Agape ATP Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The unaudited consolidated financial statements are presented in U.S. dollars and compare with Q1 2022. Agape operates principally in Malaysia, selling health and wellness products through network marketing and providing complementary health therapies.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Revenue | $380,767 | $408,960 |
| Gross profit / margin | $252,408 / 66.3% | $335,529 / 82.0% |
| Operating expenses | $706,293 | $607,761 |
| Operating loss | $453,885 | $272,232 |
| Net loss | $434,075 | $298,446 |
| Net loss attributable to Agape | $425,840 | $299,097 |
| Operating cash flow | $(272,555) | $(151,122) |
| Cash and cash equivalents | $1,119,933 | $1,438,430 at Dec. 31, 2022 |
| Working capital | $374,149, as reported | $799,239 at Dec. 31, 2022 |
Total assets were $2.18 million and total liabilities $1.05 million at March 31, 2023. Liabilities were reported as current; current liabilities included $42,443 in operating lease liabilities. The company reported no credit facilities or other access to bank credit. It used $38,768 for equipment purchases and $6,961 for deferred offering costs; cash decreased by $318,497 during the quarter. Accumulated deficit was $5.37 million. Common shares outstanding were 75,452,012 at quarter-end and May 11, 2023.
Changes versus Q1 2022
- Revenue declined $28,193, or 6.9%. Network-marketing revenue fell 62.9% to $138,859, while complementary-therapy revenue rose to $241,908 from $34,932, more than offsetting much of the decline. Therapy revenue comprises $176,557 of products and $65,351 of services.
- Cost of revenue increased 74.8% to $128,359, contributing to the gross-margin decline. Management cited promotions to clear existing products and differing margins in therapy offerings.
- General and administrative expense increased 57.3% to $596,253, mainly reflecting therapy-related costs and expenses associated with the planned Nasdaq uplisting. Selling expense fell 33.6% and commissions fell to $33,942 from $114,109.
- Net loss increased $135,629. Operating cash use increased by $121,433 year over year. Cash and working capital also declined from year-end 2022.
Outlook, risks and notable items
- Going concern: Management concluded that substantial doubt exists about the company’s ability to continue as a going concern. It states that funds may be insufficient to meet working-capital needs and obligations over the year following filing absent a Nasdaq uplisting, additional financing, or related-party support. Management warns that failure to generate significant revenue could require curtailing or ceasing operations; there is no assurance its financing plans will succeed.
- Plans and outlook: Management is preparing a new product range for its network-marketing business, which it says has been affected as distributors and members delayed purchases of existing products. It describes modest growth in complementary health therapies and intends to explore expansion into Asian markets, including Thailand, Indonesia and Taiwan, potentially through e-commerce. No quantified financial guidance is provided.
- Concentration and operating risks: Substantially all revenue is concentrated in Malaysia. The filing cites possible effects from epidemics, supply-chain disruption, customer purchasing power, and currency fluctuations. Three vendors represented 21.1%, 17.3% and 14.7% of Q1 purchases; a related company accounted for 30.7% of accounts payable at quarter-end.
- Controls: Disclosure controls and internal control over financial reporting were deemed ineffective. Identified material weaknesses included insufficient accounting personnel and expertise, no functional internal audit function, and inadequate IT controls. Management described remediation plans and expected at least partial implementation by year-end 2023.
- Other items: The company recorded $22,959 of forfeited coupon income versus $953 a year earlier. Other payables included a $75,000 tax penalty. Management reported no material pending legal proceedings and no material subsequent events. Lease commitments included $42,926 in payments due within twelve months on recognized leases and $28,244 of short-term lease commitments.
Investor verification priorities
- Track cash burn, working capital, and whether the planned Nasdaq uplisting or other financing is completed on viable terms.
- Verify whether therapy revenue can continue to offset weakness in network-marketing sales, and whether the new product launch restores distributor purchases.
- Review the drivers of lower gross margin and higher G&A, including uplisting and therapy-related costs.
- Monitor remediation of the disclosed material weaknesses and the reliability of future financial reporting.
- Assess vendor and related-party purchasing exposure, the tax penalty, and obligations associated with leases and customer deposits.