CBAK ENERGY TECHNOLOGY, INC. The following management's discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See "Special Note Regarding Forward Looking Statements" above for certain information concerning those forward-looking statements. Our financial statements are prepared inU.S. dollars and in accordance withU.S. GAAP. Overview
We are engaged in the development, manufacture and sale of new energy high power lithium batteries, as well as cathode materials and precursors for lithium batteries, which are mainly used in the following applications:
? Electric vehicles ("EV"), such as electric cars, electric buses, hybrid
electric cars and buses;
? Light electric vehicles ("LEV"), such as electric bicycles, electric motors,
sight-seeing cars; and
? Electric tools, energy storage including but not limited to uninterruptible
power supply application, and other high-power applications.
In 2021, we added a production line to produce electric bicycles, in light of the great potential for growth in this market. As of the date of this report, this production line has not commenced commercial production. We generated revenues from the manufacture and sale of high-power lithium batteries and raw materials for lithium batteries of$52.7 million and$37.6 million for the fiscal years endedDecember 31, 2021 and 2020, respectively. We incurred a net profit of$61.5 million and a net loss of$7.8 million during the fiscal years endedDecember 31, 2021 and 2020, respectively. Our revenues in relation to electric vehicles are, to some extent, adversely impacted by the reduction of government subsidies to new energy vehicles. However, new revenues driven from the sale of materials used in manufacturing of lithium batteries, through the newly acquired subsidiary, Hitrans, as well as the continuous climb of sales in uninterruptible supplies and light-electric-vehicle related products, contributed to the increase. For more details, see "Item 1. Business-Overview of Our Business." Accordingly, net revenues from sales of batteries for uninterruptable supplies was$33.3 million for the fiscal year endedDecember 31, 2021 , as compared to$22.7 million for fiscal year endedDecember 31, 2020 , an increase of$10.6 million , or 47%. Net revenue from trading of raw materials for lithium batteries was$0.5 million for the fiscal year endedDecember 31, 2021 , as compared to$14.5 million for fiscal year endedDecember 31, 2020 , a decrease of$14.0 million , or 96%. Net revenue from sales of cathode materials and precursors was$17.9 million for the fiscal year endedDecember 31, 2021 , as compared to nil for fiscal year endedDecember 31, 2020 . With the announced ultra-low-temperature battery technology, we believe that our revenues in the energy storage market will continue to grow. In addition, net revenues from sales of batteries for light electric vehicles was$0.5 million for the fiscal year endedDecember 31, 2021 , as compared to$39,428 for fiscal year endedDecember 31, 2020 , an increase of$0.5 million , or 1,218%. We believe the government policies relating to new energy will in the long term encourage the production of new energy vehicles, optimize the structure of the new energy vehicles industry, enhance technical standards of the industry and strengthen its core competitiveness, which ultimately would foster strategic development of the new energy vehicles. In addition, our latest development of 32140 battery and our planned investment in the R&D of 46800 battery will help us regain competitiveness in both LEV/EV markets with the appropriate products. Therefore, the demand for new energy likely will grow in the future and we will be able to secure more potential orders from the new energy market. We have completed the construction of a cylindrical power battery manufacturing plant and a power battery packing plant of our Dalian facilities which started commercial production inJuly 2015 . We have received and been utilizing most of BAK Tianjin's operating assets relocated to our Dalian facilities, including its machinery and equipment for battery production and battery pack production, customers, management team and technical staff, patents and technologies. We also started the investments in and construction of ourNanjing facilities, which is designed to comprise of two phases. The first phase is in the process of interior renovation and equipment purchase. Phase One has an area of approximately 10,000 square meters at nearly no cost due to the government's low rentals. Phase Two is currently under construction design. TheNanjing facilities, once built, are expected to provide 18GWh capacity to support our demand. We have also purchased machinery and equipment to expand our manufacturing capabilities. Moreover, given the equity and debt financings we have obtained recently, we believe that with the booming future market demand for high power lithium-ion products, we can continue as a going concern and return to profitability. In addition, we completed the acquisition of 81.56% of registered equity interests (representing 75.57% of paid-up capital) in Hitrans, a leading developer and manufacturer of NCM precursor and cathode materials inChina , inNovember 2021 . See "Item 1. Business-Overview of Our Business-Acquisition of A Raw Materials Manufacturer" for more information on the acquisition. The consolidated financial statements contained in this annual report have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty related to our ability to continue as a going concern. 41
Financial Statement Presentation
Net revenues. The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred it the expected amortization period of the asset that it would have recognized is on year or less or the amount is immaterial.
Revenue from product sales is recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the categories: discounts and returns. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company's customer. Cost of revenues. Cost of revenues consists primarily of material costs, employee remuneration for staff engaged in production activity, share-based compensation, depreciation and related expenses that are directly attributable to the production of products. Cost of revenues also includes write-downs of inventory to lower of cost and net realizable value. Research and development expenses.Research and development expenses primarily consist of remuneration for R&D staff, share-based compensation, depreciation and maintenance expenses relating to R&D equipment, and R&D material costs. Sales and marketing expenses. Sales and marketing expenses consist primarily of remuneration for staff involved in selling and marketing efforts, including staff engaged in the packaging of goods for shipment, warranty expenses, advertising cost, depreciation, share-based compensation and travel and entertainment expenses. We do not pay slotting fees to retail companies for displaying our products, engage in cooperative advertising programs, participate in buy-down programs or similar arrangements. General and administrative expenses.General and administrative expenses consist primarily of employee remuneration, share-based compensation, professional fees, insurance, benefits, general office expenses, depreciation, liquidated damage charges and bad debt expenses.
Finance costs, net. Finance costs consist primarily of interest income and interest on bank loans, net of capitalized interest.
Income tax expenses. Our subsidiaries in PRC are subject to an income tax rate of 25%, except for Hitrans which was recognized as a "High and New Technology Enterprise" and enjoyed a preferential tax rate of 15% from 2021 to 2023. OurHong Kong subsidiary BAK Asia is andBAK Investment are subject to profits tax at a rate of 16.5%. However, because we did not have any assessable income derived from or arising inHong Kong , BAK Asia andBAK Investment had not paid any such tax. 42 Results of Operations
Comparison of Years Ended
The following table sets forth key components of our results of operations for the years indicated, both in dollars and as a percentage of our revenue.
(All amounts, other than percentages, in thousands of U.S. dollars)
Years Ended Change
December 31, December 31,
2020 2021 $ %
Net revenues $ 37,566 $ 52,670 15,104 40
Cost of revenues (34,852 ) (47,559 ) (12,707 ) 36
Gross profit 2,714 5,111 2,397 88
Operating expenses:
Research and development expenses (1,679 ) (5,274 ) (3,595 ) 214
Sales and marketing expenses (701 ) (2,302 ) (1,601 ) 228
General and administrative expenses (3,746 ) (10,027 ) (6,281 ) 168
Impairment charge on property, plant and
equipment (4,346 ) - 4,346 -
(Provision for) recovery of doubtful
accounts (722 ) 780 1,502 -208
Total operating expenses (11,194 ) (16,823 ) (5,629 ) 50
Operating loss (8,480 ) (11,712 ) (3,232 ) 38
Finance expense, net (1,399 ) 785 2,184 -156
Other (expense) income, net (40 ) 3,644 3,684 -9,210
Impairment of Non-marketable equity
securities - (693 ) (693 ) -
Change in fair value of warrants
liability 2,072 61,802 59,730 2,883
(Loss) income before income tax (7,847 ) 53,826 61,673 -786
Income tax credit - 7,733 7,733 -
Net (loss) income $ (7,847 ) 61,559 69,406 884
Less: Net loss (income) attributable to
non-controlling interests 40 (73 ) (113 ) -283
Net (loss) income attributable to
shareholders of CBAK Energy Technology,
Inc. (7,807 ) $ 61,486 69,293 888
Net revenues. Net revenues were $52.7 million for the fiscal year ended December
31, 2021 , as compared to $37.6 million for the fiscal year ended December 31,
2020 , an increase of $15.1 million , or 40%.
The following table sets forth the breakdown of our net revenues by end-product applications.
(All amounts, other than percentage, in thousands of U.S. dollars)
Years Ended Change
December 31, December 31,
2020 2021 $ %
High-power lithium batteries used in:
Electric vehicles $ 260 $ 244 (16 ) (6 )
Light electric vehicles 39 733 694 1,779
Uninterruptable supplies 22,749 33,308 10,559 46
Trading of Raw materials used in lithium
batteries 14,518 520 (13,998 ) (96 )
37,566 34,805 (2,761 ) (7 )
Materials used in manufacturing of
lithium batteries
Cathode - 8,726 8,726 -
Precursor - 9,139 9,139 -
- 17,865 17,865 -
Total $ 37,566 $ 52,670 15,104 40
Net revenues from sales of batteries for electric vehicles were $0.2 million for
the fiscal year ended December 31, 2021 , as compared to $0.3 million for 2020, a
decrease of 6%.
Net revenues from sales of batteries for light electric vehicles was
approximately $0.7 million for the fiscal year ended December 31, 2021 , as
compared $39,428 for 2020, representing an increase of $0.7 million , or 1,779%.
We will continue to penetrate the market for batteries used in light electric
vehicles.
43
Net revenues from sales of batteries for uninterruptable supplies was
Net revenues from trading of raw materials used in lithium batteries were$0.5 million for the fiscal year endedDecember 31, 2021 , as compared with$14.5 million in the same period in 2020. We obtained favorable prices on bulk purchase of raw materials from certain suppliers, and generated gross profit in the fiscal year endedDecember 31, 2020 . We didn't expand this business during 2021. Net revenues from sales of materials for use in manufacturing of lithium battery cell were$17.9 million for the fiscal year endedDecember 31, 2021 , as compared to nil for 2020. In November, 2021, we completed the acquisition of Hitrans as a raw materials producer, which added the sale of materials for lithium battery cell to our business lines.
During 2021, we through the newly acquired subsidiary, Hitrans, a raw material
producer of cathode and precursor, earned sales of materials used in
manufacturing of lithium batteries of
Cost of revenues. Cost of revenues increased to$47.6 million for the fiscal year endedDecember 31, 2021 , as compared to$34.9 million for 2020, an increase of$12.7 million , or 36%. The increase in cost of revenues was mainly due to the increase of net revenues. Included in cost of revenues were write down of obsolete and slow-moving inventories of$0.9 million for the year endedDecember 31, 2021 , while it was$1.5 million for the year ended 2020. We write down the inventory value whenever there is an indication that it is impaired. Gross profit. Gross profit for the year endedDecember 31, 2021 was$5.1 million , or 9.7% of net revenues as compared to gross profit of$2.7 million , or 7.2% of net revenues, for the fiscal year endedDecember 31, 2020 . Gross profit margin improved due to productivity increase, cost control and upgrades to production lines. With our sustained effort, the quality passing rate of our product has improved due to cost control and enhancement works on production line. Research and development expenses.Research and development expenses increased to$5.3 million for the year endedDecember 31, 2021 , as compared to$1.7 million for 2020, an increase of$3.6 million , or 214%. The increase was primarily resulted from an increase in R&D employees' salaries and social insurance expenses by approximately$1.7 million . R&D employees' salaries and social insurance expenses increased due to the salaries incurred from the newly acquired subsidiary, Hitrans, and a growing number of employees at Nanjing CBAK and Nanjing Daxin as well as the expiration of Chinese government's COVID-19 relief policy that alleviated corporations' social insurance burdens. We also incurred design and development expenses relating to light electric vehicles of$0.5 million and nil for the years endedDecember 31, 2021 and 2020, respectively. In addition, we incurred expenses for materials used in battery research and development of$0.5 million and$0.1 for the years endedDecember 31, 2021 and 2020, respectively, as a result of the Company's efforts to research and develop upgraded battery products with lower costs and better performance. Sales and marketing expenses. Sales and marketing expenses increased to$2.3 million for the year endedDecember 31, 2021 , as compared to$0.7 million for 2020, an increase of$1.6 million , or 228%. As a percentage of revenues, sales and marketing expenses were 4.4% and 1.9% of revenues for the years endedDecember 31, 2021 and 2020, respectively. The increase mainly resulted from an increase in salaries, social insurance and staff welfare expenses for sales and marketing employees by approximately$0.8 million . Sales and marketing employees' salaries and social insurance expenses increased is due a growing number of employees at Nanjing CBAK and Nanjing Daxin as well as the expiration of Chinese government's COVID-19 relief policy that alleviated corporations' social insurance burdens. Moreover, given the growth in revenue, we increased sales and marketing employees' salaries and welfare. In addition, we attended several exhibitions to increase our brand awareness and incurred exhibition expenses of approximately$0.2 million and $nil for the year endedDecember 31, 2021 and 2020, respectively. Besides, the transaction costs and declaration charge increased by$0.3 million is due to the increase of international sales during fiscal 2021. General and administrative expenses.General and administrative expenses increased to$10.0 million for the year endedDecember 31, 2021 , as compared to$3.7 million for 2020, an increase of$6.3 million , or 168%. The increase was primarily resulted from the significant increase in administrative employees' salaries and social insurance expenses by approximately$2.1 million . Administrative employees' salaries and social insurance expenses increased due to the salaries incurred from the newly acquired subsidiary, Hitrans, and a growing number of employees at Nanjing CBAK and Nanjing Daxin as well as the expiration of Chinese government's COVID-19 relief policy that alleviated corporations' social insurance burdens. Our consultancy fees, legal and professional fee increased by$2.8 million is due to the consultancy charges in related to acquisition of Hitrans and fund raising in 2021. In addition, our rental expenses increased by approximately$0.3 million , as Nanjing CBAK and Nanjing Daxin rented staff dormitory during 2021.
Property, plant and equipment impairment charge. During the course of our
strategic review of our operations, we assessed the recoverability of the
carrying value of certain property, plant and equipment which resulted in
impairment losses of
Provision for (recovery of) doubtful accounts. Recovery of doubtful accounts was$0.8 million for the year endedDecember 31, 2021 , as compared to a provision of$0.7 million for the same period in 2020. We determine the allowance based on historical write-off experience, customer specific facts and economic conditions. We have recovered$1.0 million of cash from customers in 2021.
Operating loss. As a result of the above, our operating loss totaled
Finance (expense) income, net. Finance income, net was$0.8 million for the year endedDecember 31, 2021 , as compared to Finance expense, net of$1.40 million for the year endedDecember 31, 2020 , an increase of$2.2 million , or 156% as a result of a lower loan balances in 2021, an increase of$0.4 million interest income generated from our security deposit to finance for the issuance of bills payable. 44 Other income (expenses), net. Other income was$3.6 million for the year endedDecember 31, 2021 , as compared to other expenses of approximately$0.04 million for 2020. For the year endedDecember 31, 2021 , we have recognized$1.6 million subsidy from Gaochun EDZ to facilitate our development and operation inNanjing . Changes in fair value of warrants liability. We issued warrants in the financings we consummated inDecember 2020 andFebruary 2021 , respectively. We determined that these warrants should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency. The change in fair value of warrants liability is mainly due to the share price decline. Income tax credit. Income tax credit was$7.7 million and nil for the year endedDecember 31, 2021 and 2020, respectively. The income tax credit was primarily due to the decrease of uncertain tax position taken. Net (loss) income. As a result of the foregoing, we had a net income of$61.6 million for the year endedDecember 31, 2021 , compared to a net loss of$7.8 million for 2020.
Liquidity and Capital Resources
We had financed our liquidity requirements from a variety of sources, including short-term bank loans, other short-term loans and bills payable under bank credit agreements, advance from our related and unrelated parties, investors and issuance of capital stock.
We incurred a net income of$61.6 million in the fiscal year endedDecember 31, 2021 . As ofDecember 31, 2021 , we had cash and cash equivalents and restricted cash of$26.4 million . Our total current assets were$122.8 million and our total current liabilities were$112.8 million , resulting in a net working capital surplus of$9.2 million .
Lending from Financial Institutions
OnJune 4, 2018 , we obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount ofRMB200 million (approximately$30.63 million ) with the term fromJune 12, 2018 toJune 10, 2021 , bearing interest at 130% of benchmark rate of thePeople's Bank of China ("PBOC") for three-year long-term loans, which is currently 6.175% per annum. Under the facilities, we borrowedRMB126.0 million ($18.1 million ),RMB23.3 million ($3.3 million ),RMB9.0 million ($1.3 million ) andRMB9.5 million ($1.4 million ) onJune 12 ,June 20 ,September 20 , andOctober 19, 2018 , respectively. The loans are repayable in six installments ofRMB0.8 million ($0.12 million ) onDecember 10, 2018 ,RMB24.3 million ($3.50 million ) onJune 10, 2019 ,RMB0.8 million ($0.12 million ) onDecember 10, 2019 ,RMB74.7 million ($10.7 million ) onJune 10, 2020 ,RMB0.8 million ($0.12 million ) onDecember 10, 2020 andRMB66.3 million ($9.6 million ) onJune 10, 2021 . We repaid the bank loan ofRMB0.8 million ($0.12 million ),RMB24.3 million ($3.72 million ) andRMB0.8 million ($0.12 million ) inDecember 2018 ,June 2019 andDecember 2019 , respectively. OnJune 28, 2020 , the Company entered into a supplemental agreement withChina Everbright Bank Dalian Branch to change the repayment schedule. According to the supplemental agreement, the remainingRMB141.8 million (approximately$21.72 million ) loans are repayable in eight instalments consisting ofRMB1.09 million ($0.17 million ) onJune 10, 2020 ,RMB1 million ($0.15 million ) onDecember 10, 2020 ,RMB2 million ($0.31 million ) onJanuary 10, 2021 ,RMB2 million ($0.31 million ) onFebruary 10, 2021 ,RMB2 million ($0.31 million ) onMarch 10, 2021 ,RMB2 million ($0.31 million ) onApril 10, 2021 ,RMB2 million ($0.31 million ) onMay 10, 2021 , andRMB129.7 million ($19.9 million ) onJune 10, 2021 , respectively. As ofJune 30, 2021 , the Company repaid all the bank loan. 45 OnOctober 15, 2019 , the Company borrowed a total ofRMB28 million (approximately$4.12 million ) in the form of bills payable from China EverbrightBank Dalian Branch for a term untilOctober 15, 2020 , which was secured by the Company's cash totaledRMB28 million (approximately$4.12 million ). The Company discounted the bills payable of even date to China Everbright Bank at a rate of 3.3%. The Company repaid the bills onOctober 15, 2020 . InDecember 2019 , the Company obtained banking facilities from China EverbrightBank Dalian Friendship Branch totaledRMB39.9 million (approximately$6.1 million ) for a term untilNovember 6, 2020 , bearing interest at 5.655% per annum. The facility was secured by 100% equity inCBAK Power held by BAK Asia and buildings ofHubei BAK Real Estate Co., Ltd. , which Mr.Yunfei Li , the Company's CEO holding 15% equity interest. Under the facilities, the Company repaid the bank loan ofRMB39.9 million (approximately$6.1 million ) inDecember 2020 .
OnNovember 16, 2021 , the Company obtained banking facilities fromShaoxing Branch of Bank of Communications Co., Ltd with a maximum amount ofRMB120.1 million (approximately$19.0 million ) with the term fromNovember 18, 2021 toNovember 18, 2026 . The facility was secured by the Company's land use rights and buildings. Under the facility, the Company has borrowedRMB 56.0 million (approximately 8.9 million) for a term untilNovember 16, 2022 , bearing interest at 4.35% per annum. OnFebruary 28, 2022 , the Company borrowedRMB7.1 million loan (approximately$1.1 million ) with the term fromFebruary 28, 2022 toFebruary 28, 2023 from the above facilities. The Company borrowed a series of acceptance bills fromShaoxing Branch of Bank of Communications Co., Ltd totaledRMB53.5 million (approximately$8.4 million ) for various terms through January toJune 2022 , which was secured by the Company's cash totaledRMB26.6 million (approximately$4.3 million ) and bills receivables totaledRMB26.9 million (approximately$4.3 million ). The Company borrowed a series of acceptance bills fromShaoxing Branch of Bank of Communications Co., Ltd totaledRMB20.2 million (approximately$3.2 million ) for various terms throughMay 2022 , which was secured by the Company's cash totaledRMB10.1 million (approximately$1.6 million ) and the Company's land
use rights and buildings. In October toDecember 2020 , the Company borrowed a series of acceptance bills from China Merchants Bank totaledRMB13.5 million (approximately$2.07 million ) for various terms through April toJune 2021 , which was secured by the Company's cash totaledRMB13.5 million (approximately$2.07 million ). The Company repaid the bills through April toJune 2021 . The Company borrowed a series of acceptance bills from Agricultural Bank of China totalingRMB17.9 million (approximately$2.8 million ) for various terms through January toJune 2022 , which was secured by the Company's cash totalingRMB17.9 million (approximately$2.8 million ). The Company borrowed a series of acceptance bills from China Zheshang Bank Co. LtdShenyang Branch totaledRMB57.4 million (approximately$9 million ) for various terms through January toJune 2022 , which was secured by the Company's cash totaledRMB56.1 million (approximately$8.8 million ) and the Company's bills receivable totaledRMB1.3 million (approximately$0.2 million ). OnApril 19, 2021 , the Company obtained five-year acceptance bills facilities from Bank of Ningbo Co., Ltd with a maximum amount ofRMB84.4 million (approximately$13.2 million ). Any amount drawn under the facilities requires security in the form of cash or bank acceptance bills receivable of at least the same amount. Under the facilities, as ofDecember 31, 2021 , the Company borrowed a total ofRMB10 million (approximately$1.6 million ) from Bank of Ningbo Co., Ltd in the form of bills payable for a various term expiring from January toFebruary 2022 , which was secured by the Company's cash totaledRMB10 million (approximately$1.6 million ). OnJanuary 17, 2022 , the Company obtained a one-year term facility from AgriculturalBank of China with a maximum amount ofRMB10 million (approximately$1.6 million ) bearing interest at 105% of benchmark rate of thePeople's Bank of China ("PBOC") for short-term loans, which is 3.85% per annum. The facility was guaranteed by the Company's CEO, Mr.Yunfei Li and Mr.Yunfei Li's wife Ms.Qinghui Yuan . The Company borrowedRMB10 million (approximately$1.6 million ) up to the date of this report. OnFebruary 9, 2022 , the Company obtained a one-year term facility fromJiangsu Gaochun Rural Commercial Bank with a maximum amount ofRMB10 million (approximately$1.6 million ) bearing interest at 124% of benchmark rate of thePeople's Bank of China ("PBOC") for short-term loans, which is 4.94% per annum. The facility was guaranteed by the Company's CEO, Mr.Yunfei Li and Mr.Yunfei Li's wife Ms.Qinghui Yuan . The Company borrowedRMB10 million (approximately$1.6 million ) up to the date of this report. OnMarch 8, 2022 , the Company obtained a one-year term facility from China Zheshang Bank Co., Ltd. Shangyu Branch with a maximum amount ofRMB10 million (approximately$1.6 million ) bearing interest at 5. 5% per annum. The facility was guaranteed by 100% equity inCBAK Power held by BAK Asia and the Company's CEO, Mr.Yunfei Li . The Company borrowedRMB10 million (approximately$1.6 million ) up to the date of this report. 46
As of
Equity and Debt Financings from Investors
In addition, we have obtained funds through private placements, registered direct offerings and other equity and debt financings:
OnJuly 28, 2016 , the Company entered into securities purchase agreements with Mr.Jiping Zhou and Mr.Dawei Li to issue and sell an aggregate of 2,206,640 shares of common stock of the Company, at$2.5 per share, for an aggregate consideration of approximately$5.52 million . OnAugust 17, 2016 , the Company issued the foregoing shares to the two investors. OnFebruary 17, 2017 , we signed a letter of understanding with each of eight individual investors, including our CEO, Mr.Yunfei Li , whereby these shareholders agreed in principle to subscribe for new shares of our common stock totaling$10 million . The issue price was determined with reference to the market price prior to the issuance of new shares. InJanuary 2017 , the shareholders paid us a total of$2.1 million as refundable earnest money, among which, Mr.Yunfei Li agreed to subscribe new shares totaling$1.12 million and pay a refundable earnest money of$0.2 million . In April andMay 2017 , we received cash of$9.6 million from these shareholders. OnMay 31, 2017 , we entered into a securities purchase agreement with these investors, pursuant to which we agreed to issue an aggregate of 6,403,518 shares of common stock to these investors, at a purchase price of$1.50 per share, for an aggregate price of$9.6 million , including 764,018 shares issued to Mr.Yunfei Li . OnJune 22, 2017 , we issued the shares to the investors. The issuance of the shares to the investors was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act. In 2019, according to the securities purchase agreement and agreed by the investors, we returned partial earnest money of$966,579 (approximatelyRMB6.7 million ) to these investors. OnJanuary 7, 2019 , each of Mr.Dawei Li and Mr.Yunfei Li entered into an agreement withCBAK Power and Tianjin New Energy whereby Tianjin New Energy assigned its rights to loans toCBAK Power of approximately$3.4 million (RMB23,980,950 ) and$1.7 million (RMB11,647,890 ) (totaled$5.1 million , the "First Debt") to Mr.Dawei Li and Mr.Yunfei Li , respectively. On the same date, the Company entered into a cancellation agreement with Mr.Dawei Li and Mr.Yunfei Li . Pursuant to the terms of the cancellation agreement, Mr.Dawei Li and Mr.Yunfei Li agreed to cancel the First Debt in exchange for 3,431,373 and 1,666,667 shares of common stock of the Company, respectively, at an exchange price of$1.02 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the First Debt. OnApril 26, 2019 , each of Mr.Jun Lang , Ms.Jing Shi and Asia EVK Energy Auto Limited ("Asia EVK") entered into an agreement withCBAK Power andTianjin New Energy whereby Tianjin New Energy assigned its rights to loans toCBAK Power of approximately$0.3 million (RMB2,225,082 ),$0.1 million (RMB 912,204 ) and$5.2 million (RMB35,406,036 ) (collectively$5.7 million , the "Second Debt") to Mr.Jun Lang , Ms.Jing Shi and Asia EVK, respectively. On the same date, the Company entered into a cancellation agreement with Mr.Jun Lang , Ms.Jing Shi andAsia EVK (the creditors). Pursuant to the terms of the Cancellation Agreement, the creditors agreed to cancel the Second Debt in exchange for 300,534, 123,208 and 4,782,163 shares of common stock of the Company, respectively, at an exchange price of$1.1 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Second Debt. OnJune 28, 2019 , each of Mr.Dawei Li and Mr.Yunfei Li entered into an agreement withCBAK Power to loan approximately$1.4 million (RMB10,000,000 ) and$2.5 million (RMB18,000,000 ), respectively, toCBAK Power for a terms of six months (collectively$3.9 million , the "Third Debt"). The loan was unsecured, non-interest bearing and repayable on demand. OnJuly 16, 2019 , each of Asia EVK and Mr.Yunfei Li entered into an agreement withCBAK Power andDalian Zhenghong Architectural Decoration andInstallation Engineering Co. Ltd. (the Company's construction contractor) wherebyDalian Zhenghong Architectural Decoration and Installation Engineering Co. Ltd. assigned its rights to the unpaid construction fees owed byCBAK Power of approximately$2.8 million (RMB20,000,000 ) and$0.4 million (RMB2,813,810 ) (collectively$3.2 million , the "Fourth Debt") toAsia EVK and Mr.Yunfei Li , respectively. OnJuly 26, 2019 , we entered into a cancellation agreement with Mr.Dawei Li , Mr.Yunfei Li and Asia EVK (the creditors). Pursuant to the terms of the cancellation agreement, Mr.Dawei Li , Mr.Yunfei Li and Asia EVK agreed to cancel the Third Debt and Fourth Debt in exchange for 1,384,717, 2,938,067 and 2,769,435 shares of common stock of the Company, respectively, at an exchange price of$1.05 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Third Debt and Fourth Debt. 47 OnOctober 10, 2019 , each of Mr.Shibin Mao , Ms.Lijuan Wang and Mr.Ping Shen entered into an agreement withCBAK Power andZhengzhou BAK New Energy Vehicle Co., Ltd. (the Company's supplier) wherebyZhengzhou BAK New Energy Vehicle Co., Ltd. assigned its rights to the unpaid inventories cost owed byCBAK Power of approximately$2.1 million (RMB15,000,000 ),$1.0 million (RMB7,380,000 ) and$1.0 million (RMB7,380,000 ) (collectively$4.2 million , the "Fifth Debt") to Mr.Shibin Mao , Ms.Lijuan Wang and Mr.Ping Shen , respectively. OnOctober 14, 2019 , we entered into a cancellation agreement with Mr. Shangdong Liu, Mr.Shibin Mao , Ms.Lijuan Wang and Mr.Ping Shen (the creditors). Pursuant to the terms of the cancellation agreement, Mr. Shangdong Liu, Mr.Shibin Mao , Ms.Lijuan Wang and Mr.Ping Shen agreed to cancel and convert the Fifth Debt and the unpaid earnest money in exchange for 528,053, 3,536,068, 2,267,798 and 2,267,798 shares of common stock of the Company, respectively, at an exchange price of$0.6 per share. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Fifth Debt and the unpaid earnest money. OnApril 27, 2020 , we entered into a cancellation agreement with Mr.Yunfei Li , Asia EVK and Mr.Ping Shen , who loaned an aggregate of approximately$4.3 million toCBAK Power (the "Sixth Debt"). Pursuant to the terms of the cancellation agreement, the creditors agreed to cancel the Sixth Debt in exchange for an aggregate of 8,928,193 shares of common stock of the Company at an exchange price of$0.48 per share. According to the amount of loan, 2,062,619, 2,151,017 and 4,714,557 shares were issued to Mr.Yunfei Li , Asia EVK and Mr.Pin Shen , respectively. Upon receipt of the shares, the creditors released the Company from any claims, demands and other obligations relating to the Sixth Debt. OnJuly 24, 2019 , we entered into a securities purchase agreement withAtlas Sciences, LLC (the "Lender"), pursuant to which we issued a promissory note (the "Note I") to the Lender. The Note I has an original principal amount of$1,395,000 , bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. The Company received proceeds of$1,250,000 after an original issue discount of$125,000 and payment of Lender's expenses of$20,000 . OnDecember 30, 2019 , we entered into a second securities purchase agreement withAtlas Sciences, LLC , pursuant to which the Company issued a promissory note (the "Note II") to the Lender. The Note II has an original principal amount of$1,670,000 , bears interest at a rate of 10% per annum and will mature 12 months after the issuance, unless earlier paid or redeemed in accordance with its terms. We received proceeds of$1,500,000 after an original issue discount of$150,000 and payment of Lender's expenses of$20,000 . OnJanuary 27, 2020 , we entered into an exchange agreement (the "First Exchange Agreement") with the Lender, pursuant to which we and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to$100,000 (the "Partitioned Promissory Note) from the outstanding balance of certain promissory note that the Company issued to the Lender onJuly 24, 2019 , which has an original principal amount of$1,395,000 , and (ii) exchange the Partitioned Promissory Note for the issuance of 160,256 shares of the Company's common stock, par value$0.001 per share, to the Lender. OnFebruary 20, 2020 , we entered into another exchange agreement (the "Second Exchange Agreement") with the Lender, pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to$100,000 (the "Partitioned Promissory Note") from the outstanding balance of certain promissory note that the Company issued to the Lender onJuly 24, 2019 , which has an original principal amount of$1,395,000 , and (ii) exchange the Partitioned Promissory Note for the issuance of 207,641 shares of the Company's common stock, par value$0.001 per share, to the Lender. OnApril 28, 2020 , we entered into a third exchange agreement (the "Third Exchange Agreement") with the Lender, pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to$100,000 (the "Partitioned Promissory Note") from the outstanding balance of certain promissory note that the Company issued to the Lender onJuly 24, 2019 , which has an original principal amount of$1,395,000 , and (ii) exchange the Partitioned Promissory Note for the issuance of 312,500 shares of the Company's common stock, par value$0.001 per share, to the Lender. 48 OnJune 8, 2020 , we entered into a fourth exchange agreement (the "Fourth Exchange Agreement") with the Lender, pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to$100,000 from the outstanding balance of certain promissory note that the Company issued to the Lender onJuly 24, 2019 , which has an original principal amount of$1,395,000 , and (ii) exchange the partitioned promissory note for the issuance of 271,739 shares of the Company's common stock, par value$0.001 per share to the Lender. OnJune 10, 2020 , we entered into a fifth exchange agreement (the "Fifth Exchange Agreement") with the Lender, pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to$150,000 from the outstanding balance of certain promissory note that the Company issued to the Lender onJuly 24, 2019 , which has an original principal amount of$1,395,000 , and (ii) exchange the partitioned promissory note for the issuance of 407,609 shares of the Company's common stock, par value$0.001 per share to the Lender. OnJuly 6, 2020 , we entered into a sixth exchange agreement (the "Sixth Exchange Agreement") with the Lender, pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to$250,000 from the outstanding balance of certain promissory note that the Company issued to the Lender onJuly 24, 2019 , which has an original principal amount of$1,395,000 , and (ii) exchange the partitioned promissory note for the issuance of 461,595 shares of the Company's common stock, par value$0.001
per share to the Lender. OnJuly 8, 2020 , we entered into certain exchange agreement with the Lender, pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to$250,000 from the outstanding balance of certain promissory note that the Company issued to the Lender onDecember 30, 2019 , which has an original principal amount of$1,670,000 , and (ii) exchange the partitioned promissory note for the issuance of 453,161 shares of the Company's common stock, par value$0.001 per share
to the Lender. OnJuly 29, 2020 , we entered into a seventh exchange agreement (the "Seventh Exchange Agreement") with the Lender, pursuant to which the Company and the Lender agreed to (i) partition a new promissory note in the original principal amount equal to$365,000 from the outstanding balance of certain promissory note that the Company issued to the Lender onJuly 24, 2019 , which has an original principal amount of$1,395,000 , and (ii) exchange the partitioned promissory note for the issuance of 576,802 shares of the Company's common stock, par value$0.001 per share to the Lender. OnOctober 12, 2020 , we entered into an amendment to promissory notes (the "Amendment") with the Lender, pursuant to which the Lender has the right at any time until the outstanding balance of the notes has been paid in full, at its election, to convert all or any portion of the outstanding balance of the notes into shares of common stock of the Company. The conversion price for each conversion will be calculated pursuant to the following formula: 80% multiplied by the lowest closing price of the Company common stock during the ten (10) trading days immediately preceding the applicable conversion. Notwithstanding the foregoing, in no event will the conversion price be less than$1.00 .
According to the Amendment, on
OnOctober 20, 2020 , the Company exchanged the remaining balance of$778,252 under the notes for the issuance of 329,768 shares of common stock, par value$0.001 per share to the Lender. OnNovember 5, 2020 ,Tillicum Investment Company Limited entered into an agreement withCBAK Nanjing and Shenzhen ESTAR Industrial Company Limited (the Company's equipment supplier) wherebyShenzhen ESTAR Industrial Company Limited assigned its rights to the unpaid equipment cost owed byCBAK Power of approximately $$11.17 million (RMB75,000,000 ) (the "Seventh Debt") toTillicum Investment Company Limited . 49 OnNovember 11, 2020 , we entered into a cancellation agreement withTillicum Investment Company Limited . Pursuant to the terms of the cancellation agreement,Tillicum Investment Company Limited agreed to cancel the Seventh Debt in exchange for 3,192,291 shares of common stock of the Company, at an exchange price of$3.5 per share. Upon receipt of the shares, the creditor released the Company from any claims, demands and other obligations relating to the Seventh Debt. OnDecember 8, 2020 , we entered into a securities purchase agreement with certain institutional investors, pursuant to which we issued in a registered direct offering, an aggregate of 9,489,800 shares of common stock of the Company at a per share purchase price of$5.18 , and warrants to purchase an aggregate of 3,795,920 shares of common stock of the Company at an exercise price of$6.46 per share exercisable for 36 months from the date of issuance, for gross proceeds of approximately$49.16 million , before deducting fees to the placement agent and other offering expenses payable by the Company. OnFebruary 8, 2021 , we entered into another securities purchase agreement with the same investors, pursuant to which we issued in a registered direct offering, an aggregate of 8,939,976 shares of common stock of the Company at a per share purchase price of$7.83 . In addition, we issued to the investors (i) in a concurrent private placement, the Series A-1 warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of$7.67 and exercisable for 42 months from the date of issuance; (ii) in the registered direct offering, the Series B warrants to purchase a total of 4,469,988 shares of common stock, at a per share exercise price of$7.83 and exercisable for 90 days from the date of issuance; and (iii) in the registered direct offering, the Series A-2 warrants to purchase up to 2,234,992 shares of common stock, at a per share exercise price of$7.67 and exercisable for 45 months from the date of issuance. We received gross proceeds of approximately$70 million from the registered direct offering and the concurrent private placement, before deducting fees to the placement agent and other offering expenses payable by the Company. OnMay 10, 2021 , we entered into that Amendment No. 1 to the Series B Warrant (the "Series B Warrant Amendment") with each of the holders of the Company's outstanding Series B warrants. Pursuant to the Series B Warrant Amendment, the term of the Series B warrants was extended fromMay 11, 2021 toAugust 31, 2021 . As ofAugust 31, 2021 , we had not received any notices from the investors to exercise Series B warrants. As of the date of this report, Series B warrants, along with Series A-2 warrants, had both expired. We currently are expanding our product lines and manufacturing capacity in our Dalian andNanjing plants, which require more funding to finance the expansion. We may also require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. We plan to renew our bank loans upon maturity, if required, and plan to raise additional funds through bank borrowings and equity financing in the future to meet our daily cash demands, if required. However, there can be no assurance that we will be successful in obtaining such financing. If our existing cash and bank borrowing are insufficient to meet our requirements, we may seek to sell equity securities, debt securities or borrow from lending institutions. We can make no assurance that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of equity securities, including convertible debt securities, would dilute the interests of our current shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects
may
suffer.
The following table sets forth a summary of our cash flows for the periods
indicated:
(All amounts in thousands of U.S. dollars)
Year Ended
December 31, December 31,
2020 2021
Net cash used in operating activities $ (5,097 ) $ (4,270 )
Net cash used in investing activities (5,710 ) (38,081 )
Net cash provided by financing activities 25,827 48,272
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(1,482 ) (238 )
Net increase in cash and cash equivalents and restricted cash
13,538 5,683
Cash and cash equivalents and restricted cash at the beginning of the year
7,134 20,672
Cash and cash equivalents and restricted cash at the end of
the year $ 20,672 $ 26,355
50
Operating Activities
Net cash used in operating activities was $4.3 million in the year ended
December 31, 2021 , as compared to net cash used in operating activities of $5.1
million in 2020. The net cash used in operating activities in 2021was mainly
attributable to our net profit (before loss on disposal of property, plant and
equipment, impairment charge of non-marketable equity securities and excluding
non-cash depreciation and amortization, write-down of inventories, share-based
compensationand changes in fair value of warrants liability) of $4.6 million
offset by a decrease of uncertain tax position of 7.5 million.
The net cash used in operating activities in 2020 was mainly attributable to our
net loss (before loss on disposal of property, plant and equipment, impairment
charge of property, plant and equipment and excluding non-cash depreciation and
amortization and changes in fair value of warrants liability) of $2.9 million ,
an increase of $20.8 million for trade accounts and bills receivable partially
offset by an increase of $11.1 million on trade accounts and bills payables, an
increase of $3.4 million payable to former subsidiary and $2.9 million
government grants received.
Investing Activities
Net cash used in investing activities increased to $38.1 million in the fiscal
year ended December 31, 2021 , from $5.7 million in 2020. The net cash used in
investing activities in 2021 comprised of $17.8 million proceeds from
acquisition of Hitrans (net of cash acquired), purchase of non-marketable
securities of $1.4 million and purchases of property, plant and equipment and
construction in progress of $19.2 million .
Net cash used in investing activities in the fiscal year ended December 31, 2020
mainly included purchase of property, plant and equipment and constructionin progress of$5.7 million . Financing Activities Net cash provided by financing activities was$48.3 million in the fiscal year endedDecember 31, 2021 , compared with$25.8 million in 2020. The net cash provided by financing activities for the year endedDecember 31, 2021 mainly comprised of$65.5 million net proceeds from issuance of shares to institutional investors, partially offset by repayment of bank borrowings of$13.9 million , repayment of$2.8 million loans from Mr. Ye Junnan and repayment of borrowings from unrelated parties of$0.4 million . The net cash provided by financing activities for the year endedDecember 31, 2020 mainly comprised of$45.3 million net proceeds from issuance of shares to institutional investors,$3.5 million borrowings from unrelated parties, partially offset by repayment of bank borrowings of$13.3 million and repayment of borrowings from unrelated parties of$9.8 million .
As of
(All amounts in thousands of U.S. dollars)
Maximum
amount Amount
available borrowed
Long-term credit facilities:
Shaoxing Branch of Bank of Communications Co., Ltd $
18,976
Other line of credit: Shaoxing Branch of Bank of Communications Co., Ltd 10,004 10,004 AgriculturalBank of China 2,813 2,813 China Zheshang Bank Co., Ltd 9,029 9,029 Bank of Ningbo Co., Ltd 1,573 1,573 23,419 23,419 Total$ 42,395 $ 33,810 51 Capital Expenditures We incurred capital expenditures of$19.2 million and$17.5 million in fiscal years endedDecember 31, 2021 andDecember 31, 2020 , respectively. Our capital expenditures in 2021 were used primarily to construct our Dalian facility andNanjing facility. The table below sets forth the breakdown of our capital expenditures by use for the periods indicated. (All amounts in thousands of U.S. dollars) Year Ended December 31, December 31, 2020 2021 Purchase of property, plant and equipment and construction in progress$ 17,528 $ 19,212 We estimate that our total capital expenditures in fiscal year 2022 will reach approximately$30 million . Such funds will be used to construct new plant with new product lines and battery module packing lines.
Critical Accounting Policies
Our consolidated financial information has been prepared in accordance withU.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (1) the reported amounts of our assets and liabilities, (2) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (3) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. 52 When reviewing our financial statements, the following should also be considered: (1) our selection of critical accounting policies, (2) the judgment and other uncertainties affecting the application of those policies, and (3) the sensitivity of reported results to changes in conditions and assumptions. We believe the following accounting policies involve the most significant judgment and estimates used in the preparation of our financial statements.
We consider the following to be the most critical accounting policies:
Revenue Recognition We recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. We recognize revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the categories: discounts and returns. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to our customer.
Impairment of Long-lived Assets
Long-lived assets, which include property, plant and equipment, prepaid land use rights and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Trade Accounts and Bills Receivable
Trade accounts and bills receivable are recorded at the invoiced amount, net of allowances for doubtful accounts and sales returns. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing trade accounts receivable. We determine the allowance based on historical write-off experience, customer specific facts and economic conditions.
Outstanding accounts receivable balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of
inventories is determined using the weighted average cost method, and includes
expenditure incurred in acquiring the inventories and bringing them to their
existing location and condition. In case of finished goods and work in progress,
cost includes an appropriate share of production overhead based on normal
operating capacity. Net realizable value is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation.
We record adjustments to its inventory for estimated obsolescence or diminution
in net realizable value equal to the difference between the cost of the
inventory and the estimated net realizable value. At the point of loss
recognition, a new cost basis for that inventory is established, and subsequent
changes in facts and circumstances do not result in the restoration or increase
in that newly established cost basis.
Warranties
We provide a manufacturer's warranty on all our products. We accrue a warranty
reserve for the products sold, which includes our best estimate of the projected
costs to repair or replace items under warranty. These estimates are based on
actual claims incurred to date and an estimate of the nature, frequency and
costs of future claims. These estimates are inherently uncertain given our
relatively short history of sales of our current products, and changes to our
historical or projected warranty experience may cause material changes to the
warranty reserve in the future. The portion of the warranty reserve expected to
be incurred within the next 12 months is included within accrued liabilities and
other while the remaining balance is included within other long-term liabilities
on the consolidated balance sheets.
53
Government Grants
Our subsidiaries in China receive government subsidies from local Chinese
government agencies in accordance with relevant Chinese government policies. In
general, we present the government subsidies received as income unless the
subsidies received are earmarked to compensate a specific expense, which have
been accounted for by offsetting the specific expense, such as research and
development expense, interest expenses and removal costs. Unearned government
subsidies received are deferred for recognition until the criteria for such
recognition could be met.
Grants applicable to land are amortized over the life of the depreciable facilities constructed on it. For research and development expenses, we match and offset the government grants with the expenses of the research and development activities as specified in the grant approval document in the corresponding period when such expenses are incurred.
Share-based Compensation
We adopted the provisions of ASC Topic 718 which requires us to measure and recognize compensation expenses for an award of an equity instrument based on the grant-date fair value. The cost is recognized over the vesting period (or the requisite service period). ASC Topic 718 also requires us to measure the cost of a liability classified award based on its current fair value. The fair value of the award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period are recognized as compensation cost over that period. Further, ASC Topic 718 requires us to estimate forfeitures in calculating the expense related
to stock-based compensation.
The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Valuation Model. The expected volatility was based on the historical volatilities of our listed common stocks inthe United States and other relevant market information. We use historical data to estimate share option exercises and employee departure behavior used in the valuation model. The expected terms of share options granted is derived from the output of the option pricing model and represents the period of time that share options granted are expected to be outstanding. Since the share options once exercised will primarily trade in theU.S. capital market, the risk-free rate for periods within the contractual term of the share option is based on theU.S. Treasury yield curve in effect at the time of grant. Warrant Liability For warrants that are not indexed to the Company's stock, the Company records the fair value of the issued warrants as a liability at each balance sheet date and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statement of operations and comprehensive income. The warrant liability is recognized in the balance sheet at the fair value (level 3). The fair value of these warrants has been determined using the Binomial model.
Changes in Accounting Standards
Please refer to note 2 to our consolidated financial statements, "Summary of Significant Accounting Policies and Practices-Recently Adopted Accounting Standards," for a discussion of relevant pronouncements.
Exchange Rates The financial records of our PRC subsidiaries are maintained in RMB. In order to prepare our financial statements, we have translated amounts in RMB into amounts inU.S. dollars. The amounts of our assets and liabilities on our balance sheets are translated using the closing exchange rate as of the date of the balance sheet. Revenues, expenses, gains and losses are translated using the average exchange rate prevailing during the period covered by such financial statements. Adjustments resulting from the translation, if any, are included in our cumulative other comprehensive income in our stockholders' equity section of our balance sheet. All other amounts that were originally booked in RMB and translated intoU.S. dollars were translated using the closing exchange rate on the date of recognition. Consequently, the exchange rates at which the amounts in those comparisons were computed varied from year to year. The exchange rates used to translate amounts in RMB intoU.S. dollars in connection with the preparation of our financial statements were as follows: RMB per U.S. Dollar Fiscal Year Ended December 31, December 31, 2020 2021 Balance sheet items, except for equity accounts 6.5286 6.3551 Amounts included in the statement of income and comprehensive loss and statement of cash flows 6.9032 6.4525
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