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Acro Biomedical Co., Ltd. – ‘10-Q’ for 9/30/22

On:  Monday, 11/21/22, at 3:42pm ET   ·   For:  9/30/22   ·   Accession #:  1640334-22-2503   ·   File #:  0-55643

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/21/22  Acro Biomedical Co., Ltd.         10-Q        9/30/22   37:1.9M                                   Pubco Reporting … Inc/FA

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form  i 10-Q

(Mark One)

Commission File Number:  i 000-55643

 i 12175 Visionary Way,  i Suite 1160;  i Fishers,  i Indiana  i 46038

(Address of principal executive offices)

( i 317)  i 286-6788

(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. ☒  i Yes ☐ No

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). ☒  i Yes ☐ No

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.

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):  i ☐ Yes ☒ No

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:  i 60,042,000 shares of common stock on November 18, 2022.

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, 2021, 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.

Item 1. Financial Statements

ACRO BIOMEDICAL CO., LTD.

Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

ACRO BIOMEDICAL CO., LTD.

Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

ACRO BIOMEDICAL CO., LTD.

Statements of Changes in Stockholders’ Equity

(Unaudited)

For the Nine months ended September 30, 2022

For the Nine months ended September 30, 2021

The accompanying notes are an integral part of these unaudited financial statements

ACRO BIOMEDICAL CO., LTD.

Statements of Cash Flows

(Unaudited) 

The accompanying notes are an integral part of these unaudited financial statements.

ACRO BIOMEDICAL CO., LTD.

Notes to Financial Statements

September 30, 2022

(Unaudited)

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

Revenue Recognition

Accounts Receivable

Inventories

Net Income (Loss) Per Share of Common Stock

In accordance with ASC 842, the Company recognized operating lease ROU assets and lease liabilities, which had balances as follows:

Future minimum lease payments under operating leases at September 30, 2022, were as follows:

The Company recognized total lease expense of $ i 19,710 and $ i 18,856 for the nine months ended September 30, 2022 and 2021, respectively.

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 Taiwan and the sale of these products to four unrelated customers, one of which accounted for all of our sales in the years ended December 31, 2020 and 2019. We did not have any sales during the second and third quarters of 2022, the third quarter of 2021, the second, third and fourth quarters of 2020 and the first three quarters of 2019. As of the date of this report we have had no sales in the fourth quarter of 2022, and we cannot give any assurance that we will generate any sales during the fourth quarter or subsequent periods. Based on our discussion with our customers, the current absence of sales results from reports from our customers that they are facing a negative business environment. We sell product 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 except that, in in the quarter ended June 30, 2018, we sold metallothionein MT-3 elizer, a product that we do not currently sell. 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. 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 have not developed any products for sale, and we cannot assure you that we will be able to market any other products.

All of our revenue for the years ended December 31, 2021 and 2020 represents sales to three customers and one customer, respectively. During 2021, our three customers accounted for was 58.5%, 33.2% and 8.3% of our revenue. Our sole customer for 2020 was the smallest of the three customers for 2021.  One of these customers, which accounted for 33.2% of our revenue in 2021, was our sole customer in the nine months ended September 30, 2022. These sales were made in the quarter ended March 31, 2022, and we did not generate any revenue in the quarters ended June 30, 2022 and September 30, 2022.

We believe that our failure to sell products in the third quarter of 2021 and second, third and fourth quarters of 2020 resulted substantially from the COVID – 19 pandemic and actions taken by governments to address the pandemic, as well as a continuation of 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 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 believe that our failure to sell products in the second quarter of 2022 and the third quarter of 2022 to the date of this report reflects a negative business environment in which our customers have reported that there is not a market for our product.

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. 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.

Our statement of operation reflects the amortization of common stock issued to consultants in connection with our proposed chicken feed product, which is a cordyceps-infused chicken feed, which, if developed, would be marketed to chicken farmers. Our marketing and research and development with respect to our proposed chicken feed product has not generated a marketable product, and we cannot assure you that we will be able to develop marketable product or, if we develop the product, engage the necessary qualified personnel or to implement an effective marketing program. As of the date of this report, we have not developed a prototype of the feed and, as we result, we have not test marketed any product with chicken farmers. We have developed a preliminary formulation for one cordyceps-infused chicken feed product. We are working with our cordyceps supplier, which has provided us with a modest supply of cordyceps samples to assist us in product development. We have taken preliminary steps to test market the product with chicken farmers.  We recognize that the price of our product will be higher that standard chicken feed, but we have not yet priced our product. We cannot assure you that we will complete the development of this product or that, if we develop the product, chicken farmers will be willing to pay the higher price unless that are reasonably satisfied that the higher cost will be justified by the quality of the eggs and the price as which they can sell the eggs. In addition, inflationary pressures may play a significant role in a chicken farmer’s decision to purchase our product if and when we have developed a marketable product. We cannot assure you that we can or will be able to develop a marketable product or that if we are able to develop a product that chicken farmers will purchase our products. To the extent that the price of our product is greater than the market price of other chicken feed, we cannot assure you that we will be able to demonstrate value to our proposed product to justify a higher price.

We issued a total of 12,282,000 shares of common stock to consultants as stock grants pursuant to agreements with the consultants in May and August 2021 for services relating to the development and/or marketing of our proposed product. The agreements provide for the consultants to perform services described in the contracts for the two-year period commencing the date of the agreements, and, depending on the nature of the services, are treated as research and develop expenses or selling, general and administrative expenses. The shares were valued at $31,424,800, based on the market price of the common stock on the respective dates of the agreements, and the value of the shares is being amortized over two-year period starting from the date of the agreement using the straight-line method. During the nine months ended September 30, 2022 and 2021, we recorded stock-based compensation of $11,784,300 and $3,723,317.  During the three months ended September 30, 2022 and 2021, we recorded stock-based compensation expenses of $3,928,100 and $2,918,667. We had deferred stock compensation of $11,989,083 and $23,773,383 as of September 30, 2022 and December 31, 2021, respectively. The deferred stock compensation is being recognized over the balance of the terms of the agreements.

We require funds for our operations. At September 30, 2022, we had $16,188 in cash, $278,500 in accounts receivables, and inventory of $296,000. 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 lack of sales in the six out of eleven quarters in nine months ended September 30, 2022 and the years ended December 31, 2021 and 2020, our reliance of sales primarily of one product, along with the absence of an active market for our stock and our market capitalization in relation to our financial performance, together with risk related to the COVID-19 pandemic and the political and legal situation in Hong Kong, 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.

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 may use equity-based compensation for our employees and independent contractors. Because of our low cash position, we may rely on loans from stockholders or related parties, although we do not have any agreements or understandings and we may issue equity to attract employees and consultants to help us develop our business plan.

Our research and development is related to our development effort for 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 both the chicken feed and 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. To date, our proposed product has not been tested by chicken farmers. As of the date of this report, we have not developed a marketable product and 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 primarily as one ingredient of a product to be sold 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 well as any other countries in which we may seek to sell products, as they effect manufacturers and their customers, including the recent lockdowns in cities and provinces of China as a result of China’s zero tolerance policy with respect to COVID, which can continue to result in lockdowns.  Since we did not generate any revenue in the second and third quarters and the fourth quarter to the date of this report, we cannot evaluate with any degree of specificity of continuing effects of COVID-19 on our business.

Inflation and Supply Chain Disruption 

After years of relatively low inflation, during the past year, countries throughout the world, including Asia, have be subject to inflation at a rate significantly higher than in recent years. The slowdown resulting from the COVID-19 pandemic and steps taken by governments to address the pandemic, including the recent lockdown in a number of Chinese provinces and cities, have created major supply chain disruptions. Although we did not purchase any inventory in 2021 and we purchased modest inventory in the first and second quarters of 2022, we expect that both the inflationary pressures and supply chain disruption that affect other industries will affect us. These factors may result in delays in receipt of products we order, and increased costs which we may not be able to pass on to consumers. The recent Russian invasion of Ukraine has also exacerbated the inflationary and supply chain issues. We cannot assure you that our business will not be materially impair by inflationary and supply chain disruption. We do not know the extent to which our customer’s report of a negative business environment is based on issues relating to inflation or supply chain issues.  Since we have not purchased any inventory since the second quarter of 2022 and we have not generated any revenue since the first quarter of 2022, we cannot fully evaluate the effect of inflation and supply chain issues will have on our business.

 Results of Operations

Three and Nine months Ended September 30, 2022 and 2021

For the three months ended September 30, 2022, we had no revenues or cost of revenue, and we incurred operating expenses of $4,010,823, of which $3,928,100 represented stock-based compensation to consultants for research and development ($2,520,000) and selling, general and administrative expenses ($1,408,100) related primarily to the development of our proposed cordyceps-infused chicken feed, and the balance was primarily expenses and professional fees relating to our status as a public company. We also incurred interest expense to a related party of $499. As a result, we had a net loss of $4,011,322 or $(0.07) per share (basic and diluted).

For the three months ended September 30, 2021, we had no revenues or cost of revenues, and we incurred operating expense of $2,990,656, of which $2,918,667 represented stock-based compensation to consultants for research and development ($2,123,450) and selling, general and administrative expenses ($795,217) related primarily to the development of our proposed cordyceps-infused chicken feed, and the balance was primarily 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 nine months ended September 30, 2022, we had revenues of $298,500, representing the sale of cordyceps products to one customer in the first quarter, cost of revenue of $222,000, a gross profit of $76,500, operating expenses of $12,012,343, of which $11,784,300 represented stock-based compensation to consultants for research and development ($7,560,000) and selling, general and administrative expenses ($4,224,300) and the balance was primarily expenses and professional fees relating to our status as a public company. We also incurred interest expense to a related party of $919. As a result, we had a net loss of $11,936,762 or $(0.20) per share (basic and diluted).

For the nine months ended September 30, 2021, we had revenues of $599,500, of which $500,000 was generated in the second quarter, 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 $3,723,317 represented stock-based compensation to consultants for research and development ($2,765,175) and selling, general and administrative expenses ($958,142) and the balance was primarily 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).

Because of our dependence on a few customers, one of which accounted for all of our sales in 2022, which were made in the first quarter, our revenue in any quarter is dependent upon both the timing of orders from customers and the delivery of products from our suppliers.

Liquidity and Capital Resources

The following table summarizes our changes in working capital from December 31, 2021 to September 30, 2022: