ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background and Overview
Kreido Biofuels, Inc. (
Kreido Biofuels,
we
or the
Company
) was incorporated on February 7, 2005 under the name Gemwood Productions, for the purpose of marketing and selling day spa services to tourists at resort destinations throughout Mexico. On November 2, 2006, we changed our name to Kreido Biofuels, Inc. in connection with the acquisition of Kreido Laboratories, Inc., a California corporation, and the disposition of the Gemwood Leasco, Inc. subsidiary, through which entity the tourist business had been carried out. Kreido Laboratories was founded to develop proprietary technology for building micro-composite materials for electronic applications, and developed technology to improve the speed, completeness and efficiency of certain chemical reactions, including esterifications and transesterifications, in the pharmaceutical and special chemical industries. In the first quarter of 2006, Kreido Labs elected to focus exclusively on the biodiesel industry. This business was not successful, and we sold the technology and related assets to an unrelated party on March 5, 2009. After that disposition, we sought unsuccessfully for another acquisition until the present time. In November of 2017, the Company discontinued operations of its subsidiary, Kreido Labs, Inc.
Our initial registration statement on Form SB-2, file number 333-140718, became effective on June 28, 2007. Subsequent to the filing of our Annual Report on Form 10-K for the year ended December 31, 2008, we continued to file annual and quarterly reports with the Securities and Exchange Commission on a voluntary basis through the quarter ended September 30, 2009.
In November 2017, our former majority shareholder and sole officer G. Reed Petersen approached the then sole officer and director offering to pay off the debt of the Company. Mr. Petersen paid the sum of $171,509 in consideration of 142,924,167 shares of stock of the Company. On March 2, 2018, the Company filed a registration statement on Form 10 with the Securities and Exchange Commission. The registration statement on Form 10 became effective May 8, 2018.
On June 5, 2018, the Company and its sole officer and director, G. Reed Petersen, entered into that certain Stock Purchase Agreement (the
Stock Purchase Agreement
), pursuant to which Mr. Petersen agreed to sell to certain purchasers an aggregate of 142,924,167 shares of common stock of the Company (the
Control Shares
), representing approximately 73% of the issued and outstanding stock of the Company, for aggregate cash consideration of $420,000 in accordance with the terms and conditions of the Stock Purchase Agreement. The Stock Purchase Agreement was included as Exhibit 10.1 to that Amendment No. 1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018.
The sale of the Control Shares consummated on June 29, 2018. As a result, the purchasers hold a controlling interest in the Company and may unilaterally determine the election of the Board and other substantive matters requiring approval of the Company
s stockholders.
In connection with the sale of the Control Shares, G. Reed Petersen resigned from his positions as the sole executive officer and director of the Company, effective June 29, 2018. Mr. Petersen
s departure was not due to any dispute or disagreement with the Company on any matter related to the Company
s operations, policies or practices. Concurrently, the Board of Directors appointed Wai Lim Wong to fill the vacancies created by Mr. Petersen
s resignation, and to serve as the Company
s sole Director, Chief Executive Officer, Chief Financial Officer and Secretary.
Future Operating Plan
We continue to seek acquisition opportunities for the Company. We hope to acquire operating companies based in China, Hong Kong, or other Asian or Southeast Asian countries. We are in initial discussions with several prospective acquisition candidates but have not entered into any binding arrangement with respect to any such candidate. Prospective candidates may be affiliated with current management or significant shareholders.
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Our acquisition strategy will be to assess a broad range of potential business combination targets and complete an business combination. In doing so, we will evaluate the historical financial statements of the target, its management, and projected future results. In evaluating a prospective target business, we expect to conduct a thorough due diligence review that will encompass, among other things, meetings with incumbent management and employees, document reviews, inspection of facilities, as well as a review of financial and other information that will be made available to us.
Our sole officer and director presently has, and in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a business combination opportunity. Accordingly, if our officer and director becomes aware of a business combination opportunity which is suitable for an entity to which he has then-current fiduciary or contractual obligations, he will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. We do not believe, however, that the fiduciary duties or contractual obligations of our officer/director will materially affect our ability to complete a business combination.
Our executive officers are not required to commit any specified amount of time to our affairs, and, accordingly, will have conflicts of interest in allocating management time among various business activities, including identifying potential business combination targets and monitoring the related due diligence.
Our executive officer may participate in the formation of, or become an officer or director of, any other blank check company with a class of securities registered under the Exchange Act.
Results of Operations
Following is management
s discussion of the relevant items affecting results of operations for the three and six month periods ended June 30, 2018 and 2017.
Revenues.
The Company generated revenues of $-0- during the three and six months ended June 30, 2018 as compared to $-0- for the three and six months ended June 30, 2017.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the three months ended June 30, 2018 were $3,825, consisting entirely of professional fees, compared to $0 for the same period ended June 30, 2017. The increase is mainly the result of an increase in professional expenses.
For the six months ended June 30, 2018, we incurred selling, general and administrative expenses of $14,850, as compared to $1,460 for the same period ended June 30, 2017. SG&A consisted of professional fees and general and administrative fees. The increase in SG&A resulted from increased professional and general and administrative fees arising from the sale of the Control Shares. We expect SG&A to increase as we continue our process of identifying prospective acquisition targets and hopefully successfully consummate such an acquisition.
Other Income (Expense)
. The Company had net other expenses of $ -0- for the three and six months ended June 30, 2018 compared to $ -0- during the three and six months ended June 30, 2017.
Net Loss
. For the three months ended June 30, 2018, the Company had a net loss of $3,825, as compared to $0 for the same period ended June 30, 2017. The Company had a net loss of $14,850 for the six months ended June 30, 2018 compared to a $1,460 net loss during the six months ended June 30, 2017. The increase in net loss was due to the increase in professional fees and general and administrative fees incurred by the Company.
Liquidity and Capital Resources
As of June 30, 2018, our primary source of liquidity consisted of $-0- in cash and cash equivalents. Since inception, we have financed our operations through a combination of short and long-term loans, and through the private placement of our common stock.
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Going Concern Uncertainties.
We have sustained significant net losses which have resulted in a total stockholders
deficit at June 30, 2018 of $350 and are currently experiencing a substantial shortfall in operating capital which raises doubt about our ability to continue as a going concern. Until we successfully consummate an acquisition with an operating company, we expect to continue to incur net losses. Depending upon the financial profile of our acquired company, we may continue in our net loss position even after the acquisition of an operating company. With the expected cash requirements for the coming months, without additional cash inflows from an increase in revenues combined with continued cost-cutting or a receipt of cash from capital investment, there is substantial doubt as to the Company
s ability to continue operations.
There is presently no agreement in place with any source of financing for the Company and we cannot assure you that the Company will be able to raise any additional funds, or that such funds will be available on acceptable terms. Funds raised through future equity financing will likely be substantially dilutive to current shareholders. Lack of additional funds will materially affect the Company and its business, and may cause us to cease operations. Consequently, shareholders could incur a loss of their entire investment in the Company.
Net Cash Used in Operating Activities.
For the six months ended June 30, 2018, net cash used in operating activities was $9,427, which consisted primarily of a net loss of $14,850, offset by an increase in funds due from a related party of $3,973 and an increase in prepaid expenses of $2,000.
For the six months ended June 30, 2017, net cash used in operating activities was $0, which consisted primarily of a net loss of $1,460, offset by an increase in accounts payables of $1,460.
Net Cash Used In/Provided By Investing Activities.
There was no net cash used in or provided by investing activities during the three and six months ended June 30, 2018.
Net Cash Used in Financing Activities.
For the six months ended June 30, 2018, net cash provided by financing activities was $9,427, consisting primarily of proceeds of $21,350 from G. Reed Petersen, our former sole executive officer and director, offset by repayments of $11,923 on an outstanding note payable.
For the six months ended June 30, 2017, net cash provided by financing activities was $0.
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.
Contractual Obligations
As a
smaller reporting company
as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
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Critical accounting policies
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in
N
ote 2 to our financial statements contained herein.
Recent accounting pronouncements
The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our unaudited condensed consolidated financial statements upon adoption.