | 13,797,230 | 13,737,871 | | Amortization charge (3 months ended Mar 31) | (89,718) | | Foreign exchange adjustment | 30,359 | Net Investment in Sales-Type Leases (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | Total future minimum lease payments receivable | 1,737,817 | 1,587,106 | | Non-current portion | 838,528 | 714,933 | | Interest income (3 months ended Mar 31) | 26,637 (2021) | 29,069 (2022) | - Operating lease cost increased significantly from $11,321 for the three months ended March 31, 2021, to $212,691 for the same period in 2022[98] Note 10. Intangible Assets, net Intangible assets decreased to $1.83 million by March 31, 2022, due to amortization of a sewage permit Intangible Assets, net (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :-------------------- | :----------- | :----------- | | Carrying amount | 1,961,739 | 1,834,351 | | Accumulated amortization | (62,561) | (194,420) | | Amortization expenses (3 months ended Mar 31) | 686 (2021) | 131,571 (2022) | - The company obtained a five-year sewage discharge permit for its Zhejiang manufacturing facilities on January 27, 2022[105] Note 11. Acquisition of subsidiaries CBAK Power acquired 81.56% of Hitrans for $24.95 million, recognizing $1.61 million in goodwill - CBAK Power acquired 81.56% of registered equity interests (representing 75.57% of paid-up capital) of Zhejiang Hitrans Lithium Battery Technology Co., Ltd. (Hitrans)[108] - The acquisition was completed on November 26, 2021, with a total purchase consideration of $24.95 million[113][118] - The transaction resulted in the recognition of $1.61 million in goodwill, attributed to the strategic value and expected synergies from combining operations[118] - After the completion of the acquisition, Hitrans became a wholly-owned subsidiary of the Company[116] Note 12. Goodwill Goodwill increased slightly to $1.65 million by March 31, 2022, with no impairment recognized Goodwill (US$) | Category | Jan 1, 2022 | Mar 31, 2022 | | :---------------------- | :---------- | :----------- | | Balance | 1,645,232 | 1,650,629 | | Foreign exchange adjustment | 5,397 | | Balance at end of period | | 1,650,629 | - No impairment loss of Goodwill was recognized for the three months ended March 31, 2022 and 2021[120] Note 13. Trade and Bills Payable Trade and bills payable increased significantly to $79.27 million by March 31, 2022, driven by bank bills Trade and Bills Payable (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :---------------------------- | :----------- | :----------- | | Trade accounts payable | 40,352,638 | 46,550,602 | | Bills payable – Bank acceptance bills | 25,023,574 | 32,719,399 | | Total | 65,376,212 | 79,270,001 | - Bank acceptance bills were pledged by the company's bank deposits, bills receivable, and prepaid land use rights[123] Note 14. Loans Short-term bank borrowings increased to $14.67 million by March 31, 2022, with new facilities secured Loans (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :---------------------- | :----------- | :----------- | | Short-term bank borrowings | 8,811,820 | 14,674,721 | | Other short-term loans | 4,679,122 | 746,699 | | Total | 13,490,942 | 15,421,420 | - The company obtained new one-year term facilities from Agricultural Bank of China, Jiangsu Gaochun Rural Commercial Bank, and China Zheshang Bank Co., Ltd. Shangyu Branch in Q1 2022, totaling approximately $4.8 million[132][133] - These facilities are secured by pledged deposits, bills receivables, right-of-use assets, buildings, and personal guarantees from the CEO and his wife[135][132][133] Note 15. Accrued Expenses and Other Payables Accrued expenses and other payables increased to $24.48 million by March 31, 2022, due to customer deposits Accrued Expenses and Other Payables (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Construction costs payable | 2,036,008 | 1,529,170 | | Equipment purchase payable | 8,697,637 | 8,079,179 | | Customer deposits | 1,420,414 | 4,671,400 | | Accrued staff costs | 2,924,105 | 2,942,699 | | Accrued expenses | 4,161,548 | 3,601,292 | | Dividend payable to non-controlling interest | 1,444,737 | 1,446,583 | | Total | 22,963,700 | 24,477,309 | - The remaining provision for liquidated damages related to registration rights agreements was approximately $159,000 as of March 31, 2022[145] Note 16. Balances and Transactions With Related Parties This note details significant related party transactions and balances, with increased purchases and sales Related Party Transactions (Three Months Ended March 31) | Transaction | 2021 (US$) | 2022 (US$) | | :---------------------------------------------------------------- | :--------- | :--------- | | Purchase of finished goods from Zhengzhou BAK Battery Co., Ltd | 1,259,309 | 5,164,433 | | Sales of finished goods and raw materials to Zhengzhou BAK Battery Co., Ltd | 108,290 | 25,823,532 | | Sales of finished goods and raw materials to Shenzhen BAK Power Battery Co., Ltd | - | 112,468 | Key Related Party Balances (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :---------------------------------------------------------------- | :----------- | :----------- | | Receivables from Shenzhen BAK Power Battery Co., Ltd | 2,263,955 | 1,134,585 | | Trade receivable, net – Zhengzhou BAK Battery Co., Ltd. | 14,583,061 | 12,963,529 | | Trade payable, net – Zhengzhou BAK Battery Co., Ltd | (572,768) | (3,057,449) | | Payables to Shenzhen BAK Power Battery Co., Ltd | (326,507) | (325,624) | Note 17. Deferred Government Grants Deferred government grants decreased to $9.47 million by March 31, 2022, amortized against depreciation Deferred Government Grants (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :-------------------- | :----------- | :----------- | | Total government grants | 10,023,677 | 9,473,191 | | Current portion | (3,834,481) | (2,270,463) | | Non-current portion | 6,189,196 | 7,202,728 | | Offset against depreciation expenses (3 months ended Mar 31) | 38,133 (2021) | 566,972 (2022) | - Grants were received for land use rights, construction of manufacturing sites in Dalian, and to finance moving costs, construction works, and equipment purchases in Nanjing[162][163] Note 18. Product Warranty Provisions Product warranty provisions remained stable at $2.03 million by March 31, 2022, for EV and LEV batteries Product Warranty Provisions (US$) | Category | Dec 31, 2021 | Mar 31, 2022 | | :-------------------- | :----------- | :----------- | | Balance at end of year | 2,028,266 | 2,027,664 | | Current portion | (127,837) | (104,122) | | Non-current portion | 1,900,429 | 1,923,542 | | Warranty costs incurred | (34,439) (2021) | (9,419) (2022) | - Warranty coverage ranges from six months to eight years, depending on the product (battery cells, LEV modules, EV modules)[167] Note 19. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities The company recorded an income tax credit for Q1 2022, with PRC subsidiaries enjoying a 15% preferential rate Income Taxes (US$) | Category | Mar 31, 2021 | Mar 31, 2022 | | :-------------------- | :----------- | :----------- | | PRC income tax | - | - | | Deferred income tax credit | - | 93,546 | | Total Income tax credit | - | 93,546 | - CBAK Power and Hitrans are recognized as 'High-new technology enterprises' and enjoy a preferential tax rate of 15% from 2021 to 2024[177] - A valuation allowance of $36.75 million was provided as of March 31, 2022, against deferred tax assets due to the unlikelihood of realizing these potential tax benefits in the foreseeable future[181] Note 20. Statutory reserves PRC subsidiaries maintain statutory reserves, with $1.23 million held as of March 31, 2022, restricted from distribution - PRC subsidiaries are required to maintain a statutory reserve, with $1.23 million held as of March 31, 2022[185] - The statutory reserve is restricted for distribution or transfer out of the PRC[185] Note 21. Fair Value of Financial Instruments The company uses a three-level hierarchy for fair value measurements, with warrants valued using the Binomial Model - The company classifies fair value measurements into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable, significant inputs)[186][187] - The fair value of warrants and share options is determined using the Binomial Model with Level 3 inputs[189] - The carrying amounts of most other financial assets and liabilities approximate their fair values due to their short maturity or market interest rates[189] Note 22. Employee Benefit Plan The company participates in a government-mandated defined contribution plan, with increased employee benefits expensed Employee Benefits Expensed (US$) | Period | Amount | | :-------------------------- | :--------- | | Three months ended Mar 31, 2021 | 255,989 | | Three months ended Mar 31, 2022 | 569,536 | - Full-time employees in the PRC participate in a government-mandated defined contribution plan covering pension, medical care, housing, and other welfare benefits[190] Note 23. Share-based Compensation This note details restricted share and stock option grants, with decreased share-based compensation expenses - Total non-cash share-based compensation expense decreased from $148,818 for Q1 2021 to $34,779 for Q1 2022[16] - An Employees Stock Ownership Program granted options for 2,750,002 share units in November 2021, with vesting semi-annually over five years starting May 30, 2022. No stock compensation expenses were recorded for Q1 2022[203][204][205] - As of March 31, 2022, there was $35,942 in unrecognized stock-based compensation associated with restricted share units granted on October 23, 2020[202] Note 24. Income (Loss) Per Share Basic and diluted EPS significantly decreased to $0.01 for Q1 2022, reflecting a sharp decline in net income Income Per Share (US$) | Metric | Mar 31, 2021 | Mar 31, 2022 | | :-------------------------------------------------- | :----------- | :----------- | | Basic Income per share | 0.35 | 0.01 | | Diluted Income per share | 0.35 | 0.01 | | Weighted average shares outstanding – basic | 84,283,605 | 88,713,841 | | Weighted average shares outstanding – diluted | 84,933,913 | 88,734,957 | - For the three months ended March 31, 2022, 2,750,002 unvested options and all outstanding warrants were anti-dilutive and excluded from diluted EPS computation[211] Note 25. Warrants Warrants are derivative liabilities, with a $1.63 million fair value gain in Q1 2022 due to share price decline Warrants Liability (US$) | Metric | Dec 31, 2021 | Mar 31, 2022 | | :------------------------------------------------ | :----------- | :----------- | | Balance at the beginning of the year | 5,846,000 | 5,846,000 | | Fair value change of the issued warrants included in earnings | (61,802,000) (FY2021) | (1,632,000) (Q1 2022) | | Balance at end of period | 5,846,000 | 4,214,000 | - The fair value of outstanding warrants is calculated using the Binomial Model with Level 3 inputs, considering market price, exercise price, risk-free rate, dividend yield, expected term, and volatility[214][215][216][217][219] - As of March 31, 2022, there were 9,092,499 warrants outstanding with a weighted average exercise price of $7.19[220] Note 26. Commitments and Contingencies The company has $172 million in capital commitments and is involved in ongoing litigation Contracted Capital Commitments (US$ as of Mar 31, 2022) | Category | Amount | | :-------------------------- | :----------- | | For construction of buildings | 1,582,346 | | For purchases of equipment | 13,093,091 | | Capital injection | 157,296,525 | | Total | 171,971,962 | - An ongoing lawsuit with Shenzhen Huijie Purification System Engineering Co., Ltd. regarding construction costs was remanded for retrial, with CBAK Power accruing $0.9 million for construction costs as of March 31, 2022[225] - A lawsuit with Haoneng for equipment purchase failure was settled by an agreement requiring CBAK Power to purchase at least $2.4 million in equipment by December 31, 2023, or pay a penalty[227] Note 27. Concentrations and Credit Risk The company faces significant customer and supplier concentrations, managing credit risk with major PRC financial institutions Customer Concentration (Q1 2022) | Customer | % of Net Revenue | | :--------- | :--------------- | | Customer D | 30.05% | | Zhengzhou BAK Battery Co., Ltd | 32.20% | Supplier Concentration (Q1 2022) | Supplier | % of Net Purchase | | :--------- | :---------------- | | Supplier B | 25.30% | | Supplier C | 23.71% | - Credit risk related to cash and cash equivalents is managed by holding funds in major financial institutions located in the PRC, which management believes are of high credit quality[236] Note 28. Segment Information The company operates in two segments: CBAK (lithium battery cells) and Hitrans (materials), primarily in PRC - The company operates in two reportable segments: CBAK (manufacture and distribution of high-power lithium battery cells) and Hitrans (development and manufacturing of NCM precursor and cathode materials)[237] Net Revenues by Segment (Three Months Ended March 31, 2022) | Segment | Net Revenues (US$) | | :------ | :----------------- | | CBAT | 15,020,686 | | Hitrans | 65,175,612 | | Consolidated Total | 80,196,298 | Net Revenues by Product (Three Months Ended March 31) | Product Category | 2021 (US$) | 2022 (US$) | | :------------------------------------------------ | :--------- | :--------- | | High power lithium batteries | 9,416,049 | 15,020,686 | | Materials used in manufacturing of lithium batteries | - | 65,175,612 | | Total Consolidated Revenue | 9,416,049 | 80,196,298 | - Substantially all of the company's operations and long-lived assets are located in the PRC[238][245] Note 29. Subsequent events No material subsequent events were disclosed between March 31, 2022, and the financial statements issue date - The company has determined that there are no items to disclose as subsequent events from March 31, 2022, to the date the financial statements were issued[246] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial condition, revenue growth, operating loss, and liquidity challenges Special Note Regarding Forward Looking Statements This note clarifies that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements that are not guarantees of future performance and involve risks and uncertainties[249] - The company disclaims any obligation to update or revise forward-looking statements, except as required by law[250] Use of Terms This section defines key terms and abbreviations used throughout the report - This section defines key terms and abbreviations used throughout the report, including company names, subsidiaries, currencies, and regulatory bodies[251][253] Overview The company manufactures lithium batteries, expanded into NCM materials via Hitrans, and is expanding capabilities - The company manufactures new energy high-power lithium batteries and has expanded into NCM precursor and cathode materials through the acquisition of Hitrans[254] - The company operates in two segments: high-power lithium battery cells and materials used in high-power lithium battery cells[255] - The company is expanding manufacturing capabilities in Dalian and Nanjing and expects to secure more orders from the booming new energy market[257] Financial Performance Highlights for the Quarter Ended March 31, 2022 This section summarizes key financial metrics and performance trends for Q1 2022 Financial Highlights (Three Months Ended March 31, 2022 vs 2021) | Metric | 2021 (US$ Million) | 2022 (US$ Million) | Change (US$ Million) | Change (%) | | :-------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Net revenues | 9.4 | 80.2 | 70.8 | 752% | | Gross profit | 1.8 | 5.3 | 3.5 | 189% | | Operating loss | (0.03) | (1.3) | (1.3) | 4668% | | Net income | 29.6 | 0.7 | (28.9) | -98% | | Fully diluted EPS | 0.35 | 0.01 | (0.34) | -97% | Financial Statement Presentation This section describes the accounting policies and principles applied in preparing the financial statements - Revenue from product sales is recognized upon delivery to the customer, net of discounts and allowances[261] - Cost of revenues includes material costs, employee remuneration, share-based compensation, depreciation, and inventory write-downs[262] - PRC subsidiaries are subject to a 25% income tax rate, with Hitrans and CBAK Power enjoying a preferential 15% rate as 'High and New Technology Enterprises'[264] Results of Operations This section analyzes the company's revenues, costs, and profitability for the reporting period Net Revenues by Product (Three Months Ended March 31) | Product Category | 2021 (US$ Million) | 2022 (US$ Million) | Change (US$ Million) | Change (%) | | :------------------------------------------------ | :----------------- | :----------------- | :------------------- | :--------- | | High power lithium batteries | 9.4 | 15.0 | 5.6 | 60% | | Materials used in manufacturing of lithium batteries | - | 65.2 | 65.2 | - | | Total | 9.4 | 80.2 | 70.8 | 752% | - Gross profit margin decreased from 19.5% in Q1 2021 to 6.6% in Q1 2022, mainly due to an increase in raw material prices[272] - Research and development expenses increased by 585% to $3.3 million in Q1 2022, driven by the incorporation of Hitrans' R&D personnel, growth at Nanjing CBAK and Nanjing Daxin, and higher material costs[273] - The change in fair value of warrants liability resulted in a gain of $1.6 million in Q1 2022, a significant decrease from the $28.4 million gain in Q1 2021, primarily due to share price decline[278] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and ability to meet financial obligations - As of March 31, 2022, the company had a net working capital of $13.2 million and an accumulated deficit of $122.1 million, raising substantial doubt about its ability to continue as a going concern[280][281] Summary of Cash Flows (Three Months Ended March 31) | Activity | 2021 (US$ Million) | 2022 (US$ Million) | | :------------------------------------ | :----------------- | :----------------- | | Net cash provided by operating activities | 0.8 | 5.1 | | Net cash used in investing activities | (5.7) | (2.7) | | Net cash provided by financing activities | 65.4 | 1.9 | | Cash and cash equivalents at end of period | 81.4 | 30.8 | - The company plans to renew existing loans upon maturity and raise additional funds through bank borrowings and equity financing to meet daily cash demands and finance expansion[299] Capital Expenditures This section details the company's investments in property, plant, and equipment for future growth - Capital expenditures decreased to $3.4 million in Q1 2022 from $5.7 million in Q1 2021, primarily for the construction of Dalian and Nanjing facilities[308] - Estimated total capital expenditures for fiscal year 2022 are approximately $15.0 million, allocated for renovating product lines and constructing new plants[308] Critical Accounting Policies This section highlights accounting policies requiring significant judgment and estimation - There were no material changes to the critical accounting policies previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[310] Changes in Accounting Standards This section addresses the impact of recently adopted or issued accounting pronouncements - Refer to Note 1 of the condensed consolidated financial statements for discussions on recently adopted and recently issued but not yet adopted accounting pronouncements[311] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states no material quantitative or qualitative disclosures about market risk are applicable - This section is not applicable for the current reporting period, indicating no material market risk disclosures are required[312] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses; remediation efforts are underway Evaluation of Disclosure Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of March 31, 2022 - Management concluded that the company's disclosure controls and procedures were ineffective as of March 31, 2022[315] - Material weaknesses identified include a lack of appropriate policies and procedures for evaluating accounting and disclosures of key documents, and insufficient skilled accounting personnel[315][316] Changes in Internal Control over Financial Reporting Remediation efforts include hiring a CFO and providing financial personnel training to address weaknesses - Remediation measures include hiring a permanent Chief Financial Officer with significant U.S. GAAP and SEC reporting experience[316] - The company is providing regular training to financial personnel on internal control, risk management, and U.S. GAAP accounting guidelines[317] - Except for the described matters, there were no other changes in internal controls over financial reporting during Q1 2022 that materially affected or are reasonably likely to materially affect internal control[319] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, and other required disclosures Item 1. Legal Proceedings Information on legal proceedings is incorporated by reference from Note 26 'Commitments and Contingencies' - Information on legal proceedings is incorporated by reference from Note 26 'Commitments and Contingencies—(ii) Litigation' in the financial statements[322] Item 1A. Risk Factors No material changes from risk factors previously disclosed in the Annual Report on Form 10-K for 2021 - There are no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[323] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or common stock repurchases occurred during the period - No unregistered sales of equity securities or repurchase of common stock occurred during the period covered by this report, other than as previously disclosed in current reports on Form 8-K[323] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[323] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[323] Item 5. Other Information There is no other information to report for the period - There is no other information to report[323] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q report, including certifications and XBRL files - Exhibits include Certifications of Principal Executive Officer (31.1, 32.1) and Principal Financial Officer (31.2, 32.2) pursuant to the Sarbanes-Oxley Act of 2002[324] - The report also includes various Inline XBRL Taxonomy Extension Documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[324]