CBAK Energy Technology, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; compared with Q1 2021. Amounts are U.S. dollars. The company manufactures lithium-ion batteries and, following its November 2021 Hitrans acquisition, also produces battery cathode and precursor materials.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $80.2 million | $9.4 million | Up 752%; Hitrans materials contributed $65.2 million of Q1 2022 revenue. |
| Gross profit / margin | $5.3 million / 6.6% | $1.8 million / 19.5% | Profit rose, but margin fell; management cited higher raw-material prices. |
| Operating loss | $1.3 million | $0.03 million | Higher R&D, sales and marketing, administrative and doubtful-account expenses. |
| Net income | $0.7 million | $29.6 million | Q1 2021 included a $28.4 million warrant fair-value gain; Q1 2022 included a $1.6 million gain. |
| Net income attributable to CBAK shareholders | $0.44 million | $29.61 million | Basic and diluted EPS were $0.01, versus $0.35. |
| Operating cash flow | $5.1 million | $0.8 million | Q1 2022 cash generation included increases in payables, partly offset by inventory investment. |
| Investing cash flow | $(2.7) million | $(5.7) million | Primarily property, plant and equipment and construction spending. |
| Financing cash flow | $1.9 million | $65.4 million | Q1 2021 included $65.5 million of share proceeds; Q1 2022 included bank borrowing and repayment of a related-party loan. |
Financial position and material changes
- At March 31, 2022, total assets were $278.8 million, current assets $140.0 million, current liabilities $126.8 million, and working capital $13.2 million. The current ratio was approximately 1.10.
- The balance sheet reports cash and cash equivalents of $5.6 million and pledged deposits of $25.1 million. The cash-flow statement reports $30.8 million of cash and cash equivalents plus restricted cash at quarter-end; investors should distinguish available cash from pledged funds.
- Short-term bank borrowings were $14.7 million, up from $8.8 million at year-end 2021. Other short-term loans fell to $0.7 million from $4.7 million. Trade and bills payable rose to $79.3 million from $65.4 million; bills payable are secured in part by deposits, receivables and land-use rights.
- Inventory increased to $41.9 million from $30.1 million, while trade and bills receivable were $50.3 million, broadly flat from year-end. The allowance for doubtful accounts was $4.9 million.
- Revenue mix shifted materially: Hitrans cathode and precursor sales were $65.2 million; battery-segment revenue was $15.0 million, including $14.9 million from uninterruptible power supplies. Q1 2021 had no Hitrans materials revenue.
- Revenue concentration was significant: Zhengzhou BAK Battery accounted for 32.2% of Q1 2022 revenue, and another customer accounted for 30.1%. Two suppliers represented 25.3% and 23.7% of purchases.
Outlook, risks and unusual items
- Going concern: Management states that recurring prior-year losses and significant short-term obligations raise substantial doubt about the company’s ability to continue as a going concern. Plans include improving profitability and seeking bank, shareholder/director and potentially equity financing; success is not assured.
- Funding and investment: The company expects approximately $15 million of capital expenditures in fiscal 2022 for facility renovation and new production lines. It reported $171.97 million of capital commitments at March 31, largely capital injections, plus commitments for construction and equipment. It also reported $6.6 million of unused committed banking facilities.
- Margins and demand: Management attributed lower gross margin to rising raw-material prices. It warned that COVID-19 disruptions and their effects on demand remain uncertain; the filing describes facility closures in late 2021.
- Contingencies: A construction dispute was remanded for retrial; the company accrued approximately $0.9 million. A separate equipment-purchase agreement with Haoneng requires at least $2.4 million of purchases by December 31, 2023 or payment of a 15% shortfall penalty; equipment had not been received by quarter-end.
- Controls: Management concluded disclosure controls were ineffective at March 31, 2022, citing a material weakness in accounting for key documents and agreements and insufficient U.S. GAAP/SEC-reporting expertise. Remediation includes hiring a permanent CFO and continued training.
- Warrants: The company reported $4.2 million of warrant liability and a $1.6 million Q1 fair-value gain. Warrants are measured using a model with significant unobservable inputs.
Key facts for investors to verify
- How much reported cash is unrestricted and available after accounting for pledged deposits and bills-payable collateral.
- Whether the company can refinance or repay near-term borrowings and bills payable, and secure funding for expansion and capital commitments.
- Whether Hitrans revenue can be sustained and translated into improved consolidated margins and operating profitability.
- Collection of concentrated customer receivables, including related-party balances, and exposure to major customers and suppliers.
- Progress on going-concern plans, litigation and the Haoneng purchase obligation, and remediation of the disclosed control weakness.