CBAK Energy(CBAT) - 2022 Q4 - Annual Report

PART I Business CBAK Energy Technology manufactures high-power lithium batteries and materials, expanding capacity and developing new products for diverse applications Financial Performance Overview (2021 vs 2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $248.7 million | $52.7 million | | Net (Loss)/Profit | ($10.5 million) | $61.6 million | | Accumulated Deficit | ($131.7 million) | - | | Net Assets | $125.2 million | - | - The company reports its financial and operational information in two segments: (i) production of high-power lithium battery cells, and (ii) manufacture and sale of materials used in high-power lithium battery cells[38] - In November 2021, the company acquired a controlling interest in Hitrans, a developer and manufacturer of NCM precursor and cathode materials, thereby entering the battery materials business[37][53] - The company is expanding its manufacturing capacity in Nanjing with a project expected to have a total production capacity of 20 GWh per year. Phase I (2 GWh) is operational, and Phase II construction has begun[49] - Key product developments include the model 32140 large-sized cylindrical "tabless" battery and a special 26650 lithium battery designed for ultra-low temperature applications[51][52] Revenue by Customer Location (Fiscal Years 2021-2022) | Region | 2022 Amount (in thousands) | 2022 % of Net Revenues | 2021 Amount (in thousands) | 2021 % of Net Revenues | | :--- | :--- | :--- | :--- | :--- | | Mainland China | $198,115 | 79% | $43,746 | 83% | | Europe | $50,378 | 20% | $8,503 | 16% | | USA | $37 | 0% | $0.4 | 0% | | Others | $196 | 1% | $420 | 1% | | Total | $248,725 | 100% | $52,670 | 100% | Risk Factors The company faces significant risks including going concern uncertainty, potential U.S. delisting, PRC regulatory changes, internal control weaknesses, and customer concentration - The company's auditor has expressed substantial doubt about its ability to continue as a going concern due to recurring net losses and significant short-term debt obligations[29][165][166] - The company was listed as a Commission-Identified Issuer under the HFCAA in May 2022. While the PCAOB regained inspection access in late 2022, future inability to inspect could lead to trading prohibitions on U.S. exchanges if it occurs for two consecutive years[115][116] - New PRC regulations, including the Trial Measures effective March 31, 2023, have strengthened oversight on overseas offerings by China-based issuers, which could create compliance challenges and impact future capital raising[122][125][127] - The company has identified material weaknesses in its internal control over financial reporting, including a lack of appropriate policies for accounting and disclosure evaluation and insufficient accounting personnel with U.S. GAAP expertise[33][218][219] - A limited number of customers account for a significant portion of revenue, with the top five customers representing 69.5% of revenues in 2022[185] Unresolved Staff Comments The company reports that there are no unresolved staff comments - Not applicable[249] Properties The company owns and rents manufacturing, R&D, and office facilities across Dalian, Nanjing, and Zhejiang, totaling over 130,000 square meters Facility Breakdown by Use (as of Dec 31, 2022) | Usage | Area (m²) | | :--- | :--- | | Constructions Completed (Owned) | | | Manufacturing | 72,959 | | R&D and administrative | 6,812 | | Warehousing | 18,749 | | Other facilities | 4,317 | | Total Owned | 102,837 | | Constructions Completed (Rented) | | | Manufacturing | 16,476 | | Warehousing | 9,097 | | Administrative | 1,723 | | Total Rented | 27,296 | - The company has completed construction of Phase One of its Nanjing site, which occupies an area of 27,173 square meters[249] Legal Proceedings The company is involved in legal proceedings, with details provided in Note 27 (ii) of the consolidated financial statements - The company refers to Note 27 (ii) of its audited consolidated financial statements for details on legal proceedings[254] Mine Safety Disclosures This section is not applicable to the company - Not applicable[254] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "CBAT", has never paid dividends, and made no stock repurchases in fiscal year 2022 - The company's common stock trades on the Nasdaq Capital Market under the symbol "CBAT"[255] - The company has never declared or paid dividends and has no current plans to do so, intending to retain earnings for business expansion[256] - No repurchases of common stock were made during the fiscal year 2022[259] Reserved This item is reserved Management's Discussion And Analysis Of Financial Condition And Results Of Operations Revenue significantly increased to $248.7 million in FY2022 due to the Hitrans acquisition and UPS battery sales, yet the company reported an $11.3 million net loss, influenced by prior year warrant gains and ongoing going concern issues Key Financial Results (2021 vs 2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Revenues | $248.7 million | $52.7 million | | Net (Loss)/Profit | ($11.3 million) | $61.5 million | | Gross Profit | $18.1 million | $5.1 million | | Gross Margin | 7.3% | 9.7% | - The substantial increase in revenue was primarily driven by the inclusion of a full year of revenue from the Hitrans materials segment ($154.0 million) and a 151% increase in sales of batteries for uninterruptible power supplies (to $83.6 million)[263][280][281] - The shift from a net profit in 2021 to a net loss in 2022 was heavily influenced by a $61.8 million non-cash gain from the change in fair value of warrants liability recorded in 2021, compared to a smaller $5.7 million gain in 2022[275][291] - As of December 31, 2022, the company had a working capital surplus of $13.8 million, with total current assets of $125.7 million and total current liabilities of $111.9 million[292] Quantitative And Qualitative Disclosures About Market Risk This section is not applicable, but the company notes foreign currency translation risk due to PRC subsidiaries' RMB-denominated financial records - The company states that quantitative and qualitative disclosures about market risk are not applicable[360] - The company's financial records for its PRC subsidiaries are maintained in RMB, which is their functional currency. These are translated into U.S. dollars for reporting purposes, exposing the company to foreign currency translation risk[358] Financial Statements And Supplementary Data This section presents the audited consolidated financial statements for 2021 and 2022, including the auditor's report which expresses a "Going Concern" uncertainty - The Report of Independent Registered Public Accounting Firm includes an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern, citing accumulated deficits from recurring net losses and significant short-term debt obligations[366][372] Consolidated Balance Sheet Highlights (As of Dec 31) | Metric (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $244.0 | $262.6 | | Cash and cash equivalents | $6.5 | $7.4 | | Total Current Assets | $125.7 | $122.8 | | Total Liabilities | $119.7 | $121.7 | | Total Current Liabilities | $111.9 | $112.8 | | Total Equity | $124.4 | $140.9 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Metric (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net Revenues | $248.7 | $52.7 | | Gross Profit | $18.1 | $5.1 | | Operating Loss | ($11.5) | ($11.7) | | Net (Loss)/Income | ($11.3) | $61.6 | | Basic (Loss)/EPS | ($0.11) | $0.70 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Metric (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $15.1 | ($4.3) | | Net cash used in investing activities | ($7.9) | ($38.1) | | Net cash from financing activities | $5.6 | $48.3 | Changes In And Disagreements With Accountants On Accounting And Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[725] Controls And Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2022, due to material weaknesses in internal controls, with remediation efforts underway - Management concluded that disclosure controls and procedures were ineffective as of December 31, 2022[727] - Material weaknesses identified include: (1) lack of appropriate policies and procedures to evaluate proper accounting and disclosures, and (2) insufficient accounting personnel with the necessary technical knowledge of U.S. GAAP[731] - Remediation measures include hiring a permanent CFO and providing regular training to financial personnel on internal controls and U.S. GAAP[731][732] Other Information No Form 8-K required disclosures from Q4 2022 were unreported - No information was required to be disclosed on a Form 8-K during Q4 2022 that was not already reported[735] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This section is not applicable to the company - Not applicable[735] PART III Directors, Executive Officers And Corporate Governance The company's governance structure includes a five-member board with three independent directors, key executives, and three independent board committees, adhering to ethical codes and reporting requirements Directors and Executive Officers | Name | Position | | :--- | :--- | | Yunfei Li | Chairman of the Board and Chief Executive Officer | | J. Simon Xue | Director | | Martha C. Agee | Director | | Jianjun He | Director | | Xiangyu Pei | Director and Interim Chief Financial Officer | - The Board of Directors is comprised of five members, with three directors (J. Simon Xue, Martha C. Agee, and Jianjun He) qualifying as "independent" under NASDAQ rules[756] - The board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance, each composed entirely of independent directors[757] - Martha C. Agee is designated as the Audit Committee financial expert[756][758] Executive Compensation This section details executive compensation for 2021-2022, including salaries, stock awards, employment agreement terms, and non-employee director compensation Summary Compensation Table (2021-2022) | Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Yunfei Li, CEO | 2022 | 117,658 | 60,000 | - | 177,658 | | | 2021 | 120,107 | 120,001 | 53,450 | 293,557 | | Xiangyu Pei, Interim CFO | 2022 | 88,556 | 27,000 | - | 115,556 | | | 2021 | 74,979 | 54,000 | 40,087 | 169,066 | - Employment agreements with named executive officers have initial three-year terms and include customary non-competition, confidentiality, and non-disclosure covenants[768][770] - Non-employee directors received fees of $20,000 in cash and $3,000 in stock awards for their service in 2022[776] Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters This section details beneficial ownership as of April 10, 2023, with CEO Yunfei Li holding 12.38% and all officers/directors collectively owning 12.82% of common stock Beneficial Ownership as of April 10, 2023 | Name | Amount and Nature of Beneficial Ownership | Percent of Ownership | | :--- | :--- | :--- | | Yunfei Li (CEO) | 11,025,871 | 12.38% | | Daiwei Li (Principal Stockholder) | 6,733,359 | 7.57% | | All executive officers and directors as a group (5 persons) | 11,423,854 | 12.82% | - As of December 31, 2022, there were 4,854,518 securities remaining available for future issuance under the company's 2015 Equity Incentive Plan[797] Certain Relationships And Related Transactions, And Director Independence The company discloses significant related party transactions, including substantial purchases and sales with entities linked to its former CEO, and notes personal guarantees by CEO Yunfei Li for bank facilities Significant Related Party Transactions (2022) | Transaction | Related Party | Amount (USD) | | :--- | :--- | :--- | | Purchase of batteries | Zhengzhou BAK Battery Co., Ltd | $26,819,454 | | Sales of cathode raw materials | Zhengzhou BAK Battery Co., Ltd | $53,236,804 | | Sales of cathode raw materials | Shenzhen BAK Power Battery Co., Ltd | $8,681,496 | - As of December 31, 2022, the company had a trade receivable balance of $9.2 million from Zhengzhou BAK Battery Co., Ltd. and $5.5 million from Shenzhen BAK Power Battery Co., Ltd[809][813] - CEO Yunfei Li and his wife have provided personal guarantees for multiple bank facilities obtained by the company in 2022 and 2023[816][817][818][819] Principal Accounting Fees And Services This section details fees billed by Centurion ZD CPA & Co. for 2021-2022, with all services pre-approved by the Audit Committee Accountant Fees (2021-2022) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $513,721 | $265,000 | | Audit-Related Fees | $2,500 | $67,500 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | - All services provided by the principal accountants were pre-approved by the Audit Committee[827] PART IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits, with financial statements under Item 8 and schedules omitted due to inclusion elsewhere or irrelevance - The financial statements are located under Item 8 of the report[829] - Financial statement schedules have been omitted because the required information is included in the consolidated financial statements or notes, or is not applicable[829][830] Form 10-K Summary This item indicates no Form 10-K summary is provided - None[833]