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, 2021 , 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
and variable interest entities;
? "PGL" are to
wholly-owned subsidiary;
? "PPBGL" are to
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;
? "
PRC company and 85% owned subsidiary of Portercity;
? "Porter Commercial" are to
Ltd., a PRC company and wholly-owned subsidiary of Portercity;
? "Weifang Portercity" are to
Limited, a PRC company and a 60% 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
People's Republic of China ; 24
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Table of Contents ? "China" and "PRC" refer tothe People's Republic of China ; ? "Renminbi" and "RMB" refer to the legal currency of China;
? "
States;
? "SEC" are to the U.S. Securities and Exchange Commission ;
? "Exchange Act" are to the Securities Exchange Act of 1934, as amended; and
? "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. 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 "), wherebyPorter 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. OnJuly 15, 2020 , Porter E-Commerce entered into an Equity Transfer Agreement (the "Agreement") with Mr. Kezhan Ma, whereby Porter E-Commerce transferred its 57% equity interests in Maihuolang E-Commerce to Mr. Kezhan Ma, for cash consideration ofRMB 650,000 (approximately$95,735 ). An impairment loss of$51,936 and a disposal gain of$4,730 were recognized. Moreover, we have been developing our O2O (Online to Offline) business by serving as an O2O business platform operator that provides both online E-commerce and offline physical business facilities to our merchant customers where they can conduct business and 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 offering our O2O products and services including 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 currently focus on merchant clients who are engaged in manufacturing, real estate, trade and financing sectors. 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 demands and 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 gained certain 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 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 capitalize on our expertise and resources in the capital markets to assist these customers to achieve their goals. Starting from the first quarter of 2019, we via PPBGL provide various training services to our clients, primarily those related to e-commerce platform operation, expansion of channels and promotion strategies, via live and online sessions. Since the first half of 2020, 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$412,779 , or 96.61% for the three months of 2021, compared to$427,266 for the same period of 2020. Therefore, the Company changed to require upfront cash payments prior to performing certain consulting services, in order to enhance collection of accounts receivable. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19. 25
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Table of Contents Results of Operations
Comparison of Three Months Ended
The following table sets forth key components of our results of operations during the three months endedMarch 31, 2021 and 2020, both in dollars and as a percentage of our revenue. Three Months Ended March 31, 2021 2020 % of % of Amount Revenue Amount Revenue Revenue$ 14,487 100.00$ 427,266 100.00 Cost of revenue (6,844 ) (47.24 ) (373,974 ) (87.53 ) Gross profit 7,643 52.76 53,292 12.47 Operating expenses General and administrative expenses (301,637 ) (2,082.12 ) (628,074 ) (147.00 ) Loss from operations (293,994 ) (2,029.36 ) (574,782 ) (134.53 ) Other income 536,416 3,702.74 20,018 4.69 Net income (loss) before income taxes 242,422 1,673.38 (554,764 ) (129.84 ) Income tax expenses - - - - Net income (loss)$ 242,422 1,673.38$ (554,764 ) (129.84 ) Less: Net loss attributable to non-controlling interests (3,404 ) (23.50 ) (2,697 ) (0.63 ) Net income (loss) attributable toPorter Holding International Inc. common stockholders$ 245,826 1,696.88$ (552,067 ) (129.21 ) Revenue. Our revenue was$14,487 for the three months endedMarch 31, 2021 , compared to$427,266 for the same period last year. One of our revenue sources is 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 . Service income from the provision of these consulting services totaled nil and$305,660 for the three months endedMarch 31, 2021 and 2020, respectively. The significant decrease was mainly attributable to the impacts of COVID-19 and depressed market demand. 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$1,947 and$77,778 for the three months endedMarch 31, 2021 and 2020. ThroughPorter Consulting , we 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 the third-party payment service providers in the form of commission. Our commission totaled$8,609 and$12,450 for the three months endedMarch 31, 2021 and 2020, respectively. The approximately 50% decline in commission for the first quarter of 2021 was also the result of the COVID-19 pandemic and nationwide economic slowdowns. Revenues of$3,236 and$11,928 were generated from trading business for the three months endedMarch 31, 2021 and 2020, respectively.
Due to the impact of COVID-19, the Company, starting from the first quarter of 2020, requests to receive cash prior to performing investment and corporate management consulting services in order to ensure collection of payment.
Cost of revenue. Our cost of revenue was$6,844 for the three months endedMarch 31, 2021 , compared to$373,974 for the same period last year. Cost of revenue includes the costs incurred in performing consulting services, third-party payment service and other business. The cost of consulting service arises from shell acquisitions, and 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$7,643 for the three months endedMarch 31, 2021 , compared to$53,292 for the same period last year. Gross profit as a percentage of revenue (gross margin) was 52.76% for the three months endedMarch 31, 2021 , compared to 12.47% for the same quarter last year. The decrease of gross profit was mainly due to the decrease of business demand and suspension of business operations as a result of COVID-19. 26
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General and administrative expenses. As shown below, our general and administrative expenses consist primarily of bad debt provision, 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$326,437 to$301,637 for the three months endedMarch 31, 2021 , compared to$628,074 for the same period of 2020. Decrease was mainly due to that no allowance for doubtful accounts was reserved during the three months endedMarch 31, 2021 . The Company had assessed that, for the three months endedMarch 31, 2020 , collectability was not probable for the majority of receivables incurred from providing investment and corporate management consulting services and thus the Company provided 100% bad debt provision for such receivables. No further allowance for these receivables accrued for the three months endedMarch 31, 2021 . Besides, there was a decrease in salary and staff benefit, legal and professional fees and lease and management fee of$98,147 ,$48,279 and$22,535 , respectively, compared to corresponding period in prior year. The decrease was mostly due to the depressed economic environment and the cost reduction strategy of the Company as a result of the impact of COVID-19. Three months ended March 31, 2021 2020 Fluctuation Amount % Amount % Amount % Salary and staff benefit$ 94,059 31.18$ 192,206 30.60$ (98,147 ) (51.06 ) Lease and management fee 72,068 23.89 94,603 15.06 (22,535 ) (23.82 ) Legal and professional fee 96,572 32.02 144,851 23.06 (48,279 ) (33.33 ) Depreciation and amortization 2,977 0.99 13,562 2.16 (10,585 ) (78.05 ) Bad debt provision - - 164,082 26.12 (164,082 ) (100.00 ) Others 35,961 11.92 18,770 3.00 17,191 91.59 Total$ 301,637 100.00$ 628,074 100.00$ (326,437 ) (51.97 ) Other income. Our other income was$536,416 and$20,018 for the three months endedMarch 31, 2021 and 2020. The increase was due to the compensation received with the termination of the Weifang project. DuringJanuary 2021 , Weifang Portercity agreed with the local government to terminate a 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$0.5 million from the local government to compensate its upfront establishment expenses including expenditure relating to office renovation, office equipment and supplies.
Income tax expense. Our Income tax expense was nil for the three months ended
Net income (loss). As a result of the cumulative effect of the factors described above, there was a net income of$242,422 and net loss of$554,764 for the three months endedMarch 31, 2021 and 2020, respectively. Need forAdditional Capital Our business is subject to risks such as 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 unaudited 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. 27
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Currently we spend approximately$200,000 per month for basic operations. During the next 12 months, we expect to incur a similar 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 may also need to hire additional employees in order to provide new services and accommodate new clients.
Liquidity and Capital Resources
Working Capital
March 31, 2021 December 31, 2020
Current Assets $ 1,050,508 $ 425,149
Current Liabilities 3,922,016 3,539,288
Working Capital Deficiency $ (2,871,508 ) $ (3,114,139 ) As of
Going Concern Uncertainties
The accompanying unaudited condensed 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 net income from operations, including approximately$242,422 net income attributable to our stockholders for the three months endedMarch 31, 2021 , (2) our accumulated deficit of approximately$4,243,590 as ofMarch 31, 2021 and (3) the fact that we had negative operating cash flows of approximately$162,925 for the three months endedMarch 31, 2021 . As ofMarch 31, 2021 , our cash balance was$661,997 and our current liabilities exceed current assets by$2,871,508 . Our cash balance as ofMarch 31, 2021 may not be sufficient to support our operations for the next 12 months after the date that the financial statements issued. The negative operating results of cash flow and working capital for the quarter endedMarch 31, 2021 raise substantial doubt about our ability to continue as a going concern. Our continued operations are highly dependent upon our ability to increase revenues and if needed complete equity and/or debt financing. In evaluating if there is substantial doubt about our ability to continue as a going concern, we are trying to alleviate the going concern risk through (1) increasing cash generated from operations by controlling operating expenses and increasing more live steaming e-commerce events to bring up e-commerce revenue, (2) financing from domestic banks and other financial institutions, and (3) equity or debt financing. We have certain plans to mitigate these adverse conditions and to increase the liquidity of the Company. However, if we are unable to obtain the necessary additional capital on a timely basis and on acceptable terms, we will be unable to implement our current plans for expansion, repay debt obligations or respond to competitive market pressures, which will have negative impacts upon our business, prospects, financial condition and results of operations. On an on-going basis, the Company also received and will continue to receive financial support commitments from the Company's related parties. Three Months EndedMarch 31, 2021 2020
Net cash used in operating activities
- (21,078 )
Net cash provided by financing activities 810,639 183,209
Effect of exchange rate changes on cash (10,629 )
39,247
Net decrease in cash 637,085 (82,004 ) Cash at the beginning of period 24,912 224,733 Cash at the end of period$ 661,997 $ 142,729 28
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Table of Contents Operating Activities Net cash used in operating activities was$162,925 for the three months endedMarch 31, 2021 , as compared to$283,382 net cash used in operating activities for the three months endedMarch 31, 2020 . The net cash used in operating activities for the three months endedMarch 31, 2021 was mainly due to our net income of$242,422 , partially offset by the decrease in accruals and other payables of$368,193 and deferred revenue of$64,461 . 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 . Investing Activities Net cash used in investing activities was nil for the three months endedMarch 31, 2021 , as compared to$21,078 net cash used in investing activities for the three months endedMarch 31, 2020 . The net cash used in investing activities for the three months endedMarch 31, 2020 were mainly attributable to the purchase of equipment. Financing Activities Net cash provided by financing for the three months endedMarch 31, 2021 was$810,639 , as compared to$183,209 for the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 , we obtained advances of$1,530,917 from shareholders and repaid$720,278 to shareholders. For the three months endedMarch 31, 2020 , we obtained advances of$1,002,142 from shareholders and repaid$818,933 to shareholders.
Contractual Obligations and Commercial Commitments
We had the following contractual obligations and commercial commitments as ofMarch 31, 2021 : Less than 1 More than 5 Contractual Obligations Total year 1-3 years 3-5 years years
Amounts due to shareholders$ 2,840,377 $ 2,840,377 $ - $ - $ - Leases 388,500 174,825 213,675 - - TOTAL$ 3,228,877 $ 3,015,202 $ 213,675 $ - $ - 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 nil and
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 unaudited 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, 2020 included in the Annual Report on Form 10-K filed onApril 15, 2021 . 29
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