AGBA (AGBA) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's analysis, market risk disclosures, and internal control evaluations Item 1. Financial Statements This section presents AGBA Acquisition Limited's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in shareholders' deficit, and cash flows, along with explanatory notes Unaudited Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing its assets, liabilities, and shareholders' deficit at specific points in time Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2022 (US$) | December 31, 2021 (US$) | |:----------------------------|:---------------------|:------------------------| | Total Current Assets | 33,356 | 164,863 | | Cash & Investments in Trust | 40,989,461 | 40,441,469 | | TOTAL ASSETS | 41,022,817 | 40,606,332 | | Total Current Liabilities | 5,418,105 | 4,679,884 | | Warrant Liabilities | 520,000 | 490,000 | | TOTAL LIABILITIES | 7,778,105 | 7,009,884 | | Total Shareholders' Deficit | (7,744,749) | (6,845,021) | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss This statement outlines the company's financial performance over a period, detailing revenues, expenses, and net loss, including comprehensive loss Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric | Three Months Ended March 31, 2022 (US$) | Three Months Ended March 31, 2021 (US$) | |:---------------------------------------------------------------------|:----------------------------------------|:----------------------------------------| | General and administrative expenses | (322,739) | (133,043) | | Total operating expenses | (322,739) | (133,043) | | Change in fair value of warrant liabilities | (30,000) | (10,000) | | Dividend income | 1,000 | 563 | | Interest income | 3 | 10,676 | | Total other income (expense) | (28,997) | 1,239 | | Loss before income taxes | (351,736) | (131,804) | | NET LOSS | (351,736) | (131,804) | | COMPREHENSIVE LOSS | (351,736) | (141,977) | | Basic and diluted net (loss) income per share (ordinary share subject to possible redemption) | (0.03) | 0.01 | | Basic and diluted net loss per share (ordinary share attributable to AGBA Acquisition Limited) | (0.18) | (0.13) | Unaudited Condensed Consolidated Statements of Changes in Shareholders' Deficit This statement tracks changes in the company's shareholders' deficit over time, reflecting net loss and other comprehensive income or loss Changes in Shareholders' Deficit | Metric | Three Months Ended March 31, 2022 (US$) | Three Months Ended March 31, 2021 (US$) | |:-------------------------------------------|:----------------------------------------|:----------------------------------------| | Balance as of January 1 | (6,845,021) | (1,480,977) | | Accretion of carrying value to redemption | (547,992) | (2,845,420) | | Net loss for the period | (351,736) | (131,804) | | Unrealized holding gain on AFS securities | - | 482 | | Realized holding loss on AFS securities | - | (10,655) | | Balance as of March 31 | (7,744,749) | (4,468,374) | Unaudited Condensed Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities over a specific period Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 (US$) | Three Months Ended March 31, 2021 (US$) | |:------------------------------------|:----------------------------------------|:----------------------------------------| | Net cash used in operating activities | (336,533) | (133,306) | | Net cash provided by financing activities | 205,026 | 30,871 | | NET CHANGE IN CASH | (131,507) | (102,435) | | Cash, beginning of period | 164,443 | 672,443 | | Cash, end of period | 33,356 | 570,008 | - Non-cash financing activities for the three months ended March 31, 2022, included accretion of carrying value to redemption value of $(547,992) and proceeds of a promissory note deposited in Trust Account by a founder shareholder of $546,992[16] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the unaudited condensed consolidated financial statements NOTE 1 – ORGANIZATION AND BUSINESS BACKGROUND This note describes AGBA Acquisition Limited's formation as a blank check company, its lack of operating revenues, and its ongoing pursuit of a business combination with TAG Holdings Limited - AGBA Acquisition Limited is a blank check company incorporated on October 8, 2018, for the purpose of an initial business combination[19] - The company intends to focus on operating businesses in the healthcare, education, entertainment, and financial services sectors with principal operations in China[19] - All activities through March 31, 2022, relate to formation, initial public offering, and negotiation of a proposed business combination with TAG Holdings Limited[20] - The company will not generate operating revenues until after the completion of a business combination, earliest, and generates non-operating income from interest on proceeds held in trust[20] - On November 3, 2021, the Company entered into a business combination agreement with TAG Holdings Limited and its subsidiaries (OnePlatform Holdings Limited, TAG Asia Capital Holdings Limited, etc.) to acquire 100% of their equity interests[32] - The business combination involves AGBA issuing 55,500,000 ordinary shares at a deemed price of $10.00 per share to TAG[32] - The Outside Closing Date for the proposed transactions was extended to October 31, 2022, from April 30, 2022[34] - The company has extended the period to consummate a business combination nine times, now having until August 16, 2022[36] - These conditions raise substantial doubt about the Company's ability to continue as a going concern if a business combination is not consummated by August 16, 2022 (unless further extended)[37] NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES This note details the company's significant accounting policies, including U.S. GAAP basis, consolidation principles, emerging growth company status, and treatment of investments, warrants, and redeemable shares - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules[40] - The Company consolidates its wholly-owned subsidiaries, AGBA Merger Sub I Limited (AMSI) and AGBA Merger Sub II Limited (AMSII), both incorporated on November 26, 2021[41][42] - AGBA is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[43][44] - Investments in U.S. Treasuries held in the Trust Account are classified as available-for-sale, and money market funds are classified using the trading method, both recorded at fair value[48] - Warrant liabilities are classified as liabilities at fair value and re-measured each reporting period, with changes recognized in the consolidated statement of operations[49] - Ordinary shares subject to possible redemption are classified as temporary equity, outside of shareholders' equity, due to redemption rights outside the Company's control[50] - The Company is an exempted British Virgin Islands Company and is not subject to income taxes or filing requirements in the British Virgin Islands or the United States, resulting in a zero tax provision[61] Net Loss Per Share Calculation (Three Months Ended March 31) | Metric | 2022 (US$) | 2021 (US$) | |:---------------------------------------------------------------------|:-----------|:-----------| | Net loss | (351,756) | (131,804) | | Accretion of carrying value to redemption value | (547,992) | (595,511) | | Net loss including accretion of carrying value to redemption value | (899,728) | (727,315) | | Basic and diluted net loss per share (Redeemable ordinary shares) | (0.03) | 0.01 | | Basic and diluted net loss per share (Non-Redeemable ordinary shares)| (0.18) | (0.13) | NOTE 3 – CASH AND INVESTMENT HELD IN TRUST ACCOUNT This note details the Trust Account's composition, primarily investments in U.S. Treasury Bills classified as available-for-sale securities and recorded at fair value Trust Account Investments | Investment Type | March 31, 2022 (US$) | December 31, 2021 (US$) | |:--------------------------|:---------------------|:------------------------| | U.S. Treasury Securities | 40,989,461 | 40,441,469 | | Cash | 0 | 0 | NOTE 4 – PUBLIC OFFERING This note outlines the company's initial public offering on May 16, 2019, including the sale of 4,600,000 units, concurrent private unit sales, and the allocation of proceeds to a Trust Account - On May 16, 2019, the Company sold 4,600,000 units in its Public Offering at $10.00 per unit, each consisting of one ordinary share, one redeemable warrant, and one right[74] - Simultaneously, 210,000 Private Units (and an additional 15,000 from over-allotment) were sold to the sponsor at $10.00 per unit[76][77] - The Company incurred $2,559,729 in IPO-related costs, including $2,175,948 of underwriting fees and $383,781 of initial public offering costs[23] - $46,000,000 was placed in a Trust Account, to be invested in U.S. government treasury bills or money market funds[24] - A deferred underwriting discount of $1,840,000 (2.0% of gross proceeds) is payable upon completion of a business combination[76] NOTE 5 – RELATED PARTY TRANSACTIONS This note details related party transactions, including share issuances to the CEO and sponsor, monthly administrative fees, and non-interest bearing promissory notes for business combination extensions - The Company's CEO subscribed for 1,000 ordinary shares, and AGBA Holding Limited (the sponsor) was issued 1,149,000 ordinary shares[81] - The Company is obligated to pay AGBA Holding Limited a monthly fee of $10,000 for general and administrative services[83] - The sponsor and affiliates have provided non-interest bearing, unsecured promissory notes to extend the business combination period[85] Note Payable Balance from Related Party Extensions | Date | Amount (US$) | |:--------------|:-------------| | March 31, 2022| 4,257,382 | | Dec 31, 2021 | 3,710,390 | - As of March 31, 2022, the Company owed AGBA Holding Limited $1,157,787 for advanced expenses[88] NOTE 6 – SHAREHOLDERS' DEFICIT This note outlines the company's ordinary share structure, including authorized and outstanding shares, and details the terms of public rights and warrants - The Company is authorized to issue 100,000,000 ordinary shares at par $0.001[89] - As of March 31, 2022, 1,375,000 ordinary shares were issued and outstanding, excluding 3,646,607 shares subject to possible redemption[90] - Each holder of a right will automatically receive one-tenth (1/10) of an ordinary share upon consummation of the initial business combination[94] - Each Public Warrant entitles the holder to purchase one-half (1/2) of one ordinary share at an exercise price of $11.50 per full share[95] - The Company may redeem outstanding warrants at $0.01 per warrant if the ordinary share price equals or exceeds $16.50 for 20 trading days within a 30-day period[98] NOTE 7 – ORDINARY SHARE SUBJECT TO POSSIBLE REDEMPTION This note explains the classification of ordinary shares subject to possible redemption as temporary equity and details the number of such shares and recent redemption activities - Ordinary shares subject to possible redemption are classified as temporary equity due to redemption rights outside the Company's control[101] Ordinary Shares Subject to Possible Redemption | Metric | March 31, 2022 | December 31, 2021 | |:------------------------------------------|:---------------|:------------------| | Ordinary shares, subject to possible redemption | 3,646,607 | 3,646,607 | - On April 29, 2022, 283,736 shares were redeemed by certain shareholders at approximately $11.24 per share, totaling $3,189,193[104] NOTE 8 – FAIR VALUE MEASUREMENTS This note details the company's fair value measurements, categorizing financial assets and liabilities into a three-level hierarchy, with warrant liabilities classified as Level 3 - Fair value hierarchy categorizes assets and liabilities into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[105][106] Fair Value Measurements (March 31, 2022) | Description | Fair Value (US$) | Level 1 (US$) | Level 2 (US$) | Level 3 (US$) | |:------------------------------------------|:-----------------|:--------------|:--------------|:--------------| | U.S. Treasury Securities held in Trust Account | 40,989,461 | 40,989,461 | - | - | | Warrant liabilities | 520,000 | - | - | 520,000 | - Private warrants are classified as Level 3 liabilities, valued using a Black-Scholes model due to unobservable inputs[110][113] Key Inputs for Warrant Valuation (Black-Scholes Model) | Input | March 31, 2022 | December 31, 2021 | May 16, 2019 (Initial) | |:----------------------|:---------------|:------------------|:-----------------------| | Share price | $11.16 | $11.02 | $10.00 | | Risk-free interest rate | 2.43% | 1.21% | 2.18% | | Volatility | 49% | 47% | 55% | | Exercise price | $11.50 | $11.50 | $11.50 | - The aggregate value of private warrants was $0.52 million as of March 31, 2022, with a change in fair value of approximately $30,000 for the three months ended March 31, 2022[112] NOTE 8 – COMMITMENTS AND CONTINGENCIES This note addresses potential COVID-19 impacts, details commitments for registration rights, and outlines the deferred underwriting discount contingent on business combination completion - Management concluded that the COVID-19 pandemic could negatively affect the Company's future financial position and search for a target company[114] - Holders of insider shares, private units, and securities issued for working capital loans are entitled to registration rights[115] - The underwriter is entitled to a deferred underwriting discount of 4.0% ($0.40 per unit) contingent on the closing of a business combination, which will be reduced by 2.0% for each redeemed unit[116][117] NOTE 9 – SUBSEQUENT EVENTS This note details significant events occurring after March 31, 2022, including share redemptions and the issuance of a promissory note to extend the business combination deadline - On April 29, 2022, 283,736 shares were redeemed by certain shareholders at approximately $11.24 per share, totaling $3,189,193[122] - On May 9, 2022, the Company issued a $504,431 unsecured promissory note to AGBA Holding Limited to extend the business combination deadline until August 16, 2022[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and operational results, emphasizing its blank check status, business combination efforts, and liquidity challenges Special Note Regarding Forward-Looking Statements This note advises that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially - The report includes forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[125] Overview This section provides a general overview of AGBA's status as a blank check company, its IPO, and its ongoing efforts to complete a business combination - AGBA is a blank check company incorporated in 2018, with no revenue and losses since inception, focused on completing a business combination[126] - The company consummated its IPO on May 16, 2019, raising $46,000,000, with proceeds placed in a Trust Account[127] - The business combination deadline has been extended multiple times, with the latest extension to August 16, 2022, funded by unsecured promissory notes from the Sponsor[130][131] - The COVID-19 pandemic poses risks to the company's search for a business combination[133] - On November 3, 2021, the Company entered into a business combination agreement with TAG Holdings Limited and its subsidiaries, involving the issuance of 55,500,000 ordinary shares to TAG[134] Results of Operations This section analyzes the company's financial performance, highlighting its net loss primarily from general and administrative expenses and warrant fair value changes - The company's activities since inception have been limited to IPO preparation and evaluating business combination candidates; it generates no operating revenues[137] Net Loss for Three Months Ended March 31 | Metric | 2022 (US$) | 2021 (US$) | |:---------|:-----------|:-----------| | Net Loss | (351,736) | (131,804) | - The net loss for both periods was primarily comprised of general and administrative expenses and a loss from the change in fair value of warrant liabilities[137] Liquidity and Capital Resources This section discusses the company's liquidity position, capital resources, and the potential need for additional financing, raising going concern doubts without a business combination - As of March 31, 2022, the company had $33,356 in cash outside its Trust Account for working capital needs[138] - Liquidity has been satisfied through insider share sales, advances from the Sponsor ($1,157,787 outstanding as of March 31, 2022), and IPO/private placement proceeds[139] - Substantially all net proceeds from the IPO and private placement are intended for acquiring a target business and related expenses[140] - The company may need additional financing if current funds are insufficient or if a significant number of public shares are redeemed[143] - These conditions raise substantial doubt about the Company's ability to continue as a going concern if a business combination is not consummated by August 16, 2022[145] Off-balance Sheet Financing Arrangements This section confirms that as of March 31, 2022, the company has no obligations, assets, or liabilities classified as off-balance sheet arrangements - As of March 31, 2022, the company has no obligations, assets, or liabilities considered off-balance sheet arrangements[146] Contractual Obligations This section details the company's contractual obligations, including administrative fees, registration rights, deferred underwriting commissions, and an option granted to Maxim - The company has no long-term debt, capital lease, or operating lease obligations, other than a $10,000 monthly fee to its Sponsor for administrative services[147] - Certain shareholders are entitled to registration rights for their shares[148] - A deferred underwriting commission of 4.0% ($0.40 per unit) is contingent on the closing of a business combination and will be reduced by 2.0% for each redeemed unit[149][150] - The company sold Maxim an option to purchase 276,000 units, exercisable at $11.50 per unit, with an estimated fair value of $747,960[152] - Maxim also holds a right of first refusal for future public and private equity and debt offerings for 18 months post-business combination[153] Critical Accounting Policies This section outlines the company's critical accounting policies, including the treatment of redeemable ordinary shares, net loss per share calculation, and warrant liabilities valuation - The company accounts for ordinary shares subject to possible redemption as temporary equity, recognizing accretion from initial book value to redemption value[155] - Net loss per share is calculated by dividing net loss by the weighted-average number of ordinary shares outstanding, excluding redeemable shares[156] - Warrant liabilities are classified as liabilities at fair value and re-measured each reporting period using a Black-Scholes model[157] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section addresses the company's market risk, primarily interest rate risk on Trust Account investments, concluding no material exposure due to their short-term nature - The net proceeds in the Trust Account are invested in U.S. government treasury bills, notes, or bonds with a maturity of 180 days or less, or in certain money market funds[158] - Due to the short-term nature of these investments, the company believes there is no associated material exposure to interest rate risk[158] Item 4. Control and Procedures This section reports that disclosure controls and procedures were ineffective as of March 22, 2022, due to material weaknesses in classifying warrants and redeemable ordinary shares - As of March 22, 2022, the company's disclosure controls and procedures were concluded to be not effective[159] - Material weaknesses were identified in internal control over financial reporting related to the proper classification of warrants and ordinary shares subject to possible redemption[162][163][164] - The company plans to remediate these weaknesses by enhancing access to accounting literature, research materials, and increasing communication among personnel and third-party professionals[165][166] - No change in internal control over financial reporting materially affected the controls during the most recently completed fiscal quarter[166] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and signatures Item 1. Legal Proceedings This section confirms that the company is not currently involved in any legal proceedings - The company has no legal proceedings[168] Item 1A. Risk Factors As a smaller reporting company, AGBA Acquisition Limited is not required to provide disclosures under this item - As a smaller reporting company, AGBA Acquisition Limited is not required to make disclosures under this Item[168] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's May 16, 2019, IPO and concurrent private unit sales, outlining the proceeds and their placement in a Trust Account - On May 16, 2019, the company consummated its IPO, selling 4,600,000 units at $10.00 per unit, generating $46,000,000[169] - Each unit consisted of one ordinary share, one warrant (to purchase one-half (1/2) of one ordinary share at $11.50), and one right (to receive 1/10 of an ordinary share)[169] - Simultaneously, 225,000 private units were sold to the Sponsor at $10.00 per unit, generating $2,250,000[169] - A total of $46,000,000 from the IPO and private placement was placed in a Trust Account for public shareholders[171] - The Sponsor agreed to vote its shares in favor of any proposed business combination and not to redeem its shares[170] Item 3. Defaults Upon Senior Securities This section confirms that the company has not experienced any defaults upon senior securities - The company has no defaults upon senior securities[171] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations or industry - Mine Safety Disclosures are not applicable to the company[171] Item 5. Other Information This section indicates that the company has no additional information to disclose under this item - The company has no other information to disclose under this item[171] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications, XBRL documents, and the interactive data file - The exhibits include certifications of principal executive and financial officers, Inline XBRL documents, and the Cover Page Interactive Data File[174] SIGNATURES The report is duly signed by AGBA Acquisition Limited's Chief Executive Officer, Gordon Lee, and Chief Financial Officer, Vera Tan, on May 16, 2022 - The report was signed by Gordon Lee, Chief Executive Officer, and Vera Tan, Chief Financial Officer, on May 16, 2022[177]