10-Q 1 f10q0923_agbagroup.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                   to                  

 

Commission File No. 001-38909

 

AGBA GROUP HOLDING LIMITED
(Exact name of registrant as specified in its charter)

 

British Virgin Islands   N/A
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

AGBA Tower

68 Johnston Road

Wan Chai, Hong Kong SAR

  N/A
(Address of Principal Executive Offices)   (Zip Code)

 

+852 3601 8000
(Registrant’s telephone number, including area code)

 

 

 
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Ordinary Shares   AGBA   NASDAQ Capital Market
Warrants   AGBAW   NASDAQ Capital Market

 

As of November 13, 2023, there were 67,561,998 ordinary shares, par value $0.001 per share, issued and outstanding.

 

 

 

 

 

 

AGBA GROUP HOLDING LIMITED

 

Quarterly Report on Form 10-Q

 

TABLE OF CONTENTS

 

    Page
     
PART I – FINANCIAL INFORMATION F-1
     
Item 1. Financial Statements F-1
     
  Unaudited Condensed Consolidated Balance Sheets F-1
     
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss F-2
     
  Unaudited Condensed Consolidated Statements of Changes in Shareholders’ (Deficit) Equity F-3
     
  Unaudited Condensed Consolidated Statements of Cash Flows F-4
     
  Notes to Unaudited Condensed Consolidated Financial Statements F-5 to F-34
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1 
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
     
Item 4. Control and Procedures 17
     
PART II – OTHER INFORMATION 18
     
Item 1. Legal Proceedings 18
     
Item 1A. Risk Factors 18
     
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 18
     
Item 3. Defaults Upon Senior Securities 19
     
Item 4. Mine Safety Disclosures 19
     
Item 5. Other Information 19
     
Item 6. Exhibits 19
     
SIGNATURES 20

 

 i

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

AGBA GROUP HOLDING LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Currency expressed in United States Dollars (“US$”), except for number of shares)

 

   September 30,
2023
   December 31,
2022
 
ASSETS      (Audited) 
Current assets:        
Cash and cash equivalents  $1,622,425   $6,449,876 
Restricted cash   20,552,946    44,844,196 
Accounts receivable, net   2,612,284    2,822,162 
Accounts receivable, net, related parties   846,640    272,546 
Loans receivable, net   524,504    517,479 
Notes receivable, net   613,533     
Asset held for sale   5,465,261     
Income tax recoverable   376,027    260,120 
Deposits, prepayments, and others receivable, net   2,120,619    589,786 
Total current assets   34,734,239    55,756,165 
           
Non-current assets:          
Rental deposit, net   958,768     
Loans receivable, net   1,059,957    1,072,392 
Property and equipment, net   1,739,223    7,359,416 
Right-of-use asset, net   11,926,714     
Long-term investments, net   32,162,248    37,033,360 
Total non-current assets   47,846,910    45,465,168 
           
TOTAL ASSETS  $82,581,149   $101,221,333 
           
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $18,057,184   $20,274,429 
Escrow liabilities   20,552,946    29,487,616 
Borrowings   6,728,546    4,477,254 
Borrowing, related party   5,000,000     
Amounts due to the holding company       6,289,743 
Lease liabilities   1,206,449     
Forward share purchase liability       13,491,606 
Income tax payable and provision   23,000,000    23,000,000 
Total current liabilities   74,545,125    97,020,648 
           
Non-current liabilities:          
Lease liabilities   10,929,511     
Warrant liabilities   1,067    4,548 
Deferred tax liabilities   45,725    45,858 
Total non-current liabilities   10,976,303    50,406 
           
TOTAL LIABILITIES   85,521,428    97,071,054 
           
Commitments and contingencies (Note 21)   
 
    
 
 
           
Shareholders’ (deficit) equity:          
Ordinary shares, $0.001 par value; 200,000,000 shares authorized, 67,561,998 and 58,376,985 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively   67,562    58,377 
Ordinary shares to be issued       1,665 
Additional paid-in capital   72,435,372    43,870,308 
Accumulated other comprehensive loss   (469,352)   (384,938)
Accumulated deficit   (74,973,861)   (39,395,133)
Total shareholders’ (deficit) equity   (2,940,279)   4,150,279 
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY  $82,581,149   $101,221,333 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

F-1

 

 

AGBA GROUP HOLDING LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Currency expressed in United States Dollars (“US$”), except for number of shares)

 

   Three months ended
September 30,
   Nine months ended
September 30,
 
   2023   2022   2023   2022 
Revenues:                
Interest income:                
Loans  $41,472   $38,260   $117,805   $137,454 
Total interest income   41,472    38,260    117,805    137,454 
Non-interest income:                    
Commissions   12,168,777    12,168,614    38,507,460    15,932,771 
Recurring service fees   751,727    793,353    2,300,703    2,614,729 
Total non-interest income   12,920,504    12,961,967    40,808,163    18,547,500 
Total revenues from others   12,961,976    13,000,227    40,925,968    18,684,954 
                     
Non-interest income:                    
Recurring service fees   244,525    243,925    725,146    725,193 
Total revenues from related parties   244,525    243,925    725,146    725,193 
Total revenues   13,206,501    13,244,152    41,651,114    19,410,147 
                     
Operating cost and expenses:                    
Commission expense   (8,915,811)   (8,037,869)   (28,195,740)   (11,219,182)
Sales and marketing expense   (753,545)   (1,456,739)   (3,125,432)   (2,088,391)
Technology expense   (740,847)   (335,404)   (2,678,645)   (618,501)
Personnel and benefit expense   (7,764,353)   (3,325,369)   (22,671,813)   (8,734,387)
Other general and administrative expenses   (5,981,447)   (1,093,733)   (20,493,152)   (3,175,351)
Total operating cost and expenses   (24,156,003)   (14,249,114)   (77,164,782)   (25,835,812)
                     
Loss from operations   (10,949,502)   (1,004,962)   (35,513,668)   (6,425,665)
                     
Other income (expense):                    
Interest income   16,875    7,546    384,656    24,161 
Interest expense   (393,013)   (20,085)   (805,789)   (20,085)
Foreign exchange (loss) gain, net   (864,383)   (2,083,020)   41,467    (4,690,476)
Investment (loss) income, net   (792,907)   741,811    488,589    (2,793,242)
Change in fair value of warrant liabilities   1,106    
    3,481    
 
Change in fair value of forward share purchase liability   
    
    (82,182)   
 
Loss on settlement of forward share purchase agreement   
    
    (378,895)   
 
Rental income   78,820    78,630    217,091    236,344 
Sundry income   38,061    13,724    122,128    169,252 
Total other expense, net   (1,915,441)   (1,261,394)   (9,454)   (7,074,046)
                     
Loss before income taxes   (12,864,943)   (2,266,356)   (35,523,122)   (13,499,711)
                     
Income tax expense   (55,886)   (127,186)   (55,606)   (232,540)
                     
NET LOSS  $(12,920,829)  $(2,393,542)  $(35,578,728)  $(13,732,251)
                     
Other comprehensive income (loss):                    
Foreign currency translation adjustment   15,555    (37,370)   (84,414)   (417,729)
                     
TOTAL COMPREHENSIVE LOSS  $(12,905,274)  $(2,430,912)  $(35,663,142)  $(14,149,980)
                     
Weighted average number of ordinary shares outstanding – basic and diluted
   67,505,476    55,500,000    64,401,341    55,500,000 
                     
Net loss per ordinary share – basic and diluted
  $(0.19)  $(0.04)  $(0.55)  $(0.25)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

F-2

 

 

AGBA GROUP HOLDING LIMITED

UNAUDITED CONDESED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT) EQUITY

(Currency expressed in United States Dollars (“US$”), except for number of shares)

 

   Three and Nine Months Ended September 30, 2023 
  

Ordinary shares

   Ordinary shares
to be issued
   Additional   Accumulated
other 
       Total shareholders’ 
   No. of
shares
   Amount   No. of
shares
   Amount   paid-in
capital
   comprehensive
loss
   Accumulated
deficit
   equity
(deficit)
 
                                 
Balance as of January 1, 2023   58,376,985   $58,377    1,665,000   $1,665   $43,870,308   $(384,938)  $(39,395,133)  $4,150,279 
                                         
Issuance of ordinary shares to settle finder fee   2,173,913    2,174            3,997,826            4,000,000 
Share-based compensation   1,200,000    1,200            3,905,400            3,906,600 
Forgiveness of amounts due to the holding company                   3,000,000            3,000,000 
Foreign currency translation adjustment                       (133,204)       (133,204)
Net loss for the period                           (12,072,610)   (12,072,610)
Balance as of March 31, 2023   61,750,898    61,751    1,665,000    1,665    54,773,534    (518,142)   (51,467,743)   2,851,065 
                                         
Issuance of holdback shares   1,665,000    1,665    (1,665,000)   (1,665)                
Share-based compensation   4,046,100    4,046            4,600,274            4,604,320 
Forgiveness of amounts due to the holding company                   5,600,000            5,600,000 
Foreign currency translation adjustment                       33,235        33,235 
Net loss for the period                           (10,585,289)   (10,585,289)
                                         
Balance as of June 30, 2023   67,461,998    67,462            64,973,808    (484,907)   (62,053,032)   2,503,331 
Share-based compensation   100,000    100            3,468,180            3,468,280 
Forgiveness of amounts due to the holding company                   3,993,384            3,993,384 
Foreign currency translation adjustment                       15,555        15,555 
Net loss for the period                           (12,920,829)   (12,920,829)
                                         
Balance as of September 30, 2023   67,561,998   $67,562       $   $72,435,372   $(469,352)  $(74,973,861)  $(2,940,279)

 

   Three and Nine Months Ended September 30, 2022 
   Ordinary shares   Ordinary shares to be issued   Additional   Receivable   Accumulated other   Retained earnings   Total 
   No. of shares   Amount   No. of shares   Amount   paid-in capital   from the Shareholder   comprehensive loss   (accumulated deficit)   shareholders’ equity 
                                     
Balance as of January 1, 2022   53,835,000   $53,835    1,665,000   $1,665   $38,706,226   $(29,562,195)  $(179,461)  $52,125,502   $61,145,572 
                                              
Special dividend to the holding company                       29,562,195        (47,000,000)   (17,437,805)
Foreign currency translation adjustment                           (274,351)       (274,351)
Net loss for the period                               (447,394)   (447,394)
                                              
Balance as of March 31, 2022   53,835,000    53,835    1,665,000    1,665    38,706,226        (453,812)   4,678,108    42,986,022 
Foreign currency translation adjustment                           (106,008)       (106,008)
Net loss for the period                               (10,891,315)   (10,891,315)
                                              
Balance as of June 30, 2022   53,835,000    53,835    1,665,000    1,665    38,706,226        (559,820)   (6,213,207)   31,988,699 
Advances to the holding company                       (3,165,188)           (3,165,188)
Foreign currency translation adjustment                           (37,370)       (37,370)
Net loss for the period                               (2,393,542)   (2,393,542)
                                              
Balance as of September 30, 2022   53,835,000   $53,835    1,665,000   $1,665   $38,706,226   $(3,165,188)  $(597,190)  $(8,606,749)  $26,392,599 

 

See accompanying notes to unaudited condensed consolidated financial statements.

F-3

 

 

AGBA GROUP HOLDING LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Currency expressed in United States Dollars (“US$”))

 

   Nine months ended
September 30,
 
   2023   2022 
Cash flows from operating activities:        
Net loss  $(35,578,728)  $(13,732,251)
Adjustments to reconcile net loss to net cash used in operating activities          
Share-based compensation expense   11,979,200    
 
Non-cash lease expense   854,470    
 
Depreciation on property and equipment   238,315    288,230 
Interest income on notes receivable   (23,217)   
 
Foreign exchange (gain) loss, net   (41,467)   4,690,476 
Investment (income) loss, net   (488,589)   2,793,242 
Allowance for credit losses on financial instruments   661,288    
 
Change in fair value of warrant liabilities   (3,481)   
 
Change in fair value of forward share purchase liability   82,182    
 
Loss on settlement of forward share purchase agreement   378,895    
 
Reversal of annual bonus accrued in prior year   (3,763,847)   
 
           
Change in operating assets and liabilities:          
Accounts receivable   (575,266)   (1,537,618)
Loans receivable   3,996    2,325,039 
Deposits, prepayments, and others receivable   (2,938,425)   (267,001)
Accounts payable and accrued liabilities   5,546,602    2,768,147 
Escrow liabilities   (8,934,670)   192,395 
Lease liabilities   (645,303)   
 
Income tax payable   (116,617)   347,735 
Net cash used in operating activities   (33,364,662)   (2,131,606)
           
Cash flows from investing activities:          
Proceeds from sale of investments   3,976,657    1,849,650 
Purchase of notes receivable   (589,086)   
 
Dividends received from long-term investments   1,404,303    
 
Addition in long-term investments   
    (7,849,676)
Purchase of property and equipment   (104,778)   (870,360)
Net cash provided by (used in) investing activities   4,687,096    (6,870,386)
           
Cash flows from financing activities:          
Advances from the holding company   6,303,641    198,778 
Settlement of forward share purchase agreement   (13,952,683)   
 
Proceeds from borrowings   7,234,391    4,462,867 
Dividend paid to the holding company   
    (17,437,805)
Net cash used in financing activities   (414,651)   (12,776,160)
           
Effect on exchange rate change on cash, cash equivalents and restricted cash   (26,484)   (364,313)
           
Net change in cash, cash equivalent and restricted cash   (29,118,701)   (22,142,465)
           
BEGINNING OF PERIOD   51,294,072    73,081,407 
           
END OF PERIOD  $22,175,371   $50,938,942 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash received from income tax recoverable  $
   $125,311 
Cash paid for income taxes  $172,223   $10,116 
Cash paid for interest  $774,249   $
 
Cash received from interest  $361,439   $24,161 
           
Reconciliation to amounts on unaudited condensed consolidated balance sheets:          
Cash and cash equivalents  $1,622,425   $16,260,750 
Restricted cash   20,552,946    34,678,192 
           
Total cash, cash equivalents and restricted cash  $22,175,371   $50,938,942 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES DISCLOSURE          
Issuance of ordinary shares to settle finder fee  $4,000,000   $
 
Forgiveness of amounts due to the holding company  $12,593,384   $
 
Initial recognition of operating lease liabilities related to right-of-use asset  $12,512,585   $
 
Purchase of property and equipment, through earnest deposit  $
   $7,205,118 
Special dividend to the holding company offset with amounts due from the holding company  $
   $29,562,195 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

F-4

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

AGBA Group Holding Limited (“AGBA” or the “Company”) was incorporated on October 8, 2018 in British Virgin Islands.

 

The Company, through its subsidiaries, is operating a wealth and health platform, offering a wide range of financial service and products, covering life insurance, pensions, property-casualty insurance, stock brokerage, mutual funds, lending, and real estate in overseas. AGBA is also engaged in financial technology business and financial investments, managing an ensemble of fintech investments and healthcare investment and operating a health and wealth management platform with a broad spectrum of services and value-added information in health, insurance, investments and social sharing.

 

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, 2022 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, 2022.

 

The unaudited condensed consolidated financial statements as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022, 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, 2023 and 2022 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.

 

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.

 

Principal of Consolidation

 

The accompanying unaudited condensed 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.

 

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 credit losses, notes receivable, share-based compensation, warrant liabilities, forward share purchase liability, provision for contingent liabilities, revenue recognition, income tax provision, deferred taxes and uncertain tax position, and allocation of expenses from holding company.

 

The inputs into the management’s judgments and estimates consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Actual results could differ from these estimates.

 

F-5

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

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 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, 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 income (loss) within the unaudited condensed consolidated statements of changes in shareholders’ (deficit) equity.

 

Translation of amounts from HK$ into US$ has been made at the following exchange rates for the nine months ended September 30, 2023 and 2022:

 

   September 30,
2023
   September 30,
2022
 
           
Period-end HK$:US$ exchange rate   0.12771    0.12739 
Period average HK$:US$ exchange rate   0.12766    0.12767 

 

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.

 

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 4).

 

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.

 

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 credit losses is adequate, and provides allowance when necessary.

 

F-6

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

The Company does not hold any collateral or other credit enhancements over its accounts receivable balances.

 

Loans Receivable, net

 

Loans receivable, net are residential mortgage loans that carried at unpaid principal balances, less the allowance for 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 Credit Losses on Financial Instruments.

 

Allowance for 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 lifetime 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 lifetime 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.

 

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.

 

F-7

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

Asset Held For Sale

 

Assets to be disposed of by sale are reported at the lower of the carrying value or fair value less cost to sell when the Company has committed to a sale agreement and would be reported separately as asset held for sale in the unaudited condensed consolidated balance sheets.

 

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:

 

  Expected useful life
   
Land and building Shorter of 50 years or lease term
Office improvement 3 years
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 impairment losses were recognized for the three and nine months ended September 30, 2023 and 2022.

 

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 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.

 

F-8

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

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. 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 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 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 unaudited condensed 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.

 

F-9

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

Recurring service fees

 

The Company provides asset management services to investment funds or investment product providers in exchange for recurring service fees. Recurring 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 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 and personal 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 operation and comprehensive loss for the periods indicated:

 

   For the three months ended September 30, 2023 
   Distribution
Business
   Platform Business     
   Insurance
brokerage
service
   Asset
management
service
   Money
lending
service
   Real estate
agency
service
   Total 
                     
Interest income:                    
Loans  $   $   $41,472   $   $41,472 
                          
Non-interest income:                         
Commissions   11,875,830    292,933        14    12,168,777 
Recurring service fees       996,252            996,252 
                          
   $11,875,830   $1,289,185   $41,472   $14   $13,206,501 

 

   For the three months ended September 30, 2022 
   Distribution
Business
   Platform Business     
   Insurance
brokerage
service
   Asset
management
service
   Money
lending
service
   Real estate
agency
service
   Total 
                     
Interest income:                    
Loans  $   $   $38,260   $   $38,260 
                          
Non-interest income:                         
Commissions   11,752,770    368,554        47,290    12,168,614 
Recurring service fees       1,037,278            1,037,278 
                          
   $11,752,770   $1,405,832   $38,260   $47,290   $13,244,152 

 

F-10

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

   For the nine months ended September 30, 2023 
   Distribution
Business
   Platform Business     
   Insurance
brokerage
service
   Asset
management
service
   Money
lending
service
   Real estate
agency
service
   Total 
                     
Interest income:                    
Loans  $   $   $117,805   $   $117,805 
                          
Non-interest income:                         
Commissions   37,569,257    894,655        43,548    38,507,460 
Recurring service fees       3,025,849            3,025,849 
                          
   $37,569,257   $3,920,504   $117,805   $43,548   $41,651,114 

 

   For the nine months ended September 30, 2022 
   Distribution
Business
   Platform Business     
   Insurance
brokerage
service
   Asset
management
service
   Money
lending
service
   Real estate
agency
service
   Total 
                     
Interest income:                    
Loans  $   $   $137,454   $   $137,454 
                          
Non-interest income:                         
Commissions   14,306,599    1,463,366        162,806    15,932,771 
Recurring service fees       3,339,922            3,339,922 
                          
   $14,306,599   $4,803,288   $137,454   $162,806   $19,410,147 

 

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, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive loss, as presented in the accompanying statements of shareholders’ (deficit) equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive loss is not included in the computation of income tax expense or benefit.

 

F-11

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

  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 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 three and nine months ended September 30, 2023 and 2022, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2023 and December 31, 2022, 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. 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 period. 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. During the three and nine months ended September 30, 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.

 

F-12

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

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
Business
  - Facilitating the placement of insurance to our customers, through licensed brokers, in exchange for initial and ongoing commissions received from insurance companies.
         
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.

 

Leases

 

The Company follows ASC Topic 842, Leases (“ASC Topic 842”), utilizing the modified retrospective transition method with no adjustments to comparative periods presented. On February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (ASC Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. ASC Topic 842 requires that lessees recognize right-of-use asset and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. It requires for leases longer than one year, a lessee to recognize in the statement of financial condition a right-of-use asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. ASC Topic 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the unaudited condensed consolidated statements of operations and comprehensive loss and statements of cash flows. ASC Topic 842 supersedes nearly all existing lease accounting guidance under GAAP issued by the Financial Accounting Standards Board (“FASB”) including ASC Topic 840, Leases.

 

F-13

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Company’s leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company has elected to adopt the following lease policies in conjunction with the adoption of ASU 2016-02: (i) for leases that have lease terms of 12 months or less and does not include a purchase option that is reasonably certain to exercise, the Company elected not to apply ASC 842 recognition requirements; and (ii) the Company elected to apply the package of practical expedients for existing arrangements entered into prior to January 1, 2021 to not reassess (a) whether an arrangement is or contains a lease, (b) the lease classification applied to existing leases, and (c) initial direct costs.

 

The accounting update also requires that for operating leases, a lessee recognize interest expense on the lease liability and the amortization of the right-of-use asset as a combined expense. In addition, this accounting update requires expanded disclosures about the nature and terms of lease agreements.

 

Related Parties

 

The Company follows the ASC Topic 850-10, Related Party for the identification of related parties and disclosure of related party transactions.

 

Pursuant to section 850-10-20 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 section 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 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 consolidated or combined 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 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 450-20, Commitments to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

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 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.

 

F-14

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

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 (“ASC Topic 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC Topic 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

 

  Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

 

  Level 2 : Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and

 

  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, deposits, prepayments and others receivable, accounts payable and accrued liabilities, escrow liabilities and amounts due to the holding company approximate at their fair values because of the short-term nature of these financial instruments.

 

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of loans receivable, notes receivable and borrowings approximate their carrying amounts. They are accounted at amortized cost, subject to impairment testing.

 

The following table presents information about the Company’s assets that were measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

 

   September 30,   Quoted
Prices In
Active
Markets
   Significant Other
Observable
Inputs
   Significant Other
Unobservable
Inputs
 
Description  2023   (Level 1)   (Level 2)   (Level 3) 
                 
Assets:                
Marketable equity securities  $408   $408   $     —   $ 
Non-marketable equity securities  $32,161,840   $   $   $32,161,840 
                     
Liabilities:                    
Warrant liabilities  $1,067   $   $   $1,067 

 

F-15

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

   December 31,   Quoted
Prices In
Active
Markets
   Significant Other
Observable
Inputs
   Significant Other
Unobservable
Inputs
 
Description  2022   (Level 1)   (Level 2)   (Level 3) 
                 
Assets:                
Marketable equity securities  $2,443,593   $2,443,593   $      —   $ 
Non-marketable equity securities  $34,589,767   $   $   $34,589,767 
                     
Liabilities:                    
Forward share purchase liability  $13,491,606   $   $   $13,491,606 
Warrant liabilities  $4,548   $   $   $4,548 

 

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

Recently Issued Accounting Pronouncements

 

Besides, there were no new standards or updates during the nine months ended September 30, 2023 that had a material impact on the unaudited condensed consolidated financial statements.

 

NOTE 3 — LIQUIDITY AND GOING CONCERN

 

The accompanying unaudited condensed consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. They do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

For the nine months ended September 30, 2023, the Company reported $35,578,728 net loss and $33,364,662 net cash outflows from operating activities. As of September 30, 2023, the Company had an accumulated deficit of $74,973,861 and cash and cash equivalents of $1,622,425.

 

The Company has determined that the prevailing conditions and ongoing liquidity risks encountered by the Company raise substantial doubt about the ability to continue as a going concern for at least one year following the date these unaudited condensed consolidated financial statements are issued. The ability to continue as a going concern is dependent on the Company’s ability to successfully implement its current operating plan and fund-raising exercises. The Company believes that it will be able to grow its revenue base and control expenditures. In parallel, the Company will monitor its capital structure and operating plans and search for potential funding alternatives in order to finance the development activities and operating expenses. These alternatives may include borrowings, raising funds through public equity or debt markets. However, the Company cannot predict the exact amount or timing of the alternatives, or guarantee those alternatives will be favorable to its shareholders. Any failure to obtain financing when required will have a material adverse impact on the Company’s business, operation and financial result.

 

Certain potential funding alternatives have been carried by the Company, as follows:

 

1.On September 7, 2023, the Company entered into an equity purchase agreement with an independent third party to agree to invest up to $50 million over a 36-month period (see Note 21).

 

2.Subsequent to the period end, on November 7, 2023, the Company signed private placement binding term sheets with an institutional investor, the Company’s Chief Executive Officer, Mr. Ng Wing Fai, and the Company’s management team pursuant to which the Company will receive gross proceeds of approximately $6,242,850, in consideration of (i) 8,918,357 ordinary shares of the Company (the “Ordinary Shares”), and (ii) warrants (the “Warrants”) to purchase up to 1,783,671 Ordinary Shares at a purchase price of $0.70 per Ordinary Share and associated Warrants. The Warrants have an exercise price of $1.00 per AGBA share and shall be exercised with more than $500,000 for each exercise (see Note 22).

 

With these funding initiatives, the Company believes that it would be able to strengthen its financial position, improve its liquidity, and enhance its ability to navigate the challenging market conditions. 

 

NOTE 4 — RESTRICTED CASH

 

Pursuant to the Meteora Backstop Agreement dated November 9, 2022, the fund held in the escrow account for the forward share purchase is restricted to the Company for the nine months following the consummation of the Business Combination in November 2022, unless the investors (“Meteora”) sell the shares in the market or redeems the shares. Notwithstanding the sale of shares by Meteora, the restricted cash will be used to settle any of the Company’s repurchase obligations.

 

F-16

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

On June 29, 2023, the Company and Meteora entered into an agreement to early terminate the Meteora Backstop Agreement. Prior to the termination, Meteora sold 1,191,016 shares in the open market at a price ranging from $1.51 to $1.61 per share.

 

Pursuant to the early termination clauses of Meteora Backstop Agreement, the Company released $14.0 million from restricted cash to settle the obligation to Meteora and retained $1.7 million which is reflected in the cash and cash equivalents on the unaudited condensed consolidated balance sheets.

 

Pursuant to the termination agreement, the Company is not obligated to purchase the remaining 124,949 shares (the “Shares”) from Meteora and they shall have no obligation to sell the Shares to the Company. In addition, they may dispose the Shares at its discretion in the open market not less than $2 per share before September 29, 2023 and no conditions or restrictions thereafter. As a result, the Company released the remaining $1.5 million from restricted cash to settle the obligation to Meteora. As of September 29, 2023, Meteora held 124,949 shares unsold.

 

With the early termination and sale of shares by Meteora, the forward share purchase liability (“FSP liability”) was fully settled and a loss on settlement of nil and $378,895 was recorded in the unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023, respectively.

 

NOTE 5 — ACCOUNTS RECEIVABLE, NET

 

Accounts receivable, net consisted of the following:

 

   As of 
   September 30,
2023
   December 31,
2022
 
         
Accounts receivable  $2,917,588   $2,916,609 
Accounts receivable – related parties   846,640    272,546 
Less: allowance for credit losses   (305,304)   (94,447)
Accounts receivable, net  $3,458,924   $3,094,708 

 

The accounts receivable due from related parties represented the management service rendered to the portfolio assets of related companies, which are controlled by the holding company, for a compensation of asset management service fee income at the predetermined rate based on the respective portfolio of asset values invested by the final customers. The amount is unsecured, interest-free and with a credit term mutually agreed.

 

The Company generally conducts its business with creditworthy third parties. The Company determines, on a quarterly basis, the probable losses and an allowance for credit losses determined in accordance with the CECL model, based on historical losses, current economic conditions, forecasted future economic and market considerations, and in some cases, evaluating specific customer accounts for risk of loss. Accounts receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. In addition, receivable balances are monitored on an ongoing basis and its exposure to bad debts is not significant.

 

For the three and nine months ended September 30, 2023, the Company has assessed the probable loss and made an allowance for credit losses of $143,101 and $211,050 on accounts receivable, respectively.

 

For the three and nine months ended September 30, 2022, there was no expected credit losses to accounts receivable.

 

F-17

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

NOTE 6 — LOANS RECEIVABLE, NET

 

The Company’s loans receivable, net was as follows:-

 

    As of  
    September 30,
2023
    December 31,
2022
 
             
Residential mortgage loans   $ 1,585,875     $ 1,589,871  
Less: allowance for credit losses     (1,414 )      
Loans receivable, net   $ 1,584,461     $ 1,589,871  
                 
Classifying as:                
Current portion   $ 524,504     $ 517,479  
Non-current portion     1,059,957       1,072,392  
Loans receivable, net   $ 1,584,461     $ 1,589,871  

 

The interest rates on loans issued ranged between 9.00% and 10.50% per annum for the nine months ended September 30, 2023 and 2022. Mortgage loans are secured by collateral in the pledge of the underlying residential properties owned by the borrowers.

 

Mortgage loans are made to either business or individual customers in Hong Kong for a period of 1 to 25 years, which are fully collateralized and closely monitored for counterparty creditworthiness, with such collateral having a fair value in excess of the carrying amount of the loans as of September 30, 2023 and December 31, 2022.

 

Estimated allowance for credit losses is determined on quarterly basis, in accordance with the CECL model, for general credit risk of the overall portfolio, which is relied on an assessment of specific evidence indicating doubtful collection, historical loss experience, loan balance aging and prevailing economic conditions. If there is an unexpected deterioration of a customer’s financial condition or an unexpected change in economic conditions, including macroeconomic events, the Company will assess the need to adjust the allowance for credit losses. Any such resulting adjustments would affect earnings in the period that adjustments are made.

 

For the three and nine months ended September 30, 2023, the Company has evaluated the probable losses and made an allowance for credit losses of $1,414 and $1,414 on loans receivable, respectively.

 

For the three and nine months ended September 30, 2022, the Company has evaluated the probable losses and no expected credit losses is determined.

 

NOTE 7 — ASSET HELD FOR SALE

 

On June 28, 2023, the Company entered into a provisional purchase and sale agreement with an independent third party to sell one of its office premises for a consideration of $6.15 million and the carrying amount of the asset held for sale was $5.47 million was reclassified from the property and equipment, net on that date.

 

On July 20, 2023, a formal purchase and sale agreement was signed. As of September 30, 2023, the Company received deposits of $0.6 million, in total.

 

Subsequently on October 17, 2023, the transaction has been completed and remaining consideration has been settled in cash.

 

NOTE 8 — NOTES RECEIVABLE, NET

 

On February 24, 2023, the Company entered into a subscription agreement and a convertible loan note instrument (collectively the “Agreements”) with Investment A. Pursuant to the Agreements, the Company agrees to subscribe an aggregate amount of $1,673,525 notes, in batches, which are payable on or before January 31, 2024 and bears a fixed interest rate of 8% per annum. The maturity of the notes receivable is on April 30, 2024.

 

F-18

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

As of September 30, 2023, the carrying amount of the notes receivable was $613,533, which including an interest receivable of $23,217.

 

In accordance with ASC Topic 326, the Company accounts for its allowance for credit losses on notes receivable using the CECL model. Periodic changes to the allowance for credit losses are recognized in the unaudited condensed consolidated statements of operations and comprehensive loss. For the three and nine months ended September 30, 2023, the Company has evaluated the probable losses on the notes receivable and no expected credit losses was determined.

 

NOTE 9 — LONG-TERM INVESTMENTS, NET

 

Long-term investments consisted of the following:

 

   As of 
   Ownership
interest
   September 30,
2023
   Ownership
interest
   December 31,
2022
 
                 
Marketable equity securities                
Investment C   0.00%*  $408    0.46%  $2,443,593 
                     
Non-marketable equity securities:                    
Investment A   8.37%   5,575,031    8.37%   5,717,678 
Investment B   3.63%   511,512    3.63%   513,000 
Investment D   4.49%#   16,179,057    4.92%   16,030,943 
Investment E   4.00%   521,041    4.00%   522,557 
Investment F   4.00%   9,375,199    4.00%   11,805,589 
Total        32,161,840         34,589,767 
                     
Net carrying value       $32,162,248        $37,033,360 

 

* Less than 0.001%
# Decrease in percentage due to share dilution

 

Investments in Marketable Equity Securities

 

Investments in marketable securities are accounted for at their current market value with the changes in fair value recognized in net loss. Investment C was listed and publicly traded on Nasdaq Stock Exchange.

 

During the nine months ended September 30, 2023, the Company sold 993,108 shares of Investment C at the average market price of $4.01 per share, resulting with a realized gain of $1,541,736.

 

As of September 30, 2023 and December 31, 2022, Investment C was recorded at fair value of $408 and $2,443,593, which were traded at a closing price of $5.57 and $2.46 per share, respectively.

 

Investments in Non-Marketable Equity Securities

 

Investments in non-marketable equity securities consist of investments in limited liability companies in which the Company’s interests are deemed minor and long-term, strategic investments in companies that are in various stages of development, and investments in a close-ended partnership funds which concentrated in the healthcare sector. These investments do not have readily determinable fair values and, therefore, are reported at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

 

F-19

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

Management assesses each of these investments on an individual basis, subject to a periodic impairment review and considers qualitative and quantitative factors including the investee’s financial condition, the business outlook for its products and technology, its projected results and cash flow, financing transactions subsequent to the acquisition of the investment, the likelihood of obtaining subsequent rounds of financing and cash usage. The Company is not required to determine the fair value of these investments unless impairment indicators existed. When an impairment exists, the investment will be written down to its fair value by recording the corresponding charge as a component of other income (expense), net. Fair value is estimated using the best information available, which may include cash flow projections or other available market data.

 

The following table presents the changes in fair value of non-marketable equity securities which are measured using Level 3 inputs as of September 30, 2023 and December 31, 2022:

 

   As of 
   September 30,
2023
   December 31,
2022
 
         
Balance at beginning of period/year  $34,589,767   $25,496,534 
Additions       16,228,690 
Adjustments:          
Downward adjustments   (2,457,537)   (6,898,549)
Upward adjustments       2,137,021 
Foreign exchange adjustment   

29,610

    (2,373,929)
Balance at end of period/year  $32,161,840   $34,589,767 

 

Cumulative unrealized gains and losses, included in the carrying value of the Company’s non-marketable equity securities:

 

   As of 
   September 30,
2023
   December 31,
2022
 
         
Downward adjustments (including impairment)  $(29,712,137)  $(27,254,600)
Upward adjustments  $6,209,357   $6,209,357 

 

Investment loss (income), net is recorded as other income (expense) and consisted of the following:

 

   For the three months
September 30,
 
   2023   2022 
         
Marketable equity securities:          
Unrealized (loss) gain from the changes in fair value – Investment C  $(11)  $741,811 
           
Non-marketable equity securities:          
Unrealized loss – Investment F   (1,029,766)   
 
Dividend income   236,870    
 
Investment (loss) income, net  $(792,907)  $741,811 

 

   For the nine months ended
September 30,
 
   2023   2022 
         
Marketable equity securities:        
Unrealized gain (loss) from the changes in fair value – Investment C  $87   $(2,793,242)
Realized gain from sale of Investment C   

1,541,736

     
           
Non-marketable equity securities:          
Unrealized losses – Investment F   (2,457,537)    
Dividend income   1,404,303     
Investment income (loss), net  $488,589   $(2,793,242)

 

F-20

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

NOTE 10 — PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consisted of the following:

 

   As of 
   September 30,
2023
   December 31,
2022
 
         
As cost:        
Land and building  $1,880,409   $7,881,202 
Furniture, fixtures and equipment   39,630    13,412 
Computer equipment   242,621    164,536 
Motor vehicles   108,678    108,994 
    2,271,338    8,168,144 
Less: accumulated depreciation   (532,115)   (808,728)
Property and equipment, net  $1,739,223   $7,359,416 

 

Depreciation expense for the three months ended September 30, 2023 and 2022 were $22,821 and $95,878, respectively.

 

Depreciation expense for the nine months ended September 30, 2023 and 2022 were $238,315 and $288,230, respectively.

 

On June 28, 2023, the carrying amount of an office premises of $5.47 million was reclassified to asset held for sale as the Company entered into a provisional purchase and sale agreement with an independent third party to sell the office premises in October 2023 (see Note 7).

 

NOTE 11 — BORROWINGS

 

   As of 
   September 30,
2023
   December 31,
2022
 
         
Mortgage borrowings  $6,281,574   $4,477,254 
Short-term borrowings   5,446,975     
Total  $11,728,546   $4,477,254 

 

Mortgage Borrowings

 

In September 2022, the Company obtained a mortgage loan from a finance company in Hong Kong, which bears interest at a fixed rate of 10.85% per annum, is repayable in October 2023. The loan was secured with the office premises which classified as asset held for sale. Subsequent to the completion of the sales in October 2023, the loan was settled (see Note 7).

 

In February 2023, the Company obtained another mortgage loan from another finance company in Hong Kong, which bears an average interest rate at 13.75% per annum, is repayable in February 2024. The loan was secured with an office premises held by the Company, located in Hong Kong.

 

F-21

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

Short-term Borrowings

 

In September 2023, the Company obtained a short-term borrowing of $5.0 million from the Company’s major shareholder of ultimate holding company, which bears interest at a fixed rate of 12.00% per annum, repayable in October 2023. The borrowing is secured by a lien on the partial equity interest in Investment D owned by the Company. Subsequently in October 2023, the Company entered into an agreement to extend the maturity date to November 30, 2023.

 

In September 2023, the Company obtained another short-term borrowing of $0.4 million from an independent third party, which is unsecured, bears interest at a fixed rate of 6.00% per annum and repayable in October 2023. The borrowing was subsequently settled in October 2023.

 

NOTE 12 — FORWARD SHARE PURCHASE LIABILITY

 

During the nine months ended September 30, 2023, subject to the sale of shares by investors and early termination of the Meteora Backshop Agreement (see Note 4), FSP liability was fully settled with a loss of $378,895 recorded in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

The FSP liability as of December 31, 2022 under the Meteora Backstop Agreement is valued by an independent valuer using a Black-Scholes model, which is considered to be Level 3 fair value measurement. The following table present the quantitative information regarding Level 3 fair value measurement of the FSP liability:

 

Input  December 31,
2022
 
     
Share price  $1.54 
Risk-free interest rate   4.16%
Volatility   52.19%
Exercise price  $12.34 
Term   0.61 years 

 

For the three and nine months ended September 30, 2023, the change in fair value of FSP liability was nil and $82,182, respectively, which were charged to unaudited condensed consolidated statements of operations and comprehensive loss.

 

NOTE 13 — LEASE

 

Operating lease right-of-use (“ROU”) asset and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest (“discount rate”) in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.

 

During the nine months ended September 30, 2023, the Company has entered into a commercial operating lease with an independent third party for the use of an office in Hong Kong. The lease has an original term exceeding 1 year, but not more than 3 years with an option to renew a further term of 3 years. At lease inception, after consideration, the Company was certain that the renewal option would be exercised, after the original term. The operating lease is included in “Right-of-use asset, net” on the unaudited condensed consolidated balance sheets and represents the Company’s right to use the underlying asset during the lease term. The Company’s obligation to make lease payments are included in “Lease liabilities” on the unaudited condensed consolidated balance sheets.

 

F-22

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

Supplemental balance sheet information related to the operating lease was as follows:

 

   As of 
   September 30,
2023
 
     
Operating lease:    
Right-of-use asset, net  $11,926,714 
      
Lease liabilities:     
Current lease liabilities   1,206,449 
Non-current lease liabilities   10,929,511 
Total lease liabilities  $12,135,960 

 

Operating lease expense for the three and nine months ended September 30, 2023 was $640,920 and $854,470, respectively. There was no operating lease expense for the three and nine months ended September 30, 2022.

 

Other supplemental information about the Company’s operating lease as of September 30, 2023 are as follow:

 

Weighted average discount rate   6.58%
Weighted average remaining lease term (years)   5.67 

 

Maturities of operating lease liabilities as of September 30, 2023 were as follows:

 

For the year ending September 30,   Operating lease 
      
2024   $1,936,642 
2025    1,936,642 
2026    2,355,135 
2027    3,192,121 
2028    3,192,121 
Thereafter    2,128,081 
Total minimum lease payments    14,740,742 
Less: imputed interest    (2,604,782)

Total operating lease liabilities

   $12,135,960 

 

NOTE 14 — WARRANT LIABILITIES

 

The private warrants are accounted for as liabilities in accordance with ASC 480 and are presented as liabilities on the unaudited condensed consolidated balance sheets. As of September 30, 2023 and December 31, 2022, there were 225,000 private warrants outstanding.

 

The fair value of the private warrants is valued by an independent valuer using a Binominal pricing model. The warrants were classified as Level 3 due to the use of unobservable inputs.

 

The key inputs in the Binominal pricing model were as follows at their measurement dates:

 

Input  September 30,
2023
   December 31,
2022
 
         
Share price  $0.60   $1.54 
Risk-free interest rate   4.67%   4.16%
Volatility   58.00%   52.19%
Exercise price  $11.50   $11.50 
Term   4.37 years    5.0 years 

 

As of September 30, 2023 and December 31, 2022, the aggregate value of the private warrants was $1,067 and $4,548, respectively. The changes in fair value for the three and nine months ended September 30, 2023 was $1,106 and $3,481, respectively.

 

F-23

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

NOTE 15 — SHAREHOLDERS’ (DEFICIT) EQUITY

 

Ordinary shares

 

As of September 30, 2023 and December 31, 2022, the Company has authorized share of 200,000,000 ordinary shares with a par value $0.001.

 

On March 21, 2023, the Company issued 2,173,913 ordinary shares to Apex Twinkle Limited to partially settle the finder fee payable.

 

On May 22, 2023, the Company issued 946,100 ordinary shares to the directors and officers of the Company under the Share Award Scheme (the “Scheme”) for compensating the contributions of prior services and performance, which was approved and granted previously in December 2022.

 

On June 6, 2023, the holdback shares of 1,665,000 ordinary shares were fully released and issued.

 

During the nine months ended September 30, 2023, pursuant to the Scheme, the Company issued in aggregate of 4,400,000 ordinary shares to certain consultants to compensate the services rendered.

 

As of September 30, 2023 and December 31, 2022, there were 67,561,998 and 58,376,985 ordinary shares issued and outstanding, respectively.

 

Public Warrants

 

Each public warrant entitles the holder thereof to purchase one-half (1/2) of one ordinary share at a price of $11.50 per full share, subject to adjustment as discussed herein. The warrants became exercisable 90 days after the Closing of the Business Combination and will expire five years after the Closing of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares. This means that only an even number of warrants may be exercised at any given time by a warrant holder.

 

Once the warrants become exercisable, the Company may call the outstanding warrants (including any outstanding warrants issued upon exercise of the unit purchase option issued to Maxim Group LLC) for redemption:

 

in whole and not in part;

 

at a price of $0.01 per warrant;

 

upon a minimum of 30 days’ prior written notice of redemption,

 

if, and only if, the last sales price of the ordinary shares equals or exceeds $16.50 per share for any 20 trading days within a 30 trading day period ending three business days before the Company send the notice of redemption, and

 

if, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption.

 

If the Company calls the warrants for redemption as described above, the management of the Company will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the whole warrants for that number of ordinary shares equal to the quotient obtained by dividing (x) the product of the number of ordinary shares underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the ordinary shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. Whether the Company will exercise our option to require all holders to exercise their warrants on a “cashless basis” will depend on a variety of factors including the price of our ordinary shares at the time the warrants are called for redemption, the Company’s cash needs at such time and concerns regarding dilutive share issuances.

 

F-24

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

Private Warrants

 

The private warrants are identical to the public warrants, except that the private warrants and the ordinary shares issuable upon the exercise of the private warrants were not transferable, assignable or salable until after the completion of the Business Combination, subject to certain limited exceptions. Additionally, the private warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private warrants are held by someone other than the initial purchasers or their permitted transferees, the private warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.

 

The private warrants are accounted as liabilities, remeasured to fair value on a recurring basis, with changes in fair value recorded to the unaudited condensed consolidated statements of operations and comprehensive loss (see Note 14).

 

As of September 30, 2023 and December 31, 2022, there were 4,600,000 public warrants and 225,000 private warrants outstanding.

 

Share Award Scheme

 

On February 24, 2023, pursuant to the Scheme, the Company registered 11,675,397 ordinary shares to be issued. As of September 30, 2023, the Company issued 5,346,100 ordinary shares under the Scheme.

 

The fair value of the ordinary shares granted under the scheme is measured based on the closing price of the Company’s ordinary shares as reported by Nasdaq Exchange on the date of grant.

 

For those ordinary shares vested immediately on the date of grant, the fair value is recognized as share-based compensation expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

For the restricted share units (“RSUs”), the fair value is recognized over the period based on the derived service period (usually the vesting period), on a straight-line basis. The valuations assume no dividends will be paid. The Company has assumed 10% forfeitures.

 

During the three and nine months ended September 30, 2023, the Company recorded $3,468,280 and $11,979,200 share-based compensation expense, respectively, which is included in the operating cost and expenses in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

As of September 30, 2023, total unrecognized compensation remaining to be recognized in future periods for RSUs totaled $7.1 million. They are expected to be recognized over the weighted average period of 2.0 years.

 

A summary of the activities for the Company’s RSUs as of September 30, 2023 and December 31, 2022 is as follow:

 

   As of 
   September 30, 2023   December 31, 2022 
   Number of
RSUs
   Weighted
Average
Grant Price
   Number of
RSUs
   Weighted
Average
Grant Price
 
                 
Outstanding, beginning of period/year   5,000,000   $2.47       $ 
Granted      $    5,000,000   $2.47 
Outstanding, end of period/year   

5,000,000

   $2.47    5,000,000   $2.47 

 

Forgiveness of Amounts Due to the Holding Company

 

During the three and nine months ended September 30, 2023, TAG agreed to forgive the Company $4.0 million and $12.6 million, in aggregate, respectively representing certain amounts due to it and treat as additional paid-in capital.

 

F-25

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

NOTE 16 — OPERATING COST AND EXPENSES

 

Commission Expense

 

Pursuant to the terms of respective contracts, commission expense represents certain premiums from insurance or investment products paid to agents. Commission rates vary by market due to local practice, competition, and regulations. The Company charged commission expense on a systematic basis that is consistent with the revenue recognition.

 

During the three months ended September 30, 2023 and 2022, the Company recorded $8,915,811 and $8,037,869 commission expenses, respectively.

 

During the nine months ended September 30, 2023 and 2022, the Company recorded $28,195,740 and $11,219,182 commission expenses, respectively.

 

Personnel and Benefit Expense

 

Personnel and benefit expense mainly consisted of salaries and bonus paid and payable to the employees of the Company. During the nine months ended September 30, 2023, the Company reversed the annual bonus of $3.8 million that was already accrued for the year ended December 31, 2022.

 

During the three months ended September 30, 2023 and 2022, the Company recorded $7,764,353 and $3,325,369 personnel and benefit expense, respectively.

 

During the nine months ended September 30, 2023 and 2022, the Company recorded $22,671,813 and $8,734,387 personnel and benefit expense, respectively.

 

Other General and Administrative Expenses

 

The Company incurred different types of expenditures under other general and administrative expenses. They primarily consist of depreciation of property and equipment, legal and professional fees, and management fee expenses which are allocated for certain corporate office expenses.

 

During the three months ended September 30, 2023 and 2022, the Company recorded $5,981,447 and $1,093,733 other general and administrative expenses, respectively.

 

During the nine months ended September 30, 2023 and 2022, the Company recorded $20,493,152 and $3,175,351 other general and administrative expenses, respectively.

 

NOTE 17 — INCOME TAXES

 

The provision for income taxes consisted of the following:

 

  Three months ended
September 30,
   Nine months ended
September 30,
 
   2023   2022   2023   2022 
                 
Current tax  $55,886   $127,186   $55,606   $232,540 

 

F-26

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

The Company’s subsidiaries that are subject to taxes in the jurisdictions in which they operate, as follows:

 

British Virgin Islands

 

The Company is incorporated in the British Virgin Islands and is not subject to taxation. In addition, upon payments of dividends by these entities to their shareholder, no British Virgin Islands withholding tax will be imposed.

 

Hong Kong

 

The Company’s subsidiaries operating in Hong Kong is subject to the Hong Kong Profits Tax at the income tax rates ranging from 8.25% to 16.5% on the assessable income arising in Hong Kong during its tax year.

 

The following table sets forth the significant components of the deferred tax liabilities and assets of the Company as of September 30, 2023 and December 31, 2022:

 

   September 30,
2023
   December 31,
2022
 
         
Deferred tax liabilities:          
Accelerated depreciation  $45,725   $45,858 
Deferred tax assets, net:          
Net operating loss carryforwards   8,818,813    5,461,370 
Less: valuation allowance   (8,818,813)   (5,461,370)
    
    
 

 

As of September 30, 2023 and December 31, 2022, the operations incurred $53.4 million and $33.1 million, respectively of cumulative net operating losses which can be carried forward to offset future taxable income. Net operating loss can be carried forward indefinitely but cannot be carried back to prior years. There are no group relief provisions for losses or transfers of assets under Hong Kong tax regime. Each company within a corporate group is taxed as a separate entity. The Company has provided for a full valuation allowance against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes that it is more likely that these assets will not be realized in the future. The valuation allowance is reviewed annually.

 

Uncertain tax positions

 

The Company evaluates the uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of September 30, 2023 and December 31, 2022, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the nine months ended September 30, 2023 and 2022 and also did not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from September 30, 2023.

 

F-27

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

 

NOTE 18 — SEGMENT INFORMATION

 

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 detailing the Company’s business segments.

 

Currently, the Company has four business segments comprised of the following products and services:

 

Segments   Scope of Business Activities
     
Distribution Business