Agape ATP (ATPC) - 2021 Q4 - Annual Report

Part I Business Agape ATP Corporation operates in the Health and Wellness industry in Malaysia, offering health supplements and wellness programs via its network marketing subsidiary ASL and DSY Wellness joint venture - The company is principally engaged in the Health and Wellness Industry, supplying high-quality health products and wellness programs[12] - On May 8, 2020, the Company acquired approximately 99.99% of Agape Superior Living Sdn Bhd (ASL), an established network marketing entity in Malaysia, to strengthen its supply chain and retail capabilities[10][16] - The company offers three main program series: ATP Zeta Health Program (general wellbeing), ÉNERGÉTIQUE (dermal solutions), and BEAUNIQUE (nutrigenomics)[16] - In November 2021, the company formed a 60%-owned joint venture, DSY Wellness International Sdn Bhd, to provide complementary health therapies, expanding its business scope[11][18] - Future plans include restoring ASL's operations to pre-pandemic levels, capitalizing on e-commerce platforms, activating its wellness promotion subsidiary WATP, and expanding DSY Wellness's complementary health therapy business in Malaysia, with potential for wellness tourism in Indonesia and Thailand[53][54][55] - As of December 31, 2021, the company's network marketing channel had a customer base of 128,235 members[62] Employee Distribution by Function | Function | Number of employees | | :--- | :--- | | Senior Management | 3 | | Business Development Department | 3 | | Corporate Affairs Department | 3 | | Finance Department | 6 | | Human Resources Department | 4 | | Operations Department | 9 | | Product Development Department | 5 | | Sales & Marketing Department | 3 | | Total | 36 | Risk Factors The company faces significant risks from supplier concentration, internal control weaknesses, COVID-19 impacts, and high dependence on its CEO - The company has a significant concentration risk with its suppliers, with two major suppliers accounting for approximately 47.3% and 45.2% of total purchases for the year ended December 31, 2021[67] - Management identified eight material weaknesses in internal controls over financial reporting as of December 31, 2021, including insufficient U.S. GAAP accounting personnel and inadequate segregation of duties[85][189] - The business is highly dependent on its CEO and President, Mr How Kok Choong, whose loss could severely impede operations[96] - The COVID-19 pandemic has adversely affected the company's primary market, Malaysia, leading to operational disruptions and potential material impact on results[99][100] - Operating in a heavily regulated industry in Malaysia, the company requires Ministry of Health authorizations, with non-compliance risking fines or penalties[81] Unresolved Staff Comments The company reports no unresolved staff comments - None[115] Properties The company's principal executive office is located in Kuala Lumpur, Malaysia - The principal executive office is located at 1705 – 1708, Level 17, Tower 2, Faber Towers, Jalan Desa Bahagia, Taman Desa, 58100 Kuala Lumpur, Malaysia[115] Legal Proceedings The company reports no pending legal proceedings expected to materially adversely affect its business - There are currently no pending legal proceedings or claims that the company believes will have a material adverse effect on its business, financial condition, or operating results[116] Mine Safety Disclosure This section is not applicable to the company - Not applicable[116] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on OTC Markets - Pink Sheets with no active market, no dividends planned, and no recent share repurchases - The company's Common Stock is listed on the OTC Markets – Pink Sheets under the trading symbol 'ATTP', but there is no active trading market[118] - As of December 31, 2021, there were 290,460,047 shares of Common Stock issued and outstanding, with 1,220 record holders[119] - The company has no plans to pay dividends and intends to retain all earnings for business use[121] - The company did not repurchase any of its common stock during the twelve months ended December 31, 2021[122] Selected Financial Data The company experienced a significant financial downturn in FY2021, with revenue dropping by 70.5% to $1.02 million and a swing to a net loss of over $2.5 million Selected Financial Data (Years Ended December 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $1,016,962 | $3,452,621 | | Net income (loss) attributable to Agape ATP Corporation | $(2,524,244) | $354,766 | | Net income (loss) per share – (basic and diluted) | $(0.01) | $0.00 | | Total assets (as of Dec 31) | $4,724,535 | $7,210,607 | | Total liabilities (as of Dec 31) | $1,312,841 | $1,285,773 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 70.5% revenue decrease in FY2021 to COVID-19, resulting in a $2.5 million net loss and reduced working capital, with future liquidity dependent on revenue recovery and potential financing Results of Operation FY2021 revenue decreased 70.5% to $1,016,962 due to COVID-19, leading to a $2,524,680 net loss, a decline in gross margin, and a significant swing in other income/expenses Financial Performance Comparison (2021 vs. 2020) | Metric | 2021 | 2020 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,016,962 | $3,452,621 | $(2,435,659) | (70.5%) | | Cost of Revenue | $297,333 | $775,855 | $(478,522) | (61.7%) | | Gross Profit | $719,629 | $2,676,766 | $(1,957,137) | (73.1%) | | Gross Margin | 70.8% | 77.5% | - | - | | Total Operating Expenses | $2,578,197 | $2,834,901 | $(256,704) | (9.1%) | | Net (Loss) Income | $(2,524,680) | $354,766 | $(2,879,446) | (811.7%) | - The significant decrease in revenue was attributed to the COVID-19 situation in Malaysia, where intermittent lockdowns disrupted operational activities and adversely affected consumer purchasing power[139][140] - Other (Expenses) Income changed by $1,203,527, from a net income of $674,482 in 2020 to a net expense of $529,045 in 2021, primarily due to an unrealized loss on marketable securities[148] Liquidity and Capital Resources Working capital decreased to $2.6 million in 2021, with a $2.5 million net loss and $3.3 million accumulated deficit, requiring revenue recovery or external financing for liquidity Working Capital and Liquidity (as of Dec 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Working Capital | $2,599,281 | $4,645,729 | | Cash in Bank | $554,864 | $1,112,147 | | Time Deposits | $1,975,347 | $2,391,182 | | Accumulated Deficit | $(3,258,687) | $(734,443) | Summary of Cash Flows (Years Ended Dec 31) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(845,842) | $(557,951) | | Net cash (used in) provided by investing activities | $(3,959) | $1,276,200 | | Net cash used in financing activities | $(19,061) | $(22,091) | | Net change in cash and cash equivalents | $(919,752) | $773,143 | - Management projects that the company's revenue will revert to pre-pandemic levels, generating sufficient cash, or will consider seeking financing from banks or related parties if needed[157][159] Critical Accounting Policies The company's critical accounting policies involve significant estimates, revenue recognition under ASC Topic 606 for product sales and coupon redemptions, and fair value measurement of financial instruments using a three-level hierarchy - Revenue from health and wellness product sales is recognized at a point in time when control transfers to the customer, in accordance with ASC Topic 606[169][172] - Coupon sales are initially recorded as customer deposits, with revenue recognized from forfeited coupons (unused after six months) as net revenues[173] - Financial statement preparation requires significant management estimates for doubtful accounts, inventory obsolescence, asset useful lives, and impairment[167] - Fair value of financial instruments is determined using a three-level hierarchy (Level 1: quoted prices, Level 2: observable inputs, Level 3: unobservable inputs)[174] Quantitative and Qualitative Disclosures About Market Risk The company faces foreign exchange risk due to currency mismatches between revenues (USD) and expenses (MYR, HKD), and manages credit risk through evaluation and short collection terms - The company faces foreign exchange risk as revenues are mostly denominated in USD, while expenses are in Malaysian Ringgit (MYR) and Hong Kong Dollars (HKD)[182] - Credit risk is concentrated in accounts receivable, mitigated by credit evaluation processes and short collection terms[183] Controls and Procedures Management concluded internal controls over financial reporting were ineffective as of December 31, 2021, due to eight material weaknesses, with remediation plans targeting fiscal year 2022 implementation - Management concluded that internal controls and procedures over financial reporting were not effective as of December 31, 2021[188] - Eight material weaknesses were identified, including insufficient U.S. GAAP accounting personnel, lack of an internal audit function, inadequate segregation of duties, and various IT control deficiencies[189] - Management's remediation plans include establishing an internal audit function, hiring more qualified accounting staff, implementing comprehensive training, and seeking a U.S. tax professional[192][193] Part III Directors, Executive Officers and Corporate Governance The company's executive team includes CEO How Kok Choong and CFO Andrew Lee Kam Fan, with plans to establish nominating, compensation, and audit committees to enhance corporate governance - The key executive officers are How Kok Choong (CEO, President, etc.), Mohd Shaharuddin Bin Abdullah (Director), and Andrew Lee Kam Fan (CFO)[195] - The company currently lacks nominating, compensation, or audit committees, and does not have an audit committee financial expert on its board[203] - The company plans to establish a full board with nominating, compensation, and audit committees during the year to enhance corporate governance[203] - A formal Code of Ethics has not been adopted, with the Board citing the small number of employees and reliance on existing fiduciary duties and laws as sufficient for now[207] Executive Compensation Executive compensation for FY2021 primarily comprised salaries, with CEO How Kok Choong receiving $275,210, and no stock options or formal long-term incentive plans currently in place Executive Salaries for Year Ended Dec 31 | Executive | Position | 2021 Salary | 2020 Salary | | :--- | :--- | :--- | :--- | | How Kok Choong | CEO, President, etc. | $275,210 | $203,431 | | Andrew Lee Kam Fan | CFO | $46,988 | N/A | - CEO How Kok Choong is paid a monthly salary of $22,934 (RM 95,000)[212] - Director Mohd Shaharuddin Bin Abdullah's employment agreement stipulates a monthly salary of $3,000 and $60,000 in annual stock-based compensation, effective upon listing on NASDAQ or NYSE[213] - The company has not granted any stock options to its executive officers since incorporation[211] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 31, 2021, CEO How Kok Choong beneficially owned 243,216,637 shares, representing 83.73% of the company's total voting power Beneficial Ownership of Executive Officers and Directors (as of Dec 31, 2021) | Name of Beneficial Owner | Common Stock Beneficially Owned | Voting Percentage | | :--- | :--- | :--- | | How Kok Choong (CEO, Director, etc.) | 243,216,637 | 83.73% | | Mohd Shaharuddin Bin Abdullah | - | - | | Andrew Lee Kam Fan | - | - | - The total number of common stock shares issued and outstanding as of December 31, 2021, was 290,460,047[219] Certain Relationships and Related Transactions, and Director Independence The company has engaged in significant related-party transactions, primarily with CEO How Kok Choong, including the ASL acquisition and share forfeitures, and has a relationship with e-commerce partner Vettons Sdn Bhd - The company acquired 99.99% of ASL from its CEO, Mr How Kok Choong, with consideration including the issuance of 176,547 shares of restricted common stock[222] - Vettons Sdn Bhd became a related party when CEO Mr How Kok Choong was appointed its non-executive Chairman in February 2021, accounting for 100% of accounts receivable ($172,757) as of December 31, 2020[222] - In December 2021, a total of 85,992,000 shares were forfeited by various shareholders, including 11,242,000 shares from a holding company controlled by CEO Mr How[222] - Subsequent to the reporting period, on January 20, 2022, CEO Mr How Kok Choong agreed to forfeit an additional 215,008,035 shares of common stock[223][434] Related Party Transactions - Revenue (Years Ended Dec 31) | Name of Related Party | 2021 | 2020 | | :--- | :--- | :--- | | Agape Superior Living Pty Ltd | - | $18,060 | | Vettons Sdn Bhd* | $6,625 | - | | Total | $6,625 | $18,060 | Principal Accounting Fees and Services The company incurred total fees of $411,500 in 2021 and $273,000 in 2020 from its independent auditor, Friedman LLP, primarily for audit and tax services Accountant Fees (Friedman LLP) | Fee Category | For the year ended Dec 31, 2021 | For the year ended Dec 31, 2020 | | :--- | :--- | :--- | | Audit fees | $395,000 | $245,000 | | Tax fees | $16,500 | $28,000 | | Total | $411,500 | $273,000 | Part IV Exhibits and Financial Statement Schedules This section presents the company's consolidated financial statements for FY2021 and FY2020, including balance sheets, statements of operations, changes in equity, and cash flows, along with the independent auditor's report - The independent auditor, Friedman LLP, issued an opinion stating that the consolidated financial statements present fairly, in all material respects, the financial position and results of operations for the years ended December 31, 2021 and 2020, in conformity with U.S. GAAP[248] Consolidated Balance Sheet Summary (as of Dec 31) | | 2021 | 2020 | | :--- | :--- | :--- | | Total Assets | $4,724,535 | $7,210,607 | | Total Current Assets | $3,912,122 | $5,684,271 | | Total Liabilities | $1,411,899 | $1,285,773 | | Total Current Liabilities | $1,312,841 | $1,038,542 | | Total Equity | $3,312,636 | $5,924,834 | Consolidated Statement of Operations Summary (Years Ended Dec 31) | | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenue | $1,016,962 | $3,452,621 | | Gross Profit | $719,629 | $2,676,766 | | Loss from Operations | $(1,858,568) | $(158,135) | | Net (Loss) Income | $(2,524,680) | $354,766 | | Basic and Diluted (Loss) Earnings Per Share | $(0.01) | $0.00 | Consolidated Statement of Cash Flows Summary (Years Ended Dec 31) | | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(845,842) | $(557,951) | | Net cash (used in) provided by investing activities | $(3,959) | $1,276,200 | | Net cash used in financing activities | $(19,061) | $(22,091) | | (Decrease) Increase in Cash and Cash Equivalents | $(919,752) | $773,143 | | Cash and Cash Equivalents, end of year | $2,597,848 | $3,517,600 |