Greenland Technologies Holding Corp. — Q3 2022 Form 10-Q
Business and reporting period. Unaudited results cover the three and nine months ended September 30, 2022, compared with the same periods in 2021. Greenland manufactures forklift transmission products primarily in China and is developing a North American electric industrial vehicle business through HEVI. All amounts below are U.S. dollars.
Financial performance
| Metric | Three months ended Sept. 30, 2022 | Nine months ended Sept. 30, 2022 | Comparison with 2021 |
|---|---|---|---|
| Revenue | $21.79 million | $71.70 million | Down 5.6% and 5.5%, respectively |
| Gross profit / margin | $4.81 million / 22.1% | $16.02 million / 22.3% | Quarterly gross profit down 5.6%; nine-month gross profit up 0.7%, with margin up from 21.0% |
| Operating income | $2.07 million | $7.65 million | Up 1.1% for Q3; down 8.4% for nine months |
| Consolidated net income | $2.10 million | $7.39 million | Up 67.4% for Q3 and 7.9% for nine months |
| Net income attributable to Greenland shareholders | $1.28 million; $0.10 per share | $4.55 million; $0.39 per share | Prior-year attributable income was $1.03 million and $5.94 million, respectively; nine-month EPS was $0.55 in 2021 |
| Operating cash flow | Not presented separately for the quarter | $(6.12) million | $(5.86) million in 2021 |
Drivers and margins. Management attributed lower revenue to reduced sales volume amid COVID-19-related lockdowns in China. Nine-month transmission-product sales volume fell to 102,144 sets from 110,082. Management said the nine-month gross-margin improvement reflected a mix shift toward higher-value, more sophisticated products. Other income increased to $1.42 million for the nine months, mainly from government grants and industry research services; this helped support reported net income. Operating expenses rose 10.8%, led by higher selling and general and administrative costs, while research and development expense declined.
Financial position, cash flow, and capital
- Liquidity: At September 30, 2022, cash and cash equivalents were $11.31 million and restricted cash was $3.72 million. Short-term investments were $12.24 million. Working capital was approximately $65.08 million, versus $53.84 million at year-end 2021.
- Receivables: Net accounts receivable was $18.34 million, up from $15.92 million at year-end. Notes receivable were $31.61 million. Management cited slower collections during the pandemic and expected notes receivable to be collected within six months.
- Related-party exposure: Due from related parties was $35.46 million, principally $35.35 million owed by controlling shareholder Cenntro Holding Limited. Repayment was scheduled through June 30, 2024, but the company cautioned that repayment is not assured and nonpayment could materially harm its balance sheet.
- Debt and obligations: Short-term bank loans were $8.72 million and bank acceptance notes payable were $33.72 million. These, together with lease liabilities, are primarily current obligations; total current liabilities were $70.26 million. Bank loans were generally due within one year, and management said the company was in compliance with loan covenants. Some bank facilities are secured by property, land-use rights, notes receivable, or other collateral.
- Cash generation: Nine-month investing cash flow was positive $0.36 million, including $0.72 million of construction grants. Financing cash flow was positive $3.96 million, including equity and debt proceeds, partly offset by repayments. Cash and restricted cash ended at $15.03 million, down from $17.80 million at the start of the year; foreign-exchange effects reduced cash by $0.97 million.
- Share issuance: In July 2022 the company issued 1.25 million shares at $4.17 per share for gross proceeds of $5.21 million. Shares outstanding increased from 11,329,530 at year-end 2021 to 12,579,530 at September 30, 2022.
Outlook, risks, and notable items
- Management stated it believed available resources and expected funding sources would support operations for the next 12 months and expected positive operating cash flow. However, reported operating cash flow was negative for the first nine months. The company expects to rely on operating cash flow, renewed bank borrowings, potential equity financing, and, if needed, shareholder and affiliate support; no quantified earnings or revenue guidance was provided.
- The company reported rising raw-material costs and expected further increases, while COVID-related lockdowns could continue to disrupt Chinese operations. Inflation, steel-price volatility, supply availability, currency movements, and customer collections are identified risks.
- Greenland launched the GEL-5000 electric loader in July 2022 and opened a 54,000-square-foot Baltimore assembly site in August. It planned a Mid-Atlantic experience center in 2023. The filing cautions that the electric-vehicle business is new, may not gain market acceptance, and may not generate revenue sufficient to cover investment.
- Foreign-currency translation produced a nine-month comprehensive loss of $0.89 million despite net income; accumulated other comprehensive loss was $4.43 million at September 30, 2022.
- Management concluded disclosure controls and procedures were ineffective because of a material weakness involving insufficient personnel with appropriate U.S. GAAP and SEC-reporting expertise and inadequate supervisory review. Remediation plans include hiring and training personnel and formalizing controls. Management nevertheless stated the unaudited statements fairly present the company’s financial position and results in all material respects.
- Other risks include concentrated customers (the five largest accounted for 48.10% of nine-month revenue), dependence on China and its regulatory environment, limits on moving funds out of China, and possible penalties relating to underpaid PRC employee benefits. The filing estimated potential employee-benefit penalties of approximately $200,000; it reported no order to pay as of the filing date. No pending legal proceedings were reported.
Most important facts for investors to verify
- Whether Cenntro Holding Limited is making scheduled repayments of the $35.35 million related-party receivable, and whether the balance is fully recoverable.
- Whether receivable collections, operating cash flow, and liquidity improve, given negative operating cash flow and the substantial balance of current bank acceptance notes.
- Whether COVID-related disruptions and raw-material inflation persist, and whether improved product mix can sustain gross margins as sales volumes change.
- Whether the Baltimore assembly operation and electric industrial vehicle launches translate into material sales and returns on investment.
- Progress in remediating the material weakness in financial reporting controls, and any resulting changes to reporting reliability.
- Renewal, repayment, collateral, and refinancing terms for short-term borrowings, alongside the company’s ability to access funding and transfer cash from China.