| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 —
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These accompanying unaudited condensed consolidated
financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the
accompanying unaudited condensed consolidated financial statements and notes.
● Basis
of Presentation The accompanying unaudited condensed consolidated
financial statements of the Company are presented in United State dollars (“US$” or “$”) and have been prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial
information and with the instructions to Form 10-Q and Regulation S-X of the Securities Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements have been omitted pursuant to such rules and regulations. The consolidated
balance sheet as of December 31, 2023 derived from the audited consolidated financial statements at that date, but does not include all
the information and footnotes required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2023, as filed on March 28, 2024. The unaudited condensed consolidated financial
statements as of September 30, 2024 and December 31, 2023 and for the three and nine months ended September 30, 2024 and 2023, in the
opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of
the Company’s financial condition, results of operations and cash flows. The results of operations for the three and nine months
ended September 30, 2024 and 2023 are not necessarily indicative of the results to be expected for any other interim period or for the
entire year. Certain prior period amounts have been reclassified
for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
● Principal
of Consolidation The accompanying unaudited condensed consolidated
financial statements include the unaudited financial statements of ILLR and its subsidiaries. A subsidiary is an entity (including a structured
entity), directly or indirectly, controlled by the Company. The unaudited financial statements of the subsidiaries are prepared for the
same reporting period as the Company, using consistent accounting policies. All intercompany transactions and balances between ILLR and
its subsidiaries are eliminated upon consolidation.
● Use
of Estimates and Assumptions The preparation of unaudited condensed 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 unaudited condensed consolidated
financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates
reflected in the Company’s unaudited condensed consolidated financial statements include the useful lives of property and equipment,
impairment of long-lived assets, allowance for expected credit losses, notes receivables, promissory notes receivable, share-based compensation,
convertible promissory notes payable, warrant liabilities, provision for contingent liabilities, revenue recognition, 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 geopolitical tension, inflationary and high interest rate environment and other macroeconomic factors on the
Company’s critical and significant accounting estimates. Actual results could differ from these estimates.
● Foreign
Currency Translation and Transaction Transactions denominated in currencies other than
the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency
using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited condensed
consolidated statements of operations and comprehensive loss. The reporting currency of the Company is US$ and
the accompanying unaudited condensed consolidated financial statements have been expressed in US$. In addition, the Company and subsidiaries
are operating in Hong Kong maintain their books and record in their local currency, Hong Kong dollars (“HK$”), which is a
functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for
consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance
with ASC Topic 830-30, “ Translation of Financial Statement” Translation of amounts from HK$ into US$ has been
made at the following exchange rates for the nine months ended September 30, 2024 and 2023:
September 30, September 30,
Period-end HK$:US$ exchange rate 0.12870 0.12771
Period average HK$:US$ exchange rate 0.12801 0.12766
● Cash
and Cash Equivalents Cash and cash equivalents consist primarily of
cash in readily available checking and saving accounts. They consist of highly liquid investments that are readily convertible to cash
and that mature within three months or less from the date of purchase. The carrying amounts approximate fair value due to the short maturities
of these instruments. The Company maintains most of its bank accounts in Hong Kong and Hong Kong is not protected by Federal Deposit Insurance
Corporation (“FDIC”) insurance. However, management does not believe there is a significant risk of loss.
● Restricted
Cash Restricted cash consists of funds held in escrow
accounts reflecting the restricted cash and cash equivalents maintained in certain bank accounts that are held for the exclusive interest
of the Company’s customers. The Company currently acts as a custodian to manage the assets and investment portfolio on behalf of
its customers under the terms of certain contractual agreements, which the Company does not have the right to use for any purposes, other
than managing the portfolio. The Company
restricts the use of the assets underlying the funds held in escrow to meet with regulatory or contractual requirements and classifies
the assets as current based on their purpose and availability to fulfill its direct obligation under current liabilities.
● Accounts
Receivable, net Accounts receivable, net include trade accounts
due from customers in insurance brokerage and asset management businesses, less the allowance for expected credit losses. Accounts receivable, net are recorded at the invoiced
amount and do not bear interest, which are due within contractual payment terms. The normal settlement terms of accounts receivable from
insurance companies in the provision of brokerage agency services are within 30 days upon the execution of the insurance policies. Credit
terms with the products providers of investment, unit and mutual funds and asset portfolio are mainly 90 days or a credit period mutually
agreed between the contracting parties. The Company seeks to maintain strict control over its outstanding receivables to minimize credit
risk. Overdue balances are reviewed regularly by senior management. Management reviews its receivables on a regular basis to determine
if the allowance for expected credit losses is adequate, and provides allowance when necessary. The Company does not hold any collateral or other
credit enhancements over its accounts receivable balances.
● Loans
Receivable, net Loans receivable, net are related to residential
mortgage loan that are carried at unpaid principal and interest balances, less the allowance for expected credit losses on loans receivable
and charge-offs. Loans are placed on nonaccrual status when they
are past due 180 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When
a loan is placed on nonaccrual status, any interest accrued but not received is reversed against interest income. Payments received on
a nonaccrual loan are either applied to protective advances, the outstanding principal balance or recorded as interest income, depending
on an assessment of the ability to collect the loan. A nonaccrual loan may be restored to accrual status when principal and interest payments
have been brought current and the loan has performed in accordance with its contractual terms for a reasonable period (generally six months). If the Company determines that a loan is impaired,
the Company next determines the amount of the impairment. The amount of impairment on collateral dependent loans is charged off within
the given fiscal quarter. Generally, the amount of the loan and negative escrow in excess of the appraised value less estimated selling
costs, for the fair value of collateral valuation method, is charged off. For all other loans, impairment is measured as described below
in “Allowance for Expected Credit Losses on Financial Instruments”.
● Allowance
for Expected Credit Losses on Financial Instruments In accordance with ASC Topic 326, “ Credit
Losses – Measurement of Credit Losses on Financial Instruments For the three months ended September 30, 2024
and 2023, the aggregated provision for allowance for expected credit losses on accounts receivable, loans receivable, notes receivable,
and other receivables was $135,092 and $328,012, respectively. For the nine months ended September 30, 2024 and
2023, the aggregated provision for allowance for expected credit losses on accounts receivable, loans receivable, notes receivable, and
other receivables was $1,877,786 and $661,288, respectively.
● Promissory
Notes Receivable from Triller LLC Promissory notes receivable from Triller LLC is
stated at carrying value and receivable in the next twelve months. Interest income is recognized at a fixed interest rate over the prevailing
periods on the unaudited condensed consolidated statements of operations and comprehensive loss (see Note 5).
● Long-Term
Investments, net The Company invests in equity securities with
readily determinable fair values, equity securities that do not have readily determinable fair values, and warrant with purchase option. 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. Warrant with a purchase option of equity securities
was recorded as an investment in non-marketable equity securities and measured at the fair value. At each reporting period, the Company makes a
qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.
● Property
and Equipment, net Property and equipment, net are stated at cost
less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the
following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual
values, if any: Expected useful life Land and building Shorter of 50 years or lease term Furniture, fixtures and equipment 5 years Computer equipment 3 years Motor vehicle 3 years Expenditure for repairs and maintenance is expensed
as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in the results of operations.
● Impairment
of Long-Lived Assets In accordance with the provisions of ASC Topic
360, “ Impairment or Disposal of Long-Lived Assets” No
● Borrowings Borrowings are recognized at fair value and repayable
in the next twelve months. Interest expense is recognized on a fixed interest rate on the unaudited condensed consolidated statements
of operations and comprehensive loss.
● Convertible
Promissory Notes Payable, net The Company accounts for its convertible promissory
notes payable, net in accordance with ASC Topic 470-20, “ Debt with Conversion and Other Options” Derivatives and Hedging – Embedded Derivatives”
● 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” Derivatives
and Hedging” 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 fair value are recognized as a non-cash gain
or loss on the unaudited condensed consolidated statements of operations and comprehensive loss. The Company accounts for its Public Warrants
as equity and the (i) SPAC Private Warrants, (ii) Warrants – Class A, and (iii) Common Warrants as liabilities. Warrants classified as liabilities are recorded
at fair value and are remeasured at each reporting date until settlement. Changes in fair value is recognized as a component of change
in fair value of warrant liability in the unaudited condensed consolidated statements of operations and comprehensive loss. Transaction
costs allocated to warrants that are presented as a liability are immediately expensed in the unaudited condensed consolidated statements
of operations and comprehensive loss. Warrants classified as equity instruments are initially recognized at fair value and are not subsequently
remeasured.
● Revenue
Recognition The Company receives certain portion of its non-interest
income from contracts with customers, which are accounted for in accordance with Accounting Standards Update (“ASU”) No. 2014-09,
“ Revenue from Contracts with Customers (Topic 606)” ASC 606 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 a 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 one-time commission
price. Therefore, commissions are recorded at a 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 insureds, and is compensated in the
form of one-time commissions from the respective insurance providers. The Company primarily facilitates the placement of life, general
and MPF insurance products. The Company determines that insurance providers are the customers. The Company primarily earns commission income
arising from the facilitation of the placement of an effective insurance policy, which is recognized at a point in time when the performance
obligation has been satisfied upon execution of the insurance policy as the Company has no future or ongoing obligation with respect to
such policies. The commission fee rate, which is paid by the insurance providers, based on the terms specified in the service contract
which are agreed between the Company and insurance providers for each insurance product being facilitated through the Company. The commission
earned is equal to a percentage of the premium paid to the insurance provider. Commission from renewed policies is variable consideration
and is recognized in subsequent periods when the uncertainty around variable consideration is subsequently resolved (e.g., when customer
renews the policy). In accordance with ASC Topic 606, “ Revenue
Recognition: Principal Agent Considerations” 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 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 unaudited condensed consolidated statements of operations and comprehensive loss. 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. Disaggregation
of Revenue The Company has disaggregated its revenue from
contracts with customers into categories based on the nature of the revenue. The following table presents the revenue streams by segments,
with the presentation revenue categories presented on the unaudited condensed consolidated statements of operations and comprehensive
loss for the periods indicated:
For the three months ended September 30, 2024
Distribution Platform Business
Insurance Asset Money Real estate Total
Interest income:
Loans $ — $ — $ 60,282 $ — $ 60,282
Non-interest income:
Commissions 4,701,151 83,674 — — 4,784,825
Recurring asset management service fees — 594,819 — — 594,819
Total $ 4,701,151 $ 678,493 $ 60,282 $ — $ 5,439,926
For the three months ended September 30, 2023
Distribution Platform Business
Insurance Asset Money Real estate Total
Interest income:
Loans $ — $ — $ 41,472 $ — $ 41,472
Non-interest income:
Commissions 11,875,830 292,933 — 14 12,168,777
Recurring asset management service fees — 996,252 — — 996,252
Total $ 11,875,830 $ 1,289,185 $ 41,472 $ 14 $ 13,206,501
For the nine months ended September 30, 2024
Distribution Platform Business
Insurance Asset Money Real estate Total
Interest income:
Loans $ — $ — $ 123,468 $ — $ 123,468
Non-interest income:
Commissions 15,211,065 449,983 — — 15,661,048
Recurring asset management service fees — 2,232,462 — — 2,232,462
Total $ 15,211,065 $ 2,682,445 $ 123,468 $ — $ 18,016,978
For the nine months ended September 30, 2023
Distribution Platform Business
Insurance Asset Money Real estate Total
Interest income:
Loans $ — $ — $ 117,805 $ — $ 117,805
Non-interest income:
Commissions 37,569,257 894,655 — 43,548 38,507,460
Recurring asset management service fees — 3,025,849 — — 3,025,849
Total $ 37,569,257 $ 3,920,504 $ 117,805 $ 43,548 $ 41,651,114
● Rental
Income Rental income represents monthly rental received
from the Company’s tenants. The Company recognizes rental income on a straight-line basis over the lease term in accordance with
the lease agreement.
● Comprehensive
Loss ASC Topic 220, “ Comprehensive Income”
● Employee
Benefits Full time employees of the Hong Kong subsidiaries
participate in a defined contribution Mandatory Provident Fund retirement benefit scheme under the Hong Kong Mandatory Provident Fund
Schemes Ordinance.
● Income
Taxes Income taxes are determined in accordance with
the provisions of ASC Topic 740, “ Income Taxes” ASC 740 prescribes a comprehensive model for how
companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to
be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the unaudited condensed consolidated financial
statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions
must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. For the three and nine months ended September
30, 2024 and 2023, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2024 and December
31, 2023, the Company did not have any significant unrecognized uncertain tax positions. The Company is subject to tax in local and foreign
jurisdictions. As a result of its business activities, the Company files tax returns that are subject to examination by the relevant tax
authorities.
● Share-Based
Compensation The Company accounts for share-based compensation
in accordance with the fair value recognition provision of ASC Topic 718, “ Stock Compensation”
● Net
Loss Per Share The Company computes earnings per share (“EPS”)
in accordance with ASC Topic 260, “ Earnings per Share”
● Segment
Reporting ASC Topic 280, “ Segment Reporting” The Company uses the management approach to determine
reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief
operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s
CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance
of the Company. Based on management’s assessment, the Company determined that it has the following operating segments: Segments Scope of Service Business Activities Distribution Business Insurance Brokerage - 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 - Asset Management 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. - Money Lending Service - Providing the lending services whereby the Company makes secured and/or unsecured loans to creditworthy customers. - Real Estate Agency Service - Solicitation of real estate sales for the developers, in exchange for commissions. Fintech Business Investment Holding Managing an ensemble of fintech investments. Healthcare Business Investment Holding Managing an ensemble of healthcare-related investments. All of the Company’s revenues were generated
in Hong Kong for the three and nine months ended September 30, 2024 and 2023 and all of the Company’s long-lived assets were located
in Hong Kong as of September 30, 2024 and December 31, 2023.
● Leases Under ASU 2016-02, Leases Leases with a term of twelve months or less upon
the commencement date are considered short-term leases, are not included on the condensed consolidated balance sheets and are expensed
on a straight-line basis over the lease term.
● Related
Parties The Company follows the ASC Topic 850-10, “ Related
Party” Pursuant to ASC 850, the related parties include:
a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the
fair value option under the Fair Value Option Subsection of ASC Topic 825–10–15, to be accounted for by the equity method
by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under
the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company
may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly
influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting
parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests. The unaudited condensed consolidated financial
statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances,
and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation
of unaudited condensed consolidated financial statements is not required in those statements. The disclosures shall include: a) the nature
of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were
ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding
of the effects of the transactions on the unaudited condensed consolidated financial statements; c) the dollar amounts of transactions
for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms
from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet presented and,
if not otherwise apparent, the terms and manner of settlement.
● Commitments
and Contingencies The Company follows the ASC Topic 450, “ Contingencies” If the assessment of a contingency indicates that
it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would
be accrued in the Company’s unaudited condensed consolidated financial statements. If the assessment indicates that a potentially
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon
information available at this time that these matters will have a material adverse effect on the Company’s financial position, results
of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s
business, financial position, and results of operations or cash flows.
● Fair
Value Measurement The Company follows the guidance of the ASC Topic
820-10, “ Fair Value Measurements and Disclosures”
● Level
1
● Level
2 :
● 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, loans receivable, notes receivable, deposits, prepayments
and other receivables, amount due to the holding company, accounts payable, escrow liabilities, borrowings and accrued liabilities approximate
at their fair values because of the short-term nature of these financial instruments. Management be | NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES These accompanying consolidated financial statements
reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying consolidated
financial statements and notes.
● Principles
of Consolidation The accompanying consolidated financial statements
include the financial statements of AGBA and its subsidiaries. A subsidiary is an entity (including a structured entity), directly or
indirectly, controlled by the Company. The financial statements of the subsidiaries are prepared for the same reporting period as the
Company, using consistent accounting policies. All intercompany transactions and balances between AGBA and its subsidiaries are eliminated
upon consolidation.
● Emerging
Growth Company The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting
firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation
in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts
emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that
is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but
any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that
when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison
of the Company’s consolidated financial statements with another public company, which is neither an emerging growth company nor
an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential
differences in accounting standards used.
● 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 geopolitical tension, inflationary and high interest rate environment and other macroeconomic factors on the
Company’s critical and significant accounting estimates. Actual results could differ from these estimates.
● Foreign
Currency Translation and Transaction Transactions denominated in currencies other than
the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency
using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations
and comprehensive loss. The reporting currency of the Company is US$ and
the accompanying consolidated financial statements have been expressed in US$. In addition, the Company and subsidiaries are operating
in Hong Kong maintain their books and record in their local currency, Hong Kong dollars (“HK$”), which is a functional currency
as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes,
assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830-30, Translation of Financial
Statement, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during
the year. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component
of accumulated other comprehensive loss within the statements of changes in shareholders’ equity. Translation of amounts from HK$ into US$ has been
made at the following exchange rates for the years ended December 31, 2023 and 2022:
December 31, December 31,
Year-end HK$:US$ exchange rate 0.1281 0.1281
Annual average HK$:US$ exchange rate 0.1277 0.1277
● Cash
and Cash Equivalents Cash and cash equivalents consist primarily of
cash in readily available checking and saving accounts. They consist of highly liquid investments that are readily convertible to cash
and that mature within three months or less from the date of purchase. The carrying amounts approximate fair value due to the short maturities
of these instruments. The Company maintains most of its bank accounts in Hong Kong and Hong Kong is not protected by Federal Deposit Insurance
Corporation (“FDIC”) insurance. However, management does not believe there is a significant risk of loss.
● Restricted
Cash Restricted cash consist of funds held in escrow
accounts reflecting (i) the restricted cash and cash equivalents maintained in certain bank accounts that are held for the exclusive interest
of the Company’s customers and (ii) the full obligation to an investor in connection with the Meteora Backstop Agreement (see Note
5 for the details of the Meteora Backstop Agreement). The Company restricts the use of the assets underlying
the funds held in escrow to meet with regulatory or contractual requirements and classifies the assets as current based on their purpose
and availability to fulfill its direct obligation under current liabilities.
● Accounts
Receivable, net Accounts receivable, net include trade accounts
due from customers in insurance brokerage and asset management businesses, less the allowance for expected credit losses. Accounts receivable, net are recorded at the invoiced
amount and do not bear interest, which are due within contractual payment terms. The normal settlement terms of accounts receivable from
insurance companies in the provision of brokerage agency services are within 30 days upon the execution of the insurance policies. Credit
terms with the products providers of investment, unit and mutual funds and asset portfolio are mainly 90 days or a credit period mutually
agreed between the contracting parties. The Company seeks to maintain strict control over its outstanding receivables to minimize credit
risk. Overdue balances are reviewed regularly by senior management. Management reviews its receivables on a regular basis to determine
if the allowance for expected credit losses is adequate and provides allowance when necessary. The Company does not hold any collateral or other
credit enhancements over its accounts receivable balances.
● Loans
Receivable, net Loans receivable, net are related to residential
mortgage loans that are carried at unpaid principal and interest balances, less the allowance for expected credit losses on loans receivable
and charge-offs. Loans are placed on nonaccrual status when they
are past due 180 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When
a loan is placed on nonaccrual status, any interest accrued but not received is reversed against interest income. Payments received on
a nonaccrual loan are either applied to protective advances, the outstanding principal balance or recorded as interest income, depending
on an assessment of the ability to collect the loan. A nonaccrual loan may be restored to accrual status when principal and interest payments
have been brought current and the loan has performed in accordance with its contractual terms for a reasonable period (generally six months). If the Company determines that a loan is impaired,
the Company next determines the amount of the impairment. The amount of impairment on collateral dependent loans is charged off within
the given fiscal quarter. Generally the amount of the loan and negative escrow in excess of the appraised value less estimated selling
costs, for the fair value of collateral valuation method, is charged off. For all other loans, impairment is measured as described below
in “Allowance for Expected Credit Losses on Financial Instruments”.
● Allowance
for Expected Credit Losses on Financial Instruments In accordance with 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. The CECL model is prepared after considering historical experience, current conditions, and reasonable and supportable
economic forecasts to estimate expected credit losses. Accounts receivable, loans receivable, notes receivable, and deposits, prepayments,
and others receivable are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as a reduction
of bad debt expense. 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 $1,077,184 and $16,509, respectively.
● Deposit,
prepayments, and other receivables, net Deposit, prepayments, and other receivables, net
represented the deposit paid for technology systems and services, prepayments for various consultancy services and other operating expenses
such as insurance premium less the allowance for expected credit losses. It is presented under the current assets of the consolidated
balance sheets based on the expected collection date.
● Rental
deposit, net Rental deposit, net represented the deposit paid
for the long-term office leases, less the allowance for expected credit losses. It is presented under the non-current assets of the consolidated
balance sheet based on the expected collection date. For the years ended December 31, 2023 and 2022,
the Company has evaluated the probable losses on the rental deposits and made an allowance for expected credit losses of $14,833 and nil
● 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.
● Property
and Equipment, net Property and equipment, net are stated at cost
less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the
following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual
values, if any: Expected useful life Land and building Shorter of 50 years or lease term Furniture, fixtures and equipment 5 years Computer equipment 3 years Motor vehicle 3 years Expenditure for repairs and maintenance is expensed
as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in the results of operations.
● Impairment
of Long-Lived Assets In accordance with the provisions of ASC Topic
360, Impairment or Disposal of Long-Lived Assets, all long-lived assets such as property and equipment owned and held by the Company are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted
cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amounts of the assets exceed the fair value of the assets. No
● Accounts
Payable Accounts payable represent commission payable
to the Company’s financial advisors for the sale of investment funds, investment products, or insurance products. The carrying amount
approximates fair value because of the short-term maturity.
● Borrowings Borrowings are recognized at fair value and repayable
in the next twelve months. Interest expense is recognized on a fixed interest rate on the consolidated statements of operations.
● Warrants
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.
● 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 Topic 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 Topic 606, as follows: Commissions The Company earns commissions from the sale of
investment products to customers, who are insurance companies and fund houses. 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 by customer, the Company earns a 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). In accordance with ASC Topic 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 consolidated statements
of operations and comprehensive loss. 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. Disaggregation of Revenue The Company has disaggregated its revenue from
contracts with customers into categories based on the nature of the revenue. The following table presents the revenue streams by segments,
with the presentation of revenue categories presented on the consolidated statements of operations and comprehensive loss for the years
indicated:
For the year ended December 31, 2023
Distribution Business Platform Business
Insurance brokerage service Asset management service Money Real estate agency Total
Interest income:
Loans $ — $ — $ 157,190 $ — $ 157,190
Non-interest income:
Commissions 48,886,928 1,138,432 — 43,576 50,068,936
Recurring asset management service fees — 3,963,061 — — 3,963,061
$ 48,886,928 $ 5,101,493 $ 157,190 $ 43,576 $ 54,189,187
For the year ended December 31, 2022
Distribution Business Platform Business
Insurance brokerage service Asset management service Money Real estate agency Total
Interest income:
Loans $ — $ — $ 176,175 $ — $ 176,175
Non-interest income:
Commissions 24,610,309 1,764,310 — 187,072 26,561,691
Recurring asset management service fees — 4,342,361 — — 4,342,361
$ 24,610,309 $ 6,106,671 $ 176,175 $ 187,072 $ 31,080,227
● Rental
Income Rental income represents monthly rental received
from the Company’s tenants. The Company recognizes rental income on a straight-line basis over the lease term in accordance with
the lease agreement.
● Cost
Allocation Cost allocation includes allocation of certain
general and administrative, sales and marketing expenses and other operating costs paid by the holding company. General and administrative
expenses consist primarily of payroll and related expenses of senior management and the Company’s employees, shared management expenses,
including accounting, consulting, legal support services, rent, and other expenses to provide operating support to the related businesses.
Allocated sales and marketing expense was mainly marketing expenses. These allocations are made using a proportional cost allocation method
by considering the proportion of revenues, headcounts as well as estimates of time spent on the provision of services attributable to
the Company.
● Sales
and Marketing Sales and marketing expenses include the costs
of advertising, promotions, seminars, and other programs. In accordance with ASC Topic 720-35, Advertising Costs, advertising costs are
expensed as incurred.
● Research
and Development Research and development expenses include the
costs of developing software for business purpose and costs to improve the business operation flow. All research and development costs
are expensed as incurred.
● Comprehensive
Loss ASC Topic 220, Comprehensive Income, establishes
standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive (loss) income as defined
includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive (loss) income, as presented in
the accompanying consolidated statements of changes in shareholders’ equity, consists of changes in unrealized gains and losses
on foreign currency translation. This comprehensive (loss) income is not included in the computation of income tax expense or benefit.
● Employee
Benefits Full time employees of the Hong Kong subsidiaries
participate in a defined contribution Mandatory Provident Fund retirement benefit scheme under the Hong Kong Mandatory Provident Fund
Schemes Ordinance. Contributions are made by both the employer and the employee at the rate of 5% on the employee’s relevant salary,
subject to a salary cap of $3,846 (HK$30,000).
● Income
Taxes Income taxes are determined in accordance with
the provisions of ASC Topic 740, Income Taxes (“ASC Topic 740”). Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ASC Topic 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected
to be taken on a tax return. Under ASC Topic 740, tax positions must initially be recognized in the financial statements when it is more
likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently
be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with
the tax authority assuming full knowledge of the position and relevant facts. For the years ended December 31, 2023 and 2022,
the Company did not have any interest and penalties associated with tax positions. As of December 31, 2023 and 2022, the Company did not
have any significant unrecognized uncertain tax positions. The Company is subject to tax in local and foreign
jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the relevant tax
authorities.
● 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.
● Net
Loss Per Share The Company computes earnings per share (“EPS”)
in accordance with ASC Topic 260, Earnings per Share (“ASC Topic 260”). ASC Topic 260 requires companies to present basic
and diluted EPS. Basic EPS is measured as net loss divided by the weighted average ordinary share outstanding for the year. Diluted EPS
presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants)
as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have
an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted
EPS. For the years ended December 31, 2023 and 2022, there were no dilution impact.
● Segment
Reporting ASC Topic 280, Segment Reporting, establishes
standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure
as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s
business segments. The Company uses the management approach to determine
reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief
operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s
CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance
of the Company. Based on management’s assessment, the Company determined that it has the following operating segments: Segments Sco |
