Agape ATP Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual filing, not a standalone fourth-quarter report. The company supplies health and wellness products and advisory services, primarily in Malaysia, through direct selling and a 60%-owned complementary-health-therapy venture.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $1,856,564 | $1,016,962 |
| Gross profit / margin | $1,190,522 / 64.1% | $719,629 / 70.8% |
| Operating loss | $1,533,266 | $1,858,568 |
| Net loss | $1,666,079 | $2,524,680 |
| Net loss attributable to Agape | $1,686,899 | $2,524,244 |
| Net cash used in operating activities | $811,683 | $845,842 |
- Revenue rose 82.6%, including $715,257 reported from complementary health therapies; network-marketing revenue was $1,141,307, up 12.2%.
- Cost of revenue increased 124.0% to $666,042, faster than sales, and gross margin declined 6.7 percentage points. Management attributes the margin decline to lower-margin therapy activity and network-marketing promotions.
- Operating expenses were $2,723,788, including $1,957,023 of general and administrative expense and $405,351 of commissions. The prior year included a $121,514 provision for doubtful accounts; the company reports no such provision in 2022.
- Other expenses, net, fell to $136,868 from $529,045, mainly because unrealized losses on marketable securities declined to $73,519 from $505,231.
- Cash and cash equivalents were $1,438,430, including $914,811 of time deposits. Working capital was reported as $799,239, down from $2,599,281. Total assets were $2,791,749 and total liabilities $1,229,295 at year-end. The filing reports no credit facilities; lease liabilities were $82,708, all current.
- Operating cash outflow was $811,683; investing cash outflow was $32,119 and financing cash outflow was $234,466, primarily deferred offering costs. Cash declined by $1,159,418 during the year.
Changes, outlook, risks and unusual items
- The company says revenue growth reflected Malaysia’s move to a less-restricted COVID-19 endemic phase and the launch of complementary health-therapy operations in 2022. Therapy revenue was absent in 2021.
- Inventory fell to $46,277 from $375,535. The company recorded a $142,466 inventory write-off and a $5,307 inventory write-down in 2022. It also wrote off $120,372 of an allowance related to prepayments and deposits.
- Management expects cash on hand and operating cash flows to meet working-capital and debt obligations for the next 12 months, while also stating there is no assurance its plans will succeed. It expects revenue to revert to pre-pandemic levels; it gives no quantified revenue or earnings guidance and says 2023 revenue is not assured.
- Supplier concentration is substantial: three vendors represented approximately 53.3%, 22.1% and 21.3% of 2022 purchases. The company has no long-term agreements with its three largest suppliers. One supplier is related to a director of the therapy venture.
- Related-party dealings included $198,376 of therapy-product purchases from CTA Nutriceuticals and $100,915 of reported other expenses involving related parties. The filing says it has not adopted formal procedures for reviewing related-party transactions.
- Management identified three material weaknesses in financial reporting controls: insufficient experienced accounting staff, no functional internal-audit function, and inadequate IT controls. Disclosure controls were deemed ineffective at year-end. Remediation was planned, with implementation expected at least partly by year-end 2023; completion is not established here.
- Other key risks include dependence on Malaysia, consumer and regulatory risks for health products, product liability and lack of product-liability or business-interruption insurance, foreign-exchange exposure, and reliance on key executive How Kok Choong. No material pending legal proceeding was reported. The auditor gave an unqualified opinion on the financial statements and reported no critical audit matters; it did not opine on internal-control effectiveness.
Important facts for investors to verify
- Share-count discrepancy: audited statements and equity disclosures report 72,452,012 shares outstanding at December 31, 2022, while the cover page reports 75,452,012 at March 23, 2023; other filing passages also give inconsistent figures. Confirm the current share count and any subsequent changes.
- Therapy-revenue reconciliation: MD&A reports $715,257 of therapy revenue, while the product-and-service breakdown appears to total $715,333 ($569,823 of therapy products plus $145,510 of services). Confirm the correct amount and classification.
- Confirm the working-capital calculation and the availability of cash and time deposits, given the reported decline in working capital and continued operating cash outflows.
- Assess supplier continuity and pricing, including the concentration in three suppliers, the absence of long-term supply contracts, and related-party sourcing.
- Track remediation of the disclosed material weaknesses and the effect of inventory and advance write-offs on future operating results.