Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2018 filed with the Securities and Exchange Commission on April 2, 2019 (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 several 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
During
the three and nine months ended September 30, 2019 and 2018, we operated in three regions: Hong Kong, Malaysia and China. We derived
revenue from the provision of services and rental of our commercial properties.
Comparison
of the three months ended September 30, 2019 and 2018
Total
revenues
Total
revenue was $1,152,326 and $1,557,213 for the three months ended September 30, 2019 and 2018, respectively. The decrease
of $404,887 was primarily due to a decrease in the revenue from the sale of real estate properties. We expect revenue
from our business services segment to steadily improve as we are continuously expanding our businesses and exposing into new territories in
order to compensate the decrease of revenue from the sale of real estate properties.
Service
revenue
Revenue
from the provision of business services was $1,132,784 and $660,353 for the three months ended September 30, 2019 and 2018,
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 more business consulting
and advisory services provided during the period.
Sale
of real estate properties
There
was no revenue generated from the sale of real estate properties for the three months ended September 30, 2019. Revenue from the
sales of real estate properties was $853,420 for the three months ended September 30, 2018, which was derived from the sale
of five units of commercial properties located in Hong Kong.
Rental
revenue
Revenue
from rentals was $19,542 and $43,440 for the three months ended September 30, 2019 and 2018, 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 $1,365,385 and $1,985,757 for the three months ended September 30, 2019 and 2018, respectively.
They consist of cost of service revenue, cost of real estate properties sold, cost of rental revenue, and general and administrative
expenses.
Cost
of service revenue
Costs
of revenue on provision of services were $352,813 and $235,508 for the three months ended September 30, 2019 and 2018,
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 real estate properties sold
There
was no cost incurred for the sale of real estate properties for the three months ended September 30, 2019. Cost of revenue on
real estate properties sold was $655,899 for the three months ended September 30, 2018. It primarily consisted of the purchase
price of property, legal fees, improvement costs to the building structure, and other acquisition costs. Selling and advertising
costs are expensed as incurred.
Cost
of rental revenue
Costs
of rental revenue were $11,237 and $13,180 for the three months ended September 30, 2019 and 2018, 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 the tenants.
General
and administrative expenses
General
and administrative (“G&A”) expenses were $1,001,335 and $1,081,170 for the three months ended September
30, 2019 and 2018, respectively. For the three months ended September 30, 2019, G&A expenses consist primarily of salary and
wages of $458,892, consulting fees of $48,518, advertising and promotion expenses of $41,363, rental expenses of $99,394,
and directors’ remuneration of $83,732. We expect our G&A expenses to continue to increase as we integrate our business
acquisitions, expand our offices into new jurisdictions, and deepen our existing businesses.
Loss
from operations
The
loss from operations for the Company for the three months ended September 30, 2019 and 2018 was $213,059 and $428,544,
respectively. The decrease in loss from operations was mainly due to an increase of service revenue.
Other
income (expense)
For
the three months ended September 30, 2019, net other income was $2,489 as compared to net other expense of ($4,305,140) for the
three months ended September 30, 2018. In 2018, the Company issued common stock with a fair value of $5,440,000 and received
a net of $800,000. The difference of $4,640,000 was recorded as an expense of the transaction. In 2019, there was no such issuance
of common stock.
Net
loss
The
net loss was $211,147 and $4,772,586 for the three months ended September 30, 2019 and 2018, respectively. The decrease
in net loss was mainly due to an increase of revenue in business services in 2019. In addition, in 2018 the Company recorded
$4,640,000 as an expense related to the issuance of common stock and there was no such expense in 2019.
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.
For
the three months ended September 30, 2019 and 2018, the Company recorded net loss attributable to noncontrolling interests
of $23,295 and net income attributable to noncontrolling interests of $80,614, respectively.
Comparison
of the nine months ended September 30, 2019 and 2018
Total
revenues
Total
revenue was $3,316,088 and $3,105,888 for the nine months ended September 30, 2019 and 2018, respectively. The increase
of $210,200 was due to an increase of revenue in business services and an increase in our client base. We expect revenue
from our business services segment to increase as we continue to grow our business and expand into new territories.
Service
revenue
Revenue
from the provision of business services was $3,244,626 and $1,975,124 for the nine months ended September 30, 2019 and
2018, respectively. It was derived principally from 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
in connection with our acquisitions and increased focus on high-end services.
Sale
of real estate properties
There
was no revenue generated from the sale of real estate properties for the nine months ended September 30, 2019. Revenue from the
sale of real estate properties was $999,494 for the nine months ended September 30, 2018, which was derived from the sale of six
units of commercial properties located in Hong Kong.
Rental
revenue
Revenue
from rentals was $71,462 and $131,270 for the nine months ended September 30, 2019 and 2018, 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 $4,353,669 and $4,146,396 for the nine months ended September 30, 2019 and 2018, 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 $1,131,003 and $621,823 for the nine months ended September 30, 2019 and 2018,
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 real estate properties sold
There
was no cost incurred for real estate properties sold for the nine months ended September 30, 2019. Costs of revenue on real estate
properties sold were $751,218 for the nine months ended September 30, 2018. It primarily consists of the purchase price of property,
legal fees, improvement costs to the building structure, and other acquisition costs. Selling and advertising costs are expensed
as incurred.
Cost
of rental revenue
Cost
of rental revenue was $34,989 and $52,615 for the nine months ended September 30, 2019 and 2018, 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.
General
and administrative expenses
General
and administrative (“G&A”) expenses were $3,187,677 and $2,720,740 for the nine months ended September
30, 2019 and 2018, respectively. For the nine months ended September 30, 2019, G&A expenses consist primarily of salary and
wages of $1,324,108, consulting fees of $214,178, advertising and promotion expenses of $109,060, rental expenses of $298,637,
and directors’ remuneration of $249,181. We expect our G&A expenses to continue to increase as we expect to integrate
our business acquisitions, expand our offices into new jurisdictions, and deepen our existing businesses.
Loss
from operations
The
loss from operations for the Company for the nine months ended September 30, 2019 and 2018 was $1,037,581 and $1,040,508,
respectively. The decrease in loss from operations was mainly due to an increase of service revenue.
Other
income (expense)
For
the nine months ended September 30, 2019, net other income was $207,625 as compared to net other expense of ($4,071,297)
for the nine months ended September 30, 2018. In 2018, the Company issued common stock with a fair value of $5,440,000 and
received a net of $800,000. The difference of $4,640,000 was recorded as an expense of the transaction. In 2019, there was no
such issuance of common stock.
Net
Loss
The
net loss was $838,264 and $5,146,255 for the nine months ended September 30, 2019 and 2018, respectively. The decrease
in net loss was mainly due to an increase of revenue in business services in 2019. In addition, in 2018 the Company
recorded $4,640,000 as an expense related to the issuance of common stock and there was no such expense in in 2019.
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.
For
the nine months ended September 30, 2019 and 2018, the Company recorded net loss attributable to noncontrolling interests of $63,122
and net income attributable to noncontrolling interests of $114,512, 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 nine months ended September 30, 2019 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 September 30, 2019.
Contractual
Obligations
As
of September 30, 2019, two of the Company’s subsidiaries lease three offices in Hong Kong under three separate
non-cancellable operating leases, two of which have a term of three years commencing from October 15, 2016 to October 14, 2019
and from May 1, 2018 to April 30, 2021, and one of which has a term of one year commencing from November 1, 2018 to October
31, 2019. Another subsidiary of the Company leases one office in PRC under a separate non-cancellable operating lease with
a term of three years commencing from March 25, 2019 to March 24, 2022. At September 30, 2019, the future minimum rental payments
under these leases aggregate approximately $520,635 and are due as follows: 2019: $77,428; 2020: $302,393; 2021: $130,730 and
2022: $10,084, respectively.
Related
Party Transactions
There
were $1,743,533 and $339,422 recorded in service revenues in connection with related party transactions for the nine months
ended September 30, 2019 and 2018, respectively.
The
amounts due from related parties were $64,960 and $95,794 as of September 30, 2019 and December 31, 2018, respectively.
The amounts due to related parties were $972,074 and $862,532 as of September 30, 2019 and December 31, 2018, respectively.
Our
related parties are primarily those companies where Greenpro owns a certain percentage of shares in such companies, and companies
that we have determined that we can significantly influence based on our common business relationships. Refer to Note 8
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 US GAAP 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, estimates inherent in recording purchase price allocation, 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.
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 liabilities depending on whether net-cash settlement of the derivative instrument
is required within 12 months from the balance sheet date. 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
At
September 30, 2019, our cash balance decreased to $857,892 as compared to $2,172,048 as of December 31, 2018. The Company
estimates it 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 nine months ended September 30, 2019,
the Company incurred a net loss of $838,264 and used cash in operations of $1,241,216. 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, 2018 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 the Company can obtain additional financing
if necessary, 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 were $1,241,216 and $743,954 for the nine months ended September 30, 2019 and 2018, respectively.
The cash used in operating activities in 2019 was mainly from the net loss for the period of $838,264, a decrease in accounts
payable and accrued liabilities of $184,362, a decrease in deferred revenue of $613,660 and offset by a decrease of accounts receivable
of $60,767, a decrease of prepaids and other current assets of $89,184, and a decrease in deferred costs of revenue of $337,540.
For the nine months ended September 30, 2019, non-cash adjustments included depreciation and amortization of $184,227 and offset
by non-cash income of change in fair value of derivative liabilities of $192,785, a gain on deconsolidation of controlled subsidiaries
of $35,986, and provision for bad debts of $27,324.
Investing
activities
Net
cash used in investing activities was $63,112 and net cash provided by investing activities was $242,080 for the nine months
ended September 30, 2019 and 2018, respectively. In 2019, the cash used in investing activities was mainly for the purchase of
a subsidiary of $129,032 and offset by cash acquired upon the acquisition of this subsidiary of $68,845.
Financing
activities
Net
cash provided by financing activities was $1,744 and $2,008,063 for the nine months ended September 30, 2019 and 2018, respectively.
The
cash provided by financing activities in 2019 was mainly the advances from related parties of $108,601 and offset by the
repayment of loans of $106,857. As compared to 2018, the major cash provided by financial activities was the cash proceeds
from the issuance of shares of $3,463,705.