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.
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 subsidiaries, namely, Agape ATP
Corporation, 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, 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.
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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.
Via ASL, 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.
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 Operation
For the years ended December 31, 2021 and 2020
Revenue
We generated revenue of $1,016,962 for the year ended December 31, 2021 as
compared to $3,452,621 for the year ended December 31, 2020, representing a
significant decrease of $2,435,659 or approximately 70.5%. It is to be noted
that as between the two fiscal years, ASL, with its large group of customers in
an established network marketing sales channel that has been in established in
Malaysia for the past 15 years, contributed revenue throughout the entire year
ended December 31, 2021, whereas ASL's revenue contribution to us only began
from April 1, 2020 to December 31, 2020, after its 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.
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Despite a full year revenue contribution from ASL for the year ended December
31, 2021, the Company's revenue decreased significantly due to the COVID-19
situation in Malaysia. From the date of declaration of the COVID-19 a pandemic
on March 11, 2020, by the World Health Organization or WHO to the date of this
report, Malaysia has been put through intermittent lockdowns of various degree
of seriousness such as (1) full movement control orders ("MCO"), under which,
quarantines, travel restrictions, and the temporary closure of stores and
facilities in Malaysia were made mandatory, (2) MCO were 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 and (3) CMCO were further relaxed to Recovery Movement
Control Order ("RMCO").
The lockdowns disrupted much of our operational activities, which led to the
significant decrease in revenue for the year ended December 31, 2021 as compared
to the same period in 2020. As of March 2022, Malaysia stands at position 26 as
the country with the highest COVID-19 cases as recorded under the coronavirus
statistics of the "worldometer". Total COVID-19 cases of the country hit
approximately 3.6 million and associated fatality of 33, 228. These figures are
large relative to the small size economy of the country. The prolonged pandemic
has adversely affected the purchasing power of consumers in Malaysia.
Cost of Revenue
Cost of revenue for the year ended December 31, 2021 amounted to $297,333 as
compared to $775,855 for the year ended December 31, 2020, representing a
significant decrease of $478,522 or approximately 61.7%.
The cost of revenue comprised of freight-in, cost of goods purchased, and
packing materials. The significant decrease in cost of revenue for the year
ended December 31, 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.
Gross Profit
Gross profit for the year ended December 31, 2021 amounted to $719,629 as
compared to $2,676,766 for the year ended December 31, 2020. Gross margin for
the year ended December 31, 2021 was approximately 70.8% as compared to
approximately 77.5% for the year ended December 31, 2020.
In view of the significant drop in revenue, the Company offered promotional
discounts to our customers with the aim to promote sales, which reduced the
gross margin for the year ended December 31, 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 the year ended December 31, 2021 amounted to $394,682 as
compared to $376,582 for the year ended December 31, 2020, an increase of
$18,100 or approximately 4.8%. The increase was mainly due to selling expenses
incurred by ASL for the year ended December 31, 2021 for the entire year,
whereas selling expenses for the corresponding period last year in connection to
ASL's network marketing activities only began from April 1, 2020 to December 31,
2020 after its acquisition. The Company incurred higher salaries and benefits
expenses for the current year, as it represented a full year from January 1,
2021 to December 31, 2021, but lower other selling expenses, such as credit card
processing fees, promotional expenses, events expenses, and travelling expenses
from our sales team, as compared to the corresponding period last year for 9
months only from April 1, 2020 to December 31, 2020.
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Commission expenses
Commission expenses were $316,267 and $830,659 for the years ended December 31,
2021 and 2020, respectively, representing a significant decrease of $514,392 or
approximately 61.9%. The significant decrease in commission expenses was in line
with the significant decrease in revenue.
General and administrative expenses
General and administrative expenses for the year ended December 31, 2021
amounted to $1,745,734, as compared to $1,627,660 for the year ended December
31, 2020, representing an increase of $118,074 or approximately 7.3%. The
increase was mainly due to general and administrative expenses incurred by ASL
for the year ended December 31, 2021 for the entire year, whereas general and
administrative expenses for the corresponding period last year in connection to
ASL's network marketing activities only began from April 1, 2020 to December 31,
2020 after its acquisition. The Company incurred higher salaries and benefits
expenses for the current year, as it represented a full year from January 1,
2021 to December 31, 2021, but lower other general and administrative expenses,
such as professional expenses and office expenses, as compared to the
corresponding period of last year for 9 months only from April 1, 2020 to
December 31, 2020.
Other (Expenses) Income
For the year ended December 31, 2021, we recorded an amount of $529,045 as other
expenses, net as compared to $674,482 other income, net for the year ended
December 31, 2020, representing a change of $1,203,527, or approximately 178.4%,
in other income. The net other expenses of $529,405 incurred during the year
ended December 31, 2021 comprised of other expense of $42,753, unrealized
holding loss on marketable securities of $505,231 and dividend income from
marketable securities of $18,939. The net other income of $674,482 incurred
during the year ended December 31, 2020 comprised of other income of $164,283,
unrealized holding gain on marketable securities of $350,137 and dividend income
from marketable securities of $160,062.
Provision for Income Taxes
We had a provision for income taxes of $137,067 and a provision for income taxes
of $161,581 for the years ended December 31, 2021 and 2020, respectively. 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. On the other hand, during
the year ended December 31, 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 $2,524,680 for the year ended December 31, 2021, from
a net income of $354,766 for the year ended December 31, 2020, a change of
$2,879,446, predominately due to reasons as discussed above.
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.
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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 March 6, 2022, over 78.9% of the
country's population have been fully vaccinated, with a further 46.0% having
received booster shot.
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 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. 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 2022.
As of December 31, 2021, we had working capital of $2,599,281 consisting of cash
in bank of $554,864 and time deposits of $1,975,347 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. The company had a net loss 2,524,680 for
the year end December 31, 2021 and accumulated deficit of $3,258,687 as of
December 31, 2021 as compared to net income of $354,766 for the year ended
December 31, 2021 and accumulated deficit of $734,443 as of December 31, 2020.
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.
34
If we are 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 from the date of
issuance of this Form 10-K. 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, 2021 and 2020:
For the years ended December 31,
2021 2020
Net cash used in operating activities $ (845,842 ) $ (557,951 )
Net cash (used in) provided by investing activities (3,959 ) 1,276,200
Net cash used in financing activities (19,061 ) (22,091 )
Effect of exchange rate on cash and cash equivalents (50,890 ) 76,985
Net change in cash and cash equivalents $ (919,752 ) $ 773,143
Operating activities
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.
Net cash used in operating activities for the year ended December 31, 2020 was
$557,951 and were mainly comprised of the non-cash income on unrealized holding
gain on marketable securities of $350,137 and dividend income from marketable
securities of $160,062, the increase of accounts receivables of $165,149, the
decrease of customer deposits of $1,421,886 and the payment of operating lease
liabilities of $105,009. The net cash used in operating activities was mainly
offset by the net income of $354,766, the non-cash depreciation and amortization
expense of $56,912, amortization of operating right-of-use assets of $106,561,
deferred tax provision of $178,329, the decrease in inventories of $78,674, the
decrease in prepaid taxes of $184,985, the decrease in prepayments and deposits,
including related party of $352,577, and the increase in other payables and
accrued liabilities of $336,709.
Investing activities
Net cash used in investing activities for the year ended December 31, 2021 was
$3,959, the amount entirely for the purchase of equipment.
35
Net cash provided by investing activities for the year ended December 31, 2020
was $1,276,200, which were in respect of cash and cash equivalents acquired
through acquisition of ASL of $1,210,818, partial proceeds collected from the
sale of our non-marketable securities of $70,173 and proceeds from sale of
investment in marketable securities of $121, offset by purchase of equipment and
intangible assets of $4,912.
Financing activities
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.
Net cash used in financing activities for the year ended December 31, 2020 was
$22,091 which were mainly comprised of payment of deferred offering cost of
$249,525 offset by repayments from related parties of $227,434.
Credit Facilities
We do not have any credit facilities or other access to bank credit.
Off-Balance Sheet Arrangements
As of December 31, 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 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 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.
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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.
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.
37
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 consolidated financial statements.
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 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 consolidated financial
statements.
38
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 consolidated financial statements.
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