Greenpro Capital Corp. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; filed November 19, 2018. Figures are in U.S. dollars. Comparative 2017 financial statements are restated.
Business context
Greenpro provides corporate advisory, business solutions and accounting services to businesses in Asia, and operates real-estate rental and property-sale activities. Its principal markets include Hong Kong, Malaysia and China. It also invests in and supports growth companies.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $1.56 million | $0.88 million | $3.11 million | $2.28 million |
| Operating loss | $0.43 million | $0.14 million | $1.04 million | $0.62 million |
| Net loss | $0.13 million | $0.20 million | $0.51 million | $0.71 million |
| Net loss attributable to Greenpro common shareholders | $0.21 million | $0.19 million | $0.62 million | $0.68 million |
- Nine-month gross profit was approximately $1.72 million, or 55% of revenue; operating loss was about 34% of revenue. Q3 gross profit was approximately $0.65 million, or 42% of revenue; operating loss was about 28% of revenue. These percentages are calculated from reported revenue and operating costs of revenue.
- Nine-month revenue increased 36%, largely due to $999,494 in real-estate sales, which had no comparable 2017 revenue. Service revenue fell 8% to $1.98 million; rental revenue declined to $131,270 from $139,281. Q3 revenue growth also reflected property sales; service revenue fell to $660,353 from $826,290.
- Nine-month operating loss widened as operating costs and expenses increased to $4.15 million from $2.90 million, principally reflecting higher general and administrative expense. Nine-month net loss improved mainly because of a $315,645 gain on sale of an equity-method investment and a $319,520 derivative fair-value gain. The derivative gain also contributed to Q3’s lower net loss despite a larger operating loss.
- Cash and cash equivalents, including restricted cash of $158,510, were $2.63 million at September 30, up from $1.16 million at year-end 2017. Current assets were $3.62 million and current liabilities $3.22 million; the resulting current ratio was approximately 1.12.
- Nine-month operating cash flow was negative $743,954, investing cash flow negative $5.76 million, and financing cash flow positive $8.01 million. Investing outflow included $6.30 million of notes receivable; financing inflow primarily reflected equity issuances.
- Total liabilities were $4.88 million, including $1.80 million of real-estate-secured loans and $1.29 million due to related parties. Total stockholders’ equity was $13.85 million. Shares outstanding increased to 54.72 million from 53.23 million at year-end.
Material developments, outlook and risks
- Greenpro loaned $6.0 million to Shenzhen Rong Jin Jia Cheng Investment Limited, secured by a subsidiary’s assets, bearing 2% interest and due August 2020. It also made a $300,000 unsecured, 6% loan due June 2020 to Leader Financial Asset Management, whose managing director is a company consultant and is connected to a company shareholder.
- The company acquired a 49% equity-method interest in Thailand-based KSP Holdings Group Company Limited for cash and shares. It recorded $4,790 of its share of KSPH income through September 30.
- Greenpro raised approximately $2.7 million net in a June public offering and $6.7 million net in a July private placement. Management said existing shareholders or external financing may provide funds as needed, but future financing is not assured and could dilute shareholders or restrict operations.
- The filing states that operating losses of $1.04 million and operating cash use of $743,954 raise substantial doubt about the company’s ability to continue as a going concern within one year of issuance. Management nevertheless estimated sufficient liquidity for the next 12 months. The prior-year auditor had also expressed substantial doubt.
- Management expects service revenue to grow as the business expands and rental income to remain stable, but expects general and administrative expenses to rise as it integrates acquisitions and expands into new jurisdictions. No quantified earnings or revenue guidance is provided.
- Disclosure controls and internal control over financial reporting were reported ineffective, with material weaknesses involving period-end reporting, revenue and receivables, acquisition accounting, foreign-currency translation, and notes receivable. Management described planned remediation, including additional accounting resources and formal close procedures.
- The 2017 interim financial statements were restated for errors involving service-revenue timing, foreign-currency translation, goodwill and acquisition accounting, and receivables. The filing says previously issued affected statements should no longer be relied upon. The company also disclosed approximately $687,081 of future minimum payments under a Hong Kong office lease through April 2021. No material legal proceedings or significant off-balance-sheet arrangements were reported.
Investor verification points
- Assess whether recurring service and rental operations can cover general and administrative costs, given that property-sale proceeds and investment gains materially affected reported results.
- Review collectability, collateral and related-party governance for the $6.0 million and $300,000 notes receivable, and confirm repayment performance and applicable terms.
- Reconcile the equity and cash-flow disclosures: the public offering’s net equity proceeds are presented as $2.257 million after including warrant offering costs, while the note describes approximately $2.766 million net before those warrant costs; the cash-flow statement reports $9.464 million of cash share proceeds overall.
- Monitor cash burn, demand-payable related-party balances, financing availability, and progress toward resolving the stated going-concern uncertainty.
- Track remediation of material control weaknesses and the reliability of future reporting following the 2017 restatement.