Agape ATP Corp: Form 10-Q for the period ended Sep 30, 2024

The information contained in this quarterly report on Form 10-Q is intended to update the information contained in our Form 10-K, dated April 1, 2024, for the year ended December 31, 2023 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 unaudited condensed consolidated financial statements and the notes to the unaudited condensed 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”) 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 an 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.

The Company is positioning itself for sustainable growth by diversifying its operations into the domain of renewable energy. This initiative is founded upon our commitment to environmental responsibility, long-term value creation, and proactive adaptation to global energy trends. On January 3, 2024, the Company formed an equity method investment entity, OIE ATPC Holdings (M) Sdn. Bhd. with Oriental Industries Enterprise (M) Sdn Bhd (“OIE”), which the Company and OIE each own 50% of the equity interest. On March 14, 2024, the Company acquired 50% of OIE ATPC Holdings (M) Sdn Bhd equity interest from OIE, subsequently the entity becomes a wholly owned subsidiary of the Company. On June 7, 2024, the entity changed its name to ATPC Green Energy Sdn Bhd.

On January 8, 2024, OIE ATPC Holdings (M) Sdn Bhd formed a wholly own entity, OIE ATPC Exim (M) Sdn Bhd. However, the Company had decided not to proceed with the continued development of OIE ATPC Exim (M) Sdn Bhd.

Results of Operation

For the three months ended September 30, 2024 and 2023

Revenue

We generated revenue of $331,289, which comprised revenue from the Company’s network marketing business of $29,133 (approximately 8.8% of revenue); revenue from the Company’s operations in the provision of complementary health therapies of $283,752 (approximately 85.7% of revenue) and revenue from Company’s operation in wellness and wellbeing lifestyle of $18,404 (approximately 5.5% of revenue) for the three months ended September 30, 2024 as compared to $355,314, which comprised revenue from the Company’s network marketing business of $89,208 (approximately 25.1% of revenue); revenue from the Company’s operations in the provision of complementary health therapies of $266,106 (approximately 74.9% of revenue) and there were no revenue generated from the Company’s operation in wellness and wellbeing lifestyle for the three months ended September 30, 2023. Revenue from the Company’s network marketing business decreased significantly by $60,075, or approximately 67.3%. Revenue from the Company’s operations in the provision of complementary health therapies increased by $17,646, or approximately 6.6%. The Company generated $18,404 from skin care and healthcare products, a new revenue stream from the Company’s operations in wellness and wellbeing lifestyle. Total revenue decreased by $24,025, or approximately 6.8%. The revenue decreased from the Company’s network marketing business was predominately due to the poor performance owing to limited product range available as compared to the previous years, which limited the potential development of this revenue stream. The revenue increased in provision of complementary health therapies business was due to after COVID-19 pandemic, more individual turned to complementary health therapies as preventive care and wellness to maintain good health, prevent illness and promote overall well-being. To align with Company’s core mission and emphasizing commitment to health and wellness, the Company venture into a new revenue stream by providing skin care and healthcare products in the Company’s operation in wellness and wellbeing lifestyle.

Cost of Revenue

Cost of revenue for the three months ended September 30, 2024 amounted to $147,104 as compared to $120,586 for the three months ended September 30, 2023, an increase of $26,518 or approximately 22.0%. The increase was due to the higher product cost in the Company’s network marketing business and the varying gross profit margins in the Company’s operations in the provision of complementary health therapies.

Cost of revenue typically comprise of freight-in, cost of goods and services purchased, packing materials and services acquired.

Gross Profit

Gross profit for the three months ended September 30, 2024 amounted to $184,185, represented a gross margin of approximately 55.6% as compared to $234,728 for the three months ended September 30, 2023, equivalent to a gross margin of approximately 66.1%. The decrease in gross margin was predominantly due to lower gross margin sustained by the Company’s network marketing business and the varying type of health therapies offered, gross margin associated with the provision of complementary health therapies.

Operating Expenses

Our operating expenses consist of selling expenses, commission expenses and general and administrative expenses (as defined below). Total operating expenses were $732,295 for the three months ended September 30, 2024, increased by $180,489 or approximately 32.7% from $551,806 for the three months ended September 30, 2023.

Selling expenses

Selling expenses for the three months ended September 30, 2024 amounted to $41,582 as compared to $49,285 for the three months ended September 30, 2023, a decrease of $7,703, or approximately 15.6%. The Company’s selling expenses typically comprise salaries and benefits expenses which represented approximately 80% to 85% of total selling expenses, credit card processing fees and promotional expenses.

Commission expenses

Commission expenses were $6,894 and $14,002 for the three months ended September 30, 2024 and 2023, respectively. The decrease in commission expenses was in line with the decrease in revenue in Company’s network marketing business.

General and administrative expenses (“G&A Expenses”)

G&A expenses for the three months ended September 30, 2024 amounted to $683,819, as compared to $488,519 for the three months ended September 30, 2023, an increase of $195,300, or approximately 40.0%. The Company’s G&A expenses typically comprise of salaries and benefits expenses, rental expenses, professional expenses and depreciation expenses. The increase in G&A expenses was mainly due to the salary incurred for one executive director and three independent directors, professional fees and the Nasdaq annual listing fees.

Other Income (Expenses), Net

For the three months ended September 30, 2024, the Company recorded an amount of $21,196 as other income, net, as compared to $3,714 other expenses, net, for the three months ended September 30, 2023, represented an increase of $24,910 in other income, net, or approximately 670.7%.

The other income, net of $21,196 generated during the three months ended September 30, 2024 comprised of foreign currency exchange gain of $2,525, unrealized holding loss on marketable securities of $1,176, other income, net of $3,445, gain on disposal of property and equipment of $111 and interest income of $16,291. The other expenses, net of $3,714 incurred during the three months ended September 30, 2023 comprised foreign currency exchange loss of $382, unrealized holding loss on marketable securities of $3,872, other expenses, net of $98, interest income of $658 and loss on disposal of property and equipment of $20.

Income Tax Credit (Expense)

The Company recorded benefit of income taxes of $2,875 and provision for income taxes of $3,943 for the three months ended September 30, 2024 and 2023, respectively. Both the provision for income taxes as well as the benefit of income taxes were in respect of the Company’s operations in Malaysia.

Net Loss

Net loss increased by $199,304 from a net loss of $324,735 for the three months ended September 30, 2023 to a net loss of $524,039 for the three months ended September 30, 2024, mainly due to reasons as discussed above.

For the nine months ended September 30, 2024 and 2023

Revenue

We generated revenue of $962,971, which comprised revenue from the Company’s network marketing business of $95,458 (approximately 9.9% of revenue); revenue from the Company’s operations in the provision of complementary health therapies of $849,109 (approximately 88.2% of revenue) and revenue from Company’s operation in wellness and wellbeing lifestyle of $18,404 (approximately 1.9% of revenue) for the nine months ended September 30, 2024 as compared to $1,040,017, which comprised revenue from the Company’s network marketing business of $318,729 (approximately 30.6% of revenue); and revenue from the Company’s operations in the provision of complementary health therapies of $721,288 (approximately 69.4% of revenue) for the nine months ended September 30, 2023. Revenue from the Company’s network marketing business decreased significantly by $223,271, or approximately 70.1%. Revenue from the Company’s operations in the provision of complementary health therapies increased by $127,821, or approximately 17.7%. The Company generated $18,404 from skin care and health products, a new revenue stream from the Company’s operations in wellness and wellbeing lifestyle. Total revenue decreased by $77,046, or approximately 7.4%. The decrease was predominately due to the poor performance from the Company’s network marketing business owing to limited product range available as compared to the previous years, which limited the potential development of this revenue stream.

Cost of Revenue

Cost of revenue for the nine months ended September 30, 2024 amounted to $381,805 as compared to $356,875 for the nine months ended September 30, 2023, an increase of $24,929, or approximately 7.0%. The increase was not in line with the decrease in revenue due to higher product cost in the Company’s network marketing business and the varying gross profit margins in the Company’s operations in the provision of complementary health therapies.

Cost of revenue typically comprise of freight-in, cost of goods and services purchased, packing materials and services acquired.

Gross Profit

Gross profit for the nine months ended September 30, 2024, amounted to $581,166, represented a gross margin of approximately 60.4% as compared to $683,142 for the nine months ended September 30, 2023, equivalent to a gross margin of approximately 65.7%. The decrease in gross margin was predominantly due to lower gross margin sustained by the Company’s network marketing business and the varying type of health therapies offered, gross margin associated with the provision of complementary health therapies.

Operating Expenses

Our operating expenses consist of selling expenses, commission expenses, general and administrative expenses. Total operating expenses were $2,306,400 for the nine months ended September 30, 2024, increased by $492,763 or approximately 27.2% from $1,813,637 for the nine months ended September 30, 2023.

Selling expenses

Selling expenses for the nine months ended September 30, 2024 amounted to $129,938 as compared to $189,509 for the nine months ended September 30, 2023, a decrease of $59,571, or approximately 31.4%, predominantly due to decrease in promotional expenses and reduced in number of headcounts as compared to previous year. The Company’s selling expenses typically comprise of salaries and benefits expenses which represented approximately 80% to 85% of total selling expenses, credit card processing fees and promotional expenses.

Commission expenses

Commission expenses were $23,573 and $69,886 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $46,313, or approximately 66.3%. The decrease in commission expenses was in line with the decrease in revenue in Company’s network marketing business.

General and administrative expenses (“G&A expenses”)

G&A expenses for the nine months ended September 30, 2024 amounted to $2,152,889, as compared to $1,554,242 for the nine months ended September 30, 2023, an increase of $598,647, or approximately 38.5%. The increase in G&A expenses was mainly due to the salary incurred for one executive director and three independent directors, professional fees and the Nasdaq annual listing fees. The Company’s G&A expenses typically comprise of salaries and benefits expenses, rental expenses, professional expenses and depreciation expenses.

Other Income (Expenses), Net

For the nine months ended September 30, 2024, the Company recorded an amount of $79,588 as other income, net, as compared to $10,476 other expenses, net, for the nine months ended September 30, 2023, represented an increase of $90,064 in other income, net, or approximately 859.7%.

The other income, net of $79,588 generated during the nine months ended September 30, 2024 comprised foreign currency exchange gain of $1,745, unrealized holding loss on marketable securities of $6,642, other income, net of $25,942, gain on disposal of property and equipment of $111 and interest income of $58,432. The other expenses, net of $10,476 incurred during the nine months ended September 30, 2023 comprised foreign currency exchange loss of $34,958, unrealized holding gain on marketable securities of $4,838, other income, net of $12,402, interest income of $5,475 and gain on disposal of property and equipment of $1,767.

Income Tax Expense (Credit)

The Company recorded provision for income taxes of $13,803 and benefit of income taxes of $2,712 for the nine months ended September 30, 2024 and 2023, respectively. Both the provision for income taxes as well as the benefit of income taxes were in respect of the Company’s operations in Malaysia.

Net Loss

Net loss increased by $521,189 from net loss of $1,138,259 for the nine months ended September 30, 2023 to net loss of $1,659,449 for the nine months ended September 30, 2024, mainly due to reasons as discussed above.

Liquidity and Capital Resources

As of September 30, 2024, we had working capital of $2,452,343, consisting of cash and cash in bank of $266,173 and time deposits of $2,452,860 as compared to working capital of $4,113,614 consisted of cash and cash in bank of $510,019 and time deposits of $4,322,441 as of December 31, 2023. The Company had a net loss of $1,659,449 for the nine months ended September 30, 2024 and accumulated deficits of $8,709,605 as of September 30, 2024 as compared to net loss of $2,109,935 for the year ended December 31, 2023 and accumulated deficits of $7,047,571 as of December 31, 2023.

The following summarizes the key components of our cash flows for the nine months ended September 30, 2024 and 2023:

8

Operating activities

Net cash used in operating activities for the nine months ended September 30, 2024 was $2,080,879, comprised of net loss of $1,659,449, gain on disposal of office equipment of $111, the increase in inventories of $6,473, the increase in prepaid taxes of $8,592, the increase in prepayments and deposits of $329,898, the increase in other receivables $949, the decrease in customer deposits of $16,349, the payment of operating lease liabilities of $102,605, the decrease in other payables (including related parties) and accrued liabilities of $186,986. The net cash used in operating activities was mainly offset by non-cash depreciation and amortization expense of $36,022, amortization of finance assets of $18,956, amortization of operating right-of-use assets of $103,187, unrealized holding loss on marketable securities of $6,642, deferred tax benefit of $218, allowance for expected credit loss $28,359, the decrease in accounts receivables of $6,353, the decrease in other receivables (including related parties) of $8,858, the increase in account payable (including related parties) $8,724, and the increase of income tax payable of $13,213.

Net cash used in operating activities for the nine months ended September 30, 2023 was $995,706, comprised of net loss of $1,138,259, increase in accounts receivables of $20,800, increase in amount due from related parties of $782, increase in inventories of $13,484, decrease in customer deposits of $45,083, payment of operating lease liabilities of $114,943, decrease in other payables and accrued liabilities of $219,676, decrease in other payable – related parties of $1,959, decrease in income tax payable of $10,674, the non-cash items on unrealized holding gain on marketable securities of $4,838, deferred tax benefit of $6,537, offset by the non-cash depreciation and amortization expense of $59,424, amortization of operating right-of-use assets of $113,804, refund in prepaid taxes of $307,967, decrease in prepayments and deposits of $84,978, increase in accounts payables (including related parties) of $15,156.

Investing activities

Net cash used in investing activities for the nine months ended September 30, 2024 was $48,611, which was due to purchase of property and equipment of $48,722 and proceeds from disposal of office equipment $111.

Net cash used in investing activities for the nine months ended September 30, 2023 was $7,200, which was in respect of purchase of equipment.

Financing activities

Net cash used in financing activities for the nine months ended September 30, 2024 was $6,691, which was the reduction of finance lease liability.

Deferred offering cost made up the entire net cash used in financing activities for the nine months ended September 30, 2023 of $113,911.

Credit Facilities

We do not have any credit facilities or other access to bank credit.

Off-Balance Sheet Arrangements

As of September 30, 2024, 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 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 inventories obsolescence, allowance for expected credit loss, impairment of long-lived assets and allowance for deferred tax assets. Following are the methods and assumptions used in determining our estimates.

Estimated allowance for inventories obsolescence

Management 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. The Company did not recognize any inventory write-downs nor inventory write-off for the nine months ended September 30, 2024 and 2023.

Impairment of long-lived assets

Operating 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 is not recoverable that is its carrying amount exceeds the amount of expected undiscounted future cash flows result from the use of the asset. Once it is established that impairment has occurred, the amount of impairment expense is determined as the difference between the carrying value of the asset and its estimated fair value based on a discounted cash flows approach.

As of September 30, 2024, the carrying amounts of operating right-of-use assets and property and equipment amounted to $282,734 and $47,508 as compared to December 31, 2023, the carrying amounts of operating right-of-use assets and property and equipment amounted to $357,301 and $77,858, respectively. No impairment losses on operating right-of-use assets and property and equipment were recognized as of September 30, 2024 and 2023.

Allowance for deferred tax assets

The 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 more likely than not 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 tax assets and taxation in the periods in which such estimate is changed.

Allowance for expected credit loss

The Company estimates and records an allowance for its expected credit loss related to its accounts receivable. Credit losses are determined by Current Estimate of Expected Credit Losses model in accordance with Topic 326 – Financial Instruments – Credit Losses. For accounts receivable, the Company considers historical collectivity based on past due status, the age of the accounts receivable balances, credit quality of the Company’s customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers.

Critical Accounting Policies

Revenue recognition

The 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 Skin Care, 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.

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.

Sales of products for the provision of complementary health therapies

• Performance obligations satisfied at a point in time

Products for the provision of complementary health therapies are predominantly Chinese herbs in different forms, processed or otherwise, for prescriptions for treating non-communicable diseases.

The Company based on the health screening test report to prescribe the products for the provision of complementary health therapies, the Company deliver the products to the customers during the consultation session.

Provision 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. The health screening test is considered as separate performance obligations. The promises to deliver the health screening test report is separately identifiable, which is evidenced by the fact that the Company provides separate services of delivering the health screening test report.

The Company based on the health screening test contracts with customers, establishes the selling price for the health screening test and place order to the health screening center. The Company obtains control of the test report before they are delivered to the customers. The Company analyze the test report, provides consultations to the customers, bundle it with the Company’s products and services depending on the customer’s needs.

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 session in person.

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.

Accounting Standards Adopted in 2024

In March 2023, the FASB issued ASU No. 2023-01 “Leases (Topic 842) Common Control Arrangements”. This ASU provides guidance in ASC Topic 842 that Leasehold improvements associated with common control leases should be (i) amortized by the lessee over the useful life of the leasehold improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset through a lease, and (ii) accounted for as a transfer between entities under common control through an adjustment to equity if and when the lessee no longer controls the use of the underlying asset. The ASU 2023-01 is effective for reporting periods beginning after December 15, 2023. The adoption of this accounting standard has no material impact on the unaudited condensed consolidated financial statements for the nine months ended and as at September 30, 2024.

The adoption of these ASUs did not have a material impact on the unaudited condensed consolidated financial statements for the nine months end and as at September 30, 2024.

Recent accounting pronouncements

The 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 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. The ASU 2023-07 is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU 2023-07 is effective for annual reporting periods beginning after December 15, 2023 and interim periods in fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this ASU may have on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The ASU 2023-09 requires companies to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). The ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this ASU may have on its consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01 “Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards”. The ASU clarify how an entity determines whether a profits interest or similar award is within the scope of Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation, by adding illustrative guidance. The guidance in ASU 2024-01 is effective for annual reporting periods beginning after December 15, 2024, and can be applied either retrospectively to all prior periods presented in the consolidated financial statements or prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. Early adoption is permitted. The adoption of ASU 2024-01 is not expected to have any impact on the Company’s consolidated financial statements.

In March 2024, the FASB issued ASU 2024-02 “Codification Improvements – Amendments to Remove References to the Concepts Statements”. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. The amendments in this update are effective for annual reporting periods beginning after December 15, 2024 and are not expected to have a significant impact on our financial statements.

Except for the above-mentioned pronouncements, there are no other new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.

Foreign exchange risk. Substantially most of our revenues are denominated in the Malaysian Ringgit while most of our expenses are denominated in Malaysian Ringgit, U.S. dollar and Hong Kong Dollar. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Although in general, our exposure to foreign exchange risks should be limited, the value of an investment in our Common Stock may be affected by the foreign exchange rate between U.S. dollar and Malaysian Ringgit; and U.S. dollar and Hong Kong Dollar because the value of our business is effectively denominated in Malaysian Ringgit and Hong Kong Dollar, while the Common Stock is traded in U.S. dollars.

Credit risk. Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for expected credit loss based upon factors surrounding the credit risk of specific customers, historical trends and other information.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on the foregoing evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.

Internal Control Over Financial Reporting

Our management, including our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s chief executive officer and chief financial officer and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of September 30, 2024, our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on such evaluation, the Company’s management, including our chief executive and chief financial officer, concluded that, during the period covered by this Report, internal controls and procedures over financial reporting were not effective. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

Identified Material Weakness

A material weakness in internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

Management, including our chief executive officer and chief financial officer identified the following material weakness during its assessment of internal controls over financial reporting as of September 30, 2024:

(i) insufficient full-time personnel with appropriate levels of accounting knowledge and experience to monitor the daily recording of transactions, address complex U.S. GAAP accounting issues and to prepare and review financial statements and related disclosures under U.S. GAAP; (ii) lack of a functional internal audit department or personnel that monitors the consistencies of the preventive internal control procedures and lack of adequate policies and procedures in internal audit function to ensure that the Company’s policies and procedures have been carried out as planned.

Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

Management’s Remediation Initiatives

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we will prepare written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines, to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity and debt transactions.

To further strengthen the Company’s internal controls, we plan to initiate the following measures going forward:

1. We intend to establish an internal audit function with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control.

2. Once we hire additional employees, we intend to initiate a comprehensive training program and development plan to provide ongoing company-wide trainings regarding internal control and requirements of U.S. GAAP financial statements and related disclosures, with particular emphasis on our accounting staff.

We anticipate that these initiatives will be at least partially, if not fully, implemented by the mid of fiscal year 2025.

Changes in Internal Control over Financial Reporting:

Except as disclosed above, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.