Treasure Global Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2022, compared with the three months ended September 30, 2021, where applicable. The filing describes the company’s Malaysian ZCITY online-to-offline e-commerce and payment platform. Financial statements are unaudited.
Key financial results
| Metric | Quarter ended Sep. 30, 2022 | Prior-year quarter | Change / context |
|---|---|---|---|
| Revenue | $15.56 million | $20.37 million | Down 23.6%; mainly lower e-voucher sales |
| Gross profit | $37,093 | $71,575 | Down 48.2% |
| Gross margin | 0.2% | 0.4% | Lower product margins and sales mix |
| Operating expenses | $2.67 million | $2.65 million | Approximately flat overall |
| Operating loss | $2.64 million | $2.58 million | Loss widened modestly |
| Net loss | $3.67 million | $2.77 million | Worsened, principally due to debt-discount amortization |
| Basic and diluted loss per share | $0.26 | $0.26 | Loss per share unchanged as reported |
| Cash used in operations | $2.46 million | $2.71 million | Operating cash outflow continued |
| Cash used in investing | $34,399 | $157,541 | Primarily equipment purchases |
| Cash provided by financing | $7.81 million | $1.09 million | Includes IPO proceeds and borrowing |
Financial position and funding
- At September 30, 2022, cash and cash equivalents were $7.01 million, total assets $8.41 million, total liabilities $1.32 million, and stockholders’ equity $7.09 million.
- Current assets were $8.01 million and current liabilities $1.26 million, yielding approximately $6.74 million of positive working capital. The company reported a $15.9 million working-capital deficit at June 30, 2022.
- Convertible notes were reduced to zero at quarter-end after conversion into common stock. The company also repaid third-party loans and a $65,000 senior note. Remaining reported borrowing included a $16,319 related-party auto loan; operating lease liabilities totaled approximately $76,755.
- The August 15, 2022 IPO sold 2.3 million shares at $4.00 per share and generated approximately $8.2 million net proceeds. Convertible debt conversions and the IPO contributed to shares outstanding increasing from 10.55 million at June 30 to 17.29 million at September 30.
- Operating cash use was partly offset by noncash debt-discount amortization of $998,076 and stock-based compensation of $439,332. The quarter’s $998,076 debt-discount amortization materially increased other expense.
Changes, outlook, and risks
- Product and loyalty program revenue, about 99.5% of total revenue, fell 24.0% to $15.47 million. Management attributed the decline to purchasing fewer e-vouchers to conserve working capital for development of the Tazte food-and-beverage merchant system.
- Transaction revenue rose 8.2% to $15,218. Member subscription revenue was $68,308, with 11,420 Zmember subscribers at quarter-end. Agent subscription revenue was zero; management said it did not expect to recognize agent subscription revenue for the remainder of 2022 and beyond.
- Management expected to launch Tazte in December 2022 and anticipated greater transaction revenue from it, but the filing provides no quantified revenue or earnings guidance. Management said it did not expect explosive user growth, instead prioritizing user retention and steady e-voucher sales.
- Despite the IPO proceeds and improved working capital, management concluded there was substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and expected inability to fund working capital and obligations beginning one year from the report date. Proposed mitigations include equity or debt financing and related-party support; no assurance of success is provided.
- Operating risks include very thin gross margins, dependence on e-voucher sales, concentration in Malaysia, foreign-exchange exposure, and supplier concentration: one vendor represented about 85% of quarterly purchases and 92% of accounts payable at quarter-end. Approximately $6.53 million of cash was not covered by deposit insurance.
- The filing identifies material weaknesses in internal control over financial reporting, including insufficient accounting expertise, lack of internal audit and IT controls, and deficiencies in segregation of duties and related-party transaction procedures. Management described remediation plans; it reported no changes during the quarter that materially affected, or were reasonably likely to materially affect, internal control.
- Management said inflation and supply-chain disruption had not materially harmed the business as of September 30, 2022. Legal proceedings were not expected to have a material adverse effect, and the company reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether Tazte launched as planned and generated merchant adoption, transaction revenue, and cash flow.
- Actual cash burn, financing needs, debt or related-party support availability, and progress toward resolving the going-concern uncertainty.
- Whether revenue and gross margins recovered after management reduced e-voucher purchasing; assess the economics of the platform beyond high-volume, low-margin voucher sales.
- Progress in remediating material weaknesses and the status of disclosure and financial-reporting controls.
- Supplier concentration and uninsured cash exposure, along with customer retention, active-user trends, and the effect of share issuance on existing investors.
- The cash-flow statement labels both comparative columns “2022,” although the second set of figures appears to be the 2021 comparative period; confirm against the filed statement. The filing also reports 448,358 beginning active users in one table where another table reports 443,430 at June 30, 2022.