Greenpro Capital Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are to FY2020. Greenpro (Nasdaq: GRNQ) provides cross-border business advisory, corporate and accounting services, and invests in early-stage companies and commercial real estate, principally in Hong Kong, Malaysia and China. Amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $2.950 million | $2.255 million |
| Gross profit / margin | $2.477 million / 84.0% | $1.655 million / 73.4% |
| Operating loss | $2.755 million | $2.906 million |
| Net loss | $14.363 million | $3.753 million |
| Net cash used in operating activities | $2.023 million | $1.568 million |
| Cash and cash equivalents | $5.339 million | $1.087 million |
| Total assets / total liabilities | $22.711 million / $3.672 million | $14.796 million / $6.400 million |
| Stockholders’ equity | $19.038 million | $8.396 million |
Service revenue rose to $2.821 million from $1.877 million; related-party service revenue was $861,449 in 2021. Rental revenue was $128,830, while no property was sold in 2021 (versus $253,729 of property-sale revenue in 2020). Operating expenses were $5.232 million, including $5.232 million of general and administrative expense. The filing reports no convertible notes payable at year-end and no real-estate-secured loans; operating lease liabilities totaled $108,396. Current assets exceeded current liabilities by approximately $3.157 million.
Material changes and unusual items
- Revenue increased 30.8%, primarily from business services; gross margin improved. The operating loss narrowed modestly, but net loss widened substantially.
- Other expenses totaled $11.604 million. Major items included $12.901 million of convertible-note interest expense, a $3.521 million loss on extinguishment of convertible notes and a $5.350 million impairment of the Innovest Energy Fund investment. Offsetting items included a $5.094 million fair-value gain on options associated with convertible notes and a $5.000 million reversal of a write-off of notes receivable.
- The Company issued 13.225 million shares to settle convertible-note principal and interest. The notes were fully repaid by year-end, but reported interest expense included substantial noncash accretion and conversion-related charges.
- Cash increased by $4.252 million. Financing activities provided $6.308 million, including $5.210 million of net convertible-note proceeds and $5.000 million collected on notes receivable; operating activities used $2.023 million.
- Greenpro reacquired Greenpro Capital Village Sdn. Bhd. in July 2021 and sold Greenpro Credit Limited in August for approximately $3,847 after continuing losses. It also expanded its portfolio of private-company investments.
Outlook, risks and contingencies
- Management expects business-services revenue to improve as the Company expands into new territories and considers rental income likely to remain stable. Property-sale revenue and related costs may fluctuate. Management also expects general and administrative expenses to increase as it integrates acquisitions and expands.
- The Company reported a $14.363 million net loss and $2.023 million operating cash outflow for 2021. Management and the auditor state that these conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year. Management’s plans depend on improved profitability and financial support from major shareholders or external financing; funding availability and terms are not assured. Management’s estimate that cash is sufficient for anticipated working capital over the next 12 months does not remove the disclosed going-concern uncertainty.
- On August 24, 2021, Millennium Fine Art Inc. sued Greenpro over an alleged NFT contract, seeking $66 million in damages, specific performance and fees. Greenpro denies the material allegations and obtained a stay pending arbitration; MFAI had not filed arbitration as of the report.
- On January 3, 2022, Nasdaq notified the Company that its share price had been below the $1 minimum bid requirement for 30 consecutive business days. It had until July 5, 2022 to regain compliance; the Company had not decided on a response as of the filing. The filing also discusses potential delisting and audit-inspection regulatory risks relating to operations in Hong Kong and China.
- Other disclosed risks include COVID-19 and regional economic and regulatory uncertainty, foreign-exchange exposure, customer and receivable concentration, cybersecurity and data-protection rules, and competition. The Company does not maintain property, business-interruption or casualty insurance. Management reported disclosure controls and internal control over financial reporting effective at year-end; the auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Reconcile the going-concern warning with cash, working capital, projected cash needs and any subsequent financing or shareholder support.
- Review the convertible-note terms, the $12.901 million note-related interest expense, the $3.521 million extinguishment loss, and the substantial share issuance used for repayment.
- Assess the valuation and recoverability of the $9.622 million investment portfolio, including the impaired Innovest investment, and the assumptions behind the $5.350 million impairment.
- Examine related-party activity: $861,449 of service revenue, $1.171 million due from related parties, and $757,283 due to related parties at year-end; the receivables due from related parties are unsecured, interest-free and have no fixed repayment terms.
- Check the status and potential exposure of the MFAI dispute and the outcome of Nasdaq’s minimum-bid compliance process after the July 5, 2022 deadline.
- Confirm customer concentration: three customers accounted for 26% of 2021 revenue and 56% of year-end accounts receivable. Also evaluate the carrying values and liquidity of real estate and private-company investments.