Greenpro Capital Corp. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; comparisons are with the year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter report. Amounts are in U.S. dollars unless stated otherwise.
Business context
Greenpro provides cross-border business, corporate advisory, company secretarial, accounting and related services to small and midsize businesses, primarily in Hong Kong, Malaysia and China. It also holds and rents commercial properties, trades property, and pursues venture investments and business-incubator activities. The company reported three operating segments: service, real estate and corporate.
Financial results and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $2,776,435 | $2,946,164 |
| Gross profit | $1,730,120 | $1,093,299 |
| Gross margin | 62.3% | 37.1% |
| Operating loss | $139,374 | $289,125 |
| Net loss attributable to Greenpro common stockholders | $222,323 | $383,772 |
| Comprehensive loss | $193,928 | $299,728 |
| Cash used in operating activities | $502,389 | $3,390,397 |
- Service income rose to $2,676,292 from $1,257,152; rental income increased to $100,143 from $51,464. There was no property-sale revenue in 2016, versus $1,637,548 in 2015.
- Cost of revenue fell to $1,046,315 from $1,852,865, while general and administrative expense increased to $1,869,494 from $1,382,424. Management attributed the higher G&A to compensation, housing allowance, salaries, rent and professional fees.
- At year-end, cash was $1,021,351; current assets were $5,323,480 and current liabilities $1,782,403, yielding reported working capital of $3,541,077. Inventory consisting of finished property was $3,747,732, a substantial share of current assets.
- Total liabilities were $2,336,531. Bank loans totaled approximately $567,170, including $13,042 current and $554,128 long-term; maturities extend to 2038 and 2043. Amounts due to related parties were $1,463,386, including a $1,441,548 non-interest-bearing, payable-on-demand advance for property purchases. Amounts due to directors were $46,109.
- Cash fell by $566,510 during 2016. Investing activities used $14,566 and financing activities used $46,162. The company raised $711,708 from share issuances during the year.
Material changes and unusual items
- Total revenue declined about 5.8%, despite sharply higher service revenue, because the prior-year property sale did not recur. Gross margin improved to 62.3%, reflecting lower property-related costs and the change in revenue mix.
- Net loss narrowed from $383,772 to $222,323. The filing attributes the improvement to cost control and increased service income; the company nevertheless remained loss-making.
- Accounts receivable increased to $439,217 from $186,162. Management said at least half of the year-end receivables were collected after year-end and expected improved collection and payment turnover in 2017.
- The company withdrew from investments in Lepora Holdings and CGN Nanotech and reported recovery of $3,600 previously written off. It also made small share purchases in ECCO Auto World and Seeder Media.
- Related-party service income was $222,493, compared with $243,916 in 2015. The filing describes these transactions as generally conducted at arm’s length, but the company has substantial insider ownership and related-party funding.
Outlook, risks and contingencies
- Management expected available cash to support basic operations and current obligations for approximately 12 months and said it expected sufficient ordinary-course cash flow for at least the next 12 months. It cautioned that anticipated sales levels were not assured. The company planned to market its finished-property inventory in fiscal 2017 and may continue property purchases and sales; no quantified earnings or revenue guidance was provided.
- Management expected G&A to continue rising as it integrates acquisitions and expands or deepens operations, including planned expansion into Thailand and Australia.
- The filing identifies a limited operating history, recurring operating losses and negative operating cash flow, competition, customer-acceptance and financing risks, foreign-exchange and regulatory exposure, and risks arising from international operations. VIE control depends on contractual arrangements rather than direct ownership.
- Disclosure controls and internal control over financial reporting were assessed as ineffective at December 31, 2016. Material weaknesses included inadequate segregation of duties, ineffective period-end reporting controls and no adequately developed internal audit function. Management planned remediation during 2017; auditor attestation of internal controls was not included.
- The filing says the 2015 audit report expressed substantial doubt about going concern. Management stated that 2016 liquidity was sufficient for its near-term needs, but the company continued to report losses and use operating cash.
- Operating leases require approximately $246,284 in minimum rental payments over the next 12 months. No material pending legal proceedings or significant off-balance-sheet arrangements were reported. The filing also notes that the company does not currently maintain property, business-interruption or casualty insurance.
- After year-end, the company disclosed private placements totaling approximately $916,184: $359,860 in January and $556,324 in March 2017. A separate MD&A passage reports $916,183.60 received after March 21 through issuance of 478,084 shares.
Important facts for investors to verify
- Reconcile reported losses: the statements show a $211,174 loss before non-controlling interest and a $222,323 net loss attributable to Greenpro common stockholders; the cash-flow statement begins with the former figure.
- Confirm the cash-flow presentation and exact operating cash used: the MD&A rounds this to $502,390, while the cash-flow statement reports $502,389.
- Assess collectability of receivables and the saleability and valuation of the $3.75 million finished-property inventory; the filing reports no units under contract but says the inventory was ready for sale.
- Review repayment terms and potential conversion of the $1.44 million related-party advance, as well as the company’s ability to meet demand-payable related-party balances.
- Track remediation of the disclosed control weaknesses, future operating cash flow and whether management’s 12-month liquidity expectation is achieved.
- Verify share-count and subsequent-financing disclosures: year-end shares were 52,387,759, while the filing reports 52,865,843 outstanding at March 27, 2017. The stated proceeds and share issuance after year-end should be reconciled to the related offering disclosures.
- Consider customer concentration: one customer generated 13% of 2016 service income. Also assess insider control, related-party dealings, VIE contractual risks and the thinly traded OTCQB market.