Agape ATP Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The unaudited consolidated statements are presented in U.S. dollars and include the company’s health and wellness businesses, primarily in Malaysia.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $355,314 | $663,889 | $1,040,017 | $1,469,556 |
| Gross profit | $234,728 | $506,144 | $683,142 | $1,128,997 |
| Gross margin | 66.1% | 76.2% | 65.7% | 76.8% |
| Operating loss | $317,078 | $193,308 | $1,130,495 | $771,723 |
| Net loss | $324,735 | $240,217 | $1,138,259 | $943,007 |
| Net loss attributable to Agape ATP | $327,029 | $240,712 | $1,127,555 | $954,711 |
- Revenue fell 46.5% in Q3 and 29.2% for the nine-month period. Management attributed the decline chiefly to weaker network-marketing sales, where new products received a “lukewarm” distributor response. Complementary health therapies revenue rose 32.5% in Q3 and 60.9% year to date, but carried lower gross margins.
- Operating expenses decreased 21.1% in Q3 and 4.6% year to date. Lower commissions and selling costs were partly offset by higher general and administrative expenses; the nine-month increase in G&A was attributed mainly to therapy operations and Nasdaq-uplisting costs.
- For the nine months, operating cash outflow was $995,706, versus $737,456 in 2022. Investing cash outflow was $7,200; financing cash outflow, consisting of deferred offering costs, was $113,911. Cash declined by $1,126,771 to $311,659.
Financial position and liquidity
- At September 30, 2023, cash was $311,659; current assets were $528,812 and current liabilities $974,057, producing a $445,245 working-capital deficit. At December 31, 2022, the company reported positive working capital of $799,239.
- Total liabilities were $1,219,307, including $374,663 of operating lease liabilities. The filing reports no credit facilities or access to bank credit; it does not identify conventional borrowing debt.
- Accumulated deficit was $6,073,141. Shareholders’ equity, including non-controlling interests, was $432,031.
- On October 11, 2023, after quarter-end, the company completed its Nasdaq uplisting and offering of 1.65 million shares at $4.00 per share. It reported net proceeds of $5,615,431 and stated management expected funds to meet working-capital needs and obligations for 12 months from filing.
Outlook, risks, and notable items
- No specific revenue or earnings guidance was provided. Management cautioned there is no assurance revenue will grow or remain at similar levels in 2023 and beyond.
- Operations and substantially all revenue are concentrated in Malaysia. The filing cites exposure to epidemics, supply-chain and delivery disruptions, customer demand, and MYR/HKD exchange-rate movements.
- Vendor concentration is significant: a related-party supplier, CTA Nutriceuticals, accounted for about 67.5% of Q3 purchases and 53.0% of nine-month purchases. Related-party product purchases from CTA and other parties totaled $205,993 for the first nine months.
- Management concluded disclosure controls and internal control over financial reporting were not effective at September 30, 2023, citing insufficient accounting staff, no functional internal audit function, and gaps in IT controls. Remediation plans included accounting procedures, internal-audit capability, staff training, and IT-control improvements.
- Subsequent to quarter-end, the company signed a non-binding MOA for a proposed 50/50 Malaysian renewable-energy SPV, with financial obligations to be agreed later. It also signed an MOA to pursue a 51% acquisition of an EV-charging company, subject to due diligence and a future agreed price; the company would fund or source funding for development of 50 charging stations.
- Other notable items: lease renewals increased right-of-use assets and liabilities; the filing reports a $75,000 tax-penalty accrual. Management stated legal matters and reasonably possible losses were not material.
Key facts for investors to verify
- Whether the Nasdaq offering proceeds were received as reported and how they affect liquidity, given the substantial pre-offering working-capital deficit and ongoing operating cash burn.
- Whether network-marketing sales recover, and whether growth in complementary therapies can support margins as that business becomes a larger share of revenue.
- Supplier concentration and related-party purchasing terms, particularly the company’s reliance on CTA Nutriceuticals.
- Progress and effectiveness of the promised internal-control remediation, including staffing, internal audit, and IT controls.
- Whether the proposed renewable-energy and EV-charging transactions proceed, their final terms, and any funding commitments or dilution they may entail.