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.
3
Results of Operation
For the three months ended September 30, 2021 and 2020
Revenue
We generated revenue of $201,284 for the three months ended September 30, 2021
as compared to $1,413,063 for the three months ended September 30, 2020,
representing a significant decrease of $1,211,779 or approximately 85.8%. The
significant decrease was mainly due to the COVID-19 situation in Malaysia which
has turned more severe in the quarter ended September 30, 2021 as compared to
the corresponding period in 2020. As such, it has adversely affected us. From
CMCO, the entire country was again placed under full lockdown effective May 12,
2021. Despite the deteriorating COVID-19 state, the government lifted Kuala
Lumpur from Enhanced Movement Control Order ("EMCO") ahead of schedule and ended
the nationwide state of emergency on August 1, 2021. Kuala Lumpur and Selangor
remained the epicenter of the latest wave of infections. Total COVID-19 cases in
the country surpassed the one million mark on July 25, 2021, and daily cases hit
a record high of 24,599 on August 26, 2021. Malaysia pressed on with its
National COVID-19 Immunization Plan, fast inoculating its residents. COVID-19
infection started to drop below the 10,000 mark daily since October 3, 2021. As
of October 31, 2021, over 75% of the country's population have been fully
vaccinated. The lockdowns disrupted much of our operational activities, which
led to the significant decrease in revenue for the three months ended September
30, 2021 as compared to the same period in 2020. Economically, the prolonged
pandemic will adversely affect the purchasing power of consumers in Malaysia.
Cost of Revenue
Cost of revenue for the three months ended September 30, 2021 amounted to
$36,663 as compared to $186,891 for the three months ended September 30, 2020,
representing a significant decrease of $150,228 or approximately 80.4%. The cost
of revenue comprised freight-in, cost of goods purchased, and packing materials.
The significant decrease in cost of revenue for the three months ended September
30, 2021 as compared to the same period in 2020, was in line with the
significant decrease in our revenues. As explained in the above, much of our
operational activities was disrupted as a result of the resurgence of COVID-19
infection and movement control orders imposed in Malaysia as explained above.
Gross Profit
Gross profit for the three months ended September 30, 2021 amounted to $164,621
as compared to $1,226,172 for the three months ended September 30, 2020. Gross
margin for the three months ended September 30, 2021 was approximately 81.8% as
compared to approximately 86.8% for the three months ended September 30, 2020.
As explained in the above, the decrease in gross profit was attributed to the
significant decrease in revenue due to the disruption of our operational
activities. In its effort to boost sales, the Company also lowered its product
gross margin during the quarter. The Company did not achieve the results that we
initially forecasted due to the severity of the COVID-19 situation in the
Malaysia as explained above.
Operating Expenses
Our operating expenses consist of selling expenses, commission expenses, general
and administrative expenses and provision for doubtful accounts.
Selling expenses
Selling expenses for the three months ended September 30, 2021 amounted to
$82,854 as compared to $159,292 for the three months ended September 30, 2020, a
decrease of $76,438 or approximately 48.0%. The decrease was mainly due to fewer
promotional activities performed in the face of the severity of the COVID-19
pandemic.
Commission expenses
Commission expenses were $76,817 and $300,957 for the three months ended
September 30, 2021 and 2020, respectively, representing a significant decrease
of $224,140 or approximately 74.5%. The significant decrease in commission
expenses was in line with the significant decrease in revenue.
4
General and administrative expenses
General and administrative expenses for the three months ended September 30,
2021 amounted to $369,946, as compared to $355,274 for the three months ended
September 30, 2020, representing an increase of $14,672 or approximately 4.1%.
The increase was mainly due to the increase of professional fees for the
preparation of the Company's U.S. tax return.
Other (Expenses) Income
For the three months ended September 30, 2021, we recorded an amount of $220,812
as other expenses, net as compared to $62,329 other income, net for the three
months ended September 30, 2020, representing a significant decrease of $283,141
or approximately 454.3%. The net other expenses of $220,812 incurred during the
three months ended September 30, 2021 comprised of other expense of $11,643 and
unrealized holding loss on marketable securities of $209,169. The net other
income of $62,329 incurred during the three months ended September 30, 2020
comprised other income of $86,748 and unrealized holding loss on marketable
securities of $24,419.
Benefit of (Provision for) Income Taxes
We recognized benefit of income taxes $14,543 and provision for income taxes
$57,941 for the three months ended September 30, 2021 and 2020, respectively.
During the three months ended September 30, 2021, we mainly recognized our ASL's
taxable losses that can be carried forward for 7 years, which resulted in
recognition of deferred tax assets on net operating loss and income tax
benefits. On the other hand, during the three months ended September 30, 2020,
we generated taxable income in ASL that was subjected to a unified 24% income
tax rate.
Net (Loss) Income
We incurred a net loss of $571,265 for the three months ended September 30,
2021, from a net income of $415,037 for the three months ended September 30,
2020, a decrease of $986,302, predominately due to reasons as discussed above.
For the nine months ended September 30, 2021 and 2020
Revenue
We generated revenue of $806,850 for the nine months ended September 30, 2021 as
compared to $2,936,925 for the nine months ended September 30, 2020,
representing a significant decrease of $2,130,075 or approximately 72.5%. It is
to be noted that as between the two nine-months period, ASL contributed revenue
throughout the entire nine months ended September 30, 2021, whereas ASL's
revenue contribution to us only began from April 1, 2020 to September 30, 2020,
after the acquisition on May 8, 2020. For the period from January 1, 2020 to
March 31, 2020, we were only making sales to our related party on wholesale
basis when ASL placed the purchase orders. Despite a full nine months revenue
contribution from ASL, which brought us a large group of customers in an
established network marketing sales channel that has been in established in
Malaysia for the past 15 years, the $2,130,075 reduction in revenue for the nine
months ended September 30, 2021, was due to the COVID-19 situation in Malaysia
which has turned more severe as explained above. From CMCO, the entire country
was again placed under full lockdown effective May 12, 2021. Despite the
deteriorating COVID-19 state, the government lifted Kuala Lumpur from Enhanced
Movement Control Order ("EMCO") ahead of schedule and ended the nationwide state
of emergency on August 1, 2021. Kuala Lumpur and Selangor remained the epicenter
of the latest wave of infections. Total COVID-19 cases in the country surpassed
the one million mark on July 25, 2021, and daily cases hit a record high of
24,599 on August 26, 2021. Malaysia pressed on with its National COVID-19
Immunization Plan, fast inoculating its residents. COVID-19 infection started to
drop below the 10,000 mark daily since October 3, 2021. As of October 31, 2021,
over 75% of the country's population have been fully vaccinated. The lockdowns
disrupted much of our operational activities, which led to the significant
decrease in revenue for the nine months ended September 30, 2021 as compared to
the same period in 2020. Economically, the prolonged pandemic will adversely
affect the purchasing power of consumers in Malaysia.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2021 amounted to
$149,877 as compared to $658,445 for the nine months ended September 30, 2020,
representing a significant decrease of $508,568 or approximately 77.2%.
The cost of revenue comprised freight-in, cost of goods purchased, and packing
materials. The significant decrease in cost of revenue for the nine months ended
September 30, 2021 as compared to the same period in 2020, was in line with the
significant decrease in our revenues. As explained in the above, much of our
operational activities was disrupted as a result of the resurgence of COVID-19
infection and movement control orders imposed in Malaysia as explained above.
5
Gross Profit
Gross profit for the nine months ended September 30, 2021 amounted to $656,973
as compared to $2,278,480 for the nine months ended September 30, 2020. Gross
margin for the nine months ended September 30, 2021 was approximately 81.4% as
compared to approximately 77.6% for the nine months September 30, 2020. Gross
margin for the two nine months period is less comparable due to (i) change in
our business activities from wholesale business to retail activities effective
April 1, 2020. Typically, selling our products directly to the customers in the
network channel generates higher gross margins as compared to gross margins from
our sales to our related party wholesales customers; and (ii) the adverse
economic impact brought about by the COVID-19 pandemic. We had to adhere to the
MCO which disrupted our operations for the nine months ended September 30, 2021.
Operating Expenses
Our operating expenses consist of selling expenses, commission expenses, general
and administrative expenses and provision for doubtful accounts.
Selling expenses
Selling expenses for nine months ended September 30, 2021 amounted to $299,806
as compared to $268,648 for the nine months ended September 30, 2020,
representing an increase of $31,158 or approximately 11.6%. The increase was
mainly due to selling expenses incurred for the nine months ended September 30,
2021 encompassed selling expenses incurred by ASL for the entire nine months
period, whereas selling expenses for the corresponding period last year in
connection to ASL's retail activities only began form April 1, 2020 to September
30, 2020 after its acquisition on May 8, 2020. The Company incurred higher
salaries and benefits expenses for the current nine months period, as it
represented a full nine months from January 1, 2021 to September 30, 2021, but
lower other selling expenses as compared to the corresponding period last year
where we incurred selling expenses from ASL from April 1, 2020 to September 30,
2020.
Commission expenses
Commission expenses were $258,030 and $683,455 for the nine months ended
September 30, 2021 and 2020, respectively, representing a significant decrease
of $425,425 or approximately 62.2%. The significant decrease in commission
expenses was in line with the decrease in revenue as our sales activities was
disrupted due to the many lockdowns imposed by the government of Malaysia as a
direct result of the resurgence of COVID-19 infections in Malaysia as explained
above.
General and administrative expenses
General and administrative ("G&A") expenses for nine months ended September 30,
2021, amounted to $1,094,042 as compared to $1,029,052 for the nine months ended
September 30, 2020, an increase of $64,990 or approximately 6.3%. G&A expenses
for nine months ended September 30, 2021 encompassed G&A expenses incurred by
ASL for the entire nine months period, whereas G&A expenses for the
corresponding period last year in connection to ASL's retail activities only
began from April 1, 2020 to September 30, 2020, after its acquisition on May 8,
2020.
G&A expenses increased marginally, by approximately 6.3%, as most G&A expenses
incurred for the nine months ended September 30, 2020 were directly related to
the acquisition of ASL, which exercise was completed in April in 2020. The
expenses were therefore not expected to recur.
G&A expenses for the nine months ended September 30, 2021 comprised of
professional fees of $303,880 for legal counsel, auditor, and financial
reporting consultant in the U.S. and Hong Kong, to strengthen our current
Securities and Exchange Commission ("SEC") listing reporting documents and
continue to stay compliant, salary and employee benefit expenses of $464,494,
rental expenses of $135,865, depreciation expenses of $56,919 and other general
and administrative expenses of $132,884.
G&A expenses for the nine months ended September 30, 2020 comprised of
professional fees of $486,870 for legal counsel, auditor, and financial
reporting consultant in the U.S. and Hong Kong, to strengthen our current
Securities and Exchange Commission ("SEC") listing reporting documents and
continue to stay compliant, salary and employee benefit expenses of $275,068,
rental expenses of $111,465, travelling expenses for our CEO for potential
business developments of $34,000, depreciation expenses of $36,524 and other
general and administrative expenses of $85,125.
6
Provision for doubtful accounts
Provision for doubtful accounts were $121,686 and $0 for the nine months ended
September 30, 2021 and 2020, respectively, a significant increase of $121,686 or
100.0%. The provision for doubtful accounts was in respect of prepayments to a
supplier. As the prepayments remain outstanding for over a year, the likelihood
of recovering the prepayments is remote.
Other Income (Expenses)
For the nine months ended September 30, 2021, we recorded an amount of $435,089
as other expenses, net, as compared to $165,210 other income, net, for the nine
months ended September 30, 2020, representing a significant decrease of $600,299
or approximately 363.4%. The net other expenses of $435,089 incurred during the
nine months ended September 30, 2021 comprised of other expenses of $60,189 and
unrealized holding loss on marketable securities of $374,900. The net other
income of $165,210 recognized during the nine months ended September 30, 2020
comprised other income of $62,963 and unrealized holding gain on marketable
securities of $102,247.
Benefit of (Provision for) Income Taxes
We recorded benefit of income taxes $4,452 and provision for income taxes
$192,008 for the nine months ended September 30, 2021 and 2020, respectively.
During the nine months ended September 30, 2021, we mainly recognized our ASL's
taxable losses that can be carried forward for 7 years, which resulted in
recognition of deferred tax assets on net operating loss and income tax
benefits. On the other hand, during the nine months ended September 30, 2020, we
generated taxable income in ASL that was subjected to a unified 24% income tax
rate.
Net Income (Loss)
We had net loss of $1,547,140 for the nine months ended September 30, 2021,
compared with net income of $270,527 for the nine months ended September 30,
2020, , mainly due to reasons as discussed above.
7
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.
On March 5, 2021, lockdowns in most part of the country was eased to a CMCO,
nevertheless, COVID-19 cases in the country continue to rise. On May 12, 2021,
Malaysia was again put under a full lockdown nationwide, until the earlier of
(i) daily COVID-19 cases infection of the country fall below 4,000; (ii)
intensive Unit Care, or ICU, wards start operating at a moderate level; or (iii)
10% of the Malaysian population is fully vaccinated. The country is
administering over 400,000 doses of COVID-19 vaccines daily. On July 17, 2021,
the full lockdown was slightly eased as 13.9% of the Malaysian population was
fully vaccinated, with another 30% having received at least one dose of the
vaccine. The COVID-19 situation in the country showed no sign of abating. Kuala
Lumpur and Selangor remained the epicenter of the latest wave of infections.
Total COVID-19 cases in the country surpassed the one million mark on July 25,
2021, and daily cases hit a record high of 24,599 on August 26, 2021. Despite
the deteriorating COVID-19 state, the government lifted Kuala Lumpur from
Enhanced Movement Control Order ("EMCO") ahead of schedule and ended the
nationwide state of emergency on August 1, 2021. Parliament met for the first
time this year on July 26, 2021. Malaysia pressed on with its National COVID-19
Immunization Plan, fast inoculating its residents. COVID-19 infection started to
drop below the 10,000 mark daily since beginning October 3, 2021. Effective
October 11, 2021, interstate and international travel restrictions were lifted
for residents who had been fully vaccinated against COVID-19 as the country
achieved its target of inoculating 90% of its adult population. The government
is preparing to shift into an endemic COVID-19 phase where it will not impose
wide lockdowns even if cases rise. As of October 31, 2021, over 75% of the
country's population have been fully vaccinated.
8
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 operate 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 September 30, 2021, we had working capital of $3,307,503 consisting of
cash in bank of $847,773 and time deposits of $2,032,119 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.
9
The following summarizes the key components of our cash flows for the nine
months ended September 30, 2021 and 2020:
For the Nine Months Ended
September 30,
September 30, 2021 2020
Net cash used in operating activities $ (541,440 ) $ (743,670 )
Net cash (used in) provided by investing activities (3,970 ) 1,276,114
Net cash (used in) provided by financing activities (23,280 ) 21,104
Effect of exchange rate on cash and cash equivalents (68,233 ) 45,585
Net change in cash and cash equivalents $ (636,923 ) $ 599,133
Operating activities
Net cash used in operating activities for the nine months ended September 30,
2021 was $541,440 and were mainly comprised of the net loss of $1,547,140,
deferred tax benefit of $131,634, decrease in prepayments and deposits of
$4,309, decrease in customer deposits of $44,044, payment of operating lease
liabilities of $111,460 and decrease in other payables and accrued liabilities
of $123,082. The net cash used in operating activities was mainly offset by the
non-cash depreciation and amortization expense of $58,401, amortization of
operating right-of-use assets of $112,678, unrealized holding loss on marketable
securities of $374,900, inventories write-down of $36,636, provision for
doubtful accounts of $121,598, decrease in accounts receivables of $168,019,
decrease in inventories of $90,580, refund in prepaid taxes of 431,224 and
decrease in income tax payables of $26,193.
Net cash used in operating activities for the nine months ended September 30,
2020 was $743,670 and were predominately comprised of the non-cash income on
unrealized holding gain on marketable securities of $102,247, increase in
accounts receivables of $271,876, increase in amount due from a related party of
$1,443, increase in prepaid taxes of $123,507, decrease in customer deposits of
$1,268,487, payment of operating lease liabilities of $69,021 and decrease in
accounts payable of $2,804. The net cash used in operating activities was mainly
offset by net income of $270,527, non-cash depreciation and amortization expense
of $37,517, amortization of operating right-of-use assets of $70,047, deferred
tax provision of $171,586, decrease in inventories of $132,939, decrease in
prepayments and deposits, including related party of $245,496, and increase in
other payables and accrued liabilities of $167,603.
Investing activities
Net cash used in investing activities for the nine months ended September 30,
2021 was $3,970, which was in respect of purchase of equipment.
Net cash provided by investing activities for the nine months ended September
30, 2020 was $1,276,114, which were in respect of cash and cash equivalents
acquired through acquisition of ASL of $1,210,818 and partial proceeds collected
from the sale of our non-marketable securities of $70,173, offset by purchase of
equipment and intangible assets of $4,877.
10
Financing activities
Net cash used in financing activities for the nine months ended September 30,
2021 was $23,280 which were mainly comprised of payment of deferred offering
cost of $15,210 and advances to related parties of $8,070.
Net cash provided by financing activities for the nine months ended September
30, 2020 was $21,104 which were mainly comprised of repayments from related
parties of $224,342 offset by payment of deferred offering cost of $203,238.
Credit Facilities
We do not have any credit facilities or other access to bank credit.
Off-Balance Sheet Arrangements
As of September 30, 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.
11
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.
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.
12
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.
13
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.
In October 2020, the FASB issued ASU 2020-08, "Codification Improvements to
Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs". The amendments
in this Update represent changes to clarify the Codification. The amendments
make the Codification easier to understand and easier to apply by eliminating
inconsistencies and providing clarifications. ASU 2020-08 is effective for the
Company for annual and interim reporting periods beginning January 1, 2021.
Early application is not permitted. All entities should apply the amendments in
this Update on a prospective basis as of the beginning of the period of adoption
for existing or newly purchased callable debt securities. These amendments do
not change the effective dates for Update 2017-08. The adoption of this standard
on January 1, 2021 did not have a material impact on its unaudited condensed
consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, "Codification Improvements". The
amendments in this Update represent changes to clarify the Codification or
correct unintended application of guidance that are not expected to have a
significant effect on current accounting practice or create a significant
administrative cost to most entities. The amendments in this Update affect a
wide variety of Topics in the Codification and apply to all reporting entities
within the scope of the affected accounting guidance. ASU 2020-10 is effective
for annual periods beginning after December 15, 2020 for public business
entities. Early application is permitted. The amendments in this Update should
be applied retrospectively. The adoption of this standard on January 1, 2021 did
not have a material impact on its unaudited condensed consolidated financial
statements.
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