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 "Note Regarding Forward-Looking Statements." Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors discussed in "Risk Factors" and elsewhere in this report.
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.
Since the January 30, 2017 change of control our business has involved the
purchase of products from three suppliers and the sale of these products to
three unrelated customers. One of our suppliers accounted for all of our
purchases in the year ended September 30, 2019 and the other two of accounted
for all of our purchased in the year ended September 30, 2018. We did not make
any purchases for the three months ended December 31, 2019. We first sold
products during the fourth quarter of the year ended September 30, 2017. In the
year ended September 30, 2017, we generated revenues of $510,000 from the sale
of Cordycepin and cordyceps powder to one customer, and all of our purchases
were from one supplier. During the year ended September 30, 2018, we sold
Cordycepin and cordyceps powder and metallothionein MT-3 elizer to two
customers. During the year ended September 30, 2019, we sold Cordycepin and
cordyceps powder to two customers, who accounted for 94% and 6% of our revenue.
For the three months ended December 31, 2019, all of our sales were sales of
Cordycepin and cordyceps powder to one customer. All sales during the year ended
September 30, 2019 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. Our
second largest customer for the year ended September 30, 2018, which accounted
for sales of $3,743,000, or 47% of our revenue, did not make any purchases from
us in the year ended September 30, 2019. Our sales are sales of our product in
bulk to companies who use our products as ingredients in their products. We do
not sell products in a form for use by consumers although we may, in the future,
develop products for use by consumers.
Although our business plan initially contemplated that we would conduct research
and development on our own proprietary products based on cordyceps sinensis, to
date we have neither commenced such activities nor take any preliminary steps
with respect to such activities. We do not presently have the funds necessary
for us to engage in such activities, and we cannot assure you that we will be
able to commence any research and development activities or that any such
activities that we may undertake will be successful.
We require funds for our operations. At December 31, 2019, we had $911 in cash
and cash equivalents, $878,560 of inventory of Cordycepin and cordyceps powder.
Although we intend to seek to raise funds in the equity market, we cannot assure
you as to the availability or terms of any such financing. Because of our
financial condition, the sharp % decline in revenue period to period and year to
year, the lack of sales in the second, third and fourth quarters of the year
ended September 30, 2019, along with the absence of an active market for our
stock and our market capitalization in relation to our financial performance, 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.
Results of Operations
Three Months Ended December 31, 2019 and 2018
Our revenue for three months ended December 31, 2019 was $193,536, cost of
revenue was $181,440, with a gross profit of $12,096 and a gross margin of
6.25%. Our revenue for the three months ended December 31, 2018 was $1,345,000,
cost of revenue was $1,218,600, with a gross profit of $135,400 and a gross
margin of 10%. We believe that the decrease in revenue resulted from political
instability in Hong Kong, which has impacted our customers. The decrease in our
gross margin reflected the product mix for sales made in the three months ended
December 31, 2019. The revenue for the three months ended December 31, 2018
represented all of our revenue for the year ended September 30, 2019.
Our operating expenses, consisting of selling, general and administrative
expenses, for the three months ended December 31, 2019, were $87,529, as
compared with $229,635 for the comparable period of 2018, which was primarily
professional fees and, in the three months ended December 31, 2018, consulting
fees. The consulting fees reflected stock based compensation paid to two
consultants. The professional fees relate to expenses we incur as a result of
our status as a public company. For the three months ended December 31, 2018, we
had a tax credit of $19,941. We had no tax or tax credit for the three months
ended December 31, 2019.
The Company imputed interest at the rate of 4% on the advances made to the
Company by stockholders in the amount of $440 and $722 during the three months
ended December 31, 2019 and 2018, respectively.
As a result of the foregoing, we had a net loss of $75,873, or $(0.00) per share
(basic and diluted) for the three months ended December 31, 2019 as compared
with a net loss of $75,016, or $(0.00) per share (basic and diluted) for the
year ended September 30, 2018 (basic and diluted).
Years ended September 30, 2019 and 2018
Our revenue for the year ended September 30, 2019 was $1,345,000, cost of
revenue was $1,218,600, with a gross profit of $135,400 and a gross margin of
10%., Our revenue for the year ended September 30, 2018 was $8,014,500, cost of
revenue was $7,181,100, with a gross profit of $833,400, and a gross margin of
10.4%. We believe that the decrease in revenue resulted from political
instability in Hong Kong, which has impacted our customers.
Our operating expenses, consisting of selling, general and administrative
expenses, for the year ended September 30, 2019, were $576,953 as compared with
$317,850, which was primarily professional fees and consulting fees. The
professional fees relate to expenses we incur as a result of our status as a
public company.
The Company imputed interest at the rate of 4% on the advances made to the
Company by stockholders in the amount of $2,265 and $3,663 during the years
ended September 30, 2019 and 2018, respectively.
As a result of the foregoing, we had a net loss of $370,747, or $(0.01) per
share (basic and diluted) for the year ended September 30, 2019 as compared with
net income of $419,660, or $0.01 per share (basic and diluted) for the year
ended September 30, 2018.
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Liquidity and Capital Resources
The following table sets forth information relating to our working capital at
December 31, 2019 and September 30, 2019:
December 30, September 30,
2019 2019 Change
Current assets $ 879,471 $ 1,069,464 $ (189,993 )
Current liabilities $ 111,541 $ 195,792 $ (84,251 )
Working capital $ 767,930 $ 873,672 $ (105,742 )
The following is a summary of the statements of cash flows for the three months
ended December 31, 2019 and 2018 and the years ended September 30, 2019 and
2018:
Three Months Ended Year Ended
December31, September 30,
2019 2018 2019 2018
Cash provided by (used in) operating
activities $ 34,928 $ 174,329 $ 79,692 $ (140,419 )
Cash provided by investing activities 0 0 0 0
Cash provided by financing activities (35,489 ) (137,870 ) (79,368 ) 104,757
Cash and cash equivalents end of
period
911 37,607 1,472 1,148
Cash provided by operating activities for the three months ended December 31,
2019 reflected the net loss of $75,873 increased primarily by a decrease in
inventory of $181,440 and a decreased by a decrease in deferred revenue of
$78,536. Cash provided by operating activities for the three months ended
December 31, 2018 reflected the net loss of $75,016, increased primarily by
stock-based compensation of $151,694, decreased by deferred tax asset of
$19,941, increased by a decrease of $86,600 in inventories and purchase deposit
to vendor relating to inventory on order and a decrease of $30,000 in prepaid
expenses.
cash provided by operating activities for the year ended September 30, 2019
reflected the net loss of $370,747, increased primarily by stock-based
compensation of $300,089, deferred revenue of $116,000, reductions in
inventories and purchase deposit of $86,000 and accounts payable and prepaid
expenses of $10,712 and increased by a decrease in adjustment of income tax
payable of $73,071 and income tax payable of $19,156. Cash used in operating
activities for the year ended September 30, 2018 reflected our net income of
$419,660 reduced primarily by an increase in inventories and purchase deposit to
vendor of $665,600 and increased by an increase in income tax payable of
$92,227, stock-based compensation of $7,411, accounts payable and accrued
expenses of $6,712.
Cash used in financing activities of $35,489 for the three months ended December
31, 2019 reflected advances from related parties of $14,511 and repayment to
related parties of $50,000. Cash used in financing activities of $137,870 for
the three months ended December 31, 2018 reflected payments to related parties
of $141,336 and advances from related parties of $3,466.
Cash used in financing activities reflects advances from elated parties of
$106,969 less payments made to related parties of $186,337. Cash provided by
financing activities for the year ended September 30, 2018 represented net
advances from related parties of $104,757.
We had no cash flow from investing activities for the three months ended
December 31, 2019 and 2018 or the years ended September 30, 2019 and 2018.
For the three months ended December 31, 2019 our non-cash investing and
financing activities of $46,310 representing the increase in the right of use
assets and lease liability of $46,310. There were no non-cash investing or
financing activities in the three months ended December 31, 2018 or the year
ended September 30, 2019 or 2018.
Going Concern
Our 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. At December 31, 2019, we have
minimal cash, had limited gross profit, and we incurred a loss from our
operations for the three months ended December 31, 2019 and the year ended
September 30, 2019. We can give no assurance as to our ability to generate
revenue or operate profitably. If we cannot generate revenue from our products,
we may not be able to continue in our business. These factors, among others,
raise substantial doubt about our ability to continue as a going concern. Our
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Although we intend to seek to fund operations through increased sales of our
products and equity financing arrangements. However, because of the lack of
sales during the last three quarters of the year ended September 30, 2019, our
loss for the three months ended December 31, 2019 and year ended September 30,
2019 and the absence of any active trading market for our common stock, our
financial condition and our lack of an operating history, we may not be able to
raise funds for capital expenditures, working capital and other cash
requirements.
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Critical Accounting Policies and Estimates
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.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks, money market funds, and
certificates of term deposits with maturities of less than three months from
inception, which are readily convertible to known amounts of cash and which, in
the opinion of management, are subject to an insignificant risk of loss in
value.
Inventories
Inventories consist primarily of finished goods. Inventories are valued at the
lower of cost or net realizable value. We determine cost on the basis of
first-in, first-out methods. We periodically review inventories for obsolescence
and any inventories identified as obsolete are written down or written off.
Although we believe that the assumptions we use 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 three
months ended December 31, 2019 and the years ended September 30, 2019 and 2018.
Net Income (Loss) Per Share of Common Stock
We 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. 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 three months ended December
31, 2019 and 2018 and the years ended September 30, 2019 and 2018.
Concentrations of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk
primarily consist of its cash and cash equivalents and related party payables
that we will likely incur in the near future. We place our cash and cash
equivalents with financial institutions of high credit worthiness. At times, our
cash and cash equivalents with a particular financial institution may exceed any
applicable government insurance limits.
Stock-Based Compensation
We recognize compensation expense for stock-based compensation in accordance
with ASC Topic 718. For employee and non-employee stock-based awards, we
calculate the fair value of the award on the date of grant using the
option-pricing model for stock options and the quoted price of its common stock
for unrestricted shares; the expense is recognized over the service period for
awards expected to vest. We consider many factors when estimating expected
forfeitures, including types of awards, employee class and historical
experience.
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Income Taxes
We use the liability method of accounting for income taxes. Under the liability
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and the tax basis of assets, liabilities, the carry
forward of operating losses and tax credits, and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse. An allowance against deferred tax assets is recorded when it is more
likely than not that such tax benefits will not be realized.
Related Parties
We follow ASC 850, "Related Party Disclosures," for the identification of
related parties and disclosure of related party transactions.
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 we expect to receive
in exchange for those goods or services. We apply the following five steps in
order to determine the appropriate amount of revenue to be recognized as we
fulfill our obligations under each of its agreements:
• identify the contract with a customer;
• identify the performance obligations in the contract;
• determine the transaction price;
• allocate the transaction price to performance obligations in the contract;
and
• recognize revenue as the performance obligation is satisfied.
We recognize revenue when products are delivered to customers in accordance with
the written sales terms.
Recent Accounting Pronouncements
We have reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of any such pronouncements
may be expected to cause a material impact on our financial statements.
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