Agape ATP Corporation — Q3 2022 Form 10-Q
Reporting period: Unaudited quarter and nine months ended September 30, 2022. Agape ATP sells health and wellness products and services, primarily in Malaysia, including through a network-marketing channel and a complementary health-therapy business.
Financial results and liquidity
| Metric | Q3 2022 | Nine months 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $663,889 | $1,469,556 | $201,284 quarter; $806,850 nine months |
| Gross profit / margin | $506,144 / 76.2% | $1,128,997 / 76.8% | $164,621 / 81.8%; $656,973 / 81.4% |
| Operating loss | $193,308 | $771,723 | $364,996; $1,116,503 |
| Net loss attributable to Agape ATP | $240,712 | $954,711 | $571,265; $1,547,140 |
| Operating cash flow | Not separately provided | $(737,456) | $(541,440) |
All amounts are U.S. dollars. The statements report nine-month consolidated net loss of $943,007 before allocating $11,704 of income to non-controlling interests; the parent-attributable loss is $954,711. Basic and diluted loss per share was reported as $0.00 for Q3 and $(0.01) for the nine months of 2022.
Cash and cash equivalents were $1,584,869 at September 30, down from $2,597,848 at December 31, 2021. The company reported working capital of $1,505,169, total current assets of $2,355,169, and current liabilities of $850,000. Total liabilities were $850,429; no credit facilities or other bank credit access were reported. Lease liabilities totaled $116,199 at present value, with most payments due within twelve months.
Cash declined by $1,012,979 over the nine months, including $737,456 used in operations, $5,777 used for equipment, and $184,466 of deferred offering-cost payments; foreign exchange effects reduced cash by a further $85,280. No dividends or equity financing are reported in the supplied text.
Changes from prior comparable periods
- Revenue increased 230% in Q3 and 82.1% for the nine months. Management attributed growth to Malaysia’s recovery as restrictions eased and to complementary health therapies, which management said contributed approximately 30% of nine-month revenue.
- Gross margin fell to 76.2% in Q3 and 76.8% year to date, from 81.8% and 81.4%, respectively. Management attributed the decline to lower margins in complementary therapies compared with network-marketing sales.
- Operating losses narrowed, and parent-attributable net losses declined year over year. Lower unrealized losses on marketable securities also reduced other expense; foreign-exchange losses increased to $143,387 for the nine months.
- Operating cash use worsened to $737,456 from $541,440 despite the lower reported loss. Cash and working capital also decreased substantially from year-end.
- Common shares outstanding fell from 290,460,047 at December 31, 2021 to 75,452,012 at September 30, 2022 following the CEO’s forfeiture of 215,008,035 shares under a January 2022 agreement.
Outlook, risks and unusual items
- Management said it expects revenue to revert to pre-pandemic levels and believes available funds should meet foreseeable working-capital and debt obligations. If cash generation is insufficient, it may seek Malaysian bank or other financing, or support from related parties and shareholders; management cautioned there is no assurance these plans will succeed. The company has no formal revenue or earnings guidance in the filing.
- Management described possible expansion into Thailand, Indonesia and Taiwan, including through e-commerce. This is an intention, not a quantified forecast.
- Substantially all revenue is concentrated in Malaysia. The filing identifies epidemic-related demand, supply-chain and logistics disruption, and foreign-currency movements as risks; the company does not hedge foreign-exchange exposure. Management said the financial impact of COVID-19 could not be reasonably estimated.
- Marketable securities were valued at $24,270, down from $89,001 at year-end; the nine-month unrealized holding loss was $64,284. A further $120,372 of doubtful prepayments was written off during 2022. Other payables and accrued liabilities include a $75,000 tax penalty balance.
- Related-party activity included $132,949 of nine-month purchases from related parties. CTA Nutriceuticals, a related company, represented approximately 46% of accounts payable at September 30.
- Management concluded disclosure controls and internal control over financial reporting were not effective, citing material weaknesses including insufficient accounting capacity, lack of an internal audit function and segregation of duties, and gaps in IT access, change-management, vendor oversight and audit-log controls. Management described remediation plans, including a planned internal audit function, but did not report that the weaknesses had been resolved.
- The company reported no material pending legal proceedings and no subsequent events requiring disclosure. Interim results are unaudited and are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether higher sales from complementary therapies can be sustained and at margins sufficient to improve profitability.
- Whether operating cash burn continues, and how the company will fund operations if cash generation falls short; verify the timing and status of the proposed offering reflected in deferred offering costs.
- The collectability and availability of current assets, including prepaid taxes, deposits and cash, and the extent of cash subject to restrictions or deposit-insurance limits.
- Progress in remediating the disclosed material weaknesses and the effect of related-party transactions and supplier concentration.
- The effects of the substantial share-count reduction on per-share comparisons, ownership and future dilution.