CBAK Energy(CBAT) - 2022 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls for the reporting period Financial Statements The financial statements show revenue growth, a net income decline due to warrant fair value, and a going concern risk Condensed Consolidated Balance Sheets The balance sheets show increased assets and liabilities, driven by inventories and payables, with a slight equity decrease Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Account | Dec 31, 2021 | June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $7,358 | $4,381 | ($2,977) | | Trade accounts and bills receivable, net | $49,907 | $26,057 | ($23,850) | | Inventories | $30,133 | $55,306 | $25,173 | | Total current assets | $122,842 | $137,278 | $14,436 | | Total assets | $262,618 | $269,982 | $7,364 | | Liabilities & Equity | | | | | Trade accounts and bills payable | $65,376 | $80,511 | $15,135 | | Short-term bank borrowings | $8,812 | $16,875 | $8,063 | | Total current liabilities | $112,767 | $125,723 | $12,956 | | Total liabilities | $121,733 | $134,049 | $12,316 | | Total equity | $140,885 | $135,933 | ($4,952) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Operations statements show substantial revenue growth, but net income significantly declined due to warrant fair value Three Months Ended June 30, Performance (in thousands USD) | Metric | 2021 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $5,889 | $56,350 | +857% | | Gross Profit | $1,098 | $5,535 | +404% | | Operating (Loss) Income | ($2,724) | $144 | +105% | | Net Income Attributable to CBAK | $2,701 | $805 | -70% | | Diluted EPS | $0.02 | $0.00* | -100% | Six Months Ended June 30, Performance (in thousands USD) | Metric | 2021 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $15,305 | $136,546 | +792% | | Gross Profit | $2,937 | $10,852 | +269% | | Operating Loss | ($2,751) | ($1,191) | +57% | | Net Income Attributable to CBAK | $32,310 | $1,250 | -96% | | Diluted EPS | $0.37 | $0.01 | -97% | Condensed Consolidated Statements of Cash Flows Cash flow statements indicate positive operating cash flow, decreased investing, and a significant drop in financing Cash Flow Summary for Six Months Ended June 30 (in thousands USD) | Cash Flow Activity | 2021 | 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($2,424) | $17,339 | | Net cash used in investing activities | ($17,682) | ($6,338) | | Net cash provided by financing activities | $51,200 | $4,945 | | Net increase in cash | $31,698 | $15,144 | Notes to the Condensed Consolidated Financial Statements Notes detail the company's battery business, Hitrans acquisition, going concern risk, and segment revenue breakdown - The company is principally engaged in the manufacture, commercialization, and distribution of high power lithium-ion rechargeable batteries for applications such as light electric vehicles, electric cars, and uninterruptible power supplies[22] - The company's accumulated deficit and significant short-term debt obligations raise substantial doubt about its ability to continue as a going concern. Management's plans include improving profitability and obtaining additional financing[60] - Following the acquisition of Hitrans in November 2021, the company now operates in two segments: CBAT (battery manufacturing) and Hitrans (development and manufacturing of NCM precursor and cathode materials)[242] Revenue by Segment - Six Months Ended June 30, 2022 (in thousands USD) | Segment | Net Revenues | | :--- | :--- | | CBAT | $40,736 | | Hitrans | $95,810 | | Total | $136,546 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth from acquisition, declining gross margins, working capital, and ongoing going concern risks Results of Operations Operations results show a significant revenue surge, a decline in gross margin, and increased operating expenses - Net revenues for Q2 2022 increased by $50.5 million (857%) year-over-year, driven by the new Hitrans segment ($30.6 million) and a 331% increase in sales of batteries for uninterruptible power supplies[274][278][279] - Gross profit margin for Q2 2022 decreased to 9.8% from 18.6% in Q2 2021, mainly due to the increase in raw material prices and the inclusion of lower-margin sales from the Hitrans subsidiary[280] - Research and development expenses for Q2 2022 increased by 120% to $2.3 million, primarily due to higher salary expenses from incorporating Hitrans' R&D personnel and a growing team at Nanjing CBAK[281] Liquidity and Capital Resources Liquidity analysis reveals cash and working capital, going concern risk, credit facilities, and capital expenditures - As of June 30, 2022, the company had cash and cash equivalents of $41.5 million and a net working capital of $11.6 million[303] - Management acknowledges that the company's accumulated deficit ($121.2 million) and short-term debt obligations raise substantial doubt about its ability to continue as a going concern[304] Credit Facilities Summary (in thousands USD) | Facility Type | Amount Available | Amount Borrowed | | :--- | :--- | :--- | | Long-term credit facilities | $19,806 | $13,293 | | Short-term credit facilities | $4,479 | $4,479 | | Other lines of credit | $39,137 | $39,137 | | Total | $63,422 | $56,909 | - Estimated capital expenditures for fiscal year 2022 are approximately $10.0 million, intended for renovating product lines and constructing new plants[334] Quantitative and Qualitative Disclosures About Market Risk The company states that quantitative and qualitative disclosures about market risk are not applicable for this period - The company states that Quantitative and Qualitative Disclosures About Market Risk are not applicable[337] Controls and Procedures Management concluded that disclosure controls were ineffective due to material weaknesses, with remediation efforts underway - Management concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2022[340] - Material weaknesses identified include: - Lack of appropriate policies and procedures for evaluating the proper accounting and disclosures of key documents - Insufficient skilled accounting personnel with adequate U.S. GAAP knowledge and experience[340][341] - Remediation measures include hiring a permanent CFO and providing regular training to financial personnel on U.S. GAAP and internal controls[341][342] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, and other miscellaneous disclosures for the reporting period Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 26 of the financial statements - Details on legal proceedings are provided in Note 26, "Commitments and Contingencies—(ii) Litigation," within the financial statements section of this report[347] Risk Factors No material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - The company reports no material changes from the risk factors previously disclosed in its 2021 Annual Report on Form 10-K[348] Other Items The company reported no unregistered sales, no defaults, no other material information, and mine safety is not applicable - Item 2: No unregistered sales of equity securities were reported[349] - Item 3: No defaults upon senior securities occurred[349] - Item 4: Mine safety disclosures are not applicable[349] - Item 5: No other information to report[349]