Greenpro Capital Corp. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. Financial statements are unaudited and reported in U.S. dollars. Greenpro provides business and financial services, leases and trades commercial property, and operates a venture-capital business, primarily in Asia.
Financial performance and position
| Metric | Q3 2016 | Nine months 2016 |
|---|---|---|
| Revenue | $535,716 | $1,740,626 |
| Gross profit and margin | $285,458; 53% | $961,439; 55% |
| Operating loss | $93,833 | $275,619 |
| Net loss attributable to Greenpro common shareholders | $127,312 | $369,965 |
| Operating cash flow | Not provided separately for the quarter | $(614,268) |
- Revenue mix: Nine-month service revenue was $1,670,663 (about 96% of total), rental income was $69,963, and property-sale revenue was zero. Q3 service revenue was $509,879; rental income was $25,837.
- Cash and liquidity: Cash was $631,363 at September 30, down from $1,587,861 at December 31, 2015. Current assets were $4,755,990 and current liabilities $1,711,450, giving working capital of $3,044,540. Finished-property inventory accounted for $3,747,732 of current assets.
- Debt and obligations: Bank loans totaled $620,650, including $14,461 current. Total liabilities were $2,317,639. Amounts due to related parties were $1,444,022; the principal $1,441,548 advance is unsecured, interest-free, and payable on demand. Directors were owed a further $59,429, also payable on demand.
- Equity issuance: A May 2016 private placement of 257,500 shares generated $412,000. Shares outstanding were 52,221,255 at September 30 and November 11, 2016.
Changes versus comparable periods
- Q3 revenue fell 37% from $844,926, chiefly because there were no property sales (versus $628,757 in Q3 2015). Service revenue rose to $509,879 from $204,962, while rental income increased to $25,837 from $11,207.
- Q3 gross margin increased to 53% from 37%, but gross profit declined to $285,458 from $312,950. G&A expense rose to $379,291 from $302,790, and the company reported an operating loss versus operating profit of $10,160 a year earlier. Attributable net loss narrowed to $127,312 from $147,334.
- Nine-month revenue was nearly unchanged, down to $1,740,626 from $1,752,880. Service revenue grew to $1,670,663 from $1,092,778, offset by no property sales versus $628,757 in 2015. Gross profit increased to $961,439 from $887,709; G&A increased to $1,237,058 from $802,356. Attributable net loss widened to $369,965 from $81,363.
- Operating cash use improved from $3,513,959 to $614,268, while financing changed from $3,696,689 provided in 2015 to $334,167 used in 2016. Cash declined by $956,498 over the nine months.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern. It cited the $937,894 accumulated deficit and nine-month net loss of $367,647, and said continuation depends on improving profitability and ongoing shareholder support or external financing. No quantified forecast or financing commitment is provided.
- Management outlook: Management expects service revenue to grow with a broader offering, more clients, and geographic expansion; rental income to stabilize; and real-estate revenue to depend on profitable sales of finished properties. It hoped to begin venture-related education seminars by year-end 2016. These are expectations, not quantified guidance.
- Key risks and contingencies: Foreign-exchange exposure to MYR and RMB, political and regulatory risks in the operating regions, interest-rate exposure on bank loans, customer credit risk, and reliance on related-party funding. Office lease expense was $227,049 for the nine months; future minimum rent due within 12 months was $226,429. No material active or pending legal proceedings or significant off-balance-sheet arrangements were reported.
- Control deficiency: Management concluded disclosure controls and internal control over financial reporting were not effective. Reported material weaknesses included ineffective period-end reporting controls and no internal audit function. Management described remediation plans, including additional accounting resources, segregation of duties, written procedures, and stronger outside-director oversight.
- Other notable items: The company consolidated Greenpro Synergy Network Ltd. as a VIE through contractual arrangements; the entity holds company insurance policies. The company withdrew from Lepora Holdings and CGN Nanotech investments in April 2016. Nine-month depreciation and amortization included $90,509 of intangible-asset amortization following customer-relationship valuation work related to the 2015 acquisition.
Important facts for investors to verify
- Whether Greenpro can fund obligations as they fall due, given the going-concern warning, declining cash, and demand-payable related-party advances.
- Whether service growth can generate operating profitability as G&A and service-delivery costs rise, and whether finished property can be sold profitably.
- Progress and effectiveness of remediation for the disclosed material weaknesses in financial reporting controls.
- Terms, continued availability, and any repayment demands associated with related-party financing and the personal or corporate guarantees securing bank facilities.
- Performance and valuation assumptions for the property inventory, goodwill, customer-related intangible assets, investments, and consolidated VIE.