Exhibit 99.3

 

CBAK ENERGY TECHNOLOGY, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Note 1 – Description of the Business Combination

 

On July 20, 2021, Dalian CBAK Power Battery Co., Ltd. (“CBAK Power”), a wholly-owned Chinese subsidiary of CBAT, entered into a framework agreement relating to CBAK Power’s investment in Zhejiang Hitrans Lithium Battery Technology Co., Ltd (“Zhejiang Hitrans”), pursuant to which CBAK Power agreed to acquire 81.56% of the registered equity interests (representing 75.57% of paid-up capital) of Zhejiang Hitrans (the “Acquisition”). The Acquisition was completed on November 26, 2021.

 

CBAK Power paid approximately RMB40.74 million ($6.31 million) in cash to acquire 21.56% registered equity interests (representing 21.18% of paid-up capital) of Zhejiang Hitrans from Zhejiang Hitrans’ management shareholders. In addition, CBAK Power entered into a loan agreement with Zhejiang Hitrans to lend Zhejiang Hitrans approximately RMB131 million ($20.28 million) (the “Hitrans Loan”) by remitting approximately RMB131 million $20.28 million) into the account of Shaoxing Intermediate People’s Court to remove the freeze on Zhejiang Meidu Graphene Technology Co., Ltd. (“Meidu Graphene”)’s 60% registered equity interests (representing 54.39% of paid-up capital) of Zhejiang Hitrans which freeze was imposed as a result of a lawsuit for Zhejiang Hitrans’s failure to make payments in connection with the purchase of land use rights, plants, equipment, pollution discharge permit and other assets (the “Assets”). CBAK Power assigned RMB118 million ($18.54 million) of the Zhejiang Hitrans Loan to Mr. Junnan Ye (“Mr. Ye”) as consideration for the acquisition of 60% registered equity interests of Zhejiang Hitrans from Mr. Ye who, acting as an intermediary, first purchased the 60% registered equity interests of Zhejiang Hitrans from Meidu Graphene. After such assignment, Zhejiang Hitrans shall repay Mr. Ye at least RMB70 million ($10.84 million) within two months of obtaining title to the Assets and the rest RMB48 million ($7.43 million) by December 31, 2021, along with a fixed interest of RMB3.5 million ($0.54 million) which can be reduced by up to RMB1 million ($0.15 million) if the loan is repaid before its due date. Zhejiang Hitrans shall repay the remaining approximately RMB13 million ($2.01 million) of the Hitrans Loan to CBAK Power at an interest rate of 6% per annum. As of January 29, 2022, Zhejiang Hitrans has repaid all the loan principals of RMB118 million ($18.3 million) and interests of RMB3.5 million ($0.54 million) to Mr. Ye.

 

Note 2 – Basis of Presentation

 

The following unaudited pro forma condensed combined financial statements (the “Pro Forma Financial Statements”) give effect to the Acquisition. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and the year ended December 31, 2020 give effect to the Acquisition as if it had occurred on January 1, 2020. The unaudited pro forma condensed combined balance sheet as of September 30, 2021 gives effect to the Acquisition as if it had occurred on September 30, 2021.

 

While the Pro Forma Financial Statements are helpful in showing the financial characteristics of the consolidated companies, it is not intended to show how the consolidated companies would have actually performed if the events described above had in fact occurred on the dates acquired or to project the results of operations or financial position for any future date or period. We have included in the Pro Forma Financial Statements all adjustments, consisting of normal recurring adjustments, necessary of a fair presentation of the operating results in the historical periods. We believe that the assumptions utilized to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions and that the Pro Forma Financial Statements are factually supportable, give appropriate effect to the impact of the events that are directly attributable to the transactions, and reflect those items expected to have a continuing impact on our financial condition.

 

The pro forma information has been prepared using the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America. Under the acquisition method of accounting, the Acquisition is accounted for by recognizing the acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition-date fair values. Any excess of the purchase consideration over the acquisition-date fair values of these identifiable assets and liabilities is recognized as goodwill. The pro forma adjustments are based upon the assumptions and information available at the time of the preparation of this Form 8-K/A and may be subject to change. The Company will finalize the acquisition accounting within the required measurement period. Differences between these estimates of fair value and the final acquisition accounting may occur, and those differences could have a material impact on the pro forma information and the combined company’s future results of operations and financial position. At the time of the filing of this Form 8-K/A, the Company does not expect material changes to the assets acquired or liabilities assumed, with the exception of deferred tax assets and liabilities which were valued using preliminary assumptions.

 

The Pro Forma Financial Statements should be read in conjunction with our historical consolidated financial statements and the notes thereto of CBAT and Zhejiang Hitrans included in our 2020 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 13, 2021 and our Form 8-K filed with the SEC on March 17, 2022.

 

Apart from those transactions listed in Note 5 and Note 6, there were no other material transactions between the Company and Zhejiang Hitrans during the periods presented in the Pro Forma Financial Statements that would need to be eliminated. In addition, the Pro Forma Financial Statements do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve and realize as a result of the Acquisition, the costs to integrate the operations of the Company and Zhejiang Hitrans, or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

 

1

 

 

The following table sets for the pro forma unaudited condensed combined balance sheet as of September 30, 2021.

 

Unaudited Condensed Combined Balance Sheets

(US dollars)

 

    Historical Note 1                    
    CBAK Energy
Technology, Inc.
and Subsidiaries
    Zheijing
Hitrans
Lithium
Battery
Technology
Co., Ltd
and Subsidiaries
    Intercompany
Eliminations
    Pro Forma
Adjustments
    Pro Forma
Combined
 
Assets               (see note 3)     (see note 5)        
Current assets                              
Cash and cash equivalents     1,993,531       1,108,050                       3,101,581  
Pledged deposits     15,552,996       1,916,605                       17,469,601  
Debt products     -       1,706,326                       1,706,326  
Trade and bills receivable, net     22,231,442       37,986,532                       60,217,974  
Inventories     9,249,455       11,792,548                       21,042,003  
Prepayments and other receivables     9,715,578       1,889,687       (155,957)               11,449,308  
Amount due from related party     -       62,048                       62,048  
Amount due from trustee     -       1,240,964         5(a)     (1,240,964 )     -  
Income tax recoverable     -       46,519                       46,519  
Investment in sales-type lease, net     838,649       -                       838,649  
Total current assets     59,581,651       57,749,279                       115,934,009  
                                         
Property, plant and equipment, net     42,050,589       18,312,476         5(b)     1,523,808       61,886,873  
Construction in progress     49,246,115       1,838,569                       51,084,684  
Non-marketable equity securities     702,807       -                       702,807  
Hitrans loan     20,326,775       -       (3,019,821 )5(a)     (17,306,954 )     -  
Deposit paid for acquisition of a subsidiary     6,404,435       -         5(a)     (6,404,435 )     -  
Payment to trustee     1,944,683       -         5(c)     (1,481,126 )     463,557  
Lease assets - finance lease     -       1,484,178                       1,484,178  
Operating lease right-of-use assets, net     1,981,422       53,376                       2,034,798  
Prepaid land use right- non current     7,465,426       6,215,059         5(b)     6,834       13,687,319  
Intangible assets, net     21,418       829,308         5(b)     1,148,414       1,999,140  
Investment in sales-type lease, net     980,731       -                       980,731  
Amount due from related party, non current     -       124,097                       124,097  
Goodwill     -       -         5(b)     1,709,399       1,709,399  
Deferred tax assets     -       1,564,720                       1,564,720  
Total assets     190,706,052       88,171,062                       253,656,312  
                                         
Liabilities                                        
Current liabilities                                        
Trade and bills payable     21,050,320       35,699,153                       56,749,473  
Other short-term loans     680,563       -                       680,563  
Accrued expenses and other payables     15,796,594       1,454,689       (155,957)  5(b)     463,980        17,559,306  
Dividend payable     -       2,656,664          5(d)     (1,304,601)       1,352,063  
Amount due to shareholder and CBAT     -       20,326,898       (3,019,821             17,307,077  
                                         
Payables to former subsidiaries, net     361,874       -                       361,874  
Deferred government grants, current     153,402       286,973                       440,375  
Product warranty provisions     124,670       -                       124,670  
Operating lease liability, current     753,404       -                       753,404  
Warrants liability     10,474,000       -                       10,474,000  
Total current liabilities     49,394,827       60,424,377                       105,802,805  
                                         
Deferred government grants, non-current     8,833,848       -                       8,833,848  
Deferred tax liabilities     -       -         5(b)     325,346       325,346  
Operating lease liability     801,266       -                       801,266  
Product warranty provision     1,873,626       -                       1,873,626  
Long term tax payable     7,606,677       -                       7,606,677  
                                         
Total liabilities     68,510,244       60,424,377                       125,243,568  
                                         
Commitments and contingencies                                        
                                         
Shareholders’ equity                                        
Common stock     88,555       4,289,924         5(c)     (4,289,924     88,555  
Donated shares     14,101,689       -                       14,101,689  
Additional paid-in capital     241,232,244       25,262,444         5(c)     (25,262,444 )     241,232,244  
Statutory reserves     1,230,511       266,308         5(c)     (266,308     1,230,511  
Accumulated deficit     (131,654,694     (2,572,446       5(c)     (1,481,126     (132,951,657 )
                        5(c)     2,925,064          
                        5(c)     (352,618        
                        5(c)     184,163          
Accumulated other comprehensive income     1,240,354       476,196         5(c)     (644,749     1,240,354  
                        5(c)     168,553          
      126,238,659       27,722,426                       124,941,696  
Less: Treasury shares     (4,066,610)       -                       (4,066,610
Total shareholders’ equities     122,172,049       27,722,426                       120,875,086  
Non-controlling interests     23,759       24,259         5(c)     (24,161)       7,537,658  
                        5(b)     7,513,899          
                        5(c)     (98        
Total of equities     122,195,808       27,746,685                       128,412,744  
                                         
Total liabilities and shareholders’ equity   190,706,052     88,171,062                     253,656,312  

 

2

 

 

The following table sets forth the pro forma unaudited condensed combined statement of operations for the year ended December 31, 2020.

 

Unaudited Pro Forma Condensed Combined Statements of Operations

(US dollars, except per share data)

 

    Historical                        
    CBAK
Energy
Technology,
Inc. and
Subsidiaries
    Zheijing
Hitrans
Lithium
Battery
Technology
Co., Ltd
    Intercompany
Eliminations
        Pro Forma
Adjustments
    Pro Forma
Combined
 
    US$’000     US$’000     (see note 3)         (see note 6)     US$’000  
                                   
Net revenues   $ 37,566,152     $ 84,484,272       (12,396,483 )               $ 109,653,941  
Cost of revenues     (34,852,132 )     (77,704,570 )     12,396,483     6 (a)     (661,114 )     (100,821,333 )
Gross profit     2,714,020       6,779,702                           8,832,608  
Operating expenses:                                            
Research and development expenses     1,678,895       4,126,935                           5,805,830  
Sales and marketing expenses     701,404       752,838                           1,454,242  
General and administrative expenses     3,745,676       2,378,922                           6,124,598  
Impairment charge on property, plant and equipment     4,345,811       -                           4,345,811  
Provision for doubtful accounts     721,737       737,896                           1,459,633  
Total operating expenses     11,193,523       7,996,591                           19,190,114  
Operating loss     (8,479,503 )     (1,216,889 )                         (10,357,506 )
Finance (expenses) income, net     (1,399,095 )     170,453                           (1,228,642 )
Other (expenses) income, net     (40,170 )     676,574                           636,404  
Changes in fair value of warrants liability     2,072,000       -                           2,072,000  
Loss before income tax     (7,846,768 )     (369,862 )                         (8,877,744 )
Income tax credit     -       386,639             6 (c)     (99,167 )     287,472  
Net (loss) income     (7,846,768 )     16,777                           (8,590,272 )
Less: Net loss (income) attributable to non-controlling interests     39,870       21             6 (a)(c)     (137,285 )     (97,394 )
Net loss (income) attributable to shareholders of CBAK Energy Technology, Inc.   $ (7,806,898 )   $ 16,798                         $ (8,687,666 )
                                             
Net (loss) income     (7,846,768 )     16,777                           (8,590,272 )
Other comprehensive income (loss)                                            
– Foreign currency translation adjustment     1,499,949       1,519,280                           3,019,229  
Comprehensive (loss) income     (6,346,819 )     1,536,057                           (5,571,043 )
Less: Comprehensive loss attributable to non-controlling interests     45,042       1,638                           46,680  
Comprehensive (loss) income attributable to CBAK Energy Technology, Inc.     (6,301,777 )     1,537,695                           (5,524,363 )
                                             
Loss per share                                            
– Basic and diluted     (0.13 )                                 (0.14 )
                                             
Weighted average number of shares of common stock:                                            
– Basic and diluted     61,992,386                                   61,992,386  

 

 

3

 

 

The following table sets forth the pro forma unaudited condensed combined statement of operations for the nine months ended September 30, 2021.

 

Unaudited Pro Forma Condensed Combined Statements of Operations

(US dollars, except per share data)

 

   Historical                
   CBAK
Energy
Technology,
Inc. and
Subsidiaries
   Zheijing
Hitrans
Lithium
Battery
Technology Co., Ltd
   Intercompany
Eliminations
      Pro Forma
Adjustments
   Pro Forma
Combined
 
           (see note 3)      (see note 6)     
                        
Net revenues  $24,867,393   $97,875,308    (1,360,655)          $121,382,046 
Cost of revenues   (20,798,931)   (86,911,922)   1,360,655   6 (a)   (495,836)   (106,846,034)
Gross profit   4,068,462    10,963,386                 14,536,012 
Operating expenses:                            
Research and development expenses   3,344,817    3,773,359                 7,118,176 
Sales and marketing expenses   1,262,999    626,422                 1,889,421 
General and administrative expenses   5,823,560    2,334,094        6 (b)   (197,356)   7,960,298 
Provision for doubtful accounts   (437,475)   -                 (437,475)
Total operating expenses   9,993,901    6,733,875                 16,530,420 
Operating (loss) profit   (5,925,439)   4,229,511                 (1,994,408)
Finance income (expenses), net   174,442    (162,141)                12,301 
Other income, net   1,619,194    27,670                 1,646,864 
Impairment of non-marketable equity securities   (690,585)   -                 (690,585)
Change in fair value of warrants   57,174,000    -                 57,174,000 
Income before income tax   52,351,612    4,095,040                 56,148,172 
Income tax expense   -    (269,630)       6 (c)   74,376    (195,254)
Net income   52,351,612    3,825,410                 55,952,918 
Less: Net income attributable to non-controlling interests   (21,995)   (36)       6 (a)(c)   (102,963)   (124,994)
Net income attributable to shareholders of CBAK Energy Technology, Inc.  $52,329,617   $3,825,374                $55,827,924 
                             
Other comprehensive income (loss)                            
Net loss   52,351,612    3,825,410                 55,952,918 
– Foreign currency translation adjustment   1,473,992    315,156                 1,789,148 
Comprehensive income   53,825,604    4,140,566                 57,742,066 
Less: Comprehensive (income) loss  attributable to non-controlling interests   (16,024)   684                 (15,340)
Comprehensive income attributable to CBAK Energy Technology, Inc.  $53,809,580   $4,141,250                $57,726,726 
                             
Income per share                            
– Basic  $0.60                     $0.64 
– Diluted  $0.60                     $0.64 
                             
Weighted average number of shares of common stock:                            
– Basic   87,043,490                      87,043,490 
– Diluted   87,349,010                      87,349,010 

 

The accompanying notes are an integral part of the Pro Forma Financial Statements.

 

4

 

 

Note 3 – Intercompany Eliminations

 

Intercompany elimination adjustments represent the elimination of existing balances included within the balance sheets and statements of operations of CBAT and Zhejiang Hitrans, which at the close of the acquisition would be considered intercompany transactions:

 

-Zhejiang Hitrans Product Sales revenue recorded as cost of goods sold by CBAT.
-

Interest payables between CBAT and Zhejiang Hitrans.

-Short-term borrowings between CBAT and Zheijing Hitrans

 

Note 4 – Preliminary purchase price allocation

 

The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed from Zhejiang Hitrans based on management’s best estimates of fair value. The final purchase price allocation may vary based on final valuations and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary.

 

The components of the consideration transferred to effect the Acquisition are as follows:

 

   RMB   USD * 
         
Cash consideration for 60% registered equity interest (representing 54.39% of paid-up capital) of Zheijing Hitrans from Meidu Graphene   118,000,000    18,547,918 
Cash consideration for 21.56% registered equity interest (representing 21.18% of paid-up capital) of Zheijing Hitrans from Hitrans management   40,744,376    6,404,435 
Total Purchase Consideration   158,744,376    24,952,353 

 

*Renminbi to U.S Dollar exchange rate at 6.3619 on November 26, 2021 (completion date)

 

The following is a summary of the preliminary allocation of the above purchase price as reflected in the unaudited pro forma combined consolidated balance sheet as of September 30, 2021:

 

   Per PPA 
     
Cash and bank  $7,354,679 
Trade accounts and bills receivable, net Pledged deposits   38,122,787 
Inventories   13,616,922 
Prepayments and other receivables   3,349,666 
Income tax recoverable   47,138 
Amount due from trustee   11,788,931 
Property, plant and equipment, net   21,180,913 
Construction in progress   607,138 
Intangible assets, net   1,959,033 
Prepaid land use rights, non current   6,274,433 
Leased assets, net   48,394 
Deferred tax assets   1,715,998 
Short term bank loan   (8,802,402)
Other short term loans – CBAK Power   (20,597,522)
Trade accounts and bills payable   (41,479,323)
Accrued expenses and other payables   (4,654,413)
Deferred government grants   (290,794)
Land appreciation tax   (463,980)
Deferred tax liabilities   (325,346)
NAV   29,452,252 
Less: Waiver of dividend payable   1,304,601 
Total NAV acquired   30,756,853 
Non-controlling interest (24.43%)   (7,513,899)
Goodwill   1,709,399 
      
Total identifiable net assets   24,952,353 

 

The goodwill balance is primarily attributed to the assembled workforce, expanded market opportunities and cost and other operating synergies anticipated upon the integration of the operations of CBAT and Zhejiang Hitrans.

 

5

 

 

Note 5 – Unaudited Pro Forma Condensed Combined Balance Sheet

 

Purchase Accounting Adjustments:

 

(a)Reflects $25.0 million, which represents the purchase price paid to Zhejiang Hitrans common shareholders as calculated in Note 4.

 

(b)Reflects the change in book value for Zhejiang Hitrans’s asset and liability balances to reflect estimated fair value as of the acquisition date, November 30, 2021

 

(c)Reflects adjustments to eliminate Zheijing Hitrans’s historical shareholders’ equity, which represents the historical book value of Zheijing Hitrans’s net assets, as a result of the application of purchase accounting.

 

(d)Waiver of dividend payable as of acquired date

 

Note 6 – Unaudited Pro Forma Condensed Combined Statements of Operations

 

Purchase Accounting Adjustments:

 

  (a) Reflects adjustments for the year ended December 31, 2020 and the nine months ended September 30, 2021 for amortization expense related to the fair value of identified intangible assets with definite lives.

 

  (b) Elimination of direct, incremental transaction costs of the Acquisition incurred by CBAT and Zhejiang Hitrans, which primarily relate to, advisory, legal, valuation and other professional services, that are reflected in the historical financial statements,
     
  (c) Reflects adjustments to income tax expense for the year ended December 31, 2020 and nine months ended September 30, 2021, for the tax effect of the transaction adjustments. Because the tax rate used for these pro forma financial statements is the statutory rate and an estimate, it will likely vary from the effective rate in periods subsequent to the completion of the business combination, and those differences may be material.

 

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