Planet Green Holdings Corp. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited U.S. GAAP financial statements; amounts in U.S. dollars. The company operates food, spice and tea businesses in China and acquired a North American education-market demand-side platform through Fast Approach in June 2020.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $471,441 | $852,009 | $1,306,152 | $1,930,254 |
| Gross profit | $183,534 | $80,551 | $166,176 | $378,808 |
| Gross margin | 38.9% | 9.5% | 12.7% | 19.6% |
| Operating loss | $(112,146) | $(292,101) | $(559,928) | $(228,523) |
| Net loss | $(117,674) | $(315,506) | $(707,469) | $(307,810) |
| Basic and diluted loss per share | $(0.01) | $(0.05) | $(0.08) | $(0.05) |
- Q2 selling and marketing expense was $18,928 and G&A was $276,752. For the six months, those expenses were $26,773 and $699,331, respectively.
- Six-month operating cash outflow was $6.38 million, versus $2.16 million in 2019. Investing cash outflow was $332,394; financing provided $3.62 million, including $3.51 million from a private placement. Cash declined to $4.24 million from $7.40 million at year-end 2019.
- At June 30, current assets were $19.18 million and current liabilities $3.29 million (current ratio approximately 5.8). Supplier advances and prepayments were $9.78 million.
- Short-term bank loans were $245,507; lease liabilities totaled approximately $380,474. Total liabilities were $3.65 million and assets $26.89 million. The company reported a debt-to-assets ratio of 13.6%, down from 19.9% at December 31, 2019.
Material changes versus comparable periods
- Q2 revenue fell 45% year over year, which management attributed mainly to reduced demand amid COVID-19. Lower cost of revenue and a higher mix of higher-margin tea products lifted gross profit to $183,534 from $80,551 and reduced the quarterly net loss.
- For the first half, revenue declined 32% and gross profit fell 56%. Management attributed the gross-profit decline mainly to lower sales of higher-margin spices. The six-month net loss more than doubled, with lower revenue and a $142,264 COVID-19-related donation contributing to results.
- Cash used in operations increased substantially, principally reflecting higher receivables, supplier prepayments and other current assets, and lower payables and other current liabilities. Management’s MD&A cash-flow narrative gives a 2019 operating outflow of $0.2 million; the financial statements report $2.16 million.
- On June 5, the company acquired Fast Approach, issuing shares as consideration. The filing describes 1.8 million acquisition shares; the balance sheet and equity statement show shares increasing by 1.35 million during the first half, identified as a cash issuance.
Outlook, risks and unusual items
- Management said existing resources and anticipated operating cash flows should meet liquidity needs for the next 12 months, and expected to rely on operating cash flow and, if needed, private financing. It cautioned that additional financing may not be available on acceptable terms and that spending reductions may be necessary. No specific revenue or earnings guidance was provided.
- COVID-19 temporarily closed offices and production facilities from February through April, disrupted manufacturing and shipments, and may continue to reduce demand and collections. Management said the duration and severity of effects were uncertain.
- Disclosure controls and procedures were deemed ineffective because of a material weakness in GAAP accounting and reporting, including insufficiently experienced accounting personnel. Management outlined training and recruitment plans.
- The filing reports no legal proceedings, defaults on senior securities, off-balance-sheet arrangements, or material subsequent events. The company identifies PRC political, legal, currency, customer credit, refinancing, and raw-material and labor-cost risks. It states that its PRC bank deposits are not federally insured.
Key investor verification points
- Reconcile the 1.8 million shares stated as Fast Approach acquisition consideration with the 1.35 million first-half share increase shown in the financial statements, and with 11,027,765 shares outstanding on July 31, 2020.
- Assess the sustainability of liquidity given $6.38 million of first-half operating cash outflow, the $9.78 million in supplier advances and prepayments, and management’s reliance on future operating cash flow or financing.
- Track COVID-19 effects on production, shipments, demand, collections, and gross margins, including the differing first-half and Q2 gross-profit trends.
- Monitor remediation of the disclosed material weakness and the quality of future financial reporting.
- Confirm the amount and treatment of restricted cash: management refers to cash and cash equivalents “including restricted cash,” but the balance sheet does not separately state a restricted-cash amount.