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.
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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.
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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.
· The effect of COVID-19 on the ability of our customers and potential
customers to manufacture products.
· The financial health of our customers and potential customers, and the
ability of our customers to sell products they purchased from us.
· Since our customers may use our products as an ingredient in their
products, the inability of the customer to obtain other ingredients may
affect their willingness or ability to purchase our product.
· The ability of our customers to ship their products to China and the
ability of their customers to distribute product to retail markets.
· The willingness or ability of the ultimate purchasers in the PRC and any
other countries to which our customers sell products to purchase products
with our ingredients and their perception as to whether the products may
have beneficial effects to them.
· The extent to which any quarantine which may be imposed affects the
willingness or ability of consumers to purchase products with our
ingredients.
· The perceived benefit, if any, to consumers of products with our
ingredients.
· The extent to which the purchase of products with our ingredients is a low
priority item for a population whose disposable income may have decreased
as a result of COVID-19 and the steps taken by governments to curb the
spread of infection.
Inflation and Supply Chain Disruption
After years of relatively low inflation, during the past year, countries
throughout the world, including Asia, have be subject to inflation at a rate
significantly higher than in recent years. The slowdown resulting from the
COVID-19 pandemic and steps taken by governments to address the pandemic,
including the recent lockdown in a number of Chinese provinces and cities, have
created major supply chain disruptions. Although we did not purchase any
inventory in 2021 and we purchased modest inventory in the first and
second 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.
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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:
September 30 December 31,
2022 2021 Change % Change
Current assets $ 607,428 $ 706,415 $ (98,987 ) (14.0 )%
Current liabilities 144,958 $ 91,651 $ 53,307 58.2 %
Working capital $ 462,470 s $ 614,764 $ (152,294 ) (24.8 )%
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The following table summarizes our cash flows for the nine months ended
September 30, 2022 and 2021:
Nine months Ended
September 30,
2022 2021
Cash (used in) provided by operating activities $ (136,913 ) $ 359,841
Cash provided by (used in) financing activities 57,853 (223,301 )
Cash at end of period
16,188 154,663
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.
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