Greenpro Capital Corp. — FY2015 Form 10-K
Reporting period: Year ended December 31, 2015. The filing contains inconsistent period references: its index refers to a fiscal year ended September 30, while the cover, financial statements and MD&A principally report December 31 year-ends. The company changed its fiscal year-end to December 31 in 2015; confirm the precise basis for the 2014 comparisons.
Business context
Greenpro provides cross-border business advisory, accounting, company secretarial and related services to small and midsize businesses, mainly in Hong Kong, Malaysia and China. It also entered venture capital and commercial property activities through acquisitions during 2015. Several acquired businesses were controlled by company directors or related parties. The company reported three business segments: services, real estate and corporate.
Financial results and liquidity
| Metric (US$) | 2015 | 2014 |
|---|---|---|
| Revenue | $2.946 million | $576,330 |
| Gross profit | $1.093 million | $275,792 |
| Gross margin | 37.1% | 47.9% |
| Operating loss | $289,125 | $92,939 |
| Loss attributable to Greenpro common stockholders | $383,772 | $133,671 |
| Comprehensive loss | $467,816 | $124,130 |
| Cash from (used in) operating activities | $(3.390) million | $(434,395) |
- Revenue increased substantially, reflecting acquired service businesses and $1.638 million of property-sale revenue. Service revenue was $1.257 million; rental revenue was $51,464. The company sold ten property units to unrelated buyers.
- Gross margin declined as property sales had lower margins. General and administrative expense rose to $1.382 million from $368,731, which management attributed mainly to increased compensation, rent, and professional and legal costs.
- At year-end, cash was $1.588 million, current assets were $5.824 million and current liabilities were $2.912 million, yielding reported working capital of $2.912 million. Current assets included $3.747 million of finished-property inventory, so reported working capital includes a substantial asset tied to property sales.
- Total liabilities were $3.504 million, including $605,928 of bank loans ($13,610 current) and $2.102 million due to related parties. A $500,000 shareholder advance bears 12% interest and matures in September 2016; other shareholder and director advances are generally payable on demand. A separate $116,473 policy loan is secured by life-insurance cash value.
- Financing activities provided $4.549 million, including $2.820 million from share issuance and $1.877 million in advances from related parties. Cash declined by $3.390 million in operating activities, primarily due to the purchase of property inventory.
Material changes, outlook and risks
- 2015 acquisitions expanded the service and investment portfolio and substantially increased reported revenue and assets. Some were common-control transactions involving directors; the filing also describes acquisitions of F&A and Yabez as business combinations with provisional purchase-price allocations. Goodwill was $1.402 million, and the filing noted that valuations were not yet finalized.
- Management expects service revenue to benefit from integrating acquired client bases and increased emphasis on higher-end services. It also expects to continue buying and selling commercial property, with related revenue and costs likely to fluctuate. The company planned cloud-accounting system development beginning in the third quarter of 2016 and anticipated continued growth-related spending. These are plans, not quantified guidance.
- The auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern, citing recurring operating losses and accumulated deficit. Management said continuation depended on improved profitability and ongoing shareholder or external financing.
- Management concluded disclosure controls and internal control over financial reporting were ineffective, identifying material weaknesses in board and audit-committee oversight, segregation of duties, period-end reporting controls and internal audit resources. Remediation steps were planned, with implementation anticipated partly or fully by mid-2016. The auditor did not attest to internal control effectiveness.
- Other risks include competition, reliance on financing and shareholder support, foreign-exchange movements, regulatory and foreign-exchange controls in China, and property-market exposure. The company said it did not maintain property, business-interruption or casualty insurance. It reported no material pending legal proceedings and no significant off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the filing’s conflicting fiscal-period references and determine what periods the reported 2014 figures represent; the auditor describes a two-month November–December 2014 period in part of its report.
- Review cash-flow sustainability and the timing, terms and collectability of related-party and director advances, including the 12% shareholder loan due in September 2016.
- Assess the valuation, saleability and impairment assumptions for the $3.747 million property inventory, and confirm completion of the provisional acquisition valuations and goodwill testing.
- Examine the related-party acquisitions, share-based purchase prices and control arrangements, and reconcile acquisition consideration amounts disclosed in different sections of the filing.
- Track progress on internal-control remediation and the company’s ability to obtain financing and achieve profitable operations, given the auditor’s going-concern warning.