Item 7. Management’s Discussion and Analysis
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 advisor teams.
39
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, 2023, there were around 1,231 financial advisors at “Focus”, organized into
26 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 continued
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.
During 2023, 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, 2023, the Company
made $48.9 million from commission in the Distribution Business. The revenue attributed to the Company during 2023 only captured an insignificant
portion of the revenues actually generated by the financial advisors currently associated with Focus.
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.
40
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.
The OnePlatform brand currently covers 90 insurance
providers selling 1,152 products, and 53 asset management fund houses with over 1,137 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, 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.
41
Carrying
amount in
US$ thousands (1)
December 31, 2023
December 31, 2022
Tandem Money Limited
16,880
16,031
CurrencyFair Limited
5,827
5,718
Oscar Health Inc. (2)
—
2,443
Goxip Inc.
342
513
LC Healthcare Fund I, L.P. (3)
2,152
11,805
Notes:
(1)
Carrying amount represents Fintech’s
attributable interest in the investment portfolio asset.
(2)
During the year ended December 31, 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. As of December 31, 2023, the remaining fair value was less than $1,000.
(3)
Subsequent on February 5, 2024, the Company sold
all of its equity interest in LC Healthcare Fund I, L.P. to an independent third party for a purchase price of $2.15 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 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.
42
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
-
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.
43
Operating Revenue and Other Loss
We have disaggregated our operating revenue from
contracts with customers into categories based on the nature of the revenue, as well as other 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,
2023
Distribution Business
Platform Business
Fintech Business
Healthcare Business
Total
Interest income
Loans
$ -
$ 157,190
$ -
$ -
$ 157,190
Non-interest incomes:
Commissions
48,886,928
1,182,008
-
-
50,068,936
Recurring asset management service
fees
-
3,963,061
-
-
3,963,061
-
-
-
Total revenues
$ 48,886,928
$ 5,302,259
$ -
$ -
$ 54,189,187
Investment loss, net
$ -
$ -
$ (6,878,869 )
$ -
$ (6,878,869 )
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 asset management service
fees
-
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 )
Operating Costs
Commission Expense
Commission expense represents 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 consists
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 includes 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.
44
Personnel and Benefit Expense
Personnel and benefit expense primarily consists
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.
Legal and Professional Fees
Legal and Professional fees primarily consist
of certain professional consulting services in legal, audit, accounting and taxation, and others.
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, 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,
2023 and 2022:
The following tables set forth our results of operations for the years
presented in U.S. dollars (in thousands):
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Revenues:
Interest income:
Loans
$ 157
$ 176
(19 )
(10.80 )
Total interest income
157
176
(19 )
(10.80 )
Non-interest income:
Commissions
50,069
26,562
23,507
88.50
Recurring asset management service fees
2,993
3,372
(379 )
(11.24 )
Recurring asset management service fees, related party
970
970
—
—
Total non-interest income
54,032
30,904
23,128
74.84
Total revenues
54,189
31,080
23,109
74.35
Operating expenses:
Interest expense
(784 )
(141 )
643
456.03
Commission expense
(37,288 )
(18,823 )
18,465
98.10
Sales and marketing expense
(3,709 )
(11,142 )
(7,433 )
(66.71 )
Technology expense
(4,557 )
(1,209 )
3,348
276.92
Personnel and benefit expense
(27,218 )
(21,928 )
5,290
24.12
Legal and professional fees
(13,601 )
(1,266 )
12,335
974.33
Legal and professional fees, related party
(333 )
—
333
N/A
Allowance for expected credit losses on financial instruments
(1,077 )
(16 )
1,061
6,631.25
Other general and administrative expenses
(9,467 )
(4,906 )
4,561
92.97
Total operating expenses
(98,034 )
(59,431 )
38,603
64.95
Loss from operations
(43,845 )
(28,351 )
15,494
54.65
Other income (expense):
Interest income
384
99
285
287.88
Foreign exchange gain (loss), net
909
(2,643 )
3,552
134.39
Investment loss, net
(6,879 )
(8,937 )
(2,058 )
(23.03 )
Change in fair value of warrant liabilities
5
9
(4 )
(44.44 )
Change in fair value of forward share purchase liability
(82 )
(5,393 )
(5,311 )
(98.48 )
Loss on settlement of forward share purchase liability
(379 )
—
(379 )
N/A
Gain on disposal of property and equipment
665
—
665
N/A
Rental income
239
315
(76 )
(24.13 )
Sundry income
64
505
(441 )
(87.33 )
Total other expense, net
(5,074 )
(16,045 )
(10,971 )
(68.38 )
Loss before income taxes
(48,919 )
(44,396 )
4,523
10.19
Income tax expense
(287 )
(125 )
162
129.60
NET LOSS
$ (49,206 )
$ (44,521 )
4,685
10.52
45
Revenue
The following table summarizes the major operating
revenues from the year ended December 31, 2023, as compared to the corresponding year ended December 31, 2022:
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Business segment
Distribution Business
$ 48,887
$ 24,610
24,277
98.65
Platform Business
5,302
6,470
(1,168 )
(18.05 )
Fintech Business
—
—
—
—
Healthcare Business
—
—
—
—
TOTAL
$ 54,189
$ 31,080
23,109
74.35
Distribution Business
The Distribution
Business contributed 90.22% and 79.18% of the total revenue for the years ended December 31, 2023 and 2022, respectively. Income from
the Distribution Business mainly related to commissions earned, which significantly increased by US$24.3 million, or 98.65%, from US$24.6 million
in 2022 to US$48.9 million in 2023. The largest segment of the Distribution Business is our FA Business, operated under the “Focus”
brand name.
Summarized revenue breakdown by product and type
of contracts:
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
By product:
Life insurance
$ 46,174
$ 23,849
22,325
93.61
Property-casualty insurance
1,796
205
1,591
776.10
Mandatory provident fund and related revenues
917
556
361
64.93
$ 48,887
$ 24,610
24,277
98.65
By the type of contracts:
– New and or current year
$ 48,661
$ 23,597
25,064
106.22
– Recurring
226
1,013
(787 )
(77.69 )
$ 48,887
$ 24,610
24,277
98.65
Platform Business
The Platform Business contributed 9.78% and 20.82%
of the total revenue for the years ended December 31, 2023 and 2022, respectively.
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Commissions
$ 1,182
$ 1,951
(769 )
(39.42 )
Recurring asset management service fees
3,963
4,343
(380 )
(8.75 )
Loans
157
176
(19 )
(10.80 )
TOTAL
$ 5,302
$ 6,470
(1,168 )
(18.05 )
46
Operating Expenses
Interest Expense
Interest expense increased by US$0.6
million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was mainly attributed to
the increase in short-term borrowings during the year.
Commission Expense
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Distribution Business
$ 35,885
$ 16,840
19,045
113.09
Platform Business
1,403
1,983
(580 )
(29.25 )
Fintech Business
—
—
—
—
Healthcare Business
—
—
—
—
TOTAL
$ 37,288
$ 18,823
18,465
98.10
The Distribution Business contributed 96.24%
and 89.47% of the total commission expense for the years ended December 31, 2023 and 2022, respectively. Commission expense for the Distribution
Business increased by US$19.0 million, or 113.09%, from US$16.8 million in 2022 to US$35.9 million in 2023. 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 decreased by US$7.4
million for the year ended December 31, 2023, as compared to the year ended December 31, 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$3.3 million
for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily due to increased headcount
to support anticipated growth in the business and platform expansion and the purchase of software system.
Personnel and Benefit Expense
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Personnel and benefit
$ 23,926
$ 19,839
4,087
20.60
Compensation to employees (share-based
related)
3,292
2,089
1,203
57.59
TOTAL
$ 27,218
$ 21,928
5,290
24.12
Personnel and benefit cost increased by US$4.1
million for the year ended December 31, 2023, as compared to the year ended December 31, 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 for employees
increased by US$1.2 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was
primarily due to the settlement of accrued salaries to certain directors and employees of the Company and the amortization
of the fair value of the restricted share units. The fair value of the restricted share units is recognized over the period based on
the derived service period (usually the vesting period), on a straight-line basis.
47
Legal and Professional Fees
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Legal and other professional fees
$ 5,090
$ 1,266
3,824
302.05
Consulting fees (share-based related)
8,511
—
8,511
N/A
TOTAL
$ 13,601
$ 1,266
12,335
974.33
Legal and professional fees increased by US$12.3
million, or 974.33%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily
attributed to the increase in the US legal counsel fees and the consulting fees incurred during the year.
Consulting fees under share-based compensation
for the year ended December 31, 2023 was mainly related to the corporate strategic consultancy and business marketing service rendered
by certain third party consultants, equal to 4,900,000 ordinary shares at the market price ranging from US$0.417 to US$2.158 per share.
Legal and Professional Fees, Related Party
Legal and professional fees, related party increased
by US$0.3 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily from
the advisory services rendered by a related company which owned by the Chairman of the Company.
Allowance For Expected Credit Losses on Financial
Instruments
In accordance with Accounting Standards Codification
(“ASC”) Topic 326 “Credit Losses – Measurement of Credit Losses on Financial Instruments” (ASC Topic
326), the Company utilizes the current expected credit losses (“CECL”) model to determine an allowance that reflects its
best estimate of the expected credit losses on accounts receivable, loans receivable, notes receivable, and deposits, prepayments
and others receivable which is recorded as a liability to offset the receivables. For the years ended December 31, 2023 and 2022, the
aggregated allowance for expected credit losses on accounts receivable, loans receivable, notes receivable, and other receivables was
US$1.1 million and US$0.02 million, respectively.
Other General and Administrative Expense
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Depreciation
$ 1,307
$ 393
914
232.57
Financial data subscription expense
499
532
(33 )
(6.20 )
Office rental and operating fees
6,330
3,190
3,140
98.43
Other operating expenses
1,331
791
540
68.27
TOTAL
$ 9,467
$ 4,906
4,561
92.97
Total other general and administrative expenses
increased by US$4.6 million, or 92.97%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The
net increase was mainly due to the increase in depreciation of US$0.9 million, and office rental and operating fees of US$3.1 million.
Upon the consummation of Business Combination, the post-combination entity has expensed more as a listed company, with a significant
increase in the office rental and operating fees increased were primarily attributed to 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.
Loss from Operations
Loss from operations increased by US$15.5 million,
or 54.65%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was mainly attributable
to the increase in operating expenses of US$38.6 million.
Other Income (Expense), net
Interest Income
Interest income increased by US$0.3 million
for the year ended December 31, 2023.
Foreign Exchange Gain (Loss), net
Foreign exchange gain (loss), net 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$3.6 million or 134.39% for the year ended December 31, 2023, as compared to the net
foreign exchange loss for the year ended December 31, 2022, due to the stronger Sterling exchange rate.
48
Investment (Loss) Income, Net
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Unrealized loss in marketable equity securities
$ —
$ (5,331 )
(5,331 )
(100.00 )
Realized gain from sale of marketable equity securities
1,544
—
1,544
N/A
Unrealized gain in non-marketable equity securities
—
2,137
(2,137 )
(100.00 )
Unrealized loss in non-marketable equity securities
(10,093 )
(6,898 )
(3,195 )
(46.32 )
Dividend income
1,670
1,155
515
44.59
TOTAL
$ (6,879 )
$ (8,937 )
(2,058 )
(23.03 )
Investment loss decreased by US$2.1 million,
or 23.03%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, mainly as a result of the increase
in realized gain from sale of marketable equity securities of $1.5 million, increase in dividend income of US$0.5 million, decrease in
unrealized loss in marketable equity securities of US$5.3 million, decrease in unrealized gain in non-marketable equity securities of
US$2.1 million, offset by increase in unrealized loss in non-marketable equity securities of US$3.2 million for the year ended December
31, 2023.
Loss on settlement of forward share purchase
liability
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 year ended December 31,
2023, the loss on settlement of forward share purchase agreement was $0.4 million recognized in the consolidated statements of operations
and comprehensive loss.
Gain on disposal of property and equipment
Gain on disposal of property and equipment was
resulted from the sale of office premises to an independent third party on July 20, 2023. For the year ended December 31, 2023, the gain
on disposal of property and equipment was $0.7 million recognized in the consolidated statements of operations and comprehensive loss.
Rental Income
Rental income was earned from the leasing of
our owned office premises. For the year ended December 31, 2023, the rental income decreased by US$0.08 million, or 24.13%, as compared
to the year ended December 31, 2022 was resulted from the sale of one of the office premises during the year.
Income Tax Expense
Income tax expense increased by US$0.2 million, or 129.60%, for the
year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily attributable to the provision of income tax for
the year.
Net Loss
Net loss increased by US$4.7 million, or
10.52% for the year ended December 31, 2023, as compared to December 31, 2022, primarily due to the increase in operating expenses of
US$38.6 million, offset by the increase in revenues of US$23.1 million and decrease in other expense, net of US$11.0 million.
Liquidity and Capital Resources
Sources of Liquidity
We have a history of operating losses and negative
cash flow. For the year ended December 31, 2023, we reported a net loss of US$49.2 million and reported a negative operating cash flow
of US$42.1 million. As of December 31, 2023, our cash balance was US$1.9 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.
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.
49
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 2024 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 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, 2023, we had cash and cash
equivalents totaling $1.9 million, and $16.8 million in restricted cash.
As of December 31, 2022, we had cash and cash
equivalents totaling $6.4 million, and $44.8 million in restricted cash.
50
Comparison of the year ended December 31,
2023 and 2022
The following table summarizes our cash flows
for the years presented:
Year ended December 31,
2023
2022
(US$ in thousands)
Net cash used in operating activities
(42,282 )
(19,304 )
Net cash provided by (used in) investing activities
10,792
(14,189 )
Net cash (used in) provided by financing activities
(1,040 )
12,135
Effect on exchange rate change on cash
and cash equivalents
(86 )
(429 )
Net change in cash, cash equivalents and restricted
cash
(32,616 )
(21,787 )
Cash, cash equivalents and restricted cash,
at the beginning
51,294
73,081
Cash, cash equivalents
and restricted cash, at the end
18,678
51,294
Representing as:-
Cash and cash equivalents
1,861
6,450
Restricted cash – forward share purchase agreement
—
15,356
Restricted cash – fund held in escrow
16,817
29,488
18,678
51,294
The following table sets forth a summary of our
working capital:
Years ended December 31,
2023
2022
Variance
(US$ in thousands)
$
%
Total Current Assets
$ 25,619
$ 55,756
(30,137 )
(54.05 )
Total Current Liabilities
47,840
74,021
(26,181 )
(35.37 )
Working Deficit
(22,221 )
(18,265 )
3,956
21.66
Working Deficit
The working deficit as of December 31, 2023 amounted
to approximately US$22.22 million, as compared to approximately US$18.27 million at December 31, 2022, an increase of
US$3.96 million or 21.66%.
Cash Flows from Operating Activities
Net cash used in operating activities was US$42.28 million
for the year ended December 31, 2023, as compared to net cash used in operating activities of US$19.30 million for the year ended
December 31, 2022.
Net cash used in operating activities for
the year ended December 31, 2023 was primarily the result of the net loss of US$49.21 million, an increase in accounts receivable of
US$1.19 million, increase in deposits, prepayments, and others receivable of US$2.50 million, decrease in escrow liabilities of
US$12.67 million, and decrease in lease liabilities of US$1.13 million. These amounts were partially offset by the increase in
accounts payable and accrued liabilities of US$6.89 million, increase in income tax payable of US$0.54 million, and non-cash
adjustments consisting of share-based compensation expense of US$11.24 million, non-cash lease expense of US$1.50 million,
depreciation of property and equipment of US$0.26 million, interest income on notes receivable of US$0.03 million, interest expense
on borrowings of US$0.78 million, net foreign exchange gain of US$0.91 million, net investment loss of US$6.88 million, allowance
for expected credit losses on financial instruments of US$1.08 million, gain on disposal of property and equipment of US$0.66
million, loss on settlement of forward share purchase agreement of US$0.38 million, and reversal of over-accruals in prior year of
US$3.60 million.
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, 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.
51
Cash Flows from Investing Activities
Net cash provided by investing activities for
the year ended December 31, 2023 of US$10.79 million was primarily due to proceeds from sale of investments of US$3.98 million, dividend
received from long-term investments of US$1.67 million, proceeds from sale of property and equipment of US$6.13 million, offset by the
purchase of notes receivable of US$0.59 million, purchase of long-term investments of US$0.29 million, and purchase of property and equipment
of US$0.10 million.
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.
Cash Flows from Financing Activities
Net cash used in financing activities for the
year ended December 31, 2023 of US$1.04 million was primarily due to advances from the holding company of US$9.34 million, proceeds from
borrowings of US$7.75 million, proceeds from private placement of US$1.85 million, offset by the settlement of forward share purchase
agreement of US$13.95 million, and repayments of borrowings of US$6.03 million.
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.
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, 2023, we
reported a net loss of approximately US$49.21 million. With a significant increase in our operating costs, described in the paragraph
below, we had an accumulated deficit of approximately US$65.60 million as of December 31, 2023.
However, coupled with its business expansion,
we reported significant sales growth with annual revenue of approximately US$54.19 million during 2023 (2022: US$31.08 million), and
resulting with an operating loss of approximately US$43.85 million (2022: US$28.35 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 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 funding alternatives have been carried by us, as follows:
1. On September 7, 2023, we entered into an equity
purchase agreement with Williamsburg, an independent third party to agree to invest up to
$50 million over a 36-month period.
2. On November 7, 2023, we entered into 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 $5,128,960, in consideration of (i) 7,349,200 ordinary shares of our ordinary
shares, and (ii) warrants to purchase up to 1,469,840 ordinary shares at a purchase price
of $0.70 per ordinary share and associated warrants. As of December 31, 2023, the Company
received the proceeds of $1,850,310.
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.
Material Cash Requirements
We reported a net loss during the year ended
December 31, 2023. 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 2024 and to be in excess of 2022. As of December 31,
2023, we had an accumulated deficit of US$65.60 million. Our material cash requirements are highly dependent upon additional financial
support associated with our its business operations for the next 12 – 18 months.
52
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 December 31, 2023, the remaining committed subscription amount was
$1,084,439.
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 December 28,2023, the
Company and SLS entered a second supplementary agreement to extend the closing date of the transaction from December 31, 2023 to March
31, 2024.
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. On March 20, 2024, the Company was granted by Nasdaq an additional 180 calendar days period or until September 16, 2024, to regain
the compliance.
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
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 3—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.
53
●
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 expected credit losses, notes receivable, share-based compensation, warrant liabilities, forward share
purchase liability, provision for contingent liabilities, revenue recognition, leases, income tax provision, deferred taxes and
uncertain tax position, and allocation of expenses from the holding company.
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 equity securities with
readily determinable fair values and equity securities that do not have readily determinable fair values.
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.
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.
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.
54
●
Revenue Recognition
The Company earns and receives most 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.
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).
55
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
Asset Management Service Fees
The Company provides asset management
services to investment funds or investment product providers in exchange for recurring asset management service fees. Recurring
asset management 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 asset management 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
asset management 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.
●
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.
56
●
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.
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.
Recently adopted
accounting standards
In June 2016, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update No. 2016 - 13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016 - 13”). ASU 2016 - 13 added a new impairment model (known as the CECL model) that
is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of
expected credit losses. The CECL model applies to most debt instruments, accounts receivables, notes receivables, loans receivable, financial
guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses
and entities will need to measure expected credit losses on assets that have a low risk of loss. As an emerging growth company, the
Company was permitted to adopt the new standard for fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. The Company has adopted the new standard effective January 1, 2023, which didn’t have a material impact on the consolidated
financial statements.
57
New accounting
standards not yet adopted
In November 2023, the FASB issued Accounting Standards
Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The purpose
of the update was to improve financial reporting by requiring disclosures of incremental segment information on an annual and interim
basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in this ASU are effective
for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early
adoption permitted and requires retrospective application to all periods presented in the consolidated financial statements. Management
is evaluating the impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosure of incremental income tax information
within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective
for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company’s management does not believe the adoption
of ASU 2023-09 will have a material impact on its consolidated financial statements and disclosures.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and the notes thereto
begin on page F-1 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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