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 quarter 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 third quarter of 2022, and we cannot give any
assurance that we will generate any sales during the third 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 six months ended June 30, 2022. These sales were made in the
quarter ended March 31, 2022, and we did not generate any revenue in the three
months ended June 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.
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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. The
agreements provide for the consultants to perform services described in the
contracts for the two-year period commencing the date of the agreements. 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 is being amortized over two-year
period starting from the date of the agreement using the straight-line method.
During the six months ended June 30, 2022 and 2021, we recorded stock-based
compensation expense of $7,856,200 and $804,650, respectively. During the three
months ended June 30, 2022, we recorded stock-based compensation expenses of
$3,928,100. We had deferred stock compensation of $15,917,183 and $23,773,383 as
of June 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 June 30, 2022, we had $12,107 in cash,
$298,500 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 five out of ten quarters in 2022, 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 at
this time and we may issue equity to attract employees and consultants to help
us develop our business plan.
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.
· The effect of COVID-19 on the ability of our customers and potential
customers to manufacture products.
· The financial health of our customers and potential customers, and the
ability of our customers to sell products they purchased from us.
· 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.
· The ability of our customers to ship their products to China and the
ability of their customers to distribute product to retail markets.
· 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.
· The extent to which any quarantine which may be imposed affects the
willingness or ability of consumers to purchase products with our
ingredients.
· The perceived benefit, if any, to consumers of products with our
ingredients.
· 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.
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
quarter 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.
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To the extent that we implement our business plan and develop a marketable
product, 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.
Our research and development has 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.
Results of Operations
Three and Six Months Ended June 30, 2022 and 2021
For the three months ended June 30, 2022, we had no revenues or cost of revenue,
and we incurred operating expenses of $3,996,432, of which $3,928,100
represented stock-based compensation to consultants for research and development
($2,520,000) and marketing expenses ($1,408,100) related primarily to the
development of 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 $211. As a result, we had a
net loss of $3,996,643 or $(0.07) per share (basic and diluted).
For the three months ended June 30, 2021, we had revenues of $500,000,
representing the sale of cordyceps products to two customers, cost of revenue of
$420,000, a gross profit of $80,000, operating expenses of $873,320, of which
$641,725 represented research and development expenses, $162,925 represented
selling, general and administrative expenses relating to services provided by
our consultants who received stock grants as compensation, and $68,670 related
primarily to expenses and professional fees relating to our status as a public
company. We also incurred interest expense to a related party of $1,367. As a
result, we had a net loss of $794,687 or $(0.02) per share (basic and diluted).
For the six months ended June 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 $8,001,520, of which $7,856,200 represented stock-based compensation
to consultants for research and development ($5,040,000) and marketing expenses
($2,816,200) 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 $420. As a result, we had a net loss of $7,925,440 or $(0.13)
per share (basic and diluted).
For the six months ended June 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 $959,811, of which $641,725 represented research
and development expenses related to improving the cordyceps products,$162,925
represented selling, general and administrative expenses relating to services
provided by our consultants who received stock grants as compensation, and
$155,161 relating primarily to expenses and professional fees relating to our
status as a public company. We also incurred interest expense to a related party
of $3,870. As a result, we had a net loss of $854,181 or $(0.02) 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.
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Liquidity and Capital Resources
The following table summarizes our changes in working capital from December 31,
2021 to June 30, 2022:
June 30 December 31,
2022 2021 Change % Change
Current assets $ 626,902 $ 706,415 $ (79,513 ) (11.3 )%
Current liabilities $ 81,456 $ 91,651 $ (10,195 ) (11.1 )%
Working capital $ 545,446 s $ 614,764 $ (69,318 ) (11.3 )%
The following table summarizes our cash flows for the six months ended June 30,
2022 and 2021:
Six months Ended
June 30,
2022 2021
Cash (used in) provided by operating activities $ (83,645 ) $ 424,390
Cash provided by (used in) financing activities 504 (227,019 )
Cash at end of period
12,107 215,494
Cash used in operating activities of $83,645 for the six months ended June 30,
2022 reflected primarily our net loss of $7,925,440, increased primarily by
stock-based compensation of $7,856,200, as well as a decrease in account
receivable of $299,500, offset by an increase in inventories of $296,000.
Cash provided by operating activities of $424,390 for the six months ended June
30, 2021 reflected primarily our net loss of $854,181, increased primarily by
stock-based compensation of $804,650, increased by a decrease in inventory of
$490,000 and a decrease in accounts payable and accrued expenses of $12,662.
Cash used in financing activities of $504 for the six months ended June 30, 2022
reflected advances from related parties. Cash used in financing activities of
$227,019 for the six months ended June 30, 2021 reflected payments to related
parties of $241,851 offset by advances from related parties of $14,832.
Going Concern
The accompanying 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 had limited
gross profit and incurred a loss from operations for the six months ended June
30, 2022. During the past few years we did not generate revenue during a number
of quarters, including the three months ended June 30, 2022. 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 products and equity financing
arrangements. However, 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, including our dependence upon a limited number of
customers, we may not be able to raise funds for capital expenditures, working
capital and other cash requirements and will have to rely on advances from a
minority stockholder, who is also an unpaid consultant, and our officer. If we
cannot generate revenue from our products, we may not be able to continue in its
business.
Critical Accounting Policy and Estimates
Our critical accounting policies are disclosed in Note 2 of Notes to Financial
Statements.
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.
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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
June 30, 2022, 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 and 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 June 30, 2022, 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,
2021, 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 June 30, 2022, 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 6: Exhibits
Exhibits
Exhibit
Number Description of Exhibits
31.1 Section 302 Certificate of Chief Executive Officer and Principal
Financial Officer.
32.1 Section 906 Certificate of Chief Executive Officer and Principal
Financial Officer.
101* Inline XBRL Document Set for the condensed consolidated financial statements
and accompanying notes in Part I, Item 1, "Financial Statements" of this
Quarterly Report on Form 10-Q.
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q,
104* included in the Exhibit 101 Inline XBRL Document Set.
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