PORTER HOLDING INTERNATIONAL, INC. The following management's discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared inU.S. dollars and in accordance withU.S. GAAP.
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements. We use words such as "believe," "expect," "anticipate," "project," "target," "plan," "optimistic," "intend," "aim," "will" or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth; any projections of earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in our Annual Report on Form 10-K filed onApril 15, 2019 , as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with theSEC . These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events. Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:
? "Company", "we", "us" and "our" are to the combined business of Porter
Holding International, Inc., a
subsidiaries and variable interest entities;
? "PGL" are to
wholly-owned subsidiary;
? "PPBGL" are to Porter Perspective Business Group Limited , a Hong Kong
company and wholly-owned subsidiary of PGL;
? "Qianhai Porter" are to
company and wholly-owned subsidiary of PPBGL;
? "Portercity" are to
PRC company;
? "Porter E-Commerce" are to
PRC company and wholly-owned subsidiary of Portercity;
? "Porter Consulting " are to Shenzhen Yihuilian Information Consulting Co.
Ltd., a PRC company and wholly-owned subsidiary of Portercity;
? "Porter Commercial" are to Shenzhen Porter Commercial Perspective Network
Co., Ltd., a PRC company and wholly-owned subsidiary of Portercity;
? "VIEs" means our consolidated variable interest entities, including
Portercity and its subsidiaries, Porter E-Commerce, Porter Consulting and
Porter Commercial as depicted in our organizational chart below;
? "Hong Kong" refers to the Hong Kong Special Administrative Region of the
People's Republic of China ;
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? "China" and "PRC" refer to
? "Renminbi" and "RMB" refer to the legal currency of China;
? "
States;
? "SEC" are to the
? "Exchange Act" are to the Securities Exchange Act of 1934, as amended;
? "Securities Act" are to the Securities Act of 1933, as amended.
Overview We were incorporated in theState of Nevada onSeptember 5, 2013 . Our original business plan was to sell freshly squeezed juices from mobile stands inLondon, United Kingdom , but this business was not successful and we did not generate any revenue from this business. OnApril 7, 2017 , we completed the acquisition of PGL pursuant to the share purchase agreement. As a result of the acquisition, PGL became our wholly-owned subsidiary and the former shareholders of PGL became the holders of approximately 98.4% of our issued and outstanding capital stock on a fully-diluted basis. Since 2016, through our VIE entity,Porter Consulting , we have partnered withChina Payment Technology Co., Ltd. , a third-party online payment service provider ("China Payment") to promote China Payment's online payment platform to companies and businesses inShenzhen and in return share a portion of the processing fees earned by China Payment as commission.Porter Consulting also partners withShenzhen Xinghua Tongfu Technology Co., Ltd. , a third-party online payment service provider ("Shenzhen Tongfu"), under whichPorter Consulting agreed to promote Shenzhen Tongfu's online payment platform, including the Point of Sale (POS) system, to companies and businesses inChina and in return obtain a certain amount of commission based on the volume of trading through such online payment platform. As a newly established company with limited operation history, we are at the early stage of developing our O2O business and our goal is to become a leading innovative O2O business platform operator providing both online E- commerce and offline physical business facilities to our merchant customers, where they can conduct business, interact with their existing and potential end-consumers face to face. Different from most other O2O companies, which often lack of integrated platforms, our goal is to provide one-stop services for our customers through our integrated online and offline platforms. As described fully below, we are developing and intend to offer products and services including both hosting our online marketplaces, www.pt37.com and www.17yugo.com for our merchant clients to post and sell their products and services online and managing and operating physical business facilities, Porter City, that our online merchant clients can utilize to conduct their businesses offline. We are currently developing merchant clients who are engaged in businesses including manufacturing, real estate, trade and financing. In the future, we intend to expand our merchant client base to industries of big data, new materials, new energy, green food and environment protection. According to the development demand and future goals of our customers, in 2018 we started to offer a series of services such as business planning, financial guidance, business matching and guidance for listing primarily inthe United States . At present, in our customer pool, many small and medium-sized enterprises have increased their public awareness. They are seeking the potential advantages of being a listed company and striving for obtaining the recognition of international capital to accelerate their corporate expansion. However many enterprises themselves may not be familiar with the listing requirements, laws and regulations of different capital markets, and the process of obtaining financing from overseas markets. In order to help our customers who intend to access overseas capital markets, we have a team of experienced professionals who have professional knowledge of the listing rules and regulations of various capital markets. We will make full use of our expertise and resources in the capital markets to assist these customers to achieve their goals. 27
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Table of Contents Results of Operations
Comparison of Three Months Ended
The following table sets forth key components of our results of operations
during the three months ended
Three Months Ended September 30,
2019 2018
% of % of
Amount Revenue Amount Revenue
Revenue $ 367,553 100.00 $ 529,057 100.00
Cost of revenue (243,240 ) (66.18 ) (79,980 ) (15.12 )
Gross profit 124,313 33.82 449,077 84.88
Operating expenses
General and administrative
expenses (455,244 ) (123.86 ) (485,930 ) (91.85 )
Loss from operations (330,931 ) (90.04 ) (36,853 ) (6.97 )
Other income 31,822 8.66 312 0.06
Net loss before income taxes (299,109 ) (81.38 ) (36,541 ) (6.91 )
Income tax benefit (expenses) 1,968 0.54 (1,677 ) (0.32 )
Net loss $ (297,141 ) (80.84 ) $ (38,218 ) (7.23 )
Less: Net income (loss)
attributable to non-controlling
interests 44 0.01 (2,992 ) (0.57 )
Net loss attributable to Porter
Holding International Inc.
common stockholders $ (297,185 ) (80.85 ) $ (35,226 ) (6.66 )
Revenue. Our revenue was $367,553 for the three months ended September 30, 2019 ,
compared to $529,057 for the same period last year. Starting from the second
quarter of 2018, we commenced to provide various consulting services to our
customers, especially those who have the intention to be publicly listed
primarily on the stock exchanges in the United States , and we received service
income from the provision of these consulting services totaled $329,000 and
$471,850 for the three months ended September 30, 2019 and 2018, respectively.
Through Porter Consulting we also promoted the payment service of a third-party
payment service provider to merchants in Shenzhen and in return share a portion
of the processing fees earned by the third-party payment service provider as
commission. Our commission totaled $19,801 and $52,633 for the three months
ended September 30, 2019 and 2018, respectively.
Cost of revenue. Our cost of revenue was $243,240 for the three months ended
September 30, 2019 , compared to $79,980 for the same period last year. Cost of
revenue refers to the cost of consulting services, third-party payment service
and other business. The project cost of consulting service at the later stage is
usually higher than that of the earlier stage. The increase was due to several
projects finished during the three months ended September 30, 2019 , while
projects just started during the same period last year. The cost of consulting
service refers to the shell acquisitions, legal and accounting advisory service
outsourced to third-party service providers.
Gross profit and gross margin. Our gross profit was $124,313 for the three
months ended September 30, 2019 , compared to $449,077 for the same period last
year. Gross profit as a percentage of revenue (gross margin) was 33.82% for the
three months ended September 30, 2019 , compared to 84.88% for the same quarter
last year. The decrease of gross profit was mainly due to the increase of
consulting service cost that we had several projects finished during the three
months ended September 30, 2019 , because the project cost of consulting service
is usually higher at the later stage than that at the earlier stage.
General and administrative expenses. As shown below, our general and
administrative expenses consist primarily of compensation and benefits to our
general management, finance and administrative staff, professional fees and
other expenses incurred in connection with general operations. Our general and
administrative expenses decreased by $30,686 to $455,244 for the three months
ended September 30, 2019 , compared to $485,930 for the same period in 2018. The
slightly decrease on general and administrative expenses was due to the decrease
of consulting services that we provided during the three months ended September
30, 2019 .
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Three months ended September 30,
2019 2018 Fluctuation
Amount % Amount % Amount %
Salary and staff
benefits $ 268,597 59.00 $ 284,660 58.58 $ (16,063 ) (5.64 )
Lease and management
fee 77,873 17.11 68,050 14.00 9,823 14.44
Legal and
professional fees 78,602 17.27 61,487 12.65 17,115 27.84
Dep and amortization 7,827 1.72 2,225 0.46 5,602 251.77
Others 22,345 4.90 69,508 14.31 (47,163 ) (67.85 )
Total G&A $ 455,244 100.00 $ 485,930 100.00 $ (30,686 ) (6.31 )
Income tax benefit (expense). Our Income tax benefit was $1,968 for the three
months ended September 30, 2019 , compared to income tax expense $1,677 for the
same period last year.
Net loss. As a result of the cumulative effect of the factors described above,
our net loss was $297,141 and $38,218 for the three months ended September 30,
2019 and 2018.
Comparison of Nine Months Ended
The following table sets forth key components of our results of operations during the Nine months endedSeptember 30, 2019 and 2018, both in dollars and as a percentage of our revenue. Nine Months Ended September 30, 2019 2018 % of % of Amount Revenue Amount Revenue Revenue$ 2,061,992 100.00$ 1,111,437 100.00 Cost of revenue (1,042,658 ) (50.57 ) (146,132 ) (13.15 ) Gross profit 1,019,334 49.43 965,305 86.85 Operating expenses General and administrative expenses (1,618,336 ) (78.48 ) (1,368,575 ) (123.13 ) Loss from operations (599,002 ) (29.05 ) (403,270 ) (36.28 ) Other income 39,405 1.91 473 0.04 Loss before income taxes (559,597 ) (27.14 ) (402,797 ) (36.24 ) Income tax expense (43,762 ) (2.12 ) (1,517 ) (0.14 ) Net loss$ (603,359 ) (29.26 )$ (404,314 ) (36.38 ) Less: Net income (loss) attributable to non-controlling interests 3,360 0.16 (2,992 ) (0.27 ) Net loss attributable toPorter Holding International Inc. common stockholders (606,719 ) (29.42 ) (401,322 ) (36.11 ) Revenue. Our revenue was$2,061,992 for the nine months endedSeptember 30, 2019 , compared to$1,111,437 for the same period last year. Starting from the second quarter of 2018, we commence to provide various consulting services to our customers, especially those who have the intention to be publicly listed primarily on the stock exchanges inthe United States , and service income from the provision of these consulting services totaled$1,590,010 and$ 948,063 for the nine months endedSeptember 30, 2019 and 2018, respectively. Moreover, starting from the first quarter of 2019, the Company provides various training services to its clients, primarily related to e-commerce platform operation, expansion of channels and promotion strategy, through live and online sessions. The service income from providing training services totaled$308,416 for the nine months endedSeptember 30, 2019 . ThroughPorter Consulting we also promote the payment service of a third-party payment service provider to merchants inShenzhen and in return share a portion of the processing fees earned by the third-party payment service provider as commission. Our commission totaled$67,902 and$151,822 for the nine months endedSeptember 30, 2019 and 2018, respectively. The Company also generated$31,684 and nil from cosmetic trading business for the nine months endedSeptember 30, 2019 and 2018, respectively. Cost of revenue. Our cost of revenue was$1,042,658 for the nine months endedSeptember 30, 2019 , compared to$146,132 for the same period last year. Cost of revenue refers to the cost of consulting services, third-party payment service and other business. The increase was in line with the growth of consulting services. The cost of consulting service refers to the shell acquisitions, legal and accounting advisory service outsourced to third-party service providers. Our cost of revenue increased significantly for the nine months endedSeptember 30, 2019 , which is in line with the significant increase of our revenue during this period. 29
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Gross profit and gross margin. Our gross profit was$1,019,334 for the nine months endedSeptember 30, 2019 , compared with a gross profit of$965,305 for the same period last year. Gross profit as a percentage of revenue (gross margin) was 49.43% for the nine months endedSeptember 30, 2019 , compared to 86.85% for the nine months endedSeptember 30, 2018 . The decrease of gross profit was mainly due to the higher project cost of consulting service at the later stage as compared to the earlier stage. General and administrative expenses. As shown below, our general and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional fees and other expenses incurred in connection with general operations. Our general and administrative expenses increased by$249,761 to$1,618,336 for the nine months endedSeptember 30, 2019 , from$1,368,575 for the same period in 2018. Legal and professional fees increased due to the change in auditors and consultants in 2019. Increase in salary and other was due to the fact that we paid more professional staff salaries as we expanded our consulting services to customers. Nine months ended September 30, 2019 2018 Fluctuation
Amount % Amount % Amount %
Salary and staff
benefits $ 894,852 55.29 $ 819,562 59.88 $ 75,290 9.19
Lease and management
fee 221,045 13.66 216,270 15.80 4,775 2.21
Legal and
professional fees 359,780 22.23 204,588 14.95 155,192 75.86
Dep and amortization 19,771 1.22 9,541 0.70 10,230 107.22
Others 122,888 7.60 118,614 8.67 4,274 3.60
Total G&A $ 1,618,336 100.00 $ 1,368,575 100.00 $ 249,761 18.25
Income tax expense. Our Income tax expense was $43,762 and $1,517 for the nine
months ended September 30, 2019 and 2018. The fluctuation was mainly due to the
fact that PPBGL generated $325,290 of net income and $42,700 tax expenses
accrued accordingly for the current period.
Net loss. As a result of the cumulative effect of the factors described above,
our net loss increased by
Limited Operating History; Need for
There is limited historical financial information about us on which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, a narrow client base, limited sources of revenue, and possible cost overruns due to the price and cost increases in supplies and services.
Without additional funding, management believes that we will not have sufficient funds to meet our obligations beyond one year after the date our condensed consolidated financial statements are issued. These conditions give rise to substantial doubt as to our ability to continue as a going concern.
We have been, and intend to continue, working toward identifying and obtaining new sources of financing. To date we have been dependent on related parties for our source of funding. No assurances can be given that we will be successful in obtaining additional financing in the future. Any future financing that we may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows. If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability to fund our continued operations and our expansion efforts. Currently we spend approximately$150,000 per month for basic operations. During the next 12 months, we expect to incur the same amount of expenses each month. However, as we work to expand our operations, we expect to incur significant research, marketing and development costs and expenses on our online service platforms that meet the constantly evolving industry standards and consumer demands. We will also need to hire additional employees in order to provide new services and accommodate new clients. 30
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Liquidity and Capital Resources
Working Capital
September 30, 2019 December 31, 2018
Current Assets $ 1,883,253 $ 1,486,197
Current Liabilities 3,565,589 2,192,678
Working Capital Deficiency $ (1,682,336 ) $ (706,481 )
As of
Going Concern Uncertainties The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern. We have incurred net loss of$603,359 during the nine months endedSeptember 30, 2019 , resulting in an accumulated deficit of$2,233,315 as ofSeptember 30, 2019 , and we currently have net working capital deficit of$1,682,336 . These conditions raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. We may have to rely on additional debt financing, loans from existing directors and shareholders and private placements of capital stock for additional funding. Our sources of capital in the past have included borrowings from our stockholders and related parties. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. If we are unable to generate profitable operations and/ or obtaining the necessary financing, we may be forced to curtail operations. Nine Months Ended September 30, 2019 2018 Net cash used in operating activities$ (1,084,098 ) $ (52,813 ) Net cash provided by (used in) investing activities 3,415 (64,941 ) Net cash provided by financing activities 718,381
372,961
Effect of exchange rate changes on cash and cash equivalents (99,047 ) (18,397 ) Net (decrease) increase in cash and cash equivalents (461,349 )
236,810
Cash and cash equivalents at the beginning of period 728,121
240,072
Cash and cash equivalents at the end of period $ 266,772
$ 476,882 Operating Activities Net cash used in operating activities was$1,084,098 for the nine months endedSeptember 30, 2019 , as compared to$52,813 net cash used in operating activities for the nine months endedSeptember 30, 2018 . The net cash used in operating activities for the nine months endedSeptember 30, 2019 was mainly due to our net loss of$603,359 , an increase in account receivables of$326,789 , an increase in prepayments and other receivables of$543,046 and a decrease in operating lease liability of$165,960 , partially offset by the increase in accruals and other payables of$166,934 and deferred revenue of$136,190 . The net cash used in operating activities for the nine months endedSeptember 30, 2018 was mainly due to our net loss of$404,314 and an increase in accounts receivable of$306,607 , partially offset by an increase in deferred revenue of$511,631 and a decrease in prepayments and other receivables of$109,289 . Investing Activities Net cash provided by investing activities was$3,415 for the nine months endedSeptember 30, 2019 , as compared to$64,941 net cash used in investing activities for the nine months endedSeptember 30, 2018 . The net cash provided by investing activities for the nine months endedSeptember 30, 2019 was mainly attributable to the business combination of Maihuolang E-commerce. The net cash used in investing activities for the nine months endedSeptember 30, 2018 was mainly attributable to purchase of property, plant and equipment. 31
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Table of Contents Financing Activities Net cash provided by financing for the nine months endedSeptember 30, 2019 was$718,381 , as compared to$372,961 for the nine months endedSeptember 30, 2018 . For the nine months endedSeptember 30, 2019 , we obtained advances of$6,116,491 from shareholders and repaid$5,405,862 to shareholders, advances of$301,625 from related parties and repaid$293,873 to related parties. For the nine months endedSeptember 30, 2018 , we obtained advances of$1,689,205 from shareholders, advances of$101,369 from related parties and repaid$1,417,613 to related parties.
Contractual Obligations and Commercial Commitments
We had the following contractual obligations and commercial commitments as ofSeptember 30, 2019 : Less than 1 More than 5
Contractual Obligations Total year 1-3 years 3-5 years years Amounts due to shareholders$ 2,267,835 $ 2,267,835 - - $ - Amount due to related parties 347,205 347,205 - - - Leases 855,432 289,684 477,673 88,075 - TOTAL$ 3,470,472 $ 2,904,724 $ 477,673 $ 88,075 $ - We believe that our current cash and financing from our existing stockholders are adequate to support operations for at least the next 12 months. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our business or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects. Capital Expenditures
We incurred capital expenditures of
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Critical Accounting Policies Our condensed consolidated financial information has been prepared in accordance withU.S. GAAP, which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. The Company's accounting policies were revised in connection with the implementation of ASC 842. See Note 2, "Summary of Significant Accounting Policies" in Part I, Item 1, of this Quarterly Report on Form 10-Q for a further discussion of the implementation of ASC 842. There were no other material changes to the critical accounting policies previously disclosed in our audited consolidated financial statements for the year endedDecember 31, 2018 included in the Annual Report on Form 10-K filed onApril 15, 2019 . 32
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