Greenpro Capital Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Greenpro provides corporate advisory and business services, invests in early-stage companies, and operates a real estate business. Figures are in U.S. dollars unless stated otherwise.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior year-end |
|---|---|---|
| Revenue | $973,018 | $816,541 |
| Gross profit | $624,125; 64.2% gross margin | $676,400; 82.8% gross margin |
| Operating expenses | $1,381,254 | $909,907 |
| Loss from operations | $(757,129) | $(233,507) |
| Net loss | $(6,163,540); $(0.10) per share | $(242,515); $(0.00) per share |
| Cash used in operating activities | $(820,305) | $(572,935) |
| Cash, cash equivalents and restricted cash | $5,456,654 | $1,086,753 at Dec. 31, 2020 |
| Total assets / liabilities | $20,270,139 / $7,376,001 | $14,795,886 / $6,400,284 at Dec. 31, 2020 |
- Revenue included $559,335 in services, $383,445 from the sale of one Hong Kong property, and $30,238 in rentals. Service revenue fell from $793,713; the property sale drove total revenue growth.
- Gross margin declined as the revenue mix shifted to property sales. G&A increased about $471,000, contributing to the larger operating loss.
- Q1 financing activities provided $5,169,291, primarily from $5,210,000 net proceeds from convertible notes. Investing activities provided $39,340.
- Current assets were $6,116,945 and current liabilities $5,973,143, implying a current ratio of approximately 1.02 and working capital of about $144,000.
- Convertible notes had $7,860,000 face value at March 31, plus a $1,105,256 increase related to failure to meet a proceeds-use requirement. The reported net note balance was $971,170; the note disclosure gives a $1,149,604 carrying value including accrued interest. Real-estate-secured loans totaled approximately $1.474 million, including current and long-term portions.
Material changes and unusual items
- Interest expense reached $10,627,038, compared with $33,604 a year earlier. Convertible-note interest expense was $10,607,711, including $8,561,440 of accretion, $705,597 associated with conversion, and $1,105,256 for failure to fulfill use-of-proceeds requirements.
- A $5,217,399 gain on the change in fair value of derivative liabilities partly offset financing costs. These valuation and debt-accounting items were largely non-cash; the company nevertheless reported a $6.16 million net loss.
- Convertible-note terms include conversion and redemption options, full-ratchet anti-dilution protections on 2021 notes, default interest of 22%, and potential additional amounts for specified defaults. Notes were classified as short-term because of early redemption or put provisions.
- Other investments, largely in related parties, increased to $7,757,960 from $6,829,660. The company issued 342,592 shares valued at approximately $925,000 for an investment-related transaction. Related-party service revenue was $288,471, versus $50,843 a year earlier.
Outlook, risks and contingencies
- Going concern: The filing states that the quarterly loss and operating cash use raise substantial doubt about the company’s ability to continue as a going concern within one year. Management says it expects cash on hand to meet anticipated working capital for the next 12 months and expects shareholder support or external financing, but gives no assurance financing will be available on acceptable terms. The auditor had also expressed substantial doubt in its report on the 2020 financial statements.
- Management expects service revenue to grow with business expansion, rental income to remain stable in the near term, and G&A to rise as it integrates acquisitions and expands. No quantified earnings or revenue guidance is provided.
- Management attributed fewer service orders to COVID-19 and said the pandemic’s duration and impact were unpredictable. Operations are concentrated in Asia and exposed to regional political, regulatory, currency and economic risks.
- Revenue was concentrated: two customers generated 60% of Q1 revenue; one customer represented 56% of receivables at quarter-end. Two vendors accounted for 69% of accounts payable.
- Subsequent events: on April 16, Streeterville converted an October 2020 note into 704,738 restricted shares. On April 19, the company prepaid the FirstFire and Granite notes for approximately $706,000 and $708,000 in cash. On April 7, it issued 3,060,000 restricted shares in connection with a $7,206,000 Innovest Energy Fund investment. Shares outstanding were 65,871,892 on May 17, versus 62,107,154 at March 31.
- The company reported no material pending legal proceedings, no material off-balance-sheet arrangements, and no defaults upon senior securities. Management said disclosure controls were effective as of March 31, 2021 and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Reconcile the convertible-note principal, penalties, net balance and carrying value; assess how the April repayments affected remaining debt, cash and potential dilution.
- Review the substantial going-concern doubt against management’s liquidity assessment, cash burn, financing availability and near-term obligations.
- Evaluate the source and sustainability of derivative fair-value gains and unusually large, largely non-cash note interest expense.
- Assess the quality and recoverability of the $7.76 million related-party investment portfolio and the extent of related-party revenue, balances and transactions.
- Track service-business demand, customer concentration, gross-margin trends and the dilution from share issuances and convertible-note provisions.