Business context and reporting period
Filing identity: The request identifies Planet Green Holdings Corp., but the supplied filing is American Lorain Corporation’s Form 10-K, filed October 30, 2017, for the fiscal year ended December 31, 2016. It reports annual results, not standalone fourth-quarter results. The filing describes a China-based food manufacturer selling chestnut, convenience and frozen food products, primarily in China, Japan and South Korea.
Financial results and position
Unless noted otherwise, amounts are U.S. dollars. Audited consolidated statements report:
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $79.7 million | $140.7 million |
| Gross profit | $10.5 million | $26.0 million |
| Operating income (loss) | $(36.4) million | $13.5 million |
| Net income (loss) | $(136.4) million | $(2.7) million |
| Net loss per share | $(3.55) | $(0.07) |
| Operating cash flow | $(29.8) million | $18.3 million |
| Cash and cash equivalents | $0.4 million | $17.1 million |
| Total assets | $148.3 million | $307.1 million |
Gross profit declined 59.6% as revenue fell 43.4%. The filing’s MD&A states gross margins of 7.1% for 2016 and 12.6% for 2015, but the audited consolidated revenue and gross-profit figures imply different margins; investors should verify the calculation and presentation. The audited statements show a $136.4 million net loss, including a $49.2 million loss from discontinued operations. Loss from continuing operations was $87.2 million.
2016 unusual charges included $35.6 million of written-off receivables, supplier advances and other current assets; $45.9 million of other expenses, including inventory, investment, property and construction-in-progress impairments; and $49.2 million of discontinued-operation losses. Cash flow from operations was negative despite these noncash charges. Investing activities provided $8.9 million, while financing activities provided $3.0 million.
At year-end, short-term bank loans were $22.7 million, current maturities of long-term debt were $28.9 million, and current capital-lease obligations were $1.0 million. The company disclosed defaults on certain bank loans, DEG debt and debentures; it was negotiating extensions or revised repayment terms. Cash and restricted cash together were approximately $1.4 million. The balance sheet reports current assets of $66.8 million and current liabilities of $82.2 million, a deficit of about $15.3 million; the filing’s narrative gives working-capital deficit figures of approximately $21.3 million and $21.1 million in different places.
Material changes versus the prior comparable period
- Revenue fell substantially, with management citing weaker domestic demand, intensified competition in convenience foods, Shandong production-line relocation, flooding and higher chestnut prices in Luotian, and reduced international sales after the French operation closed.
- China domestic revenue reportedly decreased about 46%; international revenue decreased about 67%, including a 95% decline in European chestnut exports. Convenience-food revenue decreased about 65%.
- General and administrative expenses rose from $5.7 million to $40.8 million, primarily due to the $35.6 million write-off. Cash and cash equivalents fell from $17.1 million to $0.4 million.
- Shandong Lorain relocated production lines to Junan Hongrun during 2016, limiting production capacity. Dongguan Lorain ceased operations in October; the French Athena/Minerve business became insolvent and was liquidated. The filing reports these and other units within discontinued operations.
- The company corrected a 2015 revenue-timing error: the correction table reduces previously reported sales by $8.6 million and gross profit by $1.5 million. The filing also recasts 2015 for discontinued operations, so comparative figures should be read with care.
Outlook, risks and other significant matters
Management planned to focus in 2017 on Chinese brand recognition, existing product turnover, new products and sales channels. No quantified revenue or earnings guidance is provided. Management said existing resources, operating cash flow and anticipated short-term borrowing should cover liquidity needs through 2017, while also seeking private-placement equity or convertible debt and considering spending reductions. The audited financial statements and filing state that substantial doubt exists about the company’s ability to continue as a going concern.
- Listing and reporting: The company disclosed that NYSE American had accepted a compliance plan after its late 2016 Form 10-K filing, but staff could initiate delisting proceedings because required reports remained outstanding and other concerns existed.
- Debt and control: DEG foreclosed on 10,794,066 pledged shares in September 2016, approximately 28.2% of shares outstanding at the time. Certain debt was in default, and refinancing or repayment was uncertain.
- Financial reporting: Management concluded disclosure controls and internal control over financial reporting were ineffective due to a material weakness involving insufficient U.S. GAAP expertise and staffing. The auditor gave an unqualified opinion on the financial statements but highlighted the going-concern uncertainty; it did not audit internal-control effectiveness.
- Operational and regulatory risks: Risks include food safety and product liability (the company reported no product-liability insurance), agricultural supply and price volatility, environmental and food-safety regulation, Chinese foreign-exchange and legal restrictions, and reliance on customer collections and short-term financing.
- Other matters: A lawsuit seeking RMB 10 million in fixed returns was pending after a retrial; the outcome was not yet determined. A proposed acquisition of Shengrong, agreed in December 2016, was terminated in June 2017. The filing gives no assurance of compensation for the Shandong relocation.
Most important facts for an investor to verify
- Confirm the filing belongs to the intended issuer: the supplied document is for American Lorain Corporation (ALN), not Planet Green Holdings Corp.
- Reconcile the audited statements with MD&A: the filing contains conflicting descriptions of net loss, cash-flow changes, gross margins and working-capital deficit.
- Review the 2015 revenue correction and discontinued-operations recast to ensure period comparisons use consistent figures.
- Confirm the status, maturity terms and amounts of defaulted bank loans, DEG debt and debentures, and assess whether financing or debt extensions were obtained.
- Assess the company’s going-concern position, extremely low unrestricted cash, collection prospects for receivables, and ability to fund operations.
- Check subsequent developments on NYSE American listing compliance, the Shandong lawsuit, relocation compensation, and the liquidation or disposition of discontinued businesses.