Agape ATP Corporation — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2018 (fiscal Q2; fiscal year ends June 30). Financial statements are unaudited and reported in U.S. dollars.
Business context
The company operates in health and wellness, principally selling healthy food and beauty products and describing plans for health-solution advisory services. Operations are primarily in Malaysia. Its reported revenue came entirely from one customer, identified as a related party whose director is the company’s CEO.
Financial performance
| Metric | Three months ended Dec. 31, 2018 | Six months ended Dec. 31, 2018 | Prior comparable period |
|---|---|---|---|
| Revenue | $269,921 | $685,288 | $0 quarterly; $489,499 six months |
| Gross profit | $28,989 | $65,933 | $0 quarterly; $45,829 six months |
| Gross margin | 10.7% | 9.6% | Not applicable quarterly; 9.4% six months |
| Net loss | $6,580 | $142,446 | $123,978 quarterly; $178,678 six months |
| Operating cash flow | Not reported separately | $(77,337) | $(892,833) six months |
Six-month revenue increased about 40% year over year; management attributed growth in revenue and gross profit to greater market exposure and new products. The six-month net loss narrowed, which management attributed to higher revenue and lower selling, general and administrative expenses. The quarterly loss narrowed substantially from the prior-year quarter, when the company had no revenue. Six-month results included an $81,484 unrealized foreign-exchange loss and a $98,140 equity-method loss from its investee.
Financial position and liquidity
At December 31, 2018, cash and cash equivalents were $3.45 million, total current assets $3.96 million, current liabilities $241,847, and working capital approximately $3.72 million. Total assets were $5.20 million and total liabilities $241,847; the filing reports no credit facilities. Cash declined $78,338 during the six months. Operating cash use was $77,337; financing cash use was $1,000, with no investing cash flow reported. Cash included $2.46 million in time deposits, stated to earn 2.95% annually.
Prepayments and deposits rose to $510,069, principally supplier deposits. The company also recorded $217,743 in customer deposits received for products not yet delivered. Its 20% investment in Unreserved Sdn Bhd was carried at $734,195 after recognizing its share of the investee’s loss. Marketable securities were reported at $501,000.
Outlook, risks and other notable items
- No quantified guidance or specific forecast was provided. Management said it believes additional marketing and new products are needed to retain and attract customers.
- Revenue and purchases were highly concentrated: one customer represented 100% of revenue, and one vendor represented 89% of six-month purchases. The customer was a related party linked to the CEO.
- Management concluded disclosure controls and procedures were ineffective at December 31, 2018, citing material weaknesses in segregation of duties/risk assessment and written accounting and SEC-reporting policies.
- The company reported no material pending legal proceedings, no defaults on senior securities, and no material off-balance-sheet arrangements. It said no subsequent event requiring recognition or disclosure occurred through February 14, 2019.
Important facts for investors to verify
- Customer concentration, related-party sales terms, collectability, and delivery obligations associated with customer deposits.
- Supplier deposit recoverability and the concentration and continuity of key vendors.
- The valuation and performance of the Unreserved investment and Greenpro marketable securities.
- Foreign-exchange exposure and the significant unrealized currency loss recorded during the six-month period.
- Remediation plans for the disclosed control weaknesses and the reliability of future reporting.
- Share-count inconsistencies: the balance sheet and note state 376,275,500 shares, while the statement of changes in equity shows 376,275,600 for certain dates. The filing also presents net loss as $142,446 in the operations statement and $142,447 in the cash-flow statement.