Acro Biomedical Co., Ltd 10-Q for FY2021 Q3
Acro Biomedical Co., Ltd. (ACBM)
About this 10-Q
Acro Biomedical Co., Ltd filed this 10-Q on November 22, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $0
- compared with $0 a year earlier
- Net loss
- $2.99M
- compared with a net loss of $73.1K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the quarterly period ended | |
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the transition period from _____________ to _____________ | |
Commission File Number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
TABLE OF CONTENTS
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| Table of Contents |
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our report on Form 10-K for the year ended December 31, 2020, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
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| Table of Contents |
Item 1. Financial Statements
ACRO BIOMEDICAL CO., LTD.
Balance Sheets
(Unaudited)
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ASSETS |
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Current Assets |
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Cash |
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Inventories |
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Purchase deposit for inventory |
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Prepaid expenses |
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Security deposit |
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Total Current Assets |
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Operating lease right of use asset |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities |
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Accounts payable and accrued expenses |
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Deferred revenue |
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Due to related parties |
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Operating lease liabilities - current |
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Total Current Liabilities |
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TOTAL LIABILITIES |
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Stockholders' Equity |
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Preferred stock: |
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Common stock: |
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Additional paid-in capital |
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Deferred stock compensation |
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Accumulated deficit |
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Total Stockholders’ Equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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The accompanying notes are an integral part of these unaudited financial statements.
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| Table of Contents |
ACRO BIOMEDICAL CO., LTD.
Statements of Operations
(Unaudited)
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Revenues |
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Cost of revenues |
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Gross profit |
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Operating expenses |
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Selling, general and administrative |
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Research and development |
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Total operating expenses |
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Loss from operations |
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Other expense |
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Interest expense - related party |
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Total other expenses |
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Income (loss) before income tax credit |
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Income taxes credit |
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Net loss |
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Basic and diluted loss per share of common stock |
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Weighted average number of shares of common stock outstanding |
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The accompanying notes are an integral part of these unaudited financial statements.
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| Table of Contents |
ACRO BIOMEDICAL CO., LTD.
Statements of Changes in Stockholders’ Equity
(Unaudited)
For the Nine Months Ended September 30, 2021
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Balance, December 31, 2020 |
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Imputed interest on related party loans |
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Net loss |
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Balance, March 31, 2021 |
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Stock issued for services, net of amortization of deferred compensation |
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Imputed interest on related party loans |
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Net loss |
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Balance, June 30, 2021 |
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Stock issued for services, net of amortization of deferred compensation |
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Imputed interest on related party loans |
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Net loss |
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Balance, September 30, 2021 |
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For the Nine Months Ended September 30, 2020
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Balance, December 31, 2019 |
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Imputed interest on related party loans |
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Net income |
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Balance, March 31, 2020 |
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Imputed interest on related party loans |
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Net loss |
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Balance, June 30, 2020 |
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Imputed interest on related party loans |
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Net loss |
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Balance, September 30, 2020 |
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The accompanying notes are an integral part of these unaudited financial statements
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| Table of Contents |
ACRO BIOMEDICAL CO., LTD.
Statements of Cash Flows
(Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Imputed interest - related parties |
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Stock based compensation |
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Change of ROU and lease liabilities |
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Changes in operating assets and liabilities: |
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Inventories |
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Purchase deposit for inventory |
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Prepaid expenses |
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Accounts payable and accrued expenses |
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Deferred revenue |
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Net cash provided by (used in) operating activities |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Advances from related parties |
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Repayment to related parties |
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Net cash provided by (used in) financing activities |
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Net change in cash and cash equivalents |
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Cash at beginning of period |
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Cash at end of period |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for income taxes |
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Cash paid for interest |
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The accompanying notes are an integral part of these unaudited financial statements.
| 7 |
| Table of Contents |
ACRO BIOMEDICAL CO., LTD.
Notes to Financial Statements
September 30, 2021
(Unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Acro Biomedical Co., Ltd. (the “Company”) is a Nevada corporation incorporated on September 24, 2014 under the name Killer Waves Hawaii, Inc. On January 30, 2017, the Company’s corporate name was changed to Acro Biomedical Co., Ltd.
The Company’s business is the sale of cordyceps related products and, to a significantly lesser extent, metallothionein MT-3 elizer, a protein that in powder form is used in health supplements. Cordyceps is a fungus that is used in traditional Chinese medicine. The Company has not sold metallothionein MT-3 elizer since the quarter ended June 30, 2018, and its present inventory and the purchase deposit for inventory are for cordyceps related products. During the second and third quarters of 2021, the Company engaged consultants to take the initial steps to develop and implement a research and development and marketing program. These consultants are working independently and report to the chief executive officer. The Company cannot give any assurance that the marketing and research development activities will generate any new product or new marketing opportunities or generate any significant revenue.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with Rule 8-03 of Regulation S-X. Accordingly, the unaudited interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended December 31, 2020 have been omitted; and these unaudited interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the year ended December 31, 2020 included within the Company’s transition report on Form 10-K, filed with SEC on April 2, 2021.
In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the unaudited interim financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.
| 8 |
| Table of Contents |
Revenue Recognition
We recognize revenue in accordance with Topic 606, which requires revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| • | identify the contract with a customer; |
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| • | identify the performance obligations in the contract; |
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| • | determine the transaction price; |
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| • | allocate the transaction price to performance obligations in the contract; and |
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| • | recognize revenue as the performance obligation is satisfied. |
Under these criteria, the Company generally recognizes revenue when its products are delivered to customers in accordance with the written sales terms.
Inventories
Inventories consist of finished goods. Inventories are valued at the lower of cost or net realizable value. The Company determines cost on the basis of first-in, first-out methods. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written down or written off. Although the Company believes that the assumptions it uses to estimate inventory write-downs are reasonable, future changes in these assumptions could provide a significantly different result. No inventory markdown was recorded for the nine months ended September 30, 2021 and 2020.
Net Income (Loss) Per Share of Common Stock
The Company has adopted ASC Topic 260, “Earnings per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. There were no potentially dilutive shares of common stock outstanding for the nine months ended September 30, 2021 and 2020.
COVID-19
Since our products are purchased by customers in the Republic of China (Taiwan) and Hong Kong who sold products to their customers in the People’s Republic of China (the “PRC”), our business was impacted by the effects of the COVID-19 pandemic and the actions taken by the governments of the PRC, the Republic of China and Hong Kong. We cannot predict the effect on our business of the COVID-19 pandemic and the steps taken by governments to address the pandemic. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company.
NOTE 3 - GOING CONCERN
The accompanying unaudited financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company generated no revenue in the quarter ended September 30, 2021, incurred losses from its operations and had accumulated deficit as of September 30, 2021. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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The Company proposes to fund operations through sales of its products and equity financing arrangements. However, the Company does not have any agreements or understanding with respect to any financing and, because of the lack of sales and the absence of any active trading market for its common stock, its financial condition and its lack of an operating history, the Company may not be able to raise funds for capital expenditures, working capital and other cash requirements. The Company’s ability to implement its marketing plan may also be affected by the COVID-19 pandemic and actions taken by governments to address the pandemic as well as political events and legislation in Hong Kong. If the Company cannot generate revenue from its products, it may not be able to continue in its business and may need to rely on advances from stockholders.
NOTE 4 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2021 and 2020, a stockholder paid expenses of $
At September 30, 2021 and December 31, 2020, the Company owed $
At September 30, 2021 and December 31, 2020, the Company owed $
The Company has imputed interest at the rate of 4% on the advances made to the Company in the amount of $
NOTE 5 - LEASES
On December 27, 2019, the Company entered into a lease agreement to rent a storage facility in Hong Kong for a
In accordance with ASC 842, the Company recognized operating lease ROU assets and lease liabilities as follows:
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| September 30, |
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| December 31, |
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| 2021 |
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| 2020 |
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Operating lease ROU asset |
| $ |
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| $ |
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| September 30, |
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| December 31, |
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| 2021 |
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| 2020 |
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Operating lease liabilities |
| $ |
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| $ |
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Future minimum lease payments under operating leases at September 30, 2021 were as follows:
Remainder 2021 |
| $ |
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Thereafter |
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Total |
| $ |
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The Company recognized total lease expense of $
NOTE 6 – EQUITY
The Company issued a total of
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NOTE 7 - CONCENTRATION
Revenue
During the nine months ended September 30, 2021, all revenue was derived from two customers, customer A, which accounted for
During the three months ended September 30, 2021 and 2020, there was no revenue.
Purchases
During the three and nine months ended September 30, 2021, the Company did not purchase inventory.
During the nine months ended September 30, 2020, the Company purchased inventory from one supplier.
The Company did not purchase any inventory during the three months ended September 30, 2020.
NOTE 8 - INCOME TAX
The reconciliation of income tax credit at the statutory federal income tax rate of
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| Nine Months ended |
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| 2021 |
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| 2020 |
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Income tax credit at statutory rate |
| $ | ( | ) |
| $ | ( | ) |
Income tax adjustment |
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Imputed interest |
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Stock based compensation |
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Change of valuation allowance |
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Income tax expense (credit) |
| $ |
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| $ |
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Net deferred tax assets consist of the following components:
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| September 30, |
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| December 31, |
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| 2021 |
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| 2020 |
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Operating loss carry forward |
| $ |
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| $ |
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Valuation allowance |
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| ( | ) |
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Deferred tax asset |
| $ |
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| $ |
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NOTE 9 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events that have occurred after the date of the balance sheet through the date of the issuance of these unaudited financial statements and determined that no subsequent event requires recognition or disclosure to the unaudited financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.”
Overview
Since January 30, 2017, following a change of control, we have been engaged in the business of developing and marketing nutritional products that promote wellness and a healthy lifestyle. Our business to date has involved the purchase of products from three suppliers in the Republic of China and the sale of these products to five unrelated customers, two of which accounted for 83% and 17% our sales in the nine months ended September 30, 2021, all of which were made in the first and second quarters of 2021. All of our revenue in the first quarter of 2021 was generated from sales to one customer (accounting for 17% of sales for the nine month period and all of sales during the nine months ended September 30, 2020, which were made in the first quarter of 2020) and all of the sales in the second quarter of 2021 were sold to a different customer, which accounted for 83% of sales for the nine months ended September 30, 2021. We did not have any sales during the third quarter of 2021 or the second, third and fourth quarters of 2020. To date, all of our sales were sales in bulk to companies who may use our products as ingredients in their products or sell the products they purchase from us to their own customers.
All of our sales to date have been sales of cordyceps related products and, in the quarter ended March 31, 2018, metallothionein MT-3 elizer. Cordyceps is a fungus that is used in traditional Chinese medicine. Cordyceps sinensis has been described as a medicine in old Chinese medical books and Tibetan medicine. It is a rare combination of a caterpillar and a fungus and found at altitudes above 4500m in Sikkim. Our present inventory and inventory deposit are for cordyseps products. The encoded protein in metallothionein MT-3 is a growth inhibitory factor, and reduced levels of the protein are observed in the brains of individuals with some metal-linked neurodegenerative disorders such as Alzheimer’s disease. We have not sold metallothionein MT-3 elizer since the quarter ended March 31, 2018, and we do not have any orders for metallothionein MT-3 elizer. We cannot assure you that we will be able to sell metallothionein MT-3 elizer in the future. We may also seek to market other products which we see as complimentary to our present products; however, we have not entered into negotiations with respect to the distribution of other products and we cannot assure you that we will be able to market any other products.
We did not sell any products in third quarter of 2021 or the second, third and fourth quarters of 2020 substantially as a result of the COVID – 19 pandemic and actions taken by governments to address the pandemic. Since we only sold to two customers in 2021, the failure of these customers to make purchases in the third quarter impacted our business as we had no sales in the third quarter. We believe our failure to generate sales also reflects a downturn in the market in the PRC for cordyseps products as well as the political conditions in Hong Kong, and we cannot assure you that the market will improve. We also cannot assure you the political instability in Hong Kong will not affect our sales, since our customers in 2017 and 2018 were Hong Kong based customers who sold their products in the People’s Republic of China (the “PRC”) and none of these customers has made purchases from us since the quarter ended December 31, 2018. We cannot assure you that these factors will not affect our ability to generate revenues in the future and, to the extent that any of these factors affects our ability to generate revenue, we may not be able to continue in business. We cannot evaluate the potential effect of inflation or the delays resulting from the world wide supply chain issues will have on our business, and we do not know the extent that these factors may have affected our failure to make sales in the third quarter of 2021.
At present, we have no full-time employees. Our only employee is our chief executive officer who works for us on a part-time basis, and all of our sales to date have been made by our chief executive officer. We do not presently have any manufacturing facilities. During the nine months ended September 30, 2021, we engaged consultants to perform research and development and marketing services. Because of our lack of funds, we compensated our consultant through the issuance of stock, primarily pursuant to our 2020 equity incentive plan. We issued 6,776,000 shares of common stock on May 25, 2021 and 5,506,000 shares of common stock on August 23, 2021 to consultants as stock grants pursuant to agreements with the consultants. The agreements provide for the consultants to perform services described in the contracts, which include research and development and marketing services for the two-year period commencing May 25, 2021 and August 23, 2021. The shares were valued at $31,424,800, based on the market price of the common stock on the respective dates of the agreements, which was $2.20 per share on August 23, 2021 and $2.85 per share on May 25, 2021. During the nine months ended September 30, 2021, we recorded stock-based compensation of $3,723,317 and had deferred stock compensation of $27,701,483 as of September 30, 2021. Stock-based compensation for the three months ended September 30, 2021 was $2,918,667
Approximately $280,000 of our inventory at September 30, 2021 has a January 2022 expiration date. None of that inventory has been sold as of date of this report. We are speaking with our customers currently and believe that we will be able to sell this inventory before the expiration date, although we cannot assure you that we will not be required to write off any unsold inventory at December 31, 2021.
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We face significant risks in implementing our business plan including, but not limited to, our ability to raise the necessary financing either through the sale of debt or equity securities or through a loan facility, our ability to increase our customer base and supply chain, our ability to increase our gross margins, our ability to hire and retain qualified research and development, marketing and administrative personnel, our ability to develop products and to market in the United States and other western markets any products we may develop, our ability to comply with any government regulations relating to the manufacture, distribution and marketing any products we develop. We cannot assure you that we can or will develop any products or generate revenue or profits in the future.
We require funds for our operations. At September 30, 2021, we had cash of $154,663, $448,000 of inventory of cordyceps products and a $12,000 purchase deposit for cordyceps products inventory. Although we may seek to raise funds in the equity market, we have no agreements or understandings with respect to any funding and we can give no assurance as to the availability or terms of any such financing. Because of our financial condition, the low level of sales in the nine months ended September 30, 2021 and the lack of sales in the third quarter of 2021 and the second, third and fourth quarters of 2020, our reliance of sales primarily of one product to a small number of customers, along with the absence of an active market for our stock and our market capitalization in relation to our financial performance, together with risks related to the COVID-19 pandemic and the political and legal situation in Hong Kong and potential effects of inflation and supply chain issues, it may be difficult for us to raise funds in the equity market, and, if we are able to raise funds our stockholders may suffer significant dilution. If we cannot raise necessary funds, we may be unable to implement our business plan.
To the extent that we implement our business plan, we anticipate that we will incur marketing and other expenses without any assurance that such expenses will generate any significant revenue or net income. Because of our cash position, we have used and may continue to use equity-based compensation for our employees and independent contractors. In August 2020, we adopted our 2020 long-term incentive plan, pursuant to which 12,282,000 shares were issued to consultants. In order to pay cash expenses, we may have to rely on loans from stockholders or related parties, although we do not have any agreements or understandings at this time.
Our research and development has related to the development of a cordyceps-infused chicken feed and the inspection, analysis and comparison of the nutritional components of eggs that are laid by chickens that are fed cordyceps-infused chicken feed. We are formulating a marketing plan for cordyceps-based chicken feed. In order to be successful, we would need to satisfy chicken farmers that the use of cordyceps-infused check feed is safe, that there is improved nutrition in the chickens and the eggs and that the cost of the feed is reasonable and that there is a market for eggs laid by chickens that were feed with cordyceps-infused chicken feed. We cannot assure you that we will be successful in developing a marketable product or that we will generate any significant revenue from this product.
Effects of COVID-19
Since our products are purchased by customers in Taiwan and Hong Kong either as one ingredient of a product to be sold to their customers or to be resold to their customers, our business has been and may continue to be impacted by the effects of the COVID-19 pandemic and the actions taken by the governments of the PRC, Hong Kong and Taiwan as they effect manufacturers and their customers. Since we had no sales in the three months ended September 30, 2021 and had modest sales in the nine months ended September 30, 2021, we cannot predict the effect of COVID-19 on our business. A prolonged outbreak could have a material adverse impact on our financial results and business operations. Factors relating to COVID-19 which significantly contributed to the lack of sales in the three months ended September 30, 2021 and the modest level our revenue in the nine months ended September 30, 2021, most of which was in the second quarter, and the lack of revenue in the second, third and fourth quarters of 2020 may affect us and the market for our products which include, but are not limited to, the following.
| • | The effect of COVID-19 on the ability of our customers and potential customers to manufacture products. |
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| • | The financial health of our potential customers, including both wholesale customers and chicken farmers. |
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| • | Since our customers may use our products as an ingredient in their products, the inability of the customer to obtain other ingredients may affect their willingness or ability to purchase our product. |
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| • | The ability of our customers to ship their products to China and the ability of their customers to distribute product to retail markets. |
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| • | The willingness or ability of the ultimate purchasers in the PRC and any other countries to which our customers sell products to purchase products with our ingredients and their perception as to whether the products may have beneficial effects to them. |
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| • | The extent to which any quarantine which may be imposed affects the willingness or ability of consumers to purchase products with our ingredients. |
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| • | The perceived benefit, if any, to consumers of products with our ingredients. |
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| • | The extent to which the purchase of products with our ingredients is a low priority item for a population whose disposable income may have decreased as a result of COVID-19 and the steps taken by governments to curb the spread of infection. |
As the population of China, Hong Kong and Taiwan becomes vaccinated and restrictions that had been imposed to address the pandemic are lifted, we cannot assure you that our sales will increase as a result of the reduction of such restrictions. The effects of the Delta variation and any other variations which may develop as well as other illnesses which may affect a broad segment of the population and the governmental and public response to these developments may impair the market for our products.
As the world has begun to open following closures as a result of the pandemic, two other factors are facing businesses and consumers, which are considered to be related to the effects of the COVID-19 pandemic. These are inflation and supply chain issues. We cannot estimate the effect of these factors on our business. To the extent that these factors result in increased prices, we may not be able to pass along the increases to our customers. Any shortages of cordyceps would effect our ability to generate sales of our products. Further, to the extent our customers use our products as an ingredient in their own products, the inability of a potential customer to obtain other raw materials as well as cost increases for such products, could affect the timing and the amount of purchases from us. We cannot assure you that our business will not be impaired by the effects of inflation and supply chain issues.
Results of Operations
Three and Nine Months Ended September 30, 2021 and 2020
For the three months ended September 30, 2021, we had no revenues, operating expenses of $2,990,656, of which $2,123,450 represented research and development expenses related primarily to the development of cordyceps-infused chicken feed, $867,206 represented selling, general and administrative expenses, primarily relating to services provided by our consultants who received stock grants as compensation, and to a lesser extent expenses and professional fees relating to our status as a public company. We also incurred interest expense to a related party of $178. As a result, we had a net loss of $2,990,834 or $(0.05) per share (basic and diluted).
For the three months ended September 30, 2020 we had no revenues, selling, general and administrative expenses of $71,541, related primarily to expenses and professional fees relating to our status as a public company, interest expense to a related party of $1,558, and a net loss of $73,099, or $(0.00) per share (basic and diluted).
For the nine months ended September 30, 2021, we had revenues of $599,500, representing the sale of cordyceps products to two customers, cost of revenue of $490,000, a gross profit of $109,500, operating expenses of $3,950,467, of which $2,765,175 represented research and development expenses related primarily to the development of cordyceps-infused chicken feed, $1,185,292 represented selling, general and administrative expenses primarily relating to services provided by our consultants who received stock grants as compensation and, to a significantly lesser extent, to expenses and professional fees relating to our status as a public company. We also incurred interest expense to a related party of $4,048. As a result, we had a net loss of $3,845,015 or $(0.07) per share (basic and diluted).
For the nine months ended September 30, 2020 we had revenues of $687,964, all of which was generated during the first quarter, cost of revenue of $528,560, a gross profit of $159,404, selling, general and administrative expenses of $212,159, related primarily to expenses and professional fees relating to our status as a public company, interest expense to a related party of $2,927, and a net loss of $55,682, or $(0.00) per share (basic and diluted).
Because of our dependence on a few customers, two of which accounted for all of our sales since January 1, 2019, our revenue in any quarter is dependent upon both the timing of orders from customers and the delivery of products from our suppliers.
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Liquidity and Capital Resources
The following table summarizes our changes in working capital from December 31, 2020 to September 30, 2021:
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| September 30, 2021 |
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| December 31, 2020 |
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| Change |
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| % Change |
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Current assets |
| $ | 623,560 |
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| $ | 973,353 |
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| $ | (349,793 | ) |
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| (35.9 | )% |
Current liabilities |
| $ | 61,610 |
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| $ | 312,185 |
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| $ | (250,575 | ) |
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| (80.3 | )% |
Working capital |
| $ | 561,950 |
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| $ | 661,168 |
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| $ | (99,218 | ) |
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| (15.0 | )% |
Our principal current asset is inventory, which was $448,000 at September 30, 2021 and $938,000 at December 31, 2020. To the extent that we are not able to sell our inventory, our working capital will be materially impaired. Approximately $280,000 of our inventory at September 30, 2021 has a January 2022 expiration date. None of that inventory has been sold as of date of this report. We are speaking with our customers currently and believe that we will be able to sell this inventory before the expiration date, although we cannot assure you that we will not be required to write off any unsold inventory at December 31, 2021.
The following table summarizes our cash flows for the nine months ended September 30, 2021 and 2020:
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| Nine months Ended September 30, |
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| 2021 |
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| 2020 |
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Cash provided by (used in) operating activities |
| $ | 359,841 |
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| $ | (162,446 | ) |
Cash provided by (used in) financing activities |
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| (223,301 | ) |
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| 161,691 |
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Cash at end of period |
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| 154,663 |
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| 156 |
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Cash provided by operating activities of 359,841 for the nine months ended September 30, 2021 reflected primarily our net loss of $3,845,015, increased primarily by stock-based compensation of $3,723,317 and a decrease in inventory of $490,000.
Cash used in operating activities of $162,446 for the nine months ended September 30, 2020 reflected primarily our net loss of $55,682 decreased by an increase in inventory of $59,440 and purchase deposit for inventory of $12,000, a decrease in accounts payable and accrued expenses of $18,762, and a decrease in deferred revenue of $17,464.
Cash used in financing activities of $223,301 for the nine months ended September 30, 2021 primarily reflected payments to related parties of $241,851. Cash provided by financing activities for the nine months ended September 30, 2020 represented advances from related parties of $161,691.
Going Concern
The accompanying unaudited financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We generated no revenue for the three months ended September 30, 2021, and we incurred losses from its operations and had accumulated deficit as of September 30, 2021. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We propose to fund operations through sales of our products and equity financing arrangements. However, we do not have any agreements or understanding with respect to any financing and, because of the lack of sales and the absence of any active trading market for our common stock, our financial condition and our lack of an operating history, we may not be able to raise funds for capital expenditures, working capital and other cash requirements. Our ability to implement its marketing plan may also be affected by the COVID-19 pandemic and actions taken by governments to address the pandemic as well as political events and legislation in Hong Kong as well as the effects or anticipated effect of inflation and supply chain issues. If we cannot generate revenue from our products, we may not be able to continue in its business and may need to rely on advances from stockholders.
Critical Accounting Policy and Estimates
Our critical accounting policies are disclosed in Note 2 of Notes to Financial Statements.
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Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements. Our management believes that these recent pronouncements will not have a material effect on our financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Smaller reporting companies are not required to provide the information required by this item.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of our disclosure controls and procedures (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and chief financial officer, which positions are held by the same person and who is our only employee who does not work for us on a full-time basis. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer, concluded that, due to the inadequacy of our internal controls over financial reporting, our sole employee being our chief executive and financial officer and our limited internal audit function, our disclosure controls were not effective as of September 30, 2021, such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the president and treasurer, as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control over Financial Reporting
As reported in our annual report on Form 10-K for the year ended December 31, 2020, management has determined that our internal controls contain material weaknesses due to the absence of segregation of duties, as well as lack of qualified accounting personnel and excessive reliance on third party consultants for accounting, financial reporting and related activities. The lack of any separation of duties, with the same person, who is our only employee who serves as both chief executive officer and chief financial officer, who is our sole director and who does not have an accounting background and serves on a part-time basis, makes it unlikely that we will be able to implement effective internal controls over financial reporting in the near future.
During the period ended September 30, 2021, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 5. Other Information
On August 23, 2021, the Company issued 282,000 shares to consultants pursuant to consulting agreements. The shares were issued pursuant to Regulation S. No brokerage or other commission was paid in connection with the stock issuance. The shares bear a restricted stock legend.
Item 6: Exhibits
Exhibits
Exhibit Number |
| Description of Exhibits |
| Section 302 Certificate of Chief Executive Officer and Principal Financial Officer. | |
| Section 906 Certificate of Chief Executive Officer and Principal Financial Officer. | |
101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Schema Document |
101.CAL |
| XBRL Taxonomy Calculation Linkbase Document |
101.DEF |
| XBRL Taxonomy Definition Linkbase Document |
101.LAB |
| XBRL Taxonomy Label Linkbase Document |
101.PRE |
| XBRL Taxonomy Presentation Linkbase Document |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ACRO BIOMEDICAL CO., LTD. |
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Dated: November 22, 2021 | By: | /s/ Pao-Chi Chu |
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| Pao-Chi Chu |
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| Chief Executive Officer and Chief |
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| Financial Officer |
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