Greenpro Capital Corp. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; filed May 14, 2018. Unaudited results are compared with the restated three months ended March 31, 2017. Greenpro provides advisory and business services and operates real estate rental and sales activities, primarily in Hong Kong, Malaysia, and China.
Financial results
- Revenue: $740,572, down 13.4% from $855,323. Service revenue fell to $699,128 from $826,167, which management attributed to fewer new client engagements. Rental revenue increased to $41,444 from $29,156.
- Profitability: Gross profit was approximately $533,453 (72.0% margin), versus $646,215 (75.6%) in the restated prior period. Operating loss widened to $260,523 from $138,293; G&A was $793,976 versus $784,508. A $300,000 gain on sale of an equity-method investment helped produce pretax income of $7,252; net loss was $13,696, compared with $155,747. Net loss attributable to Greenpro common shareholders was $9,099 versus $152,439.
- Cash flow: Operating activities provided $46,721, compared with $263,089 used in Q1 2017. Investing activities used $109; financing activities used $221,190, including $168,717 of real-estate loan principal payments and $52,473 of related-party advance repayments. Cash, cash equivalents, and restricted cash ended at $1,001,877, down $160,517 during the quarter.
- Liquidity: Current assets were $1,660,444 and current liabilities were $3,716,326, a working-capital deficit of $2,055,882. Cash and cash equivalents included $172,261 of restricted cash.
- Debt and related-party balances: Real-estate-secured loans totaled $2,681,872, including $805,097 current and $1,876,775 long term. The $645,161 Hong Kong non-bank loan bears 8.4% interest and is due September 12, 2018. Amounts due to related parties totaled $1,800,951, largely unsecured, non-interest-bearing advances payable on demand.
- Equity: Total stockholders’ equity was $5,320,167. There were 53,233,960 common shares outstanding at March 31 and May 14, 2018.
Changes, outlook, and risks
- Revenue declined and operating losses increased year over year despite the smaller reported net loss; the $300,000 investment-sale gain was an important contributor to the Q1 2018 bottom line.
- Management expects business-services revenue to grow with business expansion and client integration, and rental income to remain stable; it also expects G&A to increase as operations expand. These statements are forward-looking, not quantified guidance.
- The filing states that operating losses and a $2.1 million 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.
- The 2017 comparative financial statements were restated for errors involving service-revenue timing, foreign-currency translation of fixed assets, acquisition goodwill/noncontrolling interests, and uncollectible receivables. The filing says previously issued affected information should no longer be relied upon.
- Management reported ineffective disclosure controls and internal control over financial reporting, citing material weaknesses in period-end reporting, internal audit resources, revenue and receivables, acquisition accounting, and foreign-currency translation. The weaknesses contributed to the restatement. Remediation was planned during 2018.
- Other risks include foreign-exchange exposure and political, economic, regulatory, and currency risks in the markets where the company operates. No material legal proceedings or significant off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether the company can obtain sufficient financing or shareholder support to meet obligations, particularly the demand-payable related-party balances and September 2018 loan maturity.
- Whether service revenue, client engagements, and operating performance improve enough to reduce the going-concern risk.
- The nature, cash realization, and recurrence of the $300,000 gain on sale of the equity-method investment.
- Progress in remediating internal-control weaknesses and the reliability of future financial reporting after the 2017 restatement.
- Whether real-estate assets and receivables remain recoverable and whether foreign-exchange movements affect reported results or asset values.