AGAPE ATP CORP MANAGEMENT'S DISCUSSION AND …

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology.

In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.OverviewAgape 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 subsidiaries, namely, Agape ATP Corporation (“AATP LB”), a company incorporated in Labuan, Malaysia, and Agape Superior Living Sdn. Bhd. (“ASL”), a company incorporated in Malaysia.Agape ATP Corporation, incorporated in Labuan, Malaysia, is an investment holding company with 100% equity interest in Agape ATP International Holding Limited (“AATP HK”), 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., a network marketing entity incorporated in Malaysia.Agape Superior Living Sdn. Bhd. 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 November 11, 2021, Agape ATP Corporation (Labuan) formed a joint-venture entity, DSY Wellness International Sdn.

Bhd. (“DSY Wellness”) with an independent third party which Agape ATP Corporation (Labuan) owns 60% of the equity interest, to pursue the business of providing complementary health therapies.42The 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.Via ASL, the Company offers three series of programs which consist of different services and products: ATP Zeta Health Program, ENERGETIQUE 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 ENERGETIQUE 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.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.To further its reach in the Health and Wellness Industry, on November 11, 2021, Agape ATP Corporation (Labuan) formed a joint-venture entity, DSY Wellness International Sdn. Bhd. (“DSY Wellness”) with an independent third party which Agape ATP Corporation (Labuan) owns 60% of the equity interest, to pursue the business of providing complementary health therapies.Results of OperationFor the years ended December 31, 2022 and 2021RevenueWe generated revenue of £1,856,564, which comprised of revenue from the Company’s network marketing business of £1,141,307 (approximately 61.5%); and revenue from the Company’s operations in the provision of complementary health therapies of £715,257 (approximately 38.5%) for the year ended December 31, 2022 as compared to £1,016,962, which the amount was solely attributable to revenue from the Company’s network marketing business for the year ended December 31, 2021.

Revenue from the Company’s network marketing business increased by £124,345 or approximately 12.2%. Total revenue increased by a significant £839,602 or approximately 82.6%. The increase was predominately due to: (i) the recovery from COVID-19 in Malaysia after April 2022.

The Company made progress in revenue generating as Malaysia, where the Company’s operations predominantly reside, has moved to a COVID-19 endemic phase with minimal restrictions on businesses and people movements in the country; and (ii) the Company’s operations in the provision of complementary health therapies since February 2022.43Cost of RevenueCost of revenue for the year ended December 31, 2022 amounted to £666,042 as compared to £297,333 for the year ended December 31, 2021, representing a significant increase of £368,709 or approximately 124.0%. The significant increase was in line with the increase in revenue as explained in the above.Cost of revenue typically comprise of freight-in, cost of goods purchased, packing materials and services acquired.Gross ProfitGross profit for the year ended December 31, 2022 amounted to £1,190,522, represented a gross margin of approximately 64.1%, as compared to £719,629 for the year ended December 31, 2021, which was equivalent to a gross margin of approximately 70.8%. The decrease in gross margin was predominantly due to a lower gross margin associated with the provision of complementary health therapies as compared to the Company’s network marketing business; and promotional activities undertaken by the Company to increase revenue from its network marketing business.Operating ExpensesOur operating expenses consist of selling expenses, commission expenses, general and administrative expenses and provision for doubtful accounts.Selling expensesSelling expenses for the year ended December 31, 2022 amounted to £361,414 as compared to £394,682 for the year ended December 31, 2021, a decrease of £33,268 or approximately 8.4%.

The Company’s selling expenses typically comprise salaries and benefits expenses, credit card processing fees and promotional expenses. The decrease in selling expenses was predominantly due to decrease in salaries and benefits expenses.Commission expensesCommission expenses were £405,351 and £316,267 for the years ended December 31, 2022 and 2021, respectively, representing an increase of £89,084 or approximately 28.2%. The increase in commission expenses was in line with the increase in revenue.General and administrative expenses (“G&A expenses”)G&A expenses for the year ended December 31, 2022 amounted to £1,957,023, as compared to £1,745,734 for the year ended December 31, 2021, representing an increase of £211,289, or approximately 12.1%.

The increase in G&A expenses was mainly due to G&A expenses associated with the provision of complementary health therapies. The Company’s G&A expenses typically comprise of salaries and benefits expenses, rental expenses, professional expenses and depreciation expenses.44Provision for doubtful accountsProvision for doubtful accounts were £0 and £121,514 for the year ended December 31, 2022 and 2021, respectively. The provision for doubtful accounts was in respect of prepayments to a supplier.

As the Company’s attempts to recover the prepayments were futile, the entire provision for doubtful accounts of £121,514 was written-off during the year ended December 31, 2022.Other (Expenses) IncomeFor the year ended December 31, 2022, we recorded an amount of £136,868 as other expenses, net as compared to £529,045 other expenses, net for the year ended December 31, 2021, representing a significant decrease of £392,177, or approximately 74.1%, in other expenses, net. The net other expenses of £136,868 incurred during the year ended December 31, 2022 comprised of other expenses of £79,539, interest income of £16,190 and unrealized holding loss on marketable securities of £73,519. The net other expenses of £529,405 incurred during the year ended December 31, 2021 comprised of other expense of £68,323, interest income of £25,570, unrealized holding loss on marketable securities of £505,231 and dividend income from marketable securities of £18,939.

The significant decrease of other expenses, net was mainly due to the decrease of unrealized holding loss on marketable securities as a result of market price changes during the year of those investments held by the Company.Benefit of (Provision for) Income TaxesWe had benefits of income taxes of £4,055 and provision for income taxes of £137,067 for the years ended December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, our operations in Malaysia recorded benefits of income taxes due to reversal of overprovision of taxes in prior years.During the year ended December 31, 2021, we had provision for income taxes of £114,862 due to certain permanent items required for the income taxes provision in Malaysia jurisdiction after our Malaysia local tax audit and had provision for income taxes of £22,205 on U.S. GILTI taxes provision.Net LossWe generated a net loss of £1,666,079 for the year ended December 31, 2022, as compared to £2,524,680 for the year ended December 31, 2021, a decrease of £858,601 or approximately 34.0%, predominately due to reasons as discussed above.Liquidity and Capital ResourcesMalaysia, where the operations of the Company predominantly reside, officially transitioned to the endemic phase of COVID-19 effective April 1, 2022.

Restrictions on businesses and people are minimal. Meanwhile, the government continues to encourage inoculation for those between the ages of 5 to 11 years and its adolescent group which comprised those between the ages 12 and 17. Adults who have been fully vaccinated, i.e. received two doses of the COVID-19 vaccine are encouraged to take booster shots.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.Albeit a lengthy 3 years in the COVID-19 pandemic and living alongside COVID-19, there could still be supply chain disruptions.

From our experiences operating under the much-restricted COVID-19 environment, we have modified our methods of operations, to build in sufficient buffer in the management of inventories. We may experience slight delay in products delivery lead time but barring unforeseen circumstances, the setback should be temporary.45We are currently operating 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.

Now that most nations are living alongside COVID-19, we will re-assess our plans to 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 the Company’s total revenues will grow or remain at similar levels year over year in 2023 and beyond.As of December 31, 2022, we had working capital of £799,239 consisting of cash and cash in bank of £523,619 and time deposits of £914,811 as compared to working capital of £2,599,281 consisting of cash and cash in bank of £622,501 and time deposits of £1,975,347 as of December 31, 2021. The Company had a net loss of £1,666,079 for the year ended December 31, 2022 and accumulated deficits of £4,945,586 as of December 31, 2022 as compared to net loss of £2,524,680 for the year ended December 31, 2021 and accumulated deficits of £3,258,687 as of December 31, 2021.In assessing our liquidity and going concern, management is projecting that the company’s revenue will revert to pre-pandemic level, generating sufficient cash therefrom to cover our operating expenses.If our Company is unable to generate sufficient cash flow within the normal operating cycle of a twelve-month period to pay for its future payment obligations, we may have to consider supplementing our available sources of funds through the following sources: ? other available sources of financing from Malaysia banks and other financial institutions; and ? financial support from our related parties and shareholders.Based on the above initiatives, management is of the opinion that the Company shall have sufficient funds to meet its working capital requirements and debt obligations as they become due in the foreseeable future twelve months from the date of issuance of this Annual Report.

However, there is no assurance that management will be successful in its plans.The following summarizes the key components of our cash flows for the years ended December 31, 2022 and 2021: For the years ended December 31, 2022 2021Net cash used in operating activities £ (811,683 ) £ (845,842 )Net cash used in investing activities (32,119 ) (3,959 )Net cash used in financing activities (234,466 ) (19,061 )Effect of exchange rate on cash and cash equivalents (81,150 ) (50,890 )Net change in cash and cash equivalents £ (1,159,418 ) £ (919,752 )46Operating activitiesNet cash used in operating activities for the year ended December 31, 2022 was £811,683 and were mainly comprised of the net loss of £1,666,079, the non-cash deferred tax benefit of £14,751, the increase in accounts receivables of £2,824, the increase in amount due from related parties of £3,786, the payment of operating lease liabilities of £145,197 and the decrease in other payables (including related parties) and accrued liabilities of £115,085. The net cash used in operating activities was mainly offset by the non-cash depreciation and amortization expense of £73,876, amortization of operating right-of-use assets of £144,064, the unrealized holding loss on marketable securities of £73,519, inventory write-downs of £5,307, the decrease in inventories of £343,483, the refund in prepaid taxes of £263,404, the decrease in prepayments and deposits of £89,113, the increase in accounts payable (including related parties) of £41,422, increase in customer deposits of £94,877 and increase in income tax payables of £6,974.Net cash used in operating activities for the year ended December 31, 2021 was £845,842 and were mainly comprised of the net loss of £2,524,680, dividend income from marketable securities of £18,939, the increase in prepayments and deposits of £128,363, and the payment of operating lease liabilities of £138,143. The net cash used in operating activities was mainly offset by the non-cash depreciation and amortization expense of £77,758, amortization of operating right-of-use assets of £139,451, the unrealized holding loss on marketable securities of £505,231, the non-cash deferred tax expense of £10,127, inventories write-down of £36,241, provision for doubtful accounts of £121,514, the decrease of accounts receivables of £167,566, the decrease in inventories of £192,713, the refund in prepaid taxes of £430,062, the increase in customer deposits of £52,981, the increase in income tax payables of £3,988, and the increase in other payables and accrued liabilities of £226,651.Investing activitiesNet cash used in investing activities for the year ended December 31, 2022 was £32,119, the amount entirely for the purchase of equipment and intangible assets.Net cash used in investing activities for the year ended December 31, 2021 was £3,959, the amount entirely for the purchase of equipment.Financing activitiesNet cash used in financing activities for the year ended December 31, 2022 was £234,466, the amount entirely payment of deferred offering cost.Net cash used in financing activities for the year ended December 31, 2021 was £19,061, mainly comprised of payment of deferred offering cost of £15,210 and advances to related parties of £3,851.Credit FacilitiesWe do not have any credit facilities or other access to bank credit.Off-Balance Sheet ArrangementsAs of December 31, 2022, 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 EstimatesThe preparation of 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 consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include allowance for inventories obsolescence, impairment of long-lived assets, allowance for deferred tax assets. Following are the methods and assumptions used in determining our estimates.47Estimated allowance for inventories obsolescenceManagement reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products.

Based on the review, the Company records inventory write-downs, when necessary, when costs exceed expected net realizable value. For the years ended December 31, 2022 and 2021, the Company recognize an inventory write-downs of £5,307 and £36,241, respectively.Impairment of long-lived assetsOperating right-of-use assets and property, plant and equipment are stated at costs less accumulated depreciation and impairment, if any. In determining whether an asset is impaired, the Company has to exercise judgment and make estimation, particularly in assessing: (1) whether an event has occurred or any indicators that may affect the asset value; (2) whether the carrying value of an asset can be supported by the recoverable amount, in the case of value in use, the present value of future cash flows which are estimating the recoverable amounts including cash flow projections and an appropriate discount rate.

Changing the assumptions and estimates, including the discount rates or the growth rate in the cash flow projections, could materially affect the net present value used in the impairment test.As of December 31, 2022 and 2021, the carrying amounts of operating right-of-use assets and property, plant and equipment is amounted to £81,133 and £142,149 (December 31, 2021: £237,718 and £215,799), respectively. No impairment losses on operating right-of-use assets and property, plant and equipment were recognized as of December 31, 2022 and 2021.Recognition of income taxes and allowance for deferred tax assets/liabilitiesThe Company conducts much of its business activities in Malaysia and Hong Kong and is subject to tax in each of these jurisdictions. Significant estimates are required in determining the provision for income taxes.

There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.Deferred tax assets relating to certain temporary differences and tax losses are recognized as management considers it is probable that future taxable profit will be available against which the temporary differences or tax losses can be utilized. Where the expectation is different from the original estimate, such differences will impact the recognition of deferred taxation assets and taxation in the periods in which such estimate is changed.48Critical Accounting PoliciesRevenue recognitionThe Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC Topic 606).

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.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 timeThe 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.Under the Company’s network marketing business, the Company issues product coupons to members and distributors when these customers made purchases above certain thresholds set by the Company. Depending on the type of product coupons issued, the coupons carry varying values and can be used by the customers for reduction in the transaction price of product purchases within the coupon validity period. The value of the product coupons issued is recorded as a reduction of the Company’s revenue account upon issuance; the corresponding amount credited to the customer deposits account.

Amounts in customer deposits will be reversed when the coupons are used. The Company’s coupons have a validity period of between six and twelve months. If the Company’s customers did not utilize the coupons after the validity period, the Company would recognize the forfeiture of the originated sales value of the coupons as net revenues.Provision of Health and Wellness services– Performance obligations satisfied at a point in timeThe 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.49Fair value of financial instrumentsThe 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 pronouncementsThe Company has reviewed all recently issued, but not yet effective, considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.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 ASUs 2016-13 and 2019-05 may have on its consolidated financial statements.Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.(C) Edgar Online, source Glimpses