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.) |
1705
- 1708, Level 17,
Taman Desa,
(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 May 14, 2021 | |
| 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)
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents (Included $ | $ | $ | ||||||
| Accounts receivable | - | |||||||
| Amount due from related parties | ||||||||
| Inventories | ||||||||
| Prepaid taxes (Included $ | ||||||||
| Prepayments and deposits | ||||||||
| Total Current Assets | ||||||||
| OTHER ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating right-of-use assets | ||||||||
| Investment in marketable securities | ||||||||
| Investment in non-marketable securities | ||||||||
| Deferred offering costs | ||||||||
| Deferred tax assets (Included $ | - | |||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Customer deposits | $ | $ | ||||||
| Operating lease liabilities | ||||||||
| Other payables and accrued liabilities ($ | ||||||||
| Amount due to a related party | - | |||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities | ||||||||
| Deferred tax liabilities | - | |||||||
| 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 March 31, 2021 and December 31, 2020 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| TOTAL STOCKHOLDERS’ 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 | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUE | ( | ) | - | |||||
| GROSS PROFIT | - | |||||||
| SELLING | ( | ) | - | |||||
| COMMISSIONS | ( | ) | - | |||||
| GENERAL AND ADMINISTRATIVE | ( | ) | ( | ) | ||||
| TOTAL OPERATING EXPENSES | ( | ) | ( | ) | ||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSES) | ||||||||
| Other Income, net | ||||||||
| Interest income | ||||||||
| Unrealized holding gain (loss) on marketable securities | ( | ) | ||||||
| Exchange loss, net | ( | ) | ( | ) | ||||
| TOTAL OTHER INCOME (EXPENSES), NET | ( | ) | ||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| PROVISION FOR INCOME TAXES | ( | ) | - | |||||
| NET LOSS | ( | ) | ( | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
| NET 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 | TOTAL | |||||||||||||||||||||
| Number of shares | Par value | PAID IN CAPITAL | ACCUMULATED DEFICIT | COMPREHENSIVE INCOME | STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||
| Balance as of March 31, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| COMMON STOCK | ADDITIONAL | ACCUMULATED OTHER | TOTAL | |||||||||||||||||||||
| Number of shares | Par value | PAID IN CAPITAL | ACCUMULATED DEFICIT | COMPREHENSIVE INCOME | STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
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 three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| 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 | ( | ) | - | |||||
| Inventories write-down | - | |||||||
| Changes in operating assets and liabilities: | - | - | ||||||
| Accounts receivables | - | |||||||
| Accounts receivables – related party | - | |||||||
| Inventories | - | |||||||
| Prepaid taxes | - | |||||||
| Prepayments and deposits | ( | ) | ||||||
| Accounts payable | - | ( | ) | |||||
| Customer deposits | ( | ) | - | |||||
| Operating lease liabilities | ( | ) | - | |||||
| Other payables and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of non-marketable securities to a related party | - | |||||||
| Net cash provided by 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 | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| SUPPLEMENTAL NON-CASH FLOWS INFORMATION | ||||||||
| Sale of the non-marketable securities to a director in exchange for a loan receivable | $ | $ | ||||||
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 wholly owned subsidiary, Agape ATP Corporation, a Company organized in Labuan, 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. (“ASL”) 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. Upon the establishment of WATP, WATP starts collaborating with ASL to carry out its Wellness programs.
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 unaudited condensed consolidated financial statements reflect the activities of the Company, Agape ATP Corporation (“AATP LB”), Agape ATP International Holding Limited (“AATP HK”), Wellness ATP International Holdings Sdn, Bhd. (“Wellness ATP”), ASL and its variable interest entity (“VIE”), Agape S.E.A. Sdn. Bhd. (“SEA”) (See Note 3).
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 | |||||||||||
| F-5 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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 of ASL, with the goal of securing an established network marketing sales channel that has been established in Malaysia for the past 15 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 newly 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 WATP. Upon its establishment, WATP started collaborating with ASL to carry out various wellness programs.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. Interim results are not necessarily indicative of results to be expected for any other interim period or for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the period ended December 31, 2020, filed with the Securities and Exchange Commission on March 31, 2021.
| 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 (Continued)
Principles of consolidation
The unaudited condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and its 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.
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.
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 doubtful accounts, allowance for inventories obsolescence, useful lives of property and equipment, useful lives of intangible assets, impairment of long-lived assets, allowance for deferred tax assets, operating right-of-use assets, operating lease liabilities and uncertain tax position and impairment of investment in non-marketable securities. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, time deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less.
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. Accounts receivable also include money due from a third-party e-commerce platform acting as a collection agent for the
Company on the sales through their platform. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis,
using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial
condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary.
Account balances are charged off against the allowance 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 March 31, 2021 and December 31, 2020,
| 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)
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 months ended March 31, 2021 and 2020, the Company recognized inventory write-downs of $
Prepaid taxes
Prepaid taxes include (i) prepaid income taxes that will either be refundable or utilized to offset future income tax; and (ii) goods and service tax (“GST”) to be refundable.
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 doubtful accounts after management has determined that the likelihood
of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy
and update it if necessary. As of March 31, 2021 and December 31, 2020, there were
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:
| 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 consolidated statements of income and comprehensive income. 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.
| 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)
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 March 31, 2021 and
December 31, 2020,
Deferred offering costs
Deferred offering costs represents costs associated with the Company’s current offering which will be netted against the proceeds from the Company’s current offering.
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 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 discounted value of unapplied 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) using the modified retrospective method for contracts that were not completed as of June 30, 2019. This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue was recognized based on the amount of consideration expected to receive in exchange for satisfying the performance obligations.
| 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)
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.
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
- Performance obligations satisfied at a point in time
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.
The
Company also sells coupons to its customers for cash at a discounted price of the value of the coupons. Customers can apply the value
of the coupons for a reduction in the transaction price paid by the customer are recorded as a reduction of sales. The cash proceeds
resulted from the sale of coupons are recognized as customer deposits until the coupons to be applied as a reduction of the health and
wellness products transaction price upon such sales transactions occurred. The Company’s coupons have a validity period of six
months. If the Company’s customers did not utilize the coupons after six months, the Company would recognize the forfeiture of
the originated sales value of the coupons as net revenues. For the three months ended March 31, 2021 and 2020, the Company recognized
$
As
of March 31, 2021, the Company had contracts for the sales of health and wellness products amounting to $
| 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 | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Survivor Select | $ | $ | - | |||||
| Energized Mineral Concentrate | ||||||||
| Ionized Cal-Mag | ||||||||
| Omega Blend | ||||||||
| BetaMaxx | ||||||||
| Iron | ||||||||
| Young Formula | ||||||||
| ATPR Mito + | ||||||||
| No. 1 MED | ||||||||
| Energetique | ||||||||
| Trim+ | ||||||||
| Total revenues | $ | $ | ||||||
Sales of Health and Wellness services
- Performance obligations satisfied at a point in time
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. For the three months ended March 31, 2021 and 2020, revenues from health and
wellness services 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)
Cost of revenue
Cost
of revenue for the three months ended March 31, 2021 of $
Shipping and handling
Shipping
and handling charges amounted to $
Advertising costs
Advertising
costs amounted to $
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 plan were $
| 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)
The related contribution plans include:
| - | Social
Security Organization (“SOSCO”) – | |
| - | Employees
Provident Fund (“EPF”) – | |
| - | 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. 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 their 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). Other comprehensive 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.
| 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)
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 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 ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares 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 months ended March 31, 2021 and 2020, there were dilutive shares.
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 Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (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$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements of stockholders’ equity. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
| F-15 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Translation of foreign currencies into US$1 have been made at the following exchange rates for the respective periods:
| As of | ||||||||
March 31, 2021 | December 31, 2020 | |||||||
| Period-end MYR : US$1 exchange rate | ||||||||
| Period-end HKD : US$1 exchange rate | ||||||||
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Period-average MYR : US$1 exchange rate | ||||||||
| Period-average HKD : US$1 exchange rate | ||||||||
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Fair value of financial instruments
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
| F-16 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leases
Operating lease right-of-use (“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.
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, accounting pronouncements and do not believe the future adoption of such any pronouncements may be expected to cause a material impact on its financial condition or the results of its operations, as follow:
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses, leases, and hedging standard. The new effective date for these preparers is for fiscal years beginning after December 15, 2022. ASU 2019-05 is effective for the Company for annual and interim reporting periods beginning January 1, 2023 as the Company is qualified as a smaller reporting company. The Company is currently evaluating the impact ASU 2019-05 may have on its unaudited condensed consolidated 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)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In January 2020, the FASB issued ASU 2020-01 to clarify the interaction of the accounting for equity securities under ASC 321 and investments accounted for under the equity method of accounting in ASC 323 and the accounting for certain forward contracts and purchased options accounted for under ASC 815. With respect to the interactions between ASC 321 and ASC 323, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting when applying the measurement alternative in ASC 321, immediately before applying or upon discontinuing the equity method of accounting. With respect to forward contracts or purchased options to purchase securities, the amendments clarify that when applying the guidance in ASC 815-10-15-141(a), an entity should not consider whether upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in ASC 323 or the fair value option in accordance with ASC 825. The ASU is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. The adoption of this standard on January 1, 2021 did not have a material impact on its unaudited condensed consolidated financial statements.
Reclassification
Certain
prior year amounts have been reclassified to conform to the current year presentation, such as reclassifying foreign currency exchange
loss of $
3. VARIABLE INTEREST ENTITY (“VIE”)
SEA
is a trading company incorporated on March 4, 2004, under the laws of Malaysia. SEA provided all 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 unaudited condensed financial statements.
| F-18 |
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:
| March 31, 2021 | December 31, 2020 | |||||||
| Current assets | $ | $ | ||||||
| Other assets | ||||||||
| Current liabilities | ( | ) | ( | ) | ||||
| Net deficit | $ | ( | ) | $ | ( | ) | ||
| March 31, 2021 | December 31, 2020 | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid taxes | ||||||||
| Total current assets | ||||||||
| Other asset – Deferred tax asset | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities: | ||||||||
| Accounts payable – intercompany | $ | $ | ||||||
| Other payables and accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Net deficit | $ | ( | ) | $ | ( | ) | ||
The summarized operating results of the VIE’s are as follows:
For the Three Months Ended March 31, 2021 | ||||
| Operating revenues | $ | |||
| Gross profit | $ | |||
| Loss from operations | $ | ( | ) | |
| Net loss | $ | ( | ) | |
| F-19 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
4. BUSNINESS COMBINATION
On May 8, 2020, the Company entered into a Share Exchange Agreement (“SPA”) with Mr. How Kok Choong, CEO and director of the Company to acquire ordinary shares, par value, equivalent to approximately % of the equity interest in ASL, an entity incorporated in Malaysia. Pursuant to the SPA, as amended on July 1, 2020, Mr. How will receive an aggregate consideration of $, which was determined based on the net asset carrying value of ASL as at March 31, 2020. The aggregate consideration shall be satisfied by (i) the offset of the Consideration whereby the Company has a loan receivable of $ as of March 31, 2020 due from Mr. How; and (ii) allotment and issuance of common stock of the Company. The Company shall allot and issue shares of the Company’s common stock, par value $, representing approximately % of the total issued and outstanding shares in the Company after the issuance of the Shares, which is valued at $ based on the closing price of $ of the Company as quoted on the OTC Market on March 31, 2020. In 2020, the Company has issued all shares of the Company’s common stock.
The Company’s acquisition of ASL was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of ASL based upon the carrying value of the identifiable assets acquired and liabilities assumed on April 1, 2020 as ASL was under the common control of Mr. How.
The following table summarizes the carry value of the identifiable assets acquired and liabilities assumed on the acquisition date, which represents the net purchase price allocation on the date of the acquisition of ASL.
| Carry Value | ||||
| ASSETS | ||||
| Current assets | ||||
| Cash | $ | |||
| Other receivables | ||||
| Other receivables - related parties | ||||
| Inventories | ||||
| Prepaid taxes | ||||
| Prepayments and other assets | ||||
| Total current assets | ||||
| Other assets | ||||
| Property and equipment, net | ||||
| Intangible assets, net | ||||
| Deferred taxes asset, net | ||||
| Total other assets | ||||
| Total assets | $ | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||
| Current liabilities | ||||
| Accounts payable - related party | $ | |||
| Customer deposits | ||||
| Other payables and accrued liabilities | ||||
| Total current liabilities | ||||
| Total liabilities | $ | |||
| Total net assets acquired | $ | |||
| F-20 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
4. BUSNINESS COMBINATION (Continued)
The following unaudited pro forma combined results of operations presents the Company’s financial results as if the acquisition of ASL had been completed on January 1, 2020. The unaudited pro forma results do not reflect operating efficiencies or potential cost savings which may result from the consolidation of operations. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations that the Company would have recognized had it completed the transaction on January 1, 2020. Future results may vary significantly from the results in this pro forma information because of future events and transactions, as well as other factors.
| For the Three Months Ended | ||||
| March 31, 2020 | ||||
| Revenue | $ | |||
| Cost of revenue | ( | ) | ||
| Gross profit | ||||
| Total operating expenses | ( | ) | ||
| Income from operations | ||||
| Other expense, net | ( | ) | ||
| Income before income taxes | ||||
| Provision for income taxes | ( | ) | ||
| Net loss | $ | ( | ) | |
| Net loss per common share - basic and diluted | $ | |||
| Weighted average number of common shares outstanding - basic and diluted | ||||
5. CASH AND CASH EQUIVALENTS
As
of March 31, 2021 and December 31, 2020 the Company has $
| F-21 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
6. ACCOUNTS RECEIVABLE AND ACCOUNTS RECEIVABLE
As of March 31, 2021 | As of December 31, 2020 | |||||||
| Accounts receivable | $ | - | $ | |||||
| Allowance for doubtful accounts | - | - | ||||||
| Total accounts receivable | $ | $ | ||||||
7. INVENTORIES
Inventories consist of the following:
As of March 31, 2021 | As of December 31, 2020 | |||||||
| Finished goods | $ | $ | ||||||
For the three months ended March 31, 2021 and 2020, the Company recognized inventory write-down of $36,809 and $0, respectively.
8. PREPAYMENTS AND DEPOSITS
| As of March 31, 2020 | As of December 31, 2020 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Receivables from sales distributors | ||||||||
| Deposits to suppliers | ||||||||
| Total prepaid expenses and deposits | $ | $ | ||||||
9. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
As of March 31, 2021 | As of December 31, 2020 | |||||||
| Computer and office equipment | $ | $ | ||||||
| Furniture & fixtures | ||||||||
| Leasehold improvements | ||||||||
| Vehicle | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
expense for the three months ended March 31, 2021 and 2020 amounted to $
| F-22 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
10. INTANGIBLE ASSETS, NET
Intangible assets, net, consist of the following:
As of March 31, 2021 | As of December 31, 2020 | |||||||
| Computer software | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Amortization
expense for the three months ended March 31, 2021 and 2019 amounted to $
11. 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
November 3, 2020, the Company received dividend of shares of common stock in DSwiss Inc. for $ | |
| (v) | On
December 9, 2020, the Company received dividend of shares of common stock in DSwiss Inc. for $ |
As of March 31, 2021 | As of December 31, 2020 | |||||||
| Cost of investment | $ | $ | ||||||
| Dividend income from Greenpro Capital Corp. | - | |||||||
| Unrealized holding gain | ||||||||
| Exchange rate effect | ( | ) | ||||||
| Investment in marketable securities | $ | $ | ||||||
12. INVESTMENT IN NON-MARKETABLE SECURITIES
The
Company invested in Unreserved Sdn Bhd with the investment amount of $
Unreserved Sdn Bhd was incorporated in Malaysia with ordinary shares authorized, issued and outstanding. Mr. Lim Hun Soon @ David Lim and Ms. Aniza Helina Akmi Karim are the directors of Unreserved Sdn Bhd. Mr. How Kok Choong was a director of the company from April 30, 2018 to March 27, 2019.
| F-23 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
12. INVESTMENT IN NON-MARKETABLE SECURITIES (Continued)
On
March 3, 2020, the Company agreed to sell the
On
April 3, 2019, the Company purchased a
| Unreserved Sdn Bhd | As of March 31, 2021 | As of December 31, 2020 | ||||||
| Investment in non-marketable securities | $ | $ | ||||||
| Less: Sale of investment in non-marketable securities | ( | ) | ||||||
| Investment in non-marketable securities | $ | $ | ||||||
| Phoenix Plus Corporation | ||||||||
| Cost of investment | $ | $ | ||||||
| Total investment in non-marketable securities | $ | $ | ||||||
13. OTHER PAYABLES AND ACCRUED LIABILITIES
As of March 31, 2021 |
December 31, 2020 | |||||||
| Professional fees | $ | $ | ||||||
| Promotion expenses | ||||||||
| Payroll | ||||||||
| Commissions | ||||||||
| Others | ||||||||
| Total other payables and accrued liabilities | $ | $ | ||||||
| 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
Related party balances
Amount due from related parties
| Name of Related Party | Relationship | Nature | As of March 31, 2021 | As of December 31, 2020 | ||||||||
| Agape ATP (Asia) Limited (“AATP Asia”) | $ | $ | ||||||||||
| Hostastay Sdn. Bhd. | ||||||||||||
| TH3 Technology Sdn Bhd | ||||||||||||
| Total | $ | $ | ||||||||||
Amount due to a Related Party
| Name of Related Party | Relationship | Nature | As of March 31, 2021 | As of December 31, 2020 | ||||||||
| Agape Superior Living Pty Ltd | $ | $ | ||||||||||
| Total | $ | $ | ||||||||||
Related party transactions
Other income
| Name of Related Party | Relationship | Nature | For
the Three | For
the Three | ||||||||
| Hostastay Sdn. Bhd. | $ | $ | ||||||||||
| 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)
15. STOCKHOLDERS’ EQUITY
Preferred stock
As of March 31, 2021 and December 31, 2020, there were preferred stocks authorized but were issued and outstanding.
Common stock
As of March 31, 2021 and December 31, 2020, there were common stocks authorized and shares issued and outstanding.
There were stock options, warrants or other potentially dilutive securities outstanding as of March 31, 2021 and December 31, 2020.
Non-controlling interest
As
of March 31, 2021 and December 31, 2020, and for the three months ended March 31, 2021, no material transactions of non-controlling interest
occurred from the operating results from ASL as the Company holds approximately
16. INCOME TAXES
The United States and foreign components of income (loss) before income taxes were comprised of the following:
For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | |||||||
| Tax jurisdictions from: | ||||||||
| Local – United States | $ | ( | ) | $ | ( | ) | ||
| Foreign – Malaysia | ( | ) | ( | ) | ||||
| Foreign – Hong Kong | ( | ) | ||||||
| Loss before income tax | $ | ( | ) | $ | ( | ) | ||
| F-26 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
16. INCOME TAXES (Continued)
The provision for income taxes consisted of the following:
For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | |||||||
| Current: | ||||||||
| - Local | $ | $ | ||||||
| - Foreign | ( | ) | ||||||
| Deferred: | ||||||||
| - Local | ||||||||
| - Foreign | ||||||||
| Provision for income taxes | $ | ( | ) | $ | ||||
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:
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 months ended March 31, 2021 and 2020, the Company’s foreign subsidiaries did not generate any income that are subject to Subpart F tax and GILTI tax.
As
of March 31, 2021 and December 31, 2020, the operations in the United States of America incurred approximately $
Malaysia
Changes
to the Labuan Business Activity Tax Act (LBATA) 1990 which was gazetted and came into operation on January 1, 2019 mandate companies
incorporated in Labuan to satisfy the “substantial activity requirements” to qualify for the preferential tax rate of
| 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. INCOME TAXES (Continued)
Agape
Superior Living Sdn Bhd, Agape S.E.A Sdn Bhd and Wellness ATP International Holdings sdn Bhd. are governed by the income tax laws of
Malaysia and the income tax provision in respect of operations in Malaysia is calculated at the applicable tax rates on the taxable income
for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Income Tax Act of Malaysia,
enterprises that incorporated in Malaysia are usually subject to a unified 24% enterprise income tax rate while preferential tax rates,
tax holidays and even tax exemption may be granted on case-by-case basis.
Hong Kong
Agape
ATP International Holding (HK) Limited is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of
The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of:
As of March 31, 2020 | As of December 31, 2020 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards in U.S. | $ | $ | ||||||
| Net operating loss carry forwards in Malaysia | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax liabilities: | ||||||||
| Depreciation | ( | ) | ( | ) | ||||
| Deferred tax assets (liabilities), 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 March 31, 2021 and December 31, 2020, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur interest and penalties tax for the three months ended March 31, 2021 and 2020.
| 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. CONCENTRATIONS OF RISKS
(a) Major customers
For
the three months ended March 31, 2021 and 2020, no customer accounted for
As
of March 31, 2020, one customer accounted for
(b) Major vendors
The Company did not purchase any goods from its suppliers for both the three months ended March 31, 2021 and 2020.
There are no accounts payable balance as of March 31, 2021 and December 31, 2020.
(c) Commission Expenses to Sales Distributors and Stockists
For
the three months ended March 31, 2021, one sales distributor accounted for approximately
(d) Credit risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. As of March
31, 2021 and December 31, 2020, $
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 doubtful accounts 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.
| F-29 |
AGAPE ATP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Currency expressed in United States Dollars (“US$”), except for number of shares)
18. COMMITMENTS AND CONTINGENCIES
Lease commitments
On
April 1, 2020, the Company adopted ASC 842 for ASL’s office space lease and sales and training center as the lease commencement
date upon the acquisition of ASL. The Company recognized lease liabilities of approximately $
The five-year maturity of the Company’s operating lease liabilities is as follow:
| Twelve Months Ending March 31, | Operating lease liabilities | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total lease payments | ||||
| Less: interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
The
Company also leases one distribution center and two employee apartments with an expiring term of twelve months or fewer, which were classified
as operating 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 selected not to recognize lease assets and liabilities on these leases. As of March 31, 2021,
the Company’s commitment for minimum lease payments under these operating leases within the next twelve months are $
Rent
expense for the three months ended March 31, 2021 and 2020 was $
Purchase commitments
The total future minimum purchase commitment under a non-cancellable purchase contract as of March 31, 2021 for the next five years and thereafter is as follows:
| Twelve months ending March 31, | Minimum purchase | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total minimum purchase commitments required | $ | |||
As of the date of this report, the Company’s vendor is not able to meet the Company’s minimum purchase commitment of the health and wellness products due to the manufacturing process was being delayed by its vendor.
| 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. COMMITMENTS AND CONTINGENCIES (Continued)
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.
COVID-19
Since the declaration of the COVID-19 a pandemic on March 11, 2020, by the World Health Organization or WHO, Malaysia has been put through various stages of lockdowns such as (1) full movement control orders (“MCO”), under which, quarantines, travel restrictions, and the temporary closure of stores and facilities in Malaysia were made mandatory, (2) MCO were eased to a Conditional Movement Control Order (“CMCO”) where most business sectors were allowed to operate under strict rules and Standard Operating Procedures mandated by the government of Malaysia and (3) CMCO were further relaxed to Recovery Movement Control Order (“RMCO”). On January 12, 2021, due to a resurgence of COVID-19 cases, the Malaysian government declared a state of emergency nationwide to combat COVID-19. Intermittent lockdowns were imposed in various states and districts in the country. February 2021 marked a significant month for Malaysia as all frontline staff of the country, which comprised those in healthcare, police, the Volunteers Department of Malaysia, the Fire and Rescue Department of Malaysia and civil defence sectors were vaccinated. On February 16, 2021, Prime Minister, Tan Sri Muhyiddin Yassin announced that a National COVID-19 Immunisation Plan will be implemented for one year after February 2021, which 80% of the Malaysia population will be vaccinated to achieve herd immunization. On March 5, 2021, lockdowns in most part of the country was eased to a CMCO. As at the date of this report, over 632,000 doses of the COVID-19 vaccines have been administered in the country.
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, financial impact of the Company’s customers or suspension supplies may negatively affected, and could continue to negatively affect, the demand for the Company’s product; | |
| ● | the Company may have to provide significant sales incentives to its customers during the outbreak, which may in turn materially adversely affect its financial condition and operating results; and |
any disruption of the Company’s supply chain, logistics providers or customers could adversely impact its business and results of operations, including causing the Company or its suppliers to cease manufacturing for a period of time or materially delay delivery to its customers, which may also lead to loss of its customers.
Since March 2020, we have experienced instances of staff illness from COVID-19, however we have not experienced reductions in operational efficiency as a direct result, due to our implemented protocols relating to delegation of staff responsibilities in such instances. We have not experienced any mandatory closure of offices or disruption of our operations by the authorities as a direct result of instances of staff illness from COVID-19.
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 the similar level year over year in 2021.
| F-31 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this quarter report on Form 10-Q is intended to update the information contained in our Form 10-K, dated March 31, 2021, for the year ended December 31, 2020 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 consolidated financial statements and the notes to the 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, 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 wholly owned subsidiary, Agape ATP Corporation, a Company organized in Labuan, Malaysia.
Agape ATP Corporation, incorporated in Labuan, Malaysia, is an investment holding company with 100% equity interest in Agape ATP International Holding Limited, a company incorporated in Hong Kong.
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 9,590,596 ordinary shares, no par value, equivalent to approximately 99.99% of the equity interest in Agape Superior Living Sdn. Bhd., an entity incorporated in Malaysia.
Agape Superior Living Sdn. Bhd. (“ASL”) 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 September 15, 2020, WATP entered into a business collaboration agreement with ASL to carry out certain wellness programs.
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.
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 99.99% of ASL, with the goal of securing an established network marketing sales channel that has been established in Malaysia for the past 15 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 newly 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 WATP. Upon its establishment, WATP started collaborating with ASL to carry out various wellness programs.
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.
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Results of Operation
For the three months ended March 31, 2021 and 2020
Revenue
The Company generated revenue of $301,780 for the three months ended March 31, 2021. The revenue was mainly derived from the sale of health and wellness products as a result of the operations of ASL, which brought us to a large group of customers in an established network marketing sales channel that has been established in Malaysia for the past 15 years.
Prior to April 1, 2020, we were only making sales to our related party on a wholesale basis when they placed the purchase orders. The Company did not generate any revenue for the three months ended March 31, 2020 as the Company was unable to obtain deliveries of its purchases which originate from the United States, Germany, Australia and Taiwan as a result of the COVID-19 outbreak for its related party, being its sole customer during that period.
Cost of Revenue
Cost of revenue for the three months ended March 31, 2021 amounted to $77,591. The cost of revenue comprised cost of goods and packing materials and inventory write-down of $36,809. The cost of revenue for the current reporting period was predominately incurred by ASL for its retail activities. As explained in the above, the Company’s operational activities for the three months ended March 31, 2020, was disrupted as a result of the COVID-19 outbreak.
Gross Profit
Gross profit for the three months ended March 31, 2021 amounted to $224,189, equivalent to a gross margin of 74.3%. Current period gross profit was contributed from the operations of ASL. As explained in the above, gross profit for the three months ended March 31, 2020 was $0 as there were no trading activities.
Operating Expenses
Our operating expenses consist of selling expenses, commission expenses and general and administrative expenses.
Selling expenses
Selling expenses for the three months ended March 31, 2021 amounted to $116,114. The amount comprised of $81,941 of salary and employee benefit expenses of our employees in ASL’s sales center, $7,176 of credit card charges of processing sales transactions from our customers, $23,605 of promotional and event expenses and other miscellaneous selling expenses of approximately $3,392. There were no selling expenses incurred for the three months ended March 31, 2020.
Commission expenses
Commission expenses were $88,439 and $0 for the three months ended March 31, 2021 and 2020, respectively, a 100.0% increase. The increase in commission expenses was due to the operation of ASL which brought us to a new marketing channel which pay commissions to distributors and members in network sales marketing.
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General and administrative expenses
General and administrative (“G&A”) expenses for the three months ended March 31, 2021 amounted to $362,146, as compared to $159,516 for the three months ended March 31, 2020, a significant increase of $202,630 or approximately 127%. The significant increase was predominately due to the increase of salary and employee benefit expenses of approximately $157,448 as we have more employees from the operation of ASL in the three months ended March 31, 2021. The significant increase of G&A expenses was also attributable to the operation of ASL with approximately $45,182 additional general and administrative expenses to our operations, which mainly comprised of rental expenses, professional expenses and depreciation expenses.
Other Income (Expenses), Net
For the three months ended March 31, 2021, we recorded an amount of $14,980 as other income, net as compared to $72,234 other expenses, net for the three months ended March 31, 2020, an increase of $87,214 or approximately 120.7%. The net other income of $14,980 generated during the three months ended March 31, 2021 comprised foreign currency exchange loss of $72,128, other income of $4,457, interest income of $7,355, and unrealized holding gain on marketable securities of $75,296. The net other expenses of $72,234 incurred during the three months ended March 31, 2020 comprised foreign currency exchange loss of $74,618, unrealized holding loss on marketable securities of $18,538, other income of $2,793 and interest income of $18,129.
Provision for Income Taxes
The Company recorded provision for income taxes of $6,120 and $0 for the three months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021, we did not generate any taxable income that is subjected to a unified 24% income tax rate in Malaysia. The tax provision was attributable to the under accrual of tax from year ended December 31, 2020.
Net Loss
Net loss increased by $101,900 from net loss of $231,750 for the three months ended March 31, 2020 to net loss of $333,650 for the three months ended March 31, 2021, mainly due to reasons as discussed above.
Liquidity and Capital Resources
On March 11, 2020, the World Health Organization or WHO declared the corona virus or COVID-19 a pandemic. To help counter the transmission of COVID-19, the government of Malaysia initiated movement control orders (“MCO”), the first effective March 18, 2020. The MCO had resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in Malaysia. The first MCO was extended three times, each for a two-weeks period, until May 12, 2020. On May 13, 2020, the MCO was eased to a Conditional Movement Control Order (“CMCO”) where most business sectors were allowed to operate under strict rules and Standard Operating Procedures mandated by the government of Malaysia. The CMCO was further relaxed, and on June 8, 2020, Malaysia moved into the Recovery Movement Control Order (“RMCO”). Due to a resurgence of COVID-19, CMCO was reimposed in the state of Sabah, Selangor, Kuala Lumpur and Putrajaya effective October 14, 2020. On November 7, 2020, the CMCO was extended to a wider geographical area to include another six states in the country. Effectively, ten of thirteen states in Malaysia were placed under CMCO with the exceptions of Perlis, Pahang and Kelantan. On January 1, 2021, the Government of Malaysia extended the Recovery Movement Control Order (“RMCO”) through March 31, 2021. On January 12, 2021, the Malaysian government declared a state of emergency nationwide to combat COVID-19. Intermittent lockdowns were imposed in various states and districts in the country. As at the date of this report, various states and districts in the Country are still undergoing movement control order at varying degree.
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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. |
Although some of the countries from which our products are sourced are experiencing lockdowns, industries involve in the provision of food especially health products and pharmaceuticals are normally exempted. We may experience slight delay in products delivery lead time but barring unforeseen circumstances, the setback should be temporary.
We 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. When the pandemic has subsided or is over and restrictions on travelling between nations are uplifted, we will 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 COVID-19 cannot be reasonably estimated at this time. There is no guarantee that our total revenues will grow or remain at the similar level year over year in the remaining period of 2021 and in 2022
As of March 31, 2021, we had working capital of $4,206,012 consisting of cash in bank of $1,013,704 and time deposits of $2,329,236 as compared to working capital of $4,645,729 consisting of cash in bank of $1,112,147 and time deposits of 2,391,182 as of December 31, ,2020. In assessing our liquidity, we monitor and analyze our cash on-hand and our operating expenditure commitments. Our liquidity needs are to meet our working capital requirements and operating expenses obligations. We believe we will have sufficient resource to fund our working capital needs for the next 12 months from the date of issuance of this Form 10-Q.
| 6 |
The following summarizes the key components of our cash flows for the three months ended March 31, 2021 and 2020:
| For the Three Months Ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Net cash used in operating activities | $ | (129,297 | ) | $ | (230,431 | ) | ||
| Net cash provided by investing activities | - | 70,173 | ||||||
| Net cash used in financing activities | (6,423 | ) | - | |||||
| Effect of exchange rate on cash and cash equivalents | (27,322 | ) | 4,008 | |||||
| Net change in cash and cash equivalents | $ | (163,042 | ) | $ | (156,250 | ) | ||
Operating activities
Net cash used in operating activities for the three months ended March 31, 2021 was $129,297 and were predominately comprised of net loss of $333,650, the non-cash income on unrealized holding gain on marketable securities of $75,296, deferred tax provision of $20,604, decrease in customer deposits of $50,353, decrease in other payables and accrued liabilities of $67,839, payment of operating lease liabilities of $37,074, offset by the non-cash depreciation and amortization expense of $19,680, amortization of operating right-of-use assets of $37,606, inventories write-down of $36,809, decrease in accounts receivables of $172,739, decrease in inventories of $9,218, decrease in prepaid taxes of $174,705 and decrease in prepayments and deposits of $4,762.
Net cash used in operating activities for the three months ended March 31, 2020 was $230,431, and mainly comprised of net loss of $231,750, the increase in prepayments and deposits of $34,593, the decrease of accounts payable of $2,803, offset by the decrease in related party accounts receivables of $285, increase in other payables and accrued liabilities of $19,892, the non-cash expense on unrealized holding loss on marketable securities of $18,538.
Investing activities
There were no investing activities for the three months ended March 31, 2021.
Net cash provided by investing activities for the three months ended March 31, 2020, was in respect of partial proceeds collected from the sale of our non-marketable securities.
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Financing activities
Net cash used in financing activities for the three months ended March 31, 2021, solely comprised of payment of deferred offering cost of $6,423.
There were no financing activities for the three months ended March 31, 2020.
Off-Balance Sheet Arrangements
As of March 31, 2021, 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 Polices
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 doubtful accounts, allowance for inventories obsolescence, useful lives of property and equipment, useful lives of intangible assets, impairment of long-lived assets, allowance for deferred tax assets, operating right-of-use assets, operating lease liabilities and uncertain tax position and impairment of investment in non-marketable securities. Actual results could differ from these estimates.
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC Topic 606) using the modified retrospective method for contracts that were not completed as of June 30, 2019. This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue was recognized based on the amount of consideration expected to receive in exchange for satisfying the performance obligations.
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.
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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
- Performance obligations satisfied at a point in time
On July 1, 2019, 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, which is generally similar to when its delivery has occurred prior to July 1, 2019 Such revenues are recognized at a point in time after all performance obligations are satisfied. 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.
The Company also sells coupons to its customers for cash at a discounted price of the value of the coupons. Customers can apply the value of the coupons for a reduction in the transaction price paid by the customer are recorded as a reduction of sales. The cash proceeds resulted from the sale of coupons are recognized as customer deposits until the coupons to be applied as a reduction of the health and wellness products transaction price upon such sales transactions occurred. The Company’s coupons have a validity period of six months. If the Company’s customers did not utilize the coupons after six months, the Company would recognize the forfeiture of the originated sales value of the coupons as net revenues.
Sales of Health and Wellness services
- Performance obligations satisfied at a point in time
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. For the three months ended March 31, 2021 and 2020, revenues from health and wellness services were $5,093 and $0 respectively.
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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.
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of such any pronouncements may be expected to cause a material impact on its financial condition or the results of its operations, as follow:
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses, leases, and hedging standard. The new effective date for these preparers is for fiscal years beginning after December 15, 2022. ASU 2019-05 is effective for the Company for annual and interim reporting periods beginning January 1, 2023 as the Company is qualified as a smaller reporting company. The Company is currently evaluating the impact ASU 2019-05 may have on its unaudited condensed consolidated financial statements.
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In January 2020, the FASB issued ASU 2020-01 to clarify the interaction of the accounting for equity securities under ASC 321 and investments accounted for under the equity method of accounting in ASC 323 and the accounting for certain forward contracts and purchased options accounted for under ASC 815. With respect to the interactions between ASC 321 and ASC 323, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting when applying the measurement alternative in ASC 321, immediately before applying or upon discontinuing the equity method of accounting. With respect to forward contracts or purchased options to purchase securities, the amendments clarify that when applying the guidance in ASC 815-10-15-141(a), an entity should not consider whether upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in ASC 323 or the fair value option in accordance with ASC 825. The ASU is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. The adoption of this standard on January 1, 2020 did not have a material impact on its unaudited condensed consolidated financial statements.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign exchange risk. Substantially most of our revenues are denominated in the U.S. dollar while most of our expenses are denominated in Malaysian Ringgit 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 doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
ITEM 4 CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosures Control and Procedures
Our management 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 principal executive and principal financial officers 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 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 March 31, 2021, management 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 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 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 identified the following material weakness during its assessment of internal controls over financial reporting as of March 31, 2021: (i) we did not have sufficient 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) we lack of a functional internal audit department or personnel that monitors the consistencies of the preventive internal control procedures; lack of adequate policies and procedures in internal audit function to ensure that our policies and procedures have been carried out as planned; (iii) we do not have adequate segregation of duties and effective risk assessment. Lack of segregation of duties and effective risk assessment may cause us to face the likelihood of fraud or theft, due to poor oversight, governance and review to detect errors; (iv) we lack of proper procedures developed for system change management policies. Critical change management control processes and procedures, such as change request and approval, periodic status reporting, user testing and acceptance, post-implementation review, etc., were either not performed or formally documented; (v) we lack of the following internal control procedures in relation of System and Data Security Access: (a) authorization of new operating system-level user accounts created was not formally documented, (b) periodic review and recertification of application, operating system, and database users and the user access rights was not performed, (c) procedures for periodic review and analysis of application, operating system, and database-level audit logs were not documented or performed, manually or through the use of software tools, (d) mandatory password settings, such as minimum length, complexity, reset frequency, failed log-in attempts, password history, etc., were not deployed; and (vi) we lack of qualified person to be able to provide the tax provision for the U.S. income taxes in connection with the Subpart F and GILTI taxable income.
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2021 based on criteria established in Internal Control—Integrated Framework issued by COSO.
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 U.S. 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.
We have initiated and plan to initiate the following series of measures to further strengthen the Company’s internal controls going forward:
| 1. | On January 12, 2021, the Company has appointed a Chief Finance Officer with appropriate levels of accounting knowledge and experience to monitor the recording of transactions, address complex U.S. GAAP accounting issues and to review financial statements and related disclosures under U.S. GAAP.. |
| 2. | We intend to establish an internal audit function with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control. |
| 3. | We intend to engage an external consulting firm to supplement our efforts to the implementation of the 2013 Committee of Sponsoring Organizations of the Treadway Commission, or COSO, framework for internal controls. |
| 4. | 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. |
| 5. | We are seeking a U.S. tax professional to assist in the preparation of the Subpart F and GILTI tax provisions |
We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2021.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2021, 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.
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ITEM 6. Exhibits
| Exhibit No. | Description | |
| 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer* | |
| 32.1 | Section 1350 Certification of principal executive officer * | |
| 101.INS | XBRL Instance Document* | |
| 101.SCH | XBRL Schema Document* | |
| 101.CAL | XBRL Calculation Linkbase Document* | |
| 101.DEF | XBRL Definition Linkbase Document* | |
| 101.LAB | XBRL Label Linkbase Document* | |
| 101.PRE | XBRL Presentation Linkbase Document* |
* Filed herewith.
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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: May 17, 2021 | ||
| 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: May 17, 2021 | ||
| By: | /s/ Andrew Lee Kam Fan | |
| Title: | Chief Financial Officer, | |
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