Agape ATP Corp. — Form 10-Q summary
Reporting period: The filing covers the three and nine months ended March 31, 2019, the company’s fiscal third quarter and year-to-date period. Although the request metadata says “2018 Q3,” the filing itself is for 2019 Q3. Amounts are in U.S. dollars; financial statements are unaudited. Agape operates in health and wellness, principally selling healthy food and wellness products.
Financial results
| Metric | Three months ended March 31, 2019 | Nine months ended March 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $464,297 | $1,149,585 | Quarter: $0; nine months: $487,626 |
| Gross profit | $44,119 | $110,052 | Quarter: $0; nine months: $45,654 in financial statements |
| Gross margin | About 9.5% | About 9.6% | About 9.4% for nine months, based on statement figures |
| Net income (loss) | $71,215 | $(71,231) | Quarter: $(24,676); nine months: $(202,015) |
| Operating cash flow | Not presented separately | $(435,656) in cash flow statement | $(260,933) |
| Cash and cash equivalents | $3,091,401 at March 31, 2019 | $3,531,255 at June 30, 2018 |
Quarterly profitability reflected sales, low reported operating expenses, and a $6,965 tax-provision write-back. For the nine months, lower selling, general and administrative expenses and higher revenue reduced the net loss year over year, but a $124,225 share of investee losses outweighed operating profit. The filing reports basic and diluted earnings per share of $0.02 for the quarter and $(0.00) for the nine-month period.
Balance sheet, liquidity and cash flow
At March 31, 2019, total assets were $5.12 million, total liabilities $91,501, and stockholders’ equity $5.02 million. Current assets were $3.89 million against current liabilities of $91,501; management reported working capital of $3,798,733. The filing reports no credit facilities or bank-credit access. Nine-month financing cash flow was zero, compared with $2.93 million of stock issuance proceeds in the prior-year period. Investing cash outflow was $1,000, versus $863,592 reported in the cash flow statement for 2018.
Cash declined by $439,854 from June 30, 2018. Cash included $2,515,545 in time deposits earning 2.95%–3.25%. Prepayments and deposits rose to $610,097, including $608,088 of supplier deposits. The company had no significant reported debt.
Changes, outlook and risks
- Nine-month revenue rose to $1.15 million from $487,626; management attributed the increase to greater market exposure and a wider product range. Revenue was highly concentrated: one customer represented 97% of nine-month sales, and was also a related party. Management said it may increase marketing or develop products to retain and attract customers.
- On March 10, 2019, the company’s interest in Unreserved Sdn Bhd was diluted from 20% to 17.86% after it did not participate in an additional share issuance. It ceased equity-method accounting and control, reclassifying the $724,619 carrying value to non-marketable securities. The quarter included a $16,509 deemed-disposal gain.
- Customer deposits of $77,421 were recorded as a current liability. The filing provides no formal revenue, earnings, or cash-flow guidance.
- Management concluded disclosure controls were not effective because of material weaknesses in segregation of duties/risk assessment and written accounting and SEC-reporting procedures. It reported no material control changes during the quarter.
- Other notable risks include dependence on a small number of customers and vendors, related-party transactions, foreign-currency exposure, and the lack of credit facilities. The company reported no material pending legal proceedings or significant off-balance-sheet arrangements.
Important facts for investors to verify
- Reporting-period label: Confirm that the intended period is fiscal Q3 2019; the filing period ends March 31, 2019.
- Cash-flow discrepancy: The cash flow statement reports operating cash use of $435,656, while MD&A states $444,725. The statement’s operating cash flow line also does not show the $77,421 customer deposit received that appears on the balance sheet; clarify the reconciliation.
- Gross-profit discrepancy: MD&A cites prior-year nine-month gross profit of $64,398, while the financial statements show $45,654. The filing text does not explain the difference.
- Revenue quality and collection: Review the related-party nature and collectability of the dominant customer’s sales, including the $185,493 trade receivable balance.
- Investee valuation and controls: Assess the valuation and risks of the non-marketable Unreserved investment, and whether management has remediated the disclosed material weaknesses.