Triller Group Inc 8-K/A, filed Dec 19, 2022
Triller Group Inc. (ILLR)
About this 8-K/A
Triller Group Inc filed this 8-K/A on December 19, 2022, reporting on events of November 14, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Amendment No. 1)
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 19, 2022 (
Date of Report (Date of earliest event reported)
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(I.R.S. Employer Identification No.) |
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company
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INTRODUCTORY NOTE
This Amendment is being filed solely for the purpose of supplementing the previously filed consolidated financial statements and pro forma condensed consolidated financial information provided under Item 9.01(a) and 9.01(b) in the Original Report to include (i) the unaudited consolidated financial statements of OnePlatform International Limited (f/k/a OnePlatform Holdings Limited) and TAG Asia Capital Holdings Limited (the “TAG Business”), as of September 30, 2022 and for the nine months ended September 30, 2022 and 2021, (ii) the related Management’s Discussion and Analysis of Financial Condition and Results of Operations of the TAG Business as of September 30, 2022 and for the nine months ended September 30, 2022 and 2021, and (iii) the unaudited pro forma condensed combined financial information of the TAG Business as of and for the nine months ended September 30, 2022.
This Amendment does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at the Company or its subsidiaries subsequent to the filing date of the Original Report. The information previously reported in or filed with the Original Report is hereby incorporated by reference to this Amendment.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The unaudited condensed consolidated financial statements of the TAG Business as of September 30, 2022 and for the nine months ended September 30, 2022 and 2021, and the related notes thereto are attached to this Amendment as Exhibit 99.1 and are incorporated herein by reference.
Also included as Exhibit 99.3 and incorporated herein by reference is the Management’s Discussion and Analysis of Financial Condition and Results of Operations of the TAG Business as of September 30, 2022 and for the nine months ended September 30, 2022 and 2021.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed consolidated financial statements of the TAG Business as of and for the nine months ended September 30, 2022 is filed as Exhibit 99.2 hereto and incorporated herein by reference.
(d) Exhibits.
| Exhibit No. | Description | |
| 99.1 | Unaudited condensed consolidated financial statements of the TAG Business as of September 30, 2022 and for the nine months ended September 30, 2022 and 2021 | |
| 99.2 | Unaudited pro forma condensed combined financial statements of the TAG Business as of and for the nine months ended September 30, 2022 | |
| 99.3 | Management’s Discussion and Analysis of Financial Condition and Results of Operations of the TAG Business as of September 30, 2022 and for the nine months ended September 30, 2022 and 2021 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
1
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AGBA GROUP HOLDING LIMITED | |||
| By: | /s/ Shu Pei Huang, Desmond | ||
| Name: | Shu Pei Huang, Desmond | ||
| Title: | Acting Group Chief Financial Officer | ||
| Dated: December 19, 2022 | |||
2
Exhibit 99.1
|
TAG INTERNATIONAL LIMITED AND TAG ASIA CAPITAL HOLDINGS LIMITED
Unaudited Condensed Combined Financial Statements For The Nine Months Ended September 30, 2022 And 2021
|
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
INDEX TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
F-1
TAG ASIA CAPITAL HOLDINGS LIMITED
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
(Currency expressed in United States Dollars (“US$”))
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 16,260,750 | $ | 38,595,610 | ||||
| Restricted cash – fund held in escrow | 34,678,192 | 34,485,797 | ||||||
| Accounts receivable, net | 2,507,844 | 908,727 | ||||||
| Accounts receivable, net, related parties | 177,393 | 238,892 | ||||||
| Loans receivables, net | 513,420 | 123,611 | ||||||
| Earnest deposit, the Shareholder | — | 7,182,131 | ||||||
| Consideration receivable | — | 1,861,348 | ||||||
| Deposit, prepayments, and other receivables | 639,111 | 383,399 | ||||||
| Total current assets | 54,776,710 | 83,779,515 | ||||||
| Non-current assets: | ||||||||
| Loans receivable, net | 1,070,466 | 3,785,314 | ||||||
| Property and equipment, net | 7,323,891 | 1,653,458 | ||||||
| Long-term investments, net | 32,382,657 | 33,292,013 | ||||||
| Total non-current assets | 40,777,014 | 38,730,785 | ||||||
| TOTAL ASSETS | $ | 95,553,724 | $ | 122,510,300 | ||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 6,614,774 | $ | 3,850,015 | ||||
| Escrow liabilities | 34,678,192 | 34,485,797 | ||||||
| Borrowings | 4,453,346 | — | ||||||
| Income tax payable | 23,375,715 | 23,028,916 | ||||||
| Total current liabilities | 69,122,027 | 61,364,728 | ||||||
| Long-term liabilities: | ||||||||
| Deferred tax liabilities | 39,097 | — | ||||||
| Total long-term liabilities | 39,097 | — | ||||||
| TOTAL LIABILITIES | 69,161,124 | 61,364,728 | ||||||
| Commitments and contingencies | — | — | ||||||
| Shareholder’s equity: | ||||||||
| Share capital | 2 | 13 | ||||||
| Additional paid-in capital | 38,761,725 | 38,761,713 | ||||||
| Receivable from the Shareholder | (3,165,188 | ) | (29,562,195 | ) | ||||
| Accumulated other comprehensive loss | (597,190 | ) | (179,461 | ) | ||||
| (Accumulated deficit) retained earnings | (8,606,749 | ) | 52,125,502 | |||||
| Total shareholder’s equity | 26,392,600 | 61,145,572 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY | $ | 95,553,724 | $ | 122,510,300 | ||||
See accompanying notes to unaudited condensed combined financial statements.
F-2
TAG ASIA CAPITAL HOLDINGS LIMITED
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Currency expressed in United States Dollars (“US$”))
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Interest income: | ||||||||
| Loans | $ | 137,454 | $ | 859,843 | ||||
| Total interest income | 137,454 | 859,843 | ||||||
| Non-interest income: | ||||||||
| One-time commissions | 15,932,771 | 4,027,475 | ||||||
| Recurring service fees | 2,614,729 | 3,385,424 | ||||||
| Total non-interest income | 18,547,500 | 7,412,899 | ||||||
| Total revenues from others | 18,684,954 | 8,272,742 | ||||||
| Non-interest income: | ||||||||
| Recurring service fees | 725,193 | 701,294 | ||||||
| Total revenues from related parties | 725,193 | 701,294 | ||||||
| Total revenues | 19,410,147 | 8,974,036 | ||||||
| Operating cost and expenses: | ||||||||
| Interest expense | (20,085 | ) | (484,376 | ) | ||||
| Commission expense | (11,219,182 | ) | (2,953,978 | ) | ||||
| Selling expense | (245,814 | ) | (79,781 | ) | ||||
| General and administrative expenses | (14,370,816 | ) | (9,804,385 | ) | ||||
| Total operating cost and expenses | (25,855,897 | ) | (13,322,520 | ) | ||||
| Loss from operations | (6,445,750 | ) | (4,348,484 | ) | ||||
| Other income (expense): | ||||||||
| Bank interest income | 24,161 | 37,087 | ||||||
| Interest income, related party | - | 180,264 | ||||||
| Foreign exchange loss, net | (4,690,476 | ) | (41,172 | ) | ||||
| Loss on equity method investment | - | (1,596,561 | ) | |||||
| Investment (loss) income, net | (2,793,242 | ) | 136,291,150 | |||||
| Sundry income | 405,596 | 396,772 | ||||||
| Total other (expense) income, net | (7,053,961 | ) | 135,267,540 | |||||
| (Loss) income before income taxes | (13,499,711 | ) | 130,919,056 | |||||
| Income tax expense | (232,540 | ) | (23,505,816 | ) | ||||
| NET (LOSS) INCOME | $ | (13,732,251 | ) | $ | 107,413,240 | |||
| Other comprehensive loss: | ||||||||
| Foreign currency translation adjustment | (417,729 | ) | (340,524 | ) | ||||
| COMPREHENSIVE (LOSS) INCOME | $ | (14,149,980 | ) | $ | 107,072,716 | |||
See accompanying notes to unaudited condensed combined financial statements.
F-3
TAG ASIA CAPITAL HOLDINGS LIMITED
UNAUDITED CONDESED COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| TAG International Limited | TAG Asia Capital Holdings Limited | Combined | Additional | Receivable | Accumulated other | Retained earnings | Total | |||||||||||||||||||||||||||||||||
| No. of shares | Amount | No. of shares | Amount | share capital | paid-in capital | from the Shareholder | comprehensive loss | (accumulated losses) | shareholder’s equity | |||||||||||||||||||||||||||||||
| Balance as of January 1, 2022* | 100 | $ | 12 | 1 | $ | 1 | $ | 13 | $ | 38,761,713 | $ | (29,562,195 | ) | $ | (179,461 | ) | $ | 52,125,502 | $ | 61,145,572 | ||||||||||||||||||||
| Special dividend to the Shareholder | - | - | - | - | - | - | 29,562,195 | - | (47,000,000 | ) | (17,437,805 | ) | ||||||||||||||||||||||||||||
| Amalgamation pursuant to the business combination | (99 | ) | (11 | ) | - | - | (11 | ) | 12 | - | - | - | 1 | |||||||||||||||||||||||||||
| Advances to the Shareholder | - | - | - | - | - | - | (3,165,188 | ) | - | - | (3,165,188 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | (417,729 | ) | - | (417,729 | ) | ||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | (13,732,251 | ) | (13,732,251 | ) | ||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | 1 | $ | 1 | 1 | $ | 1 | $ | 2 | $ | 38,761,725 | $ | (3,165,188 | ) | $ | (597,190 | ) | $ | (8,606,749 | ) | $ | 26,392,600 | |||||||||||||||||||
| Nine months ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||
| OnePlatform Holdings Limited | TAG Asia Capital | Combined | Additional | Accumulated other | Retained earnings | Total shareholder’s | ||||||||||||||||||||||||||||||
| No. of shares | Amount | No. of shares | Amount | share capital | paid-in capital | comprehensive income (loss) | (accumulated deficit) | (deficit) equity | ||||||||||||||||||||||||||||
| Balance as of January 1, 2021 | 100 | $ | 12 | 1 | $ | 1 | $ | 13 | $ | 38,761,713 | $ | 214,140 | $ | (44,338,021 | ) | $ | (5,362,155 | ) | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | (340,524 | ) | - | (340,524 | ) | |||||||||||||||||||||||||
| Net income for the period | - | - | - | - | - | - | - | 107,413,240 | 107,413,240 | |||||||||||||||||||||||||||
| Balance as of September 30, 2021 | 100 | $ | 12 | 1 | $ | 1 | $ | 13 | $ | 38,761,713 | $ | (126,384 | ) | $ | 63,075,219 | $ | 101,710,561 | |||||||||||||||||||
| * | Balance as of January 1, 2022 represented the number of issued shares of OnePlatform Holdings Limited which was consummated the amalgamation with OnePlatform International Limited as discussed in Note 1 to the unaudited condensed financial statements below and resulting in reduction in share capital for the current period. |
See accompanying notes to unaudited condensed combined financial statements.
F-4
TAG ASIA CAPITAL HOLDINGS LIMITED
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Currency expressed in United States Dollars (“US$”))
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (13,732,251 | ) | $ | 107,413,240 | |||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities | ||||||||
| Depreciation of property and equipment | 288,230 | 34,111 | ||||||
| Accreted interest | - | (180,040 | ) | |||||
| Allowance for doubtful accounts | - | 5,215 | ||||||
| Foreign exchange loss, net | 4,690,476 | 41,172 | ||||||
| Investment loss (income), net | 2,793,242 | (136,291,150 | ) | |||||
| Loss on equity method investment | - | 1,596,561 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,537,618 | ) | 1,665,756 | |||||
| Loans receivable | 2,325,039 | 13,019,554 | ||||||
| Deposits, prepayments, and other receivables | (267,001 | ) | (1,938,351 | ) | ||||
| Accounts payable and accrued liabilities | 2,768,147 | (1,916,549 | ) | |||||
| Escrow liabilities | 192,395 | (4,774,241 | ) | |||||
| Income tax payable | 347,735 | 23,497,030 | ||||||
| Net cash (used in) provided by operating activities | (2,131,606 | ) | 2,172,308 | |||||
| Cash flows from investing activities: | ||||||||
| Proceeds from consideration receivable | 1,849,650 | - | ||||||
| Proceeds from sale of investments | - | 186,958,181 | ||||||
| Payment of earnest deposit, the Shareholder | (7,849,676 | ) | - | |||||
| Addition in long-term investments | - | (3,428,801 | ) | |||||
| Purchase of property and equipment | (870,360 | ) | (3,605 | ) | ||||
| Net cash (used in) provided by investing activities | (6,870,386 | ) | 183,525,775 | |||||
| Cash flows from financing activities: | ||||||||
| Advances from (repayment to) the Shareholder | 198,778 | (12,987,697 | ) | |||||
| Proceeds from borrowings | 4,462,867 | - | ||||||
| Dividend paid to the Shareholder | (17,437,805 | ) | - | |||||
| Repayment of bank borrowings | - | (73,645 | ) | |||||
| Net cash used in financing activities | (12,776,160 | ) | (13,061,342 | ) | ||||
| Effect on exchange rate change on cash, cash equivalents and restricted cash | (364,313 | ) | (55,790 | ) | ||||
| Net change in cash, cash equivalent and restricted cash | (22,142,465 | ) | 172,580,951 | |||||
| BEGINNING OF PERIOD | 73,081,407 | 61,768,273 | ||||||
| END OF PERIOD | $ | 50,938,942 | $ | 234,349,224 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash received from income tax recoverable | $ | 125,311 | $ | - | ||||
| Cash paid for income taxes | $ | 10,116 | $ | - | ||||
| Cash received from accreted interest | $ | - | $ | 180,040 | ||||
| Cash paid for interest | $ | - | $ | 284 | ||||
| Reconciliation to amounts on combined balance sheets: | ||||||||
| Cash and cash equivalents | $ | 16,260,750 | $ | 194,837,005 | ||||
| Restricted cash | 34,678,192 | 39,512,219 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 50,938,942 | $ | 234,349,224 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Purchase of property and equipment, through earnest deposit | $ | 7,205,118 | $ | - | ||||
| Special dividend to the Shareholder offset with amount due from the Shareholder | $ | 29,562,195 | $ | - | ||||
| Purchase of long-term investment from the Shareholder | $ | - | $ | 525,330 | ||||
See accompanying notes to unaudited condensed combined financial statements.
F-5
TAG INTERNATIONAL
LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United
States Dollars (“US$”))
NOTE 1 － BUSINESS OVERVIEW AND BASIS OF PRESENTATION
TAG International Limited is incorporated in British Virgin Islands with limited liability on October 25, 2021. TAG International Limited and its subsidiaries (collectively referred to as “TIL” or “B2B”) is a comprehensive one-stop financial service company in Hong Kong. B2B operates under “OnePlatform” brand and offers a full-service platform to banks, other financial institutions, brokers and individual independent financial advisors to advise and serve their retail clients. B2B’s technology-enabled platform offers a wide range of financial products, covering life insurance, pensions, property-casualty insurance, stock brokerage, mutual funds, lending and real estate.
TAG Asia Capital Holdings Limited, formerly known as Convoy Capital Holdings Limited, is incorporated under the laws of the British Virgin Islands (“BVI”) on October 26, 2015. TAG Asia Capital Holdings Limited and its subsidiaries (collectively referred to as “TAC” or “Fintech”) are principally engaged in financial technology business and financial investments, managing an ensemble of fintech investments 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 since its launch in November 2020.
Both TIL and TAC are 100% owned by TAG Holdings Limited (“TAG”), a member of Legacy Group, representing Convoy Global Holdings Limited and its subsidiaries (the “Shareholder” or “Legacy Group”). TIL and TAC are hereinafter referred to as (the “Company” or “B2B and Fintech Business”).
Under the business combination agreement with AGBA Acquisition Limited (“AGBA”), OnePlatform Holdings Limited (“OPH”) consummated the amalgamation with OnePlatform International Limited (“OIL”) on August 11, 2022, with OIL as the surviving entity of OPH. As a result, TAG Assets Partners Limited (“TAP”), a wholly owned subsidiary of TIL, directly owns 100% of the issued and outstanding shares of OIL and TIL became the beneficial owner of the subsidiaries of OPH. OIL is a limited liability company incorporated in Hong Kong on November 2, 2021.
These accompanying unaudited condensed combined financial statements present the unaudited condensed combined balance sheets, statements of operations and comprehensive loss, changes in shareholder’s equity and cash flows of B2B and Fintech Business in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for the preparation of carve-out combined financial statements. Both B2B and Fintech Business have been operating as part of the Legacy Group, prior to the separation of B2B and Fintech Business from the Legacy Group. These unaudited condensed combined financial statements have been derived from the Legacy Group’s historical accounting records and are presented on a carved-out basis, as if the separation had taken place at the beginning of the earliest date presented.
All revenues and costs as well as assets and liabilities directly associated with the activities of B2B and Fintech Business are included as a component of the financial statements. The financial statements also include the allocation of certain general and administrative, selling expenses and other operating costs from the Legacy Group’s corporate office and allocation of related assets, liabilities and Shareholder’ investment, as applicable. These general and administrative expenses allocated from the Shareholder were $2,381,641 and $2,596,838 for the nine months ended September 30, 2022 and 2021, respectively. The allocations have been determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had B2B and Fintech Business operated independently of the Legacy Group.
As part of the Legacy Group, B2B and Fintech Business is dependent upon the Legacy Group for all of its working capital and financing requirements as the Legacy Group uses a centralized approach to cash management and financing of its operations. Financial transactions relating to B2B and Fintech Business are accounted for through the Shareholder’s investment account of B2B and Fintech Business. Accordingly, none of the Legacy Group‘s cash, cash equivalents or debt at the corporate level has been included in B2B and Fintech Business in the balance sheets. The impact of foreign currency exchange rates on the cash that B2B and Fintech Business has access during the periods presented is reflected in the statements of cash flows.
All significant intercompany accounts and transactions between the operations comprising B2B and Fintech Business have been eliminated in the accompanying unaudited condensed combined financial statements.
F-6
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 1 － BUSINESS OVERVIEW AND BASIS OF PRESENTATION (cont.)
The accompanying unaudited condensed combined financial statements reflect the activities of TIL and TAC and each of their subsidiaries as of September 30, 2022:
| Name | Background | Ownership | ||
|
TAG Assets Partners Limited (“TAP”)
|
● British Virgin Islands company ● Incorporated on October 25, 2021 ● Issued and outstanding 1 ordinary share at US$1 par value ● Investment holding
|
100% owned by TIL
| ||
| OnePlatform International Limited (“OIL”) (amalgamated with OnePlatform Holdings Limited on August 11, 2022) |
● Hong Kong company ● Incorporated on November 2, 2021 ● Issued and outstanding 100 ordinary shares for HK$100 ($13) ● Investment holding
|
100% owned by TAP | ||
|
OnePlatform Wealth Management Limited (“OWM”) (formerly known as GET Mdream Wealth Management Limited)
|
● Hong Kong company ● Incorporated on February 5, 2003 ● Issued and outstanding 140,764,705 ordinary shares for HK$20,851,790 ($2,673,306) ● Provision of insurance brokerage services
|
99.81% owned by OIL | ||
|
OnePlatform International Property Limited (“OIP”) (formerly known as Convoy International Property Consulting Limited)
|
● Hong Kong company ● Incorporated on May 21, 2014 ● Issued and outstanding 30,001,200 ordinary shares for HK$30,001,200 ($3,846,308) ● Provision of overseas real estate brokerage services
|
100% owned by OIL | ||
| OnePlatform Asset Management Limited (“OAM”) (formerly known as Convoy Asset Management Limited) |
● Hong Kong company ● Incorporated on November 24, 1999 ● Issued and outstanding 264,160,000 ordinary shares for HK$272,000,000 ($34,871,795) ● Licensed by the Securities and Futures Commission of Hong Kong ● Provision of investment advisory, funds dealing, introducing broker, and asset management services
|
100% owned by OIL | ||
| Kerberos (Nominee) Limited (“KNL”) |
● Hong Kong company ● Incorporated on April 20, 2007 ● Issued and outstanding 1 ordinary share for HK$1 ● Registered under The Hong Kong Trustee Ordinance ● Provision of escrow services
|
100% owned by OAM | ||
| Maxthree Limited (“Maxthree”) |
● British Virgin Islands company ● Incorporated on April 12, 2006 ● Issued and outstanding 1 ordinary share at $1 par value ● Investment holding
|
100% owned by OIL |
F-7
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 1 － BUSINESS OVERVIEW AND BASIS OF PRESENTATION (cont.)
| Name | Background | Ownership | ||
| OnePlatform Credit Limited (formerly known as Artley Finance (HK) Limited) (“OCL”) |
● Hong Kong company ● Incorporated on August 6, 1982 ● Issued and outstanding 169,107,379 ordinary shares for HK$169,107,379 ($21,680,433) ● Registered under the Hong Kong Money Lenders Ordinance ● Provision of money lending services
|
100% owned by Maxthree | ||
| Hong Kong Credit Corporation Limited (“HKCC”) |
● Hong Kong company ● Incorporated on March 16, 1982 ● Issued and outstanding 139,007,381 ordinary shares for HK$139,007,381 ($17,821,459) ● Registered under the Hong Kong Money Lenders Ordinance ● Provision of money lending services
|
100% owned by OCL | ||
| Trendy Reach Holdings Limited (“TRHL”) |
● British Virgin Islands company ● Incorporated on October 5, 2015 ● Issued and outstanding 1 ordinary share at HK$1 ● Investment holding
|
100% owned by Maxthree | ||
| Profit Vision Limited (“PVL”) |
● Hong Kong company ● Incorporated on October 9, 2015 ● Issued and outstanding 1 ordinary shares for HK$1 ● Property investment holding
|
100% owned by TRHL | ||
|
TAG Technologies Limited (“TAGTL”) (formerly known as Convoy Technologies Limited)
|
● British Virgin Islands company ● Incorporated on October 23, 2015 ● Issued and outstanding 1 ordinary share at $1 par value ● Investment in financial technology business
|
100% owned by TAC | ||
| AGBA Group Limited (formerly known as Tandem Money Hong Kong Limited) (“AGL”) |
● Hong Kong company ● Incorporated on November 28, 2020 ● Issued and outstanding 10,000 ordinary shares for HK$10,000 ($1,282) ● No operations since inception
|
100% owned by TAGTL | ||
| Tandem Fintech Limited (“TFL”) (formerly known as Hit Fintech Solutions Limited) |
● Hong Kong company ● Incorporated on October 6, 2017 ● Issued and outstanding 9,000,000 ordinary shares for HK$9,000,000 ● Operating an online insurance comparison platform
|
100% owned by TAC | ||
|
OnePlatform FinBiz Solutions Limited (“FinBiz”) (formerly known as TAG Creative and Art Limited) |
● Hong Kong company ● Incorporated on February 26, 2016 ● Issued and outstanding 1 ordinary share for HK$1 ● No operations since inception
|
100% owned by OIL | ||
| FinLiving Limited |
● Hong Kong company ● Incorporated on September 14, 2021 ● Issued and outstanding 100 ordinary share for HK$100 ($13) ● No operations since inception |
100% owned by FinBiz |
F-8
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These accompanying unaudited condensed combined financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying unaudited condensed combined financial statements and notes.
| ● | Basis of Presentation |
The accompanying unaudited condensed combined financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”), regarding financial reporting, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of results to be expected for any other interim period or for the full year of 2022. Accordingly, these unaudited condensed combined financial statements should be read in conjunction with the Company’s audited combined financial statements and note thereto as of and for the years ended December 31, 2021 and 2020.
| ● | Use of Estimates and Assumptions |
The preparation of unaudited condensed combined 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 combined financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited condensed combined financial statements include the useful lives of property and equipment, impairment of long-lived assets, allowance for doubtful accounts, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position, and allocation of expenses from the Shareholder.
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 United States Dollar ("US$") and the accompanying unaudited condensed combined financial statements have been expressed in US$. 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$, in accordance with ASC Topic 830-30, Translation of Financial Statement, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the year. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income (loss) within the statements of changes in shareholder’s equity.
F-9
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Translation of amounts from HK$ into US$ has been made at the following exchange rates for the nine months ended September 30, 2022 and 2021:
| September 30, 2022 | September 30, 2021 | |||||||
| Period-end HK$:US$ exchange rate | 0.12739 | 0.12843 | ||||||
| Period average HK$:US$ exchange rate | 0.12767 | 0.12876 | ||||||
| ● | Cash and Cash Equivalents |
Cash and cash equivalents consist primarily of cash in readily available checking and saving accounts. Cash equivalents 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 - Fund Held In Escrow |
Fund held in escrow, represent restricted cash and cash equivalents maintained in certain bank accounts that are held for the exclusive interest of the Company’s customers. The Company currently acts as a custodian to manage the assets and investment portfolio on behalf of its customers under the terms of certain contractual agreements, which the Company does not have the right to use for any purposes, other than managing the portfolio.
The Company also restricts the use of the assets underlying the funds held in escrow to meet with regulatory requirements and classifies the assets as current based on their purpose and availability to fulfill its direct obligation under escrow liability. Upon receiving escrow funds, the Company records a corresponding escrow liability.
| ● | 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 allowance is based on management’s best estimates of specific losses on individual customer exposures, as well as the historical trends of collections. Account balances are charged off against the allowance after all means of collection have been exhausted and the likelihood of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary.
The Company does not hold any collateral or other credit enhancements overs its accounts receivable balances.
F-10
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
| ● | Loans Receivable, net |
Loans receivables are carried at unpaid principal balances, less the allowance for loan losses and charge-offs. The loans receivables portfolio consists of real estate mortgage loans and personal loans.
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 Loan Losses.
| ● | Allowance for Loan Losses ("ALL") |
The adequacy of the Company's ALL is determined, in accordance with ASC Topic 450-20 Loss Contingencies includes management's review of the Company's loan portfolio, including the identification and review of individual problem situations that may affect a borrower's ability to repay. In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including a review of regulatory examinations, an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio.
The ALL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio. There is significant judgment applied in estimating the ALL. These assumptions and estimates are susceptible to significant changes based on the current environment. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALL even though there may not be a decline in credit quality or an increase in potential problem loans.
F-11
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
| ● | Long-Term Investments, net |
The Company invests in debt securities, equity securities that do not have readily determinable fair values, and equity method investments.
Investments in an entity in which the ownership is greater than 20% but less than 50%, or where other facts and circumstances indicate that the Company has the ability to exercise significant influence over the operating and financing policies of an entity, are accounted for using the equity method in accordance with ASC Topic 323: Investments – Equity Method and Joint Ventures. Equity method investments are recorded initially at cost and adjusted subsequently to recognize the share of the earnings, losses or other changes in capital of the investee entity after the date of acquisition. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Investment in debt securities consist of corporate bonds issued by the Company’s Shareholder. Debt securities are classified as held-to-maturity and carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.
Equity securities with readily determinable fair values are carried at fair value with any unrealized gains or losses reported in earnings. The Company's long-term equity investments mainly consist of investments in privately-held companies that do not have a readily determinable fair value. 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.
| ● | 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 and after taking into account their estimated residual values:
| Expected useful life | ||
| Land and building | Shorter of 50 years or lease term | |
| 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.
F-12
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
| ● | Accounts payable |
Accounts payable represent commission payable to the Company’s financial advisors for the sale of investment funds, investment products, or insurance products. The carrying amount approximates fair value because of the short maturity.
| ● | Borrowings |
Borrowings are recognized at fair value and repayable in the next twelve months. Interest expense is recognized on a fixed interest rate.
As of September 30, 2022, the Company obtained a mortgage loan from a finance company in Hong Kong, which bears annual interest at a fixed rate of 10.85% and becomes repayable in September 2023.
| ● | 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.
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:
One-time commissions
The Company earns one-time commissions from the sale of investment products to customers. The Company enters into one-time commission agreements with customers which specify the key terms and conditions of the arrangement. One-time 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 one-time 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 one-time commissions are recorded at point in time when the investment product is purchased.
F-13
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 s 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.
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 condensed combined 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.
F-14
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 condensed combined statements of operations for the periods indicated:
| For the nine months ended September 30, 2022 | ||||||||||||||||||||
| Asset management service | Insurance brokerage service | Money lending service | Real estate agency service | Total | ||||||||||||||||
| Interest income: | ||||||||||||||||||||
| Loans | $ | - | $ | - | $ | 137,454 | $ | - | $ | 137,454 | ||||||||||
| Non-interest income: | ||||||||||||||||||||
| One-time commissions | 1,463,366 | 14,306,599 | - | 162,806 | 15,932,771 | |||||||||||||||
| Recurring service fees | 3,339,922 | - | - | - | 3,339,922 | |||||||||||||||
| $ | 4,803,288 | $ | 14,306,599 | $ | 137,454 | $ | 162,806 | $ | 19,410,147 | |||||||||||
| For the nine months ended September 30, 2021 | ||||||||||||||||||||
| Asset management service | Insurance brokerage service | Money lending service | Real estate agency service | Total | ||||||||||||||||
| Interest income: | ||||||||||||||||||||
| Loans | $ | - | $ | - | $ | 859,843 | $ | - | $ | 859,843 | ||||||||||
| Non-interest income: | ||||||||||||||||||||
| One-time commissions | 3,157,933 | 732,859 | - | 136,683 | 4,027,475 | |||||||||||||||
| Recurring service fees | 4,086,718 | - | - | - | 4,086,718 | |||||||||||||||
| $ | 7,244,651 | $ | 732,859 | $ | 859,843 | $ | 136,683 | $ | 8,974,036 | |||||||||||
| ● | Cost Allocation |
Cost allocation includes allocation of certain general and administrative, selling expenses and other operating costs paid by the Shareholder. General and administrative expenses consist primarily of payroll and related expenses of senior management and the Company’s employees, shared management expenses, including accounting, consulting, legal support services, rent, and other expenses to provide operating support to the related businesses. Allocated selling expense was mainly marketing expenses. These allocations are made using a proportional cost allocation method by considering the proportion of revenues, headcounts as well as estimates of time spent on the provision of services attributable to the Company.
| ● | Comprehensive Income (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 condensed combined statements of shareholder’s equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
F-15
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
| ● | 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 nine months ended September 30, 2022 and 2021, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2022and December 31, 2021, the Company did not have any significant unrecognized uncertain tax positions.
The Company is subject to tax in local and foreign jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the relevant tax authorities.
F-16
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
| ● | 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.
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 combined 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:
| Entities: | Segments | Business Activities | ||
| B2B | Insurance Brokerage Business | - | Facilitating the placement of insurance products to the Insured, through the licensed insurance brokers or agents, in exchange for the commission from the insurance providers | |
| Asset Management Business | - | Providing the portfolio management services to the customers to earn the commission or recurring asset management service fee | ||
| - | Facilitating the placement of investment products for the fund and/or product provider, in exchange for the fund management services | |||
| Money Lending Business | - | Providing the lending services whereby the Company makes secured and/or unsecured loans to creditworthy customers | ||
| Real Estate Agency Business | - | Solicitation of real estate sales for the developers, in exchange for one-time commissions | ||
| Fintech | Fintech Business | - | Managing an ensemble of fintech investments 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 since its launch in November 2020 |
All of the Company’s revenues were generated in Hong Kong.
F-17
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
| ● | 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-18
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
| ● | 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, loans receivable, accounts payable, escrow liabilities, other payables and accrued liabilities 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 loan receivables approximate the carrying amount. The Company accounts for loans receivable at cost, subject to impairment testing. The Company obtains a third-party valuation based upon loan level data including interest rate, type and term of the underlying loans.
F-19
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The following table presents information about the Company’s assets that were measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 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 | 2022 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable equity securities | $ | 4,956,011 | $ | 4,956,011 | $ | - | $ | - | ||||||||
| Non-marketable equity securities | $ | 27,426,646 | $ | - | $ | - | $ | 27,426,646 | ||||||||
| December 31, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
| Description | 2021 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable equity securities | $ | 7,795,479 | $ | 7,795,479 | $ | - | $ | - | ||||||||
| Non-marketable equity securities | $ | 25,496,534 | $ | - | $ | - | $ | 25,496,534 | ||||||||
The Company’s non-marketable equity securities are investments in privately held companies, which are without readily determinable market values and are classified as Level 3, due to the absence of quoted market prices, the inherent lack of liquidity and the fact that inputs used to measure fair value are unobservable and require management’s judgment.
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 |
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
F-20
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 2 － SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments — Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyses financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects the adoption will have on its unaudited condensed combined financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables — Nonrefundable Fees and Other Costs, which clarifies that, for each reporting period, an entity should reevaluate whether a callable debt security is within the scope of ASC 310-20-35-33. For public business entities, ASU 2020-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. For all other entities, ASU 2020-08 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s unaudited condensed combined financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which makes minor technical corrections and clarifications to the ASC. The amendments in Sections B and C of the ASU are effective for annual periods beginning after December 15, 2020, for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s unaudited condensed combined financial statements.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.
NOTE 3 － LIQUIDITY AND GOING CONCERN
The accompanying unaudited condensed combined 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 nine months ended September 30, 2022, the Company incurred a net loss of $13,732,251 and reported a working capital deficit of $14,345,317 as of September 30, 2022. Also, the historical operating results indicate the Company has recurring losses from operations which raise the question related to the Company’s ability to continue as a going concern. As of September 30, 2022, the Company has the cash and cash equivalents of $16.3 million.
The ability to continue as a going concern is dependent on the Company’s ability to successfully implement its plans. The Company believes that it will be able to continue to grow the Company’s revenue base and control expenditures. In parallel, the Company continually monitors its capital structure and operating plans and evaluates various potential funding alternatives that may be needed in order to finance the Company’s business development activities, general and administrative expenses and growth strategy. These alternatives include external borrowings and continue to pursue fundraising in the next twelve months. Although there is no assurance that, if needed, the Company will be successful with its fundraising initiatives, the Company believes that the business combination transaction significantly increases its ability to access the capital going forward. The combined financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Without realization of additional capital, there is substantial doubt about the Company can continue as a going concern until such time, as the Company has obtained adequate and continuing financial support from its major shareholder to meet its debts as they fall due and sustain the operation through the next 12 months from the date that these unaudited condensed combined financial statements were made available to issue.
F-21
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 4 － RESTRICTED CASH — FUND HELD IN ESCROW
As of September 30, 2022 and December 31, 2021, the Company has $34,678,192 and $34,485,797 fund held in escrow, respectively. Fund held in escrow primarily comprised of escrow funds held in bank accounts on behalf of the Company’s customers. The Company is currently acted as a custodian to manage the assets and investment portfolio on behalf of its customers under the terms of certain contractual agreements, which the Company does not have the right to use for any purposes, other than managing the portfolio. Upon receiving escrow funds, the Company records a corresponding escrow liability.
NOTE 5 － ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Accounts receivable | $ | 2,601,787 | $ | 1,003,303 | ||||
| Accounts receivable – related parties | 177,393 | 238,892 | ||||||
| Less: allowance for doubtful accounts | (93,943 | ) | (94,576 | ) | ||||
| Accounts receivable, net | $ | 2,685,237 | $ | 1,147,619 | ||||
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 Shareholder, 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 repayable on demand.
The following table presents the activity in the allowance for doubtful accounts for the nine months ended September 30, 2022 and the year ended December 31, 2021.
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Balance at beginning of period | $ | 94,576 | $ | 95,121 | ||||
| Foreign translation adjustment | (633 | ) | (545 | ) | ||||
| Balance at end of period | $ | 93,943 | $ | 94,576 | ||||
For the nine months ended September 30, 2022 and 2021, the Company had no provision for the allowance of doubtful accounts. The Company has not experienced any significant bad debt write-offs of accounts receivable in the past.
The Company generally conducts its business with creditworthy third parties. The Company determines, on a continuing basis, the probable losses and an allowance for doubtful accounts, based on several factors including internal risk ratings, customer credit quality, payment history, historical bad debt/write-off experience and forecasted economic and market conditions. 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.
At September 30, 2022 and December 31, 2021, no outstanding accounts are 90 days or more past due.
F-22
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 6 － LOANS RECEIVABLES, NET
The Company’s loan portfolio was as follows:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Mortgage loans (residential) | $ | 1,583,886 | $ | 3,908,925 | ||||
| Personal loans from affiliates, unsecured | 76,286 | 76,799 | ||||||
| Total loans | 1,660,172 | 3,985,724 | ||||||
| Less:allowance for loan losses | (76,286 | ) | (76,799 | ) | ||||
| Loans receivables, net | $ | 1,583,886 | $ | 3,908,925 | ||||
| Reclassifying as: | ||||||||
| Current portion | $ | 513,420 | $ | 123,611 | ||||
| Non-current portion | 1,070,466 | 3,785,314 | ||||||
| Loans receivables, net | $ | 1,583,886 | $ | 3,908,925 | ||||
The interest rates on loans issued ranged between 6.25% and 10.00% (2021: 6.25% to 10.00%) per annum for the nine months ended September 30, 2022. Majority of loans are mortgage loans and secured by collateral in the pledge of the underlying real estate properties owned by the borrowers.
All loans are made to either business or individual customers in Hong Kong for a period of 3 to 25 years.
The following table presents the activity in the allowance for loan losses as of and for the nine months ended September 30, 2022 and the year ended December 31, 2021.
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Balance at beginning of period | $ | 76,799 | $ | 88,436 | ||||
| Written-off | - | (11,637 | ) | |||||
| Foreign translation adjustment | (513 | ) | - | |||||
| Balance at end of period | $ | 76,286 | $ | 76,799 | ||||
For the nine months ended September 30, 2022 and 2021, the Company had no provision for the allowance of loan losses.
Allowance for loan losses is estimated on a bi-annual basis based on an assessment of specific evidence indicating doubtful collection, historical experience, loan balance aging and prevailing economic conditions.
AGE ANALYSIS LOANS BY CLASS
All classes of loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Interest and fees continue to accrue on past due loans until the date the loan is placed in nonaccrual status, if applicable. The following table includes an aging analysis of loans as of the dates indicated. Also included in the table below are loans that are 90 days or more past due as to interest and principal and still accruing interest, because they are well-secured and in the process of collection.
F-23
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 6 － LOANS RECEIVABLES, NET (cont.)
| Age Analysis of Loans by Class | ||||||||||||||||||||||||
| Mortgage loans | Personal loans | As of September 30, 2022 | Mortgage loans | Personal loans | As of December 31, 2021 | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Within credit term | 1,583,886 | - | 1,583,886 | 3,908,925 | - | 3,908,925 | ||||||||||||||||||
| Past due: | ||||||||||||||||||||||||
| 30-59 days | - | - | - | - | - | - | ||||||||||||||||||
| 60-89 days | - | - | - | - | - | - | ||||||||||||||||||
| 90 or more days due and still accruing | - | - | - | - | - | - | ||||||||||||||||||
| Nonaccrual | - | - | - | - | - | - | ||||||||||||||||||
| Total loans | 1,583,886 | - | 1,583,886 | 3,908,925 | - | 3,908,925 | ||||||||||||||||||
LOAN MATURITY BY CLASS
The following table presents the maturities of loan balances for the periods presented:
| Maturities | Mortgage loans | Personal loans | As of September 30, 2022 | Mortgage loans | Personal loans | As of December 31, 2021 | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Within 1 year | 513,420 | - | 513,420 | 123,611 | - | 123,611 | ||||||||||||||||||
| 1-5 years | - | - | - | 1,160,591 | - | 1,160,591 | ||||||||||||||||||
| 5-10 years | - | - | - | 939,081 | - | 939,081 | ||||||||||||||||||
| More than 10 years | 1,070,466 | - | 1,070,466 | 1,685,642 | - | 1,685,642 | ||||||||||||||||||
| Total loans | 1,583,886 | - | 1,583,886 | 3,908,925 | - | 3,908,925 | ||||||||||||||||||
Interest on loans receivable is accrued and credited to income as earned. The Company determines a loan’s past due status by the number of days that have elapsed since a borrower has failed to make a contractual loan payment. Accrual of interest is generally discontinued when either (i) reasonable doubt exists as to the full, timely collection of interest or principal or (ii) when a loan becomes past due by more than 180 days (The further extension of loan past due status is subject to management final approval and on case-by-case basis).
CREDIT QUALITY INFORMATION
The Company uses internally-assigned risk grades to estimate the capability of borrowers to repay the contractual obligations of their loan agreements as scheduled or at all. The Company’s internal risk grade system is based on experiences with similarly graded loans and the assessment of borrower credit quality, such as, credit risk scores, collateral and collection history. Individual credit scores are assessed by credit bureau, such as TransUnion. Internal risk grade ratings reflect the credit quality of the borrower, as well as the value of collateral held as security. The Company requires collateral arrangements to all mortgage loans and has policies and procedures for validating the reasonableness of the collateral valuations on a regular basis. Management believes that these policies effectively manage the credit risk from advances.
The Company’s Internally assigned risk grades are as follows:
Pass: Loans are of acceptable risk.
Other Assets Especially Mentioned (OAEM): Loans have potential weaknesses that deserve management’s close attention.
Substandard: Loans reflect significant deficiencies due to several adverse trends of a financial, economic or managerial nature.
F-24
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 6 － LOANS RECEIVABLES, NET (cont.)
Doubtful: Loans have all the weaknesses inherent in a substandard loan with added characteristics that make collection or liquidation in full based on currently existing facts, conditions and values highly questionable or improbable.
Loss: Loans have been identified for charge-off because they are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.
The following table presents credit quality exposures by internally assigned risk ratings as of the dates indicated:
| Credit grades | Mortgage loans | Personal loans | As of September 30, 2022 | Mortgage loans | Personal loans | As of December 31, 2021 | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Pass | 1,583,886 | - | 1,583,886 | 3,908,925 | - | 3,908,925 | ||||||||||||||||||
| Other assets especially mentioned | - | - | - | - | - | - | ||||||||||||||||||
| Substandard | - | - | - | - | - | - | ||||||||||||||||||
| Doubtful | - | - | - | - | - | - | ||||||||||||||||||
| Loss | - | - | - | - | - | - | ||||||||||||||||||
| Total loans | 1,583,886 | - | 1,583,886 | 3,908,925 | - | 3,908,925 | ||||||||||||||||||
NOTE 7 － EARNEST DEPOSIT
During the nine months ended September 30, 2022, the Company made a refundable earnest deposit of $7.84 million for the purchase of 4,158,963 shares of Investment A from the Shareholder. The purchase price is amounted to approximately $6.56 million at the historical cost. The transaction was completed on April 20, 2022. This transaction is recorded based on the historical cost to the Legacy Group accordingly.
As of December 31, 2021, earnest deposit represented a refundable deposit of $7.20 million for the purchase of an office premises from the Shareholder. The purchase price is amounted to approximately $8.00 million at the current market value. The transaction was completed on January 25, 2022. This transaction is recorded based on the historical cost to the Legacy Group accordingly.
NOTE 8 － LONG-TERM INVESTMENTS, NET
Long-term investments, net consisted of the following:
| As of | ||||||||||||||||
| Ownership interest | September 30, 2022 | Ownership interest | December 31, 2021 | |||||||||||||
| Marketable equity securities | ||||||||||||||||
| Investment C | 0.47 | % | $ | 4,956,011 | 0.47 | % | $ | 7,795,479 | ||||||||
| Non-marketable equity securities: | ||||||||||||||||
| Investment A | 8.37 | % | 10,880,531 | 3.55 | % | 5,790,115 | ||||||||||
| Investment B | 3.30 | % | 1,264,111 | 3.30 | % | 1,270,848 | ||||||||||
| Investment D | 5.11 | % | 14,762,237 | 5.11 | % | 17,912,302 | ||||||||||
| Investment E | 4.00 | % | 519,767 | 4.00 | % | 523,269 | ||||||||||
| Total | 27,426,646 | 25,496,534 | ||||||||||||||
| Net carrying value | $ | 32,382,657 | $ | 33,292,013 | ||||||||||||
F-25
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 8 － LONG-TERM INVESTMENTS, NET (cont.)
Equity Method Investments
The Company generally accounts for these investments in equity security under the equity method in compliance of ASC Topic 323. Investments where the Company has significant influence, but not control, over the investee are accounted for under the equity method. These equity method investments are stated at cost, adjusted for the Company’s share of the investee’s earnings or losses, which are reflected in the combined statements of operations. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
As of September 30, 2022, the Company had no equity method investment as all the equity investments were disposed during the year ended December 31, 2021.
During the nine months ended September 30, 2021, the Company sold the entire interest (51%) in Investee A to the Shareholder for a consideration of $159,530 at its net carrying value, resulted with a loss on the sale of $32,850.
During the nine months ended September 30, 2021, the Company sold the entire interest in Investee B to JP Morgan Chase for a cash consideration of approximately $186.8 million, resulted with a realized gain of approximately $139.2 million.
For the nine months ended September 30, 2022 and 2021, the Company recorded a loss of nil and $1,596,561 on equity method investment, respectively.
Debt Securities
Investment in debt securities consist of corporate bonds issued by the Company’s Shareholder which are classified as held-to-maturity and carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. In November 2021, the corporate bonds were fully redeemed by the Shareholder. The Company earned the interest income of nil and $180,264 for the nine months ended September 30, 2022 and 2021, respectively.
Investments in Equity Securities
Investments in equity securities, such as, marketable securities, are accounted for at fair value with changes in fair value recognized in net income (loss). Investment C was previously classified as non-marketable equity securities. During the nine months ended September 30, 2021, Investment C was listed and publicly traded on Nasdaq Stock Exchange in March 2021 and there was a transfer into Level 1 from Level 3 in the fair value hierarchy of Investment C, as a result of a change in market liquidity.
As of September 30, 2022 and December 31, 2021, Investment C was recorded at fair value of $4,956,011 and $7,795,479, which were traded at a closing price of $4.99 and $7.85 per share, respectively.
For the nine months ended September 30, 2022, the Company had an unrealized loss of $2,793,242 in the changes in fair value. For the nine months ended September 30, 2021, the Company had an unrealized loss of $2,919,038 in the changes in fair value.
F-26
TAG INTERNATIONAL LIMITED AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 8 － LONG-TERM INVESTMENTS, NET (cont.)
Investments in Non-Marketable Equity Securities
Investments in non-marketable equity securities consist of ordinary or preferred shares in privately owned companies and 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. 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 at September 30, 2022 and December 31, 2021:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Balance at beginning of period | $ | 25,496,534 | $ | 39,416,469 | ||||
| Additions | 6,560,122 | 3,427,791 | ||||||
| Change from Level 3 to Level 1 | - | (20,194,196 | ) | |||||
| Adjustments: | ||||||||
| Upward adjustments | - | 3,531,464 | ||||||
| Foreign exchange adjustment | (4,630,010 | ) | (684,994 | ) | ||||
| Balance at end of period | $ | 27,426,646 | $ | 25,496,534 | ||||
Cumulative unrealized gains and losses, included in the carrying value of the Company’s non-marketable equity securities
| Downward adjustments (including impairment) | $ | (20,356,051 | ) | $ | (20,356,051 | ) | ||
| Upward adjustments | $ | 4,072,336 | $ | 4,072,336 |
Investment income is recorded as other income in the Company’s unaudited condensed combined statements of operations and consisted of the following:
| For the nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Marketable equity securities: | ||||||||
| Unrealized (loss) gain from the changes in fair value – Investment C | $ | (2,793,242 | ) | $ | (2,919,038 | ) | ||
| Non-marketable equity securities: | ||||||||
| Unrealized losses (including impairment) | - | - | ||||||
| Realized gains – Investee B | - | 139,210,188 | ||||||
| Investment (loss) income, net | $ | (2,793,242 | ) | $ | 136,291,150 | |||
F-27
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 9 － PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| As cost: | ||||||||
| Land and building | $ | 7,841,789 | $ | 1,888,450 | ||||
| Furniture, fixtures and equipment | 13,341 | 10,868 | ||||||
| Computer equipment | 53,682 | 60,287 | ||||||
| Motor vehicles | 108,412 | 109,143 | ||||||
| 8,017,224 | 2,068,748 | |||||||
| Less: accumulated depreciation | (693,333 | ) | (415,290 | ) | ||||
| Property and equipment, net | $ | 7,323,891 | $ | 1,653,458 | ||||
During the nine months ended September 30, 2022, the Company purchased an office premises from the Shareholder, through the acquisition of TRHL and PVL, which were previously controlled by the Shareholder. The purchase price was amounted to approximately $6.0 million at the net carrying value. The transaction was completed on January 25, 2022 and recorded at the historical cost accordingly.
The Company accounted for this acquisition as an asset acquisition under ASC Topic 805 and the Company adopted the Regulation S-X and concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented.
Depreciation expense for the nine months ended September 30, 2022 and 2021 were $288,230 and $34,111, respectively.
NOTE 10 － RECEIVABLE FROM THE SHAREHOLDER
The Company’s receivable from the Shareholder as of September 30, 2022 represents the temporary advances by the Company. These receivables due from the Shareholder are unsecured, interest-free and due on demand. Receivable from the Shareholder is presented as a reduction of the shareholder’s equity pursuant to the Codification of Staff Accounting Bulletins Topic 4, section G. These amounts were settled by offsetting against the subsequent acquisition of a non-marketable equity investment from the Shareholder.
NOTE 11 － INCOME TAXES
The provision for income taxes consisted of the following:
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Current tax | $ | 232,540 | $ | 23,505,816 | ||||
| Deferred tax | - | - | ||||||
| Income tax expense | $ | 232,540 | $ | 23,505,816 | ||||
F-28
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 11 － INCOME TAXES (cont.)
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company’s subsidiaries mainly operate in Hong Kong that are subject to taxes in the jurisdictions in which they operate, as follows:
BVI
Under the current BVI law, the Company is not subject to tax on income.
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 reconciliation of income tax rate to the effective income tax rate based on (loss) income before income taxes for the nine months ended September 30, 2022 and 2021 are as follows:
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| (Loss) income before income taxes | $ | (13,499,711 | ) | $ | 130,919,056 | |||
| Statutory income tax rate | 16.5 | % | 16.5 | % | ||||
| Income tax expense at statutory rate | (2,227,452 | ) | 21,601,644 | |||||
| Income not subject to taxes | (19,449 | ) | (50,354 | ) | ||||
| Non-deductible items: | ||||||||
| - Items not subject to tax deduction | 1,893,118 | 1,150,063 | ||||||
| - Investment loss not subject to tax deduction | 460,885 | 729,900 | ||||||
| Net operating loss | 146,504 | 95,807 | ||||||
| Tax holiday | (21,066 | ) | (21,244 | ) | ||||
| Income tax expense | $ | 232,540 | $ | 23,505,816 | ||||
The following table sets forth the significant components of the deferred tax liabilities and assets of the Company as of September 30, 2022 and December 31, 2021:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Deferred tax liabilities: | ||||||||
| Accelerated depreciation | $ | 39,097 | $ | - | ||||
| 39,097 | - | |||||||
| Deferred tax assets, net: | ||||||||
| Net operating loss carryforwards | 2,470,617 | 2,483,436 | ||||||
| Less: valuation allowance | (2,470,617 | ) | (2,483,436 | ) | ||||
| - | - | |||||||
| Deferred tax liabilities, net | $ | 39,097 | $ | - | ||||
As of September 30, 2022 and December 31, 2021, the operations incurred $15.0 million and $15.1 million, respectively of cumulative net operating losses which can be carried forward to offset future taxable income. Net operating loss can be carried forward indefinitely but cannot be carried back to prior years. There are no group relief provisions for losses or transfers of assets under Hong Kong tax regime. Each company within a corporate group is taxed as a separate entity. The Company has provided for a full valuation allowance against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes that it is more likely than not that these assets will not be realized in the future. The valuation allowance is reviewed annually.
Uncertain tax positions
The Company evaluates the uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of September 30, 2022 and December 31, 2021, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the nine months ended September 30, 2022 and 2021 and also did not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from September 30, 2022.
F-29
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 12 － 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 five business segments comprised of the following products and services:
| ● | Asset management business, offering wealth management service and distributing a board suite of funds and financial products, through the Hong Kong Securities and Futures Commission (SFC) licenses; | |
| ● | Insurance brokerage business, covering life insurance, property-casualty insurance brokerage and mandatory provident fund (MPF) products through the Hong Kong Insurance Authority and the Mandatory Provident Fund Schemes Authority (MPFA) licenses; | |
| ● | Money lending business, offering mortgages and personal loans, through the Hong Kong money lender’s license; and | |
| ● | Real estate agency business, providing one-stop sales, leasing, agency and advisory services for international real estates; and | |
| ● | Fintech business, managing an ensemble of fintech investments 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 since its launch in November 2020. |
The five operating segments were determined based primarily on how the chief operating decision maker views and evaluates the operations. Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including market separation and customer specific applications, go-to-market channels, products and services are considered in determining the formation of these operating segments.
The following tables present the summary information by segment for the nine months ended September 30, 2022 and 2021:
| For the nine months ended September 30, 2022 | ||||||||||||||||||||||||
| Asset management | Insurance brokerage | Money lending | Real estate agency | Fintech | Total | |||||||||||||||||||
| Revenue, net | ||||||||||||||||||||||||
| Segment revenue | $ | 4,803,288 | $ | 14,306,599 | $ | 137,454 | $ | 162,806 | $ | 4,330 | $ | 19,414,477 | ||||||||||||
| Less: inter-segment | - | - | - | - | (4,330 | ) | (4,330 | ) | ||||||||||||||||
| 4,803,288 | 14,306,599 | 137,454 | 162,806 | - | 19,410,147 | |||||||||||||||||||
| Commission expense | 1,517,648 | 9,630,556 | - | 70,978 | - | 11,219,182 | ||||||||||||||||||
| Depreciation | 563 | 623 | 29,997 | 256,257 | 790 | 288,230 | ||||||||||||||||||
| Income (loss) from operations | (3,145,470 | ) | (1,701,069 | ) | 12,956 | (462,178 | ) | (1,149,989 | ) | (6,445,750 | ) | |||||||||||||
| Capital expenditures | - | - | - | - | - | - | ||||||||||||||||||
| Total assets | $ | 39,523,257 | $ | 5,656,231 | $ | 3,321,460 | $ | 10,405,675 | $ | 36,647,101 | $ | 95,553,724 | ||||||||||||
F-30
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 12 － SEGMENT INFORMATION (cont.)
| For the nine months ended September 30, 2021 | ||||||||||||||||||||||||
| Asset management | Insurance brokerage | Money lending | Real estate agency | Fintech | Total | |||||||||||||||||||
| Revenue, net | ||||||||||||||||||||||||
| Segment revenue | $ | 7,244,651 | $ | 732,859 | $ | 859,843 | $ | 136,683 | $ | - | $ | 8,974,036 | ||||||||||||
| Less: inter-segment | - | - | - | - | - | - | ||||||||||||||||||
| 7,244,651 | 732,859 | 859,843 | 136,683 | - | 8,974,036 | |||||||||||||||||||
| Commission expense | 2,655,450 | 251,667 | - | 46,861 | - | 2,953,978 | ||||||||||||||||||
| Depreciation | 400 | 323 | 31,300 | - | 2,088 | 34,111 | ||||||||||||||||||
| Income (loss) from operations | 1,478,041 | (3,731,762 | ) | 621,864 | (154,133 | ) | (2,562,494 | ) | (4,348,484 | ) | ||||||||||||||
| Capital expenditures | - | - | - | - | - | - | ||||||||||||||||||
| Total assets | $ | 49,723,631 | $ | 1,148,729 | $ | 10,696,301 | $ | 178,093 | $ | 225,362,027 | $ | 287,108,781 | ||||||||||||
All of the Company’s customers and operations are based in Hong Kong.
NOTE 13 － RELATED PARTY BALANCES AND TRANSACTIONS
In support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by the Shareholder. Amounts represent advances or amounts paid in satisfaction of liabilities.
Related party balances consisted of the following:
| As of | ||||||||||
| September 30, 2022 | December 31, 2021 | |||||||||
| Balance with related parties: | ||||||||||
| Accounts receivable | (a) | $ | 177,393 | $ | 238,892 | |||||
| Non-marketable equity securities – Investment E | (b) | 519,767 | 523,269 | |||||||
| Balance with Shareholder: | ||||||||||
| Earnest deposit | Note 7 | - | 7,182,131 | |||||||
| Receivable from the Shareholder | Note 10 | $ | 3,165,188 | $ | 29,562,195 | |||||
| (a) | Accounts receivable due from related parties represented the management service rendered to two (2) individual close-ended investment private funds registered in the Cayman Islands, which is controlled by the Shareholder. |
| (b) | The Company purchased 4% equity interest in Investment E from a related party in May 2021, based on its historical cost. |
F-31
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 13 － RELATED PARTY BALANCES AND TRANSACTIONS (cont’d)
In the ordinary course of business, during the nine months ended September 30, 2022 and 2021, the Company involved with transactions, either at cost or current market prices and on the normal commercial terms among related parties. The following table provides the transactions with these parties for the periods as presented (for the portion of such period that they were considered related):
| For the nine months ended September 30, | ||||||||||
| 2022 | 2021 | |||||||||
| Transaction with related parties: | ||||||||||
| Asset management service income | (c) | $ | 725,193 | $ | 701,294 | |||||
| Management fee income | (d) | - | 63,735 | |||||||
| Interest income on debt securities | (e) | - | 180,040 | |||||||
| Commission expenses | (f) | 131,182 | 191,748 | |||||||
| Transaction with the Shareholder: | ||||||||||
| Interest expense on note payable to the Shareholder | (g) | - | 483,519 | |||||||
| Office and operating fee charge | (h) | 1,563,673 | 1,958,725 | |||||||
| General and administrative expense allocated | (i) | 817,968 | 638,113 | |||||||
| Purchase of investment from the Shareholder | (j) | 6,560,122 | 525,704 | |||||||
| Purchase of office building from the Shareholder | (k) | 5,995,249 | - | |||||||
| Special dividends declared to the Shareholder | (l) | $ | 47,000,000 | $ | - | |||||
| (c) | Under the Management Agreement, the Company shall provide management service to the portfolio assets held by two (2) individual close-ended investment private funds in the Cayman Islands, which is controlled by the Shareholder, 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. |
| (d) | The Company received the management fee income, including the reimbursement of rent, rates and building management fee from a related company, which is related and controlled by a common director, Mr. Yap E Hock. |
| (e) | The Company earned interest income on the corporate bonds issued by the Shareholder, at the annual rate of 6% and it was matured in November 2021. |
| (f) | Commission fee on insurance brokerage and asset management referral at the predetermined rate based on the service fee. |
| (g) | Under the Letters of Acknowledgement and Undertaking, the Company agreed to pay an interest expense at the annual rate of 2% per annum, based on the monthly outstanding balance. The balance was fully repaid during the year ended December 31, 2021. |
| (h) | Pursuant to the Service Agreement, the Company agreed to pay the office and administrative expenses to the Shareholder for the use of office premises, including, among other things, building management fees, government rates and rent, office rent, and lease-related interest and depreciation that were actually incurred by the Shareholder. Also, the Shareholder charged back the reimbursement of legal fee and debt collection fee in the ordinary course of business. |
| (i) | Certain amounts of general and administrative expenses were allocated by the Shareholder. |
| (j) | The Company purchased 4,158,963 shares of Investment A from the Shareholder at the historical cost and the transaction was completed in April 2022. |
| (k) | The Company purchased an office building from the Shareholder in January 2022, based on its historical cost. |
| (l) | On January 18, 2022, Fintech approved to declare and distribute a special dividend of $47 million to TAG Holdings Limited, the shareholder who represented 1 ordinary share of Fintech. The dividends were paid by offsetting the receivable due from the Shareholder and the remaining balance was paid by cash. The special dividend distribution was made due to the investment income from the sale of Nutmeg in September 2021. |
Apart from the transactions and balances detailed elsewhere in these accompanying unaudited condensed combined financial statements, the Company has no other significant or material related party transactions during the periods presented.
NOTE 14 － SHAREHOLDER’S EQUITY
Dividend distribution
On January 18, 2022, Fintech approved to declare and distribute a special dividend of $47 million to TAG Holdings Limited, the shareholder who represented 1 ordinary share of Fintech. The dividends were paid by offsetting the receivable due from the Shareholder and the remaining balance was paid by cash. The special dividend distribution was made due to the investment income from the sale of Nutmeg in September 2021.
F-32
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 15 － CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
| (a) | Major customers |
For the nine months ended September 30, 2022, there was no single customer who accounted for 10% or more of the Company’s revenues.
For the nine months ended September 30, 2021, there was no single customer who accounted for 10% or more of the Company’s revenues.
All of the Company’s major customers are located in Hong Kong.
| (b) | Credit risk |
Financial instruments that potentially subject the Company to credit risk consist of cash equivalents, restricted cash, accounts and loans receivable. Cash equivalents are maintained with high credit quality institutions, the composition and maturities of which are regularly monitored by management. The Hong Kong Deposit Protection Board pays compensation up to a limit of HK$500,000 (approximately $64,103) if the bank with which an individual/a company hold its eligible deposit fails. As of September 30, 2022, cash and cash equivalents of $16.3 million and fund held in escrow of $34.7 million were maintained at financial institutions in Hong Kong, of which approximately $51.0 million was subject to credit risk. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
For accounts and loans receivable, the Company determines, on a continuing basis, the probable losses and sets up an allowance for doubtful accounts and loan losses based on the estimated realizable value. Credit of money lending business is controlled by the application of credit approvals, limits and monitoring procedures.
The Company uses internally-assigned risk grades to estimate the capability of borrowers to repay the contractual obligations of their loan agreements as scheduled or at all. The Company’s internal risk grade system is based on experiences with similarly graded loans and the assessment of borrower credit quality, such as, credit risk scores, collateral and collection history. Individual credit scores are assessed by credit bureau, such as TransUnion. Internal risk grade ratings reflect the credit quality of the borrower, as well as the value of collateral held as security. To minimize credit risk, the Company requires collateral arrangements to all mortgage loans and has policies and procedures for validating the reasonableness of the collateral valuations on a regular basis. Management believes that these policies effectively manage the credit risk from advances.
F-33
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 15 － CONCENTRATIONS OF RISK (cont.)
The Company’s third-party customers that represent more than 10% of total combined loans receivable, and their related net loans receivable balance as a percentage of total combined loans receivable, as of September 30, 2022 and December 31, 2021 were as follows:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Customer A | - | 59.0 | % | |||||
| Customer B | 37.4 | % | 15.3 | % | ||||
| Customer C | 31.6 | % | 13.0 | % | ||||
| Customer D | 31.0 | % | 12.6 | % | ||||
| (c) | Economic and political risk |
The Company’s major operations are conducted in Hong Kong. Accordingly, the political, economic, and legal environments in Hong Kong, as well as the general state of Hong Kong’s economy may influence the Company’s business, financial condition, and results of operations.
| (d) | Exchange rate risk |
The Company cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of Sterling and HKD converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
For the nine months ended September 30, 2022 and 2021, the Company recorded the foreign exchange loss of $4,690,476 and $41,172, respectively.
| (e) | Liquidity risk |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s policy is to ensure that it has sufficient cash to meet its liabilities when they become due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. A key risk in managing liquidity is the degree of uncertainty in the cash flow projections. If future cash flows are fairly uncertain, the liquidity risk increases.
F-34
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 15 － CONCENTRATIONS OF RISK (cont.)
| (f) | Risk from Coronavirus (“COVID-19”) |
The ongoing outbreak of the novel coronavirus (COVID-19) has spread rapidly to many parts of the world. In March 2020, the World Health Organization declared the COVID-19 as a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in Hong Kong from February to mid-March 2020. All of the Company’s business operations and the workforce are concentrated in Hong Kong, so the Company closed offices and implemented work-from-home policy during that period. Due to the nature of the Company’s business, the impact of the closure on the operational capabilities was not significant. However, the Company’s customers were negatively impacted by the pandemic and reduce their budgets on investment portfolio. However, the resurgence of the Omicron variant of COVID-19, which is presently thought to be the most transmissible and contagious variant of COVID-19, has caused a surge in COVID-19 cases in Hong Kong, since March 2022. The impact of the Omicron variant, or other variants that may emerge in the future, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates, the effectiveness of COVID-19 vaccines against future variants, and the response by governmental bodies to reinstate mandated business closures, orders to “shelter in place” and travel and transportation restrictions. The Company has suffered from significant and continuing disruption to consumer activity.
Additionally, the Company has experienced labor constraints resulting from COVID-19-related quarantine measures or employee turnover due to resistance to vaccine mandates imposed by local governments or the customers. The Company suffered from significant disruption to operational activities and staffing shortages, which could have a material adverse effect on our business, financial condition and results of operation. Potential impact to the Company’s results of operations for 2022 will also depend on economic impact due to the pandemic and if any future resurgence of the virus globally, which are beyond the Company’s control. There is no guarantee that the Company’s revenues will grow or remain at a similar level year over year in 2022.
NOTE 16 － COMMITMENTS AND CONTINGENCIES
Litigation — From time to time, the Company is involved in various legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition, operating results, or cash flows.
As at September 30, 2022, the Company involved with various legal proceedings:-
Action Case: HCA702/2018 On March 27, 2018, the writ of summons was issued against the Company and seven related companies of the former shareholder by the Plaintiff. This action alleged the infringement of certain registered trademarks currently registered under the Plaintiff. On August 23, 2018, the Company filed the Defense and Counterclaim against the Plaintiff for the breach of fiduciary duties by causing those registered trademarks being transferred to the Plaintiff at nominal value. The court hearing (not the trial itself) was taken place on May 30, 2022 and it is expected that the case will be on trial in early 2023. The Company continues to cooperate in this matter. At this stage in the proceedings, the Company is unable to determine the probability of the outcome of the matter or the range of reasonably possible loss, if any.
Action Case: HCA765/2019 On April 30, 2019, the writ of summons was issued against the Company’s subsidiary, three related companies and the former directors, shareholders and financial consultant by the Plaintiff. This action alleged the deceit and misrepresentation from an inducement of the fund subscription and claimed for compensatory damage of approximately $2 million (equal to HK$17.1million). The Company acquired this defendant subsidiary in March 2019. The Company considered a legal action to indemnify the loss from the defendant shareholders and directors in connection with the sale of business. This action is still at an early stage of legal proceedings and no court trial is confirmed. The Company continues to cooperate in this matter. At this stage in the proceedings, the Company is unable to determine the probability of the outcome of the matter or the range of reasonably possible loss, if any.
F-35
TAG INTERNATIONAL LIMITED
AND
TAG ASIA CAPITAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
NOTE 16 － COMMITMENTS AND CONTINGENCIES (cont.)
Action Case: HCA2097 and 2098/2020 On December 15, 2020, the writs of summons were issued against the Company and the former consultant by the Plaintiff. This action alleged the misrepresentation and conspiracy causing the loss from the investment in corporate bond and claimed for compensatory damage of approximately $1.67 million (equal to HK$13 million). The Company filed the defense to the High Court of Hong Kong in March 2021. The Company commenced mediation discussion with the plaintiff in March 2022 and no consensus was reached. This action was scheduled for a Case Management Summons hearing in August 2022 and no court trial has been confirmed. The Company believed that the settlement amount was highly unlike to exceed 50% of the principal amount and the Company recorded an estimated liability for this matter. In June 2022, the Company received the settlement offer of approximately $0.92 million from the Plaintiff and the Company accepted to pay the final settlement. The Company previously made $0.84 million as contingency loss for the year ended December 31, 2021 and further accrued the remaining balance of $0.08 million in June 2022. Subsequently in October 2022, the Company has exchanged witness statements with the Plaintiffs and there is no change on the settlement.
The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimate settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.
NOTE 17 － SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before unaudited condensed combined financial statements are issued, The Company has assessed all events from September 30, 2022, up through December 19, 2022, which is the date that these unaudited condensed combined financial statements are available to be issued, unless as disclosed below, there are not any material subsequent events that require disclosure in these unaudited condensed combined financial statements.
On October 31, 2022, the Company entered into a sale and purchase agreement with the Shareholder to acquire 4% equity interest of LC Healthcare Fund I, L.P. for a cash consideration of $9.64 million. This transaction will be recorded based on its historical cost of the Legacy Group.
On November 14, 2022, the Company and its sole shareholder completed its business combination with AGBA Acquisition Limited (“Old AGBA”). Through a merger, the Company has become 100%-owned subsidiaries of Old AGBA. The post-combination company has been renamed as, “AGBA Group Holding Limited” and its ordinary shares and warrants began trading on the Nasdaq Capital Market (“Nasdaq”) on November 15, 2022 under the ticker symbols “AGBA” and “AGBAW” respectively.
F-36
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Defined terms included below have the same meanings as terms defined and included elsewhere in the Current Report on Form 8-K and if not defined in the Form 8-K, the definitive proxy statement filed with the Securities and Exchange Commission on October 28, 2022.
Introduction
On November 14, 2022 (the “Transaction Close”), TAG Business completed its previously announced de-SPAC merger transaction (the “Transaction”) with AGBA pursuant to Business Combination Agreement dated as of November 3, 2021 (as amended on November 18, 2021, January 4, 2022, May 4, 2022, August 11, 2022 and October 21, 2022, the “Business Combination Agreement”), by and among AGBA, AGBA Merger Sub, TAG International Limited, TAG Asset Partners Limited, OnePlatform International Limited, OnePlatform Holdings Limited, TAG Asia Capital Holdings Limited, and TAG Holdings Limited.
Prior to the Transaction Close, holders of ordinary shares of AGBA had the right to redeem all or a portion of their AGBA ordinary shares for a per share price calculated in accordance with AGBA’s governing documents. The following unaudited pro forma condensed combined financial is based on the historical financial statements of TAG Business and AGBA after giving effect to the Transaction and reflected the actual redemption of 2,025,719 AGBA ordinary shares.
The unaudited pro forma combined balance sheet as of September 30, 2022 gives pro forma effect to the Business Combination as if it had been consummated as of that date. The unaudited pro forma combined statements of operations for the nine months ended September 30, 2022 and for the year ended December 31, 2021 give pro forma effect to the Business Combination as if it had occurred as of January 1, 2021. This information should be read together with TAG Business’s, and AGBA’s respective audited and unaudited financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of TAG Business,”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of AGBA” and other financial information included elsewhere in definitive proxy statement.
The unaudited pro forma combined balance sheet as of September 30, 2022 has been prepared using the following:
| ● | TAG Business’s unaudited combined balance sheet as of September 30, 2022, as included in definitive proxy statement; and |
| ● | AGBA’s unaudited condensed consolidated balance sheet as of September 30, 2022, as included in Form 10-Q. |
The unaudited pro forma combined statement of operations for the period ended September 30, 2022 has been prepared using the following:
| ● | TAG Business’s unaudited combined statements of operations and comprehensive loss for the nine months ended September 30, 2022, as included in definitive proxy statement; and |
| ● | AGBA’s unaudited condensed consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2022, as included in Form 10-Q. |
The unaudited pro forma combined statement of operations for the year ended December 31, 2021 has been prepared using the following:
| ● | TAG Business’s audited combined statements of operations and comprehensive loss for the year ended December 31, 2021, as included in definitive proxy statement; |
| ● | AGBA’s audited statement of operations and comprehensive loss for the year ended December 31, 2021, as included in definitive proxy statement. |
Description of the Transactions
On November 3, 2021, each of AGBA Acquisition Limited, TAG International Limited, TAG Asset Partners Limited, OnePlatform International Limited, OnePlatform Holdings Limited, TAG Asia Capital Holdings Limited, and TAG Holdings Limited entered into the Business Combination Agreement. On November 18, 2021, the parties to the Business Combination Agreement executed an Amendment to the Business Combination Agreement to reflect HKSub, not OPH, as the surviving entity of the OPH Merger, in accordance with Hong Kong law. On January 4, 2022, these parties and the Merger Subs, which had acceded to the Business Combination Agreement in accordance with its terms, entered into a second amendment of the Business Combination Agreement, extending the timeline for the parties to agree on the ancillary agreements thereto and the deadline for the consummation of the Business Combination. On May 4, 2022, the parties to the Business Combination executed a third amendment to the agreement, further extending those deadlines. On August 11, 2022, OPH merged with and into HKSub, with HKSub as the surviving entity, completing the OPH Merger. As a result, HKSub, as the combined surviving company, became an indirect, wholly-owned subsidiary of B2B. On October 21, 2022, the parties to the Business Combination Agreement executed the October Amendment, whereby they extended the Outside Closing Date of the Business Combination from October 31, 2022 to December 31, 2022.
At Closing, AGBA has become, by way of an acquisition merger, the beneficial owner of all of the issued and outstanding shares and other equity interests in and of each of OPH and Fintech, and AGBA will, in exchange, issue 55,500,000 of its ordinary shares to TAG. Notwithstanding TAG’s earlier intention to distribute the Aggregate Stock Consideration (including the Holdback Shares) received in connection with the Business Combination to its direct or indirect ultimate beneficial shareholders, TAG has, pursuant to the October Amendment, undertaken not to make any such distribution to its ultimate beneficial shareholders. Nothing in this undertaking, however, shall prevent TAG, subject to compliance with applicable Law, from pledging or encumbering the Aggregate Stock Consideration (including the Holdback Shares) or selling or otherwise disposing of any or all of the Aggregate Stock Consideration (including the Holdback Shares) to any other person or persons for value consideration.
Accounting for the Transactions
The Business Combination will be accounted for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, AGBA will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the holders of TAG expecting to have a majority of the voting power of the post-combination company, TAG’s senior management comprising all of the senior management of the Post-Combination Company, the relative size of the TAG Business compared to AGBA, and the TAG Business’s operations comprising the ongoing operations of the Post-Combination Company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of the TAG Business issuing shares for the net assets of AGBA, accompanied by a recapitalization. The net assets of AGBA will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of the TAG Business.
Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an illustrative understanding of Combined Company upon consummation of the Business Combination in accordance with GAAP. Further, the unaudited pro forma condensed combined financial information does not purport to project the future operating results or financial position of Combined Company following the consummation of the Business Combination. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial information and are subject to change as additional information becomes available and analyses are performed.
The unaudited pro forma combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma combined financial information as being indicative of the historical financial position and results that would have been achieved had the companies always been combined or the future financial position and results that the post-combination company will experience. TAG Business and AGBA have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
Included in the shares outstanding and weighted average shares outstanding as presented in the pro forma combined financial statements are 55,500,000 ordinary shares to be issued to TAG Business shareholders.
Prior to the Transaction Close, the holders of AGBA ordinary shares had the right to redeem all or a portion of their AGBA ordinary shares calculated in accordance with AGBA’s governing documents. The following unaudited pro forma condensed combined financial information is based on the historical financial statements of TAG Business and AGBA giving effect to the Transaction and reflects the actual redemption of 2,025,719 AGBA ordinary shares.
As a result of the Business Combination and immediately following the closing of the Business Combination, after reflecting the actual redemption of 2,025,719 shares by AGBA shareholders, TAG Business will own approximately 92.6% of the outstanding AGBA ordinary shares, the former shareholders of AGBA will own approximately 3.5% of the outstanding AGBA ordinary shares.
F-2
AGBA GROUP HOLDING LIMITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2022
(Unaudited)
| As of September 30, 2022(A) | As of September 30, 2022(B) | |||||||||||||||||||
| TAG Business | AGBA | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 16,260,750 | $ | 96,914 | $ | 23,639,595 | (1) | $ | 10,903,711 | |||||||||||
| (8,798 | ) | (2) | ||||||||||||||||||
| (23,534,750 | ) | (4) | ||||||||||||||||||
| (5,550,000 | ) | (6) | ||||||||||||||||||
| Restricted cash | 34,678,192 | — | 15,288,847 | (1) | 49,967,039 | |||||||||||||||
| Accounts receivable, net | 2,685,237 | — | — | 2,685,237 | ||||||||||||||||
| Loans receivable, net | 513,420 | — | — | 513,420 | ||||||||||||||||
| Prepaid expenses and other current assets | 639,111 | 1,866 | (1,866 | ) | (2) | 639,111 | ||||||||||||||
| Total Current Assets | 54,776,710 | 98,780 | 9,833,028 | 64,708,518 | ||||||||||||||||
| Non-current assets: | ||||||||||||||||||||
| Cash and investment held in Trust account | — | 38,928,442 | (38,928,442 | ) | (1) | — | ||||||||||||||
| Loans receivable, net | 1,070,466 | — | — | 1,070,466 | ||||||||||||||||
| Property and equipment, net | 7,323,891 | — | — | 7,323,891 | ||||||||||||||||
| Long-term investments | 32,382,657 | — | — | 32,382,657 | ||||||||||||||||
| Other non-current assets | 40,777,014 | 38,928,442 | (38,928,442 | ) | 40,777,014 | |||||||||||||||
| Total Assets | $ | 95,553,724 | $ | 39,027,222 | $ | (29,095,414 | ) | $ | 105,485,532 | |||||||||||
| Liabilities and shareholders’ (deficit) equity: | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 6,614,774 | $ | 8,798 | $ | (8,798 | ) | (2) | $ | 9,713,821 | ||||||||||
| 2,169,847 | (3) | |||||||||||||||||||
| 929,200 | (4) | |||||||||||||||||||
| Escrow liabilities | 34,678,192 | — | — | 34,678,192 | ||||||||||||||||
| Income tax payable | 23,375,715 | — | — | 23,375,715 | ||||||||||||||||
| Borrowings | 4,453,346 | — | — | 4,453,346 | ||||||||||||||||
| Note payable | — | 5,266,243 | (5,266,243 | ) | (7) | — | ||||||||||||||
| Due to related parties | — | 1,645,353 | (1,645,353 | ) | (7) | — | ||||||||||||||
| Total current liabilities | 69,122,027 | 6,920,394 | (3,821,347 | ) | 72,221,074 | |||||||||||||||
F-3
AGBA GROUP HOLDING LIMITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2022
(Unaudited)
| As of September 30, 2022(A) | As of September 30, 2022(B) | |||||||||||||||||
| TAG Business | AGBA | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||
| Non-current liabilities: | ||||||||||||||||||
| Warrant liabilities | — | 13,500 | — | 13,500 | ||||||||||||||
| Deferred underwriting compensation | — | 1,840,000 | (1,840,000 | ) | (4) | — | ||||||||||||
| Deferred tax liabilities | 39,097 | — | — | 39,097 | ||||||||||||||
| Total non-current liabilities | 39,097 | 1,853,500 | (1,840,000 | ) | 52,597 | |||||||||||||
| Total liabilities | 69,161,124 | 8,773,894 | (5,661,347 | ) | 72,273,671 | |||||||||||||
| Commitments and contingencies | ||||||||||||||||||
| Ordinary shares, subject to possible redemption: 3,362,871 shares as of September 30, 2022 (at redemption value of $11.58 per share) | — | 38,928,442 | (38,928,442 | ) | (4) | — | ||||||||||||
| Shareholders’ equity (deficit) | ||||||||||||||||||
| Ordinary shares | 2 | 1,375 | (1,377 | ) | (4) | 59,459 | ||||||||||||
| 2,713 | (4) | |||||||||||||||||
| 55,500 | (5) | |||||||||||||||||
| 555 | (6) | |||||||||||||||||
| 691 | (7) | |||||||||||||||||
| Additional paid-in capital | 38,761,725 | — | 17,232,356 | (4) | 48,622,442 | |||||||||||||
| (8,731,989 | ) | (5) | ||||||||||||||||
| (5,550,555 | ) | (6) | ||||||||||||||||
| 6,910,905 | (7) | |||||||||||||||||
| Receivable from the Shareholder | (3,165,188 | ) | — | (3,165,188 | ) | |||||||||||||
| Accumulated deficit | (8,606,749 | ) | (8,676,489 | ) | (1,866 | ) | (2) | (11,707,662 | ) | |||||||||
| (2,169,847 | ) | (3) | ||||||||||||||||
| (929,200 | ) | (4) | ||||||||||||||||
| 8,676,489 | (5) | |||||||||||||||||
| Accumulated other comprehensive loss | (597,190 | ) | — | — | (597,190 | ) | ||||||||||||
| Total shareholders’ equity (deficit) | 26,392,600 | (8,675,114 | ) | 15,494,375 | 33,211,861 | |||||||||||||
| Total liabilities and shareholders’ equity (deficit) | $ | 95,553,724 | $ | 39,027,222 | $ | (29,095,414 | ) | $ | 105,485,532 | |||||||||
| Weighted average shares outstanding – basic and diluted | 59,940,809 | |||||||||||||||||
| Book value per share or Pro Forma book value per share – basic and diluted | 0.55 | |||||||||||||||||
| (A) | Derived from the unaudited combined balance sheet of TAG Business as of September 30, 2022. See TAG Business’s unaudited combined financial statements and the related notes in definitive proxy statement. |
| (B) | Derived from the unaudited condensed consolidated balance sheet of AGBA as of September 30, 2022. See AGBA’s unaudited condensed consolidated financial statements and the related notes in Form 10-Q. |
| (1) | Reflects the release of cash from marketable securities held in the trust account. |
| (2) | Reflects the payment of AGBA’s accrued liabilities and recognized prepaid expenses. |
| (3) | Reflects the preliminary estimated transaction costs of $2.2 million to be incurred by AGBA and TAG Business at the close of the Business Combination. Of that amount, approximately $2.2 million was already included in the historical retained earnings (accumulated deficit) of TAG Business and AGBA, approximately $3 million which are expected to be incurred was adjusted in accumulated deficit, $0.9 million relates to deferred underwriting compensation to be paid upon the consummation of the business combination, which was included in historical balance sheet of AGBA. Transaction costs expensed include legal, accounting, advisory, and other miscellaneous fees associated with the merger. Such cost will not recur beyond 12 months following the merger. |
| (4) | Reflects 2,025,719 shares are redeemed for cash by the AGBA shareholders, $23.5 million would be paid out in cash after giving effect to payments to redeeming shareholders based on a consummation of the Business Combination on September 30, 2022. |
| (5) | Reflects the recapitalization of AGBA through (a) the contribution of all the share capital in TAG Business to AGBA, and (b) the issuance of 55,500,000 ordinary shares to TAG Business’s shareholders. |
| (6) | Reflects the payment of 2% finder fee in the manner of (a) 50% paid by issuance of 555,000 ordinary shares to Apex Twinkle Limited as financial advisor to the Business Combination and (b) 50% paid by cash. |
| (7) | Reflects the repayment of note payable and amount due to related parties by issuance of 691,157 ordinary shares. |
F-4
| Nine months ended September 30, 2022(A) | Nine months ended September 30, 2022(B) | Pro Forma Statement of Operations | ||||||||||||||||||
| TAG Business | AGBA | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||
| Total revenue | $ | 19,410,147 | $ | — | $ | — | $ | 19,410,147 | ||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Interest expense | 20,085 | 20,085 | ||||||||||||||||||
| Commission expense | 11,219,182 | — | — | 11,219,182 | ||||||||||||||||
| Selling expense | 245,814 | — | — | 245,814 | ||||||||||||||||
| General and administrative expense | 14,370,816 | 750,746 | — | 15,121,562 | ||||||||||||||||
| Loss from operations | (6,445,750 | ) | (750,746 | ) | — | (7,196,496 | ) | |||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Change in fair value of warrant liabilities | — | 476,500 | — | 476,500 | ||||||||||||||||
| Dividend income | — | 120,489 | — | 120,489 | ||||||||||||||||
| Interest income | 24,161 | 6 | — | 24,167 | ||||||||||||||||
| Foreign exchange loss, net | (4,690,476 | ) | — | — | (4,690,476 | ) | ||||||||||||||
| Investment loss, net | (2,793,242 | ) | — | — | (2,793,242 | ) | ||||||||||||||
| Other income | 405,596 | — | — | 405,596 | ||||||||||||||||
| Total other income (expense), net | (7,053,961 | ) | 596,995 | — | (6,456,966 | ) | ||||||||||||||
| Loss before income taxes | (13,499,711 | ) | (153,751 | ) | — | (13,653,462 | ) | |||||||||||||
| Income tax expense | (232,540 | ) | — | — | (232,540 | ) | ||||||||||||||
| Net loss | $ | (13,732,251 | ) | $ | (153,751 | ) | $ | — | $ | (13,886,002 | ) | |||||||||
| Basic and diluted weighted average ordinary shares outstanding | — | 1,375,000 | (8) | 59,940,809 | ||||||||||||||||
| Basic and diluted net loss per ordinary shares | $ | — | $ | (0.11 | ) | $ | (0.23 | ) | ||||||||||||
| (A) | Derived from the unaudited combined statement of operations and comprehensive loss of TAG for the nine months ended September 30, 2022. See TAG’s unaudited combined financial statements and the related notes in definitive proxy statement. |
| (B) | Derived from the unaudited condensed consolidated statement of operations and comprehensive loss of AGBA for the nine months ended September 30, 2022. See AGBA’s unaudited condensed consolidated financial statements and the related notes in Form 10-Q. |
| (8) | The calculation of weighted average shares outstanding for basic and diluted net earnings (loss) per share assumes that AGBA’s initial public offering occurred as of January 1, 2021. In addition, as the Business Combination is being reflected as if it had occurred on this date, the calculation of weighted average shares outstanding for basic and diluted net earnings per share assumes that the shares have been outstanding for the entire period presented. This calculation is retroactively adjusted to eliminate the number of shares redeemed in the Business Combination for the entire period. |
F-5
| Year ended December 31, 2021(A) | Year ended December 31, 2021 (B) | Pro Forma Statement of Operations | ||||||||||||||||||
| TAG Business | AGBA | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||
| Total revenue | $ | 11,468,603 | $ | — | $ | — | $ | 11,468,603 | ||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Interest expense | 484,020 | — | — | 484,020 | ||||||||||||||||
| Commission expense | 3,866,251 | — | — | 3,866,251 | ||||||||||||||||
| Selling expense | 140,801 | — | — | 140,801 | ||||||||||||||||
| General and administrative expense | 15,424,654 | 683,796 | — | 16,108,450 | ||||||||||||||||
| Loss from operations | (8,447,123 | ) | (683,796 | ) | — | (9,130,919 | ) | |||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Change in fair value of warrant liabilities | — | (100,000 | ) | — | (100,000 | ) | ||||||||||||||
| Dividend income | — | 3,773 | — | 3,773 | ||||||||||||||||
| Interest income | 251,369 | 10,707 | — | 262,076 | ||||||||||||||||
| Foreign exchange loss, net | (915,062 | ) | — | — | (915,062 | ) | ||||||||||||||
| Investment income, net | 130,255,232 | — | — | 130,255,232 | ||||||||||||||||
| Loss on equity method investment | (1,596,555 | ) | — | — | (1,596,555 | ) | ||||||||||||||
| Other income | 421,107 | — | — | 421,107 | ||||||||||||||||
| Total other income (expense), net | 128,416,091 | (85,520 | ) | — | 128,330,571 | |||||||||||||||
| Income (loss) before income taxes | 119,968,968 | (769,316 | ) | — | 119,199,652 | |||||||||||||||
| Income tax expense | (23,505,445 | ) | — | — | (23,505,445 | ) | ||||||||||||||
| Net income (loss) | $ | 96,463,523 | $ | (769,316 | ) | $ | — | $ | 95,694,207 | |||||||||||
| Basic and diluted weighted average ordinary shares outstanding | — | 1,375,000 | (8) | 59,940,809 | ||||||||||||||||
| Basic and diluted net income (loss) per ordinary shares | $ | — | $ | (0.56 | ) | — | $ | 1.60 | ||||||||||||
| (A) | Derived from the audited combined statement of operations and comprehensive loss of TAG for the year ended December 31, 2022See TAG’s audited combined financial statements and the related notes in definitive proxy statement. |
| (B) | Derived from the audited consolidated statement of operations and comprehensive loss of AGBA for the year ended December 31, 2021. See AGBA’s consolidated financial statements and the related notes in definitive proxy statement. |
| (8) | The calculation of weighted average shares outstanding for basic and diluted net earnings (loss) per share assumes that AGB’s initial public offering occurred as of January 1, 2021. In addition, as the Business Combination is being reflected as if it had occurred on this date, the calculation of weighted average shares outstanding for basic and diluted net earnings per share assumes that the shares have been outstanding for the entire period presented. This calculation is retroactively adjusted to eliminate the number of shares redeemed in the Business Combination for the entire period. |
F-6
| Pro Forma | ||||
| Combined | ||||
| Actual Redemption | ||||
| Weighted average shares calculation, basic and diluted | ||||
| AGBA public shares | 1,337,152 | |||
| AGBA shares converted from rights | 482,500 | |||
| AGBA Sponsor shares | 2,066,157 | |||
| AGBA shares issued to finder | 555,000 | |||
| AGBA shares issued in the Business Combination | 55,500,000 | |||
| Weighted average shares outstanding | 59,940,809 | |||
| Percent of shares owned by TAG Business shareholders | 92.6 | % | ||
| Percent of shares owned by AGBA | 3.5 | % | ||
F-7
Exhibit 99.3
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE TAG BUSINESS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of operations and financial condition of the TAG Business for the nine months ended September 30, 2022 and 2021. The following discussion and analysis of results of operations and financial condition should be read in conjunction with the unaudited condensed consolidated financial statements of the TAG Business as of September 30, 2022 and for the nine months ended September 30, 2022 and 2021, together with related notes thereto filed as Exhibit 99.1 and Exhibit 99.2 to the Amendment No. 1 to the Current Report on Form 8-K/A (the “Form 8-K/A”) to which this Exhibit is filed.
This discussion contains forward-looking statements based upon expectations, estimates, and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed below and in AGBA Group Holding Limited’s Current Report on Form 8-K filed with the SEC on November 18, 2022, particularly in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward Looking Statements.”
The Business Combination
On November 14, 2022, the TAG Business and its sole shareholder, TAG, consummated the Business Combination with AGBA Acquisition Limited. Pursuant to the Business Combination Agreement, (i) AGBA Acquisition Limited became, through an acquisition merger, the 100% owner of the issued and outstanding securities of each of TAG International Limited (“B2B”) and TAG Asia Capital Holdings Limited (“Fintech), in exchange for 55,500,000 ordinary shares of AGBA, par value US$0.001 per share to TAG (subject to certain indemnity holdback provisions in the Business Combination Agreement). This resulted in AGBA acquiring the TAG Business; (ii) the governing documents of AGBA were amended and restated, becoming the Fifth Amended and Restated Memorandum and Articles of Association; (iii) the number of AGBA’s authorized ordinary shares was increased from 100 million to 200 million, and (iv) AGBA’s name changed to “AGBA Group Holding Limited.”
References in this section to the “TAG Business” generally refer to TAG International Limited, TAG Asia Capital Holdings Limited, and their consolidated subsidiaries following the OPH Merger but prior to the Business Combination. All capitalized terms not otherwise defined herein have the meaning given to them in the definitive proxy statement on Schedule 14A of AGBA Acquisition Limited, filed with the SEC on October 28, 2022, as amended (the “Proxy Statement”).
The Business Combination is anticipated to be accounted for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, AGBA will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on TAG expecting to have a majority of the voting power of the post-combination company, TAG’s senior management comprising all of the senior management of the Post-Combination Company, the relative size of the TAG Business compared to AGBA, and the TAG Business’s operations comprising the ongoing operations of the Post-Combination Company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of the TAG Business issuing shares for the net assets of AGBA, accompanied by a recapitalization. The net assets of AGBA will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of the TAG Business.
Overview
The TAG Business has, to date, sat within a broader portfolio of platforms that provides products and infrastructure for marketplaces that bring together producers and consumers, encompassing business-to-business, financial technology (fintech), healthcare, and retail. The TAG Business serves over 400,000 individual and corporate customers and offers 1,800 financial products. Most TAG Business customers remain active as of September 30, 2022, as the TAG Business has maintained sales activities with such customers within the past 12 months.
The TAG Business currently operates two lines of business, comprising of:
The B2B business, through B2B and its subsidiaries, operates under the OnePlatform brand, and offers a full-service platform to banks, other financial institutions, brokers, and individual independent financial advisors to advise and serve their retail clients. Its technology-enabled platform offers a wide range of financial products, covering life insurance, pensions, property-casualty insurance, stock brokerage, mutual funds, money lending, and real estate agency.
The B2B business mainly covers four core areas:
| 1. | Insurance Brokerage, through its subsidiary OnePlatform Wealth Management Limited; |
| 2. | Asset Management, through its subsidiaries OnePlatform Asset Management Limited and Kerberos (Nominee) Limited; |
| 3. | Real Estate Agency, through its subsidiary OnePlatform International Property Limited; and |
| 4. | Money Lending, through its subsidiaries Maxthree Limited, OnePlatform Credit Limited, Hong Kong Credit Corporation Limited, Trendy Reach Holdings Limited, and Profit Vision Limited. |
The Fintech business manages an ensemble of financial technology investments and operates through Fintech and its subsidiaries, TAG Technologies Limited, AGBA Group Limited, and Tandem Fintech Limited, a health and wealth management platform with a broad spectrum of services and value-added information in health, insurance, investments, and social sharing. The core Fintech assets are:
| 1. | An investment in Tandem, a UK digital bank; |
| 2. | An investment in CurrencyFair, a peer-to-peer remittance company; |
| 3. | An investment in Oscar, a US direct-to-consumer digital health insurer; |
| 4. | An investment in Goxip, a fashion media platform based in Hong Kong; |
| 5. | A previous investment in Nutmeg, a UK-based digital wealth manager, focused on robo-advisory and digital wealth management services. This investment is no longer held by Fintech, with the cash realized from the sale of the investment; and |
| 6. | An investment in HCMPS, a healthcare management organization based in Hong Kong. |
Fintech also launched and operated Tandem Hong Kong in November 2020 as a health and wealth management platform that serves as a gateway to expand the TAG Business’s market share by acquiring new members through digital channels and enhancing customer experience. Tandem Hong Kong aggregates a broad spectrum of services and value-added information in health, insurance, investments, and social sharing. It has retained approximately 22,000 members as of October 31, 2022.
While the Post-Combination Company will operate as a separate company from the Legacy Group following the Business Combination, several existing support arrangements and agreements between certain subsidiaries of the TAG Business and certain members of the Legacy Group will continue. See the section of the Proxy Statement entitled “Certain Transactions and Related Party Transactions — Certain Transactions of the TAG Business.” Both AGBA and TAG expect the Post-Combination Company to benefit from collaboration, cross-selling, and knowledge sharing opportunities between the Post-Combination Company and the Legacy Group.
B2B
The B2B business through B2B and its subsidiaries, offers a full-service platform to financial institutions, brokers, and independent financial advisors to advise and serve their retail customers. Its financial services and investment products mainly comprise mutual fund distributions, portfolio management, money lending, insurance and Mandatory Provident Fund (MPF) products, and international real estate referral and brokerage services. Each of the key operating subsidiaries are discussed below.
2
OnePlatform Asset Management Limited offers financial products and provides discretionary management services to retail customers in Hong Kong (the “Asset Management Business”). It primarily distributes mutual funds denominated in HK$, US$, and other currencies. The total number of registered clients as of December 31, 2020 and 2021 and September 30, 2022 was 4,955, 4,937 and 4,911, respectively. As of September 30, 2022, the aggregate value of financial products (mainly mutual funds) distributed and managed by the Asset Management Business was approximately US$374 million (HK$2,918 million). This represented a decrease of 35.7% from US$581 million (HK$4,536 million) aggregate value financial products (mainly mutual funds) distributed and managed by the business for the year ended December 31, 2021. This decrease was mainly attributable to the under-performance of overall investment portfolios, as a result of the downturn in global capital markets and global interest rate rises in the past three quarters of 2022.
Hong Kong Credit Corporation Limited (“HKCC” or the “Money Lending Business”), offers mortgage loans to retail customers in Hong Kong. As of September 30, 2022, HKCC’s aggregate loan value amounted to US$1.6 million (HK$12.4 million), representing a drop of 59.0% compared to the amount as of December 31, 2021 of US$3.9 million (HK$30.4 million). This decrease is primarily attributable to the reduced loan origination since the fourth quarter of 2020, which continued in 2021, as a result of the tighter measures implemented by the TAG Business to mitigate risk from the unstable global economy and interest rate fluctuation.
Between 2019 and September 30, 2022, OnePlatform Wealth Management Limited (“OWM” or the “Insurance Brokerage Business”), underwent a business transformation to become a platform that offers a full suite of life insurance, property-casualty insurance brokerage, and MPF products. This transformation is primarily attributable to the company’s reactivation of its insurance and MPF licenses issued by the Insurance Authority and the MPF Authority of Hong Kong (see the section entitled “Information about the TAG Business — Segments of B2B” of the Proxy Statement). OWM has built a one-of-a-kind infrastructure in product intelligence, transaction operations, and technology support to serve the internal distribution channel of the Legacy Group, including CFS, and to serve external corporate customers in Hong Kong. In addition to the platform infrastructure that the entity offers to its customers, it also offers its decades-long capabilities in training and talent development to clients.
OnePlatform International Property Limited is a real estate agency based in Hong Kong, which sells properties mainly in the UK, Australia, Japan, Malaysia, Thailand, and Cambodia (the “Real Estate Agency Business”). Established in 2014, the business provides one-stop sales, leasing, agency, and advisory services for international real estate. It primarily sources international properties and expands its customer base and connects with purchasers mainly by organizing seminars and marketing events in Hong Kong. The Real Estate Agency Business sold approximately 15 and 10 overseas properties in each of the nine months ended September 30, 2022 and 2021, respectively.
Fintech
The Fintech business has collected an ensemble of valuable fintech assets in its investment portfolio. Fintech’s management team has strived to establish the business as a leading name in the fintech investment sector. An overview of the fintech portfolio is shown as below:
| Carrying amount in US$ thousands | ||||||||||||
| December 31, 2020 | December 31, 2021 | September 30, 2022 | ||||||||||
| Tandem Money Limited | 12,435 | 17,912 | 14,762 | |||||||||
| Nutmeg Saving and Investment Limited | 48,980 | — | — | |||||||||
| CurrencyFair Limited | 5,435 | 5,790 | 10,881 | |||||||||
| Oscar Health Inc. | 20,270 | 7,795 | 4,956 | |||||||||
| Goxip Inc. | 1,277 | 1,271 | 1,264 | |||||||||
| HCMPS Healthcare Holdings Limited | — | 523 | 520 | |||||||||
Notes:
| (1) | Carrying amount represents Fintech’s attributable interest in the investment portfolio asset. |
| (2) | Tandem Money Limited (Tandem) is a challenger bank in the United Kingdom, offering a full suite of products across saving and lending. |
| (3) | Nutmeg Saving and Investment Limited (Nutmeg) is a United Kingdom-based digital wealth manager, focused on robo-advisory and digital wealth management services. However, Fintech no longer holds an investment in Nutmeg as of the date of this filing, with the cash realized from the sale of the investment. See the section entitled “Information about the TAG Business — Nutmeg” in the Proxy Statement. |
| (4) | CurrencyFair Limited is a technology-driven currency exchange and international payments company based in Ireland. In 2021, CurrencyFair merged with Australia-based Assembly Payments Limited, whose platform automates complex payment workflows. Following the merger, the business re-branded to “Zai”, with CurrencyFair as Zai’s consumer brand. |
3
| (5) | Oscar Health Inc. (formerly known as Mulberry Health Inc.) is a digital health insurance company based in New York that utilizes technologies including telemedicine. This healthcare focused technology allows easier customer interfacing and transparent claims pricing systems. |
| (6) | Goxip Inc. is a fashion media platform based in Hong Kong used by over one million high-end fashion shoppers. Its digital marketing arm matches key opinion leaders with marketers and brands for launching and monetizing marketing campaigns. |
| (7) | HCMPS Healthcare Holdings Limited is a healthcare management organization based in Hong Kong, which offers its patients a full range of medical services, including general services, specialist services, physiotherapy, Chinese medicine, dental, vaccination, X-ray, laboratories, and imaging services. |
Tandem Hong Kong
Tandem Hong Kong is a digital B2C health and wealth platform launched in November 2020, which provides a comprehensive suite of wealth management services to consumers with a health focus. Tandem Hong Kong aims to offer customers an integrated financial solution with health-related services as the foundation, and through this solution improve the sales of health and life insurance products as well as cross-selling from other business units through Tandem Hong Kong. Tandem Hong Kong generated no revenue during the nine months ended September 30, 2022 and 2021, respectively.
Basis of Presentation
The accompanying historical combined financial statements of the TAG Business included with the Form 8-K/A were derived from the combined financial statements and accounting records of the TAG Business. These combined financial statements reflect the combined historical results of operations, financial positions, and cash flows of B2B and Fintech Business as they were historically managed in conformity with U.S. GAAP. Therefore, the historical combined financial information may not be indicative of the future performance of the TAG Business or the Post-Combination Company and does not necessarily reflect what the combined results of operations, financial condition, and cash flows would have been had the TAG Business operated as a separate, publicly traded company during the periods presented, particularly because of changes that are expected in the future as a result of the Business Combination, including changes in the financing, cash management, operations, cost structure, and talent needs of the TAG Business.
The combined financial statements of the TAG Business include certain assets and liabilities that have historically been held as part of the larger Legacy Group but are specifically identifiable or otherwise allocable to the TAG Business.
The new infrastructures and initiatives developed by the Legacy Group in recent years will remain accessible to the Post-Combination Company. Additionally, the TAG Business expects that the administrative services agreements implemented between certain subsidiaries of the Legacy Group, such as TAG Financial Holdings Limited will continue after the Business Combination and until either party thereto provides one month written notice of termination, to ensure continued smooth operation of the carved-out TAG Business and the remaining Legacy Group entities on a stand-alone basis. The scope of services included in these services agreements includes administrative support such as office space and other office essentials for the key operating subsidiaries of the Post-Combination Company’s business. The cost of these services is generally allocated to the TAG Business based on the proportion of manpower and actual utilization of support. See “Certain Transactions and Related Party Transactions — Certain Transactions of the TAG Business — Administrative Services Agreements.” Both the TAG Business and the Legacy Group consider these allocations a reasonable reflection of the benefits received by the TAG Business during the periods presented.
COVID-19 Pandemic
Management of the TAG Business is closely monitoring the global public health response and economic impacts of COVID-19. There is significant uncertainty related to the economic outcomes from this global pandemic, including the response of the national, regional, and local governments as well as regulators and stock exchanges. Despite this uncertainty, the management of the TAG Business has taken proactive measures to respond to the pandemic and believes that the TAG Business and its subsidiaries are well positioned to continue serving its clients in the same manner as its clients have come to expect. See the section entitled “Information about the TAG Business — COVID-19 Response” in the Proxy Statement for additional information on the measures that the TAG Business has taken in response to the pandemic.
4
The COVID-19 pandemic has had, and continues to have, a significant impact on the economies and the communities in which the TAG Business operates, particularly Hong Kong. While the pandemic’s long-term effects on the macroeconomic environment have yet to be fully determined and could continue for months or years, the management of the TAG Business expects that the pandemic and governmental programs created as a response to the pandemic, may affect key aspects of its business, including decreased customer demand, unpredictable liquidity for the TAG Business, and stress on its employees. Such effects, if they continue for a prolonged period, may have a material adverse effect on the business and results of operations of the TAG Business. For additional discussion of these risks, see the section of the Proxy Statement entitled “Risk Factors — Risk Factors Relating to the TAG Business — Given the significant global health, market, employment and economic impacts of the COVID-19 pandemic and the uncertainty of its duration, the TAG Business may experience negative impacts to its financial and operating performance and business prospects.”
Financial Condition
The period-over-period balance sheet analysis presented below should be reviewed in conjunction with the TAG Business’s unaudited condensed combined financial statements for the nine months ended September 30, 2022 and 2021. The following table sets forth the TAG Business’s key balance sheet items as of September 30, 2022 and December 31, 2021:
| As of | ||||||||||||||||
| September 30, 2022 | December 31, 2021 | Variance | ||||||||||||||
| (US$ in thousands) | $ | % | ||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 16,261 | $ | 38,596 | -22,335 | -57.87 | ||||||||||
| Restricted cash | 34,678 | 34,486 | 192 | 0.56 | ||||||||||||
| Loans receivable, net | 514 | 124 | 390 | 314.52 | ||||||||||||
| Earnest deposit | — | 7,182 | -7,182 | -100.00 | ||||||||||||
| Consideration receivable | — | 1,861 | -1,861 | -100.00 | ||||||||||||
| Others | 3,324 | 1,530 | 1,794 | 117.25 | ||||||||||||
| Total current assets | 54,777 | 83,779 | -29,002 | -34.62 | ||||||||||||
| Non-current assets: | ||||||||||||||||
| Loans receivable, net | 1,070 | 3,785 | -2,715 | -71.73 | ||||||||||||
| Property and equipment, net | 7,324 | 1,654 | 5,670 | 342.81 | ||||||||||||
| Long-term investments, net | 32,383 | 33,292 | -909 | -2.73 | ||||||||||||
| Total non-current assets | 40,777 | 38,731 | 2,046 | 5.28 | ||||||||||||
| Total assets | 95,554 | 122,510 | -26,956 | -22.00 | ||||||||||||
| Current liabilities: | ||||||||||||||||
| Escrow liabilities | 34,678 | 34,486 | 192 | 0.56 | ||||||||||||
| Borrowings | 4,453 | — | 4,453 | N/A | ||||||||||||
| Income tax payable | 23,376 | 23,029 | 347 | 1.51 | ||||||||||||
| Others | 6,615 | 3,849 | 2,766 | 71.86 | ||||||||||||
| Total current liabilities | 69,122 | 61,364 | 7,758 | 12.64 | ||||||||||||
| Long-term liabilities | 39 | — | 39 | N/A | ||||||||||||
| Total liabilities | 69,161 | 61,364 | 7,797 | 12.71 | ||||||||||||
| Total shareholder’s equity | $ | 26,393 | $ | 61,146 | -34,753 | -56.84 | ||||||||||
Current assets decreased by approximately US$29.00 million from December 31, 2021 to September 30, 2022, primarily due to a decrease of US$22.33 million in cash and cash equivalents as a result of US$17.44 million of dividend payment to the Legacy Group, a decrease of US$1.86 million of consideration receivable, and a decrease of US$7.18 million of earnest deposit, offset by an increase of US$1.8 million in other assets.
Non-current assets increased by approximately US$2.05 million from December 31, 2021 to September 30, 2022, primarily due to the addition of US$5.67 million in office property, offset by a decrease of US$0.91 million in the changes in fair values of long-term investments and a decrease of US$2.7 million in loans receivable, as a result of loan repayment by the TAG Business’s customers.
Total liabilities increased by approximately US$7.80 million from December 31, 2021 to September 30, 2022, primarily due to an increase of US$4.45 million in borrowings, US$2.77 million in accounts payable and accrued liabilities, and US$0.35 million in income tax payable.
Total shareholder’s equity decreased by approximately US$34.75 million from December 31, 2021 to September 30, 2022, mainly attributable to the distribution of special dividend of US$47.00 million, offset by receivables from the Legacy Group of US$29.56 million, with a net loss of US$13.73 million for the current period and foreign currency translation loss of US$0.42 million.
5
Results of Operations
The success of the TAG Business’s business strategy is dependent, in part, upon the availability of additional capital resources on terms satisfactory to management. The TAG Business’s main sources of capital in the past have included advances from stockholders and affiliates. There can be no assurance that the TAG Business can raise such additional capital resources on satisfactory terms (or at all) in the future. The management of the TAG Business estimates that currently available cash will not be able to provide sufficient funds for the TAG Business to meet its planned obligations for the 12 months from September 30, 2022.
On November 14, 2022, the TAG Business and its sole shareholder completed its business combination with AGBA Acquisition Limited. The post-combination company has been renamed “AGBA Group Holding Limited” and its ordinary shares and warrants began trading on the Nasdaq Capital Market on November 15, 2022 under the ticker symbols “AGBA” and “AGBAW,” respectively. While the management of the TAG Business believes that the Business Combination transaction significantly increases its ability to access the capital going forward, it also anticipates that following the Business Combination it may continue to rely on equity sales of common shares of the Post-Combination Company in order to continue to fund business operations. Issuances of additional shares will result in dilution to existing shareholders of the Post-Combination Company. There is no assurance that the Post-Combination Company will achieve any additional sales of its equity securities or arrange for debt or other financing to fund its plan of operations. See “— Liquidity and Going Concern” below.
Comparison of the nine months ended September 30, 2022 and 2021
The results of operations presented below should be reviewed in conjunction with the TAG Business’s unaudited condensed combined financial statements for the nine months ended September 30, 2022 and 2021, and the notes thereto filed as part of this Form 8-K/A. The following table sets forth the TAG Business’s combined results of operations data for the nine months ended September 30, 2022 and 2021:
| Nine months ended September 30, | ||||||||||||||||
| 2022 | 2021 | Variance | ||||||||||||||
| (US$ in thousands) | $ | % | ||||||||||||||
| Revenues: | ||||||||||||||||
| Interest income: | ||||||||||||||||
| Loans | 137 | 860 | -723 | -84.07 | ||||||||||||
| Total interest income | 137 | 860 | -723 | -84.07 | ||||||||||||
| Non-interest income: | ||||||||||||||||
| One-time commissions | 15,933 | 4,028 | 11,905 | 295.56 | ||||||||||||
| Recurring service fees | 2,615 | 3,385 | -770 | -22.75 | ||||||||||||
| Total non-interest income | 18,548 | 7,413 | 11,135 | 150.21 | ||||||||||||
| Total revenues from others | 18,685 | 8,273 | 10,412 | 125.86 | ||||||||||||
| Non-interest income: | ||||||||||||||||
| Recurring service fees | 725 | 701 | 24 | 3.42 | ||||||||||||
| Total revenues from related parties | 725 | 701 | 24 | 3.42 | ||||||||||||
| Total revenues | 19,410 | 8,974 | 10,436 | 116.29 | ||||||||||||
| Operating cost and expenses: | ||||||||||||||||
| Interest expense | (20 | ) | (484 | ) | -464 | -95.87 | ||||||||||
| Commission expense | (11,219 | ) | (2,954 | ) | 8,265 | 279.79 | ||||||||||
| Selling expense | (246 | ) | (80 | ) | 166 | 207.50 | ||||||||||
| General and administrative expenses | (14,371 | ) | (9,804 | ) | 4,567 | 46.58 | ||||||||||
| Total operating cost and expenses | (25,856 | ) | (13,322 | ) | 12,534 | 94.08 | ||||||||||
| Loss from operation | (6,446 | ) | (4,348 | ) | 2,098 | 48.25 | ||||||||||
| Other income (expense): | ||||||||||||||||
| Bank interest income | 24 | 37 | -13 | -35.14 | ||||||||||||
| Interest income, related party | — | 180 | -180 | -100.00 | ||||||||||||
| Foreign exchange loss, net | (4,690 | ) | (41 | ) | 4,649 | 11,339.02 | ||||||||||
| Loss on equity method investments | — | (1,597 | ) | 1,597 | -100.00 | |||||||||||
| Investment (loss) income, net | (2,793 | ) | 136,291 | -139,084 | -102.05 | |||||||||||
| Sundry income | 406 | 397 | 9 | 2.27 | ||||||||||||
| Total other expense, net | (7,053 | ) | 135,267 | -142,320 | -105.21 | |||||||||||
| Loss before income taxes | (13,499 | ) | 130,919 | -144,418 | -110.31 | |||||||||||
| Income tax expense | (233 | ) | (23,506 | ) | -23,273 | -99.01 | ||||||||||
| NET LOSS | (13,732 | ) | 107,413 | -121,145 | -112.78 | |||||||||||
6
Revenue
The following table summarizes the changes in revenue from the nine months ended September 30, 2022, as compared to the corresponding period ended September 30, 2021:
| Nine months ended September 30 | ||||||||||||||||
| 2022 | 2021 | Variance | ||||||||||||||
| (US$ in thousands) | $ | % | ||||||||||||||
| Business segment | ||||||||||||||||
| Insurance Brokerage Business | 14,307 | 733 | 13,574 | 1,851.84 | ||||||||||||
| Asset Management Business | 4,803 | 7,244 | -2,441 | -33.70 | ||||||||||||
| Money Lending Business | 137 | 860 | -723 | -84.07 | ||||||||||||
| Real Estate Agency Business | 163 | 137 | 26 | 18.98 | ||||||||||||
| Fintech Business | — | — | — | — | ||||||||||||
| TOTAL | 19,410 | 8,974 | 10,436 | 116.29 | ||||||||||||
The Insurance Brokerage Business contributed 73.71% and 8.17% of the total revenue of the TAG Business for the nine months ended September 30, 2022 and 2021, respectively. Income from the Insurance Brokerage Business significantly increased by US$13.57 million, or 1,851.84%, from US$0.73 million in 2021 to US$14.31 million in 2022. During the nine months ended September 30, 2022, the TAG Business has expanded its Insurance Brokerage Business and recruited approximately 2,000 additional consultants to solicit more insurance products. As a result, the number of new insurance policies sharply increased during this period.
Summarized revenue breakdown by product and type of contracts:
| Nine months ended September 30, | ||||||||||||||||
| 2022 | 2021 | Variance | ||||||||||||||
| (US$ in thousands) | $ | % | ||||||||||||||
| By product: | ||||||||||||||||
| Life insurance | $ | 14,014 | $ | 693 | 13,321 | 1,922.22 | ||||||||||
| Property-casualty insurance | 136 | 24 | 112 | 466.67 | ||||||||||||
| Mandatory provident fund and related revenues | 157 | 16 | 141 | 881.25 | ||||||||||||
| $ | 14,307 | $ | 733 | 13,574 | 1,851.84 | |||||||||||
| By the type of contracts: | ||||||||||||||||
| – New and or current year | $ | 13,718 | 561 | 13,157 | 2,345.28 | |||||||||||
| – Recurring | 589 | 172 | 417 | 242.44 | ||||||||||||
| $ | 14,307 | $ | 733 | 13,574 | 1,851.84 | |||||||||||
Asset Management Business
| Nine months ended September 30, | ||||||||||||||||
| 2022 | 2021 | Variance | ||||||||||||||
| (US$ in thousands) | $ | % | ||||||||||||||
| One-time commissions | $ | 1,463 | $ | 3,158 | -1,695 | -53.67 | ||||||||||
| Recurring service fees | 3,340 | 4,086 | -746 | -18.26 | ||||||||||||
| $ | 4,803 | $ | 7,244 | -2,441 | -33.70 | |||||||||||
The Asset Management Business’s income from portfolio fund management and discretionary mutual fund products contributed 24.74% and 80.72% of the total revenue for nine months ended September 30, 2022 and 2021, respectively. One-time commission income decreased by US$1.70 million, or 53.67%, during this period primarily attributable to the significant decline in the Assets Under Management (“AUM”) subscription during the period ended September 30, 2022 under the impact of the continued pandemic restriction policy in Hong Kong and global economic instability. Recurring service fee income also decreased by US$0.75 million, or 18.26%, due to under-performance of AUM portfolio. The AUM as of September 30, 2022 amounted to US$374.1 million, as compared to the AUM as of December 31, 2021, which amounted to US$581.5 million. The significant decline of 35.67% is primarily due to a downturn in global capital markets and global interest rate rises in the past three quarters of 2022.
7
Summarized movement of AUM for the following years:
| Nine months ended September 30, 2022 | Nine months ended September 30, 2021 | |||||||||||||||||||||||
| Equity | Fixed Income | Total | Equity | Fixed Income | Total | |||||||||||||||||||
| (US$ in thousands) | (US$ in thousands) | |||||||||||||||||||||||
| Balance, beginning of period | 581,310 | 203 | 581,513 | 586,692 | 1,685 | 588,377 | ||||||||||||||||||
| Subscription | 46,039 | — | 46,039 | 95,750 | — | 95,750 | ||||||||||||||||||
| Redemption | (74,190 | ) | — | (74,190 | ) | (263,936 | ) | (1,481 | ) | (265,417 | ) | |||||||||||||
| Market price changes | (179,245 | ) | (3 | ) | (179,248 | ) | 118,411 | 2 | 118,413 | |||||||||||||||
| Balance, end of period | 373,914 | 200 | 374,114 | 536,917 | 206 | 537,123 | ||||||||||||||||||
The Money Lending Business contributed 0.71% and 9.58% of the total revenue for the nine months ended September 30, 2022 and 2021, respectively. Income from the Money Lending Business decreased by US$0.72 million, or 84.07%, from US$0.86 million in 2021 to US$0.14 million in 2022, primarily attributable to the reduction in loans portfolio with early repayments of certain mortgage loans during the nine months ended September 30, 2021. With global interest rate rises during the pandemic period, particularly in the past three quarters of 2022, the Money Lending Business has assessed the impact of rising interest rate and imposed a higher level of risk measures to approve the new loans; as a result, the addition of new loans is limited.
The Real Estate Agency Business contributed 0.84% and 1.53% of the total revenue for the nine months ended September 30, 2022 and 2021, respectively. Income from the Real Estate Agency Business increased by US$0.03 million, or 18.98%, from US$0.14 million in 2021 to US$0.16 million in 2022, primarily attributable to the reduction in real estate property sale transactions incurred during the nine months ended September 30, 2022.
Fintech generated no revenue for the nine months ended September 30, 2022 and 2021. The unrealized gains and losses of the Fintech investments are presented under other income and expenses in the statements of operations.
Operating Expenses
Commission Expense
| Nine months ended September 30, | ||||||||||||||||
| 2022 | 2021 | Variance | ||||||||||||||
| (US$ in thousands) | $ | % | ||||||||||||||
| Asset management | $ | 1,518 | $ | 2,655 | -1,137 | -42.82 | ||||||||||
| Insurance brokerage | 9,630 | 252 | 9,378 | 3,721.43 | ||||||||||||
| Money lending | — | — | — | — | ||||||||||||
| Real estate agency | 71 | 47 | 24 | 51.06 | ||||||||||||
| Fintech | — | — | — | — | ||||||||||||
| Total | $ | 11,219 | $ | 2,954 | 8,265 | 279.79 | ||||||||||
The total commission expense increased by US$8.27 million, or 279.79%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase is mainly led by the Insurance Brokerage Business due to its significant revenue growth.
The Asset Management Business contributed 13.53% and 89.88% of the total commission expense for nine months ended September 30, 2022 and 2021, respectively. Commission expense for the Asset Management Business decreased by US$1.14 million, or 42.82%, from US$2.66 million in 2021 to US$1.52 million in 2022. The decrease in commission expense for the Asset Management Business is in line with the decrease in revenue generated from the Asset Management Business which is primarily due to a downturn in global capital markets and global interest rate rises in the past three quarters of 2022.
8
The Insurance Brokerage Business contributed 85.84% and 8.53% of the total commission expense for the nine months ended September 30, 2022 and 2021, respectively. Commission expense for the Insurance Brokerage Business increased significantly by US$9.38 million, or 3,721.43%, from US$0.25 million in 2021 to US$9.63 million in 2022. As a result of the business expansion in Insurance Brokerage Business, commission expense is significantly increased in line with its rapid sales growth.
The Real Estate Agency Business contributed the remaining 0.63% and 1.59% of the total commission expense for the nine months ended September 30, 2022 and 2021, respectively. Commission expense for the Real Estate Agency Business increased by US$0.02 million, or 51.06%, from US$0.05 million in 2021 to US$0.07 million in 2022. Primary attributable to the reduction in real estate property sale transactions incurred during the nine months ended September 30, 2022, the increase in commission expense for the Real Estate Agency Business is in line with the increase in revenue generated from the Real Estate Agency Business over this period.
General and Administrative Expenses
| Nine months ended September 30, | ||||||||||||||||
| 2022 | 2021 | Variance | ||||||||||||||
| (US$ in thousands) | $ | % | ||||||||||||||
| Depreciation | $ | 288 | $ | 34 | 254 | 747.06 | ||||||||||
| Financial data subscription expense | 401 | 117 | 284 | 242.74 | ||||||||||||
| Information technology expenses | 619 | 238 | 381 | 160.08 | ||||||||||||
| Legal and professional fees | 711 | 1,099 | -388 | -35.30 | ||||||||||||
| Management fee expense | 657 | 1,385 | -728 | -52.56 | ||||||||||||
| Office and administrative expenses | 780 | 484 | 296 | 61.16 | ||||||||||||
| Consultancy fee | 1,063 | 38 | 1,025 | 2,697.37 | ||||||||||||
| Others | 211 | 256 | -45 | 17.58 | ||||||||||||
| Salaries and allowances | 9,641 | 6,153 | 3,488 | 56.69 | ||||||||||||
| Total | $ | 14,371 | $ | 9,804 | 4,567 | 46.58 | ||||||||||
The total general and administrative expenses of the TAG Business increased by US$4.57 million, or 46.58%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The net increase was mainly due to the increase in salaries and allowances of US$3.49 million, information technology expenses of US$0.38 million, financial data subscription expenses of US$0.28 million, depreciation of US$0.25 million, office and administrative expenses of US$0.30 million, and consultancy costs of US$1.06 million, offset by the decrease in management fee expense of US$0.73 million, and legal and professional fees of US$0.39 million.
To achieve its business expansion, the TAG Business recruited more consultants to booster its sales force by increasing the salaries and allowances from US$6.15 million in 2021 to US$9.64 million in 2022. The TAG Business also enhanced and revamped its business IT platform by increasing financial data subscription and information technology expenses over the same period from US$0.36 million in 2021 to US$1.02 million in 2022.
Loss from Operations
Loss from operations increased by US$2.10 million, or 48.25%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was mainly due to the increase in operating expenses of US$12.53 million or 94.08%.
9
Other income (expense), net
Bank Interest Income
Bank interest income decreased by US$0.01 million, or 35.14%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, due to the decrease in the TAG Business’s bank balance at September 30, 2022, as compared to December 31, 2021.
Interest Income, Related Party
Interest income, related party mainly represented the bond interest income derived from certain corporate bonds issued by the Legacy Group, which were purchased in September 2020. No interest income was generated for the nine months ended September 30, 2022, as compared to US$0.18 million of interest income for the nine months ended September 30, 2021.
Foreign Exchange Loss, net
Foreign exchange loss, net mainly represented the unrealized net foreign exchange loss from the translation of long-term investments, which are mostly denominated in Sterling, with unfavorable currency fluctuations. The net foreign exchange loss increased by US$4.65 million or 11,339.02% for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, due to the weaker Sterling exchange rate in 2022.
Loss on Equity Method Investments
Loss on equity method investment mainly represented the TAG Business’s share of the investees’ losses in Nutmeg, which was fully sold in October 2021. No loss was shared by the TAG Business for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. In between the two dates, the loss on equity method investment decreased by US$1.6 million, or 100.00%.
Investment (Loss) Income, Net
Investment loss increased by US$139.08 million, or 102.05%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, mainly as a result of the realized gain in disposal of Nutmeg investments of US$139.24 million during the nine months ended September 30, 2021.
Income Tax Expense
Income tax expense decreased by US$23.27 million, or 99.01%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, primarily attributable to the gain on disposal of investment during the nine months ended September 30, 2021.
Net Loss
Net loss decreased by US$121.15 million, or 112.78%, for the nine months ended September 30, 2022, as compared to September 30, 2021, due to an increase in commission expense of US$8.27 million, general and administrative expenses of US$4.57 million, foreign exchange difference of US$4.65 million, and investment loss of US$139.08 million.
Liquidity and Capital Resources
Sources of Liquidity
The TAG Business has a history of operating losses and negative cash flow. Commencing in 2021, the TAG Business achieved profitability from the investments managed by Fintech and obtained cash proceeds of approximately US$186.82 million from the sale of its investment (Nutmeg) during the year ended December 31, 2021. The remaining balance from the sale proceeds of US$1.86 million was subsequently received in January 2022. The TAG Business, in turn, repaid a net amount of approximately US$163.80 million to the Legacy Group to pay off outstanding debt, and paid US$7.18 million as earnest deposit for the purchase of office building from the Legacy Group. Also, the TAG Business paid US$3.43 million for the addition in long-term investments. As of December 31, 2021, the TAG Business had a cash balance of US$38.6 million.
10
During the nine months ended September 30, 2022, the TAG Business suffered from a net loss of US$13.73 million and reported a working capital deficit of US$14.35 million. As of September 30, 2022, the cash balance of the TAG Business was US$16.26 million for working capital use. The management of the TAG Business estimates that currently available cash will not be able to provide sufficient funds to meet the planned obligations of the TAG Business for the 12 months from September 30, 2022.
The ability of the TAG Business to continue as a going concern is dependent on the TAG Business’s ability to successfully implement its plans. The management of the TAG Business believes that it will be able to continue to grow the TAG Business’s revenue base and control expenditures. In parallel, the TAG Business continually monitors its capital structure and operating plans and evaluates various potential funding alternatives that may be needed in order to finance the TAG Business’s business development activities, general and administrative expenses, and growth strategy. These alternatives include external borrowings, raising funds through public equity, or tapping debt markets. Although there is no assurance that, if needed, the TAG Business will be successful with its fundraising initiatives, the TAG Business believes that the Business Combination transaction significantly increases its ability to access the capital going forward. The combined financial statements attached to the Form 8-K/A do not include any adjustments that might result from the outcome of these uncertainties.
On November 14, 2022, the TAG Business and its sole shareholder completed its business combination with AGBA Acquisition Limited. The post-combination company has been renamed “AGBA Group Holding Limited” and its ordinary shares and warrants began trading on the Nasdaq Capital Market on November 15, 2022 under the ticker symbols “AGBA” and “AGBAW,” respectively.
Previously, as part of the Legacy Group, the TAG Business has been dependent upon other members of the Legacy Group for all its working capital and financing requirements. Prior to the Business Combination, the Legacy Group used a centralized approach to cash management and financing of the group’s operations. Accordingly, the majority of the surplus cash of the TAG Business, prior to the Business Combination, was regularly transferred within the Legacy Group, allowing the Legacy Group to fund its various operating and investing activities as needed. Cash transfers to and from the Legacy Group’s cash management accounts are reflected within cash and cash equivalents.
In addition, certain subsidiaries of the TAG Business have contracted with certain members of the Legacy Group to provide administrative and support services to the TAG Business and its subsidiaries. The management of the TAG Business and of AGBA expects that these service agreements will continue, pursuant to their terms, following the Business Combination, thereby allowing those subsidiaries access to the same administrative and support services that they have received historically. See the Proxy Statement at “Certain Transactions and Related Party Transactions — Certain Transactions of the TAG Business — Administrative Services Agreements” for additional details about the intra-group services currently provided and expected to be provided following the Business Combination. All significant transactions between the TAG Business and its subsidiaries, on the one hand, and members of the Legacy Group, on the other hand, have been included in the combined financial statements of the TAG Business and are reflected in the relevant section of the financial statements.
11
Future Liquidity
On a recurring basis, the primary future cash needs of the Post-Combination Company will be centered on operating activities, working capital, capital expenditures, investment, regulatory and compliance costs. The ability of the Post-Combination Company to fund these needs will depend, in part, on its ability to generate or raise cash in the future, which is subject to general economic, financial, competitive, regulatory, and other factors that are beyond its control.
Following the Business Combination, the capital structure of, and sources of liquidity for, the TAG Business and its subsidiaries will change from their historical precedents. The TAG Business and its subsidiaries will no longer be part of the Legacy Group and will no longer participate in the Legacy Group’s centralized cash management program. The ability of the Post-Combination Company to fund its operating needs will depend on its future ability to continue to generate positive cash flow from operations and raise capital in the capital markets. Both the TAG Business’s and AGBA’s management believe that the Post-Combination Company will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances, and external borrowings and fund raising. Both the TAG Business’s and AGBA’s management expect that the primary cash requirements of the Post-Combination Company in 2022 will be to fund capital expenditures for (i) expansion of the B2B platform business and (ii) fintech investments.
If these sources of liquidity need to be augmented, additional cash requirements would likely need to be financed through the issuance of debt or equity securities; however, there can be no assurances that the Post-Combination Company will be able to obtain additional debt or equity financing on acceptable terms, or at all, in the future.
The TAG Business expects that operating losses could continue into the foreseeable future as it continues to invest in growing its business. Based upon its current operating plans, the management of the TAG Business believes that cash and equivalents will not be able to provide sufficient funds to its operations for at least the next 12 months from the date of its combined financial statements provided with the Form 8-K/A. However, these forecasts involve risks and uncertainties, and actual results could vary materially. The TAG Business’s management has based this estimate on assumptions that may prove to be wrong, and the TAG Business could deplete its capital resources sooner than it expects. See “— Liquidity and Going Concern” below.
The TAG Business’s future capital requirements and the adequacy of available funds will depend on many factors, including but not limited to, its ability to grow its revenues, the impact of the COVID-19 pandemic, and its response to business challenges, including the need to develop new platform features and services or enhance its existing platform, improve its operating infrastructure, or acquire complementary businesses and technologies. The TAG Business may seek additional equity or debt financing.
Cash Flows
As of September 30, 2022 and December 31, 2021, the TAG Business had cash and cash equivalents of approximately US$16,260,750 and US$38,595,610, respectively.
Comparison of the nine months ended September 30, 2022 and 2021
The following table summarizes the TAG Business’s cash flows for the periods presented:
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| (US$ in thousands) | ||||||||
| Net cash (used in) provided by operating activities | (2,132 | ) | 2,172 | |||||
| Net cash (used in) provided by investing activities | (6,870 | ) | 183,526 | |||||
| Net cash used in financing activities | (12,776 | ) | (13,061 | ) | ||||
| Effect on exchange rate change on cash and cash equivalents | (364 | ) | (56 | ) | ||||
| Net change in cash, cash equivalents and restricted cash | (22,142 | ) | 172,581 | |||||
| Cash, cash equivalents and restricted cash, at the beginning | 73,081 | 61,768 | ||||||
| Cash, cash equivalents and restricted cash, at the end | 50,939 | 234,349 | ||||||
| Representing as:- | ||||||||
| Cash and cash equivalents | 16,261 | 194,837 | ||||||
| Restricted cash | 34,678 | 39,512 | ||||||
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The following table sets forth a summary of our working capital:
| September 30, 2022 | December 31, 2021 | Variance | % | |||||||||||||
| Total Current Assets | $ | 54,777 | $ | 83,779 | $ | (29,002 | ) | (34.62 | ) | |||||||
| Total Current Liabilities | $ | 69,122 | $ | 61,364 | $ | 7,758 | 12.64 | |||||||||
| Working Capital (Deficit) | $ | (14,345 | ) | $ | 22,415 | $ | (36,760 | ) | (164.00 | ) | ||||||
Working Capital
The working capital deficit as of September 30, 2022 amounted to approximately US$14.35 million, as compared to working capital of approximately US$22.42 million at December 31, 2021. The decline in working capital was mainly due to the additional operating capital used in the TAG Business’s business expansion.
Cash Flows from Operating Activities
Net cash used in operating activities was US$2.13 million for the nine months ended September 30, 2022, as compared to net cash provided by operating activities of US$2.17 million for the nine months ended September 30, 2021.
Net cash used in operating activities for the nine months ended September 30, 2022 was primarily the result of a net loss of US$13.73 million, a decrease in loans receivable of US$2.33 million, an increase in accounts payable and accrued liabilities of US$2.77 million, escrow liabilities of US$0.19 million, and income tax payable of US$0.35 million. These amounts were partially offset by the increase in accounts receivable of US$1.54 million, and deposits, prepayments, and other receivable of US$0.27 million, and non-cash adjustments consisting of unrealized investment loss of US$2.79 million, net foreign exchange loss of US$4.69 million and depreciation of property and equipment of US$0.29 million.
Net cash provided by operating activities for the nine months ended September 30, 2021 was primarily the result of the net income of US$107.41 million, a decrease in accounts receivable of US$1.67 million, loans receivable of US$13.02 million, and an increase in income tax payable of US$23.50 million. These amounts were partially offset by an increase in deposits, prepayments, and other receivable of US$1.94 million, decrease in escrow liabilities of US$4.77 million, accounts payable and accrued liabilities of US$1.92 million, and non-cash adjustments consisting of loss on equity method investments of US$1.60 million, realized investment income of US$136.29 million, accreted interest of US$0.18, foreign exchange loss of US$0.04 million, and depreciation of property and equipment of US$0.03 million.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2022 of US$6.87 million was primarily due to proceeds from consideration receivables of US$1.85 million, offset by the payment of an earnest deposit to the Legacy Group of US$7.85 million, and the purchase of an office building of US$0.87 million.
Net cash provided by investing activities for the nine months ended September 30, 2021 of US$183.53 million was primarily due to proceeds from the sale of investments of US$186.96, offset by the purchase of non-marketable equity securities of US$3.43 million.
Cash Flows from Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2022 of US$12.78 million was primarily due to the dividend distribution of US$17.44 million to the Legacy Group that occurred in early 2022, offset by advances from the Legacy Group of US$0.20 million and proceeds from borrowings of US$4.46 million.
Net cash used in financing activities for the nine months ended September 30, 2021 of US$13.06 million primarily consisted of repayment to the Legacy Group of US$12.99 and repayment of bank borrowings of US$0.07 million.
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Liquidity and Going Concern
The coronavirus pandemic (“COVID-19”) continues to impact countries, communities, supply chains and markets, global financial markets, and various industries. To date, COVID-19 has had a negative impact on the TAG Business’s operating activities and the ability to obtain external financing to fund its expansion and growth strategies. The Omicron wave and the resulting government anti-pandemic measures that impacted Hong Kong most severely in March and April 2022, for example, had an overall negative effect on business operations. TAG Business is unable to predict whether or how the global pandemic will continue to have a negative impact on the future financial condition and results of operations.
The combined financial statements of the TAG Business have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The management of the TAG Business estimates that currently available cash will not be able to provide sufficient funds to meet the TAG Business’s planned obligations for the next 12 months from the date that these combined financial statements were made available to be issued.
For the year ended December 31, 2021, the TAG Business reported a net income of approximately US$96.46 million. With a significant gain from the sale of its long-term investment, described in the paragraph below, the TAG Business achieved retained earnings of approximately US$52.13 million as of December 31, 2021.
In June 2021, JPMorgan Chase announced a transaction to acquire 100% of the equity interests in Nutmeg Saving and Investment Limited, a company in which the Fintech owned a 21.26% equity interest. The transaction closed in September 2021 with a cash consideration of US$186.82 million, resulting in the realized gain by the TAG Business of approximately US$139.16 million. During the year ended December 31, 2021, the TAG Business repaid a net amount of approximately US$164.0 million to the Legacy Group to settle all outstanding balances.
As of December 31, 2021, the TAG Business had an available cash balance of US$38.6 million.
As of September 30, 2022, the TAG Business had an available cash balance of US$16.2 million.
For the nine months ended September 30, 2022, the TAG Business generated a net loss of approximately US$13.7 million. However, coupled with its business expansion, the TAG Business reported significant sales growth with revenue of approximately US$19.4 million, and resulting in an operating loss of approximately US$6.4 million. The TAG Business expects to continue its business growth and exercise its cost initiative plan to closely monitor the future spending.
The ability of the TAG Business to continue as a going concern is dependent on the management’s ability to successfully implement its plans. The management of the TAG Business believes that the TAG Business will be able to continue to grow its revenue base and control expenditures. In parallel, the management of the TAG Business continually monitors the TAG Business’s capital structure and operating plans and evaluates various potential funding alternatives that may be needed in order to finance its business development activities, general and administrative expenses and growth strategy. Upon the successful business combination, the post combination company will expedite these alternatives, including the raising funds through public equity or debt markets. Although there is no assurance that, if needed, the TAG Business will be successful with its fundraising initiatives, the management of the TAG Business believes that the Business Combination transaction will significantly increase its ability to access capital going forward. The combined financial statements attached to the Form 8-K/A do not include any adjustments that might result from the outcome of these uncertainties.
On November 14, 2022, the TAG Business and its sole shareholder completed its business combination with AGBA Acquisition Limited. The post-combination company has been renamed “AGBA Group Holding Limited” and its ordinary shares and warrants began trading on the Nasdaq Capital Market on November 15, 2022 under the ticker symbols “AGBA” and “AGBAW,” respectively.
Material Cash Requirements
The TAG Business has suffered from net loss during the nine months ended September 30, 2022. However, the TAG Business achieved profitability during the year ended December 31, 2021, and the management of the TAG Business expects to generate the profitable operating results for the foreseeable future, after a full recovery from the anti-pandemic policy in Hong Kong. Management expects net cash expended in 2022 to be higher than 2021. As of September 30, 2022, the TAG Business had an accumulated deficit of US$8.61 million. The TAG Business’s material cash requirements are highly dependent upon the additional financial support from its business operations in the next 12 – 18 months.
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Capital commitments
As of September 30, 2022, there was no capital commitments involved with TAG Business.
Off-Balance Sheet Arrangements
The TAG Business is not party to any off-balance sheet transactions. It has no guarantees or obligations other than those which arise out of normal business operations.
The TAG Business has not engaged in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, net revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.
The TAG Business does not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, or VIEs, which would have been established for the purpose of facilitating off-balance sheet arrangements. The TAG Business has not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Quantitative and Qualitative Disclosures about Market Risk
The TAG Business is exposed to market risks in the ordinary course of its business. Market risk represents the risk of loss that may impact its financial position due to adverse changes in financial market prices and rates. Its market risk exposure is primarily associated with interest rate, credit, liquidity, foreign currency, and economic and political risk in all its major operations.
Interest Rate Risk
The TAG Business and its subsidiaries have insignificant interest-bearing assets, and its income and operating cash flows are substantially independent of changes in market interest rates. To the extent that it exists, the TAG Business’s interest-rate risk arises from bank borrowings and related party loans. The TAG Business manages interest rate risk by shifting the issuance and maturity dates of its variable rate debt, limiting the amount of variable rate debt, and continually monitoring the impact of changes in market interest rates. As of September 30, 2022 and December 31, 2021, the borrowings were at fixed interest rates.
Credit Risk
Financial instruments that potentially subject the TAG Business to credit risk consist of cash equivalents, restricted cash, accounts and loans receivable. Cash equivalents are maintained with high credit quality institutions, the composition and maturities of which are regularly monitored by management. The Hong Kong Deposit Protection Board pays compensation up to a limit of HK$500,000 (approximately US$64,102) if the bank with which an individual/a company holds its eligible deposit fails. As of September 30, 2022, a cash balance of US$16.3 million (approximately HK$127.6 million) and funds held in escrow of US$34.7 million (approximately HK$272.2 million) were maintained at financial institutions in Hong Kong, of which approximately US$51.0 million (approximately HK$399.9 million) was subject to credit risk. While the TAG Business management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
For accounts and loans receivable, the TAG Business determines, on a continuing basis, the probable losses and sets up an allowance for doubtful accounts and loan losses based on the estimated realizable value. Credit of money lending business is controlled by the application of credit approvals, limits, and monitoring procedures.
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The TAG Business uses internally-assigned risk grades to estimate the capability of borrowers to repay the contractual obligations of their loan agreements as scheduled or at all. The TAG Business’s internal risk grade system is based on experiences with similarly graded loans and the assessment of borrower credit quality, such as, credit risk scores, collateral, and collection history. Individual credit scores are assessed by credit bureaus, such as TransUnion. Internal risk grade ratings reflect the credit quality of the borrower, as well as the value of collateral held as security. To minimize credit risk, the TAG Business requires collateral arrangements to all mortgage loans and has policies and procedures for validating the reasonableness of the collateral valuations on a regular basis. Management of the TAG Business believes that these policies effectively manage the credit risk from advances.
The TAG Business conducts its business with creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis and its exposure to bad debts is not significant. The credit risk of the TAG Business’s financial assets, which comprise loans receivable, accounts receivable, deposits and other receivables, investments, and cash and cash equivalents, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.
Liquidity Risk
Liquidity risk is the risk that the TAG Business will not be able to meet its financial obligations as they become due. The policy of TAG Business is to ensure that it has sufficient cash to meet its liabilities when they become due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the TAG Business’s reputation. A key risk in managing liquidity is the degree of uncertainty in the cash flow projections. If future cash flows are fairly uncertain, then the liquidity risk increases.
Foreign Currency Risk
The TAG Business is exposed to market risks from changes in currency exchange rates. These exposures may impact future earnings and/or operating cash flows. B2B mainly operates in Hong Kong, while Fintech has mainly invested in Europe. As a result, most of the monetary assets, liabilities, and transactions of the TAG Business are principally denominated in Hong Kong dollars, United States dollars, and UK pounds Sterling.
A majority of the commission revenue and expenditure incurred by the various business segments of B2B were denominated in Hong Kong dollars, the business’s functional currency. As a result, the management of B2B does not anticipate significant transactional currency exposure. The TAG Business and its subsidiaries have not used any derivatives to hedge their exposure to foreign currency risk.
Economic and Political Risk
The TAG Business’s major operations are conducted in Hong Kong. Accordingly, the political, economic, and legal environments in Hong Kong, as well as the general state of Hong Kong’s economy may influence its growth prospects, financial condition, and results of operations. See the section of the Proxy Statement entitled “Risk Factors — Risk Factors Relating to the TAG Business’s Hong Kong Operations and Proximity to the PRC — The TAG Business is subject to many of the economic and political risks associated with emerging markets due to its operations in Hong Kong and China. Adverse changes in Hong Kong’s or China’s economic, political, and social conditions as well as government policies could adversely affect the TAG Business’s business and prospects.”
Summary of Significant Accounting Policies
The discussion and analysis of the financial condition and results of operations of the TAG Business are based upon its financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially.
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Use of Estimates and Assumptions
The preparation of combined 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 combined financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the TAG Business’s combined financial statements include the useful lives of property and equipment, impairment of long-lived assets, allowance for doubtful accounts, impairment of short-term and long-term investments, deferred taxes and uncertain tax position, and allocation of expenses from the Legacy Group.
The inputs into the management’s judgments and estimates consider the economic implications of COVID-19 on the TAG Business’s critical and significant accounting estimates. Actual results could differ from these estimates.
Foreign Currency Translation and Transactions
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 TAG Business is United States Dollar (“US$”) and the accompanying combined financial statements have been expressed in US$. In addition, the TAG Business and its subsidiaries are operating in Hong Kong and maintain their books and record in their local currency, Hong Kong dollars (“HK$”), 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 within the statements of changes in shareholders’ equity.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash in readily available checking and saving accounts. Cash equivalents 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 TAG Business maintains most of its bank accounts in Hong Kong.
Restricted Cash — Fund Held in Escrow
Fund held in escrow represent restricted cash and cash equivalents maintained in certain bank accounts that are held for the exclusive interest of the TAG Business’s customers. The TAG Business currently acts as a custodian to manage the assets and investment portfolio on behalf of its customers under the terms of certain contractual agreements, which the TAG Business does not have the right to use for any purposes, other than managing the portfolio.
The TAG Business also restricts the use of the assets underlying the funds held in escrow to meet with regulatory requirements and classifies the assets as current based on their purpose and availability to fulfill its direct obligation under escrow liability. Upon receiving escrow funds, the TAG Business records a corresponding escrow liability.
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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 45 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 TAG Business seeks to maintain strict control over its outstanding receivables to minimize credit risk. Overdue balances are reviewed regularly by senior management. Management of the TAG Business reviews its receivables on a regular basis to determine if the bad debt allowance is adequate and provides allowance when necessary. The allowance is based on management’s best estimates of specific losses on individual customer exposures, as well as the historical trends of collections. Account balances are charged off against the allowance after all means of collection have been exhausted and the likelihood of collection is not probable.
The TAG Business does not hold any collateral or other credit enhancements overs its accounts receivable balances
Loans Receivable, net
Loans receivable are carried at unpaid principal balances, less the allowance for loan losses and charge-offs. The loans receivable portfolio consists of real estate mortgage loans and personal loans.
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 TAG Business determines that a loan is impaired, the TAG Business 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 Loan Losses.
Allowance for Loan Losses (“ALL”)
The adequacy of the TAG Business’s ALL is determined, in accordance with ASC Topics 450-20 “Loss Contingencies” includes management’s review of the TAG Business’s loan portfolio, including the identification and review of individual problem situations that may affect a borrower’s ability to repay. In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including a review of regulatory examinations, an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio.
The ALL reflects management’s evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio. There is significant judgment applied in estimating the ALL. These assumptions and estimates are susceptible to significant changes based on the current environment. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALL even though there may not be a decline in credit quality or an increase in potential problem loans.
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Short-Term and Long-Term Investments, net
The TAG Business invests in equity method investments, debt securities, and equity securities that do not have readily determinable fair values.
Investments in an entity in which the ownership is greater than 20% but less than 50%, or where other facts and circumstances indicate that the TAG Business has the ability to exercise significant influence over the operating and financing policies of an entity, are accounted for using the equity method in accordance with ASC Topic 323: Investments — Equity Method and Joint Ventures. Equity method investments are recorded initially at cost and adjusted subsequently to recognize the share of the earnings, losses or other changes in capital of the investee entity after the date of acquisition. The TAG Business periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Debt securities are classified as held-to-maturity and carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.
The TAG Business’s long-term equity investments mainly consist of investments in privately-held companies that do not have a readily determinable fair value. 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 TAG Business makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired.
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 and after taking into account their estimated residual values:
| Type | 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 TAG Business 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.
Accounts payable
Accounts payable represent commission payable to the TAG Business’s financial advisors for the sale of investment funds, investment products, or insurance products. The carrying amount approximates fair value because of the short maturity.
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Borrowings
Borrowings are recognized at fair value and repayable in the next twelve months. Interest expense is recognized on a fixed interest rate.
Revenue Recognition
The TAG Business receives certain portion of its non-interest income from contracts with customers, which is accounted for in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC Topic 606”).
ASC Topic 606-10 provided the following overview of how revenue is recognized from the TAG Business’s contracts with customers: The TAG Business recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the TAG Business 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.
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 TAG Business’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 TAG Business considers the terms of the contract and all relevant facts and circumstances when applying this guidance. The TAG Business’s revenue recognition policies are in compliance with ASC Topic 606, as follows:
One-time commissions
The TAG Business earns one-time commissions from the sale of investment products to customers. The TAG Business enters into one-time commission agreements with customers which specify the key terms and conditions of the arrangement. One-time 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 TAG Business earns a one-time commission from customers, calculated as a fixed percentage of the investment products acquired by its customers. The TAG Business defines the “purchase of an investment product” for its revenue recognition purpose as the time when the customers referred by the TAG Business 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 TAG Business 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, one-time commissions are recorded at point in time when the investment product is purchased.
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The TAG Business 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 TAG Business primarily facilitates the placement of life, general, and MPF insurance products. The TAG Business determines that insurance providers are the customers.
The TAG Business 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 TAG Business 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 TAG Business and insurance providers for each insurance product being facilitated through the TAG Business. 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 TAG Business evaluates the terms in the agreements with its channels and independent contractors to determine whether or not the TAG Business 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 TAG Business has control over the services prior to transferring it. Control is demonstrated by the TAG Business which is primarily responsible for fulfilling the provision of placement services through the TAG Business’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.
The TAG Business 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 TAG Business 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 TAG Business 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 TAG Business to provide investment management services, which represents a performance obligation that the TAG Business satisfies over time. After the contract is established, there are no significant judgments made when determining the transaction price. As the TAG Business 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 fee 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
Interest income meets the scope exception under ASC Topic 606. The TAG Business offers money lending services from loan origination in form of mortgage and personal loans. In compliance with ASC Topic 825, interest income is recognized monthly in accordance with their contractual terms and recorded as interest income in the combined statement of operations. The TAG Business 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.
Commission Expense
Selling and marketing expenses primarily consists of commission charges to the agents. The TAG Business recognizes cost of revenue as expenses are incurred and included in selling expenses.
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Advertising Costs
The TAG Business expenses advertising costs as incurred.
Cost Allocation
Cost allocation includes allocation of certain general and administrative costs, selling expenses, and other operating costs paid by the Legacy Group. General and administrative expenses consist primarily of payroll and related expenses of senior management and the TAG Business’s employees, shared management expenses, including accounting, consulting, legal support services, and other expenses to provide operating support to the related businesses. Allocated selling and marketing expense was mainly marketing expenses. These allocations are made using a proportional cost allocation method by considering the proportion of revenues, headcount as well as estimates of time spent on the provision of services attributable to the TAG Business and the related expenses resulting from the acquisitions of its subsidiaries.
Government Subsidies
A government subsidy is not recognized until there is reasonable assurance that: (a) the enterprise will comply with the conditions attached to the grant; and (b) the grant will be received. When the TAG Business receives government subsidies but the conditions attached to the grants have not been fulfilled, such government subsidies are deferred and recorded under other payables and accrued expenses, and other long-term liability. The classification of short-term or long-term liabilities is depended on the management’s expectation of when the conditions attached to the grant can be fulfilled.
Comprehensive Income (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, as presented in the accompanying statement of shareholder’s equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income 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.
Retirement Plan Costs
Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the accompanying statements of operation as the related employee service are provided. The TAG Business is required to make contribution to their employees under a government-mandated multi-employer defined contribution pension scheme for its eligible full-times employees in Hong Kong. The TAG Business is required to contribute a specified percentage of the participants’ relevant income based on their ages and wages level.
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Segment Reporting
ASC Topic 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the TAG Business’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the TAG Business’s business segments.
The TAG Business uses the management approach to determine reportable operating segments. The management approach considers the internal organization and reporting used by the TAG Business’s chief operating decision maker (CODM) for making decisions, allocating resources and assessing performance. The TAG Business’s CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance of the TAG Business. Based on management’s assessment, the TAG Business determined that it has the following operating segments:
| Entities: | Segments | Business Activities | |||
| OPH | Asset Management Business | ● | Providing the portfolio management services to the customers to earn the asset management service fee | ||
| ● | Facilitating the placement of investment products for the fund and/or product provider, in exchange for the fund management services | ||||
| Insurance Brokerage Business | ● | Facilitating the placement of insurance products to the insured, through the licensed insurance brokers or agents, in exchange for the commission from the insurance providers | |||
| Money Lending Business | ● | Providing the lending services whereby the TAG Business makes secured and/or unsecured loans to creditworthy customers | |||
| Real Estate Agency Business | ● | Solicitation of real estate sales for the developers, in exchange for one-time commissions | |||
| Fintech | Fintech Business | ● | Managing an ensemble of fintech investments 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 since its launch in November 2020. |
All of the TAG Business’s revenues were generated in Hong Kong.
Based on management’s assessment, the TAG Business determined that it has five operating segments and therefore five reportable segments as defined by ASC Topic 280, which are (i) the Insurance Brokerage Business, (ii) the Asset Management Business, (iii) the Money Lending Business, (iv) Real Estate Agency Business and (v) Fintech Business. All of the TAG Business’s net revenues were generated in Hong Kong.
Related Parties
The TAG Business 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 TAG Business; (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 TAG Business; (e) management of the TAG Business; (f) other parties with which the TAG Business 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.
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Commitments and Contingencies
The TAG Business 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 TAG Business but which will only be resolved when one or more future events occur or fail to occur. The TAG Business 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 TAG Business or un-asserted claims that may result in such proceedings, the TAG Business 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 TAG Business’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. The management of the TAG Business does not believe, based upon information available at this time that these matters will have a material adverse effect on the TAG Business’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the TAG Business’s business, financial position, and results of operations or cash flows.
Fair Value Measurement
The TAG Business 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 financial instruments of the TAG Business: cash and cash equivalents, restricted cash, accounts receivable, loans receivable, amount due to a related party, accounts payable, escrow liabilities, income tax payable, other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.
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Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of note payable approximate the carrying amount. The TAG Business accounts for loans receivable at cost, subject to impairment testing. The TAG Business obtains a third-party valuation based upon loan level data including note rate, type and term of the underlying loans.
The TAG Business’s non-marketable equity securities are investments in privately held companies, which are without readily determinable market values and are classified as Level 3, due to the absence of quoted market prices, the inherent lack of liquidity and the fact that inputs used to measure fair value are unobservable and require management’s judgment.
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
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments — Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the TAG Business for interim and annual periods in fiscal years beginning after December 15, 2022. The management of the TAG Business believes the adoption will modify the way the TAG Business analyzes financial instruments, but it does not anticipate a material impact on results of operations. The TAG Business is in the process of determining the effects the adoption will have on its combined financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables — Nonrefundable Fees and Other Costs, which clarifies that, for each reporting period, an entity should reevaluate whether a callable debt security is within the scope of ASC 310-20-35-33. For public business entities, ASU 2020-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. For all other entities, ASU 2020-08 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the TAG Business’s combined financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which makes minor technical corrections and clarifications to the ASC. The amendments in Sections B and C of the ASU are effective for annual periods beginning after December 15, 2020, for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. This Update is not expected to have a significant impact on the TAG Business’s combined financial statements.
Except for the above-mentioned pronouncements, there are no recently issued accounting standards that will have a material impact on the consolidated financial position, statements of operations, and cash flows of the TAG Business.
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