UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File number 000-38605

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION

(Exact name of registrant as specified in charter)

 

British Virgin Islands   001-38605

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

50 Millstone Road, Building 400 Suite 130

East Windsor, NJ

United States

  08512
(Address of principal executive offices)   (Zip Code)

 

1 (888) 827-4832

(Registrant’s telephone number, including area code)

 

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

 

Title of each class   Trading Symbol(s)  

Name of each exchange on which registered

Ordinary shares, no par value   GTEC     The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    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.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No

 

As of November 10, 2022, there were 12,579,530 ordinary shares of the registrant outstanding.

 

 

 

 

 

 

INDEX

 

    Page
    Number
     
PART I. FINANCIAL INFORMATION 1
     
ITEM 1. Financial Statements (unaudited) 1
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 15
     
ITEM 4. Controls and Procedures 15
     
PART II. OTHER INFORMATION 17
     
ITEM 1. Legal Proceedings 17
     
ITEM 1A. Risk Factors 17
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
     
ITEM 3. Defaults Upon Senior Securities. 37
     
ITEM 4. Mine Safety Disclosures. 37
     
ITEM 5. Other Information. 37
     
ITEM 6. Exhibits 38
     
Signatures   39

 

i

 

 

FORWARD LOOKING STATEMENTS

 

This quarterly report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. Forward-looking statements may appear throughout this report and other documents we file with the U.S. Securities and Exchange Commission (“SEC”), including without limitation, the following sections: Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report on Form 10-Q. Specifically, these forward-looking statements may include statements relating to:

 

the future financial performance of the Company;

 

  changes in the market for the Company’s products;
     
  our goals and strategies;
     
  our business and operating strategies and plans for the development of existing and new businesses, ability to implement such strategies and plans and expected time;
     
  our dividend policy;
     
  our expectations regarding our relationships with our suppliers, customers, business partners and third-parties;
     
  our market position and our ability to maintain and enhance our market position;
     
  our ability to attract, train and retain executives and other employees;
     
  fluctuations in inflation, interest rates and foreign exchange rates;
     
  the future development of the COVID-19 pandemic and its impact on our business and industry; and
     
  assumptions underlying or related to any of the foregoing.

 

Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “may,” “could,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. In addition, there is uncertainty about the future development of the COVID-19 pandemic and the impact it may have on the Company’s operations, the demand for the Company’s products or services, global supply chains and economic activity in general. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

  

ii

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2022

 

TABLE OF CONTENTS

 

PAGE   F-1-F-2   CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021
         
PAGE   F-3   CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)
         
PAGE   F-4   CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)
         
PAGE   F-5-F-6   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)
         
PAGE   F-7-F-34   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

 

(UNAUDITED, IN U.S. DOLLARS)

 

   September 30,   December 31, 
   2022   2021 
         
ASSETS        
Current assets        
Cash and cash equivalents  $11,306,600   $11,062,590 
Restricted cash   3,720,931    6,738,302 
Short Term Investment   12,243,140    2,105,938 
Notes receivable   31,606,518    37,551,121 
Accounts receivable, net of allowance for doubtful accounts of $774,452 and $859,319, respectively   18,344,356    15,915,002 
Inventories   21,884,848    25,803,474 
Due from related parties-current   35,462,308    39,679,565 
Advance to suppliers   676,823    434,893 
Prepayments and other current assets   96,323    14,518 
Total Current Assets  $135,341,847   $139,305,403 
           
Non-current asset          
Property, plant, equipment and construction in progress, net   15,503,755    18,957,553 
Land use rights, net   3,550,039    4,035,198 
Other intangible assets   157,153    
 
Deferred tax assets   126,872    141,623 
Goodwill   3,890    3,890 
Operating lease right-of-use assets   2,748,910    80,682 
Other non-current assets   242,866    44,093 
Total non-current assets  $22,333,485   $23,263,039 
TOTAL ASSETS  $157,675,332   $162,568,442 

 

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

 

F-1

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 (Continued)

 

(UNAUDITED, IN U.S. DOLLARS)

 

   September 30,   December 31, 
   2022   2021 
         
Current Liabilities        
Short-term bank loans  $8,715,822   $8,760,945 
Notes payable-bank acceptance notes   33,716,344    42,093,061 
Accounts payable   23,954,824    29,064,132 
Taxes payables   
    108,058 
Customer deposits   196,125    387,919 
Due to related parties   1,594,227    3,619,459 
Other current liabilities   1,622,362    1,198,427 
Current portion of operating lease liabilities   462,365    33,308 
Long-term payables - current   
    197,915 
Total current liabilities  $70,262,069   $85,463,224 
           
Long-term liabilities          
Long-term payables – non-current   
    
 
Long term operating lease liabilities   2,293,844    47,614 
Other long-term liabilities   1,828,340    2,212,938 
Total long-term liabilities  $4,122,184   $2,260,552 
TOTAL LIABILITIES  $74,384,253   $87,723,776 
           
COMMITMENTS AND CONTINGENCIES   
 
    
 
 
EQUITY          
Ordinary shares, no par value, unlimited shares authorized; 12,579,530 and 11,329,530 shares issued and outstanding as of September 30, 2022 and December 31, 2021.
   
    
 
Additional paid-in capital   32,955,927    23,759,364 
Statutory reserves   3,842,331    3,842,331 
Retained earnings   38,220,976    33,668,696 
Accumulated other comprehensive income (loss)   (4,432,076)   1,014,399 
Total shareholders’ equity  $70,587,158   $62,284,790 
Non-controlling interest   12,703,921    12,559,876 
TOTAL EQUITY  $83,291,079   $74,844,666 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $157,675,332   $162,568,442 

 

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

 

F-2

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

 

(UNAUDITED, IN U.S. DOLLARS)

 

  

For the three months ended

September 30,

  

For the nine months ended

September 30,

 
   2022   2021   2022   2021 
REVENUES  $21,786,862   $23,084,793   $71,696,324   $75,899,994 
COST OF GOODS SOLD   16,974,566    17,987,363    55,676,893    59,993,008 
GROSS PROFIT   4,812,296    5,097,430    16,019,431    15,906,986 
Selling expenses   521,865    522,770    1,679,600    1,397,462 
General and administrative expenses   1,192,210    1,150,769    3,716,590    2,814,120 
Research and development expenses   1,023,443    1,372,215    2,968,572    3,337,056 
Total operating expenses  $2,737,518   $3,045,754   $8,364,762   $7,548,638 
INCOME FROM OPERATIONS  $2,074,778   $2,051,676   $7,654,669   $8,358,348 
Interest income   12,790    4,737    35,239    14,165 
Interest expense   (125,981)   (106,506)   (322,641)   (508,359)
Loss on disposal of property and equipment   (301)   -    (695)   (959)
Other income   655,838    231,466    1,418,580    830,515 
INCOME BEFORE INCOME TAX  $2,617,124   $2,181,373   $8,785,152   $8,693,710 
INCOME TAX   518,931    927,844    1,392,735    1,844,619 
NET INCOME  $2,098,193   $1,253,529   $7,392,417   $6,849,091 
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST   820,229    225,181    2,840,137    911,422 
NET INCOME ATTRIBUTABLE TO GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES  $1,277,964   $1,028,348   $4,552,280   $5,937,669 
OTHER COMPREHENSIVE INCOME (LOSS):   (4,552,121)   (605,515)   (8,253,663)   (29,781)
Unrealized foreign currency translation income (loss) attributable to Greenland Technologies Holding Corporation and subsidiaries   (2,974,517)   (433,694)   (5,446,475)   (31,313)
Unrealized foreign currency translation income (loss) attributable to Noncontrolling interest   (1,577,604)   (171,821)   (2,807,188)   1,532 
Comprehensive income (loss)   (1,696,553)   594,654    (894,195)   5,906,356 
Noncontrolling interest   (757,375)   53,360    32,949    912,954 
WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING:                    
Basic and diluted
   12,222,387    11,329,530    11,628,243    10,715,132 
NET INCOME PER ORDINARY SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY:                    
Basic and diluted
   0.10    0.09    0.39    0.55 

 

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

 

F-3

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

 

(UNAUDITED, IN U.S. DOLLARS, EXCEPT FOR SHARE DATA)

 

   Ordinary Shares   Additional  

Accumulated

Other

           Non-     
   No Par Value   Paid-in   Comprehensive   Statutory   Retained   controlling     
   Shares   Amount   Capital   Income/(loss)   Reserve   Earnings   Interest   Total 
Balance at December 31, 2020   10,225,142       $13,707,398   $(62,925)  $4,517,117   $26,728,332   $5,771,540   $50,661,462 
Restricted share grants   51,000        51,000                    51,000 
Sale of shares and warrants   180,344        1,858,841                    1,858,841 
Net income                       2,128,568    314,671    2,443,239 
Foreign currency translation adjustment               (189,103)           (69,126)   (258,229)
Balance at March 31, 2021   10,456,486       $15,617,239   $(252,028)   4,517,117   $28,856,900   $6,017,085   $54,756,313 
Sale of shares and warrants   873,044        6,366,256                    6,366,256 
Net income                       2,780,753    371,570    3,152,323 
Transfer to statutory reserve                   (674,786)   674,786         
Foreign currency translation adjustment               591,484            242,479    833,963 
Balance at June 30, 2021   11,329,530        21,983,495    339,456    3,842,331    32,312,439    6,631,134    65,108,855 
Net income                       1,028,348    225,181    1,253,529 
Foreign currency translation adjustment               78,895            35,329    114,224 
Balance at September 30, 2021   11,329,530        21,983,495    418,351    3,842,331    33,340,787    6,891,644    66,476,608 
                                         
Balance at December 31,2021   11,329,530       $23,759,364   $1,014,399   $3,842,331   $33,668,696   $12,559,876   $74,844,666 
Sale of shares and warrants           77,069                    77,069 
Net income                       1,787,052    1,127,746    2,914,798 
Foreign currency translation adjustment               248,082            125,828    373,910 
Balance at March 31, 2022   11,329,530       $23,836,433   $1,262,481    3,842,331   $35,455,748   $13,813,450   $78,210,443 
Net income                       1,487,264    892,162    2,379,426 
Foreign currency translation adjustment               (2,720,040)           (1,355,412)   (4,075,452)
Balance at June 30, 2022   11,329,530        23,836,433    (1,457,559)   3,842,331    36,943,012    13,350,200    76,514,417 
Sale of shares and warrants   1,250,000        9,119,494                    9,119,494 
Net income                       1,277,964    820,229    2,098,193 
Foreign currency translation adjustment               (2,974,517)           (1,466,508)   (4,441,025)
Balance at September 30, 2022   12,579,530        32,955,927    (4,432,076)   3,842,331    38,220,976    12,703,921    83,291,079 

 

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

 

F-4

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

 

(UNAUDITED, IN U.S. DOLLARS)

 

  

For the nine months ended

September 30,

 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income  $7,392,417   $6,849,091 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   1,849,467    1,874,166 
Loss on disposal of property and equipment   695    959 
Increase in allowance for doubtful accounts   4,967    
 
Increase (Decrease) in provision for inventory   (22,846)   
 
Deferred tax assets   
    2,023 
Stock based compensation expense   
    66,200 
Changes in operating assets and liabilities:          
Decrease (Increase) In:          
Accounts receivable   (4,385,421)   (8,723,305)
Notes receivable   2,179,528    (5,813,094)
Inventories   1,342,340    (5,015,669)
Advance to suppliers   (307,852)   245,300 
Other current and noncurrent assets   (11,399,931)   78,818 
Increase (Decrease) In:          
Accounts payable   (2,231,682)   5,982,220 
Customer deposits   (162,262)   (34,905)
Other current liabilities   776,504    (559,803)
Income tax payable   (103,755)   
 
Due to related parties   21,435    (319,062)
Long-term payables-unamortized deferred financing costs   (190,033)   (196,662)
Other long-term liabilities   (884,806)   (300,700)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES  $(6,121,235)  $(5,864,423)

 

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

 

F-5

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Continued)

 

(UNAUDITED, IN U.S. DOLLARS)

 

  

For the nine months ended

September 30

 
   2022   2021 
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of long-term assets  $(363,543)  $(852,269)
Proceeds from government grants for construction   719,628    166,508 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES  $356,085   $(685,761)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from short-term bank loans  $10,848,438   $8,632,927 
Repayments of short-term bank loans   (9,918,787)   (18,652,874)
Notes payable   (4,279,261)   16,349,406 
Proceeds from related parties   210,942    418,856 
Repayment of loans from related parties   (1,908,456)   (1,747,808)
Repayment of loans from third parties   
    (309,449)
Proceeds from third parties   
    154,725 
Payment of principal on financing lease obligation   (188,341)   (386,572)
Proceeds from equity and debt financing   9,196,563    8,209,897 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  $3,961,098   $12,669,108 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH  $(1,804,052)  $6,118,924 
Effect of exchange rate changes on cash   (969,309)   134,379 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR   17,800,892    9,403,053 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD  $15,027,531   $15,656,356 
Bank balances and cash   11,306,600    9,020,787 
Bank balances and cash included in assets classified as restricted cash   3,720,931    6,635,569 
           
Supplemental Disclosure of Cash Flow Information          
Income taxes paid   615,632    1,168,461 
Interest paid   320,526    533,027 

 

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

 

F-6

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

 

Greenland Technologies Holding Corporation (the “Company” or “Greenland”) was incorporated on December 28, 2017 as a British Virgin Islands company with limited liability. The Company was incorporated as a blank check company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more target businesses. Following the Business Combination (as described and defined below) in October 2019, the Company changed its name from Greenland Acquisition Corporation to Greenland Technologies Holding Corporation.

 

Greenland serves as the parent company of Zhongchai Holding (Hong Kong) Limited, a holding company formed under the laws of Hong Kong Special Administrative Region (“Hong Kong”) on April 23, 2009 (“Zhongchai Holding”). Zhongchai Holding’s subsidiaries include Zhejiang Zhongchai Machinery Co. Ltd., an operating company formed under the laws of the People’s Republic of China (the “PRC” or “China”) in 2005, Hangzhou Greenland Energy Technologies Co., Ltd., an operating company formed under the laws of the PRC in 2019, and Shanghai Hengyu Business Management Consulting Co., Ltd., a company formed under the laws of the PRC in 2005. Through Zhongchai Holding and its subsidiaries, Greenland develops and manufactures traditional transmission products for material handling machineries in the PRC.

 

HEVI Corp. (“HEVI”), formerly known as Greenland Technologies Corp. prior to May 2022, was incorporated on January 14, 2020 under the laws of the State of Delaware. HEVI is a wholly-owned subsidiary of Greenland and promotes sales of sustainable alternative products for the heavy industrial equipment industry, including electric industrial vehicles, in the North American market. 

 

Through its PRC subsidiaries, Greenland offers transmission products, which are key components for forklift trucks used in manufacturing and logistic applications, such as factories, workshops, warehouses, fulfilment centers, shipyards, and seaports. Forklifts play an important role in the logistic systems of many companies across different industries in China and globally. Generally, industries with the largest demand for forklifts include the transportation, warehousing logistics, electrical machinery, and automobile industries. Greenland’s revenue decreased from approximately $75.90 million for the nine months ended September 30, 2021 to $71.70 million for the nine months ended September 30, 2022. The decrease in revenue was primarily the result of a decrease in the Company’s sales volume resulting from COVID-19 related lockdowns in China for the nine months ended September 30, 2022. Based on the revenues for the nine months ended September 30, 2022 and 2021, Greenland believes that it is one of the major developers and manufacturers of transmission products for small and medium-sized forklift trucks in China.

 

Greenland’s transmission products are used in 1-ton to 15-tons forklift trucks; some with mechanical shift and some with automatic shift. Greenland sells these transmission products directly to forklift-truck manufacturers. For the nine months ended September 30, 2022 and 2021, Greenland sold an aggregate of 102,144 and 110,082 sets of transmission products, respectively, to more than 100 forklift manufacturers in the PRC.

 

There is increasing demand for electric industrial vehicles powered by sustainable energy in order to reduce air pollution and lower carbon emissions. In December 2020, Greenland launched a new division to focus on the production and sale of electric industrial vehicles—a division that Greenland intends to develop to diversify its product offerings. Greenland’s electric industrial vehicle products currently include GEF-series electric forklifts, a series of lithium powered forklifts with three models ranging in size from 1.8 tons to 3.5 tons, GEL-1800, a 1.8 ton rated load lithium powered electric wheeled front loader, and GEX-8000, an all-electric 8.0 ton rated load lithium powered wheeled excavator. These products have become available for purchase in the United States (“U.S.”) market. In July 2022, Greenland launched its new GEL-5000 all-electric 5.0 ton rated load lithium wheeled front loader. In August 2022, Greenland launched a 54,000 square foot industrial electric vehicle assembly site in Baltimore, Maryland to support local services, assembly and distribution of its electric industrial heavy equipment product line. The Company plans to establish an experience center within the Mid-Atlantic region in 2023 to promote local sales and marketing.

 

The COVID-19 pandemic has significantly affected business and manufacturing activities within China, including travel restrictions, widespread mandatory quarantines, and suspension of business activities within China. For the nine months ended September 30, 2022, we experienced rising raw material costs, and we expect raw material costs to continue increasing in the foreseeable future due to the COVID-19 pandemic. Additionally, local outbreaks of COVID-19 infections continued to emerge in additional regions in China since 2022, and it is difficult to predict how these local outbreaks and relevant remedial measures and lockdown policies may affect our business operations for the rest of 2022.

 

F-7

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

 

The Company’s Shareholders

 

As of September 30, 2022, Cenntro Holding Limited owned 53.52% of Greenland’s outstanding ordinary shares. Cenntro Holding Limited is controlled and beneficially owned by Mr. Peter Zuguang Wang, the chairman of the board of directors of the Company. As a result, the Company is a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Peter Zuguang Wang beneficially owns more than 50% of the voting power of the Company. As a “controlled company,” the Company is permitted to elect not to comply with certain corporate governance requirements. If the Company relies on these exemptions, the Company’s investors will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

 

The Company’s Subsidiaries

 

Zhongchai Holding, the wholly-owned subsidiary of the Company, owned 71.576% of Zhejiang Zhongchai Machinery Co., Ltd. (“Zhejiang Zhongchai”), 62.5% of Shanghai Hengyu Business Management Consulting Co., Ltd. (“Hengyu”), 100% of Hangzhou Greenland Energy Technologies Co., Ltd Co., Ltd (“Hangzhou Greenland”) and 100% of Greenland Technologies Corporation. The remaining 37.5% equity interests in Hengyu are beneficially owned by Mr. Peter Zuguang Wang, the chairman of the board of directors of the Company. The other shareholders of Zhejiang Zhongchai include Xinchang County Juxin Investment (Limited Partnership), which holds 8.42% of the equity interests in Zhejiang Zhongchai, and Xinchang County Jiuhe Enterprise Management (Limited Partnership), which holds 20.0% of the equity interests in Zhejiang Zhongchai and serves as a holding partnership for Zhejiang Zhongchai’s equity incentive plan.

 

Zhejiang Zhongchai

 

Zhejiang Zhongchai, a limited liability company registered on November 21, 2005, is the direct operating subsidiary of Zhongchai Holding in the PRC. On April 5, 2007, Usunco Automotive Limited (“Usunco”), a British Virgin Islands limited liability company, invested US$8,000,000 for purchasing approximately 75.47% equity interest of Zhejiang Zhongchai. On December 16, 2009, Usunco agreed to transfer its 75.47% interest in Zhejiang Zhongchai to Zhongchai Holding. On April 26, 2010, Xinchang County Keyi Machinery Co., Ltd. transferred 24.528% equity interest it owned in Zhejiang Zhongchai to Zhongchai Holding in exchange for a consideration of US$2.6 million. On November 1, 2017, Xinchang County Jiuxin Investment Management Partnership (LP) (“Jiuxin”), an entity controlled and beneficially owned by Mr. He Mengxing, president of Zhejiang Zhongchai, closed its investment of approximately RMB31,590,000 in Zhejiang Zhongchai for 10.53% of its interest. On December 29, 2021, Xinchang County Jiuhe Investment Management Partnership (LP) (“Jiuhe”), an entity controlled and beneficially owned by Mr. He Mengxing, president of Zhejiang Zhongchai, closed its investment of approximately RMB34,300,000 in Zhejiang Zhongchai for 20.00% of its interest. As of September 30, 2022, Zhongchai Holding owned approximately 71.576% of the equity interests, Jiuxin owned approximately 8.424% of the equity interests, and Jiuhe owned approximately 20.00% of the equity interests in Zhejiang Zhongchai.

 

Through Zhejiang Zhongchai, the Company has been engaging in the manufacturing and sales of transmission systems mainly for forklift trucks since 2006. These forklift trucks are used in manufacturing and logistics applications, such as factory, workshop, warehouse, fulfilment centers, shipyards and seaports. The transmission systems are the key components for forklift trucks. The Company supplies transmission systems to forklift truck manufacturers. Its transmission systems fit for forklift trucks ranging from 1 to 15 tons, with either mechanical shift or automatic shift. All the products are currently manufactured at the Company’s facility in Xinchang, Zhejiang Province, the PRC and are sold to both domestic and oversea markets.

 

F-8

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

 

Hengyu

 

Hengyu is a limited liability company registered on September 10, 2015 in Shanghai Free Trade Zone, Shanghai, the PRC. Hengyu holds no assets other than an account receivable owed by Cenntro Holding Limited. The main business of Hengyu is to provide investment management and consulting services.

 

Hangzhou Greenland

 

Hangzhou Greenland is a limited liability company registered on August 9, 2019 in Hangzhou Sunking Plaza, Zhejiang, the PRC. Hangzhou Greenland engages in the business of trading construction engineering machinery, electronic components, hardware, and others.

 

HEVI

 

HEVI, formerly known as Greenland Technologies Corp. prior to May 2022, was incorporated on January 14, 2020 under the laws of the State of Delaware. HEVI is a wholly-owned subsidiary of Greenland and promotes sales of sustainable alternative products for the heavy industrial equipment industry, including electric industrial vehicles, in the North American market. 

 

Details of the Company’s subsidiaries, which are included in these unaudited consolidated financial statements as of September 30, 2022, are as follows:

 

Name 

Domicile
and Date of
Incorporation

 

Paid-in
Capital

 

Percentage
of
Effective
Ownership

   Principal Activities
Zhongchai Holding (Hong Kong) Limited  Hong Kong
April 23, 2009
  HKD   10,000    100%  Holding
Zhejiang Zhongchai Machinery Co., Ltd.  PRC
November 21, 2005
  RMB   25,000,000    71.576%  Manufacture, sale of various transmission boxes
Shanghai Hengyu Business Management Consulting Co., Ltd.  PRC
September 10, 2015
  RMB   251,500,000    62.5%  Investment management and consulting services.
Hangzhou Greenland Energy Technologies Co., Ltd.  PRC
August 8, 2020
  RMB   7,224,922    100%  Trading.
HEVI Corp., formerly known as Greenland Technologies Corporation  Delaware
January 14, 2020
  USD   6,363,557    100%  U.S. operation and distribution of electric industrial vehicles for North American market

 

F-9

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Greenland Technologies Holding Corporation and its subsidiaries and have been prepared in accordance with U.S. GAAP. Intercompany accounts and transactions have been eliminated upon consolidation. Certain reclassifications to previously reported financial information have been made to conform to the current period presentation.

 

The Business Combination was accounted for as a reverse recapitalization (the “Recapitalization Transaction”) in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. For accounting and financial reporting purposes, Zhongchai Holding is considered the acquirer based on facts and circumstances, including the following:

 

  Zhongchai Holding’s operations comprise the ongoing operations of the combined entity;

 

  The officers of the newly combined company consist of Zhongchai Holding’s executives, including the Chief Executive Officer, Chief Financial Officer and General Counsel; and

 

  The former shareholders of Zhongchai Holding own a majority voting interest in the combined entity.

 

As a result of Zhongchai Holding being the accounting acquirer, the financial reports filed with the SEC by the Company subsequent to the Business Combination are prepared “as if” Zhongchai Holding is the predecessor and legal successor to the Company. The historical operations of Zhongchai Holding are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Zhongchai Holding prior to the Business Combination; (ii) the combined results of the Company and Zhongchai Holding following the Business Combination in October 24, 2019; (iii) the assets and liabilities of Zhongchai Holding at their historical cost, and (iv) Greenland’s equity structure for all periods presented. Zhongchai Holding received 7,500,000 shares of Greenland in exchange for all the share capital, which is reflected retroactively to December 31, 2017 and will be utilized for calculating earnings per share in all prior periods. No step-up basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction as a reverse capitalization of Zhongchai Holding.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. Actual results could differ from those estimates. Significant estimates in the nine months ended September 30, 2022 and 2021 include allowance for doubtful accounts, reserve for inventories, useful life of property, plant and equipment, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets and accruals for taxes due.

 

Non-controlling Interest

 

Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 810 Consolidation (“ASC 810”) and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

 

F-10

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Foreign Currency Translation

 

The accompanying consolidated financial statements are presented in United States dollars (“US$” or “$”). The functional currency of the Company is Renminbi (“RMB”). Transactions in foreign currencies are initially recorded at the functional currency rate then in effect at the date of the transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations.

 

  

For the nine months ended
September 30,

 
   2022   2021 
Period end RMB: US$ exchange rate   7.1135    6.4434 
Period average RMB: US$ exchange rate   6.6369    6.4631 

 

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations.

 

Cash and Cash Equivalents

 

For financial reporting purposes, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its bank accounts in U.S., PRC and Hong Kong. Balances at financial institutions or state-owned banks within the PRC and Hong Kong are not covered by insurance. 

 

Restricted Cash

 

Restricted cash represents amounts held by a bank as security for bank acceptance bills, as well as the financial product secured for the short-term bank loan and therefore is not available for the Company’s use until such time as the bank acceptance notes and bank loans have been fulfilled or expired, normally within a twelve-month period.

 

Fair Value of Financial Instruments

 

The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, to the financial instruments that are required to be carried at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy based upon observable and non-observable inputs that prioritizes the information used to develop our assumptions regarding fair value. Fair value measurements are separately disclosed by level within the fair value hierarchy.

 

  Level 1—defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;

 

  Level 2—defined as inputs other than quoted prices in active markets, that are either directly or indirectly observable; and

 

  Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

F-11

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash, accounts receivable, notes receivable, accounts payable, other payables and accrued liabilities, short-term bank loans, and notes payable.

 

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of the short-term nature of these items. The estimated fair values of short-term bank loans were not materially different from their carrying value as presented due to the short maturities and that the interest rates on the borrowing approximate those that would have been available for loans of similar remaining maturity and risk profile. As the carrying amounts are reasonable estimates of the fair value, these financial instruments are classified within Level 1 of the fair value hierarchy.

 

Accounts Receivable

 

Accounts receivable are carried at net realizable value. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, its current creditworthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. The Company only grants credit terms to established customers who are deemed to be financially responsible. Credit periods to customers are within 60 days after customers received the purchased goods. If accounts receivable are to be provided for, or written off, they would be recognized in the consolidated statement of operations within operating expenses. Balance of allowance of doubtful accounts was $0.77 million and $0.86 million as of September 30, 2022 and December 31, 2021, respectively.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, which is based on estimated selling prices less any further costs expected to be incurred for completion and disposal. Cost of raw materials is calculated using the weighted average method and is based on purchase cost. Work-in-progress and finished goods costs are determined using the weighted average method and comprise direct materials, direct labor and an appropriate proportion of overhead. The Company records inventory reserves for excess or obsolete inventories based upon assumptions about its current and future demand forecasts.

 

Advance to Suppliers

 

Advance to suppliers represents interest-free cash paid in advance to suppliers for purchases of parts and/or raw materials. The balance of advance to suppliers was $0.68 million and $0.43 million as of September 30, 2022 and December 31, 2021.

 

Property, Plant, and Equipment

 

Property, plant, and equipment are stated at cost less accumulated depreciation, and include expenditure that substantially increases the useful lives of existing assets. Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.

 

Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives are as follows:

 

Plant, buildings and improvements   20 years 
Machinery and equipment   2~10 years 
Motor vehicles   4 years 
Office equipment   3~5 years 
Fixtures and decorations   5 years 

 

F-12

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

When assets are sold or retired, their costs and accumulated depreciation are eliminated from the consolidated financial statements and any gain or loss resulting from their disposal is recognized in the period of disposition as an element of other income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

 

Land Use Rights

 

According to the PRC laws, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. The land use rights granted to the Company are being amortized using the straight-line method over the lease term of fifty years.

 

Impairment of Long-Lived Assets

 

Long-lived assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with FASB ASC 360, “Property, Plant and Equipment”.

 

In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with FASB ASC 360-10-15. To the extent that estimated future, undiscounted cash inflows attributable to the asset, less estimated future, undiscounted cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell.

 

There was no impairment loss recognized for nine months ended September 30, 2022 and 2021.

 

Lease

 

ASC 842 supersedes the lease requirements in ASC 840 “Leases,” and generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. Leases that transfer substantially all of the benefits and risks incidental to the ownership of assets are accounted for as finance leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases.

 

A sale-leaseback transaction occurs when an entity sells an asset it owns and immediately leases the asset back from the buyer. The seller then becomes the lessee and the buyer becomes the lessor. Under ASC 842, both parties must assess whether the buyer-lessor has obtained control of the asset and a sale has occurred.

 

The Company has determined that the leaseback transaction that it entered in 2019 fails to qualify as a sale because control is not transferred to the buyer-lessor. Therefore, the Company has classified the lease portion of the transaction as a finance lease whereby the Company continues to depreciate the assets and recorded a financing obligation for the consideration received from the buyer-lessor, with an implicit interest rate of 5.0%.

 

The Company has leased premises for its offices under non-cancellable operating leases since May 2021 and its assembly site under non-cancellable operating leases since June 2022. Operating lease payments are expensed over the term of lease using straight line method. The Company’s office leases have a 3-year term and the lease of its assembly site has a 5.5-year term. Usually within four months prior to the expiration date of a lease, the Company is required to notify the lessor and has a priority to continue renting the lease property if a lessor intends to lease property. The lease itself does not have restrictions or covenants. Any damage, if made by the lessee, to the property and equipment within the property has to been fixed or reimbursed by the lessee. The Company does not have any leases entered into that have not yet commenced. Under the terms of the lease agreements, the Company has no legal or contractual asset retirement obligations at the end of the leases.

 

F-13

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

Revenue Recognition

 

In accordance with ASC Topic 606, “Revenue from Contracts with Customers,” the Company recognizes revenues when goods or services are transferred to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. In determining when and how revenues are recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations and (v) recognition of revenues when (or as) the Company satisfies each performance obligation. The Company derives revenues from the processing, distribution and sale of its products. The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which had been levied at the rate of 17% on the invoiced value of sales until April 30, 2018, after which date the rate was reduced to 16%. VAT rate was further reduced to 13% starting from April 1, 2019. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

 

Revenues are recognized at a point in time once the Company has determined that the customer has obtained control over the product. Control is typically deemed to have been transferred to the customer when the performance obligation is fulfilled, usually at the time of customers’ acceptance or consumption, at the net sales price (transaction price) and each of the criteria under ASC 606 have been met. Contract terms may require the Company to deliver the finished goods to the customers’ location or the customer may pick up the finished goods at the Company’s factory. International sales are recognized when shipment clears customs and leaves the port.

 

The Company adopted ASC 606 on January 1, 2018, using the transition method of Modified-Retrospective Method (“MRM”). The adoption of ASC 606 had no impact on the Company’s beginning balance of retained earnings.

 

The Company’s contracts are all short-term in nature with a contract term of one year or less. Receivables are recorded when the Company has an unconditional right to consideration.

 

Contracts do not offer any price protection, but allow for the return of certain goods if quality problem, which is standard warranty. The Company’s product returns and recorded reserve for sales returns were minimal for the nine months ended September 30, 2022 and 2021. The total rebates amount accounted for around 0.07% and 0.11% of the total revenue of Greenland for the nine months ended September 30, 2022 and 2021.

 

The following table sets forth disaggregation of revenue:

 

  

For the three months ended

September 30,

  

For the nine months ended

September 30,

 
Major Product  2022   2021   2022   2021 
Transmission boxes for Forklift  $19,928,629   $19,806,162   $63,632,555   $66,199,525 
Transmission boxes for Non-Forklift (EV, etc.) and parts of transmission boxes   1,858,233    3,278,631    8,063,769    9,700,469 
Total  $21,786,862   $23,084,793   $71,696,324   $75,899,994 

 

F-14

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Cost of Goods Sold

 

Cost of goods sold consists primarily of material costs, freight charges, purchasing and receiving costs, inspection costs, internal transfer costs, wages, employee compensation, amortization, depreciation and related costs, which are directly attributable to the production of products. Write-down of inventory to lower of cost or net realizable value is also recorded in cost of goods sold.

 

Selling Expenses 

 

Selling expenses include operating expenses such as payroll and traveling and transportation expenses. 

 

General and Administrative Expenses

 

General and administrative expenses include management and office salaries and employee benefits, depreciation for office facility and office equipment, travel and entertainment, legal and accounting, consulting fees and other office expenses.

 

Research and Development

 

Research and development costs are expensed as incurred and totaled approximately $1,023,443 and $1,372,215 for the three months ended September 30, 2022 and 2021, respectively. Research and development costs are expensed as incurred and totaled approximately $2,968,572 and $3,337,056 for the nine months ended September 30, 2022 and 2021, respectively. Research and development costs are incurred on a project specific basis.

 

Government subsidies

 

Government subsidies are recognized when there is reasonable assurance that the subsidy will be received and all attaching conditions will be complied with. When the subsidy relates to an expense item, it is recognized as income over the periods necessary to match the subsidy on a systematic basis to the costs that it is intended to compensate. Where the subsidy relates to an asset, it is recognized as other long-term liabilities and is released to the statement of operations over the expected useful life in a consistent manner with the depreciation method for the relevant asset. Total government subsidies recorded in the other long-term liabilities were $1.83 million and $2.21 million as of September 30, 2022 and December 31, 2021, respectively.

 

Income Taxes

 

The Company accounts for income taxes following the liability method pursuant to FASB ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date.

 

F-15

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Company also follows FASB ASC 740, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2022 and December 31, 2021, the Company did not have a liability for unrecognized tax benefits. It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. The Company’s historical tax years will remain open for examination by the local authorities until the statute of limitations has passed.

 

Value-Added Tax

 

Enterprises or individuals, who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with PRC Laws. The VAT standard rate had been 17% of the gross sale price until April 30, 2018, after which date the rate was reduced to 16%. VAT rate was further reduced to 13% starting from April 1, 2019. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products.

 

Statutory Reserve

 

In accordance with the PRC Regulations on Enterprises with Foreign Investment, an enterprise established in the PRC with foreign investment is required to provide for certain statutory reserves, namely (i) a General Reserve Fund, (ii) an Enterprise Expansion Fund and (iii) a Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A wholly-owned foreign enterprise is required to allocate at least 10% of its annual after-tax profit to the General Reserve Fund until the balance of such fund has reached 50% of its respective registered capital. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. Appropriations to the Enterprise Expansion Fund and Staff Welfare and Bonus Fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

 

F-16

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the change in equity during the year from transactions and other events, excluding the changes resulting from investments by owners and distributions to owners, and is not included in the computation of income tax expense or benefit. Accumulated comprehensive income consists of foreign currency translation. The Company presents comprehensive income (loss) consists in accordance with ASC Topic 220, “Comprehensive Income”.

 

Earnings per share

 

The Company calculates earnings per share in accordance with ASC Topic 260 “Earnings per Share.” Basic earnings per share is computed by dividing the net income by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional ordinary shares that would have been outstanding if the potential ordinary shares equivalents had been issued and if the additional ordinary shares were dilutive. On October 24, 2019, the Company completed its Business Combination, whereby Zhongchai Holding received 7,500,000 shares in exchange for all the share capital of Zhongchai Holding, which is reflected retroactively to December 31, 2017 and will be utilized for calculating earnings per share in all prior periods. The per share amounts have been updated to show the effect of the exchange on earnings per share as if the exchange occurred at the beginning of both years for the annual financial statements of the Company. The impact of the stock exchange is also shown on the Company’s Statements of Shareholders’ Equity.

 

Segments and Related Information

 

ASC 280 “Segment reporting” establishes standards for reporting information on operating segments in interim and annual financial statements. All of the Company’s operations are considered by the chief operating decision maker to be aggregated in one reportable operating segment. 

 

The Company is engaged in the business of manufacturing and selling various transmission boxes. The Company’s manufacturing process is essentially the same for the entire Company and is performed in-house at the Company’s facilities in the PRC. The Company’s customers primarily consist of entities in the automotive, construction machinery or warehousing equipment industries. The distribution of the Company’s products is consistent across the entire Company. In addition, the economic characteristics of each customer arrangement are similar in that the Company maintains policies at the corporate level. 

 

F-17

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Commitments and contingencies

 

In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter. The Company’s management has evaluated all such proceedings and claims that existed as of September 30, 2022 and December 31, 2021. Normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter. The Company’s management has evaluated all such proceedings and claims that existed as of September 30, 2022 and December 31, 2021.

 

Related Party

 

In general, related parties exist when there is a relationship that offers the potential for transactions at less than arm’s-length, favorable treatment, or the ability to influence the outcome of events different from that which might result in the absence of that relationship. A related party may be any of the following: a) an affiliate, which is a party that directly or indirectly controls, is controlled by, or is under common control with another party; b) a principle owner, owner of record or known beneficial owner of more than 10% of the voting interest of an entity; c) management, which are persons having responsibility for achieving objectives of the entity and requisite authority to make decision; d) immediate family of management or principal owners; e) a parent company and its subsidiaries; and f) other parties that have ability to significant influence the management or operating policies of the entity. The Company discloses all significant related party transactions.

 

Economic and Political Risks

 

A significant portion of the Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

 

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company’s cash is maintained with banks within the U.S., the PRC and Hong Kong, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts. A portion of the Company’s sales are credit sales which are primarily to customers whose abilities to pay are dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

 

Exchange Risk

 

The Company cannot guarantee that the current exchange rate will remain steady. Therefore, there is a possibility that the Company could post the same amount of profit for two comparable periods and yet, because of the fluctuating exchange rate, record higher or lower profit depending on exchange rate of RMB converted to U.S. dollars on the relevant dates. The exchange rate could fluctuate depending on changes in the political and economic environment without notice.

 

F-18

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recently Issued Accounting Pronouncements

 

Recent accounting pronouncements that the Company has adopted or may be required to adopt in the future are summarized below:

 

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions and forecasts. Subsequently, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, in April 2019. To clarify that receivables arising from operating leases are within the scope of lease accounting standards. In October 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which defers the effective date for public filers that are considered small reporting companies as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is a smaller reporting company, implementation is not needed until January 1, 2023. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. The Company is evaluating the impact of this standard on its consolidated financial statements, including accounting policies, processes, and systems, and expects the standard will have a minor impact on its consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04 (Topic 350) Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. As amended by ASU 2019-10, this ASU will be applied on a prospective basis and is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company is evaluating the impact of the application of this standard and does not expect that the adoption of the ASU 2017-04 will have a material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13 Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements under ASC 820. This ASU is to be applied on a prospective basis for certain modified or new disclosure requirements, and all other amendments in the standard are to be applied on a retrospective basis. The new standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company adopted Topic 820 on January 1, 2020. The adoption of the ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.  The Company does not expect that the requirements of ASU 2019-12 will have a material impact on its consolidated financial statements.

 

F-19

 

  

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3 – SHORT TERM INVESTMENT

 

As of September 30, 2022 and December 31, 2021, the Company’s short term investment amounted to $12,243,140 and $2,105,938, respectively. On July 1, 2021, the Company entered into a financial management agreement with Zhejiang Jilin Electronic Technology Co., LTD, pursuant to which Zhejiang Jilin Electronic Technology Co., LTD agreed to make short term investments with the amount contributed by the Company during the period from July 1, 2021 to June 30, 2023. The Company contributed a total of $500,000 under this agreement. During the nine months ended September 30, 2022, the Company purchased bank management products in a total amount of $11,738,244 (RMB83,500,000). As of September 30, 2022, the fair value of the Company’s bank management products was $11,743,140 (RMB83,534,823). The Company has recognized and measured these short-term investments as Level 2 assets based on the fair value hierarchy framework.

 

NOTE 4 – CONCENTRATION ON REVENUES AND COST OF GOODS SOLD

 

Concentration of major customers and suppliers:

 

  

For the nine months ended

September 30,

 
   2022   2021 
Major customers representing more than 10% of the Company’s revenues                
Company A  $13,521,896    18.86%  $12,790,991    16.85%
Company B   9,581,396    13.36%   10,150,263    13.38%
Total Revenues  $23,103,292    32.22%  $22,941,254    30.23%

 

   As of 
  

September 30,

2022

  

December 31,

2021

 
Major customers of the Company’s accounts receivable, net                
Company A   2,649,874    14.45%   2,222,550    10.42%
Company B   1,594,003    8.69%   1,949,415    9.14%
Company C   1,488,265    8.11%   1,759,913    8.26%
Total  $5,732,142    31.25%  $5,931,878    27.82%

 

Accounts receivable from the Company’s major customers accounted for 31.25% and 27.82% of total accounts receivable balances as of September 30, 2022 and December 31, 2021, respectively.

 

There were no suppliers representing more than 10% of the Company’s total purchases for the nine months ended September 30, 2022 and 2021, respectively.

 

NOTE 5 – ACCOUNTS RECEIVABLE

 

Accounts receivable is net of allowance for doubtful accounts.

 

   As of 
  

September 30,
2022

  

December 31,
2021

 
Accounts receivable  $19,118,808   $16,774,321 
Less: allowance for doubtful accounts   (774,452)   (859,319)
Accounts receivable, net  $18,344,356   $15,915,002 

 

Changes in the allowance for doubtful accounts are as follows:

 

   As of, 
  

September 30,
2022

  

December 31,
2021

 
Beginning balance  $859,319   $986,532 
(Reversal of) Provision for doubtful accounts   4,967    (149,172)
Effect of FX change   (89,834)   21,959 
Ending balance  $774,452   $859,319 

 

F-20

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – INVENTORIES

 

   As of 
   September 30,
2022
   December 31,
2021
 
Raw materials  $7,835,115   $9,789,196 
Revolving material   1,057,572    1,078,292 
Consigned processing material   9,828    67,706 
Work-in-progress   2,376,709    2,620,821 
Finished goods   10,605,624    12,271,252 
Less: inventory impairment   
-
    (23,793)
Inventories, net  $21,884,848   $25,803,474 

 

Changes in the inventory reserves are as follows:

 

   As of 
   September 30,
2022
   December 31,
2021
 
Beginning balance  $(23,793)  $
-
 
(Release of) inventory write-downs   22,846    (23,536)
Effect of FX change   947    (257)
Ending balance  $
-
   $(23,793)

 

NOTE 7 – NOTES RECEIVABLE

 

   As of 
   September 30,
2022
   December 31,
2021
 
Bank notes receivable:  $29,245,250   $36,075,366 
Commercial notes receivable   2,361,268    1,475,755 
Total  $31,606,518   $37,551,121 

 

Bank notes and commercial notes are means of payment from customers for the purchase of the Company’s products and are issued by financial institutions or business entities, respectively, that entitle the Company to receive the full nominal amount from the issuer at maturity, which bears no interest and generally ranges from three to nine months from the date of issuance. As of September 30, 2022, the Company pledged notes receivable for an aggregate amount of $21.57 million to Bank of Communications and Bank of Hangzhou as a means of security for issuance of bank acceptance notes for an aggregate amount of $20.51 million. The Company expects to collect these notes receivables within 6 months. As of December 31, 2021, the Company pledged notes receivable for an aggregate amount of $28.14 million to Bank of Communications as a means of security for issuance of bank acceptance notes in an aggregate amount of $24.89 million. These notes receivables have been fully collected as of the date of this quarterly report.

 

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT AND CONSTRUCTION IN PROGRESS

 

(a) As of September 30, 2022 and December 31, 2021, property, plant and equipment consisted of the following:

 

   As of 
   September 30,
2022
   December 31,
2021
 
Buildings  $11,423,025   $12,751,105 
Machinery   20,144,114    21,930,452 
Motor vehicles   306,108    341,697 
Electronic equipment   209,940    206,122 
Total property plant and equipment, at cost   32,083,187    35,229,376 
           
Less: accumulated depreciation   (16,663,779)   (16,679,022)
Property, plant and equipment, net  $15,419,408   $18,550,354 
Construction in process   84,347    407,199 
Total  $15,503,755   $18,957,553 

 

For the nine months ended September 30, 2022 and 2021, depreciation expense amounted to $1.77 million and $1.80 million, respectively, of which $1.12 million and $1.25 million, respectively, was included in cost of revenue and inventories, and the remainder was included in general and administrative expense and research and development expenses, respectively.

 

For the nine months ended September 30, 2022 and 2021, $0.30 and $0 of construction in progress were converted into fixed assets.

 

F-21

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT AND CONSTRUCTION IN PROGRESS (CONTINUED)

 

Restricted assets consist of the following:

 

   As of 
   September 30,
2022
  

December 31,

2021

 
Buildings, net  $9,136,858   $11,314,916 
Machinery, net   
-
    2,201,707 
Total   9,136,858    13,516,623 

 

As of September 30, 2022, the Company pledged its ownership interests in certain buildings for the book value of RMB65.00 million ($9.14 million) as security to ABC Xinchang and Rural Commercial Bank of PRC Co., Ltd., for loan facilities with an aggregate maximum principal amount of RMB167.73 million.

 

On January 3, 2019, the Company sold a set of manufacturing equipment to third parties for aggregate proceeds of $3.08 million (RMB21.25 million) and the Company entered into lease agreements under which the Company agreed to lease back each of the properties for an initial term of 3 years.

 

On April 26, 2019, the Company sold various equipment including a general assembly line and the differential assembly line to third parties for aggregate proceeds of $2.12 million (RMB14.66 million) and the Company entered into lease agreements under which the Company agreed to lease back each of the properties for an initial term of 2 years.

 

On May 27, 2020, the Company sold various equipment including a general assembly line and the differential assembly line to third parties for aggregate proceeds of $1.42 million (RMB10.00 million) and the Company entered into lease agreements under which the Company agreed to lease back each of the properties for an initial term of 2 years.

 

The Company determined that it did not relinquish control of the assets to the buyer-lessor. Therefore, the Company accounted for the transactions as failed sale-leaseback transactions whereby the Company continues to depreciate the assets and recorded a financing obligation for the consideration received from the buyer-lessor.

 

NOTE 9 – LAND USE RIGHTS

 

Land use rights consisted of the following:

 

   As of 
   September 30,
2022
   December 31,
2021
 
Land use rights, cost  $4,325,101   $4,827,951 
Less: Accumulated amortization   (775,062)   (792,753)
Land use rights, net  $3,550,039   $4,035,198 

 

As of September 30, 2022, the Company had land use rights with net book value of $3.55 million, which were pledged as collateral for the Company’s short-term bank loans. As of December 31, 2021, the Company had land use rights with net book value of $4.04 million, which were pledged as collateral for the Company’s short-term bank loans.

 

Estimated future amortization expense is as follows as of September 30, 2022:

 

Years ending September 30,    Amortization
expense
 
 
2023  $92,714 
2024   92,714 
2025   92,714 
2026   92,714 
2027   92,714 
Thereafter   3,086,469 
Total  $3,550,039 

 

F-22

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 – NOTES PAYABLE

 

   As of 
   September 30,
2022
  

December 31,

2021

 
Bank acceptance notes  $33,716,344   $42,093,061 
Total  $33,716,344   $42,093,061 

 

The interest-free notes payable, ranging from nine months to one year from the date of issuance, were secured by $3.72 million and $6.74 million restricted cash, $21.57 million and $28.14 million notes receivable, and $3.55 million and $4.04 million land use rights, as of September 30, 2022 and December 31, 2021, respectively.

 

All the notes payable are subject to bank charges of 0.05% of the principal amount as commission, included in the financial expenses in the statement of operations, on each loan transaction. The interest charge of notes payable is free.

 

NOTE 11 – ACCOUNTS PAYABLE

 

Accounts payable are summarized as follow: 

 

   As of 
   September 30,
2022
   December 31,
2021
 
Procurement of Materials  $23,471,051   $28,076,580 
Infrastructure& Equipment   388,862    870,616 
Freight fee   94,911    116,936 
Total  $23,954,824   $29,064,132 

 

NOTE 12 – SHORT TERM BANK LOANS

 

Short-term loans are summarized as follow:

 

   As of 
   September 30,
2022
   December 31,
2021
 
Collateralized bank loans  $7,310,044   $7,976,336 
Guaranteed bank loans   1,405,778    784,609 
Total  $8,715,822   $8,760,945 

 

Short-term loans as of September 30, 2022 are as follows:

 

Maturity Date  Type  Bank Name 

Interest

Rate per

Annum

(%)

  

September 30,

2022

 
August 29, 2023  Operating Loans  Agricultural Bank of PRC   4.55   $2,530,400 
June 29, 2023  Operating Loans  Bank of Communications   3.85   $1,405,778 
December 15, 2022  Operating Loans  Rural Commercial Bank of Xinchang   4.75   $984,044 
August 23, 2023  Operating Loans  Rural Commercial Bank of Xinchang   4.55   $2,389,822 
February 23, 2023  Operating Loans  Industrial and Commercial Bank of Xinchang   3.24   $1,405,778 
Total             $8,715,822 

 

F-23

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 – SHORT TERM BANK LOANS (CONTINUED)

 

Short-term loans as of December 31, 2021 are as follow:

 

Maturity Date  Type  Bank Name 

Interest

Rate per

Annum

(%)

  

December 31,

2021

 
August 23, 2022  Operating Loans  Agricultural Bank of PRC   4.57   $2,954,837 
August 18, 2022  Operating Loans  Rural Commercial Bank of Xinchang   4.35   $1,255,375 
August 23, 2022  Operating Loans  Rural Commercial Bank of Xinchang   5.30   $1,098,453 
September 1, 2022  Operating Loans  Rural Commercial Bank of Xinchang   4.35   $2,667,671 
January 21, 2022  Operating Loans  Rural Commercial Bank of Xinchang   5.30   $784,609 
Total             $8,760,945 

 

All short-term bank loans were obtained from local banks in the PRC and are repayable within one year.

 

The average annual interest rate of the short-term bank loans was 4.2484% and 4.5547% for the nine months ended September 30, 2022 and 2021, respectively. The Company was in compliance with its loan financial covenants as of September 30, 2022 and December 31, 2021, respectively.  

 

NOTE 13 – OTHER CURRENT LIABILITIES

 

Other current liabilities are summarized as follow:

 

   As of 
   September 30,
2022
   December 31,
2021
 
Employee payables   143,126    946,678 
Other tax payables   1,222,877    31,779 
Borrowing from third party   256,359    219,970 
Total  $1,622,362   $1,198,427 

 

F-24

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 14 – OTHER LONG-TERM LIABILITIES

 

Other long-term liabilities are summarized as follow:

 

   As of 
   September 30,
2022
   December 31,
2021
 
Subsidy   1,828,340    2,212,938 
Total  $1,828,340   $2,212,938 

 

The subsidy mainly consists of an incentive granted by the Chinese government to encourage transformation of fixed assets in China and other miscellaneous subsidy from the Chinese government. As of September 30, 2022, grant income decreased by $0.38 million as compared to December 31, 2021. The change was mainly due to timing of incurring qualifying expenses.

 

NOTE 15 – LEASES

 

The Company leases its corporate offices and assembly site under operating leases, with initial terms of 3 years and 5.58 years, respectively. Usually within four months prior to the expiration date of a lease, the Company is required to notify the lessor and has a priority to continue renting the lease property if a lessor intends to lease property. The lease itself does not have restrictions or covenants. Any damage, if made by the lessee, to the property and equipment within the property has to been fixed or reimbursed by the lessee. Supplemental cash flow information related to leases for the nine months ended September 30, 2022 is as follows:

 

Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows paid for operating leases  $191,129 
Right-of-use assets obtained in exchange for lease obligations:     
Operating leases   2,835,406 

 

Supplemental balance sheet information related to leases as of September 30, 2022 is as follows:

 

Operating leases:    
Operating lease right-of-use assets  $2,748,910 
      
Current portion of operating lease liabilities  $462,365 
Long-term operating lease liabilities   2,293,844 
Total operating lease liabilities  $2,756,209 

 

The following table summarizes the maturity of lease liabilities under operating leases as of September 30, 2022:

 

For the years ending September 30, 

Operating

Leases

 
2023  $589,784 
2024   590,353 
2025   585,087 
2026   602,022 
2027   619,551 
Thereafter   157,877 
Total lease payments  $3,144,674 

 

F-25

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 16 – LONG TERM PAYABLES

 

   As of 
   September 30,
2022
  

December 31,

2021

 
Long-term payables current portion  $
              -
   $197,915 
Long-term payables– non-current portion   
-
    
-
 
Total  $
-
   $197,915 

 

On January 3, 2019, the Company sold a set of manufacturing equipment to third parties for aggregate proceeds of $3.08 million (RMB21.25 million) and the Company entered into lease agreements under which the Company agreed to lease back each of the properties for an initial term of 3 years.

 

On April 26, 2019, the Company sold various equipment including a general assembly line and the differential assembly line to third parties for aggregate proceeds of $2.12 million (RMB14.66 million) and the Company entered into lease agreements under which the Company agreed to lease back each of the properties for an initial term of 2 years.

 

On May 27, 2020, the Company sold various equipment including a general assembly line and the differential assembly line to third parties for aggregate proceeds of $1.42 million (RMB10.00 million). The Company also entered into lease agreements under which the Company agreed to lease back each of the properties for an initial term of 2 years.

 

The Company determined that it did not relinquish control of the assets to the buyer-lessor. Therefore, the sale of the equipment does not qualify for sale-leaseback accounting. As a result, the aggregate proceeds have been recorded as a financing obligation and the assets related to the sold and leased manufacturing equipment remain on the Company’s Consolidated Balance Sheet and continue to be depreciated. The current and long-term portions of the financing obligation are included within long-term payables-current portion and long-term payables-non-current portion, respectively.

 

NOTE 17 – STOCKHOLDER’S EQUITY

 

Preferred Shares — The Company is authorized to issue an unlimited number of no par value preferred shares, divided into five classes, Class A through Class E, each with such designation, rights and preferences as may be determined by a resolution of the Company’s board of directors to amend the Memorandum and Articles of Association to create such designations, rights and preferences. The Company has five classes of preferred shares to give the Company flexibility as to the terms on which each class is issued. All shares of a single class must be issued with the same rights and obligations. Accordingly, starting with five classes of preferred shares will allow the Company to issue shares at different times on different terms. As of September 30, 2022 and December 31, 2021, there were no preferred shares designated, issued or outstanding.

 

Ordinary Shares — The Company is authorized to issue an unlimited number of no par value ordinary shares. Holders of the Company’s ordinary shares are entitled to one vote for each share. As of September 30, 2022 and December 31, 2021, there were 12,579,530 and 11,329,530 ordinary shares issued and outstanding.

 

On July 27, 2018, the Company consummated its initial public offering of 4,400,000 units, including a partial exercise by the underwriters of their over-allotment option in the amount of 400,000 units. Each unit consists of one ordinary share, no par value, one warrant to purchase one-half of one ordinary share and one right to receive one-tenth of one ordinary share upon the consummation of its initial business combination.

 

F-26

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 17 – STOCKHOLDER’S EQUITY (CONTINUED)

 

Simultaneously with the consummation of its initial public offering, the Company completed a private placement of 282,000 units, issued to Greenland Asset Management Corporation (the “Sponsor”) and Chardan Capital Markets, LLC (“Chardan”).

 

In 2019, in connection with the Business Combination, 3,875,458 shares were redeemed, 81,400 shares were converted into ordinary shares, and 1,906,542 ordinary shares were left outstanding upon consummation of the reverse recapitalization.

 

Pursuant to the Share Exchange Agreement dated as of July 12, 2019 by and among (i) Greenland, (ii) Zhongchai Holding, (iii) the Sponsor in the capacity as the purchaser representative, and (iv) Cenntro Holding Limited, the sole member of Zhongchai Holding (the “Share Exchange Agreement”), Greenland acquired from Cenntro Holding Limited all of the issued and outstanding equity interests of Zhongchai Holding in exchange for 7,500,000 newly issued ordinary shares, no par value of Greenland, to be issued to Cenntro Holding Limited (the “Exchange Shares”). As a result, Cenntro Holding Limited became the controlling shareholder of Greenland, and Zhongchai Holding became a directly and wholly owned subsidiary of Greenland. The Business Combination was accounted for as a reverse merger effected by a share exchange, wherein Zhongchai Holding is considered the acquirer for accounting and financial reporting purposes. The recapitalization of the number of ordinary shares attributable to the purchase of Zhongchai Holding in connection with the Business Combination is reflected retroactively to December 31, 2017 and will be utilized for calculating earnings per share in all prior periods presented. The impact of the stock exchange is also shown on the Company’s Statements of Shareholders’ Equity.

 

Pursuant to that certain Finder Agreement with Hanyi Zhou, dated May 29, 2019, 50,000 newly issued ordinary shares were issued to Zhou Hanyi as a finder’s fee for the Business Combination.

 

In connection with the Business Combination, all the outstanding rights of the Company were converted into 468,200 ordinary shares on a one-tenth (1/10) ordinary share per right basis if holders of the rights elected to convert their rights into underlying ordinary shares.

 

F-27

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 17 – STOCKHOLDER’S EQUITY (CONTINUED)

 

On October 24, 2020, the Company’s board of directors held a meeting and executed resolutions to approve the issuance of 120,000 ordinary shares to Raymond Wang, the Company’s chief executive officer, to offset unpaid salary to him in the amount of $120,833.33 and the issuance of 135,000 ordinary shares to Jing Jin, the Company’s chief financial officer, to offset unpaid salary to him in the amount of $60,000 and his personal loan to the Company in the amount of $75,000. On November 10, 2020, the Company issued 135,000 ordinary shares to Jing Jin. On December 30, 2020 and February 8, 2021, the Company issued 69,000 and 51,000 ordinary shares to Raymond Wang, respectively. In February 2021, the Company issued 48,344 ordinary shares from the exercise of warrants by certain warrantholders. On March 4, 2021, the Company issued 132,000 ordinary shares to Chardan from the exercise of Chardan’s unit purchase option to purchase 120,000 units. On April 19, 2021, the Company issued 2,500 ordinary shares to each of Peter Zuguang Wang, Charles Athle Nelson, Everett Xiaolin Wang, Ming Zhao and Bo Shen. On April 20, 2021, the Company issued 2,700 ordinary shares to Xiaqing Yang. On June 30, 2021, the Company closed a firm commitment offering of 857,844 ordinary shares at $8.16 per share with gross proceeds of $7,000,007 under its effective shelf registration statement. On July 27, 2022, the Company closed a firm commitment offering of 1,250,000 ordinary shares at $4.17 per share with gross proceeds of $5,212,500 under its effective shelf registration statement.

 

Rights — Each holder of a right was entitled to receive one-tenth (1/10) of one ordinary share upon consummation of the Business Combination.

  

As of September 30, 2022, all of the foregoing existing rights had been converted into 468,200 ordinary shares as a result of the Business Combination.

 

Warrants — Redeemable warrants sold as part of the units in the Company initial public offering, or the Public Warrants (together with the Private Warrants (as defined below), the “Warrants”), may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants have been exercisable since October 24, 2019. No Public Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the ordinary shares issuable upon exercise of the Public Warrants and a current prospectus relating to such ordinary shares. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon the exercise of the Public Warrants is not effective within 90 days from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise the Public Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act of 1933, as amended. If an exemption from registration is not available, holders will not be able to exercise their Public Warrants on a cashless basis. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.

 

The Company may call the warrants for redemption (excluding the Private Warrants (as defined below)), in whole and not in part, at a price of $0.01 per warrant:

 

  At any time while the Public Warrants are exercisable,

 

  Upon not less than 30 days’ prior written notice of redemption to each Public Warrant holder,

 

  If, and only if, the reported last sale price of the ordinary shares equals or exceeds $16.50 per share, for any 20 trading days within a 30 trading day period ending on the third trading day prior to the notice of redemption to Public Warrant holders, and

 

  If, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption.

 

F-28

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 17 – STOCKHOLDER’S EQUITY (CONTINUED)

 

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. Accordingly, the warrants may expire worthless.

 

Private warrants include (i) the 282,000 warrants underlying the units issued to the Sponsor and Chardan in a private placement in connection with our initial public offering (“Private Unit Warrants”), and (ii) 120,000 warrants held by Chardan upon the exercise of its unit purchase option to purchase 120,000 units in March 2021 (“Option Warrants,” together with Private Unit Warrants, the “Private Warrants”). The Private Warrants are identical to the Public Warrants underlying the units sold in the Initial Public Offering, except that the Private Warrants and the ordinary shares issuable upon the exercise of the Private Warrants are not transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

 

As of September 30, 2022, there were a total of 4,705,312 Warrants outstanding, including 4,303,312 Public Warrants held by CEDE & CO, and 142,000 and 260,000 Private Warrants held by Chardan and the Sponsor, respectively.

  

Unit Purchase Option

 

On July 27, 2018, the Company sold to Chardan (and its designees), for $100, an option to purchase up to 240,000 units exercisable at $11.50 per unit (or an aggregate exercise price of $2,760,000), commencing on the consummation of the Business Combination. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires July 24, 2023. The units issuable upon exercise of the option are identical to those offered in the initial public offering. The Company accounted for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the initial public offering resulting in a charge directly to shareholders’ equity. The option and such units purchased pursuant to the option, as well as the ordinary shares underlying such units, the rights included in such units, the ordinary shares that are issuable for the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g) (1) of FINRA’s Nasdaq Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of initial public offering except to any underwriter and selected dealer participating in the initial public offering and their bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration statement with respect to the registration under the Securities Act of 1933, as amended, of the securities directly and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or the Company’s recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of ordinary shares at a price below its exercise price. As of September 30, 2022, an option exercisable by Chardan for 120,000 units is outstanding.

 

F-29

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 18 – EARNINGS PER SHARE

 

The Company reports earnings per share in accordance with the provisions of the FASB’s related accounting standard. This standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution, but includes vested restricted stocks and is computed by dividing income available to shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. On October 24, 2019, the Company completed a reverse merger with Zhongchai Holding. The recapitalization of the number of ordinary shares attributable to the purchase of Zhongchai Holding in connection with the Business Combination is reflected retroactively to December 31, 2017 and will be utilized for calculating earnings per share in all prior periods presented.

 

The following is a reconciliation of the basic and diluted earnings per share computation:

 

  

For the three
months ended

September 30,

  

For the nine
months ended

September 30,

 
   2022   2021   2022   2021 
Net income attributable to the Greenland Corporation and subsidiaries  $1,277,964   $1,028,348   $4,552,280   $5,937,669 
Weighted average basic and diluted computation shares outstanding:                    
Weighted average shares used in basic computation   12,222,387    11,329,530    11,628,243    10,715,132 
Diluted effect of stock options and warrants   
    
    
    
 
Weighted average shares used in diluted computation   12,222,387    11,329,530    11,628,243    10,715,132 
Basic and diluted net income per share  $0.10   $0.09    0.39    0.55 

 

NOTE 19 – GEOGRAPHICAL SALES AND SEGMENTS

 

All of the Company’s operations are considered by the chief operating decision maker to be aggregated in one reportable operating segment.

 

Information for the Company’s sales by geographical area for the three and nine months ended September 30, 2022 and 2021 are as follows:

 

  

For the three  months ended

September 30,

  

For the nine months ended

September 30,

 
   2022   2021   2022   2021 
Domestic Sales  $21,715,711   $22,902,711   $71,187,124   $75,510,611 
International Sales   71,151    182,082    509,200    389,383 
Total  $21,786,862   $23,084,793   $71,696,324   $75,899,994 

 

F-30

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 20 – INCOME TAXES

 

Income tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to the Company and its subsidiaries, adjusted for items which are considered discrete to the period.

 

The effective tax rates on income before income taxes for the nine months ended September 30, 2022 was 15.85%. The effective tax rate for the nine months ended September 30, 2022 was lower than the PRC tax rate of 25.0% primarily due to the China Super R&D deduction.

 

The effective tax rates on income before income taxes for the nine months ended September 30, 2021 was 21.22%. The effective tax rate for the three months ended September 30, 2021 was lower than the PRC tax rate of 25.0% primarily due to the China Super R&D deduction.

 

The Company has recorded $0 unrecognized benefit as of September 30, 2022 and December 31, 2021, respectively. On the information currently available, the Company does not anticipate a significant increase or decrease to its unrecognized benefit within the next 12 months.

 

NOTE 21 – COMMITMENTS AND CONTINGENCIES

 

Guarantees and pledged collateral for bank loans to other parties: 

 

(1) Pledged collateral for bank loans

 

On December 23, 2020, Zhejiang Zhongchai signed a Maximum Amount Pledge Contract with Agricultural Bank of PRC Co., Ltd. Xinchang County Sub-Branch (“ABC Xinchang”), pledging its land use rights and property ownership as security to ABC Xinchang, for a loan facility with a maximum principal amount of RMB69.77 million during the period from December 17, 2020 to December 16, 2023. As of September 30, 2022 and December 31, 2021, the outstanding amount of the short-term bank loan under this pledge contract was RMB18.00 million and RMB18.83 million, respectively. 

 

On December 16, 2019, Zhejiang Zhongchai signed a Maximum Amount Pledge Contract with Rural Commercial Bank of PRC Co., Ltd., pledging its five patent rights as security, for a loan facility with a maximum principal amount of RMB23.40 million during the period from December 16, 2019 to December 15, 2022. As of September 30, 2022 and December 31, 2021, the outstanding amount of the short-term bank loan under this pledge contract was RMB7.00 million and RMB7.00 million, respectively.  

 

On September 21, 2020, Zhejiang Zhongchai signed a Maximum Amount Pledge Contract with Rural Commercial Bank of PRC Co., Ltd., pledging its land use rights and property ownership as security, for a loan facility with a maximum principal amount of RMB37.95 million during the period from September 21, 2020 to September 20, 2026. As of September 30, 2022 and December 31, 2021, the outstanding amount of the short-term bank loan under this pledge contract was RMB17.00 million and RMB25.00 million, respectively.  

 

On June 27, 2022, Zhejiang Zhongchai signed a Maximum Amount Pledge Contract with Bank of Communications Co. LTD., pledging its land use rights and property ownership as security, for a loan facility with a maximum principal amount of RMB60.01 million during the period from June 27, 2022 to June 26, 2027. As of September 30, 2022 and December 31, 2021, the outstanding amount of the short-term bank loan under this pledge contract was RMB10.00 million and RMB0.00 million, respectively. 

 

F-31

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 21 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

On October 14, 2019, the plaintiff, the Company and all other named defendants entered into a confidential memorandum of understanding (the “MOU”), pursuant to which a Stipulation and Order of Dismissal (“Stipulation of Dismissal”) of the Action was filed on October 14, 2019. The Stipulation of Dismissal was approved and entered by the District Court on October 15, 2019. Among other things, the Stipulation of Dismissal acknowledged that the Definitive Proxy Statement on Schedule 14A, filed with the Commission on December 1, 2020 mooted the plaintiff’s claims regarding the sufficiency of disclosures, dismissed all claims asserted in the Action, with prejudice as to the plaintiff only, permits the plaintiff to seek an award of attorneys’ fees in connection with the mooted claims, and reserves the defendants’ rights to oppose such an award, if appropriate.  Pursuant to the MOU, the parties have engaged in discussions regarding the amount of attorneys’ fees, if any, to which the plaintiff’s counsel is entitled in connection with the Action. As of January 25, 2021, the Company settled with its counter party and paid a total of $65,000

 

Facility Leases 

 

The Company entered into a failed sale-leaseback transaction in August 2020. See further discussion in NOTE 16 –LONG TERM PAYABLES. The Company has leased premises for its offices under non-cancellable operating leases since May 2021 and its assembly site under non-cancellable operating leases since June 2022. See further discussion in NOTE 15 – LEASES.

 

Rent expense is recognized on a straight-line basis over the terms of the operating leases accordingly and the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. 

 

The following are the aggregate non-cancellable future minimum lease payments under operating and financing leases as of September 30, 2022: 

 

Years ending September 30,

  Amount 
2023   589,784 
2024   590,353 
2025   585,087 
2026   602,022 
2027   619,551 
Thereafter   157,877 
Total  $3,144,674 

 

NOTE 22 – RELATED PARTY TRANSACTIONS

 

(a) Names and Relationship of Related Parties:

 

  Existing Relationship with the Company
Sinomachinery Holding Limited   Under common control of Peter Zuguang Wang
Cenntro Holding Limited   Controlling shareholder of the Company
Zhejiang Kangchen Biotechnology Co., Ltd.   Under common control of Peter Zuguang Wang
Cenntro Smart Manufacturing Tech. Co., Ltd.   Under common control of Peter Zuguang Wang
Zhejiang Zhonggong Machinery Co., Ltd.   Under common control of Peter Zuguang Wang
Zhejiang Zhonggong Agricultural Equipment Co., Ltd.   Under common control of Peter Zuguang Wang
Xinchang County Jiuxin Investment Management Partnership (LP)   Under control of Mr. Mengxing He, the General Manger and one of the directors of Zhejiang Zhongchai
Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership)   Under common control of Peter Zuguang Wang
Hangzhou Cenntro Autotech Co., Limited   Under common control of Peter Zuguang Wang
Peter Zuguang Wang   Chairman of the Company
Greenland Asset Management Corporation   Shareholder of the Company
Hangzhou Jiuru Economic Information Consulting Co. Ltd   One of the directors of Hengyu
Xinchang County Jiuhe Investment Management Partnership (LP)   Under control of Mr. Mengxing He, the General Manger and one of the directors of Zhejiang Zhongchai/NCI of Zhejiang Zhongchai
Cenntro Automotive Corporation   Under common control of Peter Zuguang Wang

 

F-32

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 22 – RELATED PARTY TRANSACTIONS (CONTINUED)

 

(b) Summary of Balances with Related Parties:

 

   As of 
  

September 30,
2022

  

December 31,
2021

 
Due to related parties:        
Sinomachinery Holding Limited1  $
-
   $
-
 
Zhejiang Kangchen Biotechnology Co., Ltd2   
-
    
-
 
Zhejiang Zhonggong Machinery Co., Ltd.3   62,600    409,807 
Zhejiang Zhonggong Agricultural Equipment Co., Ltd.4   
-
    
-
 
Cenntro Smart Manufacturing Tech. Co., Ltd.5   
-
    2,903 
Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership)6   
-
    94,442 
Cenntro Holding Limited⁷   1,341,627    1,341,627 
Peter Zuguang Wang⁷   
-
    
-
 
Cenntro Automotive Corporation7   
-
    11,462 
Xinchang County Jiuxin Investment Management Partnership (LP)7   
-
    1,569,218 
Hangzhou Jiuru Economic Information Consulting Co. Ltd7   190,000    190,000 
Total  $1,594,227   $3,619,459 

 

The balance of due to related parties as of September 30, 2022 and December 31, 2021 consisted of:

 

  1 Advance from Sinomachinery Holding Limited for certain purchase order;

 

  2 Temporary borrowings from Zhejiang Kangchen Biotechnology Co., Ltd.;

 

  3 Unpaid balances for purchasing of materials and equipment and temporary borrowing from Zhejiang Zhonggong Machinery Co., Ltd.;

 

  4 Unpaid balances for purchasing of materials from Zhejiang Zhonggong Agricultural Equipment Co., Ltd.;

 

  5 Prepayment from Cenntro Smart Manufacturing Tech. Co., Ltd.;

 

  6 Temporary borrowings from Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership); and

 

  7 Borrowings from related parties.

 

   As of 
   September 30,   December 31, 
   2022   2021 
Due from related parties-current:        
Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership)   114,942    219,691 
Cenntro Smart Manufacturing Tech. Co., Ltd.   210    
-
 
Cenntro Holding Limited  $35,347,156   $39,459,874 
Total  $35,462,308   $39,679,565 

 

The balance of due from related parties as of September 30, 2022 and December 31, 2021 consisted primarily of other receivables from Cenntro Holding Limited in the amount of $35.35 million and $39.46 million as of September 30, 2022 and December 31, 2021, respectively. 

 

The Company expects that the amount due from its principal equity holder, Cenntro Holding Limited, will be paid back based on certain payment schedules, with the last payment to be made by June 30, 2024, as the Company and Cenntro Holding Limited mutually agreed to an extension of the repayment deadline from April 27, 2022.

 

F-33

 

 

GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 22 – RELATED PARTY TRANSACTIONS (CONTINUED)

 

(c) Summary of Related Party Funds Lending:

 

A summary of funds lending with related parties for the nine months ended September 30, 2022 and 2021 are listed below:

 

Withdraw funds from related parties: 

For the nine
months ended
September 30,

 
   2022   2021 
Zhejiang Zhonggong Machinery Co., Ltd.   
-
    77,362 
Cenntro Smart Manufacturing Tech. Co., Ltd.   
-
    29,553 
Peter Zuguang Wang   
-
    25,000 
Cenntro Holding Limited   
-
    251,973 
Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership)   210,942    34,968 
Total   210,942    418,856 
           
Deposit funds with related parties:          
Zhejiang Zhonggong Machinery Co., Ltd.   401,728    139,252 
Xinchang County Jiuxin Investment Management Partnership (LP)   1,506,728    773,623 
Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership)   
-
    458,913 
Cenntro Smart Manufacturing Tech. Co., Ltd.   
-
    36,515 
Zhejiang Kangchen Biotechnology Co., Ltd   
-
    64,505 
Cenntro Holding Limited        250,000 
Peter Zuguang Wang   
-
    25,000 
Total   1,908,456    1,747,808 

 

NOTE 23 – SUBSEQUENT EVENTS

 

Management has evaluated subsequent events through the date that the financial statements were available to be issued, which is November 14, 2022. All subsequent events requiring recognition as of September 30, 2022 have been incorporated into these financial statements and there are no other subsequent events that require disclosure in accordance with FASB ASC Topic 855.  

 

F-34

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the consolidated financial statements of the Company thereto, which appear elsewhere in this quarterly report on Form 10-Q, and should be read in conjunction with such financial statements and related notes included in this quarterly report on Form 10-Q. Except for the historical information contained herein, the following discussion, as well as other information in this report, contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the “safe harbor” created by those sections. Actual results and the timing of the events may differ materially from those contained in these forward-looking statements due to many factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this quarterly report on Form 10-Q.

  

Overview

 

Greenland Technologies Holding Corporation (the “Company”, “we”, “our” or “us”) was incorporated on December 28, 2017 as a British Virgin Islands company with limited liability and a blank check company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more target businesses. Following the Business Combination (as described below) in October 2019, the Company changed its name from Greenland Acquisition Corporation to Greenland Technologies Holding Corporation.

 

On July 27, 2018, we consummated our initial public offering of 4,400,000 units, including a partial exercise by the underwriters of their over-allotment option in the amount of 400,000 units. Each unit consists of one ordinary share, no par value, one warrant to purchase one-half of one ordinary share, and one right to receive one-tenth of one ordinary share upon the consummation of our initial business combination, pursuant to a registration statement on Form S-1. Warrants must be exercised in multiples of two warrants, and each two warrants are exercisable for one ordinary share at an exercise price of $11.50 per share. The units were sold in our initial public offering at an offering price of $10.00 per unit, and generated $44,000,000 (before underwriting discounts and offering expenses) in gross proceeds.

 

Simultaneously with the consummation of our initial public offering, we completed a private placement of 282,000 units, issued to the Greenland Asset Management Corporation (the “Sponsor”) and Chardan Capital Markets, LLC (“Chardan”), which generated $2,820,000 in gross proceeds. We also sold to Chardan (and its designees), for $100, an option to purchase up to 240,000 units exercisable at $11.50 per unit (or an aggregate exercise price of $2,760,000) commencing on consummation of the Business Combination. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires on July 24, 2023. On February 18, 2021, Chardan exercised its option to purchase 120,000 units. As of the date of this report, an option exercisable by Chardan for 120,000 units is outstanding.

 

On October 24, 2019, we consummated our business combination (the “Business Combination”) with Zhongchai Holding (Hong Kong) Limited, a holding company formed under the laws of Hong Kong on April 23, 2009 (“Zhongchai Holding”), following a special meeting, where the shareholders of Greenland considered and approved, among other matters, a proposal to adopt and entered into the Share Exchange Agreement (as defined below) that allowed Greenland to acquire from Cenntro Holding Limited all of the issued and outstanding equity interests of Zhongchai Holding in exchange for 7,500,000 newly issued ordinary shares, no par value of Greenland, issued to Cenntro Holding Limited. As a result, Cenntro Holding Limited became the controlling shareholder of Greenland, and Zhongchai Holding became a directly and wholly owned subsidiary of Greenland. The Business Combination was accounted for as a reverse merger effected by a share exchange, wherein Zhongchai Holding is considered the acquirer for accounting and financial reporting purposes.

 

2

 

 

In connection with the Business Combination, all the outstanding rights of the Company were converted into 468,200 ordinary shares on a one-tenth (1/10) ordinary share per right basis if holders of the rights elected to convert their rights into the underlying ordinary shares.

 

On December 17, 2019, the Company’s warrants, which were trading under the ticker symbol “GTECW,” were delisted from the Nasdaq Capital Market by the Nasdaq Listing Qualifications Staff.

 

On January 14, 2020, HEVI Corp. (“HEVI”), formerly known as Greenland Technologies Corp. prior to May 2022, was incorporated under the laws of the State of Delaware. HEVI is a 100% owned subsidiary of Greenland. HEVI focuses on the production and sale of electric industrial vehicles for the North American market.

 

Greenland serves as the parent company to Zhongchai Holding. Through Zhongchai Holding and its subsidiaries, Greenland develops and manufactures traditional transmission products for material handling machineries and electric industrial vehicles.

 

Through its PRC subsidiaries, Greenland offers transmission products, which are key components for forklift trucks used in manufacturing and logistic applications, such as factories, workshops, warehouses, fulfilment centers, shipyards, and seaports. Forklifts play an important role in the logistic systems of many companies across different industries in China and globally. Generally, industries with the largest demand for forklifts include the transportation, warehousing logistics, electrical machinery, and automobile industries. Greenland’s revenue decreased from approximately $75.90 million for the nine months ended September 30, 2021 to $71.70 million for the nine months ended September 30, 2022. The decrease in revenue was primarily the result of a decrease in the Company’s sales volume resulting from COVID-19 related lockdowns in China for the nine months ended September 30, 2022. Based on the revenues for the nine months ended September 30, 2022 and 2021, Greenland believes that it is one of the major developers and manufacturers of transmission products for small and medium-sized forklift trucks in China.

 

Greenland’s transmission products are used in 1-ton to 15-tons forklift trucks, some with mechanical shift and some with automatic shift. Greenland sells these transmission products directly to forklift-truck manufacturers. For the nine months ended September 30, 2022 and 2021, Greenland sold an aggregate of 102,144 and 110,082 sets of transmission products, respectively, to more than 100 forklift manufacturers in the PRC.

 

There is increasing demand for electric industrial vehicles powered by sustainable energy in order to reduce air pollution and lower carbon emissions. In December 2020, Greenland launched a new division to focus on the production and sale of electric industrial vehicles—a division that Greenland intends to develop to diversify its product offerings. Greenland’s electric industrial vehicle products currently include GEF-series electric forklifts, a series of lithium powered forklifts with three models ranging in size from 1.8 tons to 3.5 tons, GEL-1800, a 1.8 ton rated load lithium powered electric wheeled front loader, and GEX-8000, an all-electric 8.0 ton rated load lithium powered wheeled excavator. These products have become available for purchase in the United States (“U.S.”) market. In July 2022, Greenland launched its new GEL-5000 all-electric 5.0 ton rated load lithium wheeled front loader. In August 2022, Greenland launched a 54,000 square foot industrial electric vehicle assembly site in Baltimore, Maryland to support local services, assembly and distribution of its electric industrial heavy equipment product line. The Company plans to establish an experience center within the Mid-Atlantic region in 2023 to promote local sales and marketing.

 

As of September 30, 2022, Cenntro Holding Limited owned 53.52% of our outstanding ordinary shares. Cenntro Holding Limited is controlled and beneficially owned by Mr. Peter Zuguang Wang, the chairman of the board of directors of the Company. As a result, we are a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Peter Zuguang Wang beneficially owns more than 50% of our voting power. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements. If we rely on these exemptions, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

 

3

 

 

Impact of COVID-19 Pandemic on Our Operations and Financial Performance 

 

The COVID-19 pandemic has severely affected China and the rest of the world. In an effort to contain the spread of the COVID-19 pandemic, China and many other countries have taken precautionary measures, such as imposing travel restrictions, quarantining individuals infected with or suspected of being infected with COVID-19, encouraging or requiring people to work remotely, and canceling public activities, among others.

 

Since 2021, a few waves of COVID-19 infections emerged in various regions of China, and in response, the Chinese government implemented certain anti-COVID measures and protocols. However, in the fiscal year ended December 31, 2021, these scattered outbreaks were brought under control in a relatively short period of time, and the COVID-19 pandemic had limited impact on our financial condition and results of operations in the fiscal year ended December 31, 2021. For the nine months ended September 30, 2022, we experienced rising raw material costs, and we expect raw material costs to continue increasing in the foreseeable future, due to the COVID-19 pandemic. Additionally, local outbreaks of COVID-19 infections continued to emerge in additional regions in China since 2022, and it is difficult to predict how these local outbreaks and relevant remedial measures and lockdown policies may affect our business operations for the rest of 2022.

 

The extent to which the COVID-19 pandemic may continue to affect our operations and financial performance in the future will depend on future developments, which are highly uncertain and cannot be predicted at this time.

 

Results of Operations

 

For the three months ended September 30, 2022 and 2021

 

Overview

 

   For the three months ended September 30 
   2022   2021   Change   Variance 
     
Revenues  $21,786,862   $23,084,793   $(1,297,931)   (5.6)%
Cost of Goods Sold   16,974,566    17,987,363    (1,012,797)   (5.6)%
Gross Profit   4,812,296    5,097,430    (285,134)   (5.6)%
Selling expenses   521,865    522,770    (905)   (0.2)%
General and administrative expenses   1,192,210    1,150,769    41,441    3.6%
Research and development expenses   1,023,443    1,372,215    (348,772)   (25.4)%
Total Operating Expenses   2,737,518    3,045,754    (308,236)   (10.1)%
Income from operations   2,074,778    2,051,676    23,102    1.1%
Interest income   12,790    4,737    8,053    170.0%
Interest expenses   (125,981)   (106,506)   (19,475)   18.3%
Loss on disposal of property and equipment   (301)   -    (301)   (100.0)%
Other income   655,838    231,466    424,372    183.3%
Income before income tax   2,617,124    2,181,373    435,751    20.0%
Income tax   518,931    927,844    (408,913)   (44.1)%
Net income  $2,098,193   $1,253,529   $844,664    67.4%

 

4

 

 

Components of Results of Operations

 

  

For the
three months ended
September 30

 
Component of Results of Operations  2022   2021 
     
Revenues  $21,786,862   $23,084,793 
Cost of Goods Sold   16,974,566    17,987,363 
Gross Profit   4,812,296    5,097,430 
Operating Expenses   2,737,518    3,045,754 
Net Income   2,098,193    1,253,529 

 

Revenue

 

Greenland’s revenue was approximately $21.79 million for the three months ended September 30, 2022, representing a decrease of approximately $1.29 million, or 5.6%, as compared to that of approximately $23.08 million for the three months ended September 30, 2021. The decrease in revenue was primarily a decrease in the Company’s sales volume resulting from COVID-19 related lockdowns in China for the three months ended September 30, 2022.

  

Cost of Goods Sold

 

Greenland’s cost of goods sold consists primarily of material costs, freight charges, purchasing and receiving costs, inspection costs, internal transfer costs, wages, employee compensation, amortization, depreciation and related costs, which are directly attributable to the Company’s manufacturing activities. The write down of inventory using the net realizable value (“NRV”) impairment test is also recorded in cost of goods sold. The total cost of goods sold was approximately $16.97 million for the three months ended September 30, 2022, representing a decrease by approximately $1.02 million, or 5.6%, as compared to that of approximately $17.99 million for the three months ended September 30, 2021. Cost of goods sold decreased due to our decrease in sales volume.

 

Gross Profit

 

Greenland’s gross profit was approximately $4.81 million for the three months ended September 30, 2022, representing a decrease by approximately $0.29 million, or 5.6%, as compared to that of approximately $5.10 million for the three months ended September 30, 2021. For the three months ended September 30, 2022 and 2021, Greenland’s gross margins were approximately 22.1% and 22.1%, respectively. The decrease in gross profit in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was primarily due to our decrease in sales volume.

 

5

 

 

Operating Expenses

 

Greenland’s operating expenses consist of selling expenses, general and administrative expenses and research and development expenses.

 

Selling Expenses

 

Selling expenses are mainly comprised of operating expenses such as sales staff payroll, traveling expenses, and transportation expenses. Our selling expenses were approximately $0.52 million for the three months ended September 30, 2022, representing a decrease of approximately $0.0 million, or 0.2%, as compared to approximately $0.52 million for the three months ended September 30, 2021. The decrease was mainly due to a decrease in the after-sales service fees.

 

General and Administrative Expenses

 

General and administrative expenses are comprised of management and staff salaries, employee benefits, depreciation for office facility and office furniture and equipment, travel and entertainment expenses, legal and accounting fees, financial consulting fees, and other office expenses. General and administrative expenses were approximately $1.19 million for the three months ended September 30, 2022, representing an increase by approximately $0.04 million, or 3.6%, as compared to that of approximately $1.15 million for the three months ended September 30, 2021. The fundamental reasons for the rise in the general and administrative expenses were the following: (i) increased legal fees and consultancy fees on the Company’s business planning and projects for the three months ended September 30, 2022, as the Company expanded its operations, compared to the three months ended September 30, 2021; and (ii) an increase in staff salary.

 

Research and Development (R&D) Expenses

 

R&D expenses consist of R&D personnel compensation, costs of materials used in R&D projects, and depreciation costs for research-related equipment. R&D expenses were approximately $1.02 million for the three months ended September 30, 2022, representing a decrease by approximately $0.35 million, or 25.4%, as compared to that of approximately $1.37 million for the three months ended September 30, 2021. Such decrease was primarily due to a significant decrease in the Company’s R&D activities during the three months ended September 30, 2022.

 

Income from Operations

 

Income from operations for the three months ended September 30, 2022 was approximately $2.07 million, representing an increase of approximately $0.02 million, as compared to that of approximately $2.05 million for the three months ended September 30, 2021.

 

Interest Income and Interest Expenses

 

Greenland’s interest income was approximately $0.01 million for the three months ended September 30, 2022, representing an increase of approximately $0.01 million, or 170.0%, as compared to that of approximately $0.00 million for the three months ended September 30, 2021. The increase in interest income was because more cash was deposited in banks during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

 

Greenland’s interest expenses were approximately $0.13 million for the three months ended September 30, 2022, representing an increase of approximately $0.02 million, or 18.3%, as compared to that of approximately $0.11 million for the three months ended September 30, 2021. The increase was primarily due to an increase of our short-term loans for the three months ended September 30, 2022, compared to those for the three months ended September 30, 2021.

 

Other Income

 

Greenland’s other income was approximately $0.66 million for the three months ended September 30, 2022, an increase of approximately $0.43 million, or 183.3%, as compared to approximately $0.23 million for the three months ended September 30, 2021. The increase was primarily due to an increase in grant income for the three months ended September 30, 2022, compared to those for the three months ended September 30, 2021.

 

6

 

 

 

Income Taxes

 

Greenland’s income tax was approximately $0.52 million for the three months ended September 30, 2022, as compared to that of approximately $0.93 million for the three months ended September 30, 2021.

 

Zhejiang Zhongchai obtained a “high-tech enterprise” status near the end of the fiscal year of 2019. Such status allows Zhejiang Zhongchai to enjoy a reduced statutory income tax rate of 15%, rather than the standard PRC corporate income tax rate of 25%. The “high-tech enterprise” status is reevaluated by relevant Chinese government agencies every three years. Zhejiang Zhongchai’s current “high-tech enterprise” will be reevaluated near the end of 2022.

 

Greenland’s other PRC subsidiaries are subject to different income tax rates. Hengyu, the 62.5% owned subsidiary of Zhongchai Holding, is subject to the 25% standard income tax rate. Hangzhou Greenland, the wholly owned subsidiary of Zhongchai Holding, is subject to the 25% standard income tax rate.

 

Greenland is a holding company registered in the British Virgin Islands and is not subject to tax on income or capital gains under the current British Virgin Islands law. In addition, upon payment of dividends to its shareholders, the Company will not be subject to any British Virgin Islands withholding tax.

 

On January 14, 2020, Greenland established HEVI, its wholly owned subsidiary in the state of Delaware. HEVI promotes sales of sustainable alternative products for the heavy industrial equipment industry, including electric industrial vehicles, in the North American market. On December 22, 2017, the U.S. federal government enacted the 2017 Tax Act. The 2017 Tax Act includes a number of changes in existing tax law impacting businesses, including the transition tax, a one-time deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory rate from 35% to 21%, effective on January 1, 2018. ASC 740 requires companies to recognize the effect of tax law changes in the period of enactment, and accordingly, the effects must be recognized on companies’ calendar year-end financial statements, even though the effective date for most provisions is January 1, 2018. Since HEVI was established in year 2020, the one-time transition tax did not have any impact on the Company’s tax provision and there was no undistributed accumulated earnings and profits as of September 30, 2022.

 

Net Income

 

Our net income was approximately $2.10 million for the three months ended September 30, 2022, representing an increase of approximately $0.85 million, as compared to that of approximately $1.25 million for the three months ended September 30, 2021.

 

For the nine months ended September 30, 2022 and 2021

 

Overview

 

   For the nine months ended September 30 
   2022   2021   Change   Variance 
     
Revenues  $71,696,324   $75,899,994   $(4,203,670)   (5.5)%
Cost of Goods Sold   55,676,893    59,993,008    (4,316,115)   (7.2)%
Gross Profit   16,019,431    15,906,986    112,445    0.7%
Selling expenses   1,679,600    1,397,462    282,138    20.2%
General and administrative expenses   3,716,590    2,814,120    902,470    32.1%
Research and development expenses   2,968,572    3,337,056    (368,484)   (11.0)%
Total Operating Expenses   8,364,762    7,548,638    816,124    10.8%
Income from operations   7,654,669    8,358,348    (703,679)   (8.4)%
Interest income   35,239    14,165    21,074    148.8%
Interest expenses   (322,641)   (508,359)   185,718    (36.5)%
Loss on disposal of property and equipment   (695)   (959)   264    (27.5)%
Other income   1,418,580    830,515    588,065    70.8%
Income before income tax   8,785,152    8,693,710    91,442    1.1%
Income tax   1,392,735    1,844,619    (451,884)   (24.5)%
Net income  $7,392,417   $6,849,091   $543,326    7.9%

 

7

 

 

Components of Results of Operations

 

  

For the nine months ended
September 30

 
Component of Results of Operations  2022   2021 
     
Revenues  $71,696,324   $75,899,994 
Cost of Goods Sold   55,676,893    59,993,008 
Gross Profit   16,019,431    15,906,986 
Operating Expenses   8,364,762    7,548,638 
Net Income   7,392,417    6,849,091 

 

Revenue

 

Greenland’s revenue was approximately $71.70 million for the nine months ended September 30, 2022, representing a decrease of approximately $4.20 million, or 5.5%, as compared to approximately $75.90 million for the nine months ended September 30, 2021. The decrease in revenue was primarily the result of a decrease in the Company’s sales volume resulting from COVID-19 related lockdowns in China for the nine months ended September 30, 2022. On an RMB basis, revenue for the nine months ended September 30, 2022 decreased by approximately 3.0%, as compared to the nine months ended September 30, 2021.

 

Cost of Goods Sold

 

Greenland’s cost of goods sold consists primarily of material costs, freight charges, purchasing and receiving costs, inspection costs, internal transfer costs, wages, employee compensation, amortization, depreciation and related costs, which are directly attributable to the Company’s manufacturing activities. The write down of inventory using the NRV impairment test is also recorded in cost of goods sold. The total cost of goods sold was approximately $55.68 million for the nine months ended September 30, 2022, representing a decrease by approximately $4.32 million, or 7.2%, as compared to approximately $60.00 million for the nine months ended September 30, 2021. Cost of goods sold decreased due to our decrease in sales volume.

 

Gross Profit

 

Greenland’s gross profit was approximately $16.02 million for the nine months ended September 30, 2022, representing an increase by approximately $0.11 million, or 0.7%, as compared to approximately $15.91 million for the nine months ended September 30, 2021. For the nine months ended September 30, 2022 and 2021, Greenland’s gross margins were approximately 22.3% and 21.0%, respectively. The increase in gross margin in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to a shift in Greenland’s product mix towards higher value and more sophisticated products, such as hydraulic transmission products.

 

Selling Expenses

 

Selling expenses mainly comprise of operating expenses (such as sales staff payroll), traveling expenses, and transportation expenses. Our selling expenses were approximately $1.68 million for the nine months ended September 30, 2022, representing an increase of approximately $0.28 million, or 20.2%, as compared to approximately $1.40 million for the nine months ended September 30, 2021. The increase was mainly due to an increase in the after-sales service fees and advertising and marketing fees.

 

General and Administrative Expenses

 

General and administrative expenses comprise of management and staff salaries, employee benefits, depreciation for office facility and office furniture and equipment, travel and entertainment expenses, legal and accounting fees, financial consulting fees, and other office expenses. General and administrative expenses were approximately $3.72 million for the nine months ended September 30, 2022, representing an increase by approximately $0.89 million, or 32.1%, as compared to approximately $2.81 million for the nine months ended September 30, 2021. The fundamental reasons for the rise in the general and administrative expenses were the following: (i) increased legal fees and consultancy fees on the Company’s business planning and projects for the nine months ended September 30, 2022 as the Company expanded its operations, compared to the nine months ended September 30, 2021; and (ii) an increase in staff salary.

 

8

 

 

Research and Development (R&D) Expenses

 

R&D expenses consist of R&D personnel compensation, costs of materials used in R&D projects, and depreciation costs for research-related equipment. R&D expenses were approximately $2.97 million for the nine months ended September 30, 2022, representing a decrease by approximately $0.37 million, or 11.0%, as compared to approximately $3.34 million for the nine months ended September 30, 2021. Such decrease was primarily attributable to a decrease in the Company’s R&D activities during the nine months ended September 30, 2022.

 

Income from Operations

 

Income from operations for the nine months ended September 30, 2022 was approximately $7.65 million, representing a decrease of approximately $0.71 million, as compared to approximately $8.36 million for the nine months ended September 30, 2021. Such decrease was primarily due to our decrease in sales volume.

 

Interest Income and Interest Expenses

 

Greenland’s interest income was approximately $0.04 million for the nine months ended September 30, 2022, representing an increase of approximately $0.03 million, or 148.8%, as compared to approximately $0.01 million for the nine months ended September 30, 2021. The increase in interest income was primarily due to the reason that more cash was deposited in banks during the nine months ended September 30, 2022.

 

Greenland’s interest expenses were approximately $0.32 million for the nine months ended September 30, 2022, representing a decrease of approximately $0.19 million, or 36.5%, as compared to approximately $0.51 million for the nine months ended September 30, 2021. The decrease was primarily due to a reduction of our short-term loans for the nine months ended September 30, 2022, compared to those for the nine months ended September 30, 2021.

 

Other Income

 

Greenland’s other income was approximately $1.42 million for the nine months ended September 30, 2022, representing an increase of approximately $0.59 million, or 70.8%, as compared to approximately $0.83 million for the nine months ended September 30, 2021. The increase was primarily due to an increase in grant income and an increase in industry research services offered by Zhongchai Holding for the nine months ended September 30, 2022, compared to those for the nine months ended September 30, 2021.

 

Income Taxes

 

Greenland’s income tax was approximately $1.39 million for the nine months ended September 30, 2022, as compared to approximately $1.84 million for the nine months ended September 30, 2021. Our income tax expense decreased due to a decrease in overall profit during the nine months ended September 30, 2022.

 

Net Income

 

Our net income was approximately $7.39 million for the nine months ended September 30, 2022, representing an increase of approximately $0.54 million, as compared to approximately $6.85 million for the nine months ended September 30, 2021. 

 

Liquidity and Capital Resources

 

Greenland is a holding company incorporated in the British Virgin Islands. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends.

 

9

 

 

We have funded working capital and other capital requirements primarily by equity contributions, cash flow from operations, short-term bank loans and bank acceptance notes, and long-term bank loans. Cash is required primarily to purchase raw materials, repay debts and pay salaries, office expenses, income taxes and other operating expenses.

 

For the nine months ended September 30, 2022, our PRC subsidiary, Zhejiang Zhongchai, has paid off approximately $9.92 million in bank loans, approximately $1.91 million in related parties loans, and maintained $15.03 million cash on hand. We plan to maintain the current debt structure and rely on governmentally supported loans with lower costs, if necessary.

 

The government subsidy mainly consists of an incentive granted by the Chinese government to encourage transformation of fixed assets in China and other miscellaneous subsidy from the Chinese government. Government subsidies are recognized when there is reasonable assurance that the subsidy will be received and all conditions be completed. Total government subsidies recorded under long-term liabilities were $1.83 million and $2.21 million as of September 30, 2022 and December 31, 2021, respectively.

 

The Company currently plans to fund its operations mainly through cash flow from its operations, renewal of bank borrowings, additional equity financing, and continuation of financial support from its shareholders and affiliates controlled by the Company’s principal shareholders, if necessary. The Company might implement a stricter policy on sales to less creditworthy customers and plans to continue to improve its collection efforts on accounts with outstanding balances. The Company is actively working with customers and suppliers and expects to fully collect the remaining balances.

 

We believe that the Company has sufficient cash, even with uncertainty in the Company’s manufacturing and sale of electric industrial vehicles in the future and decline on sale of transmission products. However, with our capital contribution from existing funding sources, we believe that we have sufficient cash to allow us to operate for the next 12 months. We remain confident and are expected to generate positive cash flow from our operations.

 

We may need additional cash resources in the future, if the Company experiences failure in collecting account receivables, changes in business condition, changes in financial condition, or other developments. We may also need additional cash resources, if the Company wishes to pursue opportunities for investment, acquisition, strategic cooperation, or other similar actions. If the Company’s management and its board of directors determine that the cash required for specific corporate activities exceed Greenland’s cash and cash equivalents on hand, the Company may issue debt or equity securities to raise cash. 

 

10

 

 

Historically, we have expended considerable resources on building a new factory and paid off a considerable amount of debt, resulting in less available cash. However, we anticipate that our cash flow will continue to improve for the fiscal year 2022. In specific, Zhejiang Zhongchai has completed the construction of a new factory, and our PRC subsidiaries have received COVID-19 related government subsidies. Furthermore, Zhejiang Zhongchai pledged the deed of its new factory as a collateral to banks in order to obtain additional loans, refinance expiring loans, restructure short-term loans, and fund other working capital needs upon acceptable terms to Greenland.

 

Cash and Cash Equivalents

 

Cash equivalents refers to all highly liquid investments purchased with original maturity of three months or less. As of September 30, 2022, Greenland had approximately $11.31 million of cash and cash equivalents, representing an increase of approximately $0.25 million, or 2.21%, as compared to that of approximately $11.06 million as of December 31, 2021. The increase of cash was mainly attributable to proceeds from equity and debt financing, as compared to that as of December 31, 2021.

 

Restricted Cash

 

Restricted cash represents the amount held by a bank as security for bank acceptance notes and therefore is not available for use until the bank acceptance notes are fulfilled or expired, which typically takes less than twelve months. As of September 30, 2022, Greenland had approximately $3.72 million of restricted cash, representing a decrease of approximately $3.02 million, or 44.78%, as compared to that of approximately $6.74 million as of December 31, 2021. The decrease of restricted cash was due to the decrease of mortgaged assets.

 

Accounts Receivable

 

As of September 30, 2022, Greenland had approximately $18.34 million of accounts receivables, representing an increase of approximately $2.43 million, or 15.26%, as compared to approximately $15.92 million as of December 31, 2021. The increase in accounts receivable was due to our slowed-down effort in receivables collection due to the COVID-19 pandemic.

 

Greenland recorded approximately $0.77 million of provision for doubtful accounts as of September 30, 2022. Greenland conducted an aging analysis of each customer’s delinquent payments to determine whether allowance for doubtful accounts is adequate. In establishing the allowance for doubtful accounts, Greenland considers historical experience, economic environment, and expected collectability of past due receivables. An estimate of doubtful accounts is recorded when collection of the full amount is no longer probable. When bad debts are identified, such debts are written off against the allowance for doubtful accounts. Greenland will continuously assess its potential losses based on the credit history of and relationships with its customers on a regular basis to determine whether its bad debt allowance on its accounts receivables is adequate. Greenland believes that its collection policies are generally in line with the transmissions industry’s standard in the PRC.

 

Due from Related Party

 

Due from related party was $35.46 million and $39.68 million as of September 30, 2022 and December 31, 2021, respectively. The balance of due from related parties as of September 30, 2022 and December 31, 2021 consisted primarily of other receivables from Cenntro Holding Limited in the amount of $35.35 million and $39.46 million as of September 30, 2022 and December 31, 2021, respectively. We expect the amount due from our controlling shareholder, Cenntro Holding Limited, to be paid back based on certain payment schedules, with the last payment to be made by June 30, 2024, as the Company and Cenntro Holding Limited mutually agreed to an extension of repayment deadline from April 27, 2022.

 

However, there is no guarantee that such amount will be repaid in whole or in part before the end of June 2024, if at all. Such failure to pay back by Cenntro Holding Limited could have a material negative impact on our balance sheet.

 

11

 

 

Notes Receivable

 

As of September 30, 2022, Greenland had approximately $31.61 million of notes receivables, which will be collected by us within six months. The decrease of our notes receivables was approximately $5.94 million, or 15.83%, from that of approximately $37.55 million as of December 31, 2021. 

 

Working Capital 

 

Our working capital was approximately $65.08 million as of September 30, 2022, as compared to that of $53.84 million as of December 31, 2021, representing an increase of $11.24 million during the nine months ended September 30, 2022.

 

Cash Flow

 

  

For the Nine Months Ended

September 30,

 
   2022   2021 
     
Net cash used in operating activities  $(6,121,235)  $(5,864,423)
Net cash provided by (used in) investing activities  $356,085   $(685,761)
Net cash provided by financing activities  $3,961,098   $12,669,108 
Net increase in cash and cash equivalents and restricted cash  $(1,804,052)  $6,118,924 
Effect of exchange rate changes on cash and cash equivalents  $(969,309)  $134,379 
Cash and cash equivalents and restricted cash at beginning of year  $17,800,892   $9,403,053 
Cash and cash equivalents and restricted cash at end of year  $15,027,531   $15,656,356 

 

Operating Activities 

 

Greenland’s net cash used in operating activities were approximately $(6.12) million and $(5.86) million for the nine months ended September 30, 2022 and 2021, respectively.

 

For the nine months ended September 30, 2022, the main sources of cash inflow from operating activities were net income, change in notes receivable, and depreciation and amortization, with each amounted to approximately $7.39 million, $2.18 million and $1.85 million, respectively. The main causes of cash outflow were changes in other current and noncurrent assets and accounts receivables, representing decreases of approximately $11.40 million and $4.39 million, respectively.

 

For the nine months ended September 30, 2021, the main sources of cash inflow from operating activities were net income, change in accounts payable, and depreciation and amortization, with each amounted to approximately $6.85 million, $5.98 million and $1.87 million, respectively. The main causes of cash outflow were changes in notes receivable and accounts receivables, representing increases of approximately $5.81 million and $8.72 million, respectively.

 

Investing Activities

 

Net cash provided by investing activities resulted in cash inflow of approximately $0.36 million for the nine months ended September 30, 2022. Cash provided by investing activities for the nine months ended September 30, 2022 was mainly due to $0.72 million in proceeds from government grants for construction, offset by approximately $0.36 million used for purchases of long-term assets.

 

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Net cash used in investing activities resulted a cash outflow of approximately $0.69 million for the nine months ended September 30, 2021. Cash used in investing activities for the nine months ended September 30, 2021 was mainly due to $0.85 million used for purchases of long-term assets, offset by approximately $0.17 million in proceeds from government grants for construction.

 

Financing Activities

 

Net cash provided by financing activities resulted a cash inflow of approximately $3.96 million for the nine months ended September 30, 2022, which was mainly attributable to approximately $10.85 million in proceeds from short-term bank loans and approximately $9.20 million in proceeds from equity and debt financing. Such amounts were further offset by repayment of short-term bank loans of approximately $9.92 million and repayment of notes payable of approximately $4.28 million.

 

Net cash provided by financing activities resulted a cash inflow of approximately $12.67 million for the nine months ended September 30, 2021, which was mainly attributable to approximately $8.21 million in proceeds from equity and debt financing and approximately $16.35 million in proceeds from notes payable. Such amounts were further offset by repayment of short-term bank loans of approximately $18.65 million, and repayment of loans from related parties of approximately $1.75 million.

 

Credit Risk

 

Credit risk is one of the most significant risks for Greenland’s business. Accounts receivable are typically unsecured and derived from revenues earned from customers, thereby exposing Greenland to credit risk. Credit risk is controlled by the application of credit approvals, limits, and monitoring procedures. Greenland identifies credit risk collectively based on industry, geography, and customer type. This information is monitored regularly by the Company’s management. In measuring the credit risk of sales to customers, Greenland mainly reflects the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the exposures to the customer and its future development.

 

Liquidity Risk

 

Greenland is exposed to liquidity risk when it is unable to provide sufficient capital resources and liquidity to meet its commitments and/or business needs. Liquidity risk is managed by the application of financial position analysis to test if Greenland is in danger of liquidity issues and also by application of monitoring procedures to constantly monitor its conditions and movements. When necessary, Greenland resorts to other financial institutions to obtain additional short-term funding to meet the liquidity shortage.

 

Inflation Risk

 

Greenland is also exposed to inflation risk. Inflationary factors, such as increases in raw material and overhead costs, could impair Greenland’s operating results. Although Greenland does not believe that inflation has had a material impact on its financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on its ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenues if the selling prices of its products do not increase with such increased costs.

 

Critical Accounting Policies and Estimates

 

We prepare our consolidated financial statements in accordance with U.S. GAAP. In applying accounting principles, it is often required to use estimates. These estimates consider the facts, circumstances and information available, and may be based on subjective inputs, assumptions and information known and unknown to us. Material changes in certain of the estimates that we use could potentially affect, by a material amount, our consolidated financial position and results of operations. Although results may vary, we believe our estimates are reasonable and appropriate. See Note 2 to our consolidated financial statements included under “Item 1 - Financial Statements” for a summary of our significant accounting policies. The following describes certain of our significant accounting policies that involve more subjective and complex judgments where the effect on our consolidated financial position and operating performance could be material.

 

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Revenue Recognition

 

In accordance with ASC Topic 606, “Revenue from Contracts with Customers”, the Company recognizes revenues when goods or services are transferred to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. In determining when and how revenues are recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenues when (or as) the Company satisfies each performance obligation. The Company derives revenues from the processing, distribution and sale of its products. The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which had been levied at the rate of 17% on the invoiced value of sales until April 30, 2018, after which date the rate was reduced to 16%. VAT rate was further reduced to 13% starting from April 1, 2019. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

 

Revenues are recognized at a point in time once the Company has determined that the customer has obtained control over the product. Control is typically deemed to have been transferred to the customer when the performance obligation is fulfilled, usually at the time of customers’ acceptance or consumption, at the net sales price (transaction price) and each of the criteria under ASC 606 have been met. Contract terms may require the Company to deliver the finished goods to the customers’ location or the customer may pick up the finished goods at the Company’s factory. International sales are recognized when shipment clears customs and leaves the port.

 

The Company has adopted ASC 606 on January 1, 2018, using the transition method of Modified-Retrospective Method (“MRM”). The adoption of ASC 606 had no impact on the Company’s beginning balance of retained earnings.

 

The Company’s contracts are all short-term in nature with a contract term of one year or less. Receivables are recorded when the Company has an unconditional right to consideration.

 

Business Combination

 

On October 24, 2019, we consummated the Business Combination with Zhongchai Holding following a special meeting of the shareholders in which the shareholders of Greenland considered and approved, among other matters, a proposal to adopt an share exchange agreement (the “Share Exchange Agreement”), dated as of July 12, 2019 by and among (i) Greenland, (ii) Zhongchai Holding, (iii) the Sponsor in the capacity as the purchaser representative, and (iv) Cenntro Holding Limited, the sole member of Zhongchai Holding.

 

Pursuant to the Share Exchange Agreement, Greenland acquired from Cenntro Holding Limited all of the issued and outstanding equity interests of Zhongchai Holding in exchange for the issuance of 7,500,000 ordinary shares, no par value of Greenland, to Cenntro Holding Limited (the “Exchange Shares”). As a result, Cenntro Holding Limited became the controlling shareholder of Greenland, and Zhongchai Holding became a directly and wholly owned subsidiary of Greenland. The Business Combination was accounted for as a reverse merger effected by a share exchange, wherein Zhongchai Holding is considered the acquirer for accounting and financial reporting purposes.

 

Pursuant to that certain finder agreement with Hanyi Zhou dated May 29, 2019, 50,000 newly issued ordinary shares were issued to Hanyi Zhou as a finder’s fee for the Business Combination.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, which is based on estimated selling prices less any further costs expected to be incurred for completion and disposal. Cost of raw materials is calculated using the weighted average method and is based on purchase cost. Work-in-progress and finished goods costs are determined using the weighted average method and comprise direct materials, direct labor and an appropriate proportion of overhead.

 

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Income Taxes

 

The Company accounts for income taxes following the liability method pursuant to Financial Accounting Standards Board (“FASB”) ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date.

 

The Company also follows FASB ASC 740, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2022, the Company did not have any liability for unrecognized tax benefits. It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. The Company’s historical tax years will remain open for examination by the local authorities until the statute of limitations has passed.

 

Emerging Growth Company

 

Pursuant to the Jumpstart Our Business Startups Act (the “JOBS Act”), an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to continue to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies. We also intend to continue to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

 

Off Balance Sheet Arrangements

 

None.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

The Company is not required to provide the information required by this Item as it is a smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

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Evaluation of Disclosure Controls and Procedures

 

As of September 30, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon such evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were ineffective. Such conclusion is based on the presence of the following material weakness in internal control over financial reporting as of September 30, 2022:

 

Accounting and Financial Reporting Personnel Material Weakness - As noted in Item 9A of our annual report on Form 10-K for the preceding fiscal year, management concluded that in light of a lack of sufficient and competent financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to prepare consolidated financial statements and related disclosures in accordance with U.S. GAAP and SEC reporting requirements, we did not maintain effective controls and did not implement adequate and proper supervisory review to ensure that significant internal control deficiencies can be detected or prevented.

 

As a result, the Company has developed a remedial plan to strengthen its accounting and financial reporting functions. To strengthen the Company’s internal control over financial reporting, the Company is currently implementing the following remedial actions:

 

Developing and formalizing key accounting and financial reporting policies and procedures;

 

Recruiting more financial reporting and accounting personnel who have adequate U.S. GAAP knowledge;

 

Training key position staff by U.S. accountant with U.S. corporate accounting experiences, and gaining additional knowledge and professional skills about SEC regulations and U.S. GAAP;

  

Planning to acquire additional resources to strengthen the financial reporting function and set up a financial and system control framework; and

 

  Establishing effective oversight and clarifying reporting requirements for non-recurring and complex transactions to ensure consolidated financial statements and related disclosures are accurate, complete and in compliance with U.S. GAAP and SEC reporting requirements.

 

Inherent limitation on the effectiveness of internal control

 

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

 

Notwithstanding the material weakness in our internal control over financial reporting, the consolidated unaudited financial statements included in this Quarter Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

 

Changes in Internal Control Over Financial Reporting

 

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this quarterly report on Form 10-Q, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

 

ITEM 1A. RISK FACTORS.

 

Summary of Risk Factors

 

An investment in our ordinary shares is subject to a number of risks, including risks related to our business and industry, risks related to our corporate structure, risks related to doing business in China and risks related to our ordinary shares. You should carefully consider all of the information in this report before making an investment in the ordinary shares. The following list summarizes some, but not all, of these risks. Please read the information in this section for a more thorough description of these and other risks.

 

Risks Related to our Business and Industry

 

For more detailed discussions of the following risks, see “Risk Factors—Risks Related to our Business and Industry” on pages 20 through 25. 

 

Our subsidiaries’ business operations are cash intensive, and our subsidiaries’ business could be adversely affected if we fail to maintain sufficient levels of liquidity and working capital;

 

We grant relatively long payment terms for accounts receivable which can adversely affect our cash flow;

 

  Our subsidiaries face short lead-times for delivery of products to customers. Failure to meet delivery deadlines could result in the loss of customers and damage to our reputation and goodwill;

 

  Our subsidiaries face intense competition, and if our subsidiaries are unable to compete effectively, we may not be able to maintain profitability;

 

  Our revenues are highly dependent on a limited number of customers and the loss of any one of our subsidiaries’ major customers could materially and adversely affect our growth and revenues;

 

  As our subsidiaries expand their operations, they may need to establish a more diverse supplier network for raw materials. The failure to secure a more diverse supplier network could have an adverse effect on our financial condition;

 

  To remain competitive, our subsidiaries have introduced new lines of business, including the production and sale of electric industrial vehicles. If these efforts are not successful, our results of operations may be materially and adversely affected;

 

  New lines of business, including the production and sale of electric industrial vehicles, may subject us and our subsidiaries to additional risks;

 

  Volatile steel prices can cause significant fluctuations in our operating results. Our revenues and operating income could decrease if steel prices increase or if our subsidiaries are unable to pass price increases on to their customers; and

 

  We are subject to various risks and uncertainties that may affect our subsidiaries’ ability to procure raw materials.

 

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Risks Related to Doing Business in China

 

For more detailed discussions of the following risks, see “Risk Factors—Risks Related to Doing Business in China” on pages 26 through 35. 

 

  Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations;

 

  Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer our securities, result in a material adverse change to our subsidiaries’ business operations, and damage our reputation, which could materially and adversely affect our financial condition and results of operations and cause our securities to significantly decline in value or become worthless. See “Risk Factors—Risks Related to Doing Business in China—The PRC government exerts substantial influence over the manner in which our PRC subsidiaries must conduct their business activities. If the Chinese government significantly regulates the business operations of our PRC subsidiaries in the future and our PRC subsidiaries are not able to substantially comply with such regulations, our business operations may be materially adversely affected and the value of our ordinary shares may significantly decrease” and “Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us and our PRC subsidiaries”;

 

  The Chinese government may intervene or influence our subsidiaries’ operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless. See “Risk Factors—Risks Related to Doing Business in China—The PRC government exerts substantial influence over the manner in which our PRC subsidiaries must conduct their business activities. If the Chinese government significantly regulates the business operations of our PRC subsidiaries in the future and our PRC subsidiaries are not able to substantially comply with such regulations, our business operations may be materially adversely affected and the value of our ordinary shares may significantly decrease”;
     
  The approval of the China Securities Regulatory Commission (“CSRC”) or other PRC governmental authorities may be required, along with compliance with any other applicable PRC rules, policies and regulations, in connection with any future offering of our securities, and, if required, we cannot predict whether or how soon we and/or our PRC subsidiaries will be able to obtain such approval or comply with such requirements. Any failure to obtain, or delay in obtaining, any requisite PRC governmental approval or complying with any other applicable PRC requirements for an offering, or a rescission of such approval, may subject us to sanctions imposed by the relevant PRC regulatory authority. In addition, if we and/or our PRC subsidiaries do not receive or maintain the approvals, or we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change such that we and/or our PRC subsidiaries are required to obtain approval in the future, we may be subject to an investigation by competent regulators, fines or penalties, or an order prohibiting us from conducting an offering, and these risks could result in a material adverse change in our operations and the value of our ordinary shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. See “Risk Factors—Risks Related to Doing Business in China—We believe that we and our PRC subsidiaries are not currently required to obtain the approval and/or comply with other requirements of the CSRC, the Cyberspace Administration of China, or other PRC governmental authorities under PRC rules, regulations or policies in connection with an offering of our securities outside of the PRC, including on a U.S. exchange. However, in the event that any such approval is required or that there are other requirements we and/or our PRC subsidiaries are obligated to comply with, we cannot predict whether or how soon we and/or our PRC subsidiaries will be able to obtain such approvals and/or comply with such requirements.” and “Risk Factors—Risks Related to Doing Business in China—Our PRC subsidiaries may be liable for improper use or appropriation of personal information provided by their customers and any failure to comply with PRC laws and regulations over data security could result in materially adverse impact on our business, results of operations, and our continued listing on Nasdaq”;

 

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  Our PRC subsidiaries may be liable for improper use or appropriation of personal information provided by their customers and any failure to comply with PRC laws and regulations over data security could result in materially adverse impact on our business, results of operations, and our continued listing on Nasdaq;

 

  You may have difficulty enforcing judgments against us;

 

  Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders;

 

  PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from our future financing activities to make loans or additional capital contributions to our PRC subsidiaries;

 

  We may rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct business;

 

  Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment;
     
  U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China; and

 

  Our securities may be delisted and prohibited from being traded under the Holding Foreign Companies Accountable Act, or HFCA Act, if the Public Company Accounting Oversight Board, or PCAOB, is unable to inspect our auditor in the future. Any future delisting and cessation of trading of our securities, or the threat of their being delisted and prohibited from being traded, may materially and adversely affect the value of your investment. Additionally, any inability of the PCAOB to conduct inspections of our auditor in the future would deprive our investors of the benefits of such inspections. See “Risk Factors—Risks Related to Doing Business in China—A recent joint statement by the SEC and the PCAOB, proposed rule changes submitted by Nasdaq, and the HFCA Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.”

 

Risks Related to Our Ordinary Shares

 

For more detailed discussions of the following risks, see “Risk Factors—Risks Related to Our Ordinary Shares” on pages 36 through 37. 

 

  Future sales of our ordinary shares, whether by us or our shareholders, could cause the price of our ordinary shares to decline; and

 

  Because we do not expect to pay dividends in the foreseeable future, you must rely on the price appreciation of our ordinary shares for return on your investment.

 

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Risks Related to our Business and Industry

 

Our subsidiaries’ business operations are cash intensive, and our subsidiaries’ business could be adversely affected if we fail to maintain sufficient levels of liquidity and working capital.

 

As of September 30, 2022, we had approximately $11.31 million of cash and cash equivalents. Historically, we have spent a significant amount of cash on our operational activities, principally to procure raw materials for our subsidiaries’ products. Our short-term loans are from Chinese banks and are generally secured by a portion of our fixed assets, land use rights and/or guarantees by related parties. Certain of these loans are secured against a portion of the shares of our PRC subsidiaries. The term of a majority of such loans is one year. Historically, we rolled over such loans on an annual basis. However, we may not have sufficient funds available to pay all of our borrowings upon maturity in the future. Failure to roll over our short-term borrowings at maturity or to service our debt could result in a transfer of the ownership of a portion of the shares of our PRC subsidiaries to secured lenders, the imposition of penalties, including increases in interest rates, legal actions against us by our creditors, and even insolvency.

 

Although we have been able to maintain adequate working capital primarily through cash from operations and short-term and long-term borrowings, any failure by our customers to settle outstanding accounts receivable, or our inability to borrow sufficient capital from local banks in the future could materially and adversely affect our cash flow, financial condition and results of operations.

 

We grant relatively long payment terms for accounts receivable which can adversely affect our cash flow.

 

As is customary in China, for competitive reasons, we grant relatively long payment terms to most of our subsidiaries’ customers. The reserves we establish for our receivables may not be adequate based on the current bad debts. We are subject to the risk that we may be unable to collect accounts receivable in a timely manner. If the accounts receivable cannot be collected in time, or at all, a significant amount of bad debt expense will occur, and our business, financial condition and results of operation will likely be materially and adversely affected.

 

Our subsidiaries face short lead-times for delivery of products to customers. Failure to meet delivery deadlines could result in the loss of customers and damage to our reputation and goodwill.