Golden Developing Solutions, Inc.: Up in Smoke

This blog is written and published by S&P Global Market Intelligence, a division independent from S&P Global Ratings. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings

Business Description:

Golden Developing Solutions (OTCPK: DVLP) was an American company founded in 1998, based in Fort Lauderdale, Florida. The company was in the health and wellness sector, providing rapid delivery of medical products and services in the United States. Golden Developing Solutions specialized in producing cannabidiol (CBD), hemp oil, vitamins, and supplements. The company started to face financial difficulties, thus, delaying their SEC (Securities Exchange Commission) filings, demanding a shareholder’s vote as per 14A, and finally ending in the company filing for Chapter 11 bankruptcy.

Bankruptcy Summary:

Golden Developing Solutions ran into difficulty due to the unstable macroeconomic environment, typified by rising inflation and interest rates negatively impacting consumer spending ultimately ending in underwhelming sales revenues. As seen in Figure 1, for the final reporting date of 31^st March 2023 the poor performance culminated in it exhibiting a fundamental probability of default (PD) of 64.83% which was higher than the corresponding industry and country/region PD median benchmark of 29.12%. Interestingly, the PD of Golden Developing Solutions had been higher than the benchmark for a considerable amount of time, due to the regulatory headwinds they experienced, namely the rollback of the 2016 legislation liberalizing the use of medicinal marijuana.^[1]

In addition, between Q3 2020 and Q3 2023, the PD had been consistently above 50% highlighting the instability and riskiness of the company. On the 22^nd of June 2023 Golden Developing Solutions, Inc., along with its affiliates filed for a voluntary petition under Chapter 11 in the United States Bankruptcy Court for the Southern District of Florida. Further analysis of Figure 1 shows that since July 2019, the company presented elevated signs of risk. S&P Global Market Intelligence’s Credit Analytics showed that the PD values increased from 30^th September 2018 to 31^st March 2023, indicating that the company was extremely risky and more likely to default.

Figure 1: PD Performance vs. Country Benchmark

Source: S&P Global Market Intelligence as of August 1, 2023. For illustrative purposes only.

Based on Figure 2, Global Developing Solutions’ most negative risk factor was EBIT/Revenues, or EBIT margin, which represents how efficient the company is at using its own capital to generate profits. Global Developing Solutions was at –462.18%, in comparison, to the country/region and industry median of -5.10%, thus, worsening the PD by 50.94%.

The second most impactful risk factor for Golden Developing Solutions was the cash/current liabilities ratio which was at 0.02, in contrast to the country/region and industry median of 0.11 increasing the company’s risk by 19.95%. The cash/current liabilities ratio, which can also be referred to as the quick ratio, which along with the current ratio (current assets/current liabilities) provides a snapshot of the company’s position in terms of liquidity. For Global Developing Solutions, this worsening combination of factors ultimately led to the company filing for bankruptcy. As such the company struggled to keep itself afloat due to the low levels of sales. Therefore, as the costs were higher than the sales, Golden Developing Solutions significantly struggled, and this was reflected in their balance sheet. Similarly, the quick ratio showed that Global Developing Solutions was too liquid, and did not have a strong cash flow. As a result, all the factors contributed to the company defaulting and entering into administration.

Exhibit 2: Fundamental Probability of Default

Source: S&P Global Market Intelligence as of August 1, 2023. For illustrative purposes only.

Exhibit 3: Key Developments

Source: S&P Global Market Intelligence as of August 1, 2023. For illustrative purposes only.

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