The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements for the three and nine months ended September 30, 2022 and
2021 included under "Part I Financial Information-Item 1. Financial Statements"
of this Quarterly Report. In addition to historical information, this discussion
and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited, to those set forth under "Part II Other
Information-Item 1A. Risk Factors" and elsewhere in our Annual Report on Form
10-K filed with the SEC on April 15, 2022.
Corporate Overview
We are a U.S. holding company primarily operating through our wholly owned
subsidiary, Platinum. Platinum is not a Chinese operating company but a Cayman
Islands holding company which in turn operates in China through its subsidiaries
and contractual arrangements with Yubo Beijing, the Chinese operating
company. None of our Company, Platinum, or Platinum HK, each as a holding
company, conducts any day-to-day business operations in China.
Yubo Beijing conducts the day-to-day business operations of our Company in China
through contractual relationships with us and our subsidiaries. Yubo Beijing is
a technology company focused on the research and development and application of
endometrial stem cells. Yubo Beijing is committed to building the first public
endometrial stem cell repository in the world. Yubo Beijing offers its products
and services under the brand "VIVCELL." Yubo Beijing's product offerings include
healthcare products for respiratory system, skincare products, hair care
products, healthy beverages and male and female personal care products. Yubo
Beijing also offers stem cell related services including cell testing and health
management consulting services.
Key factors affecting our results of operations include revenues, cost of goods
sold, operating expenses and income and taxation.
Reverse Merger with Platinum International Biotech Co., Ltd.
On January 14, 2021 (the "Closing Date"), we entered into a voluntary share
exchange transaction with Platinum International Biotech Co., Ltd., a company
organized under the laws of the Cayman Islands ("Platinum"), pursuant to that
certain Agreement and Plan of Share Exchange, dated January 14, 2021 (the
"Exchange Agreement"), by and among us, Platinum, Yubo Beijing, and certain
selling stockholders named therein.
In accordance with the terms of the Exchange Agreement, on the Closing Date, we
issued a total of 117,000,000 shares of our Class A common stock to the then
stockholders of Platinum (the "Selling Stockholders"), in exchange for 100% of
the issued and outstanding capital stock of Platinum (the "Exchange
Transaction"). As a result of the Exchange Transaction, the Selling Stockholders
acquired more than 99% of our issued and outstanding capital stock, Platinum
became our wholly-owned subsidiary, and we acquired the business and operations
of Platinum and Yubo Beijing.
Platinum was incorporated on April 7, 2020 under the laws of the Cayman Islands
as a holding company.
Platinum HK was established on May 4, 2020 under the laws of Hong Kong as a
limited liability company. Platinum HK acquired all of the outstanding stock of
Yubo WFOE on September 11, 2020.
Yubo WFOE was established on September 4, 2020, under the laws of the PRC. Yubo
WFOE is a wholly owned subsidiary of Platinum HK, and therefore, Yubo WFOE is a
wholly foreign owned enterprise. The advantages of this structure include:
· Independence and freedom to implement the worldwide strategies of its
parent company without having to consider the involvement of Chinese law;
· Ability to formally carry out business and the ability to issuing invoices
to customers in RMB and receive revenues in RMB;
· Capable of converting RMB profits to US dollars or other foreign currency
for remittance to their parent company outside China; and
· Greater protection of intellectual property rights, know-how and
technology since no partner required and therefore more control of
intellectual property.
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On December 31, 2020, Platinum HK formed a new wholly owned subsidiary, Yubo
Global Biotechnology (Chengdu) Co., Ltd. ("Yubo Global").
On January 21, 2021, Yubo Beijing formed a new wholly owned subsidiary, Yubo
Jingzhi Biotechnology (Chengdu) Co. Ltd., a company organized under the laws of
the PRC ("Yubo Jingzhi").
As discussed below, Yubo Beijing and/or its shareholders have entered into
various agreements with the WFOE to allow us to consolidate the financial
results of Yubo Beijing in our consolidated financial statements. We acquired
100% of the issued and outstanding capital stock of Platinum, which, in turn,
holds a 100% equity interest in the WFOE, in exchange for the issuance of
117,000,000 shares of our common stock to the shareholders of Platinum, which
constituted more than 99% of our issued and outstanding common stock.
Effective December 4, 2020, we changed our corporate name from Magna-Lab, Inc.
to Yubo International Biotech Limited under the stock symbol "YBGJ."
Immediately prior to the Exchange Transaction, we had 117,875,323 shares of
Class A common stock and 4,447 shares of Class B common stock issued and
outstanding. Immediately after the Exchange Transaction and the surrender and
cancellation of 116,697,438 shares of Class A common stock previously held by
Lina Liu, and as of the date hereof, our authorized capital stock consists of
120,000,000 shares of common stock, par value $.001 per share, of which
119,816,343 Class A common plus 4,447 Class B common are issued and outstanding,
and 5,000,000 shares of Preferred Stock, $0.001 par value, none of which shares
are issued or outstanding. Each share of Class A common stock is entitled to one
vote with respect to all matters to be acted on by the stockholders; and each
share of Class B common stock is entitled to five votes per share, and is
convertible into one share of Class A common stock.
The VIE and China Operations
As a result of the Exchange Transaction, we became a U.S. holding company
primarily operating through our wholly owned subsidiary, Platinum. Platinum is
not a Chinese operating company but a Cayman Islands holding company, which in
turn operates in China through (i) its Hong Kong and PRC subsidiaries, including
Yubo Global and Yubo Chengdu, each a company organized under the laws of the
PRC, in each of which we hold equity ownership interests, and (ii) Yubo Beijing,
the VIE and the Chinese operating company that conducts the day-to-day business
operations of our Company in China through contractual relationships with us and
our subsidiaries, including Yubo Jingzhi and a wholly owned subsidiary of Yubo
Beijing. We do not own any equity interest in Yubo Beijing or Yubo Jingzhi.
On September 11, 2020, the WFOE entered into a series of contractual
arrangements with Yubo Beijing and its shareholders, allowing us, for accounting
purposes only, to consolidate the financial results of Yubo Beijing in our
consolidated financial statements. These agreements include:
· Exclusive Consulting Services Agreement. Pursuant to the Exclusive
Consulting Services Agreement, the WFOE agreed to provide, and Yubo
Beijing agreed to accept, exclusive management services provided by the
WFOE. The Exclusive Consulting Services Agreement was amended in March
2022 for the sole purpose of clarifying the fee structure under such
agreement. Pursuant to the amendment, Yubo Beijing agreed to compensate
the WFOE, Yubo Chengdu, for its services on an annual basis. Under the
amendment, the WFOE is entitled to receive 90% of the after-tax profit
from Yubo Beijing annually following the closing of Yubo Beijing's annual
accounts. In light of such arrangement, the WFOE is considered a primary
beneficiary of benefits that are otherwise potentially significant to Yubo
Beijing. The amendment did not change the contractual relationships that
we have with Yubo Beijing. Since Yubo Beijing has not generated any
after-tax profit to date, Yubo Beijing has not paid any fee to the WFOE to
date.
· Exclusive Option Agreement. Pursuant to the Exclusive Option Agreement,
the shareholders of Yubo Beijing granted the WFOE an irrevocable and
exclusive purchase option to acquire Yubo Beijing's equity and/or assets
at a nominal consideration. The WFOE may exercise the purchase option at
any time.
· Equity Pledge Agreement. Pursuant to the Equity Pledge Agreement, the
shareholders of Yubo Beijing pledged all of their equity interests in Yubo
Beijing, including the proceeds thereof, to guarantee all of the WFOE's
rights and benefits under the Exclusive Consulting Services Agreement and
the Exclusive Option Agreement.
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Neither we nor holders of our common stock have any equity ownership interest
in, direct foreign investment in, or control through such contractual agreements
of the VIE. As a result of our contractual relationships with Yubo Beijing, we
consolidate Yubo Beijing's financial results in our consolidated financial
statements and are the primary beneficiary of Yubo Beijing for accounting
purposes only. Our corporate structure involving the VIE provides holders of our
common stock with contractual exposure to foreign investment in China-based
companies where PRC laws prohibit direct foreign investment in Chinese operating
companies in certain industries, such as Yubo Beijing. This structure involves
unique risks to holders of our common stock. For example, management through
these contractual arrangements may be less effective than direct ownership, and
we could face heightened risks and costs in enforcing these contractual
arrangements, because there are substantial uncertainties regarding the
interpretation and application of current and future PRC laws, regulations, and
rules relating to these contractual arrangements. Our contractual arrangements
with Yubo Beijing have not been tested in a court of law. If the PRC government
finds such agreements non-compliant with relevant PRC laws, regulations, and
rules, or if these laws, regulations, and rules or the interpretation thereof
change in the future, we could be subject to severe penalties or be forced to
relinquish our interests in Yubo Beijing or forfeit our rights under the
contractual arrangements. Further, the Chinese regulatory authorities could
disallow our contractual arrangements with Yubo Beijing, which would likely
result in a material adverse change in our operations, and, given the resulting
inability to consolidate Yubo Beijing's financial results in our consolidated
financial statements, in the value of our Class A common stock, which could
significantly decline or become worthless.
COVID-19
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak
to be a global pandemic. In addition to the devastating effects on human life,
the pandemic is having a negative ripple effect on the global economy, leading
to disruptions and volatility in the global financial markets. Most U.S. states
and many countries have issued policies intended to stop or slow the further
spread of the disease.
COVID-19 and the U.S.'s response to the pandemic are significantly affecting the
economy. There are no comparable events that provide guidance as to the effect
the COVID-19 pandemic may have, and, as a result, the ultimate effect of the
pandemic is highly uncertain and subject to change. We do not yet know the full
extent of the effects on the economy, the markets we serve, our business, or our
operations.
Regulatory Developments
Implication of the Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on
December 18, 2020. The HFCA Act states that if the SEC determines that an
issuer's audit reports issued by a registered public accounting firm have not
been subject to inspection by the PCAOB for three consecutive years beginning in
2021, the SEC shall prohibit such issuer's securities from being traded on a
national securities exchange or in the over-the-counter trading market in the
United States. As of the date of this Quarterly Report, our auditor, Michael T.
Studer CPA P.C., an independent registered public accounting firm headquartered
in the United States, is currently subject to PCAOB inspections and has been
inspected by the PCAOB on a regular basis, and our auditor was not included in
the determinations made by the PCAOB, on December 16, 2021. However, in the
event it is later determined that the PCAOB is unable to inspect or investigate
completely our auditor because of a position taken by an authority in a foreign
jurisdiction, then such lack of inspection could cause trading in our securities
to be delisted from the stock exchange in the U.S pursuant to the HFCA Act. On
June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies
Accountable Act, which, if passed by the U.S. House of Representatives and
signed into law, would amend the HFCA Act and require the SEC to prohibit an
issuer's securities from trading on any U.S. stock exchanges if its auditor is
not subject to PCAOB inspections for two consecutive years instead of three.
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Cybersecurity Review Measures
On December 28, 2021, the CAC published the revised Cybersecurity Review
Measures ("CRM"), which further restates and expands the applicable scope of the
cybersecurity review. The revised CRM took effect on February 15, 2022. Pursuant
to the revised CRM, if a network platform operator holding personal information
of over one million users seeks for "foreign" listing, it must apply for the
cybersecurity review. In addition, operators of critical information
infrastructure purchasing network products and services are also obligated to
apply for the cybersecurity review for such purchasing activities. Although the
CRM provides no further explanation on the extent of "network platform operator"
and "foreign" listing, we do not believe we are obligated to apply for a
cybersecurity review pursuant to the revised CRM, considering that (i) we are
not in possession of or otherwise holding personal information of over one
million users and it is also very unlikely that we will reach such threshold in
the near future; (ii) as of the date of this this Quarterly Report, we have not
received any notice or determination from applicable PRC governmental
authorities identifying it as a critical information infrastructure operator or
requiring us to go through cybersecurity review or similar government
reviews. In light of the foregoing, which are consistent with the local market
practice, we did not retain any PRC legal counsel, and we did not rely on the
advice of PRC legal counsel, with respect to such matters. Our understanding
with regards to the permission requirements under the revised CRM is based on a
risk-based analysis of the currently effective PRC laws, regulations and rules,
as well as the local market practice as of the date of this Quarterly Report. We
cannot assure you that our understanding is correct, or consistent with the
opinion of PRC legal counsel if one were retained to opine on such permission
requirements.
That being said, the revised CRM empowers the cybersecurity review office to
initiate cybersecurity review when they believe any particular data processing
activities "affect or may affect national security." In addition, on 14 November
2021, the CAC promulgated the Regulations on the Administration of Cyber Data
Security (Draft for Comments) (the "Draft CAC Regulations"), and according to
the Draft CAC Regulations, any data processors shall, in accordance with
relevant state provisions, apply for a cybersecurity review when carrying out,
among other things, "other data processing activities that affect or may affect
national security." However, neither the revised CRM nor the Draft CAC
Regulations provides for any further explanation or interpretation over what
constitutes activities that "affect or may affect national security." Therefore,
if any competent government authorities deem that Yubo Beijing's data processing
activities may affect national security or if the competent government
authorities, including the CAC, adopt new laws, regulations or rules related to
the revised CRM, we may be subject to cybersecurity review, and in that
scenario, we may be required to suspend our operations or experience other
disruptions to our operations. Cybersecurity review could also result in
negative publicity with respect to our Company and diversion of our managerial
and financial resources, which could materially and adversely affect our
business, financial condition, and results of operations. Failure to pass such
cybersecurity review and/or to comply with the data privacy and data security
requirements raised during a cybersecurity review could subject Yubo Beijing to
penalties, damage its reputation and brand, and harm its business and results of
operations.
On August 20, 2021, the Standing Committee of the National People's Congress
promulgated the PRC Personal Information Protection Law, which took effect in
November 2021. The Personal Information Protection Law provides that any entity
involving processing of personal information ("Personal Information Processer")
shall take various measures to prevent the disclosure, modification or losing of
the personal information processed by such entity, including, but not limited
to, formulating a related internal management system and standard of operation,
conducting classified management of personal information, taking safety
technology measures to encrypt and de-identify the processed personal
information, providing regular safety training and education for staff and
formulating a personal information safety emergency accident plan. The Personal
Information Protection Law further provides that a Personal Information
Processer shall conduct a prior evaluation of the impact of personal information
protection before the occurrence of various situations, including, but not
limited to, processing of sensitive personal information (personal information
that, once leaked or illegally used, may lead to discrimination against an
individual or serious harm to an individual's personal or property safety,
including information on an individual's ethnicity, religious beliefs, personal
biological characteristics, medical health, financial accounts, personal
whereabouts), using personal information to make automated decisions and
providing personal information to any overseas entity. Yubo Beijing's business
involves the processing of personal information of customers using Yubo
Beijing's healthcare products and receiving Yubo Beijing's services, which may
be deemed as sensitive personal information. If Yubo Beijing does not take
measures to review and improve its mechanisms in protecting personal information
after the new Personal Information Protection Law takes effect, failure of
personal information protection compliance could subject Yubo Beijing to
penalties, damage its reputation and brand and harm its business and results of
operations.
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Other
To operate its business activities in China, Yubo Beijing is required to obtain
the following licenses and approvals. Yubo Beijing has obtained such licenses
and approvals, and, to date, no application for any such licenses and approvals
has been denied.
Licenses and Approvals PRC Regulatory Authority
Food Operation License Permit Xicheng District Market Supervision
and Administration Office of Beijing
Municipality
Medical License Distribution Xicheng District Market Supervision
Enterprise Filing Certificate and Administration Office of Beijing
Municipality
Major Customers
Yubo Beijing has historically generated most of its revenue from a limited
number of customers. Chengdu Wenjiang Yubo Medical Beauty Hospital Co., Ltd.
accounted for approximately 98.5% of Yubo Beijing's total accounts receivable as
of September 30, 2022. Chengdu Wenjiang Yubo Medical Beauty Hospital Co., Ltd.
is not a related party to us, any of our subsidiaries, or Yubo Beijing.
Corporate Information
Our principal executive offices are located at Room 105, Building 5, 31 Xishiku
Avenue, Xicheng District, Beijing, PRC. Our telephone number is +86 (010)
6615-5141. Our website address is http://www.yubogroup.com/. The information
contained in, or that can be accessed through, our website is not incorporated
by reference into, and is not a part of, this Quarterly Report. You should not
consider any information on our website to be part of this Quarterly Report or
in decides whether to purchase our securities. We have included our website
address in this Quarterly Report solely for informational purposes.
Dividends and Other Distributions
We are a holding company, and we may rely on dividends and other distributions
on equity paid by our subsidiaries for our cash and financing requirements,
including the funds necessary to pay dividends and other cash distributions to
our shareholders or holders of our Class A common stock or to service any debt
we may incur. The following diagram illustrates the typical cash flow among our
main subsidiaries, the WFOE and Yubo Beijing, the VIE.
[[Image Removed: yubo_10qimg1.jpg]]
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As of the date of this Quarterly Report, except as disclosed below, no transfers
of cash or other types of assets, dividends, or distributions have been made
between our New York holding company, any of our subsidiaries, and Yubo Beijing.
As of the date of this Quarterly Report, neither we nor any of our subsidiaries
have ever paid dividends or made distributions to U.S. investors. There has been
no capital flow from the WFOE, Yubo Chengdu, to the VIE, Yubo Beijing. On May
15, 2021, Yubo Beijing received $500,000 from Yubo Global in the form of a loan
to fund Yubo Beijing's operations. On September 15, 2021, Yubo Global received a
loan of $1,538 from Yubo Beijing to supplement Yubo Global's general working
capital. See Note 10: Due to Related Parties to our unaudited consolidated
financial statements for the three and nine months ended September 30, 2022 and
2021 included elsewhere in this Quarterly Report. These loans are non-interest
bearing and payable on demand. While we have not to date adopted a formal cash
management policy in writing, we carefully monitor the cash positions of and the
fund flows between our New York holding company and each of our subsidiaries,
including Yubo Chengdu, and Yubo Beijing. All such fund flows are reviewed
regularly by our Chief Executive Officer and Chief Financial Officer and are
subject to approval by our board.
In the future, cash proceeds raised from our financing activities may be
transferred by us to our Chinese subsidiaries via capital contribution or
shareholder loans, as the case may be. As an early-stage company, we do not
intend to distribute earnings or settle amount owed under the VIE agreements, if
any, in the near future.
According to the Foreign Investment Law of the People's Republic of China and
its implementing rules, which jointly established the legal framework for the
administration of foreign-invested companies, a foreign investor may, in
accordance with other applicable laws, freely transfer into or out of China its
contributions, profits, capital earnings, income from asset disposal,
intellectual property rights, royalties acquired, compensation or indemnity
legally obtained, and income from liquidation, made or derived within the
territory of China in RMB or any foreign currency, and any entity or individual
shall not illegally restrict such transfer in terms of the currency, amount and
frequency. According to the Company Law of the People's Republic of China and
other Chinese laws and regulations, our Chinese subsidiaries may pay dividends
only out of their respective accumulated profits as determined in accordance
with Chinese accounting standards and regulations. In addition, each of our
Chinese subsidiaries, namely Yubo Chengdu and Yubo Global, and Yubo Beijing and
its wholly owned subsidiary, Yubo Jingzhi, is required to set aside at least 10%
of its accumulated after-tax profits, if any, each year to fund a certain
statutory reserve fund, until the aggregate amount of such fund reaches 50% of
its registered capital. Where the statutory reserve fund is insufficient to
cover any loss the Chinese subsidiary incurred in the previous financial year,
its current financial year's accumulated after-tax profits shall first be used
to cover the loss before any statutory reserve fund is drawn therefrom. Such
statutory reserve funds and the accumulated after-tax profits that are used for
covering the loss cannot be distributed to us as dividends. At their discretion,
our Chinese subsidiaries may allocate a portion of their after-tax profits based
on Chinese accounting standards to a discretionary reserve fund.
Currently, the RMB cannot be freely converted into any foreign currency. The PRC
government imposes controls on the convertibility of RMB into foreign currencies
and, in certain cases, the remittance of currency out of China. Our income is
received in RMB and shortages in foreign currencies may restrict our ability to
pay dividends or other payments, or otherwise satisfy our foreign currency
denominated obligations, if any. Under existing PRC foreign exchange
regulations, payments of current account items, including profit distributions,
interest payments and expenditures from trade-related transactions, can be made
in foreign currencies without prior approval from the PRC State Administration
of Foreign Exchange, or SAFE, by complying with certain procedural requirements.
However, for most capital account items, approval from or registration with
appropriate government authorities is required where RMB is to be converted into
foreign currency and remitted out of China to pay capital expenses such as the
repayment of bank loans denominated in foreign currencies. The PRC government
may also at its discretion restrict access in the future to foreign currencies
for current account transactions. If the foreign exchange control system
prevents us from obtaining sufficient foreign currency to satisfy our currency
demands, we may not be able to pay dividends in foreign currencies to our
shareholders, including holders of the Class A common stock.
Our cash dividends, if any, will be paid in U.S. dollars. If we are considered a
PRC tax resident enterprise for tax purposes, any dividends we pay to our
overseas shareholders may be regarded as China-sourced income and as a result
may be subject to PRC withholding tax.
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Critical Accounting Principles
This section discusses our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those related to
accrued expenses, financing operations, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of our financial statements include estimates as to the
appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources. We consider certain accounting policies
related to fair value measurements and earnings per share to be critical
accounting policies that require the use of significant judgments and estimates
relating to matters that are inherently uncertain and may result in materially
different results under different assumptions and conditions. See Note 2:
Summary of Significant Accounting Policies to our unaudited consolidated
financial statements for the three and nine months ended September 30, 2022 and
2021 included elsewhere in this Quarterly Report.
As of September 30, 2022, the impact of COVID-19 on our business continued to
unfold. As a result, many of our estimates and assumptions carry a higher degree
of variability and volatility. As events continue to evolve and additional
information becomes available, our estimates may change in future periods.
Recently Issued and Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU
2016-02) "Leases (Topic 842)". ASU 2016-02 requires a lessee to recognize in the
statement of financial position a liability to make lease payments (the lease
liability) and a right-of-use asset representing its right to use the underlying
asset for the lease term. We adopted ASU 2016-02 for interim and annual
reporting periods beginning after December 15, 2018.
For finance leases, a lessee is required to do the following:
· Recognize a right-of-use asset and a lease liability, initially measured
at the present value of the lease payments, in the balance sheet.
· Recognize interest on the lease liability separately from amortization of
the right-of-use asset in the statement of comprehensive income.
· Classify repayments of the principal portion of the lease liability within
financing activities and payments of interest on the lease liability and
variable lease payments within operating activities in the statement of
cash flows.
For operating leases, a lessee is required to do the following:
· Recognize a right-of-use asset and a lease liability, initially measured
at the present value of the lease payments, in the balance sheet.
· Recognize a single lease cost, calculated so that the cost of the lease is
allocated over the lease term on a generally straight-line basis.
· Classify all cash payments within operating activities in the statement of
cash flows.
Other than increasing assets and liabilities at the inception of the respective
leases (See Note 8: Operating Lease Right of Use Assets and Operating Lease
Liabilities to our unaudited consolidated financial statements for the three and
nine months ended September 30, 2022 and 2021 included elsewhere in this
Quarterly Report), ASU 2016-02 has not had a significant effect on our financial
position or results of operations.
We do not believe other recently issued but not yet effective accounting
standards, if currently adopted, would have a material impact on its
consolidated financial position, statements of operations or cash flows.
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Results of Operations for the Three Months Ended September 30, 2022 Compared to
the Three Months Ended September 30, 2021 and for the Nine Months Ended
September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Sales, Cost of Goods Sold and Gross Profit
We generated sales of $14,580 for the three months ended September 30, 2022, as
compared to $98,303 for the three months ended September 30, 2021. Our cost of
goods sold was $4,980 for the three months ended September 30, 2022, as compared
to $25,106 for the three months ended September 30, 2021. Such decreases in
sales and cost of goods sold were primarily due to a decrease in the sales of
oral liquid health products by Yubo Beijing. As a result, our gross profit
decreased from $73,197 for the three months ended September 30, 2021 to $9,600
for the three months ended September 30, 2022.
We generated sales of $37,763 for the nine months ended September 30, 2022, as
compared to $912,103 for the nine months ended September 30, 2021. Our cost of
goods sold was $14,046 for the nine months ended September 30, 2022, as compared
to $310,312 for the nine months ended September 30, 2021. The decreases in sales
and cost of goods sold were primarily due to a decrease in the sales of
neublizers by Yubo Beijing. As a result, our gross profit decreased from
$601,791 for the nine months ended September 30, 2021 to $23,717 for the nine
months ended September 30, 2022.
Operating Expenses
Our operating expenses were $247,870 for the three months ended September 30,
2022, as compared to $419,211 for the three months ended September 30, 2021. The
decrease in operating expenses was primarily due to a decrease in other
operating expenses and reversal of provision for doubtful accounts.
Our operating expenses were $1,332,422 for the nine months ended September 30,
2022, as compared to $1,756,460 for the nine months ended September 30, 2021.
The decrease in operating expenses was primarily due to a decrease in other
operating expenses and reversal of provision for doubtful accounts, offset by an
increase in occupancy expense.
Loss from Operations
Our loss from operations was $238,096 for the three months ended September 30,
2022, as compared to $346,014 for the three months ended September 30, 2021. The
decrease in loss from operations was primarily due to a decrease of $171,341 in
total operating expenses.
Our loss from operations was $1,308,705 for the nine months ended September 30,
2022, as compared to $1,154,669 for the nine months ended September 30, 2021.
The increase in loss from operations was primarily due to decrease in gross
profit of $578,074.
Other Income (Expense)
Our other income (expense) was $174 for the three months ended September 30,
2022, as compared to $9,430 for the three months ended September 30, 2021. The
decrease in other income (expense) was primarily due to a decrease in interest
income
Our other income (expense) was $102 for the nine months ended September 30,
2022, as compared to $9,402 for the nine months ended September 30, 2021. The
decrease in other income (expense) was primarily due to a decrease in interest
income.
Net Loss
Our net loss was $238,096 for the three months ended September 30, 2022, as
compared to $336,584 for the three months ended September 30, 2021. The decrease
in net loss was primarily due a decrease of $171,341 in total operating
expenses.
Our net loss was $1,308,603 for the nine months ended September 30, 2022, as
compared to $1,145,267 for the nine months ended September 30, 2021. The
increase in net loss was primarily due to a decrease in gross profit of
$578,074.
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Liquidity and Capital Resources
As of September 30, 2022, we had cash and equivalents on hand of $89,966 and a
negative working capital of $2,192,473. Generally, the primary sources of our
funds have been cash from operations, loans from our shareholders and capital
contributions. In addition, on May 6, 2021, we filed a registration statement on
Form S-1 (File No. 333-255805) with the SEC in connection with an offering, on a
"best efforts" basis, up to an aggregate of 5,000,000 shares of our Class A
common stock at a fixed price of $0.50 per share. Such registration Statement
was declared effective by the SEC on July 29, 2022.
The accompanying interim unaudited consolidated financial statements for the
three and nine months ended September 30, 2022 and 2021 included an explanatory
note referring to our recurring operating losses and expressing substantial
doubt in our ability to continue as a going concern. See Note 3: Going Concern
to our unaudited consolidated financial statements for the three and nine months
ended September 30, 2022 and 2021 included elsewhere in this Quarterly Report.
To date, we have not yet established an ongoing source of revenues and cash
flows sufficient to cover our operating costs and allow us to continue as a
going concern. For the three and nine months ended September 30, 2022, we had
net losses of $238,096 and $1,308,603, respectively. These factors among others
raise substantial doubt about our ability to continue as a going concern for a
reasonable period of time. See "-Going Concern" below. We intend to continue
working toward identifying and obtaining new sources of financing and we intend
to raise additional capital in the fourth quarter of 2022 through the next
fiscal year. No assurances can be given that we will be successful in obtaining
additional financing in the future. Any future financing that we may obtain may
cause significant dilution to existing stockholders. Any debt financing or other
financing of securities senior to common stock that we are able to obtain will
likely include financial and other covenants that will restrict our flexibility.
Any failure to comply with these covenants would have a negative impact on our
business, prospects, financial condition, results of operations and cash flows.
If adequate funds are not available, Yubo Beijing may be required to delay,
scale back or eliminate portions of its operations, cease operations or obtain
funds through arrangements with strategic partners or others that may require us
to relinquish certain of our contractual rights to Yubo Beijing. Accordingly,
the inability to obtain such financing could adversely affect our ability to
fund Yubo Beijing's continued operations and the expansion efforts.
We also expect to incur significant legal and accounting costs in connection
with being a public company. We expect those fees will be significant and will
continue to impact our liquidity. Those fees will be higher as our business
volume and activity increases.
Net cash provided by (used in) operating activities
Net cash provided by operating activities was $88,578 for the nine months ended
September 30, 2022, as compared to net cash used in operating activities of
$957,174 for the nine months ended September 30, 2021. The increase in cash
provided by operating activities was primarily due to decreases in accounts
payable and accrued expenses and due to related parties.
Net cash provided by (used in) investing activities
Net cash used in investing activities was $39,772 for the nine months ended
September 30, 2022, as compared to $546,682 for the nine months ended September
30, 2021. The decrease was primarily due to that no purchases of property and
equipment were made during the nine months ended September 30, 2022.
Net cash provided by financing activities
Net cash provided by financing activities was $nil for the nine months ended
September 30, 2022, as compared to $127,164 for the nine months ended September
30, 2021. The decrease was due to that no capital contributions were made during
the nine months ended September 30, 2022.
Current Liabilities
As of September 30, 2022, Yubo Beijing received an aggregate amount of $446,851
from ten PRC entities. The related verbal agreements provide for the ten
entities to purchase inventory from Yubo Beijing or enter into such other
arrangements with Yubo Beijing as the parties mutually agree. Pending formal
approval of any such arrangements, all of the ten PRC entities have the right to
request the return of their advances.
13
Table of Contents
Shareholder Loans
In May and November 2021 and April and September 2022, we entered into several
verbal loan agreements with World Precision Medicine Technology Inc. ("World
Precision"), a company owned and controlled by Mr. Cheung Ho Shun, our existing
shareholder, which provided the Company with working capital loans of an
aggregate principal amount of $819,229. Such loans have been settled by our
issue of an aggregate of 1,638,458 new shares of our Class A common stock to
World Precision in September 2022. The shares were issued pursuant to our
registration statement on Form S-1 (File No. 333-255805), which was declared
effective by the SEC on July 29, 2022. As of the date of this Quarterly Report,
Mr. Cheung Ho Shun is the beneficial owner of an aggregate of 7,121,458 shares
of our Class A common stock, representing approximately 5.9% of the total shares
of such class issued and outstanding.
As of September 30, 2022, we also had payables due to Mr. Yang Wang, our
director, in the amount of $404,933, to Mr. Jun Wang, our director, President
and Chief Executive Officer, in the amount of $583,107, and to Mr. Huang Li, our
indirect shareholder, in the amount of $54,848.
All of our shareholder loans are due on demand and non-interest bearing.
Going concern
The accompanying interim unaudited consolidated financial statements for the
three and nine months ended September 30, 2022 and 2021 included an explanatory
note referring to our recurring operating losses and expressing substantial
doubt in our ability to continue as a going concern. Our consolidated financial
statements have been prepared on a going concern basis, which assumes the
realization of assets and settlement of liabilities in the normal course of
business. To date, we have not yet established an ongoing source of revenues and
cash flows sufficient to cover our operating costs and allow us to continue as a
going concern. For the three and nine months ended September 30, 2022, we had
net losses of $238,096 and $1,308,603, respectively. These factors among others
raise substantial doubt about our ability to continue as a going concern for a
reasonable period of time.
Our ability to continue as a going concern is dependent upon our ability to
generate profitable operations in the future and/or to obtain the necessary
financing to meet our obligations and repay our liabilities arising from normal
business operations when they become due. The outcome of these matters cannot be
predicted with any certainty at this time and raise substantial doubt that we
will be able to continue as a going concern. Our consolidated financial
statements do not include any adjustments to the amount and classification of
assets and liabilities that may be necessary should we be unable to continue as
a going concern.
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
shareholder's equity or that are not reflected in its consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or engages in leasing, hedging or research and development
services with us.
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