Item 1. Business
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 (Taiwan). 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 for the years ended December 31, 2020 and 2019 were made to one customer, and all of these sales were made in the first quarter of 2020 and the fourth quarter of 2019.
Substantially all of our sales to date have been sales of cordyceps related products. 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 cannot assure you that we will be able to market any other products. In the quarter ended June 30, 2018, we sold metallothionein MT-3 elizer. We do not presently sell metallothionein MT-3 elizer, and we do not consider it part of our business.
We believe that our failure to sell products during the last nine months of 2020 resulted substantially from the COVID – 19 pandemic and actions taken by governments to address the pandemic. We believe our failure to generate sales reflects a downturn in the market in the People’s Republic of China (“PRC”) for cordyseps products, 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 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.
During 2021, we sold Cordycepin and cordyceps powder to three customers, who accounted for 58.5%, 3.2% and 8.3%, respectively. During 2020 we sold Cordycepin and cordyceps powder to one customers, who was our 8.3% customer in 2021. All sales during the 2020 were made in the first quarter of the year, and we did not have any sales during the second, third or fourth quarter of the year. We purchased all of our Cordycepin and cordyceps powder from one supplier for 2020. We did not purchase any inventory in 2021. Our sales are sales of our product in bulk to companies who may use our products as ingredients in their products or sell the products they purchased from us to their own customers.
Implications of Having Been an Emerging Growth Company
We ceased being an Emerging Growth Company on December 31, 2021, the last day of our fiscal year following the fifth anniversary of the completion of our initial public offering. Since we completed our initial public offering in 2016, we ceased to be an emerging growth company after December 31, 2021. However, as long as we remain a smaller reporting company, we will be able to take advantage of most of the reduced reporting requirements. We will continue to qualify as a “smaller reporting company” for so long as we have either (i) a public float (i.e., the market value of common equity held by non-affiliates) of less than $250 million as of the last business day of our most recently completed second fiscal quarter or (ii) annual revenues of less than $100 million and a public float of less than $700 million.
Our Organization
We are a Nevada corporation incorporated on September 24, 2014 under the name Killer Waves Hawaii, Inc. On January 30, 2017, we changed our corporate name to Acro Biomedical Co., Ltd. Our address is 12175 Visionary Way, Suite 1160, Fishers, Indiana 46038, telephone (317) 286-6788. Our corporate website is http://acrobiomedicalco.com. Information on or derived from our website or any other website is not part of this annual report.
Our Business and Proposed Business
To date, all of our sales were made by our chief executive officer, who is our only employee. We plan to develop a marketing program pursuant to which we will seek to:
| · | market raw materials to customers, primarily in Hong Kong, who would either sell our products or use our products as an ingredient on their products; |
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| · | enter into agreements with customers pursuant to which we would develop and supply products which include our ingredients and which meet the specifications of the customer; |
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| · | develop one or more products which we would sell to retail outlets which would sell our products to their customers or sell the products directly to retail customers as on-line sales. |
We do not presently have either a marketing staff or any manufacturing facilities. The only product currently in development is our proposed cordyceps-infused chicken feed. If we can develop a product which can be marketed in a quantity sufficient to enable us to generate an operating profit from the product, we intend to develop a marketing staff by hiring a marketing manager and engaging independent sales representatives or hiring sales and marketing and sales personnel or a combination of independent representatives and sales staff. We cannot assure you that we will be able to develop the product or engage the necessary qualified personnel or to implement an effective marketing program.
Initially, we intend to focus on marketing our products to companies in the Hong Kong and Republic of China markets. To date all of our sales have been sales of products which we purchased from our suppliers. In order to market products which would be based our or our customer’s specifications, we would need to provide our potential customers with evidence that we have the capacity to develop and manufacture the products that meet both the customer’s quality specifications and delivery requirements and comply with all government requirements. Since we anticipate that the products we sell will be marketed as over the counter health supplements, both the manufacturing facility, the product and the marketing materials would have to comply with all applicable government regulations in the country in which the products are sold.
We do not presently have any manufacturing operations. To the extent that we obtain purchase orders for products, we would need to negotiate an agreement with a qualified manufacturer acceptable to the customer that can deliver the products in accordance with the customer’s specifications, including any required product warranties, and all applicable government regulations and at the customer’s cost set forth in the purchase order. We cannot assure you that we will be able to generate any orders for products until and unless we have shown the ability to produce and deliver products of the type that the customer.
At present, we do not market products for retail sale. We may seek to develop our own proprietary products or we may have a supplier provide us with their products on a private label basis or we may sell a manufacturer’s brand. We cannot assure you that we can develop products, obtain products on a private-label basis or sell any products at retail. To the extent that we are selling products to consumers, whether directly through the Internet, or through retail outlets, we will need to comply with all applicable government regulations in each country in which we sell the products. In this connection, we are considering marketing products in the United States. If we sell products in the United States, we plan to sell products through distributors who sell other non-prescription products and who will be responsible for compliance with the applicable regulations of the United States Food and Drug Administration (the “FDA”). We also plan to market our products using the internet through a website that we plan to set up. As of the date of this annual report, we do not have any distribution agreements and we have not established a website. We cannot assure you that we will be successful in establishing any marketing program or establishing a website in the United States or elsewhere or that any website we establish will generate significant, if any, business.
Our initial product development work relates to the development of 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 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. 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
In 2021, we engaged consultants to work with us in various aspects of product development and marketing for this product. Because of our lack of funds, we compensated our consultant through the issuance of stock, primarily pursuant to our 2020 equity incentive plan. We issued 6,776,000 shares of common stock on May 25, 2021 and 5,506,000 shares of common stock on August 23, 2021 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 and August 23, 2021, respectively. 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 are being amortized over the two-year terms of the consulting agreement. During 2021, we recorded stock-based compensation of $7,651,417 and at December 31, 2021, we had deferred stock compensation of $23,773,383 which will be recognized over the balance of the terms of the agreement.
The four areas in which we are working on this project are:
| · | Cordycepts eggs composition analysis to compare the eggs laid by chickens that used our proposed product with eggs laid by chickens that did not use any special supplements; |
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| · | Analysis of the chicken after using the product, to determine whether there are any positive or negative effects upon the heath of the chickens that are fed feed with our proposed product as a supplement. |
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| · | Engineering the feed formula to maximize the potential benefits of the product, including using the data derived from the analysis of the eggs and chickens to modify the product. |
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| · | Outsourcing production and establishing a quality control staff including obtaining any necessary regulatory approval for our product. This phase would be undertaken if and when we are satisfied that we have a marketable product. |
The activities in which our consultants were engaged includes research relating to logistics for delivery and cost and pricing considerations, working with the chicken farmers who are participating in our project including preparing, maintaining and distributing the cordycepts egg packages for use by the farmers, conducting market research as to the buyer’s reactions and insights to the use of this product and market dynamics, designing packaging, developing seasonal product packaging, and seeking to communicate the benefits of the product as part of the package design, engaging in research as to competitor’s software, marketing, pricing and sales programs, as well as conducting marketing and research using the Internet, identifying, qualifying and contacting potential customers. The consultants also performed preliminary work for the possible international sales, including analyzing appropriate exhibitions and trade shows, assist in the proposed labeling of product to meet regulatory requirements, take steps to insure that ingredients are processed to meet the Taiwan Food and Drug Authority for health supplement certification registration, analyze products to gain assurance that that certified ingredients do not contain contaminants such as heavy metals, microbiological contaminants, pesticides, herbicides and mycotoxins or antibiotics. The consultants are also reviewing the possibility of patent protection.
We anticipate that for any products we sell pursuant to an agreement with our customer we will incur liability in the event that the product does not comply with the customer’s specifications or in the event of any product recall. We intend to provide in our agreement with the customer that the customer will be responsible for compliance with all laws applicable to the marketing, sale and labeling of the product. If we sell any products at retail, whether through the Internet or through retail outlets, it will be our responsibility to comply with all government regulations relation to manufacture, marketing, sale and labeling of the products. We will also incur liability in the event of any product recall. The cost of any liability which we may incur may be significant and, if we are found to be liable for any product noncompliance or product recall, we may not be able to continue in business.
Our business plan is in the preliminary stages, and we will require significant funding to implement our business plan, with no assurance that we can or will be successful in developing and implementing our business plan. If we are not able to implement our business plan, our business may be materially impaired.
The initial product development work relates to the development of 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 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. 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
Source of Supply
During the year ended December 31, 2020, we purchased inventory of Cordycepin and cordyceps powder, from one supplier, Aublog Inc., a Taiwan-based company. We did not purchase any inventory during 2021, and we had no inventory at December 31, 2021. The cordyceps that we are using in the development of our chicken feed product, which is the same product that we sell for human consumption, was taken from our inventory and the cordyceps used in the development project was not significant.
We do not plan to establish manufacturing facilities. We have engaged in initial discussions with potential contract manufacturers in Taiwan but, as of the date of this annual report, we do not have a formal or informal understanding with any contract manufacturer. If we are able to negotiate acceptable terms for a contract manufacturer to manufacture our products, we would source the raw materials and have the raw materials shipped to the manufacturer who would them customize the product to meet our or our customer’s specifications. However, any product that we may sell may bear the brand names of the manufacturer rather than our brand name. If we are not able to negotiate an agreement with a contract manufacturer, we may buy finished products from a manufacturer, which we anticipate would have the manufacturer’s brand names. Even if we engage a contract manufacturer, we may still buy a manufacturer’s brand products either from our contract manufacturer or another supplier. Our ability to negotiation a contract with a supplier may be affected by both the modest level of sales for the year as well as our lack of substantial sales. We cannot assure you that we will be able to develop the necessary relationships with suppliers or contract manufacturers on reasonable terms. Our inability to enter into an agreement with a contract manufacturer may materially impair our ability to implement our business plan.
Marketing and Sales
All of our marketing and sales activities to date have been conducted by our chief executive officer, Pao-Chi Chu, who is our only employee and who provides his services on a part-time basis. All sales to date were made by Mr. Chu. If we develop a product, including our proposed corcyceps infused chicken feed, we would need to develop a distribution network.
During 2021, we had three customers, Golden Biomedium Co., Ltd., a Taiwan-based company, Vista Global Biotech Limited, a Hong Kong-based company, and King Life Biotech Co., Ltd, a Taiwan-based company, which accounted for 33.2%, 58.5% and 8.3%, respectively, of our revenues. For 2020 King Life Biotech Co. Ltd. was our sole customer, and our sales to King Life Biotech in 2021 were in the first quarter. We do not have any long-term contracts with any customer. We ship products pursuant to purchase orders placed by the customers.
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 in China or for resale to their customers, our business may be impacted by the effects of the COVID-19 pandemic as it effects manufacturers in Taiwan and Hong Kong and their customers in China. We believe that our failure to generate sales in the second, third and fourth quarters of 2020 and the third quarter of 2021 significantly resulted from the effects of the COVID-19 pandemic and these factors may continue to affect our ability to sell our products. Factors relating to the COVID-19 pandemic which may affect the market for our products 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; |
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| · | The financial health of our potential customers; |
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| · | Since our customers may use our products as an ingredient in their products, the ability of the customer to obtain other ingredients may affect their willingness or ability to purchase our product. |
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| · | 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 purchaser in China to purchase products with our ingredients and their perception as to whether the products may have beneficial effects to them; |
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| · | The extent to which quarantine affects the willingness or ability of consumers to purchase products with our ingredients; |
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| · | The perceived benefit, if any, to consumers of products with our ingredients; |
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| · | If we seek to market our product in the United States, our ability or the ability of our distributors to comply with, and the effects of, all applicable laws and regulations adopted to address the pandemic in the United States; |
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| · | The extent to which the purchase or 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 the Chinese government to curb the spread of infection. |
Government Regulations
In the event that we seek to market and sell our products in the United States, we will be subject to various laws and regulations. The United States Federal Food, Drug, and Cosmetic Act defines a dietary ingredient as a vitamin, mineral, herb or other botanical, amino acid, dietary substance for use by man to supplement the diet by increasing the total dietary intake, or a concentrate, metabolite, constituent, extract, or combination of the preceding substances. Unlike drugs, supplements are not intended to treat, diagnose, prevent, or cure diseases, which means that supplements cannot make claims as to health benefits. Claims like these can only legitimately be made for drugs, not dietary supplements. Dietary supplements include such ingredients as vitamins, minerals, herbs, amino acids, and enzymes. Dietary supplements are marketed in forms such as tablets, capsules, softgels, gelcaps, powders, and liquids. Cordyceps is considered a dietary supplement.
The United States Food and Drug Administration regulates both finished dietary supplement products and dietary ingredients. The FDA regulates dietary supplements under a different set of regulations than those covering “conventional” foods and drug products. Under the Dietary Supplement Health and Education Act of 1994, manufacturers and distributors of dietary supplements and dietary ingredients are prohibited from marketing products that are adulterated or misbranded. That means that these firms are responsible for evaluating the safety and labeling of their products before marketing to ensure that they meet all the requirements of Dietary Supplement Health and Education Act and FDA regulations. The FDA is responsible for taking action against any adulterated or misbranded dietary supplement product after it reaches the market.
The Dietary Supplement and Nonprescription Drug Consumer Protection Act requires manufacturers, packers or distributors whose name appears on the product label of a dietary supplement to include contact information on the product label for consumers to use in reporting adverse events associated with the product’s use and to notify the FDA of any serious adverse event report within 15 business days of receiving such report. However, the reporting of an event is not an admission that the product caused the adverse event.
If we engage in business in the United States, we will be subject to a variety of other regulations, including those relating to health, safety, bioterrorism, environmental, cybersecurity, taxes, labor and employment, import and export, and environmental. These regulations may require significant financial and operational resources to ensure compliance, and we cannot assure you we will able to be in compliance.
We do not presently sell products for retail sale to consumers although we may, to the extent that we implement our proposed business plan, develop products which are designed and packaged for consumer use. Our customers presently purchase our products in bulk and may use our products as ingredients in their products. Countries into which our products are sold have regulations relating to the marketing, labeling and claims for dietary supplements. Since we do not presently sell products in form for use by consumers, our customers must comply with applicable government regulations. Our present and recent former customers are located in Taiwan or Hong Kong, which have laws concerning the ingredients in products sold for consumption, including the purity of the ingredients. If products which include our products as ingredients are sold in Hong Kong or any other country, the products may be subject to the food and supplement regulations of the country. We do not make any of the products we sell. To the extent a claim arises either as a result of the use by a consumer of products which contain our ingredients or a government agency raises questions about the purity of ingredients purchased from us, we may incur liability for any adverse reactions to the products purchased by consumers or failures of our products to conform to the stated purity of our products and we cannot assure you that we will be able to claim over against our supplier. If we sell products that are designed and packaged for use by consumers, we may be subject to laws relating to such products, including the purity and labeling of the products and any other regulations that may be applicable.
If we sell products for consumer use in any country, we will be subject to the laws of that country. Each country has laws relating to products that are marketed as dietary supplements, including laws relating to the products and which describe the extent that products subject to the applicable laws, including the purity of the ingredients and marketing and labeling of products. We will need to comply with all applicable regulations and we may not be permitted to sell product in a country unless we have received prior approval from the applicable government agency.
We sell our products to distributors and it is the responsibility of our customers to comply with applicable regulations in the countries in which they sell products, including Taiwan, China and Hong Kong.
To the extent that we either manufacture our product or have our product manufactured by a third party, we intend to use a third party for inspection, verification, testing and certification services.
Research and Development
We incurred research and development expenses of approximately $5.3 million in 2021, which reflects the amortization of equity compensation provided to our consultants whose services related to the development of our proposed chicken feed product, We did not incur any research and development expenses in 2020.
Intellectual Property Rights
We do not have any patent or other intellectual property rights with respect to any products.
Competition
A number of companies market and sell cordyceps products in the United States, including Real Mushrooms, Bulk Supplements, Terrasoul SuperFoods; Mental Refreshment Nutrition, NOW Foods, Aloha Medicinals, Natures Elements and Swanson Premium. These products include cordyceps extract as well as products that include cordyceps along with other ingredients. Many, if not all, of these companies are better known and better capitalized than we are, and we cannot assure you that we will be able to compete successfully with these and other existing suppliers of cordyceps. There are a few companies that offer cordyceps in chicken feed. We believe that the market for this product is relatively small since cordyceps is extremely expensive and usually used for human consumption.
Employees
We have one employee, our chief executive officer and chief financial officer, Pao-Chi Chu, who works for us on a part-time basis.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in this report include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. The risks set forth below are not the only risks facing us. Additional risks and uncertainties may exist that could also adversely affect our business, prospects or operations. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or a significant part of your investment.
Risks Concerning our Business
We have not generated significant revenues, we are operating at a loss, and in recent years we did not any sales during several quarters, and we cannot assure you that we can or will ever operate profitably.
For the year ended December 31, 2021, we incurred a loss of approximately $7.7 million on revenues of approximately 1.2 million, and for the year ended December 31, 2020, we incurred a loss or approximately $117,000 on revenues of approximately $688,000. During 2021 we did not generate any revenue in the third quarter and during 2020 we did not generate any revenue in the second, third and fourth quarters. Our gross margin was 21.7% for the year ended December 31, 2021 and 23.2% for the year ended December 31, 2020. We will not be able to operate profitably until and unless we are able to generate sufficient revenue so that our gross profit can cover our operating expenses. We cannot assure you that we be able to operate at a profit. We do not have any full-time employees and our chief executive officer, who provides his services on a part-time basis, has not received any salary. If we increase our operations and engage in selling, marketing and research and development activities, we will incur significant selling, general and administrative expenses. Unless we can significantly increase our revenue and gross profit or raise funds from other sources, including the sale or our equity securities, we may not be able to operate profitably. The lack of an active trading market in our common stock combined with our lack of sales and can materially impair our ability to raise money through the sale of equity securities. We cannot assure you that we can or will ever operate profitably.
We require significant funding for us to conduct our business.
At December 31, 2021, we had cash of approximately $95,000 and accounts receivable of $598,000, all of which was received during 2022, and we had no inventory. In order for us to continue in business, we will require significant additional capital either in the form of debt or equity. Because of the absence of any active trading market in our stock, our financial condition, our modest level of sales for the 2021 and 2020, as well as our lack of any history of significant operations, our low stock price and the absence of an active market for our stock, we may be unable to raise funds through the sale of equity securities.
We incurred significant research and development expenses in 2021 with no assurance that we can or will derive significant revenue from these services.
A key element in the loss for 2021 is stock-based compensation of approximately $7.7 million reflecting the amortized portion of the value of common stock issued in 2021 to consultants for research and development and selling, general and administrative services largely relating to our proposed chicken feed product. At December 31, 2021, we had deferred stock compensation of $23,773,383 which will be recognized over the balance of the agreements, which expire in May 2023 and August 2023.The amortization of this stock-based compensation will continue to impact the results of our operations in 2022 and 2023, with no assurance that we will derive any revenue from these services.
Our financial statements include a going concern paragraph.
Our financial statements for the year ended December 31, 2021 include a going concern paragraph. We had minimal cash at December 31, 2021, we had limited gross profit and we incurred a loss from operations for the year ended December 31, 2021 and past few years. 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. Although we propose to fund our operations through sales of cordyceps related products and we are looking to develop our chicken feed product, to date our sales have not been significant, we have not generated sales every quarter during 2021 and 2020, and we do not have any new product which will be able to be marketed in the near future if at all. 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 will have difficulty raising funds in the equity market on reasonable, if any, terms, and we have had to on advances from a minority stockholder and our officer. If we cannot generate revenue from our products, we may not be able to continue in business. We cannot assure you that we can or will develop our proposed cordyceps-infused chicken feed product, or, if we develop the product, that we will generate significant revenue, if any.
If we are not able to increase revenue and our customer base, we may not be able to operate profitably.
Through December 31, 2021, our revenue has primarily resulted from sales to a very limited number of customers – three in 2021 and one in 2020. Our customer for 2020 was also the smallest of our three customers for 2021. Our customers are based on in Taiwan and Hong Kong. Our two largest customers for 2021 were not customers in prior years.We do not have any long-term agreement with any customers and they may cease purchasing from us for any reason. Unless we are successful in generating revenue from a larger customer base, our ability to operate will be impaired. Further, we believe that the nature of the market is such that we have little ability to improve our gross margin.
Our revenue has been imparted by recent government efforts to politically stabilize Hong Kong.
Prior to 2019, our revenue was derived from Hong Kong –based customers, one of which was a customer in 2021. We believe that one factor was the political instability in Hong Kong, which affected our customers’ ability to sell products into the People’s Republic of China and their purchases from us. We cannot assure you that conditions in Hong Kong will not continue to affect our customers’ purchase from us.
Our business may be impacted by the effects of the COVID-10 pandemic which has materially impacted the Chinese economy.
Since our products are purchased by customers as one ingredient of a product to be sold to their customers in the China as well as for direct sale to customers, our business may be impacted by the effects of the COVID-19 pandemic as it effects manufacturers in Taiwan and Hong Kong and their customers in China. We had no sales during the third quarter of 2021 and the second, third and fourth quarters of 2020 as well as and the first, second and third quarters of 2019, and we believe that COVID-19 was a significant factor. We cannot predict the effect of COVID-19 on our business. Factors which may affect the market for our products 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; |
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| · | The financial health of our potential customers; |
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| · | Since our customers use our products as an ingredient, the ability of the customer to obtain other ingredients may affect their willingness or ability to purchase our product. |
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| · | 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 purchaser in China to purchase products with our ingredients and their perception as to whether the products may have beneficial effects to them; |
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| · | The extent to which quarantine affects the willingness or ability of consumers to purchase products with our ingredients; |
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| · | The perceived benefit, if any, to consumers of products with our ingredients; |
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| · | If we implement a marketing program in the United States, the effect of the pandemic and steps taken by the federal or state to address the pandemic, which could vary from state to state; |
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| · | The extent to which the purchase or 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 the Chinese government to curb the spread of infection. |
If we sell products or commence operations in the United States, we would be subject to government regulations in the United States.
If we sell products or commence operations in the United States, we would be subject to FDA regulations under the Dietary Supplement Health and Education Act, which generally provides a regulatory framework to help ensure safe, quality dietary supplements and the dissemination of accurate information about our products. The FDA does not generally regulate active ingredients in dietary supplements in the same manner as it regulates drugs unless the product makes claims, such as claims that a product may heal, mitigate, cure or prevent an illness, disease or malady, that may result in the product being subject to the restrictions and regulations imposed on drugs. If we commence operations in the United States, we would also be subject to government regulations that apply to business in general, including those relating to health, safety, bioterrorism, taxes, labor and employment, import and export, and the environment. At present, we do not have any business activities in the United States that require compliance with these regulations. However, at such time as we commence business in the United States, we may incur significant costs to comply with such regulations, and we cannot assure you we will able to be in compliance. Other countries in which we may operate may have similar regulations, and, to the extent that we conduct business or sell products in these countries, we will be subject to those regulations.
Since we sell our products to customers in Taiwan and Hong Kong, we may be subject Taiwan and Hong Kong laws and regulations relating to our products.
We do not sell products for retail sale to consumers. Our customers purchase our products in bulk and use our products as ingredients in their products and sell the products to customers. Countries into which our products are sold have regulations relating to the marketing, labeling and claims for dietary supplements. Since we do not sell products in form for use by consumers, our customers must comply with applicable government regulations. Our present customers are located in Taiwan and Hong Kong, which have laws concerning the ingredients in products sold for consumption, including the purity of the ingredients. If products which include our products as ingredients are sold in Taiwan, Hong Kong or any other country, including the PRC, the products may be subject to the food and supplement regulations of that country. We do not make any of the products we sell. To the extent a claim arises either as a result of the use by a consumer of products which contain our ingredients or a government agency raises questions about the purity of ingredients purchased from us, we may incur liability for any adverse reactions to the products purchased by consumers or failures of our products to conform to the stated purity of our products and we cannot assure you that we will be able to claim over against our supplier. Although we do not sell products in Taiwan, Hong Kong or any other country, we may be subject to liability or penalties in the event that our products do not have the purity which we claim We may, in the future, sell products that are designed and packaged for use by consumers, in which event we may be subject to laws relating to such products, including the purity and labeling of the products and any other regulations that may be applicable in the country in which the products are sold.
If we develop a chicken feed product, which would be used by chicken farmers to feed their chicken, we may be subject to government regulations.
We are working on the development of a cordyceps-based ingredient for chicken feed which would be included as part of the chicken’s diet. The corcyceps in the chicken feed product is the same as cordyceps sold for human consumption and is treated as Chinese traditional medicine. To the extent that any of our products requires government approval, it is the responsibility of the manufacture to satisfy the government agency as to its compliance, and our product would need to be manufactured in a government-approved manufacturing facility.
We need to develop additional sources of supply.
Our revenue through December 31, 2021 has been derived from the sale of products purchased from three suppliers, one of which accounted for all of our purchases in the year ended December 31, 2020. We did not purchase any inventory in 2021 and, at December 31, 2021, we did not have any inventory. We do not have any long-term agreements with any suppliers, and, accordingly, our suppliers have no contractual obligation to sell us product at a price which would enable us to generate an acceptable gross margin, if at all. We will need to develop additional sources of supply for both raw materials and any finished products which we may sell. Although we believe that alternative sources of supply of both raw materials and finished products are available, any difficulty or delay in identifying and entering into supply arrangements with suppliers could impair both our gross margins and our ability to operate profitably. Further, any shortage of raw materials or interruption of supply could also result in higher prices for those materials which we may be unable to pass on to our customers. We cannot assure you that, if we develop our business, our suppliers will be provide us with the quality of raw materials we need or the quantities we request or at a price we consider to be reasonable. Because we do not control the actual production of these raw materials, we are also subject to delays caused by interruption in production of materials based on conditions outside of our control, including weather, transportation interruptions, strikes, terrorism, natural disasters, or other catastrophic events.
We need to develop and maintain marketing and distribution channels.
We presently do not have any marketing or distribution arrangements. Our sales through December 31, 2021 were made by our chief executive officer who is not a full-time employee. Unless we are able to hire qualified sales and marketing personnel and develop distribution channels to market and sell any products which we sell, we will not be able to generate sufficient revenue to enable us to operate profitably. We cannot assure you as to our ability to develop and maintain effective marketing and distribution channels or to operate profitably.
We do not have product liability insurance to protect us against any claims we may sustain.
We do not have any product liability insurance. Regardless of whether we manufacture products, we could face significant liabilities due to claims that the use of products we sell caused adverse reactions, regardless of whether we have the product manufactured for us or we purchase the product from a suppliers. We could be exposed to liability based on claims that, among others: our products contain contaminants; we provide consumers with inadequate instructions about product use; or we provide inadequate warning about side effects or interactions of our products with other substances. Even if we were to prevail in any such claims, the cost of litigation and settlement could be significant and could exceed any product liability coverage we may have. Although we intend to require any contract manufacturers to maintain product liability insurance, we cannot assure you that they will have adequate, if any, product liability insurance coverage. Since we do not have supply agreements with our present suppliers, we would have no contractual recourse against the suppliers in the event of any users should suffer adverse events following the use of products sold by us. In addition, as we are presently test marketing our chicken feed product with a small number of chicken farmers, we cannot assure you that we will develop a marketable product and we may be subject to claims from the chicken farmers if they believe that their chicken fell ill from our product.
The market for our products is very competitive, and we may not be able to compete successfully.
The cordyceps market is highly competitive and a number of products are readily available. Most, if not all, of our competitors are substantially larger and have greater financial resources and name recognition than we do. Further, new products which may be developed or sold may increase the competitiveness of the market. We anticipate that we will be dependent, at least initially, primarily on cordyceps products. Many of our competitors offer a range of products and are not dependent on a market for cordyceps products, which can protect them in the event that the market for cordyceps products declines. Further, a number of major company manufacture chicken fee products, including products which are intended to improve the quality of the eggs and/or the heath of the chickens. We cannot assure you that, if we develop a chicken feed product, we will be able to generate any significant revenue from the product.
We have not conducted any study of the potential market for cordyceps-based in the United States and we cannot assure you that there is a significant market for these products in the United States.
Although we have a general familiarity with the market for cordyceps products in Asia, our business plan contemplates the sale of these products in the United States and possibly countries where there is a large Asian population. We have not conducted any study as to the market for cordyceps products in the United States and we cannot assure you that there is any significant market. Unless there is a significant market in the United States, we may not be able to operate profitably. We cannot assure you that there is a sufficient market in the United States to enable us to compete effectively or operate profitably or that, if a market exists for products of the type we sell, that we will be able to market our products successfully.
The market for cordyceps products or any chicken fee product we may develop may be affected by recalls or successful litigation arising from claimed adverse reactions to products.
Any recall or lawsuits arising out of adverse reactions or perceived adverse reactions to cordyceps products or any chicken feed product we may develop and market or unfavorable comments in the press or social media could impair the market for our products, even if the recall, adverse reaction or unfavorable comments related to products manufactured and sold by other companies.
The market for our products may be dependent on public tastes, which can rapidly change.
The market for any type of supplements, including supplements used in animal fees, is subject to change in public tastes, which changes may be based on the factors described in the preceding Risk Factor or other changes in taste not relating to any specific incident or problem. Since our business plan is presently limited to cordyceps products, we will be impacted more severely by changes in tastes than we would if we offered a range of different dietary supplements. We cannot assure you that we will be able to develop, offer and sell any products other than cordyceps-based products or that any market that may exist will continue.
We may not be successful in any research and development activities in which we may engage.
We plan to engage in research and development activities with a view to developing cordyceps products to be sold in the United States, and we have commenced research and development with respect to a cordyceps based supplement product for chicken feed using consultants. Since our consultant are working form their own locations and not from our office and we have only one employee, our chief executive officer who is not a full-time employee, we cannot provide the same degree of supervision as we would use if we had employees engaging in research and development activities on our premises. We cannot assure you that we will be successful in developing any product or that any product we may develop will be marketable in the United States or any other country or that we will not require regulatory approval for the sale of any such product in the United States or any other country in which we seek to market the product. If regulatory approval is required, compliance with such regulations may be very expensive and we cannot assure you that we will be able to obtain such approval. As a result, we may incur significant expenses in seeking to develop a product with no assurance that we can or will develop a marketable product that complies with applicable law.
We are dependent upon our chief executive officer.
We are dependent upon Pao-Chi Chu, our chief executive and financial officer, sole director and principal stockholder, who is our only employee and who works for us on a part-time basis. The loss of Mr. Chu would materially impair our ability to conduct our business. We do not have an employment agreement with Mr. Chu and we do not maintain key person life insurance on his life.
If we are unable to attract, train and retain technical and financial personnel, our business may be materially and adversely affected.
Our future success depends, to a significant extent, on our ability to attract, train and retain key management, marketing, sales, technical, product development and financial personnel. As of December 31, 2021 we had not taken steps to hire any such personnel. Recruiting and retaining capable personnel, particularly those with expertise in the natural supplement business are vital to our success. There is substantial competition for qualified personnel, and we cannot assure you we will be able to attract or retain our technical and financial personnel. If we are unable to attract and retain qualified employees, our business may be materially and adversely affected. Our financial condition, including the absence of sales in four of the eight quarters of 2021 and 2020, and the absence of any significant market in our common stock may make it difficult for us to attract qualified personnel.
Our chief executive officer may have a conflict of interest.
Pao-Chi Chu, our chief executive officer, chief financial officer and principal stockholder, has served as the chairman of Mucho Biotech Co., Ltd., Mucho Furich Co., Ltd., and Mucho Biomedical Co., Ltd., companies engaged in applications of cordyceps since 2006. These companies are controlled by Mr. Chu. As a result, he may have a conflict of interest in allocating his time and available resources among us and the other companies in related fields which he controls. We cannot assure you that Mr. Chu will be able to allocate sufficient time and resources to our business to enable us to develop our business plan.
We may not be able to protect any intellectual property which we may develop.
We do not have any patents or other proprietary intellectual property. While we may seek patents for any intellectual property which we may develop, we cannot assure you that we will develop any patentable product or that we will be able to obtain patents or that, if we do obtain patents, other companies will not be able to design around our patents and develop competitive or superior products. We cannot assure you that we will be able to enforce any patent rights which we may obtain. Patent litigation is very expensive, and, if we do not have the financial resources to enforce through litigation any patents we may obtain, we may not be able to retain the value of the patents. We believe that much of our intellectual property will be in the nature of trade secrets. Although we will seek to protect our intellectual property rights through nondisclosure agreements, including non-disclosure agreement with our employees and consultants and other companies with which we may conduct business, we cannot assure you that the other parties to the non-disclosure agreements will comply with their obligations, and we may not be aware of any breach until the intellectual property has been disclosed to a third party. We may not be able enforce our rights under the non-disclosure agreements.
Our business and our ability to maintain our gross margin may be affected by inflation and the global supply chain issues.
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, 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.
Risks Concerning our Common Stock
There is presently no active market for our common stock, which may make it difficult for you to sell your stock.
Our common stock is quoted on the OTCQB marketplace under the symbol ACBM. There is no active trading market for our common stock, and the OTC Markets website shows that there are many days on which there is no trading volume or very limited trading volume. Accordingly, even if a market develops, as to which we can give no assurance, there can be no assurance as to the liquidity of our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock. Further, if a market develops, it is likely that there will not be any significant float, with the result that the reported bid and asked prices may have little relationship to the price you would pay if you wanted to buy shares or the price you would receive if you wanted to sell shares.
Because our common stock is a penny stock, you may have difficulty selling our common stock in the secondary trading market.
If a market for our common stock develops, our common stock is, and will likely to continue to be, a penny stock and therefore is subject to the rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks. The SEC rules may have the effect of reducing trading activity in our common stock making it more difficult for investors to purchase and sell their shares. The SEC’s rules require a broker or dealer proposing to effect a transaction in a penny stock to deliver the customer a risk disclosure document that provides certain information prescribed by the SEC, including, but not limited to, the nature and level of risks in the penny stock market. The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction. In addition, the SEC’s rules also require a broker or dealer to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction before completion of the transaction. The existence of the SEC’s rules may result in a lower trading volume of our common stock and lower trading prices. Further, some broker-dealers will not process transactions in penny stocks.
Our lack of internal controls over financial reporting may affect the market for and price of our common stock.
Our disclosure controls and our internal controls over financial reporting are not effective. We do not have the financial resources or personnel to develop or implement systems that would provide us with the necessary information on a timely basis so as to be able to implement financial controls. Our continued poor financial condition together with the fact that we have one part-time employee, who is both our chief executive officer and chief financial officer, makes it difficult for us to implement a system of internal controls over financial reporting, and we cannot assure you that we will be able to develop and implement the necessary controls. The absence of internal controls over financial reporting may inhibit investors from purchasing our shares and may make it more difficult for us to raise debt or equity financing.
Our lack of a full-time chief financial officer affects our ability to develop financial controls, which could affect the market price for our common stock.
We do not have a full-time chief financial officer. At present, our chief executive officer, who does not have an accounting background, is also acting as our chief financial officer. We do not anticipate that we will be able to hire a qualified chief financial officer unless our financial condition improves significantly. The lack of an experienced chief financial officer, together with our lack of internal controls, may impair our ability to raise money through a debt or equity financing, the market for our common stock.
We do not have any independent directors.
We do not have any independent directors. Our sole director is Pao-Chi Chu, who is our chief executive officer, chief financial officer and principal stockholder. Because we have no independent director, we do not have any checks and balances on Mr. Chu, which may make it difficult for us to develop internal controls and to raise money in the financial markets.
Our stock price may be volatile and your investment in our common stock could suffer a decline in value.
As of the date of this report, there has been no active trading activity in our common stock. There can be no assurance that any significant market, or any market, will ever develop in our common stock. Because of the low public float and the lack of trading volume, any reported prices may not reflect the price at which you would be able to sell shares if you want to sell any shares you own or buy shares if you wish to buy share. Further, stocks with a low public float may be more subject to manipulation than a stock that has a significant public float. The price may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following, in addition to the risks described above and general market and economic conditions:
| · | our low stock price, which may result in a modest dollar purchase or sale of our common stock having a disproportionately large effect on the stock price; |
| · | the market’s perception as to our ability to generate revenue and positive cash flow or earnings; |
| · | changes in our or securities analysts’ estimate of our financial performance; |
| · | our ability or perceived ability to obtain necessary financing for our operations; |
| · | the perception of the future market for our products and whether we will be successful in developing and marketing our chicken feed product; |
| · | the anticipated or actual results of our operations; |
| · | changes in market valuations of other natural supplement companies; |
| · | any discrepancy between anticipated or projected results and actual results of our operations; |
| · | actions by third parties to either sell or purchase stock in quantities which would have a significant effect on our stock price; and |
| · | other factors not within our control. |
Raising funds by issuing equity or convertible debt securities could dilute the net tangible book value of the common stock and impose restrictions on our working capital.
If we were to raise additional capital by issuing equity securities, either alone or in connection with a non-equity financing, the net tangible book value of the then outstanding common stock could decline. If the additional equity securities were issued at a per share price less than the market price, which is customary in the private placement of equity securities, the holders of the outstanding shares would suffer a dilution, which could be significant. We may have difficulty in raising funds through the sale of debt securities because of both our financial position, the lack of any collateral on which a lender may place a value, and the absence of any revenue or operations. If we are able to raise funds from the sale of debt securities, the lenders may impose restrictions on our operations and may impair our working capital as we service any such debt obligations. Further, it is not uncommon for investors who provide private funding to companies with weak financial positions, to require the issuer to issue convertible securities which are convertible at a discount to the market price at the time the convertible security is converted. Such securities typically have a materially adverse effect on the market price for the issuer’s stock.
Because of our chief executive officer’s stock ownership, he has the power to elect all directors and to approve any action requiring stockholder approval.
Mr. Pao-Chi Chu, our chief executive officer, owns 30,000,000 shares of common stock, representing approximately 49.97% of our outstanding common stock. As a result, Mr. Chu has the power, without the vote of any other stockholders, to elect all of our directors and, with minimal support from other stockholders, take any action requiring stockholder approval, including any amendment to our certificate of incorporation, merger, sale of assets or other major corporate transaction.
We do not intend to pay any cash dividends in the foreseeable future. We have not paid any cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.