Greenpro Capital Corp. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; unaudited. Greenpro provides business consulting and corporate advisory services in Asia and operates real estate rental and investment activities. The report was filed August 14, 2020.
Financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $401,140 | $1,701,714 | $1,217,681 | $2,163,762 |
| Operating loss | $538,689 | $134,026 | $772,196 | $824,522 |
| Net loss | $563,215 | $65,228 | $805,730 | $627,117 |
| Net loss attributable to common shareholders | $566,777 | $36,136 | $809,992 | $587,290 |
| Operating cash flow | Not presented quarterly | $(871,698) | $(999,305) |
Revenue fell 76% year over year in Q2 and 44% for the first half, primarily reflecting fewer business-service orders and a smaller client base. Q2 service revenue was $368,460 versus $1,678,783; rental revenue rose to $32,680 from $22,931. First-half service revenue was $1,162,173 versus $2,111,842, while rental revenue was $55,508 versus $51,920. Calculated gross margin, after service and rental costs, was approximately 78% in Q2 and 81% for the first half, compared with approximately 64% and 63%, respectively, in 2019. Lower revenue nevertheless contributed to higher net losses, particularly in Q2.
Q2 basic and diluted loss per share was $0.01, versus $0.00 in Q2 2019; first-half loss per share was $0.01 in both periods. First-half other expense included a $39,953 increase in derivative-liability fair value, compared with a $184,565 gain in 2019.
Liquidity, debt and balance sheet
- Cash, cash equivalents and restricted cash were $559,465 at June 30, 2020, down from $1,256,739 at year-end 2019; $161,768 of the June balance was restricted.
- Current assets were $938,534 and current liabilities $3,658,543, producing a $2,720,009 working-capital deficit. Total assets were $11.53 million, total liabilities $5.01 million, and stockholders’ equity $6.52 million.
- Loans secured by real estate totaled approximately $1.88 million, including $532,249 current and $1,347,918 long term. Amounts due to related parties were $1,222,948, up from $1,009,760 at year-end.
- Operating cash outflow was $871,698. Financing provided $146,904, including $218,825 of related-party advances, partly offset by $71,921 of real-estate loan principal payments. Investing used $26,964.
Material changes and unusual items
- On June 15, Greenpro issued 4,444,444 restricted common shares, valued at $4 million, to acquire a 4% interest in the Millennium Sapphire. On July 23, its subsidiary Millennium Fine Art Inc. issued Greenpro 1 million restricted subsidiary shares valued at $5 million for that interest; Greenpro expects to record a $1 million gain in the quarter ending September 30, 2020. The transaction is noncash.
- Greenpro sold its 60% interest in Yabez entities for $1 on February 29, 2020, citing continuing losses, and deconsolidated them. It also transferred or diluted interests in other subsidiaries to a director for nominal consideration, as described in the filing.
- Shares outstanding increased from 54,723,889 at year-end to 59,168,333 at June 30, principally due to the Sapphire transaction. Other investments rose to $4,146,066 from $145,140.
- One customer represented 28% of first-half 2020 revenue. Related-party service revenue declined to $107,971 from $1,313,464 in the first half of 2019.
Outlook, risks and contingencies
- Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern within one year, citing the first-half loss, operating cash use, working-capital deficit and insufficient cash for anticipated needs without additional capital. Management expects shareholder support or external financing, but gives no assurance financing will be available or on acceptable terms; debt could restrict operations and equity financing could dilute shareholders.
- COVID-19: Management attributed reduced service orders and revenue to pandemic effects and expected business-services revenue to decline further in the near term. It said rental income was expected to remain stable. The duration and magnitude of pandemic effects were uncertain.
- Management expected G&A expenses to increase as it integrates acquisitions, expands existing operations and develops new markets. No quantified earnings or revenue guidance was provided.
- The filing reports no material pending legal proceedings and no significant off-balance-sheet arrangements. Disclosure controls were deemed effective as of June 30, 2020; no material changes in internal control were reported.
Important facts for investors to verify
- Near-term liquidity, funding availability and the company’s plans to address the going-concern uncertainty and working-capital shortfall.
- The valuation, ownership rights, liquidity and accounting for the Sapphire interest and the subsidiary shares received in the subsequent transfer.
- The impact of continued weakness in service revenue, customer concentration and the sharp decline in related-party service revenue.
- The terms, balances and repayment expectations for related-party payables and advances, and the transactions involving subsidiary interests transferred to a director.
- The filing’s equity-sales disclosure says “None,” while the financial-statement notes describe the issuance of 4,444,444 restricted shares; investors may wish to reconcile the disclosures.