Greenland Technologies Holding Corp 10-Q for FY2022 Q3
Greenland Technologies Holding Corp. (GTEC)
About this 10-Q
Greenland Technologies Holding Corp filed this 10-Q on November 14, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $21.79M
- down 5.6% from $23.08M a year earlier
- Net income
- $1.28M
- up 24.3% from net income of $1.03M a year earlier
- Diluted EPS
- $0.10
- up 11.1% from $0.09 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 | ||
| The |
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 November 10, 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 | 15 |
| ITEM 4. | Controls and Procedures | 15 |
| PART II. OTHER INFORMATION | 17 | |
| ITEM 1. | Legal Proceedings | 17 |
| ITEM 1A. | Risk Factors | 17 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| ITEM 3. | Defaults Upon Senior Securities. | 37 |
| ITEM 4. | Mine Safety Disclosures. | 37 |
| ITEM 5. | Other Information. | 37 |
| ITEM 6. | Exhibits | 38 |
| Signatures | 39 | |
i
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. Forward-looking statements may appear throughout this report and other documents we file with the U.S. Securities and Exchange Commission (“SEC”), including without limitation, the following sections: Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report on Form 10-Q. Specifically, these forward-looking statements may include statements relating to:
| ● | the future financial performance of the Company; |
| ● | changes in the market for the Company’s products; | |
| ● | our goals and strategies; | |
| ● | our business and operating strategies and plans for the development of existing and new businesses, ability to implement such strategies and plans and expected time; | |
| ● | our dividend policy; | |
| ● | our expectations regarding our relationships with our suppliers, customers, business partners and third-parties; | |
| ● | our market position and our ability to maintain and enhance our market position; | |
| ● | our ability to attract, train and retain executives and other employees; | |
| ● | fluctuations in inflation, interest rates and foreign exchange rates; | |
| ● | the future development of the COVID-19 pandemic and its impact on our business and industry; and | |
| ● | assumptions underlying or related to any of the foregoing. |
Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “may,” “could,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. In addition, there is uncertainty about the future development of the COVID-19 pandemic and the impact it may have on the Company’s operations, the demand for the Company’s products or services, global supply chains and economic activity in general. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREENLAND TECHNOLOGIES HOLDING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
1
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(UNAUDITED, IN U.S. DOLLARS)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| 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 | ||||||||
| Other intangible assets | ||||||||
| 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 SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 (Continued)
(UNAUDITED, IN U.S. DOLLARS)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Current Liabilities | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Notes payable-bank acceptance notes | ||||||||
| Accounts payable | ||||||||
| Taxes payables | ||||||||
| Customer deposits | ||||||||
| Due to related parties | ||||||||
| Other current liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Long-term payables - current | ||||||||
| Total current liabilities | $ | $ | ||||||
| Long-term liabilities | ||||||||
| Long-term payables – 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED, IN U.S. DOLLARS)
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| 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: | ||||||||||||||||
| NET INCOME PER ORDINARY SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY: | ||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
F-3
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED, IN U.S. DOLLARS, EXCEPT FOR SHARE DATA)
| Ordinary Shares | Additional | Accumulated Other | Non- | |||||||||||||||||||||||||||||
| No Par Value | Paid-in | Comprehensive | Statutory | Retained | controlling | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Income/(loss) | Reserve | Earnings | Interest | Total | |||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||
| Restricted share grants | ||||||||||||||||||||||||||||||||
| Sale of shares and warrants | ||||||||||||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||
| Sale of shares and warrants | ||||||||||||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Transfer to statutory reserve | — | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | — | |||||||||||||||||||||||||||||||
| Balance at December 31,2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Sale of shares and warrants | — | |||||||||||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||||||||||||||||||
| Sale of shares and warrants | — | — | — | — | — | |||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at September 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED, IN U.S. DOLLARS)
For the nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| 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 (Decrease) 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Continued)
(UNAUDITED, IN U.S. DOLLARS)
For the nine months ended September 30 | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of long-term assets | $ | ( | ) | $ | ( | ) | ||
| 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 (DECREASE) 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 People’s Republic of China (the “PRC” or “China”) in 2005, Hangzhou Greenland Energy Technologies Co., Ltd., an operating company formed under the laws of the PRC in 2019, and Shanghai Hengyu Business Management Consulting Co., Ltd., a company formed under the laws of the PRC in 2005. Through Zhongchai Holding and its subsidiaries, Greenland develops and manufactures traditional transmission products for material handling machineries in the PRC.
HEVI Corp. (“HEVI”), formerly known as Greenland Technologies Corp. prior to May 2022, was incorporated on January 14, 2020 under the laws of the State of Delaware. HEVI is a wholly-owned subsidiary of Greenland and promotes sales of sustainable alternative products for the heavy industrial equipment industry, including electric industrial vehicles, in the North American market.
Through its PRC subsidiaries, Greenland offers
transmission products, which are key components for forklift trucks used in manufacturing and logistic applications, such as factories,
workshops, warehouses, fulfilment centers, shipyards, and seaports. Forklifts play an important role in the logistic systems of many companies
across different industries in China and globally. Generally, industries with the largest demand for forklifts include the transportation,
warehousing logistics, electrical machinery, and automobile industries. Greenland’s revenue decreased from approximately $
Greenland’s transmission products are used
in 1-ton to 15-tons forklift trucks; some with mechanical shift and some with automatic shift. Greenland sells these transmission products
directly to forklift-truck manufacturers. For the nine months ended September 30, 2022 and 2021, Greenland sold an aggregate of
There is increasing demand for electric industrial
vehicles powered by sustainable energy in order to reduce air pollution and lower carbon emissions. In December 2020, Greenland launched
a new division to focus on the production and sale of electric industrial vehicles—a division that Greenland intends to develop
to diversify its product offerings. Greenland’s electric industrial vehicle products currently include GEF-series electric forklifts,
a series of lithium powered forklifts with three models ranging in size from 1.8 tons to 3.5 tons, GEL-1800, a 1.8 ton rated load lithium
powered electric wheeled front loader, and GEX-8000, an all-electric 8.0 ton rated load lithium powered wheeled excavator.
The COVID-19 pandemic has significantly affected business and manufacturing activities within China, including travel restrictions, widespread mandatory quarantines, and suspension of business activities within China. For the nine months ended September 30, 2022, we experienced rising raw material costs, and we expect raw material costs to continue increasing in the foreseeable future due to the COVID-19 pandemic. Additionally, local outbreaks of COVID-19 infections continued to emerge in additional regions in China since 2022, and it is difficult to predict how these local outbreaks and relevant remedial measures and lockdown policies may affect our business operations for the rest of 2022.
F-7
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
The Company’s Shareholders
As of September 30, 2022, Cenntro Holding Limited
owned
The Company’s Subsidiaries
Zhongchai Holding, the wholly-owned subsidiary
of the Company, owned
Zhejiang Zhongchai
Zhejiang Zhongchai, a limited liability company registered on November 21, 2005, is the direct operating subsidiary of Zhongchai Holding in the PRC. On April 5, 2007, Usunco Automotive Limited (“Usunco”), a British Virgin Islands limited liability company, invested US$8,000,000 for purchasing approximately 75.47% equity interest of Zhejiang Zhongchai. On December 16, 2009, Usunco agreed to transfer its 75.47% interest in Zhejiang Zhongchai to Zhongchai Holding. On April 26, 2010, Xinchang County Keyi Machinery Co., Ltd. transferred 24.528% equity interest it owned in Zhejiang Zhongchai to Zhongchai Holding in exchange for a consideration of US$2.6 million. On November 1, 2017, Xinchang County Jiuxin Investment Management Partnership (LP) (“Jiuxin”), an entity controlled and beneficially owned by Mr. He Mengxing, president of Zhejiang Zhongchai, closed its investment of approximately RMB31,590,000 in Zhejiang Zhongchai for 10.53% of its interest. On December 29, 2021, Xinchang County Jiuhe Investment Management Partnership (LP) (“Jiuhe”), an entity controlled and beneficially owned by Mr. He Mengxing, president of Zhejiang Zhongchai, closed its investment of approximately RMB34,300,000 in Zhejiang Zhongchai for 20.00% of its interest. As of September 30, 2022, Zhongchai Holding owned approximately 71.576% of the equity interests, Jiuxin owned approximately 8.424% of the equity interests, and Jiuhe owned approximately 20.00% of the equity interests in Zhejiang Zhongchai.
Through Zhejiang Zhongchai, the Company has been engaging in the manufacturing and sales of transmission systems mainly for forklift trucks since 2006. These forklift trucks are used in manufacturing and logistics applications, such as factory, workshop, warehouse, fulfilment centers, shipyards and seaports. The transmission systems are the key components for forklift trucks. The Company supplies transmission systems to forklift truck manufacturers. Its transmission systems fit for forklift trucks ranging from 1 to 15 tons, with either mechanical shift or automatic shift. All the products are currently manufactured at the Company’s facility in Xinchang, Zhejiang Province, the PRC and are sold to both domestic and oversea markets.
F-8
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Hengyu
Hengyu is a limited liability company registered on September 10, 2015 in Shanghai Free Trade Zone, Shanghai, the PRC. Hengyu holds no assets other than an account receivable owed by Cenntro Holding Limited. The main business of Hengyu is to provide investment management and consulting services.
Hangzhou Greenland
Hangzhou Greenland is a limited liability company registered on August 9, 2019 in Hangzhou Sunking Plaza, Zhejiang, the PRC. Hangzhou Greenland engages in the business of trading construction engineering machinery, electronic components, hardware, and others.
HEVI
HEVI, formerly known as Greenland Technologies Corp. prior to May 2022, was incorporated on January 14, 2020 under the laws of the State of Delaware. HEVI is a wholly-owned subsidiary of Greenland and promotes sales of sustainable alternative products for the heavy industrial equipment industry, including electric industrial vehicles, in the North American market.
Details of the Company’s subsidiaries, which are included in these unaudited consolidated financial statements as of September 30, 2022, are as follows:
| Name | Domicile | Paid-in | Percentage | Principal Activities | ||||||||||
| Zhongchai Holding (Hong Kong) Limited | April 23, 2009 | % | ||||||||||||
| Zhejiang Zhongchai Machinery Co., Ltd. | November 21, 2005 | % | ||||||||||||
| Shanghai Hengyu Business Management Consulting Co., Ltd. | September 10, 2015 | % | ||||||||||||
| Hangzhou Greenland Energy Technologies Co., Ltd. | August 8, 2020 | % | ||||||||||||
| HEVI Corp., formerly known as Greenland Technologies Corporation | January 14, 2020 | % | ||||||||||||
F-9
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.
Principles of Consolidation
The consolidated financial statements include the accounts of Greenland Technologies Holding Corporation and its subsidiaries and have been prepared in accordance with U.S. GAAP. Intercompany accounts and transactions have been eliminated upon consolidation. Certain reclassifications to previously reported financial information have been made to conform to the current period presentation.
The Business Combination was accounted for as a reverse recapitalization (the “Recapitalization Transaction”) in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. For accounting and financial reporting purposes, Zhongchai Holding is considered the acquirer based on facts and circumstances, including the following:
| ● | Zhongchai Holding’s operations comprise the ongoing operations of the combined entity; |
| ● | The officers of the newly combined company consist of Zhongchai Holding’s executives, including the Chief Executive Officer, Chief Financial Officer and General Counsel; and |
| ● | The former shareholders of Zhongchai Holding own a majority voting interest in the combined entity. |
As a result of Zhongchai Holding being the accounting
acquirer, the financial reports filed with the SEC by the Company subsequent to the Business Combination are prepared “as if”
Zhongchai Holding is the predecessor and legal successor to the Company. The historical operations of Zhongchai Holding are deemed to
be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Zhongchai
Holding prior to the Business Combination; (ii) the combined results of the Company and Zhongchai Holding following the Business
Combination in October 24, 2019; (iii) the assets and liabilities of Zhongchai Holding at their historical cost, and (iv) Greenland’s
equity structure for all periods presented. Zhongchai Holding received
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. Actual results could differ from those estimates. Significant estimates in the nine months ended September 30, 2022 and 2021 include allowance for doubtful accounts, reserve for inventories, useful life of property, plant and equipment, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets and accruals for taxes due.
Non-controlling Interest
Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 810 Consolidation (“ASC 810”) and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
F-10
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Currency Translation
The accompanying consolidated financial statements are presented in United States dollars (“US$” or “$”). The functional currency of the Company is Renminbi (“RMB”). Transactions in foreign currencies are initially recorded at the functional currency rate then in effect at the date of the transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations.
For
the nine months ended | ||||||||
| 2022 | 2021 | |||||||
| Period end RMB: US$ 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 an original maturity of three months or less to be cash equivalents. The Company maintains its bank accounts in U.S., PRC and Hong Kong. Balances at financial institutions or state-owned banks within the PRC and Hong Kong are not covered by insurance.
Restricted Cash
Restricted cash represents amounts held by a bank as security for bank acceptance bills, as well as the financial product secured for the short-term bank loan and therefore is not available for the Company’s use until such time as the bank acceptance notes and bank loans have been fulfilled or expired, normally within a twelve-month period.
Fair Value of Financial Instruments
The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, to the financial instruments that are required to be carried at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy based upon observable and non-observable inputs that prioritizes the information used to develop our assumptions regarding fair value. Fair value measurements are separately disclosed by level within the fair value hierarchy.
| ● | Level 1—defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2—defined as inputs other than quoted prices in active markets, that are either directly or indirectly observable; and |
| ● | Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
F-11
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash, accounts receivable, notes receivable, accounts payable, other payables and accrued liabilities, short-term bank loans, and notes payable.
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of the short-term nature of these items. The estimated fair values of short-term bank loans were not materially different from their carrying value as presented due to the short maturities and that the interest rates on the borrowing approximate those that would have been available for loans of similar remaining maturity and risk profile. As the carrying amounts are reasonable estimates of the fair value, these financial instruments are classified within Level 1 of the fair value hierarchy.
Accounts Receivable
Accounts receivable are carried at net realizable
value. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as
to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers
many factors, including the age of the balance, customer’s historical payment history, its current creditworthiness and current
economic trends. Accounts are written off after exhaustive efforts at collection. The Company only grants credit terms to established
customers who are deemed to be financially responsible. Credit periods to customers are within 60 days after customers received the purchased
goods. If accounts receivable are to be provided for, or written off, they would be recognized in the consolidated statement of operations
within operating expenses. Balance of allowance of doubtful accounts was $
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-12
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
When assets are sold or retired, their costs and accumulated depreciation are eliminated from the consolidated financial statements and any gain or loss resulting from their disposal is recognized in the period of disposition as an element of other income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.
Land Use Rights
According to the PRC laws, the government owns
all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the
Chinese government. The land use rights granted to the Company are being amortized using the straight-line method over the lease term
of
Impairment of Long-Lived Assets
Long-lived assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with FASB ASC 360, “Property, Plant and Equipment”.
In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with FASB ASC 360-10-15. To the extent that estimated future, undiscounted cash inflows attributable to the asset, less estimated future, undiscounted cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell.
There was no impairment loss recognized for nine months ended September 30, 2022 and 2021.
Lease
ASC 842 supersedes the lease requirements in ASC 840 “Leases,” and generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. Leases that transfer substantially all of the benefits and risks incidental to the ownership of assets are accounted for as finance leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases.
A sale-leaseback transaction occurs when an entity sells an asset it owns and immediately leases the asset back from the buyer. The seller then becomes the lessee and the buyer becomes the lessor. Under ASC 842, both parties must assess whether the buyer-lessor has obtained control of the asset and a sale has occurred.
The Company has determined that the leaseback
transaction that it entered in 2019 fails to qualify as a sale because control is not transferred to the buyer-lessor. Therefore, the
Company has classified the lease portion of the transaction as a finance lease whereby the Company continues to depreciate the assets
and recorded a financing obligation for the consideration received from the buyer-lessor, with an implicit interest rate of
The Company has leased premises for its offices
under non-cancellable operating leases since May 2021 and its assembly site under non-cancellable operating leases since June 2022. Operating
lease payments are expensed over the term of lease using straight line method. The Company’s office leases have a
F-13
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
In accordance with ASC Topic 606, “Revenue from Contracts with Customers,” the Company recognizes revenues when goods or services are transferred to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. In determining when and how revenues are recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations and (v) recognition of revenues when (or as) the Company satisfies each performance obligation. The Company derives revenues from the processing, distribution and sale of its products. The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which had been levied at the rate of 17% on the invoiced value of sales until April 30, 2018, after which date the rate was reduced to 16%. VAT rate was further reduced to 13% starting from April 1, 2019. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.
Revenues are recognized at a point in time once the Company has determined that the customer has obtained control over the product. Control is typically deemed to have been transferred to the customer when the performance obligation is fulfilled, usually at the time of customers’ acceptance or consumption, at the net sales price (transaction price) and each of the criteria under ASC 606 have been met. Contract terms may require the Company to deliver the finished goods to the customers’ location or the customer may pick up the finished goods at the Company’s factory. International sales are recognized when shipment clears customs and leaves the port.
The Company adopted ASC 606 on January 1, 2018, using the transition method of Modified-Retrospective Method (“MRM”). The adoption of ASC 606 had no impact on the Company’s beginning balance of retained earnings.
The Company’s contracts are all short-term in nature with a contract term of one year or less. Receivables are recorded when the Company has an unconditional right to consideration.
Contracts do not offer any price protection, but
allow for the return of certain goods if quality problem, which is standard warranty. The Company’s product returns and recorded
reserve for sales returns were minimal for the nine months ended September 30, 2022 and 2021. The total rebates amount accounted for around
The following table sets forth disaggregation of revenue:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| Major Product | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Transmission boxes for Forklift | $ | $ | $ | $ | ||||||||||||
| Transmission boxes for Non-Forklift (EV, etc.) and parts of transmission boxes | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
F-14
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cost of Goods Sold
Cost of goods sold consists primarily of material costs, freight charges, purchasing and receiving costs, inspection costs, internal transfer costs, wages, employee compensation, amortization, depreciation and related costs, which are directly attributable to the production of products. Write-down of inventory to lower of cost or net realizable value is also recorded in cost of goods sold.
Selling Expenses
Selling expenses include operating expenses such as payroll and traveling and transportation expenses.
General and Administrative Expenses
General and administrative expenses include management and office salaries and employee benefits, depreciation for office facility and office equipment, travel and entertainment, legal and accounting, consulting fees and other office expenses.
Research and Development
Research and development costs are expensed as
incurred and totaled approximately $
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-15
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company also follows FASB ASC 740, which addresses
the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the largest benefit that has a greater than
Value-Added Tax
Enterprises or individuals, who sell commodities,
engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with PRC Laws.
Statutory Reserve
In accordance with the PRC Regulations on Enterprises
with Foreign Investment, an enterprise established in the PRC with foreign investment is required to provide for certain statutory reserves,
namely (i) a General Reserve Fund, (ii) an Enterprise Expansion Fund and (iii) a Staff Welfare and Bonus Fund, which are appropriated
from net profit as reported in the enterprise’s PRC statutory accounts. A wholly-owned foreign enterprise is required to allocate
at least
F-16
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during the year from transactions and other events, excluding the changes resulting from investments by owners and distributions to owners, and is not included in the computation of income tax expense or benefit. Accumulated comprehensive income consists of foreign currency translation. The Company presents comprehensive income (loss) consists in accordance with ASC Topic 220, “Comprehensive Income”.
Earnings per share
The Company calculates earnings per share in accordance
with ASC Topic 260 “Earnings per Share.” Basic earnings per share is computed by dividing the net income by the weighted average
number of ordinary shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except
that the denominator is increased to include the number of additional ordinary shares that would have been outstanding if the potential
ordinary shares equivalents had been issued and if the additional ordinary shares were dilutive. On October 24, 2019, the Company completed
its Business Combination, whereby Zhongchai Holding received
Segments and Related Information
ASC 280 “Segment reporting” establishes standards for reporting information on operating segments in interim and annual financial statements. All of the Company’s operations are considered by the chief operating decision maker to be aggregated in one reportable operating segment.
The Company is engaged in the business of manufacturing and selling various transmission boxes. The Company’s manufacturing process is essentially the same for the entire Company and is performed in-house at the Company’s facilities in the PRC. The Company’s customers primarily consist of entities in the automotive, construction machinery or warehousing equipment industries. The distribution of the Company’s products is consistent across the entire Company. In addition, the economic characteristics of each customer arrangement are similar in that the Company maintains policies at the corporate level.
F-17
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Commitments and contingencies
In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter. The Company’s management has evaluated all such proceedings and claims that existed as of September 30, 2022 and December 31, 2021. Normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter. The Company’s management has evaluated all such proceedings and claims that existed as of September 30, 2022 and December 31, 2021.
Related Party
In general, related parties exist when there is
a relationship that offers the potential for transactions at less than arm’s-length, favorable treatment, or the ability to influence
the outcome of events different from that which might result in the absence of that relationship. A related party may be any of the following:
a) an affiliate, which is a party that directly or indirectly controls, is controlled by, or is under common control with another party;
b) a principle owner, owner of record or known beneficial owner of more than
Economic and Political Risks
A significant portion of the Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company’s cash is maintained with banks within the U.S., the PRC and Hong Kong, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts. A portion of the Company’s sales are credit sales which are primarily to customers whose abilities to pay are dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
Exchange Risk
The Company cannot guarantee that the current exchange rate will remain steady. Therefore, there is a possibility that the Company could post the same amount of profit for two comparable periods and yet, because of the fluctuating exchange rate, record higher or lower profit depending on exchange rate of RMB converted to U.S. dollars on the relevant dates. The exchange rate could fluctuate depending on changes in the political and economic environment without notice.
F-18
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements
Recent accounting pronouncements that the Company has adopted or may be required to adopt in the future are summarized below:
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions and forecasts. Subsequently, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, in April 2019. To clarify that receivables arising from operating leases are within the scope of lease accounting standards. In October 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which defers the effective date for public filers that are considered small reporting companies as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is a smaller reporting company, implementation is not needed until January 1, 2023. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. The Company is evaluating the impact of this standard on its consolidated financial statements, including accounting policies, processes, and systems, and expects the standard will have a minor impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04 (Topic 350) Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. As amended by ASU 2019-10, this ASU will be applied on a prospective basis and is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company is evaluating the impact of the application of this standard and does not expect that the adoption of the ASU 2017-04 will have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13 Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements under ASC 820. This ASU is to be applied on a prospective basis for certain modified or new disclosure requirements, and all other amendments in the standard are to be applied on a retrospective basis. The new standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company adopted Topic 820 on January 1, 2020. The adoption of the ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect that the requirements of ASU 2019-12 will have a material impact on its consolidated financial statements.
F-19
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – SHORT TERM INVESTMENT
As of September 30, 2022 and December 31, 2021,
the Company’s short term investment amounted to $
NOTE 4 – CONCENTRATION ON REVENUES AND COST OF GOODS SOLD
Concentration of major customers and suppliers:
For the nine months ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Major customers representing more than 10% of the Company’s revenues | ||||||||||||||||
| Company A | $ | % | $ | % | ||||||||||||
| Company B | % | % | ||||||||||||||
| Total Revenues | $ | % | $ | % | ||||||||||||
| As of | ||||||||||||||||
September 30, 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 | ||||||||
September 30, | December 31, | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Changes in the allowance for doubtful accounts are as follows:
| As of, | ||||||||
September 30, | December 31, | |||||||
| Beginning balance | $ | $ | ||||||
| (Reversal of) Provision for doubtful accounts | ( | ) | ||||||
| Effect of FX change | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
F-20
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – INVENTORIES
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Revolving material | ||||||||
| Consigned processing material | ||||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Less: inventory impairment | ( | ) | ||||||
| Inventories, net | $ | $ | ||||||
Changes in the inventory reserves are as follows:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Beginning balance | $ | ( | ) | $ | ||||
| (Release of) inventory write-downs | ( | ) | ||||||
| Effect of FX change | ( | ) | ||||||
| Ending balance | $ | $ | ( | ) | ||||
NOTE 7 – NOTES RECEIVABLE
| As of | ||||||||
| September 30, 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 nine months from the date of issuance. As of September 30, 2022, the Company pledged notes receivable for an aggregate amount
of $
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT AND CONSTRUCTION IN PROGRESS
(a) As of September 30, 2022 and December 31, 2021, property, plant and equipment consisted of the following:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Buildings | $ | $ | ||||||
| Machinery | ||||||||
| Motor vehicles | ||||||||
| Electronic equipment | ||||||||
| Total property plant and equipment, at cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
| Construction in process | ||||||||
| Total | $ | $ | ||||||
For the nine months ended September 30, 2022 and
2021, depreciation expense amounted to $
For the nine months ended September 30, 2022 and
2021, $
F-21
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT AND CONSTRUCTION IN PROGRESS (CONTINUED)
Restricted assets consist of the following:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Buildings, net | $ | $ | ||||||
| Machinery, net | ||||||||
| Total | ||||||||
As of September 30, 2022, the Company pledged
its ownership interests in certain buildings for the 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 a 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 a 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 transactions whereby the Company continues to depreciate the assets and recorded a financing obligation for the consideration received from the buyer-lessor.
NOTE 9 – LAND USE RIGHTS
Land use rights consisted of the following:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Land use rights, cost | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Land use rights, net | $ | $ | ||||||
As of September 30, 2022, the Company had land
use rights with net book value of $
Estimated future amortization expense is as follows as of September 30, 2022:
| Years ending September 30, | Amortization expense | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
F-22
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – NOTES PAYABLE
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Bank acceptance notes | $ | $ | ||||||
| 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 | ||||||||
| September 30, 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 | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Collateralized bank loans | $ | $ | ||||||
| Guaranteed bank loans | ||||||||
| Total | $ | $ | ||||||
Short-term loans as of September 30, 2022 are as follows:
| Maturity Date | Type | Bank Name | Interest Rate per Annum (%) | September 30, 2022 | ||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| $ | ||||||||||||
F-23
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – SHORT TERM BANK LOANS (CONTINUED)
Short-term loans as of December 31, 2021 are as follow:
| Maturity Date | Type | Bank Name | Interest Rate per Annum (%) | December 31, 2021 | ||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| Operating Loans | $ | |||||||||||
| $ | ||||||||||||
All short-term bank loans were obtained from local
banks in the 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 | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Employee payables | ||||||||
| Other tax payables | ||||||||
| Borrowing from third party | ||||||||
| Total | $ | $ | ||||||
F-24
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – OTHER LONG-TERM LIABILITIES
Other long-term liabilities are summarized as follow:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Subsidy | ||||||||
| 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 September 30, 2022, grant income decreased by $
NOTE 15 – LEASES
The Company leases its corporate offices and
assembly site 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 September 30, 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 September 30, 2022:
| For the years ending September 30, | Operating Leases | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
F-25
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – LONG TERM PAYABLES
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Long-term payables current portion | $ | $ | ||||||
| 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 a 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 a 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 September 30, 2022 and December 31, 2021, there were no preferred shares designated, issued or outstanding.
Ordinary Shares — The
Company is authorized to issue an unlimited number of no par value ordinary shares.
On July 27, 2018, the Company consummated its
initial public offering of
F-26
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – STOCKHOLDER’S EQUITY (CONTINUED)
Simultaneously with the consummation of its initial
public offering, the Company completed a private placement of
In 2019, in connection with the Business Combination, 3,875,458 shares were redeemed, 81,400 shares were converted into ordinary shares, and 1,906,542 ordinary shares were left outstanding upon consummation of the reverse recapitalization.
Pursuant to the Share Exchange Agreement dated
as of July 12, 2019 by and among (i) Greenland, (ii) Zhongchai Holding, (iii) the Sponsor in the capacity as the purchaser representative,
and (iv) Cenntro Holding Limited, the sole member of Zhongchai Holding (the “Share Exchange Agreement”), Greenland acquired
from Cenntro Holding Limited all of the issued and outstanding equity interests of Zhongchai Holding in exchange for
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.
F-27
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – STOCKHOLDER’S EQUITY (CONTINUED)
On October 24, 2020, the Company’s board of directors held a meeting and executed resolutions to approve the issuance of 120,000 ordinary shares to Raymond Wang, the Company’s chief executive officer, to offset unpaid salary to him in the amount of $120,833.33 and the issuance of 135,000 ordinary shares to Jing Jin, the Company’s chief financial officer, to offset unpaid salary to him in the amount of $60,000 and his personal loan to the Company in the amount of $75,000. On November 10, 2020, the Company issued 135,000 ordinary shares to Jing Jin. On December 30, 2020 and February 8, 2021, the Company issued 69,000 and 51,000 ordinary shares to Raymond Wang, respectively. In February 2021, the Company issued 48,344 ordinary shares from the exercise of warrants by certain warrantholders. On March 4, 2021, the Company issued 132,000 ordinary shares to Chardan from the exercise of Chardan’s unit purchase option to purchase 120,000 units. On April 19, 2021, the Company issued 2,500 ordinary shares to each of Peter Zuguang Wang, Charles Athle Nelson, Everett Xiaolin Wang, Ming Zhao and Bo Shen. On April 20, 2021, the Company issued 2,700 ordinary shares to Xiaqing Yang. On June 30, 2021, the Company closed a firm commitment offering of 857,844 ordinary shares at $8.16 per share with gross proceeds of $7,000,007 under its effective shelf registration statement. On July 27, 2022, the Company closed a firm commitment offering of 1,250,000 ordinary shares at $4.17 per share with gross proceeds of $5,212,500 under its effective shelf registration statement.
Rights — Each holder of a right was entitled to receive one-tenth (1/10) of one ordinary share upon consummation of the Business Combination.
As of September 30, 2022, all of the foregoing
existing rights had been converted into
Warrants — Redeemable
warrants sold as part of the units in the Company initial public offering, or
The Company may call the warrants for redemption (excluding the Private Warrants (as defined below)), in whole and not in part, at a price of $0.01 per warrant:
| ● | At any time while the Public Warrants are exercisable, |
| ● | Upon not less than 30 days’ prior written notice of redemption to each Public Warrant holder, |
| ● | If, and only if, the reported last sale price of the ordinary shares equals or exceeds $16.50 per share, for any 20 trading days within a 30 trading day period ending on the third trading day prior to the notice of redemption to Public Warrant holders, and |
| ● | If, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption. |
F-28
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – STOCKHOLDER’S EQUITY (CONTINUED)
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. Accordingly, the warrants may expire worthless.
As of September 30, 2022, there were a total of
Unit Purchase Option
On July 27, 2018, the Company sold to Chardan
(and its designees), for $
F-29
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 – EARNINGS PER SHARE
The Company reports earnings per share in accordance with the provisions of the FASB’s related accounting standard. This standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution, but includes vested restricted stocks and is computed by dividing income available to shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. On October 24, 2019, the Company completed a reverse merger with Zhongchai Holding. The recapitalization of the number of ordinary shares attributable to the purchase of Zhongchai Holding in connection with the Business Combination is reflected retroactively to December 31, 2017 and will be utilized for calculating earnings per share in all prior periods presented.
The following is a reconciliation of the basic and diluted earnings per share computation:
For the three September 30, | For the nine September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net income attributable to the Greenland Corporation and subsidiaries | $ | $ | $ | $ | ||||||||||||
| Weighted average basic and diluted computation shares outstanding: | ||||||||||||||||
| Weighted average shares used in basic computation | ||||||||||||||||
| Diluted effect of stock options and warrants | ||||||||||||||||
| Weighted average shares used in diluted computation | ||||||||||||||||
| 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 and nine months ended September 30, 2022 and 2021 are as follows:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Domestic Sales | $ | $ | $ | $ | ||||||||||||
| International Sales | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
F-30
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – INCOME TAXES
Income tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to the Company and its subsidiaries, adjusted for items which are considered discrete to the period.
The effective tax rates on income before income
taxes for the nine months ended September 30, 2022 was
The effective tax rates on income before income
taxes for the nine months ended September 30, 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 23, 2020, Zhejiang Zhongchai signed
a Maximum Amount Pledge Contract with Agricultural Bank of PRC Co., Ltd.
On December 16, 2019, Zhejiang Zhongchai signed
a Maximum Amount Pledge Contract with Rural Commercial Bank of PRC Co., Ltd.,
On September 21, 2020, Zhejiang Zhongchai signed
a Maximum Amount Pledge Contract with Rural Commercial Bank of PRC Co., Ltd.,
On June 27, 2022, Zhejiang Zhongchai signed a
Maximum Amount Pledge Contract with Bank of Communications Co. LTD.,
F-31
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
On October 14, 2019, the plaintiff, the Company
and all other named defendants entered into a confidential memorandum of understanding (the “MOU”), pursuant to which a Stipulation
and Order of Dismissal (“Stipulation of Dismissal”) of the Action was filed on October 14, 2019. The Stipulation of Dismissal
was approved and entered by the District Court on October 15, 2019. Among other things, the Stipulation of Dismissal acknowledged that
the Definitive Proxy Statement on Schedule 14A, filed with the Commission on December 1, 2020 mooted the plaintiff’s
claims regarding the sufficiency of disclosures, dismissed all claims asserted in the Action, with prejudice as to the plaintiff only,
permits the plaintiff to seek an award of attorneys’ fees in connection with the mooted claims, and reserves the defendants’
rights to oppose such an award, if appropriate. Pursuant to the MOU, the parties have engaged in discussions regarding the amount
of attorneys’ fees, if any, to which the plaintiff’s counsel is entitled in connection with the Action. As of January
25, 2021, the Company settled with its counter party and paid a total of $
Facility Leases
The Company entered into a failed sale-leaseback transaction in August 2020. See further discussion in NOTE 16 –LONG TERM PAYABLES. The Company has leased premises for its offices under non-cancellable operating leases since May 2021 and its assembly site under non-cancellable operating leases since June 2022. See further discussion in NOTE 15 – LEASES.
Rent expense is recognized on a straight-line basis over the terms of the operating leases accordingly and the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability.
The following are the aggregate non-cancellable future minimum lease payments under operating and financing leases as of September 30, 2022:
Years ending September 30, | Amount | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
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-32
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Summary of Balances with Related Parties:
| As of | ||||||||
September 30, | December 31, | |||||||
| 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 September 30, 2022 and December 31, 2021 consisted of:
| 1 |
| 2 |
| 3 |
| 4 |
| 5 |
| 6 |
| 7 |
| As of | ||||||||
| September 30, | 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
September 30, 2022 and December 31, 2021 consisted primarily of other receivables from Cenntro Holding Limited in the amount of $
The Company expects that the amount due from its principal equity holder, Cenntro Holding Limited, will be paid back based on certain payment schedules, with the last payment to be made by June 30, 2024, as the Company and Cenntro Holding Limited mutually agreed to an extension of the repayment deadline from April 27, 2022.
F-33
GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – RELATED PARTY TRANSACTIONS (CONTINUED)
(c) Summary of Related Party Funds Lending:
A summary of funds lending with related parties for the nine months ended September 30, 2022 and 2021 are listed below:
| Withdraw funds from related parties: | For
the nine | |||||||
| 2022 | 2021 | |||||||
| Zhejiang Zhonggong Machinery Co., Ltd. | ||||||||
| Cenntro Smart Manufacturing Tech. Co., Ltd. | ||||||||
| Peter Zuguang Wang | ||||||||
| 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 | ||||||||
| Cenntro Holding Limited | ||||||||
| 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 November 14, 2022. All subsequent events requiring recognition as of September 30, 2022 have been incorporated into these financial statements and there are no other subsequent events that require disclosure in accordance with FASB ASC Topic 855.
F-34
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the consolidated financial statements of the Company thereto, which appear elsewhere in this quarterly report on Form 10-Q, and should be read in conjunction with such financial statements and related notes included in this quarterly report on Form 10-Q. Except for the historical information contained herein, the following discussion, as well as other information in this report, contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the “safe harbor” created by those sections. Actual results and the timing of the events may differ materially from those contained in these forward-looking statements due to many factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this quarterly report on Form 10-Q.
Overview
Greenland Technologies Holding Corporation (the “Company”, “we”, “our” or “us”) was incorporated on December 28, 2017 as a British Virgin Islands company with limited liability and a blank check company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more target businesses. Following the Business Combination (as described below) in October 2019, the Company changed its name from Greenland Acquisition Corporation to Greenland Technologies Holding Corporation.
On July 27, 2018, we consummated our initial public offering of 4,400,000 units, including a partial exercise by the underwriters of their over-allotment option in the amount of 400,000 units. Each unit consists of one ordinary share, no par value, one warrant to purchase one-half of one ordinary share, and one right to receive one-tenth of one ordinary share upon the consummation of our initial business combination, pursuant to a registration statement on Form S-1. Warrants must be exercised in multiples of two warrants, and each two warrants are exercisable for one ordinary share at an exercise price of $11.50 per share. The units were sold in our initial public offering at an offering price of $10.00 per unit, and generated $44,000,000 (before underwriting discounts and offering expenses) in gross proceeds.
Simultaneously with the consummation of our initial public offering, we completed a private placement of 282,000 units, issued to the Greenland Asset Management Corporation (the “Sponsor”) and Chardan Capital Markets, LLC (“Chardan”), which generated $2,820,000 in gross proceeds. We also sold to Chardan (and its designees), for $100, an option to purchase up to 240,000 units exercisable at $11.50 per unit (or an aggregate exercise price of $2,760,000) commencing on consummation of the Business Combination. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires on July 24, 2023. On February 18, 2021, Chardan exercised its option to purchase 120,000 units. As of the date of this report, an option exercisable by Chardan for 120,000 units is outstanding.
On October 24, 2019, we consummated our business combination (the “Business Combination”) with Zhongchai Holding (Hong Kong) Limited, a holding company formed under the laws of Hong Kong on April 23, 2009 (“Zhongchai Holding”), following a special meeting, where the shareholders of Greenland considered and approved, among other matters, a proposal to adopt and entered into the Share Exchange Agreement (as defined below) that allowed Greenland to acquire from Cenntro Holding Limited all of the issued and outstanding equity interests of Zhongchai Holding in exchange for 7,500,000 newly issued ordinary shares, no par value of Greenland, issued to Cenntro Holding Limited. As a result, Cenntro Holding Limited became the controlling shareholder of Greenland, and Zhongchai Holding became a directly and wholly owned subsidiary of Greenland. The Business Combination was accounted for as a reverse merger effected by a share exchange, wherein Zhongchai Holding is considered the acquirer for accounting and financial reporting purposes.
2
In connection with the Business Combination, all the outstanding rights of the Company were converted into 468,200 ordinary shares on a one-tenth (1/10) ordinary share per right basis if holders of the rights elected to convert their rights into the underlying ordinary shares.
On December 17, 2019, the Company’s warrants, which were trading under the ticker symbol “GTECW,” were delisted from the Nasdaq Capital Market by the Nasdaq Listing Qualifications Staff.
On January 14, 2020, HEVI Corp. (“HEVI”), formerly known as Greenland Technologies Corp. prior to May 2022, was incorporated under the laws of the State of Delaware. HEVI is a 100% owned subsidiary of Greenland. HEVI focuses on the production and sale of electric industrial vehicles for the North American market.
Greenland serves as the parent company to Zhongchai Holding. Through Zhongchai Holding and its subsidiaries, Greenland develops and manufactures traditional transmission products for material handling machineries and electric industrial vehicles.
Through its PRC subsidiaries, Greenland offers transmission products, which are key components for forklift trucks used in manufacturing and logistic applications, such as factories, workshops, warehouses, fulfilment centers, shipyards, and seaports. Forklifts play an important role in the logistic systems of many companies across different industries in China and globally. Generally, industries with the largest demand for forklifts include the transportation, warehousing logistics, electrical machinery, and automobile industries. Greenland’s revenue decreased from approximately $75.90 million for the nine months ended September 30, 2021 to $71.70 million for the nine months ended September 30, 2022. The decrease in revenue was primarily the result of a decrease in the Company’s sales volume resulting from COVID-19 related lockdowns in China for the nine months ended September 30, 2022. Based on the revenues for the nine months ended September 30, 2022 and 2021, Greenland believes that it is one of the major developers and manufacturers of transmission products for small and medium-sized forklift trucks in China.
Greenland’s transmission products are used in 1-ton to 15-tons forklift trucks, some with mechanical shift and some with automatic shift. Greenland sells these transmission products directly to forklift-truck manufacturers. For the nine months ended September 30, 2022 and 2021, Greenland sold an aggregate of 102,144 and 110,082 sets of transmission products, respectively, to more than 100 forklift manufacturers in the PRC.
There is increasing demand for electric industrial vehicles powered by sustainable energy in order to reduce air pollution and lower carbon emissions. In December 2020, Greenland launched a new division to focus on the production and sale of electric industrial vehicles—a division that Greenland intends to develop to diversify its product offerings. Greenland’s electric industrial vehicle products currently include GEF-series electric forklifts, a series of lithium powered forklifts with three models ranging in size from 1.8 tons to 3.5 tons, GEL-1800, a 1.8 ton rated load lithium powered electric wheeled front loader, and GEX-8000, an all-electric 8.0 ton rated load lithium powered wheeled excavator. These products have become available for purchase in the United States (“U.S.”) market. In July 2022, Greenland launched its new GEL-5000 all-electric 5.0 ton rated load lithium wheeled front loader. In August 2022, Greenland launched a 54,000 square foot industrial electric vehicle assembly site in Baltimore, Maryland to support local services, assembly and distribution of its electric industrial heavy equipment product line. The Company plans to establish an experience center within the Mid-Atlantic region in 2023 to promote local sales and marketing.
As of September 30, 2022, Cenntro Holding Limited owned 53.52% of our outstanding ordinary shares. Cenntro Holding Limited is controlled and beneficially owned by Mr. Peter Zuguang Wang, the chairman of the board of directors of the Company. As a result, we are a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Peter Zuguang Wang beneficially owns more than 50% of our voting power. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements. If we rely on these exemptions, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
3
Impact of COVID-19 Pandemic on Our Operations and Financial Performance
The COVID-19 pandemic has severely affected China and the rest of the world. In an effort to contain the spread of the COVID-19 pandemic, China and many other countries have taken precautionary measures, such as imposing travel restrictions, quarantining individuals infected with or suspected of being infected with COVID-19, encouraging or requiring people to work remotely, and canceling public activities, among others.
Since 2021, a few waves of COVID-19 infections emerged in various regions of China, and in response, the Chinese government implemented certain anti-COVID measures and protocols. However, in the fiscal year ended December 31, 2021, these scattered outbreaks were brought under control in a relatively short period of time, and the COVID-19 pandemic had limited impact on our financial condition and results of operations in the fiscal year ended December 31, 2021. For the nine months ended September 30, 2022, we experienced rising raw material costs, and we expect raw material costs to continue increasing in the foreseeable future, due to the COVID-19 pandemic. Additionally, local outbreaks of COVID-19 infections continued to emerge in additional regions in China since 2022, and it is difficult to predict how these local outbreaks and relevant remedial measures and lockdown policies may affect our business operations for the rest of 2022.
The extent to which the COVID-19 pandemic may continue to affect our operations and financial performance in the future will depend on future developments, which are highly uncertain and cannot be predicted at this time.
Results of Operations
For the three months ended September 30, 2022 and 2021
Overview
| For the three months ended September 30 | ||||||||||||||||
| 2022 | 2021 | Change | Variance | |||||||||||||
| Revenues | $ | 21,786,862 | $ | 23,084,793 | $ | (1,297,931 | ) | (5.6 | )% | |||||||
| Cost of Goods Sold | 16,974,566 | 17,987,363 | (1,012,797 | ) | (5.6 | )% | ||||||||||
| Gross Profit | 4,812,296 | 5,097,430 | (285,134 | ) | (5.6 | )% | ||||||||||
| Selling expenses | 521,865 | 522,770 | (905 | ) | (0.2 | )% | ||||||||||
| General and administrative expenses | 1,192,210 | 1,150,769 | 41,441 | 3.6 | % | |||||||||||
| Research and development expenses | 1,023,443 | 1,372,215 | (348,772 | ) | (25.4 | )% | ||||||||||
| Total Operating Expenses | 2,737,518 | 3,045,754 | (308,236 | ) | (10.1 | )% | ||||||||||
| Income from operations | 2,074,778 | 2,051,676 | 23,102 | 1.1 | % | |||||||||||
| Interest income | 12,790 | 4,737 | 8,053 | 170.0 | % | |||||||||||
| Interest expenses | (125,981 | ) | (106,506 | ) | (19,475 | ) | 18.3 | % | ||||||||
| Loss on disposal of property and equipment | (301 | ) | - | (301 | ) | (100.0 | )% | |||||||||
| Other income | 655,838 | 231,466 | 424,372 | 183.3 | % | |||||||||||
| Income before income tax | 2,617,124 | 2,181,373 | 435,751 | 20.0 | % | |||||||||||
| Income tax | 518,931 | 927,844 | (408,913 | ) | (44.1 | )% | ||||||||||
| Net income | $ | 2,098,193 | $ | 1,253,529 | $ | 844,664 | 67.4 | % | ||||||||
4
Components of Results of Operations
For
the | ||||||||
| Component of Results of Operations | 2022 | 2021 | ||||||
| Revenues | $ | 21,786,862 | $ | 23,084,793 | ||||
| Cost of Goods Sold | 16,974,566 | 17,987,363 | ||||||
| Gross Profit | 4,812,296 | 5,097,430 | ||||||
| Operating Expenses | 2,737,518 | 3,045,754 | ||||||
| Net Income | 2,098,193 | 1,253,529 | ||||||
Revenue
Greenland’s revenue was approximately $21.79 million for the three months ended September 30, 2022, representing a decrease of approximately $1.29 million, or 5.6%, as compared to that of approximately $23.08 million for the three months ended September 30, 2021. The decrease in revenue was primarily a decrease in the Company’s sales volume resulting from COVID-19 related lockdowns in China for the three months ended September 30, 2022.
Cost of Goods Sold
Greenland’s cost of goods sold consists primarily of material costs, freight charges, purchasing and receiving costs, inspection costs, internal transfer costs, wages, employee compensation, amortization, depreciation and related costs, which are directly attributable to the Company’s manufacturing activities. The write down of inventory using the net realizable value (“NRV”) impairment test is also recorded in cost of goods sold. The total cost of goods sold was approximately $16.97 million for the three months ended September 30, 2022, representing a decrease by approximately $1.02 million, or 5.6%, as compared to that of approximately $17.99 million for the three months ended September 30, 2021. Cost of goods sold decreased due to our decrease in sales volume.
Gross Profit
Greenland’s gross profit was approximately $4.81 million for the three months ended September 30, 2022, representing a decrease by approximately $0.29 million, or 5.6%, as compared to that of approximately $5.10 million for the three months ended September 30, 2021. For the three months ended September 30, 2022 and 2021, Greenland’s gross margins were approximately 22.1% and 22.1%, respectively. The decrease in gross profit in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was primarily due to our decrease in sales volume.
5
Operating Expenses
Greenland’s operating expenses consist of selling expenses, general and administrative expenses and research and development expenses.
Selling Expenses
Selling expenses are mainly comprised of operating expenses such as sales staff payroll, traveling expenses, and transportation expenses. Our selling expenses were approximately $0.52 million for the three months ended September 30, 2022, representing a decrease of approximately $0.0 million, or 0.2%, as compared to approximately $0.52 million for the three months ended September 30, 2021. The decrease was mainly due to a decrease in the after-sales service fees.
General and Administrative Expenses
General and administrative expenses are comprised of management and staff salaries, employee benefits, depreciation for office facility and office furniture and equipment, travel and entertainment expenses, legal and accounting fees, financial consulting fees, and other office expenses. General and administrative expenses were approximately $1.19 million for the three months ended September 30, 2022, representing an increase by approximately $0.04 million, or 3.6%, as compared to that of approximately $1.15 million for the three months ended September 30, 2021. The fundamental reasons for the rise in the general and administrative expenses were the following: (i) increased legal fees and consultancy fees on the Company’s business planning and projects for the three months ended September 30, 2022, as the Company expanded its operations, compared to the three months ended September 30, 2021; and (ii) an increase in staff salary.
Research and Development (R&D) Expenses
R&D expenses consist of R&D personnel compensation, costs of materials used in R&D projects, and depreciation costs for research-related equipment. R&D expenses were approximately $1.02 million for the three months ended September 30, 2022, representing a decrease by approximately $0.35 million, or 25.4%, as compared to that of approximately $1.37 million for the three months ended September 30, 2021. Such decrease was primarily due to a significant decrease in the Company’s R&D activities during the three months ended September 30, 2022.
Income from Operations
Income from operations for the three months ended September 30, 2022 was approximately $2.07 million, representing an increase of approximately $0.02 million, as compared to that of approximately $2.05 million for the three months ended September 30, 2021.
Interest Income and Interest Expenses
Greenland’s interest income was approximately $0.01 million for the three months ended September 30, 2022, representing an increase of approximately $0.01 million, or 170.0%, as compared to that of approximately $0.00 million for the three months ended September 30, 2021. The increase in interest income was because more cash was deposited in banks during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.
Greenland’s interest expenses were approximately $0.13 million for the three months ended September 30, 2022, representing an increase of approximately $0.02 million, or 18.3%, as compared to that of approximately $0.11 million for the three months ended September 30, 2021. The increase was primarily due to an increase of our short-term loans for the three months ended September 30, 2022, compared to those for the three months ended September 30, 2021.
Other Income
Greenland’s other income was approximately $0.66 million for the three months ended September 30, 2022, an increase of approximately $0.43 million, or 183.3%, as compared to approximately $0.23 million for the three months ended September 30, 2021. The increase was primarily due to an increase in grant income for the three months ended September 30, 2022, compared to those for the three months ended September 30, 2021.
6
Income Taxes
Greenland’s income tax was approximately $0.52 million for the three months ended September 30, 2022, as compared to that of approximately $0.93 million for the three months ended September 30, 2021.
Zhejiang Zhongchai obtained a “high-tech enterprise” status near the end of the fiscal year of 2019. Such status allows Zhejiang Zhongchai to enjoy a reduced statutory income tax rate of 15%, rather than the standard PRC corporate income tax rate of 25%. The “high-tech enterprise” status is reevaluated by relevant Chinese government agencies every three years. Zhejiang Zhongchai’s current “high-tech enterprise” will be reevaluated near the end of 2022.
Greenland’s other PRC subsidiaries are subject to different income tax rates. Hengyu, the 62.5% owned subsidiary of Zhongchai Holding, is subject to the 25% standard income tax rate. Hangzhou Greenland, the wholly owned subsidiary of Zhongchai Holding, is subject to the 25% standard income tax rate.
Greenland is a holding company registered in the British Virgin Islands and is not subject to tax on income or capital gains under the current British Virgin Islands law. In addition, upon payment of dividends to its shareholders, the Company will not be subject to any British Virgin Islands withholding tax.
On January 14, 2020, Greenland established HEVI, its wholly owned subsidiary in the state of Delaware. HEVI promotes sales of sustainable alternative products for the heavy industrial equipment industry, including electric industrial vehicles, in the North American market. On December 22, 2017, the U.S. federal government enacted the 2017 Tax Act. The 2017 Tax Act includes a number of changes in existing tax law impacting businesses, including the transition tax, a one-time deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory rate from 35% to 21%, effective on January 1, 2018. ASC 740 requires companies to recognize the effect of tax law changes in the period of enactment, and accordingly, the effects must be recognized on companies’ calendar year-end financial statements, even though the effective date for most provisions is January 1, 2018. Since HEVI was established in year 2020, the one-time transition tax did not have any impact on the Company’s tax provision and there was no undistributed accumulated earnings and profits as of September 30, 2022.
Net Income
Our net income was approximately $2.10 million for the three months ended September 30, 2022, representing an increase of approximately $0.85 million, as compared to that of approximately $1.25 million for the three months ended September 30, 2021.
For the nine months ended September 30, 2022 and 2021
Overview
| For the nine months ended September 30 | ||||||||||||||||
| 2022 | 2021 | Change | Variance | |||||||||||||
| Revenues | $ | 71,696,324 | $ | 75,899,994 | $ | (4,203,670 | ) | (5.5 | )% | |||||||
| Cost of Goods Sold | 55,676,893 | 59,993,008 | (4,316,115 | ) | (7.2 | )% | ||||||||||
| Gross Profit | 16,019,431 | 15,906,986 | 112,445 | 0.7 | % | |||||||||||
| Selling expenses | 1,679,600 | 1,397,462 | 282,138 | 20.2 | % | |||||||||||
| General and administrative expenses | 3,716,590 | 2,814,120 | 902,470 | 32.1 | % | |||||||||||
| Research and development expenses | 2,968,572 | 3,337,056 | (368,484 | ) | (11.0 | )% | ||||||||||
| Total Operating Expenses | 8,364,762 | 7,548,638 | 816,124 | 10.8 | % | |||||||||||
| Income from operations | 7,654,669 | 8,358,348 | (703,679 | ) | (8.4 | )% | ||||||||||
| Interest income | 35,239 | 14,165 | 21,074 | 148.8 | % | |||||||||||
| Interest expenses | (322,641 | ) | (508,359 | ) | 185,718 | (36.5 | )% | |||||||||
| Loss on disposal of property and equipment | (695 | ) | (959 | ) | 264 | (27.5 | )% | |||||||||
| Other income | 1,418,580 | 830,515 | 588,065 | 70.8 | % | |||||||||||
| Income before income tax | 8,785,152 | 8,693,710 | 91,442 | 1.1 | % | |||||||||||
| Income tax | 1,392,735 | 1,844,619 | (451,884 | ) | (24.5 | )% | ||||||||||
| Net income | $ | 7,392,417 | $ | 6,849,091 | $ | 543,326 | 7.9 | % | ||||||||
7
Components of Results of Operations
For
the nine months ended | ||||||||
| Component of Results of Operations | 2022 | 2021 | ||||||
| Revenues | $ | 71,696,324 | $ | 75,899,994 | ||||
| Cost of Goods Sold | 55,676,893 | 59,993,008 | ||||||
| Gross Profit | 16,019,431 | 15,906,986 | ||||||
| Operating Expenses | 8,364,762 | 7,548,638 | ||||||
| Net Income | 7,392,417 | 6,849,091 | ||||||
Revenue
Greenland’s revenue was approximately $71.70 million for the nine months ended September 30, 2022, representing a decrease of approximately $4.20 million, or 5.5%, as compared to approximately $75.90 million for the nine months ended September 30, 2021. The decrease in revenue was primarily the result of a decrease in the Company’s sales volume resulting from COVID-19 related lockdowns in China for the nine months ended September 30, 2022. On an RMB basis, revenue for the nine months ended September 30, 2022 decreased by approximately 3.0%, as compared to the nine months ended September 30, 2021.
Cost of Goods Sold
Greenland’s cost of goods sold consists primarily of material costs, freight charges, purchasing and receiving costs, inspection costs, internal transfer costs, wages, employee compensation, amortization, depreciation and related costs, which are directly attributable to the Company’s manufacturing activities. The write down of inventory using the NRV impairment test is also recorded in cost of goods sold. The total cost of goods sold was approximately $55.68 million for the nine months ended September 30, 2022, representing a decrease by approximately $4.32 million, or 7.2%, as compared to approximately $60.00 million for the nine months ended September 30, 2021. Cost of goods sold decreased due to our decrease in sales volume.
Gross Profit
Greenland’s gross profit was approximately $16.02 million for the nine months ended September 30, 2022, representing an increase by approximately $0.11 million, or 0.7%, as compared to approximately $15.91 million for the nine months ended September 30, 2021. For the nine months ended September 30, 2022 and 2021, Greenland’s gross margins were approximately 22.3% and 21.0%, respectively. The increase in gross margin in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to a shift in Greenland’s product mix towards higher value and more sophisticated products, such as hydraulic transmission products.
Selling Expenses
Selling expenses mainly comprise of operating expenses (such as sales staff payroll), traveling expenses, and transportation expenses. Our selling expenses were approximately $1.68 million for the nine months ended September 30, 2022, representing an increase of approximately $0.28 million, or 20.2%, as compared to approximately $1.40 million for the nine months ended September 30, 2021. The increase was mainly due to an increase in the after-sales service fees and advertising and marketing fees.
General and Administrative Expenses
General and administrative expenses comprise of management and staff salaries, employee benefits, depreciation for office facility and office furniture and equipment, travel and entertainment expenses, legal and accounting fees, financial consulting fees, and other office expenses. General and administrative expenses were approximately $3.72 million for the nine months ended September 30, 2022, representing an increase by approximately $0.89 million, or 32.1%, as compared to approximately $2.81 million for the nine months ended September 30, 2021. The fundamental reasons for the rise in the general and administrative expenses were the following: (i) increased legal fees and consultancy fees on the Company’s business planning and projects for the nine months ended September 30, 2022 as the Company expanded its operations, compared to the nine months ended September 30, 2021; and (ii) an increase in staff salary.
8
Research and Development (R&D) Expenses
R&D expenses consist of R&D personnel compensation, costs of materials used in R&D projects, and depreciation costs for research-related equipment. R&D expenses were approximately $2.97 million for the nine months ended September 30, 2022, representing a decrease by approximately $0.37 million, or 11.0%, as compared to approximately $3.34 million for the nine months ended September 30, 2021. Such decrease was primarily attributable to a decrease in the Company’s R&D activities during the nine months ended September 30, 2022.
Income from Operations
Income from operations for the nine months ended September 30, 2022 was approximately $7.65 million, representing a decrease of approximately $0.71 million, as compared to approximately $8.36 million for the nine months ended September 30, 2021. Such decrease was primarily due to our decrease in sales volume.
Interest Income and Interest Expenses
Greenland’s interest income was approximately $0.04 million for the nine months ended September 30, 2022, representing an increase of approximately $0.03 million, or 148.8%, as compared to approximately $0.01 million for the nine months ended September 30, 2021. The increase in interest income was primarily due to the reason that more cash was deposited in banks during the nine months ended September 30, 2022.
Greenland’s interest expenses were approximately $0.32 million for the nine months ended September 30, 2022, representing a decrease of approximately $0.19 million, or 36.5%, as compared to approximately $0.51 million for the nine months ended September 30, 2021. The decrease was primarily due to a reduction of our short-term loans for the nine months ended September 30, 2022, compared to those for the nine months ended September 30, 2021.
Other Income
Greenland’s other income was approximately $1.42 million for the nine months ended September 30, 2022, representing an increase of approximately $0.59 million, or 70.8%, as compared to approximately $0.83 million for the nine months ended September 30, 2021. The increase was primarily due to an increase in grant income and an increase in industry research services offered by Zhongchai Holding for the nine months ended September 30, 2022, compared to those for the nine months ended September 30, 2021.
Income Taxes
Greenland’s income tax was approximately $1.39 million for the nine months ended September 30, 2022, as compared to approximately $1.84 million for the nine months ended September 30, 2021. Our income tax expense decreased due to a decrease in overall profit during the nine months ended September 30, 2022.
Net Income
Our net income was approximately $7.39 million for the nine months ended September 30, 2022, representing an increase of approximately $0.54 million, as compared to approximately $6.85 million for the nine months ended September 30, 2021.
Liquidity and Capital Resources
Greenland is a holding company incorporated in the British Virgin Islands. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends.
9
We have funded working capital and other capital requirements primarily by equity contributions, cash flow from operations, short-term bank loans and bank acceptance notes, and long-term bank loans. Cash is required primarily to purchase raw materials, repay debts and pay salaries, office expenses, income taxes and other operating expenses.
For the nine months ended September 30, 2022, our PRC subsidiary, Zhejiang Zhongchai, has paid off approximately $9.92 million in bank loans, approximately $1.91 million in related parties loans, and maintained $15.03 million cash on hand. We plan to maintain the current debt structure and rely on governmentally supported loans with lower costs, if necessary.
The government subsidy mainly consists of an incentive granted by the Chinese government to encourage transformation of fixed assets in China and other miscellaneous subsidy from the Chinese government. Government subsidies are recognized when there is reasonable assurance that the subsidy will be received and all conditions be completed. Total government subsidies recorded under long-term liabilities were $1.83 million and $2.21 million as of September 30, 2022 and December 31, 2021, respectively.
The Company currently plans to fund its operations mainly through cash flow from its operations, renewal of bank borrowings, additional equity financing, and continuation of financial support from its shareholders and affiliates controlled by the Company’s principal shareholders, if necessary. The Company might implement a stricter policy on sales to less creditworthy customers and plans to continue to improve its collection efforts on accounts with outstanding balances. The Company is actively working with customers and suppliers and expects to fully collect the remaining balances.
We believe that the Company has sufficient cash, even with uncertainty in the Company’s manufacturing and sale of electric industrial vehicles in the future and decline on sale of transmission products. However, with our capital contribution from existing funding sources, we believe that we have sufficient cash to allow us to operate for the next 12 months. We remain confident and are expected to generate positive cash flow from our operations.
We may need additional cash resources in the future, if the Company experiences failure in collecting account receivables, changes in business condition, changes in financial condition, or other developments. We may also need additional cash resources, if the Company wishes to pursue opportunities for investment, acquisition, strategic cooperation, or other similar actions. If the Company’s management and its board of directors determine that the cash required for specific corporate activities exceed Greenland’s cash and cash equivalents on hand, the Company may issue debt or equity securities to raise cash.
10
Historically, we have expended considerable resources on building a new factory and paid off a considerable amount of debt, resulting in less available cash. However, we anticipate that our cash flow will continue to improve for the fiscal year 2022. In specific, Zhejiang Zhongchai has completed the construction of a new factory, and our PRC subsidiaries have received COVID-19 related government subsidies. Furthermore, Zhejiang Zhongchai pledged the deed of its new factory as a collateral to banks in order to obtain additional loans, refinance expiring loans, restructure short-term loans, and fund other working capital needs upon acceptable terms to Greenland.
Cash and Cash Equivalents
Cash equivalents refers to all highly liquid investments purchased with original maturity of three months or less. As of September 30, 2022, Greenland had approximately $11.31 million of cash and cash equivalents, representing an increase of approximately $0.25 million, or 2.21%, as compared to that of approximately $11.06 million as of December 31, 2021. The increase of cash was mainly attributable to proceeds from equity and debt financing, as compared to that as of December 31, 2021.
Restricted Cash
Restricted cash represents the amount held by a bank as security for bank acceptance notes and therefore is not available for use until the bank acceptance notes are fulfilled or expired, which typically takes less than twelve months. As of September 30, 2022, Greenland had approximately $3.72 million of restricted cash, representing a decrease of approximately $3.02 million, or 44.78%, as compared to that of approximately $6.74 million as of December 31, 2021. The decrease of restricted cash was due to the decrease of mortgaged assets.
Accounts Receivable
As of September 30, 2022, Greenland had approximately $18.34 million of accounts receivables, representing an increase of approximately $2.43 million, or 15.26%, as compared to approximately $15.92 million as of December 31, 2021. The increase in accounts receivable was due to our slowed-down effort in receivables collection due to the COVID-19 pandemic.
Greenland recorded approximately $0.77 million of provision for doubtful accounts as of September 30, 2022. Greenland conducted an aging analysis of each customer’s delinquent payments to determine whether allowance for doubtful accounts is adequate. In establishing the allowance for doubtful accounts, Greenland considers historical experience, economic environment, and expected collectability of past due receivables. An estimate of doubtful accounts is recorded when collection of the full amount is no longer probable. When bad debts are identified, such debts are written off against the allowance for doubtful accounts. Greenland will continuously assess its potential losses based on the credit history of and relationships with its customers on a regular basis to determine whether its bad debt allowance on its accounts receivables is adequate. Greenland believes that its collection policies are generally in line with the transmissions industry’s standard in the PRC.
Due from Related Party
Due from related party was $35.46 million and $39.68 million as of September 30, 2022 and December 31, 2021, respectively. The balance of due from related parties as of September 30, 2022 and December 31, 2021 consisted primarily of other receivables from Cenntro Holding Limited in the amount of $35.35 million and $39.46 million as of September 30, 2022 and December 31, 2021, respectively. We expect the amount due from our controlling shareholder, Cenntro Holding Limited, to be paid back based on certain payment schedules, with the last payment to be made by June 30, 2024, as the Company and Cenntro Holding Limited mutually agreed to an extension of repayment deadline from April 27, 2022.
However, there is no guarantee that such amount will be repaid in whole or in part before the end of June 2024, if at all. Such failure to pay back by Cenntro Holding Limited could have a material negative impact on our balance sheet.
11
Notes Receivable
As of September 30, 2022, Greenland had approximately $31.61 million of notes receivables, which will be collected by us within six months. The decrease of our notes receivables was approximately $5.94 million, or 15.83%, from that of approximately $37.55 million as of December 31, 2021.
Working Capital
Our working capital was approximately $65.08 million as of September 30, 2022, as compared to that of $53.84 million as of December 31, 2021, representing an increase of $11.24 million during the nine months ended September 30, 2022.
Cash Flow
For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (6,121,235 | ) | $ | (5,864,423 | ) | ||
| Net cash provided by (used in) investing activities | $ | 356,085 | $ | (685,761 | ) | |||
| Net cash provided by financing activities | $ | 3,961,098 | $ | 12,669,108 | ||||
| Net increase in cash and cash equivalents and restricted cash | $ | (1,804,052 | ) | $ | 6,118,924 | |||
| Effect of exchange rate changes on cash and cash equivalents | $ | (969,309 | ) | $ | 134,379 | |||
| Cash and cash equivalents and restricted cash at beginning of year | $ | 17,800,892 | $ | 9,403,053 | ||||
| Cash and cash equivalents and restricted cash at end of year | $ | 15,027,531 | $ | 15,656,356 | ||||
Operating Activities
Greenland’s net cash used in operating activities were approximately $(6.12) million and $(5.86) million for the nine months ended September 30, 2022 and 2021, respectively.
For the nine months ended September 30, 2022, the main sources of cash inflow from operating activities were net income, change in notes receivable, and depreciation and amortization, with each amounted to approximately $7.39 million, $2.18 million and $1.85 million, respectively. The main causes of cash outflow were changes in other current and noncurrent assets and accounts receivables, representing decreases of approximately $11.40 million and $4.39 million, respectively.
For the nine months ended September 30, 2021, the main sources of cash inflow from operating activities were net income, change in accounts payable, and depreciation and amortization, with each amounted to approximately $6.85 million, $5.98 million and $1.87 million, respectively. The main causes of cash outflow were changes in notes receivable and accounts receivables, representing increases of approximately $5.81 million and $8.72 million, respectively.
Investing Activities
Net cash provided by investing activities resulted in cash inflow of approximately $0.36 million for the nine months ended September 30, 2022. Cash provided by investing activities for the nine months ended September 30, 2022 was mainly due to $0.72 million in proceeds from government grants for construction, offset by approximately $0.36 million used for purchases of long-term assets.
12
Net cash used in investing activities resulted a cash outflow of approximately $0.69 million for the nine months ended September 30, 2021. Cash used in investing activities for the nine months ended September 30, 2021 was mainly due to $0.85 million used for purchases of long-term assets, offset by approximately $0.17 million in proceeds from government grants for construction.
Financing Activities
Net cash provided by financing activities resulted a cash inflow of approximately $3.96 million for the nine months ended September 30, 2022, which was mainly attributable to approximately $10.85 million in proceeds from short-term bank loans and approximately $9.20 million in proceeds from equity and debt financing. Such amounts were further offset by repayment of short-term bank loans of approximately $9.92 million and repayment of notes payable of approximately $4.28 million.
Net cash provided by financing activities resulted a cash inflow of approximately $12.67 million for the nine months ended September 30, 2021, which was mainly attributable to approximately $8.21 million in proceeds from equity and debt financing and approximately $16.35 million in proceeds from notes payable. Such amounts were further offset by repayment of short-term bank loans of approximately $18.65 million, and repayment of loans from related parties of approximately $1.75 million.
Credit Risk
Credit risk is one of the most significant risks for Greenland’s business. Accounts receivable are typically unsecured and derived from revenues earned from customers, thereby exposing Greenland to credit risk. Credit risk is controlled by the application of credit approvals, limits, and monitoring procedures. Greenland identifies credit risk collectively based on industry, geography, and customer type. This information is monitored regularly by the Company’s management. In measuring the credit risk of sales to customers, Greenland mainly reflects the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the exposures to the customer and its future development.
Liquidity Risk
Greenland is exposed to liquidity risk when it is unable to provide sufficient capital resources and liquidity to meet its commitments and/or business needs. Liquidity risk is managed by the application of financial position analysis to test if Greenland is in danger of liquidity issues and also by application of monitoring procedures to constantly monitor its conditions and movements. When necessary, Greenland resorts to other financial institutions to obtain additional short-term funding to meet the liquidity shortage.
Inflation Risk
Greenland is also exposed to inflation risk. Inflationary factors, such as increases in raw material and overhead costs, could impair Greenland’s operating results. Although Greenland does not believe that inflation has had a material impact on its financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on its ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenues if the selling prices of its products do not increase with such increased costs.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP. In applying accounting principles, it is often required to use estimates. These estimates consider the facts, circumstances and information available, and may be based on subjective inputs, assumptions and information known and unknown to us. Material changes in certain of the estimates that we use could potentially affect, by a material amount, our consolidated financial position and results of operations. Although results may vary, we believe our estimates are reasonable and appropriate. See Note 2 to our consolidated financial statements included under “Item 1 - Financial Statements” for a summary of our significant accounting policies. The following describes certain of our significant accounting policies that involve more subjective and complex judgments where the effect on our consolidated financial position and operating performance could be material.
13
Revenue Recognition
In accordance with ASC Topic 606, “Revenue from Contracts with Customers”, the Company recognizes revenues when goods or services are transferred to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. In determining when and how revenues are recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenues when (or as) the Company satisfies each performance obligation. The Company derives revenues from the processing, distribution and sale of its products. The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which had been levied at the rate of 17% on the invoiced value of sales until April 30, 2018, after which date the rate was reduced to 16%. VAT rate was further reduced to 13% starting from April 1, 2019. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.
Revenues are recognized at a point in time once the Company has determined that the customer has obtained control over the product. Control is typically deemed to have been transferred to the customer when the performance obligation is fulfilled, usually at the time of customers’ acceptance or consumption, at the net sales price (transaction price) and each of the criteria under ASC 606 have been met. Contract terms may require the Company to deliver the finished goods to the customers’ location or the customer may pick up the finished goods at the Company’s factory. International sales are recognized when shipment clears customs and leaves the port.
The Company has adopted ASC 606 on January 1, 2018, using the transition method of Modified-Retrospective Method (“MRM”). The adoption of ASC 606 had no impact on the Company’s beginning balance of retained earnings.
The Company’s contracts are all short-term in nature with a contract term of one year or less. Receivables are recorded when the Company has an unconditional right to consideration.
Business Combination
On October 24, 2019, we consummated the Business Combination with Zhongchai Holding following a special meeting of the shareholders in which the shareholders of Greenland considered and approved, among other matters, a proposal to adopt an share exchange agreement (the “Share Exchange Agreement”), dated as of July 12, 2019 by and among (i) Greenland, (ii) Zhongchai Holding, (iii) the Sponsor in the capacity as the purchaser representative, and (iv) Cenntro Holding Limited, the sole member of Zhongchai Holding.
Pursuant to the Share Exchange Agreement, Greenland acquired from Cenntro Holding Limited all of the issued and outstanding equity interests of Zhongchai Holding in exchange for the issuance of 7,500,000 ordinary shares, no par value of Greenland, to Cenntro Holding Limited (the “Exchange Shares”). As a result, Cenntro Holding Limited became the controlling shareholder of Greenland, and Zhongchai Holding became a directly and wholly owned subsidiary of Greenland. The Business Combination was accounted for as a reverse merger effected by a share exchange, wherein Zhongchai Holding is considered the acquirer for accounting and financial reporting purposes.
Pursuant to that certain finder agreement with Hanyi Zhou dated May 29, 2019, 50,000 newly issued ordinary shares were issued to Hanyi Zhou as a finder’s fee for the Business Combination.
Inventories
Inventories are stated at the lower of cost or net realizable value, which is based on estimated selling prices less any further costs expected to be incurred for completion and disposal. Cost of raw materials is calculated using the weighted average method and is based on purchase cost. Work-in-progress and finished goods costs are determined using the weighted average method and comprise direct materials, direct labor and an appropriate proportion of overhead.
14
Income Taxes
The Company accounts for income taxes following the liability method pursuant to Financial Accounting Standards Board (“FASB”) ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date.
The Company also follows FASB ASC 740, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2022, the Company did not have any liability for unrecognized tax benefits. It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. The Company’s historical tax years will remain open for examination by the local authorities until the statute of limitations has passed.
Emerging Growth Company
Pursuant to the Jumpstart Our Business Startups Act (the “JOBS Act”), an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to continue to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies. We also intend to continue to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
Off Balance Sheet Arrangements
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is not required to provide the information required by this Item as it is a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
15
Evaluation of Disclosure Controls and Procedures
As of September 30, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon such evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were ineffective. Such conclusion is based on the presence of the following material weakness in internal control over financial reporting as of September 30, 2022:
Accounting and Financial Reporting Personnel Material Weakness - As noted in Item 9A of our annual report on Form 10-K for the preceding fiscal year, management concluded that in light of a lack of sufficient and competent financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to prepare consolidated financial statements and related disclosures in accordance with U.S. GAAP and SEC reporting requirements, we did not maintain effective controls and did not implement adequate and proper supervisory review to ensure that significant internal control deficiencies can be detected or prevented.
As a result, the Company has developed a remedial plan to strengthen its accounting and financial reporting functions. To strengthen the Company’s internal control over financial reporting, the Company is currently implementing the following remedial actions:
| ● | Developing and formalizing key accounting and financial reporting policies and procedures; |
| ● | Recruiting more financial reporting and accounting personnel who have adequate U.S. GAAP knowledge; |
| ● | Training key position staff by U.S. accountant with U.S. corporate accounting experiences, and gaining additional knowledge and professional skills about SEC regulations and U.S. GAAP; |
| ● | Planning to acquire additional resources to strengthen the financial reporting function and set up a financial and system control framework; and |
| ● | Establishing effective oversight and clarifying reporting requirements for non-recurring and complex transactions to ensure consolidated financial statements and related disclosures are accurate, complete and in compliance with U.S. GAAP and SEC reporting requirements. |
Inherent limitation on the effectiveness of internal control
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
Notwithstanding the material weakness in our internal control over financial reporting, the consolidated unaudited financial statements included in this Quarter Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this quarterly report on Form 10-Q, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
ITEM 1A. RISK FACTORS.
Summary of Risk Factors
An investment in our ordinary shares is subject to a number of risks, including risks related to our business and industry, risks related to our corporate structure, risks related to doing business in China and risks related to our ordinary shares. You should carefully consider all of the information in this report before making an investment in the ordinary shares. The following list summarizes some, but not all, of these risks. Please read the information in this section for a more thorough description of these and other risks.
Risks Related to our Business and Industry
For more detailed discussions of the following risks, see “Risk Factors—Risks Related to our Business and Industry” on pages 20 through 25.
| ● | Our subsidiaries’ business operations are cash intensive, and our subsidiaries’ business could be adversely affected if we fail to maintain sufficient levels of liquidity and working capital; |
| ● | We grant relatively long payment terms for accounts receivable which can adversely affect our cash flow; |
| ● | Our subsidiaries face short lead-times for delivery of products to customers. Failure to meet delivery deadlines could result in the loss of customers and damage to our reputation and goodwill; |
| ● | Our subsidiaries face intense competition, and if our subsidiaries are unable to compete effectively, we may not be able to maintain profitability; |
| ● | Our revenues are highly dependent on a limited number of customers and the loss of any one of our subsidiaries’ major customers could materially and adversely affect our growth and revenues; |
| ● | As our subsidiaries expand their operations, they may need to establish a more diverse supplier network for raw materials. The failure to secure a more diverse supplier network could have an adverse effect on our financial condition; |
| ● | To remain competitive, our subsidiaries have introduced new lines of business, including the production and sale of electric industrial vehicles. If these efforts are not successful, our results of operations may be materially and adversely affected; |
| ● | New lines of business, including the production and sale of electric industrial vehicles, may subject us and our subsidiaries to additional risks; |
| ● | Volatile steel prices can cause significant fluctuations in our operating results. Our revenues and operating income could decrease if steel prices increase or if our subsidiaries are unable to pass price increases on to their customers; and |
| ● | We are subject to various risks and uncertainties that may affect our subsidiaries’ ability to procure raw materials. |
17
Risks Related to Doing Business in China
For more detailed discussions of the following risks, see “Risk Factors—Risks Related to Doing Business in China” on pages 26 through 35.
| ● | Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations; |
| ● | Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer our securities, result in a material adverse change to our subsidiaries’ business operations, and damage our reputation, which could materially and adversely affect our financial condition and results of operations and cause our securities to significantly decline in value or become worthless. See “Risk Factors—Risks Related to Doing Business in China—The PRC government exerts substantial influence over the manner in which our PRC subsidiaries must conduct their business activities. If the Chinese government significantly regulates the business operations of our PRC subsidiaries in the future and our PRC subsidiaries are not able to substantially comply with such regulations, our business operations may be materially adversely affected and the value of our ordinary shares may significantly decrease” and “Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us and our PRC subsidiaries”; |
| ● | The Chinese government may intervene or influence our subsidiaries’ operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless. See “Risk Factors—Risks Related to Doing Business in China—The PRC government exerts substantial influence over the manner in which our PRC subsidiaries must conduct their business activities. If the Chinese government significantly regulates the business operations of our PRC subsidiaries in the future and our PRC subsidiaries are not able to substantially comply with such regulations, our business operations may be materially adversely affected and the value of our ordinary shares may significantly decrease”; | |
| ● | The approval of the China Securities Regulatory Commission (“CSRC”) or other PRC governmental authorities may be required, along with compliance with any other applicable PRC rules, policies and regulations, in connection with any future offering of our securities, and, if required, we cannot predict whether or how soon we and/or our PRC subsidiaries will be able to obtain such approval or comply with such requirements. Any failure to obtain, or delay in obtaining, any requisite PRC governmental approval or complying with any other applicable PRC requirements for an offering, or a rescission of such approval, may subject us to sanctions imposed by the relevant PRC regulatory authority. In addition, if we and/or our PRC subsidiaries do not receive or maintain the approvals, or we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change such that we and/or our PRC subsidiaries are required to obtain approval in the future, we may be subject to an investigation by competent regulators, fines or penalties, or an order prohibiting us from conducting an offering, and these risks could result in a material adverse change in our operations and the value of our ordinary shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. See “Risk Factors—Risks Related to Doing Business in China—We believe that we and our PRC subsidiaries are not currently required to obtain the approval and/or comply with other requirements of the CSRC, the Cyberspace Administration of China, or other PRC governmental authorities under PRC rules, regulations or policies in connection with an offering of our securities outside of the PRC, including on a U.S. exchange. However, in the event that any such approval is required or that there are other requirements we and/or our PRC subsidiaries are obligated to comply with, we cannot predict whether or how soon we and/or our PRC subsidiaries will be able to obtain such approvals and/or comply with such requirements.” and “Risk Factors—Risks Related to Doing Business in China—Our PRC subsidiaries may be liable for improper use or appropriation of personal information provided by their customers and any failure to comply with PRC laws and regulations over data security could result in materially adverse impact on our business, results of operations, and our continued listing on Nasdaq”; |
18
| ● | Our PRC subsidiaries may be liable for improper use or appropriation of personal information provided by their customers and any failure to comply with PRC laws and regulations over data security could result in materially adverse impact on our business, results of operations, and our continued listing on Nasdaq; |
| ● | You may have difficulty enforcing judgments against us; |
| ● | Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders; |
| ● | PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from our future financing activities to make loans or additional capital contributions to our PRC subsidiaries; |
| ● | We may rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct business; |
| ● | Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment; | |
| ● | U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China; and |
| ● | Our securities may be delisted and prohibited from being traded under the Holding Foreign Companies Accountable Act, or HFCA Act, if the Public Company Accounting Oversight Board, or PCAOB, is unable to inspect our auditor in the future. Any future delisting and cessation of trading of our securities, or the threat of their being delisted and prohibited from being traded, may materially and adversely affect the value of your investment. Additionally, any inability of the PCAOB to conduct inspections of our auditor in the future would deprive our investors of the benefits of such inspections. See “Risk Factors—Risks Related to Doing Business in China—A recent joint statement by the SEC and the PCAOB, proposed rule changes submitted by Nasdaq, and the HFCA Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.” |
Risks Related to Our Ordinary Shares
For more detailed discussions of the following risks, see “Risk Factors—Risks Related to Our Ordinary Shares” on pages 36 through 37.
| ● | Future sales of our ordinary shares, whether by us or our shareholders, could cause the price of our ordinary shares to decline; and |
| ● | Because we do not expect to pay dividends in the foreseeable future, you must rely on the price appreciation of our ordinary shares for return on your investment. |
19
Risks Related to our Business and Industry
Our subsidiaries’ business operations are cash intensive, and our subsidiaries’ business could be adversely affected if we fail to maintain sufficient levels of liquidity and working capital.
As of September 30, 2022, we had approximately $11.31 million of cash and cash equivalents. Historically, we have spent a significant amount of cash on our operational activities, principally to procure raw materials for our subsidiaries’ products. Our short-term loans are from Chinese banks and are generally secured by a portion of our fixed assets, land use rights and/or guarantees by related parties. Certain of these loans are secured against a portion of the shares of our PRC subsidiaries. The term of a majority of such loans is one year. Historically, we rolled over such loans on an annual basis. However, we may not have sufficient funds available to pay all of our borrowings upon maturity in the future. Failure to roll over our short-term borrowings at maturity or to service our debt could result in a transfer of the ownership of a portion of the shares of our PRC subsidiaries to secured lenders, the imposition of penalties, including increases in interest rates, legal actions against us by our creditors, and even insolvency.
Although we have been able to maintain adequate working capital primarily through cash from operations and short-term and long-term borrowings, any failure by our customers to settle outstanding accounts receivable, or our inability to borrow sufficient capital from local banks in the future could materially and adversely affect our cash flow, financial condition and results of operations.
We grant relatively long payment terms for accounts receivable which can adversely affect our cash flow.
As is customary in China, for competitive reasons, we grant relatively long payment terms to most of our subsidiaries’ customers. The reserves we establish for our receivables may not be adequate based on the current bad debts. We are subject to the risk that we may be unable to collect accounts receivable in a timely manner. If the accounts receivable cannot be collected in time, or at all, a significant amount of bad debt expense will occur, and our business, financial condition and results of operation will likely be materially and adversely affected.
Our subsidiaries face short lead-times for delivery of products to customers. Failure to meet delivery deadlines could result in the loss of customers and damage to our reputation and goodwill.
Most of our subsidiaries’ customers are large manufacturers, who generally place large orders for our products and require prompt delivery. Our subsidiaries’ 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 subsidiaries’ suppliers. Our subsidiaries’ suppliers may lack sufficient capacity at any given time to meet all of the demands from subsidiaries’ customers if orders exceed their production capacity. Our subsidiaries strive for rapid response to customer demands, which can lead to reduced purchasing efficiency, increased procurement costs and low profit margins. If our subsidiaries are unable to meet the customer demands, they may lose customers. Moreover, failure to meet customer demands may damage our reputation and goodwill.
Our subsidiaries face intense competition, and, if our subsidiaries are unable to compete effectively, we may not be able to maintain profitability.
Our subsidiaries compete with many other companies located in the PRC and internationally that manufacture similar products. Many of our subsidiaries’ 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 our subsidiaries and their competitors relating to such activities as competitive sales practices, relationships with key suppliers and customers or other matters.
20
It is likely that our subsidiaries’ competitors will seek to develop similar competing products in the near future. Some of our subsidiaries’ competitors may have more resources than our subsidiaries do, operate in greater scale, be more capitalized than our subsidiaries 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 subsidiaries’ products. If our subsidiaries 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 subsidiaries’ major customers could materially and adversely affect our growth and revenues.
During the nine months ended September 30, 2021 and 2022, our subsidiaries’ five largest customers contributed 50.78% and 48.10% of our revenues, respectively. As a result of our subsidiaries’ reliance on a limited number of customers, our subsidiaries 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 our subsidiaries 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 our subsidiaries provide to any customer that may not be predictable. For example, our subsidiaries’ customers may decide to reduce spending on our subsidiaries’ products or a customer may no longer need our products following the completion of a project. The loss of any one of our subsidiaries’ major customers, a decrease in the volume of sales to our subsidiaries’ customers or a decrease in the price at which our subsidiaries sell their products to customers could materially adversely affected our profits and revenues.
In addition, this customer concentration may subject our subsidiaries to perceived or actual leverage that our subsidiaries’ customers may have in negotiations, given their relative size and importance to our subsidiaries. If our subsidiaries’ customers seek to negotiate their agreements on terms less favorable to our subsidiaries and our subsidiaries accept such terms, such unfavorable terms may have a material adverse effect on our subsidiaries’ business and our financial condition and results of operations. Accordingly, unless and until our subsidiaries diversify and expand their customer base, our future success will significantly depend upon the timing and volume of business from our subsidiaries’ largest customers and the financial and operational success of these customers.
As our subsidiaries expand their operations, they may need to establish a more diverse supplier network for raw materials. The failure to secure a more diverse supplier network could have an adverse effect on our financial condition.
In the event that our subsidiaries need to diversify their supplier network, our subsidiaries 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 subsidiaries’ efforts to control their supply of raw materials and maintain good relationships with their existing suppliers, our subsidiaries could lose one or more of their existing suppliers at any time. The loss of one or more key suppliers could increase our subsidiaries’ 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 subsidiaries’ raw materials supply could materially disrupt our production and adversely affect our business, financial condition and financial prospects.
To remain competitive, our subsidiaries have introduced new lines of business, including the production and sale of electric industrial vehicles. If these efforts are not successful, our results of operations may be materially and adversely affected.
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, through HEVI, 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. HEVI’s electric industrial vehicle products currently include GEF-series electric forklifts, a series of lithium powered forklifts with three models ranging in size from 1.8 tons to 3.5 tons, GEL-1800, a 1.8 ton rated load lithium powered electric wheeled front loader, and GEX-8000, an all-electric 8.0 ton rated load lithium powered wheeled excavator. These products have become available for purchase in the U.S. market. In July 2022, HEVI launched its new GEL-5000 all-electric 5.0 ton rated load lithium wheeled front loader. In August 2022, HEVI launched a 54,000 square foot industrial electric vehicle assembly site in Baltimore, Maryland to support local services, assembly and distribution of its electric industrial heavy equipment product line. The Company plans to establish an experience center within the Mid-Atlantic region in 2023 to promote local sales and marketing.
There are risks in connection with this new line of business. HEVI may experience difficulties in the development and launch of our electric industrial vehicles, and HEVI’s 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 an extended period of time. During such period, our revenue may be very limited and we may continue to experience material and adverse effects to our results of operations, financial condition and business prospects.
21
New lines of business, including the production and sale of electric industrial vehicles, may subject us and our subsidiaries to additional risks.
From time to time, we may implement new lines of business or offer new products within our subsidiaries’ existing lines of business. Currently, we plan to offer additional models of electric industrial vehicles through HEVI. As such, we face significant challenges, uncertainties and risks, including, among others, with respect to our subsidiaries’ 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 subsidiaries’ business and our results of operations and prospects. For example, HEVI may experience difficulties in developing and launching additional models of electric industrial vehicles, or may not be able to develop them at reasonable costs. Due to HEVI’s limited experience with electric industrial vehicles, HEVI also face challenges and uncertainties relating to the possibility of success of this new business.
As our subsidiaries enter into new business sectors, our subsidiaries are also subject to competition from such industries. There can be no assurance that our subsidiaries will be able to compete effectively with respect to their new businesses. If our subsidiaries fail to establish their strengths or maintain their 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 our subsidiaries are unable to pass price increases on to their customers.
Our subsidiaries’ 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 subsidiaries’ 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.
22
Our subsidiaries’ 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, our subsidiaries’ suppliers 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 our subsidiaries and how much our subsidiaries can pass on to their customers. To the extent our subsidiaries are unable to pass on future price increases in raw materials to their customers, the revenues and profitability of our business could be adversely affected.
We are subject to various risks and uncertainties that might affect our subsidiaries’ ability to procure raw materials.
Our performance depends upon our subsidiaries’ ability to procure low cost, high quality raw materials on a timely basis from their suppliers. Our subsidiaries’ 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 subsidiaries’ 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 subsidiaries’ quality control standards, and our subsidiaries might not identify the deficiency. Any failure by our subsidiaries’ suppliers 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.
Our subsidiaries may lose our competitive advantage, and their operations may suffer, if they fail to prevent the loss or misappropriation of, or disputes over, their intellectual property.
Our subsidiaries rely on a combination of patents, trademarks, trade secrets and confidentiality agreements to protect their intellectual property rights. While our subsidiaries are not currently aware of any infringement on their intellectual property rights, our subsidiaries’ ability to compete successfully and to achieve future revenue growth will depend, in significant part, on their ability to protect their 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 subsidiaries’ transmission technology is protected through a combination of patents, trade secrets, confidentiality agreements and other methods. However, our subsidiaries’ competitors may independently develop similar proprietary methodologies or duplicate our products, or develop alternatives, which could have a material adverse effect on our subsidiaries’ business and our results of operations and financial condition. The misappropriation or duplication of our subsidiaries’ intellectual property could disrupt their ongoing business, distract our management and employees, reduce our revenues and increase our expenses. Our subsidiaries may need to litigate to enforce their intellectual property rights. Any such litigation could be time consuming and costly and the outcome of any such litigation cannot be guaranteed.
Our PRC subsidiaries have limited insurance coverage for their operations in China and may incur losses resulting from product liability claims, business interruption or natural disasters.
HEVI, our subsidiary in the U.S., maintains commercial general liability insurance for its business operations. However, our PRC subsidiaries have limited insurance coverage for their operations in China, and our PRC subsidiaries are therefore exposed to risks associated with product liability claims against our PRC subsidiaries or otherwise against their operations in the PRC in the event that the use of our PRC subsidiaries’ products results in property damage or personal injury. Since our subsidiaries’ transmission products are ultimately incorporated into forklifts, it is possible that users of forklifts or people installing these 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 our PRC subsidiaries in the future or to predict the impact of any resulting adverse publicity on our PRC subsidiaries’ business. The successful assertion of product liability claims against our PRC subsidiaries could result in potentially significant monetary damages and require us to make significant payments. Our subsidiaries 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, our subsidiaries do not currently, and may not in the future, maintain business interruption insurance coverage. As such, our subsidiaries may suffer losses that result from interruptions in their operations as a result of inability to operate or failures of equipment and infrastructure at our subsidiaries’ facilities. Our subsidiaries 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 subsidiaries’ resources to address the effects of such an occurrence, which could materially and adversely affect our subsidiaries’ business and our financial condition and results of operations.
23
Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
Our PRC subsidiaries 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 their employees up to a maximum amount specified by the local government from time to time at locations where our PRC subsidiaries operate their businesses. Our PRC subsidiaries have not made adequate employee benefit payments to the social security insurance and the housing fund. As a result, they may be required to make up the contributions for these plans within a stipulated period of time. In addition, our PRC subsidiaries 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 our PRC subsidiaries fail to make up the contributions and may be imposed fines up to three times of such shortage if our PRC subsidiaries 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 our PRC subsidiaries with respect such employee benefits payments is approximately US$200,000. If our PRC subsidiaries 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, our PRC subsidiaries have not been ordered to pay outstanding contributions or related penalties.
If labor costs in the PRC increase substantially, our PRC subsidiaries’ business and our 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 an employer is 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 subsidiaries’ 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 September 30, 2022, we were owed $35.35 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 be paid 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 pandemic had a limited impact on our financial condition and results of operations in the fiscal year ended December 31, 2021. For the nine months ended September 30, 2022, we experienced rising raw material costs, and we expect raw material costs to continue increasing in the foreseeable future due to the COVID-19 pandemic. Additionally, local outbreaks of COVID-19 infections continued to emerge in additional regions in China since 2022, and it is difficult to predict how these local outbreaks and relevant remedial measures and lockdown policies may affect our business operations for the rest of 2022.
24
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 subsidiaries’ business and our 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 and our subsidiaries’ employees is intense, and we and our subsidiaries may not be able to attract and retain the highly skilled employees needed to support our subsidiaries’ business.
As we continue to experience growth, our future success depends on our and our subsidiaries’ 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 and our subsidiaries 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 and our subsidiaries compete for experienced employees have greater resources than we and our subsidiaries have and may be able to offer more attractive terms of employment.
In addition, we and our subsidiaries invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we and our subsidiaries fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our products could decrease, 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, 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.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing invasion of Ukraine by Russia.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and Russia’s launch of a full-scale military invasion of Ukraine in February 2022. Although the length and impact of the ongoing military conflict is highly unpredictable, the war in Ukraine has led to market disruptions, including significant volatility in commodity prices, credit, and capital markets. In addition, as a result of the ongoing conflict between Russia and Ukraine, we may experience other risks, difficulties and challenges in the way we conduct our business and operations generally. For example, the conflict could adversely affect supply chains and impact our ability to control raw material costs. A protracted conflict between Ukraine and Russia, any escalation of that conflict, and the wider global economy and market conditions could, in turn, have a material adverse impact on our business, financial condition, cash flows and results of operations and could cause the market value of our ordinary shares to decline.
High inflation rates may adversely affect us by increasing costs beyond what we can recover through price increases and limit our ability to enter into future traditional debt financing.
Inflation can adversely affect us by increasing costs of critical materials, equipment, labor, and other services. In addition, inflation is often accompanied by higher interest rates. Continued inflationary pressures could impact our profitability. Inflation may also affect our ability to enter into future traditional debt financing, as high inflation may result in an increase in cost.
25
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.
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 subsidiaries’ products and adversely affect our subsidiaries’ 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 and our subsidiaries. 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 and our PRC subsidiaries.
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 and/or our PRC subsidiaries’ judgment on the relevance of legal requirements and our/our PRC subsidiaries’ ability to enforce our/their 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 and our PRC subsidiaries.
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 and/or our PRC subsidiaries may not be aware of our/their 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 and our PRC subsidiaries 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 the industry our PRC subsidiaries operate. We and our PRC subsidiaries 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.
26
The PRC government exerts substantial influence over the manner in which our PRC subsidiaries must conduct their business activities. If the Chinese government significantly regulates the business operations of our PRC subsidiaries in the future and our PRC subsidiaries are not able to substantially comply with such regulations, 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 our PRC subsidiaries have been doing their 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 PRC subsidiaries’ business and our 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 PRC subsidiaries’ 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 our PRC subsidiaries operate may impose new, stricter regulations or interpretations of existing regulations with little advance notice that would require additional expenditures and efforts on their part to ensure our subsidiaries’ 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 subsidiaries 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 and our PRC subsidiaries are not currently required to obtain the approval and/or comply with other requirements of the CSRC, the Cyberspace Administration of China, or other PRC governmental authorities under PRC rules, regulations or policies in connection with an offering of our securities outside of the PRC, including on a U.S. exchange. However, in the event that any such approval is required or that there are other requirements we and/or our PRC subsidiaries are obligated to comply with, we cannot predict whether or how soon we and/or our PRC subsidiaries will be able to obtain such approvals and/or comply with such requirements.
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 “—Our PRC subsidiaries may be liable for improper use or appropriation of personal information provided by their customers and any failure to comply with PRC laws and regulations over data security could result in materially adverse impact on our business, results of operations, and our continued listing on Nasdaq.”
27
As of the date of this report, we believe we and our PRC subsidiaries are not required to obtain any permission from PRC authorities (including the CSRC and the Cyberspace Administration of China, or the CAC) to operate our PRC subsidiaries’ business as presently conducted or to issue our securities to investors outside of the PRC. Therefore, as of the date of this report, we and our PRC subsidiaries 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 and/or our PRC subsidiaries 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 and/or our PRC subsidiaries 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/or our PRC subsidiaries, and other forms of sanctions, and could restrict our PRC subsidiaries’ ability to conduct their business, invest in China through our non-Chinese subsidiaries as foreign investments, accept foreign investments, 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, it is uncertain when the abovementioned regulations 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.
28
Our PRC subsidiaries may be liable for improper use or appropriation of personal information provided by their customers and any failure to comply with PRC laws and regulations over data security could result in materially adverse impact on our business, results of operations, and our continued listing on Nasdaq.
Our PRC subsidiaries’ business involves collecting and retaining certain internal and customer data. Our PRC subsidiaries also maintain information about various aspects of their operations. The integrity and protection of customer and company data is critical to our business. Our subsidiaries’ customers expect that our subsidiaries will adequately protect their personal information. Our PRC subsidiaries are required by applicable laws to keep strictly confidential the personal information that they 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 the 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 propose 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’ 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. |
29
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 a 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. 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, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us and/or our PRC subsidiaries, which may have material adverse effect on our business, financial condition or results of operations. As of the date of this report, we and our PRC subsidiaries have not been involved in any investigations on cybersecurity review initiated by the CAC or related governmental regulatory authorities, and we and our PRC subsidiaries 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 and our PRC subsidiaries will comply with such regulations in all respects and we and/or our PRC subsidiaries 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 and/or our PRC subsidiaries 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, Russia, 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.
30
You may have difficulty enforcing judgments against us.
A significant portion of our assets are located, and a substantial amount of our subsidiaries’ operations are conducted, in the PRC. In addition, some of our directors and officers are nationals or residents of the PRC, including our chief financial officer, Mr. Jing Jin, chief scientist, Mr. Lei Chen, and independent director, Mr. Ming Zhao, and a substantial majority 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 Enterprise Income Tax 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 Enterprise Income Tax Law, or 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.
31
PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from our future financing activities to make loans or additional capital contributions to our PRC subsidiaries.
As an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our PRC entities by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our 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 (“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 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.
32
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 were 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 regulations 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.
33
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.
34
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 the Accelerating Holding Foreign Companies Accountable Act 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 prohibited from trading or 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.
On August 26, 2022, the CSRC, the MOF, and the PCAOB signed the Protocol, governing inspections and investigations of audit firms based in China and Hong Kong. The Protocol remains unpublished and is subject to further explanation and implementation. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. However, when the PCAOB reassesses its determinations by the end of 2022, it could determine that it still unable to inspect and investigate completely audit firms based in China and Hong Kong.
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.
35
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.
36
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 be required 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
a) Sales of Unregistered Securities
There were no unregistered sales of the Company’s equity securities during the nine months ended September 30, 2022 that were not previously disclosed in reports filed with the SEC.
c) Issuer Purchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No senior securities were issued and outstanding during the nine-month period ended September 30, 2022.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
37
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. |
38
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: November 14, 2022 | /s/ Raymond Z. Wang |
|
Raymond Z. Wang Chief Executive Officer |
39
Exhibit 10.3
No.: 5063220629
Contract for Loans of Working Capital
(Version: January，2022)
Bank
of Communications Co., Ltd.,
Shaoxing Branch
Application for the use of Bank of Communications loan amount
Application date: July 05, 2022
Application No:5063220629
Bank of Communications Corporation Limited
In accordance with the Loan contract (Contract No. 5063220629) signed between the Borrower and the Lender and the Mortgage contract signed between the Lender and the Guarantor Numbers for 5063220627. The Borrower now applies for the use of the facility under the Contract. The details of this payment are as follows:
Customer number :
Customer Name: Zhejiang Zhongchai Machinery Co., LTD
Lending account :295046100018010059027
Loan principal amount: RMB 10,000,000
Loan term: July 5, 2022 to June 29, 2023
No.: 5063220629
Contract for Loans of Working Capital
Important tips
The borrower should please read the full text of this contract carefully, especially the terms marked with ▲▲. If there is any doubt, please timely submit it to the lender for explanation
In view of the fact that the Borrower applies for the amount of working capital loan granted from the Lender, and in order to clarify the rights and obligations of both parties, the Borrower and the Lender hereby enter into this Contract through negotiation.
1. Definition
“Amount” refers to the maximum amount of the loan balance (under the revolving sum) or the total amount of the loan (under the lump sum amount) that the Lender may issue to the Borrower as agreed herein, which can be the revolving sum or the one-time amount (only used once or multiple times) according to the contract.
“Circular amount” means that the borrower may apply for the use amount for several times to obtain the loan as agreed in this contract, but the loan balance shall not exceed the agreed amount.
“One-time amount” means that the borrower may apply for the loan amount in one time or several times as agreed in this contract, but the accumulative total loan amount of the loan shall not exceed the agreed amount.
“Loan Balance” means the sum of the loan principal amount obtained by the Borrower under this Contract and not yet repaid.
“Limit Balance” means the amount after deducting the loan balance (under the revolving amount) or the total loan amount (under the one-time amount).
“Term of credit granting” means the term within which the lender issues the loan to the borrower according to the application of the borrower and this contract, which belongs to the term of the loan rather than the term of the loan.
“The Term of Loan” means the term of each loan determined by both parties in the corresponding Application for Use of Loan Amount of BOCOM (hereinafter referred to as “Application for Use of Amount”).
1
“Pricing Benchmark” means the value benchmark to which the Borrower and the Lender may choose to apply to the corresponding loan interest rate, including, but not limited to, the following specific pricing benchmarks and other types of pricing benchmarks.
“Loan Market quoted interest Rate (LPR)” refers to the loan market quoted interest rate applicable to RMB loans issued by the National Interbank Lending Center on the 20th day of each month (postponed in case of holidays).
“Guaranteed Overnight Financing Rate (SOFR)”, Means managed by Federal Reserve Bank Of New York (or other entities taking over the pricing benchmark), Display on the corresponding page of the Bloomberg (Bloomberg) / Land Rover (Refinitiv) financial telecommunications terminal (or an other information service replacement page approved by the Lender to display the pricing benchmark), Secured overnight financing rates (Secured Overnight Financing Rate) for US dollar loans.
“Secured overnight Financing Rate Term Reference Rate (SOFR Term Rate)”, Means managed by CME Group Benchmark Administration Limited (or any other subject taking over the pricing benchmark) and published by it (or any other subject taking over the pricing benchmark), Display on the corresponding page of the Bloomberg (Bloomberg) / Land Rover (Refinitiv) financial telecommunications terminal (or an other information service replacement page approved by the Lender to display the pricing benchmark), Secured overnight financing rate Term Reference rate (Term SOFR Reference Rate) for US dollar loans.
“Euro Interbank Offering Rate (EURIBOR)”, The European Money Markets Institute (or other entities taking over the pricing benchmark) management, Display on the corresponding page of the Bloomberg (Bloomberg) / Land Rover (Refinitiv) financial telecommunications terminal (or an other information service replacement page approved by the Lender to display the pricing benchmark), Euro Interbank OffRate (Euro Interbank Offered Rate) for euro loans.
“Hong Kong Interbank Offered Rate (HIBOR)” means the Hong Kong Interbank Offer Rate (HongkongInterbank Offered Rate) managed by the HK Banking guild (or other entities taking over the pricing benchmark) and displayed on the Bloomberg (Bloomberg) / Luford (Refinitiv) page of the Financial telecommunications terminal (or an other information service replacement page approved by the Lender showing the pricing benchmark).
“Tokyo Risk Free Term Rate (TORF)”, means by QUICKBenchmarks Co. Under Ltd (or other entities that takes over the pricing benchmark), the Tokyo Free Term Rate (Tokyo Term Risk Free Rate) appears on the corresponding page on the Bloomberg (Bloomberg) / Refinitiv (Refinitiv) financial telecommunications terminal (or the alternative information service page approved by the Lender showing the pricing benchmark).
“The Sterling Overnight Average Reference Term Interest Rate (TSRR)”, means those managed and published by the Intercontinental Exchange Benchmark Administration Limited (or other entities taking over the pricing benchmark),The GBP Overnight Average Reference Term Interest Rate (Term SONIA Reference Rate) for sterling loans is shown on the corresponding Bloomberg (Bloomberg) / Road Ford (Refinitiv) financial telecommunications terminal page (or the other information Services replacement page approved by the Lender to display the pricing benchmark).
2
“London Interbank Offering Rate (LIBOR)”, as defined by Intercontinental Exchange, Inc. The London Interbank Offering Rate (London Interbank Offered Rate) is managed by (or other entities taking over the pricing benchmark) and displayed on the corresponding page of the Bloomberg (Bloomberg) / Financial Telecommunications Terminal (Refinitiv) (or an other information service replacement page approved by the Lender to display the pricing benchmark).
“Bank working days” and “working days” refer to the opening day of the bank business where the lender is located, excluding statutory holidays and rest days (except those for business due to holidays). If the loan date, repayment date, interest payment date and maturity date and other obligations meet the non-bank working day, it shall be postponed to the next bank working day accordingly.
“Foreign currency working day”, For the secured overnight Financing Rate (SOFR) or the secured overnight Financing Rate Term Reference Rate (SOFR Term Rate), The trading day of U. S. government bonds (excluding Saturdays, Sundays) recommended by the Association of Securities Industry and Financial Markets (or its successor organization) to the fixed income arm of its members; For the London Interbank Lending Rate (L1BOR) or the GBP Overnight Average Reference Term Rate (TSRR), Means to the opening day (excluding Saturday and Sundays) of the general business of local commercial banks in London; For the Einterbank R (EURIBOR), Refers to the operation day of the second generation of Pan-Europe real-time full automatic clearing system (TARGET2) euro payment and clearing; For the Hong Kong Interbank Offering Rate (HIBOR), Refers to the opening day (excluding Saturday and Sundays) of the general business of local banks in Hong Kong; For the Tokyo Risk-free Term Interest Rate (TORF), Refrefers to the opening day of statutory holidays and rest days (excluding).
“Related person” means the authorized handling person, agent, legal representative, responsible person, controlling shareholder or actual controller, beneficiary owner or other direct or indirect related persons of the borrower.
“Business parties”, refers to the basis under the contract of the parties and other parties except the parties, related to the relevant subject of the transaction, and the parties, the relevant subject of the authorized person, agent, legal representative, head, the controlling shareholder or actual controller, benefit the owner of the parties.
The words of related party, related party transactions, and individual major investors have the same meaning as the Accounting Standards for Business Enterprises No.36 and No. I Related Party Disclosure (Accounting [2006] No.3) issued by the Ministry of Finance and the same words in the subsequent revision of the Standards.
2. Use of the quota
2. 1 If the borrower needs to use the amount, it shall apply to the lender at least 5 working days in advance. When applying, you should fill in the “Application for quota Use”, which can be used after examination and approval by the lender.
▲▲ 2.2 Each use of quota is subject to all of the following conditions:
(1) The loan balance (under the revolving amount) or the total loan amount (under the one-time amount) does not exceed the amount;
(2) The loan amount applied for shall not exceed the balance of the amount;
(3) The use application date and the loan date shall be within the credit granting period;
(4) The loan term and the maturity date of the loan are in accordance with the provisions herein;
3
(5) The guarantee contract (if any) under this Contract has come into force and is continuously valid. If the guarantee contract is a mortgage contract and / or a pledge contract, the security real right has been established and continuously valid;
(6) When the borrower has applied for the loan, the borrower must go through the government license, approval, registration and other procedures and the requirements of the lender, and such license, approval or registration shall continue to be valid;
(7) After this Contract comes into force, the business conditions and financial conditions of the borrower have not changed significantly and adversely;
(8) The application of the borrower complies with the requirements of the relevant rules and regulations of the Lender;
(9) The Borrower has not violated the provisions herein;
(10) If the payment method of the loan conforms to the provisions of this contract, and if the payment is entrusted by the lender, the lender agrees to pay;
(11) In the case of using foreign currency loans, the borrower has provided supporting documents that the loan complies with the relevant foreign exchange management policies, including but not limited to valid foreign exchange use certificate or registration documents;
(12) The Borrower has designated a special fund withdrawal account and signed an account management agreement as required by the lender.
▲▲2.3 If the lender agrees to issue the loan, the final loan information shall be subject to the contents of the bank print column of the Application form.“Application for the use of the quota” for the “loan certificate”.
▲▲ 2.4 If the currency of the Application for the Use of the Limit is inconsistent with the currency of the quota, it is converted only for the purpose of determining the quota balance at the exchange rate of the daily limit. If there is no directly applicable exchange rate, the exchange rate shall be converted at the exchange rate of the quota limit determined in a reasonable manner.
▲ ▲ 2.5 After the Borrower becomes the shareholder of the Guarantor or the “actual controller” as defined in the Company Act, the Lender has the right to suspend or cancel the unused loan amount of the Bank of the Borrower before the Guarantor provides the resolution of its shareholders’ Meeting (general Meeting) accepted by the Lender to provide security for the Borrower.
3. Planning and payment of interest rates and interest
3.1 Basic Rules for determining interest rates
3.1.1 The loan annual interest rate (interest) by the two parties in each use after the agreement in the application, according to the pricing benchmark to determine the annual interest rate value, the annual interest rate value according to the application agreed in the pricing benchmark plus (minus) points (1 basis point is 0.01 percent, 1 percentage is 100 basis points) calculation.
4
3.1.2 If the parties agree in the application for the use of the fixed interest rate, the specific interest rate of each loan shall be based on the value of the fixed interest rate column in the application (if the loan currency is RMB, the specific value shall be determined by the specific value (hereinafter referred to as the “pricing reference value”) stipulated in the application for quota use). If the fixed interest rate value column does not record the specific value, the specific interest rate of each loan shall be determined according to the plus (minus) point value agreed in the Application form on the basis of the pricing benchmark value applicable to the applicable date agreed in the Application for Limit Use.
Both parties agreed in the limit use application applicable floating rate, the specific interest rate of each loan in the limit use application date agreed pricing benchmark date on the basis of applicable pricing benchmark value, according to the limit use application agreement plus (minus) point value, interest rate floating rules, interest rate floating cycle, interest rate floating cycle unit and specific date floating starting date (if necessary).
3.1.3 For RMB, daily interest rate = monthly interest rate / 30, monthly interest rate = annual interest rate / 12; HK dollar, British pound, Australian dollar or Canadian dollar, daily interest rate = APR / 365; US dollar, euro, and Japanese yen, daily interest rate = annual interest rate / 360.
▲ ▲ 3.2 Loan Rates
If the parties agree in the Application for the Use of the Limit that the fixed interest rate is applicable and the specific value is recorded in the fixed interest rate value column, the interest rate at the time of each loan loan shall be implemented according to the fixed value. The quota use application form agreed applicable fixed rate and fixed rate value bar did not record specific values and agreed in the quota use application for applicable floating rate, each loan lending rate in the corresponding “quota use application” agreed “pricing benchmark applicable date” applicable on the basis of the pricing benchmark value, according to the quota use application form agreed plus (minus) point value. The “applicable date of the pricing benchmark” is taken as the T day, and the pricing benchmark value rule applicable to the T date shall be implemented in accordance with Article 3.5.1 of this Contract.
3.3 Adjustment of interest rates
3.3.1 If the Application form for the Use of the Limit is recorded as a fixed interest rate, the loan shall have the interest rate recorded during the term of the loan.
▲ ▲ 3.3.2 “Line use application” recorded as floating rate, the loan according to the line use application of interest rate floating rules, interest rate floating cycle, interest rate floating cycle unit and specific date floating starting date (if necessary) and this contract to determine the loan interest rate adjustment date, since the loan interest rate adjustment date of the adjusted interest rate.
3.3.2.1 During the loan period, the period of the loan rate adjustment shall be calculated from the date of the “loan entry” or the “specific Start date” at the basis of the “Interest Rate Floating Rules”. Interest rate floating cycle empty column fill in the number of interest rate floating cycles, the unit of interest rate floating cycle can choose daily or monthly. If the number of interest rate floating cycles is filled in “1”, Floating cycle unit Select Daily, From the “Loan Entry Date” or the “Specific Date Floating Start Date”, Every day is the loan interest rate adjustment day; If the number of interest rate floating cycles is filled in “3”, Floating cycle unit Select Daily, From the “Loan Entry Date” or the “Specific Date Floating Start Date”, Every 3 days is the loan interest rate adjustment day; If the number of interest rate floating cycles is filled in “1”, Floating cycle unit Select by Month, From the “Loan Entry Date” or the “Specific Date Floating Start Date”, Every full month is the loan interest rate adjustment date; If the number of interest rate floating cycles is filled in “3”, Floating cycle unit Select by Month, From the “Loan, Entry Date” or the “Specific Date Floating Start Date”, Every 3 months is the loan interest rate adjustment date, the rest may be deduced by analogy.
5
3.3.2.2 Loan interest rate adjustment date of loan interest rate in the loan interest rate adjustment date based on the applicable pricing benchmark value, unless otherwise agreed in this contract or both parties agreed to adjust plus (minus) points, interest rate plus (minus) points are still according to the loan corresponding line use application for the agreed interest rate plus (minus) points. Taking the “Loan Interest rate Adjustment date” as the T day, the pricing benchmark value value rule applicable to the T day shall be implemented in accordance with Article 3.5.1 of this Contract.
▲▲ 3.3.3 If the pricing benchmark applicable to the corresponding loan is cancelled or the corresponding issuing institution stops the release, the parties shall negotiate another adjustment, but the adjusted interest rate shall not be lower than the then applicable interest rate; within one month from the release date, the Lender has the right to declare the early maturity of the loan.
▲▲ 3.3.4 Both parties may adjust the value of the plus (minus) point of the corresponding loan interest rate after the daily agreement of each loan interest rate adjustment.
3.4 The penalty interest rate of overdue loans shall be increased by 50% at the interest rate agreed herein, and the penalty interest rate of misappropriated loans shall be increased by 100% according to the interest rate agreed herein. If a floating rate loan is adjusted by the loan pricing benchmark, the lender shall have the right to adjust the penalty interest rate applicable to each loan accordingly, and the new penalty interest rate shall be applicable from the adjustment date of the loan interest rate as agreed in the corresponding Application for the Use of the Limit.
3.5 Calculation of interest
3.5.1 Depending on the applicable pricing basis, the T day stipulated in Article 3.2, Article 3.3.2.2 and Article 9.3.3.2 of this contract (i.e. “Price Basis Applicable Date”, “Loan Interest Rate Adjustment Date”, “Repricing Date”) The applicable pricing rules for the benchmark value are as follows:
If the pricing benchmark is the loan market quoted interest rate (LPR), the applicable pricing benchmark value of T day is the loan market quoted interest rate (LPR) value recently released by T day recently.
Where the pricing benchmark is the secured overnight financing rate (SOFR), When the T day is the foreign currency working day, The applicable pricing benchmark value on the T day is the guaranteed overnight financing interest rate (SOFR) value displayed on the corresponding financial telecommunications terminal page and corresponding to the fifth foreign currency working day before the T day; When day T is a non-foreign currency working day, The applicable pricing benchmark value of T day is the guaranteed overnight financing rate (SOFR) value applicable to the latest foreign currency working day of T day (i. e., the guaranteed overnight financing rate (SOFR) value displayed on the corresponding financial telecommunications terminal page and the fifth foreign currency working day of the latest foreign currency working day).
Where the pricing benchmark is secured overnight financing Rate Term Reference Rate (SOFR Term Rate), London Interbank Offering Rate (LIBOR), Euro Interbank lending Rate (EURIBOR), Tokyo Risk-Free Term Rate (TORF) or GBP Overnight Average Index Reference Term Rate (TSRR), When the T day is the foreign currency working day, The applicable pricing benchmark value on the T day is the pricing benchmark value corresponding to the second foreign currency working day before the T day; When day T is a non-foreign currency working day, The pricing benchmark value applicable to the T day is the pricing benchmark value applicable to the latest foreign currency working day before the T day (i. e., the pricing benchmark value displayed on the corresponding financial telecommunications terminal page and corresponding to the second foreign currency working day of the latest foreign currency working day).
6
If the pricing benchmark is the Hong Kong interbank lending rate (HIBOR), on the foreign currency working day, the applicable pricing benchmark value is the Hong Kong interbank lending rate (HIBOR) corresponding to T day; on the non-foreign currency working day, the pricing benchmark value on T day is the Hong Kong interbank lending rate (HIBOR) corresponding to the latest foreign currency working day.
If the pricing benchmark value displayed on the corresponding financial telecommunications terminal page is greater than or equal to 0, the pricing benchmark value used for determining the loan interest rate under this Contract is determined according to the pricing benchmark value actually displayed on the corresponding financial telecommunications terminal page; if the pricing benchmark value displayed on the corresponding financial telecommunications terminal page is less than 0, the pricing benchmark value used for determining the loan interest rate under this Contract is determined as 0.
3.5.2 Normal interest = interest rate agreed herein * loan amount * number of days occupied.
The occupied days shall be calculated from the loan date (including) to the maturity date (excluding), and the maturity date is extended for non-working days. The extended period shall be included in the occupied days, and the interest shall still be calculated as agreed herein.
3.5.3 The penalty interest for overdue loans and misappropriated loans shall be calculated according to the amount of overdue or misappropriation and the actual days (from the date of overdue or misappropriation (including), and calculated to the date of repayment of the principal and interest (excluding)).
3.5.4 In case of more decimal places of the calculated interest / penalty rate, the lender will retain the last two decimal places by the rounding method.
▲ ▲ 3.6 If the borrower pays the loan in advance or the lender recovers the loan in advance according to the provisions herein, the corresponding interest rate shall not be adjusted, and the interest rate agreed herein shall still be implemented.
3.7 If the loan currency is other than RMB, USD, EUR, HKD, JPY, and GBP, the types of loan pricing benchmarks, the daily interest rate calculation rules, and the pricing benchmark values applicable to the applicable dates of the pricing benchmarks, the loan interest rate adjustment date, and the re-pricing date The determination rules are subject to the stipulations in Article 17 of this contract.
4. Payment of loans
4.1 If the loan account designated by the Borrower is opened in a special loan issuance account at the Lender, the issuance and payment of the loan shall be handled through the account. The account is only used for the issuance of loan funds and external payment, only sells the “settlement business application form” voucher, can not handle the check, draft, bank acceptance bill and other business, and shall not be used for other settlement. When the borrower pays for the loan funds transfer independently, it must be handled at the counter of the account opening network. The deposit interest on the account is charged to the borrower’s repayment account.
4.2 When the borrower draws the loan according to this contract, the borrower shall specify the payment method (entrusted payment by the lender or independent payment by the borrower), and only one payment method shall be used for each withdrawal.
7
4.3 Entrusted payment by the Lender means that the lender directly pays the loan funds through the borrower’s account to the borrower’s counterparties after the lender issues the loan in accordance with the power of attorney agreed herein.
If the amount of a single payment exceeds the independent payment limit or meets one of the conditions stipulated in Article 19.3, the loan entrusted payment method shall be adopted.
Using the lender entrusted payment, the borrower shall submit to the lender amount use application, the corresponding entrusted payment of a power of attorney and other information required by the lender (including but not limited to business contracts, invoices and receipt documents and other transaction data), clear the amount of the loan and payment object and amount, the loan amount should be equal to the total amount of payment.
▲▲ If the proposed payment made by the Borrower does not conform to this Contract or the corresponding business Contract or has other defects, the Lender shall have the right to refuse to pay and return the power of attorney for entrusted payment submitted by the Borrower.
▲ ▲ If the Lender agrees to pay, if the Borrower is unable to pay or pay the refund due to the wrong information provided by the borrower, the Borrower shall resubmit the relevant documents and materials containing the correct information within the time limit specified by the Lender, and the Lender is not liable if the payment is delayed or unsuccessful.
4.4 The Borrower’s independent payment means that after the lender issues the loan funds to the borrower’s account according to the provisions herein, the borrower independently pays the loan funds to the borrower’s counterparties for the purposes agreed herein.
If the borrower pays independently, the borrower shall submit to the lender the application form, instructions for the use of funds and other materials required by the lender. The borrower shall summarize and report the payment of the loan funds to the lender on time. The lender has the right to check whether the loan payment conforms to the agreed purpose by means of account analysis, voucher inspection and on-site investigation, and the borrower shall cooperate with the lender for the verification.
5 Repayment of loans
5.1 The borrower shall repay the amount according to the repayment date and amount recorded in the corresponding Application for the Use of the Amount.
▲▲ 5.2 The Borrower cannot repay the loan in advance without the written consent of the Lender.
▲▲ 5.3 The repayment arrangement of the principal and interest agreed upon by the Borrower and the Lender in the Application for the Use of the Limit is the true intention reached by both parties on a voluntary basis after negotiation. Under the repayment arrangement chosen by both parties, whether the principal is repaid before the interest is paid shall not affect the borrower’s repayment liability for the interest payable, and the borrower shall not therefore defend against the repayment of the interest payable. Under any repayment arrangement, the borrower shall be liable for all the principal and interest payable.
8
▲▲ 5.4 If the Borrower returns the amount (including the active repayment of the borrower and the deduction of the lender according to this Contract) and fails to repay all the debts of the Borrower in full:
(1) It shall first be used to offset the outstanding expenses due and paid. If the principal and interest are less than 90 days overdue, the balance after the offset fee shall be used to offset the unpaid interest or penalty interest and compound interest, and then to offset the unpaid principal; If the principal or interest is more than 90 days overdue, the balance after the offset fee shall be used to offset the unpaid principal, and then offset the unpaid interest or penalty interest and compound interest;
(2) If the Borrower has multiple debts (including the debts of the Borrower to the Lender under other contracts), the Lender has the right to decide the order of repayment of the Borrower, as long as the repayment order does not violate the mandatory laws, regulations, rules and relevant regulatory requirements applicable to the Lender. The Lender shall notify the Borrower of the outcome of the repayment obligation. Unless otherwise agreed by both parties to this paragraph.
6 The Statements and Guarantees of the Borrower
6.1 The Borrower is established and legally existing according to law, has all the necessary rights and capabilities, and is able to perform the obligations under this Contract and bear civil liabilities in its own name.
6.2 The signing and performance of this Contract is the true intention of the Borrower, with all necessary consent, approval and authorization, without any legal defects.
6.3 The borrower’s production and operation is legal and compliant, and it has the ability to continue the operation, has legal sources of repayment, has no major environmental and social risks involved, and has no major bad credit record. The senior management personnel of the borrower has no bad record.
6.4 All documents, statements, materials and information provided by the Borrower to the Lender during the signing and performance of this Contract are true, accurate, complete and effective, and does not conceal any information from the Lender that may affect its financial position and repayment ability. The financial condition of the Borrower has not undergone significant adverse changes since the reporting date of the latest financial statements.
▲▲ 6.5 The Borrower, its relevant persons and business related parties are not included in the list of sanctions issued by the United Nations and relevant countries, organizations and agencies, and in the list of risks issued by the Chinese government departments or competent authorities; not located in the countries and regions punished by the United Nations and relevant countries, organizations and agencies.
▲▲ 6.6 The Borrower guarantees to comply with national anti-money laundering laws, regulations and relevant policies, not to assist others in money laundering, terrorist financing, tax evasion, bank debts, cash collection, telecom fraud, illegal fund-raising and other illegal activities, actively cooperate with the lender to carry out customer identification, transaction record keeping, customer identity and transaction background due diligence, large and suspicious transaction report and other anti-money laundering work, and provide relevant supporting materials as required by the lender.
6.7 If the Borrower belongs to a customer with environmental and social risk classified as A or B according to the Lender’s environmental and social risk assessment criteria, the Borrower undertakes to:
(1) The internal management documents of the borrower related to environmental and social risks shall meet the requirements of laws and regulations and are effectively implemented;
(2) The borrower does not have any major litigation cases related to environmental and social risks;
(3) All behavior and performance of the borrower related to environmental and social risks.
9
7 The Rights and Obligations of the Lenders
7.1 The Lender shall have the right to recover the loan principal and interest (including compound interest, overdue and misappropriated penalty interest of the loan, etc.) as agreed herein, collect the fees payable by the borrower, recover the loan in advance according to the capital withdrawal situation of the borrower, and exercise other rights stipulated by law or agreed herein.
▲▲ 7.2 During the performance of this Contract, the Lender only conducts a formal review of the information provided by the Borrower. The Lender shall not be liable if it fails to complete the entrusted payment in time due to the inauthenticity, inaccurate or incomplete materials provided by the borrower or if the borrower handles the payment in violation of this Contract.
▲▲ 7.3 The Lender issues and pays the loan as agreed herein. If the Lender fails to issue the loan or handle the payment on time due to any of the following reasons, the Lender shall not be liable, but shall timely notify the borrower that the loan account designated by the borrower has been frozen, the payment object account has been frozen, force majeure, communication or network failure, the Lender’s system failure, etc. Unless otherwise agreed herein.
▲▲ 7.4 According to the regulatory requirements that the Lender needs to follow, the Lender will conduct a dynamic risk assessment of the borrower, such as money laundering, terrorist financing and tax evasion, and shall have the right to take one or all of the measures stipulated in Article 9.2 in the opinion that the business involved in the Borrower’s transaction order is at high risk of money laundering, terrorist financing and tax evasion.
8 The Obligations of the Borrower
8.1 The borrower shall repay the principal of the loan under this Contract and pay the interest according to the time, amount, currency and interest rate recorded in this Contract and the corresponding Application for the Use of the Amount.
If the fund withdrawal account designated by the Borrower is used to collect the corresponding sales revenue or planned repayment funds, and the corresponding sales revenue is settled in non-cash manner, the Borrower shall ensure that it is transferred to the fund withdrawal account in time after receiving the payment. The Borrower shall provide the inflow and exit of the fund withdrawal account as required by the Lender.
8.2 The borrower shall use the purposes agreed in this contract, and according to the corresponding use of the application for use of the loan, should not be used for other purposes, shall not loan lending, for fixed assets investment, equity investment, buy other financial products arbitrage and state prohibited production and management areas and purposes.
The borrower shall use the loan funds in the agreed manner and shall not avoid the entrusted payment by the lender. If the borrower pays the loan independently, the borrower shall use the loan within a reasonable time according to the requirements of the lender regulatory authority, and the loan funds shall comply with the provisions herein.
▲▲ 8.3 The Borrower shall bear the settlement fees (if any) of the loan funds payment (including the Lender entrusted payment and the Borrower independently paid). The specific fees shall be implemented in accordance with the laws, regulations, rules, regulations and the then effective List of BOCOM Service Fees published by the Lender.
10
Loan fund payment does not involve cross-border payment, loan account is specialized loan issuance account, loan fund payment (including the lender entrusted payment and the borrower autonomous payment), collection account does not belong to the account opened in the bank of communications, capital payment may be through the People’s Bank of China payment system or city exchange system. The loan account is not a special loan issuance account. When the loan fund payment (including the entrusted payment of the lender and the independent payment by the borrower), if the collection account is an account of another bank in other places, the funds payment shall be handled through the payment system of the People’s Bank of China.
If the loan fund payment involves cross-border payment, the loan fund payment may be made through the Global Banking, Financial and Telecommunications Association (SWIFT) system or other systems.
▲▲ 8.4 The Borrower shall cooperate with the Lender in conducting the loan payment management and supervise and inspect the use of the loan and the operation of the Borrower, timely provide the financial statements, loan fund use records and data, related parties and related party transactions, environmental and social risk reports, other information and information, and ensure the authenticity, integrity and accuracy of the documents, materials and information provided.
▲▲ 8.5 The Borrower shall notify the Lender in writing of any of the following matters and shall not take action until the repayment of all the principal and interest of the Loan under this Contract or the provision of repayment plans and guarantees approved by the Lender:
(1) Sell, gift, lease, lend, transfer, mortgage, pledge or otherwise dispose of all or most of the assets or important assets;
(2) Major changes have taken place in the management system or property rights organization form, including but not limited to the implementation of contracting, leasing, joint venture, company system transformation, joint-stock cooperative system transformation, enterprise sale, merger (merger), joint venture (cooperation), division, establishment of subsidiaries, equity transfer, property rights transfer, capital reduction, etc.
(3) Foreign investment or increased debt financing exceeds the agreed limit.
▲▲ 8.6 The Borrower shall notify the Lender in writing within 7 days from the date of occurrence or possibility and submit the relevant certificates in accordance with laws, regulations, regulations and requirements of the Lender:
(1) The borrower or its affiliated party shall amend the articles of association, change the name of the enterprise, legal representative (responsible person), domicile, address, mailing address or business scope and other industrial and commercial registration matters, or make decisions that have a significant impact on finance and personnel;
(2) The Borrower, its related party or the guarantor intends to file for bankruptcy or may or may have been filed for bankruptcy by the creditor;
(3) The Borrower or its related parties are involved in major litigation, arbitration, administrative measures, or that the main assets or the collateral under the Contract have been taken for property preservation or other compulsory measures, or that the main assets or the collateral under the Contract are safe or may be affected or the value may be reduced or reduced;
(4) The Borrower or its affiliated party provides security for a third party and thereby materially and adversely impacts on its financial condition, financial position or ability to perform its obligations hereunder;
11
(5) The Borrower or its affiliated parties sign a contract with a material impact on its operation and financial position;
(6) The Borrower shall pay off outstanding debts in advance or have priority in paying off other due debts, or pledge any form of security for other existing debts, or make any arrangement with similar effect or sign relevant documents;
(7) The borrower, its affiliated party or guarantor shall suspend production, business, dissolution, business for rectification, revoked or business license revoked;
(8) Missing of the borrower or its affiliated parties, the main investor of the borrower or its affiliated parties, the legal representative (responsible person), director or main manager of the borrower or its affiliated parties, involved in violation of laws or regulations or violation of the applicable exchange rules or abnormal changes;
(9) Serious operation difficulties of the borrower or its related parties occur, or deterioration of the financial situation occurs, or other events that have a negative impact on the operation, financial position or solvency or economic situation of the borrower or its related parties occur;
(10) Related party transactions occur, and the transaction amount reaches or exceeds 10% of the recently audited net assets;
(11) The Borrower becomes or may become a guarantor shareholder or an “actual controller” as defined in the Company Act before the discharge of all debts under this Contract;
(12) The borrower or its related parties are liable or exposed by the media in violation of laws, regulations, regulatory regulations, national policies or industry standards;
(13) Safety or environmental protection accident occurred by the borrower or its related parties;
(14) The control or controlled relationship between the borrower’s related parties and the borrower changes;
(15) Major equity change of the borrower or its related party;
(16) The audit opinion of the Borrower’s external auditor on its financial statements are not standard;
(17) The Borrower is or may be investigated, punished or taken similar measures by competent authorities for violation of laws and regulations and / or regulatory requirements;
(18) The Borrower or its relevant persons and business parties are included in the list of sanctions issued by the United Nations and relevant countries, organizations and institutions, and the list of terrorism and anti-money laundering related risks issued by Chinese government departments or competent authorities; or the countries and regions of the United Nations and relevant countries, organizations and institutions;
(19) Other major adverse matters that affect the solvency of the borrower or its related parties occur.
12
(20) Where the Borrower is a customer with an environmental and social risk classification of A or B according to the Lender environmental and Social risk assessment criteria, the Borrower occurs or may occur in any of the following:
① All kinds of permits, approval and approval related to environmental society and risks in the process of commencement, construction, operation and shutdown;
② Assessment and inspection of environmental and social risks by the environmental and social risk regulatory agency or its approved agency;
③ Supporting the construction and operation of environmental facilities;
④ Discharge and standards of pollutants;
⑤ Safety and health status of the employees;
⑥ Major complaints and protests from neighboring communities against borrowers; •
⑦ Major environmental and social claims;
⑧ Significant situations that other lenders consider related to environmental and social risks.
▲▲ 8.7 In case that the guarantee under the Contract is not conducive to the Lender’s claims, the Borrower shall timely provide other guarantees approved by the Lender as required by the Lender.
The “change” mentioned in this paragraph includes but is not limited to: merger, division, suspension, suspension, dissolution, suspension of business, cancellation, revocation of business license, application or application for bankruptcy of the guarantor; Significant changes in the guarantor’s operating or financial position; The guarantor is involved in major litigation, arbitration and administrative measures, Or the main assets are taken to take property preservation or other compulsory measures; The safety and good condition of the security is affected or may be affected; The value of the collateral is reduced or may be reduced or compulsory measures such as property preservation such as seizure are taken; The guarantor or his legal representative (responsible person) or the principal management personnel is involved in the violation or violation of the applicable exchange rules; The guarantor is an individual, Missing or death of the guarantor (declared death); The guarantor has breached the contract under the guarantee contract; Any dispute occurs between the guarantor and the borrower; The guarantor requests the termination of the guarantee contract; The guarantee contract is not effective or invalid or revoked; Other events where the security real right is not established or invalid or affect the security of the lender’s creditor’s rights.
▲▲ 8.8 The Borrower undertakes that: from the date of signing the Contract and before all the loan principal and interest and related expenses under the Contract, the financial indicators, external agency rating and production and operation qualification / license shall always comply with the contract. If the production and operation qualification / license needs to be annual examination, it shall pass the annual examination on time.
8.9 The Borrower warrants that the Borrower and its employees and agents do not provide, give, claim or accept any material benefits (cash, without limitation, physical cards, travel) or other nonmaterial benefits in any form to the Lender or the Lender’s employees; that they do not use the funds or services provided by the Lender directly or indirectly in activities related to corruption or bribery; and that the Borrower is aware of any violation of this Treaty, truthfully, completely and accurately according to the lender.
13
8.10 If the Borrower is classified according to the criteria of environmental and social risk classified as A or B, the Borrower shall undertake the following obligations:
(1) Establish and improve the internal management system of environmental and social risks, and stipulate in detail the responsibilities, obligations and punishment measures of the relevant responsible personnel of the borrower;
(2) Establish and improve the emergency response mechanisms and measures for environmental and social risk emergencies;
(3) Set up specialized departments and / or designate specialized personnel responsible for environmental and social risks;
(4) Cooperate with the Lender or its recognized third party to evaluate and inspect the environmental and social risks of the borrower;
(5) To respond appropriately or take other necessary actions when the public or other stakeholders have strong doubts about the borrower’s performance in control of environmental and social risks;
(6) Urge the borrower’s crucial related parties to strengthen management and prevent the environmental and social insurance of the related parties from spreading to the borrower;
(7) To fulfill other obligations that the Lender considers related to controlling environmental and social risks.
▲▲ 9 Adjustment of quotas, early maturity of loans and risk repricing
9.1 Any of the following events shall be deemed to be the “early expiration event” of this Contract:
(1) The Borrower fails to repay the loan principal or pay the interest as agreed in any Application for Limit Use;
(2) The representations and warranties made by the Borrower under this Contract are not true;
(3) Any of the items listed in Article 8.6 shall actually occur and affect or may affect the safety of the Lender’s claims;
(4) The issuance of loans by the Lender as agreed in this Contract shall constitute or may constitute illegal or illegal due to changes in laws, regulations and regulatory policies;
(5) The borrower may or has been declared to be due early in the performance of other contracts with the Lender or with a third party;
(6) The Borrower violates any other provisions of this Contract.
(7) If the Borrower’s environmental and social risk is classified as A or B according to the Lender’s environmental and social risk assessment criteria, the Borrower has any of the following events:
① The borrower shall be punished by the relevant government departments due to poor environmental and social risk management;
② The borrower is strongly questioned by the public and / or the media due to poor environmental and social risk management, and it is verified that there are relevant situations;
③ The Borrower violates its obligations concerning environmental and social risk management agreed with the Lender in other contracts.
14
9.2 In case of any “early maturity event”, the Lender has the right to take one, more, or all of the following measures:
(1) Lower, suspend or cancel the amount under this Contract;
(2) Stop issuing loans that have not yet been used by the borrower;
(3) Payment of the loans that have been used by the borrower but are not yet used shall not be stopped;
(4) Request the borrower to negotiate with the lender on supplementary loan issuance and payment conditions within a limited time limit;
(5) Require the borrower to change the payment method as required by the lender;
(6) Risk repricing of executed loans, as per Article 9.3;
(7) Unilateral declare that the principal of the loan issued under the contract is due in advance and require the borrower to immediately repay all the loan principal and settle the interest.
9.3 According to the production and operation situation of the Borrower at the time of signing this Contract, both parties determine the interest rate agreed herein and its adjustment through negotiation. The Borrower agrees that, in the event of any “early maturity event”, the Lender has the right to reprice the risks of the loan as defined under this Agreement.
9.3.1 Risk repricing includes two methods: negotiating repricing and directly raising the loan interest rate. The risk repricing method adopted in this contract shall be agreed upon by both parties in Article 21.
9.3.2 “Negotiated repricing” means that the Lender has the right to require the borrower to negotiate with the lender to raise the loan interest rate within a limited time limit, and both parties shall determine the “repricing date” and the specific agreement of the relevant interest rates in the form of a supplementary agreement.
9.3.3 “Direct increase in the loan interest rate” means that the lender has the right to directly raise the interest rate of the loan as agreed in this Article and Article 21.
9.3.3.1 From the “Repricing Date” when the Lender notifies the Borrower in writing, the raised loan interest rate shall be implemented for all outstanding loans of the Borrower as of the “Repricing Date”.
9.332 If the loan currency is RMB, US dollar, euro, Hong Kong dollar, Japanese yen or British pound, the loan interest rate shall be determined at the point value of Article 21.2.1 based on the pricing benchmark value applicable in the “Repricing Date” as set in Article No.2.1. With the “repricing date” as the T day, the applicable pricing benchmark numerical value rule on the T day shall be implemented in accordance with Article 3.5.1 of this Contract.
9.3.3.3 If the loan currency is currencies other than RMB, US dollar, euro, HK dollar, Japanese yen and British pound, the increased loan interest rate shall be determined in accordance with Article 21.2.2.
-9.3.4 After the Lender implements the risk repricing according to the aforementioned agreement, the new interest rate shall be implemented starting from the “repricing date”. On the basis of this interest rate, the fluctuation shall still be adjusted in accordance with Article 3 of this Contract. If both parties agree to change the relevant agreement through negotiation, the agreement after the change shall be implemented. If the loan is overdue (including the borrower fails to repay on time or is declared due by the lender) or misappropriated, the overdue and misappropriated penalty interest rate shall be determined on the basis of the new interest rate (including the floating adjusted interest rate agreed herein), and the interest rate calculated for compound interest shall be adjusted accordingly.
15
9.3.5 The execution of the “Risk repricing” shall not be deemed or construed as a waiver by the Lender of the other rights provided for by laws and regulations and agreed herein. The Lender shall have the right to take other debt protection measures in accordance with the laws, regulations and the provisions stipulated herein, including but not limited to the measures stipulated in Article 9.2.
▲▲ 10. Default
10.1 The borrower did not fully repay the loan principal, pay interest or is not used according to the contract using the loan, the lender according to the overdue loan penalty interest rate or misappropriate the penalty interest rate of loan interest and unpaid interest recovery, penalty interest rate adjusted in accordance with the contract, calculate the compound interest rate is adjusted accordingly.
10.2 If the borrower fails to repay the loan principal and interest in full on time, it shall bear the charges, legal costs (or arbitration fees), preservation, announcement, execution, attorney, travel and other expenses paid by the lender for the realization of the creditor’s rights.
▲▲ 11 The deduction agreement
11.1 Authorized by the Borrower that with the loan principal, interest, penalty interest, compound interest or other expenses due and payable, the Lender has the right to deduct any account opened by the Borrower in all branches of the Bank of Communications Limited for repayment.
11.2 After the deduction, the lender shall notify the borrower of the account number, the contract number, the number of the Application for the Use of the Amount, the deducted amount and the remaining debt amount.
11.3 If the deducted proceeds are insufficient to pay off all the debts of the borrower, the debts to be paid off shall be determined as agreed herein.
11.4 If the currency of the deduction proceeds is inconsistent with the debt to be offset, it shall be converted into the amount of the offset of the debt according to the exchange rate announced by the Bank of Communications Co., Ltd. at the time of the deduction. If it is necessary to go through the procedures of foreign exchange settlement, sale or foreign exchange exchange, the borrower shall be obliged to assist the lender in handling the procedures as required by the lender, and the exchange rate risk shall be borne by the borrower.
▲▲ 12 Notice
12.1 The contact information (including mailing address, contact telephone number, fax number, etc.) filled in by the borrower in this Contract is all true and valid. In case of any change of contact information, the Borrower shall immediately send / send the change information in writing to the mailing address that the Lender fills-in in this Contract. Such change in information shall take effect after the Lender receives a notice of the change.
16
12.2 Unless otherwise expressly agreed herein, the Lender has the right to give any notice to the Borrower by any of the following means. The Lender has the right to choose the form of notification as it thinks fit and shall not be liable for transmission errors, omissions or delays in the mail, fax, telephone or any other communication system. If the lender chooses a variety of notification methods at the same time, the one who reaches the borrower quickly shall prevail. In the same matter, if the Lender issues more than one notice to the borrower and the notice is different, unless otherwise expressly stated in the notice, whichever is after the time of the notice being issued.
(1) Announcement, the date when the lender issues the announcement on its website, online banking, telephone banking or business outlets shall be deemed as the date of service;
(2) Delivery by special person, the date of receipt by the borrower shall be regarded as the date of delivery;
(3) Mail (including express mail, plain mail, registered mail) is delivered at the mailing address of the Borrower recently known to the Lender, and the 3rd day of the mailing day / the 5th day in the city) (other places) shall be deemed as the date of delivery;
(4) Fax, mobile phone SMS, or other electronic communication method is delivered to the borrower’s fax number, mobile phone number, or email address designated by the borrower as recently known to the Lender, and the date of delivery shall be deemed as the date of delivery. The foregoing service refers to the relevant information entering the server terminal of the service provider rather than the actual display of the relevant information on the customer terminal.
12.3 The Borrower agrees that, unless the Lender receives a written notice from the Borrower regarding the change of mailing address, the Borrower fills in this Contract at the address where the court serves the judicial documents and other written documents to the Borrower. The scope of application of the above service address includes but is not limited to the first instance of civil litigation, objection to jurisdiction, reconsideration, retrial, retrial, rehearing and execution procedures, etc. If the borrower responds to the lawsuit and directly submits the confirmation of service address to the court, and the confirmation address is inconsistent with the mailing address recently known to the Lender, the court has the right to serve address as if the address on the confirmation of service address shall prevail.
During the settlement of this Contract dispute, the court may serve the judgment, order and conciliation statement to the Borrower by any of the following means:
(1) The date of delivery of mail delivery (including express mail, plain mail mail and registered mail) shall be the date of the borrower’s receipt on the service return certificate;
(2) For delivery by special person, the date on which the borrower signs for the service receipt shall be regarded as the date of service.
Court by mail delivery (including express mail, plain mail, registered mail) way, if the borrower did not sign on the service receipt or incorrect address or address actual changed but the lender did not receive the borrower about changing the address written notice judgment, orders, conciliation statement is returned, to the document was returned as the date of service.
If the court adopts the method of special person for service, if the borrower fails to sign for the service receipt, the date on which the service person records the situation on the spot shall be the date of service.
Except for the written judgment, written order and conciliation statement, the court has the right to give any notice to the borrower through any means of communication set out in Article 12.2. The court has the power to choose the mode of communication as it sees fit and is not liable for transmission errors, omissions, or delays in mail, fax, telephone, telex, or any other communication system. If the court chooses a variety of communication methods at the same time, the borrower arrives quickly, whichever is.
17
12.4 This Treaty is a separate dispute settlement clause that exists in the Contract. If the Contract is invalid, revoked or terminated, the validity of this clause shall not be affected.
▲▲ 13. Information Disclosure and Confidentiality
13.1 The use of relevant information and data (including collection, storage, use, processing, transmission, supply and disclosure) shall not violate laws and regulations, and shall not disclose such information and data to a third party, except in the following circumstances:
(1) Disclosure is required by applicable laws and regulations;
(2) Judicial departments or regulatory authorities require disclosure according to law;
(3) If the Borrower fails to repay the loan principal and / or pay the interest in full and on time, the Lender needs to disclose and allow the Lender’s external professional consultant to use the loan on a confidential basis in order to realize the claims under this Contract;
(4) Carrying out other acts reasonably in order to safeguard the public interests or the legitimate rights and interests of the borrower;
(5) The Borrower agrees to or authorizes the Lender to make the disclosure.
13.2 The Borrower confirms that it has signed the Letter of Power of Attorney for Credit Information Inquiry and Supply. The Lender shall inquire, use and preserve the credit information of the Borrower within the scope specified in the Letter of attorney.
13.3 In addition to the circumstances stipulated in Articles 13.1 and 13.2 of this Contract, the Borrower further agrees that Bank of Communications Co., Ltd. may use or disclose the information and materials of the Borrower, including but not limited to the basic information, credit transaction information, bad information and other relevant information and materials, and is willing to bear all the consequences arising therefrom:
To business outsourcing agencies, third-party service providers, other financial institutions and other institutions or individuals deemed necessary for the following purposes, Including but not limited to other branches of Bank of Communications Limited, Or a subsidiary wholly or partially owned by Bank of Communications Limited, Discloses and allows it to use such information and information on the basis of confidentiality: ① to conduct bank credit business or related to bank credit business, For example, promoting the credit business of Bank of Communications Co., Ltd., collecting the arrears of borrowers, transferring bank credit business; ② provides or may provide new products or services or further services to the borrower.
Whether this Article 13.3 applies is subject to Article 24.1 hereof.
18
14. Application of law and dispute resolution
This Contract shall be governed by the laws of the People’s Republic of China (excluding the laws of Hong Kong, Macao and Taiwan for the purposes of this Contract). The dispute hereunder shall be brought to the court with jurisdiction where the lender is located, except as otherwise agreed herein. During the period of the dispute, the Parties shall continue to perform the undisputed terms.
15. The Effectiveness of the contract, the loan nature and the composition of the contract
15.1 This Contract shall come into force upon being signed (or sealed) by the legal representative (responsible person) or the authorized representative of the Borrower, signed (or sealed) by the legal representative (responsible person) or the authorized representative of the lender and affixed with the special seal for the Contract. If the special seal for contract affixed by the Lender is the special seal for offshore credit granting business contract (or other special seal for contract stamped with ” offshore words), the loan under this contract shall be an offshore business loan.
15.2 The Application for the Use of the quota and other relevant documents and materials signed under the quota under this Contract shall be an integral part of this Contract.
15.3 The Application for the Use of the Limit is a supplement to this Contract. Unless otherwise agreed upon in the Application form for The Use of the Limit, the rights and obligations and related matters between the Borrower and the Lender shall still be executed as agreed upon in this Contract.
16. The specific contents of the quota
16.1 Quota Currency: RMB; in words: RMB 10,000,000; available for, þ quota currency, o quota currency, and other currencies accepted by the lender; this quota is a o lump sum (multiple use) þ lump sum (only one use).
16.2 Limit purpose: purchase of gear blank.
16.3 Credit granting term: from December 29,2021 to December 29,2022.
17. Interest rate agreement
If the loan currency is in or other than RMB, US dollar, euro, Hong Kong dollar, Japanese yen or British pound, the pricing benchmark types, daily interest rate calculation rules applicable to the pricing benchmark applicable date and pricing benchmark value determination rules applicable on the loan rate adjustment date are as follows: /
19
18 Account agreement
18.1 The borrower designates the following account as a lending account, which þ is not a special loan issuing account opened by the borrower with the lender. If the two parties have agreed otherwise in the corresponding Quota Use Application Form, the agreement in the Quota Use Application Form shall prevail.
Name in an account book:/
Account number:/
Bank of deposit:/
18.2 Borrower designation: /
(1) The repayment account is
name in an account book:/
account number:/
bank of deposit:/
(2)The capital withdrawal account is:
Account name: Zhejiang Zhongchai Machinery Co., LTD
Account number: 295046100018010059027
Opening Bank: Xinchang Sub-branch
19. Specific agreements on the issuance, payment and repayment of loans
19.1 The term of each loan used under this Contract shall not be longer than 12 months, and the maturity date of the entire loan is no later than June 29,2023.
19.2 The limit of independent land payment under this Contract is: o RMB o foreign currency or equivalent to other currencies.
19.3 If one of the following conditions is met, the lender shall make the entrusted payment method: /
19.4 If the borrower pays the loan independently, the borrower shall report the payment of the loan funds to the lender within / days after the payment of the loan.
20 Financial restrictions, rating of external agencies and production and operation Qualification / Licensing
20.1 The borrower’s foreign investment limit is RMB /; the increased debt financing limit is RMB /。
20.2 Contract agreement on the borrower: /
20.3 Specific agreements on the rating of external agencies: /
20.4 Specific agreement on the borrower’s production and operation Qualification / Licensing: /
20
▲▲ 21. Specific agreements on risk repricing
21.1 This contract adopts the following type of / risk repricing method: (1) negotiate repricing; (2) directly raise the loan interest rate.
21.2 By means of “directly raising the loan interest rate”:
21.2.1 If the loan currency is RMB, US dollar, euro, Hong Kong dollar, Japanese yen and British pound, the plus (minus) point value of the increased interest rate is: o no plus minus points o plus / percentage points o minus / percentage points. If a loan is otherwise agreed upon, the increased interest rate plus (minus) points of the loan shall be subject to the records in the application for using the applicable amount.
21.2.2 If the loan currency is not included in RMB, US dollar, euro, HK dollar, Japanese yen, or British pound, the raised loan interest rate is: /
22.Contact
The contact information of the Borrower for receiving the notice agreed upon in Article 12 includes:
Address: No.1, Meixi Road, Meizhu Town, Xinchang County
To: He Mengjun
Zip Code: 312500
Tel.:
Mobile Phone Number: /
portraiture:/
E-mail:/
23. Number of contract copies
This contract is made in duplicate originals, with each party and the guarantor (if any) holding one copy
24. Other agreed matters
24.1 Both parties agree that Article 13.3 Rshall not apply to this Contract。
24.2 According to the lender’s environmental and social risk assessment standards, the borrowing population Rnot belongs to the environmental and social risk as A or B Clients.
o24.3 Both parties agree that the court of dispute jurisdiction as agreed upon in Article 14 of this Contract shall be amended by “the Court with jurisdiction in the place of the Lender” as: the Court of the place where the Bank of Communications / Branch is located. The business under this contract shall be handled centrally by the Bank of Communications / Branch. The contract is performed at the Bank of Communications / Branch.
Borrower: Zhejiang Zhongchai Machinery Co., LTD
Legal representative (person in charge): He Mengjun
Legal address: No.1, Meixi Road, Meizhu Town, Xinchang County
Lender: Bank of Communications Co., Ltd. Shaoxing Xinchang Branch (branch) bank
Person in charge: He Xin
Address: No.154, Renmin Middle Road, Xinchang County
21
Exhibit 10.4
Credit loan contract: 2021-008
Contract for Loans of Working Capital
Contract No.: 8951120220004889
Lender: Zhejiang Xinchang Rural Commercial Bank Co., Ltd
Borrower: Zhejiang Zhongchai Machinery Co., Ltd
This contract is signed by the lender and the borrower through consultation in accordance with relevant national laws, regulations and rules
Article 1 loan amount, type and purpose: the lender agrees to grant the borrower a loan of RMB (in words)seven million only. The type of loan is short-term loan, and the purpose of loan is Replacement of original borrowings (renewal without repayment of principal).
Article 2 loan term: the loan term of this contract starts from August 22, 2022 to December 15, 2022. If the actual lending date and maturity date are inconsistent with the above agreement, the loan receipt shall prevail
Article 3 loan interest rate: the loan interest rate of this contract is calculated by the simple interest method, which is determined in the following way (2). (if the option is checked, tick √ in front of the option)
(1) The loan interest rate of the contract shall be determined by the latest one-year period and five-year period and √other LPR√ (plus / minus) √basis points published on the natural day before the effective date of the contract (LPR, i.e. the market quotation interest rate published by the national interbank lending center, 1 basis point = 0.01%, the same below). The details shall be subject to the loan receipt, and the loan interest rate will not be adjusted during the loan term
(2) The interest rate of each loan under this contract shall be determined by adding (adding / subtracting) 40.00 basis points to the latest√LPR of √1-year and 5-year or more in the district published on the natural day before the loan issuance date of the district on the effective date of the contract, which shall be subject to the loan receipt. During the loan term, the interest rate of each loan shall be adjusted accordingly according to the following ① method, and the lender will not notify the borrower otherwise
① the interest rate of a single loan shall not be adjusted, and the interest shall not be calculated in sections
② For the interest rate repricing cycle, the adjustment date is the corresponding day of the loan Issuance Date in the month of adjustment. If there is no corresponding day in the month of adjustment, the last day of the month shall be the adjustment date. The LPR of the term varieties selected in paragraph (2) of this article in the latest period published on the natural day before the adjustment date shall be the new pricing benchmark, and the plus (minus) basis points shall remain unchanged.
(3) Others /
The calculation formula of loan interest rate under this contract is: monthly interest rate = annual interest rate ÷ 12; Daily interest rate = annual interest rate ÷ 360
Article 4 loan issuance and payment
(1)Withdrawal conditions. For the withdrawal under this contract, the borrower must meet the following conditions: 1 The borrower has not violated its obligations and responsibilities under this contract; 2. There is no adverse change in the financial condition of the borrower that may endanger, delay or prevent it from performing its obligations and responsibilities under the contract; 3. There is no breach of contract under the contract; 4. The guarantee is continuously effective, and there is no adverse change to the lender in the guarantor’s guarantee ability and the guarantee ability or value of the property; 5. The borrower has opened relevant accounts as required by the lender; 6. Other conditions required by the lender
The borrower understands and accepts the lender’s suspension of the borrower’s withdrawal request due to the influence of national policies, macro-control and regulatory requirements.
(2)Loan issuance. The borrower applies to the lender for withdrawal before using the funds. If the lender considers that the withdrawal conditions agreed in this contract are met after review, the loan funds shall be transferred to the agreed borrower’s account
(3)Loan payment, 1 Entrusted payment, The single payment amount of loan funds is RMB one million (in words, the method of entrusted payment by the lender. The lender will pay the loan funds to the borrower’s trading partner through the borrower’s account after examination and approval according to the borrower’s payment power of attorney, corresponding payment vouchers, business contracts and other supporting materials. 2. Independent payment. If it does not meet the conditions of entrusted payment by the lender, the method of independent payment by the borrower shall be adopted, and the borrower shall provide the loan funds to the lender within 3 days of the use of the loan funds Pay relevant transaction information, and summarize and report the payment of loan funds. The lender has the right to verify whether the loan payment meets the agreed purpose through account analysis, voucher inspection, on-site investigation, etc. 3 In the process of loan payment under this contract, if the borrower’s credit status drops, the profitability of its main business is not strong, and the use of loan funds is abnormal, the borrower shall negotiate with the lender to supplement the loan issuance and payment conditions, or the lender has the right to change the payment method and stop the issuance and payment of loan funds
Article 5 repayment method: the repayment method agreed in this contract is to pay interest on a monthly basis (monthly, quarterly or annual). The 20th day of the month (the month at the end of the month or the month at the end of the year) is the interest settlement date, and the next day is the interest payment date. Overdue interest payment is deemed to be a breach of contract. The principal shall be repaid in one lump sum at the expiration of the loan term, and the interest shall be paid off with it. However, if the electronic data and vouchers generated by E-banks such as loan receipt or online banking specially stipulate the repayment method of the current loan, the repayment method of the current loan shall be agreed accordingly
2
Article 6 the borrower promises that: (1) the borrower has been approved and registered by the administrative authority for Industry and commerce or the competent authority according to law, and the loan matters comply with the requirements of laws and regulations; (2)The borrower and its legal representatives, shareholders and senior managers have good letters of credit and no major bad records; (3)Timely provide the lender with documents and vouchers related to the issuance, payment and use of loan funds under this contract, and the materials, documents, data and information provided are true, accurate, complete, legal and effective; (4)Cooperate with the lender in payment management and accept the lender’s on-site and off-site investigation; (5) In case of partial or total loss of guarantee ability of the guarantor, such as suspension of business, suspension of business, bankruptcy, dissolution, revocation of business license, cancellation, merger (merger or acquisition) or serious business losses, the guarantor is obliged to inform the lender in time and provide guarantee approved by the lender in time according to the requirements of the lender; (6) All transactions between the borrower and its related parties will be conducted in good faith, fair and will not directly or indirectly damage the interests of the Lender under this contract; (7) If the borrower has multiple debts with the lender, the lender can independently decide the repayment order of each debt; (8)Notify the lender in time in case of major adverse events affecting solvency.
Article 7 Loan extension: if the borrower needs to extend the loan term, it shall submit an application to the lender in writing before the maturity date of the loan. With the consent of the lender and the guarantor, the lender, the borrower and the guarantor shall separately sign a loan extension repayment agreement. After the loan extension, when the extended term plus the original term of the loan reaches the new interest rate term grade, the interest rate shall be determined according to the current interest rate grade of the cumulative term.
Article 8 Any of the following circumstances shall constitute a breach of contract or risk event: (1) failure to repay the loan principal or interest on schedule, or failure to repay the loan principal and interest according to the repayment method specially agreed in the loan receipt;(2) Failing to use the loan according to the agreed purpose of the loan; (3) borrower needs to extend the loan term, it shall submit an a Failure to pay the loan funds in the agreed manner;(4) Failure to comply with the commitments of the contract;(5) Failing to pay off other due debts to the lender on schedule;(6) Failing to pay off the due debts of any other financial institution or a third party on schedule;(7) Property is looted and other events;(8) Involved in major adverse litigation; (9) Being imposed a major administrative penalty by an administrative organ;(10) Shut down due to poor management; (11) concealing the financial and operating conditions of the enterprise or withdrawing funds (capital);(12) Contracting, entrusted operation, trusteeship, leasing, joint venture merger, merger, division, transfer, share system transformation or reduction of registered capital without the written consent of the lender;(13) Failing to inform the lender in writing one month before the date of change of the enterprise name, legal representative, shareholder, domicile or business scope and other industrial and commercial registration items;(14)Tax evasion, bankruptcy, dissolution, ordered to suspend business for rectification or revoked (revoked) business license;(15) The guarantor dies, disappears or loses civil capacity, and the borrower is unable to add qualified guarantee;(16) Other situations that seriously affect the ability to repay debts or lose credit.
During the validity of this contract, in case of the borrower’s breach of contract or risk event in (I) (II) (V) (VIII) (x) (XII) (XIII) (XIV) (XVI) above, the lender has the right to take any one or more of the following measures, including but not limited to: 1 Calculate and collect penalty interest and compound interest according to regulations; 2. Stop issuing loans, announce the early maturity of the loans issued under this contract, and require the borrower to repay all loans and corresponding interest, penalty interest and compound interest immediately; 3. Stop payment and deduct corresponding funds from the accounts of the borrower and the guarantor as agreed to repay the loan principal, interest and expenses; 4. Require the guarantor to perform joint and several guarantee liability; 5. Require the realization of mortgage; 6. Terminate the contract in advance; 7. Other measures permitted by law.
3
During the validity period of this contract, in case of the borrower’s breach of contract or risk events in (3) (4) (6) (7) (9) (11), (15) above, the lender has the right to require the borrower to provide a new guarantee for the creditor’s rights under this contract that meets the requirements of the lender, or take other measures to ensure that the legitimate rights and interests of the lender are not infringed, and the borrower fails to provide a new guarantee as required by the lender, Or the measures taken fail to ensure that the legitimate rights and interests of the lender are not infringed, the lender has the right to take any one or more of the following measures, including but not limited to: 1 Calculate and collect penalty interest and compound interest according to regulations; 2. Stop issuing loans, announce the early maturity of the loans issued under this contract, and require the borrower to repay all loans and corresponding interest, default interest and compound interest immediately; 3. Stop payment and deduct corresponding funds from the accounts of the borrower and the guarantor as agreed to repay the loan principal, interest and expenses; 4. Require the guarantor to perform joint and several guarantee liability; 5. Require the realization of mortgage; 6. Terminate the contract in advance; 7. Other measures permitted by law.
Article 9 Loan guarantee: the guarantee provided by the borrower shall maintain its due guarantee capacity until the lender’s rights under this contract are extinguished. If the guarantee ability of the property is reduced or loses its guarantee function, or one of the circumstances in items (4) to (16) of Article 8 above occurs to the guarantor, the lender has the right to stop the loan not issued under the contract and recover the undue loan in advance
Article 10 Liability for breach of contract:
(1) the borrower’s breach of contract and its liability for breach of contract: 1 If the principal of the loan (including extension) is not repaid on schedule, the penalty interest shall be charged at the interest rate of 50% plus the penalty interest rate agreed in the loan contract from the date of overdue If the loan interest and penalty interest are not paid on schedule, compound interest shall be calculated and charged at the penalty interest rate, 3 If the loan is not used in accordance with the contract, the loan misappropriated shall be charged at the agreed interest rate during the misappropriation period_ The penalty interest rate is 100%. 4. The borrower shall repay the loan in advance with the consent of the lender; The lender has the right to charge the borrower interest on the loan repaid in advance according to the term and interest rate agreed in the contract, but with the consent of the lender, the interest can be calculated and charged according to the interest rate agreed in the contract and the actual number of days.
(2) Lender’s breach of contract and its liability for breach of contract: if the lender fails to provide the loan to the borrower in accordance with the contract, it shall pay liquidated damages to the borrower according to the amount of breach of contract, the overdue default interest rate and the number of days of breach of contract
Article 11 Performance of the contract: (1) when the lender transfers the loan to the borrower’s account, it shall be deemed that the lender has fulfilled its obligation to issue the loan. (2) When the lender recovers the principal and interest of the due loan or recovers the principal and interest of the loan in advance according to the contract, it can directly stop the payment from the borrower’s account and deduct the corresponding amount to repay the principal and interest of the loan and expenses.
Article 12 Establishment, effectiveness and dissolution of the contract: (1) the contract shall be established from the date of signature, seal or finger print of each friend; And the borrower shall provide a qualified guarantee for the creditor’s rights of the lender, which shall take effect from the date when the State Food Co guarantee contract is established and takes effect. (2) within 30 days from the date of the establishment of this contract, if the borrower should provide a qualified guarantee for the creditor’s rights of the lender but fails to provide a qualified guarantee, the lender has the right to terminate this contract.
4
Article 13 Other agreed matters: the lender authorizes its subordinate business institutions and outlets to specifically handle financing business. The borrower knows the above situation and has no objection, and the borrower confirms the special fund return account of the loan:_______
Article 14 Use of information: the borrower agrees that the lender shall enter (query and disclose) the relevant information of the borrower in the basic database of personal (enterprise) credit information and relevant information system of the people’s Bank of China in accordance with the relevant provisions of the people’s Bank of China or other administrative departments. When the borrower breaches the contract, the lender has the right to disclose the breach information according to law according to the breach, or provide relevant information to the collection agency for the purpose of collection.
Article 15 Dispute resolution: disputes arising from this contract shall be settled by the parties through negotiation: if the negotiation fails, either party shall have the right to choose the following dispute resolution methods (tick √ in the front of the option)
√Submit the dispute to the people’s Court of the place where the lender is domiciled for settlement through litigation
Submit the dispute to the Arbitration Commission for arbitration in accordance with the arbitration rules in force at the time of applying for arbitration. The arbitration award is final and binding on all parties.
Article 16 Others
(1) The guarantee contract corresponding to this contract is 8951320190000958, which is an integral part of this contract
(2) Vouchers and attachments such as loan receipts are an integral part of this contract and have the same effect as this contract
(3) All reasonable expenses for realizing creditor’s rights such as notarization expenses, litigation expenses and attorney’s agency fees incurred in this contract shall be borne by the borrower
(4) The lender has requested the borrower to make a comprehensive and accurate understanding of the terms of this contract and fully explain the terms as required by the borrower; All terms of this contract have been fully negotiated before signing; The borrower has fully understood the meaning of the terms of this contract and the corresponding legal consequences
(5) This contract is made in quadruplicate, with the lender holding two copies and the borrower, pledgor holding one copy, with the same effect.
Borrower: Zhongchai Machinery Co., Ltd
Legal representative/personnel in charge: He Mengxing (seal)
Or authorized agent
Lender(seal): Special Seal for Credit Loan of Zhejiang Xinchang Rural Commercial Bank Co., Ltd
Legal representative/personnel in charge: Zhang Zhigao
Or authorized agent
Signing date: August 23, 2022
5
Exhibit 10.5
Credit loan contract: 2021-008
Contract for Loans of Working Capital
Contract No.: 8951120220004955
Lender: Zhejiang Xinchang Rural Commercial Bank Co., Ltd
Borrower: Zhejiang Zhongchai Machinery Co., Ltd
This contract is signed by the lender and the borrower through consultation in accordance with relevant national laws, regulations and rules
Article 1 loan amount, type and purpose: the lender agrees to grant the borrower a loan of RMB (in words) seventeen million only. The type of loan is short-term loan, and the purpose of loan is Replacement of original borrowings (renewal without repayment of principal).
Article 2 loan term: the loan term of this contract starts from August 24, 2022 to August 23, 2023. If the actual lending date and maturity date are inconsistent with the above agreement, the loan receipt shall prevail
Article 3 loan interest rate: the loan interest rate of this contract is calculated by the simple interest method, which is determined in the following way (2). (if the option is checked, tick √ in front of the option)
(1) The loan interest rate of the contract shall be determined by the latest one-year period and five-year period and √other LPR√ (plus / minus) √basis points published on the natural day before the effective date of the contract (LPR, i.e. the market quotation interest rate published by the national interbank lending center, 1 basis point = 0.01%, the same below). The details shall be subject to the loan receipt, and the loan interest rate will not be adjusted during the loan term
(2) The interest rate of each loan under this contract shall be determined by adding (adding / subtracting) 20.00 basis points to the latest√LPR of √1-year and 5-year or more in the district published on the natural day before the loan issuance date of the district on the effective date of the contract, which shall be subject to the loan receipt. During the loan term, the interest rate of each loan shall be adjusted accordingly according to the following ① method, and the lender will not notify the borrower otherwise
① the interest rate of a single loan shall not be adjusted, and the interest shall not be calculated in sections
② For the interest rate repricing cycle, the adjustment date is the corresponding day of the loan Issuance Date in the month of adjustment. If there is no corresponding day in the month of adjustment, the last day of the month shall be the adjustment date. The LPR of the term varieties selected in paragraph (2) of this article in the latest period published on the natural day before the adjustment date shall be the new pricing benchmark, and the plus (minus) basis points shall remain unchanged.
(3) Others /
The calculation formula of loan interest rate under this contract is: monthly interest rate = annual interest rate ÷ 12; Daily interest rate = annual interest rate ÷ 360
Article 4 loan issuance and payment
(1)Withdrawal conditions. For the withdrawal under this contract, the borrower must meet the following conditions: 1 The borrower has not violated its obligations and responsibilities under this contract; 2. There is no adverse change in the financial condition of the borrower that may endanger, delay or prevent it from performing its obligations and responsibilities under the contract; 3. There is no breach of contract under the contract; 4. The guarantee is continuously effective, and there is no adverse change to the lender in the guarantor’s guarantee ability and the guarantee ability or value of the property; 5. The borrower has opened relevant accounts as required by the lender; 6. Other conditions required by the lender
The borrower understands and accepts the lender’s suspension of the borrower’s withdrawal request due to the influence of national policies, macro-control and regulatory requirements.
(2)Loan issuance. The borrower applies to the lender for withdrawal before using the funds. If the lender considers that the withdrawal conditions agreed in this contract are met after review, the loan funds shall be transferred to the agreed borrower’s account
(3)Loan payment, 1 Entrusted payment, The single payment amount of loan funds is RMB one million (in words, the method of entrusted payment by the lender. The lender will pay the loan funds to the borrower’s trading partner through the borrower’s account after examination and approval according to the borrower’s payment power of attorney, corresponding payment vouchers, business contracts and other supporting materials. 2. Independent payment. If it does not meet the conditions of entrusted payment by the lender, the method of independent payment by the borrower shall be adopted, and the borrower shall provide the loan funds to the lender within 3 days of the use of the loan funds Pay relevant transaction information, and summarize and report the payment of loan funds. The lender has the right to verify whether the loan payment meets the agreed purpose through account analysis, voucher inspection, on-site investigation, etc. 3 In the process of loan payment under this contract, if the borrower’s credit status drops, the profitability of its main business is not strong, and the use of loan funds is abnormal, the borrower shall negotiate with the lender to supplement the loan issuance and payment conditions, or the lender has the right to change the payment method and stop the issuance and payment of loan funds
Article 5 repayment method: the repayment method agreed in this contract is to pay interest on a monthly basis (monthly, quarterly or annual). The 20th day of the month (the month at the end of the month or the month at the end of the year) is the interest settlement date, and the next day is the interest payment date. Overdue interest payment is deemed to be a breach of contract. The principal shall be repaid in one lump sum at the expiration of the loan term, and the interest shall be paid off with it. However, if the electronic data and vouchers generated by E-banks such as loan receipt or online banking specially stipulate the repayment method of the current loan, the repayment method of the current loan shall be agreed accordingly
2
Article 6 the borrower promises that: (1) the borrower has been approved and registered by the administrative authority for Industry and commerce or the competent authority according to law, and the loan matters comply with the requirements of laws and regulations; (2)The borrower and its legal representatives, shareholders and senior managers have good letters of credit and no major bad records; (3)Timely provide the lender with documents and vouchers related to the issuance, payment and use of loan funds under this contract, and the materials, documents, data and information provided are true, accurate, complete, legal and effective; (4)Cooperate with the lender in payment management and accept the lender’s on-site and off-site investigation; (5) In case of partial or total loss of guarantee ability of the guarantor, such as suspension of business, suspension of business, bankruptcy, dissolution, revocation of business license, cancellation, merger (merger or acquisition) or serious business losses, the guarantor is obliged to inform the lender in time and provide guarantee approved by the lender in time according to the requirements of the lender; (6) All transactions between the borrower and its related parties will be conducted in good faith, fair and will not directly or indirectly damage the interests of the Lender under this contract; (7) If the borrower has multiple debts with the lender, the lender can independently decide the repayment order of each debt; (8)Notify the lender in time in case of major adverse events affecting solvency.
Article 7 Loan extension: if the borrower needs to extend the loan term, it shall submit an application to the lender in writing before the maturity date of the loan. With the consent of the lender and the guarantor, the lender, the borrower and the guarantor shall separately sign a loan extension repayment agreement. After the loan extension, when the extended term plus the original term of the loan reaches the new interest rate term grade, the interest rate shall be determined according to the current interest rate grade of the cumulative term.
Article 8 Any of the following circumstances shall constitute a breach of contract or risk event: (1) failure to repay the loan principal or interest on schedule, or failure to repay the loan principal and interest according to the repayment method specially agreed in the loan receipt;(2) Failing to use the loan according to the agreed purpose of the loan;(3) Failure to pay the loan funds in the agreed manner;(4) Failure to comply with the commitments of the contract;(5) Failing to pay off other due debts to the lender on schedule;(6) Failing to pay off the due debts of any other financial institution or a third party on schedule;(7) Property is looted and other events;(8) Involved in major adverse litigation; (9) Being imposed a major administrative penalty by an administrative organ;(10) Shut down due to poor management; (11) concealing the financial and operating conditions of the enterprise or withdrawing funds (capital);(12) Contracting, entrusted operation, trusteeship, leasing, joint venture merger, merger, division, transfer, share system transformation or reduction of registered capital without the written consent of the lender;(13) Failing to inform the lender in writing one month before the date of change of the enterprise name, legal representative, shareholder, domicile or business scope and other industrial and commercial registration items;(14)Tax evasion, bankruptcy, dissolution, ordered to suspend business for rectification or revoked (revoked) business license;(15) The guarantor dies, disappears or loses civil capacity, and the borrower is unable to add qualified guarantee;(16) Other situations that seriously affect the ability to repay debts or lose credit.
3
During the validity of this contract, in case of the borrower’s breach of contract or risk event in (I) (II) (V) (VIII) (x) (XII) (XIII) (XIV) (XVI) above, the lender has the right to take any one or more of the following measures, including but not limited to: 1 Calculate and collect penalty interest and compound interest according to regulations; 2. Stop issuing loans, announce the early maturity of the loans issued under this contract, and require the borrower to repay all loans and corresponding interest, penalty interest and compound interest immediately; 3. Stop payment and deduct corresponding funds from the accounts of the borrower and the guarantor as agreed to repay the loan principal, interest and expenses; 4. Require the guarantor to perform joint and several guarantee liability; 5. Require the realization of mortgage; 6. Terminate the contract in advance; 7. Other measures permitted by law.
During the validity period of this contract, in case of the borrower’s breach of contract or risk events in (3) (4) (6) (7) (9) (11), (15) above, the lender has the right to require the borrower to provide a new guarantee for the creditor’s rights under this contract that meets the requirements of the lender, or take other measures to ensure that the legitimate rights and interests of the lender are not infringed, and the borrower fails to provide a new guarantee as required by the lender, Or the measures taken fail to ensure that the legitimate rights and interests of the lender are not infringed, the lender has the right to take any one or more of the following measures, including but not limited to: 1 Calculate and collect penalty interest and compound interest according to regulations; 2. Stop issuing loans, announce the early maturity of the loans issued under this contract, and require the borrower to repay all loans and corresponding interest, default interest and compound interest immediately; 3. Stop payment and deduct corresponding funds from the accounts of the borrower and the guarantor as agreed to repay the loan principal, interest and expenses; 4. Require the guarantor to perform joint and several guarantee liability; 5. Require the realization of mortgage; 6. Terminate the contract in advance; 7. Other measures permitted by law.
Article 9 Loan guarantee: the guarantee provided by the borrower shall maintain its due guarantee capacity until the lender’s rights under this contract are extinguished. If the guarantee ability of the property is reduced or loses its guarantee function, or one of the circumstances in items (4) to (16) of Article 8 above occurs to the guarantor, the lender has the right to stop the loan not issued under the contract and recover the undue loan in advance
Article 10 Liability for breach of contract:
(1) the borrower’s breach of contract and its liability for breach of contract: 1 If the principal of the loan (including extension) is not repaid on schedule, the penalty interest shall be charged at the interest rate of 50% plus the penalty interest rate agreed in the loan contract from the date of overdue If the loan interest and penalty interest are not paid on schedule, compound interest shall be calculated and charged at the penalty interest rate, 3 If the loan is not used in accordance with the contract, the loan misappropriated shall be charged at the agreed interest rate during the misappropriation period_ The penalty interest rate is 100%. 4. The borrower shall repay the loan in advance with the consent of the lender; The lender has the right to charge the borrower interest on the loan repaid in advance according to the term and interest rate agreed in the contract, but with the consent of the lender, the interest can be calculated and charged according to the interest rate agreed in the contract and the actual number of days.
(2) Lender’s breach of contract and its liability for breach of contract: if the lender fails to provide the loan to the borrower in accordance with the contract, it shall pay liquidated damages to the borrower according to the amount of breach of contract, the overdue default interest rate and the number of days of breach of contract
Article 11 Performance of the contract: (1) when the lender transfers the loan to the borrower’s account, it shall be deemed that the lender has fulfilled its obligation to issue the loan. (2) When the lender recovers the principal and interest of the due loan or recovers the principal and interest of the loan in advance according to the contract, it can directly stop the payment from the borrower’s account and deduct the corresponding amount to repay the principal and interest of the loan and expenses.
4
Article 12 Establishment, effectiveness and dissolution of the contract: (1) the contract shall be established from the date of signature, seal or finger print of each friend; And the borrower shall provide a qualified guarantee for the creditor’s rights of the lender, which shall take effect from the date when the State Food Co guarantee contract is established and takes effect. (2) within 30 days from the date of the establishment of this contract, if the borrower should provide a qualified guarantee for the creditor’s rights of the lender but fails to provide a qualified guarantee, the lender has the right to terminate this contract.
Article 13 Other agreed matters: the lender authorizes its subordinate business institutions and outlets to specifically handle financing business. The borrower knows the above situation and has no objection, and the borrower confirms the special fund return account of the loan:201000169217811.
Article 14 Use of information: the borrower agrees that the lender shall enter (query and disclose) the relevant information of the borrower in the basic database of personal (enterprise) credit information and relevant information system of the people’s Bank of China in accordance with the relevant provisions of the people’s Bank of China or other administrative departments. When the borrower breaches the contract, the lender has the right to disclose the breach information according to law according to the breach, or provide relevant information to the collection agency for the purpose of collection.
Article 15 Dispute resolution: disputes arising from this contract shall be settled by the parties through negotiation: if the negotiation fails, either party shall have the right to choose the following dispute resolution methods (tick √ in the front of the option)
√Submit the dispute to the people’s Court of the place where the lender is domiciled for settlement through litigation
Submit the dispute to the Arbitration Commission for arbitration in accordance with the arbitration rules in force at the time of applying for arbitration. The arbitration award is final and binding on all parties.
Article 16 Others
(1) The guarantee contract corresponding to this contract is 8951320200001386, which is an integral part of this contract
(2) Vouchers and attachments such as loan receipts are an integral part of this contract and have the same effect as this contract
(3) All reasonable expenses for realizing creditor’s rights such as notarization expenses, litigation expenses and attorney’s agency fees incurred in this contract shall be borne by the borrower
(4) The lender has requested the borrower to make a comprehensive and accurate understanding of the terms of this contract and fully explain the terms as required by the borrower; All terms of this contract have been fully negotiated before signing; The borrower has fully understood the meaning of the terms of this contract and the corresponding legal consequences
(5) This contract is made in quadruplicate, with the lender holding two copies and the borrower,mortgagor holding one copy, with the same effect.
Borrower: Zhongchai Machinery Co., Ltd
Legal representative/personnel in charge: He Mengxing (seal)
Or authorized agent
Lender(seal): Special Seal for Credit Loan of Zhejiang Xinchang Rural Commercial Bank Co., Ltd
Legal representative/personnel in charge: Zhang Zhigao
Or authorized agent
Signing date: August 25, 2022
5
Exhibit 10.6
ABC (2021) 1003-1
AGRICULTURAL BANK OF CHINA
Agricultural Bank of China Limited
Contract for Loans of Working Capital
No.: 33010120220025048
Dear customer: in order to protect your rights and interests, please carefully read the terms of this contract (especially the terms in BOLD) and pay attention to your rights and obligations in the contract before signing this contract. If you have any questions about this contract, please consult the lender. For business consultation and complaints, please call the customer service hotline of Agricultural Bank of China: 95599.
Catalogue
Article 1 Definition
Article 2 Borrower's commitment
Article 3 Basic terms
3.1 Loan method
3.2 Loan purpose
3.3 Interest rate, penalty, compound interest
3.4 Withdrawal and loan break payment
3.5 Financial index supervision 1122334566
3.6 Account management
3.7 Repayment 3.9.3.10 rights and obligations
Article 4 Supplementary terms
Article 5 Legal responsibilities
Article 6 Other matters
2
Borrower (full name): Shijiang Zhongchai Machinery Co., Ltd.
Location (address): No. Xi Road, Gouzhu Town, Xinchang County
Tel: 86 57586298266 fax:
legal representative / person in charge: He Mengxing
Lender (full name): Xinchang County Branch of Agricultural Bank of China
Location (address): No. 1 Middle Gushan Road, Nanming Street, Xinchang County
Tel: 057584272871 fax:
Legal representative / person in charge: Yu Guojiang
According to relevant national laws and regulations, both parties have reached an agreement through consultation, unless otherwise agreed
Article 1 Definition
The following terms in this contract have the following meanings except for other stipulations:
1.1 Working capital loan: refers to the loan issued by the lender to the borrower for the borrower's daily production and operation turnover, including general working capital loan and recyclable working capital loan.
1.2 General working capital loan: refers to the borrower's withdrawal in one or several times within the loan term Non recyclable working capital loan after repayment
1.3 Revolving working capital loan: refers to the working capital loan that can be recycled after repayment after the borrower withdraws several times as needed within the loan limit and the validity period of the loan limit. Among them, for self-service revolving working capital loans, the borrower can withdraw the loan funds independently through the lender's business counter or self-service electronic channels.
1.4 Loan term: including total loan term and single loan term. The total loan term refers to the period from the date of issuance of the first loan to the date on which the borrower shall pay off all the principal and interest of the loan as agreed in the contract: the term of a single loan refers to the period from the date of issuance of a single loan in the installment withdrawal to the agreed date on which the borrower pays off the principal and interest of the loan.
1.5 Loan limit: refers to the loan principal limit provided by the lender to the borrower within the validity period of the limit agreed in the contract. Within the validity period of the loan limit and the loan limit, the borrower can recycle the loan, but the sum of the loan amount applied by the borrower and the balance of the loan principal outstanding by the borrower under this contract shall not exceed the loan limit. When the validity period of the limit expires, the unused loan limit will automatically become invalid.
16. Validity period of the loan limit: refers to the period from the effective date of the loan limit to the expiration date of the loan limit.
1.7 Self service Electronic Channel: refers to the electronic channels such as handheld bank, online bank, telephone bank and cash management channel provided by the lender for withdrawal under the self-service revolving working capital loan method.
1.8. Period: the period is calculated by day, month and year, If the last day of the expiration of the period is a legal holiday, the first working day after the holiday shall be the expiration date of the period.
1.9 LPR: LPR: abbreviation of loan prime rate, It refers to the quoted interest rate of the loan market published by the national interbank lending center on the 20th of each month. At present, it includes two varieties of 12-year loan and more than 5-year loan.
3
1.10 LIBOR: London Inter Bank Offered Rate (LIBOR), London Inter-Bank Offered Rate (LIBOR) is offered in USD, UK, Euro, Yen and Swiss Franc.
1.11 SOFR: Secured Overnight Financing Rate, an abbreviation for secured overnight borrowing rate, is used in U.S. dollars only. Among them,SOFR term interest rate refers to the SOFR futures or derivatives trading based on the calculation of each term interest rate, reflecting the SOFR interest rate for a period of time in the future.
1.12 SONTA Sterling Overnight Index Average. Overnight index average. GBP only.
1.13 EURIBOR: Short for Euro Inter Bank Offered Rate, which is the European interbank Offered rate, used only in Europe.
1.14 TIBOR: Short for Tokyo Inter Bank Offered Rate, which is used for yen only.
1.15 SARON: Swiss Average Rate Overnight overnight, an abbreviation for the Swiss franc.
1.16 HIBOR：Hong Kong inter bank offered rate，It is the interbank lending rate of Hong Kong banks，which is only used for Hong Kong dollars.
1.17 SIBOR：Singapore inter bank offered rate，It is the interbank lending rate of Singapore banks, limited to Singapore dollars.
1.18 Withdrawal date: refers to the date when a single loan is transferred to the borrower's account.
1.19 Laws and Regulations: including the people's law of China, administrative regulations, local regulations, rules, judicial interpretations and other provisions with legal effect.
1.20 Annualized interest rate: it refers to the interest rate calculated based on the proportion of all loan costs charged to the borrower and the actual occupied loan principal and converted into annualized form. There are no costs directly related to the loan under this contract. In this contract, the loan interest rate and the loan execution interest rate refer to the annualized interest rate of the loan, which is the annualized interest rate calculated based on the interest cost charged to the borrower. The above loan cost does not include the contingent costs that may occur according to this contract, such as the penalty interest or compound interest that may be incurred if the loan is overdue or in breach of contract, and the expenses for the lender to realize its creditor's rights.
Article 2 The borrower promises as follows:
2.1 Legal compliance of loan application: the borrower is an enterprise (institution) legal person established according to law and approved and registered by the competent department or other organizations that can be used as the borrower according to national regulations: the borrower, its main shareholders and actual controllers have good credit, no major bad records, no overdue debts, the purpose of the loan and the source of repayment are clear and legal: the borrower's production and operation are legal and compliant, in line with national industrial, environmental protection and other relevant policies: the borrower, its main shareholders The actual controller is not involved in money laundering, terrorist financing, tax evasion, sanctions and other acts, and the environment and production safety comply with national regulations, and has formulated necessary measures to prevent and respond to environmental and social risks: the borrower, its main shareholders, actual controllers, legal representatives and senior executives are not engaged in illegal fund-raising, underworld and evil related and other illegal financial activities through private lending; there are no other violations of laws and regulations.
4
2.2 There is no flaw in the act of signing the network. In order to sign this contract or perform its voluntary signature under this contract, the borrower has performed the necessary renewal in accordance with laws and regulations or the articles of association: the legal representative / person in charge or authorized agent of the borrower signs or seals this contract: actively handle or cooperate with the lender in handling contract approval Registration or filing procedures: there are no other circumstances that may lead to the effectiveness of the loan contract due to the borrower.
2.3 The guarantee provided is legal and valid: the borrower ensures that the guarantor has completed the necessary formalities in accordance with laws and regulations or the articles of association of the subsidiary for signing the guarantee contract or performing its obligations under the guarantee contract: the guarantor has the right to establish a guarantee with the collateral; those who sign the guarantee contract have the right to urge the guarantor to actively handle or cooperate with the lender in handling the approval of the guarantee contract Registration or filing procedures and registration procedures of guarantee: each guarantee is free from other validity defects or major adverse changes.
2.4 Contract rights and obligations of Yizhan bank in good faith: use the loan according to the time limit, purpose, party or other laws agreed in the contract, and do not use the loan for fixed assets, equity and other investments, as well as the fields and purposes prohibited by the state, As well as not accumulating loans to engage in illegal and illegal acts, not all using loans: accumulating the relevant national competent departments and lenders to carry out loan payment management, post goods management and relevant inspection: timely and fully state the payment for goods in accordance with the contract, and do not evade debts in any way; conducting foreign investment, substantially increasing debt financing, merger, division Obtain the lender's consent before the transfer of accumulated funds and other major matters: the lender has the right to recover the loan in advance according to the borrower's return of funds: in case of re discussion, major changes in senior management, changes in accounting policies and major adverse events affecting the residual debt ability, timely notify the lender: there are other violations of contractual obligations.
2.5 The borrower has not concealed from the lender any event that has occurred or is occurring and may affect its financial status and solvency, including but not limited to:; Litigation, arbitration, other administrative procedures or claims.
2.6 The borrower shall timely provide the lender with true, complete, accurate, legal and effective materials, including but not limited to the borrower, guarantor, shareholder and other relevant documents.
Article 3 Basic terms
3.1 Loan method the lender shall grant loans to the borrower in accordance with the following loan method (1)
(1) General working capital borrowings
① Currency and amount of the loan (in words): RMB eighteen million only
② Total loan term (in words): 1 year
③ Amount and term of single loan:
5
| Loan amount | Issue date | Loan term |
| 18.00 million Yuan | August 30, 2022 | August 29, 2023 |
(The attached table added due to insufficient columns in the table is an integral part of the contract.)
(2) Revolving loan
① Loan limit and amount (in words)
② Validity period of the limit (in words) (mm / DD / yyyy) (mm / yyyy),
(3) Revolving working capital loan
① Currency and amount of loan limit (in words)
② Validity period of the limit (in words) (mm / DD / yyyy) to (mm / DD / yyyy)
3.2 Purpose of loan
The loan under this contract is used for: production and operation
3.3 interest rate, penalty interest and compound interest
3.3.1 loan interest rate (i.e. annualized loan interest rate)
3.3.1.1 for RMB loans, the interest rate shall be determined according to the following method (1)
(1) Fixed interest rate: it is determined according to the LPR plus (plus / minus) 20.00bp (LBP = 0.01%) for the 1-year period (more than 1 year / 5-year period) on the day before the withdrawal date of single loan (withdrawal date of single loan / contract signing date). The loan interest rate is fixed during the loan term until the maturity date of the loan
(2) Floating interest rate: it is determined according to the LPR agreed in each cycle plus or minus a certain point difference, and fluctuates according to the cycle. Under this contract, the interest rate adjustment takes (in words) months as a cycle, the point spread is (plus / minus) BP (LBP = 0.01%), and the point spread remains unchanged during the loan term. Among them, the LPR executed in the first cycle is the LPR on the day before the loan withdrawal date (years / more than 5 years), and the P executed in each cycle thereafter is re determined according to the L of the loan withdrawal date on the day before the corresponding day of the first month of the cycle. If there is no corresponding day of the loan withdrawal date, the last day of the month shall be regarded as the corresponding day.
(3) Other methods:/
3.3.1.2 For USD exchange loans, the interest rate shall be determined according to the following method / (zero interest rate if the base rate is negative):
(1) applicable on the single borrowing withdrawal date / (Overnight SOFR rate /SOFR term rate/other forms SOFR interest rate (specific term varieties are:/) is determined by adding or subtracting a point difference for the pricing base, and the point difference is _/__(plus/ cut)
6
(capital words)bp (1bp=0.01%), the spread remains constant over the term of the loan. Based on the first interest rate determination date on the withdrawal date of a single loan, the pricing base will be adjusted in the following way / , and the interest will be calculated separately:
① The pricing base is / (capitalized)(Day/month) indicates an adjustment period. The interest rate determination date for the second and subsequent installments is / (first rate fixing date/previous rate fixing date) the corresponding date after the completion of the period. The Lender adjusts the borrowing rate on that date in accordance with the applicable pricing base and the aforementioned spread. If the whole month is the adjustment period, if there is no item period corresponding to the previous interest rate fixing date in the adjustment month, the last day of the month is the corresponding day.
② The pricing base is not adjusted throughout the loan term.
(2) LIBOR applicable on the withdrawal date of a single loan (specific term varieties are: / ) is the pricing base plus or minus a point difference is determined, the point difference is / (plus/minus) / (capital words) bp(1bp=0.01%), the point difference stays the same for the duration of the loan. With the first interest rate fixed on the withdrawal date of a single loan, the pricing base will be adjusted in the following way / , and the interest will be calculated separately:
① The pricing base is / (Capital words) a month is an adjustment period. The interest rate determination date for the second and subsequent installments is / (first rate fixing date/previous rate fixing date) the corresponding date after the completion of the period. The loan income will be adjusted on that date in accordance with the applicable pricing base and the aforementioned point spread. If there is no date corresponding to the previous rate determination in the month of adjustment, the last day of the month shall be the corresponding day.
② The pricing base is not adjusted throughout the loan term.
For the above two benchmark pricing adjustment ways, June 30, 2023, borrowing rates determined in accordance with the rates we us read the above agreement executed: after 30th June 2023, according to the following rules for pricing benchmark transformation: in 2023 after 30 years of the first rate determine the applicable, corresponding rate for SOFR Ming limit pricing benchmark, plus Adjust the interest rate spread, add the original point source, and determine the borrowing rate (borrowing rate after conversion = SO interest rate of corresponding term + adjusted interest rate spread + origin difference). Adjusted spreads are shown in the table below. In addition to the pricing base, other agreements (such as the method of interest, settlement, penalty and interest, etc.) remain unchanged.
Adjustment of Dollar SOFR and LIBOR rate (bp)
| currency | 1 month | 3 month | 6 month | 1 year |
| USD | 11.45 | 26.16 | 42.83 | 71.51 |
(3) The interest rate is% until the maturity date of the loan.
(4) Other ways
7
3.3.1.3 / (British GBP/ Euro EUR/ yen JPY/ Swiss franc CHF/ Hong Kong Dollar HKD/ Singapore dollar SGD/ other non-US dollar foreign currencies), the interest rate shall be determined in the following way (zero interest rate shall be applied when the base rate is negative):(1) The interest rate is applicable on the withdrawal date of a single loan / (SONIA/ERUIBOR/TIBOR SARON/HIBOR/SIBOR/other) Term interest rate (Specific term varieties are:
Is determined by adding or subtracting a point difference of the pricing base, and the point difference is -(plus/ cut) (capital words)bp (1bp=0.01%), the spread remains constant over the term of the loan. Based on the first interest rate determination date of the single loan withdrawal date, the pricing base will be adjusted in the following way:
① The pricing base is (Write) monthly for an adjustment period. The interest rate determination date for the second and subsequent installments is (first rate fixing date/previous rate fixing date) the corresponding date after the completion of the period. The lending rate will be adjusted on that date in accordance with the applicable pricing base and the aforementioned spread. If there is no date corresponding to the previous interest rate in the month of adjustment, the last day of the month shall be the corresponding day.
② The pricing base is not adjusted throughout the loan term.
(2) Overnight through which a single loan is drawn Drawing attached (SONIA/ESTR/TONA/SABON/HIBOR/other) stand
Price base plus or minus a fixed point difference to determine the point difference is (plus/minus)
(Capital bp(1bp=0.01%), point difference. It remains unchanged over the life of the loan. The record price base is adjusted on a daily basis, and interest is calculated on a daily basis. Single loan withdrawal date First rate fixing date, subsequent rate fixing date Each natural day after the first rate fixing chart.
(3) The annual interest rate is fixed at S-%, and the borrowing interest rate is fixed within the borrowing term until the maturity date of the borrowing.
(4) Other ways
3.3.1.4 Interest rate determination day should be applicable to the pricing benchmark
For the overnight benchmark interest rate in Article 3.3.1.2 and Article 3.3.1.3, the interest rate fixing date, if the interest rate fixing date is not a working day, the working day before or near it is T day) shall be the applicable pricing benchmark. The interest rate value of the currency pricing base agreed under this Contract corresponding to the term T-5 working days as shown in English of the financial telecommunication terminal.
For the non-overnight benchmark interest rate used in article 3.3.1.2 and Article 3.3.1.3, interest and other fixed date (T day, such as interest rate fixed date is not a working day, the most recent working day before T day) should be applicable to the pricing benchmark. The currency pricing base of the loan agreed under this Contract as shown on the final page of Financial Telecommunications is the interest rate value for the maturity of T-3 working days.
The above-mentioned working days refer to the local working days of the administrative institution of the currency pricing benchmark of borrowing money.
3.3.2 Method of interest calculation and settlement
3.3.2.1 Borrowing per month (month/quarter/half year/year) settlement, settlement date for every
(Month/quarter end month /
8
The date of any other form of notification to the borrower shall be counted.
3.3.2 Interest calculation and settlement methods
3.3.2.1 The interest of the loan shall be settled monthly (month / multiply / year). The interest settlement date is the 20th day of each month (month / quarter end month / year end month). The borrower shall pay the interest on each interest settlement date. If the last repayment date of the loan principal is not on the interest settlement date, the unpaid interest shall be paid with the principal.
3.3.2.2 The interest of the loan hereunder shall be calculated from the date of withdrawal of a single loan. For the loan with fixed interest rate, the interest shall be calculated according to the loan interest rate agreed in the contract. For the loan with floating interest rate, the interest shall be calculated according to the interest rate determined in the current period of each floating period: if the interest rate fluctuates for many times in a single interest settlement period, the interest of each floating period shall be calculated first, and then the interest of each floating period shall be added up. Where other interest rates are applied, interest shall be calculated in accordance with the agreement
3.3.2.3 If the due date of the loan is a legal holiday or public holiday, the normal repayment date shall be extended to the first working day after the legal holiday or public holiday, and the interest shall be calculated and charged according to the agreed interest calculation method during the extended period
3.3.3 Default interest
3.3.3.1 If the borrower fails to repay the loan principal within the time limit agreed in the contract, the lender shall pay the overdue loan on the basis of the loan execution interest rate agreed in the contract from the date of overdue, The penalty interest shall be calculated and charged by stages according to the overdue period: the penalty interest shall be calculated and charged by floating fifty-three percent (in words) within 30 days (including 30 days); the penalty interest shall be calculated and charged by floating five percent (in words) from 30 days to 60 days (including 60 days); the penalty interest shall be calculated and charged by floating five percent (in words) over 60 days. During the transit period, the penalty interest rate of fixed interest rate loan shall be fixed; if the floating interest rate loan is adjusted by LPR, the penalty interest rate shall be calculated and charged in accordance with 3.3.1.1 (2) of this contract Determination of loan interest rate after floating in the agreed way
3.3.3.2 If the borrower fails to use the loan according to the purpose agreed in the contract, the lender shall calculate and charge the default interest on the loan used in breach of contract by floating the value (in words) by percent on the basis of the agreed loan interest rate from the date of use in breach of contract until the principal and interest are paid off. During the use period of default, the default interest rate of fixed rate loan shall be fixed and unchanged: if the floating rate loan is adjusted by LP, the default interest rate shall be determined according to the loan interest rate after floating according to the method agreed in 3.31.1 (2) of the contract
3.3.3.3 If the same loan is overdue and not used according to the purpose agreed in the contract, the penalty interest rate shall be calculated according to the higher one.
3.3.4 The annualized interest rate, loan interest rate and execution interest rate of the loan under this contract are calculated by the simple interest method, except that the lender agreed in this contract calculates and collects compound interest on the unpaid interest payable by the borrower in accordance with the provisions of the people's Bank of China. See article 3.3.5 for details
3.3.5 Compound interest
If the borrower fails to pay the unpaid interest payable on schedule, the lender shall charge compound interest on a monthly basis (quarterly and monthly) from the date when the unpaid interest payable by the borrower is not paid on schedule. The unpaid interest payable includes the unpaid interest payable during the loan period (including default interest) and the unpaid interest payable after the loan is overdue (including default interest and default interest). The unpaid interest payable during the loan period shall be compounded at the execution interest rate of the loan agreed in the contract before the payment date, and at the overdue loan interest rate after the repayment date: the unpaid interest payable for overdue borrowing shall be compounded at the overdue loan interest rate
9
3.4 Withdrawal and loan payment
3.4.1 Withdrawal conditions
3.4.1.1 When applying for withdrawal, the borrower shall meet the following conditions at the same time
(1) The borrower is qualified to undertake capital: if its corresponding decision-making body or authorized body has made a loan decision according to law and needs to be reviewed by relevant departments, it has been approved
(2) The relevant guarantee procedures required by the lender have been completed, and the guarantee is legal and effective
(3) The loan shall comply with the provisions of laws and regulations and the loan contract and the corresponding service contract
(4) The relevant commitments made by the borrower at the time of signing the contract are still true 2 and effective at each withdrawal, and there are no major or substantial adverse changes and other major adverse circumstances that may affect the performance of the contract
(5) Other fixed items
3.4.1.2 If the borrower fails to implement the provisions agreed in 34.1.1 within 3 (3 / 6 / 9) months from the date of signing this contract, the lender has the right to terminate this contract. When the lender terminates the contract, the objection period of the borrower is seven days, which is calculated from the date when the lender notifies the borrower in writing, oral or other forms.
3.4.2 Withdrawal method
3.4.2.1 Borrowing of general working capital
3.4.2.1.1 The borrower shall withdraw the loan according to the demand for international funds. The specific withdrawal plan is as follows:
One-time withdrawal
Among them, the first loan must be withdrawn before (mm / DD / yyyy), and the last loan must be withdrawn before (mm / DD / yyyy). If the borrower fails to go through the withdrawal procedures in accordance with the withdrawal plan agreed in the contract, the lender can cancel or partially cancel the undrawn loan, and can re determine whether to issue the letter of credit and the withdrawal conditions
3.4.2.1.2 The lender shall withdraw the proposal money according to the agreed date and amount. If the borrower Huang adjusts the withdrawal plan, he shall apply to the lender Zhu Risha in advance and make the adjustment with the consent of the lender.
10
3.4.2.2 Recycle working capital loan
3.4.2.2.1 The borrower can apply to the lender for withdrawal of the loan one by one according to the needs within the loan limit, and handle the withdrawal after being reviewed and approved by the lender, but the loan term shall not exceed one month, and the term shall not exceed six months after the expiration date of the limit. 3.4.2.2.2 when applying for withdrawal of the loan, the borrower must submit the loan application to the lender and provide the relevant materials such as business contracts, invoices and other vouchers corresponding to the use of the loan
3.4.2.3 Self service revolving working capital loan
The borrower may withdraw the loan one by one as required through the business counter or self-service electronic channel provided by the lender within the loan limit, but the loan amount of a single loan shall not be less than RMB 50000 and shall be an integral multiple of RMB 10000, the loan term shall not exceed one year, and the expiration date shall not exceed the expiration date of the validity of the limit
3.4.3 Loan payment 3.4.3.1 entrusted payment
3.4.3.1.1 Under any of the following circumstances, the borrower shall entrust the lender to pay the loan fund to the counter-party of the borrower who meets the purpose agreed in this contract and the corresponding business contract
(1) The payment object is clear and the single withdrawal amount exceeds 10000 yuan (including equivalent foreign currency)
(2) Other circumstances agreed by both parties
3.4.3.1.2 If entrusted payment is adopted, the borrower shall submit withdrawal application and entrusted payment notice to the lender in advance, and provide relevant materials such as business contracts, invoices and other vouchers corresponding to the use of funds as required by the lender. After review and confirmation, the lender will directly pay the loan to the borrower's counterparty through the borrower's account. If the borrower's withdrawal application does not meet the withdrawal conditions agreed in the contract, or the payment entrustment application is inconsistent with the contract, the transaction information is incomplete or untrue, the lender may not issue or pay the corresponding loan: the lender shall not be liable for the borrower's breach of contract or other losses to the counterparty. If the payment information provided by the borrower is inaccurate and incomplete, resulting in the delay or failure of fund payment, the lender shall not be liable
3.4.3:1.3 If the borrower applies for suspension of payment or withdrawal of payment entrustment, it shall submit it to the lender in writing before the lender makes payment. After the lender's review and confirmation, the entrusted payment shall be suspended and the corresponding loan can be recovered: during this period, the interest of the corresponding loan shall be calculated and charged according to the contract. After the entrusted payment is suspended, if the borrower applies for the resumption of the payment entrustment, the payment entrustment shall be handled according to article
3.4.3.1.4. If the borrower attaches conditions in the entrusted payment notice, the attached conditions shall not have obligations to the lender. Unless otherwise agreed in writing by both parties, the lender shall not be obliged to notify the payee of the entrusted payment, suspension of payment, withdrawal of payment, resumption of payment and other matters handled by the lender
11
3.4.3.1.5 If entrusted payment is adopted, the lender has the right to restrict the payment behavior and cashing function of non counter channels such as handheld bank, online bank, telephone bank and cash management channel of the borrower's relevant account
3.4.3.2 Independent payment
3.4.3.1.1 Except as agreed in article 3.4.3.1.1, after the loan is released to the borrower's account, the borrower can make independent payment in accordance with the contract. The borrower shall inform the lender of the payment of the loan funds as required by the lender, and timely provide the use records of the loan funds and the relevant materials such as business contracts, invoices and other vouchers corresponding to the use of the funds as required by the lender. The lender can verify whether the loan payment meets the agreed purpose through account analysis, voucher inspection, on-site investigation, etc
3.4.3.3 In the process of loan payment, if the borrower's credit status drops, the profitability of its main business is not strong, the use of loan funds is abnormal, the borrower fails to pay the loan according to the contract, fails to pay the loan funds according to the method agreed in the contract, and evades the lender's entrusted payment by breaking up the whole into parts and providing false information, the lender may negotiate with the borrower to supplement the loan issuance and payment conditions, and change the loan payment method according to the contract Or stop loan issuance and payment
3.4.4 Withdrawal reversal
3.4.4.1 If the loan withdrawn by the borrower exceeds the amount actually paid by the borrower for the relevant transaction or the transaction amount is reversed due to the non lender reasons such as the failure to actually perform, cancellation or invalidity of the business contract corresponding to the loan under the contract, the borrower shall return the corresponding loan funds to the lender.
3.4.4.2 If the borrower fails to pay the loan funds in the agreed manner, the lender has the right to recover the loan funds not paid in accordance with the agreement,
3.4.4.3 Before the loan fund is returned to the lender in accordance with articles 3.4.4.1 and 3.4.4.2, The interest shall be calculated and settled in accordance with articles 3.3.1 and 3.3
3.5 in case of the following situations (1), (2) and (3) in the supervision of financial indicators, the borrower shall implement the debt guarantee measures approved by the lender as required by the lender, otherwise, the lender may take the relief measures agreed in article 5.3
(1) The borrower's asset liability ratio has reached more than 70%.
(2) The borrower's contingent liability ratio exceeds 50%
(3) The borrower's operating cash flow is negative for the second two years
(4) Others:
3.6 Account supervision
3.6.1 The borrower designates the following accounts as fund withdrawal accounts
Account Name: Zhejiang zhongchai Machinery Co., Ltd
Account No.: 1952520840098980
12
3.6.2 When the loan is fully deposited, the following regulatory measures shall be taken for the fund return account:
(1) The borrower is required to provide the capital in and out of the capital return account in time
(2) Other
3.7 Repayment
3.7.1 Repayment method
3.7.1.1 The borrower shall deposit the principal and interest of the loan payable in the current period into the repayment account designated by the lender days before the repayment date, and irrevocably authorize the lender to transfer from the account.
3.7.1.2 If the borrower fails to repay the debts due (including those declared to be due in advance) under the contract as agreed, the lender has the right to deduct corresponding funds from all accounts opened by the borrower with the lender or other branches of Agricultural Bank of China for settlement until all debts of the borrower under the contract are paid off
3.7.1.3 If the lender exercises the right of set off in accordance with the law or the contract, the objection period of the borrower is seven days, calculated from the date when the lender notifies the borrower in writing, orally or in other forms
3.7.2 Repayment order
3.7.2.1 Unless otherwise agreed by both parties, the repayment of the borrower shall be paid in the following order
(1) The order of repayment between the borrower and the lender, and the amount of debts due to be paid by the borrower and not enough to be repaid by the lender;
(2) If the lender exercises the right of set off against the borrower in accordance with the law or the contract, the debt to be set off and the order of set off shall be determined by the lender: when the lender exercises the right of subrogation, the debt to be paid off by the secondary debtor to the lender and the order of set off shall be determined by the lender.
3.7.2.2 If the borrower's repayment is insufficient to pay off the loan payable, the lender may choose to use the repayment to pay off the principal, interest, default interest, compound interest or realize the cost of debt correction
3.7.3 Prepayment
3.7.3.1 In case of prepayment, the lender shall submit a written application to the lender seven days in advance. After reaching an agreement with the lender, the prepayment can be made. The repayment order of prepayment shall be subject to the provisions of article 3.7.2.
3.7.3.2 When the borrower prepays, the interest on the prepayment part shall be calculated and charged according to the following method (1), and the interest shall be paid off with the principal
(1) The interest shall be calculated and charged according to the actual loan term and the loan interest rate agreed in the contract
(2) The interest shall be calculated and charged by floating% on the basis of the loan interest rate agreed in the contract according to the actual loan term.
13
(3) Others:
3.7.3.3 If the borrower repays in advance, the principal repayment shall not be less than one hundred thousand yuan and shall be an integral multiple of ten thousand yuan
3.7.3.4 If the borrower repays part of the loan in advance, the interest of the loan that has not been repaid shall still be calculated and paid according to the loan interest rate agreed in the contract
3.7.4 Extension
If the borrower of general working capital loan cannot repay the loan according to the agreed repayment date, he may apply to the lender for extension. The borrower shall submit the extension application to the lender 15 days before the maturity date of the loan, and sign the extension agreement with the borrower with the consent of the lender
3.8 Loan voucher
3.8.1 The loan voucher is an integral part of this contract. If there is no record in this contract, or the recorded loan amount, withdrawal amount, repayment amount, loan Issuance Date and maturity date, loan term, loan interest rate and loan purpose are inconsistent with those recorded in the loan voucher, the records in the loan voucher shall prevail
3.8.2 Under the self-service revolving working capital borrowing method, if the borrower withdraws the loan through the self-service electronic channel, the loan amount, withdrawal amount, repayment amount, loan Issuance Date and maturity date, loan term, loan interest rate and loan purpose shall be subject to the electronic transaction record formed by the self-service electronic channel.
3.9 Guarantee.
3.9.1 The guarantee method of the loan under the contract is mortgage.
3.9.2 The guarantee contract shall be separately signed by the lender, the borrower and the guarantor. If the maximum amount guarantee is adopted, the guarantee contract number is 33100620200087764.
3.10 Rights and obligations
3.10.1 Rights and obligations of the borrower
(1) Withdraw the loan according to the contract
(2) Repay the principal and interest of the loan on time and in full
(3) The loan shall be used in accordance with the purposes and methods stipulated in laws and regulations or agreed in the contract. The loan shall not be used for fixed assets, equity and other investments, nor for the fields and purposes prohibited by the state
(4) Accept and actively cooperate with the lender and its client to supervise and inspect the financial activities, loan use and other relevant matters, and timely submit the loan use, finance and other relevant materials and information required by the lender to the lender at the request of the lender; Cooperate with the lender to carry out the assessment and disposal of anti money laundering, anti terrorist financing, anti tax evasion and sanctions compliance risks, as well as environmental and social risks: cooperate with the borrower and its major shareholders, actual controllers, legal representatives, senior executives and other illegal private lending, illegal fund-raising, triad related and evil related and other illegal financial activities
(5) If the borrower commits any of the following acts, it shall notify the lender in writing in advance and the lender may participate in the implementation with the consent of the lender
14
① Implement contracting, leasing, joint-stock reform, joint venture, merger, merger, division, reduction of registered capital, joint venture, transfer of major capital, major foreign investment, issuance of bonds, large-scale financing, major related party transactions, application for suspension of business for rectification, application for dissolution, application for bankruptcy, etc.
② Providing a large amount of guarantee for the debts of others or mortgaging or pledging its main property to a third party, which may affect the solvency of the borrower.
③ Other major adverse circumstances of the borrower that are sufficient to cause significant changes in the relationship between creditor's rights and debts under the contract or affect the realization of the creditor's rights of the lender.
(6) The borrower shall notify the lender in writing within 5 days of the occurrence of the following events:
① The borrower and its legal representative, principal or actual controller engage in illegal activities
② Shutdown, closure, cancellation, revocation of business license, revocation, etc
③ Deterioration of financial situation, serious difficulties in production and operation or major adverse disputes
④ The borrower is involved in anti money laundering, anti-terrorism financing, anti tax evasion and sanctions compliance risks
⑤ The borrower involves significant environmental and social risks
⑥ The borrower and its major shareholders, actual controllers, legal representatives and senior executives illegally engage in private goods, illegal fund-raising, underworld and evil related and other illegal financial activities;
⑦ Other matters that the borrower may have an adverse impact on the realization of creditor's rights
(7) In case of any event, the borrower shall notify the lender in writing within 7 days:
① Change of affiliation, major change of senior personnel and major adjustment of organizational structure
② Major changes have taken place in industrial and commercial registration or licensing matters such as name, domicile and scope
③ Increase the registered capital and make substantive amendments to the articles of association
④ Changes in other important matters that may affect the performance of the borrower's obligations
(8) The borrower and its investors shall not evade their debts to the lender by withdrawing funds, transferring assets or transferring shares without authorization, and shall not engage in other acts detrimental to the interests of the lender
(9) Other rights and obligations stipulated by laws and regulations or agreed by both parties
3.10.2 Rights and obligations of the owner
(1) Approve and issue the loan to the borrower in full, except for the delay caused by the borrower or other reasons not attributable to the lender
(2) Have the right to supervise and inspect the borrower's production and operation, financial status, material inventory and loan use in on-site and off-site ways, and require the borrower to provide relevant documents, materials and information
15
(3) In case of any situation that may affect the safety of the loan or the performance of the debt to the borrower, or in case of the guarantor's suspension of production, closure of business, cancellation of registration, revocation of business license, bankruptcy, cancellation and major operating losses, which may lead to the partial or total loss of the corresponding guarantee ability, or the reduction of the value, accidental damage or loss of the collateral and pledge as the guarantee of the loan, which endangers the realization of the guarantee, The lender may require the borrower to make corrections within a time limit, implement creditor's rights protection measures, provide other effective guarantees, or adjust the alkali, cancel the borrower's loan limit, stop issuing loans, announce the early maturity of the funds under this contract and other contracts, and recover the loans in advance
(4) Other rights and obligations stipulated by laws and regulations or agreed by both parties
3.10.3 Other obligations
3.10.3.1 Each party has the obligation to keep confidential the other party's business secrets and other information related to interests obtained during the performance of the contract visa: unless otherwise stipulated by laws and regulations, the above information shall not be disclosed or disclosed to any third party without the consent of the other party. 3.10.3.2 after the termination of the contract rights and interests, each party shall perform the necessary obligations of knowledge and assistance in accordance with the principle of good faith. Article 4 supplementary provisions the parties agree as follows:
Article 4 Supplementary provisions
Both parties agree as follows:
Article 5 Legal liability
5.1 The following acts of the borrower shall constitute a breach of contract
(1) Breach of contractual obligations
(2) Failure to fulfill the commitments made in Article 2 of the contract
(3) Express or act to show unwillingness to pay off its matured or undue debts
(4) If it fails to perform or fully perform its obligations under other contracts signed between the borrower and the lender, the lender declares that the borrower constitutes a breach of contract
(5) Other circumstances under which the borrower fails to perform or fully perform the contract
5.2 under the following circumstances, the lender may terminate this contract and other contracts signed by both parties:
(1) Default of borrower or guarantor:
(2) There may be significant adverse changes in the repayment ability of the borrower or guarantor
(3) The mortgaged property and pledged property may suffer significant damage or value impairment
(4) Adjustment of national policies that may have a significant adverse impact on loan security
(5) The borrower has a major breach of contract against other creditors
(6) In other cases where the contract can be terminated as stipulated by law or agreed by both parties, if the lender terminates the contract, the objection period of the borrower is seven days, calculated from the date when the lender notifies the borrower in writing, orally or in other forms.
16
5.3 in case of any of the circumstances described in Articles 5.1 and 52, the lender may take the following remedies:
(1) Require the borrower and the guarantor to correct the breach of contract or other circumstances detrimental to the safety of the loan within a time limit, implement other debt guarantee measures or provide other effective guarantees
(2) If the borrower fails to use or repay the loan or fails to pay the interest payable as agreed, the penalty interest and compound interest shall be calculated and charged according to the contract until the principal and interest are paid off:
(3) Reduce or cancel the borrower's loan limit, stop issuing loans, recover the issued loans in advance, and announce the maturity of loans under other loan contracts signed by the borrower and the lender;
(4) Exercise legal or agreed rights such as set off against the borrower
(5) Require the borrower to bear damages and other legal liabilities
(6) Take corresponding asset preservation measures and other legal measures
(7) The borrower's breach of contract may be publicly disclosed
(8) Other remedies:
5.4 If the borrower's credit condition deteriorates as agreed in Article 5.2, the lender has the right to automatically cancel all undrawn loan limits of the borrower under this contract without notice
5.5 If the lender realizes the creditor's rights by litigation or arbitration due to the borrower's breach of contract, the lawyer's fees, travel expenses, execution fees, evaluation fees and all other expenses for realizing the creditor's rights paid by the loan office shall be borne by the borrower.
5.6 On the premise that the borrower performs its obligations under the contract, if the lender fails to issue the loan to the borrower in full on schedule, it shall repay the actual loss of the loan
Article 6 other matters
6.1 Notices and various communications required under the contract shall be delivered to the other party according to the communication address, telex number or other contact information recorded in the contract. If the contact information changes at night, the other party shall be notified in time
6.2 Terms of service
6.2.1 The borrower agrees and confirms that the following address shall be the address of relevant legal documents such as contract performance, negotiation and settlement under the contract, and shall be delivered to No. 1, Meixi Road, Meizhu Town, Xinchang County
Postal Code: 312500
Signee and Tel.: He Mengxing
The relevant legal documents shall be deemed to have been delivered by hand or mailed to the address.
6.2.2 the borrower agrees that the lender or the authority having jurisdiction over the dispute can also serve relevant legal documents on the borrower through the following electronic service method (1)
17
(1) Mobile phone (SMS): 13588568806
(2) Fax:
(3) Email address
(4) QQ
(5) Wechat
(6) Other electronic means
6.2.3 The scope of application of the address and method of service includes: various notices, agreements and other documents under the contract, as well as relevant documents and legal documents in the dispute resolution procedure (including but not limited to mediation, arbitration, first instance, second instance, retrial and execution procedure)
If the address or method of service needs to be changed, the borrower shall notify the lender in writing seven working days in advance, and the change will take effect when the lender actually receives the notice. If it fails to give a written notice in advance, it shall be deemed that it has not been changed
If the address or method of service provided by the borrower is inaccurate and untrue, or the lender is not notified in time after the change of address or method of service, or the borrower and the agent designated by the borrower (no matter whether the borrower appoints the agent or not, the lender can serve it to its legal representative or person in charge) refuse to sign for receipt, resulting in the fact that some legal documents are not received, the borrower shall bear the legal consequences arising therefrom and deliver them by mail, The date of return indicated on the mail receipt shall be deemed as the date of delivery; In the case of direct service, the date on which the addressee records the situation on the service receipt on the spot shall be deemed as the date of service; If it is delivered electronically, it shall be deemed as the date of service from the date of entering the system designated by the borrower.
6.2.4 If the delivery address and electronic delivery method are determined at the same time, the delivery to the borrower's "elastic address" has the same legal effect as electronic delivery. If the same legal document is served in multiple ways, it shall have the effect of service or the first service date shall be the date of service
6.2.5 The terms of service are independent terms and are not affected by the whole contract or the number of other terms
6.3 The expenses to be paid to the third party for the performance of the contract shall be determined and borne by both parties through negotiation. If there is no negotiation or negotiation fails, both parties shall bear them in accordance with laws and regulations or the principle of fairness
6.4 The lender or Agricultural Bank of China may authorize or entrust other branches of Agricultural Bank of China to perform the rights and obligations under the contract (including but not limited to post loan management, loan collection and clearing, exercising security interests, issuing credit, etc.) according to the needs of operation and management, or transfer the loan under the contract to other branches of Agricultural Bank of China for management. The borrower acknowledges this, And bear the corresponding legal consequences of such acts under this contract. The lender does not need to obtain the consent of the borrower for the above acts.
6.5 The lender has the right to provide information related to this contract (including but not limited to loan form classification, loan overdue information, etc.) and other relevant information of the borrower to the basic database of financial credit information for qualified institutions or individuals to query and use in accordance with relevant laws and regulations or the requirements of financial regulatory authorities. The lender shall not be liable in any form for any adverse impact or loss to the borrower caused by any qualified third party's reliance on or use of the above information.
18
6.6 During the term of validity of this contract, if the lender is unable to continue to perform this contract or some terms of this contract due to the promulgation or modification of any laws and regulations, national policies or regulatory provisions, the lender has the right to cancel the outstanding loan and take other measures deemed necessary by the Lender in accordance with the above relevant provisions.
6.7 The lender's failure to exercise or partial exercise or delay in exercising any right under this contract does not constitute a waiver or change of this right or other rights, nor does it affect its further exercise of this right or other relevant rights
6.8 Tax and invoice terms
6.8.1 Vat has been included in the taxable items collected by the lender from the borrower under this contract in accordance with the relevant national laws and regulations on tax collection. The tax rate of value-added tax shall be determined in accordance with the provisions of national laws and regulations. During the performance of the contract, if the national tax administration laws and regulations are adjusted, the lender will adjust the relevant tax rate and other relevant contents accordingly.
6.8.2 The lender will issue special VAT invoices or ordinary VAT invoices to the borrower in accordance with the provisions of national laws and regulations. If it is required to issue special VAT invoices, it shall comply with the conditions and procedures specified in national tax laws and regulations, otherwise the lender has the right to refuse the borrower's request for special VAT invoices under the contract. Within 360 days after the lender receives the taxes payable by the borrower, the borrower has the right to require the issuance of invoices. The invoice shall be issued by the lender or the billing institution designated by the lender. If the borrower fails to obtain the VAT invoice within the time limit, the lender may not provide the VAT invoice.
6.8.3 If the lender issues the wrong VAT special invoice or VAT ordinary invoice to the borrower due to the borrower's reason, the borrower shall bear the responsibility, and the lender has the right to require the borrower to bear the losses or other adverse consequences caused to the lender. The borrower is obliged to cooperate with the lender to complete the handling of relevant invoices in case of wrong issuance of VAT invoices and the need for cancellation or issuance of red ink invoices.
6.9 Dispute resolution
6.9.1 In case of any dispute, it shall be settled by both parties through negotiation; if the negotiation fails, it shall be settled according to the first method:
(1) Bring a lawsuit to the people's court where the lender is located;
(2) Submit to (full name of arbitration institution) for arbitration in accordance with its arbitration rules
6.9.2 During the period of litigation or arbitration, the provisions of the contract that do not involve disputes shall continue to be performed
6.10 Validity of the contract
6.10.1 This contract shall come into force from the date of signing or sealing by both parties
6.10.2 Signing place: No. 1, Gushan Middle Road, Nanming street, Xinchang County
6.10.3 Signing date: August 30, 2022
6.10.4 Matters not covered in this contract shall be separately determined by both parties through negotiation
6.10.5 This contract is made in duplicate, one for the borrower, one for the lender and one for the guarantor, with the same effect
(no text below)
(Signature page of the borrower)
19
The page is for signing contract No.: 33010120220025048
The borrower declares that the lender has provided us with relevant terms (especially the terms in BOLD) in accordance with the law, explained the concept, content and legal effect of relevant terms at our request, and we have known and understood the above terms.
Borrower(seal): Zhongchai Machinery Co., Ltd
Legal representative/personnel in charge: He Mengxing (seal)
Or authorized agent
20
(Signature page of the lender)
The page is for signing contract No.: 33010120220025048
Lender(seal): Special Seal for Credit Loan of Xinchang County Branch of ABC
Legal representative/personnel in charge:
Or authorized agent
21
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: | November 14, 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: | November 14, 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 September 30, 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: November 14, 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 September 30, 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: November 14, 2022
| /s/ Jing Jin | |
| Jing Jin | |
| Chief Financial Officer (Principal Financial Officer) |