Greenpro Capital Corp. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Financial statements are unaudited. Greenpro provides business and corporate advisory services in Asia and operates real estate leasing and sales activities.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $678,917 | $1,152,326 | $1,896,598 | $3,316,088 |
| Gross profit (margin) | $402,115 (59.2%) | $788,276 (68.4%) | $1,393,111 (73.4%) | $2,150,096 (64.8%) |
| Operating loss | $468,422 | $213,059 | $1,240,618 | $1,037,581 |
| Net loss | $429,749 | $211,147 | $1,235,479 | $838,264 |
| Net loss attributable to Greenpro common shareholders | $453,911 | $187,852 | $1,263,903 | $775,142 |
- Service revenue fell to $389,610 in Q3 from $1,132,784, and to $1,551,783 for the nine months from $3,244,626. Q3 included $253,677 from selling one Hong Kong commercial property; there were no property sales in the 2019 comparisons. Rental revenue was $35,630 for Q3 and $91,138 for nine months.
- General and administrative expense was $870,537 for Q3 and $2,633,729 for nine months, down from $1,001,335 and $3,187,677, respectively. Despite lower expenses, operating losses widened as service revenue declined.
- Nine-month operating cash outflow was $845,125, compared with $1,241,216 in 2019. Investing activities provided $88,550 and financing activities provided $83,918, including $240,509 of related-party advances, partly offset by $156,591 of real-estate loan principal payments.
- Cash, cash equivalents and restricted cash were $559,743 at September 30, 2020, down from $1,256,739 at December 31, 2019. Current assets were $1,029,913 and current liabilities $3,894,151; the reported working-capital deficit was $2,864,238.
- Total assets were $11,446,815 and total liabilities $5,255,375. Real-estate-secured loans totaled $1,855,772, including $494,548 current and $1,361,224 long term. Related-party amounts due were $1,255,291; no loan interest rate is provided in the filing text.
- Stockholders’ equity was $6,191,440. Shares outstanding increased from 54,723,889 at year-end 2019 to 59,203,333 at September 30, principally reflecting 4,444,444 shares issued for an investment.
Changes from the comparable period
- Revenue declined 41% in Q3 and 43% for the first nine months year over year, primarily because fewer clients placed service orders. Management attributed reduced service demand in part to COVID-19.
- Nine-month net loss increased by $397,215. The prior-year period included a $192,785 gain from changes in derivative fair value; 2020 recorded a $28,149 loss from that item.
- Other investments rose to $4,147,435 from $145,140 at year-end, including a $4 million investment recorded in connection with the Millennium Sapphire transaction.
- Greenpro sold its 60% interest in Yabez for $1 in February 2020, citing continuing losses, and deconsolidated the businesses. The filing reports a $727 loss on disposal.
Outlook, risks and unusual items
- Going concern: Management states cash is insufficient for anticipated working capital over the next 12 months without additional capital. The nine-month loss, operating cash use and working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. Management expects shareholder support or external financing but gives no assurance financing will be available or acceptable.
- COVID-19 and demand: Management expected business-services revenue to decline further in the coming months because of the pandemic. It described rental income as likely to be stable. The company operates principally in Hong Kong, Malaysia and China and identifies regional political, regulatory, currency and economic risks.
- Subsequent financing: After quarter-end, the company reported a $215,000 gross private placement and three unsecured convertible notes with aggregate principal of $1.79 million and stated net proceeds of $1.47 million. Notes have a $1 initial conversion price, full-ratchet anti-dilution protection, and after six months may be redeemed using the lesser of $1 or 75% of the average of the lowest VWAP over a specified ten-trading-day period. Default interest is 22%; certain major defaults add 15% of outstanding principal. These terms create potential dilution and repayment risk.
- Other post-quarter transactions: The company agreed to acquire interests in Ata Plus, First Bullion Holdings and New Business Media, with consideration including Greenpro shares; closings or share issuances were pending as described in the filing. It also reported distributing 11,840,684 DSwiss shares to shareholders on November 12, 2020.
- Investment and governance considerations: Greenpro issued 4,444,444 shares valued at $4 million for a 4% interest in the Millennium Sapphire, then transferred that interest to subsidiary MFAI in exchange for MFAI shares. One million MFAI shares were reserved for a contemplated shareholder distribution in 2021. The filing says the investment would be evaluated for impairment at year-end. Three customers represented 31% of nine-month revenue; one customer represented 37% of Q3 revenue. Related-party service revenue fell to $181,417 from $1,743,533 for the nine-month periods, while amounts due to related parties increased to $1,255,291.
- The company reported no material pending legal proceedings, no defaults upon senior securities and no material off-balance-sheet arrangements. Management said disclosure controls were effective and there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether additional financing has been secured and whether liquidity is adequate to meet obligations, given the stated going-concern uncertainty and working-capital deficit.
- The complete terms, balances, conversion mechanics and potential share dilution under the three post-quarter convertible notes, including default provisions.
- The valuation, ownership, impairment assessment and intended shareholder distribution of the Millennium Sapphire/MFAI investment, and the status and value of other announced investments.
- The reported share count against post-quarter share issuances and pending stock consideration for acquisitions.
- Whether service revenue and customer demand recover, and how customer concentration and related-party revenue affect sustainable operating results.