Planet Green Holdings Corp. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited results are stated in U.S. dollars. The company grows, develops, manufactures and markets food, spice, convenience-food and tea products through subsidiaries and VIEs in China.
Financial highlights
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $852,009 | $636,387 | $1,930,254 | $1,653,915 |
| Gross profit | $80,551 | $565,469 | $378,808 | $681,506 |
| Operating loss | $(292,101) | $(43,792) | $(228,523) | $(112,089) |
| Net loss | $(315,506) | $(711,434) | $(307,810) | $(768,951) |
| Basic and diluted loss per share | $(0.05) | $(0.43) | $(0.05) | $(0.42) |
- Revenue increased 34% in Q2 and 17% for the six months. Cost of revenue rose faster—986% in Q2 and 60% year to date—so gross profit fell 86% and 44%, respectively. Gross margin was approximately 9% in Q2 and 20% for the six-month period, compared with approximately 89% and 41% in the prior-year periods.
- Lower losses versus 2018 mainly reflect the absence of losses from discontinued operations: $665,658 in Q2 2018 and $652,612 for the first half of 2018. Continuing-operations losses nevertheless increased year over year.
- Cash and cash equivalents were $7.04 million at June 30, 2019, versus $1.06 million at December 31, 2018. Current assets were $17.53 million and current liabilities $7.71 million. The latter includes $3.57 million of liabilities of discontinued operations.
- For the first half, operating cash use was $2.16 million, investing cash use $0.66 million, and financing cash provided $8.81 million. Financing included $5.46 million raised from a June stock sale; the company also reported $9.94 million total proceeds from common-stock issuance in its cash-flow statement. The cash-flow statement reports $1.13 million of borrowing repayments.
- Total assets were $25.72 million and stockholders’ equity $18.02 million at June 30. Management reported a debt-to-assets ratio of 30.0%, down from 57.6% at year-end; the balance sheet does not provide a clear separate value for outstanding borrowings.
Business changes and notable items
- In May 2019, the company acquired Xianning Bozhuang Tea Products through its subsidiary and consolidated it as a VIE. It issued 1,080,000 shares as acquisition consideration. The company attributed revenue and cost changes to this acquisition, Taishan Muren, and the disposal or discontinuation of certain historical subsidiaries.
- On June 19, the company completed a private placement of 1,300,000 shares to five PRC-resident individuals at $4.20 per share, for $5.46 million. Shares outstanding increased from 5,497,765 at year-end to 7,877,765 at June 30.
- Discontinued-operation liabilities were $3.57 million at June 30, down from $8.61 million at December 31; the discontinued entities had no reported assets. The company reported $2.51 million of future lease commitments.
- Management stated that existing capital resources and anticipated operating cash flows should meet liquidity needs for the next 12 months. It may seek additional private financing or reduce expenditures if liquidity proves insufficient; neither alternative is assured. No numerical earnings or revenue guidance was provided.
- Disclosure controls were deemed ineffective due to a continuing material weakness: insufficient accounting staff with experience and training in U.S. GAAP. Management described plans for training and recruitment. The company reported no legal proceedings and no off-balance-sheet arrangements.
Risks and investor verification points
- Verify whether cash is unrestricted and reconcile the liquidity presentation: the filing describes $7.04 million as cash and cash equivalents, while MD&A refers to cash “including restricted cash” and the restricted-cash note gives no separate amount.
- Assess operating performance and margins independently of the changing consolidation perimeter, including the contribution and results of acquired VIEs and the impact of discontinued operations.
- Review the $3.57 million of discontinued-operation liabilities, their expected settlement, and the $2.51 million lease commitments.
- Confirm debt balances, maturities and refinancing needs; the filing cites loan-related risks but does not clearly state a separate period-end borrowing balance.
- Consider the material weakness in financial reporting controls and the company’s PRC-related political, legal, currency-conversion, banking and operating risks. Management also cautioned that actual results may differ materially from forward-looking statements.