Greenpro Capital Corp. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Financial statements are unaudited and presented in U.S. dollars. Greenpro provides business-solution and advisory services, leases and trades commercial property, and conducts venture-capital and related activities, primarily in Asia.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $451,663 | $338,023 |
| Gross profit / margin | $215,606 / 47.7% | $198,409 / 58.7% |
| General and administrative expense | $416,816 | $235,597 |
| Operating loss | $201,210 | $37,188 |
| Net loss attributable to Greenpro common stockholders | $235,263 | $43,727 |
| Comprehensive loss | $188,753 | $52,277 |
| Operating cash flow | $(304,033) | $(1,165,738) |
Revenue increased 33.6%, driven by service income of $428,408, up from $329,096, and rental income of $23,255, up from $8,927. Service business generated about 94.9% of revenue; real estate generated about 5.1%. No property-sale revenue was recorded. Service costs rose to $225,739 from $128,723, while total cost of revenue increased faster than revenue, reducing gross margin. Management attributed higher G&A primarily to directors’ remuneration, office rent, and professional and legal fees.
Financial position and liquidity
- At March 31, cash and cash equivalents were $1,183,228, down $404,633 from December 31, 2015. Total assets were $8,466,551; total liabilities were $3,182,200; and total equity was $5,284,351.
- Current assets of $5,262,605 exceeded current liabilities of $2,539,466 by $2,723,139. Current assets included $3,747,732 of finished-property inventory. The filing reports no units under contract but not yet closed and no property-sale revenue during the quarter.
- Bank loans totaled $657,842, including $15,108 current and $642,734 long-term. Current liabilities also included $2,013,635 due to related parties and $142,863 due to directors. Related-party balances include a $500,000 unsecured shareholder advance bearing 12% interest and due in September 2016, and $1,467,357 owed on demand, without interest, to a non-controlling-interest party.
- Operating cash use improved versus Q1 2015, when substantial prepayments drove cash use. Q1 2016 investing cash flow was positive $11,690; financing cash flow was negative $129,994, mainly from repayments to related parties and directors and bank-loan repayments.
Changes, outlook, and risks
- Net loss attributable to common stockholders increased from $43,727 to $235,263. Gross profit rose, but margin fell from about 58.7% to 47.7%; G&A expense increased about 77%.
- Management expects service revenue to grow with the expanded service range, client base, and geographic reach, and expects rental income to stabilize. It anticipated venture-capital-related seminar revenue could begin around mid-2017. These are expectations, not quantified guidance.
- The filing states that substantial doubt exists about the Company’s ability to continue as a going concern. Continued operations through December 31, 2016 depend on improved profitability and continuing shareholder support or external financing; management said cash and other liquidity sources were expected to support at least nine months of operations, but acknowledged financing was not assured.
- Management identified material weaknesses in disclosure controls and internal control over financial reporting, including inadequate segregation of duties, ineffective period-end reporting controls, and no internal audit function. It reported controls were not effective and described planned remediation, including additional accounting resources and a functioning audit committee.
- Acquisition accounting for the 2015 F&A and Yabez acquisitions remained provisional. In Q1, customer-relationship intangible value was adjusted downward by $70,413 with a corresponding increase to goodwill; reported goodwill was $1,472,729. Management reported no impairment of finished-property inventory or intangible assets for the quarter.
- Other exposures include foreign-currency movements (notably MYR and RMB), political, economic, and regulatory risks in the region, and variable-rate bank debt. One customer accounted for 11% of Q1 2016 service income. Future minimum office-lease payments were $158,603 for the next 12 months; quarterly lease expense was $71,165, versus $37,043 a year earlier.
- After quarter-end, Greenpro agreed to withdraw its subscribed shares in Lepora Holdings Corporation and CGN Nanotech Inc. and receive refunds of $3,600 and $2,160, respectively. On May 11, 2016, it formed a 50%-owned Australian advisory subsidiary. The Company reported no material pending legal proceedings.
Investor verification priorities
- Assess whether operating cash burn can be funded and whether promised shareholder or external financing is available on acceptable terms.
- Confirm the terms, maturity, and repayment capacity for related-party and director balances, particularly the $500,000 12% advance and the $1,467,357 payable on demand.
- Review the valuation, sales prospects, and impairment assumptions for the $3.75 million finished-property inventory and the provisional acquisition goodwill and customer relationships.
- Track whether service growth can restore margins and offset higher operating expenses, and monitor customer concentration and related-party revenue.
- Monitor remediation of the reported control weaknesses and the reliability of future financial reporting.