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. In addition to historical information, the following discussion contains certain forward-looking information. See "Special Note Regarding Forward Looking Statements" above for certain information concerning those forward-looking statements. Our financial statements are prepared inU.S. dollars and in accordance withU.S. GAAP. OverviewPorter Holding International, Inc. is a holding company incorporated inNevada ,the United States . As a holding company with no material operations of its own,Porter Holding International, Inc. conducts its business through the VIEs inChina . The VIEs contributed 100% of our consolidated results of operations and cash flows for the years endedDecember 31, 2021 and 2020, respectively. As ofDecember 31, 2021 and 2020, the VIEs accounted for 100% of our consolidated total assets and total liabilities. Since 2016,Porter Consulting has 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 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 (i) 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 (ii) managing and operating physical business facilities 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. In addition, we are planning to collaborate with key opinion leaders ("KOLs") to promote the merchandises on our e-commerce platform. 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. 35
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Table of Contents Update on COVID-19 The ongoing coronavirus pandemic has had a material adverse effect on our industry and the markets in which we operate. Most of our revenues and our workforce are concentrated inChina . The pandemic also impeded our ability to recruit new clients and made us postpone providing services to existing clients. Travel restrictions from time to time also limited clients' ability to visit and meet us in person, which made it harder to build trust and engage clients. Updates of products information on our e-commerce platform and the delivery of goods were also delayed due to the late resumption of work by manufacturers. The imported goods on our platform face more challenges as the pandemic continues outside China, and our distribution channel has been disrupted as the operations of our distributors are interrupted by the outbreak. The foregoing adverse impacts might be mitigated as the Chinese government has rolled out an array of favorable fiscal measures. However, as the coronavirus outbreak continues globally, the extent to which the coronavirus impacts our operations and results in the long-term will depend on future developments, including, among others, actions of the Chinese government to contain imported infections, which are highly uncertain and cannot be reasonably predicted. Our total revenues for the fiscal year endedDecember 31, 2021 have decreased significantly as compared with the fiscal year of 2020. There is no guarantee that our total revenues during the fiscal year endingDecember 31, 2022 will not continue to decline. The outbreak has resurged locally from time to time. At present, management is actively looking for a business breakthrough to increase revenue in 2022. We will continue to monitor and mitigate developments affecting our workforce, our customers, and the public at large to the extent we are able to do so. See "Risks Related to Our Business-Our business operations have been and may continue to be materially and adversely affected by the outbreak of the coronavirus (COVID-19)." Results of Operations
Comparison of Years Ended
The following table sets forth key components of our results of operations during the years endedDecember 31, 2021 and 2020, both in dollars and as a percentage of our revenue. Years Ended December 31, 2021 2020 Fluctuation Amount Amount Amount % Revenue$ 111,056 $ 550,249 (439,193 ) (79.82 )% Cost of revenue (55,169 ) (404,625 ) 349,456 (86.37 )% Gross profit 55,887 145,624 (89,737 ) (61.62 )% Operating expenses General and administrative expenses (996,694 ) (2,488,857 ) 1,492,163 (59.95 )% Loss from operations (940,807 ) (2,343,233 ) 1,402,426 (59.85 )% Other income 915,395 33,106 882,289 2665.04 % Loss before income taxes (25,412 ) (2,310,127 ) 2,284,715 (98.90 )% Income tax expense - - - - Net loss (25,412 ) (2,310,127 ) 2,284,715 (98.90 )% Less: Net loss attributable to non-controlling interests (2,087 ) (21,643 ) 19,556 (90.36 )% Net loss attributable to Porter Holding International Inc. common stockholders$ (23,325 ) $ (2,288,484 ) 2,265,159 (98.98 )% 36
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Revenue. Our revenue was$111,056 for the year endedDecember 31, 2021 , compared to$550,249 for the same period last year. Starting from the second quarter of 2018, we commenced providing 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 nil and$306,297 for the years endedDecember 31, 2021 and 2020, respectively. The significant decrease of revenue was mainly attributable to the impacts of COVID-19 and depressed market demand. Starting from 2019, we provide various training services to our 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$43,328 and$138,776 for the year endedDecember 31, 2021 and 2020, respectively. ThroughPorter Consulting we have also promoted the payment service of third-party payment service providers to merchants inShenzhen and in return share a portion of the processing fees earned by such third-party payment service providers as commission. Our commission totaled$ 25,582 and$46,491 for the years endedDecember 31, 2021 and 2020, respectively. The approximately 44.97% decline in commission for 2021 was also the result of the COVID-19 pandemic. Revenues of$17,115 and$28,996 were generated from trading business for the years endedDecember 31, 2021 and 2020, respectively. Revenue of others were$25,031 and$29,689 for the years endedDecember 31, 2021 and 2020, respectively. The Company started the wine sales business in late 2021 and revenue of wine sales was$23,854 for the year endedDecember 31, 2021 . Revenue of others were$1,177 and$29,689 for the year endedDecember 31, 2021 and 2020, respectively. Cost of revenue. Our cost of revenue was$55,169 for the year endedDecember 31, 2021 , compared to$404,625 for the same period last year. Cost of revenue refers to the cost incurred in third-party payment service and other business. The decrease of cost of revenue is in line with the decrease of revenue. Gross profit and gross margin. Our gross profit was$55,887 for the year endedDecember 31, 2021 , compared with a gross profit of$145,624 for the same period last year. Gross profit as a percentage of revenue (gross margin) was 50.32% for year endedDecember 31, 2021 , compared to 26.47% for year endedDecember 31, 2020 . The increase of gross profit ratio was mainly due to the cease of consulting services with lower profit margin. 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$1,492,163 to$996,694 for the year endedDecember 31, 2021 , compared to$2,488,857 for the same period in 2020. Decrease was mainly due to that allowance for doubtful accounts decreased from$1,051,816 to$15,370 during the year endedDecember 31, 2021 . Due to the impact of COVID-19, the Company assessed that the collectability being not probable and hence provide bad debt provision for majority of receivable from the investment and corporate management consulting services for the prior year. Besides, no impairment reserved during the year endedDecember 31, 2021 . An impairment of$86,428 related to the goodwill, as well as intangible assets and equipment was recognized for the year endedDecember 31, 2020 . Moreover, there was a decrease in salary and staff benefit, lease and management fee and legal and professional fees of$150,541 ,$63,443 and$143,536 , respectively, compared to the prior year. The decrease was mostly due to the depressed market demand and the cost reduction strategy of the Company as a result of the impact of COVID-19. 2021 2020 Fluctuation Amount % Amount % Amount % Salary and staff benefits$ 340,563 34.17$ 491,104 19.73$ (150,541 ) (30.65 ) Lease and management fee 273,091 27.40 336,534 13.52 (63,443 ) (18.85 ) Legal and professional fees 279,494 28.04 423,030 17.00 (143,536 ) (33.93 ) Depreciation and amortization 11,424 1.15 38,627 1.55 (26,241 ) (67.93 ) Bad debt provision 15,370 1.54 1,051,816 42.26 (1,036,446 ) (98.54 ) Impairment - - 86,428 3.47 (86,428 ) (100.00 ) Others 76,752 7.70 61,318 2.47 14,472 23.60 Total$ 996,694 100.00$ 2,488,857 100.00$ (1,492,163 ) (59.95 ) Other income. Our other income was$915,395 and$33,106 for the years endedDecember 31, 2021 and 2020, respectively. The increase was primarily due to the compensation received with the termination of the Weifang project. DuringJanuary 2021 , Weifang Portercity agreed with the local government to terminate the project, which was signed onAugust 25, 2018 for Weifang Portercity to facilitate investment and promote business opportunities for the Weifang region. As the local government changed its development strategy, it determined to terminate the Weifang project. Consequently, Weifang Portercity received a compensation of approximately$538,665 from the local government to compensate its upfront establishment expenses including expenditure relating to office renovation, office equipment and supplies. Weifang Portercity was dissolved onApril 22, 2021 . Besides,$71,947 investment gain was recognized during the year endedDecember 31, 2021 . Due to the termination of the consulting business, deferred revenue of$258,454 carried forward recognized into other income for the years endedDecember 31, 2021 . 37
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Income tax expense. Our Income tax expense was nil and $nil for the years ended
Net loss. As a result of the cumulative effect of the factors described above, our net loss was$25,412 for the year endedDecember 31, 2021 compared with the net loss of$2,310,127 in 2020.
Liquidity and Capital Resources
Working Capital
December 31, 2021 December 31, 2020
Current Assets $ 438,456 $ 425,149
Current Liabilities 3,763,925 3,539,288
Working Capital Deficit $ (3,325,469 ) $ (3,114,139 ) As of
Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern.
We have considered whether there is substantial doubt about our ability to continue as a going concern given (1) our loss from operations$940,807 for the year endedDecember 31, 2021 , (2) our accumulated deficit of$4,498,598 as ofDecember 31, 2021 and (3) the fact that we had negative operating cash flows of$638,806 for the year endedDecember 31, 2021 . As ofDecember 31, 2021 , our cash balance was$31,196 and our working capital deficit was$3,325,469 . Our cash balance as ofDecember 31, 2021 is not sufficient to support our operations for the next 12 months after the date that the financial statements issued. The negative operating results of cash flow and working capital deficit for the year endedDecember 31, 2021 raise substantial doubt about our ability to continue as a going concern. Our continued operations are highly dependent upon our ability to increase revenues and if needed, to complete equity and/or debt financing. In evaluating if there is substantial doubt about our ability to continue as a going concern, we are trying to alleviate the going concern risk through (1) increasing cash generated from operations by controlling operating expenses and increasing more live steaming e-commerce events to bring up e-commerce revenue, (2) financing from domestic banks and other financial institutions, and (3) equity or debt financing. We have certain plans to mitigate these adverse conditions and to increase the liquidity of the Company. However, if we are unable to obtain the necessary additional capital on a timely basis and on acceptable terms, we will be unable to implement our current plans for expansion, repay debt obligations or respond to competitive market pressures, which will have negative impacts upon our business, prospects, financial condition and results of operations. On an on-going basis, the Company also received and will continue to receive financial support commitments from the Company's related parties. We believe if we are unable to obtain our resources to fund operations, we may be required to delay, scale back or eliminate some or all of our planned operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern. Years Ended December 31, 2021 2020 Net cash used in operating activities$ (638,806 ) $ (916,939 ) Net cash (used in) provided by investing activities (977 )
67,494
Net cash provided by financing activities 661,120
608,542
Effect of exchange rate changes on cash (15,053 )
41,082
Net increase (decrease) in cash 6,284 (199,821 ) Cash at the beginning of year 24,912 224,733 Cash at the end of year$ 31,196 $ 24,912 38
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Table of Contents Operating Activities Net cash used in operating activities was$638,806 for the year endedDecember 31, 2021 , as compared to$916,939 net cash used in operating activities for the year endedDecember 31, 2020 . The net cash used in operating activities for the year endedDecember 31, 2021 was mainly due to our net loss of$25,412 , a decrease in operating lease liabilities of$218,666 and a decrease in accruals and other payables of$350,374 , partially offset by the increase in amortization of operating lease right-of-use assets of$239,042 . The net cash used in operating activities for the year endedDecember 31, 2020 was mainly due to our net loss of$2,310,127 , the decrease in operating lease liability of$317,389 , partially offset by a decrease in prepayments and other receivables of$12,615 and an increase in accrual and other payables of$202,791 . Investing Activities Net cash used in investing activities was$977 for the year endedDecember 31, 2021 , as compared to$67,494 net cash provided by investing activities for the year endedDecember 31, 2020 . The net cash used in investing activities for the year endedDecember 31, 2021 was mainly attributable to the purchase of$977 of equipment. The net cash provided by investing activities for the year endedDecember 31, 2020 was mainly attributable to the purchase of$3,594 of equipment,$20,277 of intangible assets and offset by$91,365 proceeds from disposal of investments. Financing Activities Net cash provided by financing activities for the year endedDecember 31, 2021 was$661,120 , as compared to$608,542 for the year endedDecember 31, 2020 . For the year endedDecember 31, 2021 , we obtained advances of$2,586,474 from shareholders and repaid$1,925,354 to shareholders. For the year endedDecember 31, 2020 , we obtained proceeds from sales of non-controlling interests of$71,502 , advances of$3,352,297 from shareholders, repaid$2,815,257 to shareholders.
Critical Accounting Policies and Estimates
We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our consolidated financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. The discussion of our critical accounting policies contained in Note 2 to our consolidated financial statements, "Summary of Significant Accounting Policies," is incorporated herein by reference.
Recent Accounting Pronouncements
For further information on recently issued accounting pronouncements, see Note 2-Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
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