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, 2023, and 2022, 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, China and Malaysia. 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, China, Malaysia, 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, 2023, and 2022, we principally operated in three regions: Hong Kong, China, and Malaysia. We derived revenues from provision of services and leasing or trading of our commercial properties, respectively. A table further describing our revenues and cost of revenues is set forth below: Year ended December 31, 2023 2022 REVENUES: Service revenue (including $1,425,577 and $665,203 of service revenue from related parties for the years ended December 31, 2023, and 2022, respectively) $ 3,379,596 $ 2,725,466 Rental revenue 98,068 108,495 Sale of real estate properties - 840,036 Total revenues 3,477,664 3,673,997 COST OF REVENUES: Cost of service revenue (including $23,280 and $0 of cost-of-service revenue to related party for the years ended December 31, 2023, and 2022, respectively) (534,965 ) (404,077 ) Cost of rental revenue (36,613 ) (46,083 ) Cost of real estate properties sold - (573,343 ) Total cost of revenues (571,578 ) (1,023,503 ) GROSS PROFIT 2,906,086 2,650,494 OPERATING EXPENSES: General and administrative (including $122,880 and $193,802 of general and administrative expense to related parties for the years ended December 31, 2023, and 2022, respectively) (4,409,264 ) (4,168,997 ) Total operating expenses (4,409,264 ) (4,168,997 ) LOSS FROM OPERATIONS $ (1,503,178 ) $ (1,518,503 ) 50 Comparison of the years ended December 31, 2023, and 2022 Total Revenues Total revenue was $3,477,664 and $3,673,997 for the years ended December 31, 2023, and 2022, respectively. A decrease of revenue was mainly due to the sale of three units of real estate properties for $840,036 during the year ended December 31, 2022, but no real estate property was sold during 2023. We expect revenue from both business service and real estate segments to steadily improve in the following years. Service Business Revenue Revenue from the provision of business services was $3,379,596 and $2,725,466 for the years ended December 31, 2023, and 2022, 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 $98,068 and $108,495 for the years ended December 31, 2023, and 2022, 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, 2023, there was no revenue generated from the sale of real estate properties. We generated revenue of $840,036 from the sale of three property units in Hong Kong for the year ended December 31, 2022. 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 $4,980,842 and $5,192,500 for the years ended December 31, 2023, and 2022, 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 $1,503,178 and $1,518,503 for the years ended December 31, 2023, and 2022, respectively. A decrease in loss from operations was mainly due to an increase in gross profit from our business services of $523,242, offset by a decreased amount of $266,693 from the gross profit of the sale of real estate properties. Cost of Service Revenue Cost of revenue for provision of services was $534,965 and $404,077 for the years ended December 31, 2023, and 2022, 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. 51 Cost of Rental Revenue Cost of rental revenue was $36,613 and $46,083 for the years ended December 31, 2023, and 2022, 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 $0 and $573,343 for the years ended December 31, 2023, and 2022, 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 $4,409,264 and $4,168,997 for the years ended December 31, 2023, and 2022, respectively. In 2023, our G&A expenses primarily consisted of employees’ salaries and allowances of $1,409,361, directors’ salaries and compensation of $702,685, advertising and marketing of $189,536, consulting fee of $163,783, provision for credit losses of $584,919, rent and rates of $114,401, and audit, legal, and other professional fees of $497,919. 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 income was $2,559,706 for the year ended December 31, 2023, while net other expense was $4,741,329 for the years ended December 31, 2022. In 2023, other income mainly consisted of reversal of impairment of other investment of $6,882,000, reversal of write-off notes receivable of $600,000 and interest income of $41,401, while other expenses mainly consisted of impairment of other investments of $4,982,000 and impairment of other receivable of $60,000. 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. 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, 2023, and 2022, 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 loss attributable to noncontrolling interests of $23,886 for the year ended December 31, 2023, and net income attributable to noncontrolling interests of $88,684 for the year ended December 31, 2022. In 2023, 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. 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. Net Income (Loss) Net income was $1,049,699 for the year ended December 31, 2023, while net loss was $6,262,188 for the year ended December 31, 2022. Net income generated in 2023 was mainly due to an increase in service revenue and reversal of impairment of other investment, 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 Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2023 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, 2023. Contractual Obligations As of December 31, 2023, 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, 2023, to March 14, 2025. On December 31, 2023, the future minimum rental payments under this lease in the aggregate is approximately $117,519 and is due as follows: 2024: $97,583 and 2025: $19,936, respectively. In June 2023, one of our subsidiaries in Malaysia purchased a motor vehicle and the majority amount of the purchase, $18,957 was funded by Maybank Islamic under a finance lease agreement with a term of five years commencing from June 3, 2023, to June 2, 2028. As of December 31, 2023, the future minimum lease payments under this lease in the aggregate is approximately $19,828 and is due as follows: 2024: $4,490; 2025: $4,490, and 2026 and thereafter: $10,848. Related Party Transactions For the years ended December 31, 2023, and 2022, related party service revenue totaled $1,425,577 and $665,203, respectively. During 2023, related party service revenue principally includes service revenue generated from Angkasa-X Holdings Corp. of $354,116, catTHIS Holdings Corp. of $326,195, Leader Capital Holdings Corp. of $258,250, Simson Wellness Tech. Corp. of $191,218 and Hypercube Inc. of $140,000, in aggregate representing approximately 89% of the related party service revenue and 38% of the service revenue for the year ended December 31, 2023. During 2022, related party service revenue principally includes service revenue generated from Jocom Holdings Corp. of $320,000 and Falcon Certified Public Accountants Limited of $142,049, in aggregate representing approximately 69% of the related party service revenue and 17% of service revenue for the year ended December 31, 2022, respectively. For the years ended December 31, 2023, and 2022, cost of service revenue to related party, SEATech Ventures Corp. was $23,280 and $0, respectively. For the years ended December 31, 2023, and 2022, related party expenses in general and administrative totaled $122,880 and $193,802, respectively. During 2023, related party general and administrative expenses include computer expenses paid to First Bullion Holdings Inc. of $21,780, consulting fees paid to Ms. Yap Pei Ling, spouse of our Chief Executive Officer, Mr. Lee Chong Kuang, of $37,799 and her wholly owned company, Bright Interlink Sdn. Bhd. of $15,762, management fees paid to Greenpro Global Capital Village Sdn. Bhd. of $44,475 and marketing expenses paid to catTHIS Holdings Corp. of $3,064. During 2022, related party general and administrative expenses principally include consulting fees paid to Ms. Yap Pei Ling of $42,895 and her wholly owned company, Bright Interlink Sdn. Bhd. of $16,334 and marketing expenses paid to SEATech Ventures Corp. of $120,000. Impairment of other receivable from related parties, Greenpro KSP Holding Group Company Limited was $60,000 and Greenpro Titan Capital Limited was $606,250 for the years ended December 31, 2023, and 2022 respectively. Impairment of related party investments was $4,982,000 and $4,208,029 for the years ended December 31, 2023, and 2022, respectively. During 2023, impairment of related party investments includes impairment from investment of Millennium Fine Art Inc. of $4,000,000, Ata Plus Sdn. Bhd. of $736,000 and First Bullion Holdings Inc. of $246,000, respectively. During 2022, the impairment of related party investments includes impairment from investment of First Bullion Holdings Inc. of $2,043,500, Innovest Energy Fund of $1,532,400, New Business Media Sdn. Bhd. of $329,120, Adventure Air Race Company Limited of $249,385, Greenpro Trust Limited of $39,632 and Ata Plus Sdn. Bhd. of $13,992, respectively. A reversal of impairment of related party investment, Innovest Energy Fund was $6,882,000 and $0 for the years ended December 31, 2023, and 2022, respectively. For the years ended December 31, 2023, and 2022, related party other income was $47,609 and $5,850, respectively. During 2023, the related party other income includes other income generated from Acorn Finance Limited of $8,862, Greenpro Trust Limited of $5,747 and SEATech Ventures Corp. of $33,000, respectively. During 2022, the related party other income principally includes other income generated from Acorn Finance Limited of $4,494. Net accounts receivable from related parties was $0 and $129,292 as of December 31, 2023, and 2022, respectively. As of December 31, 2022, the net accounts receivable from related parties was principally from Jocom Holdings Corp. of $96,000 and Simson Wellness Tech. Corp. of $33,250, respectively. Prepayment to related party, First Bullion Holdings Inc. was $0 and $80,000 as of December 31, 2023, and 2022, respectively. Amounts due from related parties were $750,860 and $265,772 as of December 31, 2023, and 2022, respectively. Amounts due to related parties were $389,274 and $448,251 as of December 31, 2023, and 2022, respectively. As of December 31, 2023, amounts due from related parties mainly include the amount due from Greenpro Global Capital Village Sdn. Bhd. of $723,889, while amounts due to related parties mainly include the amount due to the noncontrolling interests of our 60% ownership subsidiary, Forward Win International Limited of $336,636. 53 As of December 31, 2022, amounts due from related parties mainly include the amount due from Greenpro Global Capital Village Sdn. Bhd. of $200,000 and the amount due from Greenpro KSP Holding Group Company Limited of $60,000, while the amounts due to related parties mainly include the amount due to our noncontrolling interests in Forward Win International Limited of $390,333 and the amount due to Falcon Certified Public Accountants Limited of $47,135, respectively. Deferred costs of revenue to related party were $0 and $11,640 as of December 31, 2023, and 2022, respectively while deferred revenue from related parties was $157,500 and $849,400 as of December 31, 2023, and 2022, respectively. As of December 31, 2022, deferred costs of revenue to related party were $11,640 associated with SEATech Ventures Corp. As of December 31, 2023, deferred revenue from related parties includes Ata Plus Sdn. Bhd. of $15,800, REBLOOD Biotech Corp. of $60,000 and Celmonze Wellness Corporation of $81,700, respectively. As of December 31, 2022, deferred revenue from related parties includes Ata Plus Sdn. Bhd. of $15,800, REBLOOD Biotech Corp. of $60,000, Angkasa-X Holdings Corp. of $116,400, Leader Capital Holdings Corp. of $100,000, catTHIS Holdings Corp. of $224,000, Simson Wellness Tech. Corp. of $193,200 and Hypercube Inc. of $140,000. As of December 31, 2023, and 2022, other investments in related parties were $100,106 and $5,406,106, respectively. As of December 31, 2023, related party investments mainly include New Business Media Sdn. Bhd. of $82,000 and Greenpro Trust Limited of $11,981. As of December 31, 2022, related party investments mainly include New Business Media Sdn. Bhd. of $82,000, Greenpro Trust Limited of $11,981, Millennium Fine Art Inc. of $4,000,000, Ata Plus Sdn. Bhd. of $736,000, Innovest Energy Fund of $324,000 and First Bullion Holdings Inc. of $246,000. 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. 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 credit losses, 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 rental of real estate properties and revenue from the sale of real estate properties. Impairment of long-lived assets Long-lived assets primarily include real estate held for investment, real estate held for use, furniture 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, 2023, was $2,223,197, as compared to $3,911,535 on December 31, 2022, a decreased of $1,688,338. 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, 2023, the Company recorded a net cash used in operations of $1,594,718, and as of December 31, 2023, the Company incurred accumulated deficit of $36,549,095. 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, 2023, 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 $1,594,718 and $2,402,769 for the years ended December 31, 2023, and 2022, respectively. The cash used in operating activities in 2023 was mainly from net income for the year of $1,049,699, impairment of other investments of $4,982,000, impairment of other receivable of $60,000 and provision for credit losses of $584,919 and offset by reversal of impairment of other investment of $6,882,000 and reversal of write-off notes receivable of $600,000, while 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, respectively. Non-cash net income totaled $1,617,347 and non-cash net expenses totaled $4,954,615 for the years ended December 31, 2023 and 2022, respectively, which were mostly composed of non-cash income of reversal of investment impairment of $6,882,000 and reversal of write-off notes receivable of $600,000 and offset by non-cash expenses of impairment of other investments of $4,982,000, impairment of other receivable of $60,000, depreciation and amortization of $237,888 and provision for credit losses of $584,919 for the year ended December 31, 2023. The Company incurred operating losses and had net cash used in operating activities during the past two years. Investing activities Net cash used in investing activities was $94,640 for the year ended December 31, 2023, as compared to net cash provided by investing activities which was $836,170 for the year ended December 31, 2022. During 2023, cash used in investing activities was mainly due to purchase of property and equipment of $85,069, while in 2022, cash provided by investing activities was mainly from proceeds of the sale of real estate properties of $840,036. Financing activities Net cash used in financing activities was $5,968 for the year ended December 31, 2023, as compared to net cash provided by financing activities was $135,421 for the year ended December 31, 2022. During 2023, net cash used in financing activities was mainly due to advances to related parties of $604,066, offset by collection of notes receivable of $600,000. In 2022, cash provided by financing activities was mainly from collection of notes receivable of $200,000. During 2023 and 2022, the Company did not issue any shares of its Common Stock, and as of December 31, 2023, there were 7,575,813 shares of Common Stock issued and outstanding. 55 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.