CBAK Energy Technology, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated financial statements prepared under U.S. GAAP. CBAK manufactures and sells high-power lithium batteries, principally for UPS, electric vehicles and other applications, and is expanding production capacity in Dalian and Nanjing.
Key financial results
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $9.42 million | $6.90 million; up 36% |
| Gross profit / margin | $1.84 million / 19.5% | $0.21 million / 3.0% |
| Operating loss | $28,000 | $1.98 million loss |
| Net income (loss) | $29.61 million | $2.35 million loss |
| Basic and diluted EPS | $0.35 | $(0.04) |
| Operating cash flow | $0.76 million | $0.69 million |
| Investing cash flow | $(5.68) million | $(0.26) million |
| Financing cash flow | $65.35 million | $(1.94) million |
Revenue growth was led by UPS battery sales, up 31% to $8.76 million. The company also reported $0.52 million of lithium-battery raw-material sales; EV battery revenue declined 53% to $0.10 million. China accounted for $7.63 million of revenue and Europe for $1.79 million. Gross margin improved substantially as management cited better product quality, cost control and production-line upgrades. Q1 2020 operations had been suspended because of COVID-19 in China, making the comparison less representative of normal operations.
Balance sheet, liquidity and financing
- At March 31, cash and cash equivalents were $65.12 million; pledged deposits were $16.32 million. Together, cash and restricted cash were $81.44 million. Current assets were $119.94 million and current liabilities $89.26 million, implying working capital of approximately $30.68 million.
- Total assets were $203.96 million; total liabilities $106.08 million; total equity $97.88 million. Trade receivables, net, were $23.31 million.
- Current maturities of long-term bank loans were $13.69 million; other short-term loans were $1.11 million. Bills payable were $16.28 million and were secured by pledged deposits. The company reported $4.9 million of unused committed banking facilities. It subsequently repaid the $13.7 million China Everbright Bank balance in April and May 2021.
- February’s equity offering issued 8.94 million shares and generated approximately $70 million gross proceeds, before $5.0 million of offering costs. Q1 financing cash flow included $65.50 million of share-issuance proceeds. Warrants issued in the December 2020 and February 2021 financings may contribute to future dilution.
- Capital expenditures were $5.68 million in Q1. Management estimated FY2021 capital expenditures of approximately $15.2 million. Disclosed capital commitments included $21.25 million for construction and equipment and $191.82 million of capital injections; total commitments were reported as $213.07 million in the financial-statement note and $244.69 million in the MD&A contractual-obligations table, which includes other listed obligations.
Material changes, unusual items and outlook
- Reported net income was driven primarily by a $28.43 million gain from the change in fair value of warrant liabilities, a noncash item. The related warrant liability was approximately $39.22 million at quarter-end. Excluding this remeasurement, reported earnings do not reflect the same level of recurring operating profitability.
- Other income rose to $1.22 million, primarily from supplier debt relief. The company recorded an operating loss of $28,000 despite improved gross profit.
- Management expects demand from new-energy markets, particularly electric vehicles and UPS, to support growth and a return to sustained profitability. It is expanding capacity and product lines; no specific revenue or earnings guidance was provided. Management said additional bank or equity financing may be needed and that financing is not assured.
- The filing notes substantial doubt about the company’s ability to continue as a going concern, citing recurring operating losses, short-term obligations and the need to fund expansion. The statements do not include adjustments that might result from the outcome of this uncertainty.
- As subsequent developments, the company paid a $3.05 million deposit toward a potential 85% acquisition of Hitrans, subject to definitive agreements, and invested approximately $1.4 million for a 9.74% stake in DJY.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2021. Management identified material weaknesses involving review of key agreements and insufficient U.S. GAAP-qualified accounting personnel; remediation was ongoing.
- Risks and contingencies include customer and supplier concentration, litigation and supplier-payment disputes, approximately $7.48 million of long-term unrecognized tax benefits, and missing ownership certificates for Dalian buildings with a carrying value of approximately $24.32 million. The filing also describes significant contractual capital-injection obligations.
Important facts for investors to verify
- How much of Q1’s $29.61 million net income is attributable to the noncash warrant fair-value gain, and what earnings look like excluding that item.
- Whether UPS revenue growth, the improved gross margin and operating performance are sustainable beyond the COVID-affected comparison period.
- Cash availability after pledged deposits, near-term bill and debt maturities, expansion spending, and substantial capital-injection commitments.
- Progress on financing, the Hitrans acquisition proposal and manufacturing-capacity expansion, including any definitive agreements and funding requirements.
- Developments in material litigation, concentrated receivables and supplier balances, and the company’s plans to remediate ineffective disclosure controls.