UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
For
The Quarterly Period Ended
or
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission
File Number
(Exact name of registrant issuer as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s
phone number, including area code
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding twelve months (or shorter period that the registrant was required to submit and post 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 ☐
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
☐
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at November 10, 2023 | |
| Common Stock, $0.0001 par value |
TABLE OF CONTENTS
| 2 |
PART I FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
AGAPE ATP CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| As of | ||||||||
September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents (Included $ | $ | $ | ||||||
| Accounts receivable | ||||||||
| Amount due from related parties | ||||||||
| Inventories | ||||||||
| Prepaid taxes (Included $ | ||||||||
| Prepayments and deposits (Included $ | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating right-of-use assets, net | ||||||||
| Investment in marketable securities | ||||||||
| Deferred offering costs | ||||||||
| Deferred tax assets | ||||||||
| Total Non-current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable – related parties | ||||||||
| Customer deposits | ||||||||
| Operating lease liabilities, current | ||||||||
| Other payables and accrued liabilities ($ | ||||||||
| Other payable – related parties | ||||||||
| Income tax payable | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Total Non-current Liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | ||||||||
| Common Stock, par value $; shares authorized, shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively. | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| TOTAL AGAPE CORPORATION STOCKHOLDERS’ EQUITY | ||||||||
| NON-CONTROLLING INTERESTS | ||||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-1 |
AGAPE ATP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GROSS PROFIT | ||||||||||||||||
| SELLING | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| COMMISSION | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GENERAL AND ADMINISTRATIVE | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| TOTAL OPERATING EXPENSES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER (EXPENSES) INCOME | ||||||||||||||||
| Other (expense) income, net | ( | ) | ||||||||||||||
| Interest income | ||||||||||||||||
| Unrealized holding (loss) gain on marketable securities | ( | ) | ( | ) | ( | ) | ||||||||||
| (Loss) Gain on disposal of property and equipment | ( | ) | ||||||||||||||
| Exchange loss, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| TOTAL OTHER EXPENSES, NET | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (PROVISION FOR) BENEFIT OF INCOME TAXES | ( | ) | ||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | ( | ) | ||||||||||||||
| NET LOSS ATTRIBUTABLE TO AGAPE ATP CORPORATION | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| TOTAL COMPREHENSIVE LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive income (loss) attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO AGAPE ATP CORPORATION | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| LOSS PER SHARE | ||||||||||||||||
| Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
AGAPE ATP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| COMMON STOCK | ADDITIONAL | ACCUMULATED OTHER | NON- | TOTAL | ||||||||||||||||||||||||
| Number of shares | Par value | PAID IN CAPITAL | ACCUMULATED DEFICIT | COMPREHENSIVE INCOME (LOSS) | CONTROLLING INTERESTS | STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | | $ | ( | ) | $ | | $ | ( | ) | $ | | |||||||||||||||
| Forfeiture of common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Net income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Net income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| COMMON STOCK | ADDITIONAL | ACCUMULATED OTHER | NON- | TOTAL | ||||||||||||||||||||||||
| Number of shares | Par value | PAID IN CAPITAL | ACCUMULATED DEFICIT | COMPREHENSIVE INCOME | CONTROLLING INTERESTS | STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | | $ | $ | ( | ) | $ | | $ | | $ | | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Net income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | |||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
AGAPE ATP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”)
For the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Amortization of operating right-of-use assets | ||||||||
| Unrealized holding (gain) loss on marketable securities | ( | ) | ||||||
| Deferred tax benefit | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivables | ( | ) | ( | ) | ||||
| Amount due from related parties | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid taxes | ||||||||
| Prepayments and deposits | ||||||||
| Accounts payable | ||||||||
| Accounts payable – related parties | ||||||||
| Customer deposits | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other payables and accrued liabilities | ( | ) | ( | ) | ||||
| Other payable – related parties | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Deferred offering costs | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS | ( | ) | ( | ) | ||||
| 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 | $ | $ | ||||||
| SUPPLEMENTAL NON-CASH FLOWS INFORMATION | ||||||||
| Increase in right-of-use assets and lease liabilities due to lease renewal | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
1. ORGANIZATION AND BUSINESS BACKGROUND
Agape ATP Corporation, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on June 1, 2016.
Agape ATP Corporation operates through its subsidiaries, namely, Agape ATP Corporation (“AATP LB”), a company incorporated in Labuan, Malaysia, and Agape Superior Living Sdn. Bhd. (“ASL”), a company incorporated in Malaysia.
Agape
ATP Corporation, incorporated in Labuan, Malaysia, is an investment holding company with
On
May 8, 2020, the Company entered into a Share Exchange Agreement with Mr. How Kok Choong, CEO and director of the Company to acquire
ordinary shares, no par value, equivalent to approximately
Agape Superior Living Sdn. Bhd. is a limited company incorporated on August 8, 2003, under the laws of Malaysia.
On September 11, 2020, the Company incorporated Wellness ATP International Holdings Sdn, Bhd. (“WATP”), a wholly owned subsidiary under the laws of Malaysia, to pursue the business of promoting wellness and wellbeing lifestyle of the community by providing services that includes online editorials, programs, events and campaigns on how to achieve positive wellness and lifestyle.
On
November 11, 2021, Agape ATP Corporation (Labuan) formed a joint-venture entity, DSY Wellness International Sdn. Bhd. (“DSY Wellness”)
with an independent third party which Agape ATP Corporation (Labuan) owns
The Company and its subsidiaries are principally engaged in the Health and Wellness Industry. The principal activity of the Company is to supply high-quality health and wellness products, including supplements to assist in cell metabolism, detoxification, blood circulation, anti-aging and products designed to improve the overall health system of the human body and various wellness programs.
The accompanying consolidated financial statements reflect the activities of the Company, AATP LB, AATP HK, WATP, ASL and its variable interest entity (“VIE”), Agape S.E.A. Sdn. Bhd. (“SEA”) (See Note 3), and DSY Wellness.
Details of the Company’s subsidiaries:
| Subsidiary company name | Place and date of incorporation | Particulars of issued capital | Principal activities | Proportional of ownership interest and voting power held | ||||||||
| 1. | March 6, 2017 | % | ||||||||||
| 2. | June 1, 2017 | % | ||||||||||
| 3. | August 8, 2003 | % | ||||||||||
| 4. | March 4, 2004 | VIE | ||||||||||
| 5. | September 11, 2020 | % | ||||||||||
| 6. | November 11, 2021 | % | ||||||||||
| F-5 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
1. ORGANIZATION AND BUSINESS BACKGROUND (Continued)
Business Overview
Agape ATP Corporation is a company that provides health and wellness products and health solution advisory services to our clients. The Company primarily focus its efforts on attracting customers in Malaysia. Its advisory services center on the “ATP Zeta Health Program”, which is a health program designed to effectively prevent diseases caused by polluted environments, unhealthy dietary intake and unhealthy lifestyles, and promotion of health. The program aims to promote improved health and longevity in our clients through a combination of modern medicine, proper nutrition and advice from skilled nutritionists and/or dieticians.
In
order to strengthen the Company’s supply chain, on May 8, 2020, the Company has successfully acquired approximately
Via ASL, the Company offers three series of programs which consist of different services and products: ATP Zeta Health Program, ÉNERGÉTIQUE and BEAUNIQUE.
The ATP Zeta Health Program is a health program designed to promote health and general wellbeing designed to prevent health diseases caused by polluted environments, unhealthy dietary intake and unhealthy lifestyles. The program aims to promote improved health and longevity through a combination of modern health supplements, proper nutrition and advice from skilled dieticians as well as trained members and distributors.
The ÉNERGÉTIQUE series aims to provide a total dermal solution for a healthy skin beginning from the cellular level. The series is comprised of the Energy Mask series, Hyaluronic Acid Serum and Mousse Facial Cleanser.
The BEAUNIQUE product series focuses on the research of our diet’s impact on modifying gene expressions in order to address genetic variations and deliver a nutrigenomic solution for every individual.
The Company deems creating public awareness on wellness and wellbeing lifestyle as essential to enhance the provision of its health solution advisory services; and therefore, incorporated WATP. Upon its establishment, WATP started collaborating with ASL to carry out various wellness programs.
To
further its reach in the Health and Wellness Industry, on November 11, 2021, Agape ATP Corporation (Labuan) formed a joint-venture entity,
DSY Wellness International Sdn. Bhd. (“DSY Wellness”) with an independent third party which Agape ATP Corporation (Labuan)
owns
| F-6 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The interim unaudited financial information as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 have been prepared without audit, 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 consolidated financial statements prepared in accordance with U. S. GAAP, have been omitted pursuant to those rules and regulations. The interim unaudited financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on March 31, 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 September 30, 2023, its unaudited results of operations for the three and nine months ended September 30, 2023 and 2022, and its unaudited cash flows for the nine months ended September 30, 2023 and 2022, as applicable, have been made. The unaudited interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The unaudited condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and its variable interest entity (“VIE”) over which the Company exercises control and, where applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary. All transactions and balances among the Company, its subsidiaries and its VIE have been eliminated upon consolidation.
Principles of consolidation
Subsidiaries are those entities 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.
A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. As of and for the three and nine months ended September 30, 2023, SEA, the only VIE of the Company has no significant operations.
Use of estimates
The preparation of 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 the Company’s unaudited condensed consolidated financial statements include allowance for inventories obsolescence, impairment of long-lived assets and allowance for deferred tax assets. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents 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.
| F-7 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts receivable
Accounts receivable are recorded at the invoiced amount less an allowance for any uncollectible accounts and do not bear interest, which are due on credit term. The carrying value of accounts receivable is reduced by an allowance 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 collectivity by reviewing accounts receivable on a collective basis where similar characteristics exist, primarily base on similar business line, service or product offerings and on an individual basis when the Group identifies specific customers with known disputes or collectivity issues. In determining the amount of the allowance for credit losses, the Company considers historical collectivity based on past due status, the age of the accounts receivable balances, credit quality of the Company’s customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers. Account balances are charged off against the allowance 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 September 30, 2023 and December 31, 2022, allowance for credit losses was recorded.
Inventories
Inventories consist of finished goods and are stated at the lower of cost or net realizable value using the first-in first-out method. Management reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on the review, the Company records inventory write-downs, when necessary, when costs exceed expected net realizable value. For the three and nine months ended September 30, 2023 and 2022, the Company did not recognize any inventory write-downs nor write-off.
Prepaid taxes
Prepaid taxes include prepaid income taxes that will either be refunded or utilized to offset future income tax.
Prepayments and deposits
Prepayments
and deposits are mainly cash deposited or advanced to suppliers for future inventory purchases or service providers for future services.
This amount is refundable and bears no interest. For any prepayments and deposits 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 and deposits 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 credit losses after management has determined that the likelihood
of collection is not probable. The Company’s management continues to evaluate the reasonableness of the allowance policy and update
it if necessary. There was allowance for credit losses recorded nor doubtful accounts written-off during the three and nine months
ended September 30, 2023. The Company wrote-off doubtful accounts of $
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. The estimated useful lives are as follows:
| F-8 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| Useful Life | |
| Computer and office equipment | |
| Furniture & fixtures | |
| Leasehold improvements | |
| Vehicle |
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
Intangible assets, net, are stated at cost, less accumulated amortization. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets as follows:
| Classification | Useful Life | |
| Computer software |
Impairment for long-lived assets
Long-lived
assets, including property and equipment, and intangible assets 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 September 30, 2023 and
December 31, 2022,
Deferred offering costs
Deferred offering costs represents costs associated with the Company’s current offering which will be netted against the gross proceeds from the Company’s proposed offering for uplisting. The balance as of September 30, 2023 was fully netted off against the gross proceeds received from the Company’s uplisting to Nasdaq, closed on October 11, 2023.
Investment in marketable equity 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 gain (loss) on marketable securities” in each reporting period.
| F-9 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in non-marketable equity 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. Due to the Company’s non-marketable equity securities (non-current) does not qualify for the practical expedient to estimate fair value in accordance with ASC 820-10-35-59, the Company has selected to record its investments in non-marketable equity securities (non-current) at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issue.
At each reporting period, the Company will make a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. The qualitative assessment indicators include, but are not limited to: (1) A significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee; (ii) A significant adverse change in the regulatory, economic, or technological environment of the investee; (iii) A significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates; (iv) A bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment; and (v) Factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants. If the qualitative assessment indicators indicated that the non-marketable equity securities (non-current) is deemed to be impaired, the Company would recognize the impairment loss equal to the difference between the fair value of the investment and its carrying amount.
Customer deposits
Customer deposits represent amounts advanced by customers on product orders and unapplied unexpired coupons. Customer deposits are reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC Topic 606). 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. The Company’s revenue streams are recognized at a point in time for the Company’s sale of health and wellness products as well as services.
The ASU requires the use of a new 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.
| F-10 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Sales of Health and Wellness products
The Company derives its revenues from sales contracts with its customers with revenues being recognized when control of the health and wellness products are transferred to its customer at the Company’s office or shipment of the goods. The revenue is recorded net of estimated discounts and return allowances. Products are given 60 days for returns or exchanges from the date of purchase. Historically, there were insignificant sales returns.
Sales of products through Network Marketing Business
Under the Company’s network marketing business, the Company issues product coupons to members and distributors when these customers made purchases above certain thresholds set by the Company. Depending on the type of product coupons issued, the coupons carry varying values and can be used by the customers for reduction in the transaction price of product purchases within the coupon validity period. The value of the product coupons issued is recorded as a reduction of the Company’s revenue account upon issuance; the corresponding amount credited to the customer deposits account. Amounts in customer deposits will be reversed when the coupons are used. The Company’s coupons have a validity period of between six and twelve months. If the Company’s customers did not utilize the coupons after the validity period, the Company would recognize the forfeiture of the originated sales value of the coupons as net revenues.
For
the three months ended September 30, 2023 and 2022, the Company recognized $
The
Company had contracts for the sales of health and wellness products amounting to $
Sales of products for the provision of complementary health therapies
Products for the provision of complementary health therapies are predominantly Chinese herbs in different forms, processed or otherwise, for prescriptions for treating non-communicable diseases.
Provision of Health and Wellness services
The Company carries out its Wellness program, where the Company’s products are bundled with health screening test and a health camp program. The health screening test and the health camp programs are considered as separate performance obligations. The promises to deliver the health screening test report and the attendance at the health camp are separately identifiable, which are evidenced by the fact that the Company provides separate services of delivering the health screening test report and allowing admission of the customers to attend the health camp. The Company derives its revenues from sales contracts with its customers with revenues being recognized when the test reports are completed and delivered to its customers during the consultation session in person.
The
Company also separately derives its revenues from sales contracts with its customers with revenues being recognized when the health camp
program was completed in the final day of the health camp. For the three months ended September 30, 2023 and 2022, revenues from health
and wellness services were $
| F-11 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Disaggregated information of revenues by products are as follows:
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Survivor Select | $ | $ | $ | $ | ||||||||||||
| Ionized Cal-Mag | ||||||||||||||||
| Omega Blend | ||||||||||||||||
| Beta Maxx | ||||||||||||||||
| Iron | ||||||||||||||||
| Young Formula | ||||||||||||||||
| ATPR Mito+ | ||||||||||||||||
| Hyaluronic Acid Serum | ||||||||||||||||
| Mousse Facial Cleanser | ||||||||||||||||
| Trim+ | ||||||||||||||||
| LIVO 5 | ||||||||||||||||
| Others – Products for the provision of complementary health therapies | ||||||||||||||||
| Others | ||||||||||||||||
| Total revenues - products | ||||||||||||||||
| Health and Wellness services | ||||||||||||||||
| Total revenues - products and services | $ | $ | $ | $ | ||||||||||||
Cost of revenue
Cost
of revenue comprised freight-in, the purchase cost of manufactured goods for sale to customers and products for the provision of complementary
health therapies. For the three and nine months ended September 30, 2023 were $
Shipping and handling
Shipping
and handling charges amounted to $
Advertising costs
There
were
| F-12 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Commission expenses
Commission
expenses are the Company’s most significant expenses. As with all companies in the network marketing industry, the Company’s
sales channel is external to the Company. The Company’s “external sales force” is stratified into two levels based
on priority recruitment. First, there are sales distributors. Second, all members recruited by a sales distributor, directly or indirectly,
are referred to as “sales network members”. The Company pays commission to every sales distributor based on purchases made
by its sales network members which includes the independent direct sales members. Top performing distributors with their own physical
stores may also become stockists of the Company, whereby they enjoy benefits such as maintaining a certain amount of the Company’s
inventory on their store premises. The stockists shall account to the Company for all products sales from their store premises as monitored
through the Company’s centralized stock tracking system. The Company pays a separate commission to stockists based on revenue generated
from the stockists’ physical stores. Commission 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”) –based on employee’s monthly salary, | |
| - | Employment
Insurance System (“EIS”) – | |
| - | Human
Resource Development Fund (“HRDF”) – |
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 is 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.
| F-13 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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
The Company conducts much of its business activities in Hong Kong and Malaysia and is subject to tax in each of these jurisdictions. As a result of its business activities, the Company will file separate tax returns that are subject to examination by the foreign tax authorities.
Comprehensive income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Net income (loss) refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of stockholders’ equity but are excluded from net income. 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.
Non-controlling interest
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 income (loss) divided by the weighted average ordinary share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential common stocks (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 stocks 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 three and nine months ended September 30, 2023 and 2022, there were dilutive shares.
| F-14 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign currencies 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 consolidated statements of operations and comprehensive loss.
The reporting currency of the Company is United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. The Company’s subsidiary in Labuan maintains its books and record in United States Dollars (“US$”) albeit its functional currency being the primary currency of the economic environment in which the entity operates, which is the Malaysian Ringgit (“MYR” or “RM”). The Company’s subsidiary in Hong Kong maintains its books and record in Hong Kong Dollars (“HK$”), similar to its functional currency. The Company’s subsidiary and VIE in Malaysia conducts its businesses and maintains its 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 subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements of stockholders’ equity. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
Translation of foreign currencies into US$1 have been made at the following exchange rates for the respective periods:
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Period-end MYR : US$1 exchange rate | ||||||||
| Period-end HKD : US$1 exchange rate | ||||||||
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Period-average MYR : US$1 exchange rate | ||||||||||||||||
| Period-average HKD : US$1 exchange rate | ||||||||||||||||
| F-15 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Fair value of financial instruments
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
Leases
The Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require the Company 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. The Company also adopts the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. Some of the Company’s leases include one or more options to renew, which is typically at the Company’s sole discretion. The Company regularly evaluates the renewal options, and, when it is reasonably certain of exercise, it will include the renewal period in its lease term. New lease modifications result in re-measurement of the right of use (“ROU”) assets and lease liabilities. Operating ROU assets and lease liabilities are recognized at the commencement date, 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 use 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.
| F-16 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception, therefore operating lease ROU assets and liabilities 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.
The Company reviews the impairment of its ROU assets 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 liabilities in any tested asset group and includes the associated operating lease payments in the undiscounted future pre-tax cash flows.
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
In March 2023, the FASB issued ASU No. 2023-01 “Leases (Topic 842) Common Control Arrangements”. This ASU provides guidance in ASC Topic 842 that Leasehold improvements associated with common control leases should be (i) amortized by the lessee over the useful life of the leasehold improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset through a lease, and (ii) accounted for as a transfer between entities under common control through an adjustment to equity if and when the lessee no longer controls the use of the underlying asset. The ASU 2023-01 is effective for reporting periods beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. When adopted in an interim period, it must be adopted from the beginning of the year that includes that interim period. The Company is currently evaluating the impact of this ASU may have on its unaudited condensed consolidated financial statements.
In July 2023, the FASB issued ASU No. 2023-03 “Presentation of Financial Statements (Topic 205), Income Statement – Reporting Comprehensive Income (Topic 22), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation – Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 – General Revision of Regulation S-X: Income or Loss Applicable to Common Stock”. The ASU 2023-03 amends or supersedes various SEC paragraphs within the Codification to confirm to past SEC announcements and guidance issued by the SEC. The ASU 2023-03 was immediately effective and did not have a significant impact on our unaudited condensed consolidated financial statements as it does not provide any new guidance.
In October 2023, the FASB issued ASU No. 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” The ASU No. 2023-06 clarifies or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the FASB accounting standard codification with the SEC’s regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. As the ASU No. 2023-06 does not provide any new guidance and is not expected to have a significant impact on our unaudited condensed consolidated financial statements.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.
Recently adopted Accounting Pronouncements
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 January 1, 2023 as the Company is qualified as a smaller reporting company. The Company has accordingly adopted ASUs 2016-13 and 2019-05 in the preparation of its unaudited condensed consolidated financial statements. The adoption of the accounting standards has no material impact on the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023.
3. VARIABLE INTEREST ENTITY (“VIE”)
SEA
is a trading company incorporated on March 4, 2004, under the laws of Malaysia. SEA provided majority of ASL’s purchases. Its equity
at risk was insufficient to finance its activities and
| a. | The power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and | |
| b. | The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. |
Accordingly, the accounts of SEA is consolidated in the accompanying financial statements.
| F-17 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
3. VARIABLE INTEREST ENTITY (“VIE”) (Continued)
The carrying amount of the VIE’s assets and liabilities were as follows:
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Current assets | $ | $ | ||||||
| Current liabilities | ( | ) | ( | ) | ||||
| Net surplus (deficit) | $ | $ | ( | ) | ||||
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid taxes | ||||||||
| Prepayment and deposits | ||||||||
| Total current assets | $ | $ | ||||||
| Current liabilities: | ||||||||
| Accounts payable – intercompany | $ | $ | ||||||
| Other payables and accrued liabilities | ||||||||
| Total current liabilities | $ | $ | ||||||
| Net surplus (deficit) | $ | $ | ( | ) | ||||
The summarized operating results of the VIE’s are as follows:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating revenues | $ | $ | $ | $ | ||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Profit (Loss) from operations | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net profit (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| F-18 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
4. CASH AND CASH EQUIVALENTS
As
of September 30, 2023 and December 31, 2022 the Company has $
5. ACCOUNTS RECEIVABLE
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for credit losses | ||||||||
| Total accounts receivable | $ | $ | ||||||
6. INVENTORIES
Inventories consist of the following:
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Finished goods | $ | $ | ||||||
There
were
7. PREPAYMENTS AND DEPOSITS
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Receivables from sales distributors | $ | $ | ||||||
| Deposits to suppliers | ||||||||
| Subtotal | ||||||||
| Less: Allowance for credit losses | ||||||||
| Total | $ | $ | ||||||
| F-19 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
7. PREPAYMENTS AND DEPOSITS (Continued)
Movements of allowance for credit losses are as follows:
| For the nine months ended September 30, 2023 | For the year ended December 31, 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Addition | ||||||||
| Write off | ( | ) | ||||||
| Exchange rate effect | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Computer and office equipment | $ | $ | ||||||
| Furniture & fixtures | ||||||||
| Leasehold improvements | ||||||||
| Vehicle | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
expense for the three months ended September 30, 2023 and 2022 amounted to $
9. INTANGIBLE ASSETS, NET
Intangible assets, net, consist of the following:
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Computer software | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Amortization
expense for the three months ended September 30, 2023 and 2022 amounted to $
| F-20 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
10. INVESTMENT IN MARKETABLE SECURITIES
| (i) | On
May 17, 2018, the Company purchased shares of common stock in Greenpro Capital Corp. for $ | |
| (ii) | On
July 30, 2018, the Company disposed shares of common stock in Greenpro Capital Corp. for $ | |
| (iii) | On
October 16, 2018, the Company purchased shares of common stock in Greenpro Capital Corp. for $ | |
| (iv) | On
July 19, 2022, Greenpro Capital Corp. filed a certificate of change with the Secretary of State of Nevada to effect a reverse split
of | |
| (v) | On
November 3, 2020, the Company received dividend of shares of common stock in DSwiss, Inc. for $ | |
| (vi) | On
December 9, 2020, the Company received dividend of shares of common stock in DSwiss, Inc. for $ | |
| (vii) | On
September 27, 2021, the Company received dividend of shares of common stock in SEATech Ventures Corp. for $ | |
| (viii) | On
April 3, 2019, the Company purchased a |
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Cost of investment | $ | $ | ||||||
| Transfer from non-marketable security | ||||||||
| Dividend income from Greenpro Capital Corp. | ||||||||
| Unrealized holding gain (loss) | ( | ) | ||||||
| Exchange rate effect | ( | ) | ( | ) | ||||
| Investment in marketable securities | $ | $ | ||||||
11. INVESTMENT IN NON-MARKETABLE SECURITIES
On
April 3, 2019, the Company purchased a
| As of | ||||||||
| Phoenix Plus Corporation | September 30, 2023 | December 31, 2022 | ||||||
| Cost of investment | $ | $ | ||||||
| Less: Transfer to investment in marketable securities | ( | ) | ||||||
| Investment in non-marketable securities | $ | $ | ||||||
| F-21 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
12. CUSTOMER DEPOSITS
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Customer deposits | $ | $ | ||||||
| Unexpired product coupons | ||||||||
| Total | $ | $ | ||||||
Customer deposits represent amounts advanced by customers on product orders and unexpired product coupons issued to the Company’s members and distributors of its network marketing business.
13. OTHER PAYABLES AND ACCRUED LIABILITIES
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Professional fees | $ | $ | ||||||
| Promotion expenses | ||||||||
| Payroll | ||||||||
| Amounts held in eWallets (a) | ||||||||
| Tax penalty | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
| (a) |
14. RELATED PARTY BALANCES AND TRANSACTIONS
Related party balances
Amount due from related parties
| As of | ||||||||||||
| Name of Related Party | Relationship | Nature | September 30, 2023 |
December 31, 2022 |
||||||||
| TH3 Technology Sdn Bhd (“TH3”) | $ | $ | ||||||||||
| SY Welltech Sdn Bhd (“Welltech”) (formerly known as DSY Beauty Sdn Bhd) | ||||||||||||
| DSY Wellness and Longevity Center Sdn Bhd (“DSYWLC”) | ||||||||||||
| Total | $ | $ | ||||||||||
Accounts payable – related parties
| As of | ||||||||||||
| Name of Related Party | Relationship | Nature | September 30, 2023 |
December 31, 2022 |
||||||||
| CTA Nutriceuticals (Asia) Sdn Bhd (“CTA”) | $ | $ | ||||||||||
| SY Welltech Sdn Bhd (“Welltech”) (formerly known as DSY Beauty Sdn Bhd) | ||||||||||||
| Total | $ | $ | ||||||||||
| F-22 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
14. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)
Related party balances
Other payable - related parties
| As of | ||||||||||||
| Name of Related Party | Relationship | Nature | September 30, 2023 |
December 31, 2022 |
||||||||
| CTA Nutriceuticals (Asia) Sdn Bhd (“CTA”) | $ | $ | ||||||||||
| SY Welltech Sdn Bhd (“Welltech”) (formerly known as DSY Beauty Sdn Bhd) | ||||||||||||
| Mr. How Kok Choong | ||||||||||||
| Total | $ | $ | ||||||||||
Related party transactions
Purchases
| For the three months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September 30, 2023 |
September 30, 2022 |
||||||||
| CTA Nutriceuticals (Asia) Sdn Bhd (“CTA”) | $ | $ | ||||||||||
| SY Welltech Sdn Bhd (“Welltech”) (formerly known as DSY Beauty Sdn Bhd) | ||||||||||||
| Total | $ | $ | ||||||||||
| F-23 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
14. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)
Related party transactions
| For the nine months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 | September
30, 2022 | ||||||||
| CTA Nutriceuticals (Asia) Sdn Bhd (“CTA”) | $ | $ | ||||||||||
| SY Welltech Sdn Bhd (“Welltech”) (formerly known as DSY Beauty Sdn Bhd) | ||||||||||||
| DSY Wellness and Longevity Center Sdn Bhd (“DSYWLC”) | ||||||||||||
| Total | $ | $ | ||||||||||
Other Purchases
| For the three months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 |
September
30, 2022 |
||||||||
| CTA Nutriceuticals (Asia) Sdn Bhd (“CTA”) | $ | $ | ||||||||||
| SY Welltech Sdn Bhd (“Welltech”) (formerly known as DSY Beauty Sdn Bhd) | ||||||||||||
| DSY Wellness and Longevity Center Sdn Bhd (“DSYWLC”) | ||||||||||||
| Total | $ | $ | ||||||||||
| F-24 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
14. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)
Related party transactions
Other purchases
| For the nine months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 |
September
30, 2022 |
||||||||
| CTA Nutriceuticals (Asia) Sdn Bhd (“CTA”) | $ | $ | ||||||||||
| SY Welltech Sdn Bhd (“Welltech”) (formerly known as DSY Beauty Sdn Bhd) | ||||||||||||
| DSY Wellness and Longevity Center Sdn Bhd (“DSYWLC”) | ||||||||||||
| Total | $ | $ | ||||||||||
Commission
| For the three months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 |
September
30, 2022 |
||||||||
| Mr. How Kok Choong | $ | $ | ||||||||||
| Total | $ | $ | ||||||||||
| F-25 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
14. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)
Related party transactions
Commission
| For the nine months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 |
September
30, 2022 |
||||||||
| Mr. How Kok Choong | $ | $ | ||||||||||
| Total | $ | $ | ||||||||||
Other Income
| For the three months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 |
September
30, 2022 |
||||||||
| Ando Design Sdn Bhd (“Ando”) | $ | $ | ||||||||||
| Redboy Picture Sdn Bhd (“Redboy”) | ||||||||||||
| TH3 Technology Sdn Bhd (“TH3”) | ||||||||||||
| Total | $ | $ | ||||||||||
| For the nine months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 |
September
30, 2022 |
||||||||
| Ando Design Sdn Bhd (“Ando”) | $ | $ | ||||||||||
| Redboy Picture Sdn Bhd (“Redboy”) | ||||||||||||
| TH3 Technology Sdn Bhd (“TH3”) | ||||||||||||
| Total | $ | $ | ||||||||||
| F-26 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
14. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)
Related party transactions
Other expenses
| For the three months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 |
September
30, 2022 |
||||||||
| TH3 Technology Sdn Bhd (“TH3”) | $ | $ | ||||||||||
| DSY Wellness and Longevity Center Sdn Bhd (“DSYWLC”) | ||||||||||||
| Total | $ | $ | ||||||||||
| For the nine months ended | ||||||||||||
| Name of Related Party | Relationship | Nature | September
30, 2023 |
September
30, 2022 |
||||||||
| TH3 Technology Sdn Bhd (“TH3”) | $ | $ | ||||||||||
| DSY Wellness and Longevity Center Sdn Bhd (“DSYWLC”) | ||||||||||||
| Total | $ | $ | ||||||||||
15. STOCKHOLDERS’ EQUITY
Preferred stock
As of September 30, 2023 and December 31, 2022, there were preferred stocks authorized but were issued and outstanding.
Common stock
As of September 30, 2023 and December 31, 2022, there were common stocks authorized; and shares issued and outstanding.
A share forfeiture agreement (the “Share Forfeiture Agreement”) dated January 20, 2022, between the Company and Mr. How Kok Choong, the CEO and director of the Company, pursuant to which Mr. How Kok Choong agreed to forfeit shares of common stock of the Company. As a result, the outstanding shares was reduced by shares of common stock.
There were stock options, warrants or other potentially dilutive securities outstanding as of September 30, 2023 and December 31, 2022.
| F-27 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
16. NON-CONTROLLING INTEREST
The Company’s non-controlling interest consists of the following:
| As of | ||||||||
September
30, 2023 | December
31, 2022 | |||||||
| DSY Wellness: | ||||||||
| Paid-in capital | $ | $ | ||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| ASL | ||||||||
| Total | $ | $ | ||||||
17. INCOME TAXES
The United States and foreign components of income (loss) before income taxes were comprised of the following:
| For
the three months ended September 30, | For
the nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Tax jurisdictions from: | ||||||||||||||||
| Local – United States | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign – Malaysia | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign – Hong Kong | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The benefit of (provision for) income taxes consisted of the following:
| For
the three months ended September 30, |
For
the nine months ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Current: | ||||||||||||||||
| - Local | $ | $ | $ | $ | ||||||||||||
| - Foreign | ( |
( |
) | |||||||||||||
| Deferred: | ||||||||||||||||
| - Local | ||||||||||||||||
| - Foreign | ( |
) | ||||||||||||||
| Benefit of (Provision for) income tax | $ | ( |
) | $ | $ | $ | ||||||||||
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company and its subsidiary that operate in various countries: United States, Malaysia (including Labuan) and Hong Kong that are subject to taxes in the jurisdictions in which they operate, as follows:
| F-28 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
17. INCOME TAXES (Continued)
United States of America
Agape
ATP Corporation was incorporated in the State of Nevada and is subject to the tax laws of the United States of America with a corporate
tax rate of
For
the three and nine months ended September 30, 2023, the Company’s foreign subsidiaries generated income of $
As
of September 30, 2023 and December 31, 2022, the operations in the United States of America incurred approximately $
Malaysia
Agape
ATP Corporation, Agape Superior Living Sdn Bhd, Agape S.E.A Sdn Bhd., Wellness ATP International Holdings Sdn Bhd. and DSY Wellness International
Sdn. Bhd. are governed by the income taxes laws of Malaysia and the income taxes 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 24% enterprise
income taxes rate while preferential tax rates, tax holidays and even tax exemption may be granted on case-by-case basis.
As
of September 30, 2023 and December 31, 2022, the operations in Malaysia incurred approximately $
Hong Kong
Agape
ATP International Holding (HK) Limited is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of
| F-29 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
17. INCOME TAXES (Continued)
The following table sets forth the significant components of the aggregate deferred tax assets of the Company:
| As of | ||||||||
September
30, 2023 |
December
31, 2022 |
|||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards in U.S. | $ | $ | ||||||
| Net operating loss carry forwards in Malaysia | ||||||||
| Less: valuation allowance | ( |
) | ( |
) | ||||
| Deferred tax assets, net | $ | $ | ||||||
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 September 30, 2023 and December 31, 2022, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties tax for the three and nine months ended September 30, 2023 and 2022.
18. CONCENTRATIONS OF RISKS
(a) Major customers
For
the three months ended September 30, 2023 and 2022, no customer accounted for
As
of September 30, 2023, two individual customers accounted for approximately
(b) Major vendors
For
the three months ended September 30, 2023, two vendors accounted for approximately
For
the nine months ended September 30, 2023, the same two vendors accounted for approximately
CTA Nutriceuticals (Asia) Sdn Bhd, a related company,
accounted for approximately
As
of September 30, 2023, two vendors accounted for approximately
CTA
Nutriceuticals (Asia) Sdn Bhd, a related company, accounted for approximately
| F-30 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
18. CONCENTRATIONS OF RISKS (Continued)
(c) Commission Expenses to Sales Distributors and Stockists
Two
sales distributor accounted for
For
the nine months ended September 30, 2023, one sales distributor accounted for
(d) Credit risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. As of September
30, 2023 and December 31, 2022, $
Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its account 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 allowance for credit losses based upon factors surrounding the credit risk of specific customers, historical trends and other information. Historically, the Company did not have any bad debt on its account receivable.
(e) 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 and HK$ converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
19. COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company adopted ASC 842 beginning April 1, 2020, for ASL’s office space lease and sales and training center as the lease commencement date upon the acquisition of ASL. The Company’s lease commitments are as follows:
On
October 1, 2021, the Company entered into a lease for an apartment to serve as staff accommodation. The Company recognized
lease liabilities of approximately $
On
November 1, 2021, the Company entered into a two-years lease for a branch office and operating centre. The Company recognized lease liabilities
of approximately $
On
June 1, 2023, upon the expiry of the two-years lease for its office space, the Company entered into a new three-years lease with the
same landlord who had earlier leased the same office space to the Company since April 1, 2020. The Company recognized lease liabilities
of approximately $
On
September 1, 2023, upon the expiry of the two-years lease for its office space and sales training center, the Company entered into a
new three-years lease with the same landlord who had earlier leased the same office space and sales training center to the Company since
April 1, 2020. The Company recognized lease liabilities of approximately $
Amortization
of operating right-of-use assets for the three months ended September 30, 2023 and 2022 were $
As
of September 30, 2023, the weighted remaining term of the lease is approximately
| F-31 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
19. COMMITMENTS AND CONTINGENCIES (Continued)
The five-year maturity of the Company’s operating lease liabilities is as follow:
| Twelve Months Ending September 30, | Operating lease liabilities | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
The
Company also leases one office and operation center, and one shophouse with an expiring term of twelve months or less, which were classified
as operation leases. Since the lease terms for these leases were twelve months or less, a lessee is permitted to elect not to recognize
lease assets and liabilities. The Company has elected not to recognize lease assets and liabilities on these leases. As of September
30, 2023, the Company’s commitment for minimum lease payment under these operating leases within the next twelve months were $
Rent
expense for the three months ended September 30, 2023 and 2022 was $
Cash paid for amounts included in the measurement
of lease liabilities for the three months ended September 30, 2023 and 2022 was $
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 consolidated financial statements.
| F-32 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
19. COMMITMENTS AND CONTINGENCIES (Continued)
COVID-19
Malaysia, where the operations of the Company predominantly reside, officially transitioned to the endemic phase of COVID-19 effective April 1, 2022. Restrictions on businesses and people are minimal. Meanwhile, the government continues to encourage inoculation for those between the ages of 5 and 11 years and its adolescent group which comprised those between the ages 12 and 17. Adults who have been fully vaccinated, i.e. received two doses of the COVID-19 vaccine are encouraged to take booster shots.
Substantially all of our revenues are concentrated in Malaysia. Consequently, our results of operations will likely be adversely, and may be materially, affected, to the extent that the COVID-19 or any other epidemic harms the Malaysia and global economy in general. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond our control. Potential impacts include, but are not limited to, the following:
| ● | temporary closure of offices, travel restrictions, disruption or suspension of supplies, our customers may be negatively impacted financially resulting in which the demand for our products may be adversely affected; | |
| ● | we may have to provide significant sales incentives to our customers during the outbreak, which may in turn materially adversely affect our financial condition and operating results; and | |
| ● | any disruption of our supply chain, logistics providers or customers could adversely impact our business and results of operations, including causing us or our suppliers to cease manufacturing for a period of time or materially delay delivery to our customers, which may also lead to loss of our customers. |
Because of the uncertainty surrounding the COVID-19 outbreak, the financial impact related to the outbreak of and response to the COVID-19 cannot be reasonably estimated at this time. There is no guarantee that the Company’s total revenues will grow or remain at similar levels year over year in 2023 and beyond.
20. SUBSEQUENT EVENTS
The
Company successfully completed its uplisting from OTC Pink to Nasdaq Capital Market on October 11 , 2023, and has since assumed
the new stock symbol of ATPC. There were number of new shares offered for sale at $ per share at this second Initial Public
Offering. We received net proceeds of $
On November 4, 2023, Agape ATP Corporation entered into a Memorandum of Agreement (“MOA”) with Oriental Industries Enterprise (M) Sdn. Bhd. (“OIE”), a company that focuses on cutting-edge electric vehicle battery. Under the said MOA, Company and OIE agreed to for a Special Purpose Vehicle Company (“SPV”) under the laws of Malaysia. The SPV shall be the holding company that provides and promotes the development of sustainable renewable energy landscape in Malaysia through its subsidiaries. Company and OIE shall each hold 50% equity interest, which amount, has yet to be determined in the SPV. The MOA does not give rise to any financial obligation by either party. Company and OIE agreed that any financial obligations pertaining to the formation and operation of the SPV shall be mutually agreed in writing at a future date.
On November 4, 2023, Agape ATP Corporation entered
into a Memorandum of Agreement (“MOA”) with Volt Industries Sdn. Bhd. (“VOLT”), a
Other than the above, the Company has not identified any events with material financial impact on the Company’s unaudited condensed consolidated financial statements.
| F-33 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this quarterly report on Form 10-Q is intended to update the information contained in our Form 10-K, dated March 31, 2023, for the year ended December 31, 2022 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our unaudited condensed consolidated financial statements and the notes to the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.
The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this transition report on Form 10-Q. The following should also be read in conjunction with the unaudited condensed Consolidated Financial Statements and notes thereto that appear elsewhere in this report.
Company Overview
Agape ATP Corporation provides health solution advisory services to its clients. We primarily focus our efforts on attracting customers in Malaysia. We have an advisory services center called the “ATP Zeta Health Program”, which is a health program designed to effectively prevent diseases caused by polluted environments, unhealthy dietary intake and unhealthy lifestyles, and the promotion of health. The program aims to promote improved health and longevity through a combination of modern health supplements, proper nutrition and advice from skilled nutritionists and/or dieticians.
| 3 |
In order to strengthen the Company’s supply chain, on May 8, 2020, the Company successfully acquired approximately 99.99% of Agape Superior Living Sdn Bhd, a Malaysia company (“ASL”), with the goal of securing an established network marketing sales channel that has been established in Malaysia for the past 18 years. ASL has been offering the Company’s ATP Zeta Health Program as part of its product lineup. As such, the acquisition creates synergy in the Company’s operation by boosting the Company’s retail and marketing capabilities. The acquired subsidiary allows the Company to fulfill its mission of “helping people to create health and wealth” by providing a financially rewarding business opportunity to distributors and quality products to distributors and customers who seek a healthy lifestyle.
The Company deems creating public awareness on wellness and wellbeing lifestyle as essential to enhance the provision of its health solution advisory services; and therefore, incorporated Wellness ATP International Holdings Sdn, Bhd. (“WATP”). Upon its establishment, WATP started collaborating with ASL to carry out various wellness programs.
On November 11, 2021, Agape ATP Corporation (Labuan) formed a joint-venture entity, DSY Wellness International Sdn. Bhd. (“DSY Wellness”) with Mr. Steve Yap following which Agape ATP Corporation (Labuan) owns 60% of the equity interest, to pursue the business of providing complementary health therapies. The establishment of DSY Wellness is a further expansion of our business into the health and wellness industry. Mr. Steve Yap readily owns 33 proprietary formulas for treating non-communicable disease which he has agreed to bring into the company for joint commercialization. Mr. Steve Yap also has existing clients receiving traditional complimentary medicine or “TCM” in Indonesia and China.
We offer three series of programs which consist of different services and products: ATP Zeta Health Program, ÉNERGÉTIQUE and BEAUNIQUE.
The ATP Zeta Health Program is a health program designed to promote health and general wellbeing designed to prevent health diseases caused by polluted environments, unhealthy dietary intake and unhealthy lifestyles. The program aims to promote improved health and longevity through a combination of modern health supplements, proper nutrition and advice from skilled dieticians as well as trained members and distributors.
The ÉNERGÉTIQUE series aims to provide a total dermal solution for a healthy skin beginning from the cellular level. The series is comprised of the Energy Mask series, Hyaluronic Acid Serum and Mousse Facial Cleanser.
The BEAUNIQUE product series focuses on the research of our diet’s impact on modifying gene expressions in order to address genetic variations and deliver a nutrigenomic solution for every individual.
The newly established subsidiary DSY Wellness is a further expansion of our business into the health and wellness industry and aims to pursue the business of providing traditional and complementary health therapies.
Results of Operation
For the three months ended September 30, 2023 and 2022
Revenue
We generated revenue of $355,314, which comprised revenue from the Company’s network marketing business of $89,208 (approximately 25.1% of our total revenue); and revenue from the Company’s operations in the provision of complementary health therapies of $266,106 (approximately 74.9% of our total revenue) for the three months ended September 30, 2023 as compared to $663,889, which comprised revenue from the Company’s network marketing business of $463,025 (approximately 69.7% of our total revenue); and revenue from the Company’s operations in the provision of complementary health therapies of $200,864 (approximately 30.3% of our total revenue) for the three months ended September 30, 2022. Revenue from the Company’s network marketing business decreased significantly by $373,817 or approximately 80.7%. Revenue from the Company’s operations in the provision of complementary health therapies increased by $65,242 or approximately 32.5%. Total revenue decreased by $308,575 or approximately 46.5%. The decrease was predominately due to the poor performance from the Company’s network marketing business. The Company’s new range of products for its networking marketing business, is receiving lukewarm response from its distributors and is taking a much longer gestation period to take off than anticipated.
Cost of Revenue
Cost of revenue for the three months ended September 30, 2023 amounted to $120,586 as compared to $157,745 for the three months ended September 30, 2022, represented a decrease of $37,159 or approximately 23.6%. Cost of revenue did not decrease in tandem with the decrease in revenue for the period due to the varying gross profit margins associated with the provision of complementary health therapies.
Cost of revenue typically comprise of freight-in, cost of goods purchased, packing materials and services acquired.
| 4 |
Gross Profit
Gross profit for the three months ended September 30, 2023 amounted to $234,728, represented a gross margin of approximately 66.1% as compared to $506,144 for the three months ended September 30, 2022, equivalent to a gross margin of approximately 76.2%. The decrease in gross margin was predominantly due to lower gross margin associated with the provision of complementary health therapies as compared to the Company’s network marketing business.
Operating Expenses
Our operating expenses consist of selling expenses, commission expenses and G&A expenses (as defined below). Total operating expenses were $551,806 for the three months ended September 30, 2023, decreased by $147,646 or approximately 21.1% from $699,452 for the three months ended September 30, 2022.
Selling expenses
Selling expenses for the three months ended September 30, 2023 amounted to $49,285 as compared to $76,030 for the three months ended September 30, 2022, represented a decrease of $26,745 or approximately 35.2%. The Company’s selling expenses typically comprise salaries and benefits expenses which represented approximately 70% to 85% of total selling expenses, credit card processing fees and promotional expenses. The significant decrease in selling expenses for the three months ended September 30, 2023 was predominantly due to decrease in salaries and benefit expenses by $21,481.
Commission expenses
Commission expenses were $14,002 and $167,395 for the three months ended September 30, 2023 and 2022, respectively, represented a significant decrease of $153,393 or approximately 91.6%. The significant decrease in commission expenses was in line with the decrease in revenue.
General and administrative expenses (“G&A Expenses”)
G&A expenses for the three months ended September 30, 2023 amounted to $488,519, as compared to $456,027 for the three months ended September 30, 2022, an increase of $32,492 or approximately 7.1%. The Company’s G&A expenses typically comprise of salaries and benefits expenses, rental expenses, professional expenses and depreciation expenses. The increase in G&A expenses for the three months ended September 30, 2023 was predominantly due to increase in salaries and benefit expenses by $28,426.
Other Expenses, Net
For the three months ended September 30, 2023, we recorded an amount of $3,714 as other expenses, net, as compared to $65,906 other expenses, net, for the three months ended September 30, 2022, represented a decrease of $62,192 or approximately 94.4%.
The net other expenses of $3,714 incurred during the three months ended September 30, 2023 comprised foreign currency exchange loss of $382, unrealized holding loss on marketable securities of $3,872, other expenses, net of $98, interest income of $658 and loss on disposal of property and equipment of $20. The net other expenses of $65,906 incurred during the three months ended September 30, 2022 comprised foreign currency exchange loss of $59,504, unrealized holding loss on marketable securities of $11,395, other income, net of $1,173 and interest income of $3,820.
(Provision for) Benefit of Income Taxes
The Company recorded provision for income taxes of $3,943 and benefit of income taxes of $18,997 for the three months ended September 30, 2023 and 2022, respectively. Both the provision for income taxes as well as the benefit of income taxes were in respect of the Company’s operations in Malaysia.
| 5 |
Net Loss
Net loss increased by $84,518 from $240,217 for the three months ended September 30, 2022 to $324,735 for the three months ended September 30, 2023, mainly due to reasons as discussed above.
For the nine months ended September 30, 2023 and 2022
Revenue
We generated revenue of $1,040,017, which comprised revenue from the Company’s network marketing business of $318,729 (approximately 30.6% of our total revenue); and revenue from the Company’s operations in the provision of complementary health therapies of $721,288 (approximately 69.4% of our total revenue) for the nine months ended September 30, 2023 as compared to $1,469,556, which comprised revenue from the Company’s network marketing business of $1,021,365 (approximately 69.5% of our total revenue); and revenue from the Company’s operations in the provision of complementary health therapies of $448,191 (approximately 30.5% of our total revenue) for the nine months ended September 30, 2022. Revenue from the Company’s network marketing business decreased significantly by $702,636 or approximately 68.8%. Revenue from the Company’s operations in the provision of complementary health therapies increased significantly by $273,097 or approximately 60.9%. Total revenue decreased by $429,539 or approximately 29.2%. The decrease was predominately due to the poor performance from the Company’s network marketing business. The Company’s new range of products for its networking marketing business, is receiving lukewarm response from its distributors and is taking a much longer gestation period to take off than anticipated.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2023 amounted to $356,875 as compared to $340,559 for the nine months ended September 30, 2022, represented a marginal increase of $16,316 or approximately 4.8%. The increase was due to the varying gross profit margins in the Company’s operations in the provision of complementary health therapies.
Cost of revenue typically comprise of freight-in, cost of goods purchased, packing materials and services acquired.
Gross Profit
Gross profit for the nine months ended September 30, 2023, amounted to $683,142, represented a gross margin of approximately 65.7% as compared to $1,128,997 for the nine months ended September 30, 2022, equivalent to a gross margin of approximately 76.8%. The decrease in gross margin was predominantly due to lower gross margin associated with the provision of complementary health therapies as compared to the Company’s network marketing business.
Operating Expenses
Our operating expenses consist of selling expenses, commission expenses, and general and administrative expenses. Total operating expenses were $1,813,637 for the nine months ended September 30, 2023, represented a decrease by $87,083 or approximately 4.6% from $1,900,720 for the nine months ended September 30, 2022.
Selling expenses
Selling expenses for the nine months ended September 30, 2023 amounted to $189,509 as compared to $270,228 for the nine months ended September 30, 2022, represented a decrease of $80,719 or approximately 29.9%. The Company’s selling expenses typically comprise of salaries and benefits expenses which represented approximately 70% to 85% of total selling expenses, credit card processing fees and promotional expenses. The decrease in selling expenses for the nine months ended September 30, 2023 was predominantly due to decrease in salaries and benefit expenses by $45,194, promotional expenses by $13,956 and general reduction in most other selling expenses associated with the Company’s network marketing business.
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Commission expenses
Commission expenses were $69,886 and $344,061 for the nine months ended September 30, 2023 and 2022, respectively. The decrease in commission expenses was in line with the decrease in revenue.
General and administrative expenses (“G&A expenses”)
G&A expenses for the nine months ended September 30, 2023 amounted to $1,554,242, as compared to $1,286,431 for the nine months ended September 30, 2022, an increase of $267,811 or approximately 20.8%. The increase in G&A expenses was mainly due to G&A expenses associated with the provision of complementary health therapies and expenses incurred by the Company on its on-going uplisting exercise to Nasdaq. The Company’s G&A expenses typically comprise of salaries and benefits expenses, rental expenses, professional expenses and depreciation expenses.
Other Expenses, Net
For the nine months ended September 30, 2023, we recorded an amount of $10,476 as other expenses, net, as compared to $181,601 other expenses, net, for the nine months ended September 30, 2022, represented a decrease of $171,125 or approximately 94.2%.
The net other expenses of $10,476 incurred during the nine months ended September 30, 2023 comprised foreign currency exchange loss of $34,958, unrealized holding gain on marketable securities of $4,838, other income, net of $12,402, interest income of $5,475 and gain on disposal of property and equipment of $1,767. The net other expenses of $181,601 incurred during the nine months ended September 30, 2022 comprised foreign currency exchange loss of $143,387, unrealized holding loss on marketable securities of $64,284, other income, net of $13,999 and interest income of $12,071.
Benefit of Income Taxes
The Company recorded benefit of income taxes of $2,712 and $10,317 for the nine months ended September 30, 2023 and 2022, respectively. The benefit of income taxes was in respect of the Company’s operations in Malaysia.
Net Loss
Net loss increased by $195,522 from $943,007 for the nine months ended September 30, 2022 to $1,138,259 for the nine months ended September 30, 2023, mainly due to reasons as discussed above.
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Liquidity and Capital Resources
Malaysia, where the operations of the Company predominantly reside, officially transitioned to the endemic phase of COVID-19 effective April 1, 2022. Restrictions on businesses and people are minimal. Meanwhile, the government continues to encourage inoculation for those between the ages of 5 to 11 years and its adolescent group which comprised those between the ages 12 and 17. Adults who have been fully vaccinated, i.e., received two doses of the COVID-19 vaccine are encouraged to take booster shots.
Substantially all of our revenues are concentrated in Malaysia. Consequently, our results of operations will likely be adversely, and may be materially, affected, to the extent that the COVID-19 or any other epidemic harms the Malaysia and global economy in general. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond our control. Potential impacts include, but are not limited to, the following:
| ● | temporary closure of offices, travel restrictions, disruption or suspension of supplies, our customers may be negatively impacted financially resulting in which the demand for our products may be adversely affected; | |
| ● | we may have to provide significant sales incentives to our customers during the outbreak, which may in turn materially adversely affect our financial condition and operating results; and | |
| ● | any disruption of our supply chain, logistics providers or customers could adversely impact our business and results of operations, including causing us or our suppliers to cease manufacturing for a period of time or materially delay delivery to our customers, which may also lead to loss of our customers. |
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Albeit a lengthy 3 years in the COVID-19 pandemic and living alongside COVID-19, there could still be supply chain disruptions. From our experiences operating under the much-restricted COVID-19 environment, we have modified our methods of operations, to build in sufficient buffer in the management of inventories. We may experience slight delay in products delivery lead time but barring unforeseen circumstances, the setback should be temporary.
We are currently operating primarily in Malaysia and anticipate expanding into the Asian markets in the future, with a particular focus, at least initially, on expanding into Thailand, Indonesia and Taiwan. We will explore expansion via e-commerce. Now that COVID-19 has subsided, we will re-assess our plans to set up offices in the countries in which we operate to better service our customers.
Because of the uncertainty surrounding the COVID-19 outbreak, the financial impact related to the outbreak of and response to the coronavirus cannot be reasonably estimated at this time. There is no guarantee that the Company’s total revenues will grow or remain at similar levels year over year in 2023 and beyond. We may have to record downward adjustments or impairment in the fair value of investments in the fiscal year 2023, if conditions have not been significantly improved and global stock markets have not recovered from recent declines.
As of September 30, 2023, we had working capital deficit of $445,245 consisting of cash and cash in bank of $311,659 as compared to a positive working capital of $799,239 consisting of cash and cash in bank of $523,619 and time deposits of $914,811 as of December 31, 2022. The Company had a net loss of $1,138,259 for the nine months ended September 30, 2023 and accumulated deficits of $6,073,141 as of September 30, 2023 as compared to net loss of $943,007 for the nine months ended September 30, 2022 and accumulated deficits of $4,213,396 as of September 30, 2022.
From the recent Initial Public Offering in relation to the Company’s uplisting in Nasdaq, which was completed on October 11, 2023, the Company received net proceeds of $5,615,431 ($6,600,000 offering, less underwriting fee of $528,000, non-accountable expenses of $66,000 and other offering expenses of $1,003,681, including $613,112 which has already been paid by the Company).
Based on the above, management is of the opinion that the Company will have sufficient funds to meet its working capital requirements and debt obligations as they become due 12 months from the filing date of these unaudited condensed consolidated financial statements.
The following summarizes the key components of our cash flows for the nine months ended September 30, 2023 and 2022:
| For
the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (995,706 | ) | $ | (737,456 | ) | ||
| Net cash used in investing activities | (7,200 | ) | (5,777 | ) | ||||
| Net cash used in financing activities | (113,911 | ) | (184,466 | ) | ||||
| Effect of exchange rate on cash and cash equivalents | (9,954 | ) | (85,280 | ) | ||||
| Net change in cash and cash equivalents | $ | (1,126,771 | ) | $ | (1,012,979 | ) | ||
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Operating activities
Net cash used in operating activities for the nine months ended September 30, 2023 was $995,706, comprised of net loss of $1,138,259, increase in accounts receivables of $20,800, increase in amount due from related parties of $782, increase in inventories of $13,484, decrease in customer deposits of $45,083, payment of operating lease liabilities of $114,943, decrease in other payables and accrued liabilities of $219,676, decrease in other payable – related parties of $1,959, decrease in income tax payable of $10,674, the non-cash items on unrealized holding gain on marketable securities of $4,838, deferred tax benefit of $6,537, offset by the non-cash depreciation and amortization expense of $59,424, amortization of operating right-of-use assets of $113,804, refund in prepaid taxes of $307,967, decrease in prepayments and deposits of $84,978, increase in accounts payables (including related parties) of $15,156.
Net cash used in operating activities for the nine months ended September 30, 2022 was $737,456 and were mainly comprised of the net loss of $943,007, deferred tax benefit of $14,903, increase in accounts receivables of $1,828, decrease in customer deposits of $197,518, payment of operating lease liabilities of $106,716, decrease in other payables and accrued liabilities of $192,108. The net cash used in operating activities was mainly offset by the non-cash depreciation and amortization expense of $55,460, amortization of operating right-of-use assets of $106,300, unrealized holding loss on marketable securities of $64,284, decrease in amount due from related parties of $6,788, decrease in inventories of $81,376, refund in prepaid taxes of $266,120, decrease in prepayments and deposits of $103,276, increase in accounts payables (including related parties) of $30,100, increase in other payables from related parties of $4,056 and decrease in income tax payables of $864.
Investing activities
Net cash used in investing activities for the nine months ended September 30, 2023 was $7,200, which was in respect of purchase of equipment.
Net cash used in investing activities for the nine months ended September 30, 2022 was $5,777, which was in respect of purchase of equipment.
Financing activities
Deferred offering cost made up the entire net cash used in financing activities for the nine months ended September 30, 2023 and 2022 of $113,911 and $184,466, respectively.
Credit Facilities
We do not have any credit facilities or other access to bank credit.
Off-Balance Sheet Arrangements
As of September 30, 2023, we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Critical Accounting Estimates
The preparation of 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 the Company’s unaudited condensed consolidated financial statements include allowance for inventories obsolescence, impairment of long-lived assets and allowance for deferred tax assets. Following are the methods and assumptions used in determining our estimates.
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Estimated allowance for inventories obsolescence
Management reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on the review, the Company records inventory write-downs, when necessary, when costs exceed expected net realizable value. The Company did not recognize any inventory write-downs nor inventory write-off for the three and nine months ended September 30, 2023 and 2022.
Impairment of long-lived assets
Operating right-of-use assets and property and equipment are stated at costs less accumulated depreciation and impairment, if any. In determining whether an asset is impaired, the Company has to exercise judgment and make estimation, particularly in assessing: (1) whether an event has occurred or any indicators that may affect the asset value; (2) whether the carrying value of an asset is not recoverable that is its carrying amount exceeds the amount of expected undiscounted future cash flows result from the use of the asset. Once it is established that impairment has occurred, the amount of impairment expense is determined as the difference between the carrying value of the asset and its estimated fair value based on a discounted cash flows approach.
As of September 30, 2023 and December 31, 2022, the carrying amounts of operating right-of-use assets and property and equipment amounted to $374,283 and $89,058 (December 31, 2022: $81,133 and $142,149), respectively. No impairment losses on operating right-of-use assets and property and equipment were recognized as of September 30, 2023 and 2022.
Allowance for deferred tax assets
The Company conducts much of its business activities in Malaysia and Hong Kong and is subject to tax in each of these jurisdictions. Significant estimates are required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Deferred tax assets relating to certain temporary differences and tax losses are recognized as management considers it is probable that future taxable profit will be available against which the temporary differences or tax losses can be utilized. Where the expectation is different from the original estimate, such differences will impact the recognition of deferred taxation assets and taxation in the periods in which such estimate is changed.
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Critical Accounting Policies
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC Topic 606). 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. The Company’s revenue streams are recognized at a point in time for the Company’s sale of health and wellness products as well as services.
The ASU requires the use of a new 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.
Sales of Health and Wellness products
The Company derives its revenues from sales contracts with its customers with revenues being recognized when control of the health and wellness products are transferred to its customer at the Company’s office or shipment of the goods. The revenue is recorded net of estimated discounts and return allowances. Products are given 60 days for returns or exchanges from the date of purchase. Historically, there were insignificant sales returns.
Sales of products through Network Marketing Business
Under the Company’s network marketing business, the Company issues product coupons to members and distributors when these customers made purchases above certain thresholds set by the Company. Depending on the type of product coupons issued, the coupons carry varying values and can be used by the customers for reduction in the transaction price of product purchases within the coupon validity period. The value of the product coupons issued is recorded as a reduction of the Company’s revenue account upon issuance; the corresponding amount credited to the customer deposits account. Amounts in customer deposits will be reversed when the coupons are used. The Company’s coupons have a validity period of between six and twelve months. If the Company’s customers did not utilize the coupons after the validity period, the Company would recognize the forfeiture of the originated sales value of the coupons as net revenues.
Sales of products for the provision of complementary health therapies
Products for the provision of complementary health therapies are predominantly Chinese herbs in different forms, processed or otherwise, for prescriptions for treating non-communicable diseases.
Provision of Health and Wellness services
The Company carries out its Wellness program, where the Company’s products are bundled with health screening test and a health camp program. The health screening test and the health camp programs are considered as separate performance obligations. The promises to deliver the health screening test report and the attendance at the health camp are separately identifiable, which are evidenced by the fact that the Company provides separate services of delivering the health screening test report and allowing admission of the customers to attend the health camp. The Company derives its revenues from sales contracts with its customers with revenues being recognized when the test reports are completed and delivered to its customers during the consultation section in person. The Company also separately derives its revenues from sales contracts with its customers with revenues being recognized when the health camp program was completed in the final day of the health camp.
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Fair value of financial instruments
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
Accounting Standards Adopted in 2023
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.
As ASU 2016-13 has been adopted from January 1, 2023, the Company adopted ASU 2019-05, Financial instruments – Credit Losses (Topic 326) Targeted Transition Relief at the same time.
The AUS 2019-05 provides entities that have certain instruments with an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for eligible instruments. The fair value option election does not apply to held-to-maturity debt securities.
The adoption of these ASUs did not have a material impact on the unaudited condensed consolidated financial statements for the three and nine months ended and as at September 30, 2023.
In July 2023, the FASB issued ASU No. 2023-03 “Presentation of Financial Statements (Topic 205), Income Statement – Reporting Comprehensive Income (Topic 22), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation – Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 – General Revision of Regulation S-X: Income or Loss Applicable to Common Stock”. The ASU 2023-03 amends or supersedes various SEC paragraphs within the Codification to confirm to past SEC announcements and guidance issued by the SEC. The ASU 2023-03 was immediately effective and did not have a significant impact on our unaudited condensed consolidated financial statements as it does not provide any new guidance.
In October 2023, the FASB issued ASU No. 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” The ASU No. 2023-06 clarifies or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the FASB accounting standard codification with the SEC’s regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. As the ASU No. 2023-06 does not provide any new guidance and is not expected to have a significant impact on our unaudited condensed consolidated financial statements.
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
In March 2023, the FASB issued ASU No. 2023-01 “Leases (Topic 842) Common Control Arrangements”. This ASU provides guidance in ASC Topic 842 that Leasehold improvements associated with common control leases should be (i) amortized by the lessee over the useful life of the leasehold improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset through a lease, and (ii) accounted for as a transfer between entities under common control through an adjustment to equity if and when the lessee no longer controls the use of the underlying asset. The ASU 2023-01 is effective for reporting periods beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. When adopted in an interim period, it must be adopted from the beginning of the year that includes that interim period. The Company is currently evaluating the impact of this ASU may have on its unaudited condensed consolidated financial statements.
In July 2023, the FASB issued ASU No. 2023-03 “Presentation of Financial Statements (Topic 205), Income Statement – Reporting Comprehensive Income (Topic 22), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation – Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 – General Revision of Regulation S-X: Income or Loss Applicable to Common Stock”. The ASU 2023-03 amends or supersedes various SEC paragraphs within the Codification to confirm to past SEC announcements and guidance issued by the SEC. The ASU 2023-03 was immediately effective and did not have a significant impact on our unaudited condensed consolidated financial statements as it does not provide any new guidance.
In October 2023, the FASB issued ASU No. 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” The ASU No. 2023-06 clarifies or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the FASB accounting standard codification with the SEC’s regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. As the ASU No. 2023-06 does not provide any new guidance and is not expected to have a significant impact on our unaudited condensed consolidated financial statements.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.
Recently adopted Accounting Pronouncements
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 January 1, 2023 as the Company is qualified as a smaller reporting company. The Company has accordingly adopted ASUs 2016-13 and 2019-05 in the preparation of its unaudited condensed consolidated financial statements. The adoption of the accounting standards has no material impact on the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign exchange risk. Substantially most of our revenues are denominated in the Malaysian Ringgit while most of our expenses are denominated in Malaysian Ringgit, U.S. dollar and Hong Kong Dollar. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Although in general, our exposure to foreign exchange risks should be limited, the value of an investment in our Common Stock may be affected by the foreign exchange rate between U.S. dollar and Malaysian Ringgit; and U.S. dollar and Hong Kong Dollar because the value of our business is effectively denominated in Malaysian Ringgit and Hong Kong Dollar, while the Common Stock is traded in U.S. dollars.
Credit risk. Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its trade receivables 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 allowance for credit losses based upon factors surrounding the credit risk of specific customers, historical trends and other information.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on the foregoing evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
Internal Control Over Financial Reporting
Our management, including our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s chief executive officer and chief financial officer and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; | |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of September 30, 2023, our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on such evaluation, the Company’s management, including our chief executive and chief financial officer, concluded that, during the period covered by this Report, internal controls and procedures over financial reporting were not effective. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
Identified Material Weakness
A material weakness in internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.
Management, including our chief executive officer and chief financial officer identified the following material weakness during its assessment of internal controls over financial reporting as of September 30, 2023:
(i) insufficient full-time personnel with appropriate levels of accounting knowledge and experience to monitor the daily recording of transactions, address complex U.S. GAAP accounting issues and to prepare and review financial statements and related disclosures under U.S. GAAP; (ii) 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 the Company’s policies and procedures have been carried out as planned; (iii) lack of proper IT policies and procedures developed for system change management, user access management, backup management and service organization management.
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Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we will prepare written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines, to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity and debt transactions.
To further strengthen the Company’s internal controls, we plan to initiate the following measures going forward:
| 1. | We intend to establish an internal audit function with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control. |
| 2. | Once we hire additional employees, we intend to initiate a comprehensive training program and development plan to provide ongoing company-wide trainings regarding internal control and requirements of U.S. GAAP financial statements and related disclosures, with particular emphasis on our accounting staff. |
| 3. | Hire suitable IT personnel to develop and implement proper IT policies and procedures for system change management, user access management, backup management and service organization management. |
We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2023.
Changes in Internal Control over Financial Reporting:
Except as disclosed above, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2023, that have 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 Proceedings
We know of no materials, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest averse to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
ITEM 6. Exhibits
| Exhibit No. | Description | |
| 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer* | |
| 31.2 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer* | |
| 32.1 | Section 1350 Certification of principal executive officer * | |
| 32.2 | Section 1350 Certification of principal financial officer * | |
| 101.INS | Inline XBRL Instance Document* | |
| 101.SCH | Inline XBRL Schema Document* | |
| 101.CAL | Inline XBRL Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Label Linkbase Document* | |
| 101.PRE | Inline XBRL Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
| 17 |
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.
| AGAPE ATP CORPORATION | ||
| (Name of Registrant) | ||
| Date: November 14, 2023 | ||
| By: | /s/ How Kok Choong | |
| Title: | Chief Executive Officer, President, Director, Secretary and Treasurer | |
| (Principal Executive Officer and Principal Financial Officer) | ||
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.
| AGAPE ATP CORPORATION | ||
| (Name of Registrant) | ||
| Date: November 14, 2023 | ||
| By: | /s/ Andrew Lee Kam Fan | |
| Title: | Chief Financial Officer, | |
| 18 |