Planet Green Holdings Corp. — Filing identity and period
The supplied filing is American Lorain Corporation’s Form 10-Q for the quarter and nine months ended September 30, 2016, not a filing identified as Planet Green Holdings Corp. The company describes an integrated food business based primarily in China, selling chestnut, convenience and frozen foods. Interim financial statements were reviewed, not audited.
Financial results and condition
| Metric | Three months ended September 30, 2016 | Nine months ended September 30, 2016 |
|---|---|---|
| Revenue | $40.8 million | $104.5 million |
| Gross profit / margin | $6.3 million / 15.5% | $18.1 million / 17.4% |
| Operating income | $4.0 million | $10.0 million |
| Net income (loss), consolidated | $556,000 | ($2.24 million) |
| Net income (loss) attributable to common stockholders | $305,000 | ($2.76 million) |
| Basic and diluted EPS | $0.01 | ($0.06) |
For the nine months, operating cash flow was negative $13.3 million, investing cash flow was positive $14.6 million, and financing cash flow was positive $1.2 million. Cash and cash equivalents were $37.4 million; restricted cash was $3.1 million. The cash-flow statement also reports a $14.2 million favorable currency-translation effect on cash.
At September 30, current assets were $180.9 million and current liabilities $79.7 million; total liabilities were $80.3 million and equity $205.2 million. Short-term bank loans were $30.3 million, with a further $30.0 million of current long-term debt. Capital-lease obligations totaled $1.1 million.
Changes versus comparable periods
- Third-quarter revenue fell 14.4% year over year; gross profit declined 23.7% and gross margin contracted from 17.4% to 15.5%. All three product categories declined in the quarter.
- Nine-month revenue fell 13.4%. Convenience-food revenue declined 31.6% and frozen-food revenue 16.0%, while chestnut revenue increased 1.4%. The higher chestnut share contributed to the nine-month gross-margin increase from 16.3% to 17.4%.
- Nine-month operating income increased from $5.1 million to $10.0 million, largely alongside lower general and administrative expenses. However, pretax income was only $26,000, and common-stockholder results swung from $1.3 million income to a $2.8 million loss.
- The company recorded a $4.6 million investment loss related to losing control of its French subsidiary, Minerve. Minerve entered bankruptcy liquidation and was deconsolidated as of September 30, 2016.
Outlook, risks and unusual items
Management said it expected existing capital resources, operating cash flows and credit facilities to meet liquidity needs through at least 2017, while acknowledging that additional financing or spending reductions might be needed and were not assured. No quantified earnings or revenue guidance was provided. Management expects the business generally to perform best in the fourth quarter because of chestnut seasonality.
- Liquidity and refinancing are key risks: the company relies on short-term loans, and it cautioned that tighter Chinese lending conditions could prevent renewals. Some short-term loans were not repaid when due and were under negotiation.
- The company was in default on three past-due DEG loan installments totaling $5.625 million and was negotiating rescheduling. On September 7, 2016, DEG exercised rights to transfer title to 10,794,066 shares pledged by the chairman and CEO. The company was also negotiating repayment extensions with debenture holders.
- Revenue was affected by reduced European sales following questions from CTCPA about the origin of canned chestnuts sold by Minerve. Management also cited weaker domestic and export sales.
- Operating cash use, supplier prepayments, raw-material availability and price increases, foreign exchange and PRC regulatory and economic conditions were identified as risks. A pending Chinese court retrial concerns a claim for RMB 10 million; the decision was outstanding.
- Management concluded disclosure controls were not effective because of a material weakness in U.S. GAAP accounting and reporting expertise. It planned training and recruitment of qualified personnel.
- The CFO was scheduled to resign effective November 22, 2016, with a successor named in the filing.
Important facts for investors to verify
- Confirm the issuer: this source identifies American Lorain Corporation, not Planet Green Holdings Corp.
- Reconcile the share count: the balance sheet and cover page report 38,274,490 shares, while a capitalization note reports 38,259,490.
- Review the status and terms of the DEG default, pledged-share transfer, overdue loans and debenture extensions.
- Assess cash generation and liquidity, including the negative operating cash flow and the quality and availability of restricted cash, receivables, inventory and supplier advances.
- Verify Minerve’s deconsolidation and related investment-loss accounting, and track the pending litigation outcome.
- Consider the material weakness in financial reporting controls and the company’s progress in remediation.