8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 2)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 8, 2022

QUANERGY SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-39222	88-0535845
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

433 Lakeside Drive Sunnyvale, California	94085
(Address of principal executive offices)	(Zip Code)

(408) 245-9500

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240-13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	QNGY	New York Stock Exchange
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share	QNGY WS	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Introductory Note

On February 8, 2022, Quanergy Systems, Inc., a Delaware corporation (the “Company”) (f/k/a CITIC Capital Acquisition Corp. (“CCAC”)), filed a Current Report on Form 8-K and Amendment No. 1 on Form 8-K/A (together, the “Original Report”) to report the Closing and related matters under Items 1.01, 2.01, 3.02, 4.01, 5.01, 5.02, 5.06 and 9.01 of Form 8-K. This Amendment No. 2 amends the financial statements provided under Items 9.01(a) and 9.01(b) in the Original Report to include (a) the audited consolidated financial statements of Legacy Quanergy as of and for the years ended December 31, 2021 and 2020 and the related notes, (b) the related Management’s Discussion and Analysis of Financial Condition and Results of Operations for Legacy Quanergy for the year ended December 31, 2021 and (c) the unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2021. This Amendment No. 2 does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at the Company subsequent to the filing date of the Original Report.

Capitalized terms used herein by not defined herein have the meanings given to such terms in the Original Report.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

The audited consolidated financial statements of Quanergy Systems, Inc. as of and for the years ended December 31, 2021 and December 31, 2020 are attached hereto as Exhibit 99.1 and are incorporated by reference herein.

Also included herewith as Exhibit 99.2 and incorporated herein by reference is the Management’s Discussion and Analysis of Financial Condition and Results of Operations of Legacy Quanergy for the year ended December 31, 2021.

(b) Pro Forma Financial Information

The unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2021 is set forth in Exhibit 99.3 hereto and is incorporated herein by reference.

(d) Exhibits:

Exhibit Number	Description
99.1	Audited consolidated financial statements of Quanergy Systems, Inc. as of and for the years ended December 31, 2021 and December 31, 2020.
99.2	Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company for the year ended December 31, 2021.
99.3	Unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2021.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: March 31, 2022

QUANERGY SYSTEMS, INC.
By:	/s/ Patrick Archambault
	Patrick Archambault
	Chief Financial Officer

EX-99.1

Exhibit 99.1

QUANERGY SYSTEMS, INC.

Consolidated Financial Statements

and

Report of Independent Registered Public Accounting Firm

As of and for the years ended

December 31, 2021 and 2020

1

QUANERGY SYSTEMS, INC.

Table of Contents

	Page(s)
Report of Independent Registered Public Accounting Firm		2
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Comprehensive Loss		5
Consolidated Statements of Mezzanine Equity and Stockholders’ Deficit		6
Consolidated Statements of Cash Flows		7
Notes to Consolidated Financial Statements		8

1

GRANT THORNTON LLP 2555 East Camelback Road, Suite 500 Phoenix, AZ 85016 D  +1 602 474 3400 F   +1 602 474 3421

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Quanergy Systems, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Quanergy Systems, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, mezzanine equity and stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Emphasis of matter regarding going concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss of $63.5 million during the year ended December 31, 2021, and as of that date, the Company’s current liabilities exceeded its current assets by $11.2 million and its total liabilities exceeded its total assets by $65.4 million. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

  GT.COM   Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership.

2

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2021.

Phoenix, Arizona

March 31, 2022

3

Quanergy Systems, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

	December 31, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	26,106		$	7,598
Restricted cash		70			70
Accounts receivable, net of allowance for doubtful accounts of $224 and $224 at December 31, 2021 and 2020, respectively		645			725
Inventory		3,242			4,817
Prepaid expenses and other current assets		1,138			329
Total current assets		31,201			13,539
Property and equipment, net		1,908			2,809
Other long-term assets		3,539			181
Total assets	$	36,648		$	16,529
Liabilities, mezzanine equity and stockholders’ deficit
Current liabilities
Accounts payable	$	2,375		$	1,550
Accrued expenses		2,435			2,088
Accrued settlement liability		2,500			2,500
Other current liabilities		737			560
Short-term debt		34,311			—
Total current liabilities		42,358			6,698
Long-term debt		16,153			33,443
Long-term debt - related party		16,670			5,957
Derivative liability		26,017			5,021
Other long-term liabilities		803			1,236
Total liabilities		102,001			52,355
Commitments and contingencies (Note 15)
Mezzanine equity:
Series Seed convertible preferred stock, $0.0001 par value — 2,231,248 shares authorized, issued and outstanding as of December 31, 2021 and 2020; liquidation preference of $3,500 as of December 31, 2021 and 2020		3,421			3,421
Series Seed-2 convertible preferred stock, $0.0001 par value — 495,417 shares authorized, issued and outstanding as of December 31, 2021 and 2020; liquidation preference of $1,000 as of December 31, 2021 and 2020		965			965
Series A convertible preferred stock, $0.0001 par value — 3,233,871 shares authorized, issued and outstanding as of December 31, 2021 and 2020; liquidation preference of $30,000 as of December 31, 2021 and 2020		29,921			29,921
Series A+ convertible preferred stock, $0.0001 par value — 790,500 shares authorized, issued and outstanding as of December 31, 2021 and 2020; liquidation preference of $10,000 as of December 31, 2021 and 2020		9,883			9,883
Series B convertible preferred stock, $0.0001 par value — 778,839 shares authorized, issued and outstanding as of December 31, 2021 and 2020; liquidation preference of $89,896 as of December 31, 2021 and 2020		89,470			89,470
Series C convertible preferred stock, $0.0001 par value — 165,237 shares authorized, issued and outstanding as of December 31, 2021 and 2020; liquidation preference of $23,648 as of December 31, 2021 and 2020		19,318			19,318
Total mezzanine equity		152,978			152,978
Stockholders’ deficit:
Common stock, $0.0001 par value — 20,637,620 and 18,000,000 shares authorized as of December 31, 2021 and 2020, respectively; 5,018,676 and 4,696,352 shares issued and outstanding as of December 31, 2021 and 2020, respectively		1			—
Additional paid-in capital		89,326			55,310
Accumulated other comprehensive loss		(61	)		(61	)
Accumulated deficit		(307,597	)		(244,053	)
Total stockholders’ deficit		(218,331	)		(188,804	)
Total liabilities, mezzanine equity and stockholders’ deficit	$	36,648		$	16,529

The accompanying notes are an integral part of these consolidated financial statements.

4

Quanergy Systems, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

	For the years ended December 31,
	2021			2020
Net sales	$	3,928		$	3,015
Cost of goods sold		3,939			2,586
Gross profit (loss)		(11	)		429
Operating expenses:
Research and development		17,011			15,373
Sales and marketing		8,286			6,486
General and administrative		15,653			9,472
Operating expenses		40,950			31,331
Loss from operations		(40,961	)		(30,902	)
Interest expense, net		(21,484	)		(6,346	)
Other income (expense), net		(1,073	)		1,420
Loss before income taxes		(63,518	)		(35,828	)
Income tax provision		(26	)		(7	)
Net loss	$	(63,544	)	$	(35,835	)
Net loss attributable per share to common stockholders, basic and diluted	$	(9.00	)	$	(7.06	)
Weighted-average shares used to compute net loss attributable per share to common stockholders, basic and diluted		7,059,609			5,077,336

The accompanying notes are an integral part of these consolidated financial statements.

5

Quanergy Systems, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

	For the years ended December 31,
	2021			2020
Net loss	$	(63,544	)	$	(35,835	)
Other comprehensive gain (net of tax):
Foreign currency translation gain		—			12
Comprehensive loss	$	(63,544	)	$	(35,823	)

The accompanying notes are an integral part of these consolidated financial statements.

6

Quanergy Systems, Inc.

Consolidated Statements of Mezzanine Equity and Stockholders’ Deficit

(in thousands except number of shares)

	Convertible Preferred Stock				Common Stock				Additional Paid-in-Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Deficit
	Shares		Amount		Shares		Amount
Balance at December 31, 2019		7,695,112	$	152,978		4,688,352	$	—	$	42,621	$	(208,218	)	$	(73	)	$	(165,670	)
Shares issued upon exercise of options		—		—		8,000		—		34		—			—			34
Issuance of common stock warrants		—		—		—		—		7,212		—			—			7,212
Stock-based compensation		—		—		—		—		5,443		—			—			5,443
Other comprehensive income (net of tax)		—		—		—		—		—		—			12			12
Net loss		—		—		—		—		—		(35,835	)		—			(35,835	)
Balance at December 31, 2020		7,695,112		152,978		4,696,352		—		55,310		(244,053	)		(61	)		(188,804	)
Shares issued upon exercise of options		—		—		20,000		—		74		—			—			74
Issuance of common stock warrants		—		—		—		—		21,971		—			—			21,971
Exercise of common stock warrants		—		—		2,324		—		—		—			—			—
Issuance of Restricted Stock Awards (“RSA”)		—		—		300,000		1		7,904		—			—			7,905
Stock-based compensation		—		—		—		—		4,067		—			—			4,067
Other comprehensive income		—		—		—		—		—		—			—			—
Net loss		—		—		—		—		—		(63,544	)		—			(63,544	)
Balance at December 31, 2021		7,695,112	$	152,978		5,018,676	$	1	$	89,326	$	(307,597	)	$	(61	)	$	(218,331	)

The accompanying notes are an integral part of these consolidated financial statements.

7

Quanergy Systems, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	For the years ended December 31,
	2021			2020
Cash flows from operating activities
Net loss	$	(63,544	)	$	(35,835	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		11,972			5,443
Non-cash interest expense		21,155			5,927
Depreciation and amortization		948			1,192
Non-cash loss on issuance of convertible notes		—			26
Change in fair value of debt derivative liabilities		3,628			(1,402	)
Bad debt expense		—			149
Non-cash gain on forgiveness of PPP loan		(2,515	)		—
Other		—			63
Changes in operating assets and liabilities:
Accounts receivable		80			(109	)
Inventory		1,575			852
Prepaid expenses and other current assets		(809	)		219
Other long-term assets		(3,358	)		4
Accounts payable		825			(420	)
Accrued expenses		347			245
Accrued settlement liability		—			2,500
Other current liabilities		5			(251	)
Other long-term liabilities		(433	)		(418	)
Net cash used in operating activities		(30,124	)		(21,815	)
Cash flows from investing activities
Proceeds from sale of property and equipment		—			226
Purchase of property and equipment		(47	)		—
Net cash provided by (used in) investing activities		(47	)		226
Cash flows from financing activities
Proceeds from issuance of convertible notes		37,225			415
Proceeds from issuance of convertible notes to related parties		11,475			15,700
Payments for issuance costs of convertible notes		(95	)		(365	)
Proceeds from PPP loan		—			2,515
Proceeds from exercises of stock options		74			34
Net cash provided by financing activities		48,679			18,299
Effect of exchange rate changes on cash, cash equivalents and restricted cash		—			12
Net increase (decrease) in cash, cash equivalents and restricted cash		18,508			(3,278	)
Cash, cash equivalents and restricted cash at beginning of period		7,668			10,946
Cash, cash equivalents and restricted cash at end of period	$	26,176		$	7,668
Supplemental disclosures of cash flow information:
Cash paid during the year for interest	$	334		$	452
Supplemental schedule of noncash investing and financing activities
Issuance of common stock warrants	$	21,971		$	7,212
Fair value of debt derivative liabilities related to issuance of convertible notes	$	26,189		$	5,231

The accompanying notes are an integral part of these consolidated financial statements.

8

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(1) Organization

(a) Description of Business

Quanergy Systems, Inc. (the “Company”) designs, develops and produces Light Detection and Ranging (“LiDAR”) sensors and is a leader in 3D sensing that delivers robust and intelligent real-time 3D object detection and classification solutions. Currently, the Company’s applications and products are targeted towards five key market groups: 1) the Security market where the Company builds applications leveraging the mechanical M Series LiDAR combined with proprietary software for perimeter security and intrusion detection applications; 2) the Smart Cities / Spaces market, where the Company’s flow management tools are used in cities and municipalities to improve the movement and safety of their citizens in dense urban settings; 3) the Mapping market, where customers are currently utilizing the M8 mechanical LiDAR for terrestrial and aerial mapping; 4) the Industrial market, where the Company is launching its solid state and mechanical LiDAR solutions for material handling, logistics, and measurement; and 5) the Transportation market which consists of passenger vehicles as well as heavy vehicles and off highway applications such as agricultural and mining equipment, where the Company is primarily looking to service this market through its solid state S Series LiDAR for use in Advanced Driver Assist Systems as well as in highly automated vehicle applications.

The Company was founded in 2012 and is currently headquartered in Sunnyvale, California, with subsidiaries in Canada, the United Kingdom, Germany, United Arab Emirates, China, Hong Kong and Japan.

(b) Liquidity

As of December 31, 2021, the Company had $26.1 million of cash and cash equivalents. The Company has historically generated recurring net losses and negative cash flows from operations, however, the Company has raised capital, as discussed in “Note 20 – Subsequent Events”, by consummating its merger with a subsidiary of CITIC Capital Acquisition Corp. (“CCAC”). CCAC was a publicly traded special purpose acquisition company. Upon consummation of the Merger, the Company’s convertible promissory notes outstanding as of December 31, 2021, with an original maturity date of March 15, 2022, were repaid in full including principal and accrued interest. The Company’s convertible promissory notes due to mature in 2023 were converted into shares of common stock

(c) Going Concern

The Company has prepared its consolidated financial statements assuming that the Company will continue as a going concern. As of December 31, 2021, the Company had $26.1 million of cash and cash equivalents. Further, as discussed in “Note 20 – Subsequent Events”, the Company completed its business combination transaction on February 8, 2022, and effectively settled its outstanding debt balance of $106 million, thereby providing the Company with additional future financial flexibility. The transaction also gives the Company access to $125 million from a previously announced share subscription facility from Global Emerging Markets Group (“GEM”), a Luxembourg-based private alternative investment group, once the effectiveness of the resale S-1 Registration Statement is completed, which is expected to occur in the second quarter of FY 2022. As registration effectiveness is not entirely in the Company’s control, should the Company not be able to access the GEM facility, it would be forced to seek other forms of financing which may not be available in sufficient amounts to fund its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern, for a period of twelve months following the date of issuance of financial statements for the year ending December 31, 2021. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(d) Basis of Presentation

The consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

(e) Business Combination

On June 21, 2021, the Company entered into an agreement and plan of merger, as amended on June 28, 2021 and further amended on November 14, 2021 and December 26, 2021 (the “Merger Agreement”), with CCAC and CITIC Capital Merger Sub Inc., a Delaware corporation and direct wholly owned subsidiary of CCAC (“Merger Sub”). On February 8, 2022, pursuant to the terms of the Merger Agreement, Merger Sub merged with and into the Company, the separate corporate existence of Merger Sub ceased, and the Company became the surviving corporation and a wholly owned subsidiary of CCAC (the “Merger”). The Business Combination is more fully discussed in “Note 20 – Subsequent Events”.

(f) Impact of Covid-19

Since early 2020, changes in consumers’ behavior and government-imposed restrictions because of the Covid-19 pandemic have impacted businesses in various ways. The extent of the impact of the COVID-19 pandemic over the longer term remain uncertain and will depend largely on future developments that cannot be accurately predicted at this time, including the duration and the spread of the pandemic both globally and within the United States, the introduction and severity of new variants of the virus and their resistance to currently approved vaccines, as well as the potential negative impact these and other factors may have on our business.

With respect to our results, sales for the years ended December 31, 2021 and 2020 were heavily impacted by Covid-19 primarily due to the delay of projects and slowing overall business activity, as well as, in certain cases, the inability to physically access customer sites. Despite these setbacks, we reacted quickly to help offset the negative cash flow impacts of these factors with key elements of our cash preservation plan in 2020 including furloughing nearly 50% of our employees, negotiating extended payment terms with vendors, cutting wages across the entire workforce and reducing overall external contractor spending. We also benefited from a $2.5 million Paycheck Protection Program (“PPP”) loan from the Small Business Administration.

While business conditions improved sequentially each quarter in 2021, broader implications of the COVID-19 pandemic were present throughout the year on our workforce, operations, supply chain and customer demand. Turning to 2022, significant uncertainties remain relating to disruptions from COVID-19, broad based supply chain shortages, and geopolitical risks related to the events unfolding in the Ukraine.

9

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(2) Summary of Significant Accounting Policies

(a) Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, as well as related disclosure of contingent assets and liabilities. Estimates are used for the fair value of common stock and convertible preferred stock, embedded derivative valuation, stock-based awards and other issuances, revenue recognition, useful lives of long-lived assets, warranty reserves, allowance for doubtful accounts, net realizable value of inventory, contingencies, valuation allowance for deferred tax assets and uncertain tax positions. Actual results could differ materially from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be affected. The Company bases its estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

(b) Significant Risks and Uncertainties

The Company is subject to those risks common in the technology industry and also those risks common to early stage companies including, but not limited to, the possibility of not being able to successfully develop or market its products as forecasted, technological obsolescence, competition, dependence on key personnel and key external alliances, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.

(c) Concentration of Risks

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash and accounts receivable. The Company’s cash and cash equivalents and restricted cash are on deposit with major financial institutions. Such deposits may be in excess of insured limits. The Company believes that the financial institutions that hold the Company’s cash are financially sound, and accordingly, minimum credit risk exists with respect to these balances. The Company has not experienced any losses due to institutional failure or bankruptcy. The Company performs credit evaluations of its customers and generally does not require collateral for sales on credit. The Company reviews accounts receivable balances to determine if any receivables will potentially be uncollectible and includes any amounts that are determined to be uncollectible in the allowance for doubtful accounts. As of December 31, 2021, there were two customers who had outstanding balances accounting for 26% and 21% of the total accounts receivable balance, respectively. As of December 31, 2020, there were three customers who had outstanding balances accounting for 16%, 16% and 10% of the total accounts receivable balance, respectively.

Concentration of customers

For the year ended December 31, 2021, two customers represented 10% or more of net sales. For the year ended December 31, 2020, no customer represented 10% or more of net sales.

10

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

Concentration of suppliers

For the year ended December 31, 2021, two suppliers represented 52% and 10% of the Company’s inventory purchases, accounting for $0.6 million and $0.2 million in purchases, respectively. For the year ended December 31, 2020, two suppliers represented 63% and 11% of the Company’s inventory purchases, accounting for $0.8 million and $0.1 million in purchases, respectively.

(d) Foreign Currency

The functional currencies of the Company’s subsidiaries, which are located in Canada, the United Kingdom, Germany, United Arab Emirates, China, Hong Kong, and Japan, are their local currencies. Assets and liabilities are translated into U.S. dollars at end-of-period exchange rates. Revenue and expense transactions are translated at average exchange rates in effect during each reporting period. The effects of foreign currency translations are recorded as a component of other comprehensive loss and the Company recognized $0 and $12 thousand in other comprehensive income for the years ended December 31, 2021 and 2020, respectively.

(e) Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid securities that mature within three months or less from the original date of purchase to be cash equivalents. The Company maintains the majority of its cash balances with commercial banks in interest bearing accounts. Cash and cash equivalents include cash held in checking and savings accounts and highly liquid securities with original maturity dates of three months or less from the original date of purchase.

The restricted cash balance as of December 31, 2021 and 2020 represents $70 thousand related to collateral to offset certain short-term, unsecured lending commitments associated with the Company’s corporate credit card program.

(f) Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, the current receivables aging and customer payment patterns. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2021, and 2020, the Company provided for an allowance for doubtful accounts totaling $224 thousand. The Company does not have any off-balance sheet credit exposure related to its customers.

(g) Inventory

Inventory consists of raw materials, work-in-progress and finished goods representing the sensors and related components that the Company produces. Costs are computed under the standard cost method, which approximates actual costs determined on a first-in, first-out basis, and include freight and overhead expenses incurred to bring the inventory to its location and condition. The Company identifies inventory which is considered obsolete or in excess of anticipated demand based on a consideration of marketability and product life cycle stage, product development plans, component cost trends, demand forecasts, historical net sales, and assumptions about future demand and market conditions to state inventory at the lower of cost or net realizable value.

11

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(h) Revenue Recognition

Revenue is recognized when a customer obtains control of promised products and services and the Company has satisfied its performance obligations. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for the products and services. To achieve this core principle, the Company applies the following five steps:

Step 1. Identification of the contract(s) with a customer;

Step 2. Identification of the performance obligations in the contracts(s);

Step 3. Determination of the transaction price;

Step 4. Allocation of the transaction price to the performance obligations;

Step 5. Recognition of the revenue when, or as, the Company satisfies a performance obligation.

Nature of goods and services

The Company determines it has a contract with a customer when (i) it is enforceable and defines each party’s rights regarding the products and services to be transferred and identifies the payment terms related to the products and services, (ii) it has commercial substance and, (iii) collection of substantially all consideration for products and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

The Company primarily enters into standard supply arrangements. Standard supply arrangements include the customer option to purchase LiDAR sensors, accessories, Quanergy Processing Units, servers, Qortex software, post-contract support services (“PCS”) and extended warranties either on a standalone basis or in a bundled arrangement over specified periods. The Qortex software is offered either as a perpetual or term-based license.

To the extent a contract includes multiple promised products and services, the Company must apply judgment to determine whether promised products and services are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised products and services are accounted for as a combined performance obligation. The Company has determined that all of its promises are distinct, with the exception of certain software, training, certification, and professional services which are considered immaterial in the context of customer contracts and for which the Company has elected the practical expedient for immaterial goods and services.

Hardware

Based on the Company’s general terms of sale, legal title and physical possession of the Company’s hardware products, which include LiDAR sensors, accessories, Quanergy Processing Units, and servers, are transferred to the customer at shipment. Revenue on hardware is recognized at a point in time once the contractual shipping terms have been met and control is transferred.

Software

The Company primarily sells Qortex software licenses. Qortex software license arrangements provide a term-based or perpetual license bundled with related PCS. License revenue is primarily derived from the software that is embedded with the hardware or is deployed on the customers’ own servers. Licenses were determined to have significant standalone functionality and revenue is recognized upon transfer of control to the customer. The control for software is transferred at the later of delivery to the customer or the software license start date, however, there is ultimately minimal difference as the license keys are typically activated shortly after sale.

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QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

The term-based license arrangements generally have terms ranging from one to two years and are invoiced to customers in advance upon execution of the contract. Amounts that have been invoiced are recorded in accounts receivable and in either deferred revenue or revenue in the accompanying consolidated financial statements, depending on whether the underlying performance obligation has been satisfied.

Post-contract support services

Typically, the Company provides PCS, including unspecified updates, upgrades, and minor bug-fixes, for the term of a contract, which ranges from 12 to 24 months. PCS meets the criteria for over-time revenue recognition as the customer simultaneously receives and consumes the benefit of the services as the Company performs. As such, revenue is recognized ratably over the life of the agreement.

Extended warranties

The Company typically provides a two-year standard limited warranty on its hardware offerings that covers manufacturing defects in material or workmanship.

In certain contracts, the Company provides the customer the option to purchase extended warranties, in addition to the warranty provided as part of the Company’s customary business practice. The extended warranty is a separate performance obligation and meets the criteria for over-time revenue recognition as the customer simultaneously receives and consumes the benefit of the services as the Company performs. Similar to PCS, the extended warranty is representative of a stand-ready obligation, provided on a when-and-as needed basis, which does not follow a specific pattern of delivery. This performance obligation is satisfied over-time and hence, revenue is recognized ratably over the extended warranty term.

Contracts with multiple performance obligations

For contracts which contain multiple performance obligations, the Company allocates revenue to each distinct performance obligation based on the standalone selling price (“SSP”). As prices vary from customer to customer based on customer relationship, volume discount, and contract type, the Company has determined that the estimated sales price of its product is not directly observable. Accordingly, the Company estimates SSP using the expected cost plus a margin approach. The Company considers all reasonably available information in making these estimate including forecasted costs of developing and supplying each performance obligation, historical margins for products previously sold and adjustments for factors, such as current business priorities, class of customer, and market conditions.

Disaggregation of revenues

The Company disaggregates its revenue from contracts with customers by timing of transfer of goods or services to customers (point in time or over-time) and geographic region based on the customer’s location, as it believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

Total revenue based on the disaggregation criteria described above is as follows (in thousands):

	Year ended December 31,
	2021		2020
Point in time	$	3,859	$	2,747
Over-time		69		268
Total net sales	$	3,928	$	3,015

Revenue by geographic region can be found in “Note 16 – Segment Reporting and Geographic Information.”

13

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

Shipping and handling costs and certain taxes

Taxes collected from customers and remitted to governmental authorities are not included in net sales. Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and are included in both net sales (for amounts invoiced to customers) and cost of goods sold in the accompanying consolidated statements of operations.

Deferred revenue

Revenue is deferred when the Company has the right to invoice in advance of services being provided. The upfront payment pattern relative to the delivery of software licenses and its related support and maintenance and associated revenue recognition generates deferred revenue. Current and non-current portion of deferred revenue is recorded in other current liabilities and other long-term liabilities respectively, in the accompanying consolidated balance sheets.

The deferred revenue balance, as shown below, excludes customer deposits of $1.0 million and $1.1 million as of December 31, 2021 and 2020, respectively, primarily related to products and services which were billed in advance. Standard payment terms to customers range from 30 to 60 days; however, payment terms and conditions in the Company’s customer contracts may vary. In most cases, customers prepay for services in advance of delivery of the related services.

The following provides information about deferred revenue from contracts with customers as of December 31, 2021, 2020 and 2019 (in thousands):

	As of December 31,
	2021		2020		2019
Deferred revenue, current	$	72	$	67	$	226
Deferred revenue, non-current		4		3		—
Total deferred revenue	$	76	$	70	$	226

Transaction price allocated to remaining performance obligations

As of December 31, 2021 and 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was immaterial.

Contract assets

Under Topic 606, contract assets include amounts related to the contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced. The contract assets are transferred to receivables when the rights become unconditional. Contract assets are expected to be included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. There were no contract assets as of December 31, 2021 and 2020.

Deferred commission costs

The Company applies the practical expedient to expense contract related costs as incurred if the expected benefit period is one year or less. This applies to all the sales commissions paid as the majority of the Company’s contracts have a benefit period of not more than one year.

Deferred transaction costs

The Company capitalizes certain advisory, legal, accounting, and other professional fees that are directly associated with the Merger Agreement (per Note 1). After the consummation of the business combination, the acquisition-related transaction costs are accounted for as equity issuance costs. As of December 31, 2021 and 2020, the Company had $3.4 million and $0, respectively, of deferred transaction costs included in other long-term assets on the consolidated balance sheets.

14

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(i) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the current period. Repair and maintenance costs are expensed as incurred. Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives of the assets:

	Useful Lives
Machinery and equipment	5-10 years
Furniture and fixtures	5-7 years
Computer equipment	3-5 years
Computer software	3 years
Leasehold improvements	Lesser of the useful life or the remaining term of the lease

(j) Cost of Goods Sold

Cost of goods sold includes actual cost of material, labor and manufacturing overhead incurred for revenue-producing units shipped, and includes associated warranty costs, and other costs.

(k) Research and Development

Research and development costs are expensed as incurred and consist primarily of personnel and related costs for product development activities. Research and development costs also includes professional fees payable to third-parties, license and subscription fees for development tools and pre-production product related costs, and manufacturing-related costs associated with product development.

(l) Collaborative Arrangements

The Company has entered into multiple collaborative arrangements that provide the Company with varying rights to develop products together with its collaborative partners. Cost reimbursements paid to the collaborative partners are recognized as incurred and included in research and development expense in the accompanying consolidated statements of operations. Terms of the collaboration agreements may require the Company to make payments based upon the achievement of certain milestones. Upfront and milestone payments payable by the Company to collaborative partners are recorded as prepaid expenses and other current assets in the accompanying consolidated balance sheets and are recognized as a research and development expenses as the services are performed. During the years ended December 31, 2021 and 2020 the Company was working under collaborative arrangements with three separate suppliers. Amounts related to the collaborative arrangements are classified in the accompanying consolidated statements of operations as research and development expense in the amounts of $0.2 million and $0.8 million for the years ended December 31, 2021 and 2020, respectively.

(m) Advertising and Promotional Expenses

Advertising and promotional costs are expensed as incurred and included in sales and marketing expense in the accompanying consolidated statements of operations. Advertising costs totaled $0.7 million and $0.5 million for the years ended December 31, 2021 and 2020, respectively.

(n) Income Taxes

Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered

15

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in tax expense.

(o) Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, and quoted market values, as considered necessary.

There were no impairment charges for the years ended December 31, 2021 and 2020.

(p) Stock-Based Compensation

The Company recognizes stock-based compensation expense over the requisite service period on a straight-line basis for all share-based payments that are expected to vest to employees, non-employees, and directors, including grants of employee stock options and other share-based awards. Equity-classified awards issued to employees, non-employees and directors are measured at the grant-date fair value of the award. Forfeitures are recognized as they occur. For accounting purposes, the Company estimates grant-date fair value of stock options using the Black-Scholes-Merton (“BSM”) option-pricing model. The BSM option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the risk-free interest rates, the expected term of the option, the expected volatility of the price of the Company’s common stock and the expected dividend yield of the Company’s common stock.

(q) Fair Value Measurement

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market.

When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

• Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

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QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

• Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The following table sets forth the Company’s financial assets and liabilities that were measured at fair value, on a recurring basis (in thousands):

	December 31, 2021
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents:
Money market funds	$	26,031	$	—	$	—	$	26,031
Total assets	$	26,031	$	—	$	—	$	26,031
Financial Liabilities
Debt derivative liabilities	$	—	$	—	$	26,189	$	26,189
Total liabilities	$	—	$	—	$	26,189	$	26,189
	December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents:
Money market funds	$	7,515	$	—	$	—	$	7,515
Total assets	$	7,515	$	—	$	—	$	7,515
Financial Liabilities
Debt derivative liability	$	—	$	—	$	5,021	$	5,021
Total liabilities	$	—	$	—	$	5,021	$	5,021

The fair value of accounts receivable, accounts payable, and accrued expenses approximated their carrying values as of December 31, 2021 and 2020, due to their short-term nature. The Company records long-term debt and long-term debt due to related parties on an amortized cost basis.

The fair value of the Convertible Notes was $99.0 million as of December 31, 2021. The carrying value of the Convertible Notes of $105.8 million, net of $38.6 million of unamortized debt discount and issuance costs, was recorded as long-term debt totaling $16.2 million, long-term debt - related party totaling $16.7 million, and short-term debt totaling $34.3 million as of December 31, 2021.

The fair value of the Convertible Notes was $45.1 million as of December 31, 2020. The carrying value of the Convertible Notes of $51.3 million, net of $11.9 million of unamortized debt discount and issuance costs, was recorded as long-term debt totaling $33.4 million and long-term debt - related party totaling $6.0 million as of December 31, 2020.

Level 3 instruments consist solely of the Company’s embedded derivative in the Company’s notes payable. The Company classifies its financial instruments within Level 3 of the fair value hierarchy due to lack of market data. See “Note 13 – Borrowing Arrangements” for details on the valuation of the embedded derivative in the convertible notes.

There were no transfers between Level 1, Level 2 or Level 3 fair value hierarchy categories of financial instruments for the years ended December 31, 2021 and 2020.

(r) Net Loss Per Share of Common Stock

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company considers all series of its convertible preferred stock to be participating securities. Net loss is attributed to common stockholders

17

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

and participating securities based on their participation rights. Net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of the convertible preferred stock do not have a contractual obligation to share in any losses.

Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of convertible preferred stock, stock options, restricted stock units, and convertible notes. As the Company has reported losses for all periods presented, all potentially dilutive securities including convertible preferred stock, stock options, restricted stock units, common stock warrants and convertible notes, are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

(s) Derivative Liabilities

The Company evaluates the embedded conversion features within its convertible debt instruments under ASC 815-15 and ASC 815-40 to determine if the conversion feature meets the definition of a liability and, if so, whether to bifurcate the conversion feature and account for it as a separate derivative liability. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument could be required within twelve months after the balance sheet date. The derivative is subject to re-measurement at the end of each reporting period, with changes in fair value recognized as a component of other income (expense), net, in the consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the conversion or maturity of the debt instruments.

(t) Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles — Goodwill and Other — Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The intent of this pronouncement is to align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software as defined in ASC 350-40. Under ASU 2018-15, the capitalized implementation costs related to a cloud computing arrangement will be amortized over the term of the arrangement and all capitalized implementation amounts will be required to be presented in the same line items of the consolidated financial statements as the related hosting fees. The Company adopted the standard beginning January 1, 2021 on a prospective basis and this did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for public entities for interim and annual periods beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 will be effective for private entities for annual periods beginning after December 15, 2021, and interim periods beginning after December 15, 2020, with early adoption

18

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

permitted. The Company is eligible to adopt ASU 2019-12 under the private company transition guidance beginning January 1, 2022, but the Company early adopted this ASU effective January 1, 2021. The adoption of this ASU did not have a material impact on the consolidated financial statements and related disclosures.

(u) Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require, among other items, a lessee to recognize in the consolidated balance sheet a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. The Company adopted this new guidance on January 1, 2022, using the modified retrospective approach.

The adoption of Topic 842 resulted in recognition of operating lease right-of-use assets and operating lease obligations that are not expected to have a material impact on our balance sheet, results of operations and cash flows. The Company’s operating leases primarily comprise of office facilities, with the most significant leases relating to corporate headquarters in Sunnyvale, CA.

In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for public and private companies’ fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and December 15, 2022, respectively. The Company expects to adopt ASU 2016-13 under the private company transition guidance beginning January 1, 2023. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for public and private companies’ fiscal years beginning after December 15, 2021, and December 15, 2023, respectively, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the timing of adoption and the impact on the consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an interim period. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements and related disclosures.

19

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(3) Inventory

Inventory consists of the following (in thousands):

	As of December 31,
	2021		2020
Raw materials	$	2,292	$	2,993
Work in progress		578		647
Finished goods		372		1,177
Total inventory	$	3,242	$	4,817

(4) Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

	As of December 31,
	2021			2020
Machinery and equipment	$	5,568		$	5,555
Furniture and fixtures		182			182
Computer equipment		1,008			973
Computer software		35			36
Leasehold improvements		349			349
Total property and equipment		7,142			7,095
Less accumulated depreciation and amortization		(5,234	)		(4,286	)
Total property and equipment, net	$	1,908		$	2,809

Depreciation and amortization expense totaled $0.9 million and $1.2 million for the years ended December 31, 2021 and 2020, respectively.

(5) Accrued Expenses

Accrued expenses consist of the following (in thousands):

	As of December 31,
	2021		2020
Accrued payroll	$	1,520	$	1,325
Accrued expenses		696		577
Warranty reserve		181		181
Other accrued expenses		38		5
Total accrued expenses	$	2,435	$	2,088

(6) Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	As of December 31,
	2021		2020
Deferred revenue	$	72	$	67
Customer deposits		200		200
Restructuring liability		293		293
Embedded derivative liability		172		—
Total other current liabilities	$	737	$	560

20

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(7) Other Long-term Liabilities

The other long-term liabilities consist of the following (in thousands):

	As of December 31,
	2021		2020
Customer deposits	$	750	$	850
Restructuring liability		49		342
Other long-term liabilities		4		44
Total other long-term liabilities	$	803	$	1,236

(8) Employee Benefit Plan

The Company sponsors a 401(k) defined contribution plan (“401(k) Plan”) for its eligible employees. This 401(k) Plan provides for tax-deferred salary deductions for all eligible employees. Employee contributions are voluntary. Employees may contribute the maximum amount allowed by law, as limited by the annual maximum amount as determined by the Internal Revenue Service. The Company may match employee contributions in amounts to be determined at the Company’s sole discretion. The Company made no contributions to the 401(k) Plan for the years ended December 31, 2021 and 2020.

(9) Restructuring Costs

For the year ended December 31, 2019, the Company entered into a restructuring plan to consolidate some of its facilities, dispose of certain property and equipment and terminate certain employees. As part of the restructuring plan, the Company entered into a Lease Termination Agreement to early terminate an existing facility lease. As part of the Lease Termination Agreement, the Company ceased use of the facility and vacated the premises in November 2019. Future payments under the Lease Termination Agreement are detailed in “Note 15 – Commitments and Contingencies.”

The Company did not incur any restructuring costs for the years ended December 31, 2021 and 2020.

The following table summarizes the activity related to the restructuring costs liability account for the years ended December 31, 2021 and 2020 (in thousands):

	Year ended December 31,
	2021			2020
Balance at January 1	$	635		$	1,047
Cash payments		(293	)		(412	)
Balance at December 31	$	342		$	635

(10) Other Income (Expense), Net

Other income (expense), net consists of the following (in thousands):

	Year ended December 31,
	2021			2020
Loss on issuance of convertible notes	$	—		$	(26	)
Gain on forgiveness of PPP loan		2,515			—
Remeasurement of fair value for debt derivative liability		(3,628	)		1,402
Other		40			44
Total other income (expense), net	$	(1,073	)	$	1,420

21

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(11) Common Stock

As of December 31, 2021, the Company has authorized the issuance of 20,637,620 shares of common stock.

The Company has reserved shares of common stock for issuance related to the following convertible preferred stock, stock options, warrants, restricted stock units (“RSUs”) and future grants:

	As of December 31,
	2021		2020
Series Seed convertible preferred stock		2,231,248		2,231,248
Series Seed-2 convertible preferred stock		495,417		495,417
Series A convertible preferred stock		3,233,871		3,233,871
Series A+ convertible preferred stock		790,500		790,500
Series B convertible preferred stock		778,839		778,839
Series C convertible preferred stock		165,237		165,237
Common stock warrants		3,156,705		911,421
Stock options and RSUs, issued and outstanding		3,932,325		2,620,688
Common stock authorized for future issuance		-127		225,298
		14,784,015		11,452,519

The authorized share limit is increased by the Company whenever the number of common shares authorized is not sufficient to cover what has been issued and granted. An increase to total authorized shares of common stock is detailed in “Note 20 – Subsequent Events”.

Common Stock Warrants

As of December 31, 2021, the Company had the following common stock warrants outstanding to purchase shares of the Company’s common stock (in thousands, except for share and per share amounts):

Date of issue	Shares		Exercise Price		Fair Value at Issuance, Net		Expiration
February 2021		1,623,303		0.01	$	21,971		March 24, 2025
March, August, and October 2020		909,097		0.01		7,211		March 24, 2025
		2,532,400			$	29,182

In November 2019, the Company issued warrants to purchase 2,324 shares of the Company’s common stock with an exercise price of $0.01 per share in connection with early termination of a lease facility. These warrants were exercised in September 2021.

During fiscal year 2020, the Company issued warrants to purchase 909,097 shares of the Company’s common stock with an exercise price of $0.01 per share in conjunction with the issuance of $16.1 million convertible promissory notes (the “2023 Initial Notes”). These warrants expire in March 2025.

The common stock warrants are valued using the Black-Scholes model at $16.28 at issuance. The Company allocated the proceeds from the issuance of the 2023 Initial Notes between the convertible notes and the common stock warrants on a relative fair value basis. The Company allocated approximately $7.2 million to the common stock warrants, included within additional paid-in capital on the consolidated balance sheets. The warrants are not remeasured in future periods as they meet the conditions for equity classification. See “Note 13 – Borrowing Arrangements” for additional details on the 2023 Initial Notes.

In February 2021, the Company issued warrants to purchase 1,623,303 shares of common stock in conjunction with the issuance of $48.7 million in convertible promissory notes (the “Extension Notes”). These Extension Notes have similar terms to the 2023 Initial Notes (the “2023 Initial Notes”, together with the “Extension Notes”, referred to as the “2023 Notes”).

22

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

These warrants are exercisable for shares of common stock at $0.01 per share and expire in March 2025. The common stock warrants are valued using the Black-Scholes model at $25.26 at issuance. The Company allocated the proceeds from the issuance of the Extension Notes between the convertible notes and the common stock warrants on a relative fair value basis. The Company allocated approximately $22.0 million to the common stock warrants, included within additional paid-in capital on the consolidated balance sheets. The warrants are not remeasured in future periods as they meet the conditions for equity classification. See “Note 13 – Borrowing Arrangements” for additional details on the Extension Notes.

In June 2021, the Company issued warrants to purchase 624,305 shares of common stock of the Company, subject to adjustment, in conjunction with the Sensata Collaboration Agreement. These warrants are exercisable for shares of common stock at $0.01 per share and expire in June 2026. These warrants become exercisable into shares of the new Company after the Close of the Merger Agreement. Refer to “Note 1. (c) Business Combination” and “Note 19 – Related Party Transactions” for additional details.

The following assumptions were used to calculate the fair value of the common stock warrants issued:

Expected term	3.0 years
Expected volatility	42.9%
Risk-free interest rate	0.18%-0.41%
Expected dividends	0.0%

(12) Convertible Preferred Stock

As of December 31, 2021 and 2020, the Company’s convertible preferred stock consisted of the following (in thousands, except share data):

	As of December 31, 2021 and December 31, 2020
	Authorized shares		Shares issued and outstanding		Proceeds, net of issuance costs		Aggregate liquidation preference
Shares designated as:
Series Seed convertible preferred stock		2,231,248		2,231,248	$	3,421	$	3,500
Series Seed-2 convertible preferred stock		495,417		495,417		965		1,000
Series A convertible preferred stock		3,233,871		3,233,871		29,921		30,000
Series A+ convertible preferred stock		790,500		790,500		9,883		10,000
Series B convertible preferred stock		778,839		778,839		89,470		89,896
Series C convertible preferred stock		165,237		165,237		16,260		23,648
		7,695,112		7,695,112	$	149,920	$	158,044

A complete description of the rights, preferences, privileges and restrictions of the convertible preferred stock are in the amended and restated articles of incorporation. Significant rights and preferences of the outstanding convertible preferred stock are as follows:

Conversion – All of the convertible preferred stock instruments are convertible at the option of the holder at any time, or immediately upon the closing of a firm commitment underwritten public offering in which the gross cash proceeds to the Company are at least $50 million with a per share price in excess of the Series C original issue price. Given that the conversion price is currently fixed, the Company would issue a fixed number of shares of common stock to settle the convertible preferred stock, unless a down round of common stock is issued, in which case the conversion price would be adjusted to maintain the value of preferred stock converted to common stock. The conversion price for each outstanding share of Series Seed, Series Seed-2, Series A, Series A+, Series B and Series C convertible preferred stock is $1.57, $2.02, $9.28, $12.65, $115.42 and $143.12, respectively.

23

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

Redemption – The convertible preferred stock does not contain any mandatory redemption features, however, they may be redeemed upon an event that is not solely within the control of the Company. As such, the convertible preferred stock is classified as temporary equity (mezzanine equity) in the accompanying consolidated financial statements.

Dividends – Holders of the convertible preferred stock are entitled to receive noncumulative cash dividends in preference to any dividend on the common stock, at the rate of 8% per annum of the original issue price, when and as declared by the Board of Directors. To date, no dividends have been declared.

Liquidation Preference – Upon a liquidation event, the Company’s assets will be distributed to holders of convertible preferred stock, in preference to the holders of common stock, in the following order: (i) first, to the holders of Series C convertible preferred stock at a per share amount equal to the greater of (y) the original issue price plus any declared but unpaid dividends, or (z) the amount such holders would have received had they converted their convertible preferred stock into common stock immediately prior to such event, (ii) then, to holders of Series B convertible preferred stock at a per share amount equal to the greater of (y) the original issue price plus any declared but unpaid dividends, or (z) the amount such holders would have received had they converted their convertible preferred stock into common stock immediately prior to such event, and (iii) then, on a pari passu basis, among the holders of Series A convertible preferred stock, Series A+ convertible preferred stock, Series Seed convertible preferred stock and Series Seed-2 convertible preferred stock at a per share amount equal to the greater of (y) the applicable original issue price plus any declared but unpaid dividends, or (z) the amount such holders would have received had they converted their convertible preferred stock into common stock immediately prior to such event. Any remaining assets shall be distributed among the holders of common stock pro rata, based on the number of shares of common stock held by each.

Voting – Each share of convertible preferred stock is entitled to one vote for each share of common stock into which such share of convertible preferred stock is convertible.

(13) Borrowing Arrangements

Convertible Notes

2022 Notes

The Company issued convertible promissory notes of $24.8 million in March 2018 and $0.7 million in June 2018 (the “2022 Notes”) to various investors. The 2022 Notes are secured by a security agreement and mature in March 2022, unless earlier converted at the option of the investors.

The principal amount shall accrue interest at 1.5% per annum, payable biannually, and additional interest at 8.0% per annum, which will be added to the principal and compounded on each payment date. Prior to maturity, the investors may elect to convert all or a portion of the outstanding principal and accrued and unpaid interest on the 2022 Notes to equity based on various conversion events.

The 2022 Notes contain an embedded derivative representing the debt conversion features and the fair value of the derivative which was recorded as a liability with an offsetting amount recorded as a debt discount against the carrying value of the 2022 Notes. The debt discount is amortized to interest expense over the term of the 2022 Notes, using the effective interest rate method. The derivative liability is re-valued at the end of each reporting period using a probability-weighted discounted cash flow model. The model used in valuing this derivative liability requires the use of significant estimates and assumptions including but not limited to: 1) expected cash flows the Company expects to go to the noteholders; 2) the Company’s risk adjusted discount rates; and 3) the probability of a change in control occurring during the term of the 2022 Note, and when it would occur. Changes in the estimated fair value of the derivative liability are recorded in other income (expense), net, on the accompanying consolidated statements of operations.

24

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

As of December 31, 2021 and 2020, the fair value of the derivative liability was $0.2 million and $0.5 million and is recorded in other current liabilities and derivative liability on the consolidated balance sheets, respectively.

The estimated fair value of the embedded derivative is as follows (in thousands):

	Embedded derivative liability
Fair value as of December 31, 2019	$	1,192
Change in fair value		(643	)
Fair value as of December 31, 2020		549
Change in fair value		(377	)
Fair value as of December 31, 2021	$	172

The Company incurred approximately $0.9 million of fees related to issuance of the 2022 Notes in the form of advisor fees, legal fees and other related expenses. These costs were recorded as debt discount and are being amortized to interest expense over the term of the 2022 Notes, using the effective interest rate method.

The following table represents the total amount of interest expense recognized in interest expense, net on the consolidated statements of operations (in thousands):

	Year ended December 31,
	2021		2020
Contractual interest expense	$	3,074	$	2,850
Amortization of debt discount		560		519
Amortization of debt issuance costs		233		233
	$	3,867	$	3,602

2023 Notes

In 2020, the Company issued convertible promissory notes of approximately $8.1 million in March 2020, $7.5 million in August 2020 and $0.5 million in October 2020 to various investors, which mature in March 2023 (the “2023 Initial Notes”). In conjunction with the 2023 Initial Notes, the Company issued 909,097 common stock warrants. The Company issued additional convertible promissory notes of approximately $48.7 million in February 2021 to various investors, which also mature in March 2023 (the “Extension Notes”). In conjunction with the Extension Notes, the Company issued 1,623,303 common stock warrants. See “Note 11 – Common Stock” for additional details.

The principal amount of the outstanding balance on the 2023 Initial Notes and the Extension Notes (together, the “2023 Notes”) shall accrue interest at 10.0% per annum, payable at maturity in March 2023. Prior to maturity, the 2023 Notes may be redeemed for an amount equal to 200% of the principal amount of the outstanding balance and the unpaid accrued interest in the event of a change in control, or converted, either voluntarily at the option of the investor or automatically to equity based on various conversion events.

In accounting for the issuance of the 2023 Notes, the Company separated the 2023 Notes into liability and equity components, consisting of embedded derivatives representing the redemption and conversion features, and common stock warrants, respectively. The fair value of the derivatives were calculated using the “with and without” method. The key valuation assumptions used consist of the discount rate and the

25

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

probability of the occurrence of various conversion events. The fair value of the liability and equity components exceeded the 2023 Initial Notes gross proceeds therefore, the fair value of the components were allocated on a relative fair value basis. At issuance of the 2023 Initial Notes, the derivative liability and common stock warrants received relative fair value allocations of $5.2 million and $7.2 million, respectively, with the offset to debt discount, and the remaining immaterial balance was recorded as a loss in other income (expense), net on the consolidated statements of operations. At issuance of the Extension Notes, the fair value of the liability and equity components were $17.5 million and $22.0 million respectively.

The derivative liabilities are re-valued at the end of each reporting period. Changes in the estimated fair value of the derivatives are recorded in other income (expense), net, on the accompanying consolidated statements of operations. As of December 31, 2021, the fair value of the derivative liability related to the 2023 Notes was $26.0 million, recorded in derivative liability on the consolidated balance sheet.

The equity component is included in additional paid-in capital on the consolidated balance sheet. The equity component is not remeasured.

The 2023 Notes issuance costs were approximately $0.4 million, consisting of advisor fees, legal fees and other related expenses. The Company allocated the total amount incurred to the liability and equity components on a relative fair value basis, resulting in $0.3 million allocated to the liability component and recorded as debt discount and approximately $0.1 million to the equity component. The residual amount was immaterial and was allocated to loss on issuance of the 2023 Notes.

For the year ended December 31, 2021, the Company recorded $4.0 million in other income (expense), net, to reflect the change in the fair value of the derivative liabilities.

The estimated fair value of the embedded derivative is as follows (in thousands):

	Embedded derivative liability
Fair value as of December 31, 2019	$	—
Additions		5,231
Change in fair value		(759	)
Fair value as of December 31, 2020		4,472
Additions		17,540
Change in fair value		4,005
Fair value as of December 31, 2021	$	26,017

The following table represents the total amount of interest cost recognized relating to the 2023 Notes for the years ended December 31, 2021 and 2020 (in thousands):

	December 31,
	2021		2020
Contractual interest expense	$	5,895	$	923
Accretion of debt discount		11,639		104
Accretion of debt issuance costs		87		1,714
	$	17,621	$	2,777

Paycheck Protection Program Loan

In May 2020, the Company was granted a loan under the Paycheck Protection Program offered by the Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act

26

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(“CARES Act”), section 7(a)(36) of the Small Business consolidated Act for approximately $2.5 million. The loan was evidenced by a promissory note and bore interest at 1% with no payments for the first 6 months. Monthly payments of principal and interest of approximately $0.1 million were slated to begin in December 2020, subject to deferral as the Company had applied for debt forgiveness, and continue through maturity in April 2022, if required. The loan was subject to partial or full forgiveness if the Company used all proceeds for eligible purposes; maintained certain employment levels; and maintained certain compensation levels in accordance with and subject to the CARES Act and the rules, regulations and guidance. The Company initially applied for the PPP loan to be forgiven in December 2020, with responses to SBA inquiries and final application submitted in January 2021. On June 14, 2021, the PPP Loan was forgiven in full, for the principal amount of $2.5 million and interest of approximately $28 thousand that had accrued from the funding date of April 30, 2020 through the forgiveness date. For the year ended December 31, 2021, the Company recognized a gain of $2.5 million from extinguishment of the full amount of the PPP Loan, included in other income (expense), net in the consolidated statements of operations.

The following table summarizes the Company’s outstanding borrowing arrangements:

	As of December 31,
	2021			2020
2022 Notes	$	34,355		$	31,741
2023 Notes		71,633			17,037
PPP Loan		—			2,515
		105,988			51,293
Less: Unamortized debt issuance costs and discounts		(38,853	)		(11,893	)
	$	67,135		$	39,400

(14) Stock-Based Compensation    

In January 2013, the Board adopted the 2013 Stock Incentive Plan (“the Plan”), which was subsequently approved by the Company’s stockholders. The Company initially reserved a total of 500,000 shares of common stock for issuance under the Plan. Between October 2014 and December 2021, through multiple amendments approved by the company’s stockholders, the share reserve was increased to 4,604,101 shares of common stock. Additionally, in July 2020, the Company’s stockholders approved amendments to the Plan to add restricted stock units as a form of equity compensation award under the plan.

The Plan permits the granting of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock or restricted stock units to employees, directors, and service providers at exercise prices not less than 100% of fair market value at the date of grant. The Board of Directors, at its sole discretion, shall determine the exercise price.

Options granted under the Plan expire 10 years from the date of grant. First time grants of incentive stock options and non-statutory options generally vest at a rate of 25% on the first anniversary of the grant date and then ratably monthly over the next three years. Upon termination of employment, any unvested options are automatically returned to the Company. In general, vested options that were not exercised within three months after termination are surrendered back to the Company. These options are added back to the Plan and made available for future grants. For the years ended December 31, 2021 and 2020, the Company granted zero new options and 0.5 million new options, respectively. The weighted average fair value of options granted for the year ended December 31, 2020, was $9.22 per share. The aggregate intrinsic value of options exercised for the years ended December 31, 2021 and 2020, was $0.2 million and $0.1 million, respectively.

27

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

A summary of option activity under the Plan is as follows:

	Options outstanding
	Number of shares			Weighted average exercise price per share		Weighted average contractual term (in years)		Aggregate intrinsic value (in thousands)
Outstanding - December 31, 2019		1,143,755		$	39.80		6.99	$	55,114
Options granted		496,135			49.43
Options exercised		(8,000	)		4.29
Options cancelled		(523,109	)		75.50
Options expired		(9,456	)		41.53
Outstanding - December 31, 2020		1,099,325		$	27.40		6.44	$	6,237
Options granted		—
Options exercised		(20,000	)		3.70
Options cancelled		(39,894	)		42.98
Options expired		(20,149	)		49.43
Outstanding - December 31, 2021		1,019,282		$	26.81		5.13	$	13,165
Vested and exercisable - December 31, 2021		896,076		$	23.70		4.78	$	13,165
Vested and expected to vest - December 31, 2021		1,019,282		$	26.81		5.13	$	13,165

As of December 31, 2021 and 2020, there was a total of $4.2 million and $8.4 million, respectively, of unrecognized employee compensation costs related to non-vested stock option awards, which is expected to be recognized over a weighted-average period of approximately 1.33 and 2.14 years, respectively.

2020 Stock Option Modification

On April 2, 2020, the Company’s Board of Directors passed a resolution to reprice outstanding stock options (“2020 Modification”), wherein the Company modified 342,735 stock options to reduce the exercise price of each underwater option to $49.43 per share to reflect the fair value as of January 31, 2020. As a result, 100% of the options outstanding under the 2013 incentive plan that were granted from April 2018 through August 2019 were modified on April 2, 2020, to reflect an exercise price of $49.43 per share.

The incremental fair value of the modified options is recognized as stock-based compensation expense. On the date of the modification, the fair value of the modified options exceeded the fair value of the original options by $1.5 million, of which $0.4 million was recognized in the consolidated statements of operations in 2020. The Company will recognize the remaining unrecognized non-cash compensation cost related to the 2020 Modification over the remaining requisite service period of the modified options.

Determination of Fair Value

The Company estimates grant-date fair value of stock options using the BSM option-pricing model. The determination of the fair value of each stock award using this option-pricing model is affected by the Company’s assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards. Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award.

28

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

The following assumptions were used to calculate the fair value of stock-based compensation:

	Year ended December 31,
	2021	2020
Expected term	0.5 – 6.5 years	0.5 – 6.5 years
Expected volatility	40.4% – 63.6%	40.4% – 63.6%
Risk-free interest rate	0.1% – 3.1%	0.1% – 1.5%
Expected dividends	0.0%	0.0%

Expected term — The Company has opted to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years).

Expected volatility — Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of peer companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.

Risk-free interest rate — The risk-free rate assumption is based on U.S. Treasury instruments with maturities similar to the expected term of the Company’s stock options.

Expected dividends — The Company has not issued any dividends in its history and does not expect to issue dividends over the life of the options and therefore has estimated the dividend yield to be zero.

Fair value of common stock — The fair value of the shares of common stock underlying the stock-based awards has historically been determined by the Board of Directors, with input from management. Because there has been no public market for the Company’s common stock, the Board of Directors has determined the fair value of the common stock on the grant-date of the stock-based award by considering a number of objective and subjective factors. Such factors include a valuation of the Company’s common stock performed by an unrelated third-party specialist, valuations of comparable companies, sales of the Company’s convertible preferred stock to unrelated third-parties, operating and financial performance, the lack of liquidity of the Company’s capital stock, as well as general and industry-specific economic outlooks.

Performance-based Restricted Stock Units

The Company began issuing restricted stock units in fiscal year 2020 and restricted stock awards in fiscal year 2021. The following tables summarize the restricted stock activity under the Plan:

	Restricted Stock Units (“RSU”)
	Number of shares			Weighted-average grant date fair value
Outstanding as of December 31, 2019		—		$	—
Granted		1,561,803			16.29
Vested		—			—
Forfeited or cancelled		(40,440	)		16.29
Outstanding as of December 31, 2020		1,521,363			16.29
Granted		1,462,766			28.26
Forfeited or cancelled		(70,959	)		25.70
Outstanding as of December 31, 2021		2,913,170		$	26.76

29

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

	Restricted Stock Awards (“RSA”)
	Number of shares			Weighted-average grant date fair value
Outstanding as of December 31, 2020		—		$	—
Granted		300,000			26.35
Vested		(300,000	)		26.35
Forfeited or cancelled		—			—
Outstanding as of December 31, 2021		—		$	—

For the year ended December 31, 2021, the Company issued 1,462,766 restricted stock units (“RSUs”) and 300,000 restricted stock awards (“RSAs”) to employees and non-employees. Unlike RSUs, the RSAs are entitled to voting rights and dividend rights prior to satisfaction of vesting conditions. Therefore, the RSAs are considered issued and outstanding at issuance. 665,431 RSUs and 300,000 RSAs were issued to non-employees in exchange for advisory services, with an aggregate fair value of $25.4 million.

For the year ended December 31, 2021, $7.9 million of stock-based compensation expense related to RSA’s vested was recorded in general and administrative expenses on the consolidated statement of operations. The RSAs granted are subject to service-based vesting condition to be satisfied over six months.

The remaining 797,335 RSUs issued to employees have a fair value of $23.8 million. The RSUs granted are subject to service-based and performance-based vesting conditions. The service-based vesting condition for these RSUs range from nine months to four years, while the performance-based vesting condition is satisfied on the earlier of consummating an initial public offering (“IPO”), the closing of a merger with a SPAC, a change in control event or the Company’s equity securities become publicly traded on a nationally recognized exchange other than pursuant to an IPO, SPAC transaction or a change in control event.

The Company amended all outstanding RSUs issued prior to March 2021 such that each share scheduled to vest on a monthly vest date will now accelerate and vest on February 15, May 15, August 15 and November 15, preceding the applicable monthly vesting date. This amendment resulted in a modification, the effect of which is to change the grant date fair value to $25.26 for all outstanding RSUs on the modification date, reflecting the fair value on the date of modification.

As of December 31, 2021, the Company determined that the performance-based vesting conditions were not probable. Total unrecognized stock-based compensation cost of $77.9 million related to unvested RSUs is expected to be recognized upon vesting and satisfaction of the performance condition. See “Note 20 – Subsequent Events” for consummation of the SPAC transaction, the underlying for satisfaction of the performance condition.

Stock-based compensation expense

The following table summarizes stock-based compensation expense and its allocation within the accompanying consolidated statements of operations (in thousands):

	Year ended December 31,
	2021		2020
Cost of goods sold	$	193	$	100
Research and development		1,717		2,225
Sales and marketing		858		1,294
General and administrative		9,204		1,824
Total stock-based compensation expense	$	11,972	$	5,443

30

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(15) Commitments and Contingencies

Operating Leases

The Company leases its facilities under non-cancelable operating lease agreements. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Rent expense was $0.7 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively.

In November 2019, the Company entered into a Lease Termination Agreement in order to terminate the remaining obligation under one of its facility leases. The Lease Termination Agreement calls for future monthly payments in varying amounts into 2023.

Future minimum lease payments under non-cancelable operating leases, and future payments under the Lease Termination Agreement, as of December 31, 2021 are as follows (in thousands):

	Operating Leases		Lease Termination Agreement
2022	$	459	$	293
2023		4		49
2024 and thereafter		—		—
Total minimum payments	$	463	$	342

Vendor Contract Liability

In October 2017, the Company entered into an agreement with a contract manufacturer for production of various sub-assemblies and final assemblies of the Company’s M8 and S3 product lines. The contract manufacturer procures parts to fulfill the forecasted demand of the Company, holding title and risk of loss to the inventory.

The terms of the agreement specify that the Company may be liable for this inventory should it not place orders for units sufficient to consume this inventory, or in varying amounts based on the termination of the agreement at any time by either party. The contract manufacturer holds $1.6 million and $2.9 million of inventory at cost subject to this agreement as of December 31, 2021 and 2020, respectively. In 2018 the Company and the contract manufacturer identified $1.2 million worth of inventory as excess and obsolete (“excess inventory”), out of which $0.9 million worth of excess inventory was bought back by the Company during 2019. For the balance of excess inventory, the Company has recorded a liability totaling $0.3 million within accrued expenses on the consolidated balance sheet as of December 31, 2021 and 2020.

Legal Matters

The Company is a party to various legal proceedings and claims which arise in the ordinary course of business. The Company records a liability when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be reasonably estimated, the Company discloses the reasonably possible loss.

In response to allegations of patent infringement and threats of litigation by one of its competitor (“Complainant”), the Company filed a complaint in the Northern District of California seeking a declaratory judgment of non-infringement of the complainant’s patent (patent # 7969558). The Complainant filed an answer and counterclaim seeking injunctions and damages for an unspecified amount. The Company answered the counterclaims asserting that the patent claims are not valid and also filed two petitions for inter parties review (“IPR”) before the Patent Trial and Appeal Board (“PTAB”), which were instituted in May 2018. All briefing and the oral hearing in the PTAB proceedings have concluded. On May 23, 2019, the PTAB issued Final Written Decisions finding all petitioned claims are not invalid. On June 24, 2019, the Company filed a Request for Rehearing in response to the Final Written Decision. On May 23, 2020, the Board denied the Request for Rehearing.

31

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

Quanergy filed an appeal to the Court of Appeals for the Federal Circuit (“CAFC”) for each IPR (consolidated as docket no. CAFC-20-2070). Oral argument was held on July 7, 2021. On February 4, 2022, the CAFC affirmed the decision of the PTAB. This litigation, as with any other litigation, is subject to uncertainty and an unfavorable outcome may result in a material adverse impact on our business, results of operations, financial position, and overall trends.

In the fourth quarter of 2020, the Company started engaging in discussions with the Complainant for a potential out of court settlement related to the ongoing legal proceeding discussed above, in order to avoid future significant legal expenses. The Company determined that it had incurred a liability as of December 31, 2020 and recorded an estimated potential loss for this case in the amount of $2.5 million, recorded in general and administrative expenses on the consolidated statement of operations. As of the current date, negotiations have ceased and no settlement has been reached. The Company will continue to monitor developments on this case and record any necessary adjustments to reflect the effect of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case in the period they become known.

Employee Retention Plan

In November 2019, the Company adopted an employee retention plan (“Retention Plan”). Key employees as determined by the Board of Directors are eligible to participate in the Retention Plan, and have the right to payment of a retention bonus upon the occurrence of a covered transaction as defined in the Retention Plan, which includes a change in control or IPO. The Retention Plan is an unfunded plan and the participants must be employed at the time of the covered transaction to be eligible to receive payment. The Company recognizes the retention plan related expense based on the best estimate of occurrence of a covered transaction. This estimate is revised periodically based on continuation of employment and other factors such as likelihood of occurrence of a covered transaction etc. The amount of retention bonus available to active participants in the Retention Plan upon the occurrence of a covered transaction was $4.9 million as of December 31, 2021.

(16) Segment Reporting and Geographic Information

The Company conducts its business in one operating segment that designs, develops and produces LiDAR sensors used in intelligent real-time 3D object detection and classification solutions. The Company’s Chief Executive Officer (“CEO”) is the Chief Operating Decision Maker (“CODM”). The CODM allocates resources and makes operating decisions based on financial information presented on a consolidated basis. The profitability of the Company’s product group is not a determining factor in allocating resources and the CODM does not evaluate profitability below the level of the consolidated company. Revenue by geographical region is as follows:

	Year ended December 31,
	2021		2020
Americas	$	1,043	$	1,372
Asia		1,898		842
Europe, Middle East and Africa		987		801
Total net sales	$	3,928	$	3,015

All long-lived assets are maintained in, and all losses are attributable to, the United States of America.

32

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(17) Income Taxes

The components of the Company’s loss before income taxes are as follows (in thousands):

	Year ended December 31,
	2021			2020
United States	$	(63,661	)	$	(36,004	)
International		143			176
	$(63,518)			$(35,828)

The components of the provision for income taxes are as follows (in thousands):

	Year ended December 31,
	2021		2020
Current tax expense:
Federal	$	—	$	—
State		2		2
International		24		5
Total provision for income taxes	$	26	$	7

The provision for income taxes differ from the amounts computed by applying the U.S. federal income tax rate to income loss before income taxes for the following reasons:

	Year ended December 31,
	2021			2020
Federal tax at statutory rate		21.00	%		21.00	%
State, net of federal benefit		—			—
Permanent differences		(0.39	)		1.53
Stock-based compensation		(3.36	)		(1.62	)
Uncertain tax positions		(0.81	)		(1.03	)
General business credits		1.15			1.44
Valuation allowance		(10.53	)		(17.97	)
Disqualified interest on debt		(7.10	)		(3.37	)
Effective tax rate		(0.04	)%		(0.02	)%

The Company’s effective tax rate could also fluctuate due to changes in the valuation of its deferred tax assets or liabilities, or by changes in tax laws, regulations, and accounting principles.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and tax effects of net operating loss and credit carryforwards. Significant components of deferred tax assets (liabilities) are as follows (in thousands):

	Year ended December 31,
	2021			2020
Net operating loss carryforwards	$	53,359		$	45,461
Tax credit carry forwards		5,941			5,117
Accruals and reserves		3,222			3.631
Stock-based compensation		2,197			1,491
Gross deferred tax assets		64,719			55,700
Valuation allowance		(64,385	)		(55,232	)
Net deferred tax assets		334			468
Depreciation and amortization		(334	)		(468	)
Gross deferred tax liabilities		(334	)		(468	)
Total net deferred tax assets (liabilities)	$	—		$	—

33

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset the gross deferred tax assets as of December 31, 2021 and 2020, due to the uncertainty of realizing future tax benefits from its domestic net operating loss carryforwards and other domestic and foreign deferred tax assets. The valuation allowance increased by $9.2 million for the year ended December 31, 2021 and increased by $7.9 million for the year ended December 31, 2020.

As of December 31, 2021, the Company has net operating loss carryforwards (“NOL”) of approximately $204.7 million for federal and $151.1 million for state tax purposes. If not utilized, these carryforwards will begin to expire in 2033 for both federal and state tax purposes. Of the $204.7 million of federal NOL, $77.4 million pertains to losses generated for the years 2017 and prior, which will begin to expire in 2033 if not utilized, and $127.3 million is the amount generated subsequent to December 31, 2017, which has an indefinite life.

As of December 31, 2021, the Company has research and development tax credit carryforwards of approximately $5.7 million for federal and $4.7 million for state income tax purposes. If not utilized, the federal tax credit carryforward will expire in various amounts beginning in 2033. The California tax credit can be carried forward indefinitely.

As of December 31, 2021, the Company has Canada scientific research and experimental development (“SR&ED”) investment tax credit carryforwards of approximately $233 thousand which will begin to expire in 2037 if not utilized. The Company also has a Canada SR&ED expenditure carryforward of $147 thousand which has an indefinite life.

The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in certain situations where equity transactions resulted in a change of ownership as defined by Internal Revenue Code Section 382. The Company has performed a Section 382 study as of December 31, 2020. The study results reflect ownership changes occurred on March 7, 2014 and December 3, 2020; however, there is no impairment to the NOL’s or R&D credits as a result of the ownership changes identified.

As of December 31, 2021, the Company’s earnings from its foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for federal or state income taxes have been provided thereon. Due to the Transition Tax and Global Intangible Low-Taxed Income (“GILTI”) as enacted by the Tax Cuts and Jobs Act, those foreign earnings will not be subject to federal income taxes when actually distributed in the form of a dividend or otherwise. The Company, however, could still be subject to state income taxes and withholding taxes payable to various foreign countries. The amounts of taxes which the Company could be subject to are not material to the accompanying consolidated financial statements.

A reconciliation of the amount of unrecognized tax benefits is as follows (in thousands):

	Year ended December 31,
	2021		2020
Beginning balances	$	3,607	$	3,197
Increases (decreases) related to prior year tax positions		—		(7	)
Increases related to current year tax positions		571		417
Balance at December 31	$	4,178	$	3,607

34

Quanergy Systems, Inc.

Notes to Consolidated Financial Statements

The Company records penalties related to unrecognized tax positions as a component of income tax expense. The Company is not expecting the amount of unrecognized tax benefits to materially change within the next 12 months.

The material jurisdictions in which the Company is subject to income taxes are in the U.S. federal jurisdiction, various state, and Canada jurisdictions. The Company’s tax years from inception through 2021 are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses and research and development credits. The Company’s tax years from 2017 through 2021 remain open for the Canadian jurisdiction. The 2015 Canadian tax year also remains open due to tax credits carried back to that year. The Company is not currently under examination in any tax jurisdictions.

On March 27, 2020, the president signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Among the changes to the U.S. federal income tax rules, the CARES Act provided that forgiveness of PPP loan would be nontaxable, modified net operating loss carryback rules that were eliminated by the 2017 Tax Cuts and Jobs Act, restored 100% bonus depreciation for qualified improvement property, increased the limit on the deduction for net interest expense and accelerated the time frame for refunds of alternative minimum tax credits. The Company benefited from tax-exempt PPP loan forgiveness. Other provisions of the CARES Act did not have a material impact on the Company’s tax provision.

On December 21, 2020, the president signed into law the “Consolidated Appropriations Act, 2021” (the “CAA”) which includes further COVID-19 economic relief and extension of certain expiring tax provisions. The relief package includes a tax provision clarifying that businesses with forgiven PPP loans can deduct regular business expenses that are paid for with the loan proceeds. Additional pandemic relief tax measures include an expansion of the employee retention credit and enhanced charitable contribution deductions. The Company benefited from the tax deductible use of loan proceeds. Other provisions under the CAA did not have a material impact on the Company’s tax provision.

California Assembly Bill 85 (“AB 85”) was signed into law on June 29, 2020. The legislation suspends the California Net Operating Loss deductions for 2020, 2021, and 2022 for certain taxpayers and imposes a limitation of California Tax Credits utilization for 2020, 2021, and 2022. The legislation disallows the use of California Net Operating Loss deductions if the taxpayer recognizes business income and its income subject to tax is greater than $1.0 million. Additionally, business credits will only offset a maximum of $5.0 million of California tax liability. Given the Company is in taxable loss position for the year, AB 85 does not impact the Company for 2021.

California Assembly Bill 80 (“AB 80”) was signed into law on April 26, 2021 and it closely conforms to the federal treatment for deductibility of use of PPP loan proceeds if companies meet certain criteria. The Company benefited from this provision.

(18) Basic and Diluted Net Loss Per Share

The Company uses the two-class method to calculate net loss per share. No dividends were declared or paid for the years ended December 31, 2021 and 2020. Undistributed earnings for each period are allocated to participating securities, including the convertible preferred stock, based on the contractual participation rights of the security to share in the current earnings as if all current period earnings had been distributed. As there is no contractual obligation for the convertible preferred stock to share in losses, the Company’s basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average shares of common stock outstanding during periods with undistributed losses.

35

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2021 and 2020 (in thousands, except share and per share amounts):

	Year ended December 31,
	2021			2020
Numerator:
Net loss attributable to common stockholder, basic and diluted	$	(63,544	)	$	(35,835	)
Denominator:
Weighted average common shares outstanding, basic and diluted		7,059,609			5,077,336
Net loss per share attributable to common stockholder, basic and diluted	$	(9.00	)	$	(7.06	)

Basic and diluted net loss per share attributable to common stockholders is the same for the years ended December 31, 2021 and 2020 because the inclusion of potential shares of common stock would have been anti-dilutive for the periods presented.

The following table presents the potential common shares outstanding that were excluded from the computation of diluted net loss per share of common stock as of the periods presented because including them would have been antidilutive:

	As of December 31,
	2021		2020
Convertible preferred stock		7,695,112		7,695,112
Stock options and RSUs issued and outstanding		3,932,452		2,620,688
Convertible notes		2,358,199		547,396
Potential common shares excluded from diluted net loss per share		13,985,763		10,863,196

The above tables exclude Sensata warrants totaling 624,305 which are exercisable upon a contingent event which is the Closing as defined in the Merger Agreement (per Note 1) into the new Quanergy shares.

(19) Related Party Transactions

Related Party Collaboration Agreement

To support the Company’s path towards automotive grade solid state LiDAR sensors, help de-risk the ramp towards high volume manufacturing, and improve the company’s marketing and distribution capabilities, the Company entered into a Strategic Partnership Agreement (“Collaborative Agreement”) with Sensata Technology, Inc (“Sensata”) on February 8, 2016. As part of the Collaborative Agreement, Sensata made a $50 million investment in the initial closing of the Company’s offering of Series B convertible preferred stock. The agreement committed both companies to engage in joint development and commercialization of the solid-state product for the transportation segment. The Company was expected to retain ultimate discretion relating to product roadmap and development, with Sensata retaining ultimate control over the manufacturing, sales and marketing decisions subject to certain terms and conditions.

On March 29, 2020, Quanergy and Sensata signed an amendment to the agreement which eliminated exclusivity for the transportation sector, reduced specific development and commercialization obligations and added flexibility to the manufacturing model.

No revenues on the February 2016 Collaborative Agreement have been recognized for the year ended December 31, 2021 and 2020. In accordance with the Collaborative Agreement, the Company purchased equipment from Sensata totaling $1 million which is included in the accompanying consolidated balance sheets as of December 31, 2021 and 2020. Depreciation expense on this equipment was $0.1 million and $0.1 million as of December 31, 2021 and 2020, respectively.

36

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

On June 21, 2021, the Company entered into another collaborative arrangement with Sensata, wherein Sensata will provide consulting services with respect to areas of manufacturing, cost reduction, sourcing, and go to market strategies. In consideration for such services, the Company issued a warrant to Sensata to purchase that number of shares of the Company’s common stock which will be exchanged for 2.5 million shares of the combined entity contemplated in the Merger discussed above in “Note 1(c) - Business Combination”. These warrants have a fair value of $23.3 million at December 31, 2021. No revenues have been recognized and no expenses have been incurred under this collaborative arrangement for the year ended December 31, 2021 and 2020.

Related Party Convertible Notes

In 2020, the Company issued convertible promissory notes of approximately $16.1 million to various investors, out of which $15.7 million was issued to three related parties. The related party debt is presented as “Long-term debt – related party” in the consolidated balance sheet, adjusted for deferred interest, allocated debt financing costs and derivative liability recorded as debt discount on the 2023 Notes. The principal amount of the outstanding balance shall accrue interest at 10.0% per annum, payable at maturity in March 2023. For the year ended December 31, 2021 and 2020, the Company accrued interest of $1.6 million and $0.9 million related to the 2023 Initial Notes issued to the related parties. In conjunction with the 2023 Initial Notes, the Company also issued common stock warrants, of which 880,649 were issued to the three related parties. See “Note 13 – Borrowing Arrangements” for additional details.

In February 2021, the Company issued convertible promissory notes of approximately $48.7 million to various investors (the “Extension Notes”, and together with the 2023 Initial Notes, referred to as “2023 Notes”), out of which $11.5 million was issued to a related party. The related party debt is presented as “Long-term debt – related party” in the consolidated balance sheet, adjusted for deferred interest, allocated debt issuance costs and derivative liability recorded as debt discount on the Extension Notes. The principal amount of the outstanding balance shall accrue interest at 10.0% per annum, payable at maturity in March 2023. For the year ended December 31, 2021, the Company accrued additional interest of $1.0 million related to the 2023 Extension Notes issued to related parties. In conjunction with the Extension Notes, the Company also issued common stock warrants, of which 382,495 were issued to the related party.

Total accrued interest payable to related parties on the 2023 Notes was $3.5 million at December 31, 2021. See “Note 13 – Borrowing Arrangements” for additional details.

Related Party Restricted Stock Units

Out of the total RSU grants in 2020, 908,466 were issued to directors and officers of the Company with an aggregate fair value of $22.9 million.

Out of the total RSU grants in 2021, 763,861 were issued to two related parties with an aggregate fair value of $20.1 million.

As of December 31, 2021, the performance-based condition for vesting of the RSU grants is not deemed to be probable, therefore, no expense has been recognized on these awards in the year ended December 31, 2021 and 2020.

There were no other material related party transactions during the years ended December 31, 2021 and 2020.

37

QUANERGY SYSTEMS, INC.

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

(20) Subsequent Events

In preparing the consolidated financial statements as of and for the year ended December 31, 2021, the Company evaluated subsequent events for recognition and measurement purposes through March 31, 2022, which is the date the consolidated financial statements were available to be issued. The Company noted no subsequent events to date that would materially impact the consolidated financial statement disclosures, except for the following:

The Company has reserved shares of common stock for issuance related to convertible preferred stock, stock options, warrants, restricted stock units, and future grants. Effective January 28, 2022, the Company increased the total authorized shares of common stock to 28,000,000 shares, and increased the aggregate number of shares reserved for issuance under the 2013 Incentive Stock Plan by 1,500,000 shares.

On February 8, 2022, the Company completed the Merger pursuant to the Merger Agreement as described in Note 1. As contemplated by the Merger Agreement and as described in the CCAC definitive proxy statement filed with the United States Securities and Exchange Commission (the “SEC”) on January 6, 2022 (the “Proxy Statement”), CCAC changed its jurisdiction of incorporation by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the “Domestication”), upon which CCAC changed its name to “Quanergy Systems, Inc.” Immediately after the Domestication, Merger Sub merged with and into Legacy Quanergy, the separate corporate existence of Merger Sub ceased, and Legacy Quanergy is the surviving company in the Merger, and a wholly owned subsidiary of CCAC. CCAC changed its name to “Quanergy Systems, Inc.” (referred to herein, together with its subsidiaries, as “Quanergy”), with Legacy Quanergy Stockholders holding the majority of the common stock of Quanergy.

Upon consummation of the Merger, the 2022 Notes outstanding as of December 31, 2021 were repaid in full including principal and accrued interest through original maturity date of March 15, 2022, and the 2023 Notes converted into shares of common stock at two times the value of the face value of the Notes plus accrued interest through the date of the Merger, in accordance with terms of the settlement provisions included in the convertible note agreements. The derivative liabilities associated with the 2022 Notes and 2023 Notes were remeasured at fair value on the settlement date and then extinguished on the Notes’ conversions and payoffs.

The 2022 Equity Incentive Plan (“2022 Plan”) which permits the granting of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and other equity-based awards to employees, directors and consultants became effective on February 8, 2022 and 13,590,156 shares of common stock were reserved for issuance under the 2022 Plan.

On February 25, 2022, 3,784,842 restricted stock units under the 2022 Plan were awarded to certain employees and consultants of the Company. Of this amount, 1,905,031 restricted stock units were awarded to five related parties and officers of the Company.

The 2022 Employee Stock Purchase Plan (“2022 ESPP”), which permits employees to purchase shares of the Company’s common stock, became effective on February 8, 2022 and 834,123 shares of common stock were authorized for sale under the 2022 ESPP.

38

EX-99.2

Exhibit 99.2

QUANERGY’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Current Report on Form 8-K as well as our Annual Report on Form 10-K. This discussion contains “forward-looking statements” reflecting Quanergy’s current expectations, estimates and assumptions concerning events and financial trends that may affect its future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors included in our Annual Report on Form 10-K, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. Quanergy assumes no obligation to update any of these forward-looking statements.

For purposes of this section, “we,” “us,” “our,” the “Company” and “Quanergy” refers to the business and operations of Quanergy and its consolidated subsidiaries prior to the consummation of the transactions contemplated by the Merger Agreement (as defined below).

Overview

We design, develop and produce Light Detection and Ranging (“LiDAR”) sensors and are a leader in 3D sensing that delivers robust and intelligent real-time 3D object detection and classification solutions.

Currently, our applications and products are targeted towards five key market groups: 1) the Security market where we build applications leveraging the mechanical M Series LiDAR combined with proprietary software for perimeter security and intrusion detection applications; 2) the Smart Cities / Spaces market, where our flow management tools are used in cities and municipalities to improve the movement and safety of their citizens in dense urban settings; 3) the Mapping market, where customers are currently utilizing the M8 mechanical LiDAR for terrestrial and aerial mapping; 4) the Industrial market, where we are launching our solid state and mechanical LiDAR solutions for material handling, logistics, and measurement; and 5) the Transportation market which consists of passenger vehicles as well as heavy vehicles and off highway applications such as agricultural and mining equipment, which we are primarily looking to service through our solid state S Series LiDAR for use in Advanced Driver Assist Systems as well as in highly automated vehicle applications.

We generate revenue primarily by entering into supply arrangements with systems integrators, value added resellers, distributors and end customers. We have also, in the past, received funds from evaluation agreements, where a customer obtains early access to technology through evaluation samples of products and related software.

To date, we have financed our operations primarily through private placements of convertible preferred stock and issuance of convertible notes. From the date of our incorporation through December 31, 2021, we have raised aggregate net proceeds of approximately $153 million and $89 million from the issuance of convertible preferred stock and convertible notes, respectively. We incurred a net loss of $63.5 million and used $30.1 million in cash to fund our operations during the year ended December 31, 2021.

Over the last two years, key changes to our R&D and product development organizations have accelerated the pace of product releases. In 2020, we released 10 new solutions (four sensors, four software products, and two VMS integrations). In the year ended December 31, 2021, we have released 10 new solutions (two sensors and eight software products). This is quite a bit higher than the four new solutions we released in 2019. We expect to continue investing in R&D and product development to further support sales growth going forward.

The years ended December 31, 2021 and 2020 were also critical years for the development of our S3 platform. After receiving new hardware at the end of 2019, we devoted much of the years ended December 31, 2021 and 2020 to a testing and optimization program that increased the outdoor range of our sensors from 20 meters in January 2020 to 100 meters by January 2021 and 200 meters presently. As we continue to fine tune a new silicon detector, we expect to improve our sensor performance and increase our technical relevance for transportation and industrial applications.

Impact of COVID-19

The extensive impact of the pandemic caused by the novel coronavirus (“COVID-19”) has resulted, and will likely continue to result, in significant disruptions to the global economy, as well as businesses and capital markets around the world. In an effort to halt the outbreak of COVID-19, a number of countries, states, counties, and other jurisdictions have imposed, and may impose in the future, various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations, and extended closures of businesses.

With respect to our results, sales for the years ended December 31, 2021 and 2020 were heavily impacted by COVID-19 primarily due to the delay of projects and slowing overall business activity, as well as, in certain cases, the inability to physically access customer sites. Despite these setbacks, we reacted quickly to help offset the negative cash flow impacts of these factors with key elements of our cash preservation plan in 2020 including furloughing nearly 50% of our employees, negotiating extended payment terms with vendors, cutting wages across the entire workforce and reducing overall external contractor spending. We also benefited from a $2.5 million Paycheck Protection Program (“PPP”) loan from the Small Business Administration. We maintained a cautious pace of spending through the year ended December 31, 2021, which when combined with the issuance of $48.7m in convertible notes, gave us adequate liquidity to run our operating plan.

While business conditions improved sequentially each quarter in 2021, broader implications of the COVID-19 pandemic were present throughout the year on our workforce, operations, supply chain and customer demand. Turning to 2022, significant uncertainties remain relating to disruptions from COVID-19, broad based supply chain shortages, and geopolitical risks related to the events unfolding in the Ukraine.

See the section entitled “Risk Factors” included in our Annual Report on Form 10-K (the “Form 10-K”) for further discussion of the possible impact of COVID-19 on our business.

Comparability of financial information

Our results of operations and statements of assets and liabilities may not be comparable between periods as a result of the Business Combination (as defined below).

Business Combination and Public Company Costs

On February 8, 2022 (the “Closing Date”), subsequent to the end of the fiscal year ended December 31, 2021, the fiscal year to which this management’s discussion and analysis of financial condition and results of operations relates, Quanergy Systems, Inc., a Delaware corporation (f/k/a CITIC Capital Acquisition Corp. (“CCAC”)), consummated the previously announced merger (the “Closing”) pursuant to that certain Agreement and Plan of Merger, dated June 21, 2021, as amended on June 28, 2021, November 14, 2021 and December 26, 2021 (the “Merger Agreement”), by and among CCAC, CITIC Capital Merger Sub Inc., a Delaware corporation and direct wholly owned subsidiary of CCAC (“Merger Sub”) and Quanergy. CCAC’s shareholders approved the business combination (the “Business Combination”) and the change of CCAC’s jurisdiction of incorporation from the Cayman Islands to the State of Delaware by deregistering as an exempted company in the Cayman Islands and domesticating and continuing as a corporation formed under the laws of the State of Delaware (the “Domestication”) at an extraordinary general meeting of stockholders held on January 31, 2022.

On February 7, 2022, one business day prior to the Closing Date, CCAC effectuated the Domestication, pursuant to which each of CCAC’s currently issued and outstanding Class A ordinary shares and Class B ordinary shares automatically converted by operation of law, on a one-for-one basis, into shares of common stock of the Company (“Common Stock”). Similarly, all of CCAC’s outstanding warrants became warrants to acquire shares of Common Stock, and no other changes were made to the terms of any outstanding warrants.

Pursuant to the terms of the Merger Agreement, the Business Combination was effected through the merger (the “Merger”) of Merger Sub with and into Legacy Quanergy, whereupon the separate corporate existence of Merger Sub ceased and Quanergy became the surviving company and a wholly owned subsidiary of CCAC. In connection with the Domestication, CCAC changed its name from CITIC Capital Acquisition Corp. to Quanergy Systems, Inc.

The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, CCAC is treated as the acquired company for financial statement reporting purposes. As a result of the Merger, the most significant change in the Company’s future reported financial position and results are an estimated cash balance (as compared to Quanergy’s consolidated balance sheet at December 31, 2021) of $30.9 million, assuming stockholder redemptions of 26,267,796 shares of Common Stock, or $264.5 million, including $37.0 million in gross proceeds from the PIPE Investment by the PIPE Investors and after deducting $35.0 million of indebtedness to be repaid and approximately $10.5 million in total direct and incremental transaction costs and partial settlement of CCAC deferred underwriting commission. See the section titled “Unaudited Pro Forma Condensed Combined Financial Information” for additional information.

As a consequence of the Merger, Quanergy has become the successor to a United States Securities and Exchange Commission (“SEC”) registered and listed company with New York Stock Exchange, which will require Quanergy to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

Factors affecting our performance

Pricing, product costs and margins

Our pricing and margins will depend on the volumes and the features as well as specific market applications of the solutions we provide to our customers. To date, most of our revenue has been generated from flow management solutions which entail M Series sensors paired with our Qortex software for Smart City, Smart Spaces and Security applications. As we expand further into the industrial market, we expect prices to generally decrease as these products are adopted into higher volume programs with higher price sensitivity and in many cases less complex performance requirements. This downward trend in Average Selling Prices is expected to continue as we incorporate orders from the transportation market where cost pressures are significant. As an offset to these pressures, we expected to benefit from improved fixed cost absorption as revenues scale and we are able to amortize fixed costs among more units, and improved variable costs from scale and redesign opportunities. Through both of these we expect to be able keep cost downs ahead of price downs which is accretive to margins. Our ability to compete in key markets will depend on the success of our efforts to efficiently and reliably produce cost-effective smart vision solutions for our commercial-stage customers. We anticipate that our process will vary by market and application due to market-specific product and commercial requirements, supply and demand dynamics and product lifecycles.

Commercialization of LiDAR based applications

We believe the LiDAR market today represents a sizable opportunity, and we see significant growth in the TAM across multiple end markets. We also believe we are well-positioned to take advantage of this opportunity, with strong customer relationships and differentiated products that give us opportunities across many different use cases. With that said, we expect that our results of operations, including revenue and gross margins, will fluctuate on a quarterly basis for the foreseeable future as our results are significantly impacted by the timing of individual projects, customer adoption, and overall sales cycles within each vertical. As more customers reach the commercialization phase and as the market for LiDAR solutions matures, these fluctuations in our operating results may become less pronounced. However, in the near term, our revenue may not grow as we expect until more customers commercialize their products.

End market concentration

Until now, the majority of our revenue has come from flow management applications which made up 81% of our revenue for the year ended December 31, 2021, with the balance of revenues being from various other sources. This is because we have had these solutions in market for some time and have been able to digest customer feedback and improve the products to optimize their performance for these use cases. We believe our entry into new markets will continue to facilitate revenue growth and customer diversification. While we will continue to expand the end markets we serve, we anticipate that sales to a limited number of end markets will continue to account for a significant portion of our total revenue for the foreseeable future. Our end market concentration may cause our financial performance to fluctuate significantly from period to period based on the success or failure of the markets in which we compete. Success in an end market, or commercialization, is uncertain and may develop differently in each case, with unique pricing, volume, and cost dynamics. Additionally, as production scales in order to meet the demands of commercialization, pricing pressure typically increases, and the amount of that pressure is expected to vary by market.

Sales volume

Sales volumes for our solutions can vary significantly by customer. This can depend on several factors, including the reputation of the end customer, market penetration, product capabilities, size of the end market that the product addresses and our end customers’ ability to sell their products. In addition to end market demand, sales volumes can also depend on the stage of development, with significantly higher volumes being typically associated with the production phase vs development phase. Our business can be significantly impacted by our ability to estimate these customer commitments and select projects that will successfully transition from development to production.

Continued investment and innovation

Our financial performance is significantly dependent on our ability to build on our position in the LiDAR market. This is dependent on the investments we make in research and development. It is essential that we continually identify and respond to rapidly evolving customer requirements, develop, and introduce innovative new products, enhance and service existing products and generate active market demand for our products. If we fail to do this, our leading market position and revenue may be adversely affected, and our investments in that area may not be recovered.

Market trends and uncertainties

We believe our business prospects are supported by favorable market trends that are likely to support growth in the LiDAR market over the next several years. We see the largest near-term growth opportunities coming from the IoT markets which encompass flow management, the industrial market, and mapping. In the shorter term we see the largest pipeline of opportunities at Quanergy coming from flow management solutions driven by increased demand from smart city, smart spaces, and security applications for managing human and vehicle movements in densely populated environments. We also see expect a rapidly increasing opportunity from the industrial market driven by increasing levels of automation for manufacturing, material handling and logistics. We believe that the transportation market represents a significant opportunity as auto OEMs shift from driver assist systems to increasing levels of automation, responding to consumer demands for increased safety and convenience. While the technology for significant automation at low volumes exists today, we believe high volume production of highly automated vehicles with LiDAR sensors is several years away as systems still need to see improvements in cost and performance. Our expectation is that some large volume LiDAR based programs will start to see deployment mid-decade with significant industry growth thereafter.

Although increasing adoption of LiDAR technology may generate higher demand, we may not be able to take advantage of demand if we are unable to anticipate customer needs quickly enough. The LiDAR industry is competitive with many well-funded new entrants, so we will need to build on our positioning with robust investment in new product to increase market acceptance of our LiDAR technology.

Margin Improvements

Our product costs and gross margins will depend largely on the volumes of the solutions we provide to our customers. Our ability to compete in our target markets will depend on the success of our digital LiDAR solutions and the ultimate volume of our sensors sold. We anticipate that our selling process will vary by target end market and application due to market-specific supply and demand dynamics. We expect these customer-specific selling

price fluctuations combined with our volume-driven product costs may drive fluctuations in revenue and gross margins on a quarterly basis. However, we expect that volume-driven product cost improvements will lead to a gross margin improvement as our sales volume increases over time.

Non-GAAP Financial Measures

We consider adjusted EBITDA to be an important non-GAAP financial measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. We believe that the use of adjusted EBITDA is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance.

However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for the non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measure and the reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure, and not to rely on any single financial measure to evaluate our business.

Adjusted EBITDA

Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes. We define adjusted EBITDA as net loss before depreciation and amortization, provision for income taxes, interest expense (net), non-cash gain or loss on debt transactions, certain non-recurring gains and losses and any extraordinary, unusual or non-recurring charges, expenses or losses, restructuring costs, stock-based compensation and change in fair value of derivative liabilities.

Our adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate adjusted EBITDA in the same manner as we calculate the measure, limiting its usefulness as a comparative measure. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider adjusted EBITDA alongside other financial performance measures, including our net loss and other GAAP results.

The following table reconciles net loss to adjusted EBITDA for the years ended December 31, 2021, and 2020, respectively:

	For year ended, December 31,
	2021			2020
Adjusted EBITDA
Net loss	$	(63,544	)	$	(35,835	)
Stock-based compensation expense		11,972			5,443
Depreciation and amortization		948			1,192
Interest expense		21,489			6,380
Interest income		(5	)		(34	)
Change in fair value of derivative liability		3,628			(1,402	)
Gain on forgiveness of PPP loan		(2,515	)		—
Other comprehensive income, net		—			(12	)
Income tax provision (benefit)		26			7
Adjusted EBITDA	$	(28,001	)	$	(24,261	)

Some of the limitations of adjusted EBITDA include (i) adjusted EBITDA does not properly reflect capital commitments to be paid in the future, and (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and adjusted EBITDA does not reflect these capital expenditures. In evaluating adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation.

Basis of presentation

Quanergy currently conducts its business through a single operating segment. Substantially, all our long-lived assets are maintained in, and our losses are attributable to, the United States of America. See Note 1 and Note 15 in the accompanying audited consolidated financial statements for more information on basis of presentation and operating segments, respectively.

Components of results of operations

Net sales

We generate revenue primarily by entering into standard supply arrangements with systems integrators, value added resellers, distributors, and end users. These end-customers and channel partners typically bundle Qortex perception software with a perpetual or term license, and/or services related to the support of the software and hardware and/or installation services. We also have instances of standalone sales of sensors and hardware equipment to customers.

Standard Supply Arrangements:

We recognize revenue from sales of products and services upon delivery. Delivery occurs upon transfer of title and all risks and rewards of ownership to the customer, which is generally upon shipment. Maintenance and support revenue is recognized ratably over the term of the support period. Certain of our arrangements are multiple-element arrangements with a combination of product and service.

We mostly use Distributors and System Integrators (“SIs”) to complement our direct sales and marketing efforts. The Distributors and SIs receive business terms of sale similar to those received by our direct customers, and payment to us is not contingent on the receipt of payment from the end customer. The Distributors and SIs negotiate pricing with the customer and are responsible for certain support levels directly with the customer.

See “—Critical Accounting Policies and Estimates—Revenue Recognition” below for a more detailed discussion of our revenue recognition policy.

Cost of Goods Sold

Cost of goods sold includes actual cost of material, labor, and manufacturing overhead, including depreciation and amortization, incurred for revenue-producing units shipped and includes associated warranty costs and other costs. Cost of goods sold also includes employee-related costs, including salaries, bonuses, stock-based compensation expense and employee benefit costs associated with the manufacturing of our LiDAR sensors. We expect cost of goods sold to increase in absolute dollars in future periods along with our revenue levels.

Gross Profit and Gross Margin

Our gross profit represents net sales less our total costs of goods sold, and our gross margin is our gross profit expressed as a percentage of our total revenues. We expect that gross profit and gross margin will continue to be affected by various factors including our pricing, volumes, and amount of investment to maintain or expand our sensors and sensing solutions, excess and obsolete inventories, cost structure for manufacturing operations, product support obligations, share-based compensation expenses, as well as allocated overhead. We expect our gross profit and gross margins to improve over the long term, although it varies by product and could fluctuate from period to period depending on the factors described above.

Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel-related costs directly associated with our research and development organization. These expenses also include non-personnel costs such as professional fees payable to third parties, license and subscription fees for development tools, pre-production product related costs including wafer fabrication costs, and other expenses related to collaborative arrangements. Our research and development efforts are focused on enhancing and developing additional functionality for our existing products and on new product development, including new releases and upgrades to our LiDAR sensors. We expense research and development costs as incurred. We expect our research and development expenses to increase in absolute dollars as we increase our investment in new mechanical sensors, in engineering development for our S-Series program as well as in hardware and software development to broaden the capabilities of our solutions and introduce new products and features.

Sales and Marketing

Our sales and marketing expenses consist primarily of personnel-related costs directly associated with our sales and marketing activities. These include the cost of sales commissions, marketing programs, trade shows, consulting services, promotional materials, demonstration equipment, an allocated portion of facility and IT costs and depreciation. We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, further penetrate the market and expand our global customer base. As a result, we expect our sales and marketing expenses to increase in absolute dollars as we expect to invest in growing and training our sales force and broadening our brand awareness.

General and Administrative

General and administrative expenses primarily consist of personnel-related expenses associated with our general and administrative organization, professional fees for legal, accounting, other consulting services, as well as an allocated portion of facility and IT costs and depreciation. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and stock exchange listing standards, additional insurance expenses (including directors’ and officers’ insurance), investor relations activities and other administrative and professional services. We also expect to increase the size of the general and administrative function to support the growth of our business. However, we anticipate selling, general, and administrative expenses to decrease as a percentage of revenue over the long term.

Other income (expense), net

Other income/(expense) consists mainly of interest income, interest expense and other expenses. Interest expense relates to interest on issuance of convertible notes and amortization of debt issuance costs. We receive interest income from our cash equivalents and investments in marketable securities. Other expense includes periodic adjustments to derivative liability at each balance sheet date and expenses realized due to debt discount provided to convertible promissory note holders and gain on forgiveness of the PPP loan.

Provision for income taxes

Our provision for income taxes consists of federal, state, and foreign current and deferred income taxes. As we expand the scale and scope of our international business activities, any changes in the United States and foreign taxation of such activities may increase our overall provision for income taxes in the future.

We have a full valuation allowance for net deferred tax assets, including federal and state net operating loss carryforwards and research and development credit carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income.

We believe that we have adequately reserved for our uncertain tax positions, although we can provide no assurance that the final outcome of these matters will not be materially different. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations.

Results of Operations

Comparison of years ended December 31, 2021, and 2020

We have derived this data from our consolidated financial statements included elsewhere in this Current Report on Form 8-K. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Current Report on Form 8-K. The results of historical periods are not necessarily indicative of the results of operations for any future period. The following tables set forth our consolidated statement of operations for the years ended December 31, 2021, and 2020:

	Years ended, December 31,
	2021			2020			$ Change			% Change
	($ in thousands)
Net sales	$	3,928		$	3,015		$	913			30	%
Cost of goods sold (1)		3,939			2,586			1,353			52	%
Gross profit (loss)		(11	)		429			(440	)		-103	%
Research and development (1)		17,011			15,373			1,638			11	%
Sales and marketing (1)		8,286			6,486			1,800			28	%
General and administrative (1)		15,653			9,472			6,181			65	%
Operating expenses		40,950			31,331			9,619			31	%
Operating loss		(40,961	)		(30,902	)		(10,059	)		33	%
Other income (expense):
Interest expense, net		(21,484	)		(6,346	)		(15,138	)		239	%
Other income (expense), net		(1,073	)		1,420			(2,493	)		-176	%
Loss before income taxes		(63,518	)		(35,828	)		(27,690	)		77	%
Income tax provision		(26	)		(7	)		(19	)		271	%
Net loss	$	(63,544	)	$	(35,835	)	$	(27,709	)		77	%

(1) Includes stock-based compensation expense (unaudited) as follows:

	For year ended December 31,
	2021		2020
Cost of goods sold	$	193	$	100
Research and development		1,717		2,225
Sales and marketing		858		1,294
General and administrative		9,204		1,824
	$	11,972	$	5,443

Our stock-based compensation expense is primarily related to our stock options, restricted stock units, and restricted stock awards for all periods presented. For the year ended December 31, 2021, $7.9 million of stock-based compensation was related to the vesting of restricted stock awards (“RSAs”). As of December 31, 2021, no compensation expense related to restricted stock units (“RSUs”) has been recognized as the performance vesting condition, which is (i) an initial public offering, or (ii) the closing of a merger of the Company with a special purpose acquisition company, or (iii) a Change in Control, has not occurred. The expense on such liquidation events would be recorded only on occurrence of such events. Total unrecognized stock-based compensation cost of $77.9 million related to unvested restricted stock units is expected to be recognized upon vesting, including meeting the above performance condition.

Considering that our operating expenses are significantly higher than reported revenue for the periods presented, presenting the unaudited consolidated statement of operations data as a percentage of revenue would not be meaningful, and hence it has been omitted.

Net Sales

	For year ended December 31,
	2021		2020		$ Change		% Change
	($ in thousands)
Net Sales	$	3,928	$	3,015	$	913		30	%

Net sales by geographic location:

	For year ended December 31,
	2021		2020		$ Change			% Change
	($ in thousands)
Americas	$	1,043	$	1,372	$	(329	)		-24	%
Asia		1,898		842		1,056			125	%
Europe, Middle East and Africa		987		801		186			23	%
Total net sales	$	3,928	$	3,015	$	913			30	%

Net Sales increased by $0.9 million to $3.9 million for the year ended December 31, 2021, from $3.0 million in for the year ended December 31, 2020. This increase is the result of increased customer orders along-side of general economic activity and increasing levels of customer engagement. Security and Smart Spaces customers have been the largest drivers of this improvement.

Cost of Goods Sold and Gross Margin

	For year ended December 31,
	2021			2020			$ Change			% Change
	($ in thousands)
Cost of goods sold	$	3,939		$	2,586		$	1,353			52	%
Gross margin		(11	)		429			(440	)		-103	%
Gross margin %		0	%		14	%

Cost of goods sold increased by $1.4 million to $3.9 million for the year ended December 31, 2021, from $2.6 million for the year ended December 31, 2020, while gross profit decreased by $0.4 million during the same period. The increase in cost of goods sold and resultant decrease in gross margin was mainly attributable to increased materials costs related to sales growth, increased inventory write downs to net realizable value, increased labor costs required to service future growth with hiring in anticipation of increased demand, and, to a lesser extent, higher costs per shipment due to increased freight charges and product costs.

Operating Expenses

	For year ended December 31,
	2021		2020		$ Change		% Change
	($ in thousands)
Research and development	$	17,011		15,373		1,638		11	%
Sales and marketing		8,286		6,486		1,800		28	%
General and administrative		15,653		9,472		6,181		65	%
	$	40,950		31,331		9,619		31	%

Research and Development

Research and development expenses increased by $1.6 million to $17.0 million for the year ended December 31, 2021, from $15.4 million for the year ended December 31, 2020. The increase was primarily attributable to a $1.8 million increase in personnel and related fringe costs, and a $0.2 million increase in materials and overhead related costs, partially offset by a decrease of $0.4 million in stock-based compensation expense.

Sales and Marketing

Sales and marketing expenses increased by $1.8 million to $8.3 for the year ended December 31, in 2021, from $6.5 million for the year ended December 31, 2020. The increase was primarily attributable to a $1.4 million increase in personnel and related fringe costs resulting from increased headcount, a $0.3 million increase in commissions and consulting, and a $0.5 million increase in demos, trade shows and other, partially offset by a decrease of $0.4 million in stock-based compensation expense.

General and Administrative

General and administrative expenses increased by $6.2 million to $15.7 million for the year ended December 31, 2021, from $9.5 million for the year ended December 31, 2020. The increase was primarily attributable to an increase of $7.4 million in stock-based compensation costs (including $7.9 million associated with RSAs which were issued in conjunction with the debt financing raised during the year ended December 31, 2021), a $1.1 million increase in accounting, legal and insurance costs incurred in anticipation of the Business Combination, and a $0.2 million increase in personnel and related fringe costs resulting from increased headcount, partially offset by a decrease of $2.5 million in accrued settlement costs.

Interest Expense, Net and Other Income (Expense), Net

	For year ended December 31,
	2021			2020			$ Change			% Change
	($ in thousands)
Interest expense, net	$	(21,484	)	$	(6,346	)	$	(15,138	)		239	%
Other income (expense), net		(1,073	)		1,420			(2,493	)		-176	%

Interest expense, net was $21.5 million for the year ended December 31, 2021, compared to $6.3 million for the year ended December 31, 2020. The increase was primarily attributable to increases of $5.0 million related to contractual interest and $10.0 million of discount amortization related to convertible promissory notes issued for the years ended December 31, 2020 and 2021.

Other expense, net increased $2.5 million to $1.1 million for the year ended December 31, 2021, compared to other income, net of $1.4 million for the year ended December 31, 2020. The increase in other expense, net, consisted of an increase in the fair value remeasurement of a derivative liability of $5.0 million related to promissory notes issued in the years ended December 31, 2020 and 2021, partially offset by a gain of $2.5 million on the forgiveness of the PPP loan for the year ended December 31, 2021.

Income Taxes

	For year ended December 31,
	2021			2020			$ Change			% Change
	($ in thousands)
Loss before income taxes	$	(63,518	)	$	(35,835	)	$	(27,583	)		77	%
Provision for income taxes		(26	)		(7	)		(19	)		271	%

The Company is subject to income taxes in the United States, China, Japan, UK, Germany and Canada. The change in the provision for income taxes during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was immaterial.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2021, we had cash and cash equivalents totaling $26.1 million, which were held for working capital purposes. Our cash equivalents are comprised primarily of money market funds. To date, our principal sources of liquidity have been payments received from sales to customers, net proceeds we received through issuance of convertible preferred stock and issuance of convertible notes. In November 2013, we received $3.4 million and $1 million in net proceeds from the sale of our Seed and Seed 2 Series preferred stock, respectively. In October and November 2014, we received $29.9 million in net proceeds from the sale of our Series A preferred stock. In April 2015, we received $9.8 million in net proceeds from the sale of our Series A+ preferred stock. In March 2016, we received $89.5 million in net proceeds from the sale of our Series B preferred stock. In October 2018, we received $19.3 million in net proceeds from the sale of our Series C preferred stock.

In March 2018 and June 2018, we received $24.8 million and $0.7 million, respectively, through issuance of convertible promissory notes (the “2022 Notes”) to various investors. The 2022 Notes are secured by a security agreement and mature in March 2022, unless earlier converted at the option of the investors. The principal amount accrues interest at 1.5% per annum, payable biannually, and additional interest at 8.0% per annum, which will be added to the principal and compounded on each payment date.

In March 2020, August 2020, and October 2020, we received $8.1 million, $7.5 million, and $0.5 million, respectively, through issuance of convertible promissory notes (the “2023 Notes”) to various investors. The principal amount of the outstanding balance will accrue interest at 10.0% per annum, payable at maturity in March 2023.

In May 2020, we received loan proceeds of $2.5 million under the CARES Act’s Paycheck Protection Program. The principal and accrued interest are forgivable after 24 weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels and that approval is received from the relevant government entity. The outstanding portion of the PPP loan is payable over two years at an interest rate of 1% per annum, with a deferral of payments for the first six months. However, the PPP loan was forgiven subsequently as on June 14, 2021.

In February 2021, we received $48.7 million through issuance of additional 2023 Notes. The principal amount of the outstanding balance will accrue interest at 10.0% per annum, payable at maturity in March 2023.

We have incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in our accumulated deficit of $308 million as of December 31, 2021. We expect to continue to incur operating losses for at least the next 12 months following the issuance of these financial statements due to the investments that we intend to make in our business and, as a result, we may require additional capital resources to grow our business.

As of December 31, 2021, the Company had $26.1 million of cash and cash equivalents. Further, the Company completed its business combination transaction on February 8, 2022, and effectively settled its outstanding debt balance of $106 million, thereby providing the company with additional future financial flexibility. The transaction also gives the Company access to $125 million from a previously announced share subscription facility from Global Emerging Markets Group (“GEM”), a Luxembourg-based private alternative investment group, once the effectiveness of the resale S-1 Registration Statement is completed, which is expected to occur in the second quarter of FY 2022. As registration effectiveness is not entirely in the company’s control, should the company not be able to access the GEM facility, it would be forced to seek other forms of financing which may not be available in sufficient amounts to fund its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern, for a period of twelve months following the date of issuance of financial statements for the year ending December 31, 2021. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Cash Flow Summary

The following table summarizes our cash flows for the periods presented:

	Year ended December 31,
	($ in thousands)
	2021			2020
Net cash provided by (used in)
Operating activities	$	(30,124	)	$	(21,815	)
Investing activities		(47	)		226
Financing activities		48,679			18,299
Effect of exchange rate changes		—			12
Net increase (decrease) in cash, cash equivalents and restricted cash	$	18,508		$	(3,278	)

Operating Activities

For the year ended December 31, 2021, operating activities used $30.1 million in cash. The primary factors affecting our operating cash flows during this period were our net loss of $63.5 million, offset by our non-cash charges of $35.2 million primarily consisting of stock-based compensation of $12.0 million, non-cash interest expense of $21.2 million, change in fair value of debt derivative liabilities of $3.6 million, and depreciation and amortization of $0.9 million, partially offset by the gain on extinguishment of debt of $2.5 million. The net cash used from changes in our operating assets and liabilities was $1.8 million. This amount consists of $2.8 million of cash provided from changes in our operating assets and liabilities, primarily due to a $0.8 million increase in accounts payable, a $0.3 million increase in accrued expenses, a decrease of $1.6 million in inventory, and a $0.1 million decrease in accounts receivable, offset by cash used from changes in our operating assets and liabilities of $4.6 million which primarily consists of a $3.4 million increase in other long-term assets, a $0.8 million increase in prepaid expenses and other current assets, and a $0.4 million decrease in other long-term liabilities.

For the year ended December 31, 2020, operating activities used $21.8 million in cash. The primary factors affecting our operating cash flows during this period were our net loss of $35.8 million, offset by our non-cash charges of $11.4 million and $2.6 million of net cash provided from changes in our operating assets and liabilities. Non-cash charges consist of stock-based compensation of $5.4 million, non-cash interest expense of $5.9 million, and depreciation and amortization of $1.2 million, offset by change in fair value of debt derivative liabilities and other of $1.2 million. The cash provided from changes in our operating assets and liabilities was $3.8 million, which was primarily due to an increase of $2.5 million of accrued settlement liability, a decreases of $0.8 million in inventory, a $0.2 million in prepaids and other current assets and a $0.2 million increase in accrued expenses. These amounts were partially offset by cash used in changes in our operating assets and liabilities of $1.2 million which primarily consists of a $0.4 million decrease in accounts payable, a $0.1 million increase in accounts receivable, and a $0.7 million decrease in other current and long-term liabilities.

Investing Activities

During the years ended December 31, 2021 and 2020, cash used in/ provided by investing activities was immaterial.

Financing Activities

During the year ended December 31, 2021, cash provided by financing activities was $48.7 million, consisting of net proceeds from the issuance of convertible notes of $48.6 million and proceeds of $74 thousand from exercises of stock options.

During the year ended December 31, 2020, cash provided by financing activities was $18.3 million, consisting of net proceeds from the issuance of convertible notes of $15.8 million, proceeds from the PPP loan of $2.5 million and proceeds of $34 thousand from exercise of stock options.

Contractual Obligations and Commitments and Off- Balance Sheet Arrangements

As of December 31, 2021, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

As of December 31, 2021, our contractual obligations consisted of: (i) operating lease commitments of $0.5 million, primarily all of which is due in 2022 and (ii) open PO commitments for $8.9 million, including $3.8 million for inventory to be consumed in the normal course of operations.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates.

We do not believe that inflation has had a material effect on our business, results of operations or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations or financial condition.

Interest Rate Risk

As of December 31, 2021, we had cash and cash equivalents of approximately $26.1 million, which consisted primarily of institutional money market funds, which carries a degree of interest rate risk. A hypothetical 10% change in interest rates would not have a material impact on our financial condition or results of operations due to the short-term nature of our investment portfolio.

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. All our revenue is generated in U.S. dollars. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the U.S. and to a lesser extent in Europe and Asia. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our historical consolidated financial statements. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.

Revenue Recognition

We adopted the requirements of the new revenue recognition standard, known as ASC 606, effective January 1, 2019, utilizing the modified retrospective method of transition. Revenue is recognized upon transfer of control of promised products and to a small extent service to customers in an amount that reflects the consideration that we expect to receive in exchange for those products and services. For service projects, revenue is recognized as services are performed and amounts are earned in accordance with the terms of a contract at estimated collectible amounts.

We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations; however, determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment. Transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis. Judgment is required to determine SSP for each distinct performance obligation. We use a range of amounts to estimate SSP when products and services are sold separately. In instances where SSP is not directly observable, we determine SSP using information that may include other observable inputs available to us.

For over-time revenue recognition, we will recognize revenue using the input method based on efforts expended or labor hours incurred as a measure of progress, which we believe to be a faithful depiction of our performance in fulfilling the promised services or of our progress in the development and delivery of the customized products. Significant judgment is required when estimating total contract costs and progress to completion on the arrangements, as well as whether a loss is expected to be incurred on the contract. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known to us. We will perform ongoing profitability analysis of our contracts accounted for under this method in order to determine whether the latest estimates of revenues, costs, and profits require updating. If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately.

Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.

Inventory Valuation

Inventory is stated at the lower of cost or net realizable value. Costs are computed under the standard cost method, which approximates actual costs determined on a first-in, first-out basis, and include freight and overhead expenses incurred to bring the inventory to its location and condition. We provide for reserves against this inventory which is considered obsolete or in excess of anticipated demand or net realizable value based on a consideration of marketability and product life cycle stage, product development plans, component cost trends, demand forecasts, historical net sales, and assumptions about future demand and market conditions. If the actual component usage and product demand are significantly lower than forecast, which may be caused by factors within and outside of our control, or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and our customer requirements, we may be required to increase our inventory write-downs. A change in our estimates could have a significant impact on the value of our inventory and our results of operations.

Income Taxes

Significant management judgment is required in developing our provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. We have considered projected future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances. If we determine that a valuation allowance is required, such adjustment to the deferred tax assets would increase our tax expense in the period in which such determination is made. Conversely, if we determine that a valuation allowance exceeds our requirement, such adjustment to the deferred tax assets would decrease tax expense in the period in which such determination is made. In evaluating the exposure associated with various tax filing positions, we accrue an income tax liability when such positions do not meet the more-likely-than-not threshold for recognition.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes, interest and penalties will be due. If our estimate of income tax liabilities proves to be less than the actual amount ultimately assessed, a further charge to tax expense would be required. If the payment of these amounts ultimately proves to be unnecessary, the reversal of the accrued liabilities would result in tax benefits being recognized in the period when we determine the liabilities no longer exist.

Stock-Based Compensation

Stock-based compensation consists of expense for stock options, stock awards and RSUs granted to employees and nonemployees. We estimate the fair value of RSUs based on the fair market value of our common stock on the date of grant, subject to remeasurement upon a modification of terms. We grant RSUs which vest upon the satisfaction of both service-based and performance-based vesting conditions. The service-based vesting condition for these RSUs range from nine months to four years, while the performance-based vesting condition is satisfied on the earlier of consummating an initial public offering (“IPO”), the closing of a merger with a SPAC, a change in control event or our equity securities become publicly traded on a nationally recognized exchange other than pursuant to an IPO, SPAC transaction or a change in control event. Upon satisfaction of the performance-based vesting condition, RSUs for which the service-based condition has been satisfied will vest immediately, and any remaining unvested RSUs will vest over the remaining service period. The fair value of RSUs is recognized as compensation expense over the requisite service period, using the accelerated attribution method once the performance-based condition becomes probable of being achieved. As of December 31, 2021, no compensation expense had been recognized for the RSUs because the performance-based vesting condition was not probable of being satisfied.

We estimate the fair value of stock options and stock awards granted to employees and directors using the Black-Scholes option pricing model. The fair value of stock options that are expected to vest is recognized as compensation expense on a straight-line basis over the requisite service period. We recognize forfeitures as they occur. Stock-based compensation expense from stock options and stock awards was $12.0 million and $5.4 million, respectively, for 2021, and 2020.

The fair value of our common stock has historically been determined by our board of directors, with the help of independent third-party valuation companies, as there was no public market for the common stock. The fair value of our common stock is determined by considering a number of objective and subjective factors, including: the valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, our operating and financial performance, the lack of liquidity of common stock and general and industry specific economic outlook, amongst other factors. The valuation of our common stock involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between these assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock and, in turn, on the valuation of our share-based compensation awards whose values are based in part on the value of our common stock.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this Current Report on Form 8-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Current Report on Form 8-K.

EX-99.3

Exhibit 99.3

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Capitalized terms used but not defined in this Exhibit 99.3 shall have the meanings ascribed to them in the Current Report on Form 8-K/A to which this Exhibit 99.3 is attached. Unless the context otherwise requires, the “Company” refers to Quanergy Systems, Inc. (f/k/a CITIC Capital Acquisition Corp.) and its subsidiaries after the Closing, and CITIC Capital Acquisition Corp. (“CCAC”) prior to the Closing.

The following summary unaudited pro forma condensed combined financial data (the “summary pro forma data”) gives effect to the Business Combination and the sale of the PIPE Shares (the “PIPE Financing”). The Business Combination will be accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, CCAC will be treated as the “acquired” company for accounting and financial reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of Legacy Quanergy issuing equity for the net assets of CCAC, accompanied by a recapitalization. The net assets of CCAC will be stated at historical cost, with no goodwill or other intangible assets recorded. The summary unaudited pro forma condensed combined balance sheet data as of December 31, 2021 gives effect to the Business Combination and PIPE Financing as if they had occurred on December 31, 2021. The summary unaudited pro forma condensed combined statement of operations data for the year ended December 31, 2021, and year ended December 31, 2020, gives effect to the Business Combination and PIPE Financing as if they had occurred on January 1, 2020.

The summary pro forma data have been derived from and should be read in conjunction with the audited historical financial statements of Quanergy Systems, Inc. (formerly, CCAC) which are included elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”), as well as the audited historical financial statements of Legacy Quanergy including the accompanying notes, which are filed as Exhibit 99.1 to this Current Report on Form 8-K/A (the “8-K/A”) .

The summary pro forma data have been presented for informational purposes only and are not necessarily indicative of what Legacy Quanergy’s and CCAC’s financial position or results of operations actually would have been had the Business Combination and PIPE Financing been completed as of the dates indicated. In addition, the summary pro forma data do not purport to project the future financial position or operating results of Quanergy.

(in thousands, except per share data)	Pro Forma Combined
Summary Unaudited Pro Forma Condensed Combined
Statement of Operations Data for the Nine months Ended December 31, 2021
Total revenue	$	3,928
Net loss	$	(89,065	)
Net loss per share – basic and diluted	$	(0.93	)
Weighted-average shares outstanding – basic and diluted		95,734,903
	Pro Forma Combined
Summary Unaudited Pro Forma Condensed Combined
Statement of Operations Data for the Year Ended December 31, 2020
Total revenue	$	3,015
Net loss	$	(148,720	)
Net loss per share – basic and diluted	$	(1.55	)
Weighted-average shares outstanding – basic and diluted		95,734,903
	Pro Forma Combined
Summary Unaudited Pro Forma Condensed Combined
Balance Sheet Data as of December 31, 2021
Cash and cash equivalents	$	30,929
Total current assets	$	51,068
Total assets	$	69,616
Total current liabilities	$	19,875
Total liabilities	$	35,197
Total stockholders’ equity	$	34,419

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Introduction

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 requires pro forma adjustments that depict the accounting for the transaction (“Transaction Accounting Adjustments”) and allows optional pro forma adjustments that present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”).

CCAC and Legacy Quanergy are collectively referred to herein as the “Companies,” and the Companies, subsequent to the Business Combination and the PIPE Investment, are referred to herein as “Quanergy.”

The unaudited pro forma condensed combined balance sheet as of December 31, 2021 combines the historical balance sheet of CCAC and the historical balance sheet of Legacy Quanergy on a pro forma basis as if the Business Combination and related transactions, summarized below, had been consummated on December 31, 2021. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 and the year ended December 31, 2020 combines the historical statements of operations of CCAC and Legacy Quanergy for such periods on a pro forma basis as if the Business Combination and related transactions, summarized below, had been consummated on January 1, 2020, the beginning of the earliest period presented:

• The merger of Merger Sub, the wholly owned subsidiary of CCAC, with and into Legacy Quanergy, with Legacy Quanergy as the surviving company;

• The redemption of 26,267,796 shares of Class A ordinary shares of CCAC from CCAC public stockholders that elected to have their shares redeemed in connection with the Business Combination for an aggregate redemption price of $264.5 million;

• The PIPE Investment and related adjustments;

• The execution of the Share Purchase Agreement between CCAC, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (collectively, “GEMS”), which provides for the potential future issuance of up to $125.0 million of fully paid and non-assessable common shares of Quanergy, subject to draw down notices as requested of Quanergy as provided in Article VI of the Share Purchase Agreement, and the related obligation to pay a commitment fee; and issuance of common stock warrants to GEMS for Quanergy shares;

• All outstanding shares of Legacy Quanergy convertible preferred stock will be cancelled and converted into shares of common stock of Quanergy (all preferred stock except for Series B and Series C will be cancelled and converted using ratio of 3.8799; Series B and Series C will be converted using ratios of 11.5423 and 14.3118, respectively).

• All outstanding shares of Legacy Quanergy common stock will be cancelled and converted into shares of Quanergy using a conversion ratio of 3.8799 calculated in accordance with the terms of the Merger Agreement;

• The conversion of Legacy Quanergy’s outstanding stock options, Restricted Stock (“RSAs”) and Restricted Stock Unit Awards (“RSUs”) and warrants, into stock options, Restricted Stock, Restricted Stock Unit Awards and warrants of Quanergy;

• The repayment of Legacy Quanergy’s indebtedness under the Note Financing Agreement issued in 2018 (the “2022 Secured Notes”);

• The conversion of the Note Financing Agreement issued in 2020 (the “2023 Notes) and 2021 (the “Extension Notes”, and together with 2023 Notes, referred to as the “Unsecured Notes”) into Legacy Quanergy common stock that will be converted into shares of common stock of Quanergy;

• All outstanding CCAC Class A and Class B ordinary shares will be cancelled and converted into shares of common stock of Quanergy;

• Issuance of common stock warrant to Sensata Technology Inc. in accordance with collaboration arrangement for consulting services for two years.

The historical financial information of CCAC was derived from the audited financial statements of CCAC as of and for the years ended December 31, 2021 and 2020, included elsewhere in the Form 10-K. The historical financial information of Legacy Quanergy was derived from the audited financial statements of Legacy Quanergy as of and for the years ended December 31, 2021 and 2020, included as exhibit 99.1 to this Form 8-K/A. This information should be read together with CCAC’s and Legacy Quanergy’s audited financial statements and related notes, the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in the Form 10-K, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as exhibit 99.2 to this Form 8-K/A and other financial information included elsewhere in the Form 8-K/A and Form 10-K.

The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what Quanergy’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. The pro forma combined financial information also may not be useful in predicting the future financial condition and results of operations of Quanergy. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.

The Business Combination will be accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with accounting principles generally accepted in the United States of America. Under this method of accounting, CCAC will be treated as the acquired company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of Legacy Quanergy issuing shares for the net assets of CCAC, accompanied by a recapitalization. The net assets of CCAC will be recognized at historical cost, with no goodwill or other intangible assets recorded.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2021

(in thousands, except share and per share amounts)

	As of December 31, 2021											As of December 31, 2021
	CCAC (Historical)			Quanergy (Historical)			Pro Forma Adjustments					Pro Forma Combined
ASSETS
Current Assets:
Cash and cash equivalents	$	31		$	26,106		$	277,874		(A	)	$	30,929
								(8,504	)	(B	)
								(2,000	)	(C	)
								36,950		(D	)
								(35,011	)	(E	)
								(264,517	)	(F	)
Restricted cash		—			70			—					70
Accounts receivable		—			645			—					645
Inventory		—			3,242			—					3,242
Deferred transaction costs		—			—			—					—
Prepaid expenses and other current assets		47			1,138			12,497		(G	)		16,182
								2,500		(P	)
Total current assets		78			31,201			19,789					51,068
Property and equipment, net		—			1,908			—					1,908
Investments held in Trust account		277,874			—			(277,874	)	(A	)		—
Other long-term assets		4,000			3,539			(3,396	)	(B	)		16,640
								12,497		(G	)
Total Assets	$	281,952		$	36,648		$	(248,984	)			$	69,616
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and other current liabilities	$	3,268		$	8,047		$	4,572		(B	)	$	18,215
								(172	)	(E	)
								2,500		(P	)
Accrued expenses due to related parties		1,660			—			—					1,660
Short-term debt		—			34,311			(34,311	)	(E	)		—
Total current liabilities		4,928			42,358			(27,411	)				19,875
Long-term debt		—			16,153			(32,824	)	(H	)		(16,671	)
Long-term debt - related party		—			16,670			—					16,670
Derivative liability		—			26,017			(26,017	)	(H	)		—
Other long-term liabilities		17,316			803			(8,556	)	(I	)		7,663
								2,100		(B	)
								(4,000	)	(Q	)
Deferred underwriting fees		9,660			—			(2,000	)	(C	)		7,660
Total liabilities		31,904			102,001			(98,708	)				35,197
Redeemable convertible preferred stock		—			152,978			(152,978	)	(J	)		—
Common shares subject to possible redemption		276,000			—			(276,000	)	(K	)		—
CCAC Class A Ordinary Shares		—			—			3		(K	)		—
								(4	)	(L	)
								1		(M	)
CCAC Class B Ordinary Shares		1			—			(1	)	(M	)		—
Quanergy Common Stock		—			—			(3	)	(F	)		8
								11		(L	)
Legacy Quanergy Common Stock		—			1			—					1
Additional paid-in capital		—			89,326			(18,570	)	(B	)		466,855
								36,950		(D	)
								24,993		(G	)
								143,265		(H	)
								8,556		(I	)
								152,978		(J	)
								275,997		(K	)
								(7	)	(L	)
								(25,953	)	(N	)
								43,754		(O	)
								80		(Q	)
								(264,514	)	(F	)
Accumulated other comprehensive loss		—			(61	)		—					(61	)
Accumulated deficit		(25,953	)		(307,597	)		(529	)	(E	)		(432,384	)
								—		—
								(84,424	)	(H	)
								25,953		(N	)
								(43,754	)	(O	)
								3,920		(Q	)
Total stockholders’ equity (deficit)		(25,952	)		(218,331	)		278,702					34,419
Total liabilities and stockholders’ equity (deficit)	$	281,952		$	36,648		$	(248,984	)			$	69,616

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2021

(in thousands, except share and per share amounts)

	For the year ended December 31, 2021											For the year ended December 31, 2021
	CCAC (Historical)			Quanergy (Historical)			Pro Forma Adjustments					Pro Forma Combined
Revenue	$	—		$	3,928		$	—				$	3,928
Cost of goods sold		—			3,939			566		(DD	)		4,505
Gross profit		—			(11	)		(566	)				(577	)
Operating expenses
Research and development		—			17,011			3,761		(DD	)		28,238
								1,218		(EE	)
								6,248		(FF	)
Sales and marketing		—			8,286			2,270		(DD	)		17,132
								328		(EE	)
								6,248		(FF	)
General and administrative		5,763			15,653			31,769		(DD	)		54,075
								890		(EE	)
Total operating expenses		5,763			40,950			52,732					99,445
Loss from operations		(5,763	)		(40,961	)		(53,298	)				(100,022	)
Interest expense		—			(21,484	)		3,867		(BB	)		—
								17,617		(CC	)
Interest income and realized gain from sale of treasury securities		—			5			—					5
Other income (expense)		23,332			(1,078	)		(14,904	)	(GG	)		10,978
								(377	)	(HH	)
								4,005		(II	)
Loss before income taxes		17,569			(63,518	)		(43,090	)				(89,039	)
Provision for income taxes		—			(26	)		—					(26	)
Net income (loss)	$	17,569		$	(63,544	)	$	(43,090	)			$	(89,065	)
Other comprehensive income		—			—			—					—
Total comprehensive income (loss)	$	17,569		$	(63,544	)	$	(43,090	)			$	(89,065	)
Basic and diluted net income per common share, Class A Ordinary Shares	$	0.51
Weighted average shares outstanding, basic and diluted, Class A Ordinary Shares		27,600,000
Basic and diluted net income per common share, Class B Ordinary Shares	$	0.51
Weighted average shares outstanding, basic and diluted, Class B Ordinary Shares		6,900,000
Basic and diluted net loss per share				$	(9.00	)						$	(0.93	)
Weighted average shares outstanding, basic and diluted					7,059,609								95,734,903

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2020

(in thousands, except share and per share amounts)

	For year ended on December 31, 2020											For year ended on December 31, 2020
	CCAC (Historical)			Quanergy (Historical)			Pro Forma Adjustments					Pro Forma Combined
Revenue	$	—		$	3,015		$	—				$	3,015
Cost of goods sold		—			2,586			301		(DD	)		2,887
Gross profit		—			429			(301	)				128
Operating expenses
Research and development		—			15,373			1,485		(DD	)		24,323
								1,217		(EE	)
								6,248		(FF	)
Sales and marketing		—			6,486			621		(DD	)		13,743
								388		(EE	)
								6,248		(FF	)
General and administrative		562			9,472			2,896		(DD	)		13,683
								753		(EE	)
Total operating expenses		562			31,331			19,856					51,749
Loss from operations		(562	)		(30,902	)		(20,157	)				(51,621	)
Interest expense		—			(6,346	)		3,571		(BB	)		—
								2,775		(CC	)
Interest income and realized gain from sale of treasury securities		1,846			—			(1,846	)	(AA	)		—
Other income (expense)		(11,791	)		1,420			(4,157	)	(BB	)		(97,092	)
								(87,670	)	(JJ	)
								5,106		(GG	)
Loss before income taxes		(10,507	)		(35,828	)		(102,378	)				(148,713	)
Provision for income taxes		—			(7	)		—					(7	)
Net loss	$	(10,507	)	$	(35,835	)	$	(103,378	)			$	(148,720	)
Other comprehensive income		—			12			—					12
Total comprehensive loss	$	(10,507	)	$	(35,823	)	$	(102,378	)			$	(148,708	)
Basic and diluted net income per common share, Class A Ordinary Shares	$	(0.34	)
Weighted average shares outstanding, basic and diluted, Class A Ordinary Shares		24,348,493
Basic and diluted net income per common share, Class B Ordinary Shares	$	(0.34	)
Weighted average shares outstanding, basic and diluted, Class B Ordinary Shares		6,900,000
Basic and diluted net loss per share				$	(7.06	)						$	(1.55	)
Weighted average shares outstanding, basic and diluted					5,077,336								95,734,903

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Description of the Business Combination

In June 2021, CCAC and Merger Sub, the wholly owned subsidiary of CCAC, entered into the Merger Agreement with Legacy Quanergy with the Business Combination completed on February 8, 2022. In connection with the Business Combination, CCAC changed its jurisdiction of incorporation by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the “Domestication”), upon which CCAC changed its name to “Quanergy Systems, Inc.” Immediately after the Domestication, Merger Sub merged with and into Legacy Quanergy, the separate corporate existence of Merger Sub ceased, and Legacy Quanergy became the surviving company in the Merger, and a wholly owned subsidiary of CCAC (the “Merger”). CCAC changed its name to “Quanergy Systems, Inc.” (referred to herein, together with its subsidiaries, as “Quanergy”), with Legacy Quanergy Stockholders holding the majority of the common stock of Quanergy.

Pursuant to the Merger Agreement, the aggregate stock consideration issued by Quanergy in the Business Combination is $1.1 billion, consisting of 108,927,204 newly issued shares of Quanergy valued at $10.00 per share. Legacy Quanergy Stockholders will receive $970.0 million in the form of 97,000,000 newly issued shares of Quanergy (including certain convertible equity securities calculated on a treasury stock method basis). CCAC stockholders will continue to hold 8,232,204 of existing shares, and the PIPE Investors will purchase 3,695,000 newly issued shares at $10.00 per share.

The following summarizes consideration to Legacy Quanergy at closing of the Business Combination.

(amounts in thousands, except share data)
Shares transferred at Closing(1)(2)(3)		97,000,000
Value per share		10.00
Total Share Consideration(4)	$	970,000.0

(1) The number of shares presently transferred to Legacy Quanergy Stockholders upon consummation of the Business Combination include (i) 57,020,284 shares of common stock of Quanergy, issued for the outstanding shares of Legacy Quanergy (ii) 14,465,014 shares of common stock of Quanergy issued for the conversion of the Unsecured Notes, at the Effective Time; (iii) 12,322,401 shares of common stock of Quanergy issued for shares of Legacy Quanergy common stock underlying the warrants, at the Effective Time; (iv) 13,192,301 shares of common stock of Quanergy reserved to be issued as vested and unvested options and RSUs for Legacy Quanergy options and RSUs, in each case, calculated on a treasury stock method.

(2) 12,322,401 shares of common stock of Quanergy represent potential shares of common stock exercisable for nominal consideration, therefore, deemed to be issued and outstanding.

(3) The number of shares issued to Legacy Quanergy Stockholders (calculated on a treasury stock method basis) upon consummation of the Business Combination.

(4) Share consideration is calculated using a $10.00 reference price. The actual total value of share consideration was dependent on the value of the common stock at Closing; however, no expected change from any change in CCAC Class A common stock’s trading price on the pro forma financial statements as the Business Combination will be accounted for as a reverse recapitalization.

The value of share consideration issued at the Closing is determined by application of the Exchange Ratio of 3.8799 (except for Series B and Series C preferred stock, which will be converted using ratios of 11.5423 and 14.3118, respectively), which is based on the $10.00 reference price per share upon consummation of the Business Combination.

2. Basis of Presentation

The Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with accounting principles generally accepted in the United States of America. Under this method of accounting, CCAC will be treated as the acquired company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of Legacy Quanergy issuing shares for the net assets of CCAC, accompanied by a recapitalization. The net assets of CCAC will be recognized at historical cost, with no goodwill or other intangible assets recorded.

Legacy Quanergy has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

• Legacy Quanergy’s stockholders have majority of the voting power;

• Legacy Quanergy appointed the majority of the board of directors of Quanergy;

• Legacy Quanergy’s existing management comprise the management of Quanergy;

• Legacy Quanergy comprise the ongoing operations of Quanergy;

• Legacy Quanergy is the larger entity based on historical revenues and business operations;

• Quanergy assumes Legacy Quanergy’s name.

The unaudited pro forma condensed combined balance sheet as of December 31, 2021 assumes that the Business Combination occurred on December 31, 2021. The unaudited pro forma condensed combined statement of operations for the years ended December 31, 2020 and 2021 presents the pro forma effect of the Business Combination as if it had been completed on January 1, 2020. These periods are presented on the basis of Legacy Quanergy being the accounting acquirer.

The unaudited pro forma condensed combined balance sheet as of December 31, 2021 has been prepared using, and should be read in conjunction with, the following:

• CCAC’s audited balance sheet as of December 31, 2021 and the related notes for the year ended December 31, 2021, included elsewhere in the Form 10-K; and

• Legacy Quanergy’s audited consolidated balance sheet as of December 31, 2021 and the related notes for the year ended December 31, 2021, included as exhibit 99.1 to this Form 8-K/A.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 and the year ended December 31, 2020 has been prepared using, and should be read in conjunction, with the following:

• CCAC’s audited statement of operations for the years ended December 31, 2021 and 2020 and the related notes, included elsewhere in the Form 10-K; and

• Legacy Quanergy’s audited statement of operations for the years ended December 31, 2021 and 2020 and the related notes, included as exhibit 99.1 to this Form 8-K/A.

Management has made significant estimates and assumptions in its determination of the pro forma adjustments (“Pro Forma Adjustments”). As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination.

The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated.

The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of Quanergy. They should be read in conjunction with the audited financial statements and notes thereto of each of CCAC and Legacy Quanergy included elsewhere in the form 10-K and as exhibit 99.1 to the Form 8-K/A.

The unaudited pro forma condensed combined financial information does not reflect the income tax effects of the pro forma adjustments. Quanergy’s management believes the income tax effects to not be meaningful given Quanergy incurred significant losses during the historical periods presented.

The following summarizes the pro forma common stock ownership as of immediately following the consummation of the Business Combination:

	Number of Outstanding Shares		% Ownership
Legacy Quanergy stockholders		97,000,000		89.1	%
PIPE Investors		3,695,000		3.4	%
CCAC Class A ordinary shares(1)		1,332,204		1.2	%
CCAC Class B ordinary shares		6,900,000		6.3	%
		108,927,204

(1) Reflects redemptions of 26,267,796 shares.

Accounting Policies

Upon consummation of the Business Combination, management will perform a comprehensive review of the two entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of Quanergy.

3. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

The transaction accounting adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2021 are as follows:

(A) Reflects the reclassification of cash and cash equivalents held in CCAC’s Trust Account that becomes available and to reflect that the cash equivalents are available to effectuate the transaction in connection with the Business Combination.

(B) Reflects the payment of transaction costs incurred by CCAC and Legacy Quanergy in 2021 including, but not limited to, preliminary estimated advisory, legal, accounting fees and other professional fees that will be paid in connection with the consummation of the Business Combination. The acquisition-related transaction costs are accounted for as equity issuance costs and the unaudited pro forma condensed balance sheet reflects these costs as a reduction of cash, an increase to accounts payable, or an increase to other long-term liabilities, with a corresponding decrease to additional paid in capital. As of December 31, 2021, CCAC and Legacy Quanergy had accrued approximately $0.6 million and $2.7 million, respectively, with such amounts reflected in accounts payable and other current liabilities, and Legacy Quanergy had capitalized $3.3 million deferred transaction costs reflected in other long-term assets.

(C) Reflects the cash settlement of deferred underwriting fees incurred during CCAC’s IPO due upon completion of the Business Combination, with the balance due in 2 years.

(D) Reflects the proceeds of $37.0 million from the issuance and sale of 3.7 million shares of common stock at $10.00 per share pursuant to the PIPE Investment. The unaudited pro forma condensed balance sheet reflects the conversion with a corresponding increase of $37.0 million to additional paid in-capital and an increase of less than $0.1 million to Quanergy common stock.

(E) Reflects cash settlement of the outstanding principal amount of $25.5 million for the 2022 Secured Notes and $9.3 million of accrued interest. The adjustment of $0.5 million to accumulated deficit reflects the loss upon extinguishment of the 2022 Secured Notes based on the payoff amount of $35.0 million, compared to the book value of the debt which totaled $34.3 million, net of debt discount, and the settlement of derivative liability totaling $0.2 million.

(F) Reflects the payment made to redeeming CCAC public stockholders upon consummation of the Business Combination. The amount of redemptions is 26,267,796 shares of Class A ordinary shares redeemed for $264.5 million allocated to Quanergy Common Stock and additional paid-in capital, using a par value of $0.0001 per share at a redemption price of $10.07 per share (based on the fair value of marketable securities held in the Trust Account as of December 31, 2021 of $277.9 million).

(G) Reflects a charge of $25.0 million to additional paid-in capital for warrants issued to an external advisor for future services to be provided under a collaboration agreement, with a corresponding increase of $12.5 million in prepaid expenses and other current assets and $12.5 million in other long-term assets. The deferred cost is expected to be amortized over the two-year service period.

(H) Reflects the conversion of the outstanding debt balance totaling $58.8 million (net of debt discount totaling $38.6 million) including accrued interest of $6.8 million of Legacy Quanergy’s Unsecured Notes, and related debt derivative liability of $26.0 million, immediately prior to the consummation of the Business Combination into shares of Legacy Quanergy common stock (and subsequently to Quanergy common stock) at two times the value of the face value of notes plus accrued interest, in accordance with terms of settlement provisions included in the convertible note agreement. Due to these settlement terms, Legacy Quanergy remeasured the associated derivative liability, resulting in the recognition of an expense of $84.4 million which is recorded as an adjustment to accumulated deficit. The unaudited pro forma condensed balance sheet reflects the conversion with a corresponding increase of $143.3 million to additional paid in-capital.

(I) Reflects the reclassification of $8.6 million of warrant liabilities associated with CCAC’s public warrants to additional paid-in capital. Upon the consummation of the merger, Quanergy will have a single class equity structure, and the public warrants are expected to qualify as equity instruments under ASC 815, Derivatives and Hedging. The final determination of the accounting for the public warrants will be determined by the accounting acquirer after the consummation of the merger.

(J) Reflects the conversion of Legacy Quanergy’s convertible preferred stock immediately prior to the consummation of the Business Combination into Quanergy’s common stock. The unaudited pro forma condensed balance sheet reflects the conversion with a corresponding increase of $153.0 million to additional paid in-capital.

(K) Reflects the reclassification of historical CCAC’s Class A ordinary stock subject to possible redemption from temporary equity into permanent equity immediately prior to the consummation of the Business Combination. The unaudited pro forma condensed balance sheet reflects the conversion with a corresponding increase of $276.0 million to additional paid in-capital and an increase of less than $0.1 million to Quanergy common stock.

(L) Reflects recapitalization of shares of Legacy Quanergy common stock and CCAC Class A ordinary shares to Quanergy common stock.

(M) Reflects the conversion of CCAC Class B ordinary shares to CCAC Class A ordinary shares pursuant to terms of the Merger Agreement.

(N) Reflects the reclassification of CCAC’s historical retained earnings to additional paid-in-capital in connection with the consummation of the Business Combination.

(O) Reflects stock-based compensation expense of approximately $43.8 million associated with performance RSUs granted to employees and non-employees. The performance condition is deemed to be probable of being met upon consummation of the Business Combination, resulting in Quanergy recognizing a one-time catch-up expense.

(P) Reflects the commitment fee of 2% of the $125 million facility payable to GEMS which would need to be paid within a year of the first trading day of Quanergy.

(Q) Reflects common stock warrants of 2.5% of the total equity interests of CCAC on a fully diluted basis as of the Closing Date, at an exercise price of $10.0 per share, exercisable into shares of Quanergy after the Merger to GEMS. The warrants were issued in December 2021 and upon the Closing Date, the warrant liability was remeasured, resulting in the recognition of income of $3.9 million, which is recorded as an adjustment to accumulated deficit. At the Closing Date, the warrants were reclassified as equity, resulting in a $0.1 million increase to additional paid-in capital.

Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations

The transaction accounting adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 and the nine months ended December 31, 2021 are as follows:

(AA) Reflects the elimination of historical interest income earned on CCAC’s Trust Account.

(BB) Reflects the reversal of the historical interest expense and historical remeasurement of derivative liabilities recorded related to Legacy Quanergy’s 2022 Secured Notes and 2023 Unsecured Notes, which have been settled and converted, respectively, upon consummation of the Business Combination.

(CC) Reflects the reversal of the historical interest expense related to Legacy Quanergy’s 2023 Notes, which shall automatically convert into shares of Quanergy at the rate of 50% of the share price, upon consummation of the Business Combination.

(DD) Reflects the stock-based compensation associated with performance RSUs, post achievement of the performance condition in accordance with the vesting conditions of the awards. The performance condition is deemed to be probable of being met upon consummation of the Business Combination.

(EE) Reflects incremental expense pertaining to retention plan bonus payout for certain employees that was triggered by the consummation of the Business Combination.

(FF) Reflects the expense recognized related to vesting of warrants issued to an external advisor in exchange for a collaboration agreement through which the advisor will support Legacy Quanergy’s product and market development activities for both the IoT and automotive markets. The expense presented in the pro forma period is based on management’s estimate of the pattern of consumption of services to be obtained under this collaboration agreement.

(GG) Reflects the elimination of the change in valuation of warrant liabilities associated with CCAC’s public warrants, upon the reclassification of such warrants from liability to equity classified instruments.

(HH) Reflects elimination of impact of the historical remeasurement of derivative liabilities for 2022 Notes for the year ended December 31, 2021.

(II) Reflects elimination of impact of the historical remeasurement of derivative liabilities for 2023 Notes, which have been settled and converted upon consummation of the Business Combination.

(JJ) Reflects the remeasurement gains and losses of Legacy Quanergy’s 2023 Notes related derivative liabilities upon the automatic conversion of Legacy Quanergy’s 2023 Notes into shares of Quanergy at the rate of 50% of the share price, simultaneously with the consummation of the Business Combination.

5. Loss per share

Represents the net loss per share calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination, assuming the shares were outstanding since January 1, 2020. As the Business Combination is being reflected as if it had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entire periods presented. When assuming the redemption scenarios described above, this calculation is adjusted to eliminate such shares for the entire periods.

	Year ended December 31, 2021			Year ended December 31, 2020
(amounts in thousands, except share data)	Pro forma combined			Pro forma combined
Pro forma net loss	$	(89,065	)	$	(148,720	)
Basic weighted average shares outstanding		95,734,903			95,734,903
Net loss per share – Basic and Diluted	$	(0.93	)	$	(1.55	)
Basic weighted average shares outstanding
Legacy Quanergy Equity holders (1)		83,807,699			83,807,699
PIPE Investors		3,695,000			3,695,000
CCAC Class A Ordinary Shares		1,332,204			1,332,204
CCAC Class B Ordinary Shares		6,900,000			6,900,000

(1) The number of outstanding shares held by Legacy Quanergy Equity holders excludes 13,192,301 shares of common stock of Quanergy reserved to be issued in exchange for Legacy Quanergy Inc. vested and unvested options and RSUs.

The following potential outstanding securities were excluded from the computation of pro forma net loss per share, basic and diluted, because their effect would have been anti-dilutive or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period:

Legacy Quanergy Inc. stock options and RSUs	13,192,301
CCAC - public and private placement warrants	21,320,000
GEMS PIPE shares	12,500,000

XML

Document and Entity Information	Feb. 08, 2022
Document And Entity Information [Line Items]
Document Type	8-K/A
Amendment Flag	true
Document Period End Date	Feb. 08, 2022
Entity Registrant Name	QUANERGY SYSTEMS, INC.
Entity Incorporation, State or Country Code	DE
Entity File Number	001-39222
Entity Tax Identification Number	88-0535845
Entity Address, Address Line One	433 Lakeside Drive
Entity Address, City or Town	Sunnyvale
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94085
City Area Code	408
Local Phone Number	245-9500
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Amendment Description	On February 8, 2022, Quanergy Systems, Inc., a Delaware corporation (the “Company”) (f/k/a CITIC Capital Acquisition Corp. (“CCAC”)), filed a Current Report on Form 8-K and Amendment No. 1 on Form 8-K/A (together, the “Original Report”) to report the Closing and related matters under Items 1.01, 2.01, 3.02, 4.01, 5.01, 5.02, 5.06 and 9.01 of Form 8-K. This Amendment No. 2 amends the
Entity Central Index Key	0001794621
Common Stock [Member]
Document And Entity Information [Line Items]
Title of 12(b) Security	Common Stock, $0.0001 par value per share
Trading Symbol	QNGY
Security Exchange Name	NYSE
Warrant [Member]
Document And Entity Information [Line Items]
Title of 12(b) Security	Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share
Trading Symbol	QNGY WS
Security Exchange Name	NYSE