Planet Green Holdings Corp. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited financial statements are in U.S. dollars. The company’s principal businesses were Chinese tea production and sales through Xianning Bozhuang, and a digital advertising demand-side platform operated by Fast Approach, acquired June 5, 2020.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.204 million | $18,566 | $2.472 million | $65,809 |
| Gross profit (loss) | $689,052 | ($6,217) | $849,591 | $8,738 |
| Operating loss | ($73,331) | ($1.693 million) | ($486,792) | ($1.921 million) |
| Net loss | ($8.195 million) | ($2.958 million) | ($8.903 million) | ($3.266 million) |
| Operating cash flow | — | — | ($5.144 million) | ($6.904 million) |
- Gross margin was approximately 57% in Q3 and 34% for the nine-month period, based on reported revenue and gross profit.
- The nine-month net loss included an $8.170 million loss on disposal of discontinued operations. The company also reported $150,911 of discontinued-operation losses for the nine months.
- Cash and cash equivalents were $5.594 million at September 30, versus $7.273 million at December 31, 2019. Current assets were $12.759 million and current liabilities were $3.203 million.
- Total liabilities were $3.203 million, compared with $5.164 million at year-end 2019. Short-term bank loans were $35,259; related-party payables were $280,243, down from $2.003 million owed to the CEO at year-end.
- Working-capital assets included $2.478 million of inventory and $2.692 million of supplier advances and prepayments. Goodwill was $4.959 million, attributed to Fast Approach.
- Financing provided $3.658 million of cash, including $3.510 million from a February share sale. Investing used $412,260. Cash decreased by $1.899 million during the nine months.
Material changes and unusual items
- Revenue increased sharply from the very low prior-year base, which management attributed mainly to higher Xianning Bozhuang tea sales. General and administrative expenses fell, which management attributed mainly to the disposal of Taishan Muren and Shenzhen Lorain.
- On September 8, the board resolved to discontinue Taishan Muren and Shenzhen Lorain because of continued losses; related VIE agreements were terminated September 15. The reported disposal loss drove the substantially higher net loss despite improved operating results.
- Fast Approach was acquired for 1.8 million common shares, valued at $4.590 million in the equity statement. The company also issued 1.35 million shares for $3.510 million in cash. Shares outstanding rose from 7,877,765 at year-end to 11,027,765 at September 30.
- The company donated $143,008 to a local nonprofit for COVID-19 treatment and prevention.
Liquidity, outlook and risks
- Management said existing capital resources and anticipated operating cash flows should meet liquidity needs for the next 12 months. It expected to use operating cash flow and, if needed, private financings; if liquidity proves inadequate, it may seek alternative financing or reduce spending. It cautioned there is no assurance financing will be available or on acceptable terms.
- COVID-19 temporarily closed offices and production facilities from February through April 2020 and disrupted manufacturing and shipments. Management warned that prolonged disruption, weaker customer demand, collection challenges, or broader economic effects could further hurt revenue, costs, and financial condition.
- The company’s operations are concentrated in China and subject to PRC political, regulatory, economic, currency, and legal risks. Its tea businesses are consolidated through VIE arrangements, which rely on contractual control rather than direct ownership.
- Management concluded disclosure controls were not effective because of a continuing material weakness: insufficient accounting personnel with appropriate U.S. GAAP experience. Planned remediation included training and recruiting qualified financial staff.
- No legal proceedings or material subsequent events were disclosed. The filing provided no quantified forward guidance.
Important facts for investors to verify
- How the $8.170 million disposal loss was calculated, including the assets and liabilities disposed of and any remaining obligations.
- Fast Approach’s revenue, profitability, cash needs, and contribution to consolidated results; the filing does not provide a clear standalone income statement for it.
- The quality and collectability of receivables and supplier advances, given the $3.861 million operating cash-flow use attributed to receivables and other receivables.
- The difference between the statement of operations’ nine-month loss per share of $0.97 and Note 14’s $0.98 figure.
- Whether the stated 12-month liquidity expectation is supported by cash generation, and the status of remediation of the disclosed control weakness.