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 six months ended June 30, 2021. All of our sales in the first
quarter of 2021 were sold to one customer (accounting for 17% of sales for the
six month period and all of sales during the six months ended June 30, 2020) and
all of the sales in the second quarter were sold to a different customer, which
accounted for 83% of sales for the six months ended June 30, 2021. We did not
have any sales during 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.
All of our revenue for the six months ended June 30, 2021 was generated by sales
to two customers, one of which accounted for all of our revenue in the both
three months ended March 31, 2020 and the three months ended March 31, 2021. All
of our revenue for the second quarter of 2021 was made to a different customer.
We did not sell any products in 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. 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.
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 three months ended June 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 pursuant to our 2020 equity incentive plan. We issued a total of
6,776,000 shares of common stock 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. The shares were valued at $19,311,600, based on the market price of the
common stock on the respective dates of the agreements, which was $2.85 per
share. During the six months ended June 30, 2021, we recorded stock-based
compensation of $804,650 and had deferred stock compensation of $18,506,950 as
of June 30, 2021.
10
Approximately $280,000 of our inventory at June 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.
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 June 30, 2021, we had $215,494 of cash,
$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 modest sales in the three and six months
ended June 30, 2021 and the lack of sales in the second, third and fourth
quarters of 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 risks 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. 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 up to 12,000,000 shares can be issued. 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.
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 modest sales in the six months ended June 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 modest level
our revenue in the six months ended June 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.
• The financial health of our potential customers, including both wholesale
customers and chicken farmers.
• 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.
11
• 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.
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.
Results of Operations
Three and Six Months Ended June 30, 2021 and 2020
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 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 $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 three months ended June 30, 2020 we had no revenues, selling, general
and administrative expenses of $62,771, related primarily to expenses and
professional fees relating to our status as a public company, interest expense
to a related party of $928, and a net loss of $63,699, or $(0.00) 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).
For the six months ended June 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 $140,618,
related primarily to expenses and professional fees relating to our status as a
public company, interest expense to a related party of $1,369, and net income of
$17,417, 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.
Liquidity and Capital Resources
The following table summarizes our changes in working capital from December 31,
2020 to June 30, 2021:
June 30, December 31,
2021 2020 Change % Change
Current assets $ 687,891 $ 973,353 $ (285,462 ) (29.3 )%
Current liabilities $ 60,158 $ 312,185 $ (252,027 ) (80.7 )%
Working capital $ 627,733 $ 661,168 $ (33,435 ) (5.1 )%
12
Our principal current asset is inventory, which was $448,000 at June 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.
The following table summarizes our cash flows for the six months ended June 30,
2021 and 2020:
Six months Ended
June 30,
2021 2020
Cash provided by (used in) operating activities $ 424,390 $ (97,845 )
Cash used in (provided by) financing activities (227,019 ) 97,315
Cash at end of period
215,494 381
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 operating activities of $97,845 for the six months ended June 30,
2020 reflected primarily our net income of $17,417 decreased by an increase in
inventory of $59,440, a decrease in accounts payable and accrued expenses of
$22,762, and a decrease in deferred revenue of $17,464.
Cash used in financing activities of $227,019 for the six months ended June 30,
2021 primarily reflected payments to related parties of $241,851. Cash provided
by financing activities for the six months ended June 30, 2020 represented
advances from related parties of $97,315.
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
incurred losses from its operations and had accumulated deficit as of June 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 proposes 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. 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.
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.
© Edgar Online, source Glimpses
ACRO BIOMEDICAL CO., LTD. 
