Greenpro Capital Corp. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Unaudited results are in U.S. dollars. Greenpro provides business services and operates real estate and venture-capital activities, primarily in Asia.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $753,247 | $569,931 | $1,204,910 | $907,954 |
| Gross profit | $460,375 | $376,350 | $675,981 | $574,759 |
| Gross margin | 61% | 66% | 56% | 63% |
| Operating income (loss) | $19,424 | $112,381 | $(181,786) | $75,193 |
| Net income (loss) attributable to Greenpro common shareholders | $(7,390) | $109,698 | $(242,653) | $65,971 |
| Comprehensive income (loss) | $(21,217) | $107,616 | $(209,970) | $55,339 |
- Six-month revenue increased 33%, driven by service revenue, which rose to $1.161 million from $887,816, and rental revenue, which rose to $44,126 from $20,138. Services generated about 96% of six-month revenue.
- Cost of revenue increased to $528,929 from $333,195, and gross margin declined to 56% from 63%. General and administrative expense rose to $857,767 from $499,566; management cited higher director compensation, office rent, and professional and legal fees.
- Cash and cash equivalents were $1.337 million at June 30, down from $1.588 million at year-end 2015. Six-month operating cash use was $483,975; investing cash use was $11,773; financing provided $232,799. Cash fell by $251,352.
- Current assets were $5.439 million and current liabilities $2.301 million, for working capital of $3.138 million and a current ratio of about 2.4. Finished property inventory was $3.748 million, a large share of current assets.
- Total liabilities were $2.924 million, including $637,848 of bank loans and $2.000 million due to related parties. The related-party balance includes $1.467 million payable on demand, unsecured and interest-free, and a $500,000 shareholder advance bearing 12% interest and due in September 2016. Director advances were $107,919, payable on demand and interest-free.
Material changes and business developments
- Q2 revenue grew about 32% year over year, but attributable earnings shifted from $109,698 income to a $7,390 loss. For the first half, the company shifted from $65,971 attributable income to a $242,653 loss.
- Operating expenses rose substantially while service costs increased; gross margins fell in both the quarter and first half. The company reported no property-sale revenue in either six-month period.
- In May, Greenpro raised $412,000 through a private placement of 257,500 shares at $1.60 per share. Outstanding common shares were 52,221,255 at June 30.
- The company disposed of its investments in Lepora Holdings and CGN Nanotech effective April 1. It acquired a 60% interest in Greenpro Wealthon Sdn Bhd and formed a 50%-owned Australian subsidiary. It also consolidated Greenpro Synergy Network Limited as a variable-interest entity under contractual arrangements.
Outlook, risks, and unusual items
- Going concern: The filing states that substantial doubt exists about the company’s ability to continue as a going concern. It cites an accumulated deficit of $810,583 and a six-month operating loss of $242,653, and says continued operations depend on improving profitability and shareholder support. Management said cash and other liquidity sources were expected to support operations for at least nine months, but additional financing was not assured.
- Management outlook: Greenpro expects service revenue to grow with expansion of services and territories, rental income to stabilize, and real estate revenue to increase if properties can be sold profitably. It hoped to begin education and training seminars by the end of 2016 and said losses should stabilize; no quantified guidance was provided.
- Controls: Management concluded disclosure controls and internal control over financial reporting were not effective. Identified material weaknesses included inadequate segregation of duties, ineffective period-end reporting controls, and no functioning internal audit capability. Remediation was planned, with implementation anticipated by fiscal year-end 2016.
- Other risks and commitments: The company cited foreign-exchange, interest-rate, political and economic risks across its Asian markets. It disclosed $113,028 of minimum office rent due in the next 12 months; Hong Kong office rent was renewed in July 2016 through August 2018. No material pending legal proceedings or significant off-balance-sheet arrangements were reported.
- Subsequent event: Director Thanawat Lertwattanarak resigned on July 12, 2016.
Investor verification priorities
- Reconcile the filing’s differing descriptions of first-half results: the statements report a $242,653 net loss attributable to Greenpro common shareholders and a $209,970 comprehensive loss; the MD&A at points labels the latter as “net loss.”
- Assess the sustainability and collectability of the $3.748 million finished-property inventory and the company’s ability to sell properties profitably.
- Verify repayment, renewal, or refinancing plans for the $500,000 shareholder advance due in September 2016 and the broader related-party funding dependence.
- Track cash burn against management’s nine-month liquidity estimate and progress in achieving profitability or securing financing.
- Monitor remediation of the disclosed material weaknesses and any changes in financial-reporting controls.