The information contained in this Form 10-Q is intended to update the
information contained in our Annual Report on Form 10-K for the year ended
December 31, 2019 filed with the Securities and Exchange Commission on March 30,
2020 (the "Form 10-K") and presumes that readers have access to, and will have
read, the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other information contained in such Form 10-K. The
following discussion and analysis also should be read together with our
financial statements and the notes to the financial statements included
elsewhere in this Form 10-Q.
The following discussion contains certain statements that may be deemed
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements appear in a number of places in
this Report, including, without limitation, "Management's Discussion and
Analysis of Financial Condition and Results of Operations." These statements are
not guaranteed of future performance and involve risks, uncertainties and
requirements that are difficult to predict or are beyond our control.
Forward-looking statements speak only as of the date of this quarterly report.
You should not put undue reliance on any forward-looking statements. We strongly
encourage investors to carefully read the factors described in our Form 10-K in
the section entitled "Risk Factors" for a description of certain risks that
could, among other things, cause actual results to differ from these
forward-looking statements. We assume no responsibility to update the
forward-looking statements contained in this quarterly report on Form 10-Q. The
following should also be read in conjunction with the unaudited Financial
Statements and notes thereto that appear elsewhere in this report.
Company Overview
Greenpro Capital Corp. (the "Company" or "Greenpro"), was incorporated in the
State of Nevada on July 19, 2013. We provide cross-border business solutions and
accounting outsourcing services to small and medium-size businesses located in
Asia, with an initial focus on Hong Kong, Malaysia and China. Greenpro provides
a range of services as a package solution to our clients, which we believe can
assist our clients in reducing their business costs and improving their
revenues.
In addition to our business solution services, we also operate a venture capital
business through Greenpro Venture Capital Limited, an Anguilla corporation. One
of our venture capital business segments is focused on (1) establishing a
business incubator for start-up and high growth companies to support such
companies during critical growth periods, which will include education and
support services, and (2) searching the investment opportunities in selected
start-up and high growth companies, which may generate significant returns to
the Company. Our venture capital business is focused on companies located in
Asia and Southeast Asia including Hong Kong, Malaysia, China, Thailand and
Singapore. Another one of our venture capital business segments is focused on
rental activities of commercial properties and the sale of investment
properties.
Results of Operations
For information regarding our controls and procedures, see Part I, Item 4 -
Controls and Procedures, of this Quarterly Report.
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During the three months ended March 31, 2020 and 2019, we operated in three
regions: Hong Kong, Malaysia and China. We derived revenue from the provision of
services and rental activities of our commercial properties.
Comparison of the three months ended March 31, 2020 and 2019
Total Revenues
Total revenue was $816,541 and $462,048 for the three months ended March 31,
2020 and 2019, respectively. The increased amount of $354,493 was primarily due
to an increase in the revenue of business services. We expect revenue from our
business services segment to steadily increase as we continue to grow our
business and expand into new territories.
Service Business Revenue
Revenue from the provision of business services was $793,713 and $433,059 for
the three months ended March 31, 2020 and 2019, respectively. It was derived
principally from the provision of business consulting and advisory services as
well as company secretarial, accounting and financial analysis services. We
experienced an increase in service income as a result of our integration of
clients through our acquisitions and increased focus on high-end services.
Real Estate Business
Rental Revenue
Revenue from rentals was $22,828 and $28,989 for the three months ended March
31, 2020 and 2019, respectively. It was derived principally from leasing
properties in Malaysia and Hong Kong. We believe our rental income will be
stable in the near future.
Total Operating Costs and Expenses
Total operating costs and expenses was $1,050,048 and $1,152,544 for the three
months ended March 31, 2020 and 2019, respectively. They consist of cost of
service revenue, cost of rental revenue, and general and administrative
expenses.
The losses from operations for the Company for the three months ended March 31,
2020 and 2019 was $233,507 and $690,496, respectively. The decrease in loss from
operations was mainly due to an increase in service revenue.
Cost of service revenue
Cost of revenue on provision of services was $128,507 and $169,092 for the three
months ended March 31, 2020 and 2019, respectively. It primarily consists of
employee compensation and related payroll benefits, company formation costs, and
other professional fees directly attributable to the services rendered.
Cost of rental revenue
Cost of rental revenue was $11,634 and $13,551 for the three months ended March
31, 2020 and 2019, respectively. It includes the costs associated with
governmental charges, repairs and maintenance, property insurance, depreciation
and other related administrative costs. Property management fees and utility
expenses are paid directly by tenants.
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General and administrative expenses
General and administrative ("G&A") expenses were $909,907 and $969,901 for the
three months ended March 31, 2020 and 2019, respectively. For the three months
ended March 31, 2020, general and administrative expenses consisted primarily of
salary and wages of $429,391, rental expenses of $100,727, and directors
compensation of $98,595. We expect our G&A expenses to continue to increase as
we integrate our business acquisitions, expand our existing business and develop
new markets in other regions.
Other income (expense)
For the three months ended March 31, 2020, net other expense was ($9,008) as
compared to net other income of $132,033 for the three months ended March 31,
2019. Gain on changes in fair value of derivative liabilities was $15,456 and
$140,649 for the three months ended March 31, 2020 and 2019, respectively.
Net loss
The net loss was $242,515 and $561,889 for the three months ended March 31, 2020
and 2019, respectively. The decrease in net loss was mainly due to an increase
of service revenue in 2020.
Net income or loss attributable to noncontrolling interest
The Company records net income or loss attributable to noncontrolling interest
in the consolidated statements of operations for any noncontrolling interest of
consolidated subsidiaries.
At March 31, 2019, noncontrolling interests are related to the Company's
respective 60% ownership of Forward Win International Limited, Yabez (Hong Kong)
Company Limited and Yabez Business Service (SZ) Company Limited, and the
Company's 51% ownership of Greenpro Capital Village Sdn. Bhd.
On February 29, 2020, the Company sold its 60% interest in Yabez (Hong Kong)
Limited and its wholly owned subsidiary, Yabez Business Service (SZ) Company
Limited (collectively, "Yabez") due to continuing losses incurred by Yabez, to
an unrelated party for $1.00.
At March 31, 2020, the noncontrolling interest is related to the Company's 60%
ownership of Forward Win International Limited.
For the three months ended March 31, 2020 and 2019, the Company recorded net
income attributable to a noncontrolling interest of $700 and net loss
attributable to the noncontrolling interests of $10,735, respectively.
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There were no seasonal aspects that had a material effect on the financial
condition or results of operations of the Company.
Other than as disclosed elsewhere in this Quarterly Report, we are not aware of
any trends, uncertainties, demands, commitments or events for the three months
ended March 31, 2020 that are reasonably likely to have a material adverse
effect on our financial condition, changes in our financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital
resources, or that would cause the disclosed financial information to be not
necessarily indicative of future operating results or financial conditions.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in our financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to our
stockholders as of March 31, 2020.
Contractual Obligations
As of March 31, 2020, one of the subsidiaries of the Company leases an office in
Hong Kong under a non-cancellable operating lease with a term of three years
commencing from May 1, 2018 to April 30, 2021. Another subsidiary of the Company
leases an office in Malaysia under a non-cancellable operating lease with a term
of one year commencing from April 1, 2020 to March 31, 2021. At March 31, 2020,
the future minimum rental payments under these leases in the aggregate are
approximately $298,784 and are due as follows: 2020: $207,156, and 2021:
$91,628.
Related Party Transactions
For the three months ended March 31, 2020 and 2019, related party service
revenue totaled $50,843 and $27,896, respectively.
Accounts receivable due from related parties was $602 and $0 as of March 31,
2020 and December 31, 2019, respectively. Other receivable due from related
parties was $61,032 and $61,623 as of March 31, 2020 and December 31, 2019,
respectively. The amounts due to related parties was $1,065,874 and $1,009,760
as of March 31, 2020 and December 31, 2019, respectively.
Our related parties are primarily those companies where Greenpro owns a certain
percentage of shares of such companies, and companies that we have determined
that we can significantly influence based on our common business relationships.
Refer to Note 6 to the Condensed Consolidated Financial Statements for
additional details regarding the related party transactions.
Critical Accounting Policies and Estimates
Use of estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Significant accounting estimates include certain assumptions related to, among
others, the allowance for doubtful accounts receivable, impairment analysis of
real estate assets and other long-term assets including goodwill, valuation
allowance on deferred income taxes, and the accrual of potential liabilities.
Actual results may differ from these estimates.
Revenue recognition
The Company follows the guidance of Accounting Standards Codification (ASC) 606,
Revenue from Contracts. ASC 606 creates a five-step model that requires entities
to exercise judgment when considering the terms of contracts, which includes (1)
identifying the contracts or agreements with a customer, (2) identifying our
performance obligations in the contract or agreement, (3) determining the
transaction price, (4) allocating the transaction price to the separate
performance obligations, and (5) recognizing revenue as each performance
obligation is satisfied. The Company only applies the five-step model to
contracts when it is probable that the Company will collect the consideration it
is entitled to in exchange for the services it transfers to its clients.
The Company's revenue consists of revenue from providing business consulting and
corporate advisory services ("service revenue"), revenue from the sale of real
estate properties, and revenue from the rental of real estate properties.
Impairment of long-lived assets
Long-lived assets primarily include real estate held for investment, property
and equipment, and intangible assets. In accordance with the provision of ASC
360, the Company generally conducts its annual impairment evaluation of its
long-lived assets in the fourth quarter of each year, or more frequently if
indicators of impairment exist, such as a significant sustained change in the
business climate. The recoverability of long-lived assets is measured at the
reporting unit level. If the total of the expected undiscounted future net cash
flows is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and carrying amount of the asset. In
addition, for real estate held for sale, an impairment loss is the adjustment to
fair value less estimated cost to dispose of the asset.
Goodwill
Goodwill is the excess of cost of an acquired entity over the fair value of
amounts assigned to assets acquired and liabilities assumed in a business
combination. Under the guidance of ASC 350, goodwill is not amortized, rather it
is tested for impairment annually, and will be tested for impairment between
annual tests if an event occurs or circumstances change that would indicate the
carrying amount may be impaired. An impairment loss generally would be
recognized when the carrying amount of the reporting unit's net assets exceeds
the estimated fair value of the reporting unit and would be measured as the
excess carrying value of goodwill over the derived fair value of goodwill. The
Company's policy is to perform its annual impairment testing for its reporting
units on December 31, of each fiscal year.
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Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives. For
derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value reported in the
statements of operations. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based
on whether net-cash settlement of the derivative instrument could be required
within 12 months of the balance sheet date or not. At each reporting date, the
Company reviews its convertible securities to determine that their
classification is appropriate.
Recent accounting pronouncements
Refer to Note 1 in the accompanying financial statements.
Liquidity and Capital Resources
Our cash balance at March 31, 2020 decreased to $679,214 as compared to
$1,256,739 at December 31, 2019. We estimate the Company currently has
sufficient cash available to meet its anticipated working capital for the next
twelve months.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. During the three
months ended March 31, 2020, the Company incurred a net loss of $242,515 and
used cash in operations of $572,935 and at March 31, 2020, the Company had a
working capital deficiency of $2,217,970. These factors raise substantial doubt
about the Company's ability to continue as a going concern within one year of
the date that the financial statements are issued. In addition, the Company's
independent registered public accounting firm, in its report on the Company's
December 31, 2019 financial statements, has expressed substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon improving
its profitability and the continuing financial support from its shareholders.
Management believes the existing shareholders or external financing will provide
the additional cash to meet the Company's obligations as they become due.
Despite the amount of funds that the Company has raised, no assurance can be
given that any future financing, if needed, will be available or, if available,
that it will be on terms that are satisfactory to the Company. Even if the
Company is able to obtain additional financing, if needed, it may contain undue
restrictions on its operations, in the case of debt financing, or cause
substantial dilution for its shareholders, in the case of equity financing.
Operating activities
Net cash used in operating activities was $572,935 for the three months ended
March 31, 2020 as compared to net cash used in operating activities of $623,578
for the three months ended March 31, 2019. The cash used in operating activities
in 2020 was mainly from the net loss for the period of $242,515, a decrease in
accounts payable and accrued liabilities of $304,987, a decrease in deferred
revenue of $270,000, an increase in prepaids and other current assets of
$30,237, and offset by a decrease in net accounts receivable of $178,198. For
the three months ended March 31, 2020, non-cash adjustments totaled $110,086,
which was mostly composed of non-cash expenses of depreciation and amortization
of $64,669 and amortization of right-of-use assets of $75,549, and offset by
non-cash income of change in fair value of derivative liabilities of $15,456 and
provision for bad debts of $15,064.
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Investing activities
Net cash used in investing activities was $24,887 and $60,814 for the three
months ended March 31, 2020 and 2019, respectively.
Financing activities
Net cash provided by financing activities for the three months ended March 31,
2020 was $22,661 while net cash used in financing activities for the three
months ended March 31, 2019 was $38,364.
The cash provided by financing activities in 2020 was mainly advances from
related parties of $58,517 and offset by repayment of loans secured by real
estate of $35,856.
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