BOQI INTERNATIONAL MEDICAL, INC. AND
ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
March 31
|
|
|
December 31
|
|
|
|
2021
|
|
|
2020
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
2,830,834
|
|
|
$
|
135,309
|
|
Restricted cash
|
|
|
4,590
|
|
|
|
-
|
|
Accounts receivable, net
|
|
|
7,169,691
|
|
|
|
6,686,552
|
|
Advances to suppliers
|
|
|
3,093,935
|
|
|
|
2,693,325
|
|
Amount due from related parties
|
|
|
41,012
|
|
|
|
-
|
|
Inventories, net
|
|
|
3,569,135
|
|
|
|
735,351
|
|
Prepayments and other receivables
|
|
|
4,941,351
|
|
|
|
14,880,526
|
|
Operating lease-right of use assets
|
|
|
46,521
|
|
|
|
53,425
|
|
Total current assets
|
|
|
21,697,069
|
|
|
|
25,184,488
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
181,451
|
|
|
|
193,211
|
|
Property, plant and equipment, net
|
|
|
1,769,927
|
|
|
|
910,208
|
|
Operating lease-right of use assets
|
|
|
1,572,515
|
|
|
|
-
|
|
Intangible assets-net
|
|
|
13,445
|
|
|
|
-
|
|
Goodwill
|
|
|
24,512,118
|
|
|
|
6,914,232
|
|
Total non-current assets
|
|
|
28,049,456
|
|
|
|
8,017,651
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
49,746,525
|
|
|
$
|
33,202,139
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Short-term loans
|
|
$
|
1,054,510
|
|
|
$
|
904,228
|
|
Long-term loans due within one year
|
|
|
496,974
|
|
|
|
34,201
|
|
Convertible promissory notes, net
|
|
|
5,132,530
|
|
|
|
3,328,447
|
|
Accounts payable, trade
|
|
|
10,183,541
|
|
|
|
5,852,050
|
|
Advances from customers
|
|
|
529,279
|
|
|
|
194,086
|
|
Amount due to related parties
|
|
|
791,581
|
|
|
|
226,514
|
|
Taxes payable
|
|
|
60,322
|
|
|
|
773,649
|
|
Other payables and accrued liabilities
|
|
|
4,849,557
|
|
|
|
4,228,976
|
|
Lease liability-current
|
|
|
354,705
|
|
|
|
23,063
|
|
Total current liabilities
|
|
|
23,452,999
|
|
|
|
15,565,214
|
|
|
|
|
|
|
|
|
|
|
Lease liability-non current
|
|
|
1,396,148
|
|
|
|
22,457
|
|
Long-term loans - non-current
|
|
|
425,592
|
|
|
|
720,997
|
|
Total non-current liabilities
|
|
|
1,821,740
|
|
|
|
743,454
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
25,274,739
|
|
|
|
16,308,668
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 50,000,000 shares authorized; 20,131,488 and 13,254,587 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
|
|
|
20,131
|
|
|
|
13,254
|
|
Additional paid-in capital
|
|
|
37,362,809
|
|
|
|
26,344,920
|
|
Statutory reserves
|
|
|
2,263,857
|
|
|
|
2,263,857
|
|
Accumulated deficit
|
|
|
(16,248,215
|
)
|
|
|
(12,914,973
|
)
|
Accumulated other comprehensive income
|
|
|
853,795
|
|
|
|
1,003,392
|
|
Total BOQI International Medical Inc.’s equity
|
|
|
24,252,377
|
|
|
|
16,710,450
|
|
|
|
|
|
|
|
|
|
|
NON-CONTROLLING INTERESTS
|
|
|
219,409
|
|
|
|
183,021
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
24,471,786
|
|
|
|
16,893,471
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
49,746,525
|
|
|
$
|
33,202,139
|
|
The accompanying notes are an integral part
of the condensed consolidated financial statements
BOQI INTERNATIONAL MEDICAL, INC. AND
ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE GAIN/LOSS
(UNAUDITED)
|
|
For three months ended
March 31
|
|
|
|
2021
|
|
|
2020
|
|
REVENUES
|
|
|
2,168,004
|
|
|
|
414,584
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
1,575,743
|
|
|
|
332,299
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT(LOSS)
|
|
|
592,261
|
|
|
|
82,285
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
452,636
|
|
|
|
41,070
|
|
General and administrative
|
|
|
3,380,014
|
|
|
|
1,364,952
|
|
Total operating expenses
|
|
|
3,832,650
|
|
|
|
1,406,022
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(3,240,389
|
)
|
|
|
(1,323,737
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
44,355
|
|
|
|
21,684
|
|
Other (income)/ expense
|
|
|
(12,865
|
)
|
|
|
545
|
|
Total other income (expense), net
|
|
|
(31,490
|
)
|
|
|
(22,229
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(3,271,879
|
)
|
|
|
(1,345,966
|
)
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
18,748
|
|
|
|
1,268
|
|
|
|
|
|
|
|
|
|
|
NET LOSS FROM CONTINUING OPERATIONS
|
|
|
(3,290,627
|
)
|
|
|
(1,347,234
|
)
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
Income/(loss) from operations of discontinued operations
|
|
|
-
|
|
|
|
(854,957
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(3,290,627
|
)
|
|
|
(2,202,191
|
)
|
Less: net income (loss) attributable to non-controlling interest
|
|
|
42,615
|
|
|
|
(7,316
|
)
|
NET LOSS ATTRIBUTABLE TO BOQI INTERATIONAL MEDICAL INC.
|
|
$
|
(3,333,242
|
)
|
|
$
|
(2,194,875
|
)
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(149,597
|
)
|
|
|
(120,201
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE LOSS
|
|
|
(3,440,224
|
)
|
|
|
(2,322,392
|
)
|
Less: comprehensive loss attributable to non-controlling interests
|
|
|
(10,886
|
)
|
|
|
(4,935
|
)
|
COMPREHENSIVE LOSS ATTRIBUTABLE TO BOQI INTERNATIONAL MEDICAL INC.
|
|
$
|
(3,429,338
|
)
|
|
$
|
(2,317,457
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
16,693,038
|
|
|
|
9,271,641
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
Continuing operation-Basic and diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.15
|
)
|
Discontinued operation-Basic and diluted
|
|
$
|
-
|
|
|
$
|
(0.09
|
)
|
Basic and diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.24
|
)
|
The accompanying notes are an integral part
of the condensed consolidated financial statements
BOQI INTERNATIONAL MEDICAL, INC. AND
ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the three months ended
March,31,
|
|
|
|
2021
|
|
|
2020
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,290,627
|
)
|
|
$
|
(1,347,234
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
35,958
|
|
|
|
5,409
|
|
Inventories impairment reserve
|
|
|
14,507
|
|
|
|
-
|
|
Allowance for doubtful accounts
|
|
|
(43,799
|
)
|
|
|
(7,854
|
)
|
Stock compensation
|
|
|
585,000
|
|
|
|
-
|
|
Lease expense
|
|
|
20,719
|
|
|
|
-
|
|
Amortization of discount of convertible promissory notes
|
|
|
1,607,105
|
|
|
|
294,958
|
|
Change in derivative liabilities
|
|
|
-
|
|
|
|
399,022
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(334,056
|
)
|
|
|
(127,747
|
)
|
Advances to suppliers
|
|
|
(387,940
|
)
|
|
|
196,821
|
|
Prepayments and other receivables
|
|
|
281,718
|
|
|
|
(1,870,209
|
)
|
Inventories
|
|
|
(2,572,438
|
)
|
|
|
(267,692
|
)
|
Operating lease-right of use assets
|
|
|
64,231
|
|
|
|
-
|
|
Accounts payable, trade
|
|
|
2,803,460
|
|
|
|
1,956,384
|
|
Advances from customers
|
|
|
329,591
|
|
|
|
(240,114
|
)
|
operating lease liabilities
|
|
|
(95,368
|
)
|
|
|
-
|
|
Taxes payable
|
|
|
(701,687
|
)
|
|
|
(51,117
|
)
|
Other payables and accrued liabilities
|
|
|
(46,085
|
)
|
|
|
189,621
|
|
Net cash used in operating activities from continuing operations
|
|
|
(1,729,711
|
)
|
|
|
(869,752
|
)
|
Net cash provided by operating activities from discontinued operations
|
|
|
-
|
|
|
|
70,973
|
|
Net cash used in operating activities
|
|
|
(1,729,711
|
)
|
|
|
(798,779
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash received from acquisition of Guanzan Group
|
|
|
-
|
|
|
|
95,220
|
|
Cash received from acquisition of Guoyitang Hospital
|
|
|
28,457
|
|
|
|
-
|
|
Cash received from acquisition of Zhongshan Hospital
|
|
|
46,748
|
|
|
|
-
|
|
Purchase of property, plant, and equipment
|
|
|
(36,100
|
)
|
|
|
-
|
|
Net cash provided by investing activities
|
|
|
39,105
|
|
|
|
95,220
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from short-term loan
|
|
|
462,773
|
|
|
|
-
|
|
Repayment of long-term loan
|
|
|
(295,404
|
)
|
|
|
-
|
|
Net proceeds from issuance of convertible promissory notes
|
|
|
4,065,000
|
|
|
|
593,224
|
|
Repayment of short-term loans
|
|
|
(4,419
|
)
|
|
|
-
|
|
Amount financed from (to) related parties
|
|
|
164,067
|
|
|
|
297,599
|
|
Net cash provided by financing activities from continuing operations
|
|
|
4,392,017
|
|
|
|
890,823
|
|
Net cash used in financing activities from discontinued operations
|
|
|
-
|
|
|
|
(47,487
|
)
|
Net cash provided by financing activities
|
|
|
4,392,017
|
|
|
|
843,336
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
(1,295
|
)
|
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH
|
|
|
2,700,116
|
|
|
|
139,497
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
135,308
|
|
|
|
36,674
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
2,835,424
|
|
|
$
|
176,171
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for income tax
|
|
$
|
86,153
|
|
|
$
|
-
|
|
Cash paid for interest expense, net of capitalized interest
|
|
$
|
47,696
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common share for equity acquisition of Guoyitang Hospital
|
|
$
|
2,000
|
|
|
$
|
-
|
|
Issuance of common share for equity acquisition of Zhongshan Hospital
|
|
$
|
2,000
|
|
|
$
|
-
|
|
Issuance of common share for equity acquisition of Guanzan Group
|
|
$
|
-
|
|
|
$
|
2,717,000
|
|
Goodwill recognized from equity acquisition of Guanzan Group
|
|
$
|
-
|
|
|
$
|
6,443,170
|
|
Goodwill recognized from equity acquisition of Zhongshan Hospital
|
|
$
|
10,433,494
|
|
|
|
$
|
|
Goodwill recognized from equity acquisition of Guoyitang Hospital
|
|
$
|
7,154,392
|
|
|
|
$
|
|
Outstanding payment for the equity acquisition of Boqi Zhengji Group
|
|
$
|
-
|
|
|
$
|
5,655,709
|
|
Outstanding payment for equity acquisition of Guanzan Group
|
|
$
|
3,065,181
|
|
|
$
|
-
|
|
Outstanding payment for equity acquisition of Guoyitang Hospital
|
|
$
|
6,100,723
|
|
|
$
|
-
|
|
Outstanding payment for equity acquisition of Zhongshan Hospital
|
|
$
|
6,100,723
|
|
|
$
|
-
|
|
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
ORGANIZATION AND BUSINESS BACKGROUND
|
BOQI International Medical, Inc. (the “Company”
or “BIMI”) was incorporated in the State of Delaware as Galli Process, Inc. on October 31, 2000. On February 7, 2002,
the Company changed its name to Global Broadcast Group, Inc. On November 12, 2004, the Company changed its name to Diagnostic Corporation
of America. On March 15, 2007, the Company changed its name to NF Energy Saving Corporation of America, and on August 24, 2009,
the Company changed its name to NF Energy Saving Corporation. On December 16, 2019, the Company changed its name to BOQI International
Medical Inc., to reflect the Company’s refocus of its business from the energy saving industry to the health care industry.
Since March 7, 2012, the common stock of the Company (the “Common Stock”) has been traded on the Nasdaq Capital Market.
Until October 14, 2019, the Company, through
NF Energy Saving Investment Limited and its subsidiaries (the “NF Group”), operated in the energy saving enhancement
technology industry in the People’s Republic of China (the “PRC”). The NF Group focused on providing services
relating to energy saving technology, optimization design, energy saving reconstruction of pipeline networks and contractual energy
management for the electric power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries
in the PRC and the manufacture and sales of energy-saving flow control equipment. In late 2019, the Company committed to a plan
to dispose of all its equity interests in the NF Group and on March 31, 2020, the Company entered into a stock purchase agreement
(the “NF SPA”) to sell the NF Group. The sale of the NF Group closed on June 23, 2020. Please refer to NOTE 7 for more
information relating to the sale of the NF Group.
On October 14, 2019, the Company acquired
100% of the equity interests in Lasting Wisdom Holdings Limited (“Lasting”), a limited company incorporated under the
laws of the British Virgin Islands (“BVI”). Lasting has limited operating activities since incorporation except for
holding the ownership interest in Pukung Limited (“Pukung”), a company organized under the laws of Hong Kong. Pukung
owns 100% of the equity interest in Beijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”), a company organized
under the laws of the PRC. Xinrongxin owns all the ownership interest of Dalian Boqi Zhengji Pharmacy Chain Co., Ltd. (“Boqi
Zhengji”). Boqi Zhengji operated 16 retail pharmacy stores in China at the time of the acquisition. Lasting, Pukung, Xinrongxin
and Boqi Zhengji are hereinafter collectively referred to as the “Boqi Zhengji Group”. Xinrongxin also owns 100% equity
interests in Dalian Boyi Technology Co., Ltd. (“Dalian Boyi”), a subsidiary established in January 2020 and responsible
for the Company’s R&D and other technology related functions. On June 24, 2020, the Company established a wholly owned
subsidiary Boyi (Liaoning) Technology Co.,Ltd (“Liaoning Boyi”), in order to be qualified to participate in local healthcare
projects. On December 22, 2020, the Company established another subsidiary Bimai Pharmaceutical (Chongqing) Co., Ltd., replace
Xinronxin as the holding company owing all the retail, wholesale and hospital operations in China.
On March 18, 2020, the Company, through
its wholly owned subsidiary, Xinrongxin, acquired 100% of the equity interests in Chongqing Guanzan Technology Co., Ltd. (“Guanzan”).
Guanzan holds an 80% equity interest in Chongqing Shude Pharmaceutical Co., Ltd. (“Shude”, collectively with Guanzan,
the “Guanzan Group”). Guanzan also owns 100% equity interest in Chongqing Lijiantang Pharmaceutical Co. Ltd., a subsidiary
established in May 2020. Lijiantang operates 5 retail pharmacy stores in China.
On December 11, 2020, the Company entered
into a stock purchase agreement to sell Boqi Zhengji. The sale of the Boqi Zhengji was closed by the end of 2020, although the
government record was not updated until February 2, 2021 due to the Chinese government’s alternative working schedule and
other delays caused by COVID-19.
On December 9, 2020, the Company entered
into an agreement to acquire 100% of the equity interests in Chongqing Guoyitang Hospital (“Guoyitang”), the owner
and operator of a private general hospital in Chongqing City, a city in Southwest China. The transaction closed on February 2,
2021. On December 15, 2020, the Company entered into a stock purchase agreement to acquire Chaohu Zhongshan Minimally Invasive
Hospital (“Zhongshan”), a private hospital in the Southeast region of China. The transaction closed on February 5,
2021.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31,2021, the details of
the Company’s major subsidiaries are as follows:
Name
|
|
Place of incorporation and
kind of legal entity
|
|
Principal activities and
place of operation
|
|
Effective interest held
|
|
Lasting Wisdom Holdings Limited (“Lasting”)
|
|
British Virgin Island, a limited liability company
|
|
Investment holding
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Pukung Limited (“Pukung”)
|
|
Hong Kong, a limited liability company
|
|
Investment holding
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Beijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”)
|
|
The PRC, a limited liability company
|
|
Investment holding
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Boyi (Liaoning) Technology Co., Ltd (“Liaoning Boyi”)
|
|
The PRC, a limited liability company
|
|
IT Technology service research and development
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Dalian Boyi Technology Co., Ltd (“Dalian Boyi”)
|
|
The PRC, a limited liability company
|
|
IT Technology service research and development
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Chongqing Guanzan Technology Co., Ltd. (“Guanzan”)
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of medical devices in the PRC
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Chongqing Shude Pharmaceutical Co., Ltd.(“Shude”)
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of generic drugs in the PRC
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
Chongqing Lijiantang Pharmaceutical Co., Ltd.(“Lijiantang”)
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of generic drugs in the PRC
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Bimai Pharmaceutical (Chongqing) Co., Ltd. (“Chongqing Bimai”)
|
|
The PRC, a limited liability company
|
|
Investment holding
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Chongqing Guoyitang Hospital (“Guoyitang”)
|
|
The PRC, a hospital
|
|
Hospital in the PRC
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Chaohu Zhongshan Minimally Invasive Hospital (“Zhongshan”)
|
|
The PRC, a hospital
|
|
Hospital in the PRC
|
|
|
100
|
%
|
2.
|
GOING CONCERN UNCERTAINTIES
|
The accompanying unaudited condensed consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As reflected in the accompanying unaudited condensed
consolidated financial statements, the Company incurred significant net losses of $3,290,627 and $2,202,191 for the three months ended
March 31, 2021 and 2020, respectively. As of March 31, 2021, the Company had an accumulated deficit of $16.2 million and negative working
capital of $0.18 million. In addition, the Company continues to generate operating losses and has limited cash flow from its continuing
operations. Primarily as a result of its operating loss in the quarter, the Company’s cash position declined by $1.7 million in
the three months ended March 31, 2021. Management believes these factors raise substantial doubt about the Company’s ability to
continue as a going concern for the next twelve months.
The continuation of the Company as a going
concern through the next twelve months is dependent upon (1) the continued financial support from its stockholders or external
financing, and (2) further implementation of management’s business plan to generate sufficient revenues and cash flow to
meet its obligations. While the Company believes in the viability of its strategy to increase sales volume and in its ability to
raise additional funds, there can be no assurance to that it will be successful in either respect.
These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. These unaudited condensed financial statements do not include
any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken
to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
●
|
Basis of presentation and consolidation
|
These accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (“US GAAP”). These unaudited condensed consolidated financial statements include the financial statements
of the Company and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated
upon consolidation.
The unaudited interim condensed consolidated
financial information as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 have been prepared, pursuant
to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote
disclosures, which are normally included in annual consolidated financial statements prepared in accordance with US GAAP, have
been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial information should
be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K
for the fiscal year ended December 31, 2020 previously filed with the SEC on March 31, 2021.
In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated
financial position as of March 31, 210 and its unaudited condensed consolidated results of operations for the three months ended
March 31, 2021 and 2020, and its unaudited condensed consolidated cash flows for the three months ended March 31, 2021 and 2020,
as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the
fiscal year or any future periods.
The preparation of these condensed consolidated
financial statements in conformity with the US GAAP requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date of these condensed consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates
and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under
the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly,
these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our
operating environment changes. Significant estimates and assumptions made by management include, among others, useful lives and
impairment of long-lived assets, collectability of accounts receivable, advances to suppliers allowance for doubtful accounts,
reserve of inventory, fair value of goodwill and valuation of derivative liabilities. While the Company believes that the estimates
and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actual results could
differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in
the consolidated financial statements in the period they are determined to be necessary.
Certain prior year balances were reclassified
to conform to the current period presentation, which mainly reflect the presentation of the discontinued operation of the NF Group.
Except for the assets and liabilities of the NF Group which were reclassified as discontinued assets or liabilities and presented
as current assets or liabilities in the consolidated balance sheets, there was no other impacts on reported financial position
or cash flows for any of the periods presented.
Cash consists primarily of cash on hand
and cash in banks which is readily available in checking and saving accounts. The Company maintains cash with various financial
institutions in the PRC where its accounts are uninsured. The Company has not experienced any losses from funds held in bank accounts
and believes it is not exposed to any risk on its bank accounts.
Cash that is restricted as to withdrawal
or use under the terms of certain contractual agreements or orders are recorded in a restricted cash account in the Company’s
unaudited interim condensed consolidated balance sheet.
●
|
Accounts receivable and allowance for doubtful accounts
|
Accounts receivable are recorded at the
invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from delivery.
Credit is extended based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment
history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over
90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically
evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress
of the collection of accounts receivables. For the receivables that are past due or not being paid according to payment terms,
the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account
balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of March 31,
2021 and December 31, 2020, the allowance for doubtful accounts was $1,187,543 and $1,236,830, respectively.
Advances to suppliers consist of prepayments
to the Company’s vendors, such as pharmaceutical manufacturers and medicine suppliers. The Company typically prepays for
the purchase of our merchandise, especially for those salable, scarce, personalized medicine or medical devices. The Company typically
receive products from vendors within three to nine months after making prepayments. The Company continuously monitor delivery from,
and payments to, the vendors while maintaining a provision for estimated credit losses based upon historical experience and any
specific supplier issues, such as discontinuing of inventory supply, that have been identified. If the Company has difficulty receiving
products from a vendor, the Company would cease purchasing products from such vendor, request return of our prepayment promptly,
and if necessary, take legal action. The Company has not taken such type of legal action during the reporting periods. If none
of these steps are successful, management will then determine whether the prepayments should be reserved or written off. As of
March 31, 2021 and December 31, 2020, the allowance for doubtful accounts was $7,427 and $7,463, respectively.
Inventories are stated at the lower of
cost or market value. Cost is determined using the weighted average method, and market value is the middle (the second highest)
value among an inventory item’s replacement cost, market celling and market floor. The Company carries out physical inventory
counts on a monthly basis at each store and warehouse location. The Company reviews historical sales activity quarterly to determine
excess, slow moving items and potentially obsolete items. The Company provides inventory reserve based on the excess quantities
on hand equal to the difference, if any, between the cost of the inventory and its estimated market value, or obsolescence of inventories
determined principally by customer demand. As of March 31, 2021 and December 31, 2020, the Company recorded an allowance for obsolete
inventories, which mainly consists of expired medicine, of $31,660 and $9,825, respectively.
●
|
Property, plant and equipment
|
Property, plant and equipment are stated
at cost less accumulated depreciation and impairment, if any. Depreciation is calculated on the straight-line basis over the following
expected useful lives from the date on which they become fully operational and after taking into account their estimated residual
values:
|
Expected
useful lives
|
|
Residual
value
|
|
Building
|
20 years
|
|
|
5
|
%
|
Office equipment
|
3 years
|
|
|
5
|
%
|
Electronic equipment
|
3 years
|
|
|
5
|
%
|
Furniture
|
5 years
|
|
|
5
|
%
|
Medical equipment
|
10 years
|
|
|
5
|
%
|
Vehicles
|
4 years
|
|
|
5
|
%
|
Expenditures for repairs and maintenance
are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized in the results of operations.
Intangible assets consist primarily of
software of management systems. Intangible assets are stated at cost less accumulated amortization and impairment, if any. Intangible
assets are amortized using the straight line method with the following estimated useful lives:
|
|
Expected
useful lives
|
Software
|
|
10 years
|
The Company determines if an arrangement
is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion
of obligations under operating leases, and obligations under operating leases, non-current on the Company’s consolidated
balance sheets. Finance leases are included in property and equipment, net, current portion of obligations under capital leases,
and obligations under capital leases, non-current on our consolidated balance sheets.
Operating lease ROU assets and operating
lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement
date, adjusted by the deferred rent liabilities at the adoption date. As most of the Company’s leases do not provide an implicit
rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the
present value of future payments. The operating lease ROU assets also include any lease payments made and excludes lease incentives
and initial direct costs incurred. The Company’s terms may include options to extend or terminate the lease when it is reasonably
certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease
term.
Goodwill represents the excess of the purchase
price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. In
accordance with ASC 350, Goodwill and Other Intangible Assets, recorded goodwill amounts are not amortized, but rather are
tested for impairment annually or more frequently if there are indicators of impairment present.
Goodwill is tested
for impairment at the reporting unit level on at least an annual basis or when an event occurs or circumstances change that would
more-likely-than-not reduce the fair value of a reporting unit below its carrying value. These events or circumstances include
a significant change in stock prices, business environment, legal factors, financial performances, competition, or events affecting
the reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units,
assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair
value of each reporting unit. The estimation of fair value of reporting unit using a discounted cash flow methodology also requires
significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term
rate of growth for the Company’s business, estimation of the useful life over which cash flows will occur, and determination
of the Company’s weighted average cost of capital. The estimates used to calculate the fair value of a reporting unit change
from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially
affect the determination of fair value and goodwill impairment for the reporting unit.
Management evaluates the recoverability
of goodwill by performing a qualitative assessment before using a two-step impairment test approach at the reporting unit level.
If the Company reorganizes its reporting structure in a manner that changes the composition of one or more of its reporting units,
goodwill will be reassigned based on the relative fair value of each of the affected reporting units.
●
|
Impairment of long-lived assets and intangibles
|
In accordance with the provisions of ASC
Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and
equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of
the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of
the assets exceed the fair value of the assets.
We adopted Accounting Standard Codification
(“ASC”) Topic 606, Revenues from Contract with Customers (“ASC 606”) for all periods presented. Under ASC
606, revenue is recognized when control of the promised goods and services is transferred to the Company’s customers, in
an amount that reflects the consideration that the Company expects to be entitled to in exchange for those goods and services,
net of value-added tax. The Company determines revenue recognition through the following steps:
●
|
Identify the contract with a customer;
|
|
|
●
|
Identify the performance obligations in the contract;
|
|
|
●
|
Determine the transaction price;
|
|
|
●
|
Allocate the transaction price to the performance obligations in the contract; and
|
|
|
●
|
Recognize revenue when (or as) the entity satisfies a performance obligation.
|
|
|
The transaction price is allocated to each
performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation
is recognized when that performance obligation is satisfied by the control of the promised goods and services is transferred to
the customers, which at a point in time or over time as appropriate.
The Company’s revenue is net of value
added tax (“VAT”) collected on behalf of PRC tax authorities in respect to the sales of products. VAT collected from
customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is
paid to the relevant PRC tax authorities
Cost of revenue consists primarily of cost
of goods purchased from suppliers plus direct material costs for packaging and storage, direct labor, which are directly attributable
to the acquisition and maintaining of products for sales. Cost of revenues also include impairment loss of our products which are
obsolete or expired for sale, if any. Shipping and handling costs, associated with the distribution of finished products to customers,
are borne by the customers.
ASC Topic 220, “Comprehensive
Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other
comprehensive income, as presented in the accompanying condensed consolidated statement of stockholders’ equity, consists
of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation
of income tax expense or benefit.
Income taxes are determined in accordance
with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured
using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken
or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the three months ended March 31, 2021
and 2020, the Company did not incur any interest or penalties associated with tax positions. As of March 31, 2021, the Company
did not have any significant unrecognized uncertain tax positions.
The Company conducts all of its business
in the PRC and is subject to tax in this jurisdiction. As a result of its corporate structure the Company files tax returns that
are subject to examination by a foreign tax authority.
Sales revenue represents the invoiced value
of goods sold, net of VAT. All of the Company’s products that are sold in the PRC are subject to a VAT on the gross sales
price. The VAT rates range up to 13%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company
on its purchase activities of merchandises, raw materials, utilities, and other materials which cost was included in the cost of
producing or acquiring its products for sales. The Company records a VAT payable net of payments if the VAT payable on the gross
sales is larger than VAT paid by the Company on purchase of finished goods; on the other hand, the Company records a VAT deductible
in the accompanying financial statements net of any VAT payable at the end of reporting period.
●
|
Convertible promissory notes
|
The Company records debt net of debt discount
for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant
to the Beneficial Conversion and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and
beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest
expense over the life of the debt.
The Company has entered into financing
arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features.
The Company accounts for these arrangements in accordance with Accounting Standards Codification Topic 815, Accounting for Derivative
Instruments and Hedging Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with
this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair
values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract
are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The
Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate
valuation models, giving consideration to all of the rights and obligations of each instrument.
We estimate fair values of derivative financial
instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring
fair values. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market
risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants,
we generally use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions
(including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating
fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and
are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition,
option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price
of our common stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense)
going forward will reflect the volatility in these estimate and assumption changes. Under the terms of the new accounting standard,
increases in the trading price of the Company’s common stock and increases in fair value during a given financial quarter
result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the company’s common
stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.
The Company calculates net loss per share
in accordance with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing
the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed
similar to basic income per share except that the denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were
dilutive.
●
|
Foreign currencies translation
|
Transactions denominated in currencies
other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of
the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into
the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are
recorded in the statement of operations.
The reporting currency of the Company is
the United States Dollar (“US$”). The Company’s subsidiaries in the PRC maintain their books and records in their
local currency, the Renminbi Yuan (“RMB”), which is the functional currency as being the primary currency of the economic
environment in which these entities operate.
In general, for consolidation purposes,
assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with
ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date.
Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation
of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income
within the statement of stockholders’ equity.
Translation of amounts from RMB into US$
has been made at the following exchange rates for the respective period:
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Period-end RMB:US$1 exchange rate
|
|
|
6.5566
|
|
|
|
7.0851
|
|
Three months end average RMB:US$1 exchange rate
|
|
|
6.4829
|
|
|
|
6.9790
|
|
Parties, which can be a corporation or
individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and operational decisions. Companies are also considered
to be related if they are subject to common control or common significant influence.
ASC Topic 280, “Segment Reporting”
establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal
organization structure as well as information about the type of products and services, geographical areas, business strategies
and major customers in business components. For the three months ended March 31, 2021, the Company operated in four reportable
segments: retail pharmacy, wholesale pharmaceuticals, wholesale medical devices and medical services in the PRC.
●
|
Fair value of financial instruments
|
The carrying value of the Company’s
financial instruments (excluding short-term bank borrowing and convertible promissory notes): cash and cash equivalents, accounts
and retention receivable, prepayments and other receivables, accounts payable, income tax payable, amounts due to related parties
other payables and accrued liabilities approximate their fair values because of the short-term nature of these financial instruments.
Management believes, based on the current
market prices or interest rates for similar debt instruments, the fair value of its obligation under its finance lease and short-term
bank borrowing approximate the carrying amount.
The Company also follows the guidance of
the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to
financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that
prioritizes the inputs used in measuring fair value as follows:
●
|
Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
|
|
|
●
|
Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and
|
|
|
●
|
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
|
Fair value estimates are made at a specific
point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
The carrying amount of cash, restricted
cash, accounts receivable, other receivable, bank credit, accounts payable and other accounts payable approximate their fair value
due to the short-term maturity of these instruments.
●
|
Recent accounting pronouncements
|
In December 2019, the FASB issued ASU No.
2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to
simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles
in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.
The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU No.
2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ( “ASU 2020-06”), which
focuses on amending the legacy guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s
own equity. ASU 2020-06 simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting
models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment
that entities are required to perform to determine whether a contract qualifies for equity classification. Further, ASU 2020-06
enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share
(EPS) guidance, i.e., aligning the diluted EPS calculation for convertible instruments by requiring that an entity use the if-converted
method and that the effect of potential share settlement be included in the diluted EPS calculation when an instrument may be settled
in cash or shares, adding information about events or conditions that occur during the reporting period that cause conversion contingencies
to be met or conversion terms to be significantly changed. This update will be effective for the Company’s fiscal years beginning
after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance
through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently
in the process of evaluating the impact of adopting ASU 2020-06 on its consolidated financial statements and related disclosure.
Other 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 the Company’s consolidated financial statements upon adoption.
4.
|
THE ACQUISITION OF THE GUANZAN GROUP
|
On February 1, 2020, the Company, Xinrongxin,
Ms. Li Zhou (“Ms. Zhou”) and Guanzan entered into a stock purchase agreement (the “Guanzan SPA”). Pursuant
to the Guanzan SPA, the Company agreed to purchase all the issued and outstanding shares of Guanzan (the “Guanzan Shares”)
from Ms. Zhou for RMB 100,000,000 (approximately $14,285,714), to be paid by the issuance of 950,000 shares of the Company’s
common stock (the “Guanzan Stock Consideration”) and the payment of RMB 80,000,000 in cash (the “Guanzan Cash
Consideration”) (the “Guanzan Acquisition”). The Guanzan Stock Consideration was payable at closing and the Guanzan
Cash Consideration, which is subject to post-closing adjustments based on the performance of Guanzan in the years ending December
31, 2020 and 2021, was to be paid pursuant to a post-closing payment schedule.
Guanzan is a distributor of medical
devices whose customers are primarily drug stores, private clinics, pharmaceutical dealers and hospitals in the Southwest of China.
Guanzan holds business licenses in the PRC such as a Business Permit for Medical Devices and a Recordation Certificate for Business
Activities Involving Class II Medical Devices, etc., which qualify Guanzan to engage in the distribution of medical devices in
the PRC.
Shude is a pharmaceutical distributor that
markets generic drugs. Shude’s customers include a wide range of clinics, private and public hospitals and pharmacies in
the PRC. Shude holds Chinese business licenses such as a Business Permit for Medical Devices and a Drug Wholesale Distribution
License, which qualify Shude to engage in the distribution of medicines and medical devices in China.
The transaction closed on March 18, 2020.
Upon the closing, the Guanzan Shares were transferred to and recorded under the name of Xinrongxin and the Guanzan Stock Consideration
was paid to Ms. Zhou. The Guanzan Cash Consideration has not been paid as of the date of this report.
The following summarizes the identified
assets acquired and liabilities assumed pursuant to the Guanzan Acquisition as of March 18, 2020:
Items
|
|
Amount
|
|
Assets
|
|
|
|
Cash
|
|
$
|
95,220
|
|
Accounts receivable
|
|
|
1,835,981
|
|
Advances to suppliers
|
|
|
1,222,986
|
|
Amount due from related parties
|
|
|
410,943
|
|
Inventories
|
|
|
950,225
|
|
Prepayments and other receivables
|
|
|
90,256
|
|
Property, plant and equipment
|
|
|
707,289
|
|
Intangible assets
|
|
|
254,737
|
|
Goodwill
|
|
|
6,443,170
|
|
Liabilities
|
|
|
|
|
Short-term bank borrowings
|
|
|
(838,926
|
)
|
Long-term loans due within one year
|
|
|
(250,663
|
)
|
Accounts payable, trade
|
|
|
(1,303,399
|
)
|
Advances from customers
|
|
|
(1,350,126
|
)
|
Amount due to related parties
|
|
|
(106,720
|
)
|
Taxes payable
|
|
|
(406,169
|
)
|
Other payables and accrued liabilities
|
|
|
(390,594
|
)
|
Long-term loans – noncurrent portion
|
|
|
(186,796
|
)
|
Non-controlling interests
|
|
|
(46,295
|
)
|
Total-net assets
|
|
$
|
7,131,119
|
|
The fair value of all assets acquired and
liabilities assumed is the estimated book value of the Guanzan Group. Goodwill represent the excess of the fair value of purchase
price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Guanzan Group at the acquisition
date. Upon the Guanzan Acquisition, the Company recognized non-controlling interest in Shude in the amount of $46,295, representing
the 20% non-controlling equity interest in Shude.
On November 20, 2020, we entered into a
Prepayment and Amendment Agreement for the prepayment (the “Prepayment”) of a portion of the Guanzan Cash Consideration
in the amount of RMB 20,000,000, in the form of shares of our company’s common stock valued at $3.00 per share, in light
of Guanzan’s performance during the period from March 18, 2020 to September 30, 2020. On November 30, 2020, 1,000,000 shares
of our common stock were issued to the designated assignees of the seller Li Zhou as the Prepayment. The balance of the Guanzan
Cash Consideration in the amount of RMB 60,000,000 has not been paid as of this date.
5.
|
THE ACQUISITION OF THE GYOYITANG HOSPITAL
|
On December 9, 2020 entered into a Stock
Purchase Agreement to acquire Chongqing Guoyitang Hospital (“Guoyitang”), the owner and operator of a private general
hospital in Chongqing City, a southwest city of China, with 100 hospital beds, 53 medical doctors, 40 medical technicians, 50 nurses
and 57 administrative employees. Pursuant to the Agreement, the Company agreed to purchase all the issued and outstanding equity
interests in Guoyitang. The aggregate purchase price for Guoyitang was$15,251,807 (RMB 100,000,000). Upon signing the Agreement,
2,000,000 shares of common stock of BIMI and approximately $3,096,119 (RMB 20,000,000) was to be paid as partial consideration
for the purchase of Guoyitang. The balance of the purchase price in the amount of approximately $6,100,723 (RMB 40,000,000) is
subject to post-closing adjustments based on the performance of Guoyitang in 2021 and 2022. The transaction closed on February
2, 2021.
The following summarizes the identified
assets acquired and liabilities assumed pursuant to the Guoyitang Acquisition as of February 2, 2021:
Items
|
|
Amount
|
|
Assets
|
|
|
|
Cash
|
|
$
|
28,457
|
|
Accounts receivable
|
|
|
11,797
|
|
Advances to suppliers
|
|
|
12,670
|
|
Amount due from related parties
|
|
|
41,598
|
|
Inventories
|
|
|
167,440
|
|
Prepayments and other receivables
|
|
|
61,102
|
|
Property, plant and equipment
|
|
|
528,814
|
|
Right-of-use asset
|
|
|
441,150
|
|
Goodwill
|
|
|
7,154,393
|
|
Liabilities
|
|
|
|
|
Accounts payable, trade
|
|
|
(599,391
|
)
|
Amount due to related parties
|
|
|
(183,796
|
)
|
Taxes payable
|
|
|
(121
|
)
|
Other payables and accrued liabilities
|
|
|
(231,375
|
)
|
Lease liability-current
|
|
|
(161,707
|
)
|
Lease liability-non current
|
|
|
(354,912
|
)
|
Total-net assets
|
|
$
|
6,916,119
|
|
The fair value of all assets acquired and
liabilities assumed is the estimated book value of the Guoyitang. Goodwill represents the excess of the fair value of purchase
price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Guoyitang at the acquisition
date.
6.
|
THE ACQUISITION OF THE ZHONGSHAN HOSPITAL
|
On December 15, 2020, the Company entered
into a Stock Purchase Agreement to acquire Chaohu Zhongshan Minimally Invasive Hospital (“Zhongshan Hospital”), a private
hospital in the southeast region of China with 65 hospital beds, 25 medical doctors, 22 medical technicians and 45 nurses. Zhongshan
Hospital is a general hospital known for its complex minimally invasive surgeries. Pursuant to the Agreement, the Company
agreed to purchase all the issued and outstanding equity interests in Zhongshan Hospital in consideration of approximately $18,515,661(RMB
120,000,000). As partial consideration, approximately $6,100,723 (RMB 40,000,000) was paid in cash at the closing and 2,000,000
shares of common stock of the Company were delivered on February 2021. The balance of the purchase price in the amount of approximately
$6,100,723 (RMB 40,000,000) is subject to post-closing adjustments based on the performance of Zhongshan Hospital in 2021 and 2022.The
transaction closed on February 5, 2021.
The following summarizes the identified
assets acquired and liabilities assumed pursuant to the Zhongshan Acquisition as of February 5, 2021:
Items
|
|
Amount
|
|
Assets
|
|
|
|
Cash
|
|
$
|
46,748
|
|
Accounts receivable
|
|
|
92,900
|
|
Inventories
|
|
|
108,413
|
|
Prepayments and other receivables
|
|
|
432,231
|
|
Property, plant and equipment
|
|
|
344,208
|
|
Right-of-use asset
|
|
|
1,188,693
|
|
Goodwill
|
|
|
10,443,494
|
|
Liabilities
|
|
|
|
|
Short-term bank borrowings
|
|
|
(154,701
|
)
|
Accounts payable, trade
|
|
|
(928,640
|
)
|
Advances from customers
|
|
|
(5,603
|
)
|
Amount due to related parties
|
|
|
(217,203
|
)
|
Other payables and accrued liabilities
|
|
|
(435,290
|
)
|
Lease liability-current
|
|
|
(160,774
|
)
|
Lease liability-non current
|
|
|
(1,102,589
|
)
|
Total-net assets
|
|
$
|
9,651,887
|
|
The fair value of all assets acquired and
liabilities assumed is the estimated book value of the Zhongshan. Goodwill represents the excess of the fair value of purchase
price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Zhongshan Hospital at the
acquisition date.
In late 2019, the Company committed to
a plan to dispose of all of the NF Group and on March 31, 2020 entered into the NF SPA with respect to its disposition. Pursuant
to the NF SPA, the aggregate sales price for the NF Group was $10,000,000. The sale closed on June 23, 2020.
On December 11. 2020, the Company entered
into an agreement (“Boqi Zhengji SPA”) to sell the equity interests in Boqi Zhengji. Pursuant to the Boqi Zhengji SPA,
the aggregate sale price for Boqi Zhengji was $1,700,000. The sale of Boqi Zhengji closed on December 18, 2020 at which time the
Company received $1.7 million. Upon closing, the Company ceased operating pharmacies in Dalian.
The Company determined that the plans and
the subsequent actions taken to dispose of the NF Group and Boqi Zhengji qualified as discontinued operations under the criteria
set forth in the ASC 205-20 Presentation of Financial Statements – Discontinued Operation. Upon closing of the two sales,
the Company is no longer involved in the energy efficiency enhancement business or the operation of Boqi Zhengji.
The summarized operating results of the
discontinued operation included in the Company’s unaudited interim condensed consolidated statements of operations consist
of the following:
|
|
For the
three months
ended
March 31,
2020
|
|
Revenues
|
|
$
|
20,947
|
|
Cost of revenues
|
|
|
132,915
|
|
Gross loss
|
|
|
(111,968
|
)
|
|
|
|
|
|
Operating expenses
|
|
|
564,833
|
|
Other expense
|
|
|
178,156
|
|
Loss before income taxes
|
|
|
(742,989
|
)
|
|
|
|
|
|
Income taxes
|
|
|
-
|
|
Net loss from discontinued operations
|
|
$
|
(854,957
|
)
|
The majority of the Company’s pharmacy
retail revenues are derived from cash sales, except for sales to the government social security bureaus or commercial health insurance
programs, which typically settle once a month. The Company offers several credit terms to our wholesale customers and to our authorized
retailer stores. The Company routinely evaluates the need for allowance for doubtful accounts based on specifically identified
amounts that the management believes to be uncollectible. If the actual collection experience changes, revisions to the allowance
may be required. As of March 31, 2021 and December 31,2020, accounts receivable consisted of the following:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Accounts receivable, cost
|
|
$
|
8,357,234
|
|
|
$
|
7,923,382
|
|
Less: allowance for doubtful accounts
|
|
|
(1,187,543
|
)
|
|
|
(1,236,830
|
)
|
Accounts receivable, net
|
|
$
|
7,169,691
|
|
|
$
|
6,686,552
|
|
The Company routinely evaluates the need
for allowance for doubtful accounts based on specifically identified amounts that the management believes to be uncollectible.
If the actual collection experience changes, revisions to the allowance may be required. Due to subsequent collections, the Company
reversed an allowance of $43,799 and $8,720 for the three months ended, March 31, 2021 and 2020, respectively.
Advances to suppliers represent the amount
the Company prepaid to its suppliers for merchandises for sale in the ordinary course of business. As of March 31, 2021 and December
31,2020, the Company reported advances to suppliers as follow:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Advances to suppliers, cost
|
|
$
|
3,101,362
|
|
|
$
|
2,700,788
|
|
Less: allowance for doubtful accounts
|
|
|
(7,427
|
)
|
|
|
(7,463
|
)
|
Advances to suppliers, net
|
|
$
|
3,093,935
|
|
|
$
|
2,693,325
|
|
No bad debt expenses were accrued for doubtful
accounts relating to advances to suppliers for the three months ended March 31, 2021 and 2020, respectively.
The Company’s inventories consist
of medicine and medical devices that were purchased from third parties and sold in our retail pharmacy stores and wholesale to
third party pharmacies, clinics, hospitals, etc. Inventories consisted of the following:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Medicine
|
|
$
|
3,306,953
|
|
|
$
|
196,506
|
|
Medical devices
|
|
|
293,842
|
|
|
|
548,670
|
|
Less: allowance for obsolete and expired inventory
|
|
|
(31,660
|
)
|
|
|
(9,825
|
)
|
|
|
$
|
3,569,135
|
|
|
$
|
735,351
|
|
For the three months ended March 31, 2021and
2020, respectively, the Company accrued an allowance of $14,507 and $119,342 for obsolete and expired items.
11.
|
PREPAYMENTS AND OTHER RECEIVABLES
|
Prepayments and other receivables represent
the amount that the Company prepaid as rent deposits for both retail stores and office space premises, special medical device purchase
deposits, prepaid rental fee and professional services, advances to employees in the ordinary course of business, VAT deductibles
and other miscellaneous receivables. The table below sets forth the balances as of March 31, 2021and December 31, 2020, respectively.
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Deposit for rental
|
|
$
|
18,653
|
|
|
|
11,050
|
|
Prepaid rental fee
|
|
|
371,228
|
|
|
|
37,687
|
|
Deposit for purchase of medical devices
|
|
|
54,220
|
|
|
|
28,113
|
|
Receivables from convertible bonds
|
|
|
-
|
|
|
|
1,500,000
|
|
Deferred offering cost
|
|
|
1,232,185
|
|
|
|
889,971
|
|
Prepayment for acquisition of Guoyitang and Zhongshan
|
|
|
-
|
|
|
|
9,195,543
|
|
Deposit for acquisition of Cogmer
|
|
|
3,050,361
|
|
|
|
3,065,181
|
|
Receivables form third party
|
|
|
150,860
|
|
|
|
-
|
|
Others
|
|
|
73,144
|
|
|
|
162,326
|
|
Less: allowance for doubtful accounts
|
|
|
(9,300
|
)
|
|
|
(9,345
|
)
|
Prepayments and other receivables, net
|
|
$
|
4,941,351
|
|
|
|
14,880,526
|
|
Management evaluates the recoverable value
of these balances periodically in accordance with the Company’s policies. For the three months ended March 31, 2021 and 2020,
the Company reversed an allowance for doubtful accounts of $Nil and $866, respectively.
12.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment consisted
of the following:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Building
|
|
$
|
796,167
|
|
|
$
|
800,035
|
|
Office equipment
|
|
|
242,308
|
|
|
|
38,769
|
|
Electronic equipment
|
|
|
28,158
|
|
|
|
49,507
|
|
Furniture
|
|
|
20,554
|
|
|
|
151
|
|
Medical equipment
|
|
|
1,434,216
|
|
|
|
-
|
|
Vehicles
|
|
|
175,656
|
|
|
|
130,532
|
|
|
|
|
2,697,059
|
|
|
|
1,018,994
|
|
Less: accumulated depreciation
|
|
|
(927,132
|
)
|
|
|
(108,786
|
)
|
Property, plant and equipment, net
|
|
$
|
1,769,927
|
|
|
$
|
910,208
|
|
Depreciation expense for the three months
ended March 31, 2021 and 2020 were $50,414 and $4,712, respectively.
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Software
|
|
$
|
14,627
|
|
|
$
|
-
|
|
|
|
|
14,627
|
|
|
|
-
|
|
Less: accumulated amortization
|
|
|
(1,182
|
)
|
|
|
-
|
|
Intangible assets, net
|
|
$
|
13,445
|
|
|
$
|
-
|
|
Amortization expense for the three months
ended March 31, 2021 and 2020 were $1,182 and $Nil, respectively.
Balance sheet information related to the
Company’s operating leases was as follows:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Operating Lease Assets
|
|
|
|
|
|
|
Operating lease
|
|
$
|
1,619,036
|
|
|
|
53,425
|
|
Total operating lease assets
|
|
$
|
1,619,036
|
|
|
|
53,425
|
|
Operating Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
$
|
354,705
|
|
|
|
23,063
|
|
Non current operating lease liabilities
|
|
$
|
1,396,148
|
|
|
|
22,457
|
|
Total Lease Liabilities
|
|
$
|
1,750,853
|
|
|
|
45,520
|
|
Lease liability maturities as of March
31, 2021, are as follows:
|
|
March 31,
2021
|
|
2021
|
|
|
358,118
|
|
2022
|
|
|
348,702
|
|
2023
|
|
|
323,350
|
|
2024
|
|
|
314,037
|
|
2025 and Thereafter
|
|
|
786,039
|
|
Total minimum lease payments
|
|
|
2,130,246
|
|
Less: Amount representing interest
|
|
|
379,393
|
|
Total
|
|
|
1,750,853
|
|
The goodwill associated with the Guanzan
Acquisition of $6,443,170, Guoyitang Acquisition of $7,154,393 and Zhongshan Acquisition of $10,443,494, were initially recognized
at the acquisition closing date.
Based on an assessment of the qualitative
factors, management determined that it is more-likely-than-not that the fair value of the reporting unit is in excess of its carrying
amount. Therefore, management concluded that it was not necessary to proceed to the two-step goodwill impairment test. At March
31, 2021and December 31, 2020, goodwill was $24,512,118 and $6,914,232, respectively. No impairment loss was recorded for the three
months ended March 31, 2021 and 2020.
Short-term loans
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Construction Bank of China
|
|
$
|
32,639
|
|
|
$
|
-
|
|
Chongqing Nan’an Zhongyin Fuden Village Bank Co. LTD
|
|
|
|
|
|
|
153,259
|
|
China Minsheng Bank
|
|
|
122,014
|
|
|
|
|
|
Industrial and Commercial Bank of China
|
|
|
152,518
|
|
|
|
|
|
Postal Savings Bank of China
|
|
|
747,339
|
|
|
|
750,969
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,054,510
|
|
|
$
|
904,228
|
|
For the three months ended March 31, 2021
and 2020, interest expense on short-term loans amounted to $12,015 and $1,612 respectively.
Long-term loans
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Standard Chartered Bank
|
|
$
|
128,122
|
|
|
$
|
163,973
|
|
|
|
|
|
|
|
|
|
|
Chongqing Nan’an Zhongyin Fuden Village Bank Co. LTD
|
|
|
148,755
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
We Bank
|
|
|
645,689
|
|
|
|
591,225
|
|
Subtotal of long-term loans
|
|
|
922,566
|
|
|
|
755,198
|
|
Less: current portion
|
|
|
(496,974
|
)
|
|
|
(34,201
|
)
|
Long-term loans – noncurrent portion
|
|
$
|
425,592
|
|
|
$
|
720,997
|
|
For the three months ended March 31, 2021
and 2020, interest expense on long-term loans amounted to $21,203 and $2,555 respectively.
17.
|
CONVERTIBLE PROMISSORY NOTES AND EMBEDDED DERIVATIVE INSTRUCTIONS
|
On May 19, 2020, the Company entered into
a Securities Purchase Agreement (the “May SPA”) with two institutional investors (each, an “Institutional Investor”,
collectively, the “Institutional Investors”) to sell in a private placement a new series of senior secured convertible
notes having an original issue amount of $6,550,000, with a discount of 19.85%, and ranking senior to all outstanding and future
indebtedness of the Company (the “Convertible Notes”). Each Institutional Investor paid $1,750,000 in cash for a note
in the face amount of $2,225,000. Additional Convertible Note in an aggregate original principal amount not to exceed $2,100,000
may also be issued to the Institutional Investors under the May SPA at a later date under certain circumstances. The Convertible
Notes mature on the eighteen-month anniversary of the issuance date, are payable by the Company in installments and are convertible
at the election of the Institutional Investors at the convertible price of $2.59, which is subject to adjustment in the event of
default. Each Institutional Investor also received a warrant to purchase 650,000 shares of the Common Stock at an initial exercise
price of $2.845. The placement agent for the private placement received a warrant to purchase up to 171,845 shares of the Common
Stock at an initial exercise price of $2.845 per share, subject to increase based on the number of shares of the Common Stock issued
pursuant to the Convertible Notes. On February 24,2021, the Company and the Investors agreed to increase the amount of Convertible
Notes that may be purchased under the Securities Purchase Agreement announced in May 2020 from $2,100,000 to $5,400,000 at an original
issue discount of 16.67% ($4,500,000 net). The Convertible Notes are convertible at a base conversion price of $2.59 per share,
subject to the previously agreed conversion floor price of $ $0.554 (or $0.372 with respect to the increased amount). The
Investors will also be entitled to receive warrants (the “Warrants”) to purchase 720,000 additional shares of the Company’s
common stock at the exercise price of $2.845 per share.
Upon evaluation, the Company determined
that the Agreements contained embedded beneficial conversion features which met the definition of Debt with Conversion and Other
Options covered under the Accounting Standards Codification topic 470 (“ASC 470”). According to ASC 470, an embedded
beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance by allocating a portion
of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Convertible note – principal
|
|
$
|
6,015,426
|
|
|
$
|
5,367,174
|
|
Convertible note – discount
|
|
|
(882,896
|
)
|
|
|
(2,038,727
|
)
|
|
|
$
|
5,132,530
|
|
|
$
|
3,328,447
|
|
Additionally, the Company accounted for
the embedded conversion option liability in accordance with the Accounting Standards Codification topic 815, Accounting for Derivative
Instruments and Hedging Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with
these standards, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at
fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host
contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings.
The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate
valuation models, giving consideration to all of the rights and obligations of each instrument. The fair value of the embedded
conversion option liability associated with each Note was valued using the Black-Scholes model. The key assumptions used in the
Black-Scholes option pricing model are as follows:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Dividend yield
|
|
$
|
0
|
%
|
|
$
|
0
|
%
|
Expected volatility
|
|
|
90% ~ 100
|
%
|
|
|
101% ~ 166
|
%
|
Risk free interest rate
|
|
|
0.82% ~ 1.13
|
%
|
|
|
0.07% ~ 0.22
|
%
|
Expected life (year)
|
|
|
3.14 ~3.86
|
|
|
|
3.38
|
|
18.
|
OTHER PAYABLES AND ACCRUED LIABILITIES
|
Other payables and accrued liabilities
consisted of the following:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Salary payable
|
|
$
|
818,091
|
|
|
$
|
96,915
|
|
Salary payable – related party (1)
|
|
|
163,267
|
|
|
|
663,267
|
|
Loan payable
|
|
|
301,933
|
|
|
|
-
|
|
Accrued tax payable
|
|
|
305,859
|
|
|
|
-
|
|
Accrued operating expenses
|
|
|
139,709
|
|
|
|
102,358
|
|
Acquisition payable (2)
|
|
|
3,065,181
|
|
|
|
3,065,181
|
|
Other payables
|
|
|
55,517
|
|
|
|
301,255
|
|
|
|
$
|
4,849,557
|
|
|
$
|
4,228,976
|
|
(1)
|
On October 1, 2019, the
Company employed Mr. Tiewei Song as its Chief Executive Officer with an annual base salary of $500,000, the balance represented the unpaid
salary of $163,267 on March 31, 2021.
|
|
|
(2)
|
In March 2020, the Company completed the Guanzan Acquisition. In addition to the issuance of 950,000
shares of its Common Stock, the Company is obligated to pay approximately $4,414,119, which is subject to post-closing adjustments
based on the performance of the Guanzan Group in 2020 and 2021. The fair value of the cash consideration payable was calculated
in conformance with FASB ASC 805-10. On November 20, 2020, the parties to the Guanzan Acquisition entered into a Prepayment and
Amendment Agreement in light of Guanzan’s performance during the period from March 18, 2020 to September 30, 2020, providing
for the prepayment of RMB 20,000,000 in the form of shares of the Company’s Common Stock valued at $3.00 per share. On November
30, 2020, the Company issued 1,000,000 shares of Common Stock as the prepayment
|
19.
|
RELATED PARTIES AND RELATED PARTIES TRANSACTIONS
|
Amount due from related parties
As of March 31, 2021, $41,012 was due from
Wenfa Zhuo, a former shareholder of Guoyitang. The amount due, which was outstanding prior to the Guoyitang Acquisition was free
of interest and due on demand.
As of December 31, 2020, the total amounts
due from related parties was Nil.
Amounts payable to related parties
As of March 31, 2021 and December 31, 2020,
the total amounts payable to related parties was $791,581 and $226,514, respectively, which included:
1.
|
Amount payable to Mr. Yongquan Bi, the former Chief Executive Officer and current Chairman of the Board of directors of the Company, of $29,423 and $29,566, respectively, free of interest and due on demand. The amount represents the remaining balance that Mr. Yongquan Bi advanced for third party services on behalf of the Company during the ordinary course of business of the Company since the beginning of 2018.
|
|
|
2.
|
Amount payable to Mr. Li Zhou, the legal representative of Guanzan, of $195,223 and $0 respectively was related party loan for daily operation with no interest.
|
|
|
3.
|
Amount payable to Mr. Fuqing Zhang, the Chief Executive Officer of Xinrongxin of $183,478 and $184,370, respectively, free of interest and due on demand. The amount due to Mr. Fuqing Zhang is reimbursable operating expenses that the Company owned to Mr. Fuqing Zhang during and before the acquisition of Boqi Zhengji.
|
|
|
4.
|
Amount payable to Mr. Youwei Xu, the financial manager of Xinrongxin of $12,518 and $12,578, respectively, free of interest and due on demand. The amount due to Mr. Youwei Xu, relates to reimbursable operating expenses that we owed to Mr. Fuqing Zhang during and before the acquisition of Boqi Zhengji.
|
|
|
5.
|
Amount
payable to Shaohui Zhuo, the general manager of Guoyitang of $118,282 and $0, respectively, was a related party loan for daily
operation with no interest.
|
6.
|
Amount payable to Nanfang Xiao, the Director of Guoyitang of $12,964 and $0, respectively, was
a related party loan for daily operation with no interest.
|
7.
|
Amount payable to Jia Song, the manager of Guoyitang of $25,554 and $0, respectively, was a related
party loan for daily operation with no interest.
|
8.
|
Amount payable to Yu Xiang, the legal representative and general manager of Zhongshan of $214,139
and $0, respectively, was a related party lean for daily operation with no interest.
|
The Company is authorized to issue 50,000,000
shares of common stock, $0.001 par value. As of March 31, 2021 and December 31, 2020, it had 20,027,958 shares and 13,254,587 shares
outstanding, respectively. As of March 31, 2021, the Company reserved a total of 4,696,137 shares of common stock for future issuance
pursuant to the requirements of the Notes.
On April 20, 2019 and October 7, 2019,
respectively, the Company issued an aggregate of 1,500,000 shares of its common stock as a part of the consideration for the acquisition
of Boqi Zhengji.
On March 12, 2020, the Company issued 950,000
shares of its common stock as the Guanzan Stock Consideration.
From April 6,
2020 through October 20, 2020, Power Up Lending Group Ltd., CROWN BRIDGE PARTNERS, LLC, LABRYS FUND, LP, MORNINGVIEW FINANCIAL,
LLC, CROWN BRIDGE PARTNERS, LLC, TFK Investments LLC, BHP Capital NY Inc., FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC and Platinum
Point Capital LLC converted $1,534,250 of Notes in the aggregate principal amount of $1,534,250 plus interests into an aggregate
of 1,658,213 shares of the Common Stock.
On November 30, 2020, the Company issued
1,000,000 shares of Common Stock as the prepayment of RMB of the Guanzan Cash Consideration.
On December 2, 2020, the Institutional
Investor, Hudson Bay Master Fund Ltd (“Hudson Bay”), converted $ 173,154 of a 2020 Note in the aggregate principal
amount of $ 2,150,000 plus interest into an aggregate of 125,627 shares of Common Stock.
On December 2, 2020, the Institutional
Investor, CVI Investments, Inc. (“CVI”), converted $609,615 of a 2020 Note in the aggregate principal amount of $ 2,150,000
plus interest into an aggregate of 447,458 shares of Common Stock.
From January 4, 2021, to February 9, 2021,
Hudson Bay converted the rest of a 2020 Note in the aggregate principal amount of $ 2,150,000 plus interests into an aggregate
of 1,384,714 shares of Common Stock.
From January 4, 2021, to March 1, 2021, CVI
converted the rest of a 2020 Note in the aggregate principal amount of $ 2,150,000 plus interest into an aggregate of 1,138,657
shares of Common Stock.
On February 2, 2021, the Company issued 2,000,000
shares of Common Stock as the Guoyitang Stock Consideration.
On February 11, 2021, the Company issued 250,000
shares of Common Stock to Real Miracle Investments Limited in consideration for consulting services.
On March 26, 2021, the Company issued 2,000,000
shares of Common Stock as the Zhongshan Stock Consideration.
Basic net loss per share is computed using
the weighted average number of common shares outstanding during the year. The dilutive effect of potential common shares outstanding
is included in diluted net loss per share. Due to the Company’s net loss from its continuing operations, all potential common
share issuances had anti-dilutive effect on net loss per share. The following table sets forth the computation of basic and diluted
net loss per share for the three months ended March 31, 2021 and 2020:
|
|
For the Three Months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net loss from continuing operation attributable to common shareholders
|
|
$
|
(3,290,627
|
)
|
|
$
|
(1,347,234
|
)
|
Net loss from discontinued operations attributable to common shareholders
|
|
|
-
|
|
|
|
(854,957
|
)
|
Total net loss attributable to common shareholders
|
|
$
|
(3,290,627
|
)
|
|
$
|
(2,202,191
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – Basic and diluted
|
|
|
16,693,038
|
|
|
|
9,271,641
|
|
|
|
|
|
|
|
|
|
|
Loss per shares – basic and diluted:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.20
|
)
|
|
$
|
(0.15
|
)
|
Discontinued operations
|
|
|
-
|
|
|
|
(0.09
|
)
|
Total
|
|
$
|
(0.20
|
)
|
|
$
|
(0.24
|
)
|
On April 1, 2020, the Guizhou Province
Xiuwen County People’s Court ordered the attachment of two of Shude’s bank accounts pursuant to a pre-litigation attachment
application filed by one of Shude’s suppliers in connection with unpaid outstanding payables of approximately RMB 365,200
(approximately $51,437). The total amount of cash in the two accounts subject to the attachment was RMB 570,902 (approximately
$80,409). No lawsuit was filed by the supplier and the dispute has been resolved and attachment removed.
Legal Proceedings related to Boqi Zhengji
Boqi Zhengji was subject to the following
lawsuits and/or enforcement actions, which were disposed of when the Company sold Boqi Zhengji in December 2020. The Company is
no longer responsible for any of these lawsuits or enforcement actions.
On May 17, 2019, one of Boqi Zhengji’s
suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 482,771.87. On June 19, 2019, the parties
entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 482,771.87 in total. The same supplier
filed another lawsuit against Boqi Zhengji for unpaid outstanding payable of RMB 322,771 on March 17, 2020. The parties entered
into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 322,771 in total.
On June 26, 2019, one of Boqi Zhengji’s
suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payable of RMB 184,490.77. On Sep.12, 2019, the parties entered
into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 184,490.77 in total. Boqi Zhengji failed to
pay the settlement amount.
On July 8, 2019, one of Boqi Zhengji’s
suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 64,535. On August 1, 2019, the parties entered
into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 64,535.00 in total. Boqi Zhengji failed to
pay the settlement amount.
On July 10, 2019, one of Boqi Zhengji’s
suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 122,360.20. On August 9, 2019, the parties
entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 101,253.40 in total. Boqi Zhengji
failed to pay the settlement amount.
On July 18, 2019, one of Boqi Zhengji’s
suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 288,440.00. On September 4, 2019, the parties
entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 288,440.00 in total. Boqi Zhengji
failed to pay the settlement amount.
On August 25, 2019, one of Boqi Zhengji’s
suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 137,449.90. On October 23, 2019, the parties
entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 137,449.90 in total. Boqi Zhengji
failed to pay the settlement amount.
On August 25, 2019, one of Boqi Zhengji’s
suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 230,281.55. On October 2, 2019, Shenyang
Heping District People’s Court ruled that Boqi Zhengji had to pay the outstanding balance RMB 230,281.55 to the supplier
within 10 days. Boqi Zhengji failed to pay the settlement amount.
On September 10, 2019, one of Boqi Zhengji’s
suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 395,378.90. On October 18, 2019, the parties
entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 395,378.90 plus interest. Boqi Zhengji
failed to pay the settlement amount.
General Information of Reportable Segments:
The Company operates in four reportable
segments: retail pharmacy, wholesale medical devices, wholesale pharmaceuticals and medical services. The retail pharmacy segment
sells prescription and OTC medicines, traditional Chinese medicines (“TCM”), healthcare supplies, and sundry items
to retail customers through its directly-owned pharmacies and authorized retail stores. The wholesale pharmaceuticals segment includes
supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals
and other drug vendors. The medical services segment includes the hospitals acquired in February 2021.
To date, there were no inter-segment revenues
between our retail pharmacy and wholesale pharmaceuticals segments. The wholesale medical devices segment distributes medical devices,
including medical consumables to private clinics, hospitals, third party pharmacies and other medical devices dealers. Disclosure
should relate to all segments
The segments’ accounting policies
are the same as those described in the summary of significant accounting policies. The Company’s chief operating decision
maker, who is the CEO of the Company, evaluates performance of each of the segments based on profit or loss from continuing operations
net of income tax.
The Company’s reportable business
segments are strategic business units that offer different products. Each segment is managed independently because they require
different operations and markets to distinct classes of customers.
Information about Reported Segment Profit
or Loss and Segment Assets
BIMI, as the holding company, incurred
a significant amount of general operating expenses, such as financing costs, that the Company’s chief operating decision
maker did not allocate to segments to evaluate the segments performance and allocate recourses of the Company. In addition, except
for depreciation and amortization of long-lived assets, the Company does not allocate the change in fair value of derivative liabilities
and the amortization of discount of convertible notes to reporting segments in its reported profit or loss. The following amounts
were used by the chief operating decision maker.
For three months ended
March 31, 2021
|
|
Retail
pharmacy
|
|
|
Medical
device
wholesale
|
|
|
Drugs
wholesale
|
|
|
Medical
services
|
|
|
Others
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
120,113
|
|
|
$
|
64,439
|
|
|
$
|
1,264,868
|
|
|
$
|
704,487
|
|
|
$
|
14,097
|
|
|
$
|
2,168,004
|
|
Cost of revenues
|
|
$
|
99,495
|
|
|
$
|
30,462
|
|
|
$
|
806,856
|
|
|
$
|
638,807
|
|
|
$
|
123
|
|
|
$
|
1,575,743
|
|
Depreciation, depletion, and amortization expense
|
|
$
|
5,138
|
|
|
$
|
6,873
|
|
|
$
|
680
|
|
|
$
|
17,443
|
|
|
$
|
5,824
|
|
|
$
|
35,958
|
|
Profit (loss)
|
|
$
|
(156,065
|
)
|
|
$
|
(102,831
|
)
|
|
$
|
213,077
|
|
|
$
|
(272,333
|
)
|
|
$
|
(2,972,475
|
)
|
|
$
|
(3,290,627
|
)
|
Total assets
|
|
$
|
412,494
|
|
|
$
|
5,516,800
|
|
|
$
|
14,690,504
|
|
|
$
|
21,079,758
|
|
|
$
|
8,046,969
|
|
|
$
|
49,746,525
|
|
Reconciliations of Reportable Segment
Revenues, Profit or Loss, and Assets, to the Consolidated Totals as of March 31, 2021 and for the Three Months ended March 31,
2021.
>>Revenues
|
|
|
|
Total revenues from reportable segments
|
|
$
|
2,153,907
|
|
Other revenues
|
|
|
14,097
|
|
Elimination of intersegments revenues
|
|
|
-
|
|
Total consolidated revenues
|
|
$
|
2,168,004
|
|
|
|
|
|
|
>> Profit or loss
|
|
|
|
|
Total loss from reportable segments
|
|
$
|
(325,367
|
)
|
Elimination of intersegments profit or loss
|
|
|
-
|
|
Unallocated amount:
|
|
|
|
|
Amortization of discount of convertible notes
|
|
|
(1,386,586
|
)
|
Other corporation expense
|
|
|
(1,578,674
|
)
|
Total net loss
|
|
$
|
(3,290,627
|
)
|
|
|
|
|
|
>>Assets
|
|
|
|
|
Total assets from reportable segments
|
|
$
|
44,115,292
|
|
Elimination of intersegments receivables
|
|
|
(2,415,736
|
)
|
Unallocated amount:
|
|
|
|
|
Other unallocated assets -- Xinrongxin
|
|
|
3,055,027
|
|
Other unallocated assets – Liaoning Boyi
|
|
|
274,871
|
|
Other unallocated assets – Dalian Boyi
|
|
|
5,307
|
|
Other unallocated assets – Chongqing Bimai
|
|
|
2,344,579
|
|
Other unallocated assets -- BIMI
|
|
|
2,367,185
|
|
Total consolidated assets
|
|
$
|
49,746,525
|
|
24.
|
ENTITY-WIDE INFORMATION AND CONCENTRATIONS OF RISK
|
Entity-Wide Information
(a)
|
Revenues from each types of products
|
For the three months ended March 31, 2021
and 2020, respectively, the Company reported revenues for each type of products and services as follows:
|
|
For
the three months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Medical devices
|
|
$
|
64,439
|
|
|
$
|
248,027
|
|
Medical services
|
|
|
704,487
|
|
|
|
-
|
|
Medicines*
|
|
|
1,399,078
|
|
|
|
166,557
|
|
Total
|
|
$
|
2,168,004
|
|
|
$
|
414,584
|
|
*
|
including pharmacy sales.
|
(b)
|
Geographic areas information
|
For the three months ended March 31, 2021
and 2020, respectively, all the Company’s revenues were generated in the PRC. There were no long-lived assets located outside
of the PRC as of March 31, 2021 and 2020.
For the three months ended March 31, 2021,
no customer accounted for more than 10% of the Company’s revenues:
For the three months ended March 31, 2021,
four vendors accounted for more than 10% of the Company’s purchases and its outstanding balances as at balance sheet dates:
|
|
|
|
For the three months ended
|
|
|
As of
|
|
|
|
|
|
March 31,
2021
|
|
|
March 31,
2021
|
|
Vendors
|
|
Segment
|
|
Purchases
|
|
|
Percentage of total
purchases
|
|
|
Accounts
payable
|
|
Vendor A
|
|
Medical services
|
|
|
244,762
|
|
|
|
19.17
|
%
|
|
|
244,762
|
|
Vendor B
|
|
Medical services
|
|
|
152,954
|
|
|
|
11.98
|
%
|
|
|
152,954
|
|
Vendor C
|
|
Wholesale pharmaceuticals
|
|
|
179,928
|
|
|
|
14.09
|
%
|
|
|
-
|
|
Vendor D
|
|
Wholesale pharmaceuticals
|
|
$
|
176,912
|
|
|
|
13.86
|
%
|
|
$
|
-
|
|
|
|
|
|
$
|
754,556
|
|
|
|
59.10
|
%
|
|
$
|
397,716
|
|
Concentrations of Risk
The Company is exposed to the following
concentrations of risk:
Financial instruments that are potentially
subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade
receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company
does not generally require prepayments or deposits from customers. The Company evaluates the need for an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
The Company’s interest-rate risk
arises from convertible promissory notes, short-term and long-term loans. The Company manages interest rate risk by varying the
issuance and maturity dates, fixing interest rate of debt, limiting the amount of debts, and continually monitoring the effects
of market changes in interest rates. As of March 31, 2021 and December 31, 2020, respectively, the Notes, short-term and long-term
loans were at fixed rates.
Substantially all of the Company’s
revenues and a majority of its costs are denominated in RMB and a significant portion of its assets and liabilities are denominated
in RMB. As a result, the Company’s results of operations may be affected by fluctuations in the exchange rate between US$
and RMB. If the RMB depreciates against the US$, the value of RMB revenues and assets as expressed in US$ financial statements
will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
(d)
|
Economic and political risks
|
The Company’s operations are conducted
in the PRC. Accordingly, the Company’s business, financial condition and results of operation may be influenced by the political,
economic and legal environment in the PRC, and by the general state of the PRC economy. The outbreak of COVID-19 pandemic has expanded
all over the world since the beginning of 2020, which has greatly slowed the growth of the global economy, including the PRC, and
this effect may continue until the pandemic is controlled, or a vaccine or cure is developed. The slowdown of the growth of the
PRC’s economy has adversely effected our current business and future success will be adversely affected if we are unable
to capitalize on the opportunities arising from the increasing demand for medicine and medical devices in the markets in which
we operate.
The Company’s operations in the PRC
are subject to special considerations. These include risks associated with, among others, the political, economic and legal environment
and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions
in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation.
The PRC People’s Supreme Court adopted
rules in 2010 which restrict parties who are subject to effective court enforcement orders for monetary judgements from extravagant
spending until the monetary judgments have been satisfied. According to those rules, if a company becomes subject to a court enforcement
order due to failure to satisfy a monetary judgement, the company’s name will appear on a defaulters’ list published
by the Chinese courts and the company together with its legal representative and responsible person will be prohibited from using
the company property for extravagant spending such as buying real property, vacationing and paying for children’s private
school education, until, among other conditions, the monetary judgment has been satisfied. Boqi Zhengji and Nengfa Energy are currently
on the defaulters’ list due to their failure to pay off several monetary judgments.
On April 9, 2021, the Company entered into
a stock purchase agreement (the “Hospital SPA”) to acquire three private hospitals in the People’s Republic of
China, Wuzhou Qiangsheng Hospital, Suzhou Eurasia Hospital and Yunan Yuxi Minkang Hospital (collectively, the “Hospitals”).
Pursuant to the Hospital SPA, the Company agreed to purchase all the issued and outstanding equity interests in the Hospitals in
consideration of RMB 162,000,000 (approximately $24,923,077). The closing consideration was RMB 20,000,000 (approximately $3,076,923)
in cash and 4,000,000 shares of Common Stock of the Company, the value of which was agreed by the parties to be RMB 78,000,000
or $12,000,000. The balance of the purchase price in the amount of RMB 64,000,000 (approximately $9,846,153) is subject to post-closing
adjustments based on the performance of the Hospitals in 2021 and 2022. The transaction closed effective May 6, 2021 when 100%
of equity interests in the Hospitals were transferred to the Company and the closing consideration was paid.