Agape ATP Corp — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter report; quarterly results are not clearly provided. Amounts are in U.S. dollars unless stated otherwise. The 2019 full-year comparison is unaudited and combines audited six-month results with interim data following a change in fiscal year-end.
Business context
Agape sells health and wellness products and provides related advisory and wellness services, principally in Malaysia. Its products include supplements and skincare products, marketed through a network-sales channel and online. In 2020, the Company acquired approximately 99.99% of Agape Superior Living Sdn. Bhd. (ASL), a Malaysian network-marketing business, from CEO How Kok Choong. It also formed Wellness ATP International Holdings to develop wellness programs. The Company reported 128,136 members at year-end, largely reflecting ASL’s acquisition.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $3.453 million | $1.290 million |
| Gross profit / margin | $2.677 million / 77.5% | $89,302 / 6.9% |
| Operating income (loss) | $(158,135) | $(314,592) |
| Net income (loss) | $354,766 | $(716,127) |
| Operating cash flow | $(557,951) | $(704,418) |
- Revenue rose 167.6%, primarily because ASL brought an established member and distribution channel. FY2019 sales were almost entirely to a related party on a wholesale basis; 2020 sales were mainly through ASL’s network channel.
- Net income included $350,137 of unrealized gains on marketable securities and $160,062 of dividend income from marketable securities. The Company still recorded an operating loss; earnings therefore included material investment-related income.
- Operating expenses increased to $2.835 million, including $830,659 of distributor commissions, $376,582 of selling expenses, and $1.628 million of general and administrative expenses.
- At December 31, 2020, total assets were $7.211 million, total liabilities $1.286 million, and stockholders’ equity $5.925 million. Cash and cash equivalents were $3.518 million, including $2.391 million of time deposits. Working capital was reported as $4.646 million.
- The Company had no credit facilities or bank borrowings disclosed. Lease liabilities totaled about $395,764; scheduled lease payments were $424,340 before interest. Operating cash flow was negative despite positive net income.
- Investing cash flow was positive $1.276 million, primarily reflecting $1.211 million of cash acquired with ASL. Financing cash flow was negative $22,091, including deferred offering costs.
Material changes and unusual items
- The ASL acquisition was completed for stated consideration of $1.804 million: 176,547 shares valued at $1.148 million and offset of a $656,495 receivable from the CEO. The Company’s financial statements consolidate ASL from 2020.
- The Company reported $172,757 of accounts receivable from Vettons, an e-commerce platform, representing all year-end accounts receivable. CEO How Kok Choong became Vettons’ non-executive chairman in February 2021.
- Two suppliers accounted for 74.1% and 25.9% of 2020 purchases. A non-cancellable purchase contract commits the Company to $4.857 million of minimum purchases over multiple years; the filing says the vendor was unable to meet the commitment as of the report date due to manufacturing delays.
- Year-end marketable securities were valued at $577,035. The unrealized holding gain and dividend income materially contributed to reported net income.
- The 2020 acquisition-related share issuance increased outstanding common shares by 176,547, to 376,452,047 at year-end.
Outlook, risks, and governance
- Management planned to expand e-commerce and online member recruitment, develop wellness programs and products, and explore Thailand, Indonesia, and Taiwan. Expansion plans were delayed by COVID-19; management gave no quantified revenue, profit, or spending guidance and said the pandemic’s financial impact could not be reasonably estimated. The filing cautions that 2021 revenue may not grow or remain at a similar level.
- Key risks include COVID-19 and Malaysia market concentration, supplier dependence and manufacturing delays, product quality and liability, regulation, competition, foreign-exchange movements, and reliance on the CEO. The Company stated that no pending legal matters were expected to have a material adverse effect.
- Management concluded internal control over financial reporting was ineffective at year-end and identified material weaknesses involving accounting staffing and expertise, internal audit, segregation of duties and risk assessment, system-change controls, system and data access controls, and U.S. tax provisions. Remediation steps included hiring accounting personnel and a CFO in January 2021; further measures were planned, but remediation was not established as complete.
- The Company had no audit, compensation, or nominating committee, no independent director or audit committee financial expert, and no formal code of ethics. Related-party transaction review policies were also not formalized.
- The auditor issued an unqualified opinion on the financial statements; it did not audit or opine on internal-control effectiveness. No numerical dividend outlook was provided; the Company said it did not plan to pay dividends in the foreseeable future.
Most important facts for investors to verify
- How much of earnings is repeatable operating profit versus investment gains and dividends, and how the marketable-securities portfolio is valued.
- ASL’s contribution to revenue and cash generation, including acquisition accounting and the related-party transaction terms with the CEO.
- Collectability and timing of the $172,757 Vettons receivable, particularly given the CEO’s subsequent Vettons role.
- Whether supplier production delays, concentration, and the $4.857 million purchase commitment create inventory, supply, or cash-flow exposure.
- Progress in remediating the disclosed material weaknesses and establishing stronger independent governance and related-party oversight.
- The basis for liquidity sufficiency given negative operating cash flow, deferred offering costs, lease obligations, and the reported working-capital position.