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 June 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 July 17, 2023, there were 67,461,998 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 1
     
Item 1. Financial Statements  
     
  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’ Equity F-3
     
  Unaudited Condensed Consolidated Statements of Cash Flows F-4
     
  Notes to Unaudited Condensed Consolidated Financial Statements F-5 to F-32
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
     
Item 4. Control and Procedures 16
     
PART II – OTHER INFORMATION 17
     
Item 1. Legal Proceedings 17
     
Item 1A. Risk Factors 17
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
     
Item 3. Defaults Upon Senior Securities 18
     
Item 4. Mine Safety Disclosures 18
     
Item 5. Other Information 18
     
Item 6. Exhibits 18
     
SIGNATURES 19

 

i

 

 

PART I – FINANCIAL INFORMATION

 

AGBA GROUP HOLDING LIMITED

 

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

    Page
     
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022   F-1
     
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022   F-2
     
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022   F-3
     
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022   F-4
     
Notes to Unaudited Condensed Consolidated Financial Statements   F-5 to F-32

 

1

 

 

AGBA GROUP HOLDING LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

   June 30,
2023
   December 31,
2022
 
ASSETS      (Audited) 
Current assets:        
Cash and cash equivalents  $3,783,780   $6,449,876 
Restricted cash   27,454,651    44,844,196 
Accounts receivable, net   3,430,780    2,822,162 
Accounts receivable, net, related parties   601,576    272,546 
Loans receivable, net   516,237    517,479 
Notes receivable, net   601,490     
Asset held for sale   5,459,822     
Income tax recoverable   397,655    260,120 
Deposits, prepayments, and others receivable, net   2,997,021    589,786 
Total current assets   45,243,012    55,756,165 
           
Non-current assets:          
Rental deposit, net   957,814     
Loans receivable, net   1,059,776    1,072,392 
Property and equipment, net   1,733,464    7,359,416 
Right-of-use asset, net   12,361,125     
Long-term investments, net   33,947,066    37,033,360 
Total non-current assets   50,059,245    45,465,168 
           
TOTAL ASSETS  $95,302,257   $101,221,333 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $19,088,631   $20,274,429 
Escrow liabilities   27,454,651    29,487,616 
Borrowings   6,255,238    4,477,254 
Amounts due to the holding company   4,539,168    6,289,743 
Lease liabilities   1,186,200     
Forward share purchase liability       13,491,606 
Income tax payable and provision   23,000,000    23,000,000 
Total current liabilities   81,523,888    97,020,648 
           
Non-current liabilities:          
Lease liabilities   11,227,185     
Warrant liabilities   2,173    4,548 
Deferred tax liabilities   45,680    45,858 
Total non-current liabilities   11,275,038    50,406 
           
TOTAL LIABILITIES   92,798,926    97,071,054 
           
Commitments and contingencies (Note 21)        
           
Shareholders’ equity:          
Ordinary shares, $0.001 par value; 200,000,000 shares authorized, 67,461,998 and 58,376,985 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively   67,462    58,377 
Ordinary shares to be issued       1,665 
Additional paid-in capital   64,973,808    43,870,308 
Accumulated other comprehensive loss   (484,907)   (384,938)
Accumulated deficit   (62,053,032)   (39,395,133)
Total shareholders’ equity   2,503,331    4,150,279 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $95,302,257   $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
June 30,
   Six months ended
June 30,
 
   2023   2022   2023   2022 
Revenues:                
Interest income:                
Loans  $38,175   $37,871   $76,333   $99,194 
Total interest income   38,175    37,871    76,333    99,194 
Non-interest income:                    
Commissions   16,323,056    2,937,080    26,338,683    3,764,157 
Recurring service fees   768,014    873,396    1,548,976    1,821,376 
Total non-interest income   17,091,070    3,810,476    27,887,659    5,585,533 
Total revenues from others   17,129,245    3,848,347    27,963,992    5,684,727 
                     
Non-interest income:                    
Recurring service fees   241,688    241,325    480,621    481,268 
Total revenues from related parties   241,688    241,325    480,621    481,268 
Total revenues   17,370,933    4,089,672    28,444,613    6,165,995 
                     
Operating cost and expenses:                    
Interest expense   (247,680)       (412,776)    
Commission expense   (11,984,437)   (2,480,271)   (19,279,929)   (3,181,313)
Sales and marketing expense   (514,984)   (391,301)   (2,371,887)   (631,652)
Technology expense   (1,058,812)   (149,230)   (1,937,798)   (283,097)
Personnel and benefit expense   (5,302,270)   (3,404,039)   (14,907,460)   (5,409,018)
Other general and administrative expenses   (8,655,884)   (1,173,217)   (14,511,705)   (2,081,618)
Total operating cost and expenses   (27,764,067)   (7,598,058)   (53,421,555)   (11,586,698)
                     
Loss from operations   (10,393,134)   (3,508,386)   (24,976,942)   (5,420,703)
                     
Other income (expense):                    
Interest income   197,255    8,976    367,781    16,615 
Foreign exchange gain (loss), net   349,539    (2,126,882)   905,850    (2,607,456)
Investment income (loss), net   (441,568)   (5,683,988)   1,281,496    (3,535,053)
Change in fair value of warrant liabilities   1,695        2,375     
Change in fair value of forward share purchase liability           (82,182)    
Loss on settlement of forward share purchase agreement   (378,895)       (378,895)    
Rental income   78,764    78,647    138,271    157,714 
Sundry income   27,423    26,175    84,067    155,528 
Total other income (expense), net   (165,787)   (7,697,072)   2,318,763    (5,812,652)
                     
Loss before income taxes   (10,558,921)   (11,205,458)   (22,658,179)   (11,233,355)
                     
Income tax (expense) benefit   (26,368)   314,143    280    (105,354)
                     
NET LOSS  $(10,585,289)  $(10,891,315)  $(22,657,899)  $(11,338,709)
                     
Other comprehensive income (loss):                    
Foreign currency translation adjustment   33,235    (106,008)   (99,969)   (380,359)
                     
TOTAL COMPREHENSIVE LOSS  $(10,552,054)  $(10,997,323)  $(22,757,868)  $(11,719,068)
                     
Weighted average number of ordinary shares outstanding – basic and diluted   64,953,238    55,500,000    62,823,549    55,500,000 
                     
Net loss per ordinary share – basic and diluted  $(0.16)  $(0.20)  $(0.36)  $(0.20)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

F-2

 

 

AGBA GROUP HOLDING LIMITED

UNAUDITED CONDESED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

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

 

   Three and six Months ended June 30, 2023 
   Ordinary shares   Ordinary shares to
be issued
   Additional
paid-in
   Accumulated other comprehensive   Accumulated   Total shareholders’ 
   No. of shares   Amount   No. of shares   Amount   capital   income (loss)   deficit   equity 
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 

 

   Three and six Months ended June 30, 2022 
   Ordinary shares   Ordinary shares to
be issued
   Additional
paid-in
   Receivable
from the
   Accumulated
other
comprehensive
   Retained
earnings
(accumulated
   Total
shareholders’
 
   No. of shares   Amount   No. of shares   Amount   capital   Shareholder   loss   deficit)   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 

 

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$”))

 

    Six months ended
June 30,
 
    2023     2022  
Cash flows from operating activities:            
Net loss   $(22,657,899)     $(11,338,709)  
Adjustments to reconcile net loss to net cash used in operating activities                
Share-based compensation expense     8,510,920        
Non-cash lease expense     213,550        
Depreciation on property and equipment     215,494       192,352  
Interest income on notes receivable     (11,778 )      
Foreign exchange (gain) loss, net     (905,850 )     2,607,456  
Investment (income) loss, net     (1,281,496 )     3,535,053  
Allowance for credit loss on financial instruments     333,276        
Change in fair value of warrant liabilities     (2,375 )      
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     (1,005,597 )     40,992  
Loans receivable     13,319       2,320,527  
Deposit, prepayments, and others receivables     (3,629,837 )     (420,678 )
Accounts payable and accrued liabilities     6,578,049     (124,238 )
Escrow liabilities     (2,032,965 )     633,539  
Lease liabilities     (161,274 )      
Income tax payable     (138,590 )     104,890  
Net cash used in operating activities     (19,265,823 )     (2,448,816 )
                 
Cash flows from investing activities:                
Proceeds from sale of long-term investments     3,976,657       1,861,348  
Purchase of notes receivable     (589,086 )      
Dividends received from long-term investments     1,167,433        
Addition in long-term investments           (7,849,676 )
Purchase of property and equipment     (77,969 )     (864,961 )
Net cash provided by (used in) investing activities     4,477,035       (6,853,289 )
                 
Cash flows from financing activities:                
Advances from holding company     6,849,425       4,298,479  
Settlement of forward share purchase agreement     (13,952,683 )      
Proceeds from borrowings     1,786,640        
Dividend paid to holding company           (17,437,805 )
Net cash used in financing activities     (5,316,618 )     (13,139,326 )
                 
Effect on exchange rate change on cash, cash equivalents and restricted cash     49,765       (310,995 )
                 
Net change in cash, cash equivalent and restricted cash     (20,055,641 )     (22,752,426 )
                 
BEGINNING OF PERIOD     51,294,072       73,081,407  
                 
END OF PERIOD   $ 31,238,431     $ 50,328,981  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
Cash paid for income taxes   $ 138,310     $  
Cash paid for interest   $ 412,776     $  
Cash received for interest   $ 356,003     $  
                 
Reconciliation to amounts on consolidated balance sheets:                
Cash and cash equivalents   $ 3,783,780     $ 15,209,645  
Restricted cash     27,454,651       35,119,336  
                 
Total cash, cash equivalents and restricted cash   $ 31,238,431     $ 50,328,981  
                 
SUPPLEMENTAL NON-CASH DISCLOSURES                
Issuance of ordinary shares to settle finder fee   $ 4,000,000     $  
Forgiveness of amount due to holding company   $ 8,600,000     $  
Operating lease right-of-use asset obtained in exchange for operating lease liabilities   $ 12,512,585     $  
Purchase of property and equipment, through earnest deposit   $     $ 7,205,118  
Special dividend to the holding company offset with amount 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 June 30, 2023 and December 31, 2022 and for the three and six months ended June 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 six months ended June 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.

 

F-5

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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 doubtful accounts, 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.

 

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 statement of operations.

 

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 period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the unaudited condensed consolidated statements of changes in shareholders’ equity.

 

Translation of amounts from HK$ into US$ has been made at the following exchange rates for the six months ended June 30, 2022 and 2021:

 

   June 30,
2023
   June 30,
2022
 
Period-end HK$:US$ exchange rate   0.12761    0.12744 
Period average HK$:US$ exchange rate   0.12757    0.12779 

 

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.

 

F-6

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Accounts Receivable, net

 

Accounts receivable include trade accounts due from customers in insurance brokerage and asset management businesses.

 

Accounts receivable 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 bad debt allowance is adequate, and provides allowance when necessary.

 

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

 

Loans Receivable, net

 

Loans receivable are real estate 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 receivables 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.

 

F-7

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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.

 

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 assets held for sale in the unaudited condensed consolidated balance sheets.  

 

Property and Equipment, net

 

Property and equipment 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 six months ended June 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.

 

F-8

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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.

 

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 statements of operations.

 

F-9

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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.

 

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 statement of operations. 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 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 statements of operation for the periods indicated:

 

   For the three months ended June 30, 2023 
   Distribution Business   Platform Business     
   Insurance brokerage service   Asset management service   Money lending service   Real estate agency service   Total 
Interest income:                    
Loans  $-   $-   $38,175   $-   $38,175 
                          
Non-interest income:                         
Commissions   16,005,608    277,960    -    39,488    16,323,056 
Recurring service fees   -    1,009,702    -    -    1,009,702 
                          
   $16,005,608   $1,287,662   $38,175   $39,488   $17,370,933 

 

F-10

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

   For the three months ended June 30, 2022 
   Distribution Business   Platform Business     
   Insurance brokerage service   Asset management service   Money lending service   Real estate agency service   Total 
Interest income:                    
Loans  $-   $-   $37,871   $-   $37,871 
                          
Non-interest income:                         
Commissions   2,373,898    518,277    -    44,905    2,937,080 
Recurring service fees   -    1,114,721    -    -    1,114,721 
                          
   $2,373,898   $1,632,998   $37,871   $44,905   $4,089,672 

 

   For the six months ended June 30, 2023 
   Distribution Business   Platform Business     
   Insurance brokerage service   Asset management service   Money lending service   Real estate agency service   Total 
Interest income:                    
Loans  $-   $-   $76,333   $-   $76,333 
                          
Non-interest income:                         
Commissions   25,693,427    601,722    -    43,534    26,338,683 
Recurring service fees   -    2,029,597    -    -    2,029,597 
                          
   $25,693,427   $2,631,319   $76,333   $43,534   $28,444,613 

 

   For the six months ended June 30, 2022 
   Distribution Business   Platform Business     
   Insurance brokerage service   Asset management service   Money lending service   Real estate agency service   Total 
Interest income:                    
Loans  $-   $-   $99,194   $-   $99,194 
                          
Non-interest income:                         
Commissions   2,553,829    1,094,812    -    115,516    3,764,157 
Recurring service fees   -    2,302,644    -    -    2,302,644 
                          
   $2,553,829   $3,397,456   $99,194   $115,516   $6,165,995 

 

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.

 

F-11

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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 income (loss), as presented in the accompanying statement of shareholder’s 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.

 

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 six months ended June 30, 2023 and 2022, the Company did not have any interest and penalties associated with tax positions. As of June 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) income 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.

 

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 statement of operations and statement 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.

 

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.

 

F-13

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

The accounting update also requires that for finance leases, a lessee recognize interest expense on the lease liability, separately from the amortization of the right-of-use asset in the statements of earnings, while for operating leases, such amounts should be recognized 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.

 

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.

 

F-14

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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 assets or liabilities. 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, amounts due to the holding company, accounts payable and accrued liabilities, escrow liabilities and borrowings 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 and notes receivable approximate the carrying amount. 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 June 30, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

 

   June 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  $524   $    524   $         -   $- 
Non-marketable equity securities  $33,946,542   $-   $-   $33,946,542 
                     
Liabilities:                    
Warrant liabilities  $2,173   $-   $-   $2,173 

 

   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.

 

F-15

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Recently Issued Accounting Pronouncements

 

There were no new standards or updates during the six months ended June 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.

 

For the six months ended June 30, 2023, the Company reported $22,657,899 net loss and $19,265,823 net cash outflows from operating activities. As of June 30, 2023, the Company had an accumulated deficit of $62,053,032 and cash and cash equivalents of $3,783,780.

 

The ability to continue as a going concern is dependent on the Company’s ability to successfully implement its plans. The Company believes that it will be able to continue to grow the Company’s revenue base and control expenditures. In parallel, the Company continually monitors its capital structure and operating plans and evaluates various potential funding alternatives that may be needed in order to finance the Company’s business development activities, general and administrative expenses and growth strategy. These alternatives include external borrowings, raising funds through public equity or debt markets. Although there is no assurance that, if needed, the Company will be successful with its fundraising initiatives, the Company believes that the Business Combination transaction significantly increases its ability to access the capital going forward. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Without realization of additional capital, there is substantial doubt about the Company can continue as a going concern until such time, as the Company is able to secure adequate financial resources and capital that provides the required capital to continue to settle its debts as they fall due and sustain the operation through the next 12 months from the date that these unaudited condensed consolidated financial statements were made available to issue.

 

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 sell the shares in the market or redeems the shares. Notwithstanding the sale of shares by the investors, the restricted cash will be used to settle any of the Company’s repurchase obligations.

 

During the six months ended June 30, 2023, the investors sold 1,191,016 shares in the open market at a price ranging from $1.51 to $1.61 per share.

 

On June 29, 2023, the Company and the investors entered into an agreement to early terminate the Meteora Backstop Agreement.

 

Pursuant to the early termination clauses of Meteora Backstop Agreement, the Company released $14.0 million from restricted cash to settle the obligation to investors 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 the investors and the investors shall have no obligation to sell the Shares to the Company. In addition, the investors may dispose the Shares at its discretion in the open market at a sales price not less than $2 per share within the first three months following the date of the termination agreement and there is no condition or restrictions on the sales price thereafter. As a result, the Company released the remaining $1.5 million from restricted cash to settle the obligation to investors.

 

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

 

F-16

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

NOTE 5 - ACCOUNTS RECEIVABLE, NET

 

Accounts receivable, net consisted of the following:

 

   As of 
   June 30,
2023
   December 31,
2022
 
Accounts receivable  $3,592,789   $2,916,609 
Accounts receivable – related parties   601,576    272,546 
Less: allowance for estimated credit losses   (162,009)   (94,447)
Accounts receivable, net  $4,032,356   $3,094,708 

 

The accounts receivable due from related parties represented the management service rendered to the portfolio assets of a 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 six months ended June 30, 2023, the Company has assessed the probable loss and made an allowance for estimated credit losses of $67,949 and $67,949 on accounts receivable, respectively.

 

For the three and six months ended June 30, 2022, there was no estimated credit losses to accounts receivable.

 

NOTE 6 - LOANS RECEIVABLE, NET

 

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

 

   As of 
   June 30,
2023
   December 31,
2022
 
         
Mortgage loans (residential)  $1,576,013   $1,589,871 
           
Reclassifying as:          
Current portion  $516,237   $517,479 
Non-current portion   1,059,776    1,072,392 
Loans receivable, net  $1,576,013   $1,589,871 

 

The interest rates on loans issued ranged between 9.00% and 10.50% per annum for the six months ended June 30, 2023 and 2022. Mortgage loans are secured by collateral in the pledge of the underlying real estate 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 June 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 six months ended June 30, 2023 and 2022, the Company has evaluated the probable losses on the loans receivable and no estimated credit losses is determined.

 

F-17

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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 at a consideration of $6.15 million. The Company received a deposit of $0.3 million and the transaction is expected to be completed in October 2023. As of June 30, 2023, the carrying amount of the asset held for sale was $5.46 million which reclassified from the property and equipment, net.

 

NOTE 8 - NOTES RECEIVABLE, NET

 

On February 24, 2023, the Company entered into a Subscription Agreement and a Convertible Loan Note Instrument (the “Note”) (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.

 

As of June 30, 2023, the carrying amount of the notes receivable was $601,490, including an interest receivable of $11,778.

 

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. For the three and six months ended June 30, 2023, the Company has evaluated the probable losses on the notes receivable and no estimated credit losses is determined.

 

NOTE 9 - LONG-TERM INVESTMENTS, NET

 

Long-term investments consisted of the following:

 

   As of 
   Ownership
interest
   June 30,
2023
   Ownership
interest
   December 31,
2022
 
                 
Marketable equity securities                
Investment C   0.00%*  $524    0.46%  $2,443,593 
                     
Non-marketable equity securities:                    
Investment A   8.37%   5,740,036    8.37%   5,717,678 
Investment B   3.63%   511,003    3.63%   513,000 
Investment D   4.49%   16,784,183    4.92%   16,030,943 
Investment E   4.00%   520,523    4.00%   522,557 
Investment F   4.00%   10,390,797    4.00%   11,805,589 
Total        33,946,542         34,589,767 
Net carrying value       $33,947,066        $37,033,360 

 

*Less than 0.001%

 

Investments in Marketable Equity Securities

 

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

 

During the six months ended June 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 June 30, 2023 and December 31, 2022, Investment C was recorded at fair value of $524 and $2,443,593, which were traded at a closing price of $8.06 and $2.46 per share, respectively.

 

F-18

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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.

 

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-market equity securities which are measured using Level 3 inputs as of June 30, 2023 and December 31, 2022:

 

   As of 
   June 30,
2023
   December 31,
2022
 
Balance at beginning of period/year  $34,589,767   $25,496,534 
Additions   -    16,228,690 
Adjustments:          
Downward adjustments   (1,427,904)   (6,898,549)
Upward adjustments   -    2,137,021 
Foreign exchange adjustment   784,679    (2,373,929)
Balance at end of period/year  $33,946,542   $34,589,767 

 

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

 

   As of 
   June 30,
2023
   December 31,
2022
 
         
Downward adjustments (including impairment)  $(28,682,504)  $(27,254,600)
Upward adjustments  $6,209,357   $6,209,357 

 

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

 

   For the three months ended
June 30,
 
   2023   2022 
Marketable equity securities:        
Unrealized loss from the changes in fair value – Investment C  $(168)  $(5,683,988)
Realized gain from sale of Investment C   -    - 
           
Non-marketable equity securities:          
Unrealized loss (including impairment) – Investment F   (1,000,119)   - 
Dividend income   558,719    - 
Investment loss, net  $(441,568)  $(5,683,988)

 

F-19

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

   For the six months ended
June 30,
 
   2023   2022 
Marketable equity securities:        
Unrealized gain (loss) from the changes in fair value – Investment C  $98   $(3,535,053)
Realized gain from sale of Investment C   1,541,736    - 
           
Non-marketable equity securities:          
Unrealized loss (including impairment) – Investment F   (1,427,771)   - 
Dividend income   1,167,433    - 
Investment income (loss), net  $1,281,496   $(3,535,053)

 

NOTE 10 - PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consisted of the following:

 

   As of 
   June 30,
2023
   December 31,
2022
 
At cost:        
Land and building  $1,878,538   $7,881,202 
Furniture, fixtures and equipment   13,360    13,412 
Computer equipment   241,842    164,536 
Motor vehicles   108,570    108,994 
    2,242,310    8,168,144 
Less: accumulated depreciation   (508,846)   (808,728)
Property and equipment, net  $1,733,464   $7,359,416 

 

Depreciation expenses for the three months ended June 30, 2023 and 2022 were $114,322 and $95,673, respectively.

 

Depreciation expenses for the six months ended June 30, 2023 and 2022 were $215,494 and $192,352, respectively.

 

As of June 30, 2023, the carrying amount of an office premises of $5.46 million was reclassified to asset held for sale as the Company entered a provisional purchase and sale agreement with an independent third party to sale the office premises in October 2023 (see Note 7).

 

NOTE 11 - BORROWINGS

 

   As of 
   June 30,
2023
   December 31,
2022
 
         
Mortgage borrowings  $6,255,238   $4,477,254 

 

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 September 2023.

 

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.

 

As of June 30, 2023, the mortgage loans are secured by the office premises of the Company, located in Hong Kong, with the aggregate carrying amount of $7.0 million (December 31, 2022: $5.7 million), of which $5.5 million (December 31, 2022: nil) is asset held for sale.

 

F-20

 

 

AGBA GROUP HOLDING LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

NOTE 12 - FORWARD SHARE PURCHASE LIABILITY

 

For the three and six months ended June 30, 2023, subject to the sale of shares by investors and early termination of the Meteora Backshop Agreement, the forward share purchase liability (“FSP liability”) was fully settled and a loss on settlement of $378,895 was recorded in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

The FSP liability 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 six months ended June 30, 2023, the change in fair value of FSP liability was $0 and $82,182, respectively.

 

NOTE 13 - LEASES

 

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 six months ended June 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. The operating lease is included in “Right-of-use asset” on the unaudited condensed consolidated balance sheet 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 sheet.

 

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