Contents		Page(s)
Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2018 (unaudited)		F-2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and 2018 (unaudited)		F-3
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the nine months ended September 30, 2017 and 2018 (unaudited)		F-4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2018 (unaudited)		F-5
Notes to the Condensed Consolidated Financial Statements (unaudited)		F-6-F-29

F-1

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CBAK Energy Technology, Inc. and Subsidiaries

Condensed consolidated balance sheets

As of December 31, 2017 and September 30, 2018

(Unaudited)

(In US$ except for number of shares)

					December 31,			September 30,
		Note			2017			2018
Assets
Current assets
Cash and cash equivalents				$	1,644,535		$	750,445
Pledged deposits		2			9,104,178			18,896,380
Trade accounts and bills receivable, net		3			57,518,612			28,605,444
Inventories		4			9,832,405			9,124,583
Prepayments and other receivables		5			6,971,810			6,420,789
Prepaid land use rights, current portion		9			172,700			163,602
Total current assets					85,244,240			63,961,243
Property, plant and equipment, net		7			34,965,510			39,084,497
Construction in progress		8			25,029,290			21,756,422
Prepaid land use rights, non-current		9			7,872,235			7,334,819
Intangible assets, net		10			20,049			21,999
Total assets				$	153,131,324		$	132,158,980
Liabilities
Current liabilities
Current maturities of long-term bank loans		12		$	-		$	4,368,211
Other short-term loans		12			14,636,450			16,269,642
Trade accounts and bills payable		11			65,616,543			61,184,722
Accrued expenses and other payables		13			14,208,947			12,738,118
Payables to former subsidiaries, net		6			22,302,721			1,255,044
Deferred government grants, current		14			152,003			143,995
Total current liabilities					116,916,664			95,959,732
Long-term bank loans, net of current maturities		12			19,489,702			18,681,383
Deferred government grants, non-current		14			4,712,128			4,355,894
Product warranty provision		15			2,279,831			2,045,137
Long term tax payable					7,537,273			7,140,205
Total liabilities					150,935,598			128,182,351
Commitments and contingencies		20
Shareholders' equity
Common stock $0.001 par value; 500,000,000 authorized ; 26,367,523 issued and 26,223,317 outstanding as of December 31, 2017, 26,791,684 issued and 26,647,478 outstanding as of September 30, 2018					26,368			26,792
Donated shares					14,101,689			14,101,689
Additional paid-in capital					155,711,014			155,899,592
Statutory reserves					1,230,511			1,230,511
Accumulated deficit					(163,466,713	)		(161,548,214	)
Accumulated other comprehensive loss					(1,340,533	)		(1,681,978	)
					6,262,336			8,028,392
Less: Treasury shares					(4,066,610	)		(4,066,610	)
Total shareholders' equity					2,195,726			3,961,782
Non-controlling interests					-			14,847
Total equity					2,195,726			3,976,629
Total liabilities and Shareholders' equity				$	153,131,324		$	132,158,980

See accompanying notes to the condensed consolidated financial statements.

F-2

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CBAK Energy Technology, Inc. and Subsidiaries

Condensed consolidated statements of operations and comprehensive income (loss)

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

See accompanying notes to the condensed consolidated financial statements.

F-3

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CBAK Energy Technology, Inc. and Subsidiaries

Condensed consolidated statements of changes in shareholders’ equity (deficit)

For the nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

See accompanying notes to the condensed consolidated financial statements.

F-4

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CBAK Energy Technology, Inc. and subsidiaries

Condensed Consolidated statements of cash flows

For the nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

		Nine months ended September 30,
		2017			2018
Cash flows from operating activities
Net (loss) profit	$	(10,024,349	)	$	1,907,042
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		1,006,122			1,767,584
Provision for doubtful debts		361,217			176,961
Write-down of inventories		1,359,182			730,446
Share-based compensation		635,530			189,002
Gain on disposal of property, plant and equipment		-			(1,137	)
Gain on disposal of patented proprietary technology (Note 6)		-			(12,296,776	)
Exchange gain		(93,488	)		-
Changes in operating assets and liabilities:
Trade accounts and bills receivable		(27,736,858	)		27,035,867
Inventories		(1,757,900	)		(530,345	)
Prepayments and other receivables		(583,517	)		394,178
Trade accounts and bills payable		18,315,114			(1,226,192	)
Accrued expenses and other payables		1,438,167			(368,702	)
Income taxes payable		(615,031	)		-
Trade receivable from and payables to former subsidiaries		11,163,618			(8,637,203	)
Net cash (used in) provided by operating activities		(6,532,193	)		9,140,725
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment		-			13,319
Purchases of property, plant and equipment and construction in progress		(8,738,549	)		(6,574,347	)
Net cash used in investing activities		(8,738,549	)		(6,561,028	)
Cash flows from financing activities
Advances from investors		2,056,706			-
Advances from former subsidiary		2,056,706			-
Capital injection from non-controlling interests		-			26,864
Proceeds from bank borrowings		-			24,233,796
Repayment of bank borrowings		(1,469,076	)		(19,411,531	)
Borrowings from unrelated parties		5,530,190			76,544
Repayment of borrowings from unrelated parties		(5,874,816	)		(44,091	)
Borrowings from related parties		2,083,150			10,696,243
Repayment of borrowings from related parties		(1,522,697	)		(8,206,464	)
Proceeds from issuance of common stock		9,605,277			-
Net cash provided by financing activities		12,465,440			7,371,361
Effect of exchange rate changes on cash and cash equivalents and restricted cash		204,086			(1,052,946	)
Net (decrease) increase in cash and cash equivalents and restricted cash		(2,601,216	)		8,898,112
Cash and cash equivalents and restricted cash at the beginning of period		4,686,857			10,748,713
Cash and cash equivalents and restricted cash at the end of period	$	2,085,641		$	19,646,825
Supplemental non-cash investing and financing activities:
Transfer of construction in progress to property, plant and equipment	$	14,990,191		$	7,236,709
Proceeds on disposal of patented proprietary technology offset against amount due to a former subsidiary (Note 6)	$	-		$	13,034,583
Cash paid during the period for:
Income taxes	$	615,031		$	-
Interest, net of amounts capitalized	$	-		$	721,029

See accompanying notes to the condensed consolidated financial statements.

F-5

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

1.	Principal Activities, Basis of Presentation and Organization

Principal Activities

CBAK Energy Technology, Inc. (“CBAK” or the "Company") is a corporation formed in the State of Nevada on October 4, 1999 as Medina Copy, Inc. The Company changed its name to Medina Coffee, Inc. on October 6, 1999 and subsequently changed its name to China BAK Battery, Inc. on February 14, 2005. CBAK and its subsidiaries (hereinafter, collectively referred to as the “Company”) are principally engaged in the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion (known as "Li-ion" or "Li-ion cell") high power rechargeable batteries. Prior to the disposal of BAK International Limited (“BAK International”) and its subsidiaries (see below), the batteries produced by the Company were for use in cellular telephones, as well as various other portable electronic applications, including high-power handset telephones, laptop computers, power tools, digital cameras, video camcorders, MP3 players, electric bicycles, hybrid/electric vehicles, and general industrial applications. After the disposal of BAK International and its subsidiaries on June 30, 2014, the Company will focus on the manufacture, commercialization and distribution of high power lithium ion rechargeable batteries for use in cordless power tools, light electric vehicles, hybrid electric vehicles, electric cars, electric busses, uninterruptable power supplies and other high power applications.

The shares of the Company traded in the over-the-counter market through the Over-the-Counter Bulletin Board from 2005 until May 31, 2006, when the Company obtained approval to list its common stock on The NASDAQ Global Market, and trading commenced that same date under the symbol "CBAK".

On January 10, 2017, the Company filed Articles of Merger with the Secretary of State of Nevada to effectuate a merger between the Company and the Company’s newly formed, wholly owned subsidiary, CBAK Merger Sub, Inc. (the “Merger Sub”). According to the Articles of Merger, effective January 16, 2017, the Merger Sub merged with and into the Company with the Company being the surviving entity (the "Merger"). As permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the Merger was to effect a change of the Company's name.

Effective January 16, 2017, the name of the Company was changed to CBAK Energy Technology, Inc. The trading symbol of the Company's common stock remains as "CBAK".

On January 16, 2017, the Board of Directors of the Company approved a change in the Company’s fiscal year end from September 30 to December 31.

Basis of Presentation and Organization

On November 6, 2004, BAK International, a non-operating holding company that had substantially the same shareholders as Shenzhen BAK Battery Co., Ltd (“Shenzhen BAK”), entered into a share swap transaction with the shareholders of Shenzhen BAK for the purpose of the subsequent reverse acquisition of the Company. The share swap transaction between BAK International and the shareholders of Shenzhen BAK was accounted for as a reverse acquisition of Shenzhen BAK with no adjustment to the historical basis of the assets and liabilities of Shenzhen BAK.

On January 20, 2005, the Company completed a share swap transaction with the shareholders of BAK International. The share swap transaction, also referred to as the “reverse acquisition” of the Company, was consummated under Nevada law pursuant to the terms of a Securities Exchange Agreement entered by and among CBAK, BAK International and the shareholders of BAK International on January 20, 2005. The share swap transaction has been accounted for as a capital-raising transaction of the Company whereby the historical financial statements and operations of Shenzhen BAK are consolidated using historical carrying amounts.

F-6

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

1.	Principal Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

Also on January 20, 2005, immediately prior to consummating the share swap transaction, BAK International executed a private placement of its common stock with unrelated investors whereby it issued an aggregate of 1,720,087 shares of common stock for gross proceeds of $17,000,000. In conjunction with this financing, Mr. Xiangqian Li, the Chairman and Chief Executive Officer of the Company (“Mr. Li”), agreed to place 435,910 shares of the Company's common stock owned by him into an escrow account pursuant to an Escrow Agreement dated January 20, 2005 (the “Escrow Agreement”). Pursuant to the Escrow Agreement, 50% of the escrowed shares were to be released to the investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2005 was not at least $12,000,000, and the remaining 50% was to be released to investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2006 was not at least $27,000,000. If the audited net income of the Company for the fiscal years ended September 30, 2005 and 2006 reached the above-mentioned targets, the 435,910 shares would be released to Mr. Li in the amount of 50% upon reaching the 2005 target and the remaining 50% upon reaching the 2006 target.

Under accounting principles generally accepted in the United States of America (“US GAAP”), escrow agreements such as the one established by Mr. Li generally constitute compensation if, following attainment of a performance threshold, shares are returned to a company officer. The Company determined that without consideration of the compensation charge, the performance thresholds for the year ended September 30, 2005 would be achieved. However, after consideration of a related compensation charge, the Company determined that such thresholds would not have been achieved. The Company also determined that, even without consideration of a compensation charge, the performance thresholds for the year ended September 30, 2006 would not be achieved.

While the 217,955 escrow shares relating to the 2005 performance threshold were previously released to Mr. Li, Mr. Li executed a further undertaking on August 21, 2006 to return those shares to the escrow agent for the distribution to the relevant investors. However, such shares were not returned to the escrow agent, but, pursuant to a Delivery of Make Good Shares, Settlement and Release Agreement between the Company, BAK International and Mr. Li entered into on October 22, 2007 (the “Li Settlement Agreement”), such shares were ultimately delivered to the Company as described below. Because the Company failed to satisfy the performance threshold for the fiscal year ended September 30, 2006, the remaining 217,955 escrow shares relating to the fiscal year 2006 performance threshold were released to the relevant investors. As Mr. Li has not retained any of the shares placed into escrow, and as the investors party to the Escrow Agreement are only shareholders of the Company and do not have and are not expected to have any other relationship to the Company, the Company has not recorded a compensation charge for the years ended September 30, 2005 and 2006.

At the time the escrow shares relating to the 2006 performance threshold were transferred to the investors in fiscal year 2007, the Company should have recognized a credit to donated shares and a debit to additional paid-in capital, both of which are elements of shareholders’ equity. This entry is not material because total ordinary shares issued and outstanding, total shareholders’ equity and total assets do not change; nor is there any impact on income or earnings per share. Therefore, previously filed consolidated financial statements for the fiscal year ended September 30, 2007 will not be restated. This share transfer has been reflected in these financial statements by reclassifying the balances of certain items as of October 1, 2007. The balances of donated shares and additional paid-in capital as of October 1, 2007 were credited and debited by $7,955,358 respectively, as set out in the consolidated statements of changes in shareholders’ equity.

In November 2007, Mr. Li delivered the 217,955 shares related to the 2005 performance threshold to BAK International pursuant to the Li Settlement Agreement; BAK International in turn delivered the shares to the Company. Such shares (other than those issued to investors pursuant to the 2008 Settlement Agreements, as described below) are now held by the Company. Upon receipt of these shares, the Company and BAK International released all claims and causes of action against Mr. Li regarding the shares, and Mr. Li released all claims and causes of action against the Company and BAK International regarding the shares. Under the terms of the Li Settlement Agreement, the Company commenced negotiations with the investors who participated in the Company’s January 2005 private placement in order to achieve a complete settlement of BAK International’s obligations (and the Company’s obligations to the extent it has any) under the applicable agreements with such investors.

Beginning on March 13, 2008, the Company entered into settlement agreements (the “2008 Settlement Agreements”) with certain investors in the January 2005 private placement. Since the other investors have never submitted any claims regarding this matter, the Company did not reach any settlement with them.

F-7

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

1.	Principal Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

Pursuant to the 2008 Settlement Agreements, the Company and the settling investors have agreed, without any admission of liability, to a settlement and mutual release from all claims relating to the January 2005 private placement, including all claims relating to the escrow shares related to the 2005 performance threshold that had been placed into escrow by Mr. Li, as well as all claims, including claims for liquidated damages relating to registration rights granted in connection with the January 2005 private placement. Under the 2008 Settlement Agreement, the Company has made settlement payments to each of the settling investors of the number of shares of the Company’s common stock equivalent to 50% of the number of the escrow shares related to the 2005 performance threshold these investors had claimed; aggregate settlement payments as of June 30, 2015 amounted to 73,749 shares. Share payments to date have been made in reliance upon the exemptions from registration provided by Section 4(2) and/or other applicable provisions of the Securities Act of 1933, as amended. In accordance with the 2008 Settlement Agreements, the Company filed a registration statement covering the resale of such shares which was declared effective by the SEC on June 26, 2008.

Pursuant to the Li Settlement Agreement, the 2008 Settlement Agreements and upon the release of the 217,955 escrow shares relating to the fiscal year 2006 performance threshold to the relevant investors, neither Mr. Li or the Company have any obligations to the investors who participated in the Company’s January 2005 private placement relating to the escrow shares.

As of September 30, 2018, the Company had not received any claim from the other investors who have not been covered by the “2008 Settlement Agreements” in the January 2005 private placement.

As the Company has transferred the 217,955 shares related to the 2006 performance threshold to the relevant investors in fiscal year 2007 and the Company also have transferred 73,749 shares relating to the 2005 performance threshold to the investors who had entered the “2008 Settlement Agreements” with us in fiscal year 2008, pursuant to “Li Settlement Agreement” and “2008 Settlement Agreements”, neither Mr. Li nor the Company had any remaining obligations to those related investors who participated in the Company’s January 2005 private placement relating to the escrow shares.

On August 14, 2013, Dalian BAK Trading Co., Ltd was established as a wholly owned subsidiary of China BAK Asia Holding Limited (“BAK Asia”) with a registered capital of $500,000 (Note 19(i)). Pursuant to CBAK Trading’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Trading on or before August 14, 2015. On March 7, 2017, the name of Dalian BAK Trading Co., Ltd was changed to Dalian CBAK Trading Co., Ltd (“CBAK Trading”). Up to the date of this report, the Company has contributed $100,000 to CBAK Trading in cash.

On December 27, 2013, Dalian BAK Power Battery Co., Ltd was established as a wholly owned subsidiary of BAK Asia with a registered capital of $30,000,000 (Note 19(i)). Pursuant to CBAK Power’s articles of association and relevant PRC regulations, BAK Asia was required to contribute the capital to CBAK Power on or before December 27, 2015. On March 7, 2017, the name of Dalian BAK Power Battery Co., Ltd was changed to Dalian CBAK Power Battery Co., Ltd (“CBAK Power”). Up to the date of this report, the Company has contributed $29,999,978 to CBAK Power through injection of a series of patents and cash.

On May 4, 2018, CBAK New Energy (Suzhou) Co., Ltd (“CBAK Suzhou”) was established as an 90% owned subsidiary of CBAK Power with a registered capital of RMB10,000,000 (approximately $1.5 million). The remaining 10% equity interest was held by certain employees of CBAK Suzhou. Pursuant to CBAK Suzhou’s articles of association, each shareholder is entitled to the right of the profit distribution or responsible for the loss according to its proportion to the capital contribution. Pursuant to CBAK Suzhou’s articles of association and relevant PRC regulations, CBAK Power was required to contribute the capital to CBAK Suzhou on or before December 31, 2019. Up to the date of this report, the Company has contributed RMB7.6 million (approximately $1.1 million), and the other shareholders have contributed RMB184,500 ($26,864) to CBAK Suzhou through injection of a series of cash.  CBAK Suzhou is intended to be engaged in manufacturing and selling new energy high power battery packs.

The Company’s condensed consolidated financial statements have been prepared under US GAAP.

F-8

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

1.	Principal Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

These condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these condensed consolidated financial statements, which are of a normal and recurring nature, have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The following (a) condensed consolidated balance sheet as of December 31, 2017, which was derived from the Company’s audited financial statements, and (b) the unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to those rules and regulations, though the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying footnotes of the Company for the year ended December 31, 2017.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company’s principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liability established in the PRC or Hong Kong. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books of account of the Company's subsidiaries to present them in conformity with US GAAP.

After the disposal of BAK International Limited and its subsidiaries, namely Shenzhen BAK, Shenzhen BAK Power Battery Co., Ltd (formerly BAK Battery (Shenzhen) Co., Ltd.) (“BAK Shenzhen”), BAK International (Tianjin) Ltd. (“BAK Tianjin”), Tianjin Chenhao Technological Development Limited (a subsidiary of BAK Tianjin established on May 8, 2014,“Tianjin Chenhao”), BAK Battery Canada Ltd. (“BAK Canada”), BAK Europe GmbH (“BAK Europe”) and BAK Telecom India Private Limited (“BAK India”), effective on June 30, 2014, and as of September 30, 2018, the Company’s subsidiaries consisted of: i) China BAK Asia Holdings Limited (“BAK Asia”), a wholly owned limited liability company incorporated in Hong Kong on July 9, 2013; ii) Dalian CBAK Trading Co., Ltd. (“CBAK Trading”), a wholly owned limited company established on August 14, 2013 in the PRC; iii) Dalian CBAK Power Battery Co., Ltd. (“CBAK Power”), a wholly owned limited liability company established on December 27, 2013 in the PRC; and iv) CBAK New Energy (Suzhou) Co., Ltd. (“CBAK Suzhou”), a 90% owned limited liability company established on May 4, 2018 in the PRC.

The Company continued its business and continued to generate revenues from sale of batteries via subcontracting the production to BAK Tianjin, a former subsidiary before the completion of construction and operation of its facility in Dalian. BAK Tianjin had become a supplier of the Company until September 2016 when BAK Tianjin ceased production, and the Company does not have any significant benefits or liability from the operating results of BAK Tianjin except the normal risk with any major supplier.

As of the date of this report, Mr. Xiangqian Li is no longer a director of BAK International and BAK Tianjin. He remained as a director of Shenzhen BAK and BAK Shenzhen.

On and effective March 1, 2016, Mr. Xiangqian Li resigned as Chairman, director, Chief Executive Officer, President and Secretary of the Company. On the same date, the Board of Directors of the Company appointed Mr. Yunfei Li as Chairman, Chief Executive Officer, President and Secretary of the Company. On March 4, 2016, Mr. Xiangqian Li transferred 3,000,000 shares to Mr. Yunfei Li for a price of $2.4 per share. After the share transfer, Mr. Yunfei Li held 3,000,000 shares or 17.3% and Mr. Xiangqian Li held 760,557 shares at 4.4% of the Company’s outstanding stock, respectively. As of September 30, 2018, Mr. Yunfei Li held [3,868,518] shares or 14.52% of the Company’s outstanding stock, and Mr. Xiangqian Li held none of the Company’s outstanding stock.

The Company had a working capital deficiency, accumulated deficit from recurring net losses and short-term debt obligations as of December 31, 2017 and September 30, 2018. These factors raise substantial doubts about the Company’s ability to continue as a going concern.

F-9

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

1.	Principal Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

In June and July 2015, the Company received advances of approximately $9.8 million from potential investors. On September 29, 2015, the Company entered into a Debt Conversion Agreement with these investors. Pursuant to the terms of the Debt Conversion Agreement, each of the creditors agreed to convert existing loan principal of $9,847,644 into an aggregate 4,376,731 shares of common stock of the Company (“the Shares”) at a conversion price of $2.25 per share. Upon receipt of the Shares on October 16, 2015, the creditors released the Company from all claims, demands and other obligations relating to the Debts. As such, no interest was recognized by the Company on the advances from investors pursuant to the supplemental agreements with investors and the Debt Conversion Agreement.

In June 2016, the Company received further advances in the aggregate of $2.9 million from Mr. Jiping Zhou and Mr. Dawei Li. These advances were unsecured, non-interest bearing and repayable on demand. On July 8, 2018, the Company received further advances of $2.6 million from Mr. Jiping Zhou. On July 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. On August 17, 2016, the Company issued these shares to the investors.

On February 17, 2017, the Company signed investment agreements with eight investors (including Mr. Yunfei Li, the Company’s CEO, and seven of the Company’s existing shareholders) whereby the investors agreed to subscribe new shares of the Company totaling $10 million. Pursuant to the investment agreements, in January 2017 the 8 investors paid the Company a total of $2.06 million as down payments. Mr. Yunfei Li agrees to subscribe new shares of the Company totaled $1,120,000 and made down payment of $225,784 in January 2017. On April 1, April 21, April 26 and May 10, 2017, the Company received $1,999,910, $3,499,888, $1,119,982 and $2,985,497 from these investors, respectively. On May 31, 2017, the Company entered into a securities purchase agreement with the eight investors, pursuant to which the Company 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, among which 746,018 shares issued to Mr. Yunfei Li. On June 22, 2017, the Company issued the shares to the investors.

As of September 30, 2018, the Company had aggregate interest-bearing bank loans of approximately $23.0 million, due in 2019 to 2021, in addition to approximately $91.6 million of other current liabilities.

As of September 30, 2018, the Company had unutilized committed banking facilities of $16.8 million.

The Company is currently expanding its product lines and manufacturing capacity in its Dalian plant, which requires more funding to finance the expansion. The Company plans to raise additional funds through banks borrowings and equity financing in the future to meet its daily cash demands, if required.

However, there can be no assurance that the Company will be successful in obtaining further financing. The Company expects that it will be able to secure more potential orders from the new energy market, especially from the electric car market. The Company believes that with the booming future market demand in high power lithium ion products, it can continue as a going concern and return to profitability.

The accompanying condensed consolidated financial statements have been prepared assuming the Company 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 the Company’s ability to continue as a going concern.

Revenue Recognition

In May 2014 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).

F-10

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

1.	Principal Activities, Basis of Presentation and Organization (continued)

Revenue Recognition (continued)

The new revenue standards became effective for the Company on January 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

Under the new revenue standards, 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 the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses 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 the Company’s 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.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017, on a retrospective transition method to each period presented. The Company has adopted the guidance retrospectively to each period presented. The adoption does not have any material effect on the presentation of its unaudited consolidated statements of cash flows.

In October 2016, the FASB issued ASU No. 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. The Company adopted this guidance for the reporting period beginning January 1, 2018, which did not have a material impact on its financial statements or disclosures.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period within those fiscal years. The Company has adopted the guidance retrospectively to each period presented. The adoption of this standard does not have a material impact on our consolidated financial statements, but resulted in restricted cash being included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows.

F-11

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

1.	Principal Activities, Basis of Presentation and Organization (continued)

Recently Issued Accounting Standards (continued)

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. The Company adopted this guidance for the reporting period beginning January 1, 2018, which did not have a material impact on its financial statements or disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company currently intends to adopt this guidance for the fiscal year beginning January 1, 2020, and does not anticipate that the adoption of this guidance will have a material impact on its financial statements or disclosures because the Company does not currently have any recorded goodwill.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. For all entities, the ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company adopted this guidance for the reporting period beginning January 1, 2018, which did not have a material impact on its financial statements or disclosures.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.

2.	Pledged deposits

Pledged deposits as of December 31, 2017 and September 30, 2018 consisted of the following:

		December 31,			September 30,
		2017			2018
Pledged deposits with bank for:
Bills payable	$	123,116		$	10,388,445
Letters of credit		7,685,213			7,280,352
Others*		1,295,849			1,227,583
	$	9,104,178		$	18,896,380

*

On July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’ Court of Zhuanghe City, Dalian for the failure to pay pursuant to the terms of the contract and entrusted part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,227,583 (RMB 8,430,792), including construction costs of $0.9 million (RMB6.1 million), interest of $29,812 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million), which we already accrued for as of September 30, 2016. On September 7, 2016, upon the request of Shenzhen Huijie, the Court froze CBAK Power’s bank deposits totaling $1,227,583 (RMB 8,430,792) for a period of one year. On September 1, 2017, upon the request of Shenzhen Huijie, the Court froze the bank deposits for another one year until August 31, 2018. The Court froze the bank deposits for another one year until August 27, 2019 upon the request of Shenzhen Huijie on August 27, 2018.

F-12

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

3.	Trade Accounts and Bills Receivable, net

Trade accounts and bills receivable as of December 31, 2017 and September 30, 2018 consisted of the following:

		December 31,			September 30,
		2017			2018
Trade accounts receivable	$	42,095,211		$	22,808,582
Less: Allowance for doubtful accounts		(3,700,922	)		(3,674,268	)
		38,394,289			19,134,314
Bills receivable		19,124,323			9,471,130
	$	57,518,612		$	28,605,444

An analysis of the allowance for doubtful accounts is as follows:

		December 31,			September 30,
		2017			2018
Balance at beginning of period	$	2,761,144		$	3,700,922
Provision for the period		839,917			419,796
Reversal - recoveries by cash		(114,542	)		(242,835	)
Charged to consolidated statements of operations and comprehensive (loss) income		725,375			176,961
Foreign exchange adjustment		214,403			(203,615	)
Balance at end of period	$	3,700,922		$	3,674,268

4.	Inventories

Inventories as of December 31, 2017 and September 30, 2018 consisted of the following:

		December 31,			September 30,
		2017			2018
Raw materials	$	1,814,704		$	1,686,481
Work in progress		2,188,193			3,196,511
Finished goods		5,829,508			4,241,591
	$	9,832,405		$	9,124,583

During the three months ended September 30, 2017 and 2018, write-downs of inventories to lower of cost or net realizable value of $360,778 and $729,247, respectively, were charged to cost of revenues.

During the nine months ended September 30, 2017 and 2018, write-downs of inventories to lower of cost or net realizable value of $1,359,182 and $730,446, respectively, were charged to cost of revenues.

5.	Prepayments and Other Receivables

Prepayments and other receivables as of December 31, 2017 and September 30, 2018 consisted of the following:

		December 31,			September 30,
		2017			2018
Value added tax recoverable	$	5,963,506		$	5,343,106
Prepayments to suppliers		706,488			441,684
Deposits		25,922			110,602
Staff advances		59,942			67,854
Prepaid operating expenses		185,690			303,102
Prepaid interest expenses		-			113,976
Others		37,262			47,465
		6,978,810			6,427,789
Less: Allowance for doubtful accounts		(7,000	)		(7,000	)
	$	6,971,810		$	6,420,789

F-13

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

6.	Payables to Former Subsidiaries

Payable to former subsidiaries as of December 31, 2017 and September 30, 2018 consisted of the following:

		December 31,			September 30,
		2017			2018
BAK Tianjin	$	282,682		$	161,033
BAK Shenzhen		22,020,039			1,094,011
	$	22,302,721		$	1,255,044

Balance as of December 31, 2017 and September 30, 2018 consisted of payables for purchase of inventories from BAK Tianjin and BAK Shenzhen. From time to time, the Company purchased products from these former subsidiaries that they did not produce to meet the needs of its customers.

In the third quarter of 2018, the Company disposed of its patented proprietary technology of high capacity prismatic batteries to BAK Shenzhen at a cash consideration of $13,034,583 (approximately RMB85.1 million). The Company recognized a net gain of $12,296,776, which was included in other income for the three and nine months ended September 30, 2018. The Company and BAK Shenzhen agreed to offset the cash consideration of $13,034,583 against the amount owed by the Company to BAK Shenzhen.

7.	Property, Plant and Equipment, net

Property, plant and equipment as of December 31, 2017 and September 30, 2018 consisted of the following:

		December 31,			September 30,
		2017			2018
Buildings	$	24,979,022		$	23,663,112
Machinery and equipment		13,977,734			20,833,717
Office equipment		184,014			194,106
Motor vehicles		206,190			154,308
		39,346,960			44,845,243
Impairment		(1,010,216	)		(956,997	)
Accumulated depreciation		(3,371,234	)		(4,803,749	)
Carrying amount	$	34,965,510		$	39,084,497

During the three months ended September 30, 2017 and 2018, the Company incurred depreciation expense of $368,630 and $639,239, respectively.

During the nine months ended September 30, 2017 and 2018, the Company incurred depreciation expense of $989,325 and $1,749,608, respectively.

The Company has not yet obtained the property ownership certificates of the buildings in its Dalian manufacturing facilities with a carrying amount of $23,670,773 and $21,928,972 as of December 31, 2017 and September 30, 2018, respectively. The Company built its facilities on the land for which it had already obtained the related land use right. The Company has submitted applications to the Chinese government for the ownership certificates on the completed buildings located on these lands. However, the application process takes longer than the Company expected and it has not obtained the certificates as of the date of this report. However, since the Company has obtained the land use right in relation to the land, the management believe the Company has legal title to the buildings thereon albeit the lack of ownership certificates.

During the course of the Company’s strategic review of its operations, the Company assessed the recoverability of the carrying value of the Company’s property, plant and equipment. The impairment charge, if any, represented the excess of carrying amounts of the Company’s property, plant and equipment over the estimated discounted cash flows expected to be generated by the Company’s production facilities. The Company believes that there was no impairment during the three and nine months ended September 30, 2017 and 2018.

F-14

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

8.	Construction in Progress

Construction in progress as of December 31, 2017 and September 30, 2018 consisted of the following:

		December 31,			September 30,
		2017			2018
Construction in progress	$	24,288,889		$	19,504,361
Prepayment for acquisition of property, plant and equipment		740,401			2,252,061
Carrying amount	$	25,029,290		$	21,756,422

Construction in progress as of December 31, 2017 and September 30, 2018 was mainly comprised of capital expenditures for the construction of the facilities and production lines of CBAK Power.

For the three months ended September 30, 2017 and 2018, the Company capitalized interest of $346,962 and $195,994, respectively, to the cost of construction in progress.

For the nine months ended September 30, 2017 and 2018, the Company capitalized interest of $1,050,474 and $912,702, respectively, to the cost of construction in progress.

9.	Prepaid Land Use Rights, net

Prepaid land use rights as of December 31, 2017 and September 30, 2018 consisted of the followings:

		December 31,			September 30,
		2017			2018
Prepaid land use rights	$	8,634,993		$	8,180,096
Accumulated amortization		(590,058	)		(681,675	)
	$	8,044,935		$	7,498,421
Less: Classified as current assets		(172,700	)		(163,602	)
	$	7,872,235		$	7,334,819

Pursuant to a land use rights acquisition agreement dated August 10, 2014, the Company acquired the rights to use a piece of land with an area of 153,832 m² in Dalian Economic Zone for 50 years up to August 9, 2064, at a total consideration of $7,727,365 (RMB53.1 million). Other incidental costs incurred totaled $452,731 (RMB3.1 million).

Amortization expenses of the prepaid land use rights were $42,085 and $40,764 for the three months ended September 30, 2017 and 2018 and $123,797 and $129,006 for the nine months ended September 30, 2017 and 2018, respectively.

10.	Intangible Assets, net

Intangible assets as of December 31, 2017 and September 30, 2018 consisted of the followings:

		December 31,			September 30,
		2017			2018
Computer software at cost	$	27,340		$	31,298
Accumulated amortization		(7,291	)		(9,299	)
	$	20,049		$	21,999

Amortization expenses were $666 and $1,118 for the three months ended September 30, 2017 and 2018 and $1,959 and $2,515 for the nine months ended September 30, 2017 and 2018, respectively.

F-15

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

11.	Trade Accounts and Bills Payable

Trade accounts and bills payable as of December 31, 2017 and September 30, 2018 consisted of the followings:

		December 31,			September 30,
		2017			2018
Trade accounts payable	$	29,805,350		$	26,684,247
Bills payable
-      Bank acceptance bills (Note 12)		34,025,080			33,427,220
-      Commercial acceptance bills		1,786,113			1,073,255
	$	65,616,543		$	61,184,722

All the bills payable are of trading nature and will mature within six months to one year from the issue date.

The bank acceptance bills were pledged by:

	(i)	the Company’s bank deposits (Note 2);and
	(ii)	$19,047,471 and $9,427,448 of the Company’s bills receivable as of December 31, 2017 and September 30, 2018, respectively (Note 3).

12.

Loans

Bank loans:

Bank borrowings as of December 31, 2017 and September 30, 2018 consisted of the followings

		December 31,			September 30,
		2017			2018
Current maturities of long-term bank loans	$	-		$	4,368,211
Long-term bank borrowings		19,489,702			18,681,383
	$	19,489,702		$	23,049,594

On June 14, 2016, the Company renewed its banking facilities from Bank of Dandong for loans with a maximum amount of RMB130 million (approximately $18.9 million), including three-year long-term loans and three-year revolving bank acceptance and letters of credit bills for the period from June 13, 2016 to June 12, 2019. The banking facilities were guaranteed by Mr. Yunfei Li (“Mr. Li”), the Company’s CEO, and Ms. Qinghui Yuan, Mr. Li’s wife, Mr. Xianqian Li, the Company’s former CEO, Ms. Xiaoqiu Yu, the wife of the Company’s former CEO, Shenzhen BAK Battery Co., Ltd., the Company’s former subsidiary (“Shenzhen BAK”). Under the banking facilities, the Company borrowed various three-year term bank loans that totaled RMB126.8 million (approximately $18.5 million), bearing fixed interest at 7.2% per annum. The Company also borrowed various bank acceptance of RMB3.2 million (approximately $0.5 million) under the facilities. The Company repaid the loan and bank acceptance bills on June 12, 2018.

In the second quarter of 2018, the Company obtained another banking facilities from Bank of Dandong with bank acceptance bills of RMB5.0 million (approximately $0.7 million) for a term until October 17, 2018. As of September 30, 2018, the Company has borrowed a series of bank acceptance bills totaled RMB 5.0 million (approximately $0.7 million) for a term until October 17, 2018, which was secured by bank deposit of $0.7 million. The Company repaid the bank acceptance bills on October 17, 2018.

On July 6, 2016, the Company obtained banking facilities from Bank of Dalian for loans with a maximum amount of RMB10 million (approximately $1.5 million) and bank acceptance bills of RMB40 million (approximately $5.8 million) to July 5, 2017. The banking facilities were guaranteed by Mr. Li, the Company’s CEO, and Ms. Qinghui Yuan, Mr. Li’s wife, and Shenzhen BAK. Under the banking facilities, on July 6, 2016 the Company borrowed one year short-term loan of RMB10 million (approximately $1.5 million), bearing a fixed interest rate at 6.525% per annum. The Company also borrowed revolving bank acceptance totaled $5.8 million, and bank deposit of 50% was required to secure against these bank acceptance bills. The Company repaid the loan and bank acceptance bills in July and August 2017.

F-16

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

12.	Loans (continued)

On November 9, 2017, the Company obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB100 million (approximately $14.6 million) with the term expiring on November 7, 2018. The banking facilities were secured by the 100% equity in CBAK Power held by BAK Asia. Under the facilities, bank deposits of approximately 50% were required to secure against this letter of credit. As of September 30, 2018, the Company borrowed a net letter of credit of RMB99.6 million (approximately $14.5 million) to November 5, 2018, which was secured by bank deposits of $7.3 million. The Company discounted this letter of credit of even date to China Everbright Bank at a rate of 4.505%. The Company repaid the letter of credit on November 7, 2018.

On June 4, 2018, the Company obtained banking facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB200 million (approximately $29.1 million) with the term from June 12, 2018 to June 10, 2021, bearing interest at 130% of benchmark rate of the People’s Bank of China (“PBOC”) for three-year long-term loans, at current rate 6.175% per annum. The loans are repayable in six installments of RMB1.0 million ($0.15 million) on December 10, 2018, RMB29.0 million ($4.22 million) on June 10, 2019, RMB1.0 million ($0.15 million) on December 10, 2019, RMB89.0 million ($12.96 million) on June 10, 2020, RMB1.0 million ($0.15 million) on December 10, 2020 and RMB37.3 million ($5.43 million) on June 10, 2021. Under the facilities, the Company borrowed RMB158.3 million (approximately $23.1 million) as of September 30, 2018. The facilities were secured by the Company’s land use rights, buildings, machinery and equipment.

Further, in August 2018, the Company borrowed a total of RMB60 million (approximately $8.8 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until August 14, 2019, which was secured by the Company’s cash totaled $8.8 million. The Company discounted these two bills payable of even date to China Everbright Bank at a rate of 4.0%.

On August 22, 2018, the Company obtained one-year term facilities from China Everbright Bank Dalian Branch with a maximum amount of RMB100 million (approximately $14.6 million) including revolving loans, trade finance, notes discount, and acceptance of commercial bills etc. Any amount drawn under the facilities requires security in the form of cash or banking acceptance bills receivables of at least the same amount. Under the facilities, as of September 30, 2018, the Company borrowed a series of bank acceptance bills totaled RMB 26.3 million (approximately $3.8 million) for a term until March 7, 2019, which was secured by bills receivable of $4.4 million.

On August 2, 2017, the Company obtained one-year term facilities from China Merchants Bank with a maximum amount of RMB100 million (approximately $14.6 million) including revolving loans, trade finance, notes discount, and acceptance of commercial bills etc. Any amount drawn under the facilities requires security in the form of cash or banking acceptance bills receivable of at least the same amount. Under the facilities, as of September 30, 2018, the Company borrowed a series of bank acceptance bills from China Merchants Bank totaled RMB21.3 million (approximately $3.1 million) for a term until October 25, 2018, which was secured by bills receivable of $3.07 million and bank deposits of $0.03 million. The facilities expired on August 1, 2018 and the Company repaid the bills on October 25, 2018.

As of September 30, 2018, the Company also borrowed a series of acceptance bills from Industrial Bank Co., Ltd. Dalian Branch totaled RMB19.5 million (approximately $2.8 million) for various terms through February 8, 2019, which was secured by bank deposits of $0.9 million and bills receivable of $1.9 million.

In November 2018, the Company borrowed a total of RMB100 million (approximately $14.6 million) in the form of bills payable from China Everbright Bank Dalian Branch for a term until November 12, 2019, which was secured by the Company’s cash totaled RMB 50 million (approximately $7.3 million) and the 100% equity in CBAK Power held by BAK Asia. The Company discounted these five bills payable of even date to China Everbright Bank at a rate of 4.0%.

The facilities were also secured by the Company’s assets with the following carrying amounts:

		December 31,			September 30,
		2017			2018
Pledged deposits (note 2)	$	7,808,329		$	17,668,797
Prepaid land use rights (note 9)		8,044,935			7,498,421
Buildings		18,391,993			16,848,321
Machinery and equipment		2,374,748			6,420,884
Bills receivable (note 3)		19,047,471			9,427,448
	$	55,667,476		$	57,863,871

As of September 30, 2018, the Company had unutilized committed banking facilities of $16.8 million.

During the three months ended September 30, 2017 and 2018, interest of $346,962 and $537,033, respectively, was incurred on the Company's bank borrowings.

During the nine months ended September 30, 2017 and 2018, interest of $1,050,474 and $1,633,731, respectively, was incurred on the Company's bank borrowings.

F-17

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

12.	Loans (continued)

Other Short-term Loans

Other short-term loans as of December 31, 2017 and September 30, 2018 consisted of the following:

					December 31,			September 30,
		Note			2017			2018
Advance from related parties
– Tianjin BAK New Energy Research Institute Co., Ltd (“Tianjin New Energy”)		(a)		$	11,493,437		$	13,139,584
– Mr. Xiangqian Li, the Company’s Former CEO		(b)			100,000			100,000
– Mr. Yunfei Li		(c)			-			116,486
– Shareholders		(d)			2,151,860			2,038,499
					13,745,297			15,394,569
Advances from unrelated third party
– Mr. Wenwu Yu		(e)			155,215			147,038
– Mr. Mingzhe Li		(e)			44,269			-
– Ms. Longqian Peng		(e)			691,669			655,231
– Hubei Yanguang Energy Technology., Ltd		(e)			-			72,804
					891,153			875,073
				$	14,636,450		$	16,269,642

	(a)	The Company received advances from Tianjin New Energy, a related company under the control of Mr. Xiangqian Li, the Company’s former CEO, which was unsecured, non-interest bearing and repayable on demand. On November 1, 2016, Mr. Xiangqian Li ceased to be a shareholder but remained as a general manager of Tianjin New Energy.
	(b)	Advances from Mr. Xiangqian Li, the Company’s former CEO, was unsecured, non-interest bearing and repayable on demand.
	(c)	Advances from Mr. Yunfei Li, the Company’s CEO, was unsecured, non-interest bearing and repayable on demand.
	(d)	The refundable deposits paid by certain shareholders in relation to share purchase (note 1) were unsecured, non-interest bearing and repayable on demand.
	(e)	Advances from unrelated third parties were unsecured, non-interest bearing and repayable on demand.

F-18

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

13.	Accrued Expenses and Other Payables

Accrued expenses and other payables as of December 31, 2017 and September 30, 2018 consisted of the following:

		December 31,			September 30,
		2017			2018
Construction costs payable	$	1,405,651		$	1,147,404
Equipment purchase payable		8,241,844			7,421,151
Liquidated damages (note a)		1,210,119			1,210,119
Accrued staff costs		1,804,546			1,909,713
Compensation costs (note 20(ii))		116,989			110,826
Customer deposits		270,923			18,258
Other payables and accruals		1,158,875			920,647
	$	14,208,947		$	12,738,118

	(a)	On August 15, 2006, the SEC declared effective a post-effective amendment that the Company had filed on August 4, 2006, terminating the effectiveness of a resale registration statement on Form SB-2 that had been filed pursuant to a registration rights agreement with certain shareholders to register the resale of shares held by those shareholders. The Company subsequently filed Form S-1 for these shareholders. On December 8, 2006, the Company filed its Annual Report on Form 10-K for the year ended September 30, 2006 (the “2006 Form 10-K”). After the filing of the 2006 Form 10-K, the Company’s previously filed registration statement on Form S-1 was no longer available for resale by the selling shareholders whose shares were included in such Form S-1. Under the registration rights agreement, those selling shareholders became eligible for liquidated damages from the Company relating to the above two events totaling approximately $1,051,000. As of December 31, 2017 and September 30, 2018, no liquidated damages relating to both events have been paid.
		On November 9, 2007, the Company completed a private placement for the gross proceeds to the Company of $13,650,000 by selling 3,500,000 shares of common stock at the price of $3.90 per share. Roth Capital Partners, LLC acted as the Company’s exclusive financial advisor and placement agent in connection with the private placement and received a cash fee of $819,000. The Company may have become liable for liquidated damages to certain shareholders whose shares were included in a resale registration statement on Form S-3 that the Company filed pursuant to a registration rights agreement that the Company entered into with such shareholders in November 2007. Under the registration rights agreement, among other things, if a registration statement filed pursuant thereto was not declared effective by the SEC by the 100th calendar day after the closing of the Company’s private placement on November 9, 2007, or the “Effectiveness Deadline”, then the Company would be liable to pay partial liquidated damages to each such investor of (a) 1.5% of the aggregate purchase price paid by such investor for the shares it purchased on the one month anniversary of the Effectiveness Deadline; (b) an additional 1.5% of the aggregate purchase price paid by such investor every thirtieth day thereafter (pro rated for periods totaling less than thirty days) until the earliest of the effectiveness of the registration statement, the ten-month anniversary of the Effectiveness Deadline and the time that the Company is no longer required to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations; and (c) 0.5% of the aggregate purchase price paid by such investor for the shares it purchased in the Company’s November 2007 private placement on each of the following dates: the ten-month anniversary of the Effectiveness Deadline and every thirtieth day thereafter (prorated for periods totaling less than thirty days), until the earlier of the effectiveness of the registration statement and the time that the Company no longer is required to keep such resale registration statement effective because either such shareholders have sold all of their shares or such shareholders may sell their shares pursuant to Rule 144 without volume limitations. Such liquidated damages would bear interest at the rate of 1% per month (prorated for partial months) until paid in full.
		On December 21, 2007, pursuant to the registration rights agreement, the Company filed a registration statement on Form S-3, which was declared effective by the SEC on May 7, 2008. As a result, the Company estimated liquidated damages amounting to $561,174 for the November 2007 registration rights agreement. As of December 31, 2017 and September 30, 2018, the Company had settled the liquidated damages with all the investors and the remaining provision of approximately $159,000 was included in other payables and accruals.

F-19

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

14.	Deferred Government Grants

Deferred government grants as of December 31, 2017 and September 30, 2018 consist of the following:

			December 31,			September 30,
			2017			2018
	Total government grants	$	4,864,131		$	4,499,889
	Less: Current portion		(152,003	)		(143,995	)
	Non-current portion	$	4,712,128		$	4,355,894

In September 2013, the Management Committee of Dalian Economic Zone Management Committee (the “Management Committee”) provided a subsidy of RMB150 million to finance the costs incurred in moving our facilities to Dalian, including the loss of sales while the new facilities were being constructed. For the year ended September 30, 2015, the Company recognized $23,103,427 as income after offset of the related removal expenditures of $1,004,027. No such income or offset was recognized in the three and nine months ended September 30, 2017 and 2018.

On October 17, 2014, the Company received a subsidy of RMB46,150,000 pursuant to an agreement with the Management Committee dated July 2, 2013 for costs of land use rights and to be used to construct the new manufacturing site in Dalian. Part of the facilities had been completed and was operated in July 2015 and the Company has initiated amortization on a straight-line basis over the estimated useful lives of the depreciable facilities constructed thereon.

The Company offset government grants of $36,029 and $35,878 for the three months ended September 30, 2017 and 2018 and $108,959 and $113,545 for the nine months ended September 30, 2017 and 2018, respectively, against depreciation expenses of the Dalian facilities.

15.	Product Warranty Provision

The Company maintains a policy of providing after sales support for certain of its new EV and LEV battery products introduced since October 1, 2015 by way of a warranty program. The limited cover covers a period of six to twelve months for battery cells, a period of twelve to twenty seven months for battery modules for light electric vehicles (LEV) such as electric bicycles, and a period of three years to eight years (or 120,000 or 200,000 km if reached sooner) for battery modules for electric vehicles (EV). The Company accrues an estimate of its exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability at least annually and adjusts the amounts as necessary.

16.	Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

(a)

Income taxes in the condensed consolidated statements of comprehensive loss (income)

The Company’s provision for income taxes expenses consisted of:

		Three months ended September 30,						Nine months ended September 30,
		2017			2018			2017			2018
PRC income tax:
Current	$	-		$	-		$	-		$	-
Deferred		-			-			-			-
	$	-		$	-		$	-		$	-

United States Tax

CBAK is a Delaware corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump sum.

F-20

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

16.	Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued)

The U.S. Tax Reform also includes provisions for a new tax on GILTI effective for tax years of foreign corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations.

The Company’s management is still evaluating the effect of the U.S. Tax Reform on CBAK. Management may update its judgment of that effect based on its continuing evaluation and on future regulations or guidance issued by the U.S. Department of the Treasury, and specific actions the Company may take in the future.

To the extent that portions of CBAK’s U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that CBAK receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations, CBAK will generally not be required to pay U.S. corporate income tax on those dividends. Any liabilities for U.S. corporate income tax will be accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments will be made when required by U.S. law.

No provision for income taxes in the United States or elsewhere has been made as CBAK had no taxable income for the three and nine months ended September 30, 2017 and 2018.

Hong Kong Tax

BAK Asia is subject to Hong Kong profits tax rate of 16.5% and did not have any assessable profits arising in or derived from Hong Kong for the three and nine months ended September 30, 2017 and 2018 and accordingly no provision for Hong Kong profits tax was made in these periods.

PRC Tax

The Company’s subsidiaries in China are subject to enterprise income tax at 25% for the three months and nine months ended September 30, 2017 and 2018.

A reconciliation of the provision for income taxes determined at the statutory income tax rate to the Company's income taxes is as follows:

		Three months ended September 30,						Nine months ended September 30,
		2017			2018			2017			2018
(Loss) Income before income taxes	$	(4,202,753	)	$	7,920,563		$	(10,024,349	)	$	1,907,042
United States federal corporate income tax rate		35%			21%			35%			21%
Income tax (credit) expenses computed at United States statutory corporate income tax rate		(1,470,963	)		1,663,318			(3,508,522	)		400,479
Reconciling items:
Rate differential for PRC earnings		391,875			322,253			897,639			106,397
Non-deductible expenses		48,901			21,333			144,669			118,383
Share based payments		50,500			7,172			222,436			39,691
Recognition of tax losses previously not Recognized		-			(132,104	)		-			(132,104	)
Valuation allowance on deferred tax assets		979,687			(1,881,972	)		2,243,778			(532,846	)
Income tax expenses	$	-		$	-		$	-		$	-

F-21

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

16.	Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued)

(a)

Deferred tax assets and deferred tax liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2017 and September 30, 2018 are presented below:

		December 31,			September 30,
		2017			2018
Deferred tax assets
Trade accounts receivable	$	1,098,183		$	888,841
Inventories		1,772,444			1,852,758
Property, plant and equipment		781,227			819,299
Provision for product warranty		569,958			511,284
Net operating loss carried forward		25,892,299			25,509,082
Valuation allowance		(30,114,111	)		(29,581,264	)
Deferred tax assets, non-current	$	-		$	-
Deferred tax liabilities, non-current	$	-		$	-

As of December 31, 2017 and September 30, 2018, the Company’s U.S. entity had net operating loss carry forwards of $103,580,741, of which $102,293 available to reduce future taxable income which will expire in various years through 2035 and $103,478,448 available to offset capital gains recognized in the succeeding 5 tax years and the Company’s PRC subsidiaries had net operating loss carry forwards of $16,561,373 and $15,028,507, respectively, which will expire in various years through 2023. Management believes it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.

The impact of an uncertain income tax positions on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.

The significant uncertain tax position arose from the subsidies granted by the local government for the Company’s PRC subsidiary, which may be modified or challenged by the central government or the tax authority. A reconciliation of January 1, 2018 through September 30, 2018 amount of unrecognized tax benefits excluding interest and penalties ("Gross UTB") is as follows:

			Gross UTB			Surcharge			Net UTB
	Balance as of January 1, 2018	$	7,537,273		$	-		$	7,537,273
	Decrease in unrecognized tax benefits taken in current period		(397,068	)		-			(397,068	)
	Balance as of September 30, 2018	$	7,140,205		$	-		$	7,140,205

As of December 31, 2017 and September 30, 2018, the Company had not accrued any interest and penalties related to unrecognized tax benefits.

F-22

---

CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

17.	Share-based Compensation

Restricted Shares

Restricted shares granted on June 30, 2015

On June 12, 2015, the Board of Director approved the CBAK Energy Technology, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) for Employees, Directors and Consultants of the Company and its Affiliates. The maximum aggregate number of Shares that may be issued under the Plan is ten million (10,000,000) Shares.

On June 30, 2015, pursuant to the 2015 Plan, the Compensation Committee of the Company’s Board of Directors granted an aggregate of 690,000 restricted shares of the Company’s common stock, par value $0.001, to certain employees, officers and directors of the Company with a fair value of $3.24 per share on June 30, 2015. In accordance with the vesting schedule of the grant, the restricted shares will vest in twelve equal quarterly installments on the last day of each fiscal quarter beginning on June 30, 2015 (i.e. last vesting period: quarter ended March 31, 2018). The Company recognizes the share-based compensation expenses on a graded-vesting method.

The Company recorded non-cash share-based compensation expense of $54,321 and $230,305 for three and nine months ended September 30, 2017, in respect of the restricted shares granted on June 30, 2015, respectively.

The Company recorded non-cash share-based compensation expense of $nil and $17,160 for three and nine months ended September, 2018, in respect of the restricted shares granted on June 30, 2015, respectively.

As of September 30, 2018, non-vested restricted shares granted on June 30, 2015 are as follows:

	Non-vested shares as of January 1, 2018		55,000
	Granted		-
	Vested		(55,000	)
	Forfeited		-
	Non-vested shares as of September 30, 2018		-

As of September 30, 2018, there was no unrecognized stock-based compensation associated with the above restricted shares. As of September 30, 2018, 10,005 vested shares were to be issued.

F-23

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

17.	Share-based Compensation (continued)

Restricted shares granted on April 19, 2016

On April 19, 2016, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) granted an aggregate of 500,000 restricted shares of the Company’s common stock, par value $0.001 (the “Restricted Shares”), to certain employees, officers and directors of the Company, of which 220,000 restricted shares were granted to the Company’s executive officers and directors. There are three types of vesting schedules. First, if the number of restricted shares granted is below 3,000, the shares will vest annually in 2 equal installments over a two year period with the first vesting on June 30, 2017. Second, if the number of restricted shares granted is larger than or equal to 3,000 and is below 10,000, the shares will vest annually in 3 equal installments over a three year period with the first vesting on June 30, 2017. Third, if the number of restricted shares granted is above or equal to 10,000, the shares will vest semi-annually in 6 equal installments over a three year period with the first vesting on December 31, 2016. The fair value of these restricted shares was $2.68 per share on April 19, 2016. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting method.

The Company recorded non-cash share-based compensation expense of $89,963 and $405,225 for the three and nine months ended September 30, 2017, in respect of the restricted shares granted on April 19, 2016, respectively.

The Company recorded non-cash share-based compensation expense of $34,148 and $171,842 for the three and nine months ended September 30, 2018, in respect of the restricted shares granted on April 19, 2016, respectively.

As of September 30, 2018, non-vested restricted shares granted on April 19, 2016 are as follows:

	Non-vested shares as of January 1, 2018		255,500
	Granted		-
	Vested		(104,332	)
	Forfeited		(9,835	)
	Non-vested shares as of September 30, 2018		141,333

As of September 30, 2018, there was unrecognized stock-based compensation of $68,818 associated with the above restricted shares. As of September 30, 2018, 3,333 vested shares were to be issued.

As the Company itself is an investment holding company which is not expected to generate operating profits to realize the tax benefits arising from its net operating loss carried forward, no income tax benefits were recognized for such stock-based compensation cost under the stock option plan for the three and nine months ended September 30, 2017 and 2018.

F-24

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

18.	Income (Loss) Per Share

The following is the calculation of income (loss) per share:

		Three months ended September 30,						Nine months ended September 30,
		2017			2018			2017			2018
Net (loss) income	$	(4,202,753	)	$	7,920,563		$	(10,024,349	)	$	1,907,042
Less: Net loss attributable to non-controlling interests		-			7,964			-			11,457
Net (loss) income attributable to shareholders of CBAK Energy Technology, Inc.		(4,202,753	)		7,928,527			(10,024,349	)		1,918,499
Weighted average shares outstanding – basic (note)		26,334,918			26,660,814			22,174,315			26,642,749
Dilutive unvested restricted stock		-			47,632			-			81,131
Weighted average shares outstanding – diluted		26,334,918			26,708,446			22,174,315			26,723,880
(Loss) income per share of common stock
Basic	$	(0.16	)	$	0.30		$	(0.45	)	$	0.07
Diluted	$	(0.16	)	$	0.30		$	(0.45	)	$	0.07

Note:

Including 166,003 vested restricted shares granted pursuant to the 2015 Plan that were not yet issued for the three and nine months ended September 30, 2017; and 13,338 vested restricted shares granted pursuant to the 2015 Plan that were not yet issued for the three and nine months ended September 30, 2018.

For the three and nine months ended September 30, 2017, 424,666 unvested restricted shares were anti-dilutive and excluded from shares used in the diluted computation.

19.	Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows:

	•	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	•	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
	•	Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, pledged deposits, trade accounts and bills receivable and payable, other receivables, balances with former subsidiaries, other short-term loans, short-term and long-term bank loans and other payables approximate their fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market rate of interest.

F-25

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

20.	Commitments and Contingencies

(i)

Capital Commitments

As of December 31, 2017 and September 30, 2018, the Company had the following contracted capital commitments:

		December 31,			September 30,
		2017			2018
For construction of buildings	$	2,053,489		$	3,445,062
For purchases of equipment		-			1,990,965
Capital injection to CBAK Suzhou and CBAK Trading Note		400,000			603,850
	$	2,453,489		$	6,039,877

Note:

Initially, BAK Asia was required to pay the remaining capital within two years, of the date of issuance of the subsidiary’s business license according to PRC registration capital management rules. According to the revised PRC Companies Law which became effective on March 2014, the time requirement of the registered capital contribution has been abolished. As such, BAK Asia has its discretion to consider the timing of the registered capital contributions. On April and May 2017, Dalian BAK Power received $9,495,974 injected from BAK Asia.

CBAK Power is required to pay up the remaining capital to CBAK Suzhou on or before December 31, 2019 (Note 1).

(ii)

Litigation

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Other than the legal proceeding set forth below, the Company is currently not aware of any such legal proceedings or claims that the Company believe will have an adverse effect on our business, financial condition or operating results.

On July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd (“Shenzhen Huijie”), one of the Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’ Court of Zhuanghe City, Dalian, for the failure to pay pursuant to the terms of the contract and entrusted part of the project of the contract to a third party without their prior consent. The plaintiff sought a total amount of $1,227,583 (RMB 8,430,792), including construction costs of $0.9 million (RMB6.1 million, which the Company already accrued for at June 30, 2016), interest of $29,812 (RMB0.2 million) and compensation of $0.3 million (RMB1.9 million). On September 7, 2016, upon the request of Shenzhen Huijie for property preservation, the Court of Zhuanghe froze CBAK Power’s bank deposits totaling $1,227,583 (RMB 8,430,792) for a period of one year. On September 1, 2017, upon the request of Shenzhen Huijie, the Court of Zhuanghe froze the bank deposits for another one year until August 31, 2018. Further on August 27, 2018, the court of Zhuanghe froze the bank deposits for another one year until August 27, 2019, upon the request of Shenzhen Huijie. On June 30, 2017, according to the trial of first instance, the Court of Zhuanghe ruled that CBAK Power should pay the remaining contract amount of RMB6,135,860 (approximately $0.9 million) claimed by Shenzhen Huijie as well as other expenses incurred including deferred interest, discounted charge on bills payable, litigation fee and property preservation fee totaled $0.1 million, the Company has accrued for these amounts as of September 30, 2018. On July 24, 2017, CBAK Power filed an appellate petition to the Intermediate Peoples’ Court of Dalian (“Court of Dalian”) challenging the lower court’s judgement rendered on June 30, 2017. On November 17, 2017, the Court of Dalian rescinded the original judgment and remand the case to the Court of Zhuanghe for retrial. The Court of Zhuanghe did a retrial and determined an appraisal to be performed by a third-party appraisal institution on the construction cost incurred and completed by Shenzhen Huijie on the subject project. On November 8, 2018, the Company received from the Court of Zhuanghe the construction-cost-appraisal report which determined that the construction cost incurred and completed by Shenzhen Huijie for the subject project to be $1,330,186 (RMB9,129,868). As of September 30, 2018, the Company has already paid $ 1.6 million (RMB 11.0 million) and accrued $0.9 million (RMB 6.1 million) for the construction cost incurred and completed by Shenzhen Huijie.

In late February 2018, CBAK Power received a notice from the Court of Zhuanghe that Shenzhen Huijie filed another lawsuit against CBAK Power for the failure to perform pursuant to the terms of a fire-control contract. The plaintiff sought a total amount of RMB244,942 ($35,665), including construction costs of RMB238,735 ($34,762) and interest of RMB6,207 ($904), the Company has accrued for these amounts as of September 30, 2018. On October 16, 2018, the Court of Zhuanghe issued a judgment that because certain items as stipulated in the fire-control contract were not completed by Shenzhen Huijie, the Company is liable to pay only RMB77,043 ($11,218) and interest thereon accruing from July 24, 2017 to Shenzhen Huijie.

F-26

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

20.	Commitments and Contingencies (continued)

(ii)

Litigation (continued)

In May 2017, CBAK Power filed a lawsuit in the Court of Zhuanghe against Pingxiang Anyuan Tourism Bus Manufacturing Co., Ltd., (“Anyuan Bus”) one of CBAK Power’s customers, for failure to pay pursuant to the terms of the sales contract. CBAK Power sought a total amount of RMB18,279,858 ($2,661,676), including goods amount of RMB17,428,000 ($2,537,639) and interest of RMB851,858 ($124,037). On December 19, 2017, the Court of Zhuanghe determined that Anyuan Bus should pay the goods amount of RMB17,428,000 ($2,537,639) and the interest until the goods amount was paid off, and a litigation fee of RMB131,480 ($19,144). The trial went into effect in February 2018 and is currently in the execution phase. As of December 31, 2017 and September 30, 2018, the Company had made a full provision against the receivable from Anyuan Bus of RMB17,428,000 ($2,537,639). On June 29, 2018, the Company filed an application with the Court of Zhuanghe for enforcement of the trial against all of Anyuan Bus’ shareholders, including Jiangxi Zhixin Automobile Co., Ltd, Anyuan Bus Manufacturing Co., Ltd, Anyuan Coal Group Co., Ltd, Qian Ronghua, Qian Bo and Li Junfu. On October 22, 2018, the Court of Zhuanghe issued a judgment supporting the Company’s application that all the Anyuan Bus’ shareholders should be liable to pay the Company the debt as confirmed under the trial. If the shareholders do not appeal within fifteen days of receiving the notice from the Court, the judgment will become effective and will be enforced for execution against them.

F-27

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

21.	Concentrations and Credit Risk

(a)

Concentrations

The Company had the following customers that individually comprised 10% or more of net revenue for the three months ended September 30, 2017 and 2018 as follows:

		Three months ended September 30,
		2017						2018
Customer A	$	9,477,104			53.39%		$	*			*
Customer B		7,368,320			41.51%			*			*
Customer C		*			*			1,672,191			29.92%
Customer D		*			*			2,081,697			37.24%
Customer E		*			*			852,331			15.25%

* Comprised less than 10% of net revenue for the respective period.

The Company had the following customers that individually comprised 10% or more of net revenue for the nine months ended September 30, 2017 and 2018 as follows:

		Nine months ended September 30,
		2017						2018
Customer A	$	18,132,366			65.21%		$	*			*
Customer B		7,504,870			26.99%			*			*
Customer C		*			*			5,374,871			35.95%
Customer D		*			*			2,081,697			13.92%

* Comprised less than 10% of net revenue for the respective period.

The Company had the following customers that individually comprised 10% or more of accounts receivable (net) as of December 31, 2017 and September 30, 2018 as follows:

		December 31, 2017						September 30, 2018
Customer B	$	23,835,201			62.08%		$	6,323,630			33.05%
Customer C		*			*			3,325,111			17.38%
Customer D		*			*			2,296,768			12.00%
Customer F		4,855,518			12.65%			3,536,795			18.48%
Customer G		4,664,285			12.15%			*			*

* Comprised less than 10% of account receivable (net) for the respective period.

For the three and nine months ended September 30, 2017 and 2018, the Company recorded the following transactions:

		Three months ended September 30,						Nine months ended September 30,
		2017			2018			2017			2018
Purchase of inventories from
BAK Shenzhen**	$	9,248,609		$	-		$	13,527,981		$	108,718
Zhengzhou BAK Battery Co., Ltd*		-			-			-			2,062,432
Sales of finished goods to
BAK Tianjin		55,533			4,073			98,233			31,610
BAK Shenzhen**		728			-			61,525			-
Zhengzhou BAK Battery Co., Ltd*		163			-			13,811			-
Proceeds on disposal of patented proprietary technology offset against amount due to BAK Shenzhen (Note 6)**	$	-		$	13,034,583		$	-		$	13,034,583

* Mr. Xiangqian Li, the former CEO, is a director of this company. As of September 30, 2018 and December 31, 2017, payable to Zhengzhou BAK Battery Co., Ltd were $2,295,131 and nil, respectively, was included in trade accounts and bills payable.

** Mr. Xiangqian Li, our former CEO, is a director of this company.

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CBAK Energy Technology, Inc. and subsidiaries

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2017 and 2018

(Unaudited)

(In US$ except for number of shares)

21.	Concentrations and Credit Risk (continued)

(b)

Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and pledged deposits. As of December 31, 2017 and September 30, 2018, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.

For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.

22.	Segment Information

The Company used to engage in one business segment, the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion rechargeable batteries for use in a wide array of applications. The Company manufactured five types of Li-ion rechargeable batteries: aluminum-case cell, battery pack, cylindrical cell, lithium polymer cell and high-power lithium battery cell. The Company’s products are sold to packing plants operated by third parties primarily for use in mobile phones and other electronic devices.

After the disposal of BAK International and its subsidiaries (see Note 1), the Company focused on producing high-power lithium battery cells. Net revenues for the three and nine months ended September 30, 2017 and 2018 were as follows:

Net revenues by product:

		Three months ended September 30,						Nine months ended September 30,
		2017			2018			2017			2018
High power lithium batteries used in:
Electric vehicles	$	16,934,181		$	2,280,763		$	25,998,924		$	4,099,646
Light electric vehicles		281,978			44,195			485,001			64,315
Uninterruptable supplies		534,551			3,264,413			1,322,188			10,788,509
Total	$	17,750,710		$	5,589,371		$	27,806,113		$	14,952,470

Net revenues by geographic area:

		Three months ended September 30,						Nine months ended September 30,
		2017			2018			2017			2018
Mainland China	$	17,529,058		$	3,799,136		$	26,976,060		$	12,299,525
USA		-			1,765,193			-			1,858,225
Europe		123,601			(2,765	)		294,322			101,466
PRC Taiwan		2,201			(2,512	)		221,574			96,513
Israel		26,763			30,988			244,122			537,757
Others		69,087			(669	)		70,035			58,984
Total	$	17,750,710		$	5,589,371		$	27,806,113		$	14,952,470

Substantially all of the Company’s long-lived assets are located in the PRC.

F-29