The accompanying notes are an integral part of
the condensed consolidated financial statements
BIMI INTERNATIONAL MEDICAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
(UNAUDITED)
|
|
For the three months ended
September 30
|
|
|
For the nine months ended
September 30
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
13,777,494
|
|
|
$
|
3,091,071
|
|
|
|
25,202,485
|
|
|
$
|
7,317,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
11,748,385
|
|
|
|
2,833,793
|
|
|
|
20,616,279
|
|
|
|
6,240,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
2,029,109
|
|
|
|
257,278
|
|
|
|
4,586,206
|
|
|
|
1,076,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,202,387
|
|
|
|
377,977
|
|
|
|
2,429,401
|
|
|
|
1,028,746
|
|
General and administrative
|
|
|
2,372,056
|
|
|
|
1,311,985
|
|
|
|
7,092,971
|
|
|
|
5,554,939
|
|
Total operating expenses
|
|
|
3,574,443
|
|
|
|
1,689,962
|
|
|
|
9,522,372
|
|
|
|
6,583,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,545,334
|
)
|
|
|
(1,432,684
|
)
|
|
|
(4,936,166
|
)
|
|
|
(5,507,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(84,310
|
)
|
|
|
(339,780
|
)
|
|
|
(222,547
|
)
|
|
|
(717,226
|
)
|
Other income (expense)
|
|
|
(74,302
|
)
|
|
|
5,247
|
|
|
|
(79,595
|
)
|
|
|
6,973,409
|
|
Total other income (expense), net
|
|
|
(158,612
|
)
|
|
|
(334,533
|
)
|
|
|
(302,142
|
)
|
|
|
6,256,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(1,703,946
|
)
|
|
|
(1,767,217
|
)
|
|
|
(5,238,308
|
)
|
|
|
748,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
5,930
|
|
|
|
93,356
|
|
|
|
37,933
|
|
|
|
137,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(1,709,876
|
)
|
|
|
(1,860,573
|
)
|
|
|
(5,276,241
|
)
|
|
|
611,090
|
|
Less: net income (loss) attributable to non-controlling interest
|
|
|
(6,444
|
)
|
|
|
49,374
|
|
|
|
36,417
|
|
|
|
75,648
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO BIMI INTERNATIONAL MEDICIAL INC.
|
|
$
|
(1,703,432
|
)
|
|
$
|
(1,909,947
|
)
|
|
$
|
(5,312,658
|
)
|
|
$
|
535,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(128,005
|
)
|
|
|
(108,236
|
)
|
|
|
(126,893
|
)
|
|
|
34,802
|
|
TOTAL COMPREHENSIVE INCOME (LOSS)
|
|
|
(1,837,881
|
)
|
|
|
(1,968,809
|
)
|
|
|
(5,403,134
|
)
|
|
|
645,892
|
|
Less: comprehensive income (loss) attributable to noncontrolling interest
|
|
|
(6,400
|
)
|
|
|
1,193
|
|
|
|
(6,345
|
)
|
|
|
(1,408
|
)
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO BIMI INTERNATIONAL MEDICIAL INC.
|
|
|
(1,831,481
|
)
|
|
|
(1,970,002
|
)
|
|
|
(5,396,789
|
)
|
|
$
|
647,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
27,084,325
|
|
|
|
10,505,821
|
|
|
|
22,864,269
|
|
|
|
9,987,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) - basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
0.05
|
|
The accompanying notes are an integral part of
the consolidated financial statements
BIMI INTERNATIONAL MEDICAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the nine months ended
September 30
|
|
|
|
2021
|
|
|
2020
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,276,241
|
)
|
|
$
|
611,090
|
|
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
179,147
|
|
|
|
810,264
|
|
Profit on disposal of NF Group
|
|
|
-
|
|
|
|
(6,944,469
|
)
|
Stock compensation
|
|
|
585,000
|
|
|
|
-
|
|
Allowance for doubtful accounts
|
|
|
94,037
|
|
|
|
(263,260
|
)
|
Amortization of discount of convertible promissory notes
|
|
|
1,473,306
|
|
|
|
1,950,901
|
|
Change in derivative liabilities
|
|
|
-
|
|
|
|
43,224
|
|
Allowance for inventory provision
|
|
|
35,013
|
|
|
|
390,923
|
|
Impairment loss of intangible assets
|
|
|
-
|
|
|
|
903,573
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,028,537
|
)
|
|
|
(1,284,400
|
)
|
Advances to suppliers
|
|
|
(1,693,866
|
)
|
|
|
418,847
|
|
Inventories
|
|
|
(1,417,149
|
)
|
|
|
(2,928,419
|
)
|
Prepayments and other receivables
|
|
|
2,464,793
|
|
|
|
(1,245,981
|
)
|
Operating lease-right of use assets
|
|
|
(3,539,872
|
)
|
|
|
-
|
|
Accounts payable, trade
|
|
|
7,617,880
|
|
|
|
4,844,674
|
|
Advances from customers
|
|
|
198,399
|
|
|
|
(707,586
|
)
|
Taxes payable
|
|
|
(119,214
|
)
|
|
|
(9,368
|
)
|
Operating lease liabilities
|
|
|
3,966,150
|
|
|
|
-
|
|
Other payables and accrued liabilities
|
|
|
(2,086,772
|
)
|
|
|
594,793
|
|
Net cash used in operating activities
|
|
|
(2,547,926
|
)
|
|
|
(2,815,194
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash received from acquisition of Guanzan Group
|
|
|
-
|
|
|
|
95,220
|
|
Cash received from sale of NF Group
|
|
|
-
|
|
|
|
10,375,444
|
|
Purchase of property, plant and equipment
|
|
|
(1,804,536
|
)
|
|
|
(121,176
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(1,804,536
|
)
|
|
|
10,349,488
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of short-term loans
|
|
|
(34,201
|
)
|
|
|
(65,516
|
)
|
Repayment of long-term loans
|
|
|
-
|
|
|
|
(48,164
|
)
|
Net proceeds from issuance of convertible promissory notes
|
|
|
4,065,000
|
|
|
|
3,457,325
|
|
Proceeds from long-term loan
|
|
|
73,541
|
|
|
|
-
|
|
Proceeds from short-term loans
|
|
|
238,955
|
|
|
|
27,371
|
|
Amount financed from related parties
|
|
|
171,657
|
|
|
|
173,547
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,514,952
|
|
|
|
3,544,563
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
(83,355
|
)
|
|
|
471,155
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH
|
|
|
79,135
|
|
|
|
11,550,012
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
135,309
|
|
|
|
36,674
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
|
214,444
|
|
|
$
|
11,586,686
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for income tax
|
|
$
|
49,037
|
|
|
$
|
42,130
|
|
Cash paid for interest expense, net of capitalized interest
|
|
$
|
128,973
|
|
|
$
|
62,636
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of shares of common stock for the equity acquisition of Chongqing Guanzan Technology Co., Ltd.
|
|
$
|
3,818,000
|
|
|
$
|
2,717,000
|
|
Issuance of shares of common stock for equity acquisition of Zhongshan Chaohu Hospital
|
|
$
|
3,480,000
|
|
|
$
|
-
|
|
Issuance of shares of common stock for equity acquisition of Guoyitang Hospital
|
|
$
|
3,820,000
|
|
|
$
|
-
|
|
Issuance of shares of common stock for equity acquisition of Minkang,Qiangsheng and Eurasia hospitals
|
|
$
|
5,930,619
|
|
|
$
|
-
|
|
Issuance of shares of common stock for prepayment of equity acquisition of Zhuoda
|
|
|
1,452,000
|
|
|
|
-
|
|
Issuance of shares of common stock for payment of improvements to offices
|
|
$
|
696,896
|
|
|
|
-
|
|
Goodwill recognized from equity acquisition of Zhongshan Chaohu Hospital
|
|
$
|
10,443,494
|
|
|
$
|
-
|
|
Goodwill recognized from equity acquisition of Guoyitang Hospital
|
|
$
|
7,154,392
|
|
|
$
|
-
|
|
Goodwill recognized from equity acquisition of Minkang, Qiangsheng and Eurasia hospitals
|
|
$
|
5,930,619
|
|
|
$
|
-
|
|
Intangible assets recognized from equity acquisition of Boqi Group
|
|
$
|
-
|
|
|
$
|
6,443,170
|
|
Outstanding payment for the equity acquisition of Chongqing Guanzan Technology Co., Ltd.
|
|
$
|
-
|
|
|
$
|
4,414,119
|
|
Outstanding payment for equity acquisition of Zhongshan Chaohu Hospital
|
|
$
|
6,100,723
|
|
|
$
|
-
|
|
Outstanding payment for equity acquisition of Guoyitang Hospital
|
|
$
|
6,100,723
|
|
|
$
|
-
|
|
Outstanding payment for equity acquisition of Minkang, Qiangsheng and Eurasia hospitals
|
|
$
|
9,911,416
|
|
|
$
|
-
|
|
Common stock to be issued upon conversion of convertible promissory notes
|
|
$
|
738,223
|
|
|
$
|
5,160,473
|
|
The accompanying notes are an integral part of
the consolidated financial statements
BIMI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
ORGANIZATION AND BUSINESS BACKGROUND
|
BIMI International Medical, Inc. (the “Company”
or “BIMI”), a healthcare products and services provider in China, was incorporated in the State of Delaware as Galli Process,
Inc. on October 31, 2000. On February 7, 2002, the Company changed its name to Global Broadcast Group, Inc. On November 12, 2004, the
Company changed its name to Diagnostic Corporation of America. On March 15, 2007, the Company changed its name to NF Energy Saving Corporation
of America, and on August 24, 2009, the Company changed its name to NF Energy Saving Corporation. On December 16, 2019, the Company changed
its name to BOQI International Medical Inc., to reflect the Company’s refocus of its business from the energy saving industry to the health
care industry and on June 21,2021, the Company changed its name to BIMI International Medical Inc.
Until October 14, 2019, the Company, through NF
Energy Saving Investment Limited and its subsidiaries (the “NF Group”), operated in the energy saving enhancement technology
industry in the People’s Republic of China (the “PRC”). The NF Group focused on providing services relating to energy saving
technology, optimization design, energy saving reconstruction of pipeline networks and contractual energy management for the electric
power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries in the PRC and the manufacture
and sales of energy-saving flow control equipment. In late 2019, the Company committed to a plan to dispose of all its equity interests
in the NF Group and on March 31, 2020, the Company entered into a stock purchase agreement to sell the NF Group. The sale of the NF Group
closed on June 23, 2020. Please refer to NOTE 7 for additional information relating to the sale of the NF Group.
On October 14, 2019, the Company acquired 100%
of the equity interests in Lasting Wisdom Holdings Limited (“Lasting”), a holding company incorporated under the laws of the
British Virgin Islands (“BVI”), which through its subsidiaries owned Dalian Boqi Zhengji Pharmacy Chain Co., Ltd. (“Boqi
Zhengji”). Boqi Zhengji operated 16 retail pharmacy stores in China at the time of the acquisition. Lasting also indirectly owns
100% equity interests in Dalian Boyi Technology Co., Ltd. (“Dalian Boyi”), a subsidiary established in January 2020 and responsible
for the Company’s R&D and other technology related functions.
On December 11, 2020, the Company entered into
a stock purchase agreement to sell Boqi Zhengji (not including Lasting). While the sale of Boqi Zhengji closed by the end of 2020, the
governmental record was not updated until February 2, 2021 due to the Chinese government’s alternative working schedule and other delays
caused by COVID-19.
On June 24, 2020, the Company established a wholly
owned subsidiary Boyi (Liaoning) Technology Co., Ltd (“Liaoning Boyi”), in order to be qualified to participate in local healthcare
projects. On December 22, 2020, the Company established another subsidiary Bimai Pharmaceutical (Chongqing) Co., Ltd., as the holding
company for all of the Company’s retail, wholesale and hospital operations in China.
On March 18, 2020, the Company, through its wholly
owned subsidiary, Xinrongxin, acquired 100% of the equity interests in Chongqing Guanzan Technology Co., Ltd. (“Guanzan”).
Guanzan holds an 95% equity interest in Chongqing Shude Pharmaceutical Co., Ltd. (“Shude”, collectively with Guanzan, the
“Guanzan Group”). Guanzan also owns 100% equity interest in Chongqing Lijiantang Pharmaceutical Co. Ltd., a subsidiary established
in May 2020 that operates five (5) retail pharmacy stores in China.
On December 9, 2020, the Company entered into
an agreement to acquire 100% of the equity interests in Chongqing Guoyitang Hospital (“Guoyitang”), the owner and operator
of a private general hospital in Chongqing City, a city in Southwest China. The transaction closed on February 2, 2021.
On December 15, 2020, the Company entered into
a stock purchase agreement to acquire Chaohu Zhongshan Minimally Invasive Hospital (“Zhongshan”), a private hospital in the
east region of China. The transaction was closed on February 5, 2021.
On April 9, 2021, the Company entered into a stock
purchase agreement to acquire three private hospitals in the PRC, Wuzhou Qiangsheng Hospital (“Qiangsheng”), Suzhou Eurasia
Hospital(“Eurasia”) and Yunnan Yuxi MinKang hospital (“Minkang”). The transaction closed on May 6, 2021.
On April 21, 2021, Bimai Hospital Management (Chongqing)
Co. Ltd. was incorporated in the PRC by the Company to manage the operations of the Company’s medical devices segment.
On April 21, 2021, Pusheng Pharmaceutical Co.,
Ltd. was incorporated in the PRC by the Company to manage its wholesale distribution of generic drugs.
On September 10, 2021, the Company entered into
a stock purchase agreement to acquire 100% of the equity interests in Chongqing Zhuoda Pharmaceutical Co., LTD (“Zhuoda”).
The transaction closed on October 8, 2021.
As of September 30, 2021, the details of the
Company’s major subsidiaries are as follows:
Name
|
|
Place of incorporation and
kind of legal entity
|
|
Principal activities and
place of operation
|
|
Effective interest held(%)
|
|
Lasting Wisdom Holdings Limited
|
|
British Virgin Island, a limited liability company
|
|
Investment holding
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Pukung Limited
|
|
Hong Kong, a limited liability company
|
|
Investment holding
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Beijing Xinrongxin Industrial Development Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Investment holding
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Boyi (Liaoning) Technology Co., Ltd
|
|
The PRC, a limited liability company
|
|
IT Technology service research and development
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Dalian Boyi Technology Co., Ltd
|
|
The PRC, a limited liability company
|
|
IT Technology service research and development
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Chongqing Guanzan Technology Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of medical devices in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Chongqing Shude Pharmaceutical Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of generic drugs in the PRC
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
Chongqing Lijiantang Pharmaceutical Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of generic drugs in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Bimai Pharmaceutical (Chongqing) Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Investment holding
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Chongqing Guoyitang Hospital Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Hospital in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Chongqing Huzhongtang Healthy Technology Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of generic drugs in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Chaohu Zhongshan Minimally Invasive Hospital Co. ,Ltd.
|
|
The PRC, a limited liability company
|
|
Hospital in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Yuannan Yuxi Minkang Hospital Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Hospital in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Wuzhou Qiangsheng Hospital Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Hospital in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Suzhou Eurasia Hospital Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Hospital in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Bimai Hospital Management (Chongqing) Co. Ltd
|
|
The PRC, a limited liability company
|
|
Hospital management in the PRC
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Pusheng Pharmaceutical Co., Ltd
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of generic drugs in the PRC
|
|
|
100
|
|
2.
|
GOING CONCERN UNCERTAINTIES
|
The accompanying unaudited condensed consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As reflected in the accompanying unaudited condensed
consolidated financial statements, the Company incurred a net loss of $5,276,241 for the nine months ended September 30, 2021 and as of
September 30, 2021, the Company had an accumulated deficit of $18.2 million. In addition, the Company continues to generate operating
losses and has negative cash flow from its continuing operations. Primarily as a result of its operating loss, the Company’s cash position
from operating activities declined by $2.55 million in the nine months ended September 30, 2021. Management believes these factors raise
substantial doubt about the Company’s ability to continue as a going concern for the next twelve months.
The continuation of the Company as a going concern
through the next twelve months is dependent upon: (1) the continued financial support from its stockholders or external financing, and
(2) further implementation of management’s business plan to generate sufficient revenues and cash flow to meet its obligations. While
the Company believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds, there can
be no assurance to that it will be successful in either respect.
These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. These unaudited condensed financial statements do not include any adjustments to
reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional
funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
●
|
Basis of presentation and consolidation
|
These accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US
GAAP”). These unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries.
All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
The unaudited condensed consolidated financial
information as of September 30, 2021 and for the nine months ended September 30, 2021 and 2020 have been prepared, pursuant to the rules
and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are
normally included in annual consolidated financial statements prepared in accordance with US GAAP, have been omitted pursuant to those
rules and regulations.
In the opinion of management, all adjustments (which include normal
recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated financial position as of
September 30, 2021 and its unaudited condensed consolidated results of operations for the three and nine months ended September 30, 2021
and 2020, and its unaudited condensed consolidated cash flows for the nine months ended September 30, 2021 and 2020, as applicable, have
been made. The interim results of operations are not necessarily indicative of the operating results for the fiscal year or any future
periods.
The preparation of these condensed consolidated
financial statements in conformity with the US GAAP requires management to make estimates and judgments that affect the reported amounts
of assets and liabilities, disclosures of contingent assets and liabilities on the date of these condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates and judgments on historical
experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and
assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new
events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant
estimates and assumptions made by management include, among others, useful lives and impairment of long-lived assets, collectability of
accounts receivable, advances to suppliers, allowance for doubtful accounts, reserve of inventory, fair value of goodwill and valuation
of derivative liabilities. While the Company believes that the estimates and assumptions used in the preparation of these condensed consolidated
financial statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed
and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Certain prior year balances were reclassified
to conform to the current period presentation, which mainly reflect the presentation of the discontinued operation of the NF Group and
Boqi Zhengji. Except for the assets and liabilities of the NF Group and Boqi Zhengji which were reclassified as discontinued assets or
liabilities and presented as current assets or liabilities in the consolidated balance sheets, there was no other impacts on reported
financial position or cash flows for any of the periods presented.
Cash consists primarily of cash on hand and cash
in banks which is readily available in checking and saving accounts. The Company maintains cash with various financial institutions in
the PRC where its accounts are uninsured. The Company has not experienced any losses from funds held in bank accounts and believes it
is not exposed to any risk on its bank accounts.
Cash that is restricted as to withdrawal or use
under the terms of certain contractual agreements or orders are recorded in a restricted cash account in the Company’s unaudited interim
condensed consolidated balance sheet.
●
|
Accounts receivable and allowance for doubtful accounts
|
Accounts receivable are recorded at the invoiced
amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from delivery. Credit is extended
based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable
outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount
are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial
condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. For
the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means
of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet
credit exposure related to its customers. As of September 30, 2021 and December 31, 2020, the allowance for doubtful accounts was $1,283,537
and $1,236,830, respectively.
Advances to suppliers consist of prepayments to
the Company’s vendors, such as pharmaceutical manufacturers and suppliers of pharmaceuticals and medical devices.. The Company typically
prepays for the purchase of merchandise, especially for scarce, personalized pharmaceuticals or medical devices. The Company typically
receive products from vendors within three to nine months after making prepayments. The Company continuously monitors delivery from, and
payments to, the vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier
issues, such as discontinuing of inventory supply, that have been identified. If the Company has difficulty receiving products from a
vendor, the Company would cease purchasing products from such vendor, request return of our prepayment promptly, and if necessary, take
legal action. The Company has not taken such type of legal action during the reporting periods. If none of these steps are successful,
management will then determine whether the prepayments should be reserved or written off. As of September 30, 2021 and December 31, 2020,
the allowance for doubtful accounts was $7,508 and $7,463, respectively.
Inventories are stated at the lower of cost or
market value. Cost is determined using the weighted average method, and market value is the middle (the second highest) value among an
inventory item’s replacement cost, market celling and market floor. The Company carries out physical inventory counts on a monthly basis
at each warehouse and store location. The Company reviews historical sales activity quarterly to determine excess, slow moving items and
potentially obsolete items. The Company provides inventory reserve based on the excess quantities on hand equal to the difference, if
any, between the cost of the inventory and its estimated market value, or obsolescence of inventories determined principally by customer
demand. As of September 30, 2021 and December 31, 2020, the Company recorded an allowance for obsolete inventories, which mainly consists
of expired medicine, of $44,308 and $9,825, respectively.
●
|
Property, plant and equipment
|
Property, plant and equipment are stated at cost
less accumulated depreciation and impairment, if any. Depreciation is calculated on the straight-line basis over the following expected
useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
|
|
Expected
useful lives
|
|
Residual
value
|
|
Building
|
|
20 years
|
|
|
5
|
|
Office equipment
|
|
3 years
|
|
|
5
|
|
Electronic equipment
|
|
3 years
|
|
|
5
|
|
Furniture
|
|
5 years
|
|
|
5
|
|
Medical equipment
|
|
10 years
|
|
|
5
|
|
Vehicles
|
|
4 years
|
|
|
5
|
|
Expenditures for repairs and maintenance are expensed
as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in the results of operations.
Intangible assets consist primarily of software
of management systems. Intangible assets are stated at cost less accumulated amortization and impairment, if any. Intangible assets are
amortized using the straight-line method with the following estimated useful lives:
|
|
Expected
useful lives
|
Software
|
|
10 years
|
The Company determines if an arrangement is a
lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations
under operating leases, and obligations under operating leases, non-current on the Company’s consolidated balance sheets. Finance leases
are included in property and equipment, net, current portion of obligations under capital leases, and obligations under capital leases,
non-current on our consolidated balance sheets.
Operating lease ROU assets and operating lease
liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date, adjusted
by the deferred rent liabilities at the adoption date. As most of the Company’s leases do not provide an implicit rate, the Company uses
its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
The operating lease ROU assets also include any lease payments made and excludes lease incentives and initial direct costs incurred. The
Company’s terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that
option. Operating lease expense is recognized on a straight-line basis over the lease term.
Goodwill represents the excess of the purchase
price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. In accordance
with ASC 350, Goodwill and Other Intangible Assets, recorded goodwill amounts are not amortized, but rather are tested for impairment
annually or more frequently if there are indicators of impairment present.
Goodwill is tested for impairment at the reporting
unit level on at least an annual basis or when an event occurs, or circumstances change that would more-likely-than-not reduce the fair
value of a reporting unit below its carrying value. These events or circumstances include a significant change in stock prices, business
environment, legal factors, financial performances, competition, or events affecting the reporting unit. Application of the goodwill impairment
test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment
of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of reporting
unit using a discounted cash flow methodology also requires significant judgments, including estimation of future cash flows, which is
dependent on internal forecasts, estimation of the long-term rate of growth for the Company’s business, estimation of the useful life
over which cash flows will occur, and determination of the Company’s weighted average cost of capital. The estimates used to calculate
the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates
and assumptions could materially affect the determination of fair value and goodwill impairment for the reporting unit.
Management evaluates the recoverability of goodwill
by performing a qualitative assessment before using a two-step impairment test approach at the reporting unit level. If the Company reorganizes
its reporting structure in a manner that changes the composition of one or more of its reporting units, goodwill will be reassigned based
on the relative fair value of each of the affected reporting units.
●
|
Impairment of long-lived assets and intangibles
|
In accordance with the provisions of ASC Topic
360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held
and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset
to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
We adopted Accounting Standard Codification (“ASC”)
Topic 606, Revenues from Contract with Customers (“ASC 606”) for all periods presented. Under ASC 606, revenue is recognized
when control of the promised goods and services is transferred to the Company’s customers, in an amount that reflects the consideration
that the Company expects to be entitled to in exchange for those goods and services, net of value-added tax. The Company determines revenue
recognition through the following steps:
●
|
Identify the contract with a customer;
|
●
|
Identify the performance obligations in the contract;
|
●
|
Determine the transaction price;
|
●
|
Allocate the transaction price to the performance obligations in the contract; and
|
●
|
Recognize revenue when (or as) the entity satisfies a performance obligation.
|
The transaction price is allocated to each performance
obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized
when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which
at a point in time or over time as appropriate.
The Company’s revenue is net of value added tax
(“VAT”) collected on behalf of PRC tax authorities in respect to the sales of products. VAT collected from customers, net
of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant
PRC tax authorities.
Cost of revenue consists primarily of cost of
goods purchased from suppliers plus direct material costs for packaging and storage, rental expense, direct labor, which are directly
attributable to the acquisition and maintenance of products for sale and providing medical services. Cost of revenues also include impairment
losses for products which are obsolete or have expired, if any. Shipping and handling costs, associated with the distribution of finished
products to customers, are borne by the customers.
ASC Topic 220, “Comprehensive Income”, establishes
standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying
condensed consolidated statement of stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation.
This comprehensive income is not included in the computation of income tax expense or benefit.
Income taxes are determined in accordance with
the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how
companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to
be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely
than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the
tax authority assuming full knowledge of the position and relevant facts.
For the nine months ended September 30, 2021 and
2020, the Company did not incur any interest or penalties associated with tax positions. As of September 30, 2021, the Company did not
have any significant unrecognized uncertain tax positions.
The Company conducts all of its business in the
PRC and is subject to tax in this jurisdiction. As a result of its corporate structure the Company files tax returns that are subject
to examination by a foreign tax authority.
Sales revenue represents the invoiced value of
goods sold , net of VAT.
All of the Company’s products that are sold
in the PRC are subject to a VAT on the gross sales price. The VAT rates range up to 13% depending on the type of products sold. The VAT
may be offset by VAT paid by the Company on its purchase activities of merchandises, raw materials, utilities, and other materials which
cost was included in the cost of producing or acquiring its products for sales. The Company records a VAT payable net of payments if the
VAT payable on the gross sales is larger than the VAT paid by the Company on purchase of finished goods; on the other hand, the Company
records a VAT deductible in the accompanying financial statements net of any VAT payable at the end of reporting period.
●
|
Convertible promissory notes
|
The Company records debt net of a discount for
beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the
Beneficial Conversion and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial
conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over
the life of the debt.
The Company has entered into financing arrangements
that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company accounts
for these arrangements in accordance with Accounting Standards Codification Topic 815, Accounting for Derivative Instruments and Hedging
Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with this standard, derivative instruments
are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in
earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair
value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative
instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration to all of the
rights and obligations of each instrument.
We estimate fair values of derivative financial
instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring fair
values. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that
it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally
use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading
volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative
financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration
of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes
model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments
are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimate
and assumption changes. Under the terms of the new accounting standard, increases in the trading price of the Company’s common stock and
increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases
in the trading price of the Company’s common stock and decreases in trading fair value during a given financial quarter result in the
application of non-cash derivative income.
The Company calculates net loss per share in accordance
with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by
the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income
per share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common stock equivalents had been issued and if the additional common shares were dilutive.
●
|
Foreign currencies translation
|
Transactions denominated in currencies other than
the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency
using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting currency of the Company is the United
States Dollar (“US$”). The Company’s subsidiaries in the PRC maintain their books and records in their local currency, the
Renminbi Yuan (“RMB”), which is the functional currency as being the primary currency of the economic environment in which
these entities operate.
In general, for consolidation purposes, assets
and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30,
“Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses
are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements
of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’
equity.
Translation of amounts from RMB into US$ has been
made at the following exchange rates for the respective period:
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
Period-end RMB:US$1 exchange rate
|
|
|
6.4854
|
|
|
|
6.8106
|
|
Nine months end average RMB:US$1 exchange rate
|
|
|
6.4714
|
|
|
|
6.9946
|
|
Parties, which can be a corporation or individual,
are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.
ASC Topic 280, “Segment Reporting”
establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization
structure as well as information about the type of products and services, geographical areas, business strategies and major customers
in business components. For the nine months ended September 30, 2021, the Company operated in four reportable segments: wholesale pharmaceuticals,
wholesale medical devices, medical services and retail pharmacy in the PRC.
●
|
Fair value of financial instruments
|
The carrying value of the Company’s financial
instruments (excluding short-term bank borrowing and convertible promissory notes): cash and cash equivalents, accounts and retention
receivable, prepayments and other receivables, accounts payable, income tax payable, amounts due to related parties other payables and
accrued liabilities approximate their fair values because of the short-term nature of these financial instruments.
Management believes, based on the current market
prices or interest rates for similar debt instruments, the fair value of its obligation under its finance lease and short-term bank borrowing
approximate the carrying amount.
The Company also follows the guidance of the ASC
Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets
and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs
used in measuring fair value as follows:
●
|
Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
|
●
|
Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and
|
●
|
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
|
Fair value estimates are made at a specific point
in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect
the estimates.
The carrying amount of cash, accounts receivable,
other receivable, bank credit, accounts payable and other accounts payable approximate their fair value due to the short-term maturity
of these instruments.
|
●
|
Recent accounting pronouncements
|
In December 2019, the FASB issued ASU No. 2019-12, Income
Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes.
It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU
2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early
adoption permitted. The Company will adopt this guidance effective October 1, 2021. The Company is currently evaluating the impact
of its pending adoption of this guidance on its consolidated financial statements but does not expect this guidance will have a material
impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held
at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the
existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU
2016-13 was subsequently amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses,
ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and
Topic 825, Financial Instruments, and ASU 2019-05, Targeted Transition Relief. For public entities, ASU 2016-13 and its amendments are
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For all other entities,
this guidance and its amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. The Company plans to adopt this guidance effective October 1, 2023. The Company is currently evaluating
the impact of its pending adoption of ASU 2016-13 on its consolidated financial statements but does not expect this guidance will have
a material impact on its consolidated financial statements.
Other accounting standards that have been issued
or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a
material impact on the Company’s consolidated financial statements upon adoption.
4.
|
THE ACQUISITION OF THE GUANZAN GROUP
|
On February 1, 2020, the Company entered into
an agreement to purchase all the issued and outstanding shares of Guanzan. Guanzan is a distributor of medical devices whose
customers are primarily drug stores, private clinics, pharmaceutical dealers and hospitals in the Southwest of China. Guanzan also holds
an 80% ownership interest in Shude. Guanzan holds business licenses in the PRC such as a Business Permit for Medical Devices and a Recordation
Certificate for Business Activities Involving Class II Medical Devices, etc., which qualify Guanzan to engage in the distribution of medical
devices in the PRC.
Shude is a pharmaceutical distributor that markets
generic drugs. Shude’s customers include a wide range of clinics, private and public hospitals and pharmacies in the PRC. Shude holds
PRC business licenses such as a Business Permit for Medical Devices and a Drug Wholesale Distribution License, which qualify Shude to
engage in the distribution of medicines and medical devices in the PRC.
The acquisition agreement provided for the payment
of RMB 100,000,000 (approximately $14,285,714), to be paid by the issuance of 950,000 shares of the Company’s common stock (the
“Guanzan Stock Consideration”) and the payment of RMB 80,000,000 in cash (the “Guanzan Cash Consideration”). The
Guanzan Stock Consideration was payable at closing and the Guanzan Cash Consideration, which was subject to post-closing adjustments based
on the performance of Guanzan in the years ending December 31, 2020 and 2021The transaction closed on March 18, 2020.
On November 20, 2020, we entered into an agreement
for the prepayment of a portion of the Guanzan Cash Consideration in the amount of RMB 20,000,000, in the form of shares of our Company’s
common stock valued at $3.00 per share, in light of Guanzan’s performance during the period from March 18, 2020 to September 30,
2020. On November 30, 2020, 1,000,000 shares of our common stock were issued to the designated assignees of the seller as the prepayment.
Upon the approval of the Company’s shareholders, on August 27, 2021, the Company issued 4,600,000 shares of its common stock as
payment in full for the balance of the post-closing consideration for the acquisition of Guanzan.
The following summarizes the identified assets
acquired and liabilities assumed pursuant to the Guanzan Acquisition as of March 18, 2020:
Items
|
|
Amount
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
95,220
|
|
Accounts receivable
|
|
|
1,835,981
|
|
Advances to suppliers
|
|
|
1,222,986
|
|
Amount due from related parties
|
|
|
410,943
|
|
Inventories
|
|
|
950,225
|
|
Prepayments and other receivables
|
|
|
90,256
|
|
Property, plant and equipment
|
|
|
707,289
|
|
Intangible assets
|
|
|
254,737
|
|
Goodwill
|
|
|
6,443,170
|
|
Liabilities
|
|
|
|
|
Short-term bank borrowings
|
|
|
(838,926
|
)
|
Long-term loans due within one year
|
|
|
(250,663
|
)
|
Accounts payable, trade
|
|
|
(1,303,399
|
)
|
Advances from customers
|
|
|
(1,350,126
|
)
|
Amount due to related parties
|
|
|
(106,720
|
)
|
Taxes payable
|
|
|
(406,169
|
)
|
Other payables and accrued liabilities
|
|
|
(390,594
|
)
|
Long-term loans – non-current portion
|
|
|
(186,796
|
)
|
Non-controlling interests
|
|
|
(46,295
|
)
|
Total net assets
|
|
$
|
7,131,119
|
|
The fair value of all assets acquired and liabilities
assumed is the estimated book value of the Guanzan Group. Goodwill represent the excess of the fair value of purchase price over the amounts
assigned to the fair value of the assets acquired and the liabilities assumed of Guanzan Group at the acquisition date. Upon the Guanzan
Acquisition, the Company recognized non-controlling interest in Shude in the amount of $46,295, representing the 20% non-controlling equity
interest in Shude at the acquisition date. On April 9, 2021, the Company increased its equity interest in Shude from 80% to 95.2% by making
a direct capital investment in Shude.
5.
|
THE ACQUISITION OF THE GUOYITANG HOSPITAL
|
On December 9, 2020, the Company entered into
an agreement to acquire all of the outstanding equity of Guoyitang, the owner and operator of a private general hospital in Chongqing
City, a southwest city of China, with 100 hospital beds. The aggregate purchase price for Guoyitang was $15,251,807 (RMB 100,000,000).
Upon signing the agreement, 2,000,000 shares of common stock of BIMI and approximately $3,096,119 (RMB 20,000,000) was paid as partial
consideration for the purchase of Guoyitang. The transaction closed on February 2, 2021. The balance of the purchase price in the amount
of approximately $6,100,723 (RMB 40,000,000) is subject to post-closing adjustments based on the performance of Guoyitang in 2021 and
2022.
The following summarizes the identified assets
acquired and liabilities assumed pursuant to the acquisition of Guoyitang as of February 2, 2021:
Items
|
|
Amount
|
|
Assets
|
|
|
|
Cash
|
|
$
|
28,457
|
|
Accounts receivable
|
|
|
11,797
|
|
Advances to suppliers
|
|
|
12,670
|
|
Amount due from related parties
|
|
|
41,598
|
|
Inventories
|
|
|
167,440
|
|
Prepayments and other receivables
|
|
|
61,102
|
|
Property, plant and equipment
|
|
|
528,814
|
|
Right of use asset
|
|
|
441,150
|
|
Goodwill
|
|
|
7,154,393
|
|
Liabilities
|
|
|
|
|
Accounts payable, trade
|
|
|
(599,391
|
)
|
Amount due to related parties
|
|
|
(183,796
|
)
|
Taxes payable
|
|
|
(121
|
)
|
Other payables and accrued liabilities
|
|
|
(231,375
|
)
|
Lease liability-current
|
|
|
(161,707
|
)
|
Lease liability-non-current
|
|
|
(354,912
|
)
|
Total net assets
|
|
$
|
6,916,119
|
|
The fair value of all assets acquired and liabilities
assumed is the estimated book value of the Guoyitang. Goodwill represents the excess of the fair value of purchase price over the amounts
assigned to the fair value of the assets acquired and the liabilities assumed of Guoyitang at the acquisition date.
6.
|
THE ACQUISITION OF THE ZHONGSHAN HOSPITAL
|
On December 15, 2020, the Company entered into
an agreement to acquire Zhongshan Hospital, a private hospital in the east region of China with 65 hospital beds. Zhongshan Hospital is
a general hospital known for its complex minimally invasive surgeries. Pursuant to the agreement, the Company agreed to purchase
all the issued and outstanding equity interests in Zhongshan Hospital in consideration of approximately $18,515,661 (RMB 120,000,000).
As partial consideration, approximately $6,100,723 (RMB 40,000,000) was paid in cash at the closing and 2,000,000 shares of common stock
of the Company were issued on February 2021. The balance of the purchase price of approximately $6,100,723 (RMB 40,000,000) is subject
to post-closing adjustments based on the performance of Zhongshan Hospital in 2021 and 2022. The transaction closed on February 5, 2021.
The following summarizes the identified assets
acquired and liabilities assumed pursuant to the Zhongshan Acquisition as of February 5, 2021:
Items
|
|
Amount
|
|
Assets
|
|
|
|
Cash
|
|
$
|
46,748
|
|
Accounts receivable
|
|
|
92,900
|
|
Inventories
|
|
|
108,413
|
|
Prepayments and other receivables
|
|
|
432,231
|
|
Property, plant and equipment
|
|
|
344,208
|
|
Right of use asset
|
|
|
1,188,693
|
|
Goodwill
|
|
|
10,443,494
|
|
Liabilities
|
|
|
|
|
Short-term bank borrowings
|
|
|
(154,701
|
)
|
Accounts payable, trade
|
|
|
(928,640
|
)
|
Advances from customers
|
|
|
(5,603
|
)
|
Amount due to related parties
|
|
|
(217,203
|
)
|
Other payables and accrued liabilities
|
|
|
(435,290
|
)
|
Lease liability-current
|
|
|
(160,774
|
)
|
Lease liability-non-current
|
|
|
(1,102,589
|
)
|
Total net assets
|
|
$
|
9,651,887
|
|
The fair value of all assets acquired and liabilities
assumed is the estimated book value of the Zhongshan. Goodwill represents the excess of the fair value of purchase price over the amounts
assigned to the fair value of the assets acquired and the liabilities assumed of Zhongshan Hospital at the acquisition date.
7.
|
THE ACQUISITION OF THE QIANGSHENG, EURASIA AND MINKANG HOSPITALS
|
On April 9, 2021, the Company and Chongqi Bimai
entered into a stock purchase agreement to acquire three private hospitals in the PRC, Qiangsheng, Eurasia and Minkang. Pursuant to the
agreement, the Company agreed to purchase all the issued and outstanding equity interests in Qiangsheng, Eurasia and Minkang in consideration
of approximately $25,023,555 (RMB162,000,000) to paid by the issuance of 4,000,000 shares of common stock of the Company (the “April
Stock Consideration”), the value of which was agreed to be RMB 78 million or $12 million and the payment of RMB 84,000,000 (approximately
US$13,008,734) in cash (the “Cash Consideration”). The first payment of the Cash Consideration was RMB 20,000,000 (approximately
$3,097,317). The second and third payments of the Cash Consideration of RMB 64,000,000 (approximately $9,911,416) are subject to post-closing
adjustments based on the performance of Qiangsheng, Eurasia and Minkang in 2021 and 2022. The sellers can choose to receive the second
and third payments in the form of the shares of common stock of the Company valued at $3.00 per share or in cash. The transaction closed
on May 6, 2021, at which time the April Stock Consideration was issued.
The following summarizes the identified assets
acquired and liabilities assumed pursuant to the Qiangsheng, Eurasia and Minkang acquisition as of May 6, 2021:
Items
|
|
Amount
|
|
Assets
|
|
|
|
Cash
|
|
$
|
12,341
|
|
Accounts receivable
|
|
|
41,836
|
|
Inventories
|
|
|
156,576
|
|
Advances and other receivables
|
|
|
40,620
|
|
Property, plant and equipment
|
|
|
653,104
|
|
Right of use assets
|
|
|
2,168,709
|
|
Goodwill
|
|
|
5,930,619
|
|
Liabilities
|
|
|
|
|
Accounts payable
|
|
|
(355,980
|
)
|
Advances from customers
|
|
|
(36,798
|
)
|
Tax payable
|
|
|
(345,870
|
)
|
Other payables and accrued liabilities
|
|
|
(311,174
|
)
|
Lease liability-current
|
|
|
(365,788
|
)
|
Lease liability-non-current
|
|
|
(1,988,195
|
)
|
Total net assets
|
|
$
|
5,600,000
|
|
The fair value of all assets acquired and liabilities
assumed is the estimated book value of the Qiangsheng, Eurasia and Minkang hospitals. Goodwill represents the excess of the fair value
of purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Qiangsheng, Eurasia
and Minkang Hospitals at the acquisition date.
8.
|
DISCONTINED OPERATIONS
|
In late 2019, the Company committed to a plan
to dispose of the NF Group and on March 31, 2020 entered into an agreement to sell the NF Group for $10,000,000. The sale closed on June
23, 2020.
On December 11, 2020, the Company entered into
an agreement to sell Boqi Zhengji for $1,700,000. The sale of Boqi Zhengji closed on December 18, 2020. Upon closing, the Company ceased
operating pharmacies in Dalian.
The Company determined that the plans and the
subsequent actions taken to dispose of the NF Group and Boqi Zhengji qualified as discontinued operations under the criteria set forth
in the ASC 205-20 Presentation of Financial Statements – Discontinued Operation. Upon closing of the two transaction, the Company
ceased to be involved in the energy efficiency enhancement business and the operation of pharmacies in Dalian.
The summarized operating results of the discontinued
operation included in the Company’s unaudited interim condensed consolidated statements of operations consist of the following:
|
|
For the
nine months
ended
September 30,
2020
|
|
Revenues
|
|
$
|
8,537
|
|
Cost of revenues
|
|
|
3,394
|
|
Gross loss
|
|
|
5,143
|
|
|
|
|
|
|
Operating expenses
|
|
|
498,212
|
|
Other expense
|
|
|
307,536
|
|
Loss before income taxes
|
|
|
(800,605
|
)
|
Income taxes
|
|
|
-
|
|
Net loss from discontinued operations
|
|
$
|
(800,605
|
)
|
Accounts receivable mainly represent amounts due
from customers and are recorded net of allowance for doubtful accounts. The Company offers several credit terms to the wholesale and medical
device customers and the authorized retailer stores. The majority of the Company’s pharmacy retail and medical service revenues
are derived from cash sales, except for sales to the government social security bureaus or commercial health insurance programs, which
typically settle once a month.
The Company mitigates the associated risks by
performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based
on management’s assessment of historical bad debts, creditworthiness and financial conditions of the clients, current economic trends
and changes in client payment patterns. Past due accounts are generally written off against the allowance for bad debts only after all
collection attempts have been exhausted and the potential for recovery is considered remote. As of September 30, 2021 and December 31,
2020, accounts receivable consisted of the following:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Accounts receivable, cost
|
|
$
|
12,904,589
|
|
|
$
|
7,923,382
|
|
Less: allowance for doubtful accounts
|
|
|
(1,283,537
|
)
|
|
|
(1,236,830
|
)
|
Accounts receivable, net
|
|
$
|
11,621,052
|
|
|
$
|
6,686,552
|
|
The Company routinely evaluates the need for allowance
for doubtful accounts based on specifically identified amounts that the management believes to be uncollectible. If the actual collection
experience changes, revisions to the allowance may be required. The Company accrued an allowance of $ $72,478 during the nine months ended
September 30, 2021.
10.
|
ADVANCES TO SUPPLIERS
|
Advances to suppliers represent the amount the
Company prepaid to its suppliers for merchandises for sale in the ordinary course of business. As of September 30, 2021 and December 31,
2020, the Company reported advances to suppliers as follow:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Advances to suppliers, cost
|
|
$
|
4,394,699
|
|
|
$
|
2,700,788
|
|
Less: allowance for doubtful accounts
|
|
|
(7,508
|
)
|
|
|
(7,463
|
)
|
Advances to suppliers, net
|
|
$
|
4,387,191
|
|
|
$
|
2,693,325
|
|
Excluding the effect of the foreign exchange rate,
no bad debt expenses were accrued for doubtful accounts relating to advances to suppliers for the nine months ended September 30, 2021.
The Company’s inventories consist of pharmaceuticals
and medical devices that were purchased from third parties and sold in our retail pharmacy stores and maintained by our hospitals for
the provision of medical service and wholesale to third party pharmacies, clinics, hospitals, etc. Inventories consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2020
|
|
Medicine
|
|
$
|
1,826,038
|
|
|
$
|
196,506
|
|
Medical devices
|
|
|
335,756
|
|
|
|
548,670
|
|
Less: allowance for obsolete and expired inventory
|
|
|
(44,308
|
)
|
|
|
(9,825
|
)
|
|
|
$
|
2,117,486
|
|
|
$
|
735,351
|
|
For the nine months ended September 30, 2021 and
2020, the Company accrued an allowance of $35,013 and $390,923 for obsolete and expired items, respectively.
12.
|
PREPAYMENTS AND OTHER RECEIVABLES
|
Prepayments and other receivables represent the
amount that the Company prepaid as rent deposits for retail stores, hospitals and office facilities, special medical device purchase deposits,
prepaid rental fee and professional services, advances to employees in the ordinary course of business, VAT deductibles and other miscellaneous
receivables. The table below sets forth the balances as of September 30, 2021 and December 31, 2020, respectively.
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Deposit for rental
|
|
$
|
107,703
|
|
|
|
11,050
|
|
Prepaid rental fee and improvements of offices
|
|
|
3,303
|
|
|
|
37,687
|
|
Deposit for purchase of medical devices
|
|
|
-
|
|
|
|
28,113
|
|
Receivables from convertible bonds
|
|
|
-
|
|
|
|
1,500,000
|
|
Deferred offering cost
|
|
|
363,680
|
|
|
|
889,971
|
|
Prepayment for acquisition of Guoyitang
|
|
|
-
|
|
|
|
9,195,543
|
|
Deposit for acquisition of Cogmer
|
|
|
3,083,850
|
|
|
|
3,065,181
|
|
Prepayment for acquisition of Guanzan
|
|
|
1,449,715
|
|
|
|
-
|
|
Prepayment for acquisition of Zhuoda
|
|
|
1,452,000
|
|
|
|
-
|
|
VAT deductibles
|
|
|
172,090
|
|
|
|
-
|
|
Advances to employees for business development
|
|
|
116,445
|
|
|
|
|
|
Receivables from third parties
|
|
|
581,066
|
|
|
|
-
|
|
Others
|
|
|
201,137
|
|
|
|
162,326
|
|
Less: allowance for doubtful accounts
|
|
|
(9,402
|
)
|
|
|
(9,345
|
)
|
Prepayments and other receivables, net
|
|
$
|
7,521,587
|
|
|
|
14,880,526
|
|
In 2020, we made a deposit of $3,083,850 in connection
with the pending acquisition of Chongqing Cogmer Biology Technology Co., Ltd. The transaction was subsequently canceled and we expect
to receive the refund of the deposit in December of 2021.
On September 10, 2021, the Company entered
into a stock purchase agreement to acquire 100% of the equity interests in Zhuoda, a distributor of pharmaceuticals and biologicals in
the People’s Republic of China. The aggregate purchase price for the equity interests was US$11,617,500 (RMB 75,000,000), to be
paid in shares of BIMI’s common stock. The closing consideration was 2,200,000 shares of common stock of BIMI valued by the parties
at RMB 43,560,000, or $3.00 per share (approximately US$6,600,000). For accounting purposes the payment was valued at $1,452,000. The
transaction closed effective October 8, 2021 when the transaction was recorded by governmental authorities. The balance of the purchase
price in the amount of US$4,800,000 (RMB 31,680,000) is subject to post-closing adjustments based on the performance of Zhuoda in 2022
and 2023.
Management evaluates the recoverable value of
these balances periodically in accordance with the Company’s policies. For the nine months ended September 30, 2021 and 2020, the Company
accrued allowances for doubtful accounts of $0 and $16,797, respectively.
13.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment consisted of the
following:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Building
|
|
$
|
804,907
|
|
|
$
|
800,035
|
|
Office equipment
|
|
|
462,429
|
|
|
|
38,769
|
|
Electronic equipment
|
|
|
1,440,074
|
|
|
|
49,507
|
|
Furniture
|
|
|
30,889
|
|
|
|
151
|
|
Medical equipment
|
|
|
2,389,345
|
|
|
|
-
|
|
Vehicles
|
|
|
192,889
|
|
|
|
130,532
|
|
|
|
|
5,320,533
|
|
|
|
1,018,994
|
|
Less: accumulated depreciation
|
|
|
(2,802,670
|
)
|
|
|
(108,786
|
)
|
Property, plant and equipment, net
|
|
$
|
2,517,863
|
|
|
$
|
910,208
|
|
Depreciation expense for the nine months ended
September 30, 2021 and 2020 were $175,749 and $38,446, respectively.
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Software
|
|
$
|
21,132
|
|
|
$
|
-
|
|
|
|
|
21,132
|
|
|
|
-
|
|
Less: accumulated amortization
|
|
|
(3,398
|
)
|
|
|
-
|
|
Intangible assets, net
|
|
$
|
17,734
|
|
|
$
|
-
|
|
Amortization expense for the nine months ended
September 30, 2021 and 2020 were $3,398 and $Nil, respectively.
Balance sheet information related to the Company’s
operating leases was as follows:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Operating Lease Assets
|
|
|
|
|
|
|
Operating lease
|
|
$
|
3,593,297
|
|
|
|
53,425
|
|
Total operating lease assets
|
|
$
|
3,593,297
|
|
|
|
53,425
|
|
Operating Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
$
|
702,789
|
|
|
|
23,063
|
|
Non-current operating lease liabilities
|
|
$
|
3,308,881
|
|
|
|
22,457
|
|
Total Lease Liabilities
|
|
$
|
4,011,670
|
|
|
|
45,520
|
|
Lease liability maturities as of September 30,
2021, are as follows:
|
|
September 30,
|
|
2022
|
|
|
805,705
|
|
2023
|
|
|
775,075
|
|
2024
|
|
|
748,300
|
|
2025
|
|
|
559,333
|
|
2026 and thereafter
|
|
|
2,164,085
|
|
Total minimum lease payments
|
|
|
5,052,498
|
|
Less: Amount representing interest
|
|
|
1,040,828
|
|
Total
|
|
$
|
4,011,670
|
|
The goodwill associated with the acquisition of:
(i) Guanzan of $6,914,232; (ii) Guoyitang of $7,154,393; (iii) Zhongshan of $10,443,494 and (iv) Minkang, Qiangsheng and Eurasia of $5,930,619,
were initially recognized at the acquisition closing date.
Based on an assessment of the qualitative factors,
management determined that it is more-likely-than-not that the fair value of each of the reporting units is in excess of its carrying
amount. Therefore, management concluded that it was not necessary to proceed to the two-step goodwill impairment test. At September 30,
2021 and December 31, 2020, goodwill was $30,442,738 and $6,914,232, respectively. No impairment losses were recorded for the nine months
ended September 30, 2021 and 2020.
Short-term loans
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Construction Bank of China
|
|
$
|
32,997
|
|
|
$
|
-
|
|
Wuhu Yangzi Rural Commercial Bank
|
|
|
231,289
|
|
|
|
-
|
|
China Mingsheng bank
|
|
|
123,354
|
|
|
|
|
|
Chongqing Nan’an Zhongyin Fuden Village Bank Co. LTD
|
|
|
-
|
|
|
|
153,259
|
|
Postal Savings Bank of China
|
|
|
755,543
|
|
|
|
750,969
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,143,183
|
|
|
$
|
904,228
|
|
For the nine months ended September 30, 2021 and
2020, interest expense on short-term loans amounted to $65,300 and $26,128 respectively.
Long-term loans
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Standard Chartered Bank
|
|
$
|
84,292
|
|
|
$
|
163,973
|
|
Chongwing Nan’an Zhongyin Fuden Village Bank Co. Ltd.
|
|
|
127,030
|
|
|
|
-
|
|
We Bank
|
|
|
583,216
|
|
|
|
591,225
|
|
Subtotal of long-term loans
|
|
|
794,538
|
|
|
|
755,198
|
|
Less: current portion
|
|
|
-
|
|
|
|
(34,201
|
)
|
Long-term loans – noncurrent portion
|
|
$
|
794,538
|
|
|
$
|
720,997
|
|
For the nine months ended September 30, 2021 and
2020, interest expense on long-term loans amounted to $60,953 and $33,205 respectively.
18.
|
CONVERTIBLE
PROMISSORY NOTES AND EMBEDDED DERIVATIVE INSTRUCTIONS
|
On
May 19, 2020, the Company entered into a securities purchase agreement (the “May SPA”) with two institutional investors (each,
an “Institutional Investor”, and collectively, the “Institutional Investors”) to sell in a private placement a new
series of senior secured convertible notes having an original issue amount of $6,550,000, with a discount of 19.85%, and ranking senior
to all outstanding and future indebtedness of the Company (the “Convertible Notes”). Each Institutional Investor paid $1,750,000
in cash for a Convertible Note in the face amount of $2,225,000. The May SPA also provided for the issuance of additional Convertible
Notes in an aggregate original principal amount not to exceed $2,100,000 under certain circumstances. The Convertible Notes mature on
the eighteen-month anniversary of the issuance date, are payable by the Company in installments and are convertible at the election of
the Institutional Investors at the conversion price of $2.59, which is subject to adjustment in the event of default. Each Institutional
Investor also received a warrant to purchase 650,000 shares of the Company’s common stock at an initial exercise price of $2.845 per
share. The placement agent for the private placement received a warrant to purchase up to 171,845 shares of the Company’s common stock
at an initial exercise price of $2.845 per share, subject to increase based on the number of shares of the Company’s common stock issued
pursuant to the Convertible Notes. On February 24, 2021, the Company and the Investors agreed to increase the amount of Convertible Notes
that may be purchased under the May SPA from $2,100,000 to $5,400,000 at an original issue discount of 16.67% ($4,500,000, net). The
Convertible Notes issued in 2021 are convertible at a base conversion price of $2.59 per share, subject to the previously agreed conversion
floor price of $0.554 (or $0.372 with respect to the increased amount). The Investors also received additional warrants to purchase
720,000 additional shares of the Company’s common stock at an exercise price of $2.845 per share.
Upon
evaluation, the Company determined that the two agreements contained embedded beneficial conversion features which met the definition
of Debt with Conversion and Other Options covered under the Accounting Standards Codification topic 470 (“ASC 470”). According
to ASC 470, an embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance
by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Convertible
note – principal
|
|
$
|
5,277,203
|
|
|
$
|
5,367,174
|
|
Convertible
note – discount
|
|
|
(445,467
|
)
|
|
|
(2,038,727
|
)
|
|
|
$
|
4,831,736
|
|
|
$
|
3,328,447
|
|
Additionally,
the Company accounted for the embedded conversion option liability in accordance with the Accounting Standards Codification topic 815,
Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretation of this standard.
In accordance with these standards, derivative instruments are recognized as either assets or liabilities in the balance sheet and are
measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to
the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings.
The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate
valuation models, giving consideration to all of the rights and obligations of each instrument. The fair value of the embedded conversion
option liability associated with each Note was valued using the Black-Scholes model. The key assumptions used in the Black-Scholes option
pricing model are as follows:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Dividend
yield
|
|
$
|
0
|
|
|
$
|
0
|
|
Expected
volatility
|
|
|
90% ~ 100%
|
|
|
|
101% ~ 166%
|
|
Risk
free interest rate
|
|
|
0.82% ~ 1.13%
|
|
|
|
0.07% ~ 0.22%
|
|
Expected
life (year)
|
|
|
2.65 ~3.25
|
|
|
|
3.38
|
|
19.
|
OTHER PAYABLES AND ACCRUED
LIABILITIES
|
Other
payables and accrued liabilities consisted of the following:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Salary payable
|
|
$
|
722,423
|
|
|
$
|
96,915
|
|
Salary payable – related party (1)
|
|
|
-
|
|
|
|
663,267
|
|
Accrued operating expenses
|
|
|
192,126
|
|
|
|
102,358
|
|
Acquisition payable (2)
|
|
|
-
|
|
|
|
3,065,181
|
|
Other payables
|
|
|
1,227,653
|
|
|
|
301,255
|
|
|
|
$
|
2,142,202
|
|
|
$
|
4,228,976
|
|
(1)
|
On October 1, 2019, the Company employed Mr. Tiewei Song as its Chief Executive Officer at an annual base salary of $500,000.
|
(2)
|
In March 2020, the Company completed the acquisition of Guanzan. In addition to the issuance of 950,000 shares of the Company’s common stock, the Company was obligated to pay approximately $4,414,119, subject to post-closing adjustments based on the performance of the Guanzan Group in 2020 and 2021. The fair value of the cash consideration payable was calculated in conformance with FASB ASC 805-10. On November 20, 2020, the parties to the Guanzan agreement entered into a Prepayment and Amendment Agreement in light of Guanzan Group’s performance during the period from March 18, 2020 to September 30, 2020, providing for the prepayment of RMB 20,000,000 in the form of shares of the Company’s common stock valued at $3.00 per share. On November 30, 2020, the Company issued 1,000,000 shares of its common stock as the prepayment. Upon the approval of the Company’s shareholders, on August 27, 2021, the Company issued 4,600,000 shares of its common stock as the payment of the balance of the post-closing consideration for the acquisition of Guanzan Group
|
20.
|
RELATED PARTIES AND
RELATED PARTIES TRANSACTIONS
|
Amount
due from related parties
As
of September 30, 2021 and December 31, 2020, the total amounts due from related parties was $441,301 and $Nil, respectively, which included:
1.
|
As of September 30, 2021, Amount due from Mr.Jiangjin Shen, the Chief Executive Officer of Minkang, of $253,216 was a related party loan with no interest.
|
2.
|
As of September 30, 2021, Amount due from Mr.Zhiwei Shen, the Chief Executive Officer of Qiangsheng, of $188,085 was a related party loan with no interest.
|
Amounts
payable to related parties
As
of September 30, 2021 and December 31, 2020, the total amounts payable to related parties was $839,473 and $226,514, respectively, which
included:
1.
|
Amount payable to Mr. Yongquan Bi, the former Chief Executive Officer and current Chairman of the Board of directors of the Company, of $29,746 and $29,566, respectively, free of interest and due on demand. These amounts represents the remaining balance that Mr. Yongquan Bi advanced for third party services on behalf of the Company during the ordinary course of business of the Company since the beginning of 2018.
|
2.
|
Amount payable to Mr. Li Zhou, the legal representative (general manager) of Guanzan, of $590,596 and $0 respectively is s related party loan for daily operation and third party profession fees with no interest.
|
3.
|
Amounts payable to Mr. Fuqing Zhang, the Chief Executive Officer of Xinrongxin of $185,493 and $184,370, respectively, free of interest and due on demand. The amount due to Mr. Fuqing Zhang is for reimbursable operating expenses that the Company owed to Mr. Zhang prior to the acquisition of Boqi Zhengji.
|
4.
|
Amounts payable to Mr. Youwei Xu, the financial manager of Xinrongxin of $12,655 and $12,578, respectively, free of interest and due on demand. The amount due to Mr. Xu, relates to reimbursable operating expenses that was owed to Mr. Xu prior to the acquisition of Boqi Zhengji.
|
|
|
5.
|
Amounts payable to Shaohui Zhuo, the general manager of Guoyitang of $5,016 and $0, respectively, was a related party loan for daily operation with no interest.
|
6.
|
Amounts payable to Nanfang Xiao, a director of Guoyitang of $11,256 and $0, respectively, was a related party loan for daily operation with no interest.
|
7.
|
Amounts payable to Jia Song, the manager of Guoyitang of $4,711 and $0, respectively, was a related party loan for daily operation with no interest.
|
The
Company is authorized to issue 50,000,000 shares of common stock, $0.001 par value. As of September 30, 2021 and December 31, 2020, it
had 32,423,350 shares and 13,254,587 shares outstanding, respectively. As of September 30, 2021, the Company reserved a total of 4,696,137
shares of common stock for future issuance pursuant to the requirements of the Convertible Notes.
On
April 20, 2019 and October 7, 2019, respectively, the Company issued an aggregate of 1,500,000 shares of its common stock as a part of
the consideration for the acquisition of Boqi Zhengji.
On
March 12, 2020, the Company issued 950,000 shares of its common stock as the Guanzan Stock Consideration.
From
April 6, 2020 through October 20, 2020, holders of convertible notes issued during the period from September 27, 2019 to February 13,
2020, converted the aggregate principal amount of $1,534,250 plus interest into 1,658,213 shares of the Company’s common stock.
On
November 30, 2020, the Company issued 1,000,000 shares of its common stock as the prepayment of the Guanzan Cash Consideration.
On December 2, 2020, Hudson Bay Master Fund Ltd
(“Hudson Bay”), converted a Convertible Note in the aggregate principal amount of $173,154 plus interest into 125,627
shares of the Company’s common stock .
On December 2, 2020, CVI Investments, Inc. (“CVI”),
converted a Convertible Note in the aggregate principal amount of $609,615 plus interest into 447,458 shares of the Company’s common
stock.
From
January 4, 2021 to February 9, 2021, Hudson Bay converted Convertible Notes in the aggregate principal amount of $ 2,150,000
plus interest into 1,384,714 shares of the Company’s common stock.
From
January 4, 2021 to March 1, 2021, CVI converted Convertible Notes in the aggregate principal amount of $ 2,150,000 plus interest
into 1,138,657 shares of the Company’s common stock.
On
February 2, 2021, the Company issued 2,000,000 shares of the Company’s common stock as the Guoyitang Stock Consideration.
On
February 3, 2021, a holder of a convertible note issued on December 16, 2019 converted a part of the note in the aggregate principal
amount of $ 74,473 plus interest into 103,530 shares of the Company’s common stock.
On February 11, 2021, the Company issued 250,000
shares of its common stock to Real Miracle Investments Limited in consideration for consulting services.
On March 26, 2021, the Company issued 2,000,000
shares of its common stock as the Zhongshan Stock Consideration.
On April 20, 2021, the Company issued 4,000,000
shares of its common stock as partial consideration for the acquisition of the Minkang, Qiangsheng and Eurasia hospitals.
On April 29, 2021, the Company issued 500,000
shares of its common stock as payment for improvements to offices located in Chongqing.
On
June 18, 2021, 162,500 shares of the Company’s common stock were issued to CVI with respect to its cashless exercise of 650,000 warrants
that were issued in 2020.
On July 23, 2021, the Company issued 150,000 shares
of its common stock as payment for salary to three employees.
On
August 26, 2021, Hudson Bay, converted a Convertible Note in the aggregate principal amount of $ 327,136 plus interest into 301,052
shares of the Company’s common stock.
On
August 26, 2021, CVI, converted a Convertible Note in the aggregate principal amount of $ 411,088 plus interest into 378,310 shares
of the Company’s common stock.
On
August 27, 2021, the Company issued 4,600,000 shares of its common stock in full payment of the balance of the post-closing consideration
for the acquisition of Guanzan.
On September 22, 2021, the Company issued 2,200,000
shares of its common stock as the initial consideration for the acquisition of Zhuoda.
22.
|
NET INCOME (LOSS) PER
SHARE
|
Basic
net income (loss) per share is computed using the weighted average number of common shares outstanding during the year. The dilutive
effect of potential common shares outstanding is included in diluted net income (loss) per share. Due to the Company’s net income (loss)
from its continuing operations, all potential common share issuance had anti-dilutive effect on net income (loss) per share. The following
table sets forth the computation of basic and diluted net income (loss) per share for the nine months ended September 30, 2021 and 2020:
|
|
For the nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net income (loss) from continuing operation attributable to common shareholders
|
|
$
|
(5,312,658
|
)
|
|
$
|
535,442
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – Basic and diluted
|
|
|
22,864,269
|
|
|
|
9,987,848
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share – basic and diluted:
|
|
|
(0.23
|
)
|
|
|
0.05
|
|
On
April 1, 2020, the Guizhou Province Xiuwen County People’s Court ordered the attachment of two of Shude’s bank accounts pursuant
to a pre-litigation attachment application filed by one of Shude’s suppliers in connection with unpaid outstanding payables. No
lawsuit was filed by the supplier and the dispute has been resolved and attachment removed. The total amount of cash in the two accounts
subject to the attachment was RMB 570,902 (approximately $80,409).
General
Information About Reportable Segments:
The
Company operates in four reportable segments: wholesale pharmaceuticals, wholesale medical devices, medical services and retail pharmacy.
The wholesale pharmaceuticals segment includes supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to
clinics, third party pharmacies, hospitals and other drug vendors. The wholesale medical device segment distributes medical devices,
including medical consumables to private clinics, hospitals, third party pharmacies and other medical device dealers. The medical services
segment includes the hospitals acquired in February and April 2021. The retail pharmacy segment sells prescription and OTC medicines,
traditional Chinese medicines (“TCM”), healthcare supplies, and sundry items to retail customers through its directly-owned
pharmacies and authorized retail stores.
To
date, there were no inter-segment revenues between our retail pharmacy, hospitals and wholesale pharmaceuticals segments. The wholesale
medical devices segment distributes medical devices, including medical consumables to private clinics, hospitals, third party pharmacies
and other medical devices dealers. Disclosure should relate to all segments.
The
segments’ accounting policies are the same as those described in the summary of significant accounting policies. The Company’s chief
operating decision maker, who is the CEO of the Company, evaluates performance of each of the segments based on profit or loss from continuing
operations net of income tax.
The
Company’s reportable business segments are strategic business units that offer different products. Each segment is managed independently
because they require different operations and each markets to distinct classes of customers.
Information
about Reported Segment Profit or Loss and Segment Assets
BIMI,
as the holding company, incurred a significant amount of general operating expenses, such as financing costs, that the Company’s chief
operating decision maker did not allocate to segments to evaluate the segments performance and allocate recourse of the Company. In addition,
except for depreciation and amortization of long-lived assets, the Company does not allocate the change in fair value of derivative liabilities
and the amortization of discount of convertible notes to reporting segments in its reported profit or loss. The following amounts were
used by the chief operating decision maker.
For the nine months ended
September 30, 2021
|
|
Retail
pharmacy
|
|
|
Medical
device
wholesale
|
|
|
Drugs
wholesale
|
|
|
Medical
services
|
|
|
Others
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
375,045
|
|
|
$
|
2,524,777
|
|
|
$
|
14,978,955
|
|
|
$
|
6,694,510
|
|
|
$
|
629,198
|
|
|
$
|
25,202,485
|
|
Cost of revenues
|
|
$
|
295,059
|
|
|
$
|
1,831,089
|
|
|
$
|
14,598,512
|
|
|
$
|
3,334,306
|
|
|
$
|
557,313
|
|
|
$
|
20,616,279
|
|
Depreciation, depletion, and amortization expense
|
|
$
|
15,521
|
|
|
$
|
23,683
|
|
|
$
|
1,638
|
|
|
$
|
205,317
|
|
|
$
|
176
|
|
|
$
|
246,335
|
|
Profit (loss)
|
|
$
|
(463,211
|
)
|
|
$
|
158,908
|
|
|
$
|
152,044
|
|
|
$
|
787,515
|
|
|
$
|
(5,911,497
|
)
|
|
$
|
(5,276,241
|
)
|
Total assets
|
|
$
|
287,074
|
|
|
$
|
6,075,980
|
|
|
$
|
18,774,282
|
|
|
$
|
8,651,014
|
|
|
$
|
30,497,860
|
|
|
$
|
64,286,210
|
|
Reconciliations
of Reportable Segment Revenues, Profit or Loss, and Assets, to the Consolidated Totals as of September 30, 2021 and for the nine months
ended September 30, 2021.
> Revenues
|
|
|
|
Total revenues from reportable segments
|
|
$
|
27,424,812
|
|
Other revenues
|
|
|
629,198
|
|
Elimination of intersegments revenues
|
|
|
(2,851,525
|
)
|
Total consolidated revenues
|
|
$
|
25,202,485
|
|
|
|
|
|
|
> Profit or loss
|
|
|
|
|
Total profit from reportable segments
|
|
$
|
(1,303,167
|
)
|
Elimination of intersegments profit or loss
|
|
|
(667,910
|
)
|
Unallocated amount:
|
|
|
|
|
Amortization of discount of convertible notes
|
|
|
(2,639,374
|
)
|
Other corporate expense
|
|
|
(665,790
|
)
|
Total net loss
|
|
$
|
(5,276,241
|
)
|
|
|
|
|
|
> Assets
|
|
|
|
|
Total assets from reportable segments
|
|
$
|
49,176,982
|
|
Elimination of intersegments receivables
|
|
|
(14,180,718
|
)
|
Unallocated amount:
|
|
|
|
|
Other unallocated assets – Xinrongxin
|
|
|
12,386,406
|
|
Other unallocated assets – Liaoning Boyi
|
|
|
177,335
|
|
Other unallocated assets – Dalian Boyi
|
|
|
21,841
|
|
Other unallocated assets – Chongqing Bimai
|
|
|
12,058,313
|
|
Other unallocated assets – BIMI
|
|
|
4,646,051
|
|
Total consolidated assets
|
|
$
|
64,286,210
|
|
|
25.
|
ENTITY-WIDE
INFORMATION AND CONCENTRATIONS OF RISK
|
Entity-Wide
Information
(a)
|
Revenues from each types
of products
|
For
the nine months ended September 30, 2021 and 2020, respectively, the Company reported revenues for each type of products and services
as follows:
|
|
For the nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Medical devices
|
|
$
|
2,524,777
|
|
|
$
|
2,567,029
|
|
Medicines
|
|
|
21,673,465
|
|
|
|
4,698,985
|
|
Pharmacy retail
|
|
|
375,045
|
|
|
|
42,898
|
|
Other
|
|
|
629,198
|
|
|
|
8,537
|
|
Total
|
|
$
|
25,202,485
|
|
|
$
|
7,317,449
|
|
(b)
|
Geographic areas information
|
For
the nine months ended September 30, 2021 and 2020, respectively, all the Company’s revenues were generated in the PRC. There were no
long-lived assets located outside of the PRC as of September 30, 2021 and 2020.
For
the nine months ended September 30, 2021, no customer accounted for more than 10% of the Company’s total revenues. As of September 30,
2021, two customers accounted for more than 10% of the balance of accounts receivable which were 33.73% and 26.7%, respectively.
For
the nine months ended September 30, 2021, no vendor accounted for more than 10% of the Company’s total purchases. As of September 30,
2021, one vendor accounted for 50.25% of the Company’s purchases.
Concentrations
of Risk
The
Company is exposed to the following concentrations of risk:
Financial
instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration
of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection
terms. The Company does not generally require prepayments or deposits from customers. The Company evaluates the need for an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
The
Company’s interest-rate risk arises from convertible promissory notes, short-term and long-term loans. The Company manages interest rate
risk by varying the issuance and maturity dates, fixing interest rate of debt, limiting the amount of debts, and continually monitoring
the effects of market changes in interest rates. As of September 30, 2021 and December 31, 2020, respectively, the Convertible Notes
and other outstanding notes, short-term and long-term loans were at fixed rates.
Substantially
all of the Company’s revenues and a majority of its costs are denominated in RMB and a significant portion of its assets and liabilities
are denominated in RMB. As a result, the Company’s results of operations may be affected by fluctuations in the exchange rate between
US$ and RMB. If the RMB depreciates against the US$, the value of RMB revenues and assets as expressed in US$ financial statements will
decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
(d)
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Economic and political
risks
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The
Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operation may
be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The outbreak
of COVID-19 pandemic has expanded all over the world since the beginning of 2020, which has greatly slowed the growth of the global economy,
including the PRC, and this effect may continue until the pandemic is controlled, or a vaccine or cure is developed. The slowdown of
the growth of the PRC’s economy has adversely effected our current business and future success will be adversely affected if we are unable
to capitalize on the opportunities arising from the increasing demand for medicine and medical devices in the markets in which we operate.
The
Company’s operations in the PRC are subject to special considerations. These include risks associated with, among others, the political,
economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political
and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures,
currency conversion, remittances abroad, and rates and methods of taxation.