Triller Group Inc. 10-Q/A

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS References in this report (the “Quarterly Report”) to “we,” “us”, “the Group” or the “Company” refer to AGBA Group Holding Limited. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Special Note Regarding Forward-Looking Statements This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section included in our 2022 Annual Report filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Business 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. 1 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. 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 September 30, 2023, there were around 1,261 financial advisors at “Focus”, organized into 28 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, we continue to expand 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. 2 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 three and nine months ended September 30, 2023, the Company made $11.9 million and $37.6 million, respectively from commission in the Distribution Business. The revenue attributed to the Company during the first quarter of 2023 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. 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:- The OnePlatform brand currently covers 74 insurance providers selling over 1,200 products, and 45 asset management fund houses with over 970 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 September 30, 2023 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. 3 Carrying amount in US$ thousands (1) September 30, 2023 December 31, 2022 Tandem Money Limited 16,179 16,031 CurrencyFair Limited 5,575 5,718 Oscar Health Inc. (2) — 2,443 Goxip Inc. 512 513 LC Healthcare Fund I, L.P. 9,375 11,805 Notes: (1) Carrying amount represents Fintech’s attributable interest in the investment portfolio asset. (2) During the nine months ended September 30, 2023, the Company partially sold 993,108 shares of Oscar Health Inc. on Nasdaq Stock Exchange with an average current market price of $4.01 per share, resulting with a realized gain of $1.5 million. 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 centers 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. 4 Results of Operations Three months ended September 30, 2023 vs. Three months ended September 30, 2022 Three months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Revenues: Interest income: Loans $ 41 $ 38 3 7.89 Total interest income 41 38 3 7.89 Non-interest income: Commissions 12,169 12,169 — — Recurring service fees 752 793 (41 ) (5.17 ) Total non-interest income 12,921 12,962 (41 ) (0.32 ) Total revenues from others 12,962 13,000 (38 ) (0.29 ) Non-interest income: Recurring service fees 245 244 1 0.41 Total revenues from related parties 245 244 1 0.41 Total revenues 13,207 13,244 (37 ) (0.28 ) Operating cost and expenses: Commission expense (8,916 ) (8,038 ) 878 10.92 Sales and marketing expense (754 ) (1,457 ) (703 ) (48.25 ) Technology expense (741 ) (335 ) 406 121.19 Personnel and benefit expense (7,764 ) (3,325 ) 4,439 133.50 Other general and administrative expenses (5,982 ) (1,094 ) 4,888 446.80 Total operating cost and expenses (24,157 ) (14,249 ) 9,908 69.53 Loss from operations (10,950 ) (1,005 ) 9,945 989.55 Other income (expense): Interest income 17 7 10 142.86 Interest expense (393 ) (20 ) 373 1,865.00 Foreign exchange loss, net (864 ) (2,083 ) (1,219 ) (58.52 ) Investment (loss) income, net (793 ) 742 (1,535 ) (206.87 ) Change in fair value of warrant liabilities 1 — 1 N/A Rental income 79 79 — — Sundry income 38 14 24 171.43 Total other expense, net (1,915 ) (1,261 ) 654 51.86 Loss before income taxes (12,865 ) (2,266 ) 10,599 467.74 Income tax expense (56 ) (127 ) (71 ) (55.91 ) NET LOSS $ (12,921 ) $ (2,393 ) 10,528 439.95 Revenue The following table summarizes the major operating revenues for the three months ended September 30, 2023 and 2022: Three months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Business segment Distribution Business $ 11,876 $ 11,753 123 1.05 Platform Business 1,331 1,491 (160 ) (10.73 ) Fintech Business — — — — Healthcare Business — — — — TOTAL $ 13,207 $ 13,244 (37 ) (0.28 ) 5 Distribution Business The Distribution Business contributed 89.92% and 88.74% of the total revenue for the three months ended September 30, 2023 and 2022, respectively. Income from the Distribution Business mainly related to commissions earned from insurance policies, which slightly increased by US$0.1 million, or 1.05%, from US$11.8 million in 2022 to US$11.9 million in 2023. The largest segment of the Distribution Business is our FA Business, operated under the “Focus” brand name. Summarized revenue breakdown by product and type of contracts: Three months ended September 30, 2023 2022 Variance (US$ in thousands) $ % By product: Life insurance $ 11,147 $ 11,516 (369 ) (3.20 ) Property-casualty insurance 467 88 379 430.68 Mandatory provident fund and related revenues 262 149 113 75.84 11,876 11,753 123 1.05 By the type of contracts: - New and or current year 11,496 11,418 78 0.68 - Recurring 380 335 45 13.43 TOTAL $ 11,876 $ 11,753 123 1.05 Platform Business The Platform Business contributed 10.08% and 11.26% of the total revenue for the three months ended September 30, 2023 and 2022, respectively. Three months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Commission $ 293 $ 416 (123 ) (29.57 ) Recurring service fees 996 1,037 (41 ) (3.95 ) Loans 42 38 4 10.53 TOTAL $ 1,331 $ 1,491 (160 ) (10.73 ) Operating Expenses Commission Expense Three months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Business segment Distribution Business $ 8,593 $ 7,655 938 12.25 Platform Business 323 383 (60 ) (15.67 ) Fintech Business — — — — Healthcare Business — — — — TOTAL $ 8,916 $ 8,038 878 10.92 The Distribution Business contributed 96.38% and 95.24% of the total commission expense for the three months ended September 30, 2023 and 2022, respectively. Commission expense for the Distribution Business increased by US$0.9 million, or 12.25%, from US$7.7 million in 2022 to US$8.6 million in 2023. The increase mainly attributed to the bonus payment during the three months ended September 30, 2023 to retain the financial advisors. 6 Sales and Marketing Expense Sales and Marketing expense decreased by US$0.7 million for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. The decrease in sales and marketing expense is mainly attributed to lower spending associated with “AGBA” corporate branding and associated product campaigns for celebrating the successful listing in last year. Technology Expense Technology expense increased by US$0.4 million for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. The increase was primarily due to increased headcount to support the continuing growth in the business expansion. Personnel and Benefit Expense Three months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Personnel and benefit $ 6,446 $ 3,325 3,121 93.86 Share-based compensation to employees 1,318 — 1,318 N/A TOTAL $ 7,764 $ 3,325 4,439 133.50 Personnel and benefit cost increased by US$3.1 million for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. The increase was primarily due to the increased headcount to support the continuing growth of the Platform Business and Distribution Business. Share-Based Compensation Pursuant to the Share Award Scheme (the “Scheme”), the Company filed S-8 registration statement to register 11,675,397 ordinary shares on February 24, 2023. During the three months ended September 30, 2023, the Company recorded US$1.3 million in share-based compensation expense on the restricted share units. There was no such expense during the three months ended September 30, 2022. The fair value of the restricted share units is recognized over the period based on the derived service period (usually the vesting period), on a straight-line basis. Other General and Administrative Expenses Three months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Depreciation $ 23 $ 96 (73 ) (76.04 ) Financial data subscription expense 154 132 22 16.67 Legal and professional fees 1,379 245 1,134 462.86 Office rental and operating fees 1,221 560 661 118.04 Share-based compensation (service related) 2,151 — 2,151 N/A Other operating expenses 1,054 61 993 1,627.87 TOTAL $ 5,982 $ 1,094 4,888 446.80 Total other general and administrative expenses increased by US$4.9 million, or 446.80%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. The net increase was mainly due to the increase in legal and professional fees of US$1.1 million, office rental and operating fees of US$0.7 million, and share-based compensation of $2.2 million. Upon the consummation of Business Combination, the post-combination entity has expensed more as a listed company, with a significant increase in the legal and professional fees and office rental and operating fees increased were primarily attributed to 1) the US legal counsel fee incurred and 2) the office and administrative expenses pay to the holding company for the use of office premises in Trust Tower and Hopewell Centre, including building management fees, government rates and rent, office rent, lease-related interest, and depreciation actually incurred by the holding company, with the increased occupancy from business expansion. Share-based compensation for the three months ended September 30, 2023 was mainly related to marketing consultancy service rendered by certain third party consultants. 7 Loss from Operations Loss from operations increased by US$9.9 million, or 989.55%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. The increase was mainly attributable to the increase in operating expenses of US$9.9 million. Other Income (Expense), Net Interest Income Interest income increased by US$0.01 million for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. Interest Expense Interest expense increased by US$0.4 million for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. The increase was mainly attributed to the increase in short-term borrowings during the period. Foreign Exchange Loss, Net Foreign exchange loss mainly represented the unrealized net foreign exchange gain (loss) from the translation of long-term investments which are mostly denominated in Sterling. The net foreign exchange loss decreased by US$1.2 million or 58.52% for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, due to the stronger Sterling exchange rate. Investment (Loss) Income, Net Three months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Unrealized gain in marketable equity securities $ — $ 742 (742 ) (100.00 ) Unrealized loss in non-marketable equity securities (1,030 ) — 1,030 N/A Dividend income 237 — 237 N/A TOTAL $ (793 ) $ 742 (1,535 ) (206.87 ) Investment loss decreased by US$1.5 million, or 206.87%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, mainly as a result of the unrealized loss in non-marketable equity securities of US$1.0 million, offset by dividend income of US$0.2 million for the three months ended September 30, 2023 as compared to $0.7 million unrealized gain in marketable equity securities for the same period ended in 2022. Income Tax Expense Income tax expense decreased by US$0.07 million, or 55.91% for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily attributable to the over provision of income tax for prior years. Net Loss Net loss increased by US$10.5 million, or 439.95% for the three months ended September 30, 2023, as compared to September 30, 2022, primarily due to the increase in operating cost and expenses of US$9.9 million and increase in other expense, net of US$0.7 million. 8 Nine months ended September 30, 2023 vs Nine months ended September 30, 2022 Nine months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Revenues: Interest income: Loans $ 118 $ 137 (19 ) (13.87 ) Total interest income 118 137 (19 ) (13.87 ) Non-interest income: Commissions 38,507 15,933 22,574 141.68 Recurring service fees 2,301 2,615 (314 ) (12.01 ) Total non-interest income 40,808 18,548 22,260 120.01 Total revenues from others 40,926 18,685 22,241 119.03 Non-interest income: Recurring service fees 725 725 — — Total revenues from related parties 725 725 — — Total revenues 41,651 19,410 22,241 114.59 Operating cost and expenses: Commission expense (28,196 ) (11,219 ) 16,977 151.32 Sales and marketing expense (3,125 ) (2,088 ) 1,037 49.66 Technology expense (2,678 ) (619 ) 2,059 332.63 Personnel and benefit expense (22,672 ) (8,734 ) 13,938 159.58 Other general and administrative expenses (20,493 ) (3,176 ) 17,317 545.25 Total operating cost and expenses (77,164 ) (25,836 ) 51,328 198.67 Loss from operations (35,513 ) (6,426 ) 29,087 452.65 Other income (expense): Interest income 385 24 361 1,504.17 Interest expense (806 ) (20 ) 786 3,930.00 Foreign exchange gain (loss), net 41 (4,690 ) 4,731 100.87 Investment income (loss), net 489 (2,793 ) 3,282 117.51 Change in fair value of warrant liabilities 3 — 3 N/A Change in fair value of forward share purchase liability (82 ) — (82 ) N/A Loss on settlement of forward share purchase agreement (379 ) — (379 ) N/A Rental income 217 236 (19 ) (8.05 ) Sundry income 122 169 (47 ) (27.81 ) Total other expense, net (10 ) (7,074 ) (7,064 ) (99.86 ) Loss before income taxes (35,523 ) (13,500 ) 22,023 163.13 Income tax expense (56 ) (232 ) (176 ) (75.86 ) NET LOSS $ (35,579 ) $ (13,732 ) 21,847 159.10 Revenue The following table summarizes the major operating revenues for the nine months ended September 30, 2023 and 2022: Nine months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Business segment Distribution Business $ 37,569 $ 14,307 23,262 162.59 Platform Business 4,082 5,103 (1,021 ) (20.01 ) Fintech Business — — — — Healthcare Business — — — — TOTAL $ 41,651 $ 19,410 22,241 114.59 9 Distribution Business The Distribution Business contributed 90.20% and 73.71% of the total revenue for the nine months ended September 30, 2023 and 2022, respectively. Income from the Distribution Business mainly related to commissions earned, which significantly increased by US$23.3 million, or 162.59%, from US$14.3 million in 2022 to US$37.6 million in 2023. The largest segment of the Distribution Business is our FA Business, operated under the “Focus” brand name. Commissions generated by the financial advisors currently associated with Focus, along with associated potential platform commissions and fees, were attributable to the Legacy Group and as such not reflected in the results for the Distribution Business for 2022. Summarized revenue breakdown by product and type of contracts: Nine months ended September 30, 2023 2022 Variance (US$ in thousands) $ % By product: Life insurance $ 35,286 $ 14,014 21,272 151.79 Property-casualty insurance 1,523 136 1,387 1,019.85 Mandatory provident fund and related revenues 760 157 603 384.08 37,569 14,307 23,262 162.59 By the type of contracts: - New and or current year 36,944 13,718 23,226 169.31 - Recurring 625 589 36 6.11 TOTAL $ 37,569 $ 14,307 23,262 162.59 Platform Business The Platform Business contributed 9.80% and 26.29% of the total revenue for the nine months ended September 30, 2023 and 2022, respectively. Nine months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Commission $ 938 $ 1,626 (688 ) (42.31 ) Recurring service fees 3,026 3,340 (314 ) (9.40 ) Loans 118 137 (19 ) (13.87 ) TOTAL $ 4,082 $ 5,103 (1,021 ) (20.01 ) Operating Expenses Commission Expense Nine months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Business segment Distribution Business $ 27,133 $ 9,630 17,503 181.75 Platform Business 1,063 1,589 (526 ) (33.10 ) Fintech Business — -— — — Healthcare Business — — — — TOTAL $ 28,196 $ 11,219 16,977 151.32 The Distribution Business contributed 96.23% and 85.84% of the total commission expense for the nine months ended September 30, 2023 and 2022, respectively. Commission expense for the Distribution Business increased by US$17.5 million, or 181.75%, from US$9.6 million in 2022 to US$27.1 million in 2023. As a result of the increase in revenue associated with the Distribution Business, commission expense relatively increased. 10 Sales and Marketing Expense Sales and Marketing expense increased by US$1.0 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. 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$2.1 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The increase was primarily due to increased headcount to support the continuing growth in the business expansion. Personnel and Benefit Expense Nine months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Personnel and benefit $ 18,719 $ 8,734 9,985 114.32 Share-based compensation to employees 3,953 — 3,953 N/A TOTAL $ 22,672 $ 8,734 13,938 159.58 Personnel and benefit cost increased by US$10.0 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The increase was primarily due to the increased headcount to support the continuing growth of the Platform Business and Distribution Business. Share-Based Compensation Pursuant to the Share Award Scheme (the “Scheme”), the Company filed S-8 registration statement to register 11,675,397 ordinary shares on February 24, 2023. During the nine months ended September 30, 2023, the Company recorded US$4.0 million in share-based compensation expense on the restricted share units. There was no such expense during the nine months ended September 30, 2022. The fair value of the restricted share units is recognized over the period based on the derived service period (usually the vesting period), on a straight-line basis. Other General and Administrative Expenses Nine months ended September 30, 2023 2022 Variance (US$ in thousands) $ % Depreciation on property and equipment $ 238 $ 288 (50 ) (17.36 ) Financial data subscription expense 293 401 (108 ) (26.93 ) Legal and professional fees 4,474 711 3,763 529.25 Office rental and operating fees 5,089 1,564 3,525 225.38 Share-based compensation (service related) 8,026 — 8,026 N/A Other operating expenses 2,373 212 2,161 1,019.34 TOTAL $ 20,493 $ 3,176 17,317 545.25 Total other general and administrative expenses increased by US$17.3 million, or 545.25%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The net increase was mainly due to the increase in legal and professional fees of US$3.8 million, office rental and operating fees of US$3.5 million, share-based compensation of US$8.0 million, other operating expenses of US$2.2 million, offset by a decrease in financial data subscription expense of US$0.1 million. Upon the consummation of Business Combination, the post-combination entity has expensed more as a listed company, with a significant increase in the legal and professional fees and office rental and operating fees increased were primarily attributed to 1) the US legal counsel fee incurred and 2) the office and administrative expenses pay to the holding company for the use of office premises in Trust Tower and Hopewell Centre, including building management fees, government rates and rent, office rent, lease-related interest, and depreciation actually incurred by the holding company, with the increased occupancy from business expansion. Share-based compensation for the nine months ended September 30, 2023 was mainly related to marketing consultancy services rendered by certain third party consultants, payable by aggregated 4,400,000 ordinary shares at the market price ranging from $0.860 to $2.124 per share. 11 Loss from Operations Loss from operations increased by US$29.1 million, or 452.65%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The increase was mainly attributable to the increase in operating expenses of US$51.3 million and offset by the increase in revenues of US$22.2 million. Other Income (Expense), Net Interest Income Interest income increased by US$0.4 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Interest Expense Interest expense increased by US$0.8 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The increase was mainly attributed to the increase in borrowings during the period. Foreign Exchange Gain (Loss), Net Foreign exchange gain (loss) mainly represented the unrealized net foreign exchange gain (loss) from the translation of long-term investments which are mostly denominated in Sterling. The net foreign exchange gain increased by US$4.7 million or 100.87% for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, due to the stronger Sterling exchange rate. Investment Income (Loss), Net Nine month ended September 30, 2023 2022 Variance (US$ in thousands) $ % Unrealized loss in marketable equity securities $ — $ (2,793 ) (2,793 ) (100.00 ) Realized gain in marketable equity securities 1,543 — 1,543 N/A Unrealized loss in non-marketable equity securities (2,458 ) — 2,458 N/A Dividend income 1,404 — 1,404 N/A TOTAL $ 489 $ (2,793 ) 3,282 117.51 Investment income increased by US$3.3 million, or 117.51%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, mainly as a result of the realized gain of US$1.5 million on the sale of the shares of Oscar Health Inc. in the open market at the average market price of $4.01 per shares and dividend income of US$1.4 million, offset by unrealized loss in non-marketable equity securities of US$2.5 million, which was fewer than the unrealized loss in marketable securities of US$2.8 million. Loss on settlement of forward share purchase agreement Loss on settlement of forward share purchase agreement was resulted from the early termination of the Meteora Backstop Agreement on June 29, 2023. For the nine months ended September 30, 2023, the loss on settlement of forward share purchase agreement was $0.4 million recognized in the unaudited condensed consolidated statements of operations and comprehensive loss. Income Tax Expense Income tax expense decreased by US$0.2 million, or 75.86% for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily attributable to the over provision of income tax for prior years. Net Loss Net loss increased by US$21.8 million, or 159.10% for the nine months ended September 30, 2023, as compared to nine months ended September 30, 2022, primarily due to the increase in operating cost and expenses of US$51.3 million, offset by the increase in revenues of US$22.2 million and increase in other expense, net of US$7.1 million. 12 Liquidity and Capital Resources Sources of Liquidity We have a history of operating losses and negative cash flow. During the nine months ended September 30, 2023, we reported a net loss of US$35.6 million and reported a negative operating cash flow of US$33.4 million. As of September 30, 2023, our cash balance was US$1.6 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 September 30, 2023. 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 unaudited condensed consolidated financial statements attached to this Form 10-Q do not include any adjustments that might result from the outcome of these uncertainties. 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. 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 Distribution Business and (ii) Platform Business. 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 cash equivalents will not be able to provide sufficient funds to its operations for at least the next 12 months from the date of its unaudited condensed consolidated financial statements provided with this Form 10-Q. However, these forecasts involve risks and uncertainties, and actual results could vary materially. 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. 13 Cash Flows As of September 30, 2023, we had cash and cash equivalents totalling US$1.6 million, and US$20.6 million in restricted cash. As of December 31, 2022, we had cash and cash equivalents totalling US$6.4 million, and US$44.8 million in restricted cash. The following table summarizes our cash flows for the periods presented: Nine months ended September 31, 2023 2022 (US$ in thousands) Net cash used in operating activities $ (33,365 ) $ (2,132 ) Net cash provided by (used in) investing activities 4,687 (6,870 ) Net cash used in financing activities (415 ) (12,776 ) Effect on exchange rate change on cash and cash equivalents (26 ) (364 ) Net change in cash, cash equivalents and restricted cash (29,119 ) (22,142 ) Cash, cash equivalents and restricted cash, at the beginning 51,294 73,081 Cash, cash equivalents and restricted cash, at the end 22,175 50,939 Representing as: Cash and cash equivalents 1,622 16,261 Restricted cash – fund held in escrow 20,553 34,678 $ 22,175 $ 50,939 The following table sets forth a summary of our working capital: September 30, 2023 December 31, 2022 Variance (US$ in thousands) $ % Total Current Assets $ 34,734 $ 55,756 (21,022 ) (37.70 ) Total Current Liabilities 74,545 97,021 (22,476 ) (23.17 ) Working Deficit (39,811 ) (41,265 ) (1,454 ) (3.52 ) Working Deficit The working deficit as of September 30, 2023 and December 31, 2022 was amounted to approximately US$39.8 million and US$41.3 million, respectively, a decrease of US$1.5 million or 3.52%. Cash Flows from Operating Activities Net cash used in operating activities was US$33.4 million and US$2.1 million for the nine months ended September 30, 2023 and 2022, respectively. Net cash used in operating activities for the nine months ended September 30, 2023 was primarily the result of the net loss of US$35.6 million, an increase in accounts receivable of US$0.6 million, increase in deposits, prepayments, and others receivable of US$2.9 million, decrease in escrow liabilities of US$8.9 million, decrease in lease liabilities of US$0.6 million and decrease in income tax payable of US$0.1 million. These amounts were partially offset by the increase in accounts payable and accrued liabilities of US$5.5 million, and non-cash adjustments consisting of share-based compensation expense of US$12.0 million, non-cash lease expense of US$0.9 million, depreciation of property and equipment of US$0.2 million, interest income on notes receivable of US$0.02 million, net foreign exchange gain of US$0.04 million, net investment income of US$0.5 million, allowance for credit losses on financial instruments of US$0.7 million, loss on settlement of forward share purchase agreement of US$0.4 million and reversal of annual bonus accrued in prior year of US$3.8 million. 14 Net cash used in operating activities for the nine months ended September 30, 2022 was primarily the result of the net loss of US$13.7 million, decrease in loans receivable of US$2.3 million, an increase in accounts payable and accrued liabilities of US$2.8 million, an increase in escrow liabilities of US$0.2 million, an increase in income tax payable of US$0.3 million, and non-cash adjustments consisting of unrealized investment loss of US$2.8 million, net foreign exchange loss of US$4.7 million, and depreciation on property and equipment of US$0.3 million. These amounts were partially offset by the increase in accounts receivable of US$1.5 million, increase in deposits, prepayments, and others receivable of US$0.3 million. Cash Flows from Investing Activities Net cash provided by investing activities for the nine months ended September 30, 2023 of US$4.7 million was primarily due to proceeds from sale of investments of US$4.0 million, dividend received from long-term investments of US$1.4 million, offset by the purchase of notes receivable of US$0.6 million and purchase of property and equipment of US$0.1 million. Net cash used in investing activities for the nine months ended September 30, 2022 of US$6.9 million was primarily due to the proceeds from sale of investments of US$1.8 million, offset by the purchase of property and equipment of US$0.9 million, and payment of earnest deposit of US$7.8 million for the purchase of long-term investments. Cash Flows from Financing Activities Net cash used in financing activities for the nine months ended September 30, 2023 of US$0.4 million was primarily due to advances from holding company of US$6.3 million, proceeds from borrowings of US$7.2 million, offset by the settlement of forward share purchase agreement of US$14.0 million. Net cash used in financing activities for the nine months ended September 30, 2022 of US$12.8 million was primarily due to advances from the holding company of US$0.2 million, proceeds from borrowings of US$4.5 million, offset by the dividend distribution of US$17.4 million to the holding company. Liquidity and Going Concern Our unaudited condensed 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 unaudited condensed consolidated financial statements were made available to be issued. For the nine months ended September 30, 2023, we reported a net loss of approximately US$35.6 million. With a significant increase in our operating costs, described in the paragraph below, we had an accumulated deficit of approximately US$75.0 million as of September 30, 2023. However, coupled with its business expansion, we reported significant sales growth with total revenue of approximately US$41.7 million for the nine months ended September 30, 2023 (2022: US$19.4 million), and resulted with an operating loss of approximately US$35.5 million (2022: US$6.4 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 and fund-raising exercises. 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 search for potential funding alternatives in order to finance our business development activities and operating expenses. These alternatives may include borrowings, raising funds through public equity or debt markets. However, we cannot predict the exact amount or timing of the alternatives, or guarantee those alternatives will be favorable to our shareholders. Any failure to obtain financing when required will have a material adverse impact on our business, operation and financial result. Certain potential funding alternatives have been carried by us, as follows: 1. On September 7, 2023, we entered into an equity purchase agreement with an independent third party to agree to invest up to $50 million over a 36-month period. 2. On November 7, 2023, we signed private placement binding term sheets with an institutional investor, our Chief Executive Officer, Mr. Ng Wing Fai, and our management team pursuant to which we will receive gross proceeds of approximately $6,242,850, in consideration of (i) 8,918,357 ordinary shares of our ordinary shares, and (ii) warrants to purchase up to 1,783,671 ordinary shares at a purchase price of $0.70 per ordinary share and associated warrants. The warrants have an exercise price of $1.00 per our ordinary share and shall be exercised with more than $500,000 for each exercise. With these funding initiatives, our management believes that we would be able to strengthen our financial position, improve our liquidity, and enhance our ability to navigate the challenging market conditions. 15 Capital Commitments Notes Receivable Agreement — Pursuant to the Agreements, subject to demand, the Company is committed to subscribe the notes of Investment A with an aggregate amount of $1,673,525, in batches, which are payable on or before January 31, 2024. As of September 30, 2023, the remaining committed subscription amount was $1,084,439. Capital Contribution in L.C. Healthcare Fund I, L.P. — As of September 30, 2023, the remaining committed capital amount in Investment F was $304,489. Sale and Purchase Agreement — Pursuant to the Agreement entered with Sony Life Singapore Pte. Ltd. (“SLS”), the Company is committed to purchase 100% equity interest in Sony Life Financial Advisers Pte. Ltd. for a cash consideration of SGD2,500,000 (equivalent to $1,882,000). On September 26, 2023, the Company and SLS entered a supplementary agreement to extend the closing date of the transaction from September 30, 2023 to December 31, 2023. Equity Purchase Agreement — Pursuant to the Agreement entered with Williamsburg Venture Holdings, LLC (the “Investor”), pursuant to which the Investor agreed to invest up to Fifty Million Dollars ($50,000,000) over a 36-month period (unless otherwise determined therein) in accordance with the terms and conditions of an Equity Purchase Agreement, dated as of September 7, 2023, by and between the Company and the Investor (the “Equity Purchase Agreement”). During the term, the Company shall be entitled to put to the Investor, and the Investor shall be obligated to purchase, such number of ordinary shares of the Company (such shares, the “Put Shares”) and at such price as are determined in accordance with the Equity Purchase Agreement. The per share purchase price for the Put Shares shall be the average of the highest and lowest traded price of the ordinary shares on the principal market for five (5) consecutive trading days immediately preceding the relevant Closing Date (defined therein), as reported by Bloomberg Finance L.P. or other reputable source. Further, in consideration of the Company’s Put rights, the Investor shall be entitled to 600,000 ordinary shares of the Company within no later than 5 trading days from the date of the Equity Purchase Agreement and pursuant to the Equity Purchase Agreement, the Investor may not acquire at any point, more than 5% of the outstanding ordinary shares of the Company. In connection with the Equity Purchase Agreement, the parties also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company agreed to register with the SEC the ordinary shares issuable under the Equity Purchase Agreement, among other securities. Nasdaq Compliance — On September 20, 2023, the Company received written notice (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that, based on the closing bid price of the Company’s ordinary shares, par value $0.001 per share (the “Ordinary Shares”), for the last 30 consecutive trading days, the Company no longer complies with the minimum bid price requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive trading days. 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. Stock Repurchase Program On April 18, 2023, our Board of Directors approved the repurchase of 1,000,000 ordinary shares (the “2023 Share Repurchase Program”). Under the 2023 Share Repurchase Program, we are authorized to re-purchase up to 1,000,000 ordinary shares at a maximum price of $10 per share from the open market, for a term of one year, no later than April 18, 2024. Critical Accounting Policies, Judgements and Estimates The preparation of financial statements in conformity with GAAP requires us to make judgments, estimates, and assumptions in the preparation of our unaudited condensed consolidated financial statements. Actual results could differ from those estimates. There have been no material changes to our critical accounting policies and estimates as reported in our 2022 Annual Report on Form 10-K. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.