AGBA (US:AGBA)2023-11-13 16:00PART I – FINANCIAL INFORMATION Financial Statements The company's unaudited financials show a deteriorating position with decreased assets, a shift to a shareholders' deficit, and a significantly widened net loss Unaudited Condensed Consolidated Balance Sheets Total assets decreased to $82.6 million and shareholders' equity turned to a $2.9 million deficit as of September 30, 2023 | Financial Item | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $82,581,149 | $101,221,333 | | Total Current Assets | $34,734,239 | $55,756,165 | | Total Non-current Assets | $47,846,910 | $45,465,168 | | Total Liabilities | $85,521,428 | $97,071,054 | | Total Current Liabilities | $74,545,125 | $97,020,648 | | Total Shareholders' (Deficit) Equity | ($2,940,279) | $4,150,279 | | Accumulated Deficit | ($74,973,861) | ($39,395,133) | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues grew, but surging operating costs led to a net loss of $35.6 million for the nine months ended September 30, 2023 | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Revenues | $41,651,114 | $19,410,147 | | Total Operating Cost and Expenses | ($77,164,782) | ($25,835,812) | | Loss from Operations | ($35,513,668) | ($6,425,665) | | Net Loss | ($35,578,728) | ($13,732,251) | | Net Loss Per Share (basic and diluted) | ($0.55) | ($0.25) | Unaudited Condensed Consolidated Statements of Changes in Shareholders' (Deficit) Equity Shareholders' equity shifted to a $2.9 million deficit, driven by a $35.6 million net loss partially offset by non-cash contributions - The shift to a shareholders' deficit was primarily caused by a net loss of $35.6 million during the first nine months of 202314 - Positive contributions to equity included $12.0 million from share-based compensation and $12.6 million from the forgiveness of debt by the holding company, which was converted to additional paid-in capital14163 Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operations increased significantly to $33.4 million, leading to a $29.1 million decrease in total cash | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($33,364,662) | ($2,131,606) | | Net cash provided by (used in) investing activities | $4,687,096 | ($6,870,386) | | Net cash used in financing activities | ($414,651) | ($12,776,160) | | Net change in cash, cash equivalents and restricted cash | ($29,118,701) | ($22,142,465) | Notes to Unaudited Condensed Consolidated Financial Statements Notes disclose a going concern warning, segment details, legal proceedings, capital commitments, and subsequent capital-raising events - Going Concern: The company reported a $35.6 million net loss and $33.4 million in negative operating cash flow for the nine months ended Sep 30, 2023, raising substantial doubt about its ability to continue as a going concern; management is pursuing funding alternatives, including an equity purchase agreement for up to $50 million and a private placement for approximately $6.2 million102103104 - Business Segments: The company operates four segments: Distribution Business (insurance brokerage), Platform Business (financial supermarket), Fintech Business (investment holding), and Healthcare Business (investment holding); all revenues are generated in Hong Kong7980 - Legal Proceedings: The company is involved in several legal proceedings, including trademark infringement and misrepresentation claims, with outcomes and potential losses currently indeterminable207208209 - Commitments: The company has commitments to subscribe to notes of Investment A for $1.1M, contribute capital to Investment F for $0.3M, and purchase Sony Life Financial Advisers for $1.9M; it also entered an equity purchase agreement for up to $50M210211213 - Subsequent Events: After the quarter end, the company completed an office sale for $6.15 million and signed binding term sheets for a private placement to raise approximately $6.24 million215 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth driven by the Distribution segment, offset by higher expenses, and outlines plans to address liquidity risks Business Overview The company operates a financial supermarket in Hong Kong across four segments: Distribution, Platform, Healthcare, and Fintech - The company's business is structured into four key segments: - Distribution Business: The largest financial advisor business in the market, focused on insurance and financial advisory - Platform Business: A "financial supermarket" offering over 1,800 products from 74 insurance providers and 45 asset management firms - Healthcare Business: A strategic partnership with HCMPS, one of Hong Kong's largest healthcare management organizations - Fintech Business: An investment portfolio including stakes in a UK digital bank (Tandem) and a US health insurer (Oscar Health)220221231232 Results of Operations Revenue more than doubled to $41.7 million, but a near 200% rise in operating expenses drove a net loss of $35.6 million | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $41,651 | $19,410 | +114.6% | | Distribution Business Revenue | $37,569 | $14,307 | +162.6% | | Total Operating Expenses | ($77,164) | ($25,836) | +198.7% | | Commission Expense | ($28,196) | ($11,219) | +151.3% | | Personnel & Benefit Expense | ($22,672) | ($8,734) | +159.6% | | Other G&A Expenses | ($20,493) | ($3,176) | +545.3% | | Net Loss | ($35,579) | ($13,732) | +159.1% | - The increase in Other G&A expenses was mainly due to higher legal and professional fees ($3.8M), office rental and operating fees ($3.5M), and service-related share-based compensation ($8.0M)268 Liquidity and Capital Resources The company faces significant liquidity challenges and a going concern risk, with plans to raise capital via equity and private placements - The company reported a net loss of $35.6 million and negative operating cash flow of $33.4 million for the nine months ended Sep 30, 2023, with a cash balance of only $1.6 million277 - Management has concluded that available cash is not sufficient to fund obligations for the next 12 months, indicating a going concern risk277294 - To improve liquidity, the company has entered into two key funding arrangements: - An equity purchase agreement with a third party to invest up to $50 million over 36 months - Private placement binding term sheets to receive gross proceeds of approximately $6.24 million297 Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is not required to provide disclosures on market risk - As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the company is not required to provide quantitative and qualitative disclosures about market risk307 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023309 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls310 PART II – OTHER INFORMATION Legal Proceedings The company is involved in several ongoing legal proceedings with indeterminable outcomes, including claims for trademark infringement and misrepresentation - The company is a defendant in three notable legal actions: - HCA702/2018: Alleged trademark infringement, with a trial scheduled for November 2024 - HCA765/2019: Alleged deceit and misrepresentation, with a claim for ~$2 million in damages - HCA2097 & 2098/2020: Alleged misrepresentation and conspiracy, with a claim for ~$1.67 million in damages312313314 - For all ongoing legal proceedings, the company states that it is unable to determine the probability of the outcome or the range of reasonably possible loss at this stage312313314 Risk Factors The company is exempt from providing risk factor disclosures as it qualifies as a smaller reporting company - The company is not required to make disclosures under this item as it qualifies as a smaller reporting company315 Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities A share repurchase program was approved, but no shares were repurchased during the third quarter of 2023 - A share repurchase program for up to 1,000,000 ordinary shares was approved in April 2023315 - The company did not repurchase any of its ordinary shares during the three months ended September 30, 2023315 Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported319 Other Information No other information was reported under this item for the period - No other information was reported under this item319 Exhibits This section lists all exhibits filed with the quarterly report, including officer certifications and XBRL data