UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

or

 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File Number: 000-50155

 

BIMI International Medical Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   02-0563302
(State of Incorporation)   (I.R.S. Employer ID Number)

 

725 5th Avenue15th FloorSuite 15-01

New York NY

  400010
(Address of Principal Executive Offices)   (Zip Code)

 

212 542 0028

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which
Registered
Common Stock, $0.001 par value   BIMI   The NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes  No

 

As of November 15, 2023, the registrant had 6,589,569 shares of Common Stock, par value $0.001 per share, issued and shares outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

        Page
PART I   FINANCIAL INFORMATION   1
Item 1   Financial Statements   1
Item 2   Management’s Discussion and Analysis of Financial Condition and Results of Operations   49
Item 3   Quantitative and Qualitative Disclosures About Market Risk   70
Item 4   Controls and Procedures   70
         
PART II   OTHER INFORMATION   73
Item 1   Legal Proceedings   73
Item 1A   Risk Factors   73
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds   73
Item 3   Defaults Upon Senior Securities   73
Item 4   Mine Safety Disclosures   73
Item 5   Other Information.   73
Item 6   Exhibits.   74
         
Signatures   75

 

i

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BIMI INTERNATIONAL MEDICAL, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(RESTATED)

 

   June 30,   December 31, 
   2023   2022 
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents  $1,931,744   $2,336,636 
Accounts receivable, net   6,380,387    3,208,286 
Advances to suppliers   7,017,279    6,589,759 
Inventories, net   7,182,524    7,654,242 
Prepayments and other receivables   1,350,124    1,527,079*
Current assets from discontinued operations-held for sale   2,133,382    2,099,673 
Total current assets   25,995,440    23,415,675 
           
NON-CURRENT ASSETS          
Deferred tax assets   183,259    190,132 
Property, plant and equipment, net   1,690,107    1,703,420 
Intangible assets-net   448,931    16,183 
Operating lease-right of use assets   2,835,992    2,942,265 
Goodwill   2,065,666    2,065,666 
Non-current assets from discontinued operations-held for sale   3,439,099    3,761,149 
Total non-current assets   10,663,054    10,678,815*
           
TOTAL ASSETS  $36,658,494   $34,094,490*
           
LIABILITIES AND EQUITY          
CURRENT LIABILITIES          
Short-term loans  $1,134,822   $818,425 
Long-term loans due within one year   101,244    105,965 
Convertible promissory notes, net   
-
    1,108,785 
Accounts payable, trade   9,605,089    10,785,531 
Advances from customers   524,789    923,131 
Amount due to related parties   1,018,832    2,980,441*
Taxes payable   16,644    71,915 
Other payables and accrued liabilities   3,204,970    3,175,574 
Lease liabilities   650,661    532,630 
Current liabilities from discontinued operations-held for sale   3,133,747    3,239,950 
Total current liabilities   19,390,798    23,742,347*
           
NON-CURRENT LIABILITIES          
Lease liabilities   2,414,883    2,574,751 
Long-term loans   126,284    314,786 
Non-current liabilities from discontinued operations-held for sale   2,214,033    2,245,373 
Total non-current liabilities   4,755,200    5,134,910 
           
TOTAL LIABILITIES   24,145,998    28,877,257*
           
STOCKHOLDERS’ EQUITY          
Common Stock, $0.001 par value; 200,000,000 shares authorized; 6,258,962 and 3,764,780 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively **   6,259    3,765 
Additional paid-in capital   77,417,369    71,899,271 
Statutory reserves   2,263,857    2,263,857 
Accumulated deficit   (68,298,681)   (70,143,785)
Accumulated other comprehensive income (loss)   (501,876)   24,583 
Total BIMI International Medical Inc.’s equity   10,886,928    4,047,691 
           
NON-CONTROLLING INTERESTS   1,625,568    1,169,542 
           
Total stockholders’ equity   12,512,496    5,217,233 
           
Total liabilities and stockholders’ equity  $36,658,494   $34,094,490*

 

*In our financial statements for the year ended December 31, 2022, we incorrectly accounted for the acquisition of Phenix Bio Inc. On July 5, 2022, we entered into a stock purchase agreement, which was subsequently amended, pursuant to which we agreed to acquire Phenix and paid a deposit of $180,000 on July 7, 2022. The closing did not occur until March 15, 2023.  As of December 31, 2022, the accounting for the Phenix acquisition was incorrectly recorded as follows: (1) a long-term equity investment as a debit entry, (2) cash as a credit, and (3) other payables as a credit entry. Since the Phenix acquisition had not taken place as of December 31, 2022, it should not have been recorded as a long-term equity investment. As such, we reversed the long-term equity investment account and other payables account and recorded the deposit as a prepayment.
  
** On February 2, 2022, we effected a reverse stock split of Common Stock at a ratio of 1-to-5 and on December 9, 2022, we effected a reverse stock split of Common Stock at a ratio of 1-to-10 (collectively, the “Reverse Splits”).

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

1

 

 

BIMI INTERNATIONAL MEDICAL, INC. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

(RESTATED)

 

   For three months ended
June, 30
   For six months ended
June 30,
 
   2023   2022   2023   2022 
REVENUES  $5,557,666   $2,829,034   $8,755,303   $5,543,745 
                     
COST OF REVENUES   2,673,586    2,356,455    4,180,982    4,698,822 
                     
GROSS PROFIT   2,884,080    472,579    4,574,321    844,923 
                     
OPERATING EXPENSES:                    
Sales and marketing   236,155    296,063    492,313    641,627 
General and administrative   1,348,481    2,943,302*   2,127,465    5,119,784*
Total operating expenses   1,584,636    3,239,365*   2,619,778    5,761,411 
                     
INCOME (LOSS) FROM OPERATIONS   1,299,444    (2,766,786)*   1,954,543    (4,916,488)*
                     
OTHER INCOME (EXPENSE)                    
Interest income   68    207*   326    353*
Interest expense   (34,615)   (48,581)   (69,530)   (96,718)
Exchange gain (loss)   (2,542)   (3,170)*   (2,284)   (6,436)*
Amortization of convertible notes (1)   
-
    (771,124)   
-
    (1,542,248)
Investment income (expense)   (62,617)   
-
    197,739    
-
 
Non-operating expense   (25,368)   (2,613,018)   (93,303)   (2,613,018)
Other income (expense)   
-
    67,351*   
-
    66,720*
Total other income (expense), net   (125,074)   (3,368,336)   32,948    (4,191,347)*
                     
INCOME (LOSS) BEFORE INCOME TAXES   1,174,370    (6,135,122)*   1,987,491    (9,107,835)*
                     
PROVISION FOR INCOME TAXES   
-
    (4,222)   
-
    (7,151)
                     
NET INCOME (LOSS) FROM CONTINUING OPERATIONS   1,174,370    (6,139,344)*   1,987,491    (9,114,986)*
                     
DISCONTINUED OPERATIONS                    
Loss from discontinued operations-held for sale   (119,793)   (406,155)*   (143,102)   (198,738)
Income (loss) from discontinued operations   
-
    (818)   
-
    26,928 
                     
NET INCOME (LOSS)   1,054,397    (6,546,316)*   1,844,389    (9,286,796)*
Less: net loss attributable to noncontrolling interest   272    (1,416)   715    (2,498)
NET INCOME (LOSS) ATTRIBUTABLE TO BIMI INTERNATIONAL MEDICIAL INC.   1,054,125    (6,544,900)*   1,843,674    (9,284,298)*
                     
OTHER COMPREHENSIVE (LOSS)                    
Foreign currency translation adjustment   (753,453)   (417,506)   (526,459)   (967,586)
TOTAL COMPREHENSIVE INCOME (LOSS)   300,944    (6,963,822)*   1,317,930    (10,254,382)*
Less: comprehensive income attributable to noncontrolling interest   (568,103)   (510,069)   (1,508,627)   (535,043)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO BIMI INTERNATIONAL MEDICIAL INC.  $869,047   $(6,453,753)*  $2,826,557   $(9,719,339)*
                     
WEIGHTED AVERAGE NUMBER OF COMMON SHARES                    
Basic and diluted
   4,596,440    9,493,512    4,219,675    15,429,754 
                     
INCOME (LOSS) PER SHARE                    
Continuing operations-Basic and diluted
   0.26    (0.65)   0.47    (0.59)
Discontinued operations-Basic and diluted
   (0.03)   (0.04)   (0.03)   (0.01)
Basic and diluted
   0.23    (0.69)   0.44    (0.60)

 

The accompanying notes are an integral part of the condensed consolidated financial statements

2

 

 

BIMI INTERNATIONAL MEDICAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)

(RESTATED)

 

   Common Stock   Additional
Paid-in
  

Accumulated

Other
Comprehensive

   Statutory   Non
Controlling
   Accumulated   Total
Stockholders’
 
   Shares**   Amount   Capital   Income   Reserves   Interests   Deficit   Equity 
Balance as of December 31, 2022   3,764,780    3,765    71,899,271    24,583    2,263,857    1,169,542    (70,143,785)   5,217,233 
                                         
Issuance of Common Stock   270,000    270    376,337    
-
    
-
    
-
    
-
    376,607**
                                         
Net income   -    
-
    
-
    
-
    
-
    443    789,549*   789,992*
                                         
Foreign currency translation adjustment   -    
-
    
-
    227,068*        (112,519)*   3,187,087*   3,301,636*
                                         
Discontinued operations and subsidiaries -held for sale        
 
         (74)   
 
         (3,186,202)   (3,186,276)
                                         
Balance as of March 31, 2023   4,034,780    4,035    72,275,608    251,577*   2,263,857    1,057,466*   (69,353,351)*   6,499,192*
                                         
Issuance of Common Stock   2,224,182    2,224    5,141,761    
-
    
-
    
-
    
-
    5,143,985 
                                         
Net income   -    
-
    
-
    
-
    
-
    272    1,504,125    1,054,397 
                                         
Foreign currency translation adjustment   -    
-
    
-
    (757,599)   
 
    567,830    83,320    (106,449)
                                         
Discontinued operations and subsidiaries -held for sale        
 
    
 
    4,146    
 
    
 
    (82,775)   (78,629)
                                         
Balance as of June 30, 2023   6,258,962    6,259    77,417,369    (501,876)   2,263,857    1,625,568    (68,298,681)   12,512,496 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3

 

 

BIMI INTERNATIONAL MEDICAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

   For the six months ended
June 30
 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income (loss)  $1,844,389   $(9,286,796)*
Adjustments to reconcile net loss to cash used in operating activities:          
Depreciation and amortization   128,613    125,781 
Inventories impairment reserve   26,604    
-
 
Allowance for doubtful accounts   
-
    (572)
Stock compensation   
-
    1,510,000*
Amortization of discount of convertible promissory notes   
-
    1,542,248 
Gain (loss) on disposal of discontinued operations   197,739    (259,253)
           
Change in operating assets and liabilities          
Accounts receivable   (3,172,101)   1,167,803 
Advances to suppliers   3,982,685    4,647,888*
Prepayments and other receivables   176,955    (113,247)
Inventories   445,113    (494,246)
Operating lease-right of use assets   106,273    167,698 
Accounts payable, trade   (1,180,442)   (1,399,264)
Advances from customers   (398,342)   429,998 
Operating lease liabilities   (41,837)   (140,526)
Taxes payable   (48,398)   (117,114)
Other payables and accrued liabilities   29,396    (1,130,396)*
Discontinued operations-held for sale of Minkang, Eurasia, Qiangsheng and Zhongshan hospitals Minkang/wuzhou/suzhou/Chaohu zhongshan   150,801    (366,739)
Net cash provided by (used in) operating activities   2,247,448    (3,689,637)*
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net proceeds from issuance of convertible promissory note to related party   
-
    5,000,000*
Issuance of Common Stock   1,600    
-
 
Proceeds from short-term loan   316,397    80,758 
Repayment of short-term loans   (4,721)   
-
 
Repayment of long-term loans   (188,502)   (399,115)
Amount repaid to related parties   (1,961,609)   (227,248)
Net cash provided by (used in) financing activities   (1,836,835)   4,454,395 
           
EFFECT OF EXCHANGE RATE ON CASH   (815,505)   (661,857)*
           
NET DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS   (404,892)   102,901*
CASH AND CASH EQUIVALENTS, beginning of period   2,336,636    4,609,431*
CASH AND CASH EQUIVALENTS, end of period  $1,931,744   $4,712,332*
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for income tax  $
-
   $133,009 
Cash paid for interest expense, net of capitalized interest  $37,549   $122,539 
           
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES          
           
Issuance of Common Stock as a result of the application of the “Floor Amount Issuance” with respect to the conversion of convertible promissory note   894    
-
 
Issuance of Common Stock upon conversion of convertible notes   
-
    5,491 
Lease liabilities arising from acquisition of  right-of-use assets   28,277    30,392*

 

4

 

 

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”) 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, we changed our name to BIMI International Medical Inc. Since March 7, 2012, the Common Stock of the Company (the “Common Stock”) has been traded on the Nasdaq Capital Market.

 

Until October 14, 2019, the Company, through NF Energy Saving Investment Limited and its subsidiaries (the “NF Group”), operated in the energy saving enhancement technology industry in the People’s Republic of China (the “PRC”). The NF Group focused on providing services relating to energy saving technology, optimization design, energy saving reconstruction of pipeline networks and contractual energy management for the electric power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries in the PRC and the manufacture and sales of energy-saving flow control equipment. In late 2019, the Company committed to a plan to dispose of all its equity interests in the NF Group and on March 31, 2020, the Company entered into a stock purchase agreement (the “NF SPA”) to sell the NF Group. The sale of the NF Group closed on June 23, 2020.

 

On October 14, 2019, the Company acquired 100% of the equity interests in Lasting Wisdom Holdings Limited (“Lasting”), a limited company incorporated under the laws of the British Virgin Islands (“BVI”). Lasting has limited operating activities since incorporation except for holding the ownership interest in Pukung Limited (“Pukung”), a company organized under the laws of Hong Kong. Pukung owns 100% of the equity interest in Beijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”), a company organized under the laws of the PRC. Xinrongxin owns all the ownership interest of Dalian Boqi Zhengji Pharmacy Chain Co., Ltd. (“Boqi Zhengji”). Boqi Zhengji operated 16 retail pharmacy stores in China at the time of the acquisition. Lasting, Pukung, Xinrongxin and Boqi Zhengji are hereinafter collectively referred to as the “Boqi Zhengji Group”. Xinrongxin also owns 100% equity interests in Dalian Boyi Technology Co., Ltd. (“Dalian Boyi”), a subsidiary established in January 2020 and responsible for the Company’s R&D and other technology related functions.

 

On June 24, 2020, the Company established a wholly owned subsidiary Boyi (Liaoning) Technology Co.,Ltd (“Liaoning Boyi”), in order to be qualified to participate in local healthcare projects. On December 22, 2020, the Company established another subsidiary, Bimai Pharmaceutical (Chongqing) Co., Ltd., to replace Xinronxin as the holding company owning all the retail, wholesale and hospital operations in China.

 

On March 18, 2020, the Company, through its wholly owned subsidiary, Xinrongxin, acquired 100% of the equity interests in Chongqing Guanzan Technology Co., Ltd. (“Guanzan”). Guanzan held an 80% equity interest in Chongqing Shude Pharmaceutical Co., Ltd. (“Shude”, and collectively with Guanzan, the “Guanzan Group”). Guanzan also owns 100% equity interest in Chongqing Lijiantang Pharmaceutical Co. Ltd., a subsidiary established in May 2020. Lijiantang operates 4 retail pharmacy stores in China (collectively, the “Lijiantang Pharmacy Group”). 

 

On December 11, 2020, the Company entered into a stock purchase agreement to sell Boqi Zhengji. The sale of the Boqi Zhengji closed by the end of 2020 although the government record was not updated until February 2, 2021 due to the Chinese government’s alternative working schedule and other delays caused by COVID-19.

 

On December 9, 2020, the Company entered into an agreement to acquire 100% of the equity interests in Chongqing Guoyitang Hospital (“Guoyitang”), the owner and operator of a private general hospital in Chongqing City, a city in Southwest China. The transaction closed on February 2, 2021. 

 

5

 

 

On December 15, 2020, the Company entered into an agreement to acquire Chaohu Zhongshan Minimally Invasive Hospital (“Zhongshan”), a private hospital in the Southeast region of China. The transaction closed on February 5, 2021.

 

On April 9, 2021, the Company entered into an 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 services 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 an agreement to acquire 100% of the equity interests in Chongqing Zhuoda Pharmaceutical Co., LTD (“Zhuoda”). The transaction closed on October 8, 2021.

 

On December 20, 2021, the Company entered into a stock purchase agreement to acquire Bengbu Mali OB-GYN Hospital Co., Ltd. (“Mali Hospital”). We agreed to purchase all the issued and outstanding equity interests in Mali Hospital in consideration of $16,750,000. At the signing, 60,000 shares of the Company’s Common Stock (reflecting the Reverse Splits) were delivered as partial consideration for the purchase and on January 4, 2022, we paid RMB 7,227,000 to the seller as partial consideration. The transaction did not close and on December 15, 2022, we entered into a termination agreement with respect to the original purchase agreement. Pursuant to the termination agreement, the original agreement will terminate effective as of the date of the return of the 60,000 shares of the Company’s Common Stock (reflecting the Reverse Splits) previously issued to the sellers and certain third-party beneficiaries. On December 9, 2022, 52,000 shares of Common Stock were returned to the Company and on September 1, 2023, the remaining 8,000 shares of Common Stock were returned to the Company. All cash paid at the time of the acquisition is expected to be returned by December 31, 2023. 

 

On July 5, 2022, we entered into a stock purchase agreement (as amended on February 27, 2023) with Mr. Fnu Oudom, the Chairman of our board of directors, whereby we agreed to acquire 100% of the equity interests in Phenix Bio Inc. (“Phenix”), a developer and distributor of dietary supplements, in consideration of $1,800,000. The transaction closed effective March 15, 2023. The aggregate purchase price for the equity interests in Phenix was $180,000 in cash, which was paid on July 7, 2022, plus up to 5,270,000 shares of the Company’s Common Stock (reflecting the Reverse Splits), of which 270,000 shares were issued to Mr. Oudom on June 19, 2023, after shareholder approval was obtained. We agreed to issue 5,000,000  shares of Common Stock to Mr. Oudom in the event that Phenix will generate at least $2,500,000 in net profit in calendar year 2023 or in any fiscal quarter of 2023.

 

As of June 30, 2023, the Company has four operating segments: retail pharmacy, wholesale pharmaceuticals, wholesale medical devices and healthcare products.

 

The retail pharmacy segment engages in the retail sale of medicine and other healthcare products in the PRC. The retail pharmacy segment sells its medicine and other healthcare products to customers through its directly owned stores. The group offers a wide range of products, including prescription and over the counter (“OTC”) drugs, nutritional supplements, traditional Chinese medicines, personal and family care products and medical devices, as well as miscellaneous items.

 

The Company’s wholesale segments are engaged in the distribution of medical devices and pharmaceuticals. The wholesale medical devices segment distributes medical devices, including medical consumables to drug stores, private clinics, pharmaceutical dealers, and hospitals. The wholesale pharmaceuticals segment supplies prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals, and other drug vendors.

 

The Company’s healthcare products are developed and distributed by Phenix. Phenix owns its formulas and uses out-sourced facilities in the U.S. and Australia to manufacture its products. To date, Phenix has sold all of its products through Meta Time, an online sales platform. Most of the customers were from Asian countries. Phenix currently offers six categories of dietary supplements, a cardiovascular product, an anti-insomnia and depression product, a male aphrodisiac product, a woman’s menopausal syndrome product, a gout product, and an immunity enhancer.

 

6

 

 

As of June 30, 2022, the Company had four operating segments: wholesale medical devices, wholesale pharmaceuticals, medical services, and retail pharmacy.

 

As of June 30, 2023, the details of the Company’s subsidiaries are as follows:

 

Name   Place of incorporation and
kind of legal entity
  Principal activities and
Type of operation
  Effective
ownership
interest
held
 
Lasting Wisdom Holdings Limited (“Lasting”)   British Virgin Island, a limited liability company   Investment holding     100 %
                 
Phenix Bio Inc. (“Phenix”)   California, a corporation   Distribution of healthcare products     100 %
                 
Pukung Limited (“Pukung”)   Hong Kong, a limited liability company   Investment holding     100 %
                 
Beijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”)   The PRC, a limited liability company   Investment holding     100 %
                 
Boyi (Liaoning) Technology Co., Ltd (“Liaoning Boyi”)   The PRC, a limited liability company   IT Technology service research and development     100 %
                 
Dalian Boyi Technology Co., Ltd (“Dalian Boyi”)   The PRC, a limited liability company   IT Technology service research and development     100 %
                 
Chongqing Guanzan Technology Co., Ltd. (“Guanzan”)   The PRC, a limited liability company   Wholesale distribution of medical devices in the PRC     100 %
                 
Chongqing Shude Pharmaceutical Co., Ltd.(“Shude”)   The PRC, a limited liability company   Wholesale distribution of generic drugs in the PRC     95 %
                 
Chongqing Lijiantang Pharmaceutical Co., Ltd.(“Lijiantang”)   The PRC, a limited liability company   Wholesale distribution of generic drugs in the PRC     100 %
                 
Bimai Pharmaceutical (Chongqing) Co., Ltd.   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 %
                 
Yunnan 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 %

 

7

 

 

2. GOING CONCERN UNCERTAINTIES

 

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

 

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company incurred significant net losses of $1,844,389 and $9,286,796 during the six months ended June 30, 2023, and 2022, respectively. As of June 30, 2023, the Company had an accumulated deficit of $68.3 million. 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 its ability to obtain external financing, and (2) further implementation of management’s business plan to expand its operations and generate sufficient revenues 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 neither any assurances to that effect, nor any assurance that the Company will be successful in securing sufficient funds to sustain the operations.

 

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.

 

We are in the process of restating our financial statements for year ended December 31, 2022 and the quarterly periods ended March 31, 2022, June 30, 2022, September 30, 2022 and March 31, 2023, to correct errors identified in our prior financial statements. We have concluded that the restatements do not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

 

(1)     We are in the process of restating the Consolidated Statements of Equity for the quarterly periods ended June 30, 2022 and September 30, 2022. The restatement relates to the stockholders’ equity and noncontrolling interests presented in the consolidated balance sheets, as of June 30, 2022 and September 30, 2022, which had been presented in the form of a reconciliation of the beginning balance to the ending balance for each period for which a consolidated statement of comprehensive income was required to be filed.  We will provide reconciliations for the interim periods covered by the Consolidated Statement of Equity for the periods ended June 30, 2022 and September 30, 2022.  This restatement should not have any effect on net income, per-share amount, or retained earnings and other components of equity or net assets for prior filing and current filing. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

 

8

 

 

(2)     On June 9, 2022, the Company issued a $5 million subordinated promissory note, which was converted into 1,250,000 shares of the Company’s Common Stock (post the December 2022 1 to 10 reverse split) on July 18, 2022, upon obtaining shareholder approval for the transaction. We erroneously reflected the proceeds of the promissory note in the Consolidated Statements of Cash Flows as “Issuance of Common Stock” for the six month period ended June 30, 2022.   We failed to reflect this promissory note as a note payable as of June 30, 2022. As a result, we are in the process of restating our financial statements for the quarterly period ended June 30, 2022. This restatement did not effect our net income, per-share amounts, retained earnings or other components of equity or net assets for prior filings and the current filing. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

 

(3)     We restated our financial statements for the year ended December 31, 2021 and are in the process of restating the our financial statements for the quarterly period ended June 30, 2022 to correct errors identified in our prior financial statements. In the year ended December 31, 2021 and the quarterly periods ended March 31, 2022 and June 30, 2022, we recorded amortization of convertible notes as a general and administrative expense in error. We have revised the financial statements for the year ended December 31, 2021 and the six months ended June 30, 2022 and are in the process of revising our financial statements for the quarterly period ended March 31, 2022 to record the amortization of convertible notes as an “other expense”. The impact of the restatement on our financial statements is the reclassification of such expense as an “other expense”. The reclassification also affected the classification of such expense in the Consolidated Statements of Cash Flows. We have also amended various footnotes to the financial statements. We restated our financial statements for the year ended December 31, 2021 and are in the process of restating the financial statements for the year ended December 31, 2022 and the quarterly periods ended March 31, 2022, June, 30, 2022 and September 30, 2022 to correct this issue. This restatement did not affect our net income (loss) , net income (loss) per-share, retained earnings or other components of equity or net assets for our prior filings and the current filing. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

 

(4)     We are in the process of restating our financial statements for the year ended December 31, 2022, where we incorrectly accounted for the acquisition of Phenix. On July 5, 2022, we entered into a stock purchase agreement, which was subsequently amended, pursuant to which we agreed to acquire Phenix and paid a deposit of $180,000 on July 7, 2022. The closing did not occur until March 15, 2023.  As of December 31, 2022, the accounting for the Phenix acquisition was incorrectly recorded as follows: (1) a long-term equity investment as a debit entry, (2) cash as a credit, and (3) other payables as a credit entry. Since the Phenix acquisition had not taken place as of December 31, 2022, it should not have been recorded as a long-term equity investment. As such, we reversed the long-term equity investment account and other payables account and recorded the deposit as a prepayment. This restatement did not affect our net income, per-share amounts, or retained earnings, but affected the net assets in the quarterly period ended March 31, 2023. We have concluded that the restatement does not materially affect our liquidity or other financial obligations.

 

(5)       We are in the process of restating the Consolidated Statements of Cash Flows for the quarterly periods ended June 30, 2022, September 30, 2022, March 31, 2023 and for the year ended December 31, 2022. The restatement relates to the discontinued entities' cashflow presented in the Consolidated Statements of Cash Flows, for the quarterly periods ended June 30, 2022, September 30, 2022, March 31, 2023, and for the year ended December 31, 2022, which have not presented in the prior period filling. In the restated Consolidated Statements of Cash Flows, we will present the discontinued entities’ cash flows in the Consolidated Statements of Cash Flows instead of zero. This restatement does not affect net income (loss), net income (loss) per-share, or retained earnings and other components of equity or net assets in our prior filings or in our current filing. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.  

 

We are taking steps to address the causes of the restatements and to improve our internal controls over financial reporting. We are in the process of hiring a new third-party consulting firm to assist us in strengthening our daily internal controls and financial reporting process review. We also aim to improve our internal accounting department management as well. We are committed to maintaining the integrity of our financial statements and to provide accurate and transparent financial information to our investors.

 

9

 

 

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 June 30, 2023, and for the three and six months ended June 30, 2023, and 2022 have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared in accordance with US GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on May 4, 2023.

 

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 June 30, 2023 and its unaudited condensed consolidated results of operations for the three and six months ended June 30, 2023 and 2022, and its unaudited condensed consolidated cash flows for the three and six months ended June 30, 2023 and 2022, as applicable, have been made. The results of operations are not necessarily indicative of the operating results for the fiscal year or any future periods.

 

Use of estimates

 

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 for inventory obsolescence, 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.

 

Business combinations

 

The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the acquisition date amounts of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated income statements. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Subsequent to the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any further adjustments are recorded in the consolidated income statements.

 

10

 

 

In a business combination achieved in stages, the Company re-measures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated income statements.

 

When there is a change in ownership interests or a change in contractual arrangements that results in a loss of control of a subsidiary, the Company deconsolidates the subsidiary from the date control is lost. Any retained non-controlling investment in the former subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.

 

Cash and cash equivalents

 

Cash and cash equivalents consist 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.

 

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 creditworthiness 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. We do not have any off-balance-sheet credit exposure related to its customers.

 

Advances to suppliers

 

Advances to suppliers consist of prepayments to the Company’s vendors, such as pharmaceutical manufacturers and medicine suppliers. The Company typically prepays for the purchase of our merchandise, especially for those salable, scarce, personalized medicine or medical devices. The Company typically receive products from vendors within three to nine months after making prepayments. The Company continuously monitor delivery from, and payments to, the vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such as discontinuing of inventory supply, that have been identified. If the Company has difficulty receiving products from a vendor, the Company will 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 June 30, 2023 and December 31, 2022, the allowance for doubtful accounts was Nil.

  

11

 

 

Businesses held for sale

 

In late 2022, we committed to a plan to dispose of the Zhongshan, Minkang, Qiangsheng and Eurasia hospitals and ceased the operation of the Guoyitang hospital. A An impairment is recorded, if necessary, on an annual basis or at the point of sale, based on an impairment assessment report by a third party.

 

When we acquire a business, a substantial portion of the purchase price of the acquisition may be allocated to goodwill and other identifiable intangible assets. The amount of the purchase price which is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. The current accounting standards require that goodwill and intangible assets should be deemed to have indefinite lives, which should be tested for impairment at least annually (or more frequently if impairment indicators arise). Other intangible assets are amortized over their useful lives. In 2022, we recorded impairment losses totaling approximately $5.4 million with respect to the goodwill relating to our acquisitions of the Guanzan Group, Zhongshan, Guoyitang, Minkang, Qiangsheng and Eurasia.

 

On December 28, 2022, the Company entered into an agreement to transfer 87% of the equity interests in Zhongshan to the prior owner and retain 13% of the equity interests in Zhongshan. As consideration for the transfer and pursuant to an amendment to the original stock purchase agreement, the original seller agreed to return the 40,037 shares of Common Stock previously issued (reflecting the Reverse Splits) and RMB 40,000,000 in cash (approximately ($6,116,207) previously paid upon the acquisition of Zhongshan. The former owner also agreed to release the Company from any and all claims relating to two earn out payments that were payable under the original purchase agreement. The Company received a put option to sell part or all of its 13% interest in Zhongshan before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by the two parties. On September 1, 2023, 39,037 shares of Common Stock were returned to the Company. The remaining 1,000 shares were returned in the form of $3,055 in cash because the shares were sold by the original seller. The transaction is expected to close by December 31, 2023, at which time the cash paid at the time of the transaction will also be returned.

 

On December 28, 2022, the Company entered into an agreement to transfer 90% of the equity interests in the Qiangsheng, Eurasia and Minkang hospitals to their former owners. Pursuant to the agreement, the Company will transfer 90% of the equity interests in each of the three hospitals and continue to own 10% of the equity interests in each hospital. As consideration for the transfer and pursuant to an amendment to the original stock purchase agreement, the original sellers agreed to return the 80,000 shares of Common Stock previously issued (reflecting the Reverse Splits) and RMB 20,000,000 (approximately $2,767,860) in cash previously paid upon the acquisition of the three hospitals. The former owner also agreed to release the Company from any and all claims relating to two earn out payments that were payable under the original purchase agreement. The Company received a put option to sell part or all of its 10% interest in each of the three hospitals to the former owner before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by the parties. On December 9, 2022, 43,600 shares of Common Stock were returned to the Company and on September 1, 2023, 36,400 shares of Common Stock were returned to the Company. The transaction is expected to close by December 31, 2023, at which time the cash paid at the time of the transaction will also be returned.

 

The Company determined that the plan and the subsequent actions taken to dispose of the four hospitals qualified as held for sale operations under the criteria set forth in the ASC 205-20 Presentation of Financial Statements – Discontinued Operation.

 

12

 

 

The carrying amount of the major classes of assets and liabilities of the businesses held for sale as of June 30, 2023 and December 31, 2022 consist of the following:

 

   June 30,   December 31, 
   2023   2022 
Assets from held for sale        
Current assets        
Cash and cash equivalents  $154,503   $53,928 
Accounts receivable, net   516,287    501,054 
Advances to suppliers   197,737    211,335 
Amount due from related parties   337,904    350,577 
Inventories, net   153,977    155,736 
Prepayments and other receivables   772,974    827,043 
Total current assets   2,133,382    2,099,673 
           
Non-current assets          
Deferred tax assets   (128)   (133)
Property, plant and equipment, net   1,191,554    1,254,328 
Operating lease-right of use assets   2,247,673    2,506,954 
Goodwill   
-
    
-
 
Total non-current assets   3,439,099    3,761,149 
           
Total assets held for sale  $5,572,481   $5,860,822 
           
Liabilities of held for sale businesses          
Current liabilities          
Short-term loans  $207,589   $215,375 
Long-term loans due within one year   
-
    
-
 
Accounts payable, trade   1,375,938    1,480,098 
Advances from customers   2,668    1,537 
Taxes payable   324,582    336,755 
Other payables and accrued liabilities   766,601    739,873 
Lease liability-current   456,369    466,312 
Total current liabilities   3,133,747    3,239,950 
           
Non-current liabilities          
Lease liability-non current   2,214,033    2,245,373 
Total non-current liabilities   2,214,033    2,245,373 
           
Total liabilities   5,347,780    5,485,323 

 

13

 

 

The summarized operating results of the businesses held for sale included in the Company’s consolidated statements of operations consist of the following:

 

   For the six months ended
June 30,
 
   2023   2022 
Revenues  $330,281    2,850,027 
Cost of revenues   149,253    1,233,688 
Gross profit   181,028    1,616,339 
           
Operating expense   253,107    1,598,666 
Other expense   (70,288)   (194,199)
Loss before income taxes   (142,367)   (176,526)
           
Income tax expense   735    22,212 
Loss from businesses held for sale  $(143,102)  $(198,738)

 

Inventories

 

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average method, and market value is the middle (the second highest) value among an inventory item’s replacement cost, market celling and market floor. The Company carries out physical inventory counts on a monthly basis at each store and warehouse location. The Company reviews historical sales activity quarterly to determine excess, slow-moving items and potentially obsolete items. The Company provides inventory reserve based on the excess quantities on hand equal to the difference, if any, between the cost of the inventory and its estimated market value, or obsolescence of inventories determined principally by customer demand. As of June 30, 2023 and December 31, 2022, the Company recorded an allowance for obsolete inventories, which mainly consists of expired medicine, of $26,604 and $59,567, 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:

 

Items   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 %
Leasehold Improvement   Shorter of lease term or useful life     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.

 

14

 

 

Leases

 

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-02. For all leases that were entered into prior to the effective date of ASC 842, we elected to apply the package of practical expedients. Based on this guidance, the Company did not reassess the following: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) initial direct costs for any existing leases.

 

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 asset also includes 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

 

Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortized, and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of operations and comprehensive loss. Impairment losses on goodwill are not reversed.

 

The Company reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist annually or more frequently if events and circumstances indicate that it is more likely than not that an impairment has occurred. The Company has the opinion to assess qualitative factors to determine whether it is necessary to perform the two-step in accordance with ASC 350-20. If the Company believes, as a result of the qualitative carrying amount, the two-step quantities impairment test described below is required.

 

The first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required.

 

If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business acquisition with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit. over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. Estimating fair value is performed by utilizing various valuation techniques, with the primary technique being a discounted cash flow. The fair value of discounted cash flow was determined using management’s estimates and assumptions.

 

Management evaluates the recoverability of goodwill, with the assistance of a third party evaluation firm, 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. An impairment is recorded, if necessary, at the end of each year, based on an annual impairment assessment report by a third party.

 

15

 

 

As of June 30, 2023 and December 31, 2022, the Company recorded impairments for goodwill of Nil and $5,385,811, respectively.

 

As a result of the impairments recognized on December 31, 2022, the remaining goodwill of the Company was related to the acquisitions of Guanzan and Zhongshan. The remaining goodwill of Guanzan was $1,392,449, and the remaining goodwill of Zhongshan was $673, 217 as of December 31, 2022 and June 30, 2023. As of June 30, 2023, the fair value of these businesses was at risk for future goodwill impairments, based on the continuation of negative macroeconomic conditions, which could represent potential indicators of impairment requiring further impairment analysis in 2023. The Company continues to monitor for potential impairment should impairment indicators arise.

 

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.

 

Intangible assets that are considered to have a definite useful life are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up in accordance with ASC No. 350, “Intangibles - Goodwill and other” (“ASC 350”). The Company’s identifiable intangibles are reviewed for impairment in accordance with ASC 360 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 measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

 

Goodwill and other certain purchased intangible assets have been recorded in the Company’s financial statements as a result of acquisitions. Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350 goodwill is not amortized, but rather is subject to an annual impairment test.

 

ASC 350 requires goodwill to be tested for impairment at the reporting unit level at least annually or between annual tests in certain circumstances and written down when impaired. Goodwill is tested for impairment by comparing the fair value of the reporting unit with its carrying value.

 

ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the two-step impairment test is performed. Alternatively, ASC 350 permits an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the first step of the goodwill impairment test.

 

Revenue recognition

 

We adopted Accounting Standard Codification (“ASC”) Topic 606, Revenues from Contract with Customers (“ASC 606”) for all periods presented with respect to each of our segments. 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;

 

16

 

 

  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

 

Cost of revenue consists primarily of cost of goods purchased from suppliers plus direct material costs for packaging and storage, direct labor, which are directly attributable to the acquisition and maintaining of products for sales. Cost of revenues also include impairment loss of our products which are obsolete or expired for sale, if any. Shipping and handling costs, associated with the distribution of finished products to customers, are borne by the customers.

 

Comprehensive income

 

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

 

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 six months ended June 30, 2023 and 2022, the Company did not incur any interest or penalties associated with the tax positions it has taken. As of June 30, 2023, the Company did not have any significant unrecognized uncertain tax positions.

 

Value added tax

 

Sales revenue represents the invoiced value of goods sold, net of VAT. All of the Company’s products that are sold in the PRC are subject to a VAT on the gross sales price. The VAT rates range up to 13%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company on its purchase activities of merchandises, raw materials, utilities, and other materials which cost was included in the cost of producing or acquiring its products for sales. The Company records a VAT payable net of payments if the VAT payable on the gross sales is larger than VAT paid by the Company on purchase of finished goods; on the other hand, the Company records a VAT deductible in the accompanying financial statements net of any VAT payable at the end of reporting period.

 

17

 

 

Convertible promissory notes

 

The Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.

 

Debt issuance costs and debt discounts

 

The Company may record debt issuance costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed.

 

Beneficial conversion feature

 

The Company evaluates the conversion feature of its convertible promissory notes to determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible notes payable and may not be settled in cash upon conversion, is treated as a discount to the convertible notes payable. This discount is amortized over the period from the date of issuance to the date the notes is due using the effective interest method. If the notes payable are retired prior to the end of their contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of Common Stock at the commitment date to be received upon conversion.

 

Discontinued operations

 

In accordance with ASC 205-20, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as a discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and non-current liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.

  

On October 19, 2022, the Company’s wholly owned Guanzan subsidiary agreed to sell its 100% equity interest in Zhuoda and Zhuoda’s wholly owned subsidiary, Qianmei, to the former owner. Guanzan had previously purchased Zhuoda for 44,000 of shares of Common Stock (post the Reverse Splits). As consideration for the sale, the buyer agreed to return the 44,000 shares of Common Stock to the Company. The transaction closed effective November 23, 2022, when 100% of the equity interests in Zhuoda were transferred to the former owners and the 44,000 shares of Common Stock were returned to the Company.

 

On December 28, 2022, the Company entered into an agreement to transfer 87% of the equity interests in Zhongshan to the prior owner. Pursuant to the agreement, the Company agreed to transfer 87% of the equity interests in Zhongshan to the former owner and will retain 13% of the equity interests in Zhongshan. As consideration for the transfer and pursuant to an amendment to the original stock purchase agreement, the original seller agreed to return the 40,037 shares of Common Stock previously issued (reflecting Two Reverse Splits) and RMB 40,000,000 in cash (approximately ($6,116,207) previously paid upon the acquisition of Zhongshan. The former owner also agreed to release the Company from any and all claims relating to two earn out payments that were payable under the original purchase agreement. The Company received a put option to sell part or all of its 13% interest in Zhongshan before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by the two parties. On September 1, 2023, 39,037 shares of Common Stock were returned to the Company. The remaining 1,000 shares were returned in the form of a cash payment of $3,055 because the shares were sold by the original seller. The transaction is expected to close by December 31, 2023, at which time the cash paid at the time of the transaction will also be returned.

 

18

 

 

On December 28, 2022, the Company entered into an agreement to transfer 90% of the equity interests in the Qiangsheng, Eurasia and Minkang hospitals to their former owners. Pursuant to the agreement, the Company will transfer 90% of the equity interests in each of the three hospitals and continue to own 10% of the equity interests in each hospital. As consideration for the transfer and pursuant to an amendment to the original stock purchase agreement, the original sellers agreed to return the 80,000 shares of Common Stock previously issued (reflecting the Reverse Splits) and RMB 20,000,000 (approximately $2,767,860 in cash previously paid upon the acquisition of the three hospitals. The former owner also agreed to release the Company from any and all claims relating to two earn out payments that were payable under the original purchase agreement. The Company received a put option to sell part or all of its 10% interest in each of the three hospitals to the former owner before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by the parties. On December 9, 2022, 43,600 shares of Common Stock were returned to the Company and on September 1, 2023, 36,400 shares of Common Stock were returned to the Company. The transaction is expected to close by December 31, 2023, at which time the cash paid at the time of the transaction will also be returned.

 

Derivative instruments

 

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.

 

The Company estimates 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 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 Common Stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income. 

  

Net loss per share

 

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 shares of Common Stock 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 shares of Common Stock that would have been outstanding if the potential Common Stock equivalents had been issued and if the additional shares of Common Stock were dilutive.

 

19

 

 

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:

 

   June 30,
2023
   June 30,
2022
 
Period-end RMB:US$1 exchange rate   7.2258    6.7114 
Six months end average RMB:US$1 exchange rate   6.9291    6.4835 

  

Related parties

 

Parties, which can be a corporation or an 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.

 

Segment reporting

 

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 six months ended June 30, 2023, and 2022, the Company operated in four reportable segments in the PRC.

 

As of June 30, 2023, the Company had four reportable segments, which consisted of retail pharmacy, wholesale pharmaceuticals, wholesale medical devices and healthcare products.

 

As of June 30, 2022, the Company had four reportable segments, which consisted of wholesale medical devices, wholesale pharmaceuticals, medical services and retail pharmacies.

 

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 and other receivables, accounts 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.

 

20

 

 

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of its obligations under its finance lease and short-term bank borrowing approximates 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 Company measures the fair value of the following assets and liabilities:

 

Financial assets and liabilities for which carrying value approximates fair value - Cash and cash equivalents, deposits, receivables, repurchase agreements, payables, and other assets and liabilities are reflected in the consolidated balance sheets at their cost, which, due to the short-term nature of these instruments and their limited inherent credit risk, approximates fair value.

 

Convertible promissory note - As of June 30, 2023, and 2022, the carrying value of the Company’s convertible promissory notes was $0 and $6,320,075, respectively. The Company’s estimate of the fair value of convertible promissory note is $0 and $6,320,075 as of June 30, 2023, and 2022, respectively. The Company’s convertible promissory note, which are publicly traded on the Nasdaq Stock Exchange, are classified within Level 1 of the fair value hierarchy.

 

Recent accounting pronouncements

 

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the definition of a smaller reporting company are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company will adopt ASU 2020-06 effective January 1, 2024. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.

 

In October 2021, the FASB issued ASU No. 2021-08, “‘Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for the Company beginning after December 15, 2023, and are applied prospectively to business combinations that occur after the effective date. The Company does not expect the adoption of ASU 2021-04 will have a material effect on the consolidated financial statements.

 

21

 

 

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. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

 

4. THE ACQUISITION OF THE GUANZAN GROUP

 

On February 1, 2020, the Company entered into a stock purchase agreement to purchase Guanzan, (the “Guanzan SPA”). Guanzan is a distributor of medical devices whose customers are primarily drug stores, private clinics, pharmaceutical dealers and hospitals in the Southwest of China. Guanzan holds business licenses in the PRC such as a Business Permit for Medical Devices and a Recordation Certificate for Business Activities Involving Class II Medical Devices, etc., which qualify Guanzan to engage in the distribution of medical devices in the PRC. Pursuant to the Guanzan SPA, we agreed to purchase all the issued and outstanding shares of Guanzan for RMB 100,000,000 (approximately $14,285,714) to be paid by the issuance of 19,000 shares of Common Stock (post the Reverse Splits) and the payment of RMB 80,000,000 (approximately $11,428,571) in cash. The stock consideration was payable at closing and the cash consideration, which was subject to post-closing adjustments based on the performance of Guanzan in the years ending December 31, 2020, and 2021, respectively, was to be paid pursuant to a post-closing payment schedule. The transaction closed on March 18, 2020. Upon the closing, 100% of the shares of Guanzan were transferred to the Company and the stock consideration was issued to the seller.

 

The following summarizes the identified assets acquired and liabilities assumed pursuant to the Guanzan acquisition as of March 18, 2020:

   

Items  Amount 
Assets    
Cash and cash equivalents  $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   6,686,053 
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   (390,593)
Long-term loans – noncurrent portion   (186,796)
Non-controlling interests   (46,295)
Total-net assets  $7,374,000 

 

22

 

 

On November 20, 2020, the parties to the Guanzan SPA entered into a prepayment and amendment agreement (the “Prepayment Agreement”) for the prepayment of a portion of the cash consideration in the amount of RMB 20,000,000, in the form of shares of 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, 20,000 shares (after the Reverse Splits) 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 92,000 shares (after the Reverse Splits) of Common Stock as payment in full for the balance of the post-closing consideration for the acquisition of Guanzan.

 

The following reconciles the identified assets acquired and liabilities assumed pursuant to the Guanzan SPA, and the Prepayment and Amendment Agreement made on November 20, 2020:

 

The determination of the value of the shares issued was determined according to the closing price on the day the shares issued. On March 12, 2020, the price was $2.86 per share.

 

The fair value of the shares issued on March 12, 2020  $2,717,000 
The fair value of the shares issued on November 19, 2020   1,820,000 
Cash   3,065,181 
Total consideration  $7,602,181 
Net assets   (687,949)
Goodwill  $6,914,232 

 

The fair value of all assets acquired, and liabilities assumed is the estimated book value of Guanzan. 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 Guanzan at the acquisition date. Upon the acquisition of Guanzan, the Company recognized its non-controlling interest in Shude in the amount of $46,295, representing the 20% non-controlling equity interest in Shude. Shude is a pharmaceuticals distributor. Shude’s customers include a wide range of clinics, private and public hospitals, and pharmacies in the PRC.  On April 9, 2021, the Company increased its equity interest in Shude from 80% to 95.2% by making a direct capital investment of $4,892,293 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 RMB 100,000,000 (approximately $15,251,807). Upon signing the agreement, 40,000 shares of Common Stock (post the Reverse Splits) and RMB 20,000,000 (approximately $3,096,119) were paid as partial consideration for the purchase of Guoyitang. The transaction closed on February 2, 2021. The balance of the purchase price of RMB 40,000,000 (approximately $6,100,723) was subject to post-closing adjustments based on the performance of Guoyitang in 2021 and 2022. As the future performance of Guoyitang in 2021 and 2022 was uncertain, the total acquired consideration at the acquisition date was calculated based on the value of the closing payment without taking into consideration of potential payments based on future performance. As a result of the performance failure of Guoyitang in 2021, the sellers were not eligible to receive any contingent payments.

 

23

 

 

The following summarizes the identified assets acquired and liabilities assumed pursuant to the Guoyitang Acquisition as of February 2, 2021:

 

Items  Amount 
Assets    
Cash and cash equivalents  $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 was the estimated book value of 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.

 

The determination of the share value was determined according to the closing price of the Company’s Common Stock on the day the shares were issued.

 

The value of the shares issued on February 2, 2021   3,820,000 
Cash   3,096,119 
Total consideration  $6,916,119 
Net assets   (238,274)
Goodwill   7,154,393 

  

24

 

 

6. THE ACQUISITION OF THE ZHONGSHAN HOSPITAL

 

On December 15, 2020, the Company entered into an agreement to acquire Zhongshan, a private hospital in the east region of China with 65 hospital beds. Zhongshan 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 in consideration of RMB 120,000,000. The cash consideration of RMB 40,000,000 (approximately $6,116,207) was paid to the seller in December 2020. On February 12, 2021, we issued 40,037 shares of Common Stock (post the Reverse Splits) then valued at RMB 40,000,000 (approximately $6,116,207) to the seller as part of the consideration. The balance of the purchase price in the amount of RMB 40,000,000 (approximately $6,116,207) was subject to post-closing adjustments based on the performance of Zhongshan in 2021 and 2022. The transaction closed on February 5, 2021. As the future performance of Zhongshan in 2021 and 2022 was uncertain, the total acquired consideration at the acquisition date was calculated based on the value of the closing payment without taking into consideration of potential payments based on future performance.

 

As a result of the performance failure of Zhongshan in the year ended December 31, 2021, the seller was not eligible to receive any contingent payments.

  

The following summarizes the identified assets acquired and liabilities assumed pursuant to the Zhongshan acquisition as of February 5, 2021:

 

Items  Amount 
Assets    
Cash and cash equivalents  $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.

 

25

 

 

The determination of the share value was determined according to the closing price of the Company’s Common Stock on the day the shares were issued,

 

The value of the shares issued on February 12, 2021   3,480,000 
Cash payment in December 2020   6,171,887 
Total consideration  $9,651,887 
Net assets   (791,607)
Goodwill   10,443,494 

 

On December 28, 2022, we entered into an agreement to transfer 87% of the equity interests in Zhongshan to the prior owner. As consideration for the transfer and pursuant to an amendment to the original stock purchase agreement, the original seller agreed to return the 40,037 shares of Common Stock previously issued and RMB 40,000,000 in cash (approximately $6,116,207) previously paid upon the acquisition of Zhongshan. On September 1, 2023, 39,037 shares of Common Stock were returned to the Company. The remaining 1,000 shares were returned in the form of cash because the shares were sold by the original seller. The transaction is expected to close by December 31, 2023, at which time the cash paid at the time of the transaction will also be returned.

 

7. THE ACQUISITION OF THE QIANGSHENG, EURASIA AND MINKANG HOSPITALS

 

On April 9, 2021, the Company and Chongqing 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 RMB162,000,000 (approximately $25,023,555) to paid by the issuance of 80,000 shares of Common Stock (post the Reverse Splits), the value of which was agreed to be RMB 78 million (approximately $12 million) and the payment of RMB 84,000,000 (approximately $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) were subject to post-closing adjustments based on the performance of Qiangsheng, Eurasia and Minkang in 2021 and 2022. The sellers had the choice to receive the second and third payments in the form of the shares of Common Stock valued at $15 per share (post the Reverse Splits) or in cash. The transaction closed on May 6, 2021; at which time the 16,000 shares of Common Stock were issued. As the future performance of the three hospitals was uncertain, the total acquired consideration at the acquisition date was calculated based on the value of the closing payment without taking into consideration of potential payments based on future performance. As a result of the performance failure by the three hospitals for the year ended December 31, 2021, the sellers were not eligible to receive any contingent payments.

 

26

 

 

The following summarizes the identified assets acquired and liabilities assumed pursuant to the Qiangsheng, Eurasia and Minkang acquisitions as of May 6, 2021:

 

Items  Amount 
Assets    
Cash and cash equivalents  $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   9,067,529 
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  $8,736,910 

 

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.

 

The determination of the share value was determined according to the closing price of the Company’s Common Stock on the day the shares were issued.

 

The value of the shares issued on April 20, 2021   5,600,000 
Cash payment on December 2021   3,136,910 
Total consideration  $8,736,910 
Net assets   (330,619)
Goodwill   9,067,529 

 

On December 28, 2022, we entered into an agreement to transfer 90% of the equity interests in Qiangsheng, Minkang and Eurasia to the previous owners. As consideration for the transfer and pursuant to an amendment to the original stock purchase agreement, the original sellers agreed to return the 80,000 shares of Common Stock previously issued and RMB 20,000,000 (approximately $2,767,860) in cash previously paid upon the acquisition of the three hospitals. On December 9, 2022, 43,600 shares of Common Stock were returned to the Company and on September 1, 2023, 36,400 shares of Common Stock were returned to the Company. The sales of Qiangsheng, Minkang and Eurasia are expected to close by December 31, 2023 at which time the RMB 20,000,000 will also be returned.

 

8. THE ACQUISITION OF ZHUODA

 

On September 10, 2021, Guanzan entered into an agreement to acquire Zhuoda. Pursuant to the agreement, Guanzan agreed to purchase all the issued and outstanding equity interests in Zhuoda in consideration of RMB 75,240,000 (approximately $11,400,000). The entire purchase consideration was payable in shares of Common Stock. At the closing on September 22, 2021, 44,000 shares of Common Stock (post the Reverse Splits) valued at RMB 43,560,000 (approximately $6,600,000) were issued as partial consideration for the purchase. The remainder of the purchase price of RMB 31,680,000 (approximately $4,800,000), was subject to post-closing adjustments based on the performance of Zhuoda in 2022 and 2023. The transaction closed on October 8, 2021. As the future performance of Zhuoda in 2022 and 2023 was uncertain, the total acquired consideration at the acquisition date and at December 31, 2021 was calculated based on the value of the closing payment without taking into consideration of potential payments based on future performance.  

 

27

 

 

The following summarizes the identified assets acquired and liabilities assumed pursuant to the Zhuoda acquisition as of October 8, 2021:

 

Items  Amount 
Assets    
Cash and cash equivalents  $102,350 
Accounts receivable   804,083 
Inventories   131,456 
Advances and other receivables   886,370 
Property, plant and equipment   6,579 
Right of use assets   17,160 
Goodwill   924,740 
Liabilities     
Short term loan   (773,737)
Accounts payable   (56,887)
Advances from customers   (3,778)
Tax payable   (24,787)
Other payables and accrued liabilities   (493,868)
Lease liability-current   (7,217)
Lease liability-non-current   (14,265)
Total net assets  $1,498,199 

 

The fair value of all assets acquired, and liabilities assumed is the estimated book value of the Zhuoda. 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 Zhuoda at the acquisition date.

 

The determination of the share value was determined according to the closing price of the Company’s Common Stock on the day the shares were issued.

 

The value of the shares issued on September 6, 2021  $1,498,200 
Total consideration  $1,498,200 
Net assets   573,458 
Goodwill  $924,742 

  

9. THE SALE OF ZHUODA

 

On October 19, 2022, the Company’s wholly owned Guanzan subsidiary agreed to sell its 100% equity interest in Zhuoda and Zhuoda’s wholly owned subsidiary, Qianmei, to the former owner. Guanzan had previously purchased Zhuoda for 44,000 shares of Common Stock (reflecting the December 1 to 10 reverse split). As consideration for the sale, the buyer agreed to return the 44,000 shares of Common Stock to the Company. The transaction closed effective November 23, 2022, when 100% of the equity interests in Zhuoda were transferred to the former owners and the 44,000 shares of Common Stock were returned to us.

 

28

 

 

The summarized operating results of the Zhuoda and its subsidiary in the Company’s condensed consolidated statements of operations for the period of January 1 to November 23, 2022, consisted of the following:

 

   For the
period ended
November 23,
2022
 
Revenues  $2,713,818 
Cost of revenues   2,314,877 
Gross profit   398,941 
      
Operating expense   392,875 
Other income (expense)   (45,146)
Loss before income taxes   (39,080)
      
Income tax expense   1,425 
Net income/(loss) from discontinued operations  $(40,505)

 

The assets and liabilities of the discontinued operations of Zhuoda consisted of the following items as of November 23, 2022, and December 31, 2021:

 

   November 23,   December 31, 
   2022   2021 
Assets from discontinued operations        
Current assets        
Cash and cash equivalents  $13,922   $100,678 
Accounts receivable, net   1,951,997    984,030 
Advances to suppliers   67,561    118,365 
Amount due from related parties   
-
    
-
 
Inventories, net   101,059    162,882 
Prepayments and other receivables   720,365    725,881 
Operating lease-right of use assets   
-
    
-
 
Total current assets   2,854,904    2,091,836 
           
Non-current assets          
Deferred tax assets   
-
    
-
 
Property, plant and equipment, net   1,442    2,507 
Intangible assets, net   
-
    
-
 
Operating lease-right of use assets   10,044    15,959 
Goodwill   
-
    
-
 
Long-term investment   
-
    
-
 
Total non-current assets   11,486    18,466 
           
Total assets from discontinued operations  $2,866,390   $2,110,302 
           
Liabilities from discontinued operations          
Current liabilities          
Short-term loans  $154,288   $795,583 
Long-term loans due within one year   
-
    
-
 
Convertible promissory notes, net   
-
    
-
 
Accounts payable, trade   1,301,712    265,731 
Advances from customers   
-
    723 
Amount due to related parties   
-
    
-
 
Taxes payable   441    218 
Other payables and accrued liabilities   162,362    468,970 
Lease liability-current   7,693    8,102 
Total current liabilities   1,626,496    1,539,327 
           
Non-current liabilities          
Lease liability-non current   6,976    12,727 
Long-term loans – non-current   330,242    
-
 
Total non-current liabilities   337,218    12,727 
           
Total liabilities   1,963,714    1,552,054 

29

 

 

10. THE ACQUISITION OF PHENIX

 

On July 5, 2022, we entered into a stock purchase agreement (as amended on February 27, 2023) with Mr. Fnu Oudom, the Chairman of our board of directors, whereby we agreed to acquire 100% of the equity interests in Phenix Bio Inc. (Phenix”), a developer and distributor of dietary supplements, in consideration of $1,800,000, consisting of $180,000 in cash (paid on July 7, 2022) and the issuance of 270,000 shares of Common Stock (reflecting the December 2022 reverse split). In a further amendment to the agreement dated February 27, 2023, we agreed to issue an additional 5,000,000 shares of Common Stock to Mr. Oudom if the aggregate net profit generated by Phenix is at least $2,500,000 in calendar year 2023 or in any fiscal quarter of 2023. Upon obtaining shareholder approval for the transaction, we issued 270,000 shares of Common Stock to Mr. Oudom on June 19, 2023 .

 

The Company’s healthcare products are developed and distributed by Phenix. Phenix owns its formulas and uses out-sourced facilities in the U.S. and Australia to manufacture its products. In the first six months of 2023, Phenix sold all its products through one online sales platform. Most of the customers were from Asian countries. Phenix currently offers six categories of dietary supplements, a cardiovascular product, an anti-insomnia and depression product, a male aphrodisiac product, a woman’s menopausal syndrome product, a gout product, and an immunity enhancer.

 

The following summarizes the identified assets acquired and liabilities assumed pursuant to Phenix acquisition as of March 15, 2023:

 

Items  Amount 
Assets    
Cash and cash equivalents  $1,511,220 
Accounts receivable   346 
Inventories   892,214 
Advances and other receivables   386,965 
Fixed assets   99,599 
Intangible assets   500,000 
Liabilities     
Accounts payable   (6,650)
Other payables and accrued liabilities   (13,883)
Advance from customer   (1,028,004)
Total net assets  $2,341,807 

 

The fair value of all assets acquired, and liabilities assumed is the estimated book value of the Phenix.

 

The determination of the share value was determined according to the closing price of the Company’s Common Stock on the day the shares were issued.

 

Cash payment on July 7,2022  $180,000 
The value of the 270,000 shares issued on June 19, 2023  $291,600 
Total consideration  $471,600 
Net assets  $2,341,807 
Additional paid in capital  $1,870,207 

 

30

 

 

11. ACCOUNTS RECEIVABLE

 

The revenues of the Company’s pharmacy segment 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 revenues of the Company’s wholesale pharmaceuticals segment are recognized when the goods are transferred to the customer, Generally, the receivables are collected within 30 to 60 days.

 

The revenues of the Company’s wholesale medical devices segment are recognized when the goods are transferred to the customers, Generally, the receivables are collected within 30 to 60 days.

 

The revenues of the Company’s healthcare products segment are recognized when the goods are transferred to the customers. Payment terms generally provide for payment within 30 to 60 days.

 

The Company routinely evaluates the need for allowance for doubtful accounts based on specifically identified amounts that the management believes to be uncollectible. If the actual collection experience changes, revisions to the allowance may be required. As of June 30, 2023, and December 31, 2022, accounts receivable consisted of the following:

 

   June 30,
2023
   December 31,
2022
 
Accounts receivable, cost  $7,927,248   $4,813,160 
Less: allowance for doubtful accounts   (1,546,861)   (1,604,874)
Accounts receivable, net  $6,380,387   $3,208,286 

 

Movements of allowance for accounts receivable are as follows:

 

   June 30,
2023
   December 31,
2022
 
Beginning balance  $1,604,874   $322,145 
Addition   
-
    1,282,729 
Reversal   (58,013)   
-
 
Ending Balance  $1,546,861   $1,604,874 

 

12. 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 June 30, 2023, and December 31, 2022, the Company reported advances to suppliers as follow:

 

   June 30,
2023
   December 31,
2022
 
Advances to suppliers  $7,017,279   $6,589,759 

 

No bad debt expenses were accrued for doubtful accounts relating to advances to suppliers for the six months ended June 30, 2023, and 2022, respectively.

 

31

 

 

13. INVENTORIES

 

The Company’s inventories consist of medicine, medical devices and healthcare products that are sold either on a retail or wholesale basis. Inventories consisted of the following:

 

   June 30,
2023
   December 31,
2022
 
Pharmaceuticals  $6,672,082   $7,067,613 
Healthcare products   323,095    
-
 
Medical devices   213,952    614,231 
Less: allowance for obsolete and expired inventory   (26,605)   (27,602)
   $7,182,524   $7,654,242 

 

Movements of inventory reserves are as follows:

 

   June 30,
2023
   December 31,
2022
 
Beginning balance  $27,602   $103,178 
Reversal   (997)   (75,576)
Ending Balance  $26,605   $27,602 

 

For the six months ended June 30, 2023, and 2022, the Company had accrued allowances of $26,604 and $28,644, respectively, for obsolete and expired items.

 

14. PREPAYMENTS AND OTHER RECEIVABLES

 

Prepayments and other receivables represent the amount that the Company prepaid as rent deposits for its retail stores, hospitals and office space, 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 June 30, 2023, and December 31, 2022.

 

   June 30,
2023
   December 31,
2022
 
Deposit for rentals  $142,088   $132,960 
Prepaid expenses and improvements of offices   54,092    56,121 
Prepaid for acquisition of phenix   
-
    180,000 
Deposit for purchase of medical devices   160,737    166,765 
Deposit for sales platform   20,399    24,337 
Receivables form third party   118,625    66,986 
VAT deductibles   825,095    881,014 
Others   52,100    42,771 
Less: allowance for doubtful accounts   (23,012)   (23,875)
Prepayments and other receivables, net  $1,350,124    1,527,079 

 

Movements of allowance for doubtful accounts are as follows:

 

   June 30,
2023
   December 31,
2022
 
Beginning balance  $23,875   $26,080 
Reversal   (863)   (2,205)
Ending Balance  $23,012   $23,875 

 

Management evaluates the recoverable value of these balances periodically according to the Company’s policy of credit and allowance for doubtful accounts. For the six months ended June 30, 2023, and 2022, the Company recorded bad debt allowances of $23,012 and $24,776, respectively.

 

32

 

 

15. PROPERTY, PLANT AND EQUIPMENT

 

Property, plant, and equipment consisted of the following:

 

   June 30,
2023
   December 31,
2022
 
Buildings  $722,432   $749,526 
Office equipment   227,867    132,329 
Electronic equipment   35,910    37,257 
Furniture   29,651    30,764 
Vehicles   145,747    168,512 
Medical equipment   891,834    925,281 
Leasehold improvements   596,048    598,677 
    2,649,489    2,642,346 
Less: accumulated depreciation   (959,382)   (938,926)
Property, plant and equipment, net  $1,690,107   $1,703,420 

  

Depreciation expense for the six months ended June 30, 2023, and 2022 were $58,107 and $89,159, respectively.

 

16. INTANGIBLE ASSETS

 

   June 30,
2023
   December 31,
2022
 
Software  $18,967   $19,679 
Trademark use rights   500,000    
-
 
Less: accumulated amortization   (70,036)   (3,496)
Intangible assets, net  $448,931   $16,183 

 

The trademark use rights acquired in the six months ended June 30, 2023, relate to the trademarks for products being sold by Phenix. The trademarks relate to nine healthcare products, such as general recovery, cardiovascular and cerebrovascular disease prevention, male health care, female health care, and memory enhancement for the elderly. Amortization expense for the six months ended June 30, 2023, and 2022 were $70,036 and $3,627, respectively.

 

33

 

 

17. LEASES

 

Balance sheet information related to the Company’s operating leases was as follows*:

 

   June 30,
2023
   December 31,
2022
 
Operating Lease Assets        
Operating lease  $2,835,992   $2,942,265 
Total operating lease assets  $2,835,992   $2,942,265 
Operating Lease Obligations          
           
Current operating lease liabilities  $650,661    532,630 
Non-current operating lease liabilities  $2,414,883    2,574,751 
Total Lease Liabilities  $3,065,544    3,107,381 

 

* The Company’s operating leases include the leases of operating companies only and do not include discontinued operations-held for sale.

 

Lease liability maturities as of June 30, 2023, are as follows:

 

   June 30,
2023
 
2023   805,746 
2024   816,021 
2025   797,854 
2026   776,996 
2027 and thereafter   438,800 
Total minimum lease payments   3,635,417 
Less: Amount representing interest   (569,873)
Total   3,065,544 

  

18. GOODWILL

 

Changes in the carrying amount of goodwill consisted of the following:

 

   June 30,
2023
   December 31,
2022
 
Beginning balance  $2,065,666   $8,376,217 
Disposal of Zhuoda   
-
    (924,740)
Impairment during the year   
-
    (5,385,811)
Goodwill  $2,065,666   $2,065,666 

 

As a result of the impairments recognized on December 31, 2022, the remaining goodwill of the Company was related to the acquisitions of Guanzan and Zhongshan. The remaining goodwill of Guanzan was $1,392,449, and the remaining goodwill of Zhongshan was $673,217 as of December 31, 2022 and June 30, 2023, respectively. As of June 30, 2023, the fair value of these businesses was at risk for future goodwill impairments. The Company continues to monitor for potential impairment should impairment indicators arise.

 

34

 

 

19. LOANS

 

Short-term loans

 

   June 30,
2023
   December 31,
2022
 
China Minsheng Bank  $110,714   $114,867 
Postal Savings Bank of China   678,126    703,558 
Pingan Bank of China   345,982    
-
 
Total  $1,134,822   $818,425 

 

For the six months ended June 30, 2023 and 2022, interest expense on short-term loans amounted to $14,408 and $63,847, respectively.

 

Pusheng borrowed $345,982 from Pingan Bank of China on May 29, 2023. The loan is due on May 20, 2024, with an interest rate of 8.91%. Pusheng borrowed $110,714 from China Minsheng Banking Corp. Ltd. on March 24, 2023, which is due on March 21, 2024, with an interest rate of 5.50%. Guanzan borrowed $678,126 from Postal Savings Bank of China on December 22, 2022, which is due on December 20, 2023, with an interest rate of 4.50% and the real estate right of Guanzan as the right holder provided a mortgage loan.

 

Guanzan borrowed $678,126 from Postal Savings Bank of China on December 22, 2022, which is due on December 20, 2023, with an interest rate of 4.50%.

 

Long-term loans

 

   June 30,
2023
   December 31,
2022
 
China Construction Bank Chongqing Zhongxian, Sub-branch   
-
    59,926 
We Bank   227.528    360,825 
Subtotal of long-term loans   227,528    420,751 
Less: current portion   (101,244)   (105,965)
Total Long-term loans – noncurrent portion  $126,284   $314,786 

  

For the six months ended June 30, 2023 and 2022, interest expense on long-term loans amounted to $23,141 and $41,387, respectively.

 

Guanzan borrowed $912,500 from We Bank on September 6, 2022, for a term of two years, with an interest rate of 14.40%. Guanzan borrowed $148,571 from Huaneng Guicheng Trust Co., LTD on October 7, 2021, which is due on September 26, 2023, with an interest rate of 12.96% and the general manager of Guanzan provided a personal guarantee for the loan. Guanzan borrowed $300,000 from We Bank on April 26, 2022, which is due on March 26, 2024, with an interest rate of 9.45%. Guanzan borrowed $39,839 from We Bank on July 24, 2021, for a term of two years, with an interest rate of 13.68%. Guanzan borrowed $243,154 from Fudan Bank on February 25, 2021, for a term of three years, with an interest rate of 8.00%.

 

The combined aggregate amount of interest expenses for all long-term borrowings for each of the five years as of June 30, 2023, are as follows:

 

   June 30,
2023
 
July 1, 2023 to June 30, 2024   18,963 
July 1, 2024 to June 30, 2025   3,616 
Total   22,579 

 

35

 

 

20. CONVERTIBLE PROMISSORY NOTES AND EMBEDDED DERIVATIVE INSTRUCTIONS

 

On May 18, 2020, we entered into a securities purchase agreement (the “May SPA”) with two institutional investors (the “Institutional Investors”) to sell convertible notes having a face amount of up to $6,550,000 at an aggregate original issue discount of 19.85% (the “2020 Notes”) and ranking senior to all outstanding and future indebtedness of the Company. The 2020 Notes did not bear interest except upon the occurrence of an event of default. Each Institutional Investor also received a warrant (the “Institutional Investor 2020 Warrant”) to purchase 13,000 shares of Common Stock (post the Reverse Splits) at an initial exercise price of $142.25 per share (post the Reverse Splits price and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant (the “Placement Agent 2020 Warrant”, together with the Institutional Investor 2020 Warrant, the “2020 Warrants”) to purchase up to 10% of the aggregate number of shares of Common Stock at an initial exercise price of $142.25 per share (post the Reverse Splits price and subject to the Event Market Price Adjustment), subject to increase based on the number of shares Common Stock issued pursuant to the 2020 Notes.

 

Pursuant to the May SPA, two 2020 Notes each in the face amount of $2,225,000 were issued to the Institutional Investors in consideration of the payment of $1,750,000 in cash for each 2020 Note. Pursuant to the May SPA, additional convertible notes in an aggregate original face amount not to exceed $2,100,000 (the “Additional Notes”) could also be issued to the Institutional Investors under certain circumstances.

 

The May SPA, the 2020 Notes and the warrants provided that each and every reference to share prices, shares of Common Stock and any other numbers therein that relate to the Common Stock will be automatically adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions that occur with respect to the Common Stock (each, a “Stock Combination Event”, and such date thereof, the “Stock Combination Event Date”) thereafter. The May SPA, the 2020 Notes and the 2020 Warrants further provided if after a Stock Combination Event, the Event Market Price is less than the conversion price (in the case of the Convertible Notes) or the exercise price (in the case of the warrants) then in effect (after giving effect to the above adjustments), then on the sixteenth (16th) trading day immediately following such Stock Combination Event Date, the conversion price or exercise then in effect on such sixteenth (16th) trading day (after giving effect to the above adjustments) will be reduced (but in no event increased) to the Event Market Price. “Event Market Price” means, with respect to any Stock Combination Event Date, the quotient determined by dividing (x) the sum of the dollar volume-weighted average price of the Common Stock for each of the five (5) trading days with the lowest dollar volume-weighted average price of the Common Stock during the fifteen (15) consecutive trading day period ending and including the trading day immediately preceding the sixteenth (16th) trading day after such Stock Combination Event Date, divided by (y) five (5). The price adjustment described in this paragraph is hereinafter referred to as the “Event Market Price Adjustment.”

 

On February 24, 2021, we entered into an amendment to the May SPA with the Institutional Investors to increase the amount of the Additional Notes by $3,300,000 to $5,400,000. On February 26, 2021, Additional Notes in an aggregate original principal amount of $5,400,000 were issued to the Institutional Investors, together with the issuance of warrants to acquire an aggregate of 14,400 shares of Common Stock (post the Reverse Splits) at an initial exercise price of $129.50 per share (post the Reverse Splits price and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant to purchase up to 3,475 shares of our Common Stock (post the Reverse Splits) at an initial exercise price of $142.25 per share ((post the Reverse Splits Price and subject to the Event Market Price Adjustment), subject to increase based on the number of shares of Common Stock issued pursuant to the Additional Notes.

 

36

 

 

On November 18, 2021, we entered into a securities purchase agreement (the “November SPA”) with the same two Institutional Investors to sell them in a private placement a series of senior convertible notes (the “2021 Notes”) with an original issue discount of 20% and ranking senior to all outstanding and future indebtedness of the Company. Each Institutional Investor paid $3,250,000 in cash for a 2021 Note in the face amount of $3,900,000. The November SPA also provided for the issuance of additional 2021 Notes in an aggregate original principal amount not to exceed $3,900,000 under certain circumstances. The November SPA also contains provisions about the Market Event Price. The 2021 Notes, which were issued on November 22, 2021, matured on the eighteen-month anniversary of the issuance date, were payable by the Company in installments and convertible at the election of the Institutional Investors at the conversion price of $32.5 (post the Reverse Splits and subject to the Event Market Price Adjustment), which was subject to adjustment in the event of default. Each Institutional Investor also received a warrant (the “Institutional Investor 2021 Warrant”) to purchase 180,000 shares of Common Stock at an initial exercise price of $35.5 per share (post the Reverse Splits and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant (the “Placement Agent 2021 Warrant”, together with the Institutional Investor 2021 Warrant, the “2021 Warrants”) to purchase up to 8% of the aggregate number of shares of Common Stock at an initial exercise price of $35.5 per share (post the Reverse Splits and subject to the Event Market Price Adjustment), subject to increase based on the number of shares Common Stock issued pursuant to the 2021 Notes.

 

The Company implemented a reverse stock split on February 2, 2022, at the ratio of 5 to 1. The 2020 Notes and Additional Notes were fully converted before the February reverse split, and therefore no price adjustment was implemented at the conversion, although the price information provided above about the 2020 Notes and Additional Notes was post-split price. The conversion price of the 2021 Notes and the exercise price of the 2020 Warrants and the 2021 Warrants will be adjusted pursuant to the Event Market Price formula upon conversion or exercise.

 

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.

 

   June 30,
2023
   December 31,
2022
 
Convertible note – principal  $
              -
   $1,108,785 
   $
-
   $1,108,785 

 

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 initial fair value of the embedded conversion option liability associated with each Note was valued using the Black-Scholes model. The assumptions used in the Black-Scholes option pricing model are as follows:

 

   June 30,
2023
   December 31,
2022
 
Dividend yield  $0%  $0%
Expected volatility   171%   171%
Risk free interest rate   0.87%   0.87%
Expected life (years)   1.42    1.42 

 

37

 

 

The value of the conversion option liability underlying the 2020 Notes, Additional Notes, and 2021 Notes as of June 30, 2023, and December 31, 2022 were nil. The Company recognized a loss from the increase in the fair value of the conversion option liability in the amount of Nil for the six months ended June 30, 2023, and 2022.

 

Pursuant to the convertible note agreement between the Company and the Institutional Investors, the “Installment Conversion Price” is used for each note conversion except for conversions made when there is an Event of Default as defined in the convertible note agreement, in which event an Alternate Conversion Price is used.

 

“Installment Conversion Price” means, with respect to a particular date of determination, the lowest of (i) the conversion price fixed in the convertible note agreement, then in effect (the “Conversion Price”), (ii) the greater of (x) the floor price fixed in the note agreement (the “Floor Price”) and (y) 78% of the lowest VWAP of the Common Stock during the ten (10) consecutive trading day period ending and including the trading day immediately preceding the applicable conversion date (the “VWAP Price”).

 

For any particular conversion, if (y) becomes applicable (i.e. the VWAP Price is lower than the Conversion Price and the Floor Price), because of the mandatory application of the Floor Price, the Floor Price has to be used for the conversion. As a result, the note holder is entitled to a cash amount equal to the value of the difference between the number of shares of Common Stock the note holder would have received if the VWAP Price was used for the conversion, and the number of shares of Common Stock the note holder actually received due to the application of the application of the Floor Price (the “Conversion Installment Floor Amount”).

 

In 2022 and 2023, instead of paying the Conversion Installment Floor Amount in cash as provided for in the convertible note agreements, the Company paid such amount by issuing shares of Common Stock using the Conversion Price. (the “Floor Amount Issuance”).

 

As of December 31, 2022, one of the Institutional Investors had converted all of its 2021 Notes into shares of Common Stock while the other Institutional Investor held $3,000 of the 2021 Notes.

 

In 2022, one of the Institutional Investors received 275,000 shares of Common Stock having a then market value of $200,000 as a result of the application of the of the Floor Amount Issuance and the other Institutional Investor received 1,234,715 shares of Common Stock having a then market value of $493,886 as a result of the application of the Floor Amount Issuance.

 

In 2022, one of the institutional investors exercised 100,000 warrants on a cashless exercise basis into 44,445 shares of Common Stock having a then market value of $100,000.

 

During the three months ended March 31, 2023, no shares of Common Stock were issued to the Institutional Investors upon conversion of convertible notes. However, 270,000 shares of Common Stock having a value of $334,800 were issued to one of the Institutional Investors due to the application of the Floor Amount Issuance.

 

During the three months ended March 31,2023, none of the warrants held by the Institutional Investors were exercised.

 

During the three months ended June 30, 2023, 2,420 shares were issued to one institutional Investor upon conversion of $3,000 of the 2021 Notes. In addition, 621,762 shares of Common Stock having a value of $770,985 were issued to one Institutional Investor due to the application of the Floor Amount Issuance.

 

During the three and six month periods ended June 30, 2023, no shares of Common Stock were issued to the two Institutional Investors upon exercise of warrants.

 

During the six months ended June 30, 2023, 2,420 shares of Common Stock were issued to one Institutional Investor upon conversion of $3,000 of the 2021 Notes. In addition, 891,762 shares of Common Stock having a value of $1,105,785 were issued to the other Institutional Investor due to the application of the Floor Amount Issuance.

 

38

 

 

21. OTHER PAYABLES AND ACCRUED LIABILITIES

 

Other payables and accrued liabilities consisted of the following:

 

  

June 30,
2023

   December 31,
2022
 
Salary payable  $331,136   $411,043 
Salary payable – related parties (1)   2,285,333    2,135,333 
Accrued operating expenses   (900)   (900)
Other payables   589,401    630,097 
   $3,204,970   $3,175,574 

 

The Company entered into an employment agreement with Mr. Tiewei Song dated October 1, 2019, to serve as its Chief Executive Officer for a term of two years commencing on October 1, 2019, with base annual cash compensation of $500,000. The agreement was renewed on October 28, 2021, for one year with an annual base salary of $1,000,000 in cash and annual stock compensation of 100,000 shares of the Company’s Common Stock (reflecting a 1-to-10 reverse stock split on December 9, 2022). The 100,000 shares of the Company’s Common Stock were issued on January 24, 2022. Mr. Song’s annual compensation was reduced to $300,000 in cash beginning in October 2022 pursuant to an amendment agreement dated June 9, 2022. As of June 30, 2023, the total accrued compensation payable to Mr. Song was $1.5 million.

 

The Company entered into the employment Agreement with Ms. Baiqun Zhong dated January 27, 2022, as the Interim CFO from May 21, 2021, until July 14, 2021. Ms. Zhong assumed such role once again on September 27, 2021, and her base annual compensation was set at $250,000. Since January 1, 2023, Ms. Baiqun Zhong has been paid a monthly salary of RMB 7,000. As of June 30, 2023, the accrued compensation payable to Ms. Zhong was $265,833. On January 27, 2022, the Company entered into an employment agreement with Mr. Xiaoping Wang for a term of one-year, effective January 1, 2022. Mr. Wang’s compensation consisted of an annual salary of $500,000 in cash and stock compensation of 10,000 shares of the Company’s Common Stock (post the Reverse Splits). We issued 10,000 shares of our Common Stock to Mr. Wang on February 1, 2022. We have not paid any cash compensation to Mr. Wang as of the date of this quarterly report. The Company did not renew the employment agreement with Mr. Wang for 2023. As of June 30, 2023, the accrued compensation payable to Mr. Wang was $500,000.  

 

On December 23, 2022, Mr. Song and Mr. Wang provided written performance pledges to the Company, whereby they pledged to use their best efforts to ensure that the aggregate amount of the available cash (excluding cash received as loans or capital infusions or cash held in restricted accounts or otherwise unavailable for unrestricted use for any reason) of Chongqing Bimai Pharmaceutical Technology Group Co., Ltd., a subsidiary of Bimai Pharmaceutical (Chongqing) Co., Ltd., and its subsidiaries, as of December 31, 2023, held in bank accounts of financial banking institutions, as audited by the Company’s independent auditors will be not less than $2 million (the “Performance Target”). If the Performance Target is not met by December 31, 2023, Mr. Song will forfeit his unpaid cash salary accrued from October 1, 2021 to September 30, 2022 in the amount of $1 million, and Mr. Wang will forfeit all his unpaid cash salary accrued through the end of 2023 and will return to the Company the 50,000 shares of the Company’s Common Stock he previously received as salary. 

 

39

 

 

22. RELATED PARTIES AND RELATED PARTY TRANSACTIONS

 

Amounts due to related parties and management team.

 

As of June 30, 2023, and December 31,2022, the total amounts payable to related parties and mid-level management team was $1,018,832 and $2,980,441, respectively, which included:

 

1.As of June 30, 2023, and December 31, 2022, the amount payable to Mr. Yongquan Bi, the former Chief Executive Officer and Chairman of the Board of directors of the Company was Nil and $27,699, respectively, free of interest and due on demand. The $27,699 represents the remaining balance that Mr. Bi advanced for third party services on behalf of Xinrongxin during the ordinary course of business of Xinrongxin since the beginning of 2018. As the amount was owed by Xinrongxin, which was dissolved as of January 3, 2023, the Company believes that it no longer has any liability for this debt.

 

2.As of June 30, 2023, and December 31, 2022, the amounts payable to Mr. Li Zhou, the legal representative (general manager) of Guanzan, were Nil and $248,690, respectively. The $248,690 was used for daily operations and payment of third-party professional fees and were interest-free.

 

3.As of June 30, 2023, and December 31, 2022, the amounts payable to Mr. Fuqing Zhang, the Chief Executive Officer of Xinrongxin, were $Nil and $172,730, respectively. The $172,730 was free of interest and due on demand. The amount due to Mr. Fuqing Zhang represents reimbursable operating expenses that Xinrongxin owed to Mr. Zhang prior to the acquisition of of Xinrongxin. As the amount was owed by Xinrongxin, which was dissolved as of January 3, 2023, the Company believes that it no longer has any liability for this debt.

 

4.As of June 30, 2023, and December 31, 2022, the amounts payable to Mr. Youwei Xu, the former financial manager of Xinrongxin, were $11,943 and $11,784, respectively. These sums are free of interest and due on demand. The outstanding amounts owed to Mr. Xu is in connection with reimbursable operating expenses that were incurred prior to the acquisition of of Xinrongxin, As the amounts were owed by Xinrongxin, which was dissolved as of January 3, 2023, the Company believes that it no longer has any liability for this debt.

 

5.As of June 30, 2023, and December 31, 2022, the amounts payable to Shaohui Zhuo, the general manager of Guoyitang, were $4,502 and $4,671, respectively, which amounts were used for daily operations and do not bear any interest.

 

40

 

 

6.As of June 30, 2023, and December 31, 2022, the amounts payable to Nanfang Xiao, a director of Guoyitang, were $10,102 and $10,482, respectively. These funds were used for daily operations and were not subject to any interest.

 

7.As of June 30, 2023, and December 31, 2022, the amounts payable to Jia Song, the manager of Guoyitang, were $4,228 and $4,385, respectively, which amounts were used for daily operations and do not bear any interest.

 

8.As of December 31, 2022, we owed $2 million to Mr. Fnu Oudom pursuant to a $ 2 million convertible note that was issued on December 6, 2022. The convertible note provided for annual interest of 6%, which was payable together with the principal amount one year after the date of issuance. Mr. Oudom had a conversion right with respect to the principal and interest due on the note at a conversion price of $4.00 per share (reflecting a 1-to-10 reverse stock split on December 9, 2022). The (post reverse split) conversion price of $4.00 reflected a 60% premium on the closing price of the Common Stock on Nasdaq on the date of issuance of the note, which was $0.25. On February 27, 2023, the Company and Mr. Oudom entered into an agreement whereby the Company agreed to exercise its prepayment right under the convertible note by issuing shares of its Common Stock. In consideration of Mr. Oudom’s agreement to convert the convertible note into shares of Common Stock and to waive his right to any and all interest accrued and to be accrued, the Company agreed to issue 1,330,000 shares of Common Stock at a conversion price of $1.50 per share, subject to shareholder approval, as full payment of the $2,000,000 principal and accrued interest. Such issuance was approved by the Company’s shareholders on April 13, 2023, and the shares were issued to Mr. Oudom on June 19, 2023.

 

9.On July 18, 2022, 1,250,000 shares of Common Stock (reflecting the Reverse Splits) were issued to Mr. Oudom in consideration of the payment $5 million after obtaining the approval of shareholders at the Company’s 2022 annual meeting of shareholders.

 

10.On February 27, 2023, the Company entered into a stock purchase Agreement with Mr. Oudom, whereby the Company agreed to sell 2,000,000 shares of Common Stock to Mr. Oudom for $3,000,000 in cash, based on a purchase price of $1.50 per share, subject to shareholder approval of the issuance of such shares. The transaction was approved by the Company’s shareholders on April 13, 2023. The Company expects to receive the $3,000,000 in cash from Mr. Oudom and to issue the shares to him by December 2023.

 

11.On July 5, 2022, we entered into a stock purchase agreement (as amended on February 27, 2023) with Mr. Fnu Oudom, whereby we agreed to acquire 100% of the equity interests in Phenix in consideration of $1,800,000. The transaction closed effective March 15, 2023. The aggregate purchase price for the equity interests in Phenix was $180,000 in cash, which was paid on July 7,2022 and 270,000 shares of Common Stock (reflecting the Reverse Splits), which were issued to Mr. Oudom on June 19,2023 after we obtained shareholder consent. We also agreed to issue an additional 5,000,000 shares of Common Stock if the aggregate net profit generated by Phenix is at least $2,500,000 in calendar year 2023 or in any fiscal quarter of 2023.

 

12.On October 28, 2022, Mr. Song, the CEO of the Company, loaned the Company $ 500,000. The loan originally had a term of three months from November 3, 2022, to February 3, 2023. No interest was payable if the loan was repaid on time. This loan has not been repaid and pursuant to the agreement, the loan is automatically extended until the principal amount and all accrued interest is paid in full. 1% interest has accrued since March 3, 2023.

 

23. STOCKHOLDERS’ EQUITY

 

The Company is authorized to issue 200,000,000 shares of Common Stock, $0.001 par value. As of June 30, 2023, and December 31,2022, there were 6,258,926 shares and 3,764,780 shares outstanding, respectively.

 

From January 4, 2021, to February 9, 2021, Hudson Bay converted 2020 Notes in the aggregate principal amount of $ 2,150,000 into 276,943 shares of Common Stock.

 

41

 

 

From January 4, 2021, to March 1, 2021, CVI converted 2020 Notes in the aggregate principal amount of $ 2,150,000 into 227,731 shares of the Common Stock.

 

On February 2, 2021, the Company issued 40,000 shares of Common Stock (reflecting the Reverse Splits) in connection with the purchase of Guoyitang Hospital. 

 

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 20,706 shares of Common Stock.

 

On February 11, 2021, the Company issued 100 shares of Common Stock (reflecting the Reverse Splits) to Real Miracle Investments Limited in consideration for consulting services.

 

On March 26, 2021, the Company issued 40,037 shares of Common Stock (reflecting the Reverse Splits) as part of the Zhongshan acquisition. On September 1, 2023, 39,037 shares of Common Stock were returned to the Company.

 

On April 20, 2021, the Company issued 80,000 shares of Common Stock (reflecting the Reverse Splits) as partial consideration for the acquisition of the Minkang, Qiangsheng and Eurasia hospitals. On December 9, 2022, 43,600 shares of Common Stock were returned to the Company and on September 1, 2023, 36,400 shares of Common Stock were returned to the Company.

 

On April 29, 2021, the Company issued 2,00 shares of Common Stock (reflecting the Reverse Splits) as payment for improvements to offices located in Chongqing.

 

On June 18, 2021, 32,500 shares of Common Stock were issued to an Institutional Investor with respect to its cashless exercise of 650,000 warrants that were issued in 2020.

 

On July 23, 2021, the Company issued 600 shares of Common Stock (reflecting the Reverse Splits) as payment for salary to three employees.

 

From August 26, 2021, to November 30, 2021, an Institutional Investor converted $2,400,000 principal amount of the 2020 Notes and Additional Notes into 970,173 shares of Common Stock.

 

From August 26, 2021, to November 30, 2021, an Institutional Investor converted $3,000,000 principal amount of the 2020 Notes and Additional Notes into 1,183,251 shares of Common Stock.

 

On August 27, 2021, the Company issued 92,000 shares of Common Stock (reflecting the Reverse Splits) in full payment of the balance of the post-closing consideration for the acquisition of Guanzan.

 

On September 22, 2021, the Company issued 44,000 shares of Common Stock (reflecting the Reverse Split on February 3, 2022) as the initial consideration for the acquisition of Zhuoda.

 

On January 7, 2022, the Company issued 60,000 shares of Common Stock (reflecting the Reverse Splits) as the initial consideration for the acquisition of Mali Hospital. On December 9, 2022, 52,000 shares of Common Stock were returned to the Company. And on September 1, 2023, the remaining 8,000 shares of Common Stock were returned to the Company.

 

On January 24, 2022, the Company issued 100,000 shares of Common Stock (reflecting a 1-to-10 reverse stock split on December 9, 2022) to Mr. Song as part of his compensation.

 

On January 27, 2022, the Company the Company issued 10,000 shares of Common Stock (post the Reverse Splits) to Mr. Wang as part of his compensation.

 

On February 1, 2022, the Company issued 1,000 shares of Common Stock (post the Reverse Splits) to Chongqing Jinmujinyang (Jiulongpo) Law Firm (a/k/a in English: Chongqing Kingmoon & Kingyang (Jiulongpo) Law Firm) as payment for services under a legal consulting agreement dated January 1, 2022.

 

42

 

 

A 1-for-5 reverse stock split of the Company’s Common Stock became effective on February 3, 2022.

 

On July 18, 2022, the Company issued 1,250,000 shares of Common Stock (reflecting a 1-to-10 reverse stock split on December 9, 2022) to Mr. Oudom in consideration of an investment of $5 million after obtaining the approval of stockholders at the Company’s 2022 annual meeting of shareholders.

 

A 1-for-10 reverse stock split of the Company’s Common Stock became effective on December 9, 2022.

 

On November 23, 2022, the Zhuoda sale transaction closed, when 100% of the equity interests in Zhuoda were transferred to the buyers and 44,000 shares of the Company’s Common Stock (reflecting the Reverse Splits) were returned to the Company as the full consideration.

 

From January 1, 2022, to December 31, 2022, a converted 2021 Notes in the aggregate principal amount of $2,097,000 into 442,357 shares of Common Stock.

 

From January 1, 2022, to December 31, 2022, the Institutional Investors. converted $5,700,000 of the 2021 Notes into 1,138,248 shares of Common Stock.

 

In 2022, one Institutional Investor received 275,000 shares of Common Stock as a result of the Floor Amount Issuance and the other Institutional Investor received 1,234,715 shares; of Common Stock as a result of the Floor Amount Issuance.

 

In 2022, an Institutional Investor exercised warrants into 44,445 shares of Common Stock.

 

During the three months ended March 31, 2023, an Institutional Investor was issued  270,000 shares of Common Stock as a result of the Floor Amount Issuance.

 

During the three months ended June 30, 2023, an Institutional Investor converted $3,000 of 2021 Notes into 2,420 shares of Common Stock.

 

During the three months ended June 30, 2023, an Institutional Investor was issued 621,762 shares of Common Stock as a result of the Floor Amount Issuance.

 

On June 19, 2023, Mr. Oudom was issued 270,000 shares of Common Stock (reflecting the Reverse Splits) as partial consideration for the Company’s acquisition of Phenix.

 

On June 19, 2023, 1,330,000 shares of Common Stock were issued to Mr. Fnu Oudom pursuant to an agreement dated as of February 27, 2023, in consideration for the prepayment of a $2,000,000 convertible promissory note sold by the Company to Mr. Oudom on December 6, 2022.

 

During the three months ended June 30, 2023, 2,420 shares were issued to an Institutional Investor upon conversion of $3,000 of 2021 Notes. In addition, 621,762 shares were issued to the Institutional Investor due to the Floor Amount Issuance.

 

During the three months ended June 30, 2023, there is no shares were issued to two institutional investors upon exercise of warrants.

 

During the six months ended June 30, 2023, 270,000 shares of Common Stock were issued to an Institutional Investor due to the Floor Amount Issuance.

 

From the legal perspective, the reverse splits applied to the issued shares of Common Stock of the Company did not have any retroactive effect on the Company’s shares prior to those dates. However, for accounting purposes only, references to our Common Stock are stated as having been retroactively adjusted and restated to give effect to the reverse splits, as if the reverse splits had occurred by the relevant earlier date.

 

43

 

 

24. NET INCOME (LOSS) PER SHARE

 

Basic net loss per share is computed using the weighted average number of shares of Common Stock outstanding during the year. The dilutive effect of potential shares of Common Stock outstanding is included in diluted net loss per share. Due to the Company’s net loss from its continuing operations, all potential common share issuances had anti-dilutive effect on net loss per share. The following table sets forth the computation of basic and diluted net loss per share for the six months ended June 30, 2023, and 2022:

 

   For the six months ended
June 30,
 
   2023   2022 
Net income (loss)  from continuing operation attributable to common shareholders  $1,987,491   $(9,114,986)
Net loss from discontinued operation attributable to common shareholders   (143,102)   (171,810)
Total net income (loss) attributable to common shareholders   1,844,389    (9,286,796)
Weighted average number of common shares outstanding – Basic and diluted
   4,219,675    15,429,754 
loss per share – basic and diluted:          
Income (loss) from continuing operations  $0.47)  $(0.59)
Income (loss) from discontinued operations   (0.03)   (0.01)
Total  $0.44   $(0.60)

 

25. SEGMENTS

 

General Information of Reportable Segments:

 

As of June 30, 2023, the Company had four operating segments: retail pharmacy, wholesale pharmaceuticals, wholesale medical devices and healthcare products. The retail pharmacy segment sells prescription and OTC medicines, TCM, healthcare supplies and sundry items to retail customers through its directly owned pharmacies and authorized retail stores. The wholesale pharmaceuticals segment includes supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals, and other drug wholesalers. There were no inter-segment revenues between our retail pharmacy and wholesale pharmaceuticals segments. The wholesale medical device segment distributes medical devices, including medical consumables to private clinics, hospitals, third party pharmacies and other medical device dealers. Healthcare products include dietary supplements such as a cardiovascular product, an anti-insomnia and depression product, a male aphrodisiac product, a women’s menopausal syndrome product, a gout product, and an immunity product.

 

As of June 30, 2022, the Company had four reportable segments: wholesale medical devices, wholesale pharmaceuticals, medical services, and retail pharmacies. The wholesale medical devices segment distributes medical devices, including medical consumables to drug stores, private clinics, pharmaceutical dealers, and hospitals. The wholesale pharmaceuticals segment includes supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals, and other drug vendors. The medical services segment included the hospitals acquired in 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 have limited inter-segment revenues between our segments, consisting of wholesale pharmaceuticals and retail pharmacies.

 

The segments’ accounting policies are the same as those described in the summary of significant accounting policies. The Company’s chief operating decision maker (“CODM”), who is the CEO of the Company, evaluates performance of each of the segments based on profit or loss from continuing operations net of income tax.

 

The Company’s reportable business segments are strategic business units that offer different products. Each segment is managed independently because they require different operations and markets to distinct classes of customers. 

 

44

 

  

Information about Operating Segment Profit or Loss and Segment Assets

 

BIMI, as the holding company, incurred a significant amount of general operating expenses, such as financing costs, that the Company’s chief operating decision maker did not allocate to segments to evaluate the segments performance and allocate recourses of the Company. In addition, except for depreciation and amortization of long-lived assets, the Company does not allocate the change in fair value of derivative liabilities and the amortization of discount of convertible notes to reporting segments in its reported profit or loss. The following amounts were used by the chief operating decision maker.

  

For six months ended
June 30, 2023
  Retail
pharmacy
   Wholesale
medical
devices
   Wholesale
pharmaceuticals
   Healthcare
products
   Medical
services
   Others   Total 
Revenues from external customers  $480,205   $1,051,385   $1,928,388   $5,295,325   $
       -
   $
-
   $8,755,303 
Cost of revenues  $357,836   $805,574   $1,813,422   $1,202,013   $
-
   $2,137   $4,180,982 
Depreciation, depletion, and amortization expense  $9,049   $11,300   $
-
   $79,449   $
-
   $2,517   $102,315 
Profit (loss)  $(194,401)  $(106,312)  $(169,748)  $3,842,311   $(22,309)  $(1,362,049)  $1,987,492 
Total assets  $294,548   $3,128,979   $12,531,453   $6,372,681   $998,867   $7,759,486   $31,086,014 

 

For six months ended
June 30, 2022
  Retail
pharmacy
   Wholesale
medical
devices
   Wholesale
pharmecuticals
   Medical
services
   Others   Total 
Revenues from external customers  $505,003   $2,828,557   $2,055,417   $
-
   $154,768   $5,543,745 
Cost of revenues  $223,032   $2,415,231   $1,962,623   $123   $97,813   $4,698,822 
Depreciation, depletion, and amortization expense  $10,229   $24,152   $154   $
-
   $54,624   $89,159 
Profit (loss)  $(291,344)  $1,224   $(257,769)  $(65,421)  $(5,136,229)  $(5,749,539)
Total assets  $337,795   $3,750,466   $7,979,593   $1,102,730   $18,937,103   $32,107,687 

 

45

 

 

26. ENTITY-WIDE INFORMATION AND CONCENTRATIONS OF RISK

 

Entity-Wide Information

 

(a) Revenues from each type of products

 

For the six months ended June 30, 2023, and 2022, respectively, the Company reported revenues for each segment as follows:

 

   For the six months ended
June 30,
 
   2023   2022 
Medical devices  $1,051,385   $2,828,557 
Healthcare products   5,295,325    
-
 
Wholesale pharmaceuticals   1,928,388    2,055,417 
Pharmacy retail   480,205    505,003 
Other   
-
    154,768 
Total  $8,755,303   $5,543,745 

 

(b) Geographic areas information

 

For the six months ended June 30, 2023, all of the Company’s revenues were generated in the PRC and the United States, of which, Phenix accounted for $5.29 million of the revenues.

 

For the six months ended June 30, 2022, all the Company’s revenues were generated in the PRC. There were no long-lived assets located outside of the PRC as of June 30, 2022.

 

46

 

 

(c) Major customers

 

For the six months ended June 30, 2023, one customer accounted for more than 10% of the Company’s revenues:

 

      For the six months ended 
      June 30, 2023 
Customers  Segment  Revenue   Percentage
of total
Revenue
 
Customer A  Healthcare products  $5,295,325    60.48%

 

(d) Major vendors

 

For the six months ended June 30, 2023, one vendor accounted for more than 10% of the Company’s purchases as of June 30, 2023:

 

      For the
six months ended
   As of
June 30,
 
      June 30, 2023   2023 
Vendors  Segment  Purchases   Percentage of
total purchases
   Accounts
payable
 
Vendor A  Wholesale pharmaceuticals  $442,323    11.22%   
-
 

  

Concentrations of Risk

 

The Company is exposed to the following concentrations of risk:

 

(a) Credit 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.

 

(b) Interest rate risk

 

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 debt, and continually monitoring the effects of market changes in interest rates. As of June 30, 2023, and December 31, 2022, respectively, the Notes, short-term and long-term loans were at fixed rates.

 

(c) Exchange rate risk

 

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.

 

47

 

 

(d) Economic and political risks

 

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operation may be influenced by the political, economic, and legal environment in the PRC, and by the general state of the PRC economy. The outbreak of COVID-19 pandemic has expanded all over the world since the beginning of 2020, which has greatly slowed the growth of the global economy, including the PRC, and this effect may continue until the pandemic is controlled, or a vaccine or cure is developed. The slowdown of the growth of the PRC’s economy has adversely effected our current business and future success will be adversely affected if we are unable to capitalize on the opportunities arising from the increasing demand for medicine and medical devices in the markets in which we operate.

 

The Company’s operations in the PRC are subject to special considerations. These include risks associated with, among others, the political, economic, and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

 

27. SUBSEQUENT EVENTS

 

On September 1, 2023, 39,037 shares of Common Stock were returned to the Company by the prior owner of Zhongshan pursuant to an agreement dated December 28, 2022 whereby the Company agreed to transfer 87% of the equity interests in Zhongshan to the prior owner. Such shares were partial consideration for the transfer. 1,000 shares of Common Stock were returned in the form of cash on September 30, 2023 because the 1,000 shares were sold by the prior owner.

 

On September 1, 2023, 36,400 shares of Common Stock were returned to the Company by the prior owner of the Qiangsheng, Eurasia and Minkang hospitals pursuant to an agreement dated December 28, 2022 whereby the agreed to transfer 90% of the equity interests in the Qiangsheng, Eurasia and Minkang hospitals to their prior owners. Such shares were partial consideration for the transfer.

 

48

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.

 

Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

 

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

As used herein the terms “we”, “us”, “our,” “BIMI” and the “Company” mean, BIMI International Medical, Inc., a Delaware corporation and its subsidiaries.

 

OVERVIEW

 

From 2007 until October 2019, we, through the NF Group, were engaged in the energy efficiency enhancement business. With the decline in the constructions of power generation plants and municipal water, gas, heat and energy pipelines in China due to a policy change by the PRC government, the demand for our products and services declined markedly. As a result, our energy efficiency enhancement business, incurred operating losses in each of the last seven years, especially in 2018, when the PRC government adopted a series of policies to favor more environmentally friendly projects and products. Our net loss from the operation of the energy efficiency enhancement business was $16.79 million in 2018 and $2.18 million in 2019. We explored many different alternatives in an effort to revive this business, including attempts to expand into international markets, before we determined this business was not sustainable for us. In late 2019, we committed to a plan to dispose of the NF Group and on March 31, 2020, we entered into an agreement for the sale of the NF Group. The sale closed on June 23, 2020 when the $10 million sales price was paid to us in full.

 

On October 14, 2019, we acquired Boqi Zhengji, an operator of a pharmacy chain business in the PRC. This was the first step of our shift of focus from the energy sector to the healthcare business. Boqi Zhengji, however, suffered significant setbacks during 2020. The COVID-19 pandemic caused the pharmacy stores to record almost no sales for several months due to the national shutdown order and other government orders specifically targeting OTC drugs. To avoid exposing our Company to further risks and potential joint liabilities, we decided to divest the pharmacy chain. On December 11, 2020, we entered into an agreement to sell Boqi Zhengji for $1,700,000 in cash. On December 18, 2020, we received the full consideration from the buyer and the control of the Boqi Zhengji business was transferred. Due to the Chinese government’s alternative working schedule and other delays caused by COVID-19, the government record reflecting the transfer of ownership was not updated until February 2, 2021.

 

49

 

 

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 held an 80% equity interest in Chongqing Shude Pharmaceutical Co., Ltd. (“Shude”, and collectively with Guanzan, the “Guanzan Group”. On April 9, 2021, we increased our equity interest in Shude from 80% to 95.2% by making a direct capital investment in Shude.

 

In May 2020, Guanzan established Chongqing Lijiantang Pharmaceutical Co. Ltd., a subsidiary which operates four retail pharmacy stores in China (collectively, the “Lijiantang Pharmacy Group”). 

 

 On February 2, 2021, we acquired Guoyitang, the owner and operator of a private general hospital in Chongqing. The Guoyitang acquisition was the first step in our efforts to build a hospital chain specializing in obstetrics and gynecology.

 

On February 8, 2021, we acquired Zhongshan, a private hospital in the southeast region of China with. The Zhongshan acquisition was the second step in our effort to establish a nationwide hospital chain specializing in obstetrics and gynecology. 

 

On April 9, 2021, we acquired three private hospitals operating in China, Wuzhou Qiangsheng Hospital Co.,Ltd.(“Qiangsheng”) in the southeast region of the PRC, Suzhou Eurasia Hospital Co.,Ltd. (“Eurasia”) in the central region of the PRC and Yunan Yuxi Minkang Hospital Co.,Ltd.(“Minkang”) in the southwest region of the PRC.

 

Our hospitals performed poorly in 2022 due in great measure to the impact of COVID-19 and the PRC’s policies to combat its spread. In response to their poor performance, we entered into agreements to sell back the Zhongshan, Qiangsheng, Eurasia and Minkang hospitals to their original owners and ceased the operation of Guoyitang.

 

On December 28, 2022, we entered into an agreement to transfer 87% of the equity interests in Zhongshan to the prior owner and will retain 13% of the equity interests in Zhongshan. As consideration for the transfer and pursuant to an amendment to the original stock purchase agreement, the original seller agreed to return the 40,037 shares of Common Stock previously issued (reflecting the two reverse stock splits 1-for- 5 reverse split on February 3, 2022, and a 1-for- 10 reverse split on December 9, 2022 (the “Reverse Splits”)) and RMB 40,000,000 in cash (approximately ($6,116,207) previously paid upon the acquisition of Zhongshan. The former owner also agreed to release the Company from any and all claims relating to two earn out payments that were payable under the original purchase agreement. The Company received a put option to sell part or all of its 13% interest in Zhongshan before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by the two parties. On September 1, 2023, 39,037 shares of Common Stock were returned to the Company. The remaining 1,000 shares were returned in the form of a $3,055 cash payment because the shares were sold by the original seller. The transaction is expected to close by December 31, 2023, at which time the cash paid at the time of the acquisition will also be returned.

 

On December 28, 2022, we entered into an agreement to transfer 90% of the equity interests in the Qiangsheng, Eurasia and Minkang hospitals to their former owners and will retain 10% of the equity interests in each hospital. As consideration for the transfer and pursuant to an amendment to the original stock purchase agreement, the original sellers agreed to return the 80,000 shares of Common Stock previously issued (reflecting the Reverse Splits) and RMB 20,000,000 (approximately $2,767,860) in cash previously paid upon the acquisition of the three hospitals. The former owner also agreed to release the Company from any and all claims relating to two earn out payments that were payable under the original purchase agreement. The Company received a put option to sell part or all of its 10% interest in each of the three hospitals to the former owner before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by the parties. On December 9, 2022, 43,600 shares of Common Stock were returned to us and on September 1, 2023, 36,400 shares of Common Stock were returned to us. The transaction is expected to close by December 31, 2023, at which time the cash paid at the time of the acquisitions will also be returned.

 

The actions taken to dispose of the majority of our ownership interests in the Zhongshan, Qiangsheng, Eurasia and Minkang hospitals resulted in our classifying these hospitals as held for sale operations according to ASC 205-20 Presentation of Financial Statements – Discontinued Operation. As a result, all of the assets and liabilities of the Zhongshan, Qiangsheng, Eurasia and Minkang hospitals were reclassified as assets and liabilities of held for sale operations in the statement of position as of December 31, 2022 and June 30, 2023 and the results of the operation are presented under the line item net loss from held for sale operations for the six months ended June 30, 2023. The Company also hired a third party to perform annual valuation report for these assets. The impairment adjustment was performed based on the valuation report for the year ended December 31, 2022 as well.

 

50

 

 

On September 10, 2021, we acquired Chongqing Zhuoda Pharmaceutical Co., Ltd. (“Zhuoda”), a company engaged in the distribution of medical devices and pharmaceuticals, based in Chongqing, the largest city in Southwest region of the PRC.

 

In response to the poor performance of Zhuoda, whose operations were impacted by COVID-19, we entered into a sale and purchase agreement to sell Zhuoda back to the former owners. Pursuant to the agreement, we sold 100% of the equity interests in Zhuoda in consideration for the return of the 44,000 shares of Common Stock (reflecting the Reverse Split). previously issued to the former owners of Zhuoda. The transaction closed effective November 23, 2022, when the 44,000 shares of Common Stock were returned to us.

 

On July 5, 2022, we entered into a stock purchase agreement (as amended on February 27, 2023) with Mr. Fnu Oudom, the Chairman of our board of directors, whereby we agreed to acquire 100% of the equity interests in Phenix Bio Inc. (“Phenix”), a distributor of dietary supplements in consideration of $1,800,000. The transaction closed effective March 15, 2023. The aggregate purchase price for the equity interests in Phenix was (i) $180,000 in cash paid on July 7, 2022 and (ii) 270,000 shares of Common Stock (reflecting the Reverse Splits) which were issued on June 19, 2023, following our obtaining shareholder approval the transaction. We also agreed to issue 5,000,000 shares of Common Stock to Mr. Oudom if the aggregate net profit for Phenix is at least $2,500,000 in calendar 2023, or in any fiscal quarter in 2023.

 

Restatements

 

We are in the process of restating our financial statements for year ended December 31, 2022 and the quarterly periods ended March 31, 2022, June 30, 2022, September 30, 2022 and March 31, 2023, to correct errors identified in our prior financial statements. We have concluded that the restatements do not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

 

(1)     We are in the process of restating the Consolidated Statements of Equity for the quarterly periods ended June 30, 2022 and September 30, 2022. The restatement relates to the stockholders’ equity and noncontrolling interests presented in the consolidated balance sheets, as of June 30, 2022 and September 30, 2022, which had been presented in the form of a reconciliation of the beginning balance to the ending balance for each period for which a consolidated statement of comprehensive income was required to be filed.  We will provide reconciliations for the interim periods covered by the Consolidated Statement of Equity for the periods ended June 30, 2022 and September 30, 2022.  This restatement should not have any effect on net income, per-share amount, or retained earnings and other components of equity or net assets for prior filing and current filing. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

 

51

 

 

(2)     On June 9, 2022, the Company issued a $5 million subordinated promissory note, which was converted into 1,250,000 shares of the Company’s Common Stock (post the December 2022 1 to 10 reverse split) on July 18, 2022, upon obtaining shareholder approval for the transaction. We erroneously reflected the proceeds of the promissory note in the Consolidated Statements of Cash Flows as “Issuance of Common Stock” for the six month period ended June 30, 2022.   We failed to reflect this promissory note as a note payable as of June 30, 2022. As a result, we are in the process of restating our financial statements for the quarterly period ended June 30, 2022. This restatement did not effect our net income, per-share amounts, retained earnings or other components of equity or net assets for prior filings and the current filing. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

 

(3)     We restated our financial statements for the year ended December 31, 2021 and are in the process of restating the our financial statements for the quarterly period ended June 30, 2022 to correct errors identified in our prior financial statements. In the year ended December 31, 2021 and the quarterly periods ended March 31, 2022 and June 30, 2022, we recorded amortization of convertible notes as a general and administrative expense in error. We have revised the financial statements for the year ended December 31, 2021 and the six months ended June 30, 2022 and are in the process of revising our financial statements for the quarterly period ended March 31, 2022 to record the amortization of convertible notes as an “other expense”. The impact of the restatement on our financial statements is the reclassification of such expense as an “other expense”. The reclassification also affected the classification of such expense in the Consolidated Statements of Cash Flows. We have also amended various footnotes to the financial statements. We restated our financial statements for the year ended December 31, 2021 and are in the process of restating the financial statements for the year ended December 31, 2022 and the quarterly periods ended March 31, 2022, June, 30, 2022 and September 30, 2022 to correct this issue. This restatement did not affect our net income (loss) , net income (loss) per-share, retained earnings or other components of equity or net assets for our prior filings and the current filing. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

 

(4)     We are in the process of restating our financial statements for the year ended December 31, 2022, where we incorrectly accounted for the acquisition of Phenix. On July 5, 2022, we entered into a stock purchase agreement, which was subsequently amended, pursuant to which we agreed to acquire Phenix and paid a deposit of $180,000 on July 7, 2022. The closing did not occur until March 15, 2023.  As of December 31, 2022, the accounting for the Phenix acquisition was incorrectly recorded as follows: (1) a long-term equity investment as a debit entry, (2) cash as a credit, and (3) other payables as a credit entry. Since the Phenix acquisition had not taken place as of December 31, 2022, it should not have been recorded as a long-term equity investment. As such, we reversed the long-term equity investment account and other payables account and recorded the deposit as a prepayment. This restatement did not affect our net income, per-share amounts, or retained earnings, but affected the net assets in the quarterly period ended March 31, 2023. We have concluded that the restatement does not materially affect our liquidity or other financial obligations.

 

(5)       We are in the process of restating the Consolidated Statements of Cash Flows for the quarterly periods ended June 30, 2022, September 30, 2022, March 31, 2023 and for the year ended December 31, 2022. The restatement relates to the discontinued entities' cashflow presented in the Consolidated Statements of Cash Flows, for the quarterly periods ended June 30, 2022, September 30, 2022, March 31, 2023, and for the year ended December 31, 2022, which have not presented in the prior period filling. In the restated Consolidated Statements of Cash Flows, we will present the discontinued entities’ cash flows in the Consolidated Statements of Cash Flows instead of zero. This restatement does not affect net income (loss), net income (loss) per-share, or retained earnings and other components of equity or net assets in our prior filings or in our current filing. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.  

 

52

 

 

We are taking steps to address the causes of the restatements and to improve our internal controls over financial reporting. We are in the process of hiring a new third-party consulting firm to assist us in strengthening our daily internal controls and financial reporting process review. We also aim to improve our internal accounting department management as well. We are committed to maintaining the integrity of our financial statements and to provide accurate and transparent financial information to our investors.

 

GOING CONCERN

 

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.

 

We incurred net losses of $22,318,056 and $$34,921,745 in the years ended December 31, 2022 and 2021 and had an. accumulated deficit of $69,249,828 as of June 30, 2023. 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 our stockholders or external financing. Management believes that our existing stockholders will provide the additional cash necessary to meet our obligations as they become due, and (2) that we will be able to implement our business plan to expand our company’s operations and generate sufficient revenues to meet our obligations. While we believe in the viability of our strategy to increase sales volume and in our ability to raise additional funds, there can be no assurance to that effect, nor that our company will be successful in securing sufficient funds to sustain the operations.

 

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.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue, receivable, inventory, and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are recorded in the period in which they become known.

 

53

 

 

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

Use of estimates

 

The preparation of our 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 for inventory obsolescence, 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.

  

Accounts receivable and allowance for doubtful accounts

 

Accounts receivables 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 creditworthiness 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. We do not have any off-balance-sheet credit exposure related to our customers.

 

Advances to suppliers

 

Advances to suppliers consist of prepayments to the Company’s vendors, such as pharmaceutical manufacturers and medicine suppliers. The Company typically prepays for the purchase of our merchandise, especially for those salable, scarce, personalized medicine or medical devices. The Company typically receive products from vendors within three to nine months after making prepayments. The Company continuously monitor delivery from, and payments to, the vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such as discontinuing of inventory supply, that have been identified. If the Company has difficulty receiving products from a vendor, the Company will 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 June 30, 2023, and December 31, 2022, the allowance for doubtful accounts were Nil.

 

54

 

 

Inventories

 

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average method, and market value is the middle (the second highest) value among an inventory item’s replacement cost, market celling and market floor. The Company carries out physical inventory counts on a monthly basis at each store and warehouse location. The Company reviews historical sales activity quarterly to determine excess, slow-moving items and potentially obsolete items. The Company provides inventory reserve based on the excess quantities on hand equal to the difference, if any, between the cost of the inventory and its estimated market value, or obsolescence of inventories determined principally by customer demand. As of June 30, 2023, and December 31, 2022, the Company recorded an allowance for obsolete inventories, which mainly consists of expired medicine, of $26,604 and $584, 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:

 

Items 

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%
Leasehold Improvement  Shorter of lease term or useful life   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

 

Intangible assets consist primarily of management system software. 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

  

Leases

 

On January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-02. For all leases that were entered into prior to the effective date of ASC 842, we elected to apply the package of practical expedients. Based on this guidance, we did not reassess the following: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) initial direct costs for any existing leases.

 

We determine 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 our 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.

 

55

 

 

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 our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.

 

Goodwill

 

Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortized, and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of operations and comprehensive loss. Impairment losses on goodwill are not reversed.

 

The Company reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist annually or more frequently if events and circumstances indicate that it is more likely than not that an impairment has occurred. The Company has the option to assess qualitative factors to determine whether it is necessary to perform the two-step in accordance with ASC 350-20. If the Company believes, as a result of the qualitative carrying amount, the two-step quantities impairment test described below is required.

 

The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required.

 

If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business acquisition with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. Estimating fair value is performed by utilizing various valuation techniques, with the primary technique being a discounted cash flow. The fair value of discounted cash flow is determined using management’s estimates and assumptions.

 

Management evaluates the recoverability of goodwill, with the assistance of a third-party evaluation firm. If we reorganize our reporting structure in a manner that changes the composition of one or more of our reporting units, goodwill will be reassigned based on the relative fair value of each of the affected reporting units.

 

As of June 30, 2023 and December 31, 2022, the Company recorded impairments for goodwill of Nil and $5,385,811, respectively.

 

As a result of the impairments recognized on December 31, 2022, the remaining goodwill of the Company was related to the acquisitions of Guanzan and Zhongshan. The remaining goodwill of Guanzan was $1,392,449 and the remaining goodwill of Zhongshan was $673, 217 as of December 31, 2022 and June 30,2023. As of June 30,2023, the fair value of these businesses was at risk for future goodwill impairments, based on the continuation of negative macroeconomic conditions, which could represent potential indicators of impairment requiring further impairment analysis in 2023. The Company continues to monitor for potential impairment should impairment indicators arise.

 

Impairment of long-lived assets and intangibles