ACRO BIOMEDICAL CO., LTD. - Quarter Report: 2019 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

Commission File Number: 333-207765

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. ¨ Yes    x 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). x 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): ¨ Yes    x 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: 47,760,000 shares of common stock on May 13, 2019.

ACRO BIOMEDICAL CO., LTD.

INDEX

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 annual report on Form 10-K for the year ended September 30, 2018, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained 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.

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)

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

March 31,2019

(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., which was changed to Acro Biomedical Co., Ltd. on January 30, 2017. Currently, the Company purchases and sells cordyceps related products and 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 intends to conduct research and development on its own proprietary products based on cordyceps sinensis.

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 September 30, 2018 have been omitted; these unaudited interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended September 30, 2018 included within the Company’s annual report on Form 10-K.

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.

Revenue Recognition

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:

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 primarily 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 six months ended March 31, 2019 and 2018.

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 six months ended March 31, 2019 and 2018.

NOTE 3 – PREPAID EXPENSE

At March 31, 2019 and September 30, 2018, prepaid expenses totaled $9,000 and $330,089, respectively. Prepaid expenses consisted of OTC market fee as of March 31, 2019 and consulting fees which are being amortized over the life of the applicable agreements as of September 30, 2018.

NOTE 4 - RELATED PARTY TRANSACTIONS

At March 31, 2019 and September 30, 2018, the Company owed $18,406 and $99,265 to a stockholder who is not a 5% stockholder for non-interest bearing advances made to or on behalf of the Company, respectively.  At September 30, 2018, the Company owed $41,871 to its chief executive officer.  These advances are due on demand.

During the six months ended March 31, 2019, (a) the Company repaid $41,871 to its chief executive officer and (b) the stockholder paid expenses of $18,606 on behalf of the Company and (c) the Company repaid $99,465 to the stockholder.  At March 31, 2019, the Company had amounts due to the stockholder of $18,406.

The Company has imputed interest at the rate of 4% on the advances made to the Company in the amount of $830 during the six months ended March 31, 2019.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

On November 30, 2017, the Company entered into a lease agreement to rent storage space in Hong Kong for a two-year term at HK$19,500 (approximately $2,500) per month. The Company paid $4,992 (HK$39,000) as a security deposit. For the six months ended March 31, 2019 and 2018, the Company incurred rent expense of $16,120 and $10,053, respectively.

NOTE 6 – CONCENTRATION

Revenue

During the six months ended March 31, 2019, all revenue was derived from sales contracts with two customers, which represent 94% and 6%, respectively, of revenues.

During the six months ended March 31, 2018, all revenue was derived from sales contracts with one customer.

Purchases

During the six months ended March 31, 2019 and 2018, all purchases were derived from purchase contracts with one supplier.

NOTE 7 – INCOME TAX

The reconciliation of income tax expense at the U.S. statutory rate of 21%, to the Company’s effective tax rate is as follows:

Net deferred tax assets consist of the following components:

As of March 31, 2019, the Company has approximately $310,000 net operating loss carryforwards available in the U.S. to reduce future taxable income which can be carryforward indefinitely. The Company determined that it is more likely than not that the deferred tax assets will be utilized in the future because the Company expects further earnings based on management s estimates. The Company recorded deferred tax assets of approximately $65,000 as of March 31, 2019.

NOTE 8 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events that have occurred after the date of the balance sheet through the date of issuance of these financial statements and determined that no subsequent event requires recognition or disclosure to the financial statements.

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 two suppliers and the sale of these products to two unrelated customers. All of our sales to date have been sales of cordyceps related products and, commencing in the second quarter of the year ended September 30, 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. 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 may also seek to market other products which we see as complimentary to our present products. We intend to conduct research and development on our own proprietary products based on cordyceps sinensis, however, to date we have not commenced such activities and we cannot assure you that we will do so. We can give no assurance that we can or will be successful in developing marketable products or expanding our customer base or supply chain.

During the three months ended March 31, 2019 (the “March 2019 quarter”) we did not generate any revenues. All of our sales to date were made to two customers who sell our products in the People’s Republic of China. One of these customers accounted for 94% of our revenue in the six months ended March 31, 2019 (the “March 2019 period”) and 100% of our revenue for the six months ended March 31, 2018 (the “March 2018 period”). Thus, we are dependent upon one major customer whose ability to sell our product is dependent upon the market for cordyceps related products and metallothionein MT-3 elizer products in China. As of the date of this report we have not received orders for either of our products during the second or third quarters of the current year. If we don’t receive orders for our products, we will not generate revenue in the third quarter of 2019. We cannot assure you that we will generate sales of our products during the third quarter of 2019 or any subsequent period. We believe our failure to generate sales reflects a downturn in the market in the PRC for products such as ours, and we cannot assure you that the market will improve.

All of our purchases for both the March 2019 quarter and the March 2018 quarter are from a single supplier, and we are dependent upon this supplier to provide us with inventory.  

At present, we have no full-time employees. 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 generate revenue or profits in the future.

We require funds in order to expand our operations. Although we may to seek to raise funds in the equity market, we can give no assurance as to the availability or terms of any such financing. Our failure to generate revenues in the March 2019 quarter and the absence of purchase orders is likely to make it more difficult for us to raise money in the equity market. There is no active trading market in our common stock, and any sale of our equity securities could result in material dilution to our stockholders. If we are not able to raise the necessary funds, we may be unable to continue in business.

Results of Operations

For the three and six months ended March 31, 2019 and 2018.  

For the three months ended March 31, 2019, we had no revenues, operating expenses of $214,766, principally non-cash compensation to two consultants for marketing services ($148,395), and professional fees relating to our SEC filings, loss before income taxes of $214,874 and a net loss or $169,750, or $(0.00) per share (basic and diluted).

For the three months ended March 31, 2018 (the “March 2018 quarter”), we generated revenue of $1,964,000, gross profit of $196,400, operating expenses of $98,389, income before income taxes of $98,011, income tax of $28,559, and net income of $69,452, or $0.00 per share (basic and diluted).

For the six months ended March 31,2019, we had revenues of $1,354,000, a gross profit of $135,400, operating expenses of $444,401, principally non-cash compensation of $300,089 and professional fees relating to our SEC filings, a loss before income taxes before income taxes of $309,831 and a net loss of $244,766, or $(0.01) per share (basic and diluted).

For the six months ended March 31, 2018, we had revenues of $3,409,000, a gross profit of $340,900, operating expenses of $162,662, principally professional fees relating to our SEC filings, income from operations of $178,238 and income tax of $28,559. As a result of the foregoing, our net income was $149,679, or $0.00 per share (basic and diluted).

One customer accounted for 94% of our revenue for the March 2019 period and 100% of our revenue for the March 2018 period. A second customer accounted for 6% of our revenue for the March 2019 period.

Because of our dependence on one customer, our revenue in any quarter is dependent upon both the timing of orders from this customer and the delivery of product from our supplier. Our gross margin remained constant at 10% for each period in which we generated revenue. Our loss for the March 2019 quarter reflected the amortization of non-cash consulting fees paid to consultants. The consultants accepted stock as compensation in view of our lack of cash.

Liquidity and Capital Resources

The following table summarizes our changes in working capital from September 30, 2018 to March 31, 2019:

The following table summarizes our cash flows for the six months ended March 31, 2019 and 2018:

Cash provided by operating activities of $121,994 for the March 2019 period reflected primarily our net loss of $244,766, increased primarily by stock-based compensation of $300,089, a decrease in inventory of $86,600, a decrease in prepaid expenses of $21,000 and an increase in deferred revenues of $20,000 and decreased by deferred tax asset of $65,065.

Cash provided by operating activities of $376,106 for the March 2018 period reflected primarily our net income of $149,679, a decrease in inventories and related accounts of $180,400, and increases in accounts payable and accrued expenses of $17,642, an increase in income tax payable of $28,559, an increase in deferred revenue of $64,818 offset by an increase in prepaid expenses of $60,000 and an increase in security deposit of $4,992.

We did not generate any cash from investing activities for the March 2019 period or the March 2018 period.

Our cash used in financing activities of $122,730 for the March 2019 period reflected payments to related parties of $141,336 and advances from related parties of $18,606. Our cash from financing activities for the March 2018 period quarter represented advances from related parties of $58,915.

Critical Accounting Policy and Estimates

Our critical accounting policies are disclosed in Note 2 of the unaudited interim 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 unaudited interim 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.

Smaller reporting companies are not required to provide the information required by this item.

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 December 31, 2018, 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 who assumed such positions on January 30, 2017 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 March 31, 2019, 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 September 30, 2018, 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 March 31, 2019, 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.

PART II – OTHER INFORMATION

Exhibits

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.