CBAK Energy Technology, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Although the request refers to 2020 Q4, this is an annual filing and does not provide a clear standalone fourth-quarter income statement or cash-flow summary.
Business context
CBAK manufactures high-power lithium-ion battery cells, principally for energy storage and UPS applications, and is expanding into battery production capacity and light electric vehicles (LEVs). Substantially all operations are in China. The company said COVID-19 disrupted operations in the first quarter, with operations fully resumed in the second quarter and limited adverse effect on full-year results.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $37.57 million | $22.19 million |
| Gross profit / margin | $2.71 million / 7.2% | $0.62 million / 2.8% |
| Operating loss | $8.48 million | $10.09 million |
| Net loss | $7.85 million | $10.85 million |
| Operating cash flow | $(5.10) million | $(21.22) million |
| Investing cash flow | $(5.71) million | $(2.42) million |
| Financing cash flow | $25.83 million | $13.55 million |
At year-end, cash and cash equivalents were $11.68 million and pledged deposits were $8.99 million, for combined cash and restricted cash of $20.67 million. Current assets were $63.17 million against current liabilities of $73.71 million, a $10.54 million working-capital deficiency. Total assets were $142.77 million, total liabilities $90.36 million, and accumulated deficit $183.98 million.
Interest-bearing bank loans totaled $13.74 million, all classified as current and due in 2021. The company also reported $8.79 million of bills payable and $1.25 million of other short-term loans. Its MD&A summarized total borrowings and credit facilities drawn as $22.53 million, including bank loans and bills payable. Capital expenditures were $17.53 million in 2020; management estimated approximately $15.2 million for 2021.
Material changes versus FY2019
- Revenue rose 69%, led by $14.52 million of lithium-battery raw-material sales, which were nil in 2019, and a 29% increase in UPS battery revenue to $22.75 million.
- EV battery revenue fell 94% to approximately $0.26 million, which management attributed in part to China’s subsidy and performance-threshold changes. LEV battery revenue remained small at approximately $0.04 million.
- Gross margin improved to 7.2% from 2.8%, while the company remained loss-making. FY2020 results included a $2.07 million non-cash gain from a change in warrant fair value, a $4.35 million property, plant and equipment impairment charge, and $1.45 million of inventory write-downs.
- Trade accounts and bills receivable, net, rose to $29.57 million from $7.95 million. Management reported a $20.77 million operating cash use from the increase in receivables, partly offset by higher payables and government grants.
- Cash generation remained dependent on financing: FY2020 financing cash flow included $45.35 million of net share-issuance proceeds, offset in part by debt repayments.
Outlook, risks and unusual items
- Going concern: The auditor’s report states that working-capital deficiency, recurring losses and significant short-term debt raise substantial doubt about CBAK’s ability to continue as a going concern. Management plans to renew or obtain borrowings and pursue equity financing; success is not assured.
- Expansion: CBAK plans Nanjing capacity of up to 8 GWh annually in phases: 2 GWh targeted by the end of 2022 and a further 6 GWh by the end of 2023, subject to market acceptance and adjustment. It also planned a 0.4 GWh Dalian line and development of 32140 batteries. The company had received RMB20 million (about $3.06 million) in Gaochun government subsidies.
- Commitments and funding: The filing lists $265.68 million of contractual obligations and commercial commitments, including $228.12 million in capital injections to subsidiaries, as well as construction and equipment commitments. Management’s ability to fund planned investment while meeting near-term obligations is a key uncertainty.
- Concentration and collections: The top five customers accounted for 79.45% of revenue. Zhengzhou BAK Battery accounted for 33.99% of revenue and 54.42% of net receivables; the filing identifies a former CEO as a director of that customer. Customer payment terms generally ran about 90 days.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate accounting policies for key agreements and insufficient technically experienced accounting staff. The auditor did not audit internal controls. The filing also highlights limits on PCAOB inspection of the auditor and potential delisting risk under the Holding Foreign Companies Accountable Act.
- Legal and operating risks: The company disclosed multiple supplier and contractor disputes, including payment-related litigation and frozen deposits; some matters were settled after year-end, while others remained unresolved. Other key risks include dependence on a few customers and suppliers, price and raw-material volatility, product safety and warranty exposure, competition, and China-related regulatory, currency and legal risks.
- Subsequent events: In February 2021, the company reported approximately $70 million of gross proceeds from an offering and warrant transactions. In April 2021 it signed a framework agreement for a potential acquisition of 85% of Hitrans and paid a $3.06 million deposit; definitive acquisition terms remained to be completed.
Important facts for investors to verify
- Whether receivables—especially the balance due from Zhengzhou BAK Battery—were collected after year-end and whether customer concentration has since changed.
- How the company will meet 2021 maturities, bills payable, operating cash needs, and the substantial listed capital-injection and construction commitments.
- Whether Nanjing and Dalian expansion timelines, capacity targets and planned 2021 capital spending remain achievable and supported by orders.
- Whether internal-control material weaknesses have been remediated and whether disclosure controls are now effective.
- The status and financial exposure of remaining litigation, the Hitrans acquisition proposal, and the terms and potential dilution from outstanding warrants and subsequent offerings.