Agape ATP Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed April 1, 2024. This is an annual report, not a standalone fourth-quarter report. The company provides health and wellness products and advisory services, mainly in Malaysia, through network marketing and complementary health therapies. Its consolidated financial statements were audited under U.S. GAAP; the auditor issued an unqualified opinion and reported no critical audit matters.
Financial performance and condition
| Metric (US$) | FY2023 | FY2022 |
|---|---|---|
| Revenue | $1,431,088 | $1,856,564 |
| Gross profit / margin | $936,572 / 65.4% | $1,190,522 / 64.1% |
| Operating loss | $(2,146,579) | $(1,533,266) |
| Net loss | $(2,109,935) | $(1,666,079) |
| Net loss attributable to Agape / basic and diluted loss per share | $(2,101,985) / $(0.03) | $(1,686,899) / $(0.02) |
| Net cash used in operating activities | $(2,001,823) | $(811,683) |
| Cash and cash equivalents at year-end | $4,832,460 | $1,438,430 |
| Total assets / total liabilities | $5,744,494 / $1,363,631 | $2,791,749 / $1,229,295 |
- Revenue declined 22.9%, while gross profit fell 21.3%. Network-marketing revenue decreased 65.2% to approximately $396,000; complementary-therapy revenue increased 44.4% to approximately $1.03 million. Management attributed the network-marketing decline to a narrower product range and distributor attrition; new-product sales did not offset the decline.
- Operating expenses rose to $3.08 million. General and administrative expense increased 20.9% to $2.37 million, including increased staffing and director compensation. Selling expense rose 74.0% to $629,003, partly due to promotional and travel costs associated with the Nasdaq uplisting ceremony. Commission expense declined 78.3% to $88,132 as network-marketing sales fell.
- Working capital was $4,113,614 at year-end, versus $799,239 a year earlier. Cash and cash equivalents included $4,322,441 in time deposits. Management stated that cash on hand and anticipated operating cash flows were expected to cover ordinary working-capital needs and capital expenditures for the next 12 months, but gave no quantified forecast.
- Investing activities used $17,251. Financing activities provided $5,398,037, principally from $5,501,520 of net proceeds from common-stock issuance, partly offset by $93,889 of share repurchases and lease payments. The company reported no credit facilities. Year-end lease liabilities were approximately $438,000 in total; no other material borrowings are identified in the supplied filing text.
- Accumulated deficit was $7,047,571. The company had 76,966,712 common shares outstanding at March 26, 2024. It completed a Nasdaq Capital Market uplisting in October 2023 and sold 1.65 million shares at $4.00 per share; it also authorized a share-repurchase plan of up to $1 million and repurchased 135,300 shares in 2023.
Material changes and notable items
- Revenue mix shifted toward complementary therapies: their share rose from approximately 38.5% to 72.2% of revenue, while network marketing fell from approximately 61.3% to 27.7%.
- Gross margin improved modestly, while the net loss widened about 26.6%. Other income turned positive at $40,219, compared with other expense of $136,868 in 2022, largely reflecting a marketable-securities valuation swing and lower foreign-transaction losses.
- Cash increased substantially following the equity offering, despite higher operating cash outflow. Of year-end bank deposits, $4,630,476 was not covered by deposit insurance, compared with $231,187 in 2022.
- In January 2024, the company formed a 50/50 renewable-energy joint venture with Oriental Industries Enterprise. It later decided not to continue developing the JV’s wholly owned subsidiary, and on March 14, 2024 acquired the partner’s 50% interest, making the JV wholly owned. The filing does not provide financial projections or expected investment returns for this initiative.
Outlook, risks and contingencies
- No formal revenue, earnings, or margin guidance is provided. Management said there is no guarantee revenue will grow or remain at similar levels in 2024 or beyond. It described potential expansion into Asian markets, initially Thailand, Indonesia, and Taiwan, including through e-commerce, and cited renewable energy as a diversification initiative.
- Management identified three material weaknesses in internal control over financial reporting, but the filing’s descriptions enumerate two: insufficient accounting personnel with appropriate U.S. GAAP expertise, and the absence of a functional internal-audit function and adequate related procedures. Disclosure controls and internal control over financial reporting were concluded to be ineffective at December 31, 2023. Planned remediation includes accounting policies and procedures, hiring or training personnel, and establishing an internal-audit function, with implementation anticipated at least partly by year-end 2024. The external auditor did not audit internal control effectiveness.
- Supplier concentration is significant, with no long-term supply agreements reported for the two largest suppliers. The filing also identifies related-party purchasing, including $272,993 of 2023 purchases from CTA Nutriceuticals (Asia), a supplier related to a director of the therapy joint venture. Product supply disruption, pricing, and related-party transaction terms are risks.
- Other material risks include reliance on Malaysia, competition and changing consumer preferences, product quality and liability exposure, regulation and licensing, foreign-exchange movements, dependence on the CEO, and potential financing needs and shareholder dilution. The company says it has no product-liability or business-disruption insurance.
- The filing reports no pending legal proceedings believed to have a material adverse effect and no significant off-balance-sheet arrangements. It discloses a $75,000 tax penalty within other payables and accrued liabilities; further details are not clear in the supplied text.
Important facts for investors to verify
- Reconcile supplier-concentration disclosures: the risk-factor discussion cites purchases of $272,993 and $128,099, or 57.5% and 27.0%; the financial-statement note cites vendor concentrations of 54.8% and 26.0%. Confirm the denominators and supplier identities.
- Review the descriptions of material weaknesses: the filing refers to three but clearly enumerates only two, and assess whether remediation has progressed since year-end.
- Confirm the composition, availability, maturity, and deposit-insurance exposure of the $4.32 million in time deposits, and assess ongoing cash burn against management’s 12-month liquidity statement.
- Assess the sustainability and economics of the therapy-led revenue mix, including customer demand, margins, supplier dependence, and related-party purchases.
- Verify the terms, funding requirements, and expected milestones for the renewable-energy venture and the subsequent acquisition of the partner’s interest.