Greenpro Capital Corp. — Q2 2019 Form 10-Q
Business context and period. Unaudited results for the three and six months ended June 30, 2019. Greenpro provides business consulting and corporate advisory services in Asia and operates a real-estate leasing and trading business. Financial statements are presented in U.S. dollars.
Key financial results
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $1.702 million | $2.164 million | $0.808 million (quarter); $1.549 million (six months) |
| Operating loss | $134,026 | $824,522 | $351,440 (quarter); $611,964 (six months) |
| Net loss | $65,228 | $627,117 | $359,972 (quarter); $373,669 (six months) |
| Net loss attributable to Greenpro common shareholders | $36,136 | $587,290 | $398,468 (quarter); $407,567 (six months) |
| Cash used in operating activities | Not provided for the quarter | $999,305 | $70,229 used (six months) |
- Quarterly revenue rose about 111%, principally due to service revenue, including $1.2 million of listing services. Six-month revenue increased about 40%; service revenue rose to $2.112 million.
- Quarterly net loss narrowed, helped by higher service revenue and a derivative fair-value gain. Six-month operating loss and net loss increased, mainly as general and administrative expense rose to $2.186 million from $1.640 million. The 2018 six-month period included a $300,000 gain on an equity-method investment.
- Rental revenue declined to $22,931 for the quarter and $51,920 for six months. No real estate properties were sold in 2019, compared with $146,073 of sales revenue in the comparable 2018 periods.
- Cash and cash equivalents, including restricted cash, were $1.142 million at June 30, down from $2.172 million at year-end. Current assets were $1.921 million against current liabilities of $3.419 million, a $1.498 million working-capital deficit.
- Total liabilities were $5.177 million. Real-estate-secured loans totaled approximately $1.692 million; operating lease liabilities were $462,571. Related-party payables were $968,192, including $822,194 payable on demand to a noncontrolling interest.
- Total stockholders’ equity was $4.108 million. Shares outstanding were 54,723,889 at June 30 and August 8, 2019.
Material changes, outlook and risks
- In January 2019, Greenpro acquired Sparkle Insurance Brokers Limited for $170,322, comprising $129,032 cash and 8,602 shares, to expand insurance services.
- Management expects business-services revenue to grow as the company expands and integrates acquisitions; it expects rental income to remain stable. Management also expects G&A expenses to continue increasing with acquisitions and geographic expansion.
- The filing identifies substantial doubt about Greenpro’s ability to continue as a going concern, citing six-month operating cash use of $999,305, operating loss of $824,522 and the working-capital deficit. Management relies on improved profitability, shareholder support or external financing; availability and terms are not assured, and financing could restrict operations or dilute shareholders. Management separately states it estimates liquidity is sufficient for anticipated working capital for the next 12 months.
- Revenue concentration and related-party exposure are significant: three customers accounted for 71% of quarterly revenue and 55% of six-month revenue; related-party service revenue was $1.313 million for six months.
- Management concluded disclosure controls and procedures were not effective as of June 30. Disclosed weaknesses included inadequate U.S. GAAP expertise and staffing, risk assessment, financial-close and disclosure review, related-party disclosure controls, and controls over complex or unusual transactions. No material changes in internal control were reported during the six months.
- The company operates primarily in Hong Kong, Malaysia and China and cites associated political, regulatory, currency and economic risks. It reported no material active or pending legal proceedings and no significant off-balance-sheet arrangements.
Important facts for investors to verify
- Whether operating cash burn and the working-capital deficit can be addressed through sustainable operations, shareholder support or financing.
- How much future service revenue depends on the three major customers, listing-service contracts and related parties, and when related deferred revenue will be recognized.
- Whether rising G&A costs and acquisition integration can be managed as revenue grows.
- Progress in remediating the disclosed control weaknesses, especially related-party reporting and review of unusual transactions.
- The cash-flow statement reports investing cash use of $63,179, while MD&A reports $63,837; verify the correct figure. Also confirm the warrant exercise price, which is stated as $7.20 in the note narrative and $7.50 in the warrant activity table.