Business context and reporting period
Agape ATP Corp. filed this unaudited Form 10-Q for the three months ended September 30, 2018, its fiscal first quarter (the filing states a June 30 fiscal year-end). The business sells health and wellness products and describes plans to provide health-solution advisory services, initially focused on Malaysia. Financial figures are in U.S. dollars.
Financial results and liquidity
- Revenue: $415,367, down 15.3% from $490,126 in the prior-year quarter. All reported revenue came from one customer.
- Gross profit and margin: $36,944 versus $45,888; gross margin was approximately 8.9%, compared with 9.4%.
- Net loss: $135,866, versus $54,609. The current quarter included an $80,029 unrealized foreign-exchange loss and a $52,109 share of losses from the investee; income tax expense was $3,704. Basic and diluted loss per share was reported as $(0.00).
- Cash flow: Operating activities provided $307,005, versus $155,025 used in the prior-year quarter. Management attributed the current-period inflow primarily to $471,931 of customer deposits received. No investing or financing cash flows were reported.
- Balance sheet and liquidity: Cash and cash equivalents were $3,838,260, up from $3,531,255 at June 30, 2018. Current assets were $4,223,715 and current liabilities $541,026, yielding working capital of $3,682,689. Total assets were $5,503,941; total liabilities were $541,026; stockholders’ equity was $4,962,915.
- Debt and investments: The company reported no credit facilities or access to bank credit. It held a $500,000 marketable-securities investment and a $780,226 equity-method investment in Unreserved Sdn Bhd. Cash included $2,424,313 in time deposits earning 2.95% annually.
Changes, outlook, risks and unusual items
- Management attributed lower revenue and gross profit to reduced market exposure and the introduction of new products. It said increased marketing and product development may be needed to retain and attract customers.
- Management attributed the larger net loss to the unrealized foreign-exchange loss and higher cost of goods sold. No financial guidance or quantified outlook was provided.
- Customer concentration is significant: one customer accounted for 100% of quarterly revenue and is identified in the related-party note as Related Party A; its director is the company’s CEO and a director. The filing also reports a $13,264 receivable from this customer.
- Vendor concentration was also high: one vendor accounted for 83% of purchases, with a second accounting for 17%.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses in segregation of duties/risk assessment and written accounting and SEC-reporting policies. No material changes in internal control were reported during the quarter.
- The company reported no material pending legal proceedings, defaults on senior securities, or material off-balance-sheet arrangements. It said no subsequent event required recognition or disclosure.
Important facts for investors to verify
- Confirm the sustainability and terms of revenue from the sole, related-party customer, including the $471,931 customer deposit and the timing of product delivery.
- Assess exposure to foreign-currency movements and the basis for the $80,029 unrealized loss.
- Review the investee’s results and the assumptions underlying the $52,109 quarterly equity-method loss.
- Check management’s remediation plans for the disclosed material weaknesses and whether controls have improved.
- Reconcile share counts: the cover page and balance sheet report 376,275,500 shares, while the changes-in-equity statement reports 376,275,600.
- Confirm the cash-equivalent classification of time deposits: the accounting policy defines cash equivalents as instruments with original maturities of three months or less, while the note describes deposits with maturities of six months or less.