Treasure Global Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2022; financial statements are unaudited. The company operates Malaysia-focused ZCITY, an online-to-offline e-commerce and rewards platform, and launched its TAZTE food-and-beverage merchant system in December 2022.
Financial highlights
| Metric | Three months ended Dec. 31, 2022 | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2022 | Six months ended Dec. 31, 2021 |
|---|---|---|---|---|
| Revenue | $20.44 million | $22.36 million | $36.00 million | $42.73 million |
| Gross profit / margin | $234,009 / 1.1% | $139,484 / 0.6% | $271,102 / 0.8% | $211,059 / 0.5% |
| Operating loss | $2.06 million | $2.73 million | $4.69 million | $5.31 million |
| Net loss | $2.01 million | $3.16 million | $5.68 million | $5.94 million |
| Basic and diluted loss per share | $(0.12) | $(0.30) | $(0.36) | $(0.56) |
| Operating cash flow | Not separately presented for the quarter | $(4.62) million | $(3.84) million |
- Revenue fell 8.6% for the quarter and 15.8% for the six-month period. E-voucher and loyalty revenue, the main revenue source, declined 9.0% and 16.2%, respectively, as management reduced voucher purchasing to reserve working capital for TAZTE.
- Gross profit improved, but margins remained very thin. For the six months, product-and-loyalty gross margin fell to 0.1% from 0.3%; higher-margin member subscriptions partly offset the decline. Member subscription revenue increased to $202,000 from $40,000 in the six-month comparison.
- Quarterly net loss narrowed, helped by lower selling expense and the absence of debt-discount amortization and significant interest expense in the quarter. Six-month net loss also narrowed modestly, although six-month other expense increased, primarily due to debt-discount amortization.
- Cash and cash equivalents were $4.72 million at December 31, versus $1.85 million at June 30, 2022. Six-month investing cash outflow was $72,000 and financing cash inflow was $7.72 million. Operating cash outflow increased year over year to $4.62 million.
- Current assets were $5.72 million and current liabilities $1.06 million, implying working capital of approximately $4.66 million. Total liabilities were $1.11 million. Convertible notes and third-party loans shown at June 30 had been repaid or converted by December 31; $332,188 remained due to related parties, including interest-free, on-demand loans. Lease liabilities totaled approximately $69,000.
- Stockholders’ equity was $5.13 million, compared with a $15.60 million deficiency at June 30. Shares outstanding rose from 10.55 million to 17.29 million during the period.
Material changes and business developments
- The August 15, 2022 IPO issued 2.3 million shares at $4.00 each and generated approximately $8.2 million in net proceeds. Convertible notes totaling approximately $16.5 million, net of discounts and accrued interest, converted into 4.18 million shares around the IPO; this materially reduced reported debt.
- At December 31, ZCITY had 2.35 million cumulative registered users, 458,177 active users, and 1,998 participating merchants. The active-user share of registered users decreased to 19.5% from 22.2% in the prior quarter. Management attributed slowing user growth partly to reduced e-voucher availability.
- TAZTE offered merchants a 90-day free trial, and the company reported no TAZTE revenue for the six months ended December 31. Management expects transaction revenue to benefit after the trial, but provided no quantified forecast. The company said it does not expect exponential user growth in 2023 and beyond.
- Substantially all revenue is concentrated in Malaysia. Two vendors represented approximately 53.4% and 41.9% of purchases for the quarter; one vendor represented 91.9% of accounts payable at December 31.
Outlook, risks, and contingencies
- Going concern: Despite the IPO proceeds and improved working capital, management stated that recurring losses mean the company may not have sufficient funds to meet working-capital needs and obligations coming due starting within one year of the report date. Management concluded substantial doubt exists about the company’s ability to continue as a going concern. Potential remedies include equity or other financing and related-party support; these are plans, not assured funding.
- Controls: Management concluded disclosure controls and procedures were ineffective at December 31, 2022 because of material weaknesses, including insufficient experienced accounting staff, lack of an internal audit function, IT access and risk-management deficiencies, inadequate segregation-of-duties monitoring, and weaknesses in identifying related-party transactions. Remediation plans include hiring and training, improved policies, and external assistance.
- Management said inflation and supply-chain disruptions had not materially adversely affected the business as of December 31, but continues to monitor them. COVID-19 effects remain uncertain. Currency movements, customer and vendor concentration, low product margins, and the ability to grow merchant transaction and subscription revenue are additional risks.
- The filing reports no pending legal matter expected to have a material adverse effect and no significant off-balance-sheet arrangements. It reports no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether cash burn, ongoing losses, and available financing support the company’s stated going-concern assessment and funding plans.
- Whether TAZTE converts merchant trials into paying customers and meaningful transaction revenue, and whether this can offset reduced voucher sales.
- Whether active-user engagement and retention stabilize, given the falling active-user share and slowing new-user growth.
- The sustainability of margins in the dominant e-voucher business and the extent to which higher-margin subscriptions can grow.
- Vendor concentration, related-party balances and transactions, uninsured cash exposure, and progress in remediating the disclosed control weaknesses.