Greenpro Capital Corp. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. The company provides business consulting and corporate advisory services, alongside real estate rental and sale activities, primarily across Hong Kong, Malaysia, and China. Comparative 2017 figures are restated.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $808,103 | $544,143 | $1,548,675 | $1,399,466 |
| Operating loss | $351,440 | $346,484 | $611,964 | $482,423 |
| Net loss | $359,972 | $355,413 | $373,669 | $511,160 |
| Net loss attributable to Greenpro common shareholders | $398,468 | $340,953 | $407,567 | $493,392 |
| Basic and diluted loss per share | $0.01 | $0.01 | $0.01 | $0.01 |
Q2 revenue increased 48% year over year, reflecting higher service revenue and a $146,073 real estate sale. Six-month revenue rose 11%; service revenue was nearly flat at $1.315 million, while rental revenue was $87,831. The six-month net loss narrowed primarily because of a $300,000 gain on sale of an equity-method investment; the operating loss increased. Q2 general and administrative expense was $845,593; six-month expense was $1.640 million.
Cash flow and balance sheet: Six-month operating cash use was $70,229, versus $851,436 in the restated prior-year period. Investing used $440,937, including a $300,000 related-party note and a $250,000 related-party investment; financing provided $2,256,666, principally from stock issuance. Cash, cash equivalents, and restricted cash totaled $2,906,791 at June 30, up from $1,162,394 at year-end 2017. Current assets were $3,465,430 and current liabilities $4,101,617, a $636,187 working-capital deficit. Total liabilities were $5,848,102. Real-estate-secured loans totaled approximately $2,544,000, including current and long-term portions; $1,548,058 was due to related parties, much of it payable on demand and non-interest bearing.
Stockholders’ equity was $7,097,548. The June public offering generated $2,765,705 net proceeds before the filing’s treatment of placement-agent warrants; 535,559 shares were issued. Cash-flow disclosures report $508,589 fair value for warrants recorded as derivative liabilities; the June 30 derivative liability was $523,585. Weighted-average basic and diluted shares for the six-month period were 53,287,220.
Material changes, outlook, and risks
- Management attributed Q2 revenue growth to a larger client base and the property sale, and said service revenue benefited from client integration and a focus on higher-end services. It expected business-services revenue to grow with expansion and rental income to remain stable, but provided no quantified formal guidance.
- Management expected G&A to continue rising as it integrates acquisitions, expands offices, and develops existing businesses.
- The filing states that operating losses, operating cash use, and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern within one year. Management cited profitability improvements and shareholder or external financing as necessary support. A subsequent July 18 private placement raised approximately $6.7 million net, but management cautioned that future financing may not be available or may be dilutive or restrictive.
- Material weaknesses in financial reporting controls remained: deficiencies in period-end reporting, lack of an internal audit function, revenue and receivables controls, acquisition accounting, and foreign-currency translation. Management concluded disclosure controls and internal control over financial reporting were not effective and described planned remediation. These weaknesses were associated with the restatement of 2017 results.
- The 2017 restatement corrected service-contract revenue recognition, fixed-asset currency translation, acquisition and goodwill accounting, and receivable allowances/write-offs. The filing says previously issued affected statements should no longer be relied upon. 2017 comparative results in this report are restated.
- Other exposures include foreign-currency movements and political, regulatory, and economic risks in the Asian markets where the company operates. The company disclosed a three-year Hong Kong office lease with approximately $754,000 of future minimum rent at June 30, 2018, and no material pending legal proceedings.
- On June 16, the company made an unsecured $300,000 loan to Leader Financial Asset Management, a related party, at 6% interest, due June 15, 2020. Subsequent to quarter-end, the company also raised equity and acquired interests in KSP Holding Group.
Important facts for investors to verify
- Whether the July financing proceeds and cash position adequately address the going-concern uncertainty and the $636,187 working-capital deficit.
- Progress in remediating material weaknesses and whether future reporting avoids further restatements.
- Service-contract performance obligations, deferred revenue of $810,400, and the timing of conversion to recognized revenue and cash collection.
- Terms, recoverability, and governance of the related-party loan and investments, as well as the demand terms on related-party payables.
- Potential dilution and accounting volatility associated with equity issuance, warrants, and the $523,585 derivative liability.