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 onMay 1, 2020 , 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; ? "Weifang Portercity" are to Weifang Porter City Commercial Management
Ltd., a PRC company and a 57% owned subsidiary of Porter E-Commerce; ? "VIEs" means our consolidated variable interest entities, including
Portercity and its subsidiaries, Porter E-Commerce,
Porter Commercial as depicted in our organizational chart below;
? "Hong Kong" refers to the
States;
? "SEC" are to the U.S. Securities and Exchange Commission ;
? "Exchange Act" are to the Securities Exchange Act of 1934, as amended;
? "Securities Act" are to the Securities Act of 1933, as amended.
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Table of Contents 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. 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. Moreover, we have been developing our O2O business by providing 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. 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. Starting from the first quarter of 2019, the Company via PPBGL provides various training services to its clients, primarily related to e-commerce platform operation, expansion of channels and promotion strategy, via live and online sessions. The COVID-19 pandemic has caused economic slowdowns, depressed demand for the Company's services, and adversely impacted the Company's operating results. The Company's revenue decreased by$281,680 , or 39.7% for the first quarter of 2020, compared to$708,946 for the same period of 2019. Therefore, the Company has changed to receive cash prior to performing certain consulting services, in order to enhance collection of consideration. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19. Results of Operations
Comparison of Three Months Ended
The following table sets forth key components of our results of operations during the three months endedMarch 31, 2020 and 2019, both in dollars and as a percentage of our revenue. Three Months Ended March 31, 2020 2019 % of % of Amount Revenue Amount Revenue Revenue$ 427,266 100.00$ 708,946 100.00 Cost of revenue (373,974 ) (87.53 ) (525,573 ) (74.13 ) Gross profit 53,292 12.47 183,373 25.87 Operating expenses General and administrative expenses (628,074 ) (147.00 ) (489,423 ) (69.04 ) Loss from operations (574,782 ) (134.53 ) (306,050 ) (43.17 ) Other income 20,018 4.69 5,169 0.73 Net loss before income taxes (554,764 ) (129.84 ) (300,881 ) (42.44 ) Income tax expenses - - (60,305 ) (8.51 ) Net loss$ (554,764 ) (129.84 )$ (361,186 ) (50.95 ) Less: Net (loss) income attributable to non-controlling interests (2,697 ) (0.63 ) 8,229 1.16 Net loss attributable toPorter Holding International Inc. common stockholders$ (552,067 ) (129.21 )$ (369,415 ) (52.11 ) 25
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Revenue. Our revenue was$427,266 for the three months endedMarch 31, 2020 , compared to$708,946 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 inthe United States , and we received service income from the provision of these consulting services totaled$305,660 and$333,230 for the three months endedMarch 31, 2020 and 2019. Moreover, starting from 2019, the Company provides various training services to its clients, primarily related to e-commerce platform operation, expansion of channels, promotion strategy and capital market operation, via live and online sessions. The service income from providing training services totaled$77,778 and$308,117 for the three months endedMarch 31, 2020 and 2019. The significant decrease was mainly attributable to the impacts of COVID-19 and depressed market demand. ThroughPorter Consulting we also promoted 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$12,450 and$25,798 for the three months endedMarch 31, 2020 and 2019, respectively. The approximately 50% decline in commission for the first quarter of 2020 was also the result of the COVID-19 pandemic and nationwide economic slowdowns. Revenues of$11,928 and$9,132 were generated from trading business for the three months endedMarch 31, 2020 and 2019, respectively.
Due to the impact of COVID-19, the Company, starting from first quarter of 2020, determines to receive cash prior to performing investment and corporate management consulting services in order to ensure probable collection of consideration and hence existence of a contract.
Cost of revenue. Our cost of revenue was$373,974 for the three months endedMarch 31, 2020 , compared to$525,573 for the same period last year. Cost of revenue refers to the cost of consulting services, third-party payment service and other business. The cost of consulting service refers to the shell acquisition, legal and accounting advisory service outsourced to third-party service providers. The decrease of cost of revenue is in line with the decrease of revenue. Gross profit and gross margin. Our gross profit was$53,292 for the three months endedMarch 31, 2020 , compared to$183,373 for the same period last year. Gross profit as a percentage of revenue (gross margin) was 12.47% for the three months endedMarch 31, 2020 , compared to 25.87% for the same quarter last year. The decrease of gross profit was mainly due to the decrease of training service income which brings high gross profit among the services. 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$138,651 to$628,074 for the three months endedMarch 31, 2020 , compared to$489,423 for the same period in 2019. Increase was mainly due to$164,082 of allowance for doubtful accounts was reserved during the three months endedMarch 31, 2020 . Due to the impact of COVID-10, the Company encountered further uncertainties of collectability during May andJune 2020 , and hence took legal action in attempt to recover the accounts receivables. This led to addition of allowance for doubtful accounts. Besides, there was an increase of legal and professional fees and lease and management fee by$71,703 and$22,729 , respectively, compared to corresponding period in prior year. On the other hand, salary and staff benefits decreased$120,328 due to the reduction of the basic salary as a result of fewer working days than usual as employees had to stay at home caused by COVID-19 since the beginning of 2020. Three months ended March 31, 2020 2019 Fluctuation Amount % Amount % Amount % Salary and staff benefits$ 192,206 30.60$ 312,534 63.86$ (120,328 ) (38.50 ) Lease and management fee 94,603 15.06 71,874 14.69 22,729 31.62 Legal and professional fees 144,851 23.06 73,148 14.95 71,703 98.02 Depreciation and amortization 13,562 2.16 5,994 1.22 7,568 126.26 Bad debt provision (recovery) 164,082 26.12 (6,097 ) (1.25 ) 170,179 (2,791.19 ) Others 18,770 3.00 31,970 6.53 (13,200 ) (41.29 ) Total G&A$ 628,074 100.00$ 489,423 100.00$ 138,651 28.33 Income tax expense. Our Income tax expense was nil for the three months endedMarch 31, 2020 , compared to income tax expense$60,305 for the same period last year. Net loss. As a result of the cumulative effect of the factors described above, our net loss was$554,764 and$361,186 for the three months endedMarch 31, 2020 and 2019, respectively. 26
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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$200,000 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.
Liquidity and Capital Resources
Working Capital
March 31, 2020 December 31, 2019
Current Assets $ 1,168,087 $ 1,398,210
Current Liabilities 2,744,229 2,435,885
Working Capital Deficiency $ (1,576,142 ) $ (1,037,675 ) 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$554,764 during the three months endedMarch 31, 2020 , resulting in an accumulated deficit of$2,752,999 as ofMarch 31, 2020 , and we currently have net working capital deficit of$1,576,142 . These conditions raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. We may have to rely on additional debt financing, loans from existing directors and shareholders and private placements of capital stock for additional funding. Our sources of capital in the past have included borrowings from our stockholders and related parties. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. If we are unable to generate profitable operations and/ or obtaining the necessary financing, we may be forced to curtail operations. 27
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Three Months Ended March 31,
2020 2019
Net cash used in operating activities
(21,078 ) (1,144 )
Net cash provided by financing activities 183,209 71,396
Effect of exchange rate changes on cash 39,247 (32,182 ) Net decrease in cash (82,004 ) (47,941 ) Cash at the beginning of period 224,733 728,121 Cash at the end of period$ 142,729 $ 680,180 Operating Activities Net cash used in operating activities was$283,382 for the three months endedMarch 31, 2020 , as compared to$86,011 net cash used in operating activities for the three months endedMarch 31, 2019 . The net cash used in operating activities for the three months endedMarch 31, 2020 was mainly due to our net loss of$554,764 , an increase in prepayments and other receivables of$29,508 and a decrease in operating lease liability of$77,359 , partially offset by the increase in accruals and other payables of$109,735 and deferred revenue of$42,410 . The net cash used in operating activities for the three months endedMarch 31, 2019 was mainly due to our net loss of$361,186 , an increase in account receivables of$185,789 , partially offset by the increase in deferred revenue of$241,921 , accruals and other payables of$148,812 , and accounts payable of$78,719 . Investing Activities Net cash used in investing activities was$21,078 for the three months endedMarch 31, 2020 , as compared to$1,144 net cash used in investing activities for the three months endedMarch 31, 2019 . The net cash used in investing activities for the three months endedMarch 31, 2020 and 2019 were attributable to the purchase of equipment. Financing Activities Net cash provided by financing for the three months endedMarch 31, 2020 was$183,209 , as compared to$71,396 for the three months endedMarch 31, 2019 . For the three months endedMarch 31, 2020 , we obtained advances of$1,002,142 from shareholders and repaid$818,933 to shareholders. During the three months endedMarch 31, 2019 , we obtained advances of$1,411,933 from shareholders, and repaid$1,339,937 to shareholders.
Contractual Obligations and Commercial Commitments
We had the following contractual obligations and commercial commitments as ofMarch 31, 2020 : Less than 1 More than 5 Contractual Obligations Total year 1-3 years 3-5 years years
Amounts due to shareholders
- $ -
Amount due to related parties 1,087 1,087 - - -
Leases 718,330 295,500 422,830 - -
TOTAL $ 2,305,016 $ 1,882,186 $ 422,830 $ - $ -
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.
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Table of Contents 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. There were no other material changes to the critical accounting policies previously disclosed in our audited consolidated financial statements for the year endedDecember 31, 2019 included in the Annual Report on Form 10-K filed onMay 1, 2020 . 29
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