Planet Green Holdings Corp. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The company filed on June 26, 2020, relying on SEC COVID-19 filing relief; it said pandemic-related travel and operating restrictions delayed preparation of its financial statements.
Business context
Planet Green’s principal operations were in China, including developing and selling food, herb, spice, sauce, and tea products through subsidiaries and variable interest entities. The company also reported an education-focused advertising platform business acquired after quarter-end.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Revenue | $834,711 | $1,078,245 |
| Gross profit (loss) | $(17,358) | $298,257 |
| Operating expenses | $430,424 | $234,679 |
| Operating income (loss) | $(447,782) | $63,578 |
| Net income (loss) | $(589,795) | $7,696 |
| Comprehensive income (loss) | $(895,822) | $200,358 |
| Cash from (used in) operations | $(6,537,100) | $284,745 |
| Cash and cash equivalents, March 31 | $4,117,973 | $7,403,323 at Dec. 31, 2019 |
| Total assets / total liabilities, March 31 | $26,707,063 / $3,358,379 | $25,898,098 / $5,163,592 at Dec. 31, 2019 |
| Short-term bank loans, March 31 | $203,930 | $136,044 at Dec. 31, 2019 |
Gross margin was approximately negative 2.1%, compared with approximately 27.7% in Q1 2019. The company reported basic and diluted loss per share of $0.07 (versus reported earnings per share of $0.00 in Q1 2019). Cash used in investing was $287,573; financing provided $3,581,041, principally from the stock sale. The filing reports a 12.6% debt-to-assets ratio at quarter-end, versus 19.9% at year-end 2019.
Material changes and unusual items
- Revenue fell about 23% year over year, while cost of revenue rose about 9%; management attributed the changes to COVID-19-related weaker demand and higher raw-material costs.
- Gross profit turned negative. General and administrative expense rose about 80% to $422,579, primarily due to higher intermediary service fees. Other expenses included a $143,287 donation to a local nonprofit for COVID-19 treatment and prevention.
- Operating cash outflow was driven largely by increases in supplier prepayments and other current assets, receivables, and decreases in payables and other current liabilities.
- On February 28, the company completed a $3.51 million private placement, issuing 1,350,000 shares at approximately $2.60 per share. Shares outstanding increased from 7,877,765 at year-end to 9,227,765 at March 31.
- After quarter-end, on June 5, the company issued 1,800,000 shares to acquire Fast Approach Inc., which operates a demand-side platform targeting the Chinese education market in North America. On May 18, a director resigned and the CFO joined the board.
Outlook, risks, and controls
Management said existing capital resources and anticipated operating cash flows should meet liquidity needs for the next 12 months, while noting it may pursue private or alternative financing or reduce expenditures if liquidity proves insufficient. No specific revenue or earnings guidance was provided.
The company temporarily closed offices and production facilities from February through April 2020, with resulting production and shipment delays; some employees were quarantined. Management warned that prolonged disruption, weaker customer demand, collection difficulties, and further COVID-19 effects could materially harm results. Other disclosed risks include PRC political, legal, currency, bank-deposit, interest-rate, and raw-material-cost risks. Short-term loans carry annual rates of 3.915% and 5.0025%; one loan was secured by a company president’s bank certificate of deposit.
Management concluded disclosure controls were not effective because of a continuing material weakness: insufficient experienced accounting personnel to record transactions and prepare disclosures in accordance with U.S. GAAP. The company planned additional training and recruitment. It reported no legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the sharp operating cash outflow and $10.45 million in supplier advances and prepayments are recoverable and convert into inventory or sales as expected.
- The duration and financial effects of COVID-19-related production interruptions, shipment delays, customer demand weakness, and collections.
- The status of the material weakness remediation and the reliability of future GAAP reporting.
- The terms, integration, and expected contribution of the Fast Approach acquisition, including dilution from the 1.8 million shares issued after quarter-end.
- The filing describes March 31 cash as $4.12 million, while MD&A says this amount includes restricted cash; the restricted portion is not clearly stated in the filing text.