GREENLAND TECHNOLOGIES HOLDING CORPORATION 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 Report, and should be read in conjunction with such financial statements and related notes included in this Report. Except for the historical information contained herein, the following discussion, as well as other information in this Report, contain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. Actual results and the timing of the events may differ materially from those contained in these forward-looking statements due to many factors, including those discussed in the "Forward-Looking Statements" set
forth elsewhere in this Report. Overview The registrant was incorporated onDecember 28, 2017 as aBritish Virgin Islands company with limited liability. The registrant 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) inOctober 2019 , the registrant changed its name fromGreenland Acquisition Corporation toGreenland Technologies Holding Corporation ("Greenland"). OnJuly 27, 2018 , we consummated our initial public offering of 4,400,000 units, including a partial exercise by the underwriters of their over-allotment option in the amount of 400,000 units. Each unit consists of one ordinary share, no par value, one warrant to purchase one-half of one ordinary share, and one right to receive one-tenth of one ordinary share upon the consummation of our initial business combination, pursuant to a registration statement on Form S-1. Warrants must be exercised in multiples of two warrants, and each two warrants are exercisable for one ordinary share at an exercise price of$11.50 per share. The units were sold in our initial public offering at an offering price of$10.00 per unit, generated$44,000,000 (before underwriting discounts and offering expenses) in gross proceeds.
Simultaneously with the consummation of our initial public offering, we
completed a private placement of 282,000 units, issued to
OnOctober 24, 2019 , we consummated our business combination withZhongchai Holding (the "Business Combination") following a special meeting, where the shareholders ofGreenland considered and approved, among other matters, a proposal to adopt and entered into the Share Exchange Agreement (as defined below) that allowedGreenland to acquire from the Seller (as defined below) all of the issued and outstanding equity interests ofZhongchai Holding in exchange for 7,500,000 newly issued ordinary shares, no par value ofGreenland , issued to the Seller. As a result, the Seller became the controlling shareholder ofGreenland , andZhongchai Holding became a directly and wholly owned subsidiary ofGreenland . The Business Combination was accounted for as a reverse merger effected by a share exchange, whereinZhongchai 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
OnJanuary 14, 2020 ,Greenland Technologies Corp. was incorporated under the laws of theState of Delaware ("Greenland Tech").Greenland Tech is a 100% owned subsidiary of the registrant. We use it as ourU.S. operation site for the assembly, marketing and sales of electric industrial vehicles for the North American market.Greenland serves as the parent company for the primary operating company,Zhongchai Holding (Hong Kong ) Limited, a holding company formed under the laws ofHong Kong onApril 23, 2009 ("Zhongchai Holding "). ThroughZhongchai Holding and other subsidiaries,Greenland develops and manufactures traditional transmission products for material handling machineries inthe People's Republic of China (the "PRC"), as well as develops electric industrial vehicles, which are expected to be produced in the near future.
? a leading developer and manufacturer of transmission products for material
handling machineries in China ; and
? a developer of electric industrial vehicles.
Greenland's transmission products 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 logistics for many enterprises across different industries in
the PRC and around the globe. Generally, industries with the largest demand for
forklifts are transportation, warehousing logistics, electrical machinery,and automobile.Greenland has experienced increased demand for forklifts in the manufacturing industry in the PRC, as its revenue increased from approximately$42.97 million for the nine months endedSeptember 30, 2020 to approximately$75.90 million for the nine months endedSeptember 30, 2021 . Since lateMarch 2020 , the Company's business operations have gradually recovered from the negative impacts due to the lockdown as a result of the COVID-19 pandemic, and part of the Company's backlogged orders were processed during the nine months endedSeptember 30, 2021 , which contributed to an increase in its revenues for the nine months
endedSeptember 30, 2021 .Greenland's transmission products are adopted by forklift trucks with weighted capacity ranging from 1 ton to 15 tons. These forklift trucks use either mechanical or automatic shift.Greenland sells its transmission products directly to forklift truck manufacturers. For the nine months endedSeptember 30, 2021 and 2020,Greenland sold 110,082 and 71,749 sets of transmission products, respectively, to more than 100 forklift manufacturers in aggregate in PRC. InDecember 2020 ,Greenland launched a new division that focuses on the production and sale of electric industrial vehicles; a market thatGreenland intends to develop to diversify its product offerings.Greenland's teams have completed the first batch of GEF-series electric forklifts, a lithium powered forklift with three models ranging in size from 1.8 ton to 3.5 tons, and began commercial sales of these electric forklifts inthe United States market inNovember 2021 . In addition,Greenland has completed construction of the initial GEL-1800, a 1.8 ton rated load lithium powered electric wheeled front loader, which is expected to become available for sale beginning inNovember 2021 . These vehicles will be followed byGreenland's GEX-8000, an all-electric 8.0 ton rated load lithium powered wheeled excavator, whose production has completed and is scheduled for arrival inthe United States inJanuary 2022 .Greenland plans to establish assembly sites and experience centers inthe United States in 2022 to support local sales, assembly and distribution. 3
Impact of COVID-19 Pandemic on Our Operations and Financial Performance
The COVID-19 pandemic has severely affectedChina 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. These ongoing measures adversely affected our operations and financial performance in 2020. Specifically, the COVID-19 pandemic adversely affected our revenue in the first half of 2020. For example, fromFebruary 3, 2020 to the end ofFebruary 2020 , the Company closed all of its operating offices inZhejiang Province , including manufactory, in response to the emergency measures imposed by local government. The pandemic also significantly limited suppliers' ability to provide low-cost, high-quality merchandise to the Company on a timely basis. Since lateMarch 2020 , the Company's business operations have gradually recovered from the negative impacts due to the lockdown, and the Company's backlogged orders were mostly processed during the rest of fiscal year 2020 and also the first quarter of fiscal year 2021, which contributed to an increase in its revenues for the year endedDecember 31, 2020 and for the nine months endedSeptember 30, 2021 .
Starting from the fourth quarter of 2020, a few waves of COVID-19 infection
emerged in various regions of
Results of Operations
For the three months ended
Overview
For the three months ended September 30
2021 2020 Change Variance
Revenues $ 23,084,793 $ 16,520,598 $ 6,564,195 39.7 %
Cost of Goods Sold 17,987,363 13,122,382 4,864,981 37.1 %
Gross Profit 5,097,430 3,398,216 1,699,214 50.0 %
Selling expenses 522,770 270,654 252,116 93.2 %General and administrative expenses 1,150,769 324,073 826,696 255.1 % Research and development expenses 1,372,215 564,204 808,011 143.2 % Total Operating Expenses 3,045,754 1,158,931 1,886,823 162.8 % Income from operations 2,051,676 2,239,285
(187,609 ) (8.4 )%
Interest income 4,737 66,960 (62,223 ) (92.9 )%
Interest expenses (106,506 ) (231,760 ) 125,254 (54.0 )%
Other income 231,466 (1,267,982 ) 1,499,448 (118.3 )%Income before income tax 2,181,373 806,503
1,374,870 170.5 %
Income tax 927,844 346,502 581,342 167.8 %
Net income 1,253,529 460,001 793,528 172.5 %
4
Components of Results of Operations
For the three months ended
September 30
Component of Results of Operations 2021 2020
Revenues $ 23,084,793 $ 16,520,598
Cost of Goods Sold 17,987,363 13,122,382
Gross Profit 5,097,430 3,398,216
Operating Expenses 3,045,754 1,158,931
Net Income 1,253,529 460,001
Revenue
Greenland's revenue was approximately $23.08 million for the three months ended
September 30, 2021 , representing an increase of approximately $6.56 million , or
39.7%, as compared to that of approximately $16.52 million for the three months
ended September 30, 2020 . The increase was primarily due to a significant
increase in our sales volume resulting from the continuously growing market
demand and the ability to boost supplies while some competitors faced challenges
in handling material shortage and were unable to deliver. On an RMB basis,
revenue for the three months ended September 30, 2021 increased by approximately
30.8%, as compared to that for the three months ended September 30, 2020 .
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 $17.99 million for the three months ended September 30,
2021 , representing an increase by approximately $4.87 million , or 37.1%, as
compared to that of approximately $13.12 million for the three months ended
September 30, 2020 . Cost of goods sold increased due to our increase in sales
volume.
Gross Profit
Greenland's gross profit was approximately $5.10 million for the three months
ended September 30, 2021 , representing an increase by approximately $1.70
million , or 50.0%, as compared to that of approximately $3.40 million for the
three months ended September 30, 2020 . For the three months ended September 30,
2021 and 2020, Greenland's gross margins were approximately 22.1% and 20.6%,
respectively. The increase was primarily due to a shift in the product mix
towards higher value and more sophisticated products such as hydraulic
transmission products.
5
Operating Expense
Selling Expense
Selling expenses mainly comprise of operating expenses such as sales staff payroll, traveling expenses, and transportation expenses. Our selling expenses were approximately$0.52 million for the three months endedSeptember 30, 2021 , representing an increase of approximately$0.25 million , or 93.2%, as compared to approximately$0.27 million for the three months endedSeptember 30, 2020 . The increase was mainly due to the increase in the unit price of transportation expenses.
General and Administrative Expenses
General and administrative expenses comprise of management and staff salaries, employee benefits, depreciation for office facility and office furniture and equipment, travel and entertainment expenses, legal and accounting fees, financial consulting fees, and other office expenses. General and administrative expenses were approximately$1.15 million for the three months endedSeptember 30, 2021 , representing an increase by approximately$0.83 million , or 255.1%, as compared to that of approximately$0.32 million for the three months endedSeptember 30, 2020 . The fundamental reasons for the rise in the general and administrative expenses were that the Company expanded its operations with increased legal fee and consultancy fee on business planning and projects in the three months endedSeptember 30, 2021 compared to the same period in 2020.
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$1.37 million for the three months endedSeptember 30, 2021 , representing an increase by approximately$0.81 million , or 143.2%, as compared to that of approximately$0.56 million for the three months endedSeptember 30, 2020 . Such increase was primarily attributable to the increase in the R&D investment in higher value and more sophisticated products and electrification products. Income from Operations
Income from operations for the three months ended
Interest Income and Interest Expenses
Greenland's interest income was approximately$0.01 million for the three months endedSeptember 30, 2021 , representing a decrease of approximately$0.06 million , or 92.9%, as compared to that of approximately$0.07 million for the three months endedSeptember 30, 2020 . The decrease in interest income was primarily due to the reason that less cash was deposited in banks during the three months endedSeptember 30, 2021 .Greenland's interest expenses were approximately$0.11 million for the three months endedSeptember 30, 2021 , representing a decrease of approximately$0.12 million , or 54.0%, as compared to that of approximately$0.23 million for the three months endedSeptember 30, 2020 . The decrease was primarily due to a reduction of our short-term loans for the three months endedSeptember 30, 2021 , compared to those for the three months endedSeptember 30, 2020 . Other IncomeGreenland's other income was approximately$0.23 million for the three months endedSeptember 30, 2021 , an increase of approximately$1.50 million , or 118.3%, as compared to approximately$(1.27) million for the three months endedSeptember 30, 2020 . The increase was primarily due to a decrease in exchange loss from the devaluation ofU.S. dollar over RMB for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 .
6
Income Taxes
PRC operating subsidiary, Zhejiang Zhongchai, obtained a "high-tech enterprise" status near the end of the fiscal year of 2019. Such status enablesZhejiang Zhongchai to enjoy a reduced statutory income tax rate of 15%, rather than the common PRC corporate 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 ofZhongchai Holding , is subject to the 25% standard income tax rate. HangzhouGreenland , the wholly owned subsidiary ofZhongchai Holding , is subject to the 25% standard income tax rate.Greenland is a holding Company registered in theBritish Virgin Islands and is not subject to tax on income or capital gains under the currentBritish Virgin Islands law. In addition, upon payments of dividend to its shareholders, the Company will not be subject to anyBritish Virgin Islands withholding tax. OnJanuary 14, 2020 ,Greenland established its wholly owned subsidiary in the state ofDelaware namedGreenland Technologies Corporation ("Greenland Tech"). We aim to use it as itsU.S. operation site for the assembly, marketing and sales of electric industrial vehicles for the North American market.Greenland Tech currently does not conduct any business activities. OnDecember 22, 2017 , theU.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 theU.S. federal statutory rate from 35% to 21%, effective onJanuary 1, 2018 . ASC 740 requires companies to recognize the effect of tax law changes in the period of enactment, accordingly, the effects must be recognized on companies' calendar year-end financial statements, even though the effective date for most provisions isJanuary 1, 2018 . SinceGreenland Tech was established in year 2020, the one-time transition tax did not have any impact on the Company's tax provision and there was no undistributed accumulated earnings and profits as ofSeptember 30, 2021 . Net Income
Our net income was approximately
For the nine months ended
Overview
For the nine months ended September 30
2021 2020 Change Variance
Revenues $ 75,899,994 $ 42,969,010 $ 32,930,984 76.6 %
Cost of Goods Sold 59,993,008 34,764,736 25,228,272 72.6 %
Gross Profit 15,906,986 8,204,274 7,702,712 93.9 %
Selling expenses 1,397,462 792,030 605,432 76.4 %General and administrative expenses 2,814,120 1,841,958 972,162 52.8 % Research and development expenses 3,337,056 1,604,151 1,732,905 108.0 % Total Operating Expenses 7,548,638 4,238,139 3,310,499 78.1 % Income from operations 8,358,348 3,966,135
4,392,213 110.7 %
Interest income 14,165 142,791 (128,626 ) (90.1 )%
Interest expenses (508,359 ) (942,524 ) 434,165 (46.1 )%
Other income 829,556 (415,150 ) 1,244,706 (299.8 )%Income before income tax 8,693,710 2,751,252
5,942,458 216.0 %
Income tax 1,844,619 491,660 1,352,959 275.2 %
Net income 6,849,091 2,259,592 4,589,499 203.1 %
7
Components of Results of Operations
For the nine months ended
September 30
Component of Results of Operations 2021 2020
Revenues $ 75,899,994 $ 42,969,010
Cost of Goods Sold 59,993,008 34,764,736
Gross Profit 15,906,986 8,204,274
Operating Expenses 7,548,638 4,238,139
Net Income 6,849,091 2,259,592
Revenue
Greenland's revenue was approximately $75.90 million for the nine months ended
September 30, 2021 , representing an increase of approximately $32.93 million , or
76.6%, as compared to approximately $42.97 million for the nine months ended
September 30, 2020 . The increase was primarily due to a significant increase in
our sales volume resulting from the continuously growing market demand and the
ability to boost supplies while some competitors faced challenges in handling
material shortage and were unable to deliver. On an RMB basis, revenue for the
nine months ended September 30, 2021 increased by approximately 63.36%, as
compared to the nine months ended September 30, 2020 .
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 $60.00 million for the nine months ended September 30,
2021 , representing an increase by approximately $25.23 million , or 72.6%, as
compared to approximately $34.76 million for the nine months ended September 30,
2020 . Cost of goods sold increased due to our increase in sales volume.
Gross Profit
Greenland's gross profit was approximately $15.91 million for the nine months
ended September 30, 2021 , representing an increase by approximately 7.70
million, or 93.9%, as compared to approximately $8.20 million for the nine
months ended September 30, 2020 . For the nine months ended September 30, 2021
and 2020, Greenland's gross margins were approximately 21.0% and 19.1%,
respectively. The increase was primarily due to a shift in the product mix
towards higher value and more sophisticated products such as hydraulic
transmission products.
Selling Expense
Selling expenses mainly comprise of operating expenses (such as sales staff payroll), traveling expenses, and transportation expenses. Our selling expenses were approximately$1.40 million for the nine months endedSeptember 30, 2021 , representing an increase of approximately$0.61 million , or 76.4%, as compared to approximately$0.79 million for the nine months endedSeptember 30, 2020 . The increase was mainly due to an increase in the unit price of transportation expenses.
General and Administrative Expenses
General and administrative expenses comprise of management and staff salaries, employee benefits, depreciation for office facility and office furniture and equipment, travel and entertainment expenses, legal and accounting fees, financial consulting fees, and other office expenses. General and administrative expenses were approximately$2.81 million for the nine months endedSeptember 30, 2021 , representing an increase by approximately$0.97 million , or 52.8%, as compared to approximately$1.84 million for the nine months endedSeptember 30, 2020 . The fundamental reasons for the rise in the general and administrative expenses were that the company expanded its operations with increased legal fee and consultancy fee on business planning and projects in the nine months endedSeptember 30, 2021 compared with the same period in 2020. 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$3.34 million for the nine months endedSeptember 30, 2021 , representing an increase by approximately$1.74 million , or 108.0%, as compared to approximately$1.60 million for the nine months endedSeptember 30, 2020 . Such increase was primarily attributable to the increase in the R&D investment in higher value and more sophisticated products and electrification products. Income from Operations Income from operations for the nine months endedSeptember 30, 2021 was approximately$8.36 million , representing an increase of approximately$4.39 million , as compared to approximately$3.97 million for the nine months endedSeptember 30, 2020 . Such increase was primarily attributable to the increase of gross profit.
Interest Income and Interest Expenses
Greenland's interest income was approximately$0.01 million for the nine months endedSeptember 30, 2020 , representing a decrease of approximately$0.13 million , or 90.1%, as compared to approximately$0.14 million for the nine months endedSeptember 30, 2019 . The decrease in interest income was primarily due to the reason that less cash was deposited in banks during the nine months endedSeptember 30, 2021 .
Greenland's interest expenses were approximately$0.51 million for the nine months endedSeptember 30, 2021 , representing a decrease of approximately$0.43 million , or 46.1%, as compared to approximately$0.94 million for the nine months endedSeptember 30, 2020 . The decrease was primarily due to a reduction of our short-term loans for the nine months endedSeptember 30, 2021 , compared to those for the three months endedSeptember 30, 2020 . Other IncomeGreenland's other income was approximately$0.83 million for the nine months endedSeptember 30, 2021 , representing an increase of approximately$1.25 million , or 299.8%, as compared to approximately$(0.42) million for the nine months endedSeptember 30, 2020 . The increase was primarily due to a decrease in exchange loss from the devaluation ofU.S. dollar over RMB for the nine months endedSeptember 30, 2021 , compared to those for the nine months endedSeptember 30, 2020 . Income Taxes
Net Income Our net income was approximately$6.85 million for the nine months endedSeptember 30, 2021 , representing an increase of approximately$4.59 million , as compared to approximately$2.26 million for the nine months ended September
30, 2020.
Liquidity and Capital Resources
Greenland is a holding company incorporated in theBritish 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 primarily used to purchase raw materials, repay debts and pay salaries, office expenses, income taxes,
and other operating expenses.
For the nine months endedSeptember 30, 2021 , our PRC subsidiary, Zhejiang Zhongchai, paid off approximately$18.65 million in bank loan, approximately$1.75 million in related parties loan, approximately$0.31 million in third parties loan, and maintained$15.66 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 inChina and other miscellaneous subsidy from the Chinese government. Government subsidies are recognized when there is reasonable assurance that the subsidy will be received and all conditions be completed. Total government subsidies recorded under long-term liabilities were$2.18 million and$2.34 million onSeptember 30, 2021 andDecember 31, 2020 , respectively. The Company currently plans to fund its operations mainly through cash flow from its operations, renewal of bank borrowings, additional equity financing, and continuation of financial support from its shareholders and affiliates controlled by its principal shareholders, if necessary. The Company might implement a stricter policy on sales to less creditworthy customers and plans to continue to improve its collection efforts on accounts with outstanding balances. The Company is actively working with customers and suppliers and expects to fully collect the remaining balance. We believe that the Company has sufficient cash, even with uncertainty in the Company's manufacturing and sale of electric industrial vehicles in the future and decline on sale of transmission products. We expect that our capital contribution from existing funding sources will be sufficient for 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 determine that the cash required for specific corporate activities exceedGreenland's cash and cash equivalents on hand, the Company may issue debt or equity securities to raise cash. 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 2021. We have completed Zhejiang Zhongchai's new factory construction and the PRC government has provided subsidies to ease the local business-related financing conditions caused by the COVID-19 outbreak. Furthermore, we pledged the deed of our new factory as a collateral to banks to obtain additional loans, refinance expiring loans, restructure short-term loans, and fund other working capital needs upon acceptable terms toGreenland . 10 Cash and Cash Equivalents Cash equivalents refers to all highly liquid investments purchased with original maturity of three months or less. As ofSeptember 30, 2021 ,Greenland had approximately$9.02 million of cash and cash equivalents, representing an increase of approximately$1.86 million , or 26.01%, as compared to that of approximately$7.16 million as ofDecember 31, 2020 . The increase of cash was mainly attributable to proceeds from equity and debt financing during the nine months endedSeptember 30, 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 ofSeptember 30, 2021 ,Greenland had approximately$6.64 million of restricted cash, representing an increase of approximately$4.39 million , or 195.70%, as compared to that of approximately$2.24 million as ofDecember 31, 2020 . The increase of restricted cash was due to the increase in the deposit for bank acceptance notes. Accounts Receivable As ofSeptember 30, 2021 ,Greenland had approximately$21.32 million of accounts receivables, representing an increase of approximately$8.91 million , or 71.83%, as compared to those of approximately$12.41 million as ofDecember 31, 2020 . The increase in accounts receivable was due to our slowed-down effort in receivables collections due to the COVID-19 pandemic and our increase in sales volume.Greenland recorded approximately$1.00 million of provision for doubtful accounts as ofSeptember 30, 2021 .Greenland conducted an aging analysis of each customer's delinquent payments to determine whether allowance for doubtful accounts is adequate. In establishing the allowance for doubtful accounts,Greenland considers historical experience, economic environment, and expected collectability of past due receivables. An estimate of doubtful accounts is recorded when collection of the full amount is no longer probable. When bad debts are identified, such debts are written off against the allowance for doubtful accounts.Greenland will continuously assess its potential losses based on the credit history of and relationships with its customers on a regular basis to determine whether its bad debt allowance on its accounts receivables is adequate.Greenland believes that its collection policies are generally in line with the transmissions industry's standard in PRC. Due fromRelated Party Due from related party was$39.03 million and$38.54 million as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. The current portion of due from related party was$39.03 million as ofSeptember 30, 2021 , and the current portion of due from related party was$38.54 million as ofDecember 31, 2020 . We expect the amount due from our controlling shareholder,Cenntro Holding Limited , to be paid back onApril 27, 2022 , as mutually agreed by the Company andCenntro Holding Limited , for an extension of repayment from the end ofOctober 2020 in accordance with the original maturity date. However, there is no guarantee that such amount will be repaid in whole or in part before the end ofApril 2022 , if at all. Such failure to pay back byCenntro Holding Limited could have a material negative impact on our balance sheet. 11 Notes Receivable As ofSeptember 30, 2021 ,Greenland had approximately$37.03 million of notes receivables, which will be collected by us within nine month. The increase of our notes receivables was approximately$6.22 million , or 20.21%, from that of approximately$30.80 million as ofDecember 31, 2020 . Working Capital Our working capital was approximately$45.10 million as ofSeptember 30, 2021 , as compared to that of$28.84 million as ofDecember 31, 2020 , representing an increase of$16.26 million during the nine months endedSeptember 30, 2021
Cash Flow
For the nine months Ended
September 30,
2021 2020
Net cash provided by operating activities $ (5,864,423 ) $ 2,201,537
Net cash provided by (used in) investing activities $ (685,761 ) $ (183,117 )
Net cash provided by (used in) financing activities $
12,669,108
$ 6,118,924 $ 4,214,531 Effect of exchange rate changes on cash and cash equivalents$ 134,379 $ 1,262,878 Cash and cash equivalents and restricted cash at beginning of year $
9,403,053
Operating ActivitiesGreenland's net cash provided by operating activities were approximately$(5.86) million and$2.20 million for the nine months endedSeptember 30, 2021 and
2020, respectively. For the nine months endedSeptember 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. For the nine months endedSeptember 30, 2020 , 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$2.26 million ,$6.32 million and$1.75 million , respectively. The main causes of changes in cash outflow were changes in accounts receivables, notes receivable, inventories, representing increases of approximately$3.41 million ,$3.31 million and$2.20 million , respectively. Investing Activities Net cash used in investing activities resulted a cash outflow of approximately$0.69 million for the nine months endedSeptember 30, 2021 . Cash used in investing activities for the nine months endedSeptember 30, 2021 was mainly due to$0.17 million proceeds from government grants for construction, offset by approximately$0.85 million used for purchases of long-term assets. Net cash used in investing activities resulted a cash outflow of approximately$0.18 million for the nine months endedSeptember 30, 2020 . Cash used in investing activities for the nine months endedSeptember 30, 2020 was mainly due to$0.25 million proceeds from government grants for construction offset by approximately$ 0.44 million used for purchases of long-term assets. 12 Financing Activities Net cash used in financing activities resulted a cash inflow of approximately$12.67 million for the nine months endedSeptember 30, 2021 , which was mainly attributable to approximately$8.21 million proceeds from equity and debt financing and approximately$16.35 million proceeds from notes payable. Such amounts were further offset by repayment of short-term bank loans for approximately$18.65 million , and repayment of loans from related parties for approximately$1.75 million . Net cash used in financing activities resulted a cash outflow of approximately$2.20 million for the nine months endedSeptember 30, 2020 , which was mainly attributable to approximately$20.84 million proceeds from short-term bank loans and approximately$20.56 million proceeds from note payable. Such amounts were further offset by proceed from related party for approximately$18.50 million , and repayment of short-term bank loans for approximately$17.55 million . Credit Risk
Credit risk is one of the most significant risks forGreenland's business. Accounts receivable are typically unsecured and derived from revenues earned from customers, thereby exposingGreenland 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 RiskGreenland 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 ifGreenland 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 impairGreenland's operating results. AlthoughGreenland 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 withU.S. GAAP. In applying accounting principles, it is often required to use estimates. These estimates consider the facts, circumstances and information available, and may be based on subjective inputs, assumptions and information known and unknown to us. Material changes in certain of the estimates that we use could potentially affect, by a material amount, our consolidated financial position and results of operations. Although results may vary, we believe our estimates are reasonable and appropriate. See Note 2 to our consolidated financial statements included in "Item 8 - Financial Statements and Supplementary Data" for a summary of our significant accounting policies. The following describes certain of our significant accounting policies that involve more subjective and complex judgments where the effect on our consolidated financial position and operating performance could be material. 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
OnOctober 24, 2019 , we consummated our business combination withZhongchai Holding (the "Business Combination") following a special meeting of the shareholders where the shareholders ofGreenland considered and approved, among other matters, a proposal to adopt an share exchange agreement (the "Share Exchange Agreement"), dated as ofJuly 12, 2019 by and among (i)Greenland , (ii)Zhongchai Holding , (iii) the Sponsor in the capacity as the purchaser representative (the "Purchaser Representative"), and (iv)Cenntro Holding Limited , the sole member ofZhongchai Holding (the "Zhongchai Equity Holder" or the "Seller"). Pursuant to the Share Exchange Agreement,Greenland acquired from the Seller all of the issued and outstanding equity interests ofZhongchai Holding in exchange for the issuance of 7,500,000 ordinary shares, no par value ofGreenland , to the Seller (the "Exchange Shares"). As a result, the Seller became the controlling shareholder ofGreenland , andZhongchai Holding became a directly and wholly owned subsidiary ofGreenland . The Business Combination was accounted for as a reverse merger effected by a share exchange, whereinZhongchai Holding is considered the acquirer for accounting and financial reporting purposes. Pursuant to certain Finder Agreement withHanyi Zhou , datedMay 29, 2019 , 50,000 newly issued ordinary shares were issued to Zhou Hanyi as finder fee for the Business Combination. Inventories
Inventories are stated at the lower of cost or net realizable value, which is
based on estimated selling prices less any further costs expected to be incurred
for completion and disposal. Cost of raw materials is calculated using the
weighted average method and is based on purchase cost. Work-in-progress and
finished goods costs are determined using the weighted average method and
comprise direct materials, direct labor and an appropriate proportion of
overhead.
14
Income Taxes
The Company accounts for income taxes following the liability method pursuant to
FASB ASC 740 "Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
reporting and tax bases of assets and liabilities using enacted tax rates that
will be in effect in the period in which the differences are expected to
reverse. The Company records a valuation allowance to offset deferred tax assets
if, based on the weight of available evidence, it is more-likely-than-not that
some portion, or all, of the deferred tax assets will not be realized. The
effect on deferred taxes of a change in tax rate is recognized in income in the
period that includes the enactment date.
The Company also follows FASB ASC 740, which addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. The Company may recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. ASC 740 also provides guidance on
recognition, classification, interest and penalties on income taxes, accounting
in interim periods and requires increased disclosures. As of September 30, 2021 ,
the Company did not have any liability for unrecognized tax benefits. It is the
Company's policy to include penalties and interest expense related to income
taxes as a component of other expense and interest expense, respectively, as
necessary. The Company's historical tax years will remain open for examination
by the local authorities until the statute of limitations has passed.
Emerging growth Company
Pursuant to the JOBS Act, an emerging growth Company is provided the option to adopt new or revised accounting standards that may be issued by FASB or theSEC 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.
© Edgar Online, source
