Greenpro Capital Corp. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our results of operations and financial condition for fiscal years ended December 31, 2022, and 2021, should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Annual Report. Some of the information contained in this management’s discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in this Annual 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 (the “Package Solution”) to our clients and we believe that our clients can reduce their business costs and improve 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 focuses 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 focuses on companies located in South-East Asia and East Asia, including Hong Kong, Malaysia, China, Thailand, and Singapore. Another venture capital business segment focuses on rental activities of commercial properties and the sale of investment properties. Results of Operations For information regarding our controls and procedures, see Part–II, Item 9A - Controls and Procedures, of this Annual Report. During the years ended December 31, 2022, and 2021, we principally operated in three regions: Hong Kong, China and Malaysia. We derived revenues from provision of services, leasing and trading of our commercial properties, respectively. A table further describing our revenues and cost of revenues is set forth below: Year ended December 31, 2022 2021 REVENUES: Service revenue (including $665,203 and $861,449 of service revenue from related parties for the years ended December 31, 2022, and 2021, respectively) $ 2,725,466 $ 2,820,950 Rental revenue 108,495 128,830 Sale of real estate properties 840,036 - Total revenues 3,673,997 2,949,780 COST OF REVENUES: Cost of service revenue (404,077 ) (422,908 ) Cost of rental revenue (46,083 ) (49,778 ) Cost of real estate properties sold (573,343 ) - Total cost of revenues (1,023,503 ) (472,686 ) GROSS PROFIT 2,650,494 2,477,094 OPERATING EXPENSES: General and administrative (including $193,802 and $12,922 of general and administrative expense to related parties for the years ended December 31, 2022, and 2021, respectively) (4,168,997 ) (5,231,778 ) Total operating expenses (4,168,997 ) (5,231,778 ) LOSS FROM OPERATIONS $ (1,518,503 ) $ (2,754,684 ) 51 Comparison of the years ended December 31, 2022, and 2021 Total Revenues Total revenue was $3,673,997 and $2,949,780 for the years ended December 31, 2022, and 2021, respectively. The increase of $724,217 was primarily due to the sale of three real estate property units. We expect revenue from both business service and real estate segments to steadily improve when the impact of the COVID-19 pandemic becomes contained. Service Business Revenue Revenue from the provision of business services was $2,725,466 and $2,820,950 for the years ended December 31, 2022, and 2021, 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 expect revenue from our business services segment to steadily improve as we are expanding our businesses into new territories. Real Estate Business Rental Revenue Revenue from rentals was $108,495 and $128,830 for the years ended December 31, 2022, and 2021, respectively. It was derived principally from leasing properties in Hong Kong and Malaysia. We expect our rental income will be stable. Sale of Properties For the year ended December 31, 2022, we generated revenue of $840,036 from the sale of three property units in Hong Kong. No revenue was generated as no property was sold for the year ended December 31, 2021. As opportunities permit, management expects the Company will continuously purchase and sell commercial properties. Accordingly, we expect revenue and costs attributable to the sale of properties to fluctuate on a going forward basis. Total Operating Costs and Expenses Total operating costs and expenses were $5,192,500 and $5,704,464 for the years ended December 31, 2022, and 2021, respectively. They consist of cost-of-service revenue, cost of rental revenue and cost of real estate properties sold, and general and administrative expenses. Loss from operations was $1,518,503 and $2,754,684 for the years ended December 31, 2022, and 2021, respectively. The decrease in loss from operations was mainly due to a decrease in general and administrative expense by $1,062,781. Cost of Service Revenue Cost of revenue for provision of services was $404,077 and $422,908 for the years ended December 31, 2022, and 2021, respectively. It primarily consists of employee compensation and related payroll benefits, company formation cost and other professional fees directly attributable to cost related to the services rendered. Cost of Rental Revenue Cost of rental revenue was $46,083 and $49,778 for the years ended December 31, 2022, and 2021, respectively. It includes the costs associated with taxes, repairs and maintenance, property management fee, insurance, depreciation and other related administrative costs. Utility expenses are paid directly by tenants. Cost of Real Estate Properties Sold Cost of real estate properties sold was $573,343 and $0 for the years ended December 31, 2022, and 2021, respectively. 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. General and Administrative Expenses General and administrative (“G&A”) expenses were $4,168,997 and $5,231,778 for the years ended December 31, 2022, and 2021, respectively. In 2022, our G&A expenses primarily consisted of employees’ salaries and allowances of $1,505,316, directors’ salaries and compensation of $702,512, advertising and marketing of $333,872, consulting fee of $175,167, rent and rates of $112,904, and audit, legal, and other professional fees of $641,142. We expect our G&A expenses will continue to increase as we integrate our business acquisitions, explore and expand businesses into new jurisdictions. Other Income or Expenses Net other expenses were $4,741,329 and $11,603,608 for the years ended December 31, 2022, and 2021, respectively. In 2022, other expenses included impairment of goodwill of $263,247, impairment of other receivable of $606,250 and impairment of other investments of $4,208,029, while other income mainly consisted of reversal of write-off notes receivable of $200,000. Interest Expenses Total interest expenses were $0 and $12,950,750 for the years ended December 31, 2022, and 2021, respectively. On October 13, 2020, the Company issued three unsecured promissory notes to Streeterville Capital, LLC, FirstFire Global Opportunities Fund, LLC, and Granite Global Value Investments Ltd. (collectively, the “Investors”), respectively. The Company issued another unsecured promissory note to Streeterville Capital, LLC (“Streeterville”) on January 8, 2021, and February 11, 2021, respectively. Interest expenses related to the convertible promissory notes totaled $12,900,855 for the year ended December 31, 2021, which included coupon interest expense of $460,189, amortization of discount on convertible notes of $206,342, amortization of debt issuance costs of $76,380, interest expense associated with conversion of notes of $2,254,480, interest expense associated with accretion of convertible notes payable of $8,561,440, interest expense due to non-fulfillment of use of proceeds requirements of $1,106,488 and additional charge for early redemption of $235,536. Attributable to Noncontrolling Interests The Company recorded net income (loss) attributable to noncontrolling interests in the consolidated statements of operations, for the noncontrolling interests of a consolidated subsidiary. For the years ended December 31, 2022, and 2021, the consolidated financial statements included noncontrolling interests to the Company’s 60% ownership subsidiary, Forward Win International Limited (“FWIL”), which is principally engaged in trading and leasing properties in Hong Kong. The Company recorded net income attributable to noncontrolling interests of $88,684 for the year ended December 31, 2022, and net loss attributable to noncontrolling interests of $13,876 for the year ended December 31, 2021. In 2022, net income attributable to noncontrolling interests was primarily due to a net income derived from FWIL and its share of income allocated to the noncontrolling interests. In 2021, net loss attributable to noncontrolling interests was primarily due to a net loss incurred by FWIL and its share of loss allocated to the noncontrolling interests. Net Loss Net loss was $6,262,188 and $14,363,232 for the years ended December 31, 2022, and 2021, respectively. The decrease in net loss in 2022 was mainly due to extinguishment of convertible notes during 2021. Hence, no interest expense and loss on extinguishment associated with the convertible notes was incurred in 2022. 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 Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2022 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. 52 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 December 31, 2022. Contractual Obligations As of December 31, 2022, one of our subsidiaries leases one office in Hong Kong under a non-cancellable operating lease, with a term of two years commencing from March 15, 2021, to March 14, 2023. In February 2023, this tenancy agreement has been renewed with a term of two years commencing from March 15, 2023 to March 14, 2025. One of our Malaysia subsidiaries leases an office in Kuala Lumpur and the other Malaysia subsidiary leases one office in Labuan, which are under a separate non-cancellable operating lease with terms of one year, from April 1, 2022, to March 31, 2023, and from June 15, 2022 to June 14, 2023, respectively. On December 31, 2022, the future minimum rental payments under these leases in the aggregate are approximately $220,528 and are due as follows: 2023: $102,667; 2024: $97,540 and 2025: $20,321, respectively. Related Party Transactions For the years ended December 31, 2022, and 2021, related party service income totaled $665,203 and $861,449, respectively. For the years ended December 31, 2022, and 2021, related party expenses included cost of services and general and administrative expenses totaled $193,802 and $12,922, respectively. Impairment of other receivable from related party was $606,250 and $0 for the years ended December 31, 2022, and 2021 respectively. Impairment of related party investments totaled $4,208,029 and $5,349,600 for the years ended December 31, 2022, and 2021, respectively. For the years ended December 31, 2022, and 2021, related party other income was $5,850 and $0, respectively. Net accounts receivable from related parties was $129,292 and $41 as of December 31, 2022, and 2021, respectively. Prepayment to related party was $80,000 and $0 as of December 31, 2022, and 2021, respectively. Amounts due from related parties were $265,772 and $1,170,855 as of December 31, 2022, and 2021, respectively. Amounts due to related parties were $448,251 and $757,283 as of December 31, 2022, and 2021, respectively. Deferred costs of revenue to related party was $11,640 as of December 31, 2022, and 2021, while deferred revenue from related parties was $849,400 and $912,980 as of December 31, 2022, and 2021, respectively. As of December 31, 2022, and 2021, other investments in related parties were $5,406,106 and $9,621,935, respectively. Our related parties are mainly those companies in which Greenpro Venture Capital Limited or Greenpro Resources Limited owns a certain number of shares or certain percentage of interest in those companies, or the Company can exercise significant influence over those companies’ financial and operating policy decisions. Some of the related parties are either controlled by or under common control of Mr. Loke Che Chan Gilbert or Mr. Lee Chong Kuang, executive officers and directors of the Company. 53 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, real estate held for use, and equipment and intangible assets. In accordance with the provision of ASC 360, the Company generally conducts its annual impairment evaluation to its long-lived assets, usually 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. Recent accounting pronouncements Refer to Note 1 in the accompanying consolidated financial statements. 54 Liquidity and Capital Resources Our cash balance on December 31, 2022, was $3,911,535, as compared to $5,338,571 on December 31, 2021, it was decreased by $1,427,036. We estimate the Company has sufficient cash available to meet its anticipated working capital for the next twelve months. The accompanying consolidated 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 year ended December 31, 2022, the Company incurred a net loss of $6,262,188 and net cash used in operations of $2,402,769. 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 financial statements on December 31, 2022, 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 major 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 can 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 $2,402,769 and $2,023,150 for the years ended December 31, 2022, and 2021, respectively. The cash used in operating activities in 2022 was mainly from net loss for the year of $6,262,188, gain on sale of real estate held for sale of $266,693, reversal of write-off notes receivable of $200,000 and offset by impairment of goodwill of $263,247, impairment of other receivable of $606,250 and impairment of other investments of $4,208,029, while the cash used in operating activities in 2021 was mainly from net loss for the year of $14,363,232, reversal of write-off notes receivable of $5,000,000, fair value gains of options associated with convertible notes of $5,093,720 and offset by amortization and interest expenses associated with convertible notes of $12,440,666, loss of extinguishment of convertible notes of $3,521,263 and impairment of other investment of $5,349,600. Non-cash net expenses totaled $4,936,324 and $11,836,184 for the years ended December 31, 2022 and 2021, respectively, which were mostly composed of non-cash expenses of impairment of goodwill of $263,247, impairment of other receivable of $606,250 and impairment of other investments of $4,208,029 and offset by non-cash income of gain on sale of real estate held for sale of $266,693 and reversal of write-off notes receivable of $200,000 for the year ended December 31, 2022. The Company incurred operating losses and had net cash used in operating activities for the past two years. Investing activities Net cash provided by investing activities was $836,170 and $35,515 for the years ended December 31, 2022, and 2021, respectively. Financing activities Net cash provided by financing activities was $135,421 and $6,308,213 for the years ended December 31, 2022 and 2021, respectively. Cash provided by financing activities was mainly from collection of notes receivable of $200,000 in 2022. In 2021, cash provided by financing activities was mainly from the net proceeds of convertible notes of $5,210,000 and collection of notes receivable of $5,000,000. 55 During 2022, the Company did not issue any shares of its Common Stock. There was no cash proceeds from shares issued in 2021. Below is the share issuance summary of the financing activities of the Company during 2022 and 2021: Date Shares of Common Stock Issued Cash Proceeds from Share Issuance Recipient(s) of Shares February 26, 2021 (1) 34,259 - Two shareholders April 7, 2021 (2) 300,000 - One shareholder April 7, 2021 (3) 6,000 - One shareholder April 16, 2021 (4) 70,474 - One shareholder July 14, 2021 (5) 23,266 - One shareholder July 19, 2021 (6) 7,953 - Twenty-five shareholders July 26, 2021 (7) 28,150 - One shareholder August 5, 2021 (8) 56,299 - One shareholder August 12, 2021 (9) 64,342 - One shareholder August 20, 2021 (10) 337,500 - One shareholder August 24, 2021 (11) 337,000 - One shareholder August 31, 2021 (12) 170,967 - One shareholder August 31, 2021 (13) 107,500 - One shareholder October 6, 2021 (14) 22,730 - One shareholder October 8, 2021 (15) 104,273 - One shareholder November 17, 2021 (16) 20,000 - One shareholder 1. The Company issued 34,259 shares of its restricted Common Stock at $27 per share, or a total of $925,000, to exercise the stock option pursuant to Section 2.2 of a stock purchase and option agreement dated October 19, 2020, between the Company, First Bullion Holdings Inc. (“FBHI”) and the shareholder of FBHI, on February 26, 2021. 2. The Company subscribed for $7,206,000 worth of Class B shares of Innovest Energy Fund (the “Fund”) by issuing 300,000 shares of the Company’s restricted Common Stock at a price of $24.02 per share, or a total of $7,206,000 to the Fund, on April 7, 2021. 3. The Company issued 6,000 shares of restricted Common Stock to a designee of the Fund at a price of $24.02 per share, or a total of $144,120 to settle a subscription fee to the Fund, on April 7, 2021. 4. The Company fully repaid the convertible note issued to Streeterville Capital, LLC (“Streeterville”) on October 13, 2020, by issuance of 70,474 shares of its restricted Common Stock at a conversion price of $10 per share for settlement of the principal balance of $670,000 and accrued interest of $34,738, respectively on April 16, 2021. The market price of the Company’s Common Stock was $23.3 per share, or at a total value of $1,642,040, on April 16, 2021. 5. The Company partially repaid the convertible note issued to Streeterville on January 8, 2021, by issuance of 23,266 shares of its restricted Common Stock at a conversion price of $7.52175 per share for settlement of the principal balance of $175,000 on July 14, 2021. The market price of the Company’s Common Stock was $10.1 per share, or at a total value of $234,986, on July 14, 2021. 6. The Company issued 7,953 shares of its restricted Common Stock at a price of $8.7 per share, or a total of $69,191, to redeem 347,000 shares out of total 504,750 shares of preferred stock from 25 preferred stock shareholders of Greenpro Capital Village Sdn. Bhd, on July 19, 2021. 7. The Company partially repaid the convertible note issued to Streeterville on January 8, 2021, by issuance of 28,150 shares of its restricted Common Stock at a conversion price of $6.21675 per share for settlement of the principal balance of $175,000 on July 26, 2021. The market price of the Company’s Common Stock was $9.3 per share, or at a total value of $261,793, on July 26, 2021. 8. The Company partially repaid the convertible note issued to Streeterville on January 8, 2021, by issuance of 56,299 shares of its restricted Common Stock at a conversion price of $6.21675 per share for settlement of the principal balance of $350,000 on August 5, 2021. The market price of the Company’s Common Stock was $8.697 per share, or at a total value of $489,637, on August 5, 2021. 9. The Company partially repaid the convertible note issued to Streeterville on February 11, 2021, by issuance of 64,342 shares of its restricted Common Stock at a conversion price of $6.21675 per share for settlement of principal balance of $400,000 on August 12, 2021. The market price of the Company’s Common Stock was $8.101 per share, or at a total value of $521,237, on August 12, 2021. 10. The Company partially repaid the convertible note issued to Streeterville on February 11, 2021, by issuance of 337,500 shares of its restricted Common Stock at a conversion price of $6.21675 per share for settlement of principal balance of $2,098,153 on August 20, 2021. The market price of the Company’s Common Stock was $7.599 per share, or at a total value of $2,564,662, on August 20, 2021. 11. The Company partially repaid the convertible note issued to Streeterville on February 11, 2021, by issuance of 337,000 shares of its restricted Common Stock at a conversion price of $6.21675 per share for settlement of principal balance of $2,095,045 on August 24, 2021. The market price of the Company’s Common Stock was $9.164 per share, or at a total value of $3,088,268, on August 24, 2021. 12. The Company fully repaid the convertible note issued to Streeterville on January 8, 2021, by issuance of 170,967 shares of its restricted Common Stock at a conversion price of $6.21675 per share for settlement of the balance of principal of $960,000 and accrued interest of $102,857 on August 31, 2021. The market price of the Company’s Common Stock was $9.573 per share, or at a total value of $1,636,664, on August 31, 2021. 13. The Company partially repaid the convertible note issued to Streeterville on February 11, 2021, by issuance of 107,500 shares of its restricted Common Stock at a conversion price of $6.21675 per share for settlement of principal balance of $668,301 on August 31, 2021. The market price of the Company’s Common Stock was $9.573 per share, or at a total value of $1,029,097, on August 31, 2021. 14. The Company partially repaid the convertible note issued to Streeterville on February 11, 2021, by issuance of 22,730 shares of its restricted Common Stock at a conversion price of $4.3995 per share for settlement of principal balance of $100,000 on October 6, 2021. The market price of the Company’s Common Stock was $6.761 per share, or at a total value of $153,676, on October 6, 2021. 15. The Company fully repaid the convertible note issued to Streeterville on February 11, 2021, by issuance of 104,273 shares of its restricted Common Stock at a conversion price of $4.3995 per share for settlement of the balance of principal of $154,989 and accrued interest of $303,758, respectively on October 8, 2021. The market price of the Company’s Common Stock was $6.811 per share, or at a total value of $710,200, on October 8, 2021. 16. The Company issued 20,000 shares of its restricted Common Stock at a price of $10.404 per share, or a total of $208,080, to settle marketing expense to Mr. Dennis Burns, on November 17, 2021. As of December 31, 2022, there were 7,875,813 shares of Common Stock issued and outstanding. 56 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this item are located following the signature page of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.