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Porter Holding International, Inc. – ‘10-Q’ for 9/30/19

On:  Tuesday, 11/19/19, at 4:57pm ET   ·   For:  9/30/19   ·   Accession #:  1185185-19-1633   ·   File #:  333-196336

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/19/19  Porter Holding Int’l, Inc.        10-Q        9/30/19   79:5.9M                                   Federal Filings, LLC/FA

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    644K 
 2: EX-10.1     Material Contract                                   HTML     60K 
 3: EX-31.1     Certification -- §302 - SOA'02                      HTML     30K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     24K 
37: R1          Document And Entity Information                     HTML     54K 
63: R2          Condensed Consolidated Balance Sheets               HTML    126K 
54: R3          Condensed Consolidated Balance Sheets               HTML     41K 
                (Parentheticals)                                                 
12: R4          Consolidated Statements of Operations and           HTML     88K 
                Comprehensive Income (Loss)                                      
35: R5          Condensed Consolidated Statements of Changes in     HTML     55K 
                Stockholders? Deficit                                            
61: R6          Condensed Consolidated Statements of Cash Flows     HTML    112K 
52: R7          1. Organization and Business                        HTML     32K 
14: R8          2. Summary of Significant Accounting Policies       HTML    208K 
33: R9          3. Business Combinations                            HTML     76K 
30: R10         4. Accounts Receivable, Net                         HTML     47K 
24: R11         5.Prepayments and Other Receivables                 HTML     37K 
46: R12         6. Property, Plant and Equipment, Net               HTML     35K 
74: R13         7. Intangible Assets, Net                           HTML     37K 
31: R14         8.Goodwill                                          HTML     31K 
25: R15         9. Accruals and Other Payables                      HTML     40K 
47: R16         10. Balances With Related Parties                   HTML     47K 
75: R17         11. Income Taxes                                    HTML     84K 
32: R18         12. China Contribution Plan                         HTML     27K 
23: R19         13. Operating Lease                                 HTML     67K 
53: R20         14. Concentrations and Credit Risk                  HTML     30K 
62: R21         15.Subsequent Event                                 HTML     26K 
34: R22         Accounting Policies, by Policy (Policies)           HTML    243K 
11: R23         2. Summary of Significant Accounting Policies       HTML    184K 
                (Tables)                                                         
55: R24         3. Business Combinations (Tables)                   HTML     76K 
64: R25         4. Accounts Receivable, Net (Tables)                HTML     49K 
36: R26         5.Prepayments and Other Receivables (Tables)        HTML     35K 
13: R27         6. Property, Plant and Equipment, Net (Tables)      HTML     34K 
51: R28         7. Intangible Assets, Net (Tables)                  HTML     37K 
65: R29         8.Goodwill (Tables)                                 HTML     31K 
79: R30         9. Accruals and Other Payables (Tables)             HTML     39K 
49: R31         10. Balances With Related Parties (Tables)          HTML     44K 
22: R32         11. Income Taxes (Tables)                           HTML     80K 
29: R33         13. Operating Lease (Tables)                        HTML     75K 
78: R34         1. Organization and Business (Details)              HTML     56K 
48: R35         2. Summary of Significant Accounting Policies       HTML     62K 
                (Details)                                                        
21: R36         2. Summary of Significant Accounting Policies       HTML    131K 
                (Details) - Schedule of Variable Interest Entities               
28: R37         2. Summary of Significant Accounting Policies       HTML     39K 
                (Details) - Revenue by Major Product Line                        
77: R38         2. Summary of Significant Accounting Policies       HTML     32K 
                (Details) - Revenue by recognition over time vs                  
                point in time                                                    
50: R39         2. Summary of Significant Accounting Policies       HTML     27K 
                (Details) - Contract with Customer, Asset and                    
                Liability                                                        
68: R40         2. Summary of Significant Accounting Policies       HTML     40K 
                (Details) - Schedule of Reporting Currency                       
                Exchange Rates                                                   
57: R41         2. Summary of Significant Accounting Policies       HTML     33K 
                (Details) - Schedule of Earnings Per Share, Basic                
                and Diluted                                                      
18: R42         3. Business Combinations (Details)                  HTML     31K 
42: R43         3. Business Combinations (Details) - Schedule of    HTML     62K 
                Business Acquisitions, by Acquisition                            
67: R44         3. Business Combinations (Details) - Business       HTML     57K 
                Acquisition, Pro Forma Information                               
56: R45         4. ACCOUNTS RECEIVABLE, NET (Details) - Schedule    HTML     37K 
                of Accounts, Notes, Loans and Financing Receivable               
17: R46         4. ACCOUNTS RECEIVABLE, NET (Details) - Accounts    HTML     31K 
                Receivable, Allowance for Credit Loss                            
41: R47         5.Prepayments and Other Receivables (Details)       HTML     32K 
66: R48         5.Prepayments and Other Receivables (Details) -     HTML     33K 
                Deferred Costs, Capitalized, Prepaid, and Other                  
                Assets                                                           
58: R49         6. Property, Plant and Equipment, Net (Details)     HTML     29K 
44: R50         6. Property, Plant and Equipment, Net (Details) -   HTML     32K 
                Property, Plant and Equipment                                    
70: R51         7. Intangible Assets, Net (Details)                 HTML     26K 
26: R52         7. Intangible Assets, Net (Details) - Schedule of   HTML     35K 
                Finite-Lived Intangible Assets                                   
19: R53         8.GOODWILL (Details) - Schedule of Goodwill         HTML     30K 
45: R54         9. ACCRUALS AND OTHER PAYABLES (Details) -          HTML     45K 
                Schedule of Accrued Liabilities                                  
71: R55         10. Balances With Related Parties (Details)         HTML     46K 
27: R56         10. Balances With Related Parties (Details) -       HTML     47K 
                Schedule of Related Party Transactions                           
20: R57         11. Income Taxes (Details)                          HTML     60K 
43: R58         11. Income Taxes (Details) - Schedule of Effective  HTML     50K 
                Income Tax Rate Reconciliation                                   
72: R59         11. Income Taxes (Details) - Schedule of Deferred   HTML     37K 
                Tax Assets and Liabilities                                       
38: R60         12. China Contribution Plan (Details)               HTML     27K 
15: R61         13. Operating Lease (Details)                       HTML     24K 
59: R62         13. Operating Lease (Details) - Summary of leases   HTML     32K 
                by balance sheet location                                        
69: R63         13. Operating Lease (Details) - Lease cost          HTML     37K 
39: R64         13. Operating Lease (Details) - Schedule of         HTML     38K 
                Maturities of Operating Lease Liabilities                        
16: R65         13. Operating Lease (Details) - Schedule of Future  HTML     36K 
                Minimum Rental Payments for Operating Leases                     
60: R66         14. Concentrations and Credit Risk (Details)        HTML     41K 
73: XML         IDEA XML File -- Filing Summary                      XML    145K 
40: EXCEL       IDEA Workbook of Financial Reports                  XLSX     84K 
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10: EX-101.PRE  XBRL Presentations -- ulnv-20190930_pre              XML    646K 
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76: ZIP         XBRL Zipped Folder -- 0001185185-19-001633-xbrl      Zip    167K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Table of Contents
"Financial Statements
"Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
"Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018
"Condensed Consolidated Statements of Changes in Stockholders' Deficit for the Three and Nine Months Ended September 30, 2019 and 2018
"Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
"Notes to Condensed Consolidated Financial Statements
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Legal Proceedings
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Other Information
"Exhibits

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 C:  <>  <> 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 


 

FORM 10−Q 

 


(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2019 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to _____________

 

 

Commission File Number: 333-196336

 

PORTER HOLDING INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada

 

42-1777496

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

36th Floor, Shenzhen Development Center, #2010, Renmin South Road

Luohu District, Shenzhen, Guangdong, China, 518001

(Address of principal executive offices, Zip Code)

 

+86-755-22230666

(Registrant’s telephone number, including area code)

 

_____________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

N/A

 

N/A

 

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”  in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐                                   Accelerated filer ☐      

Non-accelerated filer  ☒                                     Smaller reporting company ☒     

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 19, 2019 is as follows:

 

Class of Securities

 

Shares Outstanding

Common Stock, $0.001 par value

 

508,110,000

 

 

 

 

PORTER HOLDING INTERNATIONAL, INC.

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

Item 4.

Controls and Procedures

33

 

 

 

PART II

OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

34

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

34

 

 

 

 

 

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1.          FINANCIAL STATEMENTS (UNAUDITED).

 

PORTER HOLDING INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Table of Contents

 

 

Page Number

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018

5

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2019 and 2018

6-7

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

8

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

3

Table of Contents

 

PORTER HOLDING INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In U.S. dollars)

 

   

September 30, 2019

   

December 31, 2018

 
                 

ASSETS

               

CURRENT ASSETS

               

Cash and cash equivalents

  $ 266,772     $ 728,121  

Accounts receivable, net of $51,565 and $37,547 allowance for doubtful accounts as of September 30, 2019 and December 31, 2018, respectively

    1,048,137       726,912  

Prepayments and other receivables

    568,344       31,164  

Total current assets

    1,883,253       1,486,197  
                 

NON-CURRENT ASSETS

               

Long-term rental deposits

    62,283       36,625  

Long-term prepayments

    6,668       2,860  

Property, plant and equipment, net

    51,204       67,595  

Intangible assets, net

    258,696       30,967  

Operating lease right-of-use assets

    940,375       -  

Goodwill

    33,405       -  

Total non-current assets

    1,352,631       138,047  
                 

TOTAL ASSETS

  $ 3,235,884     $ 1,624,244  
                 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

               
                 

CURRENT LIABILITIES

               

Accounts payable

  $ 32,569     $ 7,139  

Accruals and other payables

    307,473       186,732  

Deferred revenue

    157,528       27,826  

Tax payable

    145,709       128,174  

Amounts due to shareholders

    2,267,835       1,659,262  

Amounts due to related parties

    347,205       183,545  

Operating lease liabilities – current

    307,270       -  

Total current liabilities

    3,565,589       2,192,678  
                 

NON-CURRENT LIABILITIES

               

Operating lease liabilities - non-current

    670,633       -  

TOTAL LIABILITIES

    4,236,222       2,192,678  
                 

COMMITMENTS AND CONTINGENCIES

               
                 

STOCKHOLDERS’ DEFICIT

               

Preferred stock, par value $0.001 per share 250,000,000 shares authorized and nil shares issued as of September 30, 2019 and December 31, 2018

    -       -  

Common stock, par value $0.001 per share; 750,000,000 shares authorized, 508,110,000 shares issued and outstanding as of September 30, 2019 and December 31, 2018

    508,110       508,110  

Additional paid-in capital

    525,914       400,561  

Accumulated deficit

    (2,233,315

)

    (1,626,596

)

Accumulated other comprehensive income

    142,036       93,674  

Total Porter Holding International, Inc. stockholders’ deficit

    (1,057,255

)

    (624,251

)

                 

Non-controlling interests

    56,917       55,817  

Total stockholders’ deficit

    (1,000,338

)

    (568,434

)

                 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

  $ 3,235,884     $ 1,624,244  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

Table of Contents

 

PORTER HOLDING INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In U.S. dollars)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

REVENUE

  $ 367,553     $ 529,057     $ 2,061,992     $ 1,111,437  
                                 

COST OF REVENUE

    (243,240

)

    (79,980

)

    (1,042,658

)

    (146,132

)

                                 

GROSS PROFIT

    124,313       449,077       1,019,334       965,305  
                                 

OPERATING EXPENSES

                               

General and administrative expenses

    (455,244

)

    (485,930

)

    (1,618,336

)

    (1,368,575

)

Total operating expenses

    (455,244

)

    (485,930

)

    (1,618,336

)

    (1,368,575

)

                                 

LOSS FROM OPERATIONS

    (330,931

)

    (36,853

)

    (599,002

)

    (403,270

)

                                 

OTHER INCOME, NET

                               

Other income

    31,822       312       39,405       473  

Total other income, net

    31,822       312       39,405       473  
                                 

NET LOSS BEFORE TAXES

    (299,109

)

    (36,541

)

    (559,597

)

    (402,797

)

                                 

Income tax benefit (expense)

    1,968       (1,677

)

    (43,762

)

    (1,517

)

                                 

NET LOSS

    (297,141

)

    (38,218

)

    (603,359

)

    (404,314

)

                                 

Less: Net income (loss) attributable to non-controlling interests

    44       (2,992

)

    3,360       (2,992

)

                                 

Net loss attributable to Porter Holding International, Inc. common stockholders

    (297,185

)

    (35,226

)

    (606,719

)

    (401,322

)

                                 

NET LOSS

    (297,141

)

    (38,218

)

    (603,359

)

    (404,314

)

Other comprehensive income

                               

Foreign currency translation income

    41,242       82,858       46,102       127,230  
                                 

Total Comprehensive (loss) income

    (255,899

)

    44,640       (557,257

)

    (277,084

)

 Less: comprehensive (loss) income attributable to non-controlling interests

    (2,262

)

    (2,837

)

    1,100       (2,837

)

                                 

Comprehensive (loss) income attributable to Porter Holding International, Inc. common stockholders

  $ (253,637

)

  $ 47,477     $ (558,357

)

  $ (274,247

)

                                 

Basic and diluted earnings (loss) per share

  $ -

*

  $ -

*

  $ -

*

  $ -

*

                                 

Weighted average number of common shares outstanding - basic and diluted

    508,110,000       508,110,000       508,110,000       508,110,000  

 

* Less than $0.01 per share 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

Table of Contents

 

PORTER HOLDING INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED September 30, 2019 and 2018

(Unaudited)

(In U.S. dollars)

 

   

Common stock

   

Additional

           

Accumulated other

   

Non-

         
   

Number

           

paid-in

   

Accumulated

   

comprehensive

   

controlling

   

Total

 
   

of shares

   

Amount

   

capital

   

deficit

   

income (loss)

   

interests

   

Equity

 

Balance at December 31, 2018

    508,110,000     $ 508,110     $ 400,561     $ (1,626,596

)

  $ 93,674     $ 55,817     $ (568,434

)

                                                         

Net loss

    -       -       -       (369,415

)

    -       8,229       (361,186

)

                                                         

Capital contribution

    -       -       125,353       -       -       -       125,353  
                                                         

Foreign currency translation adjustment

    -       -       -       -       (16,122

)

    1,408       (14,714

)

                                                         

Balance at March 31, 2019

    508,110,000     $ 508,110     $ 525,914     $ (1,996,011

)

  $ 77,552     $ 65,454     $ (818,981

)

                                                         

Net income

    -       -       -       59,881       -       (4,913

)

    54,968  
                                                         

Foreign currency translation adjustment

    -       -       -       -       20,936       (1,362

)

    19,574  
                                                         

Balance at June 30, 2019

    508,110,000     $ 508,110     $ 525,914     $ (1,936,130

)

  $ 98,488     $ 59,179     $ (744,439

)

                                                         

Net loss

    -       -       -       (297,185

)

    -       44       (297,141

)

                                                         

Foreign currency translation adjustment

    -       -       -       -       43,548       (2,306

)

    41,242  
                                                         

Balance at September 30, 2019

    508,110,000     $ 508,110     $ 525,914     $ (2,233,315

)

  $ 142,036     $ 56,917     $ (1,000,338

)

  

6

Table of Contents

 

PORTER HOLDING INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED September 30, 2019 and 2018

(Unaudited)

(In U.S. dollars)

 

   

Common stock

   

Additional

           

Accumulated other

   

Non-

         
   

Number

           

paid-in

   

Accumulated

   

comprehensive

   

controlling

   

Total

 
   

of shares

   

Amount

   

capital

   

deficit

   

income (loss)

   

interests

   

Equity

 

Balance at December 31, 2017

    508,110,000     $ 508,110     $ 400,561     $ (3,033,438

)

  $ 41,769     $ -     $ (2,082,998

)

                                                         

Net loss

    -       -       -       (387,602

)

    -       -       (387,602

)

                                                         

Foreign currency translation adjustment

    -       -       -       -       (90,082

)

    -       (90,082

)

                                                         

Balance at March 31, 2018

    508,110,000     $ 508,110     $ 400,561     $ (3,421,040

)

  $ (48,313

)

  $ -     $ (2,560,682

)

                                                         

Net income

    -       -       -       21,506       -       -       21,506  
                                                         

Foreign currency translation adjustment

    -       -       -       -       134,454       -       134,454  
                                                         

Balance at June 30, 2018

    508,110,000     $ 508,110     $ 400,561     $ (3,399,534

)

  $ 86,141     $ -     $ (2,404,722

)

                                                         

Net loss

    -       -       -       (35,226

)

    -       (2,992

)

    (38,218

)

                                                         

Foreign currency translation adjustment

    -       -       -       -       82,703       155       82,858  
                                                         

Balance at September 30, 2018

    508,110,000     $ 508,110     $ 400,561     $ (3,434,760

)

  $ 168,844     $ (2,837

)

  $ (2,360,082

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7

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PORTER HOLDING INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In U.S. dollars)

 

   

Nine Months Ended September 30,

 
   

2019

   

2018

 
                 

Cash flows from operating activities

               

Net loss

  $ (603,359

)

  $ (404,314

)

Adjustments to reconcile net loss to cash used in operating activities:

               

Depreciation and amortization

    19,771       12,487  

(Gain) loss on disposal of property, plant and equipment

    (50

)

    113  

Amortization of operating lease right-of-use assets

    158,538       -  

Allowance for doubtful accounts

    16,090       -  

Changes in assets and liabilities

               

Accounts receivable

    (326,789

)

    (306,607

)

Prepayments and other receivables

    (543,046

)

    109,289  

Operating lease liabilities

    (165,960

)

    -  

Accounts payable

    35,926       (16,988

)

Accruals and other payables

    166,934       41,576  

Deferred revenue

    136,190       511,631  

Tax payable

    21,657       -  

Net cash used in operating activities

    (1,084,098

)

    (52,813

)

                 

Cash flows from investing activities

               

Purchase of property, plant and equipment

    (1,548

)

    (64,941

)

Purchases of investments

    -       (191,950

)

Cash acquired through business combination

    4,963       -  

Proceeds from disposal of investments

    -       191,950  

Net cash provided by (used in) investing activities

    3,415       (64,941

)

                 

Cash flows from financing activities

               

Advances from related parties

    301,625       101,369  

Repayments to related parties

    (293,873

)

    (1,417,613

)

Advances from shareholders

    6,116,491       1,689,205  

Repayments to shareholders

    (5,405,862

)

    -  

Net cash provided by financing activities

    718,381       372,961  
                 

Effect of exchange rates on cash

    (99,047

)

    (18,397

)

                 

Net (decrease) increase in cash and cash equivalents

    (461,349

)

    236,810  
                 

Cash and cash equivalents at beginning of period

    728,121       240,072  
                 

Cash and cash equivalents at end of period

  $ 266,772     $ 476,882  
                 

Supplemental of cash flow information

               

Cash paid for interest expenses

  $ -     $ -  

Cash paid for income tax

  $ -     $ -  

Non-cash financing activities:

               

Operating lease asset obtained in exchange for operating lease obligation

  $ 1,184,455     $ -  

Capital contribution

  $ 125,353     $ -  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

8

Table of Contents

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

1.

ORGANIZATION AND BUSINESS

 

Porter Holding International, Inc. (formerly known as Uni Line Corp., “ULNV” or the “Company”) was incorporated in the State of Nevada on September 5, 2013.

 

On December 16, 2016, the Company entered into a share purchase agreement (the “Purchase Agreement”) with Porter Group Limited (“PGL”) to acquire all issued and outstanding shares of PGL. Under the terms of the Purchase Agreement, the Company agreed to issue 500,000,000 shares of its common stock to the owners of the PGL (“the share exchange”).

 

Porter Group Limited (“PGL”) was incorporated in the Republic of Seychelles on October 13, 2016, and is a holding company. PGL owns 100% of Porter Perspective Business Group Limited, a company incorporated in Hong Kong (“PPBGL”) which in turn owns 100% of Shenzhen Qianhai Porter Industrial Co. Ltd. (“Qianhai Porter”), a company incorporated in the People’s Republic of China (the “PRC”).

 

On December 15, 2016, Qianhai Porter, Shenzhen Portercity Investment Management Co. Ltd. (a company incorporated in the PRC; “Portercity”) and Mr. Zonghua Chen (the Company’s Chairman, Chief Executive Officer, Chief Financial Officer and President since December 19, 2016) and Ms. Xiaomei Xiong (spouse of Mr. Zongjian Chen), the shareholders (the “Shareholders”) of Portercity entered into commercial arrangements, or collectively, VIE Agreements, pursuant to which PGL has contractual rights to control and operate the businesses of Portercity and its three operating wholly-owned subsidiaries incorporated in the PRC (collectively the “VIE Entities”):

 

(a)     Shenzhen Porter Warehouse E-Commerce Co. Ltd. (“Porter E-Commerce”);

 

(b)     Shenzhen Yihuilian Information Consulting Co. Ltd. (“Porter Consulting”); and

 

(c)     Shenzhen Porter Commercial Perspective Network Co. Ltd. (“Porter Commercial”).

 

As a result of the above contractual arrangements, or the Contractual Arrangements, PGL has substantial control over the VIE Entities’ daily operations and financial affairs, election of their senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of the VIE Entities, the Company is entitled to consolidate the financial results of the VIE Entities in its own consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities, or ASC Topic 810.

 

On June 28, 2018, Portercity and Mr. Zhibo Mao established Weifang Porter City Commercial Management Company Limited (“Weifang Portercity”) in Weifang, Shandong Province, the PRC, with a registered capital of RMB1 million ($0.1 million), which should be paid up by December 31, 2028. Portercity and Mr. Zhibo Mao hold 60% and 40% equity interest in Weifang Portercity, respectively. On February 19, 2019, Mr. Zhibo Mao transferred 40% equity interest to Mr. Zhiqing Mao. Weifang Portercity engages in the business of providing various consulting services to its clients, especially to those who have the intention to be publicly listed in the stock exchanges in the United States and other countries.

 

In August 2019, Porter E-Commerce acquired 60% of the equity interest in Shenzhen Qianhai Maihuolang E-commerce Co., Ltd. (“Maihuolang E-commerce”), which is engaged in the business of online E-commerce (See Note 3 – Business combinations).

 

The Company and its subsidiaries and VIE entities (collectively referred to as the “Company”) focus its business as an innovative O2O (Online to Offline) business platform operator covering both online E-commerce and offline commercial chain entity of three dimensional synchronous operation together with integrated comprehensive services for merchant clients, service income from organizing and delivering an event and forum, and third-party payment service. Starting from the second quarter of 2018, the Company provides investment and corporate management consulting services to its clients.

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”). The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries and its variable interest entities. All significant inter-company transactions and balances have been eliminated in consolidation. 

 

The interim condensed consolidated financial information as of September 30, 2019, for the three and nine months periods ended September 30, 2019 and 2018 have been prepared without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures, which are normally included in consolidated financial statements prepared in accordance with U.S. GAAP have not been included. The interim condensed consolidated financial information should be read in conjunction with the Consolidated Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, previously filed with the SEC on April 15, 2019.

 

In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these condensed consolidated financial statements, which are of a normal and recurring nature, have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year.

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred net loss of $603,359 during the nine-month period ended September 30, 2019, resulting in an accumulated deficit of $2,233,315 as of September 30, 2019, and it currently has net working capital deficit of $1,682,336. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company may have to rely on additional debt financing, loans from existing directors and shareholders and private placements of capital stock for additional funding. There can be no assurance that the Company will be successful in its plans described above or in attracting equity or alternative financing on acceptable terms, or if at all.

 

These condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Use of Estimates

 

The preparation of these condensed consolidation financial statements requires management of the Company 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, the Company evaluates its 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. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its condensed consolidated financial statements.

 

Basis of Consolidation

 

The condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIEs. All significant inter-company balances and transactions have been eliminated upon consolidation.

 

A subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.

 

10

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

VIE Consolidation

 

The Company’s VIEs with the exception of Weifang Portercity, are wholly owned by Mr. Zonghua Chen and Ms. Xiaomei Xiong as nominee shareholders. For the consolidated VIEs, management made evaluations of the relationships between the Company and the VIEs and the economic benefit flow of contractual arrangements with the VIEs. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Company controls the shareholders’ voting interests in these VIEs. As a result of such evaluation, management concluded that the Company is the primary beneficiary of its consolidated VIEs.

 

PRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content, Internet access, online games, mobile, value added telecommunications and certain other businesses in which the Company is engaged or could be deemed to be engaged. Consequently, the Company conducts certain of its operations and businesses in the PRC through its VIEs. The Company consolidates in its consolidated financial statements all of the VIEs of which the Company is the primary beneficiary.

 

The following financial information of the Company’s consolidated VIEs (including subsidiary of VIEs) is included in the accompanying condensed consolidated financial statements:

 

   

September 30, 2019

   

December 31, 2018

 

ASSETS

               

CURRENT ASSETS

               

Cash and cash equivalents

  $ 245,812     $ 524,115  

Accounts receivable, net

    986,873       726,912  

Prepayments and other receivables

    310,173       30,961  

Total current assets

    1,542,858       1,281,988  
                 

NON-CURRENT ASSETS

               

Long term rental deposit 

    62,283       36,625  

Long term prepayment

    6,668       2,860  

Property, plant and equipment, net

    49,770       65,759  

Intangible assets, net

    258,696       30,967  

Operating lease right-of-use assets

    940,375       -  

Goodwill

    33,405       -  

Total non-current assets

    1,351,197       136,211  
                 

TOTAL ASSETS

  $ 2,894,055     $ 1,418,199  
                 

CURRENT LIABILITIES

               

Accounts payable

  $ 32,569     $ 7,139  

Accruals and other payables

    280,073       132,294  

Deferred revenue

    157,528       27,826  

Tax payable

    103,004       128,174  

Amounts due to shareholders of the Company

    2,203,233       1,593,628  

Amounts due to related parties

    219,592       179,017  

Operating lease liability - current

    307,270       -  

Total current liabilities

    3,303,269       2,068,078  
                 

NON-CURRENT LIABILITIES

               

Operating lease liability - non-current

    670,633       -  

TOTAL LIABILITIES

  $ 3,973,902     $ 2,068,078  

 

11

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

   

Three months ended September 30,

   

Nine months ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net revenue

  $ 367,362     $ 529,057     $ 1,721,893     $ 1,111,437  

Net (loss) income

  $ (228,611

)

  $ 17,142     $ (699,163

)

  $ (151,339

)

 

   

Nine months ended September 30,

 
   

2019

   

2018

 
                 

Net cash (used in) provided by operating activities

  $ (942,578

)

  $ 250,674  

Net cash provided by (used in) investing activities

    3,415       (62,638

)

Net cash provided by financing activities

    670,003       14,278  

 

Revenue Recognition

 

The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligation.

 

Revenues are recognized when control of the promised goods or services is transferred to our customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

The Company via Porter Consulting earns commissions of $19,801 and $67,902 for the three and nine months ended September 30, 2019 respectively, primarily from a third-party payment service provider when China UnionPay card transactions are completed and settled. Commissions of $52,633 and $151,822 were earned for the three and nine months ended September 30, 2018 respectively. Revenue related to commissions is recognized in the income statement at the time when the underlying transaction is completed.

 

The third-party payment provider is a China UnionPay card acquiring institution and earns processing fees from China UnionPay card transactions. The Company’s performance obligation is to promote, via Porter Consulting, the payment service of the third-party payment service provider to merchants in Shenzhen, for which the Company shares a portion of the processing fees earned by the third-party payment service provider from China UnionPay, as commission.

 

Starting from the second quarter of 2018, the Company via Portercity provides various consulting services to its clients, especially to those who have the intention to be publicly listed in the stock exchanges in the United States and other countries. The Company categorizes its consulting services into three phases:

 

Phase I consulting services primarily include due diligence review, market research and feasibility study, business plan drafting, accounting record review, and business analysis and recommendations etc. Management estimates that Phase I normally takes around three months to complete based on its past experiences.

 

Phase II consulting services primarily include reorganization, pre-listing education and tutoring, talent search, legal and audit firm recommendation and coordination, VIE contracts and other public-listing related documents review, merger and acquisition planning, investor referral and pre-listing equity financing source identification and recommendation, independent directors and audit committee candidates recommendation; shell company identification and recommendation for customers expecting to become publicly listed through reverse merger transaction; etc. Management estimates that Phase II normally takes about five months to complete based its past experiences.

 

12

Table of Contents

 

 PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

 (In U.S. dollars)

 

Phase III consulting services primarily include assistance in preparation of customers’ registration statement under IPO transactions or Form 8-K under reverse merger transactions; assistance in answering comments and questions received from regulatory agencies etc. Management believes it is very difficult to estimate the timing of this phase of service as the completion of Phase III services is not within the Company’s control.

 

Under ASC Topic 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. Each phase of consulting services is standalone and fees associated with each phase are usually clearly identified in service agreements. Revenue from providing Phase I and Phase II consulting services to customers is recognized based on the output methods, including surveys of performance completed to date or milestones reached of each phase only when the Company has an enforceable right to payment for performance completed to date. Otherwise, such revenue is recognized at a point in time when services are delivered and accepted by customers. Revenue from providing Phase III consulting services to customers is recognized upon completion of reverse merger transaction or IPO transaction, which is evidenced by filing of 8-K for reverse merger transaction or receipt of effective notice from regulatory agencies for IPO transaction. Revenue that has been billed and not yet recognized is reflected as deferred revenue on the consolidated balance sheets.

 

Depending on the complexity of the underlying service arrangement and related terms and conditions, significant judgments, assumptions and estimates may be required to determine when substantial delivery of contract elements has occurred, whether any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period or periods in which, or during which, the completion of the earnings process occurs. Depending on the magnitude of specific revenue arrangements, adjustment may be made to the judgments, assumptions and estimates regarding contracts executed in any specific period. Service income from consulting services, totaled $329,000 and $1,590,010 for the three and nine months period ended September 30, 2019, is recognized when the service is performed. Service income from consulting services, totaled $471,850 and $948,063 for the three and nine months period ended September 30, 2018.

 

In accordance with ASC 606, the Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned by PPBGL as commissions. When the Company is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenues should be recorded on a gross basis. When the Company is not the primary obligor, does not bear the inventory risk and does not have the ability to establish the price, revenues are recorded on a net basis. The Company determined that it is not the primary obligor in its cosmetic trading business. For the three and nine months period ended September 30, 2019, the Company recognized a net revenue of $18 and $31,684, when control of the products has transferred, being at the point the products are delivered to the customer and the customer has accepted the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. No such income was earned in the same period 2018.

 

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. Under ASC Topic 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to perform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The fees associated with the course of training sessions are clearly identified in service agreements. Training service revenue is recognized at the time when the training sessions stipulated in the contract are completed. The Company recognized $173 and $308,416 for the three and nine months period ended September 30, 2019.

 

Practical expedients and exemption

 

The company has not occurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

Other service income is earned when services have been rendered.

 

13

Table of Contents

 

PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

Revenue by major product line

 

   

For Three Months Ended 

September 30,

   

For Nine Months Ended

September 30,

 
   

2019

   

2018

   

2019

   

 2018

 
                                 

Investment and corporate management consulting services

  $ 329,000     $ 471,850     $ 1,590,010     $ 948,063  

Training service

    173       -       308,416       -  

Third-party payment service

    19,801       52,633       67,902       151,822  

Cosmetic trading business

    18       -       31,684       -  

Others

    18,561       4,574       63,980       11,552  
    $ 367,553     $ 529,057     $ 2,061,992     $ 1,111,437  

 

Revenue by recognition over time vs point in time

 

   

For Three Months Ended 

September 30,

   

For Nine Months Ended

September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Revenue by recognition over time

  $ 329,000     $ 471,850     $ 1,590,010     $ 948,063  

Revenue by recognition at a point in time

    38,553       57,207       471,982       163,374  
    $ 367,553     $ 529,057     $ 2,061,992     $ 1,111,437  

 

Fixed price contract

 

   

September 30, 2019

 
   

Contract Amount

   

Future Estimated Revenue

 
                 

Investment and corporate management consulting services

  $ 23,072,000     $ 18,537,000  

 

Foreign Currency and Foreign Currency Translation

 

The functional currency of the Company and PGL is the United States dollar (“US dollar”). The functional currency of the PPBGL is the Hong Kong dollar. The Company’s subsidiary and VIEs with operations in PRC uses the local currency, the Chinese Yuan (“RMB”), as their functional currencies. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.

 

Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of comprehensive loss.

 

14

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

The condensed consolidated financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the condensed consolidated balance sheets.

 

Translation of amounts from RMB into U.S. dollars has been made at the following exchange rates:

 

Balance sheet items, except for equity accounts

 

 

 

September 30, 2019

 

RMB7.1477 to $1

HKD7.8401 to $1

December 31, 2018

 

RMB6.8755 to $1

HKD7.8305 to $1

 

 

 

 

Income statement and cash flows items

 

 

 

For the nine-month period ended September 30, 2019

 

RMB6.8628 to $1

HKD7.8384 to $1

For the nine-month period ended September 30, 2018

 

RMB6.5121 to $1

HKD7.8404 to $1

For the three-month period ended September 30, 2019

 

RMB7.0150 to $1

HKD7.8300 to $1

For the three-month period ended September 30, 2018

 

RMB6.8053 to $1

HKD7.8449 to $1

 

Net loss per share of common stock

 

The Company has adopted ASC Topic 260, “Earnings per Share,” (“EPS”) which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying condensed consolidation financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net loss attributable to Porter Holding International, Inc.

  $ (297,185

)

  $ (35,226

)

  $ (606,719

)

  $ (401,322

)

                                 

Weighted average number of common shares outstanding - basic and diluted

    508,110,000       508,110,000       508,110,000       508,110,000  
                                 

Basic and diluted loss per share

  $ -     $ -     $ -     $ -  

 

The Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.

 

Segments

 

The Company evaluates a reporting unit by first identifying its operating segments, and then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meets the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has only one major reportable segment in the periods presented.

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

Fair Value of Financial Instruments

 

U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:

 

Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 – include other inputs that are directly or indirectly observable in the market place.

 

Level 3 – unobservable inputs which are supported by little or no market activity.

 

The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts and other receivables, other current assets, accounts and other payables, and other short-term liabilities approximate their fair value due to their short maturities.

 

In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the accompanying condensed consolidated statements of operations and comprehensive loss as other income (expense). To estimate fair value, the Company refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

 

As of September 30, 2019 and December 31, 2018, the Company had no investments in financial instruments.

 

Leases

 

The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. The lease has remaining lease term of approximately four years. Lease expense is recognized on a straight-line basis over the lease term. The Company elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as a single lease component for operating leases associated with the Company’s office space lease, and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

 

The operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current on the condensed consolidated balance sheets.

 

Recent Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

On January 1, 2019, the Company adopted ASU 2016-02, Leases, using the modified retrospective method which allows for the application of the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these unaudited condensed consolidated financial statements. As permitted by the guidance, the Company elected to retain the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date and did not reassess contracts entered into prior to the adoption date for the existence of a lease. The Company also did not recognize ROU assets and lease liabilities for short-term leases, which are leases in existence as of the adoption date with an original term of twelve months or less.

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

As a result of the adoption of the standard, based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company recognized ROU assets of $0.97 million and lease liabilities of $1.01 million on its unaudited condensed consolidated balance sheet as of January 1, 2019. The assets and liabilities recognized upon application of the transition provisions were primarily associated with existing office and storage leases. There were no finance leases as of September 30, 2019.

 

In August 2018, the SEC issued Release No. 33-10532 that amends and clarifies certain financial reporting requirements. The principal change to our financial reporting will be the inclusion of the annual disclosure requirement of changes in stockholders’ equity in Rule 3-04 of Regulation S-X to interim periods. The Company has adopted this new rule beginning with our financial reporting for the quarter ending September 30, 2019. The Company has included our Unaudited Condensed Consolidated Statements of Change in Stockholders’ Deficit with each quarterly filing on Form 10-Q.

 

Accounting Pronouncements Issued But Not Yet Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018The Company does not expect this standard to have a material impact on its consolidated financial statements.

 

In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect this guidance will have a material impact on its consolidated financial statements.

 

Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the consolidated financial position, statements of operations and cash flows. 

 

3.

 BUSINESS COMBINATIONS

 

On August 25, 2019, Porter E-Commerce entered into a share purchase agreement (the “Maihuolang Agreement”) with Mr. Kezhan Ma, former controlling shareholder of Maihuolang E-commerce (“Maihuolang Seller”). Neither Porter E-Commerce nor its affiliates have any material relationship with the Maihuolang Seller other than with respect to the Maihuolang Agreement.

 

Pursuant to the Maihuolang Agreement, Porter E-Commerce agreed to acquire 60% of the capital stock of Maihuolang E-commerce collectively held by the Maihuolang Seller, for an aggregate consideration of RMB 1 ($0.1) in cash.

 

The Company’s acquisition of Maihuolang E-commerce was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Maihuolang E-commerce based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the business combination standard issued by the FASB with the valuation methodologies using cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Maihuolang E-commerce based on a valuation performed by an independent valuation firm engaged by the Company:

 

   

Fair Value

 

Cash

  $ 4,761  

Prepayments

    280  

Other receivables

    27,026  

Intangible assets

    233,455  

Long-term deferred assets

    607  

Operating lease right-of-use assets

    158,004  

Goodwill

    33,375  

Total assets

    457,508  
         

Accrued payroll

    (4,094

)

Accrued tax

    (18

)

Other payables

    (290,687

)

Operating lease liability - current

    (88,217

)

Operating lease liability - non-current

    (74,492

)

Total liabilities

    (457,508

)

Net assets acquired

  $ -  

 

$33,375 of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of Porter E-Commerce and Maihuolang E-commerce. None of the goodwill is expected to be deductible for income tax purposes.

 

The following pro forma combined results of operations present the Company’s financial results as if the acquisition of Maihuolang E-commerce had been completed on January 1, 2018. The pro forma results do not reflect operating efficiencies or potential cost savings which may result from the consolidation of operations. Accordingly, the pro forma financial information is not necessarily indicative of the results of operations that the Company would have recognized had it completed the transaction on January 1, 2018. Future results may vary significantly from the results in this pro forma information because of future events and transactions, as well as other factors.

 

   

For the Nine months Ended

 
   

September 30, 2019

   

September 30, 2018

 
   

(Unaudited)

   

(Unaudited)

 

Revenue

  $ 2,108,595     $ 1,111,437  

Cost of revenue

    (1,056,542

)

    (146,132

)

Gross profit

    1,052,053       965,305  

Total operating expenses

    (1,679,812

)

    (1,368,941

)

Loss from operations

    (627,759

)

    (403,636

)

Other income (expenses), net

    (35,003

)

    473  

Loss before income taxes

    (662,762

)

    (403,163

)

Income tax expense

    (43,796

)

    (1,517

)

Net loss

    (706,558

)

    (404,680

)

Less:  Net loss attributable to non-controlling interests

    (37,920

)

    (3,139

)

Net loss attributable to Porter Holding International, Inc. common stockholders

  $ (668,638

)

  $ (401,541

)

Weighted average number of common shares outstanding - basic and diluted

    508,110,000       508,110,000  

Net loss per common share - basic and diluted

  $ -

*

  $ -

*

 

* Less than $0.01 per share 

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

4.

 ACCOUNTS RECEIVABLE, NET

 

Accounts receivable consist of the following:

 

   

September 30,

2019

   

December 31,

2018

 
                 

Billed

  $ 61,976     $ -  

Unbilled

    1,037,726       764,459  

Accounts receivable

  $ 1,099,702     $ 764,459  

Less: allowance for doubtful accounts

    (51,565

)

    (37,547

)

    $ 1,048,137     $ 726,912  

  

The following table sets forth the movement of allowance for doubtful accounts:

 

   

September 30,

2019

   

December 31,

2018

 
                 

Beginning

  $ 37,547     $ -  

Additions

    16,090       39,060  

Exchange rate difference

    (2,072

)

    (1,513

)

Balance

  $ 51,565     $ 37,547  

 

5.

PREPAYMENTS AND OTHER RECEIVABLES

 

Prepayments and other receivables consist of the following:

 

 

Note

 

September 30, 2019

   

December 31, 2018

 
                   

Loan to third parties

(a)

  $ 258,129     $ -  

Prepayments

(b)

    287,254       3,193  

Others

    22,961       27,971  
      $ 568,344     $ 31,164  

 

(a) The Company offered a loan to Mr. Maoqiang Guo, a third party individual, from July 18, 2019 to December 17, 2019 with an interest rate at 1.5% per month. During the three and nine months ended September 30, 2019, $9,158 and $9,158 interest income were accrued according to the terms. As of September 30, 2019, the amount due from Mr. Maoqiang Guo totaled $258,129.

 

(b) As of September 30, 2019, prepayments mainly refer to a fee made to a third party agency amounting $256,347, which will be recognized as consulting service cost in the future.

 

6.

PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment, net consist of the following:

 

   

September 30,

2019

   

December 31,

2018

 
                 

Office and computer equipment

  $ 163,793     $ 190,605  

Less: Accumulated depreciation

    (112,589

)

    (123,010

)

    $ 51,204     $ 67,595  

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

Depreciation expenses charged to the statements of operations for the nine months ended September 30, 2019 and 2018 were $14,755 and $9,352, respectively. Depreciation expenses charged to the statements of operations for the three months ended September 30, 2019 and 2018 were $4,817 and $4,458, respectively. Gain on disposal of property, plant and equipment for the nine months ended September 30, 2019 was $50 and loss on disposal of property, plant and equipment for the nine months ended September 30, 2018 was $113.

 

7.

INTANGIBLE ASSETS, NET

 

Intangible assets, net, consist of the following:

 

   

September 30, 2019

   

December 31, 2018

 
                 

Software copyright

  $ 227,486     $ -  

Domain names and trademarks

    44,957       40,251  

Intangible asset

    272,443       40,251  

Less: Accumulated amortization

    (13,747

)

    (9,284

)

    $ 258,696     $ 30,967  

 

Amortization charged to the statements of operations for the nine months period ended September 30, 2019 and 2018 were $5,016 and $3,135, respectively. Amortization charged to the statements of operations for the three months ended September 30, 2019 and 2018 were $3,010 and $1,025, respectively.

 

8.

GOODWILL

 

The changes in the carrying amount of goodwill are as follows:

 

   

Maihuolang E-commerce

 

Balance as of December 31, 2018

  $ -  

Goodwill acquired through acquisitions

    33,375  

Foreign currency translation adjustment

    30  

Balance as of September 30, 2019

  $ 33,405  

 

9.

ACCRUALS AND OTHER PAYABLES

 

Accruals and other payables consist of the following:

 

   

September 30, 2019

   

December 31, 2018

 
                 

Salary payables

  $ 86,037     $ 89,112  

Accrued professional fees

    26,351       53,965  

Deposits from customers

    153,896       -  

Accrued rental expenses

    7,143       43,601  

Advance from employees

    29,672       -  

Others

    4,374       54  
    $ 307,473     $ 186,732  

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

10.

BALANCES WITH RELATED PARTIES

 

 

Note

 

September 30, 2019

 

 

December 31, 2018

 

Due to related parties

 

 

 

 

 

 

 

 

 

Liaoning Northeast Asia Porter City Investment Limited

(a)

 

$

54,660

 

 

$

183,545

 

Maihuolang (Beijing) Technology Limited Company

(b)

   

289,604

     

-

 

Mr. Kezhan Ma

(b)

   

2,941

     

-

 

 

 

 

$

347,205

 

 

$

183,545

 

 

 

 

 

 

 

 

 

 

 

Due to shareholders

 

 

 

 

 

 

 

 

 

Mr. Zonghua Chen (the Company’s  Chairman, Chief Executive Officer, Chief Financial Officer and President)

 

$

1,752,218

 

 

$

1,338,336

 

Mr.  Zongjian Chen (brother of Mr.  Zongjian Chen)

 

 

515,617

 

 

 

269,844

 

Ms. Xiaofang Huang (director of Porter Investment Limited)

 

 

-

 

 

 

51,082

 

 

 

 

$

2,267,835

 

 

$

1,659,262

 

 

(a)

Mr. Zonghua Chen is a supervisor of and Mr. Zongjian Chen is a 45% shareholder of Liaoning Northeast Asia Porter City Investment Limited.

(b)

Mr. Kezhan Ma is a 40% minority shareholder of Maihuolang E-commerce and a 90% shareholder of Maihuolang (Beijing) Technology Limited Company.

 

All the above balances are due on demand, interest-free and unsecured. The Company used the funds for its operations. For the nine months ended September 30, 2019, the Company had transactions amounted $6,116,491 from shareholders and $5,405,862 to shareholders, comparing to $1,689,205 from shareholders for the same period in 2018. For the nine months ended September 30, 2019, the Company had transactions amounted $ 301,625 from related parties and $293,873 to related parties, comparing to $101,369 from related parties and $1,417,613 to related parties for the same period in 2018.

 

During the period of the nine-month period ended September 30, 2019, Mr. Zongjian Chen transfer his creditor's rights to Liaoning Northeast Asia Porter City Investment Limited amounted $125,353 to the Company. As a result, the Company regards this transaction as his donation and off-set the amount due to Liaoning Northeast Asia Porter City Investment Limited accordingly.

 

11.

INCOME TAXES

 

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

 

ULNV is incorporated in the State of Nevada and is subject to the U.S. federal tax and has incurred net operating loss for income tax purposes through September 30, 2019. As of September 30, 2019, future net operating losses of approximately $45,437 from ULNV are available to offset future taxable income through 2038. Accumulated deficit as of September 30, 2019 and December 31, 2018 was approximately $2.2 million and $1.6 million, respectively.

 

The 2017 Tax Act created a new requirement that, for the periods beginning after January 1, 2018, certain income (referred to as global intangible low taxed income or “GILTI”) earned by foreign subsidiaries in excess of a deemed return on tangible assets of foreign corporations must be included in U.S. taxable income. The GILTI income is eligible for a deduction, which lowers the effective tax rate to 10.5% for calendar years 2018 through 2025 and 13.125% after 2025. Under U.S. GAAP, companies are allowed to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which a company is subject to the rules – the period cost method, or (ii) account for GILTI in a company’s measurement of deferred taxes – the deferred method. The Company elected to account for GILTI in the period the tax is incurred. The Company did not generate any GILTI during the nine-month period ended September 30, 2019.

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

PGL is registered as an international business company and is exempted from corporation tax in Seychelles.

 

PPBGL is subject to Hong Kong profits tax rate of 16.5%. For the nine-month period ended September 30, 2019, it generated $325,290 of net income and $42,700 tax expenses accrued accordingly. For the nine-month period ended September 30, 2018, it did not have any assessable profits arising in or derived from Hong Kong and accordingly no provision for Hong Kong profits tax was made.

 

PRC Tax

 

The Company’s subsidiary and consolidated VIEs in China are subject to corporate income tax (“CIT”) at 25% for the nine-month period ended September 30, 2019 and 2018. As of September 30, 2019, the Company had approximately $4.1 million of net operating loss carried forward from the foreign subsidiaries which will expire in various years through 2023.

 

The Ministry of Finance (“MOF”) and State Administration of Taxation (“SAT”) on June 9, 2017 jointly issued Cai Shui 2017 No. 43. This clarified that from January 1, 2017 to December 31, 2019, eligible small enterprises whose taxable income falls under RMB500,000 (previously RMB300,000), may pay CIT on 50% of their whole income at a rate of 20% (i.e., effective rate is 10%).

  

Porter Consulting enjoyed the above preferential policy on its profits in fiscals 2018 and 2019.

 

A reconciliation of the income tax expense determined at the statutory income tax rate to the Company’s income taxes is as follows:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Loss before income taxes

  $ (299,109

)

  $ (36,541

)

  $ (559,597

) 

  $ (402,797

) 

United States statutory income tax rate

    21

%

    21

%

    21

%

    21

%

Income tax benefit computed at statutory corporate income tax rate

    (62,813

)

    (7,673

)

    (117,515

)

    (84,587

)

Reconciling items:

                               

Effect of different tax jurisdictions

    (185,282

)

    (1,636

)

    (306,518

)

    (17,875

)

Non-deductible expenses

    72,659       10,143       109,534       68,312  

Change in valuation allowance

    173,468

 

    3,359       358,261       37,943  

Effect of tax exemption granted to Porter Consulting

    -       (2,516

)

    -       (2,276

)

Income tax (benefit) expense

  $ (1,968

)

  $ 1,677     $ 43,762     $ 1,517  

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of September 30, 2019 and December 31, 2018 are presented below

 

   

September 30,

   

December 31,

 
   

2019

   

2018

 
                 

Deferred tax assets:

               

Net operating loss carryforwards:

               

- United States of America

  $ 9,542     $ 9,542  

- Hong Kong

    -       10,973  

- PRC

    1,002,637       633,403  
      1,012,179       653,918  

Less: Valuation allowance

    (1,012,179

)

    (653,918

)

    $ -     $ -  

  

Management believes that it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.

 

 

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PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

12.

CHINA CONTRIBUTION PLAN

 

The Company’s subsidiaries and consolidated VIEs in China participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s subsidiaries and consolidated VIEs to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company’s China-based subsidiaries and consolidated VIEs have no further commitments beyond their monthly contributions. For the nine months ended September 30, 2019 and 2018, the Company’s China based subsidiaries and consolidated VIEs contributed a total of $36,815 and $42,990, respectively, to these funds. For the three months ended September 30, 2019 and 2018, the Company’s China based subsidiaries and consolidated VIEs contributed a total of $11,838 and $19,471, respectively, to these funds.

 

13.

OPERATING LEASE

 

The Company has operating leases for its office facilities. The Company's leases have remaining terms of approximately four years. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.

 

The Company subleases certain office space to a third party that has a remaining term of less than 12 months.

 

The following table provides a summary of leases by balance sheet location as of September 30, 2019:

 

Assets/liabilities

Classification

 

September 30, 2019

 

Assets

 

 

 

 

 

Operating lease right-of-use assets

Operating lease assets

 

$

940,375

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Current

 

 

 

 

 

Operating lease liability - current

Current operating lease liabilities

 

$

307,270

 

 

 

 

 

 

 

Long-term

 

 

 

 

 

Operating lease liability - non-current

Long-term operating lease liabilities

 

 

670,633

 

Total lease liabilities

 

$

977,903

 

 

The operating lease expenses for the three and nine months ended September 30, 2019 were as follows:

 

 

 

 

Three

months ended

 

 

Nine

months ended

 

Lease Cost

Classification

 

September 30, 2019 

 

Operating lease cost

General and administrative expenses

 

$

76,144

 

 

$

216,374

 

Total lease cost

 

$

76,144

 

 

$

216,374

 

 

23

Table of Contents

 

PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

Maturities of operating lease liabilities at September 30, 2019 were as follows:

 

Maturity of Lease Liabilities

 

Operating Leases

 

12 months ending September 30,

       

2020

  $ 374,451  

2021

    344,267  

2022

    275,762  

2023

    114,901  

Total lease payments

    1,109,381  

Less: interest

    (131,478

)

Present value of lease payments

  $ 977,903  

 

Lease liabilities include lease and non-lease component such as management fee. 

 

Future minimum lease payments as of September 30, 2019 were as follows:

 

12 months ending September 30,

       

2020

  $ 289,684  

2021

    266,294  

2022

    211,379  

2023

    88,075  

Total

  $ 855,432  

 

Lease Term and Discount Rate

 

September 30, 2019

 

Weighted-average remaining lease term (years)

       

Operating leases--- Shenzhen Development Center, 36/F, LuoHu, Shenzhen

    3.42  

Operating leases--- Room 02,20/F,Saixi Technology Building, Nanshan, Shenzhen

    1.67  
         

Weighted-average discount rate (%)

       

Operating leases

    8

%

 

14.

CONCENTRATIONS AND CREDIT RISK

 

(a)

Concentrations

In the three months ended September 30, 2019, two customers accounted for 51% and 38% of the Company’s revenues, respectively. In the nine months ended September 30, 2019, four customers accounted for 23%, 22%, 12% and 12% of the Company’s revenues, respectively.

 

In the three months ended September 30, 2018, three customers accounted for 56%, 18% and 17% of the Company’s revenues, respectively. In the nine months ended September 30, 2018, three customers accounted for 35%, 27% and 13% of its revenues, respectively.

 

No other customer accounts for more than 10% of the Company’s revenue in the three and nine months ended September 30, 2019 and 2018.

 

As of September 30, 2019, four customers accounted for 85% of the Company’s accounts receivable. As of December 31, 2018, two customers accounted for 83% of the Company’s accounts receivable.

 

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Table of Contents

 

PORTER HOLDING INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH ENDED SEPTEMBER 30, 2019

(Unaudited)

(In U.S. dollars)

 

(b)

Credit risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. As of September 30, 2019, and December 31, 2018, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.

 

For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.

 

15.

SUBSEQUENT EVENT

 

The Company has analyzed its operations subsequent to September 30, 2019 to the date these condensed consolidation financial statements were issued and has determined that it does not have any material subsequent events to disclose in these condensed consolidated financial statements.

 

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Table of Contents

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

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 in U.S. dollars and in accordance with U.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 on April 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 the SEC. 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 Nevada corporation, and its consolidated subsidiaries and variable interest entities;

“PGL” are to Porter Group Limited, a Republic of Seychelles company and our 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 Shenzhen Qianhai Porter Industrial Co. Ltd., a PRC company and wholly-owned subsidiary of PPBGL;

“Portercity” are to Shenzhen Portercity Investment Management Co. Ltd., a PRC company;

“Porter E-Commerce” are to Shenzhen Porter Warehouse E-Commerce Co. Ltd., a 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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Table of Contents

 

“China” and “PRC” refer to the People’s Republic of China;

“Renminbi” and “RMB” refer to the legal currency of China;

“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United 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.

 

Overview

 

We were incorporated in the State of Nevada on September 5, 2013. Our original business plan was to sell freshly squeezed juices from mobile stands in London, United Kingdom, but this business was not successful and we did not generate any revenue from this business.

 

On April 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 with China 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 in Shenzhen and in return share a portion of the processing fees earned by China Payment as commission. Porter Consulting also partners with Shenzhen Xinghua Tongfu Technology Co., Ltd., a third-party online payment service provider (“Shenzhen Tongfu”), under which Porter Consulting agreed to promote Shenzhen Tongfu’s online payment platform, including the Point of Sale (POS) system, to companies and businesses in China 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 in the 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.

 

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Table of Contents

 

Results of Operations

 

Comparison of Three Months Ended September 30, 2019 and 2018

 

The following table sets forth key components of our results of operations during the three months ended September 30, 2019 and 2018, both in dollars and as a percentage of our revenue.

 

   

Three Months Ended September 30,

 
   

2019

   

2018

 
   

Amount

   

% of

Revenue

   

Amount

   

% of

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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Table of Contents

 

   

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 September 30, 2019 and 2018

 

The following table sets forth key components of our results of operations during the Nine months ended September 30, 2019 and 2018, both in dollars and as a percentage of our revenue.

 

   

Nine Months Ended September 30,

 
   

2019

   

2018

 
   

Amount

   

% of
Revenue

   

Amount

   

% of
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 to Porter Holding International Inc. common stockholders

    (606,719

)

    (29.42

)

    (401,322

)

    (36.11

)

 

Revenue. Our revenue was $2,061,992 for the nine months ended September 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 in the United States, and service income from the provision of these consulting services totaled $1,590,010 and $ 948,063 for the nine months ended September 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 ended September 30, 2019. Through Porter Consulting we also promote 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 $67,902 and $151,822 for the nine months ended September 30, 2019 and 2018, respectively. The Company also generated $31,684 and nil from cosmetic trading business for the nine months ended September 30, 2019 and 2018, respectively.

 

Cost of revenue.  Our cost of revenue was $1,042,658 for the nine months ended September 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 ended September 30, 2019, which is in line with the significant increase of our revenue during this period.

 

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Table of Contents

 

Gross profit and gross margin. Our gross profit was $1,019,334 for the nine months ended September 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 ended September 30, 2019, compared to 86.85% for the nine months ended September 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 ended September 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 $199,045, to $603,359 for the nine months ended September 30, 2019 from $404,314 for the same period in 2018.

 

Limited Operating History; Need for Additional Capital

 

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.

 

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Table of Contents

 

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 September 30, 2019, we had cash and cash equivalents of $266,772. To date, we have financed our operations primarily through borrowings from our stockholders, related and unrelated parties.

 

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 ended September 30, 2019, resulting in an accumulated deficit of $2,233,315 as of September 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 ended September 30, 2019, as compared to $52,813 net cash used in operating activities for the nine months ended September 30, 2018. The net cash used in operating activities for the nine months ended September 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 ended September 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 ended September 30, 2019, as compared to $64,941 net cash used in investing activities for the nine months ended September 30, 2018. The net cash provided by investing activities for the nine months ended September 30, 2019 was mainly attributable to the business combination of Maihuolang E-commerce. The net cash used in investing activities for the nine months ended September 30, 2018 was mainly attributable to purchase of property, plant and equipment.

 

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Table of Contents

 

Financing Activities

 

Net cash provided by financing for the nine months ended September 30, 2019 was $718,381, as compared to $372,961 for the nine months ended September 30, 2018. For the nine months ended September 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 ended September 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 of September 30, 2019:

 

Contractual Obligations

 

Total

   

Less than 1 year

   

1-3 years

   

3-5 years

   

More than 5 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 $1,548 and $64,941 in the nine months ended September 30, 2019 and 2018, respectively.

 

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 with U.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 ended December 31, 2018 included in the Annual Report on Form 10-K filed on April 15, 2019.

 

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Table of Contents

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2019. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and chief financial officer.  Based upon, and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of September 30, 2019 due to the following material weaknesses that our management identified in our internal control over financial reporting as of September 30, 2019:

 

(1)     We did not hold any formal board meetings or shareholders meetings during the last fiscal year;

(2)     We do not have an audit committee;

(3)     We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements;

(4)     We do not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements of revenue process;

(5)     We have not maintained sufficient internal controls over cash related controls, including failure to segregate cash handling and accounting functions and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that we had limited transactions in our bank accounts; and

(6)     We retain copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of our data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors. We did not implement appropriate information technology controls.

 

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected in a timely basis.

 

We plan to take steps to remediate these material weaknesses as soon as practicable by implementing a plan to improve our internal control over financial reporting including, but not limited to, hiring additional staff and/or outside consultants experienced in US GAAP financial reporting as well as in SEC reporting requirements.  Our management team will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements.

 

Our management does not believe that these material weaknesses had a material effect on our financial condition or results of operations or caused our condensed consolidation financial statements as of and for the period ended September 30, 2019 to contain a material misstatement.

 

Changes in Internal Control over Financial Reporting

 

Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

33

Table of Contents

 

PART II

OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

ITEM 1A.

RISK FACTORS.

 

Not applicable.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5.

OTHER INFORMATION.

 

On August 25, 2019, Porter E-Commerce entered into an equity transfer agreement with Kezhan Ma and Shenzhen Qianhai Maihuolang E-commerce Co., Ltd. (“Maihuolang E-commerce”), under which, Porter E-Commerce acquired 60% equity interests in Maihuolang E-commerce for RMB 1($0.1). Maihuolang E-commerce is engaged in the business of online E-commerce in China. An English translation of this agreement is included as Exhibit 10.1 to this report and is hereby incorporated by reference herein.

 

ITEM 6.

EXHIBITS.

 

The following exhibits are filed as part of this report or incorporated by reference:

 

Exhibit No.

 

Description

 

 

 

10.1   English of Equity Transfer Agreement by and among Shenzhen Porter Warehouse E-Commerce Co. Ltd., Kezhan Ma and Shenzhen Qianhai Maihuolang E-commerce Co., Ltd., dated as of August 25, 2019. 
     

31.1

 

Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

34

Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 19, 2019

 

PORTER HOLDING INTERNATIONAL, INC.

 

 

By:

/s/ Zonghua Chen

 

 

Zonghua Chen

 

Chief Executive Officer and Chief Financial Officer

 

 

 

35
 

 


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
12/31/28
9/30/20
12/31/1910-K
12/17/19
12/15/19
Filed on:11/19/19
For Period end:9/30/19NT 10-Q
8/25/19
7/18/19
6/30/1910-Q
4/15/1910-K
3/31/1910-Q
2/19/19
1/1/19
12/31/1810-K,  NT 10-K
12/15/18
9/30/1810-Q
6/30/1810-Q
6/28/18
3/31/1810-Q
1/1/18
12/31/1710-K
6/9/17
4/7/178-K,  8-K/A
1/1/17
12/19/168-K
12/16/168-K
12/15/16
10/13/16
9/5/13
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