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 and six months ended June 30, 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 June 30, 2020 and 2019
Total revenue
Total revenue was $401,140 and $1,701,714 for the three months ended June 30,
2020 and 2019, respectively. The decreased amount of $1,300,574 was primarily
due to a decrease in the revenue of business services. We expect revenue from
our business services segment to decrease in the next few months due to the
impact of the COVID-19 pandemic.
Service business revenue
Revenue from the provision of business services was $368,460 and $1,678,783 for
the three months ended June 30, 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 a decrease in service income as a result of less service orders
placed from clients during the period due to the impact of the COVID-19
pandemic.
Real estate business
Rental revenue
Revenue from rentals was $32,680 and $22,931 for the three months ended June 30,
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 $939,829 and $1,835,740 for the three
months ended June 30, 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 June 30,
2020 and 2019 was $538,689 and $134,026, respectively. The increase in loss from
operations was mainly due to a decrease in service revenue.
Cost of service revenue
Cost of revenue on provision of services was $71,937 and $609,098 for the three
months ended June 30, 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 $14,607 and $10,201 for the three months ended June
30, 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 $853,285 and $1,216,441 for the
three months ended June 30, 2020 and 2019, respectively. For the three months
ended June 30, 2020, general and administrative expenses consisted primarily of
salary and wages of $370,589, rental expenses of $71,303, other professional
fees of $82,381, and directors' compensation of $98,831. 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 June 30, 2020, net other expense was ($24,526) as
compared to net other income of $73,103 for the three months ended June 30,
2019. Loss on changes in fair value of derivative liabilities was $55,409 for
the three months ended June 30, 2020. Gain on changes in fair value of
derivative liabilities was $43,916 for the three months ended June 30, 2019.
Net loss
The net loss was $563,215 and $65,228 for the three months ended June 30, 2020
and 2019, respectively. The increase in net loss was mainly due to a decrease 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.
For the three months ended June 30, 2020 and 2019, the Company recorded net
income attributable to a noncontrolling interest of $3,562 and net loss
attributable to the noncontrolling interests of $29,092, respectively.
Comparison of the six months ended June 30, 2020 and 2019
Total revenue
Total revenue was $1,217,681 and $2,163,762 for the six months ended June 30,
2020 and 2019, respectively. The decrease of $946,081 was due to a decrease of
revenue in business services and a decrease in our client base. We expect
revenue from our business services segment to decrease in the next few months
due to the impact of the COVID-19 pandemic.
Service business revenue
Revenue from the provision of business services was $1,162,173 and $2,111,842
for the six months ended June 30, 2020 and 2019, respectively. It was derived
principally from business consulting and advisory services as well as company
secretarial, accounting and financial analysis services. We experienced a
decrease in service income as a result of less service orders placed from
clients during the period due to the impact of the COVID-19 pandemic.
Real estate business
Rental revenue
Revenue from rentals was $55,508 and $51,920 for the six months ended June 30,
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 $1,989,877 and $2,988,284 for the six
months ended June 30, 2020 and 2019, respectively. They consist of cost of
service revenue, cost of real estate properties sold, cost of rental revenue and
G&A expenses.
Cost of service revenue
Costs of revenue on provision of services were $200,444 and $778,190 for the six
months ended June 30, 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 $26,241 and $23,752 for the six months ended June 30,
2020 and 2019, respectively. It includes the costs associated with government
rent and rates, repairs and maintenance, property insurance, depreciation and
other related administrative costs. Property management fees and utility
expenses are paid directly by the tenants.
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General and administrative expenses
General and administrative ("G&A") expenses were $1,763,192 and $2,186,342 for
the six months ended June 30, 2020 and 2019, respectively. For the six months
ended June 30, 2020, G&A expenses consist primarily of salary and wages of
$799,980, rental expenses of $172,030, other professional fees of $107,676, and
directors' remuneration of $197,426. We expect our G&A expenses to continue to
increase as we expect to integrate our business acquisitions, deepen our
existing businesses and develop new markets in other regions.
Other income (expense)
For the six months ended June 30, 2020, net other expense was ($33,534) as
compared to net other income of $205,136 for the six months ended June 30, 2019.
Loss on changes in fair value of derivative liabilities was $39,953 for the six
months ended June 30, 2020. Gain on changes in fair value of derivative
liabilities was $184,565 for the six months ended June 30, 2019.
Net Loss
The net loss was $805,730 and $627,117 for the six months ended June 30, 2020
and 2019, respectively. The increase in net loss was mainly due to a decrease of
service revenue in 2020.
Income or loss attributable to noncontrolling interests
The Company records income or loss attributable to noncontrolling interests in
the consolidated statements of operations for any noncontrolling interests of
consolidated subsidiaries.
At June 30, 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.
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.
On April 23, 2020, the Company sold 40% of the outstanding shares of Greenpro
New Finance Academy Limited (formerly known as Greenpro Synergy Network Limited)
and its wholly owned subsidiary, Greenpro Synergy Network (Shenzhen) Limited
(collectively, "GSN") to Mr. Yip Hoi Hing Peter, a director of certain
controlled subsidiaries of the Company ("Mr. Yip") for HK$1 (approximately
$0.13).
On May 4, 2020, the Company disposed 40% shareholdings of Greenpro Family Office
Limited ("GFO") to Mr. Yip for HK$1 (approximately $0.13).
On May 20, 2020, Greenpro Venture Cap (Qianhai) Limited, a wholly owned
subsidiary of the Company ("GVCQH"), allotted an additional 196 shares to Mr.
Yip at the aggregate price of $196. As a result, the Company holds a 2% interest
in GVCQH, and GVCQH's sole asset, cash of $129, was disposed and a loss on
disposal of $125 was recorded.
At June 30, 2020, the noncontrolling interest is related to the Company's
respective 60% ownership of Forward Win International Limited, GFO and GSN.
For the six months ended June 30, 2020 and 2019, the Company recorded net income
attributable to noncontrolling interests of $4,262 and net loss attributable to
noncontrolling interests of $39,827, respectively.
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 six months
ended June 30, 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.
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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 June 30, 2020.
Contractual Obligations
As of June 30, 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 June 30, 2020,
the future minimum rental payments under these leases in the aggregate are
approximately $231,187 and are due as follows: 2020: $139,502, and 2021:
$91,685.
Related Party Transactions
For the six months ended June 30, 2020 and 2019, related party service revenue
totaled $107,971 and $1,313,464, respectively.
Accounts receivable due from related parties was $126 and $0 as of June 30, 2020
and December 31, 2019, respectively. Other receivable due from related parties
was $61,032 and $61,623 as of June 30, 2020 and December 31, 2019, respectively.
The amounts due to related parties was $1,222,948 and $1,009,760 as of June 30,
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 7 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 June 30, 2020 decreased to $559,465 as compared to
$1,256,739 at December 31, 2019. We estimate the Company currently does not have
sufficient cash available to meet its anticipated working capital for the next
twelve months, without raising additional capital. The Company is continuing to
look for different financing opportunities in order to increase working capital
and improve liquidity.
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 six
months ended June 30, 2020, the Company incurred a net loss of $805,730 and used
cash in operations of $871,698 and at June 30, 2020, the Company had a working
capital deficiency of $2,720,009. 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 $871,698 and $999,305 for the six
months ended June 30, 2020 and 2019, respectively. The cash used in operating
activities in 2020 was mainly from the net loss for the period of $805,730, a
decrease in accounts payable and accrued liabilities of $84,486, a decrease in
deferred revenue of $270,000, an increase in prepaids and other current assets
of $11,703, and offset by a decrease in net accounts receivable of $152,716. For
the six months ended June 30, 2020, non-cash adjustments totaled $277,167, which
was mostly composed of non-cash expenses of depreciation and amortization of
$128,758 and amortization of right-of-use assets of $137,324, change in fair
value of derivative liabilities of $39,953 and offset by non-cash income of
provision for bad debts of $28,911.
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Investing activities
Net cash used in investing activities was $26,964 and $63,179 for the six months
ended June 30, 2020 and 2019, respectively.
Financing activities
Net cash provided by financing activities was $146,904 and $31,639 for the six
months ended June 30, 2020 and 2019, respectively.
The cash provided by financing activities in 2020 was mainly advances from
related parties of $218,825 and offset by repayment of loans secured by real
estate of $71,921.
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