Greenpro Capital Corp. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017. Unaudited financial statements are presented in U.S. dollars. Greenpro provides business and accounting services to Asian small and midsize businesses, alongside venture-capital and real-estate activities.
Financial performance and liquidity
| Metric | Q3 2017 | Nine months 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $1.010 million | $2.839 million | $0.536 million Q3; $1.741 million nine months |
| Gross profit and margin | $0.741 million; 73% | $2.272 million; 80% | $0.285 million; 53% Q3. $0.961 million; 55% nine months |
| Operating income (loss) | $(37,645) | $99,228 | $(93,833) Q3; $(275,619) nine months |
| Net income (loss) attributable to Greenpro | $(86,707) | $39,197 | $(127,312) Q3; $(369,965) nine months |
| Operating cash flow | Not provided for the quarter | $(841,487) | $(614,268) nine months |
- Nine-month service revenue was $2.700 million, up from $1.671 million; rental revenue was $139,281, up from $69,963. The filing attributes growth to a broader service offering, a larger client base, and acquired businesses.
- Nine-month general and administrative expense increased to $2.173 million from $1.237 million. Management cited salary and wages, rent, professional fees, and directors’ remuneration, and expects G&A to rise as the company expands and integrates acquisitions.
- Cash and cash equivalents were $2.459 million at September 30, 2017, versus $1.021 million at December 31, 2016. Working capital was $4.359 million. Current assets were $7.582 million and current liabilities $3.224 million.
- Cash used in operations was $841,487, primarily reflecting increases in receivables and prepayments and decreases in accrued liabilities. Financing provided $2.322 million, including $984,864 of share-issuance proceeds and $1.032 million from a short-term loan. Investing used $130,584.
- Total liabilities were $3.816 million. Bank loans totaled $591,225, of which $14,678 was current; accounts payable and accrued liabilities included a $1.032 million short-term loan. Amounts due to related parties were $1.626 million and amounts due to directors $220,569. The filing describes related-party/director advances as unsecured, non-interest-bearing and payable on demand; it also describes an $180,809 advance as convertible at the holder’s discretion.
Changes, outlook, and risks
- Compared with the prior periods, revenue and gross margin improved substantially, and nine-month operating results moved from a loss to income. Greenpro nevertheless reported a Q3 net loss and negative operating cash flow for the first nine months.
- Assets rose to $12.148 million from $8.430 million, including goodwill of $2.687 million versus $1.473 million. The 2017 period included acquisitions, notably a 60% interest in Billion Sino Holdings Limited, accounted for with $1.213 million of goodwill. The company also acquired Greenpro Family Office Limited and established a Shenzhen subsidiary.
- Management said it expected sufficient cash flows to fund ordinary operations for at least 12 months and cash on hand to cover basic operating needs for approximately 12 months, while noting anticipated sales are not assured. It expected rental income to remain stable and service revenue to grow; no quantified earnings or revenue guidance was provided.
- The company had submitted an S-1 on August 2, 2017, to pursue a Nasdaq Capital Market listing. Future office-premises purchase in Shenzhen was also described as intended, without a stated purchase amount.
- Key exposures include foreign-exchange fluctuations involving the U.S. dollar, Malaysian ringgit and renminbi; operations and regulatory conditions in Malaysia and China; collection risk (one service customer represented 10% of nine-month revenue and had $292,700 outstanding); and demand-payable related-party balances. Office leases required $239,562 of minimum payments over the following 12 months.
- Management identified disclosure-control and reporting-process weaknesses, including ineffective period-end financial reporting controls and no adequately developed internal-audit function. It said the weaknesses did not affect reported financial results. The company reported no material pending legal proceedings, significant off-balance-sheet arrangements, defaults on senior securities, or subsequent events requiring disclosure.
Investor verification points
- Reconcile reported earnings: the statements show nine-month net income attributable to Greenpro of $39,197, while MD&A refers to $16,472 as net income; $16,472 is reported in the statements as comprehensive income. Confirm the correct interpretation and attribution.
- Review the terms, classification, repayment demands, and potential dilution from the $1.032 million short-term loan and related-party advances, including the stated convertible $180,809 advance.
- Assess operating cash burn, receivable collection and customer concentration, and whether cash and financing sources support the stated 12-month liquidity outlook.
- Verify acquisition accounting and the valuation and impairment risk of goodwill, especially goodwill recognized in the 2017 BSHL acquisition.
- Track remediation of the disclosed material weaknesses and progress, costs, and conditions associated with the proposed Nasdaq listing and Shenzhen premises purchase.