ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
of financial condition and results of operations relates to the operations and financial condition reported in the consolidated
financial statements of the Company thereto, which appear elsewhere in this Report, and should be read in conjunction with such
financial statements and related notes included in this Report. Except for the historical information contained herein, the following
discussion, as well as other information in this Report, contain “forward-looking statements,” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the “safe harbor” created by those sections. Actual results and the timing of the events may differ
materially from those contained in these forward-looking statements due to many factors, including those discussed in the “Forward-Looking
Statements” set forth elsewhere in this Report.
Overview
Heyu Biological Technology Corporation
(the “Company” or “we”) was incorporated in the state of Nevada on May 18, 1987, as Asphalt Associates,
Inc. and changed its name to Pacific WebWorks in January 1999. From 1999 to 2016 the Company engaged in the development and distribution
of web tools software, electronic business storefront hosting, and Internet payment systems for individuals and small to mid-sized
businesses. On February 23, 2016, the Company filed a voluntary petition for bankruptcy in the U.S. Bankruptcy Court for the District
of Utah, and soon afterwards ceased its business activities. On August 19, 2016 the Company proposed a Plan of Liquidation and
on November 28, 2016, the Court entered an order confirming the Plan of Liquidation and establishing a Liquidating Trust. On December
28, 2016, all assets and liabilities of the Company were transferred to the Liquidating Trust.
On March 12, 2018, the Board, with the
consent of the majority shareholder, approved a 1-for-464 reverse stock split. On April 11, 2018, the reverse split became effective.
On April 18, 2018, the Company entered
into a share purchase agreement (the “SPA”) with Mr. Ban Siong Ang (the “Purchaser”) and Mr. Dan Masters
(the “Seller”), pursuant to which the Purchaser acquired 1,021,051,700 shares, representing 98.91% of the issued and
outstanding shares of common stock of the Company (“Common Stock”) from Seller for an aggregate purchase price of $335,000
(“Share Purchase”). As a result of the Share Purchase, Dan Masters resigned from his positions at the Company as the
President, Chief Executive Officer, Chief Financial Officer, Secretary and Chairman of the Board. This resignation took place in
connection with the closing of the Share Purchase and was not the result of any disagreement with the Company on any matter relating
to the Company’s operations, policies, or practices. Additionally, all debt due to Mr. Masters from the Company was cancelled
as of the closing of the Share Purchase and recognized as contributed capital.
On April 18, 2018, to fill the vacancies
created by Mr. Masters’ resignations, Ban Siong Ang and Hung Seng Tan were elected as the directors of the Company. Mr. Ang
was appointed as President, Chief Executive Officer, and Chairman of the Board of the Company. Mr. Tan was appointed as the Executive
Director of the Company. Ms. Wendy Li was appointed as the Chief Financial Officer.
On July 3, 2018, the Company changed its
name to Heyu Biological Technology Corporation and applied for a new ticker symbol HYBT. On July 30, 2018, the Company amended
its Articles of Incorporation with the State of Nevada in order to increase its authorized shares of Common Stock from 150,000,000
to 2,000,000,000.
On September 11, 2018, the Nevada Secretary
of State approved the Company’s amendment to its Articles of Incorporation to effectuate a 100-for-1 forward stock split
(the “Forward Split”). Subsequently, the Company’s total issued and outstanding shares of Common Stock increased
from 10,324,660 to 1,032,466,000 shares, with the par value unchanged at $0.001.
On September 25, 2018, the Financial Industry
Regulatory Authority, Inc. (the “FINRA”) announced the effectiveness of the Forward Split, with an Effective Date of
September 25, 2018 and a Pay Date of September 24, 2018. There were no fractional shares issued in the Forward Split and stockholders
were not required to present certificates for exchange. The Forward Split would be payable directly to each stockholder by the
issuance of shares representing the split differential.
On October 8, 2018, the Company entered
into a non-binding letter of intent with Fujian Shanzhiling Biological Technology Co., Ltd (the “Acquirer”), a Chinese
biotechnology product manufacturing corporation. According to the letter of intent, the Acquirer agreed to acquire 51% of the outstanding
capital of the Company, subject to certain adjustment provisions (the “Shanzhiling Acquisition”). The closing of the
Shanzhiling Acquisition is subject to customary terms and conditions, including, but not limited to, completion of due diligence,
negotiation and execution of definitive transaction documents between the parties, and the delivery of audited and unaudited financial
statements of the Target. In addition, completion of the transaction is subject to approval by our Board. As of the date of this
report, the Company has abandoned the Shanzhiling Acquisition due to unsatisfactory due diligence report conducted by a third-party
due diligence company.
On October 18, 2018, the Company entered
into a non-binding memorandum of cooperation with Luoyang Ditiantai Agricultural Development Co., Ltd. (“Ditiantai”),
a Chinese industrial agricultural chain enterprise, and on October 19, 2018, the Company entered into a non-binding letter of intent
with Ditiantai. Pursuant to the two documents, the Company agreed to acquire 51% of the outstanding capital of Ditiantai subject
to certain adjustment provisions (the “Ditiantai Acquisition”). As of the date of this report, the Company has abandoned
the Ditiantai Acquisition due to unsatisfactory due diligence report conducted by a third-party due diligence company.
The closing of the Ditiantai Acquisition
is subject to customary terms and conditions, including, but not limited to, completion of due diligence, negotiation and execution
of definitive transaction documents between the parties and the delivery of audited and unaudited financial statements of the Target
as required under applicable rules of the Securities and Exchange Commission. In addition, completion of the transaction is subject
to approval by our Board.
On January 17, 2019, Jiashierle (Xiamen)
Healthcare Technology Co., Ltd. (“JSEL”), a limited liability company organized under the laws of the People’s
Republic of China (the “PRC”), and an indirect wholly owned subsidiary of the Company, entered into a Share Transfer
Agreement (the “Share Transfer Agreement”) with Mr. Yu Xu (“Mr. Xu”), an individual who owned 90% of the
equity interests of Shanghai Kangzi Medical Technology Co., Ltd., a limited liability company organized under the laws of the PRC
(“Kangzi”). Pursuant to the Share Transfer Agreement, Mr. Xu transferred 60% of the equity interests of Kangzi to JSEL
on January 17, 2019 for the purpose of developing a joint venture in the business of selling medical equipment. In return, JSEL
would fund the operations of Kangzi in proportion to its equity interest in Kangzi. Kangzi owned no assets and conducts no business
operation of its own. As a result, as of January 17, 2019, Kangzi became an indirect subsidiary of the Company.
On March 15, 2019, the Company, with the
approval of the Board, entered into a share cancellation agreement (the “Share Cancellation Agreement”) with Mr. Ban
Siong Ang, the President, Chief Executive Officer, and Chairman of the Board of the Company. Pursuant to the Share Cancellation
Agreement, the Company and Mr. Ang agreed to cancel 109,006,861 shares of Common Stock previously issued to Mr. Ang.
Since the beginning of 2019, Mr. Xu has
led the core research and development team of Kangzi to develop
and manufacture a new medical product, the Submillimeter Wave (Terahertz) Quantized Space Therapy Chamber (the “Chamber”).
Utilizing submillimeter waves, the Chamber is a medical equipment designed to treat cancer through cold nuclear fusion caused by
cosmic ray muons in an enclosed chamber. Specifically, we believe that exposure to an appropriate amount of submillimeter waves
could accelerate the generation of a large number of cosmic ray muons inside the human body and that such cosmic ray muons could
further facilitate cold nuclear fusion, which could reverse the cancering process by converting selenium into nickel inside cells.
The core research and development team
consist of researchers who had extensive experience in medicine and physics. The lead scientist of the team, Mr. Xu, had served
as the deputy chief engineer of the New Energy Base of the National Defense-Science and Technology Commission in 1995, the chairman
and chief scientist of Shanghai Guangcon New Energy Technology Co., Ltd. from 2011 to 2019, and the director of Shanghai Hengbian
New Energy Research Institute from 2003 to 2008. In 2012, Mr. Xu was awarded the “Harmony Person of the Year in China”
at the “2011 Harmony China Annual Summit” in Beijing. He was also jointly recognized as “Leaping China: One of
the Most Influential People of the Year in 2011” by China International Economic and Technical Cooperation Promotion Association,
China Elite Culture Promotion Association, and China Outstanding Chinese Merchants Association. In 2013, the Organizing Committee
of Boau Forum on Asian SME Development awarded Mr. Xu “2013 China Economic Outstanding Contribution Award.”
Pursuant to the terms of certain share
transfer agreement entered into by JSEL and Kangzi on January 17, 2019, JSEL has the right to monitor and manage all aspects of
operation of Kangzi, including its research and development activities relating to the Chamber. As the development of the Chamber
enters its final stage at Kangzi, JSEL started accepting pre-orders for the Chamber in September, 2019. On October 15, 2019, JSEL
entered into a clinical cooperation agreement (the “Clinical Cooperation Agreement”) with Shenzhen Saikun Biotechnology
Co., Ltd. (“Saikun”). Pursuant to the Clinical Cooperation Agreement, Saikun agreed to pay JSEL 5.5 million RMB as
the total preordering payment. 1.5 million RMB and 1.5 million RMB were delivered to JSEL respectively on September 7 and September
27, 2019. The parties are working on the timing for payment of the remaining 2.5 million RMB due under the Clinical Cooperation
Agreement. In exchange, JSEL is obligated to purchase all the components of a Chamber from Kangzi, fully assemble it, and conduct
a clinical trial with Saikun, third-party hospital partners, and patients using the Chamber. Specifically, after receiving the
full amount of payment from Saikun, JSEL shall transport the Chamber to its preferred location, properly install it, and conduct
a clinical trial that lasts at least one month. During the clinical trial, JSEL shall provide training sessions regarding the proper
operation of the Chamber to Saikun’s employees. Both Saikun and JSEL are obligated to find third-party hospitals whom will
agree to act as partners to co-host the clinical trial and patients whom will be voluntarily willing to undergo treatment provided
by the Chamber. While Saikun is responsible for various expenses related to the clinical trial, JSEL is responsible for communicating
with patients receiving treatment and other patient-related administrative matters. When JSEL determines that Saikun is capable
of properly operating the Chamber and managing activities related to the Chamber, Saikun may request JSEL to move the Chamber to
a location designated by Saikun and reinstall it. Furthermore, upon the successful completion of the clinical trial, JSEL shall
provide Saikun governmental permits necessary for the operation of the Chamber, and Saikun shall operate the Chamber and provide
related services to patients under the supervision of JSEL. In addition, JSEL shall transfer the right of using the Chamber and
any beneficiary right affiliated to using the Chamber to Saikun upon receiving the full amount of payment from Saikun. JSEL, nevertheless,
owns all the intellectual property rights affiliated with the Chamber. If the two parties decide to terminate the Clinical Cooperation
Agreement prior to the expiration of the term, Saikun’s right of using the Chamber during the term is still effective as
long as its use of the Chamber does not infringe any of JSEL’s intellectual property rights affiliated with the Chamber.
The two parties agreed that the term of the Clinical Cooperation Agreement would not end until Kangzi successfully obtains permits
issued by relevant government entities supervising development and sale of medical equipment.
To prepare for mass production of the Chambers,
Kangzi is conducting clinical experiments to make further improvements on Chamber and adjusting features of the mass-production
mold for Chamber. Kangzi is also in the process of obtaining official governmental permits from relevant government authorities
to produce and sell Chambers on a national scale. As its long-term business strategy, Kangzi focuses on researching, developing,
and manufacturing high-technology medical equipment while targeting both individual and institutional customers. It plans to mass-produce
Chambers in small and medium sizes, establish operation centers to sell Chambers in various cities across China, and initiate advertising
and marketing campaigns on different media platforms. Kangzi will also monetize on services provided to customers who use Chambers
and other medical products. As of the date of this quarterly report, we are still in the clinical experiment phase and Kangzi is
still in the process of obtaining official governmental permits from relevant government authorities to produce and sell Chambers
on a national scale. There is no assurance that we will obtain the official governmental permits.
In addition to business activities related
to the Chamber, the Company is also conducting research, development, manufacturing, and sale of healthcare equipment and plant
based disinfectant spray for treating skin infections and disinfecting wounds. On March 17, 2020, we entered into a business service
cooperation agreement with Xiamen Qingda Intelligent Technology Co., Ltd., a wholly-owned subsidiary of Cross-strait Tsinghua Research
Institute, pursuant to which we agreed to jointly improve the plant based disinfectant spray for treating skin infections and disinfecting
wounds. The term of such agreement is three years, and can be renewed upon mutual agreement of both parties. The original plant
based disinfectant spray was developed and owned by the Company, while the improved product shall be owned by both the Company
and the Cross-strait Tsinghua Research Institute. The Cross-strait Tsinghua Research Institute will receive 2% of gross proceeds
from the sales of such improved product. By the end of April 2020, we have had generated revenues of approximately $5,693.25 through
sales of the improved product. In the near future, the Company aims to standardize the production and sale of healthcare equipment
and plant based disinfectant spray, while increasing its brand awareness in the healthcare markets.
The outbreak of the novel coronavirus,
commonly referred to as “COVID-19”, first found in mainland China, then in Asia and eventually throughout the world,
has significantly affected business and manufacturing activities within China, including travel restrictions, widespread mandatory
quarantines, and suspension of business activities within China. These measures have caused severe disruptions to our business
operations and most of our staff members were forced to work from home until early March 1, 2020. Accordingly, our business, results
of operations and financial condition may be adversely affected. We suspended our business operation in early February 2020 due
to government mandates. We partially recovered our business operation on February 17, 2020, and we fully resumed our business operations
on March 1, 2020. Due to the continuous and rapid development of the COVID-19 outbreak, which was categorized as a pandemic by
the World Health Organization on March 11, 2020. As of the date of this report, Chinese industries have gradually resumed businesses
as government officials started to ease the restrictive measures since April 2020. Our management expects that results of operations
will increase in the coming fiscal quarter.
Liquidity and Capital Resources
As of June 30, 2020, we had assets of $681,840,
which consisted of current assets of $4,048 in cash, $45,091 in other receivables, $6,112 as advances to suppliers, $466,893 as
inventory, and noncurrent asset of $159,696 as operating lease right-of-use asset. We had liabilities of $1,627,617, which consisted
of current liabilities of $16,504 in accounts payable, $150,171 in accrued expenses and other payables, $426,656 in advances from
customers, $27 in taxes payable, $872,425 in related party payables, and $33,437 in short-term operating lease liabilities. We
also had recognized long-term operating lease liabilities of $128,397 as noncurrent liabilities. We had an accumulated deficit
of $19,081,151.
As of December 31, 2019, we had assets
of $852,453, which mainly consisted of $95,522 in cash and cash equivalents, $421,533 in inventory, and $202,976 in operating lease
right-of-use. As of December 31, 2019, we had liabilities of $1,620,394, which mainly consisted of $111,374 in accounts payable,
$430,616 in advances from customers, $28 in other taxes payables, $874,749 in related party payables, and $172,610 in operating
lease liabilities. We also had an accumulated deficit of $18,909,705. Since we started our business operations in March 2019, our
director has been advancing the Company’s daily operating expenses.
In light of the impacts of the COVID-19
outbreak, if we are required to operate in a challenging economic environment in China, or incur unanticipated capital expenditures,
or decide to accelerate growth, we may need additional financing. As of March 31, 2020, we had borrowed a total of $872,425 from
a shareholder for working capital purposes. The loan is unsecured, non-interest bearing and payable on demand. As of June
30, 2020, the Company has borrowed a total of $872,425 from such shareholder. We cannot guarantee, however, that additional financing,
if required, would be available on favorable terms, if at all. Such financing may include the use of additional debt or the sale
of the Company’s equity interests. Any financing which involves the sale of the Company’s equity interests or instruments
that are convertible into the Company’s equity interests could result in immediate and possibly significant dilution to our
existing shareholders.
Results of Operations
From December 28, 2016 to September 6,
2019, we were a shell company without any substantive assets or operations. Since September 7, 2019, we ceased to be a shell company
and adopted the business of Kangzi, receiving our first preordering payment from Saikun. For a more detailed description, please
see “Overview” above.
Comparison of the Three Months Ended June 30, 2020 and 2019
Our revenues during the three months ended
June 30, 2020, were $34,388, and cost of revenues was $16,899, as compared to revenues of $27,998 and cost of revenues $15,399
for the same period in 2019, respectively. We started our business activities in mid-March 2019, but our revenue has not increased
significantly since then mainly due to the COVID-19 outbreak, which resulted in a negative impact on our business and results of
operations. As the Chinese economy has been negatively impacted by the COVID-19 outbreak, the demand for our products and services
decreased. On March 17, 2020, we entered into a business service cooperation agreement with Xiamen Qingda Intelligent Technology
Co., Ltd., a wholly-owned subsidiary of Cross-strait Tsinghua Research Institute, pursuant to which we agreed to jointly improve
the plant based disinfectant spray for treating skin infections and disinfecting wounds. The term of such agreement is three years,
and can be renewed upon mutual agreement of both parties. The original plant based disinfectant spray was developed and owned by
the Company, while the improved product shall be owned by both the Company and the Cross-strait Tsinghua Research Institute. The
Cross-strait Tsinghua Research Institute will receive 2% of gross proceeds from the sales of such improved product. By the end
of April 2020, we have had generated revenues of approximately $5,693.25 through sales of the improved product. We believe that
the impact of the COVID-19 outbreak on our business is both temporary and limited. We have experienced significant growth in sales
during the fiscal quarter ended June 30, 2020, as compared to that of the fiscal quarter ended March 31, 2020. Our management believes
that our revenues will keep growing in the upcoming fiscal quarters.
We had incurred selling expenses of $5,523
and administrative expenses of $97,817 during the three months ended June 30, 2020, as compared to negative $8 and positive $153,540
for the same period in 2019, respectively. The increase in selling expenses was mainly due to the launch of new plant based anti-virus
products sales activities during the period. The increase in administrative expenses was mainly due to increased office rental
expenses and employment expenses during the period. We might incur operating expenses without sufficient revenues, as we have recently
determined to focus on the research, development, and manufacturing of healthcare equipment and products. We will depend upon our
officers and directors to make loans to the Company to meet any costs that may occur. All such advances will be interest-free loans
or equity contributions. By the end of September 2019, we have received customer prepayments for our new medical product and services
pursuant to the Clinical Cooperation Agreement. When we start fulfilling our obligations under the Clinical Cooperation Agreement,
we expect to see significant increase in revenues. As of the date of this report, we have yet to fulfill our obligations under
the agreement.
Comparison of the Six Months Ended June 30, 2020 and 2019
Our revenues during the six months ended
June 30, 2020, were $35,783, and the cost of revenues was $17,189, as compared to $49,930 and $28,272 for the same period in 2019,
respectively. The decreases in revenues and cost of revenues were due to the negative impact of the COVID-19 outbreak on our business
operations. As our prospective customers’ businesses had been adversely affected by the COVID-19 outbreak, the demand for
our products and services decreased. Moreover, prior to March 1, 2020, our sales and marketing team could not implement offline
sales and marketing strategies as originally planned due to the COVID-19 outbreak. As a result, we were unable to secure the same
amount of new revenue sources during the quarter ended March 31, 2020 as compared to the same period in 2019. As of the date of
this quarterly report, China has shown signs of COVID-19 slowdown and Chinese industries have partially resumed businesses as government
officials started to ease the restrictive measures. However, on March 17, 2020, we have reached a business service cooperation
agreement with a wholly-owned subsidiary of Cross-strait Tsinghua Research Institute, we will jointly optimize the plant origin
anti-virus series products, and by the quarter ended June 30, 2020, we have already generate revenue from sales of the plant origin
anti-virus series products. We believe that the impact of the COVID-19 outbreak on our business is both temporary and limited,
and our revenues will start growing again as we resume our business activities.
We had incurred selling expenses of $6,226
and administrative expenses of $192,097 during the six months ended June 30, 2020, as compared to negative $1,385 and $209,702
for the same period in 2019, respectively. The increase in selling expenses was mainly due to the Company launched new plant origin
anti-virus series products sales activities during the period. The decrease in administrative expenses was mainly due to decreased
consulting expenses during the period. We might incur operating expenses without sufficient revenues, as we have recently determined
to focus on the research, development, and manufacturing of healthcare equipment and products. We will depend upon our officers
and directors to make loans to the Company to meet any costs that may occur. All such advances will be interest-free loans or equity
contributions. However, by the end of September 2019, we have received customer prepayments for our new medical product and services
pursuant to the Clinical Cooperation Agreement. When we start fulfilling our obligations under the Clinical Cooperation Agreement,
we expect to see significant increase in revenues. As of the date of this report, we have yet to fulfill our obligations under
the agreement.
Going Concern
The accompanying financial statements are
presented on a going concern basis. The Company’s financial condition raises substantial doubt about the Company’s
ability to continue as a going concern. As of June 30, 2020, the Company had an accumulated deficit of $19,081,151, and a net loss
of $85,992 and $180,360 for the three and six months ended June 30, 2020, respectively. It is relying on advances from its officer
and director to meet its limited operating expenses.
In light of the impacts of the COVID-19
outbreak, if we are required to operate in a challenging economic environment in China, or incur unanticipated capital expenditures,
or decide to accelerate growth, we may need additional financing. As of June 30, 2020, we had borrowed a loan from a shareholder
for working capital purposes. The loan is unsecured, non-interest bearing and payable on demand. We cannot guarantee, however,
that additional financing, if required, would be available on favorable terms, if at all. Such financing may include the use of
additional debt or the sale of the Company’s equity interests. Any financing which involves the sale of the Company’s
equity interests or instruments that are convertible into the Company’s equity interests could result in immediate and possibly
significant dilution to our existing shareholders.
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.