Greenpro Capital Corp. — 2019 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2019, filed March 30, 2020. Greenpro provides cross-border corporate advisory, accounting and related services, primarily in Hong Kong, Malaysia and China, and also operates a commercial real estate business. Its common stock trades on Nasdaq under GRNQ.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $4.485 million | $4.213 million |
| Operating loss | $1.591 million | $4.219 million |
| Net loss | $1.349 million | $8.325 million |
| Net loss per share, basic and diluted | $0.02 | $0.15 |
| Cash used in operating activities | $1.433 million* | $1.001 million |
- Revenue mix: Services were $4.202 million; property sales $189,522; and rental revenue $93,699. Hong Kong contributed $3.363 million, Malaysia $514,165 and China $607,590.
- Margins: Costs directly associated with services, property sales and rentals totaled $1.377 million, implying approximately $3.108 million of gross profit and a 69% gross margin. Operating loss was approximately 35% of revenue; net loss approximately 30%.
- Liquidity: Cash and cash equivalents, including restricted cash, were $1.257 million, down from $2.172 million. Current assets were $1.798 million versus current liabilities of $3.876 million; working capital deficit was $2.078 million, compared with $541,221 a year earlier.
- Debt and obligations: Loans secured by real estate totaled $1.993 million, of which $531,488 was current. This includes a $385,158 non-bank loan bearing 12% interest, secured by property held for sale and due May 11, 2020. Lease liabilities totaled $511,692; future minimum lease payments were $541,588.
- Equity: Total stockholders’ equity was $3.354 million. No preferred shares were outstanding. The company had 54,723,889 common shares outstanding at year-end.
Material changes versus 2018
- Revenue rose 6%, mainly as service revenue increased $1.521 million, while property-sale revenue fell from $1.368 million to $189,522 and rental revenue declined $70,693.
- Service revenue included $1.977 million from related parties, up from $420,730; this was about 44% of 2019 total revenue. Three customers represented 30% of revenue and 58% of year-end receivables.
- Operating loss narrowed by $2.628 million and net loss by $6.976 million. The comparison benefited from lower impairment charges and the absence of the $4.640 million 2018 expense associated with a financing transaction. 2018 also included $2.064 million of impairment charges across goodwill, intangible assets, notes receivable and other investments.
- Cash used in operating activities increased; the company cited lower deferred revenue after listing-advisory services were performed. Cash declined by $915,309 during 2019.
- The company acquired Sparkle Insurance Brokers for $170,322, including cash and 8,602 shares. During 2019 it also disposed of several loss-making entities; after year-end, it sold its 60% interest in Yabez for $1.
Outlook, risks and unusual items
- Going concern: Management and the independent auditor stated that the operating loss, operating cash outflow and working capital deficit raise substantial doubt about the company’s ability to continue as a going concern within one year. Management expects shareholder support or external financing, but gives no assurance funding will be available or acceptable. Financial statements contain no adjustments for a possible failure to continue as a going concern.
- Outlook: No quantified earnings or revenue guidance was provided. Management expects service revenue to grow, while also expecting G&A costs to rise as it integrates acquisitions and expands. Property-sale revenues and related costs are expected to fluctuate. Plans include corporate finance expansion, technology initiatives, wealth products and the ADAQ platform; these are plans, not quantified forecasts.
- COVID-19: The filing says the pandemic’s impact on 2020 results, liquidity and financial condition could not be estimated. The company also identified exposure to economic and political conditions in Hong Kong, China and Malaysia, foreign-exchange movements and regulatory requirements.
- Listing risk: Nasdaq notified the company on November 29, 2019 that it did not meet the $1 minimum bid-price rule, with until May 27, 2020 to regain compliance. The filing reports a March 27, 2020 closing price of $0.44.
- Other risks: The company relies partly on contractual arrangements to control a Hong Kong VIE; reports substantial related-party activity; and says its assets and operations outside the U.S. may make enforcement of U.S. judgments difficult. It does not maintain property, business-interruption or casualty insurance.
- Controls and contingencies: Management reported disclosure controls and internal controls over financial reporting effective at year-end and said material weaknesses identified in 2018 were remediated in 2019. The auditor did not audit internal-control effectiveness. The company reported no material pending legal proceedings and no significant off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile operating cash outflow: the cash-flow statement reports $1.433 million, while parts of MD&A cite $1.457 million.
- Assess near-term liquidity and refinancing capacity, including the $385,158 loan due May 2020, other current liabilities and the going-concern warning.
- Review the sustainability and collectability of related-party service revenue, customer concentration, receivables and amounts due to related parties.
- Check subsequent Nasdaq listing compliance and any actions taken after the May 27, 2020 deadline.
- Monitor the COVID-19 impact, execution of management’s expansion plans, and the effect of the Yabez disposal and other exits on future operations.
*The audited cash-flow statement reports $1.433 million used in operations; the filing text does not consistently state this amount in MD&A.