Agape ATP Corporation — Q1 2022 Form 10-Q
Period: Three months ended March 31, 2022. Unaudited consolidated financial statements; amounts in U.S. dollars unless noted. The company sells health and wellness products and services, primarily in Malaysia, principally through network marketing.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior balance |
|---|---|---|
| Revenue | $408,960 | $301,780; up 35.5% |
| Gross profit and margin | $335,529; 82.0% | $224,189; 74.3% |
| Operating expenses | $607,761 | $566,699 |
| Operating loss | $272,232 | $342,510 |
| Net loss | $298,446 | $333,650 |
| Net cash used in operations | $151,122 | $129,297 |
| Cash and cash equivalents | $2,441,891 at March 31, 2022 | $2,597,848 at December 31, 2021 |
| Working capital | $2,328,550 | $2,599,281 at December 31, 2021 |
| Total liabilities / equity | $1,126,016 / $3,002,168 | $1,411,899 / $3,312,636 at December 31, 2021 |
Gross margin improved mainly because Q1 2021 included a $36,809 inventory write-down; there was no write-down in Q1 2022. The operating loss narrowed despite higher commissions and general and administrative expenses. Other expenses, net were $17,926, versus other income, net of $14,980 in the prior-year quarter; Q1 2022 included a $17,670 unrealized securities loss and a $16,466 foreign-exchange loss. Basic and diluted loss per share was reported as $0.00, rounded; weighted-average shares were 123,231,575 versus 376,452,047.
Operating cash outflow increased year over year. Cash declined by $155,957 during the quarter, including $4,835 from exchange-rate effects. The company reported no financing cash flows in Q1 2022. It has no credit facilities or other access to bank credit. Operating lease liabilities totaled $208,463; the company also disclosed $19,218 of minimum payments on short-term leases. No conventional borrowings are identified in the supplied filing text.
Changes, outlook and risks
- Revenue increased 35.5%, with growth in several product lines, including Omega Blend and ATPR Mito+. The company attributed progress partly to Malaysia’s transition toward the COVID-19 endemic phase and reduced restrictions.
- On January 20, 2022, CEO How Kok Choong agreed to forfeit 215,008,035 shares. Shares outstanding fell from 290,460,047 at December 31, 2021 to 75,452,012 at March 31, 2022. The company says the forfeiture did not affect liquidity or capital resources.
- Management projected revenue returning to pre-pandemic levels and said it expects available resources to meet working-capital needs and obligations for the foreseeable future. It may seek Malaysian bank or other financing, or support from related parties and shareholders, if cash generation proves insufficient. Management cautioned that its plans are not assured; no numerical revenue or earnings guidance was provided.
- COVID-19 and other disruptions remain material uncertainties because substantially all revenue is concentrated in Malaysia. The filing cites potential demand, supply-chain, logistics and sales-incentive impacts and says the financial effect cannot be reasonably estimated. Management also discussed possible expansion into Asian markets, initially Thailand, Indonesia and Taiwan, including through e-commerce.
- Material weaknesses in internal control over financial reporting were identified, including limited accounting expertise and staffing, inadequate segregation of duties and internal audit capability, deficiencies in system-change and third-party vendor controls, and gaps in user-access and audit-log controls. Management planned remediation during 2022, including written procedures, an internal audit function, staff training and hiring a U.S. tax professional. Controls were assessed as not effective as of March 31, 2022.
- Other risks include foreign-currency exposure, concentrated purchasing from two vendors (84% and 16% of Q1 purchases), and customer and supplier concentration. The filing reports $75,000 of tax penalty within accrued liabilities; its status is not clearly explained in the supplied text. Management says legal matters are not material and reports no material active or pending proceedings.
Important facts for investors to verify
- Confirm the share-forfeiture details, resulting share count and any subsequent changes in shares outstanding.
- Review the nature, status and potential consequences of the $75,000 tax penalty and the company’s tax exposures across jurisdictions.
- Track operating cash use, working-capital changes and management’s ability to fund operations without credit facilities or related-party support.
- Assess remediation progress for the disclosed material weaknesses and whether independent review supports improved reporting controls.
- Reconcile apparent narrative inconsistencies in the filing: the MD&A’s cost-of-revenue comparison contains a period-label error, its Q1 2021 operating-cash-flow figure differs from the cash-flow statement, and its description of Q1 2022 other-income and interest-income amounts appears to reverse the statement line items.