Planet Green Holdings Corp. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated financial statements; amounts in U.S. dollars. Planet Green operates across tea products, synthetic fuels and chemicals, fuel-storage/refueling equipment, and online advertising, primarily through Chinese subsidiaries and VIE arrangements.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $8.48 million | $1.20 million | $15.60 million | $2.47 million |
| Gross profit | $1.35 million | $0.69 million | $1.85 million | $0.85 million |
| Gross margin | 15.9% | 57.2% | 11.8% | 34.4% |
| Operating loss | $(2.34) million | $(0.07) million | $(5.03) million | $(0.49) million |
| Net loss | $(2.40) million | $(8.20) million | $(5.06) million | $(8.90) million |
| Net loss attributable to common shareholders | $(2.27) million | Not clearly stated in the filing table | $(4.73) million | Not clearly stated in the filing table |
| Basic and diluted loss per share | $(0.08) | $(0.85) | $(0.21) | $(0.97) in statements; a note shows $(0.98) |
- Revenue rose sharply year over year, which management attributed primarily to acquired subsidiaries and VIEs; the filing does not establish that this reflects organic growth.
- Cost of revenue increased faster than revenue, compressing gross margin. Operating expenses also increased, and operating losses widened in both comparison periods.
- Reported net loss improved versus 2020, when the comparable periods included a large loss on disposal of discontinued operations. The filing reports no such disposal loss in 2021.
- Nine-month operating cash flow was $(13.01) million, compared with $(5.14) million used in 2020. Investing cash flow was $(0.04) million; financing provided $9.81 million, mainly from stock issuance. Cash declined by $2.66 million, from $3.42 million at year-end 2020 to $0.76 million.
- At September 30, 2021, current assets were $28.69 million and current liabilities $25.95 million, implying working capital of about $2.74 million and a current ratio of about 1.1. Cash was $0.76 million.
- Total liabilities were $26.75 million, including $7.26 million of short-term bank loans. The loans were due in November or December 2021 and carried disclosed rates from 3.85% to 10%, except a zero-rate Canadian balance. Lease liabilities were approximately $0.61 million. Debt-to-assets ratio was reported as 32.7%.
- Total assets increased to $81.59 million from $21.97 million at December 31, 2020, reflecting acquisitions and related asset recognition. Goodwill was $16.72 million.
Material changes and unusual items
- During 2021, the Company added interests in Jingshan Sanhe, Jilin Chuangyuan, and Anhui Ansheng, and acquired Shine Chemical and related subsidiaries. It also obtained 100% ownership of Xianning Bozhuang. These transactions substantially changed the consolidated business and make year-over-year comparisons less like-for-like.
- The Company issued 10.3 million shares for acquisitions and raised equity capital. Shares outstanding rose from 11.81 million at December 31, 2020 to 29.68 million at September 30, 2021, materially increasing the share count.
- General and administrative costs included stock-based compensation; the filing reports $1.16 million of employee shares issued in 2021. Management also cited higher intermediary service fees for the nine-month expense increase.
- At September 30, the Company reported $8.34 million due from related parties. The disclosed loans were unsecured, non-interest-bearing, and due on demand. Related-party payables were $4.05 million.
- The Company paid $7.31 million for a commercial real-estate investment. The filing identifies the seller as Lucky Sky.
- Trade receivables, net, were $2.95 million after a $1.33 million doubtful-account allowance, up from an allowance of $46,149 at year-end 2020.
Outlook, risks, and controls
- Management stated that existing capital resources and anticipated operating cash flows were expected to meet liquidity needs for the next 12 months, with private financing or spending reductions as possible alternatives. It cautioned that additional financing may not be available. No specific revenue, earnings, or cash-flow guidance was provided.
- The financial statements disclose substantial doubt about the Company’s ability to continue as a going concern, citing the nine-month net loss of $5.06 million, accumulated deficit of $89.06 million, and operating cash outflow of $13.01 million. Management’s plans depend on executing its business plan and may require private placements or related-party funding.
- Disclosure controls and procedures were deemed ineffective because of a continuing material weakness: insufficient accounting personnel with GAAP experience to record transactions and prepare disclosures. Management reported GAAP training and plans to recruit qualified staff.
- Key risks include reliance on contractual VIE arrangements rather than direct ownership, uncertainty around PRC regulation and offshore listings, limitations on U.S. regulators’ ability to investigate in China, PRC political and legal risks, foreign-currency restrictions, and refinancing risk on short-term debt. The filing also notes that PRC bank deposits are not federally insured.
- The Company reported no legal proceedings and no material subsequent events through the financial statement issuance date.
Important facts for investors to verify
- Whether the acquired businesses can sustain revenue and improve margins, and how much reported growth is attributable to acquisitions rather than existing operations.
- Near-term cash requirements and repayment or refinancing of bank loans due in November and December 2021, given low cash and significant operating cash burn.
- Collectability and business purpose of the $8.34 million in related-party receivables, and the terms and counterparties for related-party balances and the real-estate investment.
- Acquisition accounting, including the valuation and recoverability of $16.72 million of goodwill and the effects of noncontrolling interests and VIE arrangements.
- Resolution of disclosed reporting inconsistencies, including the nine-month 2020 loss-per-share figures and differences between some MD&A expense figures and the financial statements.
- Progress in remediating the material weakness in internal controls and any subsequent developments in PRC rules affecting VIEs or offshore-listed companies.