Greenland Technologies (GTEC) - 2020 Q4 - Annual Report

PART I ITEM 1. BUSINESS Greenland Technologies develops transmission products in China and is expanding into the electric industrial vehicle market - Greenland Technologies Holding Corporation was incorporated on December 28, 2017, and completed a business combination with Zhongchai Holding in October 2019[13] - Greenland is a leading developer of transmission products for material handling machinery in China and is also developing electric industrial vehicles, with the first model expected in Q3/Q4 2021[14][17] - The company sold over 108,913 sets of transmission products in 2020 to more than 100 forklift manufacturers in the PRC, an increase from 83,567 in 2019[17] - A new division was launched in December 2020 to focus on the electric industrial vehicle market, with plans for a new production facility on the U.S. east coast[17] - Competitive strengths include favorable market trends, well-developed manufacturing capabilities, robust R&D, a strategic service network, and an experienced management team[35][36][37][39][40][41] - As of December 31, 2020, the company held 108 registered patents (98 utility, 10 invention) and 2 registered trademarks in the PRC[58] - The company's five largest customers contributed 48.85% of total revenues in 2020, with Hangcha Group alone accounting for 21.25%[42] - The sales and marketing team consisted of 14 employees as of December 31, 2020, primarily selling products domestically in the PRC[59] Revenue Growth (2019-2020) | Fiscal Year | Revenue (USD) | | :---------- | :------------ | | 2019 | $52.40 million | | 2020 | $66.86 million | | Increase| $14.46 million (27.60%) | Employees by Function (December 31, 2020) | Function | Number | | :------------------ | :----- | | Management | 8 | | Administration | 33 | | Production | 186 | | Research and development | 69 | | Sales and marketing | 14 | | Other | 18 | | Total | 328| ITEM 1A. RISK FACTORS As a smaller reporting company, Greenland is not required to provide specific risk factor disclosures - Smaller reporting companies are not required to provide the information required by this item[87] ITEM 1B. UNRESOLVED STAFF COMMENTS The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[87] ITEM 2. PROPERTIES The company's principal facilities are located in Zhejiang Province, PRC, consisting of owned and leased properties - Greenland's principal executive offices, headquarters, manufacturing, and R&D facilities are located in Xinchang County, Zhejiang Province, PRC[88] - As of December 31, 2020, Greenland held land use rights for approximately 81,171 square meters, expiring in 2062[88] - The company owned three buildings with an aggregate gross floor area of approximately 44,751 square meters as of year-end 2020[88] - Greenland leased one property of approximately 200 square meters for its operations[89] ITEM 3. LEGAL PROCEEDINGS The company is not currently involved in any material legal proceedings - There are currently no legal proceedings or claims that are believed to have a material adverse effect on the company's business, financial condition, or operating results[90] ITEM 4. MINE SAFETY DISCLOSURES The company has no mine safety disclosures to report - There are no mine safety disclosures[90] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The company's shares trade on Nasdaq, with details on holders, dividends, and recent unregistered securities sales - Greenland's ordinary shares are traded on the Nasdaq Capital Market under the symbol "GTEC" and commenced public trading on August 8, 2018[92] - As of March 26, 2021, the last reported sale price for ordinary shares was approximately $15.50 per share[93] - As of March 19, 2021, there were 9 recorded holders of the company's ordinary shares and 10,498,127 shares outstanding[3][95] - Prior to the business combination, Zhejiang Zhongchai paid approximately $0.16 million in dividends to its shareholders[94] - The company issued restricted ordinary shares to Chineseinvestors.com, Inc. and Skyline Corporate Communication Group, LLC as termination payments for investor relations services[101][102] - In late 2020 and early 2021, the company issued 255,000 ordinary shares to its CEO and CFO to offset unpaid salaries and a personal loan[103] ITEM 6. SELECTED FINANCIAL DATA As a smaller reporting company, Greenland is not required to provide selected financial data - As a smaller reporting Company, Greenland Technologies Holding Corporation is not required to provide the information requested by this Item[104] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company's 2020 financial performance saw significant revenue growth, impacted by COVID-19 and managed through cash flow and loans - The COVID-19 pandemic adversely affected operations in early 2020, but business recovered, and backlogged orders contributed to increased revenues in the latter half of the year[118][119] - Gross margin decreased from 23.6% in FY2019 to 19.16% in FY2020, primarily due to a decrease in procurement costs[127] - R&D expenses increased by 1.26% to $2.38 million in FY2020, reflecting a significant increase in R&D activities[131] - Net income was significantly impacted by a one-time remeasurement gain of approximately $1.94 million from a change in functional currency[134] - Income tax increased by 168.24% to $2.27 million in FY2020, with Zhejiang Zhongchai benefiting from a reduced 15% 'high-tech enterprise' tax rate[122][135] - Working capital increased by $4.59 million to $28.84 million as of December 31, 2020, primarily due to an increase in notes receivable[153] - Cash and cash equivalents increased by 237.14% to $7.16 million as of December 31, 2020[146] - Accounts receivable increased by 3.65% to $12.41 million as of December 31, 2020, attributed to slowed collection efforts due to COVID-19[148] - Notes receivable increased by 90.66% to $30.80 million as of December 31, 2020[152] - Due from related party Cenntro Holding Limited was $38.54 million as of December 31, 2020, with repayment extended to April 27, 2022[150] - The company faces credit risk from unsecured accounts receivable, liquidity risk from capital resource management, and inflation risk[161][162][163] - The business combination in October 2019 was accounted for as a reverse recapitalization, with Zhongchai Holding considered the accounting acquirer[169][170] - As an emerging growth company, Greenland intends to take advantage of exemptions for complying with new or revised accounting standards[175] - The company has no off-balance sheet arrangements[176] Key Financial Highlights (FY2020 vs. FY2019) | Metric | FY2020 (USD) | FY2019 (USD) | Change (USD) | % Variance | | :-------------------------- | :----------- | :----------- | :----------- | :--------- | | Revenues | 66,864,375 | 52,400,844 | 14,463,531 | 27.60 | | Cost of Goods Sold | 54,051,367 | 40,022,243 | 14,029,124 | 35.05 | | Gross Profit | 12,813,008 | 12,378,601 | 434,407 | 3.51 | | Total Operating Expenses | 6,104,658 | 5,774,523 | 330,135 | 5.72 | | Income from Operations | 6,708,350 | 6,604,078 | 104,272 | 1.58 | | Income before Income Tax | 8,644,560 | 5,934,533 | 2,710,027 | 45.67 | | Net Income | 6,371,563 | 5,087,166 | 1,284,397 | 25.25 | Cash Flow Summary (FY2020 vs. FY2019) | Cash Flow Activity | FY2020 (USD) | FY2019 (USD) | | :-------------------------- | :----------- | :----------- | | Net cash from operating activities | $2,695,570 | $7,999,230 | | Net cash (used in) investing activities | $(822,769) | $(1,600,288) | | Net cash from financing activities | $2,307,164 | $(9,644,359) | | Net increase (decrease) in cash and restricted cash | $4,179,965 | $(3,245,417) | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk disclosures are incorporated by reference from the Management's Discussion and Analysis section - Information regarding market risks (Credit Risk, Liquidity Risk, and Inflation Risk) is contained in Item 7[177] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data are included as identified in Item 15 - The consolidated financial statements and supplementary data required for this Item are included in this Report and identified in Item 15[177] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The company changed its independent registered public accounting firm twice in 2020 without any reported disagreements - Marcum LLP was dismissed as the independent registered public accounting firm on January 6, 2020[177] - BDO China Shu Lun Pan Certified Public Accountants LLP was dismissed on November 13, 2020[180] - WWC Professional Corporation was appointed on November 13, 2020, to audit the consolidated financial statements for the fiscal year ending December 31, 2020[185] - No disagreements or reportable events were reported with Marcum LLP or BDO China Shu Lun Pan Certified Public Accountants LLP during their respective engagement periods[179][181] ITEM 9A. CONTROLS AND PROCEDURES Management concluded disclosure controls were ineffective due to a material weakness in financial reporting personnel - As of December 31, 2020, management concluded that disclosure controls and procedures were ineffective due to a material weakness in internal controls over financial reporting[188] - The material weakness identified was the lack of sufficient and competent financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements[190] - A remedial plan for fiscal year 2021 includes formalizing policies, recruiting qualified personnel, providing training, and establishing effective oversight[191][193] - Despite the material weakness, the consolidated financial statements fairly present the company's financial position, results of operations, and cash flows in conformity with U.S. GAAP[195] - There were no changes in internal control over financial reporting during the fiscal year ended December 31, 2020, that materially affected internal controls[196] ITEM 9B. OTHER INFORMATION There is no other information to report in this section - There is no other information to report[197] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The company details its board of directors, executive officers, committee structures, and corporate governance policies - Peter Zuguang Wang (Chairman) and Raymond Z. Wang (CEO) are father and son[207] - The Board has determined that Ming Zhao, Charles Athle Nelson, Everett Xiaolin Wang, and Frank Shen are 'independent directors' as defined under Nasdaq Listing Rules[213] - The Board has a classified structure, with directors serving staggered terms until 2021 and 2022[215] - The company has an audit committee, a compensation committee, and a nominating and corporate governance committee, all composed of independent directors[218][219][222][225] - The company has adopted a code of ethics that applies to all executive officers, directors, and employees[226] - Jing Jin, the Chief Financial Officer, filed one Form 4 late as of the most recently completed fiscal year[227] Directors and Executive Officers | Name | Age | Position | | :----------------- | :-- | :------------------------------------- | | Peter Zuguang Wang | 66 | Chairman of the Board | | Raymond Z. Wang | 37 | Chief Executive Officer and President | | Jing Jin | 37 | Chief Financial Officer | | Lei Chen | 61 | Chief Scientist | | Ming Zhao | 52 | Independent Director | | Charles Athle Nelson | 67 | Independent Director | | Everett Xiaolin Wang | 59 | Independent Director | | Frank Shen | 51 | Independent Director | ITEM 11. EXECUTIVE COMPENSATION Executive compensation for 2020 consisted of salaries and stock awards, with details on employment agreements - Employment agreements with key executives outline specific employment periods, termination conditions, and confidentiality obligations[234][235][236] - Non-employee directors did not hold any outstanding option awards as of December 31, 2020[237] - The company does not offer pension plans or similar retirement benefits to its executive officers or employees[238] - Non-executive directors did not receive compensation for their services in fiscal year 2020 but were reimbursed for expenses[239] Executive Compensation (FY2020 vs. FY2019) | Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Total ($) | | :-------------------------- | :--- | :--------- | :--------------- | :-------- | | Raymond Z. Wang, CEO & President | 2020 | 145,000 | 69,000 | 214,000 | | | 2019 | 108,750 | - | 108,750 | | Jing Jin, CFO | 2020 | 72,000 | 135,000 | 207,000 | | | 2019 | 30,000 | - | 30,000 | | Lei Chen, Chief Scientist | 2020 | - | - | - | | | 2019 | 33,750 | - | 33,750 | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The Chairman is the largest beneficial owner, with directors and officers as a group holding over 72% of shares - As of March 19, 2021, there were 10,498,127 ordinary shares issued and outstanding[242] - As of December 31, 2020, there were no securities authorized for issuance under equity compensation plans[247] Beneficial Ownership of Ordinary Shares (March 19, 2021) | Name and Address of Beneficial Owner | Amount | Percent of Class | | :----------------------------------- | :---------- | :--------------- | | Peter Zuguang Wang | 7,306,949 | 69.602% | | Raymond Z. Wang | 120,000 | 1.143% | | Jing Jin | 135,000 | 1.286% | | Lei Chen | - | - | | Ming Zhao | - | - | | Charles Athle Nelson | - | - | | Everett Xiaolin Wang | - | - | | Frank Shen | - | - | | All Directors and executive officers as a group (8 persons) | 7,561,949 | 72.949% | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information on related party transactions and director independence is incorporated by reference from the proxy statement - The information required by this item is incorporated by reference to the Definitive Proxy Statement filed on December 1, 2020[248] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Total accounting fees decreased in 2020, consisting primarily of audit and audit-related services - Audit fees consist of fees for the audit of annual financial statements and services related to statutory and regulatory filings[250] - Audit-related fees are for accounting, assurance, and related services reasonably related to the audit or review of financial statements[251] - The audit committee has pre-approved all audit and non-audit related services provided by the independent registered public accounting firm[252] Principal Accounting Fees and Services (FY2020 vs. FY2019) | Category | 2020 (USD) | 2019 (USD) | | :----------------- | :--------- | :--------- | | Audit Fees | $300,000 | $379,303 | | Audit-Related Fees | $30,000 | - | | Tax Fees | - | - | | All Other Fees | - | - | | Total | $330,000 | $379,303 | PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists the financial statements and a comprehensive index of exhibits filed with the report - The section includes an index to financial statements, comprising reports of independent auditors, consolidated balance sheets, and statements of income, equity, and cash flows[254] - A detailed list of exhibits is provided, including organizational documents, warrant agreements, employment agreements, and various certifications[255][256][258] ITEM 16. FORM 10-K SUMMARY The company has elected not to provide a Form 10-K summary - There is no Form 10-K summary provided[259] SIGNATURES SIGNATURES The report was duly signed by the CEO, CFO, and other directors on March 31, 2021 - The Annual Report on Form 10-K was signed on March 31, 2021, by Raymond Z. Wang (CEO) and Jing Jin (CFO), along with other directors[260][262] FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firms The independent auditor issued an unqualified opinion, highlighting accounts receivable valuation as a critical audit matter - WWC, P.C. issued an unqualified opinion on the consolidated financial statements for the two-year period ended December 31, 2020[268] - A critical audit matter identified was the fair valuation of accounts receivables and related allowance for doubtful accounts, due to significant subjective judgment[271] - The audit opinion is not qualified as a result of the emphasis of matter regarding a one-time gain on remeasurement of foreign currency[269] Consolidated Balance Sheets Total assets grew to $131.98 million in 2020, driven by increases in current assets and liabilities - Cash and cash equivalents increased significantly from $2.12 million in 2019 to $7.16 million in 2020[274] - Notes receivable nearly doubled from $16.16 million in 2019 to $30.80 million in 2020[274] - Due from related parties (current) increased from $36.04 million in 2019 to $38.54 million in 2020[274] - Short-term bank loans increased from $16.86 million in 2019 to $18.49 million in 2020[277] - Notes payable-bank acceptance notes increased from $15.05 million in 2019 to $25.89 million in 2020[277] - Accounts payable increased from $14.71 million in 2019 to $22.01 million in 2020[277] Consolidated Balance Sheet Highlights (December 31, 2020 vs. 2019) | Category | Dec 31, 2020 (USD) | Dec 31, 2019 (USD) | | :------------------------ | :----------------- | :----------------- | | Total Current Assets | $107,643,434 | $80,239,713 | | Total Non-Current Assets | $24,335,303 | $26,244,130 | | TOTAL ASSETS | $131,978,737 | $106,483,843 | | Total Current Liabilities | $78,808,335 | $55,993,321 | | Total Long-Term Liabilities | $2,508,940 | $3,528,398 | | TOTAL LIABILITIES | $81,317,275 | $59,521,719 | | Total Shareholders' Equity | $44,889,922 | $38,595,878 | | Non-controlling Interest | $5,771,540 | $8,366,246 | | TOTAL EQUITY | $50,661,462 | $46,962,124 | Consolidated Statements of Income and Comprehensive Income Net income increased 25.25% to $6.37 million in 2020, driven by revenue growth and a remeasurement gain - Revenues increased by 27.60% from $52.40 million in 2019 to $66.86 million in 2020[280] - Gross profit increased by 3.51% to $12.81 million in 2020, while cost of goods sold increased by 35.05%[280] - A remeasurement gain of $1.94 million from a change in functional currency significantly impacted income before income tax in 2020[280] - Net income attributable to owners increased by 51.3% from $4.46 million in 2019 to $6.76 million in 2020[280] - Basic and diluted net income per ordinary share increased from $0.56 in 2019 to $0.67 in 2020[280] Consolidated Statements of Income and Comprehensive Income (FY2020 vs. FY2019) | Metric | FY2020 (USD) | FY2019 (USD) | | :------------------------------------------------------------------ | :----------- | :----------- | | REVENUES | $66,864,375 | $52,400,844 | | COST OF GOODS SOLD | $54,051,367 | $40,022,243 | | GROSS PROFIT | $12,813,008 | $12,378,601 | | Total operating expenses | $6,104,658 | $5,774,523 | | INCOME FROM OPERATIONS | $6,708,350 | $6,604,078 | | Remeasurement gain from change in functional currency | $1,940,773 | - | | INCOME BEFORE INCOME TAX | $8,644,560 | $5,934,533 | | INCOME TAX | $2,272,997 | $847,367 | | NET INCOME | $6,371,563 | $5,087,166 | | NET INCOME ATTRIBUTABLE TO GREENLAND TECHNOLOGIES HOLDING CORPORATION AND SUBSIDIARIES | $6,758,502 | $4,464,556 | | Basic and diluted NET INCOME PER ORDINARY SHARE | $0.67 | $0.56 | Consolidated Statements of Shareholders' Equity Total equity increased to $50.66 million in 2020, primarily driven by net income and currency translation adjustments - Net income contributed $6.37 million to equity in 2020[285] - Foreign currency translation adjustment resulted in a $0.94 million increase in comprehensive income in 2020[285] - A reduction of capital of $3.86 million occurred in 2020[285] - The number of ordinary shares outstanding increased by 219,000 shares in 2020 due to restricted stock grants[285] Consolidated Statements of Shareholders' Equity Highlights (December 31, 2020 vs. 2019) | Metric | Dec 31, 2020 (USD) | Dec 31, 2019 (USD) | | :------------------------------------ | :----------------- | :----------------- | | Ordinary Shares (No Par Value) | 10,225,142 | 10,006,142 | | Additional Paid-in Capital | $13,707,398 | $15,226,685 | | Statutory Reserve | $4,517,117 | $3,866,574 | | Retained Earnings | $26,728,332 | $19,863,600 | | Accumulated Other Comprehensive Income (Loss) | $(62,925) | $(360,981) | | Total Shareholders' Equity | $44,889,922 | $38,595,878 | | Non-controlling Interest | $5,771,540 | $8,366,246 | | Total Equity | $50,661,462 | $46,962,124 | Consolidated Statements of Cash Flows The company generated a positive net cash flow of $4.18 million in 2020, a reversal from the prior year - Net cash provided by operating activities decreased in 2020 primarily due to changes in notes receivable and inventories, despite higher net income[155] - Net cash used in investing activities decreased in 2020, mainly due to lower purchases of long-term assets[157] - Net cash provided by financing activities in 2020 was driven by proceeds from short-term bank loans ($21.13 million) and third parties ($4.38 million)[159] - Total cash and cash equivalents and restricted cash at the end of 2020 was $9.40 million, up from $5.72 million in 2019[291] Consolidated Statements of Cash Flows (FY2020 vs. FY2019) | Cash Flow Activity | FY2020 (USD) | FY2019 (USD) | | :---------------------------------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $2,695,570 | $7,999,230 | | Net cash (used in) investing activities | $(822,769) | $(1,600,288) | | Net cash provided/(used) in financing activities | $2,307,164 | $(9,644,359) | | Net increase (decrease) in cash and cash equivalents and restricted cash | $4,179,965 | $(3,245,417) | | Cash and cash equivalents and restricted cash at end of period | $9,403,053 | $5,717,207 | Notes to Consolidated Financial Statements The notes detail the company's accounting policies, financial accounts, related party transactions, and other key disclosures - The business combination was accounted for as a reverse recapitalization, with Zhongchai Holding as the accounting acquirer[308][309][310] - Cenntro Holding Limited, controlled by Chairman Peter Zuguang Wang, owns 69.60% of Greenland's outstanding ordinary shares as of December 31, 2020[297] - The company's five largest customers contributed 34.41% of total revenues in 2020[374] - Inventories, net, increased from $9.97 million in 2019 to $15.38 million in 2020[381] - Notes receivable increased to $30.80 million in 2020, with $26.53 million pledged as security for bank acceptance notes[381] - Notes payable (bank acceptance notes) increased to $25.89 million in 2020, secured by restricted cash, notes receivable, and land use rights[394] - Short-term bank loans totaled $18.49 million in 2020, with an average annual interest rate of 4.547%[399][400][405] - Due from related parties (Cenntro Holding Limited) was $38.54 million in 2020, with repayment extended to April 27, 2022[461][462] - Subsequent events include the grant of 51,000 shares of restricted common stock to Raymond Z. Wang on February 8, 2021[471] Disaggregation of Revenue by Major Product (FY2020 vs. FY2019) | Major Product | FY2020 (USD) | FY2019 (USD) | | :--------------------------------- | :----------- | :----------- | | Transmission boxes for Forklift | 58,407,137 | 52,140,258 | | Transmission boxes for Non-Forklift (EV, etc.) | 8,457,238 | 260,586 | | Total | 66,864,375 | 52,400,844 |