Triller Group Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with our audited consolidated financial statements included elsewhere in this Annual Report. This discussion contains forward-looking statements based upon our current expectations, estimates and projections, and involves numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements due to, among other considerations, the matters discussed in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Overview We are a leading one-stop financial supermarket based in Hong Kong servicing over 400,000 individual and corporate customers. We offer the broadest set of financial services and healthcare products in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) through a tech-led ecosystem, enabling clients to unlock the choices that best suit their needs. We currently operate four major areas of businesses, comprising of: 1 . Distribution Business: The Group’s powerful financial advisor business is the largest in the market, it engages in the personal financial advisory business (including advising and sales of a full range of financial services products including long-term life insurance, savings and mortgages), with additional internal and external channels being developed and added. 2. Platform Business: The Group operates as a “financial supermarket” offering over 1,800 financial products to a large universe of retail and corporate customers. 3. Healthcare Business: Through the Group’s 4% stake in and a strategic partnership with HCMPS, operating as one of the largest healthcare management organizations in the Hong Kong and Macau region, with over 800 doctors in its network. Established in 1979, it is one of the most reputed healthcare brands in Hong Kong. 4. Fintech Business: The Group has an ensemble of leading FinTech assets and businesses in Europe and Hong Kong. In addition to financial gains, the Group also derives substantial knowledge transfers from its investee companies, supporting the development and growth of the Group’s new business models. Distribution Business The Distribution Business comprises a variety of captive financial services distribution channels. We have built a market leading financial advisors distribution channel in Hong Kong. We have also built other distribution channels alongside our market leading financial advisors business. Our combined captive distribution channels enable us to directly access one of the largest pools of customers accessible to independent financial services providers in Hong Kong. Channel Description Financial Advisors Business (“FA Business”) “Focus” is engaged in the distribution of life insurance, asset management, property-casualty and Mandatory Provident Fund products through its teams of independent financial advisors (brokers). Alternative Distribution Business A collection of distribution channels, including salaried financial planners targeting HNWI, development teams pursuing corporate partnerships and incubating financial advisors teams. Digital Business AGBA Money is a direct-to-consumer digital app that provides various financial products and services to retail customers. 37 Our largest distribution channel is the FA Business, operating under the brand name Focus. With its large salesforce of financial advisors, “Focus” provides a wide range of financial products and independent advisory services to individual and corporate customers, primarily in connection with life insurance products. Our FA Business has been the clear market leader in the insurance brokerage industry in Hong Kong for decades, building up a large and highly productive salesforce. As of December 31, 2022, there were around 1,600 financial advisors at “Focus”, organized into 32 sales teams. Each team is led by a “tree head”, responsible for managing the financial advisors within their teams. In addition to the FA Business, during 2022, we expanded our distribution footprint with the establishment and expansion of a number of additional distribution channels, collectively known as our Alternative Distribution Business. These distribution channels are targeted at specific customer segments and/or capturing specific distribution opportunities. Combined with our Digital Business, we now have a well-diversified range of distribution channels and capabilities. During 2022, we continued to make significant investments into developing and expanding our financial advisors salesforce, broadening and deepening the product range, as well as upgrading the supporting infrastructure. Our infrastructure not only supports the financial consultants in engaging with their customers, it also provides extensive operational support in relation to the processing of transactions, associated payment flows, as well as after-sales services. Building our infrastructure required substantial investments into technological, operational and financial systems, as well as the development of comprehensive operational and support teams (operations support, customer services, payments, etc.). Since many of the financial products offered to our customers are regulated, on top of the various operational requirements, we have built significant internal capabilities in the areas of risk and internal control, as well as legal and compliance to ensure an appropriate level of regulatory compliance and supervision. As a result of our efforts to expand our distribution capabilities and improve our supporting infrastructure, we have successfully developed these inter-related strategic assets: ● Vast customer base in Hong Kong and growing customer base in Mainland China. ● State-of-the-art supporting infrastructure. ● Relationships with and access to a broad range of leading global financial product providers. ● Deep market knowledge and understanding. ● Highly productive and well-trained salesforce. We will continue to capitalize on these core strategic assets and match them with the emerging opportunities in our three core industries (life insurance, wealth management and healthcare). For the year ended December 31, 2022, the Company made $24.6 million from commission in the Distribution Business. The revenue attributed to the Company during 2022 only captured an insignificant portion of the revenues actually generated by the financial advisors currently associated with Focus. Upon the re-opening of China Border, we will continue to widen our distribution footprint and actively explore further opportunities to develop partnerships and generate customer leads on the ground in Mainland China, as well as refining our abilities to service our customer base. We expect sales volumes to return to the levels previously recorded, prior to the pandemic period, especially with the re-opening of the Mainland border and the ongoing integration of Hong Kong into the Greater Bay area. 38 Platform Business The Platform business, through OPH and its subsidiaries, is a one-stop financial supermarket with a breadth of products and services that is unrivaled in Hong Kong sourced from leading global product providers. The Platform Business was set up to take advantage of the decades-long experience we built up in supporting the largest financial advisors salesforce in Hong Kong. We were already servicing a large pool of customers and in the process, built up a wide library of world class financial products and constructed a state-of-the-art technological and operational infrastructure. The Platform Business now operates this full-service platform under its “OnePlatform” brand and has opened it up to banks, other financial institutions, family offices, brokers, and individual independent financial advisors that are looking for support in advising and serving their retail clients. Our technology-enabled Platform Business offers a wide range of financial products, covering life insurance, pensions, property-casualty insurance, stock brokerage, mutual funds, money lending and real estate agency. In addition to its unrivaled product-shelf, the Platform Business offers digital-enabled sales management and support solutions, business operations support, comprehensive customer services, and training support. Currently, our platform financial services and investment products mainly comprise mutual fund distributions, portfolio management, money lending, insurance and Mandatory Provident Fund (MPF) products, and international real estate referral and brokerage services, as discussed below:- As of December 31, 2022, OnePlatform made $6.3 million in commissions and recurring service fees representing a 34% decline from 2021. 2022 revenues reflect only commission and service fees generated after the business combination effected in November 2022. OnePlatform also made $0.2 million in interest income from loans it granted to customers. OnePlatform further made commission income from the agency of real estate projects. The OnePlatform brand currently covers 44 insurance providers selling 657 products, and 40 asset management fund houses with over 1,000 products. Fintech Business The Fintech Business has collected an ensemble of valuable fintech assets in its investment portfolio. Fintech Business’ management team has strived to establish the business as a leading name in the fintech investment sector. Core Fintech investments held under the Fintech Business as of December 31, 2022 include: 1. An investment in Tandem Money Limited, a UK digital bank. 2. An investment in CurrencyFair Limited, a B2B and B2C payments company. 3. An investment in Oscar Health Inc., a US direct-to-consumer digital health insurer. 4. An investment in Goxip Inc., a fashion media platform based in Hong Kong. 5. An investment in LC Healthcare Fund I, L.P., a PRC healthcare and healthtech investment fund. 39 Carrying amount in US$ thousands (1) December 31, 2022 December 31, 2021 Tandem Money Limited 16,031 17,912 CurrencyFair Limited 5,718 5,790 Oscar Health Inc. 2,443 7,795 Goxip Inc. 513 1,271 LC Healthcare Fund I, L.P. 11,805 — Notes: (1) Carrying amount represents Fintech’s attributable interest in the investment portfolio asset. The Fintech Business previous investments include an investment in Nutmeg, a UK-based digital wealth manager, focused on robo-advisory and digital wealth management services. In June 2021, JPMorgan Chase complete its 100% acquisition of Nutmeg. Healthcare Business We currently hold a 4% equity stake in HCMPS, one of the leading healthcare management organizations in Hong Kong. Founded in 1979 and currently operating under the Dr. Jones Fok & Associates Medical Scheme Management Limited (“JFA”) brand, JFA is one of the most reputed healthcare brands in Hong Kong. It has four self-operated medical centres and a network of over 700 healthcare service providers – providing healthcare schemes for more than 500 corporate clients with over 300,000 scheme members. JFA’s clients include blue chip companies from various industry and leading insurers. Apart from Hong Kong, JFA is the largest operator in Macau with around 70 clinics. JFA operates a city-wide medical network that includes 340 general practitioners (“GP”), 11 laboratories and imaging centers, 273 specialist doctors, 25 physiotherapy centers, 12 Chinese medicine practitioner clinics, all based in Hong Kong, and 69 GP clinics in Macau. Over 380,000 out-patient and in-patient visits are recorded annually through HCMPS’s medical network. JFA offers its patients a full range of medical services, including general services, specialist services, physiotherapy, Chinese medicine, dental, vaccination, X-ray, laboratories and imaging services. We believe that the future of healthcare is in “Smart Health” – technology that offers improved patient-care management and leverages data as the new tool for solving complex healthcare challenges with reduced operating costs. We will focus on technology/digitalization and consumerization of healthcare to create an ecosystem empowering customers to proactively manage their health and well-being and to improve their access to healthcare at a lower cost – with connectivity across the care continuum. We believe that JFA has the captive customer base, infrastructure and product/service offerings to optimize customer experience to further grab market share. We are currently working to transform JFA into the best medical care institution in Asia by 2025, redefining industry standards in the Greater Bay Area and offering market-leading customer care and best-in-class infrastructure empowered by data analytics. Recent Development Business Combination On November 14, 2022, we consummated the Business Combination with AGBA Acquisition Limited. Pursuant to the Business Combination Agreement, AGBA Acquisition Limited became, through an acquisition merger, the 100% owner of the issued and outstanding securities of each of TAG International Limited (“B2B” or “TIL”) and TAG Asia Capital Holdings Limited (“Fintech” or “TAC”) , in exchange for 55,500,000 ordinary shares of AGBA, par value US$0.001 per share to TAG (subject to certain indemnity holdback provisions as outlined in the Business Combination Agreement). For more information, see Note 4 to the Company’s consolidated financial statements, Reverse Recapitalization with AGBA Acquisition Limited. 40 The Business Combination is anticipated to be accounted for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, we will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on TAG’s majority of the voting power of the post-combination company, TAG’s senior management comprising all of the senior management of the post-combination company, and our operations comprising the ongoing operations of the post-combination company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of our issuing shares for the net assets of AGBA, accompanied by a recapitalization. The net assets of AGBA will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be our continuing operation. Key Factors Affecting Our Results of Operations and Future Performance We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in Part I, Item 1A of this Form 10-K. Key Components of Results of Operations Currently, we are operating the below business segments and generating operating revenue streams as follows: Segments Operating Revenues from Major Business Activities Distribution Business - Facilitating the placement of insurance, investment, real estate and other financial products and services to our customers, through licensed brokers, in exchange for initial and ongoing commissions received from product providers, including insurance companies, fund houses and other product specialists. Platform Business In exchange for receiving platform commissions or fees: - Providing access to financial products and services to licensed brokers. - Providing operational support for the submission and processing of product applications. - Providing supporting tools for commission calculations, customer engagement, sales team management, customer conversion, etc. - Providing training resources and materials. - Facilitating the placement of investment products for the fund and/or product provider, in exchange for the fund management services - Providing the lending services whereby the Company makes secured and/or unsecured loans to creditworthy customers - Solicitation of real estate sales for the developers, in exchange for commissions Fintech Business - Managing an ensemble of fintech investments Healthcare Business - Managing healthcare investment All of the Company’s revenues were generated in Hong Kong. 41 Operating Revenue and Other Gain (Loss) We have disaggregated our operating revenue from contracts with customers into categories based on the nature of the revenue, as well as other gains (losses) from our investment portfolio. The following table presents the revenue streams by segments, with the presentation of revenue categories presented on the consolidated statements of operations for the years indicated: For the year ended December 31, 2022 Distribution Business # Platform Business Fintech Business Healthcare Business Total Interest income Loans $ - $ 176,175 $ - $ - $ 176,175 Non-interest incomes: Commissions 24,610,309 1,951,382 - - 26,561,691 Recurring service fee - 4,342,361 - - 4,342,361 - - - Total revenues $ 24,610,309 $ 6,469,918 $ - $ - $ 31,080,227 Investment loss, net $ - $ - $ (8,937,431 ) $ - $ (8,937,431 ) For the year ended December 31, 2021 Distribution Business Platform Business Fintech Business Healthcare Business Total Interest income Loans $ - $ 961,522 $ - $ - $ 961,522 Non-interest incomes: Commissions 929,555 4,238,678 - - 5,168,233 Recurring service fee - 5,338,848 - - 5,338,848 Total revenues $ 929,555 $ 10,539,048 $ - $ - $ 11,468,603 Investment income, net $ - $ - $ 130,255,232 $ - $ 130,255,232 # prior to the consummation of Business Combination, which was effected in November 2022, commissions generated by the financial advisors currently associated with Focus, along with associated potential platform commissions and fees, were attributable to the Legacy Group. Operating Costs Commission Expense Commission expense represent the portion of premiums from insurance or investment products retained by financial consultants, pursuant to the terms of their respective contracts. Commission rates vary by market due to local practice, competition and regulations. Commissions fluctuate directly in relation to sales volume. Sales and Marketing Expense Sales and Marketing Expense primarily consist of personnel-related costs attributable to our sales and marketing personnel, marketing expense for brand promotion and spending on marketing programs to launch the insurance and investments products distributed by consultants. Technology Expense Technology expense primarily include personnel-related costs attributable to our IT team, technology contractors, server facilities expenses, telecommunications expenses, software and hardware expenses to support and maintain the Platform Business infrastructure. 42 Personnel and Benefit Expense Personnel and benefit expense primarily consist of personnel-related costs and benefits, stock-based compensation costs for employees in our executive, accounting and finance, project management, corporate development, office administration, legal and human resources functions. Other General and Administrative Expenses Other general and administrative expenses primarily consist of rent and facilities expenses allocated based upon total direct costs, as well as, professional services fees, such as consulting, audit, tax and legal fees, general corporate costs and allocated overhead expenses. We expect that our general and administrative expenses will continue to increase in future periods, primarily due to increased headcount to support anticipated growth in our Distribution and Platform Businesses, and due to incremental costs associated with operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and stock exchange listing standards, public relations, insurance and professional services. Results of Operations Comparison of the Years Ended December 31, 2022 and 2021: The following tables set forth our results of operations for the years presented in U.S. dollars (in thousands) : Years ended December 31, 2022 2021 Variance (US$ in thousands) $ % Revenues: Interest income: Loans 176 962 (786 ) (81.70 ) Total interest income 176 962 (786 ) (81.70 ) Non-interest income: Commissions 26,562 5,168 21,394 413.97 Recurring service fees 3,372 4,392 (1,020 ) (23.22 ) Total non-interest income 29,934 9,560 20,374 213.12 Total revenues from others 30,110 10,522 19,588 186.16 Non-interest income: Recurring service fees 970 947 23 2.43 Total revenues from related parties 970 947 23 2.43 Total revenues 31,080 11,469 19,611 170.99 Operating cost and expenses: Interest expense (141 ) (484 ) (343 ) (70.87 ) Commission expense (18,823 ) (3,866 ) 14,957 386.89 Sales and marketing expense (11,142 ) (206 ) 10,936 5,308.74 Technology expense (1,209 ) (414 ) 795 192.03 Personnel and benefit expense (21,928 ) (9,153 ) 12,775 139.57 Other general and administrative expenses (6,188 ) (5,793 ) 395 6.82 Total operating cost and expenses (59,431 ) (19,916 ) 39,515 198.41 Loss from operations (28,351 ) (8,447 ) 19,904 235.63 Other income (expense): Bank interest income 99 48 51 106.25 Interest income, related party — 204 (204 ) (100 ) Foreign exchange loss, net (2,643 ) (915 ) 1,728 188.85 Loss on equity method investments — (1,597 ) (1,597 ) (100 ) Investment (loss) income, net (8,937 ) 130,255 (139,192 ) (106,86 ) Change in fair value of warrant liabilities 9 — 9 N/A Change in fair value of forward share purchase liability (5,393 ) — 5,393 N/A Rental income 315 — 315 N/A Sundry income 505 421 84 19.95 Total other (expense) income, net (16,045 ) 128,416 (144,461 ) (112.49 ) (Loss) income before income taxes (44,396 ) 119,969 (164,365 ) (137.01 ) Income tax expense (125 ) (23,505 ) (23,380 ) (99.47 ) NET (LOSS) INCOME (44,521 ) 96,464 (140,985 ) (146.15 ) 43 Revenue The following table summarizes the major operating revenues from the year ended December 31, 2022, as compared to the corresponding year ended December 31, 2021: Years ended December 31 2022 2021 Variance (US$ in thousands) $ % Business segment Distribution Business 24,610 930 23,680 2,546.24 Platform Business 6,470 10,539 (4,069 ) (38.61 ) Fintech Business — — — — Healthcare Business — — — — TOTAL 31,080 11,469 19,611 170.99 Distribution Business The Distribution Business contributed 79.18% and 8.11% of the total revenue for the years ended December 31, 2022 and 2021, respectively. Income from the Distribution Business mainly related to commissions earned, which significantly increased by US$23.7 million, or 2,546.24%, from US$0.9 million in 2021 to US$24.6 million in 2022. The largest segment of the Distribution Business is our FA Business, operated under the “Focus” brand name. Prior to the consummation of Business Combination, which was effected in November 2022, commissions generated by the financial advisors currently associated with Focus, along with associated potential platform commissions and fees, were attributable to the Legacy Group and as such not reflected in the results for the Distribution Business for 2022 and 2021. Summarized revenue breakdown by product and type of contracts: Years ended December 31, 2022 2021 Variance (US$ in thousands) $ % By product: Life insurance $ 23,849 $ 707 23,142 3,273.27 Property-casualty insurance 205 25 180 720.00 Mandatory provident fund and related revenues 556 198 358 180.81 $ 24,610 $ 930 23,680 2,546.24 By the type of contracts: – New and or current year $ 23,597 $ 262 23,335 8,906.49 – Recurring 1,013 668 345 51.65 $ 24,610 930 23,680 2,546.24 Platform Business The Platform Business contributed 20.82% and 91.89% of the total revenue for the years ended December 31, 2022 and 2021, respectively. Years ended December 31, 2022 2021 Variance (US$ in thousands) $ % Commissions 1,951 4,239 (2,288 ) (53.97 ) Recurring service fees 4,343 5,339 (996 ) (18.66 ) Loans 176 961 (785 ) (81.69 ) $ 6,470 $ 10,539 (4,069 ) (38.61 ) 44 Operating Expenses Commission Expense Years ended December 31, 2022 2021 Variance (US$ in thousands) $ % Distribution Business 16,840 332 16,508 4,972.29 Platform Business 1,983 3,534 (1,551 ) (43.89 ) Fintech Business — — — — Healthcare Business — — — — Total $ 18,823 $ 3,866 14,957 386.89 The Distribution Business contributed 89.47% and 8.59% of the total commission expense for the years ended December 31, 2022 and 2021, respectively. Commission expense for the Distribution Business increased by US$16.5 million, or 4,972.29%, from US$0.3 million in 2021 to US$16.8 million in 2022. As a result of the increase in revenue associated with the Distribution Business, commission expense significantly increased. Sales and Marketing Expense Sales and Marketing expense increased by US$10.9 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase in sales and marketing expense mainly reflects spending associated with “AGBA” corporate branding and associated product campaigns, celebrating it’s the successful listing, through public relations, corporate video and campaigns, digital marketing and public advertisements. Technology Expense Technology expense increased by US$0.8 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily due to increased headcount to support anticipated growth in the business and platform expansion. Personnel and Benefit Expense Years ended December 31, 2022 2021 Variance (US$ in thousands) $ % Personnel and benefit $ 19,839 $ 9,153 10,686 116.75 Share based compensation 2,089 — 2,089 100.00 Total $ 21,928 $ 9,153 12,775 139.57 Personnel and benefit cost increased by US$10.7 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily due to the increased headcount to support the continuing growth of the Platform Business and Distribution Business. Share-Based Compensation Upon the Closing of the Business Combination, the Share Award Scheme (the “Scheme”) was approved and adopted to recognize the contributions to the Business Combination by eligible employees, directors, and consultants and to retain them for our continuing operations and the development of our businesses. 45 On December 13, 2022, we granted 5,507,600 ordinary shares under the Scheme. 507,600 ordinary shares were vested immediately on the date of grant for compensating the contributions and prior services by and performance of eligible employees. The remaining 5,000,000 ordinary shares were granted as restricted share units (“RSUs”) to employees and consultants as additional compensation. These RSUs typically are vested over one to four years period from 2023 to 2026. The weighted average grant-date fair value of the shares granted during the year ended December 31, 2022 was $2.47 per share. On December 29, 2022, we granted 438,500 ordinary shares under the Scheme to the directors and officers of the Company. The weighted average grant-date fair value of the shares granted during the year ended December 31, 2022 was $1.91 per share. During the year ended December 31, 2022, the Company recorded US$2.1 million in share-based compensation expense. There was no such expense during the year ended December 31, 2021. Other General and Administrative Expense Years ended December 31, 2022 2021 Variance (US$ in thousands) $ % Depreciation $ 393 $ 45 348 773.33 Financial data subscription expense 532 214 318 148.60 Legal and professional fees 1,266 2,057 (791 ) (38.45 ) Management fee expense 3,190 2,464 726 29.46 Rent and facility expenses — 655 (655 ) (100.00 ) Other operating expenses 807 358 449 125.42 Total $ 6,188 $ 5,793 395 6.82 Total other general and administrative expenses increased by US$0.4 million, or 6.82%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The net increase was mainly due to the increase in financial data subscription expenses of US$0.3 million, depreciation of US$0.3 million, management fee expense of US$0.7 million, others of US$0.4 million, offset by a decrease in legal and professional fees of US$0.8 million and rent and facility expense of US$0.7 million. Loss from Operations Loss from operations increased by US$19.9 million, or 235.63%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was mainly attributable to the increase in operating expenses of US$39.5 million. Other Income (Expense), net Bank Interest Income Bank interest income increased by US$0.05 million for the year ended December 31, 2022. Interest Income, Related Party No interest income was earned for the year ended December 31, 2022, as compared to US$0.2 million of interest income for the year ended December 31, 2021. Interest income, related party mainly represented the bond interest income derived from certain corporate bonds issued by the shareholder, which were purchased in September 2020. Foreign Exchange Loss, net Foreign exchange loss mainly represented the unrealized net foreign exchange loss from the translation of long-term investments which are mostly denominated in Sterling. The net foreign exchange loss increased by US$1.73 million or 188.85% for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to the stronger Sterling exchange rate. 46 Loss on Equity Method Investments No loss on equity method investment was shared by the Company for the year ended December 31, 2022, as compared to the year ended December 31, 2021. Loss on equity method investment mainly represented our share of the investees’ losses in Nutmeg, which was fully sold in September 2021. Investment (Loss) Income, Net Years ended December 31, 2022 2021 Variance (US$ in thousands) $ % Unrealized loss in marketable equity securities $ (5,331 ) $ (12,399 ) (7,068 ) (57.00 ) Unrealized gain in non-marketable equity securities 2,137 3,532 (1,395 ) (39.50 ) Unrealized loss in non-marketable equity securities (6,898 ) - 6,898 N/A Realized gain - 139,122 (139,122 ) (100.00 ) Dividend income 1,155 - 1,155 N/A Total $ (8,937 ) $ 130,255 (139,192 ) (106.86 ) Investment loss increased by US$139.2 million, or 106.86%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, mainly as a result of the realized gain on the sale of our investment into Nutmeg of US$139.1 million during the year ended December 31 2021. Change in fair value of forward share purchase liability The forward share purchase liability (“FSP liability”) under the Meteora Backstop Agreement is valued using a Black-Scholes model, which is considered to be Level 3 fair value measurement on a recurring basis. For the year ended December 31, 2022, the change in fair value of liability was $5.4 million, as recognized in the consolidated statements of operations. Rental Income Rental income increased by US$0.3 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, which was earned from the leasing of our owned office premises. Income Tax Expense Income tax expense decreased by US$23.4 million, or 99.47%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily attributable to potential tax provision related to the capital gain on equity investments realized during the year ended December 31, 2021. Net (Loss) Income Net loss increased by US$141.0 million, or 146.15% for the year ended December 31, 2022, as compared to December 31, 2021, due primarily to the realized gain on the sale of our investment into Nutmeg during the year ended December 31 2021. Liquidity and Capital Resources Sources of Liquidity We have a history of operating losses and negative cash flow. For the year ended December 31, 2021, we achieved profitability primarily due to cash proceeds of approximately US$186.82 million from the sale of its investment (Nutmeg) during the year. The remaining balance from the sale proceeds of US$1.86 million was subsequently received in January 2022. We, in turn, repaid a net amount of approximately US$163.80 million to the shareholder to pay off outstanding debt, and paid US$7.18 million as earnest deposit for the purchase of an office premise from the shareholder. Also, we paid US$3.43 million for the addition in long-term investments. As of December 31, 2021, we had a cash balance of US$38.6 million. 47 During the year ended December 31, 2022, we reported a net loss of US$44.52 million and reported a negative operating cash flow of US$19.30 million. As of December 31, 2022, our cash balance was US$6.45 million for working capital use. Our management estimates that currently available cash will not be able to provide sufficient funds to meet the planned obligations for the next 12 months starting December 31, 2022. Our ability to continue as a going concern is dependent on our ability to successfully implement our plans. Our management believes that it will be able to continue to grow our revenue base and control expenditures. In parallel, AGBA continually monitors its capital structure and operating plans and evaluates various potential funding alternatives that may be needed in order to finance our business development activities, general and administrative expenses, and growth strategy. These alternatives include external borrowings, raising funds through public equity, or tapping debt markets. Although there is no assurance that, if needed, we will be able to pursue these fundraising initiatives and have access to the capital markets going forward. The consolidated financial statements attached to this Form 10-K do not include any adjustments that might result from the outcome of these uncertainties. On November 14, 2022, we completed our business combination with AGBA Acquisition Limited. We renamed the combined entity “AGBA Group Holding Limited” and our ordinary shares and warrants began trading on the Nasdaq Capital Market on November 15, 2022 under the ticker symbols “AGBA” and “AGBAW,” respectively. Future Liquidity On a recurring basis, the primary future cash needs of the Company will be focused on operating activities, working capital, capital expenditures, investment, regulatory and compliance costs. The ability of the Company to fund these needs will depend, in part, on its ability to generate or raise cash in the future, which is subject to general economic, financial, competitive, regulatory, and other factors that are beyond its control. Following the completion of Business Combination, we will independently manage the capital structure of the Company and our sources of liquidity. The ability to fund our operating needs will depend on its future ability to continue to generate positive cash flow from operations and raise capital in the capital markets. Our management believe that we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances, and external borrowings and fund raising. Our management expects that the primary cash requirements in 2023 will be to fund capital expenditures for (i) expansion of the Platform Business and (ii) fintech investments. If our sources of liquidity need to be augmented, additional cash requirements would likely need to be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms, or at all, in the future. We expect that operating losses could continue into the foreseeable future as we continue to invest in growing our businesses. Based upon our current operating plans, our management believes that cash and equivalents will not be able to provide sufficient funds to its operations for at least the next 12 months from the date of its consolidated financial statements provided with this Form 10-K. However, these forecasts involve risks and uncertainties, and actual results could vary materially. Our management has based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. See “— Liquidity and Going Concern ” below. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenues growth, the timing and extent of spending on sales and marketing, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our brand, and overall economic conditions. We may also seek additional capital to fund our operations, including through the sale of equity or debt financings. To the extent that we raise additional capital through the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Cash Flows As of December 31, 2022, we had cash and cash equivalents totalling $6.4 million, and $44.8 million in restricted cash. As of December 31, 2021, we had cash and cash equivalents totalling $38.6 million, and $34.5 million in restricted cash. 48 Comparison of the year ended December 31, 2022 and 2021 The following table summarizes our cash flows for the years presented: Year ended December 31, 2022 2021 (US$ in thousands) Net cash used in operating activities (19,304 ) (2,154 ) Net cash (used in) provided by investing activities (14,189 ) 177,494 Net cash provided by (used in) financing activities 12,135 (163,872 ) Effect on exchange rate change on cash and cash equivalents (429 ) (155 ) Net change in cash, cash equivalents and restricted cash (21,787 ) 11,313 Cash, cash equivalents and restricted cash, at the beginning 73,081 61,768 Cash, cash equivalents and restricted cash, at the end 51,294 73,081 Representing as:- Cash and cash equivalents 6,450 38,595 Restricted cash – forward share purchase agreement 15,356 — Restricted cash – fund held in escrow 29,488 34,486 51,294 73,081 The following table sets forth a summary of our working capital: December 31, 2022 December 31, 2021 Variance % Total Current Assets $ 55,756 $ 83,779 $ (28,023 ) (33.45 ) Total Current Liabilities $ 97,021 $ 61,364 $ 35,657 58.11 Working Capital (Deficit) $ (41,265 ) $ 22,415 $ (63,680 ) (284.10 ) Working Capital (Deficit) The working deficit as of December 31, 2022 amounted to approximately US$41.27 million, as compared to working capital of approximately US$22.42 million at December 31, 2021. The decline in working capital was mainly due to the additional operating capital deployed in the business expansion. Cash Flows from Operating Activities Net cash used in operating activities was US$19.30 million for the year ended December 31, 2022, as compared to net cash used in operating activities of US$2.15 million for the year ended December 31, 2021. Net cash used in operating activities for the year ended December 31, 2022 was primarily the result of a net loss of US$44.52 million, a decrease in loans receivable of US$2.32 million, and an increase in accounts payable and accrued liabilities of US$10.88 million. These amounts were partially offset by the increase in accounts receivable of US$1.95 million, deposits, prepayments, and other receivable of US$0.20 million, decrease in escrow liabilities of US$5.00 million, income tax payable of US$0.28 million and non-cash adjustments consisting of unrealized investment loss of US$8.94 million, net foreign exchange loss of US$2.64 million, share based compensation of US$2.09 million, change in fair value of forward share purchase liability of US$5.39 million and depreciation of property and equipment of US$0.39 million. Net cash used in operating activities for the year ended December 31, 2021 was primarily the result of the net income of US$96.46 million, decreases in accounts receivable of US$1.74 million, loans receivable of US$16.73 million, and an increase in income tax payable of US$22.93 million. These amounts were partially offset by non-cash adjustments, consisting of realized gain on sale of Nutmeg of US$139.16 million, loss on equity method investments of US$1.60 million, unrealized investment loss of US$8.87 million, an increase in deposits, prepayments, and other receivables of US$1.98 million, a decrease in accounts payable and accrued liabilities of US$0.43 million and a decrease in escrow liabilities of US$9.80 million. 49 Cash Flows from Investing Activities Net cash used in investing activities for the year ended December 31, 2022 of US$14.19 million was primarily due to proceeds from sale of investments of US$1.85 million, and dividend received from long-term investments of $1.15 million, offset by the addition in long-term investments of US$16.23 million, and the purchase of property and equipment of US$0.97 million. Net cash provided by investing activities for the year ended December 31, 2021 of US$177.49 million, was primarily due to the proceeds from the sale of Nutmeg of US$186.82 million, the proceeds from the redemption of short-term bond of US$1.29 million, partially offset by the addition in long-term investments of US$3.43 million and the payment of earnest deposit of US$7.18 million for the purchase of an office premise from the shareholder. Cash Flows from Financing Activities Net cash provided by financing activities for the year ended December 31, 2022 of US$12.14 million was primarily due to advances from the shareholder of US$9.75 million, proceeds from borrowings of US$4.46 million, cash proceeds from reverse recapitalization of US$15.36 million, offset by the dividend distribution of US$17.44 million to the shareholder that occurred in early 2022. Net cash used in financing activities for the year ended December 31, 2021 of US$163.87 million, was primarily due to the repayment of the shareholder’s loan of US$163.80 million. Liquidity and Going Concern Our consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The management of the Company estimates that currently available cash will not be able to provide sufficient funds to meet the Company’s planned obligations for the next 12 months from the date that these consolidated financial statements were made available to be issued. For the year ended December 31, 2022, we reported a net loss of approximately US$44.52 million. With a significant increase in our operating costs, described in the paragraph below, we had an accumulated deficit of approximately US$39.40 million as of December 31, 2022. However, coupled with its business expansion, we reported significant sales growth with annual revenue of approximately US$31.08 million during 2022 (2021: US$11.47 million), and resulting with an operating loss of approximately US$28.35 million (2021: US$8.45 million). We expect to continue our business growth, while closely monitoring our future spending. Our ability to continue as a going concern is dependent on the management’s ability to successfully implement its plans. Our management team believes that we will be able to continue to grow our revenue base and control our expenditures. In parallel, our management team will continually monitor our capital structure and operating plans and evaluate various potential funding alternatives that may be needed in order to finance our business development activities, general and administrative expenses and growth strategy. We intend to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable, or will be sufficient to enable us to fully complete its development activities or sustain operations. If we are unable to raise sufficient additional funds, we will have to develop and implement a plan to further extend payables, reduce overhead, or scale back our current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. Material Cash Requirements We reported a net loss during the year ended December 31, 2022. However, we expect to generate profitable operating results within the foreseeable future, after a full recovery from the anti-pandemic policy in Hong Kong and getting access to the collective sales capabilities force of the sale channels associated with our distribution business. Our management expects sales volumes to return to levels previously recorded at the predecessor company prior to the pandemic, especially with the re-opening of the Mainland border and the ongoing integration of Hong Kong into the Greater Bay area . As a result, management expects our net cash position to expand in 2023 and to be in excess of 2021. As of December 31, 2022, we had an accumulated deficit of US$39.40 million. Our material cash requirements are highly dependent upon additional financial support associated with our its business operations for the next 12 – 18 months. 50 Capital commitments As of December 31, 2022, there were no capital commitments. Off-Balance Sheet Arrangements We are not party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations. We have not engaged in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, net revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, or VIEs, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Critical Accounting Policies and Estimates Our audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the audited consolidated financial statements and accompanying footnotes. Out of our significant accounting policies, which are described in “Note 2—Summary of significant accounting policies” of our audited consolidated financial statements included under Item 8 of Part II in this Annual Report, certain accounting policies are deemed “critical,” as they require our management’s highest degree of judgment, estimates and assumptions. While our management believes our judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those estimates under different assumptions and conditions. ● Basis of Presentation The accompanying consolidated financial statements are presented in United States dollars (“US$” or “$”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP (the “Reverse Recapitalization”). Under this method of accounting, AGBA is treated as the “acquired” company and both of TIL and TAC are treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of TIL and TAC issuing stock for the net assets of AGBA, accompanied by a recapitalization. The net assets of AGBA are stated at historical cost, with no goodwill or other intangible assets recorded. Both of TIL and TAC were determined to be the accounting acquirer based on the following predominant factors: ● TIL and TAC’s shareholders have a majority of voting rights in the Company; ● the Board and senior management are primarily composed of individuals associated with TIL and TAC; ● the operations of TIL and TAC comprise the ongoing operations of the Company. The consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of TIL and TAC. On the Closing Date, and subject to the terms and conditions of the Business Combination Agreement, AGBA became, through an acquisition merger, 100% owner of the issued and outstanding shares of each TIL and TAC, in exchange for 55,500,000 AGBA Shares. The shares and corresponding capital amounts and losses per share, prior to the Business Combination, have been retroactively restated in the consolidated financial statements. 51 ● Use of Estimates and Assumptions The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the years presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property and equipment, impairment of long-lived assets, allowance for doubtful accounts, share-based compensation, warrant liabilities, forward share purchase liability, provision for contingent liabilities, revenue recognition, income tax provision, deferred taxes and uncertain tax position, and allocation of expenses from the shareholder. The inputs into the management’s judgments and estimates consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Actual results could differ from these estimates. ● Long-Term Investments, net The Company invests in debt securities, equity securities with readily determinable fair values, equity securities that do not have readily determinable fair values, and equity method investments. Investment in debt securities consist of corporate bonds issued by the Company’s shareholder. Debt securities are classified as held-to-maturity and carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Equity securities with readily determinable fair values are carried at fair value with any unrealized gains or losses reported in earnings. Equity securities that do not have readily determinable fair values mainly consist of investments in privately-held companies. They are accounted for, at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Investments in an entity in which the ownership is greater than 20% but less than 50%, or where other facts and circumstances indicate that the Company has the ability to exercise significant influence over the operating and financing policies of an entity, are accounted for using the equity method in accordance with ASC Topic 323: Investments – Equity Method and Joint Ventures . Equity method investments are recorded initially at cost and adjusted subsequently to recognize the share of the earnings, losses or other changes in capital of the investee entity after the date of acquisition. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. ● Warrant Liabilities The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. 52 For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations. The Company accounts for its Public Warrants as equity and the Private Warrants as liabilities. ● Revenue Recognition The Company receives certain portion of its non-interest income from contracts with customers, which are accounted for in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). ASC Topic 606 provided the following overview of how revenue is recognized from the Company’s contracts with customers: The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price – The transaction price is the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. Step 4: Allocate the transaction price to the performance obligations in the contract – Any entity typically allocates the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or service promised in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation – An entity recognizes revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). The amount of revenue recognized is the amount allocated to the satisfied performance obligation. A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer service to a customer). Certain portion of the Company’s income is derived from contracts with customers, and as such, the revenue recognized depicts the transfer of promised goods or services to its customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance. The Company’s revenue recognition policies are in compliance with ASC 606, as follows: Commissions The Company earns commissions from the sale of investment products to customers. The Company enters into commission agreements with customers which specify the key terms and conditions of the arrangement. Commissions are separately negotiated for each transaction and generally do not include rights of return, credits or discounts, rebates, price protection or other similar privileges, and typically paid on or shortly after the transaction is completed. Upon the purchase of an investment product, the Company earns commission from customers, calculated as a fixed percentage of the investment products acquired by its customers. The Company defines the “purchase of an investment product” for its revenue recognition purpose as the time when the customers referred by the Company has entered into a subscription contract with the relevant product provider and, if required, the customer has transferred a deposit to an escrow account designated by the Company to complete the purchase of the investment products. After the contract is established, there are no significant judgments made when determining the commission price. Therefore, commissions are recorded at point in time when the investment product is purchased. 53 The Company also facilitates the arrangement between insurance providers and individuals or businesses by providing insurance placement services to the insured and is compensated in the form of commission from the respective insurance providers. The Company primarily facilitates the placement of life, general and MPF insurance products. The Company determines that insurance providers are the customers. The Company primarily earns commission income arising from the facilitation of the placement of an effective insurance policy, which is recognized at a point in time when the performance obligation has been satisfied upon execution of the insurance policy as the Company has no future or ongoing obligation with respect to such policies. The commission fee rate, which is paid by the insurance providers, based on the terms specified in the service contract which are agreed between the Company and insurance providers for each insurance product being facilitated through the Company. The commission earned is equal to a percentage of the premium paid to the insurance provider. Commission from renewed policies is variable consideration and is recognized in subsequent periods when the uncertainty around variable consideration is subsequently resolved (e.g., when customer renews the policy). In accordance with ASC 606, Revenue Recognition: Principal Agent Considerations , the Company evaluates the terms in the agreements with its channels and independent contractors to determine whether or not the Company acts as the principal or as an agent in the arrangement with each party respectively. The determination of whether to record the revenue in a gross or net basis depends upon whether the Company has control over the services prior to transferring it. Control is demonstrated by the Company which is primarily responsible for fulfilling the provision of placement services through the Company’s licensed insurance brokers to provide agency services. The commissions from insurance providers are recorded on a gross basis and commission paid to independent contractors or channel costs are recorded as commission expense in the statements of operations. The Company also offers the sale solicitation of real estate property to the final customers and is compensated in the form of commissions from the corresponding property developers pursuant to the service contracts. Commission income is recognized at a point of time upon the sale contracts of real estate property is signed and executed. Recurring Service Fees The Company provides asset management services to investment funds or investment product providers in exchange for recurring service fees. Recurring service fees are determined based on the types of investment products the Company distributes and are calculated as a fixed percentage of the fair value of the total investment of the investment products, calculated daily. These customer contracts require the Company to provide investment management services, which represents a performance obligation that the Company satisfies over time. After the contract is established, there are no significant judgments made when determining the transaction price. As the Company provides these services throughout the contract term, for the method of calculating recurring service fees, revenue is calculated on a daily basis over the contract term, quarterly billed and recognized. Recurring service agreements do not include rights of return, credits or discounts, rebates, price protection, performance component or other similar privileges and the circumstances under which the fixed percentage fees, before determined, could be not subject to clawback. Payment of recurring service fees are normally on a regular basis (typically monthly or quarterly). Interest Income The Company offers money lending services from loan origination in form of mortgage and personal loans. Interest income is recognized monthly in accordance with their contractual terms and recorded as interest income in the consolidated statement of operations. The Company does not charge prepayment penalties from its customers. Interest income on mortgage and personal loans is recognized as it accrued using the effective interest method. Accrual of interest income on mortgage loans is suspended at the earlier of the time at which collection of an account becomes doubtful or the account becomes 180 days delinquent. 54 ● Share-Based Compensation The Company accounts for share-based compensation in accordance with the fair value recognition provision of ASC Topic 718, Stock Compensation . The Company grants share awards, including ordinary shares and restricted share units, to eligible participants. Share-based compensation expense for share awards is measured at fair value on the grant date. The fair value of restricted stock with either solely a service requirement or with the combination of service and performance requirements is based on the closing fair market value of the ordinary shares on the date of grant. Share-based compensation expense is recognized over the awards requisite service period. For awards with graded vesting that are subject only to a service condition, the expense is recognized on a straight-line basis over the service period for the entire award. ● Fair Value Measurement The Company follows the guidance of the ASC Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows: ● Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets; ● Level 2 : Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and ● Level 3 : Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. The carrying value of the Company’s financial instruments: cash and cash equivalents, restricted cash, accounts receivable, consideration receivable, deposits, prepayments and other receivables, accounts payable and accrued liabilities, escrow liabilities, borrowings approximate at their fair values because of the short-term nature of these financial instruments. Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of loans receivable approximates the carrying amount. The Company accounts for loans receivable at cost, subject to impairment testing. 55 Fair value estimates are made at a specific point in time based on relevant market information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. ● Recently Issued Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. In June 2022, the FASB issued Accounting Standards Update (ASU) No. 2022-03 Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions . These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company has assessed ASU 2022-03 and early adopted the guidance during the second quarter of 2022. The adoption did not have a material impact on the Company’s consolidated financial statements. In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments — Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyses financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements. Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated balance sheets, statements of operations and cash flows. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to make disclosures under this Item.