Greenland Technologies Holding Corp 10-Q for FY2022 Q1
Greenland Technologies Holding Corp. (GTEC)
About this 10-Q
Greenland Technologies Holding Corp filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $29.31M
- up 19.1% from $24.61M a year earlier
- Net income
- $1.79M
- down 16.0% from net income of $2.13M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
For the quarterly period ended
For the transition period from __________ to __________
Commission File number
(Exact name of registrant as specified in charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| United States | ||
| (Address of principal executive offices) | (Zip Code) |
(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 | ||
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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.
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).
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 | ☐ |
| ☒ | 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 May 16, 2022, there were
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 | 13 |
| ITEM 4. | Controls and Procedures | 13 |
| PART II. | OTHER INFORMATION | 15 |
| ITEM 1. | Legal Proceedings | 15 |
| ITEM 1A. | Risk Factors | 15 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 36 |
| ITEM 3. | Defaults Upon Senior Securities. | 36 |
| ITEM 4. | Mine Safety Disclosures. | 36 |
| ITEM 5. | Other Information. | 36 |
| ITEM 6. | Exhibits | 37 |
| Signatures | 38 |
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.
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
THREE MONTHS ENDED MARCH 31, 2022
TABLE OF CONTENTS
1
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2022 AND DECEMBER 31, 2021
(IN U.S. DOLLARS)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Short Term Investment | ||||||||
| Notes receivable | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventories | ||||||||
| Due from related parties-current | ||||||||
| Advance to suppliers | ||||||||
| Prepayments and other current assets | ||||||||
| Total Current Assets | $ | $ | ||||||
| Non-current asset | ||||||||
| Property, plant, equipment and construction in progress, net | ||||||||
| Land use rights, net | ||||||||
| Deferred tax assets | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | $ | $ | ||||||
| TOTAL ASSETS | $ | $ | ||||||
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 MARCH 31, 2022 AND DECEMBER 31, 2021 (Continued)
(IN U.S. DOLLARS)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Current Liabilities | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Notes payable-bank acceptance notes | ||||||||
| Accounts payable | ||||||||
| Taxes payables | - | |||||||
| Customer deposits | ||||||||
| Due to related parties | ||||||||
| Other current liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Lease obligations - current | ||||||||
| Total current liabilities | $ | $ | ||||||
| Long-term liabilities | ||||||||
| Lease obligations – non-current | - | |||||||
| Long term operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | $ | $ | ||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income (loss) | ||||||||
| Total shareholders’ equity | $ | $ | ||||||
| Non-controlling interest | ||||||||
| TOTAL EQUITY | $ | $ | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
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 MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED, IN U.S. DOLLARS)
| For the three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| REVENUES | $ | $ | ||||||
| COST OF GOODS SOLD | ||||||||
| GROSS PROFIT | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Total operating expenses | $ | $ | ||||||
| INCOME FROM OPERATIONS | $ | $ | ||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Loss on disposal of property and equipment | ( | ) | ( | ) | ||||
| Other income | ||||||||
| INCOME BEFORE INCOME TAX | $ | $ | ||||||
| INCOME TAX | ||||||||
| NET INCOME | $ | $ | ||||||
| LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST | ||||||||
| NET INCOME ATTRIBUTABLE TO GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES | $ | $ | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS): | ( | ) | ||||||
| Unrealized foreign currency translation income (loss) attributable to Greenland technologies holding corporation and subsidiaries | ( | ) | ||||||
| Unrealized foreign currency translation income (loss) attributable to Noncontrolling interest | ( | ) | ||||||
| Comprehensive income (loss) | ||||||||
| Noncontrolling interest | ||||||||
| WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING: | ||||||||
| Basic and diluted | ||||||||
| NET INCOME PER ORDINARY SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY: | ||||||||
| Basic and diluted | ||||||||
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 MONTHS ENDED MARCH 31, 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 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||
| Restricted share grants | ||||||||||||||||||||||||||||||||
| Sale of shares and warrants | - | - | - | - | - | |||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||
| Balance at December 31, 2021 | - | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Sale of shares and warrants | - | |||||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
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 THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED, IN U.S. DOLLARS)
For
the | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on disposal of property and equipment | ( | ) | ( | ) | ||||
| Increase in allowance for doubtful accounts | ||||||||
| Increase in allowance for notes receivable | ||||||||
| Increase in provision for inventory | ( | ) | ||||||
| Deferred tax assets | ( | ) | ||||||
| Stock based compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (Increase) In: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Notes receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Advance to suppliers | ( | ) | ( | ) | ||||
| Other current and noncurrent assets | ( | ) | ( | ) | ||||
| Increase (Decrease) In: | ||||||||
| Accounts payable | ||||||||
| Customer deposits | ||||||||
| Other current liabilities | ||||||||
| Income tax payable | ( | ) | ||||||
| Due to related parties | ( | ) | ||||||
| Long-term payables-Unamortized deferred financing costs | ( | ) | ||||||
| Other long-term liabilities | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | $ | ( | ) | ||||
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 THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (Continued)
(UNAUDITED, IN U.S. DOLLARS)
For
the | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of long term assets | $ | ( | ) | $ | ( | ) | ||
| Proceeds from government grants for construction | ||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | $ | $ | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short-term bank loans | $ | $ | ||||||
| Repayments of short-term bank loans | ( | ) | ( | ) | ||||
| Notes payable | ( | ) | ||||||
| Proceeds from related parties | ||||||||
| Repayment of loans from related parties | ( | ) | ( | ) | ||||
| Repayment of loans from third parties | ( | ) | ||||||
| Proceeds from third parties | ||||||||
| Payment of principal on financing lease obligation | ( | ) | ||||||
| Proceeds from equity and debt financing | ||||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | $ | ( | ) | $ | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | $ | ( | ) | $ | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR | ||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | $ | ||||||
| Bank balances and cash | ||||||||
| Bank balances and cash included in assets classified as restricted cash | ||||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Income taxes paid | ||||||||
| Interest paid | ||||||||
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 PRC 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 People’s Republic of China (the “PRC” or “China”).
Greenland Technologies Corp. (“Greenland Tech”) was incorporated on January 14, 2020 under the laws of the State of Delaware. Greenland Tech is a wholly-owned subsidiary of Greenland. Greenland Tech 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. Through Zhongchai Holding and other subsidiaries, Greenland has
experienced an increase in demand for forklifts in the manufacturing and logistics industries in China, as its revenue increased from
approximately $
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 three months ended March 31, 2022 and 2021, Greenland sold an aggregate of
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.
The outbreak of the novel coronavirus, commonly referred to as “COVID-19,” first found in mainland China, then in Asia and eventually throughout the world, has significantly affected business and manufacturing activities within China, including travel restrictions, widespread mandatory quarantines, and suspension of business activities within China. Effective February 3, 2020, the Company announced the temporary closure of its operating offices in Zhejiang Province, including suspension of its manufacturing activities in response to the emergency measures imposed by the local government. The Company’s operating subsidiaries were temporary shut down until the end of February 2020. For the three months ended March 31, 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 Company’s Shareholders
As of March 31, 2022, Cenntro Holding Limited owned
The Company’s Subsidiaries
Zhongchai Holding, the wholly-owned subsidiary
of the Company, owned
F-7
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Zhejiang Zhongchai
Zhejiang Zhongchai, a limited liability
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.
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.
Greenland Tech
Greenland Tech was incorporated in the state of Delaware on January 14, 2020 as a wholly owned subsidiary of Greenland. Greenland Tech 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 March 31, 2022, are as follows:
Domicile and Date of Incorporation | Paid-in Capital | Percentage of Effective Ownership | ||||||||||
Hong Kong
April 23, 2009 | ||||||||||||
PRC
November 21, 2005 | ||||||||||||
PRC
September 10, 2015 | ||||||||||||
PRC
August 8, 2020 | ||||||||||||
Delaware
January 14, 2020 | ||||||||||||
F-8
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
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 three months ended March 31, 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-9
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 ruling at the date of 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 three months ended March 31, |
||||||||
| 2022 | 2021 | |||||||
| Period end RMB: US$ exchange rate | ||||||||
| Period average RMB: US$ exchange rate | ||||||||
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 original maturity of three months or less to be cash equivalents. The Company maintains no bank account in the United States of America. The Company maintains its bank accounts in PRC and Hong Kong. Balances at financial institutions or state-owned banks within 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-10
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 $
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 $
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 | ||
| Machinery and equipment | ||
| Motor vehicles | ||
| Office equipment | ||
| Fixtures and decorations |
F-11
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
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 three months ended December 31, 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
The Company leases premises for offices under non-cancellable operating leases in current year. Operating lease payments are expensed over the term of lease using straight line method. The Company’s offices leases have a 3 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 restriction 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 but which 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-12
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.
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 product returns and recorded reserve
for sales returns were minimal for the three months ended March 31, 2022 and 2021. The total rebates amount is accounting for around
The following table sets forth disaggregation of revenue:
| For the three months ended March 31, | ||||||||
| Major Product | 2022 | 2021 | ||||||
| Transmission boxes for Forklift | ||||||||
| Transmission boxes for Non-Forklift (EV, etc.) | ||||||||
| Total | ||||||||
F-13
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 $
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 $
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-14
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
Value-Added Tax
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) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) 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
F-15
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
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 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-16
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 March 31, 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 March 31, 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
Economic and Political Risks
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. All of the Company’s cash is maintained with state-owned banks within the PRC, 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 a fluctuating exchange rates, record higher or lower profit depending on exchange rate of PRC Renminbi (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-17
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-18
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – SHORT TERM INVESTMENT
As of March 31, 2022 and December 31, 2021, the
Company’s short term investment amounted to $
NOTE 4 – CONCENTRATION ON REVENUES AND COST OF GOODS SOLD
Concentration of major customers and suppliers:
| For the three months ended March 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Major customers representing more than 10% of the Company’s revenues | ||||||||||||||||
| Company A | $ | % | $ | % | ||||||||||||
| Company B | % | |||||||||||||||
| Total Revenues | $ | % | $ | % | ||||||||||||
| As of | ||||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||
| Major customers of the Company’s accounts receivable, net | ||||||||||||||||
| Company A | % | % | ||||||||||||||
| Company B | % | % | ||||||||||||||
| Company C | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
Accounts receivable from the Company’s major
customers accounted for
There were no suppliers representing more than
NOTE 5 – ACCOUNTS RECEIVABLE
Accounts receivable is net of allowance for doubtful accounts.
| As of | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
F-19
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for doubtful accounts are as follows:
For
the | ||||||||
| 2022 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for doubtful accounts | ||||||||
| Effect of FX change | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
NOTE 6 – INVENTORIES
| As of | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Revolving material | ||||||||
| Consigned processing material | ||||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Less: inventory impairment | - | ( | ) | |||||
| Inventories, net | $ | $ | ||||||
NOTE 7 – NOTES RECEIVABLE
| As of | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Bank notes receivable: | $ | $ | ||||||
| Commercial notes receivable | ||||||||
| Total | $ | $ | ||||||
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 six months from the date of issuance. As of March 31, 2022, the Company pledged notes receivable for an aggregate amount
of $
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT AND CONSTRUCTION IN PROGRESS
(a) As of March 31, 2022 and December 31, 2021, property, plant and equipment consisted of the following:
| As of | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Buildings | $ | $ | ||||||
| Machinery | ||||||||
| Motor vehicles | ||||||||
| Electronic equipment | ||||||||
| Fixed assets decoration* | ||||||||
| Total property plant and equipment, at cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
| Construction in process | ||||||||
| Total | $ | $ | ||||||
For the three months ended March 31, 2022 and
2021, depreciation expense amounted to $
For the three months ended March 31, 2022 and
2021, $
F-20
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 | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Buildings, net | $ | $ | ||||||
| Machinery, net | ||||||||
| Total | ||||||||
As of March 31, 2022, the Company pledged its
ownership interests in certain buildings for book value of RMB
As of December 31, 2021, the Company pledged its
ownership interests in certain buildings for book value of RMB
On January 3, 2019, the Company sold a set of
manufacturing equipment to third parties for aggregate proceeds of $
On April 26, 2019, the Company sold various
equipment including the general assembly line and the differential assembly line to third parties for aggregate proceeds of $
On May 27, 2020, the Company sold various equipment
including the general assembly line and the differential assembly line to third parties for aggregate proceeds of $
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 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 | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Land use rights, cost | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Land use rights, net | $ | $ | ||||||
As of March 31, 2022, the Company had land use
rights with net book value of $
Estimated future amortization expense is as follows as of March 31, 2022:
| Years ending March 31, | Amortization expense | ||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
F-21
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – NOTES PAYABLE
| As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
| Bank acceptance notes | $ | $ | ||||||
| Total | $ | $ | ||||||
The interest-free notes payable, ranging from
All the notes payable are subject to bank charges
of
NOTE 11 – ACCOUNTS PAYABLE
Accounts payable are summarized as follow:
| As of | ||||||||
|
March 31, 2022 |
December 31, 2021 |
|||||||
| Procurement of Materials | $ | $ | ||||||
| Infrastructure& Equipment | ||||||||
| Freight fee | ||||||||
| Total | $ | $ | ||||||
NOTE 12 – SHORT TERM BANK LOANS
Short-term loans are summarized as follow:
| As of | ||||||||
|
March 31, 2022 |
December 31, 2021 |
|||||||
| Collateralized bank loans | $ | $ | ||||||
| Guaranteed bank loans | ||||||||
| Total | $ | $ | ||||||
Short-term loans as of March 31, 2022 are as follow:
| Maturity Date | Type | Bank Name |
Interest Rate per Annum |
March 31, 2022 |
||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| $ | ||||||||||||
F-22
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 |
||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| $ | ||||||||||||
All short-term bank loans are obtained from local
banks in PRC and are repayable within
The average annual interest rate of the short-term
bank loans was
NOTE 13 – OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follow:
| As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
| Employee payables | ||||||||
| Other tax payables | ||||||||
| Borrowing from third party | ||||||||
| Total | $ | $ | ||||||
F-23
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 | ||||||||
|
March 31, 2022 |
December 31, 2021 |
|||||||
| Subsidy | ||||||||
| Total | $ | $ | ||||||
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 March 31, 2022, grant income decreased by $
NOTE 15 – LEASES
The Company leases most of its corporate offices
under operating leases, with initial terms of
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows paid for operating leases | $ | |||
| Right-of-use assets obtained in exchange for lease obligations: | ||||
| Operating leases | ||||
Supplemental balance sheet information related to leases as of March 31, 2022 is as follows:
| Operating leases: | ||||
| Operating lease right-of-use assets | $ | |||
| Current portion of operating lease liabilities | $ | |||
| Long-term operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
The following table summarizes the maturity of lease liabilities under operating leases as of March 31, 2022:
| For the three months ending March 31, |
|
Operating Leases |
| |
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total lease payments | ||||
F-24
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – LONG TERM PAYABLES
| As of | ||||||||
|
March 31, 2022 |
December 31, 2021 |
|||||||
| Long-term payables current portion | $ | $ | ||||||
| Long-term payables– non-current portion | ||||||||
| Total | $ | $ | ||||||
On January 3, 2019, the Company sold a set of
manufacturing equipment to third parties for aggregate proceeds of $
On April 26, 2019, the Company sold various
equipment including the general assembly line and the differential assembly line to third parties for aggregate proceeds of $
On May 27, 2020, the Company sold various equipment
including its general assembly line and the differential assembly line to third parties for aggregate proceeds of $
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 March 31, 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 March 31, 2022 and December 31, 2021, there were
On July 27, 2018, the Company consummated its
initial public offering of
F-25
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
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, Greenland
acquired from Cenntro Holding Limited all of the issued and outstanding equity interests of Zhongchai Holding in exchange for
Pursuant to that certain Finder Agreement with
Hanyi Zhou, dated May 29, 2019,
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.
Pursuant to the Service Agreement entered into
and by the Company and Chineseinvestors.com, Inc., an Indiana corporation (“CIIX”) on August 21, 2019 (the “Service
Agreement”), CIIX were to provide certain investor relations services to the Company for a period of three months beginning on August
21, 2019. Pursuant to the Service Agreement, the Company were to pay CIIX fees consisting of three equal monthly instalments of $
Pursuant to the Investor Relations Consulting
Agreement entered into and by the Company and Skyline Corporate Communication Group, LLC, a Massachusetts limited liability company (“SCCG”)
on August 15, 2019 (the “Consulting Agreement”), SCCG were to provide certain investor relations services to the Company for
a period of twelve months beginning on August 15, 2019. Pursuant to the Consulting Agreement, the Company were to pay SCCG fees consisting
of $
On October 24, 2020,
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 March 31, 2022, all of the existing Rights
had been converted into
F-26
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – STOCKHOLDER’S EQUITY (CONTINUED)
Warrants —
The Company may call the warrants for redemption (excluding the Private Warrants), 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 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.
As of March 31, 2022, there were a total of
Unit Purchase Option
On July 27, 2018, the Company sold to Chardan
(and its designees), for $
F-27
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. Pursuant to the CIIX Termination Agreement and the SCCG Termination Agreement,
The following is a reconciliation of the basic and diluted earnings per share computation:
Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net income attributable to the Greenland Corporation and subsidiaries | $ | $ | ||||||
| Weighted average basic and diluted computation shares outstanding: | ||||||||
| Shares outstanding at the beginning or period | ||||||||
| Weighted average shares of restricted grants | ||||||||
| Weighted average shares issued for exercise of warrants | ||||||||
| Weighted average shares of common stock | ||||||||
| Dilutive effect of stock options | ||||||||
| Restricted stock vested not issued | ||||||||
| Common stock and common stock equivalents | ||||||||
| Basic and diluted net income per share | $ | $ | ||||||
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 months ended March 31, 2022 and 2021 are as follows:
For the ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Domestic Sales | $ | $ | ||||||
| International Sales | ||||||||
| Total | $ | $ | ||||||
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.
F-28
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
effective tax rates on income before income taxes for the three months ended March 31, 2022 was
The effective tax rates on income before income
taxes for the three months ended March 31, 2021 was
The Company has recorded $
NOTE 21 – COMMITMENTS AND CONTINGENCIES
Guarantees and pledged collateral for bank loans to other parties:
(1) Pledged collateral for bank loans
On December 6, 2019, Zhejiang Zhongchai signed
a Maximum Amount Pledge Contract with Agricultural Bank of PRC Co., Ltd.
On November 28, 2019, Zhejiang Zhongchai signed
a Maximum Amount Pledge Contract with Agricultural Bank of PRC Co., Ltd.
On December 17, 2019, Zhejiang Zhongchai signed
a Maximum Amount Pledge Contract with Rural Commercial Bank of PRC Co., Ltd.,
(2) Litigation
On September 19, 2019, a purported class action challenging the Business Combination was filed in the United States District Court for the District of Delaware (the “District Court”), captioned Wheby v. Greenland Acquisition Corporation, et al., Case No. 19-1758-MN (D. Del.) (the “Action”). The Action alleged certain violations of the Securities Exchange Act of 1934, as amended, and sought, among other things, to enjoin the Business Combination from closing (or, if consummated, to rescind the Business Combination or award rescissory damages), to require the Company to issue a separate proxy statement, and to receive an award of attorneys’ fees and costs.
F-29
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 $
Facility Leases
The Company entered into a failed sale-leaseback transaction in August 2020. See further discussion in NOTE 16 –LONG TERM PAYABLES.
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 March 31, 2022:
Years ending March 31, | ||||
NOTE 22 – RELATED PARTY TRANSACTIONS
(a) Names and Relationship of Related Parties:
| Existing Relationship with the Company | ||
| Sinomachinery Holding Limited | ||
| Cenntro Holding Limited | ||
| Zhejiang Kangchen Biotechnology Co., Ltd. | ||
| Cenntro Smart Manufacturing Tech. Co., Ltd. | ||
| Zhejiang Zhonggong Machinery Co., Ltd. | ||
| Zhejiang Zhonggong Agricultural Equipment Co., Ltd. | ||
| Xinchang County Jiuxin Investment Management Partnership (LP) | ||
| Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership) | ||
| Hangzhou Cenntro Autotech Co., Limited | ||
| Peter Zuguang Wang | ||
| Greenland Asset Management Corporation | ||
| Hangzhou Jiuru Economic Information Consulting Co. Ltd | ||
| Xinchang County Jiuhe Investment Management Partnership (LP) | ||
| Cenntro Automotive Corporation | ||
F-30
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(b) Summary of Balances with Related Parties:
| As of | ||||||||
|
March 31, 2022 |
December 31, 2021 |
|||||||
| Due to related parties: | ||||||||
| Sinomachinery Holding Limited1 | $ | $ | ||||||
| Zhejiang Kangchen Biotechnology Co., Ltd2 | ||||||||
| Zhejiang Zhonggong Machinery Co., Ltd.3 | ||||||||
| Zhejiang Zhonggong Agricultural Equipment Co., Ltd.4 | ||||||||
| Cenntro Smart Manufacturing Tech. Co., Ltd.5 | ||||||||
| Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership)6 | ||||||||
| Cenntro Holding Limited⁷ | ||||||||
| Peter Zuguang Wang⁷ | ||||||||
| Cenntro Automotive Corporation7 | ||||||||
| Xinchang County Jiuxin Investment Management Partnership (LP)7 | ||||||||
| Hangzhou Jiuru Economic Information Consulting Co. Ltd7 | ||||||||
| Total | $ | $ | ||||||
The balance of due to related parties as of March 31, 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. |
NOTE 22 – RELATED PARTY TRANSACTIONS (CONTINUED)
| As of | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Due from related parties-current: | ||||||||
| Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership) | ||||||||
| Cenntro Smart Manufacturing Tech. Co., Ltd. | ||||||||
| Cenntro Holding Limited | $ | $ | ||||||
| Total | $ | $ | ||||||
The balance of due from related parties as of
March 31, 2022 and December 31, 2021 consisted primarily of other receivable from Cenntro Holding Limited in the amount of $
The Company expects the amount due from its 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-31
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 three months ended March 31, 2022 and 2021 are listed below:
| Withdraw funds from related parties: | For the March 31, | |||||||
| 2022 | 2021 | |||||||
| Zhejiang Zhonggong Machinery Co., Ltd. | - | |||||||
| Cenntro Smart Manufacturing Tech. Co., Ltd. | - | |||||||
| Peter Zuguang Wang | - | |||||||
| Xinchang County Jiuxin Investment Management Partnership (LP) | - | - | ||||||
| Cenntro Holding Limited | - | |||||||
| Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership) | - | |||||||
| Total | - | |||||||
| Deposit funds with related parties: | ||||||||
| Zhejiang Zhonggong Machinery Co., Ltd. | - | |||||||
| Xinchang County Jiuxin Investment Management Partnership (LP) | ||||||||
| Zhuhai Hengzhong Industrial Investment Fund (Limited Partnership) | - | |||||||
| Cenntro Smart Manufacturing Tech. Co., Ltd. | - | |||||||
| Zhejiang Kangchen Biotechnology Co., Ltd | - | |||||||
| Peter Zuguang Wang | - | |||||||
| Total | ||||||||
NOTE 23 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date that the financial statements were available to be issued, which is May 16, 2022. All subsequent events requiring recognition as of March 31, 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-32
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, and Section 21E of the Securities Exchange Act of 1934, as amended, 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
The Company 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 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, 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 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, Greenland Technologies Corp. (“Greenland Tech”) was incorporated under the laws of the State of Delaware. Greenland Tech is the 100% owned subsidiary of Greenland. Greenland Tech 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. Through Zhongchai Holding and other subsidiaries, Greenland has experienced an increase in demand for forklifts in the manufacturing and logistics industries in China, as its revenue increased from approximately $24.61 million for the three months ended March 31, 2021 to $29.31 million for the three months ended March 31, 2022. The increase in revenue was primarily a significant increase in the Company’s sales volume, driven by growing market demand, and the Company’s ability to boost supplies while some of its competitors faced challenges in handling material shortages and were unable to deliver, which presented new market opportunities for the Company. Based on the revenues for the three months ended March 31, 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 three months ended March 31, 2022 and 2021, Greenland sold an aggregate of 41,902 and 36,986 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, and GEL-1800, a 1.8 ton rated load lithium powered electric wheeled front loader. In February 2022, Greenland launched its GEX-8000 all-electric 8.0 ton rated load lithium powered wheeled excavator. These products have become available for purchase in the U.S. market. Greenland plans to establish an assembly site and an experience center in the United States in 2022 to support local sales, assembly and distribution.
As of March 31, 2022, Cenntro Holding Limited owned 59.42% 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 had limited impact on our financial condition and results of operations in the fiscal year ended December 31, 2021. For the three months ended March 31, 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 March 31, 2022 and 2021
Overview
| For the three months ended March 31 | ||||||||||||||||
| 2022 | 2021 | Change | Variance | |||||||||||||
| Revenues | $ | 29,306,957 | $ | 24,610,894 | $ | 4,696,063 | 19.1 | % | ||||||||
| Cost of Goods Sold | 22,938,983 | 19,506,507 | 3,432,476 | 17.6 | % | |||||||||||
| Gross Profit | 6,367,974 | 5,104,387 | 1,263,587 | 24.8 | % | |||||||||||
| Selling expenses | 639,647 | 379,230 | 260,417 | 68.7 | % | |||||||||||
| General and administrative expenses | 1,279,746 | 911,139 | 368,607 | 40.5 | % | |||||||||||
| Research and development expenses | 1,082,594 | 959,545 | 123,049 | 12.8 | % | |||||||||||
| Total Operating Expenses | 3,001,987 | 2,249,914 | 752,073 | 33.4 | % | |||||||||||
| Income from operations | 3,365,987 | 2,854,473 | 511,514 | 17.9 | % | |||||||||||
| Interest income | 12,562 | 4,595 | 7,967 | 173.4 | % | |||||||||||
| Interest expenses | (105,009 | ) | (180,189 | ) | 75,180 | (41.7 | )% | |||||||||
| Loss on disposal of property and equipment | (404 | ) | (1,770 | ) | 1,366 | (77.2 | )% | |||||||||
| Other income | 261,032 | 288,746 | (27,714 | ) | (9.6 | )% | ||||||||||
| Income before income tax | 3,534,168 | 2,965,855 | 568,313 | 19.2 | % | |||||||||||
| Income tax | 619,370 | 522,616 | 96,754 | 18.5 | % | |||||||||||
| Net income | 2,914,798 | 2,443,239 | 471,559 | 19.3 | % | |||||||||||
4
Components of Results of Operations
|
For the March 31 |
||||||||
| Component of Results of Operations | 2022 | 2021 | ||||||
| Revenues | $ | 29,306,957 | $ | 24,610,894 | ||||
| Cost of Goods Sold | 22,938,983 | 19,506,507 | ||||||
| Gross Profit | 6,367,974 | 5,104,387 | ||||||
| Operating Expenses | 3,001,987 | 2,249,914 | ||||||
| Net Income | 2,914,798 | 2,443,239 | ||||||
Revenue
Greenland’s revenue was approximately $29.31 million for the three months ended March 31, 2022, representing an increase of approximately $4.70 million, or 19.1%, as compared to that of approximately $24.61 million for the three months ended March 31, 2021. The increase was primarily due to a significant increase in our sales volume resulting from the continuously growing market demand and our ability to boost supplies while some competitors faced challenges in handling material shortage and were unable to deliver. On an RMB basis, our revenue for the three months ended March 31, 2022 increased by approximately 16.1% as compared to that for the three months ended March 31, 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 net realizable value (“NRV”) impairment test is also recorded in cost of goods sold. The total cost of goods sold was approximately $22.94 million for the three months ended March 31, 2022, representing an increase by approximately $3.43 million, or 17.6%, as compared to that of approximately $19.51 million for the three months ended March 31, 2021. Cost of goods sold increased due to our increase in sales volume.
Gross Profit
Greenland’s gross profit was approximately $6.37 million for the three months ended March 31, 2022, representing an increase by approximately $1.26 million, or 24.8%, as compared to that of approximately $5.10 million for the three months ended March 31, 2021. For the three months ended March 31, 2022 and 2021, Greenland’s gross margins were approximately 21.7% and 20.7%, respectively. The increase in gross margin in the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a shift in Greenland’s product mix towards higher value and more sophisticated products, such as hydraulic transmission products.
5
Operating Expense
Greenland’s operating expenses consist of selling expenses, general and administrative expenses and research and development expenses.
Selling Expense
Selling expenses mainly comprise of operating expenses such as sales staff payroll, traveling expenses, and transportation expenses. Our selling expenses were approximately $0.64 million for the three months ended March 31, 2022, representing an increase of approximately $0.26 million, or 68.7%, as compared to approximately $0.38 million for the three months ended March 31, 2021. The increase was mainly due to an increase in the unit price of transportation expenses.
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 $1.28 million for the three months ended March 31, 2022, representing an increase by approximately $0.37 million, or 40.5%, as compared to that of approximately $0.91 million for the three months ended March 31, 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 March 31, 2022 as the Company expanded its operations, compared to the three months ended March 31, 2021; and (ii) an increase in after-sales service fees resulted from the substantial increase in revenue.
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 $1.08 million for the three months ended March 31, 2022, representing an increase by approximately $0.12 million, or 12.8%, as compared to that of approximately $0.96 million for the three months ended March 31, 2021. Such increase was primarily attributable to a significant increase in the Company’s R&D activities during the three months ended March 31, 2022.
Income from Operations
Income from operations for the three months ended March 31, 2022 was approximately $3.37 million, representing an increase of approximately $0.51 million, as compared to that of approximately $2.85 million for the three months ended March 31, 2021.
Interest Income and Interest Expenses
Greenland’s interest income was approximately $0.01 million for the three months ended March 31, 2022, representing an increase of approximately $0.01 million, or 173.4%, as compared to that of approximately $0 million for the three months ended March 31, 2021. The increase in interest income was because more cash was deposited in banks during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
Greenland’s interest expenses were approximately $0.11 million for the three months ended March 31, 2022, representing a decrease of approximately $0.07 million, or 41.7%, as compared to that of approximately $0.18 million for the three months ended March 31, 2021. The decrease was primarily due to a reduction of our short-term loans for the three months ended March 31, 2022, compared to those for the three months ended March 31, 2021.
Other Income
Greenland’s other income was approximately $0.26 million for the three months ended March 31, 2022, a decrease of approximately $0.03 million, or 9.6%, as compared to approximately $0.29 million for the three months ended March 31, 2021. The decrease was primarily due to a decrease in ancillary products and services offered by Zhejiang Zhongchai for the three months ended March 31, 2022, compared to those for the three months ended March 31, 2021.
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Income Taxes
Greenland’s income tax was approximately $0.62 million for the three months ended March 31, 2022, as compared to that of approximately $0.52 million for the three months ended March 31, 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 Greenland Tech, its wholly owned subsidiary in the state of Delaware. Greenland Tech 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 Greenland Tech 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 March 31, 2022.
Net Income
Our net income was approximately $2.91 million for the three months ended March 31, 2022, representing an increase of approximately $0.47 million, as compared to that of approximately $2.44 million for the three months ended March 31, 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.
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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 three months ended March 31, 2022, our PRC subsidiary, Zhejiang Zhongchai, has paid off approximately $0.79 million in bank loan, approximately $1.58 million in related parties loan, and maintained $13.18 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 $2.16 million and $2.21 million on March 31, 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 its 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 balance.
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, our capital contribution from existing funding sources, to operate for the next 12 months will be sufficient. 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.
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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 March 31, 2022, Greenland had approximately $6.85 million of cash and cash equivalents, representing a decrease of approximately $4.21 million, or 38.04%, as compared to that of approximately $11.06 million as of December 31, 2021. The decrease of cash was mainly attributable to the increase of accounts receivable, 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 March 31, 2022, Greenland had approximately $6.33 million of restricted cash, representing a decrease of approximately $0.41 million, or 6.05%, 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 March 31, 2022, Greenland had approximately $24.72 million of accounts receivables, representing an increase of approximately $8.80 million, or 55.3%, as compared to approximately $15.92 million as of December 31, 2021. The increase in accounts receivable was due to our slowed-down efforts in receivables collections due to the COVID-19 pandemic and an increase in our sales volume.
Greenland recorded approximately $0.87 million of provision for doubtful accounts as of March 31, 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 PRC.
Due from Related Party
Due from related party was $38.38 million and $39.68 million for the three months ended March 31, 2022 and December 31, 2021, respectively. The current portion of due from related party was $39.79 million as of March 31, 2022, and the current portion of due from related party was $39.79 million as of March 31, 2022. 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.
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Notes Receivable
As of March 31, 2022, Greenland had approximately $33.52 million of notes receivables, which will be collected by us within six months. The decrease of our notes receivables was approximately $4.03 million, or 10.72%, from that of approximately $37.55 million as of December 31, 2021.
Working Capital
Our working capital was approximately $57.03 million as of March 31, 2022, as compared to that of $53.84 million as of December 31, 2021, representing an increase of $3.19 million during the three months ended March 31, 2022.
Cash Flow
For
the Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| Net cash provided by operating activities | $ | 1,261,046 | $ | (3,998,147 | ) | |||
| Net cash provided by (used in) investing activities | $ | 1,012 | $ | (65,028 | ) | |||
| Net cash provided by (used in) financing activities | $ | (5,956,538 | ) | $ | 4,871,033 | |||
| Net increase in cash and cash equivalents and restricted cash | $ | (4,694,480 | ) | $ | 807,858 | |||
| Effect of exchange rate changes on cash and cash equivalents | $ | 78,040 | $ | (59,934 | ) | |||
| 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 | $ | 13,184,452 | $ | 10,150,977 | ||||
Operating Activities
Greenland’s net cash provided by operating activities were approximately $1.26 million and $(4.00) million for the three months ended March 31, 2022 and 2021, respectively.
For the three months ended March 31, 2022, the main sources of cash inflow from operating activities were net income, change in accounts payable, and notes receivable, with each amounted to approximately $2.91 million, $3.04 million and $4.23 million, respectively. The main causes of cash outflow were changes in other current and noncurrent assets and accounts receivables, representing increases of approximately $2.02 million and $8.73 million, respectively.
For the three months ended March 31, 2021, the main sources of cash inflow from operating activities were net income, change in accounts payable, and other current and noncurrent assets, with each amounted to approximately $2.44 million, $6.67 million and $0.62 million, respectively. The main causes of cash outflow were changes in inventories and accounts receivables, representing increases of approximately $2.66 million and $8.78 million, respectively.
Investing Activities
Net cash used in investing activities resulted a cash outflow of approximately $0.00 million for the three months ended March 31, 2022. Cash used in investing activities for the three months ended March 31, 2022 was mainly due to $0.10 million proceeds from government grants for construction, offset by approximately $0.10 million used for purchases of long-term assets.
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Net cash used in investing activities resulted a cash outflow of approximately $0.07 million for the three months ended March 31, 2021. Cash used in investing activities for the three months ended March 31, 2021 was mainly due to $0.08 million proceeds from government grants for construction, offset by approximately $ 0.15 million used for purchases of long-term assets.
Financing Activities
Net cash used in financing activities resulted a cash outflow of approximately $5.96 million for the three months ended March 31, 2022, which was mainly attributable to approximately $1.58 million in repayment of loans to related parties and approximately $5.24 million in repayment of notes payable. Such amounts were further offset by proceeds from short-term bank loans for approximately $1.58 million.
Net cash used in financing activities resulted a cash inflow of approximately $4.87 million for the three months ended March 31, 2021, which was mainly attributable to approximately $0.77 million in proceeds from short-term bank loans and approximately $4.80 million in proceeds from notes payable. Such amounts were further offset by repayment of short-term bank loans for approximately $1.54 million, and repayment of loans from related parties for approximately $1.08 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 in “Item 8 - Financial Statements and Supplementary Data” 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 where 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 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 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 March 31, 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 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 Securities Exchange Act of 1934, as amended 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 March 31, 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 Securities Exchange Act of 1934, as amended. 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 March 31, 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 of 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, 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 18 through 23.
| ● | Our business operations are cash intensive, and our 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; |
| ● | We 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; |
| ● | We face intense competition, and if we 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 major customers could materially and adversely affect our growth and revenues; |
| ● | As we expand our operations, we may need to establish a more diverse supplier network for our raw materials. The failure to secure a more diverse supplier network could have an adverse effect on our financial condition; |
| ● | To remain competitive, we are introducing new lines of business, including the production and sale of electric industrial vehicles. If our 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 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 we are unable to pass price increases on to our customers; and |
| ● | We are subject to various risks and uncertainties that may affect our 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 23 through 33.
| ● | 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 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 we must conduct our 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”; |
| ● | The Chinese government may intervene or influence our 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 we must conduct our 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 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 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 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 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 are not currently required to obtain the approval and/or comply with other requirements of the CSRC, the CAC, 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 are obligated to comply with, we cannot predict whether or how soon we will be able to obtain such approvals and/or comply with such requirements.” and “Risk Factors—Risks Related to Doing Business in China—We may be liable for improper use or appropriation of personal information provided by our 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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| ● | We may be liable for improper use or appropriation of personal information provided by our 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 operating 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 HFCA Act if the 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.” |
| ● | Our securities may be delisted and prohibited from being traded under the HFCA Act if the 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 34 through 36.
| ● | Future sales of our ordinary shares, whether by us or our shareholders, could cause the price of our ordinary shares to decline; |
| ● | 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; |
| ● | As a company incorporated in the British Virgin Islands with limited liability, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards. |
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Risks Related to our Business and Industry
Our business operations are cash intensive, and our business could be adversely affected if we fail to maintain sufficient levels of liquidity and working capital.
As of March 31, 2022, we had approximately $6.85 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 products. Our short-term loans are from Chinese banks and are generally secured by a portion of our fixed assets, land use right 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 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.
We 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.
Most of our customers are large manufacturers, who generally place large orders for our products and require prompt delivery. Our product sale agreements typically contain short lead-times for the delivery of products and tight production and manufacturer supply schedules that can reduce our profit margins on the products procured from our suppliers. Our suppliers may lack sufficient capacity at any given time to meet all of our customers’ demands if orders exceed their production capacity. We strive for rapid response to customer demand, which can lead to reduced purchasing efficiency, increased procurement costs and low profit margins. If we are unable to meet the customer demands, we may lose customers. Moreover, failure to meet customer demands may damage our reputation and goodwill.
We face intense competition, and, if we are unable to compete effectively, we may not be able to maintain profitability.
We compete with many other companies located in the PRC and internationally that manufacture similar products. Many of our competitors are larger companies with greater financial resources. Intense competition in a challenging economic environment in the PRC has, in the past, put pressure on our margins and may adversely affect our future financial performance. Moreover, intense competition may result in potential or actual litigation between us and our competitors relating to such activities as competitive sales practices, relationships with key suppliers and customers or other matters.
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It is likely that our competitors will seek to develop similar competing products in the near future. Some of our competitors may have more resources than we do, operate in greater scale, be more capitalized than we are, have access to cheaper raw materials than we do, or offer products at a more competitive price. There can be no assurance that our initial competitive advantage will be retained and that one or more competitors will not develop products that are equal or superior in quality and are better priced than our products. If we are unable to compete effectively, our results of operations and financial position may be materially and adversely affected.
Our revenues are highly dependent on a limited number of customers and the loss of any one of our major customers could materially and adversely affect our growth and revenues.
During the three months ended March 31, 2021 and 2022, our five largest customers contributed 53.28% and 49.72% of our revenues, respectively. As a result of our reliance on a limited number of customers, we may face pricing and other competitive pressures, which may have a material adverse effect on our profits and our revenues. The volume of products sold for specific customers varies from year to year, especially since we are not the exclusive provider for any customers. In addition, there are a number of factors that could cause the loss of a customer or a substantial reduction in the products that we provide to any customer that may not be predictable. For example, our customers may decide to reduce spending on our products or a customer may no longer need our products following the completion of a project. The loss of any one of our major customers, a decrease in the volume of sales to our customers or a decrease in the price at which we sell our products to customers could materially adversely affected our profits and revenues.
In addition, this customer concentration may subject us to perceived or actual leverage that our customers may have in negotiations, given their relative size and importance to us. If our customers seek to negotiate their agreements on terms less favorable to us and we accept such terms, such unfavorable terms may have a material adverse effect on our business, financial condition and results of operations. Accordingly, unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and volume of business from our largest customers and the financial and operational success of these customers.
As we expand our operations, we may need to establish a more diverse supplier network for our raw materials. The failure to secure a more diverse supplier network could have an adverse effect on our financial condition.
In the event that we need to diversify our supplier network, we may not be able to procure a sufficient supply of raw materials at a competitive price, which could have an adverse effect on our results of operations, financial condition and cash flows. Furthermore, despite our efforts to control our supply of raw materials and maintain good relationships with our existing suppliers, we could lose one or more of our existing suppliers at any time. The loss of one or more key suppliers could increase our reliance on higher cost or lower quality supplies, which could negative affect our profitability. Any interruptions to, or decline in, the amount or quality of our raw materials supply could materially disrupt our production and adversely affect our business, financial condition and financial prospects.
To remain competitive, we have introduced new lines of business, including the production and sale of electric industrial vehicles. If our efforts are not successful, our results of operations may be materially and adversely affected.
Prior to December 2020, through Zhongchai Holding and its PRC subsidiaries, our products mainly included transmission systems and integrated powertrains for material handling machineries, particularly for electric forklift trucks. In December 2020, we 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, and GEL-1800, a 1.8 ton rated load lithium powered electric wheeled front loader. In February 2022, Greenland launched its GEX-8000 all-electric 8.0 ton rated load lithium powered wheeled excavator. These products have become available for purchase in the U.S. market. Greenland plans to establish an assembly site and an experience center in the United States in 2022 to support local sales, assembly and distribution.
There are risks in connection with this new line of business. We may experience difficulties in the development and launch of our electric industrial vehicles, and our products may not be well-accepted by the market. As we have limited experience in the electric industrial vehicle business, our efforts in developing such business may not succeed and we may not be able to generate sufficient revenue to cover our investment and become profitable. During such process, our results of operations and financial conditions may not be improved in a timely manner, or at all. We cannot assure you that we will successfully transition our business focus and it is possible that we remain in such transition period for a certain period of time. During such period, our revenue may be very limited and we may continue to experience material and adverse effect to our results of operations, financial condition and business prospects.
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New lines of business, including the production and sale of electric industrial vehicles, may subject us to additional risks.
From time to time, we may implement new lines of business or offer new products within our existing lines of business. Currently, we plan to offer additional models of electric industrial vehicles. As such, we face significant challenges, uncertainties and risks, including, among others, with respect to our ability to:
| ● | build a well-recognized and respected brand; |
| ● | establish and expand our customer base; |
| ● | improve and maintain our operational efficiency for new lines of business; |
| ● | maintain a reliable, secure, high-performance and scalable technology infrastructure for our new lines of business; |
| ● | anticipate and adapt to changing market conditions, including technological development and changes in competitive landscape; |
| ● | navigate an evolving and complex regulatory environment, such as licensing and compliance requirements; and |
| ● | manage the resources and attention of management between our current core business and new lines of business. |
Moreover, there can be no assurance that the introduction and development of new lines of business or new products and services would not encounter significant difficulties or delay or would achieve the profitability as we expect. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and prospects. For example, we may experience difficulties in developing and launching additional models of our electric industrial vehicles, or may not be able to develop them at reasonable costs. Due to our limited experience with electric industrial vehicles, we also face challenges and uncertainties relating to the possibility of success of our new business.
As we enter into new business sectors, we are also subject to competition from such industry. There can be no assurance that we will be able to compete effectively with respect to our new businesses. If we fail to establish our strengths or maintain our competitiveness in those industries, our business prospects, results of operations and financial condition may be materially and adversely affected.
Volatile steel prices can cause significant fluctuations in our operating results. Our revenues and operating income could decrease if steel prices increase or if we are unable to pass price increases on to our customers.
Our principal raw materials are processed metal parts and components which are made of carburizing steel. The steel industry as a whole is cyclical and, at times, pricing and availability of steel can be volatile due to numerous factors beyond our control, including general domestic and international economic conditions, labor costs, sales levels, competition, levels of inventory, consolidation of steel producers, higher raw material costs for steel producers, import duties and tariffs and currency exchange rates. This volatility can significantly affect the availability and cost of raw materials.
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Our suppliers, like many other processed metal parts and components manufacturers, maintain substantial inventories of steel to accommodate the short lead times and just-in-time delivery requirements of customers. Accordingly, they purchase steel in an effort to maintain their inventory at levels that they believe to be appropriate to satisfy the anticipated needs of customers based upon historic buying practices, supply agreements with customers and market conditions. When steel prices increase, competitive conditions will influence how much of the price increase suppliers would pass on to us and how much we can pass on to our customers. To the extent we are unable to pass on future price increases in raw materials to our customers, the revenues and profitability of our business could be adversely affected.
We are subject to various risks and uncertainties that might affect our ability to procure raw materials.
Our performance depends upon our ability to procure low cost, high quality raw materials on a timely basis from our suppliers. Our suppliers are subject to certain risks, including the availability of raw materials, labor disputes, inclement weather, natural disasters, and general economic and political conditions, which might limit the ability of our suppliers to provide low cost, high quality merchandise on a timely basis. Furthermore, for these or other reasons, one or more of our suppliers might not adhere to our quality control standards, and we might not identify the deficiency. Our suppliers’ failure to supply quality materials at a reasonable cost on a timely basis could reduce our net sales or profits, damage our reputation and have an adverse effect on our financial condition.
We may lose our competitive advantage, and our operations may suffer, if we fail to prevent the loss or misappropriation of, or disputes over, our intellectual property.
We rely on a combination of patents, trademarks, trade secrets and confidentiality agreements to protect our intellectual property rights. While we are not currently aware of any infringement on our intellectual property rights, our ability to compete successfully and to achieve future revenue growth will depend, in significant part, on our ability to protect our proprietary technology. Despite many laws and regulations promulgated, as well as other efforts made, by China over the past several years in an attempt to protect intellectual property rights, intellectual property rights are not as certain in China as they would be in many Western countries, including the United States. Furthermore, enforcement of such laws and regulations in China has not been fully developed. Neither the administrative agencies nor the court systems in China are as equipped as their counterparts in developed countries to deal with violations or handle the nuances and complexities between compliant technological innovation and non-compliant infringement.
Our transmission technology is protected through a combination of patents, trade secrets, confidentiality agreements and other methods. However, our competitors may independently develop similar proprietary methodologies or duplicate our products, or develop alternatives, which could have a material adverse effect on our business, results of operations and financial condition. The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. We may need to litigate to enforce our intellectual property rights. Any such litigation could be time consuming and costly and the outcome of any such litigation cannot be guaranteed.
We have limited insurance coverage for our operations in China and may incur losses resulting from product liability claims, business interruption or natural disasters.
Greenland Tech, our subsidiary in the U.S., maintains commercial general liability insurance for its business operations. However, we have limited insurance coverage for our operations in China, and we are therefore exposed to risks associated with product liability claims against our PRC subsidiaries or otherwise against our operations in the PRC in the event that the use of our products results in property damage or personal injury. Since our transmission products are ultimately incorporated into forklifts, it is possible that users of forklifts or people installing our products could be injured or killed, whether as a result of defects, improper installation or other causes. We are unable to predict whether product liability claims will be brought against us in the future or to predict the impact of any resulting adverse publicity on our business. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments. We do not carry product liability insurance and may not have adequate resources to satisfy a judgment in the event of a successful claim against us. In addition, we do not currently, and may not in the future, maintain business interruption insurance coverage. As such, we may suffer losses that result from interruptions in our operations as a result of inability to operate or failures of equipment and infrastructure at our facilities. We also do not currently maintain catastrophe insurance. As such, any natural disaster or man-made disaster could result in substantial losses and diversion of our resources to address the effects of such an occurrence, which could materially and adversely affect our business, financial condition and results of operations.
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Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
We are required under PRC laws to participate in various government sponsored employee benefit plans, including social security insurance, housing funds and other welfare-oriented payments, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. We have not made adequate employee benefit payments to the social security insurance and the housing fund. As a result, we may be required to make up the contributions for these plans within a stipulated period of time. In addition, we may be required to pay late fees equal to 0.05% of the shortage of the contributions to the social security fund for each day we fail to make up the contributions and may be imposed fines up to three times of such shortage if we fail to make up the difference within the time frame prescribed by relevant government authorities. The maximum amount of such penalties that we anticipate could be imposed on us with respect such employee benefits payments is approximately US$200,000. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected. As of the date of this report, we have not been ordered to pay outstanding contributions or related penalties.
If labor costs in the PRC increase substantially, our business and costs of operations may be adversely affected.
In recent years, the Chinese economy has experienced inflation and labor cost increases. Average wages are projected to continue to increase. Further, under PRC law we are required to pay various statutory employee benefits, including pensions, housing funds, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of its employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We expect that our labor costs, including wages and employee benefits, will continue to increase based on the past trends. If we are unable to control our labor costs or pass such increased labor costs on to our customers, our financial condition and results of operations may be adversely affected.
We are subject to risks related to a substantial balance due from a related party.
As of March 31, 2022, we were owed $39.66 million from Cenntro Holding Limited, our controlling shareholder, and such amount is recorded as “due from related parties” on our balance sheet. We expect the amount due from 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 the 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, or at all. Such failure to pay back by Cenntro Holding Limited could have a material negative impact on our balance sheet.
The ongoing COVID-19 pandemic could adversely affect our business, results of operations and financial condition.
The ongoing COVID-19 pandemic has continued to spread across the world and has created unique global and industry-wide challenges. COVID-19 has resulted in quarantines, travel restrictions, and the temporary closure of offices and facilities in China and many other countries. New COVID-19 variants have also emerged, potentially extending the period during which COVID-19 will negatively impact the global economy.
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 had limited impact on our financial condition and results of operations in the fiscal year ended December 31, 2021. For the three months ended March 31, 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.
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However, the potential downturn brought by and the duration of the COVID-19 pandemic may be difficult to assess or predict, and any associated negative impact on us will depend on many factors beyond our control. The extent to which the COVID-19 pandemic impacts our long-term results remains uncertain, and we are closely monitoring its impact on us. Our business, results of operations, financial conditions and prospects could be adversely affected directly, as well as indirectly to the extent that the ongoing COVID-19 pandemic harms the Chinese and global economy in general.
Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees needed to support our business.
As we continue to experience growth, our future success depends on our ability to attract, develop, motivate and retain highly qualified and skilled employees, including engineers, financial personnel and marketing professionals. Competition for highly skilled engineering, sales, technical and financial personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and our ability to serve customers could diminish, resulting in a material adverse effect on our business.
Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business may be severely disrupted.
Our business operations depend on the continuing services of our senior management. While we have provided different incentives to our management, we cannot assure you that we can continue to retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be constrained, its business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into a non-competition agreement with Mr. Peter Zuguang Wang, our controlling shareholder and chairman of the board of directors, there is no assurance that Mr. Wang will not join our competitors or form a competing business. If any dispute arises between us and Mr. Wang, we may incur substantial costs and expenses in order to enforce the non-competition agreement in China, and we may be unable to enforce it at all.
We do not maintain “key person” insurance, and as a result, we may incur losses if any of our directors, executive officers, senior manager or other key employees chooses to terminate his or her services with us.
We do not have “key person” insurance for our directors, executive officers, senior management or other key employees. If any of our key employees terminate his or her services or otherwise becomes unable to provide continuous services to us, our business, financial condition and results of operations may be materially and adversely affected and we may incur additional expenses to recruit, train and retain qualified personnel. If any of our executive officers or key employees joins a competitor or forms a competing company, we may lose customers, operational know-how and key professionals and staff members.
Risks Related to Doing Business in China
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.
A substantial majority of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally. The PRC economy differs from the economies of most developed countries in many respects, including with regard to the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies.
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The PRC government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the PRC economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the PRC government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating results.
Uncertainties with respect to the PRC legal system could adversely affect us.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the enforcement of these laws, regulations and rules involves uncertainties.
In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
In addition, we are subject to risks and uncertainties of the interpretations and applications of PRC laws and regulations, including but not limited to, limitations on foreign ownership in our industry. We are also subject to the risks and uncertainties about any future actions of the PRC government. If any future actions of the PRC government result in a material change in our operations, and the value of our ordinary shares may depreciate significantly or become worthless.
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The PRC government exerts substantial influence over the manner in which we must conduct our 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, the business operations of our PRC subsidiaries may be materially and adversely affected and the value of our ordinary shares may significantly decrease.
The PRC government has exercised, and continues to exercise, substantial control over virtually every sector of the Chinese economy through regulation and state ownership, including steel sector where we have been doing our business. Any government decisions or actions to change the way steel production is regulated, or any decisions the government might make to cut spending, could adversely impact our business and results of operations. In addition, the ability of our PRC subsidiaries to operate in China may be harmed by changes in PRC laws and regulations, including those relating to taxation, environmental conditions, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations with little advance notice that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
Our PRC subsidiaries may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In the event that our PRC subsidiaries are not able to substantially comply with any existing or newly adopted laws and regulations, our business operations may be materially adversely affected and the value of our ordinary shares may significantly decrease.
Furthermore, the PRC government authorities may strengthen oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers like us. Such actions taken by the PRC government authorities may intervene or influence the operations of our PRC operating entities at any time, which may be beyond our control. Therefore, any such action may adversely affect the operations of our PRC subsidiaries and substantially limit or hinder our ability to offer or continue to offer securities to you and significantly reduce the value of such securities or cause the value of such securities to be completely worthless.
We believe that we are not currently required to obtain the approval and/or comply with other requirements of the CSRC, the CAC, 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 are obligated to comply with, we cannot predict whether or how soon we will be able to obtain such approvals and/or comply with such requirements.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and application of those regulations remain unclear.
In addition, the PRC government authorities may strengthen future oversight over offerings that are conducted overseas. For instance, on July 6, 2021, the relevant PRC governmental authorities promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities, which emphasized the need to strengthen the PRC government’s supervision over overseas listings by PRC companies. Pursuant to the Opinions, effective measures, such as promoting the construction of relevant regulatory systems, are to be taken to deal with the risks of China-based overseas-listed companies, cybersecurity and data privacy protection requirements and similar matters. The Cybersecurity Review Measures (Decree No. 8 of the Cybersecurity Administration of the PRC), or the revised Cybersecurity Review Measures, enacted on December 28, 2021 and came into effect on February 15, 2022, also require online platform operators holding over one million users’ personal information to apply for a cybersecurity review before any public offering on a foreign stock exchange. These statements and regulations are recently issued, and there remain substantial uncertainties about their interpretation and implementation. See also “—We may be liable for improper use or appropriation of personal information provided by our 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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As of the date of this report, we believe we are not required to obtain any permission from PRC authorities (including the CSRC and the CAC) to operate our business as presently conducted or to issue our securities to investors outside of the PRC as of the date of this report. Therefore, as of the date of this report, we have not applied for any permission or approval from any PRC governmental authority in connection with our offshore listing or offering and, as such, no such permission or approval has been granted or denied. However, if we determine or otherwise find out that we were required to obtain such permissions or approvals in the future in connection with the listing or continued listing of our securities on a stock exchange outside of China, it is uncertain how long it will take for us to obtain such approval, and, even if we obtain such approval, the approval could be rescinded. Any failure to obtain or a delay in obtaining the necessary permissions from the PRC authorities to conduct offerings or list our securities outside of China may subject us to sanctions imposed by the PRC regulatory authorities, which could include fines and penalties, proceedings against us, and other forms of sanctions, and our ability to conduct our business, invest in China by our non-Chinese subsidiaries as foreign investments or accept foreign investments by Chinese entities, or continue to be listed on a U.S. or other overseas exchange may be restricted, and our business, reputation, financial condition, and results of operations may be materially and adversely affected.
On December 24, 2021, the CSRC published the Regulations of the State Council on the Administration of Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Public Comments) and the Measures for the Administration of Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Public Comments) for public comments, which will apply if a domestic enterprise issues shares, depositary receipts, corporate bonds convertible into shares, or other securities of an equity nature outside of the PRC, or lists its securities for trading outside of the PRC. According to such regulations, a domestic enterprise that issues and lists its securities outside of the PRC shall comply with the filing procedures and report the relevant information to the CSRC. A domestic enterprise shall not be listed on an overseas stock exchange if any of the following circumstances exists: (i) there are circumstances in which such listing and financing is expressly prohibited by national laws, regulations and relevant provisions; (ii) the relevant competent department of the State Council has determined, in accordance with law, that the overseas securities offering and listing threatens or endangers national security; (iii) there are major disputes over ownership of shares, major assets, and core technologies, etc.; (iv) such domestic enterprise and its controlling shareholders or actual controllers have committed criminal offences of embezzlement, bribery, misappropriation of property, misappropriation of property or disruption of the socialist market economic order within the last three years, or are under investigation by the judicial authorities for suspected crimes, or are under investigation for suspected major violations of law; (v) the director, supervisor or senior management of such domestic enterprise has been subject to administrative punishment within the last three years for series violations, or is being investigated by the judicial authorities for suspected crimes or is being investigated by the judicial authorities for suspected major violations of law; or (vi) other circumstances as determined by the State Council. If a domestic enterprise violates the above provisions, it may be subject to an order to correct such violation, regulatory talk, warning letter, warning, fines, suspension of relevant business operations or order of rectification, revocation of relevant business qualification permit or revocation of business license, or be held legally responsible for any such violation. Under these regulations, the listing of the Company’s ordinary shares on Nasdaq may fall under the category of “indirect issuance of securities by a domestic enterprise abroad or listing and trading of its securities abroad” and, therefore, the issuance of securities after the listing of the Company may be subject to the relevant filing procedures, which means that the filing materials should be submitted to the CSRC within three business days after the completion of the issuance.
As of the date of this report, the Company does not currently fall under any of the abovementioned circumstances that prohibit its overseas securities offering or listing, and has not been required to comply with any filing procedures. However, the abovementioned regulations are still subject to public comments, and it is uncertain when they will be formally introduced and whether there will be any changes to their content and as such, the impact of the aforementioned regulations on the Company cannot be determined at this time. However, according to the “Q&A with the relevant person in charge of the CSRC” released on December 24, 2021, the relevant person in charge of the CSRC stated that the CSRC will adhere to the principle of non-retroactivity of the law and ensure the smooth implementation of record management. Enterprises seeking to list their securities overseas and overseas listed enterprises seeking to conduct follow-on offerings and other relevant activities are required to fulfill the filing procedures, and other overseas listed enterprises will be provided with a transition period with respect to their filing requirements. The CSRC will take into full consideration the advantages of conducting follow-on offerings in overseas markets to domestic enterprises, and set up different filing and timing requirements for enterprises seeking to conduct follow-on offerings, so as to reduce the impacts of filing procedures on follow-on offerings of overseas listed enterprises.
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We may be liable for improper use or appropriation of personal information provided by our 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.
Our business involves collecting and retaining certain internal and customer data. We also maintain information about various aspects of our operations. The integrity and protection of customer and company data is critical to our business. Our customers expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.
The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained in performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017. Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the CAC, the Ministry of Industry and Information Technology, and the Ministry of Public Security, have been increasingly focused on regulation in data security and data protection.
The PRC regulatory requirements regarding cybersecurity are evolving. For instance, various regulatory bodies in China, including the CAC, the Ministry of Public Security and the State Administration for Market Regulation, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.
In December 2021, the CAC and other related authorities promulgated the revised Cybersecurity Review Measures, which came into effect on February 15, 2022. The revised Cybersecurity Review Measures proposes the following key changes:
| ● | online platform operators who are engaged in data processing are also subject to the regulatory scope; |
| ● | the CSRC is included as one of the regulatory authorities for purposes of jointly establishing the state cybersecurity review working mechanism; |
| ● | the online platform operators holding more than one million users/users’ (which to be further specified) individual information and seeking a listing outside China shall file for cybersecurity review with the Cybersecurity Review Office; and |
| ● | the risks of core data, material data or large amounts of personal information being stolen, leaked, destroyed, damaged, illegally used or transmitted to overseas parties and the risks of critical information infrastructure, core data, material data or large amounts of personal information being influenced, controlled or used maliciously shall be collectively taken into consideration during the cybersecurity review process. |
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Certain internet platforms in China have reportedly become subject to heightened regulatory scrutiny in relation to cybersecurity matters. As of the date of this report, we have not been included within the definition of “operator of critical information infrastructure” by competent authority, nor have we been informed by any PRC governmental authority of any requirement that we file for a cybersecurity review. However, if we are deemed to be a critical information infrastructure operator or an online platform operator that is engaged in data processing and holds personal information of more than one million users, we could be subject to PRC cybersecurity review in the future.
As there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we could be subject to cybersecurity review, and if so, we may not be able to satisfactorily complete this offering. In addition, we could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including suspension of business, website closure, removal of our app from the relevant app stores, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial condition or results of operations. As of the date of this report, we have not been involved in any investigations on cybersecurity review initiated by the Cyber Administration of China or related governmental regulatory authorities, and we have not received any inquiry, notice, warning, or sanction in such respect.
On June 10, 2021, the Standing Committee of the National People’s Congress of China, or the SCNPC, promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information.
As of the date of this report, we do not expect that the current PRC laws on cybersecurity or data security would have a material adverse impact on our business operations. However, as the scope of the PRC Data Security Law is broad and includes the collection, storage, use, processing, transmission, availability and disclosure of data, among others, and uncertainties remain regarding the interpretation and implementation of these laws and regulations, we cannot assure you that we will comply with such regulations in all respects and we may be ordered to rectify or terminate any actions that are deemed illegal by regulatory authorities. Any directly liable person within our Company for violations or alleged violations of the PRC Data Security Law may become subject to fines. We may also become subject to fines and/or other sanctions that may have material adverse effect on our business, operations and financial condition.
A severe or prolonged downturn in the PRC or global economy could materially and adversely affect our business and our financial condition.
The global macroeconomic environment is facing challenges. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa and over the conflicts involving Ukraine, Syria and North Korea. There have also been concerns on the relationship among China and other Asian countries, which may result in, or intensify potential conflicts in relation to, territorial disputes, and the trade disputes between China and other countries. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.
Economic conditions in China are sensitive to global economic conditions, changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. While the economy in China has grown significantly over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing in recent years. Although growth of China’s economy remained relatively stable, there is a possibility that China’s economic growth may materially decline in the near future. Any severe or prolonged slowdown in the global or PRC economy may materially and adversely affect our business, results of operations and financial condition.
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You may have difficulty enforcing judgments against us.
A significant portion of our assets are located, and a substantial amount of our operations are conducted, in the PRC. In addition, many of our directors and officers are nationals and residents of the PRC and a substantial portion of their assets are located outside the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts because China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest.
Under the PRC EIT Law, we may be classified as a “Resident Enterprise” of China. Any classification as such will likely result in unfavorable tax consequences to us and our non-PRC shareholders.
Under the PRC EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be subject to an enterprise income tax, or EIT, rate of 25.0% on its global income. In April 2009, the SAT promulgated a circular, known as Circular 82, and partially amended by Circular 9 promulgated in January 2014, to clarify the certain criteria for the determination of the “de facto management bodies” for foreign enterprises controlled by PRC enterprises or PRC enterprise groups. Under Circular 82, a foreign enterprise is considered a PRC resident enterprise if all of the following apply: (1) the senior management and core management departments in charge of daily operations are located mainly within China; (2) decisions relating to the enterprise’s financial and human resource matters are made or subject to approval by organizations or personnel in China; (3) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders’ meeting minutes are located or maintained in China; and (4) 50.0% or more of voting board members or senior executives of the enterprise habitually reside in China. Further to Circular 82, the SAT issued a bulletin, known as Bulletin 45, effective in September 2011 and amended on June 1, 2015 and October 1, 2016, to provide more guidance on the implementation of Circular 82 and clarify the reporting and filing obligations of such “Chinese controlled offshore incorporated resident enterprises.” Bulletin 45 provides for, among other matters, procedures for the determination of resident status and administration of post-determination matters. Although Circular 82 and Bulletin 45 explicitly provide that the above standards apply to enterprises that are registered outside China and controlled by PRC enterprises or PRC enterprise groups, Circular 82 may reflect the SAT’s criteria for determining the tax residence of foreign enterprises in general.
If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, under the PRC EIT Law, dividends paid to us from our PRC subsidiaries would be deemed as “qualified investment income between resident enterprises” and therefore qualify as “tax-exempt income” pursuant to the clause 26 of the PRC EIT Law. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which the dividends we pay with respect to our ordinary shares, or the gain our non-PRC shareholders may realize from the transfer of our ordinary shares, may be treated as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. The PRC EIT Law is, however, relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income, and the application and assessment of withholding taxes. If we are required under the PRC EIT Law to withhold PRC income tax on dividends payable to our non-PRC shareholders, should there be a determination in the future to pay dividends, or if non-PRC shareholders are required to pay PRC income tax on gains on the transfer of their ordinary shares, our business could be negatively impacted and the value of your investment may be materially reduced. Further, if we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable against such other taxes.
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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 operating subsidiaries.
As an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our operating entities by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries, are subject to PRC regulations. Any loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall be registered with State Administration of Foreign Exchange, or SAFE, or its local counterparts. Furthermore, any capital increase contributions we make to our PRC subsidiaries, which are foreign-invested enterprises, are subject to the requirement of making necessary filings in Foreign Investment Comprehensive Management Information System, and registration with other government authorities in China. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiaries or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively affected.
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.
As a holding company, we conduct a substantial amount of our business through our subsidiaries in China. We may rely on dividends paid by these PRC subsidiaries for our cash needs, including the funds necessary to pay any dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities established in China is subject to limitations. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. In accordance with the Article 166, 168 of the Company Law of the PRC (Amended in 2018), each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the aggregate amount of such reserves reaches 50% of its respective registered capital. A company may discontinue the contribution when the aggregate sum of the statutory surplus reserve is more than 50% of its registered capital. The statutory common reserve fund of a company may only be used to cover the losses of the company, expand the business and production of the company or be converted into additional capital. As a result, our PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to us in the form of dividends. In addition, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict such subsidiary’s ability to pay dividends or make other distributions to us. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our ordinary shares.
Under the PRC EIT Law, subject to any applicable tax treaty or similar arrangement between the PRC and your jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10.0% is normally applicable to dividends from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business in China, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Any gain realized on the transfer of shares by such investors is subject to 10.0% PRC income tax if such gain is regarded as income derived from sources within China unless a treaty or similar arrangement otherwise provides. Under the Individual Income Tax Law of the PRC and its implementation rules, dividends from sources within China paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of shares are generally subject to 20% PRC income tax, in each case, subject to any reduction or exemption set forth in applicable tax treaties and PRC laws.
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There is a risk that we will be treated by the PRC tax authorities as a PRC tax resident enterprise. In that case, any dividends we pay to our shareholders may be regarded as income derived from sources within China and we may be required to withhold a 10.0% PRC withholding tax for the dividends we pay to our investors who are non-PRC corporate shareholders, or a 20.0% withholding tax for the dividends we pay to our investors who are non-PRC individual shareholders, including the holders of our Shares. In addition, our non-PRC shareholders may be subject to PRC tax on gains realized on the sale or other disposition of our ordinary shares, if such income is treated as sourced from within China. It is unclear whether our non-PRC shareholders would be able to claim the benefits of any tax treaties between their tax residence and China in the event that we are considered as a PRC resident enterprise. If PRC income tax is imposed on gains realized through the transfer of our ordinary shares or on dividends paid to our non-resident investors, should there be a determination in the future to pay dividends, the value of your investment in our ordinary shares may be materially and adversely affected. Furthermore, our shareholders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under such tax treaties or arrangements.
We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations and certain other PRC regulations.
On August 8, 2006, six PRC regulatory authorities, including Ministry of Commerce, the State Assets Supervision and Administration Commission, the SAT, the Administration for Industry and Commerce, the CSRC and SAFE, jointly issued the M&A Rules, which became effective on September 8, 2006 and was amended in June 2009. The M&A Rules, governing the approval process by which a PRC company may participate in an acquisition of assets or equity interests by foreign investors, requires the PRC parties to make a series of applications and supplemental applications to the government agencies, depending on the structure of the transaction. In some instances, the application process may require presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Accordingly, due to the M&A Rules, our ability to engage in business combination transactions has become significantly more complicated, time-consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our shareholders or sufficiently protective of their interests in a transaction.
The M&A Rules allow PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to Ministry of Commerce and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The M&A Rules also prohibit a transaction at an acquisition price obviously lower than the appraised value of the business or assets in China and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year. In addition, the M&A Rules also limit our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on legal and/or financial terms that satisfy our investors and protect our shareholders’ economic interests.
Fluctuations in exchange rates could have a material adverse impact on our results of operations and the value of your investment.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
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Significant fluctuation of the Renminbi may have a material adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any material hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.
Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive a significant portion of our revenues in Renminbi. Under our current corporate structure, our British Virgin Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our Company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. If such approval is withheld or the PRC government imposes other restrictions on the convertibility of Renminbi into foreign currencies, we may not be able to utilize our revenues effectively, and as a result, our business and results of operations may be materially adversely affected, and the value of our ordinary shares may decrease.
U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.
The SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive officers in the PRC. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations or litigation in China. China has recently adopted a revised securities law that became effective on March 1, 2020, Article 177 of which provides, among other things, that no overseas securities regulator is allowed to directly conduct an investigation or evidence collection activities within the territory of the PRC. Accordingly, without governmental approval in China, no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators, which could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted outside of 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.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or having substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market,” (ii) adopt a new requirement relating to the qualification of management or board of directors for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
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On May 20, 2020, the Senate passed the HFCA Act, requiring a foreign company to certify that it is not owned or manipulated by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the company’s securities are prohibited from trading on a national exchange.
On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the HFCA Act . The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under the related process that will be implemented by the SEC.
On June 22, 2021, the U.S. Senate passed a bill that, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two, thus reducing the time before our securities may be delisted.
On September 22, 2021, the PCAOB adopted rules to create a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in a foreign jurisdiction.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions. The PCAOB has made such designations as mandated under the HFCA Act. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future.
The PCAOB has been able to inspect our auditor, WWC P.C., an independent registered public accounting firm with its headquarters in San Mateo, California, with its last inspection conducted in November 2021. As such, it is not subject to the designations issued by the PCAOB on December 16, 2021. However, if the PCAOB is unable to inspect our accounting firm in a foreign jurisdiction during any period of three consecutive years or we become owned or controlled by a government in that foreign jurisdiction in the future, the HFCA Act may require our ordinary shares to be delisted from the Nasdaq Stock Market or any exchange on which our securities are traded in the future.
The recent developments would add uncertainties to our offering and may result in prohibitions on the trading of our ordinary shares on the Nasdaq Stock Market, if our auditors fail to meet the PCAOB inspection requirement in time.
We plan to empower our audit committee to take the PCAOB’s lack of inspection, as applicable, into account in connection with the oversight of our independent registered public accounting firm’s audit procedures and establish relevant internal quality control procedures. However, we cannot assure you that our audit committee’s oversight would be effective. In addition, the SEC may initiate proceedings against our independent registered public accounting firm, whether in connection with an audit of our Company or other China-based companies, which could result in the imposition of penalties against our independent registered public accounting firm, such as suspension of its ability to practice before the SEC. All of these could cause our shareholders and investors to lose confidence in our reported financial information and procedures and the quality of our financial statements, which may have a material effect on our business.
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Risks Related to Our Ordinary Shares
Future sales of our ordinary shares, whether by us or our shareholders, could cause the price of our ordinary shares to decline.
If our existing shareholders sell, or indicate an intent to sell, substantial amounts of our ordinary shares in the public market, the trading price of our ordinary shares could decline significantly. Similarly, the perception in the public market that our shareholders might sell our ordinary shares could also depress the market price of our shares. A decline in the price of our ordinary shares might impede our ability to raise capital through the issuance of additional ordinary shares or other equity securities. In addition, the issuance and sale by us of additional ordinary shares, or securities convertible into or exercisable for our ordinary shares, or the perception that we will issue such securities, could reduce the trading price for our ordinary shares as well as make future sales of equity securities by us less attractive or not feasible. The sale of ordinary shares issued upon the exercise of our outstanding warrants could further dilute the holdings of our then existing shareholders.
We do not know whether a market for the ordinary shares will be sustained or what the trading price of the ordinary shares will be and as a result it may be difficult for you to sell your ordinary shares.
Although our ordinary shares trade on Nasdaq, an active trading market for the ordinary shares may not be sustained. It may be difficult for you to sell your ordinary shares without depressing the market price for the ordinary shares. As a result of these and other factors, you may not be able to sell your ordinary shares. Further, an inactive market may also impair our ability to raise capital by selling ordinary shares, or may impair our ability to enter into strategic partnerships or acquire companies or products by using our ordinary shares as consideration.
Securities analysts may not cover our ordinary shares and this may have a negative impact on the market price of our ordinary shares.
The trading market for our ordinary shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over independent analysts (provided that we have engaged various non-independent analysts). We do not currently have and may never obtain research coverage by independent securities and industry analysts. If no independent securities or industry analysts commence coverage of us, the trading price for our ordinary shares would be negatively impacted. If we obtain independent securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our ordinary shares, changes their opinion of our shares or publishes inaccurate or unfavorable research about our business, the price of our ordinary shares would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our ordinary shares could decrease and we could lose visibility in the financial markets, which could cause the price and trading volume of our ordinary shares to decline.
Because we do not expect to pay dividends in the foreseeable future, you must rely on the price appreciation of our ordinary shares for a return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ordinary shares as a source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of British Virgin Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under British Virgin Islands law, a British Virgin Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions, and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ordinary shares will likely depend entirely upon any future price appreciation of our ordinary shares. There is no guarantee that our ordinary shares will appreciate in value or even maintain the price at which you purchased the ordinary shares. You may not realize a return on your investment in our ordinary shares and you may even lose your entire investment in our ordinary shares.
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Techniques employed by short sellers may drive down the market price of our ordinary shares.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.
Other public companies listed in the United States that have substantial operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.
We may in the future be the subject of unfavorable allegations made by short sellers. Any such allegations may be followed by periods of instability in the market price of our ordinary shares and negative publicity. If and when we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable federal or state law or issues of commercial confidentiality. Such a situation could be costly and time- consuming and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations and shareholder’s equity, and the value of any investment in our ordinary shares could be greatly reduced or rendered worthless.
As a company incorporated in the British Virgin Islands with limited liability, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards.
As a company incorporated in the British Virgin Islands with limited liability that is listed on the Nasdaq, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the British Virgin Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. For instance, we are not required to:
| ● | have a majority of the board to be independent (a although all of the members of the audit committee must be independent under the Securities Exchange Act of 1934, as amended); |
| ● | have a compensation committee or nominating or corporate governance committee consisting entirely of independent directors); |
| ● | have regularly scheduled executive sessions for non-management directors; and |
| ● | have annual meetings and director elections. |
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Currently, we do not intend to rely on home country practice with respect to our corporate governance. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no unregistered sales of the Company’s equity securities during the three months ended March 31, 2022 that were not previously disclosed in reports filed with the SEC.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No senior securities were issued and outstanding during the three-month period ended March 31, 2022.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS
(a) Exhibits
| (1) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on July 30, 2018. |
| (2) | Incorporated by reference to the Company’s Form S-1/A, filed with the SEC on July 16, 2018. |
| (3) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on October 30, 2019. |
| (4) | Incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on December 1, 2020. |
| (5) | Incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on December 1, 2021. |
| * | Filed herewith. |
| ** | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Greenland Technologies Holding Corp. | |
| Date: May 16, 2022 | /s/ Raymond Z. Wang |
|
Raymond Z. Wang Chief Executive Officer and President |
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Exhibit 10.3
No.: 2022 (Xinchang) word No.00109
Working Capital Loan Contract
(2021 Edition)
Special Note: This contract is concluded by both parties on a negotiated and voluntary basis of equality and law. All terms of the contract are true expressions of the intention of both parties.In order to safeguard the legitimate rights and interests of the borrower, the lender hereby requests the borrower to pay full attention to all the provisions concerning the rights and obligations of both parties, especially the black body part.
Lender: Industrial and Commercial Bank of China Limited Xinchang Sub-branch
Person in charge: Zhang Leming Contact person: Zhang Yi
Address (address): No.159, Gushan Middle Road, China, Xinchang County,
Zip Code: 312500
Tel: 86222812 Fax: \ Email: \
Borrower: Zhejiang Zhongchai Machinery Co., LTD
Legal representative: He Mengxing Contact person: Wu Minlian
Mobile phone number:
Address (address): No.1 Meixi Road, Meizhu Town, Xinchang County, Zhejiang Province, Zip Code: 312500
Tel.: \ Fax: \ Email: \
[The Borrower must fill in the above information accurately and completely to ensure timely delivery of relevant notices and legal documents]
According to relevant national laws and regulations, both parties have reached an agreement through consultation, unless otherwise agreed
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Part I Basic agreement
1. Purpose of the loan
The loan under this Contract is used for the following purposes. Without the written consent of the lender, the borrower shall not use the loan for other purposes, and the Lender has the right to supervise the use of the money.
Loan purpose: operating turnover
2. Amount and term of the loan
2. 1 The currency of the loan under this contract is RMB and the amount is 10000000.00 (in words: ten million) (In case of inconsistency between upper and lower case, the upper case shall prevail).
2.2 The loan term of this Contract is 2022.2.24-2023.2.23, starting from the date of the first withdrawal under this Contract.
2.3 For each withdrawal, the withdrawal date is the date when the loan funds are actually transferred into the loan account, and the maturity date is the repayment date recorded in the IOU (for installment repayment, the maturity date shall be implemented according to the repayment plan or agreed by the two parties), and the repayment date of any withdrawal shall not exceed the loan term of this Contract.
3 Interest Rate, Interest and Expenses
3.1 [Determination method of RMB loan interest rate]
The RMB loan interest rate shall be determined in the following ways:
Each loan interest rate is determined by the pricing benchmark plus floating points, in which the pricing benchmark is the effective date of each loan contract (mention Payment date / Contract effective date) (The market quoted interest rate (LPR) for the 1 year (1 year / 5 years) loan announced on the working day before the first interest rate determination date), the floating points are plus (plus / minus) 35 basis points (one basis point is 0.01%, the same below). The point spread remains unchanged during the loan term. If the separate withdrawal is used, the interest rate of each withdrawal shall be calculated separately. If the People’s Bank of China Lending Center does not announce the loan market quoted interest rate for the corresponding term within the working day before the interest rate is determined, the loan market quoted interest rate announced by the People’s Bank of China Lending Center on the previous working day shall prevail, and so on. After the first interest rate is determined, whether a withdrawal has been made, the borrowing rate shall be adjusted in the following A (A / B) manner:
3
A. Take 12 (1 / 3 / 6 / 12) months as the first period, adjustment each periods to accounting the interest. On the date of the interest rate of the second period and the corresponding date after the expiration of the first interest rate, the lender adjusts the lending rate according to the loan market quoted interest rate and floating points of the aforementioned term published by the People’s Bank of China Lending Center on the previous working day. If there is no date corresponding to the first interest rate determination date in the adjustment month, the last day of the month shall be the corresponding date.
B. No adjustment during the entire loan term.
3.2 [Determination method of foreign currency loan interest rate]
The interest rate of foreign currency borrowing is determined in the following \ (1 / 2 / 3) mode:
(1) Fixed interest rate, the annual interest rate is \ %, and the interest rate will remain unchanged during the validity period of the contract.
(2) Term interest rate, the interest rate of each loan is determined by the pricing benchmark plus the interest rate difference, of which the pricing benchmark is each loan
\ (withdrawal date/contract effective date) (the first interest rate determination date) the applicable term type is \ (week/month/year) (LIBOR term rate/SOFR term rate/SONIA term rate/EURIBOR term rate/TORF term rate, etc.), the spread is \ (plus/minus) \ basis points (one basis point is 0.01%). The plus-point spread remains unchanged during the borrowing period. If the withdrawal is made by installment, the interest rate for each withdrawal shall be calculated separately. After the first interest rate is determined, whether a withdrawal has been made, the loan interest rate will be adjusted according to the following methods \ (A/B/C), and the interest will be calculated in stages:
A. Take \ (1/3/6/12) months as a period, and adjust every period. The interest rate determination date of the second period and subsequent periods is the corresponding day after the first interest rate determination date expires one period, and the borrowing interest rate will be adjusted according to the pricing basis and interest rate difference applicable on that date. If there is no date corresponding to the first interest rate determination date in the adjustment month, the last day of the month will be used as the corresponding date.
4
B. The first day of each interest period (that is, the day after the end of the previous interest period) is the interest rate determination date, and the borrowing interest rate will be adjusted according to the applicable pricing benchmark and interest spread on that date.
C. No adjustment is made during the entire loan term.
On the aforesaid interest rate determination date, the applicable pricing benchmark shall be determined in accordance with the relevant rules in Article 1.1 of Part II.
(3) Floating overnight interest rate, the borrowing rate is based on the overnight financing rate applicable to the borrowing currency on each interest-bearing day during the interest period (referring to the withdrawal date and each subsequent natural day) \ (SOFR/SONIA/€STR/SARON or TONA, etc.) is determined as the pricing benchmark \ (plus/minus) \ basis point spread, and the spread remains unchanged during the borrowing period. Subsequent lenders determine the interest rate on the interest accrual date based on the applicable pricing benchmark and the aforesaid interest rate difference. The first interest rate determination date is the withdrawal date of each loan, and the subsequent interest rate determination date is each interest calculation day after the first interest rate determination date. Use \ (single interest/single interest compound interest combination) method to calculate loan interest.
The aforementioned interest rate determination date shall determine the pricing benchmark to be applicable in accordance with the relevant rules of Article 1.1 of Part II.
3.3 The loan under this contract shall be calculated on a daily basis from the actual withdrawal date, and shall be settled monthly (monthly / quarterly / semi-yearly).When the loan is due, the remaining outstanding interest shall be settled together with the principal. For the British pound, Australian dollar, Canadian dollar, Singapore dollar, or HK dollar, the daily interest rate per interest date = annual interest rate / 365; the daily interest rate / 360.
3.4 If the loan currency is RMB, the overdue penalty interest rate under this contract shall be determined by adding 50% to the original loan interest rate; if the borrowing currency is foreign currency, the overdue penalty interest rate under this contract shall be charged \ on the basis of the original loan interest rate(a basis point is 0.01%). The penalty interest rate for misappropriation of loans shall be determined by adding 100% to the original loan interest rate.
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3.5 In addition to interest, the borrower shall also pay the commitment fee to the lender for the borrower has not yet withdrawn. The commitment fee shall be paid in the following \ (1/2) method at the \ ‰ of annual rate and the difference between the loan amount and the amount of the borrower (the average daily balance within the billing period):
(1) Make a lump-sum payment to the Lender on the expiration date of the billing cycle.
(2) After this Contract becomes effective, the loan shall be paid to the lender at 20th of each \ (month / quarter / half year) until the expiration date of the billing period.
If the loan under this Contract is recyclable, the billing period refers to the service term of the revolving loan amount; if the loan under this Contract is not recyclable, the billing period refers to the period between the withdrawal date of the last loan agreed in Article 4 and the signing of this Contract.
If the commitment fee is paid in different times, the lender has the right to stop issuing the loan or partially or completely cancel the unpaid withdrawal of the borrower if the borrower fails to pay the commitment fee on time.
4 Drawing (revolving loan is not applicable)
4.1 The Borrower shall withdraw the money in Article 1 (1 / 2 / 3) according to the actual demand:
| (1) | One-time withdrawal of loan before March 23, 2022; |
| (2) | From the effective date of this contract to the date of \ , the loan should be withdrawn one or more times; |
| (3) | If the borrower needs to change the time or amount of the withdrawal according to the progress of the loan, it should be approved by the lender, but the borrower should pay off the loan before the data of \ at the latest. |
| Withdrawal time | Withdrawal amount |
| \ | \ |
| \ | \ |
| \ | \ |
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4.2 If the borrower fails to withdraw the money as agreed, the Lender shall have the right to partially or completely cancel the loan not withdrawn by the borrower.
5 Repayment
5.1 The Borrower shall repay the loan under the following 1 (1 / 2) ways:
| (1) | The loan shall be repaid in a lump sum upon maturity. |
Repay in installments according to the following repayment plan (additional pages can be attached if there is more content). If the interest rate is determined by the floating overnight interest rate in Article 3.2 (3) of the first part, the principal and interest repayment method cannot be used to repay the principal and interest.
| Plan repayment time | Plan repayment amount |
| \ | \ |
| \ | \ |
5.2 If the loan under this Contract falls under the following circumstances, the borrower shall repay the loan immediately after the corresponding funds are in place, so if the repayment occurs in advance, the borrower does not need to pay liquidated damages for repayment in advance:
\
5.3 Except for the circumstances stipulated in 5. 2, the borrower shall pay the lender in advance for repayment liquidated damages to be calculated according to the following standards: advance repayment amount * remaining loan term (months) * \ ‰; if the remaining loan months are less than one month, it shall be calculated as one month.
7
6: Special agreement on revolving loan (selective clause, \ (applicable / not applicable) for this section)
6.1 The loan under this Contract can be recycled. The loan amount mentioned in Article 2 and the loan term of this Contract shall be the revolving loan amount and the revolving loan amount, and the use term of the revolving loan amount shall be calculated from the effective date of this Contract.
6.2 RMB revolving borrowing rate using pricing benchmark and floating points, the pricing benchmark refers to the working day before the People’s Bank of China lending center announced the relevant varieties of loan market quoted rate (LPR), each loan according to the loan term to determine the following table varieties of loan market quoted interest rate (LPR) and add or subtract floating points, the unit of points as the basis point. Specific for:
|
Scope of loan term |
The corresponding loan market Quote interest rate (LPR) maturity variety |
Add and subtract points |
| \ | \ | \ |
| \ | \ | \ |
| \ | \ | \ |
| \ | \ | \ |
If the People’s Bank of China Lending Center does not announce the loan market quotation rate for the corresponding term on the first working day before the withdrawal, the loan market quotation rate announced by the People’s Bank of China Lending Center on the previous working day shall prevail, and so on.
6.3 For the revolving loan under this contract, if the borrower has not made any withdrawal for one month since the signing of this contract, the lender has the right to cancel the revolving loan quota.
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7 Guarantee
If the loan guarantee under this contract is the maximum guarantee, the corresponding maximum guarantee contract is \ (1 / 2 / 3, optional)
(1) The Maximum Amount Guarantee Contract (No. : \ )
Guarantor: \
(2) Maximum Amount Mortgage Contract (No. : \ )
Mortgagor: \
(3) Maximum Amount Pledge Contract (No. : \ )
Pledge: \
8 Financial Agreement (Optional Terms, \ (applicable / not applicable))
During the term of this Contract, the Borrower shall comply with the following financial indicators:
\
9. Dispute Settlement
The dispute settlement method under this Contract shall be 2 (1 / 2):
| (1) | Submit the dispute to the \ arbitration committee, and conduct arbitration at \ (arbitration place) according to the arbitration rules that were in effect when the arbitration application was submitted. The arbitral award is final and binding on both parties. |
| (2) | It is settled by litigation in the court where the lender is located. |
10 Other
10.1 This Contract is made in duplicate, with the borrower and the lender holding one copy with the same legal effect.
10.2 The following annexes and other attachments jointly confirmed by both parties shall constitute an integral part of this Contract and shall have the same legal effect as this Contract:
Annex 1: Notice of withdrawal (format)
Annex 2: Entrusted Payment Agreement
Annex 3: \
11 Other matters agreed upon by both parties:
\
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Part II Specific terms
1 Interest Rate and interest
1.1 If the borrowing currency is foreign currency and the term rate or floating overnight rate is selected, the interest rate determination date (Day T, If the interest rate determination date is not a working day, the previous recent working day shall be Date T) The applicable pricing benchmark shall be the interest rate value of T-N working days corresponding to the pricing benchmark agreed herein displayed in the page of Refinitiv or Bloomberg Financial Terminal. If the interest rate pricing benchmark is negative, it is executed at zero. The above working days refer to the working days of the local benchmark pricing agency of the borrowing currency. For term rate, N is 2; and N is 5 for floating overnight rate.
For the avoidance of doubt, the SOFR term rate agreed herein refers to the SOFR term rate issued by the Chicago Mercantile Exchange (CME) recognized by the Alternative Rate Commission (ARRC), and the SONIA term rate agreed herein means the SONIA term rate issued by Refinitiv.
If there is a significant change in the pricing benchmark, follow the effective market rules. If the Lender requires the Borrower to sign a supplementary agreement on the relevant matters at that time, the Borrower shall cooperate.
1.2 If the loan under this contract adopts the floating interest rate, the interest rate adjustment rules shall still be implemented in the original way after the loan is overdue.
1.3 If the interest is settled monthly, the interest settlement date is the 20th of each month; if the interest is settled quarterly, the interest settlement date is the 20th of the last month of each quarter; if the interest is settled semi-annually, the interest settlement date is June 20 and December 20.
1.4 The first interest period is from the date of the borrower to the first interest settlement date; the last interest period is from the day after the end of the last interest period to the final repayment date; the remaining interest period is from the day after the end of the last interest period to the next interest settlement date.
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1.5 Loan interest = loan principal* day interest rate* actual use days.
If the interest rate is determined by the method of Article 3.2 (3) of Part 1 of this contract, and the loan interest is calculated by the combination of simple interest and compound interest, the interest calculation rules are: For the part calculated according to the pricing basis, the interest of this part of each working day will be calculated. = (Loan principal + the total amount of interest owed on this part as of the last natural day)* The interest rate on the base day that should be applied on that day; the interest on this part of the non-working day is the same as the interest on the most recent working day before, but if the loan principal changes, the interest should be adjusted accordingly with reference to the aforementioned formula. The part calculated according to the spread is calculated as simple interest. The working days mentioned in this article refer to the local working days of the borrowing currency pricing benchmark management institution.
If the equal principal and interest repayment method is adopted, the calculation formula of principal and interest to be repaid is as follows:
Total principal and interest of each period = (Loan principal * period interest rate * (1 + period interest rate) ^ repayment period) /
((1+ period interest rate)^ repayment period-1)
1.6 If the People’s Bank of China adjusts the method for determining the loan interest rate and applies to the loan under this Contract, the relevant provisions of the People’s Bank of China shall be handled, and the lender will not notify the borrower separately.
1.7 This contract to determine the loan interest rate according to the People’s Bank of China lending center (LPR), the lender shall have the right to annual interest rate to the borrower, according to the national policy, borrower credit status and loan guarantee changes, etc., decide to cancel all or part of the preferential interest rate to the borrower, and timely notify the borrower.
1.8 If not specified, the loan interest rate in this contract is the annualized interest rate calculated by the single interest method.
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2 Payment and payment of loans
2.1 The borrower must meet the following prerequisites for withdrawing the loan, otherwise the lender shall not have the obligation to issue any money to the borrower, except if the lender agrees to make the loan in advance:
(1) in addition to the credit loan, the borrower has provided the corresponding guarantee as required by the lender and the relevant borrower has completed the guarantee procedures;
(2) No other contracts have defaulted under this Contract or signed by the Borrower and the Lender;
(3) the supporting materials of the loan use provided are consistent with the agreed purpose;
(4) submit other materials required by the Lender.
2.2 The written documents provided by the borrower to the lender shall be the original; if the original documents cannot be provided, the lender shall be obtained. After consent, the copy affixed with the official seal of the borrower may be provided.
2.3 The borrower shall submit the withdrawal notice to the lender at least 5 working days in advance. Once the withdrawal notice is submitted, it shall not be revoked without the written consent of the Lender. The Borrower shall reserve the account seal of the loan account designated in the withdrawal notice and affix the Borrower’s official seal or special financial seal on the IOU accordingly. The Borrower hereby confirms that the reserved seal containing both official seal and special financial seal and affixed with one or more seals on the IOU shall be a valid IOU.
2.4 If the lender examines and agrees to the withdrawal of the borrower, if the lender transfers the loan to the designated borrower account, then it shall be deemed that the lender has issued the loan to the borrower in accordance with the provisions herein.
2.5 According to the relevant regulatory regulations and the management requirements of the lender, the loan exceeding a certain amount or meeting other conditions shall be paid by the lender entrusted by the lender, and the lender shall pay the loan to the payment object which meets the Purpose stipulated in this contract. For this purpose, the Borrower and the Lender shall sign a separate entrusted payment agreement as an appendix to this contract, and open or designate a special account with the Lender to handle the entrusted payment.
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3. Repayment
3.1 The Borrower shall repay the loan principal, interest and other amounts payable on time and in full as agreed herein. On the repayment day and one working day before each interest settlement, the borrower shall fully deposit the current interest, principal and other amounts payable in the repayment account opened with the Lender, and the lender has the right to voluntarily transfer the amount on the repayment date or interest settlement date, or require the borrower to cooperate with the relevant transfer procedures. If the amount in the repayment account is insufficient to pay the full amount due of the borrower, the Lender has the right to determine the order of repayment.
If the repayment account has loss reporting, freezing, stop payment of repayment or cancellation, or the borrower needs to change the repayment account, the borrower shall go through the change procedures of the repayment account at the lender. Before the change procedures come into effect, if the original repayment account has been unable to transfer the money in full, the borrower should go to the lender for counter repayment. If the borrower fails to go through the change procedures of the repayment account in time or fails to repay the counter to the lender in time and fails to pay off the principal and interest and other expenses of the due loan in time, the borrower shall bear the liability for breach of contract.
3.2 If the borrower applies for repayment of all or part of the loan in advance, it shall submit a written application to the lender 10 working days in advance, obtain the consent of the lender, and pay the liquidated damages for repayment of the lender in advance to the lender according to the standards agreed herein.
3.3 If the lender agrees to repay the loan in advance, the borrower shall pay the loan at the same time as the prepayment date, and the principal, interest and other payments due as agreed herein. The interest is calculated by single interest and compound interest combination. If the borrower fails to pay the above interest during the advance repayment, the unpaid interest will continue to calculate the interest amount in accordance with Article 1.5 of the second part until the interest is paid in full.
3.4 The lender shall have the right to recover the loan in advance according to the borrower’s withdrawal of funds.
3. 5 If the actual loan term is shortened due to the borrower’s advance repayment or the lender recovering the loan in advance according to the provisions of this contract, the corresponding interest rate shall not be adjusted, and the original interest rate of the loan shall still be implemented.
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4 Circular loan
Recycling loans under this contract, in the circular loan amount use period, the sum of the borrower loan balance shall not exceed the revolving loan amount, and circular loan amount shall gradually decrease with the repayment arrangement (the first part of the corresponding payments is the circular loan amount should be deducted).
5. Guarantee
5.1 In addition to the credit loan, the Borrower shall provide a legal and valid guarantee approved by the Lender for the performance of its obligations under this Contract. The guarantee contract shall be signed separately.
5.2 Guarantee under this contract damage, depreciation, property rights, disputes, seizure or seizure, or the guarantor violates the provisions of the guarantee contract, or guarantee the guarantor financial situation adverse changes or other adverse changes to the lender’s creditor’s rights, the borrower shall timely notify the lender, and provide other guarantees recognized by the lender.
5.3 The Lender shall have the right to regularly or irregularly reevaluate the value of the collateral and the Guaranty’s guarantee ability. If the value of the collateral is reduced or the guarantor is reduced, the Borrower shall provide additional guarantees equal to the reduced value or guarantee ability, or may also provide other guarantees recognized by the Lender.
5.4 If the loan under this Contract is guaranteed by accounts receivable, the lender has the right to declare the loan due in advance, require the borrower to immediately repay part or all of the principal and interest of the loan, or add the legal, effective and full guarantee approved by the Lender:
(1) The bad debt rate of accounts receivable from the pledgor to the payer has increased for two consecutive months;
(2) The accounts receivable outstanding and not recovered by the pledgor to the payer account for more than 5% of the balance of the accounts receivable to the payer;
(3) Trade disputes (including but not limited to quality, technology, service disputes) or debt disputes between the account receivable pledger and the payer or other third parties, resulting in accounts receivable that may not be repaid on time when due.
6 Account Management
6.1 The Borrower shall designate a special fund withdrawal account at the Lender to collect the corresponding sales revenue or planned repayment funds. If the corresponding sales income is settled in a non-cash way, the borrower shall ensure that it is timely transferred to the fund withdrawal account after receiving the payment.
6.2 The Lender shall have the right to supervise the fund withdrawal account, including but not limited to understanding and supervising the fund income and expenditure of the account, and the Borrower shall cooperate. If requested by the Lender, the Borrower shall enter into a special account supervision agreement with the Lender.
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7 Statements and Warranties
The Borrower makes the following representations and guarantees to the Lender, valid throughout the term of this Contract:
7.1 It shall have the qualification of the borrower according to law and have the qualification and ability to sign and perform this contract.
7.2 This Contract has obtained all necessary authorization or approval. The signing and performance of this Contract shall not violate the provisions of the articles of Association and relevant laws and regulations, and shall not conflict with other obligations under the Contract.
7.3 Operating in accordance with the law, with good credit status, and the other debts payable have been paid on schedule, and having no malicious default on the principal and interest of bank loans.
7.4 With a sound organization and financial management system, no major violations of discipline have occurred in the production and operation process in the recent year, and the current senior manager does not have any major bad record.
7.5 All documents and materials provided to the Lender are true, accurate, complete and valid and free from false records, material omissions or misleading statements.
7.6 The financial and accounting reports provided to the Lender are prepared in accordance with Chinese accounting standards, which truly, fairly and completely reflect the operating conditions and liabilities of the borrower, and there have been no material adverse changes in the financial condition of the Borrower since the date of the latest financial and accounting reports.
7.7 Failure to conceal the litigation, arbitration or claim from the Lender. There is no ongoing litigation, arbitration, other administrative procedures or claims that may affect the Borrower’s execution or performance of the Contract and the payment of the debts under this Contract.
7.8 Failure to conceal from the Lender any matter that has occurred or has occurred and may affect its financial position and solvency.
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8 Commitment of the Borrower
8.1 To draw and use the loan in accordance with the term and purpose agreed herein, the loan shall not be used for fixed assets and equity investment, and shall not flow into the securities market, futures market in any form and other purposes prohibited or restricted by relevant laws and regulations.
8.2 Discharge the principal, interest and other amounts payable of the loan as agreed herein.
8.3 Accept and actively cooperate with the Lender to inspect and supervise the use of loan funds including their use by means of account analysis, voucher inspection and on-site investigation, and regularly summarize and report the use of loan funds according to the requirements of the Lender.
8.4 Accept the credit inspection of the lender, provide financial accounting data such as balance statement, income statement and loss data and other materials reflecting the solvency as required by the lender, and actively assist and cooperate with the lender in the investigation, understanding and supervision of its production, operation and financial situation.
8.5 For the outstanding principal and interest of the loan and other amounts due (including those declared as payable immediately), dividends and dividends shall not be distributed in any form.
8.6 For merger, division, capital reduction, equity changes, equity pledge, material assets and debt transfer, major foreign investment, substantial increase debt financing and other action that may adversely affect the lender rights, prior written consent of the lender or the lender’s claims to the lender’s satisfaction.
8.7 Timely notification to the Lender of any of the following circumstances:
(1) Change of the articles of association, business scope, registered capital and legal representative;
(2) Closed, dissolution, liquidation, business for rectification, business license revoked, revoked or application for (application) bankruptcy;
(3) Involving or may involve major economic disputes, litigation, arbitration, or the property is sealed up, detained or supervised according to law;
(4) Shareholders, directors and current senior managers are suspected of major cases or economic disputes.
8.8 Timely, comprehensively and accurately disclose related parties and related transactions to the lender.
8.9 Timely sign for all kinds of notices sent or otherwise served by the Lender.
8.10 Disposal of own assets without reducing solvency; providing guarantee to a third party shall not harm the interests of the lender.
8.11 If the loan under this Contract is issued by credit, report the external guarantee to the lender completely, truthfully and accurately and regularly, and sign an account supervision agreement according to the requirements of the lender. If the external guarantee may affect the performance of its obligations here under, the written consent of the Lender shall be obtained.
8.12 To bear the expenses incurred by the Lender to realize the creditor’s rights under this Contract, including but not limited to attorney’s fees and auction fees, etc.
8.13 The order of repayment of the debts under this contract takes precedence over the borrower’s debts to its shareholders, and is at least on an equal footing with the borrower’s debts of the same kind to other creditors.
8.14 If the Borrower’s repayment funds (including but not limited to the funds obtained by the Lender through withholding and disposal of collateral, etc.) are insufficient to pay off all its debts to the Lender under this Contract and other contracts, the Lender shall have the right to decide the order of repayment.
8.15 Strengthen environmental and social risk management, and accept the supervision and inspection of the lender. If requested by the lender, lend to the loan
The payer submits an environmental and social risk report.
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9 Commitment of the Lender
9.1 Loan shall be issued to the borrower as agreed herein.
9.2 The non-public information and information provided by the borrower shall be kept confidential, except as otherwise provided for by laws and regulations and otherwise agreed herein.
10 Default
10.1 The occurrence of any of the following circumstances constitutes a default by the borrower:
(1) The Borrower fails to repay the principal and interest of the loan and other amounts payable as agreed, or fails to perform any other obligations under this contract, or violates the representations, guarantees or commitments under this contract;
(2) The guarantee under this Contract has changed detrimental to the creditor’s rights of the Lender, or the guarantor violates the provisions of the guarantee Contract, and the borrower fails to provide other guarantees recognized by the Lender;
(3) Any other debts of the Borrower fail to pay off after being due (including being declared early due), or fails to perform or breach its obligations under other agreements, which has, or may affect the performance of its obligations under this contract;
(4) The borrower’s financial indicators such as profitability, solvency, operating capacity and cash flow break through the agreed standards, or deteriorate, which has already, or may affect, the performance of its obligations under this contract;
(5) Major adverse changes occur in the borrower’s equity structure, production and operation, and foreign investment, which have occurred, or may affect, the performance of its obligations under this contract;
(6) Borrower involves or may involve major economic disputes, litigation, arbitration, or assets are seized, seized or enforced, or by judicial organs or administrative organs to investigate or take punishment measures according to law, or in violation of the relevant provisions of the state or policy by the media exposure, has or may affect the performance of its obligations under this contract;
(7) The borrower abnormally changes, disappears or the personal freedom is investigated or restricted by the judicial organ according to law, and has undergone or may affect the performance of his obligations under this contract;
(8) The borrower takes advantage of the false contract with its related party to use the transaction without actual transaction background to obtain the funds or credit of the lender, or intentionally evade the lender’s creditor’s rights through related party transactions;
(9) The borrower has been or may close, dissolved, liquidated, suspend business for rectification, business license revoked, revoked or applied for (filed) bankruptcy;
(10) The Borrower has caused liability accidents, major or environmental and social risk events caused by the violation of food safety, production safety, environmental protection, which has or may affect the performance of its obligations under this contract;
(11) If the loan under this Contract is issued by credit, the borrower’s credit rating, profitability, asset-liability ratio and net cash flow of operating activities do not meet the conditions of the lender; or the borrower sets credit / pledge or provides guarantee to others without its written consent, which has or may affect the performance of its obligations under this Contract;
(12) Other circumstances that may adversely affect the realization of the Lender’s creditor’s rights under this Contract.
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10.2 If the Borrower breaches, the Lender has the right to take one or more of the following measures:
| (1) | Ask the borrower to correct the default within a time limit; |
| (2) | To stop issuing loans and other financing funds to the Borrower in accordance with this Contract and other contracts between the Lender and the Borrower, and to cancel partially or all of the Borrower’s failure to withdraw the loans and other financing funds; |
| (3) | To declare that the outstanding loans and other financing funds under other contracts between this Contract and the Lender and the Borrower shall immediately become due and recover the outstanding funds immediately; |
| (4) | Request the borrower to compensate for the losses caused to the lender by its default; |
| (5) | Other measures as stipulated by laws and regulations, agreed herein or deemed necessary by the Lender. |
10.3. If the borrower fails to repay the loan when it is due (including being declared to expire immediately), the Lender has the right to collect the penalty interest at the overdue penalty rate agreed herein from the date of delay. For the interest (including penalty interest) not paid by the borrower on time, the recovery interest shall be calculated at the overdue penalty interest rate. The interest settlement rules of penalty interest / compound interest shall apply to the interest settlement rules agreed upon in this contract.
10.4 If the borrower fails to use the loan according to the purpose agreed herein, the lender shall have the right to collect the penalty interest on the misappropriated part of the misappropriated part of the loan and the interest (including the penalty interest) of the loan shall be calculated at the penalty interest rate of the loan. The interest settlement rules of penalty interest / compound interest shall apply to the interest settlement rules agreed upon in this contract.
10.5 If the circumstances mentioned in Articles 10.3 and 10.4 above occur at the same time, the penalty interest rate shall be determined and shall not be imposed concurrently.
10.6 If the borrower fails to repay the loan principal, interest (including penalty interest and compound interest) or other amount payable on schedule, the lender shall have the right to announce the collection through the media.
10.7 If the control or control relationship between the related party of the Borrower and the Borrower changes, or the related party of the Borrower has other circumstances than Article 10.1 above: (1) and (2), which has experienced or may affect the performance of the Borrower’s obligations under this Contract, the Lender has the right to take the measures agreed herein.
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11 Automatic cancellation of the loan commitment
11.1 If the borrower’s credit status deteriorates, the lender can automatically cancel all outstanding commitment to the borrower without prior notice.
11.2 One of the circumstances mentioned in Article 10.1 and 10.17 of Part II of this Contract constitutes the deterioration of the borrower’s credit condition.
12 Deduct
12.1 If the Borrower fails to repay the debts due under this Contract (including those declared due immediately) as agreed, the Borrower agrees that the Lender shall deduct the corresponding amount from all domestic and foreign currency accounts opened by the borrower for repayment until all debts of the Borrower under this Contract are fully repaid.
12.2. If the deduction is inconsistent with the currency of this contract, it shall be converted at the applicable exchange rate of the Lender on the date of deduction. The interest and other expenses incurred during the period from the deduction date to the repayment date (when the lender transfers the deduction amount to exchange the contract currency and actually repay the debts under this Contract), and the difference arising from the exchange rate fluctuations during this period shall be borne by the Borrower.
13 Assignment of rights and obligations
13.1 The Lender has the right to transfer in part or all of its rights under this Contract to a third party, without the consent of the Borrower. The Borrower shall not assign any of the rights and obligations under this Contract.
13.2 The lender or the Industrial and Commercial Bank of China Co., Ltd. (“ICBC”) may authorize or entrust any other branches of ICBC to perform the rights and obligations under this contract, or assign the loan claims to other branches of ICBC to undertake and manage it by the borrower, and the lender does not need to obtain the consent of the borrower. Other branches of ICBC that undertake the rights and obligations of the lender have the right to exercise all the rights under this contract and have the right to file a lawsuit, submit for arbitration or apply for enforcement against the court in the name of the dispute under this Contract.
14 Effectiveness, Alteration and Rescission
14.1 This Contract shall come into force on the date of official seal or special seal and terminate on the date of the completion of all obligations under this contract.
14.2 Any changes to this Contract shall be agreed upon by all parties and made in writing. The change terms or agreements shall form a part of this Contract and shall have the same legal effect as this Contract. Except for the changed part, the rest of the contract shall remain valid, and the original terms shall remain valid before the changed part takes effect.
14.3 The modification and rescission of this Contract shall not affect the right of the Parties to claim compensation for losses. The termination of this Contract shall not affect the validity of the relevant dispute resolution clause.
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15 Application of law and dispute resolution
The conclusion, validity, interpretation, performance and dispute settlement of this Contract shall be governed by the laws of the People’s Republic of China. Any disputes and disputes arising from or related to this Contract shall be settled by both parties through negotiation and shall be settled in the manner as agreed herein.
16 Confirmation of the service address of the litigation / arbitration documents
16.1 The Borrower confirms that the address recorded on the front page of this Contract shall be served as the address of the litigation / arbitration documents involved under this Contract. Litigation / arbitration documents include but are not limited to summons, notice of court session, written judgment, written order, conciliation statement, notice of performance within a time limit, etc.
16.2 The Borrower agrees that the arbitration institution or the court may use the fax and email recorded on the front page of this Contract to serve the arbitration / litigation documents, except for the judgment, order and conciliation statement.
16.3 The above service agreement shall apply to all stages of first instance, second instance, retrial and execution in arbitration and litigation proceedings. For the above service address, the arbitration agency or the court may serve it directly by mail.
16.4 The Borrower shall ensure the authenticity and validity of the address, contact person, fax, email and other information recorded herein. If any relevant information is changed, the Borrower shall timely notify the Lender in writing, otherwise the service of the original address information shall remain valid and the Borrower shall bear the legal consequences arising therefrom.
17 Complete contract
The first part of the Basic Agreement and the second part of the Contract jointly form a complete working capital Loan contract, the same words in the two parts have the same meaning. The Borrower is jointly bound by the above two parts.
18 Notice
18.1 All notices of the parties here-under shall be given in writing. Unless otherwise agreed, both parties shall specify the place of residence specified in this contract as the communication and contact address. In case of a change in the mailing address or other contact information of either party, it shall timely notify the other party in writing.
18.2 If either party refuses to sign or other cases cannot be delivered, the notice may be served by notarization or announcement.
19 Special agreement on VAT
19.1 The interest and fees paid by the Borrower to the Lender under this Contract shall be tax-inclusive prices.
19.2 If the borrower requests the lender to issue a VAT invoice, it shall first handle the information registration with the lender, including the full name of the borrower, the taxpayer’s identification number or social credit code, address, telephone number, bank and account number. The Borrower shall ensure that the relevant information provided to the Lender is true, accurate and complete, and shall provide relevant supporting materials as required by the Lender. The specific requirements shall be issued by the Lender through the branch notice or the announcement on the website.
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19.3 If the borrower receives the VAT invoice by itself, it shall provide the lender with the power of attorney with the seal, designate the recipient, and specify the ID number and other information. Then the designated recipient shall receive the VAT invoice with the original ID card; If the designated recipient changes, the borrower shall issue a power of attorney with the seal to the lender again. If the borrower chooses to collect the VAT invoice by mail, it shall also provide accurate and available mailing information; If the mailing information changes, the borrower shall timely notify the lender in writing.
19.4 If the lender fails to issue VAT invoices in time due to natural disasters, government behaviors, social abnormal events or tax authorities, the lender has the right to delay the issuing of invoices and shall not assume any responsibility.
19.5 If the VAT invoice is unable to receive the VAT invoice after the borrower receives the receipt of the VAT invoice or the third party, the lender shall not compensate the borrower for the relevant economic losses of the borrower.
19.6 If a special VAT invoice is required due to sales return, taxable service suspension or invoice error, deduction and invoice verification, the borrower shall submit the relevant laws, regulations and policy documents to the tax authority after the tax authority shall review and notify the tax authority.
19.7 During the performance of the Contract, in case of national tax rate adjustment, the lender shall have the right to adjust the price agreed herein, according to the change of national tax rate.
20. Others
20.1 The Lender’s failure to exercise or partially exercise or delay in exercising any rights under this Contract shall not constitute a waiver or alteration of such or other rights and shall not affect its further exercise of such or other rights.
20.2 The invalidity or unenforceable of any provision of this Contract shall not affect the validity and enforce-ability of any other provisions, nor shall it affect the validity of the whole contract.
20.3 The words such as “related party”, “related party relationship”, “related party transaction”, “individual main investors” and “key managers” mentioned in this contract have the same meaning as the “Disclosure of Accounting Standards for Business Enterprises No.361 Related Party” (No.3 Accounting [2006]) and the same words in the subsequent revision of the standards.
20.4 The environmental and social risks mentioned herein refer to the potential hazards and related risks of the Borrower and its important related parties in their construction, production and business activities, including environmental and social issues related to energy consumption, pollution, land, health, safety, resettlement, ecological protection, climate change, etc.
20.5 The Lender shall make retained documents and vouchers for the loan under this Contract in accordance with its business rules, which shall constitute valid evidence proving the creditor relationship between the parties and shall be binding on the Borrower.
20.6 During the term of this Contract, if the Lender is unable to continue to perform the Contract or some provisions of the laws or regulations, the Lender has the right to cancel the outstanding loan and take other measures deemed necessary by the Lender in accordance with the relevant provisions.
20.7 In this Contract, ⑴ mentions that this Contract shall include modifications or additions to the Contract; the ⑵ title is for reference only and does not constitute any interpretation of the Contract and impose any limitation on the contents and scope of the title.
Both parties confirm that the borrower and borrower have fully negotiated all the terms of this Contract. The Lender has drawn special attention from the Borrower to all the terms concerning the rights and obligations of the parties, made a comprehensive and accurate understanding, and has interpreted and explained the relevant terms at the request of the Borrower. The Borrower has carefully read and fully understood all the terms of the Contract (including the first Part Basic Agreement and Part II Specific Provisions). The borrower have the same understanding of the terms of the Contract and have no objection to the contents of the contract.
Lender (seal): Industrial and Commercial Bank of China Limited Xinchang Sub-branch
Date: 2022.2.24
Borrower (seal): Zhejiang Zhongchai Machinery Co., LTD
As the legal representative / authorized representative of the Borrower, I hereby confirm that the Borrower borrows money from the Lender in accordance herein and the printing on this Contract is true and valid, and the required procedures have been fulfilled for the loan.
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Legal representative and authorized representative of the borrower (signature):
number:\
Entrust payment agreement
Client (Party A): Zhejiang Zhongchai Machinery Co., LTD
Address: No.1 Meixi Road, Meizhu Town, Xinchang County, Zhejiang Province Legal Representative: He Mengxing
Trustee (Party B): Industrial and Commercial Bank of China Limited Xinchang Sub-branch
Address: No.159, Gushan Middle Road, Xinchang County
Responsible person: Zhang Leming
in view of:
(I) Party A and Party B shall sign the Working Capital Loan Contract (hereinafter referred to as the Financing Contract) numbered 2022 (Xinchang) word 00109, and Party B shall provide financing to Party A in accordance with the provisions of the financing contract.
(II) In accordance with relevant regulatory regulations and Party B’s management requirements, party B shall adopt entrusted payment methods for qualified financing payments or other funds entrusted by Party B by Party A, that is, Party B shall pay the financing to party A’s payment object for the agreed purpose according to party A’s withdrawal application and payment entrustment.
In order to clarify the entrusted payment of financing, Party A and Party B shall enter into this agreement through equal consultation.
Article 1. Entrusted Payment Conditions
If the single payment under the financing contract reaches or exceeds RMB 500,000, or meets the following conditions, the entrusted payment method shall be adopted: \
Article 2 Authorization and entrustment
For the withdrawal that meets the entrusted payment conditions agreed herein, Party A authorizes and entrusts Party B to transfer the financing funds to the payment object account of Party A for the agreed purpose of the financing contract after transferring the financing funds to the designated account of Party A, and provide payment vouchers and other relevant materials as required by Party B.
The purpose of the financing funds under the financing contract is: operating turnover
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Article 3 Entrusted payment
(1) When handling the entrusted payment, Party A shall open or designate a special account at Party B to handle the entrusted payment matters.
(2) When handling the entrusted payment, Party A shall provide Party B with the information of its loan account and payment object account and each withdrawal of the supporting materials that the withdrawal conforms to the agreed purpose. Party A shall guarantee that all the materials provided to Party B are true, complete and valid.
(3) When handling the entrusted payment, Party B shall only provide the information of the payment object and the financing purpose supporting materials provided by Party A
Party B shall review the materials. If Party B fails to complete the entrusted payment in time due to the untrue, inaccurate and incomplete information provided by Party A, Party B shall not bear any responsibility.
(4) Party B finds any inconsistency or other defects in the use certification materials provided by Party A, etc
Right to require Party A to supplement, replace, explain or resubmit relevant materials before Party A submits the materials satisfactory to Party B
Have the right to refuse the payment and payment of the relevant funds.
(5) According to the different financing purposes of Party A, Party B shall have the right to request Party A, the independent intermediary agency and other relevant parties to issue a total
Party B shall issue and pay the financing funds with the visa form and other relevant supporting materials.
(6) After examination, Party B considers that the information provided by Party A is consistent with the agreed financing purpose and the withdrawal complies with the financing contract
For the specified preconditions, the financing funds shall be transferred to the account designated by Party A first, and then the corresponding funds shall be transferred to the payment object account of Party A according to the needs and the relevant business vouchers submitted by Party A.
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(7) In any of the following circumstances, Party B shall have the right to redetermine the financing issuance and payment conditions, or stop the financing payment:
1. Party A provides false or invalid information to Party B to obtain financing;
2. Party A has suffered major adverse changes in production and operation, declining credit status or default under the financing contract;
3. If the financing fund is used for fixed assets investment, the project progress lags behind the use progress of funds;
4. Party A fails to withdraw and pay the financing funds in accordance with the financing contract, and the use of the financing funds is abnormal;
5. Party A violates this Agreement and the financing contract or relevant regulatory provisions, and avoids the entrusted payment by turning it down into pieces;
6. The loan account or payment object account designated by Party A shall be frozen or stopped by the authorized authority.
Article 4 Freezing or stop payment of accounts
If the loan account designated by Party A or the payment object account is frozen or stopped by the competent authority, and Party B fails to timely complete the entrusted payment as entrusted by Party A, Party B shall not assume any responsibility, nor affect the repayment obligations incurred by Party A under the financing contract.
Article 5 Supervision and inspection of independent payment
If the amount under the financing contract is paid by Party A independently, Party A promises to accept and actively cooperate with Party B in the account analysis and vouchers
Check and supervise the use of financing funds, including purposes, by means of inspection and on-site investigation, and regularly summarize and report the use of financing funds as required by Party B.
Article 6 Liability for Breach of Contract
(1) Party A shall compensate Party B for any losses due to the untrue, incomplete or invalid information provided by Party A to Party B.
(2) If Party B fails to pay and pay the financing funds in time as agreed herein, it shall bear the corresponding liability for breach of contract, except as otherwise agreed herein.
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Article 7 Force majeure and accidents
If Party B fails to pay and pay the corresponding payment on time due to unforeseeable, inevitable and insurmountable force majeure events such as war, natural disasters, or system failure or communication failure, Party B shall not bear any responsibility, but Party B shall timely notify Party A.
Article 8. Effectiveness and Termination
This Agreement shall come into force on the date of the official seals or special seals of both parties and terminate when all the funds of Party A under the financing Contract are withdrawn (including Party B’s cancellation of Party A under the financing contract according to the financing Contract) and the entrusted payment of Party B is completed.
Article 9. Others
As an annex to the financing contract, this Agreement shall have the same legal effect as the financing contract. Matters not covered herein shall be executed in accordance with the financing contract.
Party A: Zhejiang Zhongchai Machinery Co., LTD
Party B: Industrial and Commercial Bank of China Limited Xinchang Sub-branch
Date: February 24,2022
Contract Serial number: 202202240121100097412235
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Exhibit 31.1
Certification by the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Raymond Z. Wang, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Greenland Technologies Holding Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s most recent fiscal quarter (the company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
| Date: | May 16, 2022 | |
| /s/ Raymond Z. Wang | ||
| Name: | Raymond Z. Wang | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Certification by the Principal Financial Officer
pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jing Jin, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Greenland Technologies Holding Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s most recent fiscal quarter (the company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
| Date: | May 16, 2022 | |
| /s/ Jing Jin | ||
| Name: | Jing Jin | |
| Title: |
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Raymond Z. Wang, Chief Executive Officer of Greenland Technologies Holding Corporation (the “Company”), hereby certify to my knowledge that:
The quarterly report on Form 10-Q for the quarter ended March 31, 2022 of the Company fully complies, in all material respects, with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 16, 2022
| /s/ Raymond Z. Wang | |
| Raymond Z. Wang | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Jing Jin, Chief Financial Officer of Greenland Technologies Holding Corporation (the “Company”), hereby certify to my knowledge that:
The quarterly report on Form 10-Q for the quarter ended March 31, 2022 of the Company fully complies, in all material respects, with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 16, 2022
| /s/ Jing Jin | |
| Jing Jin | |
| Chief Financial Officer (Principal Financial Officer) |