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, 2017 filed with the Securities and Exchange Commission on April 13, 2018 (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 guarantees 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
Restatement
of Previously Issued Consolidated Financial Statements
As
discussed further in Note 2, Restatement of Previously Issued Consolidated Financial Statements, in the Notes to the Condensed
Consolidated Financial Statements included in Part I, Item 1, Condensed Consolidated Financial Statements, of this Quarterly Report,
we have restated our condensed consolidated financial statements for the three and nine months ended September 30, 2017. Refer
to Note 2 to the Condensed Consolidated Financial Statements for additional details regarding the aforementioned restatement adjustments.
For
information regarding our controls and procedures, see Part I, Item 4 - Controls and Procedures, of this Quarterly Report.
During
the three and nine months ended September 30, 2018 and 2017, we operated in three regions: Hong Kong, Malaysia and China. We derived
revenue from rental activities of our commercial properties and the provision of services.
Comparison
of the three months ended September 30, 2018 and 2017
Total
Revenues
Total
revenue was $1,557,213 and $879,754 for the three months ended September 30, 2018 and 2017, respectively. The increased amount
of $677,459 was primarily due to the increase in sales of real estate properties. 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 $660,353 and $826,290 for the three months ended September 30, 2018 and 2017, 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 decrease in service income as a result of lower completed performance
of business consulting and advisory services during the period.
Sale
of real estate properties
Revenue
from the sale of real estate properties was $853,420 for the three months ended September 30, 2018, which was derived from the
sale of certain commercial properties located in Hong Kong. There was no revenue generated from the sale of real estate properties
for the three months ended September 30, 2017.
Rental
Revenue
Revenue
from rentals was $43,440 and $53,464 for the three months ended September 30, 2018 and 2017, 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 $1,985,757 and $1,017,394 for the three months ended September 30, 2018 and 2017, respectively.
They consist of cost of service revenue, cost of real estate properties sold, cost of rental revenue, and general and administrative
expenses.
The
loss from operations for the Company for the three months ended September 30, 2018 and 2017 was $428,544 and $137,640,
respectively. The increase in loss from operations was mainly due to increase in general and administrative expenses.
Cost
of service revenue
Costs
of revenue on provision of services were $235,508 and $210,922 for the three months ended September 30, 2018 and 2017, 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
Costs
of revenue on real estate properties sold were $655,899 for the three 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 $13,180 and $17,737 for the three months ended September 30, 2018 and 2017, 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.
General
and administrative expenses
General
and administrative expenses were $1,081,170 and $788,735 for the three months ended September 30, 2018 and 2017,
respectively. For the three months ended September 30, 2018, general and administrative expenses consist primarily of salary and
wages of $418,788, rental expenses of $91,232, and directors’ remuneration of $82,500. We expect our G&A to continue
to increase as we integrate our business acquisitions, expand our offices into new jurisdictions, and deepen our existing businesses.
Other
income (expense)
For the
three months ended September 30, 2018, other income was $334,860 as compared to other expense of ($8,366) for the three months
ended September 30, 2017, representing an increase in other income of $343,226. The increase was primarily due to a change in
the fair value of derivative liabilities.
Net
Loss
The
net loss was $132,586 and $203,390 for the three months ended September 30, 2018 and 2017, respectively. The decrease
in net loss was mainly due to the increase in sales of real estate properties offset by increase in general and administrative expenses.
Loss
Attributable to noncontrolling interest
The
Company records income attributable to noncontrolling interest in the consolidated statements of operations for any noncontrolling
interest of consolidated subsidiaries.
At
September 30, 2018, noncontrolling interests are related to the Company’s ownership of 80% of Greenpro International Limited
and Greenpro Property Development Limited (formerly known as Chief Billion Limited), the Company’s ownership of 60% of Forward
Win International Limited, Yabez (Hong Kong) Company Limited, Billion Sino Holdings Limited and Parich Wealth Management Limited,
and the Company’s ownership of 51% of Greenpro Capital Village Sdn Bhd.
For
the three months ended September 30, 2018 and 2017, the Company recorded net loss attributable to noncontrolling interests of
($80,614) and net income attributable to noncontrolling interests of $16,688, respectively.
Comparison
of the nine months ended September 30, 2018 and 2017
Total
Revenues
Total
revenue was $3,105,888 and $2,279,220 for the nine months ended September 30, 2018 and 2017, respectively. The increased amount
of $826,668 was due to the sale of a real estate unit 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 $1,975,124 and $2,139,939 for the nine months ended September 30, 2018 and 2017, 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 decrease in service income as a result of lower completed performance
of business consulting and advisory services during the period.
Sale
of real estate properties
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 certain commercial properties located in Hong Kong. There was no revenue generated from the sale of real estate properties
for the nine months ended September 30, 2017.
Rental
Revenue
Revenue
from rentals was $131,270 and $139,281 for the nine months ended September 30, 2018 and 2017, 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 $4,146,396 and $2,899,283 for the nine months ended September 30, 2018 and 2017, respectively.
They consist of cost of service revenue, cost of real estate properties sold, cost of rental revenue, general and administrative
expenses.
The
loss from operations for the Company for the nine months ended September 30, 2018 and 2017 was $1,040,508 and $620,063,
respectively. The increase in loss from operations was mainly due to increase in general and administrative expenses.
Cost
of service revenue
Costs
of revenue on provision of services were $621,823 and $501,466 for the nine months ended September 30, 2018 and 2017, 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
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 $52,615 and $48,639 for the nine months ended September 30, 2018 and 2017, respectively. It includes the
costs associated with government rent and rates, repairs and maintenance, property insurance, depreciation and other related administrative
costs. Property management fee and utility expenses are paid directly by tenants.
General
and administrative expenses
General
and administrative expenses were $2,720,740 and $2,349,177 for the nine months ended September 30, 2018 and 2017,
respectively. For the nine months ended September 30, 2018, general and administrative expenses consist primarily of salary
and wages of $1,059,648, rental expenses of $288,050, and directors’ remuneration of $247,500. We expect our general
and administrative expenses to continue to increase as we integrate our business acquisitions, expand our offices into
new jurisdictions, and deepen our existing businesses.
Other
income (expense)
For the nine months ended September
30, 2018, other income was $568,703 as compared to other expense of ($23,114) for the three months ended September 30, 2017, representing
an increase in other income of $591,817. The increase was primarily due to a change in the fair value of derivative liabilities
and a gain on the sale of equity method investment, offset by an increase in interest expense.
Net
Loss
The
net loss was $506,255 and $714,550 for the nine months ended September 30, 2018 and 2017, respectively. The decrease in
net loss was mainly due to the gain on sale of equity method investment.
Loss
Attributable to noncontrolling interest
The
Company records income attributable to noncontrolling interest in the consolidated statements of operations for any noncontrolling
interest of consolidated subsidiaries.
At
September 30, 2018, noncontrolling interests are related to the Company’s ownership of 80% of Greenpro International Limited
and Greenpro Property Development Limited (formerly known as Chief Billion Limited), the Company’s ownership of 60% of Forward
Win International Limited, Yabez (Hong Kong) Company Limited, Billion Sino Holdings Limited and Parich Wealth Management Limited,
and the Company’s ownership of 51% of Greenpro Capital Village Sdn Bhd.
For
the nine months ended September 30, 2018 and 2017, the Company recorded net loss attributable to noncontrolling interests of ($114,512)
and net income attributable to noncontrolling interests of $34,456, 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, 2018 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, 2018.
Contractual
Obligations
As
of September 30, 2018, the Company’s subsidiaries lease an office in Hong Kong under a non-cancellable operating lease for
three years commencing from May 1, 2018 and expiring on April 30, 2021. At September 30, 2018, the future minimum rental payments
under this lease aggregate approximately $687,081 and are due as follows: 2019: $273,958, 2020: $259,575, and 2021: $153,548.
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
Effective
January 1, 2018, the Company adopted the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts. The
implementation of ASC 606 did not have a material impact on the Company’s consolidated financial statements. 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 based on whether or not net-cash settlement of the derivative instrument could
be required within 12 months of 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
Our
cash balance at September 30, 2018 increased to $2,625,030 as compared to $1,162,394 at December 31, 2017. We estimate the Company
currently has sufficient cash and liquidity 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, 2018,
the Company incurred a loss from operations of $1,040,508 and used cash in operations of $743,954. 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, 2017 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. On June 12, 2018, the Company sold 535,559 shares
of its common stock in an underwritten public offering at $6.00 per share for net proceeds of approximately $2.7 million,
after deducting expenses of the offering. On July 18, 2018, the Company sold 906,666 shares of its common stock at $7.50 per
share in a private placement for net proceeds of approximately $6.7 million. 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 $743,954 for the nine months ended September 30, 2018 as compared to net cash used
in operating activities of $841,487 for the nine months ended September 30, 2017. The cash used in operating activities in 2018
was mainly from the net loss for the period of $506,255, an increase in prepayments and other current assets of $372,793,
a decrease in accounts payable and accrued liabilities of $258,280, and offset by an increase in deferred revenue of $687,689.
For the nine months ended September 30, 2018, non-cash adjustments totaled $427,936 and were primarily composed of depreciation
and amortization of $201,417, change in fair value of derivative liabilities of $319,520, and gain on sale of real estate held
for sale of $248,276.
Investing
activities
Net
cash used in investing activities was $5,757,920 and $130,584 for the nine months ended September 30, 2018 and 2017, respectively.
In 2018, the cash used in investing activities was mainly for the purchase of long-term investments of $325,000,
issuance of notes receivable for $6,300,000, and offset by proceeds from sales of real estate of $911,807.
Financing
activities
Net
cash provided by financing activities for the nine months ended September 30, 2018 was $8,008,063 while net cash provided
by financing activities for the nine months ended September 30, 2017 was $2,321,626.
The
cash provided by financing activities in 2018 was from the proceeds of a direct public offering and private placement of the Company’s
common stock of $9,463,705, offset by repayment of due to related parties of $537,506 and principal payments on
loans payables of $889,290.