At Fishers biomedical startup, a tale of big losses and jilted auditors

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Acro Biomedical Co. Ltd. might be the smallest, least visible public company in Indiana.

It has just one part-time employee (the CEO), no website and just a small rental office at its Fishers headquarters, where the phone is often answered with a recorded greeting.

The four-year-old company, which says it is trying to develop health and wellness products based on fungus used in traditional Chinese medicine, has yet to launch a product and has racked up losses every year.

And now, on top of everything else, the company just fired its auditor after the auditor expressed “substantial doubt” that the firm can stay in business.

On June 19, the company dismissed MaloneBailey LLP of Houston as its independent auditor after the accounting firm included a paragraph in a recent report expressing concern about the company’s ability to continue as a going concern. It pointed out that Acro Biomedical had suffered recurring losses from operations and has negative operating cash flows.

It's the third time in four years that Acro Biomedical has parted ways with auditors. In 2015, auditing firm DKM Certified Public Accountants resigned from the company without stating a reason. Acro Biomedical hired Stevenson & Company CPAs LLC of Florida, but dismissed the firm after two years.

Now, it's unclear whether the company has hired a new auditor to replace MaloneBailey. Acro Biomedical, based at 2175 Visionary Parkway near the Launch Fishers business park, did not return several phone calls to the IBJ.

It’s just the latest strange twist for the tiny company, which started out with a much different plan and has left a trail of red ink in its wake.

The company started in 2014 as Killer Waves Hawaii Inc., with the goal of building family water parks in Hawaii. According to early securities filings, the goal was to build water rides, pools, a wave-machine surf pool, a lazy river, zipline, retail store, bar and restaurant.

“The company hopes to be able to deliver some of the longest and most exciting rides in the industry,” it wrote in its registration statement as it was preparing to launch its initial public offering in 2015.

Nine pages later in the filing, the company acknowledged that none of its officers or directors had experience managing a public company. And it conceded that its management team had “limited business experience related to water or amusement parks.” The company has never had any full-time employees.

Even so, it sought to raise enough money to build and run the water parks. It offered 3.72 million shares of stock at 2 cents a share, raising $74,400 in late 2015 to get the planning going.

(A year before going public, the company had issued 7 million shares to its founder, Gordon Lett, for $35,000, or one-half cent per share.)

But it burned through the money quickly without making much progress. For the two years ending Dec. 31, 2016, Killer Waves rang up losses of $90,918.

Shortly afterward, the company pulled the plug on the water park idea.

“Our initial business plan was to build a family water park in a state-of-the-art designed aquatic center in several locations throughout the Hawaiian Islands,” the company said in its latest 10-K, filed January 16, 2018. “We were not able to develop this business and we did not generate any revenues in this business.”

On Jan. 30, 2017, Gordon Lett sold his shares in the company, which represented more than 76 percent of outstanding stock.

The buyers were Pao-Chi Chu, who lives in Taiwan, and two unidentified people. Chu became the principal owner of the company, owing 62 percent of the shares. He also became chief executive, chief financial officer, president, secretary and director.

Chu changed the name of the company from Killer Waves to Acro Biomedical, with a whole new business plan: developing and marketing nutritional products made from fungus.

Fungus is a longtime interest of Chu’s. Since 2006, he has served as the chairman of Mucho Biotech Co. Ltd., Mucho Furich Co. Ltd and Mucho Biomedical Co. Ltd.

Those companies are engaged in applications of cordyceps, a fungus that is used in traditional Chinese medicine.

“Local folk practitioners use the product alone or in combination with other medicinal herbs to treat various diseases,” according to Acro Biomedical’s securities filings.

But is Chinese fungus really a biomedical product? Does it have any health claims?  

On page four of the company’s 10-K, you can find the answer. Cordyceps has not been shown to be effective in double-blind clinical trials and has not been subject to the type of testing “that would be required for a prescription medicine.”

“As a result, in the United States, we cannot make any claims as to specific health benefits,” the company wrote.

Acro Biomedical is not a company that Indiana’s life science industry would likely boast about, either for the quality of its science or for its financial condition.

As of Sept. 30, 2017, the company had cash of only $37,000. Its stock was trading at $3.04 a share under the ticker ACBM, with a market cap of $144.8 million.

The company admits it needs to raise “significant additional capital” in the form of debt or equity.

“We cannot assure you that we will be able to raise the funds we require, and if we are unable to do so, our ability to continue in business will be impaired,” it stated.

So far, it’s failed to gain traction either with water parks or Chinese fungus. It might have to find another big idea.

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