ACRO BIOMEDICAL CO., LTD. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

Commission File Number: 000-55643

12175 Visionary Way, Suite 1160; Fishers, Indiana 46038

(Address of principal executive offices)

(317) 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. ☒ 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). ☒ 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 ☒ 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: 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)

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. Cordyceps is a fungus that is used in traditional Chinese medicine. 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.

COVID-19

Since the Company’s 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”), the Company’s 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 (Taiwan) and Hong Kong. The Company cannot predict the effect on its business of the COVID-19 pandemic and the steps taken by governments to address the pandemic. A prolonged outbreak as well as lockdowns in the PRC could have a material adverse impact on financial results and business operations of the Company.

As the population of China, Hong Kong and Taiwan becomes vaccinated and restrictions that had been imposed to address the pandemic are lifted, the Company cannot give assurance that its sales will increase as a result of the reduction of such restrictions. The effects of the Delta and Omicron 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 the Company’s products, including the recent lockdown in a number of provinces and municipalities in China.

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, which have been exacerbated by the recent Russian invasion of Ukraine. The Company cannot estimate the effect of these factors on its business. To the extent that these factors result in increased prices, the Company may not be able to pass along the increases to its customers. Any shortages of cordyceps would affect the Company’s ability to generate sales of its products. Further, to the extent customers use the Company’s 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 the Company. The Company cannot give assurance you that its business will not be impaired by the effects of inflation and supply chain issues.

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, 2021 has 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, 2021 included within the Company’s annual report on Form 10-K for the year ended December 31, 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.

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:

Under these criteria, the Company generally recognizes revenue when its products are delivered to customers in accordance with the written sales terms.

Cash received in advance from customers is recorded as deferred revenue.

Accounts Receivable

Accounts receivable are recorded in accordance with ASC 310, “Receivables.” Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company does not currently have any amount recorded as an allowance for doubtful accounts. Based on management’s estimate and based on all accounts being current, the Company has not deemed it necessary to reserve for doubtful accounts at this time.

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, 2022 and 2021. 

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, 2022 and 2021.

NOTE 3 - GOING CONCERN

The accompanying 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 had limited gross profit and incurred a loss from operations for the nine months ended September 30, 2022. During the past few years the Company did not generate revenue during a number of quarters, including the three months ended September 30, 2022. 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.

The Company proposes to fund operations through sales of its products and equity financing arrangements. However, 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 and will have to rely on advances from a minority stockholder and its officer. If the Company cannot generate revenue from its products, it may not be able to continue in its business.

NOTE 4 - RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2022 and 2021, a stockholder advanced $55,000 and $0, paid expenses of $2,853 and $18,550 on behalf of the Company and the Company repaid $0 and $241,851, respectively.

At September 30, 2022 and December 31, 2021, the Company owed $77,494 and $19,641 to a stockholder who is not a 5% stockholder for non-interest-bearing advances made to or paid expenses on behalf of the Company, respectively. These advances are due on demand.

At September 30, 2022 and December 31, 2021, the Company owed $1,100 to its CEO for non-interest-bearing advances made to or paid on behalf of the Company. These advances are due on demand.

The Company has imputed interest at the rate of 4% on the advances made to the Company in the amount of $919 and $4,048 during the nine months ended September 30, 2022 and 2021, respectively.

NOTE 5 - LEASES

On November 3, 2021, the Company entered into a lease agreement to rent a storage facility in Hong Kong for a two-year term at HK$17,000 (approximately $2,190) per month and HK$33,000 (approximately $4,230) as a security deposit.

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 $19,710 and $18,856 for the nine months ended September 30, 2022 and 2021, respectively.

NOTE 6 – STOCKHOLDERS' EQUITY

The Company issued a total of 6,776,000 and 5,506,000 shares of common stock to consultants as stock grants pursuant to agreements with the consultants in May 2021 and August 2021, respectively, of which 11,912,000 shares were issued pursuant to the 2020 equity incentive plan (the “Plan”) and 370,000 were issued as restricted stock grants outside of the Plan. The agreements provide for the consultants to perform services described in the contracts for the two-year period commencing May 25, 2021 and August 23, 2021. The shares were valued at $19,311,600 and $12,113,200, based on the market price of the common stock on the respective dates of the agreements, which was $2.85 and $2.20 per share, respectively, and amortized over the two year period using the straight line method. During the nine months ended September 30, 2022 and 2021, the Company recorded stock-based compensation of $11,784,300 and $3,723,317 and had deferred stock compensation of $11,989,083 and $23,773,383 as of September 30, 2022 and December 31, 2021, respectively.

NOTE 7 - CONCENTRATION

Revenue

During the nine months ended September 30, 2022, all revenue was derived from one customer, which was generated during the first quarter of the year.

During the nine months ended September 30, 2021, all revenue was derived from two customers which accounted for 83% and 17% of total revenue, respectively.

Purchases

During the nine months ended September 30, 2022, all purchase was made from one supplier.

During the nine months ended September 30, 2021, the Company did not purchase inventory.

NOTE 8 - 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.

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:

The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021:

Cash used in operating activities of $136,913 for the nine months ended September 30, 2022 reflected primarily our net loss of $11,936,762, increased primarily by amortization of deferred stock-based compensation of $11,784,300, as well as a decrease in inventories of $296,000, offset by an increase in accounts receivable of $319,500.

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 amortization of deferred stock-based compensation of $3,723,317 and a decrease in inventory of $490,000.

Cash provided by financing activities of $57,853 for the nine months ended September 30, 2022 reflected advances from related parties. Cash used in financing activities of $223,301 for the nine months ended September 30, 2021 reflected payments to related parties of $241,851 offset by advances from related parties of $18,550.

There was no cash flow from investing activities in either the nine months ended September 30, 2022 and 2021.

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 we incurred a loss from operations and negative cash flow from operations for the nine months ended September 30, 2022. Our operations have been financed largely from loans form minority stockholders.  During the past few years we did not generate revenue during a number of quarters, including the second and third quarters of 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.

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, 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 September 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 September 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.

PART II – OTHER INFORMATION

Item 6: Exhibits

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.