Greenpro Capital Corp. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited, consolidated. Greenpro provides corporate advisory and business services, venture-capital activities, and real-estate rental and trading. Its principal markets include Hong Kong, Malaysia, and China.
Key financial results
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $462,048 | $740,572; down 37.6% |
| Gross profit | $279,405 | $533,453 |
| Gross margin | 60.5% | 72.0% |
| Operating loss | $690,496 | $260,523 |
| Net loss | $561,889 | $13,696 |
| Net loss attributable to Greenpro common shareholders | $551,154 | $9,099 |
| Basic and diluted loss per share | $0.01 | $0.00 |
| Net cash used in operating activities | $623,578 | Net cash provided: $46,721 |
| Cash, cash equivalents and restricted cash at period-end | $1,452,315 | $2,172,048 at Dec. 31, 2018 |
Service revenue was $433,059, down from $699,128; rental revenue was $28,989, down from $41,444. There were no real-estate property sales in either period. General and administrative expense rose to $969,901 from $793,976 and was the main driver of the higher operating loss. The Q1 2019 result included a $140,649 noncash gain from the decrease in fair value of derivative liabilities; Q1 2018 included a $300,000 gain on sale of an equity-method investment.
Financial position and liquidity
At March 31, 2019, total assets were $10.18 million and total liabilities were $5.91 million. Current assets of $2.61 million were below current liabilities of $4.02 million, implying a working-capital deficit of about $1.41 million and a current ratio of about 0.65. Cash fell by $719,733 during the quarter. Operating cash use reflected the net loss and working-capital uses, partly offset by a $340,000 increase in deferred revenue.
Real-estate-secured loans totaled approximately $1.76 million, including $150,975 current and $1.61 million long-term. The company also reported $862,548 due to related parties, $2.16 million of deferred revenue, and $528,690 of operating lease liabilities. Stockholders’ equity was $4.26 million. The filing identifies substantial doubt about the company’s ability to continue as a going concern within one year; management cites expected shareholder support or external financing but gives no assurance financing will be available on acceptable terms.
Changes, outlook and risks
- Management attributed the revenue decline mainly to lower business consulting and advisory activity. It expects service revenue to improve as the business expands and rental income to remain stable; it also expects G&A to rise with acquisitions, office expansion, and business growth. These are expectations, not quantified guidance.
- On January 2, 2019, Greenpro acquired Sparkle Insurance Brokers Limited for $170,322, comprising $129,032 cash and 8,602 shares valued at $41,290. The preliminary purchase-price allocation includes $117,809 of goodwill and remains subject to valuation and adjustment.
- Adoption of lease accounting guidance resulted in recognition of $582,647 each of operating lease right-of-use assets and lease liabilities. The company reported no significant effect on liquidity or loan covenant compliance.
- Management concluded disclosure controls and procedures were ineffective as of March 31, 2019, citing material weaknesses in the control environment, risk assessment, and controls over non-routine or complex transactions. The filing states this assessment was made “in connection with this restatement”; the provided filing text does not clearly explain the restatement’s scope.
- Risks include continued operating losses and cash use, dependence on financing or shareholder support, potential dilution or restrictive debt terms, exposure to Asian political, regulatory and currency conditions, and estimates affecting receivables, real estate, goodwill and derivative valuations. Management reported no material pending legal proceedings and no significant off-balance-sheet arrangements.
Important facts for investors to verify
- What financing or shareholder support is actually available, and how soon could liquidity become constrained given negative working capital and operating cash outflow?
- What caused the sharp decline in service revenue, and is management’s expected recovery supported by signed contracts or completed performance obligations? Deferred revenue was $2.16 million, while related deferred costs were $512,188.
- What is the scope and status of the restatement referenced in the controls discussion, and what remediation steps and timing apply to the disclosed material weaknesses?
- How will the Sparkle acquisition’s provisional valuation, including goodwill and identifiable intangibles, change when finalized?
- Confirm the warrant terms: the filing’s notes state an exercise price of $7.20 in one place and $7.50 in the warrant activity table.