Treasure Global Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2023; comparative figures are for the periods ended March 31, 2022. Financial statements are unaudited. The company operates primarily through Malaysian subsidiary GEM and its ZCITY online-to-offline commerce and payments platform.
Financial performance
| Metric | Three months ended March 31, 2023 | Nine months ended March 31, 2023 | Comparison |
|---|---|---|---|
| Revenue | $18.15 million | $54.15 million | Down 14.0% and 14.6%, respectively |
| Gross profit / margin | $147,833 / 0.8% | $452,081 / 0.8% | Prior-year gross profit was $15,507 / 0.1% and $226,566 / 0.4% |
| Operating loss | $2.88 million | $7.54 million | Prior-year losses were $2.60 million and $7.91 million |
| Net loss | $2.93 million | $8.61 million | Prior-year losses were $3.23 million and $9.16 million |
| Operating cash flow | Not provided for the quarter | $(7.03) million | Prior-year nine-month outflow was $5.93 million |
| Cash and cash equivalents | $4.09 million at March 31, 2023 | $1.85 million at June 30, 2022 |
Revenue remained overwhelmingly dependent on e-vouchers and product/loyalty sales: product and loyalty program revenue was $18.10 million for the quarter and $53.87 million for nine months. Management attributed the decline to purchasing fewer e-vouchers to reserve working capital for TAZTE development. Member subscription revenue increased to $229,781 for nine months, while transaction revenue was only $53,086. The company reported no agent subscription revenue and said it had abandoned that program.
Operating expenses for the nine months were $7.99 million, including $3.73 million selling expense, $3.04 million general and administrative expense, $403,191 research and development expense, and $819,332 stock-based compensation. Interest expense and debt-discount amortization contributed to nine-month net other expense of $1.04 million. Basic and diluted loss per share was $0.17 for the quarter and $0.53 for nine months.
Balance sheet, debt and liquidity
- At March 31, 2023, current assets were $5.22 million and current liabilities were $3.09 million, implying working capital of approximately $2.13 million. Total liabilities were $3.13 million; stockholders’ equity was $2.56 million.
- Current liabilities included $1.86 million of convertible notes, $238,686 on an insurance loan, $331,614 due to related parties, and other payables and accrued liabilities of $418,804. The convertible notes had a $2.0 million face value and a 4% annual interest rate, with a 12-month term; the company received $1.84 million net of discount. The filing describes an agreement for up to $5.5 million in convertible notes, but only $2.0 million had been purchased by March 31.
- Cash increased by $2.25 million over the nine months, principally because of financing inflows. Financing cash flow was $9.51 million, including approximately $8.2 million of IPO proceeds and proceeds from convertible notes, offset partly by repayments. Investing cash outflow was $83,639.
- The company reported substantial doubt about its ability to continue as a going concern. Despite the IPO and convertible-note proceeds, management said it may not have sufficient funds to meet working-capital needs and debt obligations beginning one year from the report date. It cited recurring losses and $7.03 million of operating cash outflow for the nine-month period. Proposed funding sources include equity, borrowing, and related-party support; success is not assured.
Material changes, outlook and risks
- On August 15, 2022, the company completed its IPO of 2.3 million shares at $4.00 per share, generating approximately $8.2 million net proceeds. Existing convertible notes were converted into equity, substantially reducing reported liabilities from June 2022.
- At March 31, ZCITY had 2,444,077 registered users and 449,435 active users; the active-user share of registered users was 18.4%. New registered users were 98,248 in the quarter, down from 143,654 in the prior quarter. Management said it expects user growth to be less rapid as it maintains e-voucher sales at a steadier level.
- TAZTE, a merchant-focused food-and-beverage digitalization system launched in December 2022, was offered to participating merchants with a 365-day free trial; it generated no revenue in the nine-month period. Management expects transaction revenue to increase after the free-trial period expires, but provided no quantified forecast.
- Subsequent to quarter-end, the company agreed to acquire Foodlink Global Sdn Bhd and two subsidiaries for approximately $3,000. Also on May 1, 2023, subsidiary Morgan entered a five-year worldwide trademark license agreement. The minimum aggregate license payments are approximately $1.5 million, or 40% of monthly collections from sublicensees, whichever is higher.
- Vendor concentration is significant: two vendors represented approximately 56.7% and 38.5% of purchases for the nine months. One customer represented approximately 97.7% of accounts receivable at quarter-end. The filing also notes that $3.60 million of cash and customer funds held with financial institutions or a third-party platform was not covered by deposit insurance.
- Management identified ineffective disclosure controls and procedures due to material weaknesses, including insufficient U.S. GAAP and SEC-reporting personnel, lack of internal audit capability, IT and access-control deficiencies, inadequate segregation-of-duties procedures, and deficiencies in related-party transaction controls. Remediation plans include hiring, training, improved IT controls, and external assistance.
- The filing states that no pending legal proceeding is expected to have a material adverse effect. It reports no material changes to previously disclosed risk factors. Inflation and supply-chain disruptions had not materially affected business as of March 31, according to management.
Important facts for investors to verify
- Funding runway, cash burn, upcoming debt maturities, and whether additional financing or related-party support will be available.
- Terms and potential dilution from the YA II PN convertible-note facility, including any remaining availability and conversion provisions.
- Whether TAZTE converts free-trial merchants into paying customers and produces meaningful transaction revenue; also monitor user activity and retention.
- Economics of the Morganfield’s license commitment and the subsequent Foodlink acquisition, including funding, integration costs, and expected returns.
- Progress addressing material weaknesses in financial reporting, IT controls, segregation of duties, and related-party transaction oversight.
- Exposure to concentrated vendors, receivables, and uninsured cash or customer funds.