Greenpro Capital Corp. — Q1 2017 Form 10-Q
Business context and period. The unaudited quarter ended March 31, 2017. Greenpro provides business, advisory and accounting services to Asian small and midsize businesses, and also operates venture-capital and commercial-property activities. Its reportable segments are services, real estate and corporate.
Financial results and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $775,323 | $451,663; up 71.7% |
| Gross profit | $618,760 | $215,606 |
| Gross margin | 79.8% calculated from reported figures | 47.7% per management |
| Operating loss | $91,988 | $201,210 |
| Net loss attributable to Greenpro common stockholders | $108,488 | $235,263 |
| Comprehensive loss | $114,919 | $188,753 |
| Cash used in operations | $263,089 | $304,033 |
| Cash and cash equivalents | $1,459,608 at March 31 | $1,021,351 at December 31, 2016 |
Service revenue was $746,167, versus $428,408, while rental income was $29,156, versus $23,255. Gross profit improved as service costs declined; general and administrative expense rose to $710,748 from $416,816. Interest expense was $6,962, down from $26,385. Basic and diluted loss per share was reported as $(0.00) in both periods.
At March 31, total assets were $9.18 million, liabilities $2.29 million and stockholders’ equity $6.89 million. Working capital was $4.18 million. Current liabilities were $1.73 million, including $1.44 million due to related parties. Bank loans totaled $570,510, of which $13,451 was current; the loans are secured by property and have long maturities. Finished property inventory held for sale was $3.75 million.
Operating and investing cash outflows were funded primarily by $916,183 of proceeds from share issuance. Investing activities used $206,003, including $201,500 invested in two unconsolidated entities. Cash increased by $438,257 during the quarter.
Changes, outlook and risks
- Management attributed revenue growth to an expanded service offering, a larger client base and integration of acquired businesses; it cited cost control and more profitable service contracts for improved results. The company remained loss-making and used cash in operations.
- Management expects service revenue to grow and rental income to remain relatively stable. It believes cash will fund ordinary operations and current obligations for approximately 12 months, but notes anticipated sales may not be achieved. No quantified earnings or revenue guidance is provided.
- The company reported ineffective disclosure controls and procedures, citing weaknesses in period-end reporting controls and the absence of a properly developed internal audit function. Management warned that oversight limitations could contribute to future material misstatements.
- Management disclosed foreign-exchange exposure, especially to movements in the Malaysian ringgit and Chinese renminbi, and political, economic, regulatory and tax risks in its operating markets. One customer represented 12% of Q1 service revenue. Office lease expense was $150,807; future minimum rent due in the next 12 months was $215,358.
- Subsequent events: an April 18 share placement raised $68,680; on April 25 the company agreed to acquire 60% of Billion Sino Holdings for restricted shares valued at $1,192,258; on April 27 it agreed to acquire Gushen Credit assets for $105,000.
Key facts for investors to verify
- Reconcile management’s stated Q1 2017 gross margin of 78% with the reported revenue and gross profit, which calculate to approximately 79.8%.
- Clarify the $1,441,548 advance from a non-controlling-interest party: the notes describe it as unsecured, non-interest-bearing and payable on demand, while MD&A also says it is convertible into common stock at the holder’s discretion.
- Review the material weaknesses in financial reporting controls and any remediation plans or progress.
- Assess the recoverability and sale timing of the $3.75 million finished-property inventory, the demand terms of related-party funding, and the company’s reliance on further financing given recurring operating cash outflows.
- Track dilution and subsequent acquisitions: shares outstanding were 52,865,843 at March 31 and 52,893,315 as of May 12, 2017.