UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
(Mark One)
FOR
THE QUARTERLY PERIOD ENDED
or
FOR THE TRANSITION PERIOD FROM_________ to________
COMMISSION
FILE NUMBER
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) (Zip Code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No
As of February 14, 2024, the registrant had a total of
INDEX
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends impacting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.
Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “intend,” “seek,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “might,” “forecast,” “continue” or the negative of those terms, and similar expressions and comparable terminology intended to reference future periods. Forward-looking statements include, but are not limited to, statements about:
| ● | Our ability to effectively operate our business segments; |
| ● | Our ability to manage our research, development, expansion, growth and operating expenses; |
| ● | Our ability to evaluate and measure our business, prospects and performance metrics; |
| ● | Our ability to compete, directly and indirectly, and succeed in our highly competitive industry; |
| ● | Our ability to respond and adapt to changes in technology and customer behavior; and |
| ● | Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand. |
Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Accordingly, the forward-looking statements in this Quarterly Report on Form 10-Q should not be regarded as representations that the results or conditions described in such statements will occur or that our objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements.
ii
PART I – FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
TREASURE GLOBAL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Other receivables and other current assets | ||||||||
| Other receivable, a related party | ||||||||
| Prepayments | ||||||||
| Total current assets | ||||||||
| OTHER ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Investment in marketable securities | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Related party loan, current portion | $ | $ | ||||||
| Insurance loan | ||||||||
| Convertible notes payable, net of unamortized discounts of $ | ||||||||
| Accounts payable | ||||||||
| Customer deposits | ||||||||
| Contract liability | ||||||||
| Other payables and accrued liabilities | ||||||||
| Other payables, related parties | ||||||||
| Amount due to related parties | ||||||||
| Operating lease liabilities | ||||||||
| Income tax payables | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Related party loan, non-current portion | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 17) | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
| Common stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIENCY) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
TREASURE GLOBAL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Three Months Ended December 31, | For the Six Months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GROSS PROFIT | ||||||||||||||||
| SELLING | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GENERAL AND ADMINISTRATIVE | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| RESEARCH AND DEVELOPMENT | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| STOCK-BASED COMPENSATION | ( | ) | ||||||||||||||
| TOTAL OPERATING EXPENSES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized holding loss on marketable securities | ( | ) | ( | ) | ||||||||||||
| Other income from software developing service, net of cost | ||||||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ||||||||||
| TOTAL OTHER INCOME (EXPENSE), NET | ( | ) | ( | ) | ( | ) | ||||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| LOSS PER SHARE | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
TREASURE GLOBAL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
| ACCUMULATED | TOTAL | |||||||||||||||||||||||
| COMMON STOCK | ADDITIONAL | OTHER | STOCKHOLDERS’ | |||||||||||||||||||||
| NUMBER OF | PAID IN | ACCUMULATED | COMPREHENSIVE | EQUITY | ||||||||||||||||||||
| SHARES | PAR VALUE | CAPITAL | DEFICIT | LOSS | (DEFICIENCY) | |||||||||||||||||||
| Balance as of June 30, 2023 | $ | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Conversion of convertible note payable | ||||||||||||||||||||||||
| Foreign currency translation adjustments | - | |||||||||||||||||||||||
| Balance as of September 30, 2023 (Unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Conversion of convertible note payable | ||||||||||||||||||||||||
| Issuance of common stock to related parties for debts cancellation | ||||||||||||||||||||||||
| Issuance of common stock for acquiring intangible assets | ||||||||||||||||||||||||
| Issuance of common stock and prefunded warrants in underwritten public offering, net of issuance costs | ||||||||||||||||||||||||
| Exercise of prefunded warrants into common stock | ||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance as of December 31, 2023 (Unaudited) | ( | ) | ( | ) | ||||||||||||||||||||
| COMMON STOCK | ADDITIONAL | OTHER | STOCKHOLDERS’ | |||||||||||||||||||||
| NUMBER OF | PAID IN | ACCUMULATED | COMPREHENSIVE | EQUITY | ||||||||||||||||||||
| SHARES | PAR VALUE | CAPITAL | DEFICIT | INCOME (LOSS) | (DEFICIENCY) | |||||||||||||||||||
| Balance as of June 30, 2022 | 10,545,251 | 105 | 4,020,552 | (19,715,740 | ) | 98,524 | (15,596,559 | ) | ||||||||||||||||
| Beneficial conversion feature from issuance of convertible notes | - | - | 537,383 | - | - | 537,383 | ||||||||||||||||||
| Net loss | - | - | - | (3,672,348 | ) | - | (3,672,348 | ) | ||||||||||||||||
| Issuance of common stock - non-employee stock compensation | 109,833 | 1 | 439,331 | - | - | 439,332 | ||||||||||||||||||
| Conversion of convertible note payable | 3,822,617 | 38 | 14,097,376 | - | - | 14,097,414 | ||||||||||||||||||
| Conversion of convertible note payable, related parties | 353,272 | 4 | 2,437,570 | - | - | 2,437,574 | ||||||||||||||||||
| Issuance of common stock in initial public offering, net of issuance costs | 2,300,000 | 23 | 7,951,202 | - | - | 7,951,225 | ||||||||||||||||||
| Fair value of warrants issued in initial public offering | - | - | 175,349 | - | - | 175,349 | ||||||||||||||||||
| Issuance of warrants - non- employee stock compensation | - | - | 856,170 | - | - | 856,170 | ||||||||||||||||||
| Cashless exercise of warrants- non- employee stock compensation into common stock | 157,143 | 2 | (2 | ) | - | - | - | |||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | (135,276 | ) | (135,276 | ) | ||||||||||||||||
| Balance as of September 30, 2022 (Unaudited) | 17,288,116 | $ | 173 | $ | 30,514,931 | $ | (23,388,088 | ) | $ | (36,752 | ) | $ | 7,090,264 | |||||||||||
| Net loss | - | - | - | (2,012,165 | ) | - | (2,012,165 | ) | ||||||||||||||||
| Foreign currency translation adjustments | - | - | - | 49,998 | 49,998 | |||||||||||||||||||
| Balance as of December 31, 2022 (Unaudited) | 17,288,116 | 173 | 30,514,931 | (25,400,253 | ) | 13,246 | 5,128,097 | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
TREASURE GLOBAL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended December31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of operating right-of-use assets | ||||||||
| Provision for estimated credit losses | ||||||||
| Inventories impairment | ||||||||
| Stock-based compensation | ||||||||
| Other income from software developing service | ( | ) | ||||||
| Unrealized holding loss on marketable securities | ||||||||
| Change in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ||||||||
| Other receivables and other current assets | ( | ) | ||||||
| Prepayments | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accounts payable, related parties | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Contract liability | ||||||||
| Other payables and accrued liabilities | ( | ) | ||||||
| Other payables, related parties | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Income tax payables | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of equipment | ( | ) | ( | ) | ||||
| Purchases of intangible asset | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments of deferred offering cost | ( | ) | ||||||
| Proceeds from issuance of common stock in initial public offering | ||||||||
| Proceeds from issuance of common stock and prefunded warrants in November 2023 Offering | ||||||||
| Proceeds received from exercising prefunded warrants | ||||||||
| Advance proceeds received from exercising prefunded warrants | ||||||||
| Principal payments of insurance loan | ( | ) | ||||||
| Payments of related party loan | ( | ) | ( | ) | ||||
| Proceeds from issuance of convertible notes | ||||||||
| Repayments of convertible notes | ( | ) | ||||||
| Repayment of senior note | ( | ) | ||||||
| Repayments to related parties | ( | ) | ||||||
| Proceeds from third party loans | ||||||||
| Repayments to third party loans | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS, beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOWS INFORMATION | ||||||||
| Income taxes paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| SUPPLEMENTAL NON-CASH FLOWS INFORMATION | ||||||||
| Offering costs paid in the prior period | $ | $ | ||||||
| Beneficial conversion feature resulted from issuance of convertible notes | $ | $ | ||||||
| Fair value of warrants issued to underwriter | $ | $ | ||||||
| Fair value of warrants issued to consultant | $ | $ | ||||||
| Fair value of common stock issued to consultant | $ | $ | ||||||
| Recognition of operating right-of-use asset and lease liability | $ | $ | ||||||
| Conversion of convertible note payable, net of unamortized discounts | $ | $ | ||||||
| Conversion of convertible note payable, related parties | $ | $ | ||||||
| Marketable securities received as in exchange of software developing service | $ | $ | ||||||
| Issuance of common stock to related parties for debts cancellation | $ | $ | ||||||
| Issuance of common stock for acquiring intangible assets | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
TREASURE GLOBAL INC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of business and organization
Treasure Global Inc. (“TGL” or the
“Company”) is a holding company incorporated on
On March 11, 2021, TGL completed a reverse recapitalization (“Reorganization”) under common control of its then existing stockholders, who collectively owned all of the equity interests of ZCITY prior to the Reorganization through a Share Swap Agreement. ZCITY is under common control of the same stockholders of TGL through a beneficial ownership agreement, which results in the consolidation of ZCITY and has been accounted for as a Reorganization of entities under common control at carrying value. Before and after the Reorganization, the Company, together with its subsidiaries is effectively controlled by the same stockholders, and therefore the Reorganization is considered as a recapitalization of entities under common control in accordance with Accounting Standards Codification (“ASC”) 805-50-25. The consolidation of the Company and its subsidiaries have been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying unaudited condensed consolidated financial statements in accordance with ASC 805-50-45-5.
The Company, through its wholly owned subsidiary, ZCITY, engages in the payment processing industry and operate an online-to-offline (“O2O”) e-commerce platform known as “ZCITY”. The Company has extensive business interests in creating an innovative O2O e-commerce platform with an instant rebate and affiliate cashback program business model, focusing on providing a seamless payment solution and capitalizing on big data using artificial intelligence technology. The Company’s proprietary product is an internet application (or “app”) called “ZCITY App”. ZCITY App drives user app download and transactions by providing instant rebate and cashback. The Company aims to transform and simplify a user’s e-payment gateway experience by providing great deals, rewards and promotions with every use in an effort to make it Malaysia’s top reward and payment gateway platform.
On April 12, 2023, the Company entered into a
share sale agreement (the “Agreement”) with Damanhuri Bin Hussien (“DBH”), an unrelated party. Pursuant to the
Agreement, the Company agreed to purchase
Foodlink, Morgan, and AY Food are engaged in the operation of sub-licensing restaurant branding and the selling and trading of food and beverage products. Since Foodlink, Morgan, and AY Food are blank check companies that were incorporated in January 2023 without any operating history prior to the acquisition, the acquisition of these entities is immaterial to the Company’s unaudited condensed consolidated financial statements.
5
| Name | Background | Ownership | ||||
| ZCity Sdn Bhd (formerly known as Gem Reward Sdn. Bhd.) (“ZCITY”) | ● ● ● |
A Malaysian company Incorporated in June 2017 Operated O2O e-commerce platform known as ZCITY |
||||
| Foodlink Global Sdn. Bhd. (“Foodlink”) | ● ● ● |
A Malaysian company Incorporated in January 2023 Sub-licensing restaurant branding and selling and trading of foods and beverage products. |
||||
| Morgan Global Sdn. Bhd. (“Morgan”) | ● ● ● |
A Malaysian company Incorporated in January 2023 Sub-licensing restaurant branding and selling and trading of foods and beverage products. |
||||
| AY Food Ventures Sdn. Bhd. (“AY Food”) | ● ● ● |
A Malaysian company Incorporated in January 2023 Sub-licensing restaurant branding and selling and trading of foods and beverage products. |
||||
Note 2 – Summary of significant accounting policies
Going concern
In assessing the Company’s liquidity and the significant doubt about its ability to continue as a going concern, the Company monitors and analyzes cash on hand and operating expenditure commitments. The Company’s liquidity needs are to meet working capital requirements and operating expense obligations. To date, the Company has financed its operations primarily through cash flows from contributions from stockholders, issuance of convertible notes from third parties and related parties, related party loans, its initial underwritten public offering (the “Offering”), and its underwritten public offering (the “November 2023 Offering”).
The Company’s management has considered whether there is substantial
doubt about its ability to continue as a going concern due to: (1) recurring loss from operations of approximately $
On
August 15, 2022, the Company closed its Offering of
From
February 2023 to June 2023, the Company issued two convertible notes to a third party, in an aggregate principal amount of $
On November 30, 2023, the Company closed its November
2023 Offering of (i)
Despite receiving the net proceeds from its Offering, November 2023 Offering, and the issuance of convertible notes, the Company’s management is of the opinion that it will not have sufficient funds to meet the Company’s working capital requirements and debt obligations as they become due starting from one year from the date of this report due to the recurring loss. Therefore, management has determined that there is a significant doubt about its ability to continue as a going concern. If the Company is unable to generate significant revenue, it may be required to curtail or cease its operations. Management is trying to alleviate the going concern risk through the following sources:
| ● | Equity financing to support its working capital; |
| ● | Other available sources of financing (including debt) from Malaysian banks and other financial institutions; and |
| ● | Financial support and credit guarantee commitments from the Company’s related parties. |
There, however, is no guarantee that the substantial doubt about the Company’s ability to continue as a going concern will be alleviated.
6
Basis of presentation
The accompanying unaudited condensed consolidated financial statements of the Company has been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended June 30, 2023.
In the opinion of management, all adjustments (including normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited financial position as of December 31, 2023, its unaudited results of operations for the three and six months ended December 31, 2023 and 2022, and its unaudited cash flows for the six months ended December 31, 2023 and 2022, as applicable, have been made. The unaudited results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
Principles of consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of the subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
Subsidiary is entity in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
Enterprise wide disclosure
The Company’s Chief Operating Decision Makers (CODM), which include the Chief Executive Officer and their direct reports, review financial information presented on a consolidated basis. This information is accompanied by a breakdown of revenues from different revenue streams, facilitating resource allocation and financial performance evaluation. The reporting of operating segments aligns with the internal reports provided to the CODM, a group composed of specific members of the Company’s management team.
As of December 31, 2023, the Company had two operating segments: (1) revenue generated from the ZCITY platform and (2) revenue from food and beverage products, along with sublicensing revenue. However, upon assessing both the qualitative and quantitative criteria outlined in ASC 280, ‘Segment Reporting,’ it was determined that the operating segments related to food and beverage product revenue and sublicensing revenue did not meet the quantitative criteria. Consequently, the Company considers itself to be operating within a single reportable segment.
Use of estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in our unaudited condensed consolidated financial statements include the estimated retail price per point and estimated breakage to calculate the revenue recognized in our loyalty program revenue, useful lives of property and equipment, impairment of long-lived assets, allowance for credit loss, write-down for estimated obsolescence or unmarketable inventories, realization of deferred tax assets and uncertain tax position, fair value of our stock price to determine the beneficial conversion feature (“BCF”) within the convertible note, fair value of the stock-based compensation, fair value of the marketable securities, and fair value of the warrants issued. Actual results could differ from these estimates.
7
Foreign currency translation and transaction
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited condensed consolidated statements of operations and comprehensive loss. The reporting currency of the Company is United States Dollars (“US$”) and the accompanying unaudited condensed consolidated financial statements have been expressed in US$. The Company’s subsidiaries in Malaysia conducts their businesses and maintains their books and record in the local currency, Malaysian Ringgit (“MYR” or “RM”), as its functional currency. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive gain or loss within the unaudited condensed consolidated statements of changes in stockholders’ deficiency. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the unaudited condensed consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the unaudited condensed consolidated balance sheets.
| As of | ||||||||
| December 31, 2023 | June
30, 2023 | |||||||
| Period-end MYR: US$1 exchange rate | ||||||||
| For the six months ended
December 31, | ||||||||
| 2023 | 2022 | |||||||
| Period-average MYR: US$1 exchange rate | ||||||||
Cash and cash equivalents
Cash is carried at cost and represent cash on hand, time deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. Cash equivalents consist of funds received from customer, which funds were held at the third-party platform’s fund account, and which are unrestricted and immediately available for withdrawal and use.
Accounts receivable, net
Accounts receivable are recorded at the invoiced amount less an allowance
for any uncollectible accounts and do not bear interest. The Company provides various payment terms from cash due on delivery to 90 days
based on customer’s credibility. Accounts receivable include money due from sales of health care product on its ZCITY platform as
well as sublicensing revenue, and sales of food and beverage products. Starting from July 1, 2023, the Company adopted ASU No.2016-13
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC
Topic 326”). The Company used a modified retrospective approach, and the adoption does not have an impact on our unaudited condensed
consolidated financial statements. The carrying value of accounts receivable is reduced by an allowance for credit losses that reflects
the Company’s best estimate of the amounts that will not be collected. An allowance for credit losses is recorded in the period
when a loss is probable based on an assessment of specific evidence indicating collection is unlikely, historical bad debt rates, accounts
aging, financial conditions of the customer and industry trends. Management also periodically evaluates individual customer’s financial
condition, credit history, and the current economic conditions to make adjustments in the allowance for credit losses when it is considered
necessary. Account balances are charged off against the allowance for credit losses after all means of collection have been exhausted
and the potential for recovery is considered remote. The Company’s management continues to evaluate the reasonableness of the valuation
allowance policy and update it if necessary. As of December 31, 2023 and June 30, 2023, the Company recorded $
8
For
the six months ended December 31, 2023 and 2022, the Company record $
For
the three months ended December 31, 2023 and 2022, the Company record $
Inventories
Inventories are stated at the lower of cost or net realizable value,
cost being determined on a first in first out method. Costs include gift card or “E-voucher” pin code which are purchased
from the Company’s suppliers as merchandized goods or store credit. Costs also included health care products, foods and beverage
products which are purchased from the Company’s suppliers as merchandized goods. Management compares the cost of inventories with
the net realizable value and if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower
than cost. On an ongoing basis, inventories are reviewed for potential write-down for estimated obsolescence or unmarketable inventories
which equals the difference between the costs of inventories and the estimated net realizable value based upon forecasts for future demand
and market conditions. When inventories are written-down to the lower of cost or net realizable value, it is not marked up subsequently
based on changes in underlying facts and circumstances. For the three and six months ended December 31, 2023, the Company recorded $
Other receivables and other current assets
Other receivables and other current assets primarily include prepayment made by the Company to third parties for cyber security service, director & officer liability insurance (“D&O Insurance”), other professional fee. Other receivables and other current assets also include refundable advance to third party service provider, and other deposits. Management regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes collection of amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. As of December 31, 2023 and June 30, 2023, no allowance for doubtful account was recorded.
Prepayments
Prepayments and deposits are mainly cash deposited or advanced to suppliers for future inventory purchases. This amount is refundable and bears no interest. For any prepayments determined by management that such advances will not be in receipts of inventories, services, or refundable, the Company will recognize an allowance account to reserve such balances. Management reviews its prepayments on a regular basis to determine if the allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary. As of December 31, 2023 and June 30, 2023, no allowance for doubtful account was recorded.
Property and equipment, net
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets with no residual value.
| Expected useful lives | ||
| Computer and office equipment | ||
| Furniture and fixtures | ||
| Motor vehicles | ||
| Leasehold improvement |
9
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the unaudited condensed consolidated statements of operations and comprehensive loss. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Intangible assets, net
The
Company’s acquired intangible assets with definite useful lives only consist of internal used software. The Company amortizes its
intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment. The Company typically
amortizes its internal use software with definite useful lives on a straight-line basis over the shorter of the contractual terms or
the estimated economic lives, which is determined to be approximately
Impairment for long-lived assets
Long-lived assets, including property and equipment with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of December 31, 2023 and June 30, 2023, impairment of long-lived assets was recognized.
Investment in marketable securities
The Company follows the provisions of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Investments in marketable equity securities (non-current) are reported at fair value with changes in fair value recognized in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss in the caption of “unrealized holding loss on marketable securities” in each reporting period.
Customer deposits
Customer deposits represent amounts advanced by customers on service order. Customer deposits are reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy. Additionally, customer deposits also include unamortized member subscription revenue.
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Convertible notes
The Company evaluates its convertible notes to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is recorded at fair value each reporting period and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt.
Upon conversion, the carrying amount of the convertible note, net of the unamortized discount shall be reduced by, if any, the cash (or other assets) transferred and then shall be recognized in the capital accounts to reflect the shares issued and no gain or loss is recognized pursuant to ASC Topic 470-20-40-4.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. As the Company’s warrants meet all of the criteria for equity classification, so the Company classified each warrant as its own equity.
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC Topic 606) for all periods presented. The core principle underlying the revenue recognition of this ASU allows the Company to recognize - revenue that represents the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.
To achieve that core principle, the Company applies five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company accounts for a contract with a customer when the contract is committed in writing, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of substantially collection.
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Revenue recognition policies for each type of revenue stream are as follows:
Product revenue
| - | Performance obligations satisfied at a point in time |
The
Company primarily sells discounted gift cards (or E-vouchers) from retailers, health care products and computer products through individual
order directly through the Company’s online marketplace platform and its mobile application (“ZCITY”). In addition,
the Company through its subsidiaries, Morgan and AY Food, engages in sales of food and beverage products. When the Company is acting
as a principal in the transaction, the Company accounts for the revenue generated from its sales of E-vouchers, health care products,
computer products, and food and beverage product on a gross basis as the Company is responsible for fulfilling the promise to provide
the specified goods, which the Company has control of the goods and has the ability to direct the use of goods to obtain substantially
all the benefits. In making this determination, the Company assesses whether it is primarily obligated in these transactions, is subject
to inventory risk, has latitude in establishing prices, or has met several but not all of these indicators in accordance with ASC 606-10-55-36
through 40. The Company determined that it is primarily responsible for fulfilling the promise to provide the specified good as the Company
directly purchases and pays for in full the applicable E-voucher, health care products and computer products from the vendors prior to
posting of such products for sale on its online marketplace platform and prior to taking any orders for sales of such products. Meanwhile,
the Company maintained an average daily inventory of approximately $
In certain instances, the Company is acting as an agent in the transaction and is engaging in drop shipping arrangements for health care, food, and beverage products, where the products were shipped directly from the vendors to the customers. In these drop shipping transactions, the Company was not primarily responsible for fulfilling the promise to deliver the products to the customers, and as a result, did not exercise control over the goods or assume any inventory risks. Therefore, the Company determined that revenue from sales of products under the drop shipping arrangements were recognized on a net basis.
The
Company recognizes the sales of E-vouchers, health care products, computer products, and food and beverage products revenue when the
control of the specified goods is transferred to its customer. No refund or return policy is provided to the customer. For the three
and six months ended December 31, 2023, approximately $
Loyalty program
| - | Performance obligations satisfied at a point in time |
The Company’s ZCITY reward loyalty program allows members to earn points on purchases that can be redeemed for rewards that include discounts on future purchases. When members purchase the Company’s product or make purchase with the Company’s participated vendor through ZCITY, the Company allocate the transaction price between the product and service, and the reward points earned based on the relative stand-alone selling prices and expected point redemption. The portion allocated to the reward points is initially recorded as contract liability and subsequently recognized as revenue upon redemption or expiration.
The two primary estimates utilized to record the contract liabilities for reward points earned by members are the estimated retail price per point and estimated breakage. The estimated retail price per point is based on the actual historical retail prices of product purchased or service obtained through the redemption of reward points. The Company estimate breakage of reward points based on historical redemption rates. The Company continually evaluates its methodology and assumptions based on developments in retail price per point redeemed, redemption patterns and other factors. Changes in the retail price per point and redemption rates have the effect of either increasing or decreasing the contract liabilities through current period revenue by an amount estimated to represent the retail value of all points previously earned but not yet redeemed by loyalty program members as of the end of the reporting period.
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Transactions revenue
| - | Performance obligations satisfied at a point in time |
The transactions revenues primarily consist of fees charged to merchants for participating in ZCITY upon successful sales transaction and payment service taken place between the merchants and their customers online.
The Company earns transaction revenue from merchants when transactions are completed on certain retail marketplaces. Such revenue is generally determined as a percentage based on the value of merchandise or services being sold by the merchants. In connection with the transaction revenue, the Company offers to share the profit of the transaction (“agent commission”) to the agents who has referred merchants to participating in Company’s online marketplace platform and in ZCITY. Transaction revenue is recognized, net of agent commission, in the consolidated statements of operations at the time when the underlying transaction is completed.
Member subscription revenue
| - | Performance obligations satisfied over time |
In order to attract more customer to engage with the Company’s online marketplace and in ZCITY, the Company provides membership subscription to the customers to join the Zmember program, a membership program that provides member with benefits which included exclusive saving, bonus, and referral rewards. Member subscription revenue primarily consists of fees charge to customers who sign up for Zmember. As the Company provides customers with 6 months member subscription service in general, member subscription revenue is recognized in the consolidated statement of operation over the time across the subscription period.
Sublicense revenue
| - | Performance obligations satisfied over time |
The Company, through its wholly-owned subsidiaries, Morgan and AY Food, generates revenue by sublicensing the right to use the Licensor’s Trademark to its customers. Since the sublicense fee is charged to customers on a monthly basis throughout the contractual period, the Company recognizes sublicense revenue in the consolidated statements of operations over the duration of the contract. Furthermore, the Company establishes itself as the principal in these arrangements, as it possesses the latitude to establish pricing and assumes the inventory risk associated with fulfilling the minimum payment obligations to the Trademark’s licensor regardless of the number of sublicensees engaged by the Company during the license period.
| For the three months ended | For the six months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Gift card or “E-voucher” revenue (1) | $ | $ | $ | $ | ||||||||||||
| Health care products, computer products, and food and beverage products revenue (1) | ||||||||||||||||
| Loyalty program revenue (1) | ||||||||||||||||
| Transaction revenue (1) | ||||||||||||||||
| Member subscription revenue (2) | ||||||||||||||||
| Sublicense revenue (2) | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
| (1) |
| (2) |
13
Cost of revenue
Cost of revenue sold mainly consists of the purchases of the gift card or “E-voucher” pin code, and health care products which is directly attributable to the sales of product on the Company’s online marketplace platform. In addition, cost of revenue sold also consists of purchase of food and beverage products for resales and license payment to Trademark’s licensor for sublicense revenue.
Advertising costs
Advertising
costs amounted to $
Research and development
Research and development expenses include salaries and other compensation-related
expenses to the Company’s research and product development personnel, and related expenses for the Company’s research and
product development team. Research and development expenses amounted to $
Defined contribution plan
The
full-time employees of the Company are entitled to the government mandated defined contribution plan. The Company is required to accrue
and pay for these benefits based on certain percentages of the employees’ respective salaries, subject to certain ceilings, in
accordance with the relevant government regulations, and make cash contributions to the government mandated defined contribution plan.
Total expenses for the plans were $
The related contribution plans include:
| ● | Social Security Organization (“SOSCO”) – |
| ● | Employees Provident Fund (“EPF”) – |
| ● | Employment Insurance System (“EIS”) – |
Income taxes
The Company accounts for income taxes in accordance with U.S. GAAP for income taxes. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the unaudited condensed consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized, or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
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An
uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that
is greater than
The Company is incorporated in the State of Delaware and is required to pay franchise taxes to the State of Delaware on an annual basis.
The Company conducts much of its business activities in Malaysia and is subject to tax in its jurisdiction. As a result of its business activities, the Company will file separate tax returns that are subject to examination by the foreign tax authorities.
Stock-based compensation
The Company recognizes compensation costs resulting from the issuance of stock-based awards to third party consultant and former director as an expense in the unaudited condensed statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of stock-based awards granted are estimated as of the grant date using the Black-Scholes-Merton option-pricing model while the fair value of each common stock granted are estimated using the Company’s closing stock price on the grant date. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of the common stock of the Company, expected life of stock options, the expected volatility and the expected risk-free interest rate, among others. These assumptions reflect the Company’s best estimates, but they involve inherent uncertainties based on market conditions generally outside the control of the Company.
As a result, if other assumptions had been used, stock-based compensation expense, as determined in accordance with authoritative guidance, could have been materially impacted. Furthermore, if the Company uses different assumptions on future grants, stock-based compensation expense could be materially affected in future periods.
Comprehensive loss
Comprehensive loss consists of two components, net loss and other comprehensive income (loss). Net loss refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of stockholders’ deficiency. Other comprehensive income (loss) is excluded from net loss. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting from the Company not using the U.S. dollar as its functional currencies.
Loss per share
The Company computes earnings (loss) per share (“EPS”)
in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic EPS is
measured as net loss divided by the weighted average common stock outstanding for the period. Diluted EPS presents the dilutive effect
on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted
at the beginning of the periods presented, or issuance date, if later. Potential common stock that have an anti-dilutive effect (i.e.,
those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS For the six months ended
December 31, 2023 and 2022, a total of
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Fair value measurements
Fair value is defined as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The following summarizes the three levels of inputs required to measure fair value, of which the first two are considered observable and the third is considered unobservable:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The fair value for certain assets and liabilities such as cash and cash equivalents, accounts receivable, inventories, other receivables and other current assets, prepayments, accounts payable, customers deposits, contract liabilities, other payables and accrued liabilities have been determined to approximate carrying amounts due to the short maturities of these instruments. The Company believes that its related party loan, insurance loan, and convertible notes approximates fair value based on current yields for debt instruments with similar terms.
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Lease
Effective July 1, 2022, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. For lease terms of twelve months or fewer, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities.
If any of the following criteria are met, the Company classifies the lease as a finance lease:
| ● | The lease transfers ownership of the underlying asset to the lessee by the end of the lease term; |
| ● | The lease grants the lessee an option to purchase the underlying asset that the Company is reasonably certain to exercise; |
| ● | The lease term is for 75% or more of the remaining economic life of the underlying asset, unless the commencement date falls within the last 25% of the economic life of the underlying asset; |
| ● | The present value of the sum of the lease payments equals or exceeds 90% of the fair value of the underlying asset; or |
| ● | The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. |
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Leases that do not meet any of the above criteria are accounted for as operating leases.
The Company combines lease and non-lease components in its contracts under Topic 842, when permissible.
Operating lease right-of-use (“ROU”) asset and lease liability are recognized at the adoption date of July 1, 2022 or the commencement date, whichever is earlier, based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term.
Lease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not have reasonable certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating lease ROU asset to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception, therefore operating lease ROU asset and liability do not include leases with a lease term of twelve months or less. Its leases generally do not provide a residual guarantee.
The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term for operating lease.
The Company reviews the impairment of its ROU asset consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of operating lease liability in any tested asset group and includes the associated operating lease payments in the undiscounted future pre-tax cash flows. For the three and six months ended December 31, 2023 and 2022, the Company did not recognize impairment loss on its operating lease ROU asset.
Recent accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses, leases, and hedging standard. The new effective date for these preparers is for fiscal years beginning after December 15, 2022. ASU 2019-05 is effective for the Company for annual and interim reporting periods beginning July 1, 2023 as the Company is qualified as an emerging growth company. The Company has adopted of this standard on July 1, 2023, the adoption did not have a material impact on its unaudited condensed consolidated financial statements.
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In August 2020, the FASB issued ASU 2020-06, “Debt – Debt Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. The amendment in this Update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the Board decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company has not early adopted this update and it will become effective on July 1, 2024 as the Company is qualified as an emerging growth company. The Company believes the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements — codification amendments in response to SEC’s disclosure Update and Simplification initiative which amend the disclosure or presentation requirements of codification subtopic 230-10 Statement of Cash Flows—Overall, 250-10 Accounting Changes and Error Corrections— Overall, 260-10 Earnings Per Share— Overall, 270-10 Interim Reporting— Overall, 440-10 Commitments—Overall, 470-10 Debt—Overall, 505-10 Equity—Overall, 815-10 Derivatives and Hedging—Overall, 860-30 Transfers and Servicing—Secured Borrowing and Collateral, 932-235 Extractive Activities— Oil and Gas—Notes to Financial Statements, 946-20 Financial Services— Investment Companies— Investment Company Activities, and 974-10 Real Estate—Real Estate Investment Trusts—Overall. The amendments represent changes to clarify or improve disclosure and presentation requirements of above subtopics. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in the Codification with the SEC’s regulations. For entities subject to existing SEC disclosure requirements or those that must provide financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective date aligns with the date when the SEC removes the related disclosure from Regulation S-X or Regulation S-K. Early adoption is not allowed. For all other entities, the amendments will be effective two years later from the date of the SEC's removal. The Company is currently evaluating the impact of the update on the Company’s unaudited condensed consolidated financial statements and related disclosures.
18
In November 2023, the FASB issued ASU 2023-07, which is an update to Topic 280, Segment Reporting. The amendments in this Update improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in this update: (1) require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”), (2) Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss, (3) Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods, and (4) Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements. In other words, in addition to the measure that is most consistent with the measurement principles under generally accepted accounting principles (GAAP), a public entity is not precluded from reporting additional measures of a segment’s profit or loss that are used by the CODM in assessing segment performance and deciding how to allocate resources, (5) Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources, and (6) Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this Update and all existing segment disclosures in Topic 280. The amendments in this Update also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in this Update retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the impact of the update on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, which is an update to Topic 740, Income Taxes. The amendments in this update related to the rate reconciliation and income taxes paid disclosures improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The amendments allow investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows. The other amendments in this Update improve the effectiveness and comparability of disclosures by (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (SEC) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and (2) removing disclosures that no longer are considered cost beneficial or relevant. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this Update should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the impact of the update on Company’s unaudited condensed consolidated financial statements and related disclosures.
19
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated balance sheets, statements of operations and comprehensive loss and statements of cash flows.
Note 3 – Accounts receivable, net
As of 2023 | As of June 30, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Accounts receivable | $ | $ | ||||||
| Provision for estimated credit losses | ( | ) | ( | ) | ||||
| Total accounts receivable, net | $ | $ | ||||||
As of 2023 | As of June 30, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Beginning balance | $ | $ | ||||||
| Addition | ||||||||
| Write-off | ( | ) | ||||||
| Exchange rate effect | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
Note 4 – Inventories
As
of 2023 | As of June 30, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Gift card (or E-voucher) | $ | $ | ||||||
| Nutrition products | ||||||||
| Food and beverage products | ||||||||
| Total | $ | $ | ||||||
20
Note 5 –
As
of 2023 | As of June 30, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Deposits (i) | $ | $ | ||||||
| Prepaid tax | ||||||||
| Prepaid expense (ii) | ||||||||
| Software development deposit (iii) | ||||||||
| Total other receivables and other current assets | $ | $ | ||||||
| (i) |
|
| (ii) |
The balance of prepaid expense mainly represented
prepayment made by the Company to third parties for cyber security service, director & officer liability insurance (“D&O
Insurance”) or other professional service. In July 2022, the Company entered into an IT service agreement (“Service Agreement”)
with a third party. Pursuant to the Service Agreement, the third party will provide IT and advisory service to the Company to enhance
its cyber security for a two-year period with a consideration of $
|
| (iii) |
Note 6 – Prepayments
| As
of December 31, 2023 | As
of June 30, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Deposits to suppliers | $ | $ | ||||||
21
Note 7 – Property and equipment, net
As
of 2023 | As of June 30, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Computer and office equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Motor vehicle | ||||||||
| Leasehold improvement | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
expense for the three and six months ended December 31, 2023 were amounted to $
Note 8 – Intangible assets, net
| As of December 31, | As of June 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Internal use software development | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ||||||
| Total intangible assets, net | $ | $ | ||||||
Amortization
expense for three and six months ended of December 31, 2023 was amounted to $
| Amortization | ||||
| expenses | ||||
| Twelve months ending December 31, 2024 | $ | |||
| Twelve months ending December 31, 2025 | ||||
| Twelve months ending December 31, 2026 | ||||
| Twelve months ending December 31, 2027 | ||||
| Twelve months ending December 31, 2028 | ||||
| Total | $ | |||
22
Note 9 – Investment in marketable securities
On
July 19 2023 (“Commencement Date”), the Company entered into a software developing agreement (“Developing Agreement”)
with VCI Global Limited (“VCI”), an unrelated third party for collaboration and co-operating in the development of an artificial
intelligence powered travel platform, the (“Platform”). Pursuant to the Software Development Agreement, VCI shall remit payment
of cash in $
As of 2023 | As of June 30, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Cost of investment | $ | $ | ||||||
| Cumulative unrealized loss on marketable equity securities | ( | ) | ||||||
| Investment in marketable securities | $ | $ | ||||||
For
the three and six months ended December 31, 2023, unrealized loss on marketable equity securities were $
Note 10 – Loans and notes
Insurance loan
On
February 28, 2023, the Company entered into a loan agreement with First Insurance Funding, a third party (the “Premium Finance
Agreement”), pursuant to which First Insurance Funding provided the Company with a short-term loan amounted to $
Loans from third parties
The
Company entered into a loan agreement with Agtiq Solutions Sdn Bhd, a third party (the “Agtiq Loan Agreement”) dated June
27, 2022, pursuant to which Agtiq Solutions Sdn Bhd provided the Company with a revolving loan facility to borrow up to RM
23
The
Company entered into a loan agreement with Technovative Hub Sdn Bhd, a third party (the “Technovative Loan Agreement”) date
June 27, 2022, pursuant to which Technovative Hub Sdn Bhd provided the Company with a revolving loan facility to borrow up to RM
For
the three and six months ended December 31, 2023, interest expenses related to the aforementioned loans from third parties amounted to
$
For
the three and six months ended December 31, 2022, interest expenses related to the aforementioned loans from third parties amounted to
$
Convertible notes
The Company evaluated the convertible notes agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification.
On
November 13, 2020, the Company issue a convertible note, to an accredited investor, in the aggregate principal amount of $
In
addition, notes issuance costs in connection with this note amounted $
Upon
completion of the Company’s Offering on August 15, 2022, the above mentioned convertible note balance, net of unamortized
discount amounted to $
24
On
January 3, 2022, the Company had entered into a loan agreement (the “Tophill Loan Agreement 1”) with a third party to borrow
up to approximately $
For
the three and six months ended December 31, 2023, amortization of debt discount amounted to $
Upon
completion of the Company’s Offering on August 15, 2022, the remaining principal and accrued interest balance related to Tophill
Loan Agreement 1 and Agreement 2 amounted to $
In May, June, July, September, October, and December 2021,
the Company issued various batches of convertible notes to 10 accredited investors which included 5 third parties in the aggregate principal
amount of $
25
On February 28, 2023, the Company entered into
a Securities Purchase Agreement (the “Securities Purchase Agreement”) with YA II PN, Ltd., (“YA II PN”), a third
party. Pursuant to the Securities Purchase agreement, YA II PN agreed to purchase two unsecured convertible notes, in the aggregate principal
amount of up to $
YA
II PN may not during any calendar month convert more than an aggregate of the greater of (a)
As of June 30, 2023, YA II PN purchased two unsecured
convertible notes consist of $
On
September 28, 2023, a Floor Price trigger event occurred as the Company’s daily VWAP is less than the Floor Price. According to
the Securities Purchase Agreement, the Company was obligate to make monthly payments starting on the 10th day after the Trigger Date,
consisting of the lesser of $
In December and October 2023, the Company has collectively repaid $
In
addition,
26
| Face value of convertible notes payable | Unamortized debt discounts | Convertible notes payable, net of unamortized discounts | Third parties | Related parties | ||||||||||||||||
| June 30, 2022 balance | ( | ) | ||||||||||||||||||
| Issuance of convertible notes | ( | ) | ||||||||||||||||||
| Amortization of debt discounts | ||||||||||||||||||||
| Conversion | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Exchange rate effect | ||||||||||||||||||||
| June 30, 2023 balance | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| Amortization of debt discounts | ||||||||||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Conversion | ( | ) | ( | ) | ( | ) | ||||||||||||||
December 31, 2023 balance | $ | $ | $ | $ | $ | |||||||||||||||
For three and six months ended December 31, 2023,
interest expenses related to the aforementioned convertible notes amounted to $
For the
three and six months ended December 31, 2022, interest expenses related to the aforementioned convertible notes amounted to $
Note 11 – Other payables and accrued liabilities
As of December 31, 2023 | As of 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Accrued professional fees (i) | $ | $ | ||||||
| Accrued promotion expenses (ii) | ||||||||
| Accrued payroll | ||||||||
| Accrued interest (iii) | ||||||||
| Payables to merchant from ZCITY platform (iv) | ||||||||
| Others | ||||||||
| Total other payables and accrued liabilities | $ | $ | ||||||
| (i) | Accrued professional fees |
The balance of accrued professional fees represented amount due to third parties service providers which include marketing consulting service, IT related professional service, audit fee, tax filing fee, and consulting fee related to capital raising.
| (ii) | Accrued promotion expense |
The balance of accrued promotion expense represented the balance of profit sharing payable to the Company’s merchant and subscribed agents to promote business growth.
| (iii) | Accrued interest |
The balance of accrued interest represented the balance of interest payable from convertible notes aforementioned in Note 10.
| (iv) | Payables to merchants from ZCITY platform |
The balance of payables to merchants from ZCITY platform represented the amount the Company collected on behalf of merchant from its customer through the Company’s ZCITY platform.
27
Note 12 – Related party balances and transactions
Related party balances
| Name of related party | Relationship | Nature | As
of | As
of | ||||||||
| (Unaudited) | (Audited) | |||||||||||
| Ezytronic Sdn Bhd | $ | $ | ||||||||||
| Name of Related Party | Relationship | Nature |
As of |
As of |
||||||||
| (Unaudited) | (Audited) | |||||||||||
| True Sight Sdn Bhd | $ | - | $ | |||||||||
| Ezytronic Sdn Bhd | shareholder |
|||||||||||
| Total | $ | $ | ||||||||||
| Name of Related Party | Relationship | Nature |
As of |
As of |
||||||||
| (Unaudited) | (Audited) | |||||||||||
| Chong Chan “Sam” Teo | $ | - | $ | |||||||||
| Kok Pin “Darren” Tan | - | |||||||||||
| Total | $ | - | $ | |||||||||
28
Related party loan
On December 7, 2020, the Company obtained right of use of a vehicle
through signing a trust of deed with Chan Chong “Sam” Teo, the Chief Executive Officer and a shareholder of TGL. In
return, the Company is obligated to remit monthly installment auto loan payment related to this vehicle on behalf of the related party
mentioned above. The total amount of loan that the Company is entitled to repay is approximately $
Related party transactions
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||
| Name of Related Party | Relationship | Nature | 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
| Ezytronic Sdn Bhd | is a common shareholder | $ | $ | $ | $ | |||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||
| Name of Related Party | Relationship | Nature | 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
| Ezytronic Sdn Bhd | is a common shareholder | $ | $ | $ | $ | |||||||||||||||
29
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||
| Name of Related Party | Relationship | Nature | 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
| True Sight Sdn Bhd | $ | $ | $ | $ | ||||||||||||||||
| Imej Jiwa Communications Sdn Bhd | - | - | ||||||||||||||||||
| World Cloud Ventures Sdn Bhd | - | - | ||||||||||||||||||
| Ezytronic Sdn Bhd | is a common shareholder | - | - | |||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||
Note 13 – Stockholders’ deficiency
Common stock
Prior to October 2021, TGL is authorized to issue
30
Beneficial conversion feature from issuance of convertible note
On January 3, 2022 and May 13, 2022, the Company
entered into 2 loan agreements which allow the third party to convert the loan balance along with interest balance incurred into a number
of shares of the Company’s common stock as of the closing date of the IPO. For the three months ended December 31, 2023, the Company
has withdrawn additional $
Common stock issued upon conversion of convertible note payable, net of unamortized discounts
For the six months ended December 31, 2022, the
Company issued
For the six months ended December 31, 2023, the
Company issued
Common stock issued from the Offering, net of issuance costs
On August 15, 2022, the Company had closed its
initial underwritten public offering of
Common stock issued for consulting service
In July 2021 the Company signed a capital market
advisory agreement (“Agreement”) with Exchange Listing, LLC (“Consultant”), to engage in advisory service in capital
market advisory, corporate governance, and organizational meeting. The term of this Agreement shall commence on the execution date and
shall continue until the later of nine months or until the Company is trading on a senior exchange or otherwise extended by both parties.
The Company extended the contract term until the Company is trading on a senior exchange. Upon execution of this agreement, the Company
agrees to sell to the Consultant, or its designees shares of the Company’s common stock which equivalents to
Common stock issued from the November 2023 Offering, net of issuance costs
On November 30, 2023, The Company had closed the
November 2023 Offering of
31
Common stock issued for acquiring intangible assets
On October 12, 2023, the Company, and AI Lab Martech Sdn. Bhd. (the
“Licensor”) entered into a License and Service Agreement (the “License Agreement”), in which the Licensor shall
provide a non-exclusive, non-transferable, royalty-free license to use and operate an AI software solutions (the “AI Software”)
in exchange for the issuance of USD$
On December 19, 2023, the Company
and VT Smart Venture Sdn Bhd (the “Developer”), a company that is in the business of, among other things, technology services,
entered into a Software Development Agreement (the “Agreement”), in which the Developer shall provide application, services
and turnkey solutions on software development in various aspects, including customization, software design layout, creative media platform
development, artificial embedded and artificial intelligence related media platform and design in exchange for USD$
Common stock issued to related parties for debts cancellation
On October 30, 2023, the Company
issued a total of
Warrants
| - | Issuance of warrants - non- employee stock compensation |
Pertain to above mentioned Agreement with the
Consultant, on August 15, 2022, the Company also issued
The fair value of the warrants which was determined
by using the Black Scholes model using the following assumptions: (1) expected volatility of
| - | Issuance of the underwriters warrants |
On August 10, 2022, the Company entered into an
underwriting agreement (the “Underwriting Agreement”) with EF Hutton, division of Benchmark Investments, LLC, as representative
of the underwriters (the “Representative”), relating to the Offering of
The fair value of the warrants which was determined
by using the Black Scholes model using the following assumptions: (1) expected volatility of
32
| - | Issuance of the Pre-Funded Warrants |
On November 28, 2023, the Company entered into an underwriting agreement
(the “Underwriting Agreement 2”) with EF Hutton LLC as the underwriter, relating to the November 2023 Offering of (i)
The Pre-Funded Warrants are classified as a component of permanent
stockholders’ equity within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation
method. The Pre-Funded Warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable
and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) permit the holders to receive a fixed
number of shares of common stock upon exercise, (iv) are indexed to the Company’s common stock. The Company valued the Pre-Funded
Warrants at issuance concluding the purchase price approximated the fair value and allocated net proceeds from the purchase proportionately
to the common stock and Pre-Funded Warrants, of which $
| - | Exercise of the Pre-Funded Warrants |
In December 2023, the holder of Pre-Funded Warrants
exercised
| Shares | Weighted Average Exercise Price* | Weighted Remaining Contractual | ||||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Outstanding at December 31, 2023 (unaudited) | $ | |||||||||||
| * |
Note 14 – Income taxes
| For the three months ended | For the six months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Tax jurisdictions from: | ||||||||||||||||
| - Local – United States | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| - Foreign – Malaysia | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
33
| For the three months ended | For the six months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Tax jurisdictions from: | ||||||||||||||||
| - Local – United States | $ | $ | $ | $ | ||||||||||||
| - Foreign – Malaysia | ||||||||||||||||
| Provision for income taxes | $ | $ | $ | $ | ||||||||||||
United States of America
TGL was incorporated in the State of Delaware and is subject to the
tax laws of the United States of America. As of December 31, 2023, the operations in the United States of America incurred $
TGL also subject to controlled foreign corporations
Subpart F income (“Subpart F”) tax, which is a tax primarily on passive income from controlled foreign corporations with a
tax rate of
For the six months ended December 31, 2023 and 2022, the Company’s foreign subsidiaries did not generate any income that are subject to Subpart F tax and GILTI tax.
Malaysia
ZCITY, Foodlink, Morgan, and AY Food are governed by the income tax
laws of Malaysia and the income tax provision in respect of operations in Malaysia is calculated at the applicable tax rates on the taxable
income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Income Tax Act of Malaysia,
enterprises that incorporated in Malaysia are usually subject to a unified
34
| As of December 31, 2023 | As of June 30, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards in U.S. | $ | $ | ||||||
| Net operating loss carry forwards in Malaysia | ||||||||
| Amortization of debt discount | ||||||||
| Less: valuation allowance* | ( | ) | ( | ) | ||||
| Deferred tax assets | $ | $ | ||||||
| * |
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2023 and June 30, 2023, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur interest and penalties tax for the six months ended December 31, 2023 and 2022.
Note 15 – Concentrations of risks
| (a) | Major customers |
For the three and six months ended December 31,
2023 and 2022, no customer accounted for
As of December 31, 2023, five customers account
for approximately
| (b) | Major vendors |
For the three months ended December 31, 2023, two vendors
accounted for approximately
For the
six months ended December 31, 2023, two vendors accounted for approximately
As of December 31, 2023, three vendors
accounted for approximately
35
| (c) | Credit risk |
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash. As of December 31, 2023 and June 30, 2023, $
Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its accounts receivable is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an provision for estimated credit losses based upon factors surrounding the credit risk of specific customers, historical trends and other information.
| (d) | Exchange rate risk |
The Company cannot guarantee that the current exchange rate will remain steady; therefore, there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of RM converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
Note 16 – Leases
The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. The Company’s office lease was classified as operating leases. The lease generally do not contain options to extend at the time of expiration.
Upon adoption of FASB ASU 2016-02 on July 1, 2022,
the Company recognized $
| December 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| Total undiscounted lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total lease liabilities | $ | |||
Lease expense for the three and six months ended December 31, 2023
and 2022 were $
36
Note 17 – Commitments and contingencies
Contingencies
Legal
From time to time, the Company is party to certain legal proceedings, as well as certain asserted and un-asserted claims. Amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the unaudited condensed consolidated financial statements.
Commitment
On May 1,
2023, the Company through its
On June 6, 2023, the Company through its
Note 18 – Subsequent Events
The Company evaluated all events and transactions that occurred after December 31, 2023 up through February 14, 2024 the date the Company issued these unaudited condensed consolidated financial statements.
In January 2024, the holder of Pre-Funded Warrants collectively exercised
37
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our results of operations and financial condition should be read together with our unaudited condensed consolidated financial statements and the notes thereto, which are included elsewhere in this Report and our Annual Report on Form 10-K for the year ended June 30, 2023 (the “Annual Report”) filed with the SEC. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Overview
Treasure Global Inc (“TGL,” “we,” “our” or the “Company”) is a holding company incorporated on March 20, 2020, under the laws of the State of Delaware. TGL has no substantive operations other than holding all of the outstanding shares of ZCity Sdn Bhd (“ZCITY”), (formerly known as Gem Reward Sdn. Bhd, underwent a name change on July 20, 2023). It was originally established under the laws of the Malaysia on June 6, 2017, through a reverse recapitalization.
Prior to March 11, 2021, TGL and ZCITY were separate companies under the common control of Kok Pin “Darren,” Tan which resulted from Mr. Tan’s prior 100% ownership of TGL and his prior 100% voting and investment control over ZCITY pursuant to the Beneficial Shareholding Agreements. For a more detailed description of the Beneficial Shareholding Agreements and Mr. Tan’s common control over TGL and ZCITY see Part I, Item 1. “Business – Corporate Structure.”
On March 11, 2021, TGL and ZCITY were reorganized into a parent subsidiary structure pursuant to the Share Swap Agreement in which TGL exchanged the swap shares for all of the issued and outstanding equity of ZCITY. Pursuant to the Share Swap Agreement, the purchase and sale of the swap shares was completed on March 11, 2021, but the issuance of the swap shares did not occur until October 27, 2021 when TGL amended its certificate of incorporation to increase the number of its authorized common stock to a number that was sufficient to issue the swap shares. As a result of the Share Swap Agreement, (i) ZCITY became the 100% subsidiary of TGL and Kok Pin “Darren” Tan no longer had any control over the ZCITY ordinary shares and (ii) Kok Pin “Darren” Tan the Initial ZCITY Stockholders and Chong Chan “Sam” Teo owned 100% of the shares of TGL common stock (Kok Pin “Darren” Tan owning approximately 97%). Subsequent to the date of the Share Swap Agreement, Kok Pin “Darren” Tan transferred 9,529,002 of his 10,000,000 shares of TGL common stock to 16 individuals and entities and currently owns less than 5% of our common stock.
On August 15, 2022, we had closed our initial underwritten public offering of 2,300,000 shares of common stock, par value $0.00001 per share, at $4.00 per share. Meanwhile we received net proceeds of approximately $8.2 million, net of underwriting discounts and commissions and fees, and other estimated offering expenses amounted to approximately $1.0 million.
On November 30, 2023, we closed our underwritten public offering (the “November 2023 Offering”) of (i) 26,014,000 shares of common stock, at a public offering price of $0.10 per share of Common Stock and (ii) 14,000,000 pre-funded warrants (the “Pre-Funded Warrants”), each with the right to purchase one share of Common Stock, at a public offering price of $0.0999 per Pre-Funded Warrant. Upon closing of the November 2023 Offering, we received aggregate net proceed of approximately $3.5 million, after deducting underwriting discounts and commission, and non-accountable expense.
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On December 19, 2023, VT Smart Venture Sdn Bhd (the “Developer”), a company that is in the business of, among other things, technology services, entered into a Software Development Agreement (the “Software Agreement”), in which the Developer agreed to provide application, services and turnkey solutions on software development in various aspects, including customization, software design layout, creative media platform development, artificial embedded and artificial intelligence related media platform and design in exchange for USD$1,000,000 worth of common stock of the Company, or 10,000,000 shares valued at USD $0.10 per share (the “TGL Shares”).
We have created an innovative online-to-offline e-commerce platform business model offering consumers and merchants instant rebates and affiliate cashback programs, while providing a seamless e-payment solution with rebates in both e-commerce (i.e., online) and physical retailers/merchant (i.e., offline) settings.
Our proprietary product is an application branded “ZCITY App,” which was developed through ZCITY. The ZCITY App was successfully launched in Malaysia on June 2020. ZCITY is equipped with the know-how and expertise to develop additional/add-on technology-based products and services to complement the ZCITY App, thereby growing its reach and user base.
Through simplifying a user’s e-payment gateway experience, as well as by providing great deals, rewards and promotions with every use, we aim to make the ZCITY App Malaysia’s top reward and loyalty platform. Our longer-term goal is for the ZCITY App and its ever-developing technology to become one of the most well-known commercialized applications more broadly in Southeast Asia and Japan. As of February 5, 2024, we had 2,663,165 registered users and 2,027 registered merchants.
Southeast Asia (“SEA”) consumers have access to a plethora of smart ordering, delivery and “loyalty” websites and apps, but in our experience, SEA consumers very rarely receive personalized deals based on their purchases and behavior.
The ZCITY App targets consumer through the provision of personalized deals based on consumers’ purchase history, location and preferences. Our technology platform allows us to identify the spending trends of our customers (the when, where, why, and how much). We are able to offer these personalized deals through the application of our proprietary artificial intelligence (or “AI”) technology that scours the available database to identify and create opportunities to extrapolate the greatest value from the data, analyze consumer behavior and roll out attractive rewards-based campaigns for targeted audiences. We believe this AI technology is currently a unique market differentiator for the ZCITY App.
We operate our ZCITY App on the hashtag: “#RewardsOnRewards.” We believe this branding demonstrates to users the ability to spend ZCITY App-based Reward Points (or “RP”) and “ZCITY Cash Vouchers” with discount benefits at checkout. Additionally, users can earn rewards from selected e-Wallet or other payment methods.
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ZCITY App users do not require any on-going credit top-up or need to provide bank card number with their binding obligations. We have partnered with Malaysia’s leading payment gateway, iPay88, for secure and convenient transactions. Users can use our secure platform and enjoy cashless shopping experiences with rebates when they shop with e-commerce and retail merchants through trusted and leading e-wallet providers such as Touch’n Go eWallet, Boost eWallet, GrabPay eWallet and credit card/online banking like the “FPX” (the Malaysian Financial Process Exchange) as well as more traditional providers such as Visa and Mastercard.
On May 1, 2023, we entered into a worldwide master license agreement (“License Agreement 1”) with Morganfield’s Holdings Sdn Bhd (“Licensor 1”), an unrelated third party. Pursuant to the License Agreement 1, the Licensor 1 agreed to grant us the exclusive worldwide license for the right to use the Morganfield’s Trademark (“Trademark 2”) for a period of five years. During the five-year license period, we agree to pay Licensor 1 for monthly license fee throughout the license period, with minimum aggregate payments of approximately $1.5 million or 40% of the total monthly collections from our sub-licensees, whichever is higher.
On June 6, 2023, we entered into a worldwide master license agreement (“License Agreement 2”) with Sigma Muhibah Sdn Bhd (“Licensor 2”), an unrelated third party. Pursuant to the License Agreement 2, Licensor 2 agreed to grant the AY Food Ventures Sdn Bhd with the exclusive worldwide license for right of use in Abe Yus’s Trademark (“Trademark 2”) for a period of five years. During the five years license period, we agree to pay the licensor 2 for monthly license fee throughout the license period, with minimum aggregate payments of approximately $1.2 million or 40% of the total monthly collection from our sub-licensees, whichever is higher.
Key Factors that Affect Operating Results
We believe the key factors affecting our financial condition and results of operations include the following:
Our Ability to Create Value for Our Users and Generate Revenue
Our ability to create value for our users and generate our revenues from merchants is driven by the factors described below:
Number and volume of transactions completed by our consumers.
Consumers are attracted to ZCITY by the breadth of personalized deals/rewards and the interactive user experience our platform offers. The number and volume of transaction completed by our member consumers is affected by our ability to continue to enhance and expand our product and service offerings and improve the user experience.
Empowering data and technology.
Our ability to engage our member consumers and empower our merchants and their brands is affected by the breadth and depth of our data insights, such as the accuracy of our members’ shopping preferences, and our technology capabilities and infrastructure, and our continued ability to develop scalable services and upgrade our platform user experience to adapt to the quickly evolving industry trends and consumer preferences.
Our Investment in User Base, Technology, People and Infrastructure
We have made, and will continue to make, significant investments in our platform to attract consumers and merchants, enhance user experience and expand the capabilities and scope of our platform. We expect to continue to invest in our research and development team as well as in our technology capabilities and infrastructure, which will lower our margins but deliver overall long-term growth.
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Inflation
Although Malaysia is experiencing a high inflation rate, we do not believe that inflation has had a material adverse effect on our business as December 31, 2023, but we will continue to monitor the effects of inflation on our business in future periods.
Supply Chain Disruptions
Although there have been global supply chain disruptions as a result of the COVID-19 pandemic, Russia’s February 2022 invasion of Ukraine and the 2023 Middle East conflicts that may have affected the operations of some of our online and offline merchants, these disruptions have not had a material adverse effect on our business as of December 31, 2023, but we will continue to monitor the effects of supply chain disruptions on our business in future periods.
Key Operating Metrics
Our management regularly reviews a number of metrics to evaluate our business, measures our performance, identifies trends, formulates financial projections and makes strategic decisions. The main metrics we consider, and our results for last five quarters, are set forth in the table below:
| For the Quarters Ended | ||||||||||||||||||||
| December 31, | March 31, | June 30, | September 30, | December 31, | ||||||||||||||||
| 2022 | 2023 | 2023 | 2023 | 2023 | ||||||||||||||||
| Number of new registered user (1) | 143,654 | 98,248 | 98,087 | 102,752 | 38,934 | |||||||||||||||
| Number of active users (2) | 458,177 | 449,435 | 378,414 | 187,180 | 156,979 | |||||||||||||||
| Number of new participating merchants | - | 10 | 2 | 16 | 1 | |||||||||||||||
| (1) | Registered are persons who have registered on the ZCITY App. |
| (2) | Active users are users who have logged into the ZCITY App at least once. |
| As of | As of | As of | As of | As of | ||||||||||||||||
| December 31, | March 31, | June 30, | September 30, | December 31, | ||||||||||||||||
| 2022 | 2023 | 2023 | 2023 | 2023 | ||||||||||||||||
| Accumulated registered users | 2,345,829 | 2,444,077 | 2,542,164 | 2,644,916 | 2,683,850 | |||||||||||||||
| Accumulated Participating merchants | 1,998 | 2,008 | 2,010 | 2,026 | 2,027 | |||||||||||||||
We have experienced a decrease in growth rate in registered users, and a decline of active users over the last five quarters as of December 31, 2023. As of December 31, 2023, we recorded 2,683,850 registered users and 156,979 active users on the ZCITY platform. On average, our registered user base has grown by approximately 4.0% over the past five quarters, while our active user numbers have experienced an average decline of 18.1%.
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The decrease in growth with regard to registered users and the decline in active users over the past five quarters as of December 31, 2023 was a result of decrease in E-voucher purchasing from our vendor, which eventually reduced the E-voucher available for sales, and attracted less new registered and active users to join our ZCITY platform. Since our product and loyalty program revenue mainly consist of sales of E-voucher which bear a low profit margin, reduction in E-voucher purchasing will allow us to reserve more working capital in developing our TAZTE Smart F&B system (“TAZTE”), which is a system that provides a one stop solution and digitalization transformation for all registered food and beverage (“F&B”) outlets located in Malaysia. As TAZTE is a merchant-oriented program, we intend to utilize our user data to help our merchant customers to achieve higher business growth. As we provided free trial for merchants to participate in TAZTE ended in December 31, 2023 and further extended to June 2024, we have not generated any revenue from TAZTE for the six months ended December 31, 2023. For 2024 and beyond, we do not expect to experience exponential growth rate in our registered and active users as we intend to maintain our E-voucher for sales in a steady level and increase our user’s retention rate.
We continuously monitor the development and participation of active users as a proportion of its total registered user base to ensure the effectiveness of our marketing and feature implantation strategies. Accordingly, the proportion of total registered users that we consider active users at the end last five quarters as of December 31, 2023 is as follows:
| Starting | Ending | Total registered users | Total active users | Total active users to total registered users | ||||||||||
| October 1, 2022 | December 31, 2022 | 2,345,829 | 458,177 | 19.5 | % | |||||||||
| January 1, 2023 | March 31, 2023 | 2,444,077 | 449,435 | 18.4 | % | |||||||||
| April 1, 2023 | June 30, 2023 | 2,542,164 | 378,414 | 14.9 | % | |||||||||
| July 1, 2023 | September 30, 2023 | 2,644,916 | 187,180 | 7.1 | % | |||||||||
| October 1, 2023 | December 31, 2023 | 2,542,164 | 156,979 | 6.2 | % | |||||||||
We continuously monitor the development of the churn and retention rates of the active user base. Active users churn rate is the percentage of customers who had stop subscribing in our platform while retention rate is the percentage of customers who is retained in our platform. Accordingly, our churn and retention rates of the active user base at the end of last five quarters as of December 31, 2023 is as follows:
| Starting | Ending | Total active users | New active (registered | Existing active users | Active users churn rate | Active users retention rate | ||||||||||||||||
| October 1, 2022 | December 31, 2022 | 458,177 | 104,191 | 353,986 | 27.5 | % | 72.5 | % | ||||||||||||||
| January 1, 2023 | March 31, 2023 | 449,435 | 81,921 | 367,514 | 19.8 | % | 80.2 | % | ||||||||||||||
| April 1, 2023 | June 30, 2023 | 378,414 | 93,516 | 284,898 | 36.6 | % | 63.4 | % | ||||||||||||||
| July 1, 2023 | September 30, 2023 | 187,180 | 93,836 | 93,344 | 75.3 | % | 24.7 | % | ||||||||||||||
| October 1, 2023 | December 31, 2023 | 156,979 | 38,934 | 118,045 | 36.9 | % | 63.1 | % | ||||||||||||||
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The retention rate and churn rate for our active users are calculated as follows:
| Retention rate of active users for any quarter | = | Existing active users |
| Total active users in the past quarter |
| Churn rate of active users for any quarter | = | Total active users from past quarter minus current quarter existing active users |
| Total active users in the past quarter |
We have used different strategies to build and maintain our users and increase their engagement. Initially, we focused on mass marketing strategies to attract registered users. Subsequently, we have shifted to a more targeted approach focused on increasing user engagement and user spending.
Results of Operation
For the three months ended December 31, 2023 and 2022
Revenue
Our breakdown of revenues by categories for the three months ended December 31, 2023 and 2022, respectively, is summarized below:
| For the Three Months Ended December 31, | Change | |||||||||||||||||||
| 2023 | % | 2022 | % | % | ||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||
| Product and loyalty program revenue | $ | 6,488,819 | 96.6 | % | $ | 20,293,526 | 99.3 | % | (68.0 | )% | ||||||||||
| Transaction revenue | 15,867 | 0.2 | % | 17,126 | 0.1 | % | (7.4 | )% | ||||||||||||
| Member subscription revenue | 148,205 | 2.2 | % | 133,516 | 0.6 | % | 11.0 | % | ||||||||||||
| Sublicence revenue | 60,914 | 1.0 | % | - | - | % | 100.0 | % | ||||||||||||
| Total revenues | $ | 6,713,805 | 100.0 | % | $ | 20,444,168 | 100.0 | % | (67.2 | )% | ||||||||||
Total revenues decreased by approximately $13.8 million or 67.2% to approximately $6.7 million for the three months ended December 31, 2023 from approximately $20.4 million for the three months ended December 31, 2022. The decrease was mainly attributable to the decrease in product and loyalty program revenue.
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Product and loyalty program revenue
Product revenue was generated through sales of our e-voucher, health care products and other products through our ZCITY platform while loyalty program revenue was recognized when our customers redeem their previously earned reward points from our loyalty program or upon expiration of the reward point. In addition, we also engage in sales of food and beverage products through our newly acquired subsidiaries, Morgan Global Sdn. Bhd (“Morgan”) and AY Food Ventures Sdn. Bhd. (“AY Food”). The product and loyalty program revenue decrease by approximately $13.8 million or 68.0% to approximately $6.5 million for the three months ended December 31, 2023 from approximately $20.3 million for the same period in 2022. The decrease was mainly attributable to our strategic goal to reduce spending related rewards granted to the customers and marketing campaign expenses. Such reduction in incentives grant to customers and the decrease in marketing campaign expenditures had the effect of diminishing the platform's attractiveness to existing and potential customers, ultimately leading to the decrease of revenue in current period.
Transaction revenue
The transaction revenue primarily consists of fees charged to merchants for participating in our ZCITY platform upon successful sales transaction and payment service taken place between the merchants and their customers online. Our transaction revenue decreased by 7.4%. Our average percentage of growth of new merchants was approximately 0.3% throughout the five quarters as of December 31, 2023 since the establishment of ZCITY platform. For the three months ending on December 31, 2023, we have one additional new merchant to join our ZCITY platform.
Member subscription revenue
Member subscription revenue primarily consists of fees charged to customers who signed up for Zmember, a membership program that includes exclusive saving, bonus and referral rewards. Member subscription revenue increased by 11.0% to approximately $150,000 for three months end December 31, 2023 as compared to approximately $134,000 for the same period in 2022 as more customers have joined our Zmember program. As of December 31, 2023 and 2022, we had 28,927 and 15,169 customers who subscribed to our Zmember program, respectively.
Sublicense revenue
As we acquired exclusive worldwide license for right of use in Morganfield’s Trademark, and Abe Yus’s Trademark on May 1, 2023, and June 6, 2023, respectively, for a period of five years, we have generated sublicense revenue consist of fee charged to the customers who sublicensed the right of use of the Trademark from us. For the three months ended December 31, 2023, sublicense revenue was amounted to approximately $61,000 while as of December 31, 2023 we engaged 10 customers as sublicensees who operated their restaurant under Morganfield’s and Abe Yu’s Trademark in Singapore, Malaysia and China.
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Cost of revenue
Our breakdown of cost of revenue by categories for the three months ended December 31, 2023 and 2022, respectively, is summarized below:
For the Three Months Ended | Change | |||||||||||
| 2023 | 2022 | % | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Product and loyalty program revenue | $ | 6,308,998 | $ | 20,210,159 | (68.8 | )% | ||||||
| Sublicense revenue | 59,204 | - | 100.0 | % | ||||||||
| Total cost of revenue | $ | 6,368,202 | $ | 20,210,159 | (68.5 | )% | ||||||
Cost of revenue mainly consists of the purchases of the gift card or “E-voucher” pin code, health care product and food and beverage products which is directly attributable to our product revenue. Cost of revenue also consists of monthly license payment made to our licensor to maintain our good standing for the right of use the Trademark which is attributable to our sublicense revenue. Total cost of revenue decreased by approximately $13.8 million or 68.5% for the three months ended December 31, 2023 compared with the same period in 2022. The decrease was in line with our decrease in revenue.
Gross profit
Our gross profit from our major revenue categories is summarized as follows:
| For the Three Months Ended December 31, 2023 | For the Three Months Ended December 31, 2022 | Change | Percentage Change | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Product and loyalty program revenue | ||||||||||||||||
| Gross profit | $ | 179,821 | $ | 83,367 | $ | 96,454 | 115.7 | % | ||||||||
| Gross margin | 2.8 | % | 0.4 | % | 2.4 | % | ||||||||||
| Transaction revenue | ||||||||||||||||
| Gross profit | $ | 15,867 | $ | 17,126 | $ | (1,259 | ) | (7.4 | )% | |||||||
| Gross margin | 100.0 | % | 100.0 | % | — | % | ||||||||||
| Member subscription revenue | ||||||||||||||||
| Gross profit | $ | 148,205 | $ | 133,516 | $ | 14,689 | 11.0 | % | ||||||||
| Gross margin | 100.0 | % | 100.0 | % | — | % | ||||||||||
| Sublicense revenue | ||||||||||||||||
| Gross profit | $ | 1,710 | $ | — | $ | 1,710 | 100.0 | % | ||||||||
| Gross margin | 2.8 | % | — | % | 2.8 | % | ||||||||||
| Total | ||||||||||||||||
| Gross profit | $ | 345,603 | $ | 234,009 | $ | 111,594 | 47.7 | % | ||||||||
| Gross margin | 5.1 | % | 1.1 | % | 4.0 | % | ||||||||||
Our gross profit for the three months ended December 31, 2023 amounted to approximately $0.3 million as compared to approximately $0.2 million for the three months ended December 31, 2022 which represents an increase of approximately $0.1 million or 47.7%. The increase in gross profit was primarily attributable to we reduce spending related rewards granted to the customers in our ZCITY platform which resulted in less revenue being deferred and led to higher gross profit in current period. The increase in gross profit also attributable to the growth in member subscription revenue, as we had more customers subscribed to our Zmember program as of December 31, 2023.
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The gross margin was approximately 5.1% and 1.1% for the three months ended December 31, 2023, and 2022, respectively. The 4.0% increase in gross margin attributed to the rise in gross profit from product and loyalty program revenue which due to the reason indicated above.
Operating expenses
Our operating expenses consist of selling expenses, general and administrative expenses, research and development expenses and stock-based compensation expenses.
Selling expenses
Selling expenses amounted to approximately $0.5 million and $1.3 million for the three months ended December 31, 2023 and 2022, respectively, representing a decrease of approximately $0.8 million or 59.7%. The decrease was mainly attributable to a decrease in marketing and promotion expense of approximately $0.5 million related to promoting our ZCITY platform. Marketing and promotion expense consists of redemptions of reward points which is generated from non-spending related activities (registration as a new user, referral of a new user and Spin & Win eligibility to receive reward points) in exchange for discounted credit of purchasing our products upon conversion of using the reward points. For the three months ended December 31, 2023 and 2022, we incurred approximately $0.1 million and $0.6 million, respectively, in marketing and promotion expense, and recognized the same amount of product revenue at the time of redemption of the non-spending related activities reward points by our customers. The decrease in marketing and promotion expenses was primarily driven by our strategic goal to optimize the promotional activities, and enhance our cost effectiveness in our operations.
General and administrative expenses
General and administrative expenses amounted to approximately $0.8 million and $0.9 million for the three months ended December 31, 2023 and 2022, respectively, representing an decrease of approximately $0.1 million or 8.1%. The decrease was primarily attributed to a reduction in salary expenses of approximately $0.3 million, as we reallocated some of our labor resources to software development services related to VCI's project, offset by director and officer liability insurance expense of approximately $0.1 million and depreciation expense of approximately $0.1 million as a result of expansion of management and administration team to support our business operation.
Research and development expenses
Research and development expense amounted to approximately $138,000 and $168,000 for the three months ended December 31, 2023 and 2022, respectively, representing 17.0% decrease which is attribute to we incurred less in house development expense related to mobile application or website development.
Other (expense) income, net
Other expense, net, amounted to approximately $107,000 for the three months ended December 31, 2023 while other income, net amounted to approximately $55,000 for the three months ended December 31, 2022. Such change was primarily attributable to we incurred other income from software developing service, net of cost of approximately $0.7 million, offset by an unrealized loss approximately $0.4 million from marketable securities, approximately $0.3 million redemption premium payment remit to our convertible note holder as a result of floor price triggering event, and amortization of debt discount of approximately $0.1 million related to our convertible note payable.
Provision for income taxes
Provision for income taxes amounted to approximately $6,000 and $11,500 for the three months ended December 31, 2023 and 2022, respectively. The amount was mainly attributable to tax imposed on us from the State of Delaware, as we are required to remit franchise tax to the State of Delaware on an annual basis. We also were subject to controlled foreign corporations Subpart F income (“Subpart F”) tax, which is a tax primarily on passive income from controlled foreign corporations with a tax rate of 35%. In addition, the Tax Cuts and Jobs Act imposed a global intangible low-taxed income (“GILTI”) tax, which is a tax on certain off-shore earnings at an effective rate of 10.5% for tax years (50% deduction of the current enacted tax rate of 21%) with a partial offset for 80% foreign tax credits. If the foreign tax rate is 13.125% or higher, there will be no U.S. corporate tax after the 80% foreign tax credits are applied. For the three months ended December 31, 2023 and 2022, our foreign subsidiaries did not generate any income that are subject to Subpart F tax and GILTI tax.
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Net losses
Our net losses decreased by approximately $0.8 million predominately due to the reasons as discussed above.
For the six months ended December 31, 2023 and 2022
Revenue
Our breakdown of revenues by categories for the six months ended December 31, 2023 and 2022, respectively, is summarized below:
| For the Six Months Ended December 31, | Change | |||||||||||||||||||
| 2023 | % | 2022 | % | % | ||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||
| Product and loyalty program revenue | $ | 19,703,989 | 97.7 | % | $ | 35,766,340 | 99.3 | % | (44.9 | )% | ||||||||||
| Transaction revenue | 36,075 | 0.1 | % | 32,344 | 0.1 | % | 11.5 | % | ||||||||||||
| Member subscription revenue | 321,424 | 1.6 | % | 201,824 | 0.6 | % | 59.3 | % | ||||||||||||
| Sublicence revenue | 116,212 | 0.6 | % | - | - | % | 100.0 | % | ||||||||||||
| Total revenues | $ | 20,177,700 | 100.0 | % | $ | 36,000,508 | 100.0 | % | (44.0 | )% | ||||||||||
Total revenues decreased by approximately $15.8 million or 44.0% to approximately $20.2 million for the six months ended December 31, 2023 from approximately $36.0 million for the six months ended December 31, 2022. The decrease was mainly attributable to the decrease in product and loyalty program revenue.
Product and loyalty program revenue
Product revenue was generated through sales of our e-voucher, health care products and other products through our ZCITY platform while loyalty program revenue was recognized when our customers redeem their previously earned reward points from our loyalty program or upon expiration of the reward point. In addition, we also engage in sales of food and beverage products through our newly acquired subsidiaries, Morgan and AY Food. The product and loyalty program revenue decreased by approximately $16.1 million or 44.9% to approximately $19.7 million for the six months ended December 31, 2023 from approximately $35.8 million for the same period in 2022. The decrease was mainly attributable to our strategic goal to reduce spending related rewards granted to the customers and marketing campaign expenses. Such reduction in incentives granted to the customers and the decrease in marketing campaign expenditures had the effect of diminishing the platform’s attractiveness to existing and potential customers, ultimately leading to the decrease of revenue in current period.
Transaction revenue
The transaction revenue primarily consists of fees charged to merchants for participating in our ZCITY platform upon successful sales transaction and payment service taken place between the merchants and their customers online. Our transaction revenue increased by 11.5%. Our average percentage of growth of new merchants was approximately 0.3% throughout the five quarters as of December 31, 2023 since the establishment of ZCITY platform. For the six months ending on December 31, 2023, we have an additional 17 new merchants that joined our ZCITY platform.
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Member subscription revenue
Member subscription revenue primarily consists of fees charged to customers who signed up for Zmember, a membership program that includes exclusive saving, bonus and referral rewards. Member subscription revenue increased by 59.3% to approximately $0.3 million for six months end December 31, 2023 as compared to approximately $0.2 million for the same period in 2022 as we have more customers to join our Zmember program. As of December 31, 2023 and 2022, we had 28,927 and 15,169 customers who subscribed to our Zmember program, respectively.
Sublicense revenue
As we acquired exclusive worldwide license for right of use in Morganfield’s Trademark, and Abe Yus’s Trademark on May 1, 2023, and June 6, 2023, respectively, for a period of five years, we have generated sublicense revenue consist of fee charged to the customers who sublicensed the right of use of the Trademark from us. For the six months ended December 31, 2023, sublicense revenue was amounted to approximately $0.1 million while as of December 31, 2023 we engaged 10 customers as sublicensees who operated their restaurant under Morganfield’s and Abe Yu’s Trademark in Singapore, Malaysia, and China.
Cost of revenue
Our breakdown of cost of revenue by categories for the six months ended December 31, 2023 and 2022, respectively, is summarized below:
| For the Six Months Ended December 31, | Change | |||||||||||
| 2023 | 2022 | % | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Product and loyalty program revenue | $ | 19,552,148 | $ | 35,729,406 | (45.3 | )% | ||||||
| Sublicense revenue | 117,315 | - | 100.0 | % | ||||||||
| Total cost of revenue | $ | 19,669,463 | $ | 35,729,406 | (44.9 | )% | ||||||
Cost of revenue mainly consists of the purchases of the gift card or “E-voucher” pin code, health care product and food and beverage products which is directly attributable to our product revenue. Cost of revenue also consists of monthly license payment made to our licensor to maintain our good standing for the right of use the Trademark which is attributable to our sublicense revenue. Total cost of revenue decreased by approximately $16.1 million or 44.9% for the six months ended December 31, 2023 compared with the same period in 2022. The decrease was in line with our decrease in revenue.
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Gross profit
Our gross profit from our major revenue categories is summarized as follows:
| For the Six months Ended December 31, 2023 | For the Six months Ended December 31, 2022 | Change | Percentage Change | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Product and loyalty program revenue | ||||||||||||||||
| Gross profit | $ | 151,841 | $ | 36,934 | $ | 114,907 | 311.1 | % | ||||||||
| Gross margin | 0.8 | % | 0.1 | % | 0.7 | % | ||||||||||
| Transaction revenue | ||||||||||||||||
| Gross profit | $ | 36,075 | $ | 32,344 | $ | 3,731 | 11.5 | % | ||||||||
| Gross margin | 100.0 | % | 100.0 | % | — | % | ||||||||||
| Member subscription revenue | ||||||||||||||||
| Gross profit | $ | 321,424 | $ | 201,824 | $ | 119,600 | 59.3 | % | ||||||||
| Gross margin | 100.0 | % | 100.0 | % | — | % | ||||||||||
| Sublicense revenue | ||||||||||||||||
| Gross loss | $ | (1,103 | ) | $ | — | $ | (1,103 | ) | — | % | ||||||
| Gross loss margin | (0.9 | )% | — | % | (0.9 | )% | ||||||||||
| Total | ||||||||||||||||
| Gross profit | $ | 508,237 | $ | 271,102 | $ | 237,135 | 87.5 | % | ||||||||
| Gross margin | 2.5 | % | 0.8 | % | 1.8 | % | ||||||||||
Our gross profit for the six months ended December 31, 2023 amounted to approximately $0.5 million as compared to approximately $0.3 million for the six months ended December 31, 2022 which represents an increase of approximately $0.2 or 87.5%. The increase in gross profit was primarily attributable to the reduction of spending related rewards granted to the customers in our ZCITY platform which resulted in less revenue being deferred and led to higher gross profit in current period. The increase in gross profit also attributable to the growth in member subscription revenue, as we had more customers subscribed to our Zmember program as of December 31, 2023.
The gross margin was approximately 2.5% and 0.8% for the six months ended December 31, 2023, and 2022, respectively. The 1.8% increase in gross margin attributed to the rise in gross profit from product and loyalty program revenue which due to the reason indicated above.
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Operating expenses
Our operating expenses consist of selling expenses, general and administrative expenses, research and development expenses and stock-based compensation expenses.
Selling expenses
Selling expenses amounted to approximately $1.3 million and $2.6 million for the six months ended December 31, 2023 and 2022, respectively, representing a decrease of approximately $1.3 million or 50.3%. The decrease was mainly attributable to the decrease in marketing and promotion expense of approximately $1.0 million related to promoting our ZCITY platform. Marketing and promotion expense consists of redemptions of reward points which is generated from non-spending related activities (registration as a new user, referral of a new user and Spin & Win eligibility to receive reward points) in exchange for discounted credit of purchasing our products upon conversion of using the reward points. For the six months ended December 31, 2023 and 2022, we incurred approximately $0.3 million and $1.0 million, respectively, in marketing and promotion expense, and recognized the same amount of product revenue at the time of redemption of the non-spending related activities reward points by our customers. The decrease in marketing and promotion expenses was primarily driven by our strategic goal to optimize the promotional activities, and enhance our cost effectiveness in our operations.
General and administrative expenses
General and administrative expenses amounted to approximately $2.0 million and $1.7 million for the six months ended December 31, 2023 and 2022, respectively, representing an increase of approximately $0.4 million or 21.4%. The increase was mainly due to increase of director & officer liability insurance expense of approximately $0.2 million, legal and professional expense of approximately $0.1 million and depreciation expense of approximately $0.1 million as a result of expansion of management and administration team to support our business operation.
Research and development expenses
Research and development expense amounted to approximately $227,000 and $297,000 for the six months ended December 31, 2023 and 2022, respectively, representing 23.7% decrease which is attribute to we incurred less expense in mobile application or website development.
Stock-based compensation expenses
Stock-based compensation expenses amounted to approximately $0 and $0.4 million for the six months ended December 31, 2023 and 2022 respectively, representing decrease of approximately $0.4 million. The stock-based compensation incurred for the six months ended December 31, 2022 are from Exchange Listing LLC (the “Consultant”) related to our initial public offering.
Other expense, net
For the six months ended December 31, 2023 and 2022, we incurred other expense, net, amounted to approximately $0.3 million and $0.9 million, respectively, representing a decrease of approximately $0.7 million which was primarily attributable to we incurred other income from software developing service, net of cost of approximately $0.7 million, and a decrease of amortization of debt discount of approximately $0.6 million related to our convertible note payable as we had fewer convertible notes containing debt discount that needed to be amortized for the six months ended December 31, 2023 compare to the same period in 2022, offset by an unrealized loss approximately $0.3 million from marketable securities we received as service consideration in development of an artificial intelligence powered travel platform, redemption premium of approximately $0.3 million remit to our convertible note holder as a result of floor price triggering event.
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Provision for income taxes
Provision for income taxes amounted to approximately $21,000 and $23,000 for the six months ended December 31, 2023 and 2022, respectively. The amount was mainly attributable to tax imposed on us from the State of Delaware, as we are required to remit franchise tax to the State of Delaware on an annual basis. We also were subject to controlled foreign corporations Subpart F income tax, which is a tax primarily on passive income from controlled foreign corporations with a tax rate of 35%. In addition, the Tax Cuts and Jobs Act imposed a global intangible low-taxed income tax, which is a tax on certain off-shore earnings at an effective rate of 10.5% for tax years (50% deduction of the current enacted tax rate of 21%) with a partial offset for 80% foreign tax credits. If the foreign tax rate is 13.125% or higher, there will be no U.S. corporate tax after the 80% foreign tax credits are applied. For the six months ended December 31, 2023 and 2022, our foreign subsidiaries did not generate any income that are subject to Subpart F tax and GILTI tax.
Net loss
Our net losses decreased by approximately $2.4 million predominately due to the reasons as discussed above.
Liquidity and Capital Resources
In assessing liquidity, we monitor and analyze cash on-hand and operating expenditure commitments. Our liquidity needs are to meet working capital requirements and operating expense obligations. To date, we financed our operations primarily through cash flows from contribution from stockholders, issuance of convertible notes, related party loans and our completion of initial underwritten public offering.
As of December 31, 2023 and June 30, 2023, we had approximately $1.2 million and $4.6 million, respectively, in cash and cash equivalent which primarily consists of bank deposits, which are unrestricted as to withdrawal and use.
On August 15, 2022, we had closed our initial underwritten public offering of 2,300,000 shares of common stock, par value $0.00001 per share, at $4.00 per share. We received aggregate net proceeds from the closing of approximately $8.2 million, after deducting underwriting discounts and commissions and fees, and other estimated offering expenses which amounted to approximately $1.0 million.
From February to June 2023, we issued two convertible notes to a third party in an aggregate principal amount of $5,500,000. We received $5,060,000 in proceeds from the third-party net of discount. The convertible notes accrued interest at 4% per annum and had a 12-month term. On December 6, 2023, we paid a total of $2,102,909.59 which represented the outstanding balance of one of the convertible notes issued pursuant to the securities purchase agreement. The other convertible note had already been fully converted into shares of our common stock prior to December 6, 2023.
On November 30, 2023, we closed our November 2023 Offering of (i) 26,014,000 shares of common stock, at a public offering price of $0.10 per share, and (ii) 14,000,000 Pre-Funded Warrants, each with the right to purchase one share of Common Stock, at a public offering price of $0.0999 per Pre-Funded Warrant. Upon closing of the November 2023 Offering, we received aggregate net proceed of approximately $3.5 million, after deducting underwriting discounts, and non-accountable expense.
Despite receiving the proceeds from our initial underwritten public offering, November 2023 Offering, and issuance of two convertible notes, management is of the opinion that we will not have sufficient funds to meet the working capital requirements and debt obligations as they become due starting from one year from the date of this report due to our recurring loss. Therefore, management has determined there is substantial doubt about our ability to continue as a going concern. If we are unable to generate significant revenue, we may be required to curtail or cease our operations. Management is trying to alleviate the going concern risk through the following sources:
| ● | Equity financing to support our working capital; |
| ● | Other available sources of financing (including debt) from Malaysian banks and other financial institutions; and |
| ● | Financial support and credit guarantee commitments from our related parties. |
However, there is no guarantee that the substantial doubt about our ability to continue as a going concern will be alleviated.
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The following summarizes the key components of our cash flows for the six months ended December 31, 2023 and 2022:
| For the Six Months Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Net cash used in operating activities | $ | (3,089,366 | ) | $ | (4,618,391 | ) | ||
| Net cash used in investing activities | (206,928 | ) | (72,306 | ) | ||||
| Net cash (used in) provided by financing activities | (71,026 | ) | 7,716,349 | |||||
| Effect of exchange rate on cash and cash equivalents | 256 | (150,270 | ) | |||||
| Net change in cash and cash equivalents | $ | (3,367,064 | ) | $ | 2,875,382 | |||
Operating Activities
Net cash used in operating activities for the six months ended December 31, 2023 was approximately $3.1 million and was mainly comprised of the net loss of approximately $3.3 million, non-cash other income of approximately $1.0 million from software developing service related to VCI’s project as mentioned in other income, net above, increase of prepayment of approximately $0.1 million as our vendors required us to make deposit to secure the purchase, offset by non-cash items of depreciation, amortization, allowance for credit losses and unrealized loss on marketable securities amounted to approximately $1.0 million, decrease of inventories of approximately $0.3 million as we reduced our purchase and intended to maintain a more effective inventory level, decrease of approximately $0.2 million in other receivables and other current assets is attributed to the utilization of prepaid information technology and insurance expenses from previous periods in the current period, and increase of approximately $0.1 million in accounts payable as we made more purchases on account.
Net cash used in operating activities for the six months ended December 31, 2022 was approximately $4.6 million and was mainly comprised of the net loss of approximately $5.7 million, increase of prepayments of approximately $0.3 million as our vendors required us to make deposit to secure the purchase, and increase of approximately $0.3 million in other receivable and other current assets as we prepaid IT maintenance fee to a third party service provider. The net cash used in operating activities was mainly offset by amortization of debt discount of approximately $1.0 million, stock-based compensation of approximately $0.4 million, decrease of inventories of approximately $18,000 as we improved our inventories turnover rate due to demand of our product, increase in account payable of approximately $59,000 as we made more purchases on account and increase of approximately $81,000 in contract liability as we deferred more revenue due to increase of our customer’s redemption rate in spending related reward points.
Investing Activities
Net cash used in investing activities for the six months ended December 31, 2023 was approximately $0.2 million, which was mainly due to purchase of equipment and intangible assets of approximately $15,000, and $0.2 million, respectively, for our operations used.
Net cash used in investing activities for six months ended December 31, 2022 was approximately $72,000, which was in respect of purchase of equipment for our operations.
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Financing Activities
Net cash used by financing activities for the six months ended December 31, 2023 was approximately $71,000, which mainly comprised of repayment to convertible notes, insurance loan and related party loan of approximately $3.5 million, offset by approximately $3.5 million net proceeds received from issuance of common stock and Pre-Funded Warrants related to the November 2023 Offering.
Net cash provided by financing activities for the six months ended December 31, 2022 was approximately $7.7 million, which were mainly comprised of proceeds received from the issuance of convertible note from third party of approximately $2.7 million, proceeds received from our initial public offering of approximately $8.2 million and proceeds received from third party of approximately $0.6 million, offset by repayment to related parties and third parties loan of approximately $3.7 million, repayment of a senior note of $65,000 and $15,000 payment of deferred offering costs.
Off-Balance Sheet Arrangements
As of the date of this Quarterly Report, we have the following off-balance sheet arrangements that are likely to have a future effect on our financial condition, revenues or expenses, results of operations and liquidity:
Commitment
On May 1, 2023, our subsidiary Morgan entered into a worldwide master license agreement with Morganfield’s Holdings Sdn Bhd, an unrelated third party. Pursuant to the License agreement, the Licensor agreed to grant Morgan with the exclusive worldwide license for right of use in Morganfield’s Trademark for a period of five years. During the five years license period, Morgan is obligated to pay the licensor for license fee on monthly basis in an aggregate total of minimum payment of approximately $1.5 million or 40% of the total monthly collection from Morgan’s sub-licensees, whichever is higher.
On June 6, 2023, we entered into a worldwide master license agreement with Sigma Muhibah Sdn Bhd, an unrelated third party. Pursuant to the License Agreement 2, the Licensor 2 agreed to grant the AY Food Ventures Sdn Bhd with the exclusive worldwide license for right of use in Abe Yus’s Trademark for a period of five years. During the five years license period, we agree to pay the licensor 2 for license fee on monthly basis in an aggregate total of minimum payment of approximately $1.2 million or 40% of the total monthly collection from our sub-licensees, whichever is higher.
Critical Accounting Estimate
Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting estimates that are significant to the preparation of our financial statements. These estimates are important for an understanding of our financial condition and results of operation. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting estimates involve the most significant estimates and judgments used in the preparation of our financial statements.
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in our consolidated financial statements include the estimated retail price per point and estimated breakage to calculate the revenue recognized in our loyalty program revenue, the useful lives of property and equipment, impairment of long-lived assets, provision for estimated credit losses, write-down for estimated obsolescence or unmarketable inventories, realization of deferred tax assets and uncertain tax position, fair value of our stock price to determine the beneficial conversion feature (“BCF”) within the convertible note, fair value of the stock-based compensation, fair value of the marketable securities and fair value of the warrants issued. Actual results could differ from these estimates.
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Accounts receivable, net
Accounts receivable are recorded at the invoiced amount, net of an allowance for uncollectible accounts and do not accrue interest. We offer various payments terms to customers from cash due on delivery to 90 days based on their credit history. Accounts receivable encompass amounts due from sales of healthcare products on our ZCITY platform, sublicensing revenue and sales of food and beverage products. Starting from July 1, 2023, we adopted ASU No.2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”). We used a modified retrospective approach, and the adoption does not have an impact on our unaudited condensed consolidated financial statements. Management also periodically evaluates individual customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance when all collection efforts have been exhausted, and recovery potential is deemed remote. Our management reviews historical accounts receivable collection rates across all aging brackets and has made 100% provision of credit loss for customer balances aged above 120 days for sales of healthcare products on our ZCITY platform and 100% provision for customer balances aged above 60 days for sublicensing revenue and sales of food and beverage products. Our management continuously assesses the reasonableness of the credit loss allowance policy and updates it as needed. As of December 31, 2023 and June 30, 2023, we recorded $54,280 and $214 of provision for estimated credit losses, respectively.
Inventories
Our inventories are recorded at the lower of cost or net realizable value, with cost determined using the first-in-first-out (FIFO) method. These costs encompass gift cards or ‘E-voucher’ pin codes, which are acquired from our suppliers as merchandise goods or store credit, as well as healthcare products. Management conducts regular comparisons between the cost of inventories and their net realizable value. If the net realizable value is lower than the cost, an allowance is made for inventory write-down. Ongoing assessments of inventories are carried out to identify potential write-downs due to estimated obsolescence or unmarketability. This determination is based on the difference between the inventory costs and the estimated net realizable value, considering forecasts for future demand and market conditions. Once inventories are written down to the lower of cost or net realizable value, they are not subsequently marked up based on changes in underlying facts and circumstances. Our management has reviewed the aforementioned factors and has applied a 100% write-down for inventories aged above 180 days related to our E-voucher and health care products. For the three and six months ended December 31, 2023, we recorded $486 write-down for inventories. For the three and six months ended December 31, 2022, we did not record any write-down for inventories.
Other receivables and other current assets, net
Other receivables and other current assets primarily include refundable advance to third party service provider and other deposits. Management regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes collection of amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. No allowance of other receivables and other current assets were recorded as of December 31, 2023 and 2022.
Prepayments
Prepayments and deposits are mainly cash deposited or advanced to suppliers for future inventory purchases. This amount is refundable and bears no interest. For any prepayments determined by management that such advances will not be in receipt of inventories, services or refundable, we will recognize an allowance account to reserve such balances. Management reviews our prepayments on a regular basis to determine if the allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Our management continues to evaluate the reasonableness of the valuation allowance policy and updates it if necessary. No allowance of prepayments was recorded as of December 31, 2023 and 2022.
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Impairment for long-lived assets
Long-lived assets, including property and equipment with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. We assessed the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, we would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. No impairment for long-lived assets were recorded as of December 31, 2023 and 2022.
Investment in marketable securities
We follow the provisions of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Investments in marketable equity securities (non-current) are reported at fair value with changes in fair value recognized in our unaudited condensed consolidated statements of operations and comprehensive income (loss) in the caption of “unrealized holding loss on marketable securities” in each reporting period. For the three and six months ended December 31, 2023, we incurred unrealized holding loss on marketable securities amounted to approximately $413,000 and $352,000, respectively.
Revenue recognition
Loyalty program
| - | Performance obligations satisfied over time |
Our ZCITY reward loyalty program allows members to earn points on purchases that can be redeemed for rewards that include discounts on future purchases. When members purchase our product or make purchase with our participated vendor through ZCITY, we allocate the transaction price between the product or service, and the reward points earned based on the relative stand-alone selling prices and expected point redemption. The portion allocated to the reward points is initially recorded as contract liability and subsequently recognized as revenue upon redemption or expiration.
The two primary estimates utilized to record the contract liability for reward points earned by members are the estimated retail price per point and estimated breakage. The estimated retail price per point is based on the actual historical retail prices of product purchased or service obtained through the redemption of reward points. We estimate breakage of reward points based on historical redemption rates. We continually evaluate our methodology and assumptions based on developments in retail price per point redeemed, redemption patterns and other factors. Changes in the retail price per point and redemption rates have the effect of either increasing or decreasing the contract liability through current period revenue by an amount estimated to represent the retail value of all points previously earned but not yet redeemed by loyalty program members as of the end of the reporting period.
Income taxes
Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
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An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
Stock-based compensation
We recognize compensation costs resulting from the issuance of stock-based awards to third party consultant and former director as an expense in the statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each warrants granted are estimated as of the grant date using the Black-Scholes-Merton option-pricing model while the fair value of each common stock granted are estimated using the Company’s closing stock price on the grant date. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of the common stock of the Company, expected life of stock options, the expected volatility and the expected risk-free interest rate, among others. These assumptions reflect the Company’s best estimates, but they involve inherent uncertainties based on market conditions generally outside the control of the Company. The fair value of the stock-based compensation which included warrants and common stock issued were estimated to be $0 and $439,332 for the six months ended December 31, 2023 and 2022, respectively.
Convertible notes
We evaluate our convertible notes to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is recorded at fair value each reporting period and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature. A BCF is recorded by us as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and we amortize the discount to interest expense, over the life of the debt.
Warrants
We account for warrants as equity-classified instruments in accordance with ASC 480 and ASC 815. The fair value of each warrant granted is estimated as of the date of grant using the Black-Scholes-Merton option-pricing model. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of our common stock, expected life of stock options, the expected volatility and the expected risk-free interest rate, among others. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside our control. Based on the above assumption, the fair value of the warrants issued during the six months ended December 31, 2022 were estimated to be $175,349.
For the six months ended December 31, 2023, 14,000,000 Pre-Funded Warrant were issued in connection with the November 2023 Offering. The Pre-Funded Warrants are classified as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation method. We valued the Pre-Funded Warrants at issuance concluding the purchase price approximated the fair value and allocated net proceeds from the purchase proportionately to the common stock and Pre-Funded Warrants, of which $1,398,600 was allocated to the Pre-Funded Warrants and recorded as a component of additional paid in capital.
Recent Accounting Pronouncements
See Note 2 of the notes to the consolidated financial statements included elsewhere in this report for a discussion of recently issued accounting standards.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required under Regulation S-K for “smaller reporting companies.”
ITEM 4. CONTROLS AND PROCEDURES. DISCLOSURE CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that the information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were not, in design and operation, effective as of December 31, 2023 at a reasonable assurance level due to the material weaknesses in internal control over financial reporting described below:
| ● | Inadequate U.S. GAAP expertise. The current accounting staff is inexperienced in applying U.S. GAAP standard as they are primarily engaged in ensuring compliance with International Financial Reporting Standards (“IFRS”) accounting and reporting requirement for our consolidated operating entities, and thus require substantial training. The current staff’s accounting skills and understanding as to how to fulfill the requirements of U.S. GAAP-based reporting, including subsidiary financial statements consolidation, are inadequate. |
| ● | Inadequate internal audit function. We lack of a functional internal audit department or personnel that monitors the consistencies of the preventive internal control procedures and lack of adequate policies and procedures in internal audit function to ensure that our policies and procedures have been carried out as planned. |
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Following the identification of the material weaknesses, we plan to take remedial measures including:
| ● | hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework; |
| ● | implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; |
| ● | establishing internal audit function by engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley Act of 2002 compliance requirements and improvement of overall internal control; and |
| ● | strengthening corporate governance. |
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the quarter ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS.
We may be subject to legal disputes and subject to claims that arise in the ordinary course of business. We are not a party or subject to any pending legal proceedings the resolution of which is expected to have a material adverse effect on our business, operating results, cash flows or financial condition.
ITEM 1A. RISK FACTORS.
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item. In any event, there have been no material changes in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2023, filed with the SEC on September 28, 2023 and our applicable risk factors in our Registration Statement on Form S-1 (File No. 333-275411), initially filed with the SEC on November 8, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
| (A) | Unregistered Sales of Equity Securities |
| (a) | Issuance of Capital Stock. |
From October 1, 2023 to December 31, 2023, we issued the following:
| ● | 10,000,000 shares of our common stock to VT Smart Venture Sdn Bhd in connection with the Software Development Agreement dated as of December 19, 2023; |
| ● | 2,943,021 shares of our common stock to AI Lab Martech Sdn. Bhd. in connection with the License and Service Agreement dated as of October 12, 2023; and |
| ● | 1,057,519 shares of common stock to our Chief Executive Officer and 759,216 shares of common stock to our former Chief Executive Officer in exchange for the cancellation of a total of $321,562.08 in aggregate indebtedness owed to them. |
| (b) | Warrants. |
None.
| (B) | Use of Proceeds |
Not applicable.
| (C) | Issuer Purchases of Equity Securities |
None.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
EXHIBIT INDEX
| * | Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-41476), filed on December 1, 2023. |
| ** | Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-41476), filed on October 12, 2023. |
| *** | Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-41476), filed on October 18, 2023. |
| **** | Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-41476), filed on December 4, 2023. |
| ***** | Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-41476), filed on December 21, 2023. |
| + | Filed herewith. |
| ++ | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TREASURE GLOBAL INC | |
| Dated: February 14, 2024 | /s/ Chong Chan “Sam” Teo |
| Chong Chan “Sam” Teo | |
| Chief Executive Officer and Director | |
| (Principal Executive Officer) | |
| Dated: February 14, 2024 | /s/ Michael Chan Meng Chun |
| Michael Chan Meng Chun | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
60