The accompanying notes are an integral part
of the condensed consolidated financial statements
The accompanying notes are an integral part
of the condensed consolidated financial statements
The accompanying notes are an integral part
of the condensed consolidated financial statements
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION
AND BUSINESS BACKGROUND
|
BOQI International Medical, Inc. (the “Company”
or “BIMI”) was incorporated in the State of Delaware as Galli Process, Inc. on October 31, 2000. On February 7, 2002,
the Company changed its name to Global Broadcast Group, Inc. On November 12, 2004, the Company changed its name to Diagnostic Corporation
of America. On March 15, 2007, the Company changed its name to NF Energy Saving Corporation of America, and on August 24, 2009,
the Company changed its name to NF Energy Saving Corporation. On December 16, 2019, the Company changed its name to BOQI International
Medical Inc., to reflect the Company’s refocus of its business from the energy saving industry to the health care industry.
Since March 7, 2012, the common stock of the Company 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 23, 2020, the Company entered into a stock purchase agreement (the “NF
SPA”) to sell the NF Group. The sale of the NF Group closed on June 23, 2020. Please refer to NOTE 5 for more information
relating to the sale of the NF Group.
On October 14, 2019, the Company acquired 100% of the equity
interests in Lasting Wisdom Holdings Limited (“Lasting”), a limited company incorporated under the laws of the British
Virgin Islands (“BVI”). Lasting has limited operating activities since incorporation except for holding the ownership
interest in Pukung Limited (“Pukung”), a company organized under the laws of Hong Kong. Pukung owns 100% of the equity
interest in Beijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”), a company organized under the laws
of the PRC. Xinrongxin owns all the ownership interest of Dalian Boqi Zhengji Pharmacy Chain Co., Ltd. (“Boqi Zhengji”)
and Dalian Boyi Technology Co., Ltd (“Boyi”), a subsidiary established in January 2020. On March 18, 2020, the Company,
through its wholly owned subsidiary, Xinrongxin, acquired 100% of the equity interests in Chongqing Guanzan Technology Co., Ltd.
(“Guanzan”). Guanzan holds an 80% equity interest in Chongqing Shude Pharmaceutical Co., Ltd. and 100% equity interest
in Chongqing Lijiantang Pharmaceutical Co. Ltd., a subsidiary established in May 2020 (“Shude” and “Lijiantang
” collectively with Guanzan, the “Guanzan Group”). Lasting, Pukung, Xinrongxin, Boqi Zhengji and the Guanzan
Group are hereinafter collectively referred to as the “Pharmacy Group”.
The Pharmacy Group engages in both the retail and wholesale
distribution of pharmaceutical and other healthcare products in the PRC. The Pharmacy Group sells its pharmaceutical and other
healthcare products to customers through its directly-owned stores and authorized retail stores. The retail segment of the Pharmacy
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. Most of the
Pharmacy Group’s retail pharmacies are located in Dalian City, Liaoning Province, PRC. The wholesale segments of the Pharmacy
Group operates under the umbrella of the Guanzan Group and are engaged in the distribution of medical devices and generic drugs.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Description of subsidiaries
Name
|
|
Place of incorporation and kind of legal entity
|
|
Principal activities and place of operation
|
|
Effective
interest
held
|
|
|
|
|
|
|
|
|
|
Lasting Wisdom Holdings Limited (“Lasting”)
|
|
British Virgin Island, a limited liability company
|
|
Investment holding
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Pukung Limited (“Pukung”)
|
|
Hong Kong, a limited liability company
|
|
Investment holding
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Beijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”)
|
|
The PRC, a limited liability company
|
|
Investment holding
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Boqi Zhengji Pharmacy Chain Co., Ltd. (“Boqi Zhengji”)
|
|
The PRC, a limited liability company
|
|
Retail and wholesale distribution of pharmaceutical and other healthcare products in the PRC
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Dalian Boyi Technology Co., Ltd.
|
|
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.
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of generic drugs in the PRC
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
Chongqing Lijiantang Pharmaceutical Co., Ltd.
|
|
The PRC, a limited liability company
|
|
Wholesale distribution of generic drugs in the PRC
|
|
|
100
|
%
|
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
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 operating losses of $5,507,198 and $1,517,821, and a cash outflow of $2,815,194 and
$935,967 from operating activities for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020,
the Company had an accumulated deficit of $10.8 million and negative working capital of $5.44 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 external financing, and (2) further
implementation of management’s business plan to extend its operations and generate sufficient revenues and cash flow to meet
its obligations. While the Company believes in the viability of its strategy to increase sales volume and in its ability to raise
additional funds, there can be no assurance that the Company will be successful in increasing its sales or securing sufficient
funds to sustain its 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.
|
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
●
|
Basis
of presentation and consolidation
|
These accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US
GAAP”). These unaudited condensed consolidated financial statements include the financial statements of the Company and its
subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
The unaudited condensed consolidated financial information as
of September 30, 2020 and for the nine months ended September 30, 2020 and 2019 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 condensed consolidated financial information should be read in conjunction with the consolidated
financial statements and the notes.
In the opinion of management, all adjustments (which include
normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated financial
position as of September 30, 2020 and its unaudited condensed consolidated results of operations for the nine months ended September
30, 2020 and 2019, and its unaudited condensed consolidated cash flows for the nine months ended September 30, 2020 and 2019, as
applicable, have been made. The results of operations are not necessarily indicative of the operating results for the 2020 fiscal
year or any future periods.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The preparation of these condensed consolidated financial statements
in conformity with the US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities on the date of these condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates and judgments on
historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances.
Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates
may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment
changes. Significant estimates and assumptions made by management include, among others, useful lives and impairment of long-lived
assets, collectability of accounts receivable, advances to suppliers allowance for doubtful accounts, reserve of inventory, fair
value of goodwill and valuation of derivative liabilities. While the Company believes that the estimates and assumptions used in
the preparation of these condensed consolidated financial statements are appropriate, actual results could differ from those estimates.
Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements
in the period they are determined to be necessary.
Cash consists primarily of cash on hand and cash in banks which
is readily available in checking and saving accounts. The Company maintains cash with various financial institutions in the PRC,
where its accounts are uninsured. The Company has not experienced any losses from funds held in bank accounts and believes it is
not exposed to any risk on its bank accounts.
Cash that is restricted as to withdrawal or use under the terms
of certain contractual agreements or orders are recorded in a restricted cash account in the Company’s unaudited condensed
consolidated balance sheet. The Company’s restricted cash balance is the amount of cash deposited in the Company’s
bank account that was subject to an attachment order by a local court of Dalian City due to a dispute with a supplier. As of September
30, 2020 and December 31, 2019, the balances of restricted cash were $1,365 and $311, respectively.
|
●
|
Accounts
receivable and allowance for doubtful accounts
|
Accounts receivable are recorded at the invoiced amount and
do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from delivery. Credit is extended
based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts
receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days are reviewed
individually for collectability. At the end of each period, the Company specifically evaluates such individual customer’s
financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts
receivables. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As
of September 30, 2020 and December 31, 2019, the allowance for doubtful accounts was $678,858 and $53,182 respectively.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Advances to suppliers consist of prepayments to the Company’s
vendors, such as pharmaceutical manufacturers and medicine suppliers. We typically prepay for the purchase of our merchandise,
especially for those salable, scarce, personalized medicine or medical devices. We typically receive products from vendors within
three to nine months after making prepayments. We continuously monitor delivery from, and payments to, our 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 we have difficulty receiving products from a vendor, we would cease purchasing
products from such vendor, request return of our prepayment promptly, and if necessary, take legal action. We have not taken such
type of legal action during the reporting periods. If none of these steps are successful, management will then determine whether
the prepayments should be reserved or written off. As of September 30, 2020 and December 31, 2019, the allowance for doubtful accounts
was $19,151 and $11,716, respectively.
Inventories are stated at the lower of cost or net realizable
value. Cost is determined on a weighted average method. The Company carries out physical inventory counts on a monthly basis at
each store directly-owned and those warehouses for temporary storage of our selling merchandises. The Company reviews historical
sales activity quarterly to identify if any 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
net realizable value, or obsolescence of inventories determined principally by customer demand and the maturity period of the merchandises.
As of September 30, 2020 and December 31, 2019, the Company recorded an allowance for obsolete inventories, which mainly consists
of expired medicine, of $588,174 and $182,258, respectively.
|
●
|
Property,
plant and equipment
|
Property, plant and equipment are stated at cost less accumulated
depreciation and impairment, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives
from the date on which they become fully operational and after taking into account their estimated residual values:
|
|
Expected useful
lives
|
|
Residual value
|
Building
|
|
20 years
|
|
5%
|
Office equipment
|
|
3 years
|
|
5%
|
Furniture
|
|
5 years
|
|
5%
|
Vehicles
|
|
4 years
|
|
5%
|
Expenditures for repairs and maintenance are expensed as incurred.
When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in the results of operations.
Intangible assets consist primarily of pharmacy store club members,
which was recognized at the acquisition of the Pharmacy Group, and software of management systems. Intangible assets are stated
at cost less accumulated amortization and impairment, if any. Intangible assets are amortized using the straight line method with
the following estimated useful lives:
|
|
Expected useful
lives
|
Software
|
|
10 years
|
Pharmacy club members
|
|
8 years
|
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Goodwill represents the excess of the purchase price over the
amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. In accordance with
ASC 350, Goodwill and Other Intangible Assets, recorded goodwill amounts are not amortized, but rather are tested for
impairment annually or more frequently if there are indicators of impairment present.
Goodwill is tested for impairment at the reporting unit level
on at least an annual basis or when an event occurs or circumstances change that would more-likely-than-not reduce the fair value
of a reporting unit below its carrying value. These events or circumstances include a significant change in stock prices, business
environment, legal factors, financial performances, competition, or events affecting the reporting unit. Application of the goodwill
impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting
units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of
fair value of reporting unit using a discounted cash flow methodology also requires significant judgments, including estimation
of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company’s
business, estimation of the useful life over which cash flows will occur, and determination of the Company’s weighted average
cost of capital. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating
results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value
and goodwill impairment for the reporting unit.
Management evaluated the recoverability of goodwill by performing
a qualitative assessment before using a two-step impairment test approach at the reporting unit level. If the Company reorganizes
its reporting structure in a manner that changes the composition of one or more of its reporting units, goodwill will be reassigned
based on the relative fair value of each of the affected reporting units.
|
●
|
Impairment
of long-lived assets and intangibles
|
In accordance with the provisions of ASC Topic 360, “Impairment
or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its
estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the
assets. During the quarter ended September 30, 2020 we identified an impairment charge regarding Boqi Zhengji in the amount of
$6,559,282. .
We adopted Accounting Standard Codification (“ASC”)
Topic 606, Revenues from Contract with Customers (“ASC 606”) for all periods presented. Under ASC 606, revenue is recognized
when control of the promised goods and services is transferred to the Company’s customers, in an amount that reflects the
consideration that the Company expects to be entitled to in exchange for those goods and services, net of value-added tax. The
Company determines revenue recognition through the following steps:
|
●
|
Identify
the contract with a customer;
|
|
●
|
Identify
the performance obligations in the contract;
|
|
●
|
Determine
the transaction price;
|
|
●
|
Allocate
the transaction price to the performance obligations in the contract; and
|
|
●
|
Recognize
revenue when (or as) the entity satisfies a performance obligation.
|
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The transaction price is allocated to each performance obligation
on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when
that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which
at a point in time or over time as appropriate.
The Company’s revenue is net of value added tax (“VAT”)
collected on behalf of PRC tax authorities in respect to the sales of products. VAT collected from customers, net of VAT paid for
purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax
authorities
Cost of revenue consists primarily of cost of goods purchased
from suppliers plus direct material costs for packaging and storage, direct labor, which are directly attributable to the acquisition
and maintaining of products for sales. Cost of revenues also include impairment loss of our products which are obsolete or expired
for sale, if any. Shipping and handling costs, associated with the distribution of products to customers, are borne by the customers.
ASC Topic 220, “Comprehensive Income”, establishes
standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in
the accompanying condensed consolidated statement of stockholders’ equity, consists of changes in unrealized gains and losses
on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Income taxes are determined in accordance with the provisions
of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted
income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should
recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on
a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than
not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently
be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement
with the tax authority assuming full knowledge of the position and relevant facts.
For the nine months ended September 30, 2020 and 2019, the Company
did not incur any interest or penalties associated with tax positions. As of September 30, 2020, the Company did not have any significant
unrecognized uncertain tax positions.
The Company conducts all of its business in the PRC and is subject
to tax in this jurisdiction. As a result of its corporate structure the Company files tax returns that are subject to examination
by a foreign tax authority.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Sales revenue represents the invoiced value of goods sold, net
of VAT. All of the Company’s products that are sold in the PRC are subject to a VAT on the gross sales price. The VAT rates
range up to 13%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company on its purchase activities
of merchandises, raw materials, utilities, and other materials which cost was included in the cost of producing or acquiring its
products for sales. The Company records a VAT payable net of payments if the VAT payable on the gross sales is larger than VAT
paid by the Company on purchase of finished goods; on the other hand, the Company records a VAT deductible in the accompanying
financial statements net of any VAT payable at the end of reporting period.
|
●
|
Convertible
promissory notes
|
The Company records debt net of debt discount for beneficial
conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the Beneficial
Conversion and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion
rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the
life of the debt.
The Company has entered into financing arrangements that consist
of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company accounts
for these arrangements in accordance with Accounting Standards Codification Topic 815, Accounting for Derivative Instruments and
Hedging Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with this standard,
derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with
gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are
bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company
determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation
models, giving consideration to all of the rights and obligations of each instrument.
We estimate fair values of derivative financial instruments
using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring fair values.
In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that it
embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally
use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including
trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values
of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to,
change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based
techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common
stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going
forward will reflect the volatility in these estimate and assumption changes. Under the terms of the new accounting standard, increases
in the trading price of the Company’s common stock and increases in fair value during a given financial quarter result in
the application of non-cash derivative expense. Conversely, decreases in the trading price of the company’s common stock
and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.
|
●
|
Net
income (loss) per share
|
The Company calculates net income/(loss) per share in accordance
with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income
by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to
basic income per share except that the denominator is increased to include the number of additional common shares that would have
been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
●
|
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 the Company’s subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic
830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues
and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial
statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement
of stockholders’ equity.
Translation of amounts from RMB into US$ has been made at the
following exchange rates for the respective period:
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
Period-end RMB:US$1 exchange rate
|
|
|
6.8106
|
|
|
|
7.0729
|
|
Nine months end average RMB:US$1 exchange rate
|
|
|
6.9946
|
|
|
|
6.8541
|
|
Parties, which can be a corporation or individual, are considered
to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence
over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject
to common control or common significant influence.
ASC Topic 280, “Segment Reporting” establishes
standards for reporting information about operating segments on a basis consistent with the Company’s internal organization
structure as well as information about the type of products and services, geographical areas, business strategies and major customers
in business components. Beginning in first quarter of 2020, the Company operates in three reportable segments: retail pharmacy,
wholesale medicine and wholesale medical devices in the PRC.
|
●
|
Fair
value of financial instruments
|
The carrying value of the Company’s financial instruments
(excluding short-term bank borrowing and convertible promissory notes): cash and cash equivalents, accounts and retention receivable,
prepayments and other receivables, accounts payable, income tax payable, amounts due to related parties other payables and accrued
liabilities approximate their fair values because of the short-term nature of these financial instruments.
Management believes, based on the current market prices or interest
rates for similar debt instruments, the fair value of its obligation under its finance lease and short-term bank borrowing approximate
the carrying amount.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The Company also follows the guidance of the ASC Topic 820-10,
“Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities
that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring
fair value as follows:
|
●
|
Level
1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
|
|
●
|
Level
2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for
which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the
full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts
to a present value using market-based observable inputs; and
|
|
●
|
Level
3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants
would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including
option pricing models and discounted cash flow models.
|
Fair value estimates are made at a specific point in time based
on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly
affect the estimates.
The carrying amount of cash, restricted cash, accounts receivable,
other receivable, bank credit, accounts payable and other accounts payable approximate their fair value due to the short-term maturity
of these instruments.
|
●
|
Recent
accounting pronouncements
|
In November 2018, the FASB issued ASU 2018-19, “Codification
Improvements to Topic 326, Financial Instruments-Credit Losses.” ASU 2018-19 is a new standard to replace the incurred loss
impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of
a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking
expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale
debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis
of the securities. This standard will become effective and be adopted by companies of which a new fiscal year starts after July
1, 2020. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment
to retained earnings as of the effective date to align our credit loss methodology with the new standard. We are currently evaluating
the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.
In February 2016, FASB issued ASU No. 2016–02, “Leases
(Topic 842)”, ASC 842, and subsequently amended the guidance relating largely to transition considerations under the standard
in July 2018. The new guidance, which creates new accounting and reporting guidelines for leasing arrangements, requires organizations
that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those
leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition,
measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a
finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the
amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for public business entities for
annual reporting periods beginning after December 15, 2018, including periods within that reporting period, with early application
permitted. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which further clarifies
the determination of fair value of the underlying asset by lessors that are not manufacturers or dealers and modifies transition
disclosure requirements for changes in accounting principles and other technical updates. The amendments in ASU 2019-01 amend
Topic 842 and the effective date of those amendments is for fiscal years beginning December 15, 2019, and periods within those
fiscal years for public business entities. For all other entities, ASC 842 is effective for annual periods beginning after
December 15, 2020.
In February 2016, FASB issued ASU No. 2016–02, “Leases
(Topic 842)”, ASC 842, and subsequently amended the guidance relating largely to transition considerations under the standard
in July 2018. The new guidance, which creates new accounting and reporting guidelines for leasing arrangements, requires organizations
that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those
leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition,
measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a
finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the
amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for public business entities for
annual reporting periods beginning after December 15, 2018, including periods within that reporting period, with early application
permitted. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which further clarifies the
determination of fair value of the underlying asset by lessors that are not manufacturers or dealers and modifies transition disclosure
requirements for changes in accounting principles and other technical updates. The amendments in ASU 2019-01 amend Topic 842 and
the effective date of those amendments is for fiscal years beginning December 15, 2019, and periods within those fiscal years for
public business entities. For all other entities, ASC 842 is effective for annual periods beginning after December 15, 2020.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects
related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also
clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and periods
within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating
the impact of this standard on its consolidated financial statements and related disclosures.
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.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
4.
|
THE
ACQUISITION OF THE GUANZAN GROUP
|
On February 1, 2020, we entered into a stock purchase agreement
to purchase the Guanzan Group (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 the Guanzan Group (the “Guanzan Shares”)
for RMB 100,000,000 (approximately $14,285,714) to be paid by the issuance of 950,000 shares of our common stock (the “Guanzan
Stock Consideration”) and the payment of RMB 80,000,000 (approximately $11,428,571) in cash (the “Guanzan Cash Consideration”)
(the “Guanzan Acquisition”). The Guanzan Stock Consideration was payable at closing and the Guanzan Cash Consideration,
which is subject to post-closing adjustments based on the performance of the Guanzan Group in the years ending December 31, 2020
and 2021, will be paid pursuant to a post-closing payment schedule.
The transaction closed on March 18, 2020. Upon the closing,
the Guanzan Shares were issued. The Guanzan Cash Consideration has not been paid as of the date of this report.
The following summarizes the identified assets acquired and
liabilities assumed pursuant to the Guanzan Acquisition as of March 18, 2020:
Items
|
|
Amount
|
|
Assets
|
|
|
|
Cash
|
|
$
|
95,220
|
|
Accounts receivable
|
|
|
1,835,981
|
|
Advances to suppliers
|
|
|
1,222,986
|
|
Amount due from related parties
|
|
|
410,943
|
|
Inventories
|
|
|
950,225
|
|
Prepayments and other receivables
|
|
|
90,256
|
|
Property, plant and equipment
|
|
|
707,289
|
|
Intangible assets
|
|
|
254,737
|
|
Goodwill
|
|
|
6,443,170
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Short-term bank borrowings
|
|
|
(838,926
|
)
|
Long-term loans due within one year
|
|
|
(250,663
|
)
|
Accounts payable, trade
|
|
|
(1,303,399
|
)
|
Advances from customers
|
|
|
(1,350,126
|
)
|
Amount due to related parties
|
|
|
(106,720
|
)
|
Taxes payable
|
|
|
(406,169
|
)
|
Other payables and accrued liabilities
|
|
|
(390,594
|
)
|
Long-term loans – noncurrent portion
|
|
|
(186,796
|
)
|
Non-controlling interests
|
|
|
(46,295
|
)
|
Total-net assets
|
|
$
|
7,131,119
|
|
The fair value of all assets acquired and liabilities assumed
is the estimated book value of Guanzan Group. Goodwill represent the excess of the fair value of purchase price over the amounts
assigned to the fair value of the assets acquired and the liabilities assumed of Guanzan Group at the acquisition date. Upon the
Guanzan Acquisition, the Company recognized its non-controlling interest in Shude in the amount of $46,295, representing the 20%
non-controlling equity interest in Shude. Shude is a pharmaceutical distributor that markets generic drugs. Shude’s customers
include a wide range of clinics, private and public hospitals and pharmacies in the PRC. Shude holds Chinese business licenses
such as a Business Permit for Medical Devices and a Drug Wholesale Distribution License, which qualify Shude to engage in the distribution
of medicines and medical devices in China.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
5.
|
THE
SALE OF THE NF GROUP
|
In late 2019, the Company committed to a plan to dispose of
the NF Group and on March 31, 2020 entered into the NF SPA with respect to the sale of the NF Group. Pursuant to the NF SPA, the
aggregate sale price for the NF Group was $10,000,000. The sale of the NF Group closed on June 23, 2020, at which time the Company
received $10 million in banker’s acceptance bills (Chinese bank instruments that are payable by a bank and transferrable
by endorsement). Upon closing, the Company ceased to be involved in the energy efficiency enhancement business.
The consolidated NF Group balance sheet on June 23,2020 and
December 31, 2019, respectively, consisted of the following:
|
|
June 23,
2020
|
|
|
December 31,
2019
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
21,825
|
|
|
$
|
23,645
|
|
Restricted cash
|
|
|
180,494
|
|
|
|
183,027
|
|
Accounts and retention receivable, net
|
|
|
44,087
|
|
|
|
130,456
|
|
Advances to suppliers
|
|
|
50,165
|
|
|
|
81,140
|
|
Inventories
|
|
|
1,360,746
|
|
|
|
1,383,226
|
|
Prepayments and other receivables
|
|
|
103,120
|
|
|
|
112,818
|
|
Total current assets
|
|
|
1,760,437
|
|
|
|
1,914,312
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
16,694,212
|
|
|
|
16,928,488
|
|
Intangible assets, net
|
|
|
2,343,299
|
|
|
|
2,376,183
|
|
Total assets
|
|
$
|
20,797,948
|
|
|
$
|
21,218,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term loans
|
|
$
|
5,651,602
|
|
|
$
|
5,730,914
|
|
Accounts payable, trade
|
|
|
2,318,939
|
|
|
|
2,351,481
|
|
Advances from customers
|
|
|
383,728
|
|
|
|
391,464
|
|
Amount due to related parties
|
|
|
5,665,983
|
|
|
|
1,542,988
|
|
Taxes payable
|
|
|
1,260,280
|
|
|
|
1,176,721
|
|
Other payables and accrued liabilities
|
|
|
2,461,780
|
|
|
|
1,914,470
|
|
Total current liabilities
|
|
|
17,742,312
|
|
|
|
13,108,038
|
|
Total liabilities
|
|
$
|
17,742,312
|
|
|
$
|
13,108,038
|
|
The summarized operating results of the NF Group in the Company’s
unaudited condensed consolidated statements of operations consist of the following:
|
|
For the Nine Months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,537
|
|
|
$
|
1,120,804
|
|
Cost of revenues
|
|
|
3,394
|
|
|
|
1,030,862
|
|
Gross profit
|
|
|
5,143
|
|
|
|
89,942
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
498,212
|
|
|
|
1,607,764
|
|
Other expense
|
|
|
307,536
|
|
|
|
(455,561
|
)
|
Loss before income taxes
|
|
|
(800,605
|
)
|
|
|
(1,973,382
|
)
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(800,605
|
)
|
|
$
|
(1,973,382
|
)
|
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Accounts receivable consist of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Accounts receivable, cost
|
|
$
|
4,614,372
|
|
|
$
|
78,022
|
|
Less: allowance for doubtful accounts
|
|
|
(678,858
|
)
|
|
|
(53,182
|
)
|
Accounts receivable, net
|
|
$
|
3,935,514
|
|
|
$
|
24,840
|
|
Advances to suppliers represent the amount the Company prepaid
to its suppliers for merchandise for sale in the ordinary course of business. As of September 30, 2020 and December 31, 2019, the
Company reported advances to suppliers as follow:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Advances to suppliers, cost
|
|
$
|
2,270,962
|
|
|
$
|
12,968
|
|
Less: allowance for doubtful accounts
|
|
|
(19,151
|
)
|
|
|
(11,716
|
)
|
Advances to suppliers, net
|
|
$
|
2,251,811
|
|
|
$
|
1,252
|
|
|
(1)
|
The
remaining balance includes a pre-payment for medical equipment of $1.135 million to Sheng Yi Trading Co., Ltd. (“Sheng Yi”)
for the purchase of ventilators in June 2020. Because the vendor was unable to deliver the ventilators in a timely fashion, such
purchase was subsequently cancelled. The refund is expected to be received in the fourth quarter of 2020.
|
The Pharmacy Group’s inventories consist of medicine and
medical devices that were purchased from third parties for resale to third party pharmacies, clinics, hospitals, and in our retail
pharmacy stores, etc.. Inventories consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Medicine
|
|
$
|
4,591,694
|
|
|
$
|
889,784
|
|
Medical devices
|
|
|
191,727
|
|
|
|
-
|
|
|
|
|
4,783,421
|
|
|
|
889,784
|
|
Less: allowance for obsolete and expired inventory
|
|
|
(588,174
|
)
|
|
|
(182,258
|
)
|
|
|
$
|
4,195,247
|
|
|
$
|
707,526
|
|
For the nine months ended September 30, 2020 and 2019, the Company
accrued allowances of $390,923 and $0, respectively for obsolete and expired items.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9.
|
PREPAYMENTS
AND OTHER RECEIVABLES
|
Prepayments and other receivables represent the amount that
the Company prepaid as rent deposits for both retail stores and office space premises, special medical device purchase deposits,
prepaid rental fee and professional services, advances to employees in the ordinary course of business, VAT deductibles and other
miscellaneous receivables. The table below sets forth the balances as of September 30, 2020 and December 31, 2019, respectively.
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Deposits for rental
|
|
$
|
26,041
|
|
|
$
|
26,938
|
|
Prepaid rental fees
|
|
|
125,202
|
|
|
|
48,490
|
|
Deposit for purchase of medical devices
|
|
|
40,525
|
|
|
|
-
|
|
Receivables from convertible bonds
|
|
|
2,100,000
|
|
|
|
-
|
|
Deferred offering cost
|
|
|
946,419
|
|
|
|
-
|
|
VAT deductible
|
|
|
242,426
|
|
|
|
-
|
|
Others
|
|
|
58,755
|
|
|
|
10,906
|
|
Less: allowance for doubtful accounts
|
|
|
(43,798
|
)
|
|
|
(27,001
|
)
|
Prepayments and other receivables, net
|
|
$
|
3,495,570
|
|
|
|
59,333
|
|
Management evaluates the recoverable value of these balances
periodically in accordance with the Company’s policies. For the nine months ended September 30, 2020 and 2019, the Company
accrued an allowance for doubtful accounts of $16,797 and $0, respectively.
|
10.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property, plant and equipment consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Building
|
|
$
|
766,474
|
|
|
$
|
-
|
|
Office equipment
|
|
|
114,529
|
|
|
|
41,127
|
|
Furniture
|
|
|
17,955
|
|
|
|
17,529
|
|
Vehicle
|
|
|
92,093
|
|
|
|
10,536
|
|
|
|
|
991,051
|
|
|
|
69,192
|
|
Less: accumulated depreciation
|
|
|
(136,154
|
)
|
|
|
(30,551
|
)
|
Property, plant and equipment, net
|
|
$
|
854,897
|
|
|
$
|
38,641
|
|
Depreciation expense for the nine months ended September 30,
2020 and 2019 were $38,446 and $0, respectively.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Intangible assets consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Pharmacy store club members *
|
|
$
|
8,208,349
|
|
|
$
|
8,208,349
|
|
Sales management system
|
|
|
23,493
|
|
|
|
22,936
|
|
Financial management system
|
|
|
4,431
|
|
|
|
4,326
|
|
|
|
|
8,236,273
|
|
|
|
8,235,611
|
|
Less: accumulated amortization
|
|
|
(1,034,250
|
)
|
|
|
(262,432
|
)
|
impairment provision
|
|
|
(6,559,282
|
)
|
|
|
-
|
|
Intangible assets, net
|
|
$
|
642,741
|
|
|
$
|
7,973,179
|
|
|
*
|
Pharmacy store club members, which represented the
aggregate fair value of the total number of customers who are pharmacy club members, was recognized in the acquisition of Boqi
Zhengji which closed on October 14, 2019. The Company estimated and determined that the intangible assets of the pharmacy store
club members would generate revenues in the next 8 years and would be amortized using the straight line method over 8 years. The
intangible assets of the pharmacy store club members are subject to impairment testing according to the Company’s accounting
policy and information available for the Company. During the current quarter, the pharmacy stores in Dalian experienced a second
local lockdown due to a second wave of COVID-19 and continued to suffer significant difficulty in obtaining products from their
suppliers for resale, which resulted in minimal sales in the third quarter. Upon the purchase of Boqi Zhengji the Company recorded
an intangible asset in the amount of $8,208,349 with respect to the pharmacy store club members of Boqi Zhengji. As a result of
the minimal sales in the first nine months of 2020 to the pharmacy store club members, the Company recorded an impairment charge
of $6,559,709.
|
Amortization expenses for the nine months ended September 30,
2020 and 2019 were $771,818 and $0, respectively.
The goodwill associated with the Guanzan Acquisition of $6,443,170
was initially recognized at the acquisition closing date of March 18, 2020. Based on an assessment of the qualitative factors,
management determined that it is more-likely-than-not that the fair value of the reporting unit is in excess of its carrying amount.
Therefore, management concluded that it was not necessary to proceed to the two-step goodwill impairment test. No impairment loss
was recorded for the nine months ended September 30, 2020.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following loans were assumed upon the acquisition of the
Guanzan Group on March 18, 2020.
Short-term loans
|
|
September 30,
2020
|
|
|
|
|
In March 2020, Guanzan entered in a loan agreement with Chongqing Nan'an Zhongyin Fuden Village Bank Co. LTD to borrow RMB 1,000,000, at a fixed annual interest rate of 8.0 % and due on March 1, 2021. The loan was jointly guaranteed by Shude, Mr. Xiaoping Wang, Guanzan’s CEO and the Company’s COO, and Ms. Zhou, the former record owner of Guanzan. Mr. Wang and Ms. Zhou are husband and wife.
|
|
$
|
146,830
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
In December 2019, Guanzan entered into a loan agreement with Postal Savings Bank of China to borrow RMB 4,900,000, at a fixed annual interest rate of 5.7% and due on December 22, 2020. The loan was guaranteed by Mr. Wang and Ms. Zhou. Guanzan also pledged its office building as a collateral.
|
|
|
719,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
866,297
|
|
|
$
|
|
|
For the nine months ended September 30, 2020, the interest expense
on short-term loans amounted to $26,128.
Long-term loans
|
|
September 30,
2020
|
|
|
|
|
In March 2018, Guanzan entered into a loan agreement with Standard Chartered Bank ("SCB") to borrow RMB 1,660,000 at a fixed monthly interest rate of 1.33% and due on May 4, 2021.
|
|
$
|
56,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In October 2017, Guanzan entered into a loan agreement with Chongqing Gaoxinlong Micro-credit Co., Ltd. to borrow RMB 1,000,000 at a fixed monthly interest rate of 1.55% and due on November 2, 2020.
|
|
|
6,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In November 2019, Shude entered into a loan agreement with SCB for to borrow RMB 1,220,000 at a fixed monthly interest rate of 1.38% and due on December 3, 2022.
|
|
|
137,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2020, Shude entered into a loan agreement with We Bank to borrow RMB 1,060,000 at a fixed monthly nominal interest rate of 1.02% and due on January 2, 2022.
|
|
|
123,215
|
|
|
|
|
|
Subtotal of long-term loans
|
|
|
323,779
|
|
|
|
|
|
Less: current portion
|
|
|
(185,147
|
)
|
|
|
|
|
Long-term loans – non-current portion
|
|
$
|
138,632
|
|
|
|
|
|
For the nine months ended September 30, 2020, interest expense
on long-term loans amounted to $33,205.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
14.
|
CONVERTIBLE
PROMISSORY NOTES AND EMBEDDED DERIVATIVE INSTRUCTIONS
|
On and after September 27, 2019, the Company entered into a
series of identical security purchase agreements (the “Agreements”) with a number of lenders (the “Holders”)
to sell convertible promissory notes (each a “ Note” and collectively the “Notes”) of the Company to the
Holders. Each of these Notes was issued with a term of 12 months, carrying 6% annual interest rate and convertible into the Company’s
common stock. According to the Agreements, each Holder has the right during the period beginning on the date which is one hundred
eighty (180) calendar days following the date of issuance of the Note and ending on the maturity date of the Note, to convert all
or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of common stock.
During the period that these Notes are outstanding, the Company will reserve from its authorized and unissued shares of common
stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of the common stock upon the full
conversion of the Notes issued pursuant to these Agreements.
On May 19, 2020, the Company entered into a Securities Purchase
Agreement (the “SPA”) with two institutional investors to sell in a private placement a new series of senior secured
convertible notes having an original issue amount of $6,550,000, with a discount of 19.85%, and ranking senior to all outstanding
and future indebtedness of the Company ( the “ Convertible Notes”). Each Institutional Investor paid $1,750,000 in
cash for a note in the face amount of $2,225,000. Additional Convertible Note in an aggregate original principal amount not to
exceed $2,100,000 may also be issued to the Institutional Investors under the SPA at a later date under certain circumstances. The
Convertible Notes mature on the eighteen-month anniversary of the issuance date, are payable by the Company in installments and
are convertible at the election of the Institutional Investors at the convertible price of $2.59, which is subject to adjustment
in the event of default. Each Institutional Investor also received a warrant to purchase 650,000 shares of the Company’s
common stock at an initial exercise price of $2.845. The placement agent for the private placement received a warrant to purchase
up to 171,845 shares of the Company’s common stock at an initial exercise price of $2.845 per share, subject to increase
based on the number of shares of common stock issued pursuant to the Convertible Notes.
The following table summarizes the key terms of the outstanding
Notes as of September 30, 2020:
|
|
Lenders/Holders
|
|
Principal
|
|
|
Annual
Interest
Rate
|
|
|
Maturity
Dates
|
|
Shares
reserved
|
|
|
Convertible
Rate
|
|
1
|
|
CROWN BRIDGE PARTNERS, LLC
|
|
|
74,473
|
|
|
|
6
|
%
|
|
11/15/2020
|
|
|
250,000
|
|
|
|
65
|
%
|
2
|
|
TFK INVESTMENTS, LLC,
|
|
|
101,500
|
|
|
|
6
|
%
|
|
11/15/2020
|
|
|
250,000
|
|
|
|
65
|
%
|
3
|
|
CROWN BRIDGE PARTNERS, LLC
|
|
|
50,750
|
|
|
|
6
|
%
|
|
12/16/2020
|
|
|
250,000
|
|
|
|
65
|
%
|
4
|
|
BHP Capital NY Inc.
|
|
|
183,750
|
|
|
|
6
|
%
|
|
02/13/2021
|
|
|
450,000
|
|
|
|
65
|
%
|
5
|
|
FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC
|
|
|
200,000
|
|
|
|
6
|
%
|
|
02/13/2021
|
|
|
500,000
|
|
|
|
65
|
%
|
6
|
|
Platinum Point Capital LLC
|
|
|
250,000
|
|
|
|
6
|
%
|
|
02/27/2021
|
|
|
1,061,232
|
|
|
|
65
|
%
|
|
|
Total
|
|
$
|
860,473
|
|
|
|
|
|
|
|
|
|
2,761,232
|
|
|
|
|
|
Upon evaluation, the Company determined that the Agreements
contained embedded beneficial conversion features which met the definition of Debt with Conversion and Other Options covered
under the Accounting Standards Codification topic 470 (“ASC 470”). According to ASC 470, an embedded beneficial
conversion feature present in a convertible instrument shall be recognized separately at issuance by allocating a portion of the
proceeds equal to the intrinsic value of that feature to additional paid-in capital.
An aggregate amount of $7,410,473 was reported as discount on
the Notes and the Convertible Notes at their issuance dates and are being amortized over the life of the Notes and Convertible
Notes. During the nine months ended September 30, 2020 the Company amortized $1,950,901 of discount on the Notes and Convertible
Notes. The principal balance of the Notes and Convertible Notes was presented as following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Notes and Convertible Notes – principal
|
|
$
|
7,410,473
|
|
|
$
|
900,500
|
|
Notes and Convertible Notes – discount
|
|
|
(3,794,143
|
)
|
|
|
(793,117
|
)
|
|
|
$
|
3,616,330
|
|
|
$
|
107,383
|
|
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Additionally, the Company accounted for the embedded conversion
option liability in accordance with the Accounting Standards Codification topic 815, Accounting for Derivative Instruments and
Hedging Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with these standards,
derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with
gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are
bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company
determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation
models, giving consideration to all of the rights and obligations of each instrument. The fair value of the embedded conversion
option liability associated with each Note and Convertible was valued using the Black-Scholes model. The key assumptions used in
the Black-Scholes option pricing model are as follows:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Dividend yield
|
|
$
|
0
|
%
|
|
$
|
0
|
%
|
Expected volatility
|
|
|
216.52% ~ 227.16
|
%
|
|
|
219.43% ~ 219.71
|
%
|
Risk free interest rate
|
|
|
0.08% ~ 0.11
|
%
|
|
|
1.54% ~ 1.57
|
%
|
Expected life (year)
|
|
|
0.13 ~0.42
|
|
|
|
0.74 ~ 0.96
|
|
The value of the conversion option liability underlying the
Notes and Convertible Notes as of September 30, 2020 and December 31, 2019 was $1,173,505 and $1,272,871, respectively. The Company
recognized a loss from the increase in the fair value of the conversion option liability in the amount of $43,224 and $0 for the
nine months ended September 30, 2020 and 2019, respectively.
|
15.
|
OTHER
PAYABLES AND ACCRUED LIABILITIES
|
Other payables and accrued liabilities consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Salary payable
|
|
$
|
466,616
|
|
|
$
|
121,296
|
|
Salary payable – related party
|
|
|
-
|
|
|
|
95,862
|
|
Sales commission payable
|
|
|
634,487
|
|
|
|
-
|
|
Accrued interest expense
|
|
|
65,645
|
|
|
|
4,829
|
|
Accrued operating expenses
|
|
|
173,966
|
|
|
|
104,278
|
|
Social security payable
|
|
|
30,254
|
|
|
|
58,183
|
|
Acquisition payable (1)
|
|
|
4,414,119
|
|
|
|
5,655,709
|
|
Other payables
|
|
|
3,088
|
|
|
|
4,221
|
|
|
|
$
|
5,788,175
|
|
|
$
|
6,044,378
|
|
|
(1)
|
Acquisition
payable included:
|
In October 2019, the Company completed the acquisition of the
Boqi Zhengji. In addition to the issuance of 1,500,000 shares of the Company’s common stock, the Company is obligated to
pay approximately $5,655,709 (or RMB 40,000,000) in cash, which is subject to post-closing adjustments based on the performance
of Boqi Zhengji. The fair value of the cash consideration payable of $5,655,709 has been reversed in conformance with FASB ASC
805-10 during three months ended September 30, 2020 due to the impairment provision of $6,559,282 related to the intangible assets
recognized in the acquisition of Boqi Zhengji.
In March 2020, the Company completed the Guanzan Acquisition.
In addition to the issuance of 950,000 shares of the Company’s common stock, the Company is obligated to pay approximately
$4,414,119, which is subject to post-closing adjustments based on the performance of the Guanzan Group in 2020 and 2021. The fair
value of the cash consideration payable has been calculated in conformance with FASB ASC 805-10.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
16.
|
RELATED
PARTIES AND RELATED PARTIES TRANSACTIONS
|
Amounts due from related parties
As of December 31 2019, $ 1,350 was due from Xi’An Ronghao
Medical Co.,Ltd (“Xi’An Ronghao”), a company directly controlled by Ms. Lijun Wang, who is the former CEO of
Boqi Zhengji. The amount due from Xi’An Ronghao is free of interest and due on demand, and was incurred before the acquisition
of the Pharmacy Group to help Xi’An Ronghao cover its operational costs in early 2019. This amount was repaid during the
first quarter of 2020.
Amounts payable to related parties
As of September 30, 2020 and December 31, 2019, the total amounts
payable to related parties was $586,027 and $305,760, respectively, which included:
|
1.
|
Amount
payable to Mr. Yongquan Bi, the former Chief Executive Officer and current Chairman of the Board of directors of the Company,
of $409,392 and $300,362, respectively, free of interest and due on demand. The amount represents the remaining balance that Mr.
Yongquan Bi advanced for third party services on behalf of the Company during the ordinary course of business of the Company since
the beginning of 2018.
|
|
2.
|
Amount
payable to Mr. Fuqing Zhang, the Chief Executive Officer of Xinrongxin of $176,635 and $27,271, respectively, free of interest
and due on demand. The amount due to Mr. Fuqing Zhang relates to reimbursable operating expenses that the Company owned to Mr.
Fuqing Zhang during and before the acquisition of the Pharmacy Group.
|
The Company is authorized to issue 50,000,000 shares of common
stock, $0.001 par value. As of September 30, 2020 and December 31, 2019, it had 10,505,821 shares and 9,073,289 shares outstanding,
respectively. As of September 30, 2020, the Company reserved a total of 4,696,137 shares of common stock for future issuance pursuant
to the requirements of the Notes and Convertible Notes.
On April 20, 2019 and October 7, 2019, the Company issued an
aggregate of 1,500,000 shares of its common stock as a part of the consideration for the acquisition of Boqi Zhengji.
On March 12, 2020, the Company issued 950,000 shares of its
common stock as the Guanzan Stock Consideration.
On April 6 and April 7, 2020, Power Up Lending Group Ltd. (“Power
Up”) converted the full amount of a Note in the principal amount of $153,000 plus interest into 113,775 shares of the Company’s
common stock.
On April 21, 2020, Power Up converted the full amount of another
Note in the principal amount of $83,000 plus interest into 55,144 shares of the Company’s common stock.
On June 18, 2020, CROWN BRIDGE PARTNERS, LLC converted $27,027
of a Note in the principal amount of $101,500 plus interest into 18,000 shares of the Company’s common stock.
On June 19, 2020, LABRYS FUND, LP converted the full amount
of a Note in the principal amount $254,000 plus interest into 174,225 shares of the Company’s common stock.
On July 1, 2020, MORNINGVIEW FINANCIAL, LLC converted the full
amount of a Note in the principal amount $156,750 plus interest into 121,388 shares of the Company’s common stock.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Basic net loss per share is computed using the weighted average
number of common shares outstanding during the year. The dilutive effect of potential common shares outstanding is included in
diluted net loss per share. Due to the Company’s net loss from its continuing operations, all potential common share issuances
had anti-dilutive effect on net loss per share. The following table sets forth the computation of basic and diluted net loss per
share for the nine months ended September 30, 2020 and 2019:
|
|
For the Nine Months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Total net gain/(loss) attributable to common shareholders
|
|
$
|
535,442
|
|
|
$
|
(1,974,159
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding – Basic and diluted
|
|
|
9,987,848
|
|
|
|
7,871,824
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) per share – basic and diluted:
|
|
$
|
0.05
|
|
|
$
|
(0.25
|
)
|
On May 17, 2019, one of Boqi Zhengji’s suppliers filed
a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 482,771.87. On June 19, 2019, the parties entered into a
court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 482,771.87 in total. The same supplierfiled another
lawsuit against Boqi Zhengji for unpaid outstanding payable of RMB 322,771 on March 17, 2020. The parties entered into a court-supervised
settlement where Boqi Zhengji agreed to pay the supplier RMB322,771 in total. The enforcement of the settlement has been temporarily
suspended by the court due to the lack of assets against which such judgment can be enforced.
On June 26, 2019, one of Boqi Zhengji’s suppliers filed
a lawsuit against Boqi Zhengji for unpaid outstanding payable of RMB 184,490.77. On Sep.12, 2019, the parties entered into a court-supervised
settlement where Boqi Zhengji agreed to pay the supplier RMB 184,490.77 in total. Boqi Zhengji failed to pay the settlement
amount. The enforcement of the settlement has been temporarily suspended by the court due to the lack of assets against which such
judgment can be enforced.
On July 8, 2019, one of Boqi Zhengji’s suppliers filed
a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 64,535. On August 1, 2019, the parties entered into a court-supervised
settlement where Boqi Zhengji agreed to pay the supplier RMB 64,535.00 in total. Boqi Zhengji failed to pay the settlement
amount. The enforcement of the settlement has been temporarily suspended by the court due to the lack of assets against which such
judgment can be enforced.
On July 10, 2019, one of Boqi Zhengji’s suppliers filed
a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 122,360.20. On August 9, 2019, the parties entered into a
court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 101,253.40 in total. Boqi Zhengji failed to
pay the settlement amount. The enforcement of the settlement has been temporarily suspended by the court due to the lack of assets
against which such judgment can be enforced.
On July 18, 2019, one of Boqi Zhengji’s suppliers filed
a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 288,440.00. On September 4, 2019, the parties entered into
a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 288,440.00 in total. Boqi Zhengji failed to
pay the settlement amount. The enforcement of the settlement has been temporarily suspended by the court due to the lack of assets
against which such judgment can be enforced.
On August 25, 2019, one of Boqi Zhengji’s suppliers filed
a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 137,449.90. On October 23, 2019, the parties entered into
a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 137,449.90 in total. Boqi Zhengji failed to
pay the settlement amount. The enforcement of the settlement has been temporarily suspended by the court due to the lack of assets
against which such judgment can be enforced.
On August 25, 2019, one of Boqi Zhengji’s suppliers filed
a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 230,281.55. On October 2, 2019, Shenyang Heping District
People’s Court ruled that Boqi Zhengji had to pay the outstanding balance RMB 230,281.55 to the supplier within 10 days. Boqi
Zhengji failed to pay the settlement amount. The enforcement of the settlement has been temporarily suspended by the court due
to the lack of assets against which such judgment can be enforced.
On September 10, 2019, one of Boqi Zhengji’s suppliers
filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 395,378.90. On October 18, 2019, the parties entered
into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 395,378.90 plus interest. Boqi Zhengji failed
to pay the settlement amount. The enforcement of the settlement has been temporarily suspended by the court due to the lack of
assets against which such judgment can be enforced.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
On April 1, 2020, the Guizhou Province Xiuwen County People’s
Court ordered the attachment of two of Shude’s bank accounts pursuant to a pre-litigation attachment application filed by
one of Shude’s suppliers in connection with unpaid outstanding payables of approximately RMB 365,200 (approximately $51,437).
The total amount of cash in the two accounts subject to the attachment is RMB 570,902 (approximately $80,409). The attachment order
has a term of one (1) year, renewable upon fifteen days’ notice. The parties have reached a settlement agreement whereby
Shude agreed to pay off the outstanding payables in four installment payments. The first three installments were paid and the remaining
payment of RMB100,000 is payable by November 30, 2020. Upon payment of the final installment, the attachment of the two bank accounts
will be released. As of the date of this report, the last payment of RMB100,000 remains outstanding which is payable by November
30, 2020. The attachment of the two bank accounts will be removed in the fourth quarter of 2020.
On September 17, 2020, fifteen employees commenced employment
arbitration proceedings against Boqi Zhengji for unpaid salary in the aggregate amount of RMB19,616, which resulted in an arbitration
decision in favor of the employees. Boqi Zhengji failed to pay the arbitration order amount. The enforcement of the arbitration
order has been temporarily suspended by the court due to the lack of assets against which such judgment can be enforced.
General Information of Reportable Segments:
The Company operates in three reportable segments: retail pharmacy,
wholesale medicine and wholesale medical devices. The retail pharmacy segment sells prescription and OTC medicines, traditional
Chinese medicines (“TCM”), healthcare supplies, and sundry items to retail customers through its directly-owned pharmacies
and authorized retail stores. The wholesale medicine segment includes supplying prescription and OTC medicines, TCM, healthcare
supplies and sundry items to clinics, third party pharmacies, hospitals and other drug vendors. To date, there were no inter-segment
revenues between our retail pharmacy and wholesale medicine segments. The wholesale medical devices segment distributes medical
devices, including medical consumables to private clinics, hospitals, third party pharmacies and other medical devices dealers.
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.
Information about Reported Segment Profit or Loss and Segment
Assets
BIMI, as the holding company, incurred a significant amount
of general operating expenses, such as financing costs, that the Company’s CODM did not allocate to segments to evaluate
the segments performance and allocate resources 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 nine months ended September 30, 2020
|
|
Retail
pharmacy
|
|
|
Medical
device
wholesale
|
|
|
Drugs
wholesale
|
|
|
All other
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
42,898
|
|
|
$
|
2,567,029
|
|
|
$
|
4,698,985
|
|
|
$
|
8,537
|
|
|
$
|
7,317,449
|
|
Cost of revenues
|
|
$
|
426,293
|
|
|
$
|
2,051,563
|
|
|
$
|
3,759,707
|
|
|
$
|
3,399
|
|
|
$
|
6,240,962
|
|
Depreciation, depletion, and amortization expense
|
|
$
|
790,201
|
|
|
$
|
18,670
|
|
|
$
|
1,261
|
|
|
$
|
132
|
|
|
$
|
810,264
|
|
Profit (loss)
|
|
$
|
(2,452,678
|
)
|
|
$
|
412,139
|
|
|
$
|
377,501
|
|
|
$
|
2,274,128
|
|
|
$
|
611,090
|
|
Total assets
|
|
$
|
777,223
|
|
|
$
|
1,666,090
|
|
|
$
|
8,439,885
|
|
|
$
|
22,688,433
|
|
|
$
|
33,571,631
|
|
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Reconciliations of Reportable Segment Revenues, Profit or
Loss, and Assets, to the Consolidated Totals as of September 30, 2020 and for the Nine Months ended September 30, 2020.
Revenues
|
|
Nine Months
ended
September 30,
2020
|
|
Total revenues from reportable segments
|
|
$
|
7,509,023
|
|
Other revenues
|
|
|
8,537
|
|
Elimination of inter segments revenues
|
|
|
(200,111
|
)
|
Total consolidated revenues
|
|
$
|
7,317,449
|
|
|
|
|
|
|
Profit or loss
|
|
|
|
|
Total loss from reportable segments
|
|
$
|
1,668,483
|
|
Elimination of inter segments profit or loss
|
|
|
(5,445
|
)
|
Unallocated amount:
|
|
|
|
|
Investment income:
|
|
|
6,944,469
|
|
Amortization of discount of Notes and Convertible Notes
|
|
|
(1,950,901
|
)
|
Other corporation expense
|
|
|
(2,719,440
|
)
|
Total net income
|
|
$
|
611,090
|
|
|
|
|
|
|
Assets
|
|
|
|
Total assets from reportable segments
|
|
$
|
10,883,198
|
|
Unallocated amount:
|
|
|
|
|
Other unallocated assets – Boyi Technology
|
|
|
8,547
|
|
Other unallocated assets – Xinrongxin
|
|
|
10,382,542
|
|
Other unallocated assets – BIMI
|
|
|
12,297,344
|
|
Total consolidated assets
|
|
$
|
33,571,631
|
|
|
21.
|
ENTITY-WIDE
INFORMATION AND CONCENTRATIONS OF RISK
|
Entity-Wide Information
|
(a)
|
Revenues
from each types of products
|
For the nine months ended September 30, 2020 and 2019, respectively,
the Company reported revenues for each type of product as follows:
|
|
For
the nine months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Medical devices
|
|
$
|
2,567,029
|
|
|
$
|
-
|
|
Medicines
|
|
|
4,698,985
|
|
|
|
-
|
|
Pharmacy retail
|
|
|
42,898
|
|
|
|
-
|
|
Other
|
|
|
8,537
|
|
|
|
-
|
|
Total
|
|
$
|
7,317,449
|
|
|
$
|
-
|
|
|
(b)
|
Geographic
areas information
|
For the nine months ended September 30, 2020 and 2019, respectively,
all of the Company’s revenues were generated in the PRC. There were no long-lived assets located outside of the PRC as of
September 30, 2020 and 2019.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
For the nine months ended September 30, 2020, no customer accounted
for more than 10% of the Company’s revenues.
For the nine months ended September 30, 2020, two vendors accounted
for more than 10% of the Company’s purchases and its outstanding balances as at balance sheet dates:
|
|
|
|
For the nine months ended
September 30,
2020
|
|
|
As of
September 30,
2020
|
|
Vendors
|
|
Segment
|
|
Purchases
|
|
|
Percentage of
total purchases
|
|
|
Advance to
supply
|
|
Vendor A
|
|
medicines segment
|
|
$
|
2,506,755
|
|
|
|
37.71
|
%
|
|
$
|
4,679,307
|
|
Vendor B
|
|
devices segment
|
|
$
|
1,292,337
|
|
|
|
19.44
|
%
|
|
$
|
266,496
|
|
Concentrations of Risk
The Company is exposed to the following concentrations of risk:
Financial instruments that are potentially subject to credit
risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is
substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally
require prepayments or deposits from customers. The Company evaluates the need for an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and other information.
The Company has no significant interest-bearing assets and its
interest-rate risk arises from its Notes. The Company manages interest rate risk by varying the issuance and maturity dates, fixing
interest rate of debt, limiting the amount of debts, and continually monitoring the effects of market changes in interest rates.
As of September 30, 2020 and December 31, 2019, respectively, the Notes were at fixed rates.
BOQI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Substantially all of the Company’s revenues and a majority
of its costs are denominated in RMB and a significant portion of its assets and liabilities are denominated in RMB. As a result,
the Company’s results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If the RMB
depreciates against the US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company
does not hold any derivative or other financial instruments that expose to substantial market risk.
|
(d)
|
Economic
and political risks
|
The Company’s operations are conducted in the PRC. Accordingly,
the Company’s business, financial condition and results of operation may be influenced by the political, economic and legal
environment in the PRC, and by the general state of the PRC economy. The outbreak of COVID-19 pandemic has expanded all over the
world since the beginning of 2020, which has greatly slowed the growth of the global economy, including in 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.
We established a new subsidiary Lijiantang in May 2020 to conduct a retail pharmacy business in Chongqing. One retail pharmacy
store was opened at the end of June 2020 and five more retail pharmacies will open in the coming quarter.
The Company’s operations in the PRC are subject to special
considerations. These include risks associated with, among others, the political, economic and legal environment and foreign currency
exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and
by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances
abroad, and rates and methods of taxation.
The PRC People’s Supreme Court adopted rules in 2010 which
restrict parties who are subject to effective court enforcement orders for monetary judgments from extravagant spending until the
monetary judgments have been satisfied. According to those rules, if a company becomes subject to a court enforcement order due
to failure to satisfy a monetary judgement, the company’s name will appear on a defaulters’ list published by the Chinese
courts and the company together with its legal representative and responsible person will be prohibited from using the company
property for extravagant spending such as buying real property, vacationing and paying for children’s private school education,
until, among other conditions, the monetary judgment has been satisfied. Boqi Zhengji is currently on the defaulters’ list
due to its failure to pay off several monetary judgments.
Subsequent to September 30, 2020, Notes in the aggregate amount
of $809,723 were converted into 1,175,681 shares of our common stock.