This prospectus relates to the resale from time to time of up to 6,770,000
shares of our common stock, $0.001 par value per share (the “Common Stock”) by the selling shareholders named herein (the
“Selling Shareholders”). These shares of Common Stock offered hereunder include : (i) 5,400,000 shares of Common Stock issuable
upon the conversion of certain outstanding convertible notes that were issued to the Selling Shareholders on February 26, 2021 (the “
Convertible Notes”); and (ii) 1,370,000 shares issuable upon the exercise of outstanding warrants that were issued to the Selling
Shareholders on June 2, 2020 and February 26, 2021, respectively, (the “Warrants”). The Selling Shareholders will not have
the right to convert any portion of the Convertible Notes or exercise any portion of the Warrants to the extent that, after giving effect
to such conversion or exercise, such holder (together with certain related parties) would beneficially own in excess of 4.99% of the
shares of our Common Stock outstanding immediately after giving effect to such exercise. A holder may from time to time increase this
limit to 9.99%, provided that any such increase will not be effective until the 61st day after delivery of a notice to us of such increase.
Our Common Stock is listed on the Nasdaq Capital Market under the symbol
“BIMI”. On July 9, 2021, the last reported sale price of our Common Stock on The Nasdaq Capital Market was $1.22 per share.
RISK
FACTORS
Investing
in our securities involves a high degree of risk. You should carefully consider the following risk factors and the risks described under
the caption “Risk Factors” and other information contained in our most recent annual report on Form 10-K, subsequent quarterly
reports on Form 10-Q and other filings we make with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), incorporated by reference herein, before making an investment decision. Additional risks and uncertainties that we are unaware
of may become important factors that affect us. If any of these risks actually occurs, our business, financial condition or operating
results may suffer, the trading price of our common stock could decline, and you may lose all or part of your investment. These risk
factors include, but are not limited to:
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There are doubts about our
company’s ability to continue as a going concern.
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We are in the early stages of development of our healthcare
business and have limited operating history on which you can base an investment decision.
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We may encounter difficulties in realizing the potential
financial or strategic benefits of recent business acquisitions. We expect to make additional acquisitions in the future that could
disrupt our operations and harm our operating results.
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The recent COVID-19 pandemic had a material adverse
effect on our business operations, results of operations, cash flows and financial position.
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We have a substantial amount of existing debt, which
may restrict our financing and operating flexibility and have other adverse consequences; defaults could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
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If we fail to implement effective internal controls
required by the Sarbanes-Oxley Act of 2002, or remedy any material weaknesses in our internal controls that we may identify, such
failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial
information and have a negative effect on the trading price of our common stock.
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Increasing scrutiny and changing expectations from
investors, lenders, customers and other market participants with respect to our Environmental, Social and Governance, or ESG, policies
may impose additional costs on us or expose us to additional risks.
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Our business could be subject to environmental liabilities.
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Failure to maintain relationships with our customers
or to otherwise expand our distribution network would materially and adversely affect our business.
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Our wholesale business operates without the support
of manufacturing capability and is at a significant disadvantage.
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We may be subject to fines and penalties if we fail
to comply with the applicable PRC laws and regulations governing sales of medicines under China’s National Medical Insurance
Program.
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We may not be able to maintain proper inventory levels
for our pharmacy stores.
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Certain risks are inherent in providing pharmacy services;
our insurance may not be adequate to cover any claims against us.
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Our newly acquired hospitals derive a significant portion
of revenue by providing healthcare services to patients with public medical insurance coverage; any delayed payment under China’s
public medical insurance programs could affect our results of operations.
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Our hospitals could become the subject of patient complaints,
claims and legal proceedings in the course of their operations, which could result in costs and materially and adversely affect our
brand image, reputation and results of operations.
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If we fail to properly manage the employment of the
physicians and other medical professionals of our hospitals, we may be subject to penalties against these hospitals, which could
materially and adversely affect our business and results of operations.
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We have limited or no control over the quality of pharmaceuticals,
medical consumables and other medical equipment used in the operations of our hospitals. If such quality does not meet the required
standards, we could be exposed to liabilities and our reputation, business, results of operations, financial condition and prospects
could be adversely affected.
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As a provider of medical services, we are exposed to
inherent risks relating to malpractice claims.
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Our retail pharmacies, wholesale operations and newly acquired hospitals
require a number of permits and licenses in order to carry on their business.
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If we do not maintain the privacy and security of sensitive
customer and business information, we could damage our reputation, incur substantial additional costs and become subject to litigation.
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Regulatory pricing controls may affect the pricing
of our hospitals.
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We may be unable to attract, hire, and retain a highly
qualified workforce, including key management.
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We substantially depend on a few key personnel who,
if not retained, could cause declines in productivity and operational results and loss of our strategic guidance, all of which would
diminish our business prospects and value to investors.
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We are responsible for the indemnification of our officers
and directors.
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We have limited business insurance coverage in China.
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Because our funds are held in banks in the PRC that
do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.
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We may suffer currency exchange losses if the RMB depreciates
relative to the US Dollar.
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Governmental control of currency conversion may affect
the value of your investment.
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The Chinese government has strengthened the regulation
of investments made by Chinese residents in offshore companies and reinvestments in China made by these offshore companies. Our business
may be adversely affected by these restrictions.
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The PRC legal system embodies uncertainties which could limit the legal
protections available to us and you or could lead to penalties on us.
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It may be difficult to enforce any civil judgments
against us or our board of directors or officers, because all of our operating and/or fixed assets are located outside of the United
States.
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Because our assets are located overseas, shareholders
may not receive distributions that they would otherwise be entitled to if we were declared bankrupt or insolvent.
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A recurrence of Severe Acute Respiratory Syndrome (SARS),
Avian Flu, or another widespread public health problem, such as the spread of H1N1 (“Swine”) Flu, or COVID-19 in the
PRC could adversely affect our operations.
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The PRC may establish complex procedures for some acquisitions
of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
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We will need to raise additional capital that will
likely cause dilution to our shareholders.
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Trading volume of our common stock has fluctuated from
time to time, which may make it difficult for investors to sell their shares at times and prices that investors feel are appropriate.
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The Nasdaq Capital Market imposes listing standards
on our common stock that we may not be able to fulfill, thereby leading to a possible delisting of our common stock.
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We believe that period-to-period comparisons of our
financial results will not necessarily be indicative of our future performance.
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Because we have not paid dividends and have no present
intention of paying dividends, investors will not realize any income from an investment in our common stock unless and until investors
sell their shares at profit.
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Risks
Related to Our Business
There
are doubts about our company’s ability to continue as a going concern.
Our company’s independent auditors have raised doubts about our
ability to continue as a going concern. There can be no assurance that sufficient funds required during the next year or thereafter will
be generated from operations or that funds will be available from external sources, such as securities, debt or equity financing or other
potential sources. We intend to overcome the circumstances that impact our ability to remain a going concern through a combination of
new sources of revenues, with interim cash flow deficiencies being addressed through additional financing. We anticipate raising additional
funds through public or private financing, securities financing and/or strategic relationships or other arrangements in the near future
to support our business operations; however, we may not have commitments from third parties for a sufficient amount of additional capital.
We cannot be certain that any such financing will be available to us on acceptable terms, or at all, and our failure to raise capital
when needed could limit our ability to continue our operations. Our ability to obtain additional funding will determine if we can continue
as a going concern. Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect
on our financial performance, results of operations and share price and require us to curtail or cease operations, sell off assets, seek
protection from creditors through bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the
holders of our shares, and debt financing, if available, may have onerous terms, including restrictive covenants. Any additional financing
could have a negative effect on our shareholders.
We
are in the early stages of development of our healthcare business and have limited operating history on which you can base an investment
decision.
We were formed
in 2006, but recently changed our business focus. We are now focused on growing our healthcare business. As a result, we may encounter
many expenses, delays, problems, and difficulties that we have not anticipated and for which we have not planned. There can be no assurance
that at this time we will successfully develop or acquire a significant customer base, operate profitably, or that we will have adequate
working capital to fund our operations or meet our obligations as they become due.
Our recently
acquired operations are subject to all of the risks inherent in the initial expenses, challenges, complications, and delays frequently
encountered in connection with the formation of any new business. Investors should evaluate an investment in our company in light of
the problems and uncertainties frequently encountered by companies attempting to develop new markets. Despite best efforts, we may never
overcome these obstacles to achieve financial success. Our business is speculative and dependent upon the implementation of our business
plan, as well as our ability to successfully acquire businesses on terms that will be commercially viable for us. There can be no assurance
that our efforts will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that
our investors will not lose their entire investment.
We
may encounter difficulties in realizing the potential financial or strategic benefits of recent business acquisitions. We expect to make
additional acquisitions in the future that could disrupt our operations and harm our operating results.
A significant
part of our business strategy is to pursue acquisitions and other initiatives to spot market opportunities and to expand our healthcare
business. On October 14, 2019, we acquired Boqi Zhengji which operates a pharmacy chain business in the PRC. On March 18, 2020, we acquired
Guanzan, a medical devices and pharmaceuticals distribution business based in Chongqing, the largest city in the Southwest region of
the PRC. On February 2, 2020, we acquired Chongqing Guoyitang Hospital, a private hospital in Chongqing. On February 5, 2020, we acquired
Chaohu Zhongshan Minimally Invasive Hospital Co., Ltd, a private hospital in the city of Chaohu, PRC.
Our acquisition
of Boqi Zhengji was not successful and we divested this activity in 2020. No assurance can be given that our recent or future acquisitions
will be successful and will not adversely affect our business, operating results, or financial condition. In the future, we may seek
to acquire or make strategic investments in complementary businesses, technologies, services or products, or enter into strategic partnerships
or alliances with third parties in order to expand our business. Failure to manage and successfully integrate such acquisitions could
materially harm our business and operating results. We do not have significant experience in assessing the outcome of our recent acquisitions.
Even when an acquired business has previously operated successfully, there can be no assurance that our pre-acquisition due diligence
will have identified all possible issues that might arise with respect to such businesses. If we acquire other businesses, we may face
difficulties, including:
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Difficulties in integrating the operations, systems,
technologies, products, and personnel of the acquired businesses or enterprises;
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Diversion of management’s attention from normal
daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions;
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Integrating financial forecasting and controls, procedures
and reporting cycles;
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Difficulties in entering markets in which we have no
or limited direct prior experience and where competitors in such markets have stronger market positions;
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Insufficient revenue to offset increased expenses associated
with acquisitions; and
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The potential loss of key employees, customers, distributors,
vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans.
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The
recent COVID-19 pandemic had a material adverse effect on our business operations, results of operations, cash flows and financial position.
During late
2019, a virus now known as the novel coronavirus or “COVID-19” appeared in Wuhan, the Peoples Republic of China (“PRC”
or “China”). By March 11, 2020, the World Health Organization (“WHO”) labeled COVID-19 as a pandemic and many
countries around the world began closing borders and making efforts to either shelter-in-place or quarantine its population. During the
first quarter of 2020, China placed a mandatory quarantine on certain areas, specifically in Wuhan located in Hubei Province, which lasted
for more than two months.
Our company
and all of its operations are located in China. Since the pandemic broke out, our operations have been materially impacted. At the beginning
of February 2020, the PRC government issued a quarantine order, which lasted for more than two months in many parts of the country, where
everyone had to stay at home. During February and March 2020, all of our administrative functions had to be performed remotely. Not until
the beginning of April 2020 did we start to have a small skeleton crew working in our office and were able to perform those functions
that could not be handled remotely.
We have incurred
additional costs to ensure we meet the needs of our customers, including providing additional cleaning materials for our stores and other
facilities. COVID-19 has also caused supply chain disruption which has resulted in higher supply chain costs to replenish inventory in
our stores and distribution centers. Furthermore, we have experienced restricted stock availability in a number of key categories which
negatively impacted us. Certain popular and high profit margin products could not be sold due to governmental restrictive orders, which
also resulted in the expiration of a large quantify of our medicines that are otherwise in high demand in the winter season. The customer
traffic in our retail pharmacy stores in Dalian dropped greatly due to the pandemic. Because of the lockdown order that lasted for more
than two months, we suffered reduced sales and an operating loss in the first three quarters in 2020. Although some of the businesses
in China have resumed their daily activities while the pandemic is under control, there have been relapses in certain regions of the
country which caused temporary lockdowns. If similar lockdown orders or sales restrictions are implemented by the government, they may
have greater impact on our business.
We are closely
monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers, employees,
suppliers, vendors, business partners and distribution channels. The COVID-19 pandemic has created significant volatility, uncertainty
and economic disruption, which will adversely affect our business operations and may materially and adversely affect our results of operations,
cash flows and financial position. In addition to volatility in consumer demand and buying habits, we may restrict the operations of
our stores or distribution facilities if we deem it necessary or if recommended or mandated by governmental authorities which would have
a further adverse impact on us.
The extent
to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict,
including: the severity of the virus; the duration of the outbreak; governmental, business and other actions (which could include limitations
on our operations or mandates to provide products or services); the promotion of social distancing and the adoption of shelter-in-place
orders affecting foot traffic in stores; the impacts on our supply chain; the impact of the pandemic on economic activity; the extent
and duration of the effect on consumer confidence and spending, customer demand and buying patterns including spend on discretionary
categories; the health of and the effect on our workforce and our ability to meet staffing needs in our stores, hospitals, wholesale
operations and other critical functions, particularly if members of our work force are quarantined as a result of exposure; any impairment
in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential
effects on our internal controls including those over financial reporting as a result of changes in working environments such as shelter-in-place
and similar orders that are applicable to our team members and business partners, among others. In addition, if the pandemic continues
to create disruptions or turmoil in the credit or financial markets, it could adversely affect our ability to access capital on favorable
terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.
China has
slowly begun to relax some quarantine measures and allowed some businesses to operate again. We cannot make any assurances that COVID-19
will not reappear with new infections and to the extent that COVID-19, or another virus appears, we may encounter prolonged operational
lockdown measures which would disrupt our business operations.
We
have a substantial amount of existing debt, which may restrict our financing and operating flexibility and have other adverse consequences;
defaults could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In order
to fund our operations and recent acquisitions we have incurred a substantial amount of indebtedness. Our significant level of debt could
have important consequences, including, but not limited to, the following:
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making it more difficult for us to service our debt
obligations and liabilities;
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making us vulnerable to, and reducing our flexibility
to respond to, general adverse economic and industry conditions;
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requiring that a substantial portion of our cash flows
from operations be dedicated to servicing debt, thereby reducing the funds available to us to fund working capital, or other general
corporate purposes;
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impeding our ability to obtain
additional debt or equity financing and increasing the cost of any such borrowing, particularly due to the financial and other restrictive
covenants contained in the agreements governing our debt; and
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adversely affecting public perception of us.
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Although
we believe we will be able to continue to service and repay our debt, there is no assurance that we will be able to do so. If our plans
for future operations do not generate sufficient cash flows and earnings, our ability to make required payments on our debt would be
impaired. If we fail to pay our indebtedness when due, it could have a material adverse effect on us and may require us to curtail or
cease operations, sell off assets, seek protection from creditors through bankruptcy proceedings, or otherwise.
We have had a history of losses, and our ability to grow sales
and achieve profitability are unpredictable.
As of December
31, 2020, we had an accumulated deficit of $12.9 million and incurred operating losses of approximately $3,812,281 and $985,974, in the
years ended December 31, 2020 and 2019, respectively. Our ability to maintain and improve future levels of sales and profitability depends
on many factors, which include:
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successfully implementing our business strategy;
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increasing revenues; and
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There can
be no assurance that we will be able to successfully implement our business plan, meet our challenges and become profitable in the future.
Our
business, results of operations, and cash flows could be adversely affected by legal proceedings.
We conduct
our operations through a variety of businesses, including the distribution of pharmaceuticals, the dispensing of healthcare products
and since February 2021, the operation of private hospitals. Each of our businesses may cause us to become involved in legal disputes
or proceedings involving employment, malpractice, product liability, environmental and various other claims. Litigation is costly, time-consuming,
and disruptive to ordinary business operations. The defense and resolution of such proceedings could have a material adverse effect on
our results of operations and financial condition. Any settlement, judgment or fine could materially adversely affect our results of
operations.
The
markets in which we now operate are very competitive and further increases in competition could adversely affect us.
In the Chinese
pharmaceutical wholesale sector, wholesalers without affiliated manufacturers have inherent risks which include lack of control over
product availability. We are at a significant disadvantage in comparison to other wholesalers that are also manufacturers. Also, this
sector is heavily regulated industry where government exercises strong controls. Any comparative advantages we may have could be lost
because of changes in laws or government policies.
We face intense
competition with local, regional and national companies, including other drugstore chains, independently owned drugstores, supermarkets,
mass merchandisers, dollar stores and internet pharmacies. Competition from on-line retailers has significantly increased during the
past few years. The ability of our stores to achieve profitability depends on their ability to achieve a critical mass of loyal, repeat
customers.
Some of our
competitors have or may merge with or acquire pharmaceutical services companies, and health insurance companies, which may further increase
competition. We may not be able to effectively compete against some of our competitors in the retail pharmacy sector because they have
financial and other resources that are superior to ours. Further, we may be at a competitive disadvantage because we are more highly
leveraged than our competitors. We cannot assure you that we will be able to effectively compete in our markets or increase our sales
volume in response to further increased competition, or that any of our competitors are not in a better position to absorb the impact
of COVID-19.
Our newly
acquired hospitals compete with larger and more established state-owned and private hospitals. We may not be able to effectively compete
against these hospitals because they have financial and other resources that are superior to ours and may be able to more easily attract
new patients.
Consolidation
in the healthcare industry could adversely affect our business, financial condition and results of operations.
Many organizations
in the healthcare industry have consolidated to create larger healthcare enterprises with greater market power, which has contributed
to continued pricing pressures. If this consolidation trend continues, it could give the resulting enterprises even greater bargaining
power, which may lead to further pressure on the prices for our products and services and/or reduce our access to customers. If these
pressures result in reductions in our prices and/or reduce our access to customers, our business will become less profitable unless we
are able to achieve corresponding reductions in costs or develop profitable new revenue streams. We expect that market demand, government
regulation, third-party reimbursement policies, government contracting requirements, and societal pressures will continue to cause the
healthcare industry to evolve, potentially resulting in further business consolidations and alliances among the industry participants
we engage with, which may adversely impact our business, financial condition and results of operations. In addition, our new strategy
also includes selective acquisition opportunities and we cannot assure you that we will be able to consummate any such transactions on
commercially reasonable terms, if at all.
Raising
additional capital will be difficult and may cause dilution to our shareholders and restrict our operations.
We expect
to finance our cash needs for our working capital and the payment of the cash portion of our recent acquisitions. Although we have
been able to obtain funding from outside sources in the last year, we cannot be certain that we will be able to continue to do so or
to obtain additional financing on favorable terms. One possible impediment to raising capital is the tightening credit policies of the
Chinese banks and the prospects of tightening in the global credit markets. If we cannot raise additional capital on acceptable terms,
we may not be able to operate our business, take advantage of future opportunities or respond to competitive pressures or unanticipated
requirements. We cannot be sure that we will be able to secure all the financing we will require, or that it will be available on favorable
terms. If we are unable to obtain necessary financing, we will be required to substantially curtail our approach to implementing our
business objectives.
To the extent
that we raise additional capital through the sale of equity or convertible debt, our shareholders’ ownership interest will be diluted,
and the terms of such securities may include liquidation or other preferences that adversely affect shareholder rights. Debt financing
and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making acquisitions or capital expenditures.
Breaches
of network or information technology security could have an adverse effect on our business.
Cyber security
risks, such as a significant breach of customer, employee, or company data, could attract a substantial amount of media attention, damage
our customer relationships and reputation and result in lost sales, fines or lawsuits. Throughout our operations, we receive, retain
and transmit certain personal information that our customers provide to purchase products or services, fill prescriptions, enroll in
promotional programs, participate in our customer loyalty programs, register on our websites, or otherwise communicate and interact with
us. In addition, aspects of our operations depend upon the secure transmission of confidential information over public networks. Although
we deploy a layered approach to address information security threats and vulnerabilities designed to protect confidential information
against data security breaches, a compromise of our data security systems or of those of businesses with whom we interact, which results
in confidential information being accessed, obtained, damaged or used by unauthorized or improper persons, could harm our reputation
and expose us to regulatory actions and claims from customers, financial institutions, payment card associations and other persons, any
of which could materially and adversely affect our business operations, financial position and results of operations. In addition, a
security breach could require that we expend substantial additional resources related to the security of information systems and disrupt
our businesses. While no actual or attempted attacks have had a material impact on our operations or financial condition, we cannot provide
any assurance that our operations will not be negatively materially affected by such attacks in the future.
We
rely on computer software and hardware systems in managing our operations, the capacity of which may restrict our growth and the failure
of which could adversely affect our business, financial condition and results of operations.
We are dependent
upon our information management system to monitor daily operations of our retail, wholesale and hospital businesses and to maintain accurate
and up-to-date operating and financial data for the compilation of management information. If our computer software and hardware systems
fail to meet the increasing needs of our expanding operations, our ability to grow may be constrained. Furthermore, any system failure
which causes interruptions to the input, retrieval and transmission of data or causes lags in service time could disrupt our normal operations.
Although we believe that our computer software and hardware systems are up to date and that our disaster recovery plan is adequate in
handling potential failures, we cannot provide assurance that we can effectively carry out this disaster recovery plan and that we will
be able to restore our operation within a sufficiently short time frame to avoid our business being disrupted. Furthermore, our systems
are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches,
vandalism, natural disasters, catastrophic events and human error, and our disaster recovery planning cannot account for all eventualities.
If any of our computer software and/or hardware systems are damaged, fail to function properly or otherwise become unavailable, we may
incur substantial costs to repair or replace them, and may experience loss or corruption of critical data and interruptions or delays
in our ability to perform critical functions. Due to the limited coverage of business interruption insurance policies offered in China,
we do not carry business interruption insurance and, as a result, any business disruption or natural disaster could severely disrupt
our business and operations and, in turn, significantly decrease our revenue and profitability.
If
we fail to implement effective internal controls required by the Sarbanes-Oxley Act of 2002, or remedy any material weaknesses in our
internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors
to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.
Section 404
of the Sarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting
and evaluate the effectiveness thereof. A material weakness is a deficiency or a combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of our annual interim financial statement
will not be prevented or detected on a timely basis. Due to our limited resources, we currently do not have accounting
personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which
could lead to untimely identification and resolution of accounting matters inherent in our financial transactions in accordance with
US GAAP.
Any failure
to complete our assessment of our internal controls over financial reporting, to remediate any material weaknesses that we may identify,
including the one identified above, or to implement new or improved controls, could harm our operating results, cause us to fail to meet
our reporting obligations or result in material misstatements in our financial statements. Inadequate disclosure controls and procedures
and internal controls over financial reporting could also cause investors to lose confidence in our public disclosures and reported financial
information, which could have a negative effect on the trading price of our common stock.
Violations
of anti-bribery, anti-corruption and/or international trade laws to which we are subject could have a material adverse effect on our
business operations, financial position, and results of operations.
We are subject
to laws concerning our business operations and marketing activities in foreign countries where we conduct business. For example, we are
subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), U.S. export control and trade sanction laws, and similar
anti-corruption and international trade laws, any violation of which could create substantial liability for us and also harm our reputation.
The FCPA generally prohibits U.S. companies and their officers, directors, employees, and intermediaries from making improper payments
to foreign officials for the purpose of obtaining or retaining business abroad or otherwise obtaining favorable treatment. The FCPA also
requires that U.S. public companies maintain books and records that fairly and accurately reflect transactions and maintain an adequate
system of internal accounting controls. If we are found to have violated the FCPA, or any other anti-bribery, anti-corruption or international
trade laws, we may face sanctions including civil and criminal fines, disgorgement of profits, and suspension or debarment of our ability
to contract with governmental agencies or receive export licenses. From time to time, we may face audits or investigations by one or
more domestic or foreign governmental agencies relating to our international business activities, compliance with which could be costly
and time-consuming, and could divert our management and key personnel from our business operations. An adverse outcome under any such
investigation or audit could subject us to fines or other penalties, which could adversely affect our business operations, financial
position, and results of operations.
Failure
to timely identify or effectively respond to changing consumer preferences negatively affect our relationship with our customers and
the demand for our products and services.
The success
of our businesses depends in part on customer loyalty and superior customer service. Failure to timely identify or effectively respond
to changing consumer preferences could negatively affect our relationship with our customers and the demand for our products and services.
Moreover,
customer expectations and new technology advances from our competitors have required that our business evolve so that we are able to
interface with our customers not only face-to-face but also online and via mobile and social media. If we fail to keep pace with dynamic
customer expectations and new technology developments, our ability to compete and maintain customer loyalty could be adversely affected.
Our
success depends on our ability to establish effective advertising, marketing and promotional programs.
Our success
depends on our ability to establish effective advertising, marketing and promotional programs. Our pricing strategies and value propositions
must be appropriate for our target customers. If we are not able to maintain and increase the awareness of our businesses and the services
we provide, we may not be able to attract and retain customers and our reputation may also suffer. We expect to incur substantial expenses
in our marketing and promotional efforts to both attract and retain customers. However, our marketing and promotional activities may
be less successful than we anticipate and may not be effective at building our brand awareness and customer base. In addition, the government
may impose restrictions on how marketing and promotional activities can be conducted. Failure to successfully execute our advertising,
marketing and promotional programs may result in material decreases in our revenue and profitability.
Increasing
scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to our Environmental,
Social and Governance, or ESG, policies may impose additional costs on us or expose us to additional risks.
Companies
across all industries and around the globe are facing increasing scrutiny relating to their ESG policies. Investors, lenders and other
market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications
and social cost of their investments. The increased focus and activism related to ESG may hinder our access to capital, as investors
and lenders may reconsider their capital investment allocation as a result of their assessment of our ESG practices. If we do not adapt
to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or which are perceived
to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so,
may suffer from reputational damage and the business, financial condition and price our company’s shares could be materially and
adversely affected.
Our
business is subject to the risks of earthquakes, fire, power outages, floods, health epidemics and other catastrophic events and to interruption
by manmade problems such as terrorism.
Our operations,
as well as our customers, are located in areas exposed to risks of natural disasters such as earthquakes and tsunamis. A significant
natural disaster, such as an earthquake, tsunami, fire or a flood, or other catastrophic event, such as a new pandemic, could have a
material adverse effect on our or their business, which could in turn materially affect our financial condition, results of operations
and prospects.
Our
business could be subject to environmental liabilities.
Our failure
to comply with past, present and future environmental laws could result in fines, penalties, third-party claims, reduced sales of our
products, substantial product inventory write-offs and reputational damage, any of which could harm our business, financial condition,
results of operations and prospects. We also expect that our business will be affected by new environmental laws and regulations on an
ongoing basis applicable to us, including our newly acquired hospitals. To date, our expenditures for environmental compliance have not
been material. Although we cannot predict the future effect of such laws or regulations, they will likely result in additional costs
or require us to change the way we operate, which could have a material adverse effect on our business, financial condition, results
of operations and prospects.
Risks
Relating to Our Wholesale Operations
Failure
to maintain relationships with our customers or to otherwise expand our distribution network would materially and adversely affect our
business.
Our wholesale business sells products to drug stores, private clinics,
pharmaceutical distributors and hospitals. For the year ended December 31, 2020, our top ten wholesale medical devices and wholesale pharmaceuticals
customers accounted 46 % of our wholesale revenues and one customer accounted for 27.21% of sales. In line with industry practices in
the PRC, we enter into written sales agreements with our wholesale customers. However, such sales agreements are not in substance equivalent
to a typical distribution agreement in the United States. Each sales agreement is more in the form of a sales order and specifies one
or several purchases of one or more products without any continuing obligation to make purchases, unless it is a long-term agreement.
Only about 10% of our wholesale customers are subject to purchase arrangements of one-year or longer terms. Their purchases contributed
more than 30% of our wholesale revenues in 2020. In the event distribution customers choose not to continue their relationship with us
after completing their existing sales agreements, they can do so without breaching any contract or agreement. Our financial results could
be adversely affected if we cannot replace these customers. We compete with large wholesalers, many of whom may have higher visibility,
greater name recognition, financial resources, and broader product selection than we do. Consequently, maintaining relationships with
existing customers may be difficult and time-consuming.
Our dependence
on a limited number of customers may expose us to the risk of substantial losses if a single large customer stops purchasing our products,
purchases lower quantities of our products or goes out of business and we are unable to attract new customers to recover such lost revenues.
If any of our significant customers reduces the quantity of the products they purchase from us or stops purchasing from us, our net revenue
would be materially and adversely affected. Any disruption in our distribution network could negatively affect our ability to effectively
sell our products and would materially and adversely affect our business, financial condition and results of operations.
Our
wholesale business operates without the support of manufacturing capability and is at a significant disadvantage.
In the Chinese
pharmaceutical wholesale sector, wholesalers without affiliated manufacturers have inherent risks which include lack of control over
product availability and pricing disadvantages. We are at a significant disadvantage in comparison to other wholesalers that are also
manufacturers.
Risks
Relating to Our Pharmacy Business
We
may be subject to fines and penalties if we fail to comply with the applicable PRC laws and regulations governing sales of medicines
under China’s National Medical Insurance Program.
Eligible
participants in China’s national medical insurance program, including urban and suburban residents in China, are entitled to buy
medicines using their medical insurance cards from an authorized pharmacy, provided that the medicines they purchase have been included
in the national or provincial medical insurance catalogs. The pharmacy, in turn, obtains reimbursement from the relevant government social
security bureaus. Moreover, the applicable PRC laws, rules and regulations prohibit pharmacies from selling goods other than pre-approved
medicines when purchases are made with medical insurance cards. We have established procedures to prohibit our drugstores from selling
unauthorized goods to customers who make purchases with medical insurance cards. However, we cannot provide assurance that those procedures
will be strictly followed by all of our employees in all of our stores.
Our
ability to grow our business may be constrained by our inability to find suitable new store locations at acceptable prices or by the
expiration of our current leases.
Our ability
to grow our business may be constrained if suitable new store locations cannot be identified with lease terms or purchase prices that
are acceptable to us. We compete with other retailers and businesses for suitable locations for our stores. Local land use regulations
and other regulations applicable to the kinds of stores we seek to construct may impact our ability to find suitable locations and influence
the cost of constructing our stores. The expiration of leases at existing store locations may adversely affect us if the renewal terms
of those leases are unacceptable to us and we are forced to close or relocate stores. Furthermore, changing local demographics at existing
store locations could materially and adversely affect revenue and profitability levels at those stores, and overall our business, financial
condition, results of operation, and prospects.
We
may not be able to maintain proper inventory levels for our pharmacy stores.
To ensure
adequate inventory supply, we must forecast inventory needs and place orders with our suppliers based on our estimates of future demand
for particular products. We may not be able to accurately forecast demand for supplies because of the difficulties of estimating the
demand for our products. The volatile economic environment and fast-evolving demands and preferences of our customers have made accurate
projection of inventory levels increasingly challenging.
Inventory
levels in excess of customer demand may result in inventory obsolescence, a decline in inventory values, inventory write-downs or write-offs,
or expiration of products, which would cause our gross margin to suffer and could impair the strength of our brand. High inventory levels
may also require us to commit substantial capital resources, preventing us from using them for other important business purposes. Conversely,
if we underestimate customer demand or if our suppliers fail to provide supplies to us in a timely manner, we may experience inventory
shortages. Such inventory shortages might result in unfilled customer needs, damage to our reputation, and have a negative impact on
customer relationships and reduce our sales. We cannot assure you that we will be able to maintain proper inventory levels for our operations
and such failure may have an adverse effect on our business, financial condition, results of operations and profitability.
Certain
risks are inherent in providing pharmacy services and we do not maintain professional liability and errors and omissions liability insurance.
Pharmacies
are exposed to risks inherent in the distribution of pharmaceuticals and other healthcare products, such as with respect to improper
filling of prescriptions, labeling of prescriptions, adequacy of warnings, unintentional distribution of counterfeit drugs and expiration
of drugs. In addition, laws that require our pharmacists to offer counseling, without additional charge, to customers about medication,
dosage, delivery systems, common side effects and other information the pharmacists deem significant can impact our business. Our pharmacists
may also have a duty to warn customers regarding any potential negative effects of a prescription drug if the warning could reduce or
negate these effects. We currently do not maintain professional liability and errors and omissions liability insurance. Consequently,
we may be required to expend substantial funds to satisfy these types of claims, which could have an adverse effect on our business,
financial condition, results of operations and profitability.
Risks
Related to Our Newly Acquired Hospitals
Our
newly acquired hospitals derive a significant portion of revenue by providing healthcare services to patients with public medical insurance
coverage; any delayed payment under China’s public medical insurance programs could affect our results of operations
Our newly acquired hospitals are China’s Medical Insurance Designated
Medical Institutions. Patients who are covered by the public medical insurance programs may choose to rely on public medical insurance
programs to pay for some of their healthcare services. Any dispute or late or delinquent settlement under the public medical insurance
programs may cause the trade receivables of our hospitals to increase or result in write-offs. Depending on the relevant public medical
insurance programs’ practice, a Medical Insurance Designated Medical Institution may be subject to a government-approved annual
quota for the medical fees that it is allowed to recover from the relevant public medical insurance bureau.
In addition,
we cannot assure you that our newly acquired hospitals will be able to maintain their status as Medical Insurance Designated Medical
Institutions, the loss of which will not only harm our reputation but may also result in reduced patient visits. Furthermore, the PRC
government may alter its reimbursement policies in coverage plans in the future such that: (i) certain healthcare services provided by
our hospitals will no longer be covered; or (ii) more stringent thresholds on existing coverage may be imposed. Any reduction in the
rates paid or the scope of services covered may reduce patient accessibility to our hospitals and may lead to reduced patient flow and
medical fees. Any of these events could lead to a decrease in our revenue generation and profitability which could have a material adverse
effect on our business, results of operations and prospects.
Our
hospitals could become the subject of patient complaints, claims and legal proceedings in the course of their operations, which could
result in costs and materially and adversely affect our brand image, reputation and results of operations.
We rely on
the physicians and other medical professionals of our hospitals to make proper clinical decisions regarding the diagnoses and treatment
of their patients. However, we do not have direct control over the clinical activities of our hospitals or over the decisions and actions
taken by the physicians and other medical professionals as their diagnoses and treatments of patients are subject to their professional
judgment and in most cases, must be performed on a real time basis. Any incorrect decisions or actions on the part of the physicians
and other medical professionals, or any failure by our hospitals to properly manage their clinical activities may result in undesirable
or unexpected outcomes, including complications, injuries and even deaths in extreme cases. In addition, there are inherent risks associated
with the clinical activities that may result in unavoidable and unfavorable medical outcomes.
In recent
years, physicians, hospitals and other healthcare service providers in China have become subject to an increasing number of patient complaints,
claims and legal proceedings alleging malpractice or other causes of action. Although rare, incidents have occurred in hospitals and
medical institutions in China where dissatisfied patients carried out extreme actions or even violence during the course of the disputes.
Any such incident, if occurs, would harm our reputation, impair the ability of our hospitals to recruit and retain medical professionals
and staff, discouraging other patients from visiting our hospitals, and cause us to incur substantial costs.
Any negative
publicity about us, our hospitals or the healthcare service industry could harm the brand image and reputation and trust in the services
provided by our hospitals, which could result in a material and adverse impact on our business and prospects.
If
we fail to properly manage the employment of the physicians and other medical professionals of our hospitals, we may be subject to penalties
against these hospitals, which could materially and adversely affect our business and results of operations.
The activities
of physicians and other medical professionals are strictly regulated under the PRC laws and regulations. Physicians, nurses and medical
technicians who practice at medical institutions must hold licenses and may only practice within the scope of their licenses and at the
specific medical institutions at which their licenses are registered. In practice, it takes some time for physicians, nurses and medical
technicians to transfer their licenses from one medical institution to another or add another medical institution to their permitted
practicing institutions. We cannot assure you that the physicians of our hospitals will complete the transfer of their licenses and related
government procedures timely or at all. In addition, we cannot assure you that the medical professionals at our hospitals will always
strictly follow the requirements and will not practice outside the permitted scope of their respective licenses. Any failure by our hospitals
to properly manage the employment of their physicians and other medical professionals may subject us to administrative penalties against
our hospitals, which could materially and adversely affect our business.
We
have limited or no control over the quality of pharmaceuticals, medical consumables and other medical equipment used in the operations
of our hospitals. If such quality does not meet the required standards, we could be exposed to liabilities and our reputation, business,
results of operations, financial condition and prospects could be adversely affected.
The provision
of healthcare services involves the frequent use of a variety of pharmaceuticals, medical equipment and medical consumables, substantially
of which we procure from suppliers we do not have control over. We cannot assure you that all supplies are authentic, free of defects
and meet the relevant quality standards. If these supplies are subsequently found to have been defective at the time of the supply, even
though we did not know or could not have known about such defect, we may be subject to liability claims, negative publicity, reputational
damage or administrative sanction, any of which may adversely affect our results of operations and reputation. We cannot assure you that
significant claims of such nature will not be asserted against us in the future, and that adverse verdicts will not be reached or that
we will be able to recover losses from our suppliers. In addition, we cannot assure you that we will be able to find suitable replacement
suppliers, failing which our business, results of operations, financial condition and prospects will be adversely affected.
Our
hospitals’ operations are susceptible to fluctuations in the costs of pharmaceuticals and medical consumables, which could adversely
affect our profitability and results of operations.
The profitability
of our hospitals is influenced by fluctuations in the costs of pharmaceuticals and medical consumables. The availability and prices of
the pharmaceuticals and medical consumables can fluctuate from time to time and are subject to factors beyond our control, including
supply, demand, general economic conditions and governmental regulations, each of which may affect the procurement costs or cause a disruption
in the supply. Consistent with industry practice, we and our hospitals have not entered into any long-term supply agreements with our
suppliers and we cannot assure you that our hospitals will be able to anticipate and react to changes in medical supply costs in the
future by locating replacement suppliers or adjusting service offerings, or that our hospitals will be able to pass these cost increases
onto the patients. Any of these factors may have a material and adverse effect on our profitability and results of operations.
Our
performance depends on our ability to recruit and retain quality physicians.
The success of our hospitals depends in part on the number and quality
of the physicians and the medical staffs of our hospitals, the admitting and utilization practices of those physicians, maintaining good
relations with those physicians and controlling costs related to the employment of physicians. We may face increased challenges in this
area as the physician population reaches retirement age, especially if there is a shortage of physicians willing and able to provide comparable
services. If we are unable to provide adequate support personnel or technologically advanced equipment and hospital facilities that meet
the needs of those physicians and their patients, admissions may decrease and our operating performance may decline.
As
a provider of medical services, we are exposed to inherent risks relating to malpractice claims.
As a provider
of medical services, any misdiagnosis or improper treatment may result in negative publicity regarding us or our services, which would
harm our reputation. If we are found liable for malpractice, we may be required to pay substantial monetary damages. Furthermore, even
if we successfully defend ourselves against a malpractice claim, we could be required to spend significant management, financial and
other resources in the process, which could disrupt our business, and our reputation and brand name may also suffer. Since malpractice
claims are not common in China, we do not carry malpractice insurance. As a result, any imposition of malpractice liability could materially
harm our business, financial condition and results of operations.
Risks
Related to Regulatory Matters
Our retail pharmacies, wholesale operations and newly acquired
hospitals require a number of permits and licenses in order to carry on their business.
We are required
to obtain certain permits and licenses from various PRC governmental authorities to operate our businesses. We are subject to a number
of regulations pertaining to the licensing of our wholesale business, retail pharmacies, and the licensing, conduct and number of medical
professionals. We cannot provide any assurance that we can maintain all required licenses, permits and certifications to carry on our
business at all times. Moreover, these licenses, permits and certifications are subject to periodic renewal and/or reassessment by the
relevant PRC governmental authorities and the standards of such renewal or reassessment may change from time to time. We intend to apply
for renewal of these licenses, permits and certifications when required by applicable laws and regulations. Any failure by us to obtain
and maintain all licenses, permits and certifications necessary to carry on our business at any time could have a material adverse effect
on our business, financial condition and results of operations. In addition, any inability to renew any of these licenses, permits and
certifications could severely disrupt our business, and prevent us from continuing to carry on our business. Any changes in the standards
used by governmental authorities in considering whether to renew or reassess our business licenses, permits and certifications, as well
as any enactment of new regulations that may restrict the conduct of our business, may also decrease our revenue and/or increase our
costs, materially reducing our profitability and prospects. Furthermore, if the interpretation or implementation of existing laws and
regulations changes or if new regulations come into effect requiring us to obtain any additional licenses, permits or certifications
that were previously not required to operate our existing businesses, we cannot provide assurance that we can successfully obtain such
licenses, permits or certifications.
The operations
of our hospitals are subject to various laws and regulations at the national and local levels. These laws and regulations mainly relate
to the operations of medical institutions and licensing of medical professionals, the use and safety management of pharmaceuticals and
medical equipment, the quality and pricing of healthcare services, occupational health and safety as well as environmental protection.
In addition, our hospitals are subject to periodic license or permit renewal requirements and inspections by various government agencies
and departments at the provincial and municipal level.
If we fail
to maintain or renew any major license, permit, certificate or approval for all or any of our acquired hospitals, or if the medical professionals
in above hospitals become unlicensed at any time during their practices, or if the hospitals are found to be non-compliant with any applicable
laws or regulations, we may face penalties, suspension of operations or even revocation of operating licenses, depending on the nature
of the findings, any of which could materially and adversely affect our business, financial condition and results of operations.
Regulatory
pricing controls may affect the pricing of our hospitals.
The PRC government
issues policies on the pricing of healthcare services, pharmaceuticals and medical consumables. As Medical Insurance Designated Medical
Institutions, our hospitals are subject to the pricing guidelines set by the relevant local healthcare administrative authorities. We
cannot predict if the PRC government will lower the price ceilings or change the pricing guidelines in the future or if additional healthcare
services, pharmaceuticals or medical consumables may become subject to price control, or more stringent insurance reimbursement limits,
which may put pressure on the pricing of our hospitals. As a result, our financial condition and results of operations could be materially
and adversely affected.
If
we do not maintain the privacy and security of sensitive patient, customer and business information, we could damage our reputation,
incur substantial additional costs and become subject to litigation.
The protection
of patient, customer, employee, and company data is critical to our businesses. Our hospitals collect and maintain medical data and treatment
records of our patients. PRC laws and regulations generally require medical institutions and their medical personnel to protect the privacy
of their customers and prohibit unauthorized disclosure of personal information. Such medical institutions and their medical personnel
will be liable for damage caused by divulging the customers’ private or medical records without consent. We have taken measures
to maintain the confidentiality of our customers’ medical records, including encrypting such information in our information technology
system so that it cannot be viewed without proper authorization and setting internal rules requiring our employees to maintain the confidentiality
of our customers’ medical records. However, these measures may not always be effective in protecting our customers’ medical
records. Our information technology systems could be breached through hacking. Personal information could be leaked due to any theft
or misuse of personal information due to misconduct or negligence. Failure to protect customers’ medical records, or any restriction
on or liability as a result of, our use of medical data, could have a material adverse effect on our business.
The regulatory
environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and changing
requirements across businesses. Compliance with changes in privacy and information security laws and standards may result in significant
expense due to increased investment in technology and the development of new operational processes. If we or those with whom we share
information fail to comply with these laws and regulations or experience a data security breach, our reputation could be damaged, and
we could be subject to additional litigation and regulatory risks. Our security measures may be undermined due to the actions of outside
parties, employee error, malfeasance, or otherwise, and, as a result, an unauthorized party may obtain access to our data systems and
misappropriate business and personal information. Because the techniques used to obtain unauthorized access, disable or degrade service,
or sabotage systems change frequently and may not immediately produce signs of intrusion, we may be unable to anticipate these techniques
or to implement adequate preventative measures. Any such breach or unauthorized access could result in significant legal and financial
exposure, damage to our reputation, and potentially have an adverse effect on our businesses.
The
impact of China’s regulatory reforms is unpredictable.
The regulatory
system of Chinese medical service, especially the changes in the field of healthcare reform may have a material adverse effect on the
operation and development of our business in the future. New laws and policies are expected to be promulgated. It is uncertain what impact
these new regulations and policies would have on our competitiveness, operations and corporate structure. In recent years, the PRC government
launched a new healthcare reform plan to ensure that every citizen has access to affordable basic healthcare services. In pursuit of
these policy objectives, the PRC government has implemented extensive regulations and policies to address the affordability, accessibility
and quality of healthcare services, medical insurance coverage, distribution of pharmaceutical products and reform of public hospitals.
In addition, the PRC government has gradually reduced regulatory hurdles for establishing and investing in private hospitals, in particular
by private capital, and encouraged development of hospital management groups.
Our business
operations and future expansion are largely driven by the PRC government’s policies, which may change significantly and are beyond
our control. There can be no assurance that the PRC government will not impose additional or stricter laws or regulations on healthcare
services or foreign investments, or strengthen and tighten supervision and management of medical institutions including hospitals, in
particular, private hospitals, or implement stricter or more comprehensive regulations on the distribution of pharmaceuticals, medical
equipment and medical consumables.
Depending
on the priorities of the PRC government, the political situation and the regulatory regime with respect to foreign investment control
at any given time, and the development of the Chinese healthcare system, future regulatory changes may affect public hospital reform,
limit private or foreign investments in healthcare service industry, change reimbursement rates for healthcare services provided to publicly
insured patients, or implement additional price control on pharmaceuticals or healthcare services. Any of these events could have a material
and adverse impact on our business, financial condition, results of operations, prospects and future growth.
Risks
Related to Our Human Capital
We
may be unable to attract, hire, and retain a highly qualified workforce, including key management.
The talents
and efforts of our employees, particularly our key management, are vital to our success. Our management team has significant business
experience and would be difficult to replace. In addition, institutional knowledge may be lost in any potential managerial transition.
We may be unable to retain them or to attract other highly qualified employees, including our medical staff and workers, particularly
if we do not offer employment terms that are competitive with the rest of the labor market. Failure to attract, hire, develop, motivate,
and retain highly qualified employee talent, or failure to develop and implement an adequate succession plan for the management team,
could disrupt our operations and adversely affect our business and our future success.
We
substantially depend on a few key personnel who, if not retained, could cause declines in productivity and operational results and loss
of our strategic guidance, all of which would diminish our business prospects and value to investors.
Our success
depends to a large extent upon the continued service of a few executive officers and key employees, including Mr. Yongquan Bi, our Chairman,
and Mr. Tiewei Song, our Chief Executive Officer and President. The loss of the services of one or more of our key employees would have
an adverse effect on us and our PRC operating subsidiaries, as these individuals play a significant role in developing and executing
our overall business plan and maintaining customer relationships and proprietary technology systems. While none of our key personnel
is irreplaceable, the loss of the services of any of these individuals would be disruptive to our business. We believe that our overall
future success depends in large part upon our ability to attract and retain highly skilled managerial and marketing personnel. There
is no assurance that we will be successful in attracting and retaining such personnel on terms acceptable to us or the employee. Inadequate
personnel will limit our growth and will be seen as a detriment to our prospects, leading potentially to a loss in value for investors.
Our
labor costs may be adversely affected by competition for staffing, the shortage of experienced nurses and labor union activity.
Our operations
are dependent on the efforts, abilities and experience of our management and employees. We compete with other businesses and health care
providers in recruiting and retaining qualified management and support personnel responsible for the daily operations of each of our
businesses including our hospitals. In some markets, the availability of nurses and other medical support personnel has been a significant
operating issue to health care providers. The COVID-19 pandemic has exacerbated workforce competition and shortages. We may be required
to enhance wages and benefits to recruit and retain medical and medical support personnel or to hire more expensive temporary or contract
personnel. As a result, our labor costs could increase. We also depend on the available labor pool of semi-skilled and unskilled employees
in each of the markets in which we operate. If a significant portion of our employee base unionizes, it is possible our labor costs could
increase. Our failure to recruit and retain qualified management, medical and support personnel, pharmacists and other personnel, or
to control labor costs, could have a material, adverse effect on our results of operations.
Labor
laws in the PRC may adversely affect our operations.
The Labor
Contract Law of the PRC imposes liabilities on employers and significantly impacts the cost of an employer’s decision to reduce
its workforce. The law requires certain terminations to be based upon seniority and not merit. In the event we decide to significantly
change or decrease our workforce, this law could adversely affect our ability to enact such changes in a manner that is most advantageous
to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results
of operations.
We
are responsible for the indemnification of our officers and directors.
The Delaware
General Corporation law and our bylaws provide for the indemnification of our directors, officers, employees, and agents, under certain
circumstances, against costs and expenses incurred by them in any litigation to which they become a party arising from their association
with or activities on our behalf. We currently do not have any directors and officers liability insurance. Consequently, we may be required
to expend substantial funds to satisfy these indemnity obligations. Any payment in respect of these indemnification rights could have
an adverse effect on our business, financial condition, results of operations and profitability.
Risk Related
to Doing Business in China
Adverse
changes in economic and political policies of the PRC government could have a material adverse effect on the overall economic growth
of China, which could adversely affect our business.
All of our
business operations are currently conducted in the PRC, under the jurisdiction of the PRC government. Accordingly, our results of operations,
financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China’s
economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement,
level of development, growth rate, and control of foreign exchange and allocation of resources. While the PRC economy has experienced
significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China.
The PRC government has implemented various measures to encourage economic development and guide the allocation of resources.
Our business
and revenue growth primarily depend on the size of the healthcare market in China. As a result, our revenue and profitability may be
negatively affected by changes in national, regional or local economic conditions and consumer confidence in China. External factors
beyond our control that affect consumer confidence include unemployment rates, levels of personal disposable income, national, regional
or local economic conditions, and acts of war or terrorism. Changes in economic conditions and consumer confidence could adversely affect
consumer preferences, purchasing power and spending patterns. A decrease in overall consumer spending as a result of changes in economic
conditions could adversely affect our product sales and negatively impact our profitability. In addition, acts of war or terrorism may
cause damage to our facilities, disrupt the supply of the products and services we offer in our stores, or adversely impact consumer
demand. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.
We
have limited business insurance coverage in China.
The insurance
industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products.
As a result, we do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption,
litigation or natural disaster might result in substantial costs and diversion of resources.
Because
our funds are held in banks in the PRC that do not provide insurance, the failure of any bank in which we deposit our funds could affect
our ability to continue in business.
Banks and
other financial institutions in the PRC do not provide insurance for funds held on deposit. A portion of our assets are in the form of
cash deposited with banks in the PRC, and in the event of a bank failure, we may not have access to our funds on deposit. Depending upon
the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we
are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.
We
may suffer currency exchange losses if the RMB depreciates relative to the US Dollar.
Our reporting
currency is the US dollar. However, substantially all of our revenues are denominated in RMB. In July 2005, China changed its exchange
rate regime by establishing a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.
The RMB is no longer officially pegged to the US dollar, and the exchange rate will have some flexibility. Despite fluctuations in the
exchange rate in 2020, the floating exchange rate regime has remained stable. If the RMB depreciates relative to the US dollar, our revenues
as expressed in our US dollar financial statements will decline in value and if the RMB appreciates relative to the US dollar, our revenues
as expressed in our US dollar financial statements will increase in value. There are very limited hedging transactions available in China
to reduce our exposure to exchange rate fluctuations. While we may decide to enter into hedging transactions in the future, the availability
and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure, if at all. In addition, our
currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into US dollars.
Governmental
control of currency conversion may affect the value of your investment.
The PRC government
imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China.
We receive all our revenues in RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit
distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies without prior approval
from the Chinese State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However,
approval from SAFE or its local branch is required where RMB is to be converted into foreign currency and can be remitted out of China
to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion
restrict access in the future to foreign currencies for current account transactions.
The
Chinese government has strengthened the regulation of investments made by Chinese residents in offshore companies and reinvestments in
China made by these offshore companies. Our business may be adversely affected by these restrictions.
The SAFE
has adopted certain regulations that require registration with, and approval from, Chinese government authorities in connection with
direct or indirect control of an offshore entity by Chinese residents. The term “control” under SAFE regulation is broadly
defined as the operation rights, beneficiary rights or decision-making rights acquired by PRC residents in the offshore special purpose
vehicles or PRC companies by means of acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements.
The SAFE regulations retroactively require registration of investments in non-Chinese companies previously made by Chinese residents.
In particular, the SAFE regulations require Chinese residents to file with SAFE information about offshore companies in which they have
directly or indirectly invested and to make follow-up filings in connection with certain material transactions involving such offshore
companies, such as mergers, acquisitions, capital increases and decreases, external equity investments or equity transfers. In addition,
Chinese residents must obtain approval from SAFE before they transfer domestic assets or equity interests in exchange for equity or other
property rights in an offshore company. A newly established enterprise in China which receives foreign investments is also required to
provide detailed information about its controlling shareholders and to certify whether it is directly or indirectly controlled by a domestic
entity or resident.
In the event
that a Chinese shareholder with a direct or indirect stake in an offshore parent company fails to make the requisite SAFE registration,
the Chinese subsidiaries of such offshore parent company may be prohibited from making distributions of profit to the offshore parent
and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the Chinese subsidiaries.
Further, failure to comply with the various SAFE registration requirements described above can result in liability under Chinese law
for foreign exchange evasion.
These regulations
may have a significant impact on our present and future structuring and investment. We have requested our shareholders who to our knowledge
are PRC residents to make the necessary applications, filings and amendments as required under these regulations. We intend to take all
necessary measures to ensure that all required applications and filings will be duly made and all other requirements will be met. We
further intend to structure and execute our future offshore acquisitions in a manner consistent with these regulations and any other
relevant legislation. However, because it is presently uncertain how the SAFE regulations, and any future legislation concerning offshore
or cross-border transactions, will be interpreted and implemented by the relevant government authorities in connection with our future
offshore financing or acquisitions, we cannot provide any assurances that we will be able to comply with, qualify under, or obtain any
approvals required by the regulations or other legislation. Furthermore, we cannot assure you that any PRC shareholders of our company
or any PRC company into which we invest will be able to comply with those requirements. The inability of our company or any PRC shareholder
to secure required approvals or registrations in connection with our future offshore financings or acquisitions may subject us to legal
sanctions, restrict our ability to pay dividends from our Chinese subsidiaries to our offshore holding company, and restrict our overseas
or cross-border investment activities or affect our ownership structure.
The PRC legal system embodies uncertainties which could limit
the legal protections available to us and you or could lead to penalties on us.
The PRC legal
system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little
precedential value. In 1979, the PRC Government began to promulgate a comprehensive system of laws and regulations governing economic
matters in general. The overall effect of legislation over the past 40 years has significantly enhanced the protections afforded to various
forms of foreign investment in mainland China. Our PRC operating subsidiaries are all subject to laws and regulations applicable to foreign
investment in the PRC in general and laws and regulations applicable to foreign invested companies in particular.
It
may be difficult to enforce any civil judgments against us or our board of directors or officers, because all of our operating and/or
fixed assets are located outside of the United States.
Although
we are incorporated in the State of Delaware, all of our operating and fixed assets are located in the PRC. As a result, it may be difficult
for investors to enforce judgments outside the United States obtained in actions brought against us in the United States, including actions
predicated upon the civil liability provisions of the federal securities laws of the United States or of the securities laws of any state
of the United States. In addition, our directors and officers (principally based in the PRC) and all or a substantial portion of their
assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the
United States upon those directors and officers, or to enforce against them or us judgments obtained in United States courts, including
judgments predicated upon the civil liability provisions of the federal securities laws of the United States or of the securities laws
of any state of the United States. We have been advised by our PRC counsel that, in their opinion, there is doubt as to the enforceability
in the PRC, in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated solely
upon the federal securities laws of the United States or the securities laws of any state of the United States.
Because
our assets are located overseas, shareholders may not receive distributions that they would otherwise be entitled to if we were declared
bankrupt or insolvent.
Because all
of our assets are located in the PRC, they may be outside of the jurisdiction of U.S. courts to administer if we are the subject of an
insolvency or bankruptcy proceeding. As a result, if we declared bankruptcy or insolvency, our shareholders may not receive the distributions
on liquidation that they would otherwise be entitled to if our assets were to be located within the U.S., under U.S. Bankruptcy law.
A recurrence
of Severe Acute Respiratory Syndrome (SARS), Avian Flu, or another widespread public health problem, such as the spread of H1N1 (“Swine”)
Flu, or COVID-19 in the PRC could adversely affect our operations.
Our operations
in the PRC may be affected by the spread of public health problems including a renewed outbreak of SARS, Avian Flu or another widespread
public health problem, such as the spread of H1N1 (“Swine”) Flu, in China, where all of our operations are located and where
all of our sales occur. Such an outbreak will have an impact on our operations as a result of:
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quarantines or closures of our facilities, which will
severely disrupt our operations,
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the sickness or death of our key officers and employees,
and
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a general slowdown in the Chinese economy.
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Any of the
foregoing events or other unforeseen consequences of public health problems will adversely affect our operations.
The
PRC may establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult
for us to pursue growth through acquisitions in China.
PRC regulations
and rules concerning mergers and acquisitions including the Rules on Mergers and Acquisitions of Domestic Companies by Foreign Investors,
or the M&A Rules, and other recently adopted regulations and rules with respect to mergers and acquisitions established additional
procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For
example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor
takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors
that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a
domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, according to the Anti-Monopoly Law of PRC promulgated
on August 30, 2007 and the Provisions of the State Council on the Threshold of Filings for Undertaking Concentrations, or the Prior
Notification Rules issued by the State Council in August 2008 and amended on September 2018, the concentration of business undertakings
by way of mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact
on another market player must also be notified in advance to the MOFCOM when the threshold is crossed and such concentration shall not
be implemented without the clearance of prior notification. In the future, we may grow our business by acquiring complementary businesses.
Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time
consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit
our ability to complete such transactions. We believe that our business is not in an industry that raises “national defense and
security” or “national security” concerns. However, the MOFCOM or other government agencies may publish explanations
in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in
the PRC, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through
future acquisitions would as such be materially and adversely affected.
Risks
Related to Our Company’s Common Stock
We
will need to raise additional capital that will likely cause dilution to our shareholders.
We believe
that we will need to raise additional capital to fund our ongoing operations, repay our debt and fund future acquisitions. To the extent
that we raise additional capital through the sale of equity or convertible debt, our shareholders’ ownership interest will be diluted.
Trading
volume of our common stock has fluctuated from time to time, which may make it difficult for investors to sell their shares at times
and prices that investors feel are appropriate.
To date,
the trading volume of our common stock has fluctuated, sometimes significantly. Generally, lower trading volumes adversely effects the
liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through
delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us. This may result
in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked
prices for our common stock.
The
Nasdaq Capital Market imposes listing standards on our common stock that we may not be able to fulfill, thereby leading to a possible
delisting of our common stock.
As a listed
Nasdaq Capital Market company, we are subject to rules covering, among other things, certain major corporate transactions, the composition
of our Board of Directors and committees thereof, minimum bid price of our common stock and minimum stockholders equity. The failure
to meet the Nasdaq Capital Market requirements may result in the de-listing of our common stock from the Nasdaq Capital Market, which
could adversely affect the liquidity and market price thereof.
If our common
stock were to be de-listed, selling our common stock could be more difficult because smaller quantities of shares would likely be bought
and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event our common
stock is de-listed, broker-dealers have certain regulatory requirements imposed upon them, which may discourage broker-dealers from effecting
transactions in our common stock, further limiting the liquidity thereof. These factors could result in lower prices for shares of our
common stock and/or limit an investor’s ability to execute a transaction. In addition, delisting from NASDAQ could also greatly
impair our ability to raise additional necessary capital through equity or debt financing, and could lead to significant dilution to
our stockholders caused by our issuing equity in financing or other transactions at a price per share significantly below the then market
price.
We
believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.
The price
for our common stock may fluctuate in response to a number of events and factors, such as quarterly variations in operating results,
announcements of technological innovations or new products and media reports by us or our competitors, changes in financial estimates
and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable
to us, and news reports relating to trends in our markets or general economic conditions. The volatile price of our stock makes it difficult
for investors to predict the value of our investment, to sell shares at a profit at any given time, or to plan purchases and sales in
advance.
In addition,
the stock market in general has experienced extreme price and volume fluctuations that may have been unrelated and disproportionate to
the operating performance of individual companies. These broad market and industry factors may seriously harm the market price of our
common stock, regardless of our operating performance.
Because
we have not paid dividends and have no present intention of paying dividends, investors will not realize any income from an investment
in our common stock unless and until investors sell their shares at profit.
We have never
paid any dividends on our common stock and do not anticipate paying any dividends in the near future. Investors will only realize income
on an investment in our stock in the event they sell or otherwise dispose of their shares at a price higher than the price they paid
for their shares. Such a gain would result only from an increase in the market price of our common stock, which is uncertain and unpredictable.
The payment
of any future dividends will be at the discretion of the Board of Directors and will depend upon a number of factors, including future
earnings, the success of our business activities, general financial condition, future prospects, general business conditions and such
other factors as our Board of Directors may deem relevant.