AGBA (AGBA) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents AGBA Group Holding Limited's unaudited condensed consolidated financial statements and explanatory notes Unaudited Condensed Consolidated Balance Sheets | Metric | Sep 30, 2022 ($) | Dec 31, 2021 ($) | |:---|:---|:---| | Assets | | | | Total current assets | 98,780 | 164,863 | | Cash and investments in trust account | 38,928,442 | 40,441,469 | | TOTAL ASSETS | 39,027,222 | 40,606,332 | | Liabilities & Shareholders' Deficit | | | | Total current liabilities | 6,920,394 | 4,679,884 | | Total non-current liabilities | 1,853,500 | 2,330,000 | | TOTAL LIABILITIES | 8,773,894 | 7,009,884 | | Ordinary shares subject to redemption | 38,928,442 | 40,441,469 | | Total shareholders' deficit | (8,675,114) | (6,845,021) | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric | 3 Months Ended Sep 30, 2022 ($) | 3 Months Ended Sep 30, 2021 ($) | 9 Months Ended Sep 30, 2022 ($) | 9 Months Ended Sep 30, 2021 ($) | |:---|:---|:---|:---|:---| | General and administrative expenses | (215,788) | (180,831) | (750,746) | (439,395) | | Change in fair value of warrant liabilities | 536,500 | (30,000) | 476,500 | (90,000) | | Dividend income | 108,620 | 1,078 | 120,489 | 2,707 | | Interest income | 3 | 10 | 6 | 10,700 | | NET INCOME (LOSS) | 429,335 | (209,743) | (153,751) | (515,988) | | Comprehensive Income (Loss) | 429,335 | (209,743) | (153,751) | (515,988) | - The company reported a net income of $429,335 for the three months ended September 30, 2022, a significant improvement from a net loss of $209,743 in the same period of 2021, primarily driven by a positive change in the fair value of warrant liabilities ($536,500 in 2022 vs. -$30,000 in 2021) and increased dividend income[12] - For the nine months ended September 30, 2022, the company's net loss decreased to $153,751 from $515,988 in the prior year, also benefiting from a positive change in warrant liabilities fair value[12] Unaudited Condensed Consolidated Statements of Changes in Shareholders' Deficit | Metric | Balance as of Jan 1, 2022 ($) | Balance as of Sep 30, 2022 ($) | |:---|:---|:---| | Ordinary shares, Amount | 1,375 | 1,375 | | Accumulated deficit | (6,846,396) | (8,676,489) | | Total shareholders' deficit | (6,845,021) | (8,675,114) | - The total shareholders' deficit increased from $(6,845,021) as of January 1, 2022, to $(8,675,114) as of September 30, 2022, primarily due to accretion of carrying value to redemption value and net loss for the period, partially offset by net income in the latest quarter[15] Unaudited Condensed Consolidated Statements of Cash Flows | Metric | 9 Months Ended Sep 30, 2022 ($) | 9 Months Ended Sep 30, 2021 ($) | |:---|:---|:---| | Net cash used in operating activities | (760,547) | (428,819) | | Net cash provided by financing activities | 692,598 | 112,451 | | NET CHANGE IN CASH | (67,949) | (316,368) | | Cash, beginning of period | 164,863 | 672,443 | | Cash, end of period | 96,914 | 356,075 | - Net cash used in operating activities increased to $760,547 for the nine months ended September 30, 2022, from $428,819 in the prior year, mainly due to adjustments for warrant liabilities and interest/dividend income[17] - Net cash provided by financing activities significantly increased to $692,598 in 2022 from $112,451 in 2021, primarily from advances from a related party[17] Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1 – ORGANIZATION AND BUSINESS BACKGROUND AGBA, a BVI blank check company, completed its IPO in 2019 and finalized its business combination with TAG Holdings Limited on November 14, 2022 - AGBA is a blank check company (SPAC) incorporated in 2018, aiming for business combinations in healthcare, education, entertainment, and financial services, with a focus on China[20] - The company completed its IPO on May 16, 2019, raising $46 million, which was placed in a Trust Account[23][24] - AGBA entered into a business combination agreement with TAG Holdings Limited and its subsidiaries on November 3, 2021, which was completed on November 14, 2022, issuing 55,500,000 ordinary shares to TAG as consideration[33][119] - The company has extended its deadline to consummate a business combination multiple times, most recently to November 16, 2022, through deposits into the Trust Account by insiders[36] NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES This section outlines the significant accounting policies used in preparing the unaudited condensed consolidated financial statements, including the basis of presentation, principles of consolidation, and treatment of various financial instruments - The financial statements are prepared in accordance with U.S. GAAP and SEC rules, with interim information being unaudited but including necessary management adjustments[38] - The company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards[41][42] - Warrant liabilities are classified as liabilities at fair value and re-measured each period, with changes recognized in the consolidated statement of operations, using a Black-Scholes model[47] - Ordinary shares subject to possible redemption are classified as temporary equity, reflecting redemption rights outside the company's control[48] - The company is an exempted British Virgin Islands Company and is not subject to income taxes or filing requirements in the British Virgin Islands or the United States, resulting in a zero tax provision[58] NOTE 3 — CASH AND INVESTMENT HELD IN TRUST ACCOUNT This note details the composition and fair value of assets held in the Company's Trust Account, primarily United States Treasury Bills | Asset Type | Sep 30, 2022 (Unaudited) ($) | Dec 31, 2021 (Audited) ($) | |:---|:---|:---| | U.S. Treasury Securities | 38,928,442 | 40,441,469 | - All investments in the Trust Account are held in U.S. Treasury securities and classified as available-for-sale, recorded at estimated fair value[74] NOTE 4 — PUBLIC OFFERING This note details the Company's Public Offering on May 16, 2019, including the sale of units, deferred underwriting discount, and private unit sales to the sponsor - On May 16, 2019, the Company sold 4,600,000 Public Units at $10.00 per unit, each including one ordinary share, one redeemable warrant, and one right[76] - A deferred underwriting discount of $1,840,000 (4.0% of gross proceeds) is payable upon business combination completion, otherwise forfeited[78] - 225,000 Private Units were sold to the sponsor at $10.00 per unit, with private warrants being non-redeemable and exercisable on a cashless basis[78][79] NOTE 5 – RELATED PARTY TRANSACTIONS This note details various transactions with related parties, including insider share issuances, administrative service fees, and related party loans and advances - Insider shares were issued to the CEO and sponsor for a nominal price[80][91] - The Company pays AGBA Holding Limited (owned by insiders) a monthly fee of $10,000 for administrative services, which accrues without interest if payment is delayed due to insufficient funds outside the trust[82] - Related party loans and advances from the sponsor, AGBA Holding Limited, totaled $5,266,243 in notes payable and $1,645,353 in advances as of September 30, 2022, which are non-interest bearing and convertible into Private Units upon business combination[86][88] NOTE 6 – SHAREHOLDERS' DEFICIT This section outlines the components of shareholders' deficit, including ordinary shares, rights, and public warrants, detailing their authorization, issuance, and terms - The Company is authorized to issue 100,000,000 ordinary shares at $0.001 par value, with 1,375,000 shares issued and outstanding (excluding those subject to redemption) as of September 30, 2022[90][91] - Each Public Right entitles the holder to receive one-tenth (1/10) of an ordinary share upon consummation of the initial business combination and is classified within shareholders' equity as 'Additional paid-in capital'[77][93] - Public Warrants entitle holders to purchase one-half of one ordinary share at $11.50 per full share, exercisable upon business combination or May 13, 2020, and expiring five years after business combination completion, with the Company retaining redemption rights under specific conditions[94][96] NOTE 7 – ORDINARY SHARE SUBJECT TO POSSIBLE REDEMPTION This note explains the accounting treatment of ordinary shares subject to possible redemption, classified as temporary equity, and provides details on past share redemptions - Ordinary shares subject to possible redemption are classified as temporary equity, reflecting redemption rights that are outside the Company's control[100] | Metric | 9 Months Ended Sep 30, 2022 | Year Ended Dec 31, 2021 | |:---|:---|:---| | Total ordinary shares issued | 5,975,000 | 5,975,000 | | Share redemption | (1,237,129) | (953,393) | | Ordinary shares, subject to possible redemption | 3,362,871 | 3,646,607 | - Share redemptions occurred on February 8, 2021 (636,890 shares for $6.68 million), November 10, 2021 (316,503 shares for $3.46 million), and April 29, 2022 (283,736 shares for $3.19 million)[101] NOTE 8 – FAIR VALUE MEASUREMENTS This note details the fair value measurements of the Company's financial assets and liabilities, categorized into a three-level hierarchy based on observability of inputs | Description | Sep 30, 2022 ($) | Dec 31, 2021 ($) | |:---|:---|:---| | U.S. Treasury Securities (Level 1) | 38,928,442 | 40,441,469 | | Warrant liabilities (Level 3) | 13,500 | 490,000 | - The fair value of private warrants decreased from $0.49 million as of December 31, 2021, to $0.013 million as of September 30, 2022, resulting in a gain from the change in fair value of approximately $477,000 for the nine months ended September 30, 2022[110] - Warrant liabilities are classified as Level 3 due to the use of unobservable inputs in the Black-Scholes model, requiring significant judgment[109][111] NOTE 8 – COMMITMENTS AND CONTINGENCIES This note outlines the Company's commitments and contingencies, including potential impacts from COVID-19, registration rights, underwriting discounts, and unit purchase options - The Company has granted registration rights to holders of insider shares and private units, bearing the expenses for filing registration statements[113][145] - The underwriting agreement includes a 4.0% deferred underwriting discount, contingent on the closing of a business combination, which will be reduced by 2.0% for each unit redeemed by shareholders[115][146] - A unit purchase option was sold to Maxim Group LLC for $100, allowing purchase of 276,000 units at $11.50 each, exercisable between the first and fifth anniversary of the IPO effective date[116][148] - Maxim Group LLC was granted a right of first refusal for 18 months post-business combination to act as lead underwriter or co-manager for future equity and debt offerings[117][149] NOTE 9 – RECLASSIFICATION OF PRIOR YEAR PRESENTATION This note states that certain prior period amounts have been reclassified for consistency with the current period presentation, with no effect on reported results of operations - Prior period amounts were reclassified for consistency, specifically an adjustment to the Statement of Changes In Shareholders' Deficit to reclassify capital contributions from extension deposits to the trust account[118] - These reclassifications had no effect on the reported results of operations[118] NOTE 10 – SUBSEQUENT EVENTS This note discloses significant events that occurred after September 30, 2022, including the approval and completion of the business combination with TAG Holdings Limited and subsequent Nasdaq trading - On November 10, 2022, shareholders approved the business combination with TAG Holdings Limited, resulting in the redemption of 3,339,229 Ordinary Shares at $11.617 per share[119] - The business combination with TAG Holding Limited was completed on November 14, 2022, making the Company the 100% owner of TAG International Limited and TAG Asia Capital Holdings Limited[119][132] - The post-combination company was renamed 'AGBA Group Holding Limited', and its ordinary shares and warrants began trading on Nasdaq under 'AGBA' and 'AGBAW' on November 15, 2022[120][132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition, operational results, liquidity, capital resources, and critical accounting policies Special Note Regarding Forward-Looking Statements This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations - This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations[122] - The company disclaims any obligation to update or revise forward-looking statements unless required by applicable securities law[122] Overview This section provides an overview of AGBA's status as a blank check company, its IPO, and the recent completion of its business combination with TAG Holdings Limited - Prior to the business combination, AGBA was a blank check company with no revenue, incurring losses from formation costs, and focused solely on finding a target business[123] - The company consummated its IPO on May 16, 2019, raising $46 million, which was placed in a Trust Account, along with $2.25 million from a private placement[124] - The business combination with TAG Holdings Limited was completed on November 14, 2022, after multiple extensions of the deadline, with AGBA issuing 55,500,000 ordinary shares to TAG[126][127][130][132] Results of Operations This section analyzes the Company's financial performance, highlighting net income/loss and primary drivers for the three and nine months ended September 30, 2022 and 2021 | Metric | 3 Months Ended Sep 30, 2022 ($) | 3 Months Ended Sep 30, 2021 ($) | 9 Months Ended Sep 30, 2022 ($) | 9 Months Ended Sep 30, 2021 ($) | |:---|:---|:---|:---|:---| | Net Income (Loss) | 429,335 | (209,743) | (153,751) | (515,988) | | Primary drivers for 3-month period | Gain from warrant liabilities, dividend income | General & administrative expenses, loss from warrant liabilities | Gain from warrant liabilities, interest & dividend income | General & administrative expenses, loss from warrant liabilities | - The company generated a net income of $429,335 for the three months ended September 30, 2022, compared to a net loss of $209,743 for the same period in 2021, primarily due to a gain from the change in fair value of warrant liabilities[133] - For the nine months ended September 30, 2022, the net loss was $153,751, an improvement from a $515,988 net loss in the prior year, also driven by the gain from warrant liabilities[134] Liquidity and Capital Resources This section discusses the Company's liquidity position, funding sources, and going concern considerations prior to the business combination - As of September 30, 2022, the company had $96,914 in cash outside the Trust Account for working capital, with the remaining funds held in the Trust Account[135] - Liquidity needs have been met through insider share sales ($25,000), notes payable ($5,266,243), and advances from the Sponsor ($1,645,353) as of September 30, 2022, in addition to IPO and private placement proceeds[136] - The company's ability to continue as a going concern was in substantial doubt if a business combination was not consummated by November 16, 2022, due to potential insufficient funds[141] Off-balance Sheet Financing Arrangements This section confirms the absence of off-balance sheet financing arrangements as of September 30, 2022 - As of September 30, 2022, the company had no off-balance sheet arrangements, such as relationships with unconsolidated entities, special purpose entities, or guarantees of debt/commitments[142] Contractual Obligations This section outlines the Company's contractual obligations, including administrative service fees, registration rights, deferred underwriting discounts, and unit purchase options - The company has an agreement to pay its Sponsor a monthly fee of $10,000 for general and administrative services until the earlier of business combination completion or liquidation[144] - Contractual obligations include registration rights for insider shares and private units, a deferred underwriting discount of 4.0% contingent on business combination, a unit purchase option for 276,000 units granted to Maxim Group LLC, and a right of first refusal to Maxim for future offerings[145][146][148][149] Critical Accounting Policies This section describes the critical accounting policies that require significant management estimates and judgments, including those for ordinary shares, warrant liabilities, and net loss per share - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts[150] - Ordinary shares subject to possible redemption are classified as temporary equity due to redemption rights outside the company's control[151] - Warrant liabilities are classified as liabilities at fair value and re-measured each reporting period using a Black-Scholes model, with changes recognized in the statement of operations[154] - Net loss per share is calculated by dividing net loss by the weighted-average number of ordinary shares outstanding, excluding redeemable shares and anti-dilutive securities[152] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section addresses the Company's exposure to market risks, concluding no material interest rate risk due to investments in short-term U.S. government treasury bills - The company's investments in the Trust Account consist of short-term U.S. government treasury bills or money market funds[155] - Due to the short-term nature of these investments, the company believes there is no material exposure to interest rate risk[155] Item 4. Control and Procedures This section discusses the effectiveness of the Company's disclosure controls and procedures and internal control over financial reporting, noting material weaknesses and remediation plans Evaluation of Disclosure Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures, identifying material weaknesses and outlining remediation efforts - As of March 22, 2022, the Certifying Officers concluded that the company's disclosure controls and procedures were not effective[157] - Material weaknesses were identified in internal control over financial reporting related to the improper classification of warrants (as derivative liabilities instead of equity) and ordinary shares subject to possible redemption (a portion classified in permanent equity instead of temporary equity)[159][161][162] - The company has developed a remediation plan, including enhanced access to accounting literature and increased communication among personnel and third-party professionals, to address these material weaknesses[163] Changes in Internal Control Over Financial Reporting This section confirms no material changes in internal control over financial reporting during the most recent fiscal quarter and outlines planned enhancements - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[164] - The company plans to enhance processes to identify and apply complex accounting standards, including improved access to literature and increased communication, to address identified material weaknesses[164] PART II – OTHER INFORMATION Item 1. Legal Proceedings The Company reported no legal proceedings - There are no legal proceedings to report[166] Item 1A. Risk Factors As a smaller reporting company, AGBA Group Holding Limited is not required to make disclosures under this Item - As a smaller reporting company, AGBA is exempt from making disclosures under Item 1A (Risk Factors)[166] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered sales of equity securities and the use of proceeds from the Company's initial public offering and private placement - The IPO on May 16, 2019, involved the sale of 4,600,000 Units at $10.00 each, generating $46,000,000, which was placed in a Trust Account[167][169] - Simultaneously, 225,000 Private Units were sold to the Sponsor at $10.00 per unit, generating $2,250,000[167] - The Sponsor agreed to vote its shares in favor of any proposed business combination and not to redeem its shares, with Private Shares not entitled to redemption if a business combination is not consummated[168] - Unsecured promissory notes totaling $5,266,243 were issued to the Sponsor for deposits into the Trust Account to extend the business combination deadline, with these notes being non-interest bearing and convertible into Private Units[171][86] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - There are no defaults upon senior securities to report[172] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the company[172] Item 5. Other Information The Company reported no other information - There is no other information to report[172] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - Exhibits include certifications of principal executive and financial officers (31.1, 31.2, 32), Inline XBRL Instance Document (101.INS), Taxonomy Extension Calculation Linkbase Document (101.CAL), Schema Document (101.SCH), Definition Linkbase Document (101.DEF), Labels Linkbase Document (101.LAB), Presentation Linkbase Document (101.PRE), and Cover Page Interactive Data File (104)[175]