AGBA (AGBA) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Presents AGBA Acquisition Limited's unaudited condensed consolidated financial statements and related disclosures Item 1. Financial Statements Presents AGBA Acquisition Limited's unaudited condensed consolidated financial statements and detailed notes for periods ended June 30, 2022, and December 31, 2021 Unaudited Condensed Consolidated Balance Sheets The balance sheets show a decrease in cash and trust account assets, alongside an increase in related party notes payable and amounts due, contributing to a larger total shareholders' deficit as of June 30, 2022, compared to December 31, 2021 Condensed Consolidated Balance Sheet Highlights (US$) | Metric | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Cash | $85,619 | $164,863 | | Cash and investments held in trust account | $38,315,391 | $40,441,469 | | TOTAL ASSETS | $38,401,010 | $40,606,332 | | Note payable – related party | $4,761,812 | $3,710,390 | | Amount due to related party | $1,419,337 | $952,761 | | TOTAL LIABILITIES | $8,577,017 | $7,009,884 | | Total shareholders' deficit | ($8,491,398) | ($6,845,021) | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported increased net losses for both the three and six months ended June 30, 2022, primarily driven by higher general and administrative expenses and the accretion of carrying value to redemption value, despite some dividend income Condensed Consolidated Statements of Operations and Comprehensive Loss (US$) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------------------------------------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | General and administrative expenses | ($212,219) | ($125,521) | ($534,958) | ($258,564) | | Change in fair value of warrant liabilities | ($30,000) | ($50,000) | ($60,000) | ($60,000) | | Dividend income | $10,869 | $1,066 | $11,869 | $1,629 | | Interest income | - | $14 | $3 | $10,690 | | NET LOSS | ($231,350) | ($174,441) | ($583,086) | ($306,245) | | Basic and diluted net loss per share, ordinary share attributable to AGBA Acquisition Limited | ($0.15) | ($0.14) | ($0.33) | ($0.08) | Unaudited Condensed Consolidated Statements of Changes in Shareholders' Deficit The statement reflects a significant increase in the accumulated deficit and total shareholders' deficit from January 1, 2022, to June 30, 2022, primarily due to net losses and the accretion of carrying value to redemption value Changes in Shareholders' Deficit (US$) | Metric | Balance as of January 1, 2022 | Accretion of carrying value to redemption value | Net loss for the period | Balance as of June 30, 2022 | | :-------------------- | :---------------------------- | :---------------------------------------------- | :---------------------- | :-------------------------- | | Accumulated deficit | ($6,846,396) | ($1,063,291) | ($583,086) | ($8,492,773) | | Total shareholders' deficit | ($6,845,021) | ($1,063,291) | ($583,086) | ($8,491,398) | Unaudited Condensed Consolidated Statements of Cash Flows Cash flows from operating activities show a substantial increase in cash used for the six months ended June 30, 2022, compared to the prior year, with financing activities primarily driven by advances from a related party Condensed Consolidated Statements of Cash Flows (US$) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net loss | ($583,086) | ($306,245) | | Cash used in operating activities | ($545,820) | ($235,941) | | Advance from a related party | $466,576 | $67,590 | | Net cash provided by financing activities | $466,576 | $67,590 | | NET CHANGE IN CASH | ($79,244) | ($168,351) | | Cash, end of period | $85,619 | $504,092 | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed disclosures on organization, accounting policies, trust account, public offering, related party transactions, equity, fair value, commitments, and subsequent events NOTE 1 – ORGANIZATION AND BUSINESS BACKGROUND AGBA Acquisition Limited is a blank check company (SPAC) incorporated in the British Virgin Islands, focused on acquiring businesses in specific sectors in China. It completed its IPO in May 2019 and has extended its business combination deadline multiple times, now set for November 16, 2022. The company has entered into a business combination agreement with TAG Holdings Limited and its subsidiaries - AGBA is a blank check company (SPAC) incorporated in the British Virgin Islands, aiming for an initial business combination in healthcare, education, entertainment, and financial services sectors, primarily in China[18] - The company completed its IPO on May 16, 2019, raising $46 million, which was placed in a Trust Account[19][21][22] - AGBA has entered into a business combination agreement with TAG Holdings Limited and its subsidiaries (OPH, Fintech, B2B, B2BSub, HKSub) as of November 3, 2021, with an extended outside closing date of October 31, 2022[31][33] - The deadline to consummate a business combination has been extended ten times, now set for November 16, 2022. Failure to do so will result in liquidation[34][36] NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Details the company's accounting practices, including U.S. GAAP adherence, consolidation, emerging growth status, and policies for cash, trust account, warrants, and equity - The financial statements are prepared in accordance with U.S. GAAP and SEC rules, and include the consolidated activities of AGBA and its wholly-owned subsidiaries, AMSI and AMSII[20][37][38][39] - AGBA is an "emerging growth company" and has elected to use the extended transition period for complying with new or revised financial accounting standards[41][42] - Warrants are classified as liabilities at fair value and re-measured each period, with changes recognized in the statement of operations, using a Black-Scholes model[48][159] - Ordinary shares subject to possible redemption are classified as temporary equity due to redemption rights outside the company's control, in accordance with ASC Topic 480[49][103][156] - Net loss per share calculation considers the allocation of net loss and accretion of carrying value to redemption value between redeemable and non-redeemable ordinary shares[59][61][68][69][158] NOTE 3 — CASH AND INVESTMENT HELD IN TRUST ACCOUNT The Trust Account primarily holds U.S. Treasury Bills, with the total value decreasing from $40.4 million at December 31, 2021, to $38.3 million at June 30, 2022 Trust Account Investments (US$) | Asset | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | U.S. Treasury Securities held in Trust Account | $38,315,391 | $40,441,469 | NOTE 4 — PUBLIC OFFERING The company's IPO on May 16, 2019, involved the sale of 4,600,000 units at $10.00 each, generating $46 million, with each unit comprising an ordinary share, a redeemable warrant, and a right. A concurrent private placement of 225,000 units also occurred, and underwriting fees included both upfront and deferred components - IPO on May 16, 2019, sold 4,600,000 units at $10.00/unit, generating $46,000,000. Each unit included one ordinary share, one redeemable warrant, and one right[75][127] - A private placement of 225,000 units at $10.00/unit generated $2,250,000[77][127] - Underwriting fees included an upfront discount of $1,150,000 (2.5%) and a deferred discount of $1,840,000 (2.0%) contingent on business combination completion[77][118][150] NOTE 5 – RELATED PARTY TRANSACTIONS Related party transactions include a $10,000 monthly administrative fee paid to AGBA Holding Limited and significant non-interest bearing promissory notes and advances from the Sponsor, totaling $4,761,812 and $1,419,337 respectively as of June 30, 2022, primarily for extending the business combination deadline and covering working capital - AGBA Holding Limited, owned by insiders, receives a $10,000 monthly fee for administrative services[83][148] Related Party Loans and Advances (US$) | Item | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Note payable – related party | $4,761,812 | $3,710,390 | | Amount due to related party | $1,419,337 | $952,761 | - Promissory notes totaling $4,761,812 as of June 30, 2022, were issued to the sponsor for deposits into the Trust Account to extend the business combination deadline. These notes are non-interest bearing and convertible into Private Units[85][86][87][130][131][177] NOTE 6 – SHAREHOLDERS' EQUITY This note details the company's authorized and issued ordinary shares, including 3,362,871 shares subject to possible redemption as of June 30, 2022. It also outlines the terms of public warrants, which allow holders to purchase ordinary shares at $11.50 and are subject to potential redemption by the company under specific conditions - The company is authorized to issue 100,000,000 ordinary shares at $0.001 par value[89] - As of June 30, 2022, 1,375,000 ordinary shares were issued and outstanding, excluding 3,362,871 shares subject to possible redemption[92] - Each Public Warrant allows the holder to purchase one-half of one ordinary share at $11.50 per full share, exercisable after business combination completion or May 13, 2020, and expiring on the fifth anniversary of business combination completion[95][98] - The company may redeem outstanding warrants at $0.01 per warrant if the ordinary share price exceeds $16.50 for 20 trading days within a 30-day period, and a current registration statement is effective[98] NOTE 7 – ORDINARY SHARE SUBJECT TO POSSIBLE REDEMPTION Ordinary shares subject to possible redemption are classified as temporary equity in accordance with ASC Topic 480. The company has experienced several share redemptions, reducing the number of such shares from 3,646,607 at December 31, 2021, to 3,362,871 at June 30, 2022 - Ordinary shares subject to possible redemption are classified as temporary equity due to redemption rights outside the company's control, in accordance with ASC Topic 480[103][156] Share Redemption Summary (US$) | Date | Shares Redeemed | Price Per Share (approx.) | Aggregate Amount | | :----------- | :-------------- | :------------------------ | :--------------- | | Feb 8, 2021 | 636,890 | $10.49 | $6,680,520 | | Nov 10, 2021 | 316,503 | $10.94 | $3,462,565 | | Apr 29, 2022 | 283,736 | $11.24 | $3,189,369 | Ordinary Shares Subject to Possible Redemption | Metric | June 30, 2022 | December 31, 2021 | | :---------------------------------------- | :------------ | :---------------- | | Ordinary shares, subject to possible redemption | 3,362,871 | 3,646,607 | NOTE 8 – FAIR VALUE MEASUREMENTS The company categorizes fair value measurements into a three-level hierarchy. U.S. Treasury Securities in the Trust Account are Level 1, while warrant liabilities are Level 3, valued using a Black-Scholes model due to unobservable inputs, with their aggregate value increasing from $0.49 million to $0.55 million from December 31, 2021, to June 30, 2022 - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[106][107] Fair Value Measurements (US$) | Description | June 30, 2022 | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :------------ | :------ | :------ | :------ | | U.S. Treasury Securities held in Trust Account | $38,315,391 | $38,315,391 | - | - | | Warrant liabilities | $550,000 | - | - | $550,000 | | Description | December 31, 2021 | Level 1 | Level 2 | Level 3 | | U.S. Treasury Securities held in Trust Account | $40,441,469 | $40,441,469 | - | - | | Warrant liabilities | $490,000 | - | - | $490,000 | - Private warrants are classified as Level 3 liabilities and valued using a Black-Scholes model due to unobservable inputs, with their aggregate value increasing from $0.49 million to $0.55 million from December 31, 2021, to June 30, 2022[110][114][115] Key Inputs for Warrant Valuation | Input | June 30, 2022 | December 31, 2021 | May 16, 2019 (Initial measurement) | | :-------------------- | :------------ | :---------------- | :--------------------------------- | | Share price | $11.36 | $11.02 | $10.00 | | Risk-free interest rate | 3.00% | 1.21% | 2.18% | | Volatility | 51% | 47% | 55% | | Exercise price | $11.50 | $11.50 | $11.50 | | Warrant life | 5 years | 5 years | 5 years | NOTE 8 – COMMITMENTS AND CONTINGENCIES This section addresses potential impacts of the COVID-19 pandemic, outlines registration rights for certain shareholders, and details the underwriting agreement, including a deferred discount contingent on business combination completion. It also covers a unit purchase option and a right of first refusal granted to Maxim Group LLC - The COVID-19 pandemic could negatively affect the company's financial position and search for a target, though no significant impact has been observed as of the reporting date[116] - Holders of insider shares, Private Units, and securities from working capital loans have registration rights[117][149] - A deferred underwriting discount of 4.0% ($0.40 per unit) is contingent on the closing of a business combination and will be reduced by 2.0% ($0.20 per unit) for each redeemed share[118][150] - Maxim Group LLC holds a unit purchase option for 276,000 units at $11.50 per unit, exercisable between the first and fifth anniversary of the IPO effective date, expiring May 13, 2024[121][153] - Maxim Group LLC also has a right of first refusal for future public and private equity and debt offerings for 18 months post-business combination[122][154] NOTE 9 – SUBSEQUENT EVENTS The company evaluated all events or transactions occurring after June 30, 2022, up to August 15, 2022, and found no material subsequent events requiring additional disclosure - No material subsequent events were identified between June 30, 2022, and August 15, 2022[123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operational results, covering blank check status, IPO, business combination efforts, net losses, liquidity, and critical accounting policies Special Note Regarding Forward-Looking Statements This section cautions readers that the report contains forward-looking statements that involve inherent risks and uncertainties, and actual results may differ materially from expectations. The company explicitly disclaims any obligation to update these statements - The report includes forward-looking statements that involve risks and uncertainties, and actual results may differ materially[125] Overview AGBA Acquisition Limited, a blank check company with no operating revenue, is actively pursuing a business combination, with its IPO proceeds held in a Trust Account. The deadline for this combination has been extended to November 16, 2022, and a definitive agreement with TAG Holdings Limited is in place, though the COVID-19 pandemic poses potential risks - AGBA is a blank check company with no revenue, focused on completing a business combination[126] - The IPO in May 2019 raised $46 million, with proceeds placed in a Trust Account[127][139] - The company has extended its business combination deadline multiple times, now until November 16, 2022, through unsecured promissory notes from the Sponsor[130][131] - A business combination agreement with TAG Holdings Limited and its subsidiaries was entered into on November 3, 2021, involving the issuance of 55,500,000 ordinary shares to TAG[134] - The COVID-19 pandemic could impact the search for a business combination due to travel restrictions and operational limitations[133] Results of Operations The company reported net losses for both the three and six months ended June 30, 2022, and 2021, primarily due to general and administrative expenses and losses from changes in the fair value of warrant liabilities Net Loss Summary (US$) | Period | Net Loss | Primary Drivers | | :--------------------------- | :------- | :---------------------------------------------------------------------------------------------------- | | 3 months ended June 30, 2022 | ($231,350) | Dividend income, G&A expenses, loss from change in fair value of warrant liabilities | | 3 months ended June 30, 2021 | ($174,441) | G&A expenses, loss from change in fair value of warrant liabilities | | 6 months ended June 30, 2022 | ($583,086) | Interest and dividend income, G&A expenses, loss from change in fair value of warrant liabilities | | 6 months ended June 30, 2021 | ($306,245) | G&A expenses, loss from change in fair value of warrant liabilities | Liquidity and Capital Resources As of June 30, 2022, the company had limited cash outside its Trust Account ($85,619) and relies on IPO proceeds, private placement, and related party loans/advances. There is substantial doubt about its ability to continue as a going concern if a business combination is not consummated by November 16, 2022 - Cash outside the Trust Account was $85,619 as of June 30, 2022[139] - Liquidity is primarily from IPO/private placement proceeds ($46 million in Trust Account) and related party loans/advances ($4,761,812 note payable and $1,419,337 advances as of June 30, 2022)[139][140] - Substantial doubt exists about the company's ability to continue as a going concern if a business combination is not completed by November 16, 2022[146] Off-balance Sheet Financing Arrangements As of June 30, 2022, the company reported no off-balance sheet arrangements, special purpose entities, or guarantees of debt - The company has no off-balance sheet arrangements as of June 30, 2022[147] Contractual Obligations The company's contractual obligations include a $10,000 monthly administrative fee to its Sponsor, registration rights for certain shareholders, and a deferred underwriting discount contingent on the business combination. Additionally, it has a unit purchase option and a right of first refusal granted to Maxim Group LLC - Obligated to pay AGBA Holding Limited a $10,000 monthly fee for administrative services[148] - Certain shareholders and holders of Private Units have registration rights[149] - A deferred underwriting discount of 4.0% ($0.40 per unit) is contingent on the business combination closing[150] - Maxim Group LLC holds a unit purchase option for 276,000 units and a right of first refusal for future offerings[153][154] Critical Accounting Policies While the preparation of financial statements involves management estimates and assumptions, the company has not identified any significant accounting policies as critical - Management makes estimates and assumptions for financial statements, but no significant accounting policies have been identified as critical[155] Ordinary Shares Subject To Possible Redemption The company classifies ordinary shares subject to possible redemption as temporary equity, in accordance with ASC Topic 480, due to redemption provisions that are not solely within its control - Ordinary shares subject to possible redemption are classified as temporary equity, as redemption provisions are not solely within the company's control, in accordance with ASC Topic 480[156] Net Income (Loss) Per Share Basic and diluted net loss per share are calculated by dividing net loss by the weighted-average ordinary shares outstanding. Shares subject to possible conversion and warrants are excluded from diluted EPS calculations if they are anti-dilutive or contingent on future events - Basic and diluted loss per share are calculated by dividing net loss by weighted-average ordinary shares outstanding, excluding shares subject to possible conversion and warrants if anti-dilutive or contingent[158] Warrant Liabilities Private warrants are accounted for as liabilities at fair value and are re-measured at each balance sheet date, with changes recognized in the statement of operations, using a Black-Scholes model - Private warrants are classified as liabilities at fair value and re-measured each reporting period, with changes recognized in the statement of operations, using a Black-Scholes model[159] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's investments in the Trust Account, primarily U.S. government treasury bills or money market funds, have short-term maturities, resulting in no material exposure to interest rate risk - Investments in the Trust Account (U.S. government treasury bills or money market funds) have short-term maturities, leading to no material exposure to interest rate risk[160] Item 4. Control and Procedures Management concluded that disclosure controls and procedures were not effective as of March 22, 2022, due to material weaknesses in accounting for warrants and ordinary shares subject to possible redemption. A remediation plan is being developed to enhance accounting processes Evaluation of Disclosure Controls and Procedures Management determined that disclosure controls and procedures were not effective as of March 22, 2022, due to material weaknesses related to the improper classification of warrants and ordinary shares subject to possible redemption. A remediation plan is underway to improve accounting processes - Disclosure controls and procedures were deemed not effective as of March 22, 2022[162] - Material weaknesses were identified in internal control over financial reporting concerning the classification of warrants (as derivative liabilities instead of equity) and ordinary shares subject to possible redemption (not fully classified as temporary equity)[165][166][167] - A remediation plan is being developed to enhance the system for evaluating and implementing complex accounting standards, including improved access to literature and increased communication[168][169] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the most recent fiscal quarter, but the company plans to enhance its processes to address the identified material weaknesses - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[169] - The company plans to enhance processes to identify and apply accounting requirements, including improved access to literature and increased communication, to address identified material weaknesses[169] PART II – OTHER INFORMATION Provides additional disclosures including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company reported no legal proceedings - No legal proceedings were reported[171] Item 1A. Risk Factors As a smaller reporting company, AGBA is not required to make disclosures under this item - As a smaller reporting company, AGBA is not required to disclose risk factors under this item[171] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the IPO and private placement in May 2019, which placed $46 million into a Trust Account. It also outlines the Sponsor's agreements regarding Private Units and the subsequent issuance of unsecured promissory notes to the Sponsor to extend the business combination deadline - IPO on May 16, 2019, raised $46,000,000, and a private placement raised $2,250,000, with net proceeds placed in a Trust Account[172][174] - The Sponsor agreed to vote Private Shares in favor of a business combination and not to redeem them if a business combination is not consummated[173] - Unsecured promissory notes totaling $460,000, $594,467, $546,991, and $504,431 were issued to the Sponsor multiple times to extend the business combination deadline, with the latest extension until November 16, 2022[177] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[178] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable to the company[178] Item 5. Other Information The company reported no other information - No other information was reported[178] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including various certifications and Inline XBRL documents - The report includes various exhibits such as certifications (31.1, 31.2, 32) and Inline XBRL documents (101.INS, 101.CAL, 101.SCH, 101.DEF, 101.LAB, 101.PRE, 104)[181] SIGNATURES Confirms the official signing of the report by the Chief Executive Officer and Chief Financial Officer SIGNATURES The report was duly signed on August 15, 2022, by Gordon Lee, Chief Executive Officer, and Vera Tan, Chief Financial Officer, on behalf of AGBA Acquisition Limited - The report was signed by Gordon Lee (CEO) and Vera Tan (CFO) on August 15, 2022[184]