Greenpro Capital Corp. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed April 13, 2018. The filing is an annual report, not a standalone fourth-quarter report. Greenpro provides cross-border advisory and corporate services, and also operates insurance-related, venture-capital and commercial real-estate businesses, primarily in Hong Kong, Malaysia and China. 2016 comparisons below are restated.
Financial performance
| Metric (US$) | FY2017 | FY2016, restated |
|---|---|---|
| Revenue | $3.916 million | $3.092 million |
| Gross profit | $2.429 million | $1.956 million |
| Gross margin | 62.0% | 63.3% |
| Operating income (loss) | $(2.821) million | $32,135 |
| Net income (loss) | $(3.117) million | $(39,666) |
| Net loss attributable to common stockholders | $(2.285) million | $(50,815) |
| Operating cash flow | $(442,711) | $(500,228) |
| Cash, cash equivalents and restricted cash | $1.162 million | $1.021 million |
Service revenue was $3.314 million, property-sale revenue $423,871, and rental revenue $178,682. Operating expenses included $3.351 million of general and administrative costs and $1.899 million of goodwill and intangible-asset impairments. The resulting operating margin was approximately negative 72%; net margin was approximately negative 80%.
Liquidity, debt and cash flow
- Working-capital deficit widened to $2.070 million from $401,241. Current assets were $1.854 million versus current liabilities of $3.924 million; current liabilities included $1.814 million due to related parties.
- Total loans secured by real estate were $2.771 million, including $928,147 classified as current and $1.843 million long term. The current portion includes a Hong Kong non-bank loan of approximately $774,194, bearing 8.4% interest and due September 12, 2018.
- Cash used in investing activities was $2.814 million, largely reflecting property and equipment purchases; cash provided by financing activities was $3.367 million, including $984,864 from share issuances and $2.368 million in secured-loan proceeds.
- Related-party advances included $1.442 million associated with the acquisition of real estate held for sale; the filing says these advances are unsecured, non-interest-bearing and payable on demand. Other related-party balances are also described as due on demand.
Changes, outlook and risks
- Revenue increased 26.7% year over year, which management attributed to broader services, client growth and acquired businesses. Service revenue rose about 10.8%; property sales contributed revenue for the first time in the comparison presented.
- The company moved from near break-even operations to a substantial loss, driven by higher G&A and impairment charges. Goodwill impairment was $1.734 million and intangible-asset impairment $164,337, principally associated with acquired businesses. Management cited weaker expected cash flows and Chinese capital controls affecting insurance-market revenue.
- The company restated 2016 statements for errors involving service-contract revenue timing, foreign-exchange translation of fixed assets, Yabez acquisition accounting and uncollectible receivables. The filing states that previously issued 2016 financial statements should no longer be relied upon; the restated comparison reported 2016 net loss of $39,666.
- The auditor expressed an unmodified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. The company reported losses and operating cash outflows, and management said continued operations depend on improving profitability and shareholder support or external financing. No assurance was given that financing would be available on acceptable terms.
- Management expects service revenue to grow as the business expands, anticipates G&A costs will rise with acquisitions and expansion, and said rental income should remain stable. Property-sale revenue and related costs may fluctuate. No quantified earnings or revenue guidance was provided.
- Management found disclosure controls and internal control over financial reporting ineffective, citing material weaknesses in period-end reporting, internal audit resources, revenue and receivables controls, acquisition accounting, and foreign-currency translation. Remediation plans included additional accounting resources, segregation of duties, written procedures and control testing in 2018.
- Other identified exposures include foreign-exchange movements, PRC regulatory and foreign-exchange approval requirements, competition, and limited insurance coverage: the company said it did not maintain property, business-interruption or casualty insurance. No material pending legal proceedings were reported.
Investor items to verify
- Whether the company secured adequate financing and improved operating cash flow after year-end, particularly given the going-concern warning, working-capital deficit and demand-related-party balances.
- Repayment or refinancing of the $774,194 non-bank loan due September 2018 and the accuracy of the reported current debt maturities.
- Progress and results of remediation for the disclosed material weaknesses, and whether the restatement-related accounting issues were fully addressed.
- Support for the goodwill and intangible-asset impairment assumptions, and the effect of Chinese capital controls on the acquired insurance business.
- Status of the proposed best-efforts share offering, which had not commenced as of the filing, and the conditions attached to the planned Nasdaq listing.