Planet Green (PLAG) - 2023 Q4 - Annual Report

Part I Business Planet Green Holdings operates diverse consumer, chemical, and digital businesses through PRC subsidiaries and a VIE, facing significant regulatory risks - The company is a Nevada holding company, operating through subsidiaries and contractual arrangements with its VIE, Jilin Chuanyuan[10] - The business is diversified across consumer products (beef, tea), chemical products (formaldehyde, ethanol fuel), and digital services (advertising, mobile games)[21] - The company faces significant legal and operational risks due to its reliance on the VIE structure and operations in China, potentially rendering its stock worthless[11][20] Overview and Corporate Structure The company operates as a Nevada holding company with primary PRC operations via subsidiaries and a VIE, facing regulatory and cash transfer risks - Investors purchase equity in a Nevada holding company, not the PRC-based VIE, whose enforceability is uncertain under PRC law[10][11] - Cash transfers from PRC subsidiaries are subject to PRC laws, with no dividends ever paid to the parent company or U.S. investors[13] - The company's auditor, YCM CPA Inc., is PCAOB-inspected and not currently subject to HFCA Act trading prohibitions[20] Business Segments and Competition The company operates in three segments: consumer products (beef, tea), chemicals (formaldehyde, ethanol fuel), and online advertising/mobile games - Consumer Products: Shandong Yunchu imports and distributes beef from major global regions, while Xianning Bozhuang produces and sells various Chinese teas[22][23] - Chemical Business: Jilin Chuangyuan is a leading producer of formaldehyde and urea formaldehyde glue in China's northeast provinces; Jingshan Sanhe researches and distributes ethanol fuel products[27][28] - Advertising & Mobile Games: Fast Approach operates a demand-side advertising platform connecting to the Chinese market; Allinyson develops mobile games, with 'Block Puzzle' being a key product in the Philippines[33][34] Manufacturing, Raw Materials, and Customers The company operates manufacturing facilities in China, sourcing raw materials domestically and internationally, serving key food and chemical customers Manufacturing Facilities Overview | Facility | Location | Size (sq. meters) | Products | Annual Capacity | | :--- | :--- | :--- | :--- | :--- | | Xianning Bozhuang | Hubei Province, PRC | 33,333 | Cyan brick tea, black tea, green tea | 5,020 tons | | Jingshan Sanhe | Hubei Province, PRC | 11,018 | Ethanol fuel, fuel additives | 300,000 tons (fuel), 3,000 tons (additive) | | Jilin Chuangyuan | Jilin Province, PRC | 59,690 | Formaldehyde, urea formaldehyde glue, etc. | 120,000 tons (formaldehyde), 100,000 tons (glue) | - Beef products are primarily sourced from Uruguay, Brazil, Chile, Argentina, Australia, and New Zealand[37][76] - Jingshan Sanhe holds 12 practical patent certificates from the PRC State Intellectual Property Office related to its fuel and chemical production processes[80] Employees and R&D As of December 31, 2023, the company employed 143 individuals across various functions, with limited R&D staff and immaterial R&D expenditures Employees by Department (as of Dec 31, 2023) | Department | Number of Employees | | :--- | :--- | | Production | 49 | | Sales | 26 | | Management | 23 | | Administration | 18 | | Finance | 13 | | Quality Control | 6 | | Research and Development | 5 | | Purchasing | 3 | | Total | 143 | - R&D spending was not a material portion of total expenses for the years ended December 31, 2023 and 2022[88] Risk Factors As a smaller reporting company, the company is not required to include detailed risk factors in this report, directing investors to its S-3 filing - As a smaller reporting company, the registrant is not required to include risk factors in this Annual Report[93] Cybersecurity The company lacks a formal cybersecurity risk management program, relying on third parties, and reports no material incidents as of the filing date - The company has not adopted any cybersecurity risk management program and depends on third parties for digital technology security[94] - Management states they lack sufficient resources to adequately protect against, investigate, or remediate cyber incidents[94] - As of the report date, no cybersecurity incidents have materially affected the company[95] Properties The company operates four primary facilities in China, totaling approximately 104,219 square meters, under a mix of land use rights and leases Primary Facilities | Facility | Location | Size (Square Meters) | Ownership Status | | :--- | :--- | :--- | :--- | | Xianning Bozhuang | Xianning City, Hubei | 33,333 | Land Use Rights Obtained | | Jingshan Sanhe | Jingshan City, Hubei | 11,018 | Leased | | Jilin Chuangyuan | Meihekou City, Jilin | 59,690 | Land Use Rights Obtained | | Shandong Yunchu | Qingdao City, Shandong | 178.16 | Leased | Legal Proceedings The company faces a legal proceeding from a former employee seeking $609,145.05 for breach of employment contract - On July 27, 2023, former employee Daqi Cui filed a complaint against the Company for breach of employment contract, seeking damages of $609,145.05[99] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American, with no cash dividends paid since 2007, as earnings are retained for business expansion - The company's common stock is traded on the NYSE American under the symbol 'PLAG'[101] - The company does not anticipate paying any cash dividends in the foreseeable future, intending to retain earnings for business development[102] Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2023, net revenues fell 39% to $27.1 million, leading to a $20.8 million net loss and a 'Going Concern' warning due to liquidity issues Results of Operations Net revenues decreased 39% to $27.12 million in 2023, driven by lower food sales and subsidiary disposals, resulting in a 67% gross profit decline and widened operating loss Consolidated Results of Operations (In Thousands of USD) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net revenues | 27,120 | 44,757 | (17,637) | (39)% | | Gross profit | 1,432 | 4,352 | (2,920) | (67)% | | Operating loss | (8,771) | (5,273) | (3,498) | 66% | | Net loss | (20,843) | (25,935) | 5,092 | (20)% | - Net revenue decline was primarily caused by a drop in food product sales from $23.34 million in 2022 to $14.32 million in 2023 due to the adverse effects of COVID-19, and the disposal of certain subsidiaries[117] - General and administrative expenses increased by $1.98 million, mainly due to a $1.97 million inventory loss and a $2.76 million expected credit loss on trade receivables[121] Liquidity, Capital Resources, and Going Concern The company's precarious liquidity, with a $20.8 million net loss and $6.7 million working capital deficit, raises substantial doubt about its ability to continue as a going concern - The company has incurred a net loss of $20.8 million for FY2023 and has a working capital deficit of $6.7 million, raising substantial doubt about its ability to continue as a Going Concern[125][227] - As of December 31, 2023, the company had cash and cash equivalents of $436,383, compared to $93,487 at the end of 2022[124] - Management's plan for continued existence depends on executing its business plan to generate profit and potentially raising funds through private placements or from related parties[126][228] Cash Flows In FY2023, net cash used in operating activities was $5.3 million, while investing activities provided $2.7 million, and financing activities provided $2.9 million Summary of Cash Flows (In thousands of U.S. dollars) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | (5,282) | (9,012) | | Net cash provided by (used in) investing activities | 2,670 | (3,854) | | Net cash provided by financing activities | 2,888 | 10,841 | Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were ineffective due to a material weakness in U.S. GAAP accounting personnel - Management concluded that both disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2023[135][136] - A material weakness was identified due to not having sufficient and skilled accounting personnel with appropriate experience in U.S. GAAP[137] - Remediation plans include providing U.S. GAAP training to the current team and recruiting more qualified accounting staff[138] Part III Directors, Executive Officers and Corporate Governance The company is led by Chairman and CEO Bin Zhou and CFO Lili Hu, with a five-member Board including three independent directors and established committees Directors and Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Bin Zhou | 34 | Chairman and Chief Executive Officer | | Lili Hu | 46 | Chief Financial Officer | | Luojie Pu | 36 | Director | | King Fai Leung | 51 | Director | | Yang Cao | 31 | Director | - The Board has determined that Luojie Pu, King Fai Leung, and Yang Cao are independent directors[172] - The Audit Committee is chaired by King Fai Leung, who is the designated audit committee financial expert[151] Executive Compensation Executive compensation for 2023 shows Chairman and CEO Bin Zhou received $96,000 and CFO Lili Hu received $84,000 in salary, with no bonuses or equity awards Executive Compensation Summary (2023) | Name and Principal Position | Year | Salary ($) | Total ($) | | :--- | :--- | :--- | :--- | | Bin Zhou, Chairman, CEO | 2023 | 96,000 | 96,000 | | Lili Hu, CFO | 2023 | 84,000 | 84,000 | | Luojie Pu, Director | 2023 | 24,000 | 24,000 | | King Fai Leung, Director | 2023 | 21,600 | 21,600 | | Yang Cao, Director | 2023 | 24,000 | 24,000 | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters As of December 31, 2023, Chairman and CEO Bin Zhou is the largest beneficial owner with 20.72% of the 72,081,930 outstanding common shares - Chairman and CEO Bin Zhou beneficially owns 14,942,000 shares, representing 20.72% of the outstanding common stock as of December 31, 2023[169][170] - There are no arrangements currently in place that would result in a change in control of the company[171] Certain Relationships and Related Transactions, and Director Independence The company reported no disclosable related party transactions, and its Board includes three independent directors as per NYSE American standards - The company reports no disclosable related party transactions[171] - The Board has determined that Luojie Pu, King Fai Leung, and Yang Cao are 'independent directors' as defined by NYSE American listing standards[172] Principal Accounting Fees and Services Total accounting fees for audit services were $400,000 in 2023, a decrease from 2022, with YCM CPA Inc. as the independent auditor Accounting Fees | Fee Type | 12/31/2023 | 12/31/2022 | | :--- | :--- | :--- | | Accounting fees | $400,000 | $765,000 | | Total | $400,000 | $765,000 | Part IV Exhibits, Financial Statement Schedules This section lists exhibits including corporate documents, securities descriptions, agreements, and Sarbanes-Oxley certifications from the CEO and CFO - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[176] Financial Statements Report of Independent Registered Public Accounting Firm The auditor's report includes a 'Going Concern' warning due to accumulated deficit, working capital deficit, and net losses, also identifying goodwill impairment and inventory valuation as Critical Audit Matters - The auditor's report contains a 'Going Concern' paragraph, raising substantial doubt about the Company's ability to continue its operations[184] - Two Critical Audit Matters were identified: Impairment of goodwill and Inventory Valuation[189][192] Consolidated Financial Statements The consolidated financial statements for 2023 show total assets decreased to $42.6 million, total liabilities increased to $23.2 million, and a net loss of $20.8 million Consolidated Balance Sheet Highlights (in thousands USD) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | 12,510 | 13,835 | | Total Assets | 42,630 | 60,720 | | Total Current Liabilities | 19,186 | 19,573 | | Total Liabilities | 23,190 | 20,134 | | Total Stockholders' Equity | 19,440 | 40,586 | Consolidated Statement of Operations Highlights (in thousands USD) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Net Revenues | 27,120 | 44,757 | | Gross Profit | 1,433 | 4,352 | | Operating Loss | (8,772) | (5,273) | | Loss on disposal of equity investments | (10,849) | - | | Impairment of goodwill | - | (10,386) | | Net Loss | (20,844) | (25,935) | Notes to Consolidated Financial Statements The notes detail the VIE structure, related party transactions, customer and supplier concentrations, and the basis for the 'Going Concern' uncertainty VIE (Jilin Chuangyuan) Financial Summary (as of Dec 31, 2023) | Account | Amount (USD) | | :--- | :--- | | Total Assets | $12,232,088 | | Total Liabilities | $12,039,060 | | Operating Revenues (FY 2023) | $7,183,569 | | Net Loss (FY 2023) | ($2,453,521) | - As of Dec 31, 2023, amounts due to related parties totaled $7.3 million, including $1.4 million to CEO Bin Zhou; amounts due from related parties totaled $315,724[296][298][299] - In 2023, two customers accounted for 15% and 13% of total revenues, respectively; two suppliers accounted for 19% and 10% of total purchases[320][323]