The accompanying notes are an integral part of
the 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 consolidated financial statements
The accompanying notes are an integral part of
the consolidated financial statements
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER
31, 2022 AND 2021
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. 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 an agreement 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 (collectively, the “Boqi Pharmacy Group”). 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. (“Chongqing
Bimai”), to replace Xinronxin as the holding company for 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”, 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 was closed by the end of 2020, although the government record
was not updated until February 2, 2021 due to the Chinese government’s alternative working schedule and other delays caused by
COVID-19.
On December 9, 2020, the Company entered into an
agreement to acquire 100% of the equity interests in Chongqing Guoyitang Hospital (“Guoyitang”), the owner and operator of
a private general hospital in Chongqing City, a city in Southwest China. The transaction closed on February 2, 2021.
On December 15, 2020, the Company entered into a
stock purchase agreement to acquire Chaohu Zhongshan Minimally Invasive Hospital (“Zhongshan”), a private hospital in the
east region of China. The transaction closed on February 5, 2021.
On April 9, 2021, the Company entered into a stock
purchase agreement to acquire three private hospitals in the PRC, Wuzhou Qiangsheng Hospital (“Qiangsheng”), Suzhou Eurasia
Hospital(“Eurasia”) and Yunnan Yuxi MinKang hospital (“Minkang”). The transaction closed on May 6, 2021.
On April 21, 2021, Bimai Hospital Management (Chongqing)
Co. Ltd. was incorporated in the PRC by the Company to manage the operations of the Company’s medical devices segment.
On April 21, 2021, Pusheng Pharmaceutical Co., Ltd.
was incorporated in the PRC by the Company to manage its wholesale distribution of generic drugs.
On September 10, 2021, the Company entered into
a stock purchase agreement to acquire 100% of the equity interests in Chongqing Zhuoda Pharmaceutical Co., LTD (“Zhuoda”).
The transaction closed on October 8, 2021.
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. On January 4, 2022, we
paid RMB7,227,000 to the seller as partial consideration. The transaction did not close and on December 15, 2022, the Company entered
into a termination agreement with respect to the purchase of Mali Hospital. 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 previously issued to the
sellers of Mali Hospital and certain third-party beneficiaries. Such return is expected to take place promptly. The Company did not incur
any penalties as a result of the termination of the Original Agreement. As of the date of this annual report, we have not received
the refund of RMB7,227,000 we paid on January 4, 2022.
The Pharmacy Group engages in the retail sale of
medicine and other healthcare products in the PRC. The Pharmacy Group sells its medicine and other healthcare products to customers through
its directly-owned stores. 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.
The Company’s wholesale segments are engaged
in the distribution of medical devices and pharmaceuticals.
The Company’s medical services segments are
engaged in providing medical services in the hospitals.
As of December 31,2022, the details of the Company’s
major subsidiaries are as follows:
Name | |
Place of incorporation and kind of legal
entity | |
Principal activities and place of operation | |
Effective
interest held(%) | |
Lasting Wisdom Holdings
Limited | |
British Virgin Island, a limited liability company | |
Investment holding | |
| 100 | |
| |
| |
| |
| | |
Pukung Limited | |
Hong Kong, a limited liability company | |
Investment holding | |
| 100 | |
| |
| |
| |
| | |
Beijing Xinrongxin Industrial Development
Co., Ltd. | |
The PRC, a limited liability company | |
Investment holding | |
| 100 | |
| |
| |
| |
| | |
Boyi (Liaoning) Technology Co., Ltd | |
The PRC, a limited liability company | |
IT Technology service research and development | |
| 100 | |
| |
| |
| |
| | |
Dalian Boyi Technology Co., Ltd | |
The PRC, a limited liability company | |
IT Technology service research and development | |
| 100 | |
| |
| |
| |
| | |
Chongqing Guanzan Technology Co.,
Ltd. | |
The PRC, a limited liability company | |
Wholesale distribution of medical devices in the PRC | |
| 100 | |
| |
| |
| |
| | |
Chongqing Shude Pharmaceutical Co.,
Ltd. | |
The PRC, a limited liability company | |
Wholesale distribution of generic drugs in the PRC | |
| 95 | |
| |
| |
| |
| | |
Chongqing Lijiantang Pharmaceutical
Co., Ltd. | |
The PRC, a limited liability company | |
Wholesale distribution of generic drugs in the PRC | |
| 100 | |
Bimai Pharmaceutical (Chongqing)
Co., Ltd. | |
The PRC, a limited liability company | |
Investment holding | |
| 100 | |
| |
| |
| |
| | |
Chongqing Guoyitang Hospital Co.,
Ltd. | |
The PRC, a limited liability company | |
Hospital in the PRC | |
| 100 | |
| |
| |
| |
| | |
Chongqing Huzhongtang Healthy Technology
Co., Ltd. | |
The PRC, a limited liability company | |
Wholesale distribution of generic drugs in the PRC | |
| 100 | |
| |
| |
| |
| | |
Chaohu Zhongshan Minimally Invasive
Hospital Co.,Ltd. | |
The PRC, a limited liability company | |
Hospital in the PRC | |
| 100 | |
| |
| |
| |
| | |
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 | |
2.
GOING CONCERN UNCERTAINTIES
The accompanying 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 consolidated financial
statements, the Company incurred a net loss of $22,393,259 and $34,985,956 and recorded a cash outflow from operating activities of $10,255,206
and $4,436,774 for the financial years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the Company
in net current liabilities of $2,126,672 and $932,492 and had accumulated deficit of $70,143,785 and $47,900,930. 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 implement management’s business plan to extend 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 conditions raise substantial doubt about the
Company’s ability to continue as a going concern. These 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 have restated our financial statements for year ended December
31, 2021 to correct errors identified in our prior financial statements. In FY2021,we recorded amortization of convertible note in G&A
expense account, it has been revised to record amortization of convertible note in other income(expense) account. The restatement was
necessary to address misstatement of financial statements. The impact of the restatement on our financial statement is reclassification
of other expense in financial statements. We have concluded that the restatement does not materially affect our liquidity or our compliance
with debt covenants or other financial obligations.
We previously erroneously recorded amortization of our convertible
note as G&A expense in the financial statements for the year ended December 31, 2021 and 2020. We now record the amortization of
the convertible notes in other income expense account, consistent with our statement of cash flow. The amortization of convertible note
for the year ended December 31, 2022 and 2021 is $2,252,401 and $2,091,927, respectively.
We have taken steps to address the cause of the restatement and to
improve our internal controls over financial reporting. We hired a consulting firm to assist our accounting department on internal controls
and financial reporting. We are committed to maintaining the integrity of our financial statements and to providing accurate and transparent
financial information to our investors.
3. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES |
These consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). These
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 consolidated financial information as of December
31, 2022 and 2021 and for the years ended December 31, 2022 and 2021 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 U.S. GAAP, have been omitted pursuant to those rules and regulations.
The consolidated financial information should be read in conjunction with the consolidated financial statements and the notes.
The preparation of the consolidated financial statements
in conformity with the U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities on the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. 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, impairment of goodwill, collectability of accounts
receivable, advances to suppliers, allowance for doubtful accounts, reserve of inventory and valuation of derivative liabilities. While
the Company believes that the estimates and assumptions used in the preparation of the 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.
The Company accounted for its business combination
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.
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 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 cash held in 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 credit-worthiness and their payment history.
Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and
over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual
customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of
accounts receivables. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are
taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does
not have any off-balance-sheet credit exposure related to its customers. As of December 31, 2022 and 2021, the allowance for doubtful
accounts was $1,380,929 and $53,698, respectively.
Advances to suppliers consist of prepayments to the
Company’s vendors, such as pharmaceutical manufacturers and medicine suppliers. The Company typically prepays for the purchase of
our merchandise, especially for those salable, scarce, personalized medicine or medical devices. The Company typically receive products
from vendors within three to nine months after making prepayments. The Company continuously monitor delivery from, and payments to, the
vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such
as discontinuing of inventory supply, that have been identified. If the Company has difficulty receiving products from a vendor, the Company
would cease purchasing products from such vendor, request return of our prepayment promptly, and if necessary, take legal action. The
Company has not taken such type of legal action during the reporting periods. If none of these steps are successful, management will then
determine whether the prepayments should be reserved or written off. As of December 31, 2022 and 2021, the allowance for doubtful accounts
was $Nil, respectively.
In late 2022, the Company committed to a plan to
dispose of the Zhongshan, Minkang, Eurasia, Qiangsheng and Guoyitang hospitals.
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, the seller agreed to return
to us the 40,037 shares of Common Stock, that were previously issued as part of the closing consideration. The transaction is expected
to close in the second quarter of 2023.
On December 28, 2022, we entered into an agreement to transfer 90%
of the equity interests in Qiangshen, Minkang and Eurasia to the previous owners. As consideration for the transfer, the sellers agreed
to return to us the 80,000 shares of Common Stock which were previously issued upon the acquisition of the three hospitals. The sales
of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.
The Company determined that the plan and the subsequent
actions taken to dispose of the four hospitals qualified as a held for sale operation under the criteria set forth in the ASC 205-20 Presentation
of Financial Statements – Discontinued Operation.
The carrying amount of the major classes of assets and liabilities
of the business held for sale as of December 31, 2022 and 2021 consist of the following:
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Assets from held for sale | |
| | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 53,928 | | |
$ | 87,741 | |
Accounts receivable, net | |
| 501,054 | | |
| 146,805 | |
Advances to suppliers | |
| 211,335 | | |
| 136,425 | |
Amount due from related parties | |
| 350,577 | | |
| 622,554 | |
Inventories, net | |
| 155,736 | | |
| 238,309 | |
Prepayments and other receivables | |
| 827,043 | | |
| 393,020 | |
Operating lease-right of use assets | |
| - | | |
| - | |
Total current assets | |
| 2,099,673 | | |
| 1,624,854 | |
| |
| | | |
| | |
Non-current assets | |
| | | |
| | |
Deferred tax assets | |
| (133 | ) | |
| (145 | ) |
Property, plant and equipment, net | |
| 1,254,328 | | |
| 1,573,342 | |
Intangible assets, net | |
| - | | |
| - | |
Operating lease-right of use assets | |
| 2,506,954 | | |
| 3,120,810 | |
Goodwill | |
| - | | |
| - | |
Long-term investment | |
| - | | |
| - | |
Total non-current assets | |
| 3,761,149 | | |
| 4,694,007 | |
| |
| | | |
| | |
Total assets from held for sale | |
$ | 5,860,822 | | |
$ | 6,318,861 | |
| |
| | | |
| | |
Liabilities from held for sale | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Short-term loans | |
$ | 215,375 | | |
$ | 235,268 | |
Long-term loans due within one year | |
| - | | |
| - | |
Convertible promissory notes, net | |
| - | | |
| - | |
Accounts payable, trade | |
| 1,480,098 | | |
| 1,870,661 | |
Advances from customers | |
| 1,537 | | |
| 48,486 | |
Amount due to related parties | |
| - | | |
| - | |
Taxes payable | |
| 336,755 | | |
| 354,057 | |
Other payables and accrued liabilities | |
| 739,873 | | |
| 533,633 | |
Lease liability-current | |
| 466,312 | | |
| 503,452 | |
Total current liabilities | |
| 3,239,950 | | |
| 3,545,587 | |
| |
| | | |
| | |
Non-current liabilities | |
| | | |
| | |
Lease liability-non current | |
| 2,245,373 | | |
| 2,746,512 | |
Long-term loans - non-current | |
| - | | |
| - | |
Total non-current liabilities | |
| 2,245,373 | | |
| 2,746,512 | |
| |
| | | |
| | |
Total liabilities | |
| 5,485,323 | | |
| 6,292,099 | |
The summarized operating results of the business
held for sale included in the Company’s consolidated statements of operations consist of the following:
| |
For the year ended
December 31, | |
| |
2022 | | |
2021 | |
Revenues | |
$ | 5,446,619 | | |
| 5,350,061 | |
Cost of revenues | |
| 2,644,003 | | |
| 3,213,602 | |
Gross profit | |
| 2,802,616 | | |
| 2,136,459 | |
| |
| | | |
| | |
Operating expense | |
| 3,077,452 | | |
| 2,137,692 | |
Other expense | |
| (352,145 | ) | |
| (201,268 | ) |
Loss before income taxes | |
| (626,981 | ) | |
| (202,501 | ) |
| |
| | | |
| | |
Income tax expense | |
| 22,164 | | |
| 26,339 | |
Loss from business held for sale | |
$ | (649,145 | ) | |
$ | (228,840 | ) |
Inventories are stated at the lower of cost or net
realizable value. Costs include the purchase price of the inventories and freight, the cost is determined using the weighted average method
and net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products.
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 December 31, 2022 and 2021, the Company recorded allowance
for obsolete inventories (the Pharmacy Group’s expired medicine) of $59,567 and $93,884, 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.
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 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 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. As of December 31, 2022 and 2021, the Company recorded impairments
for goodwill of $5,385,811 and $26,128,171, respectively.
At the date of the most recent annual goodwill impairment
test, all the reporting units’ fair value were either equal to or slightly higher than their carrying values. None of the reporting
units’ fair values were substantially in excess of their carrying values. The fair value of the goodwill associated with each of
the Guanzan Group (which covers the wholesale pharmaceutical, wholesale medical devices and the Lijiantang Pharmacies segments) and
the medical services segment (consisting of Guoyitang, Zhongshan and the Qiangsheng, Eurasia and Minkang hospitals), were equal to their
carrying value after their last impairment test and the fair value of the goodwill for Zhuoda only exceeded its carrying value by approximately 5.62%.
Zhuoda has been stripped off on October 31,2022, so there is no goodwill of Zhuoda for impairment assessment in 2022. Accordingly, the
goodwill associated with Guanzan Group, Guoyitang, Zhongshan and Qiangsheng, Eurasia and Minkang are considered at risk for impairment
in future periods.
The fair value of a reporting unit is based on discounted
estimated future income statement. The assumptions used to estimate fair value include management’s estimates of future growth rates,
operating revenue, and discount rates. We disclose the methodology used to determine the fair values of our reporting units for our annual
impairment review as using the income approach.
All of our reporting units share similar characteristics
due to the nature of their businesses and operating model. As a result, the methodology used to determine fair value and the key estimates
and assumptions used in our annual goodwill review are consistent for all of our reporting units.
Our key assumptions used includes revenue growth,
profit margins, terminal value growth rates, capital expenditures projections, assumed tax rates, discount rates, other assumptions deemed
reasonable by the management and relevant comparable to similar industry.
We believe that the estimates and assumptions made
are reasonable, but they are susceptible to change from period to period. Actual results of operations, cash flows and other factors will
likely differ from the estimates used in our valuation, and it is possible that differences and changes could be material. A deterioration
in profitability, adverse market conditions, changes in regulatory developments, changes in category growth rates as a result of changing
consumer preferences, loss of key personnel, the disposition of a significant portion of a reporting unit and competitive activity or
a slower or weaker economic recovery than currently estimated by management could have a significant impact on the assumption and estimation
in calculating the fair value of our reporting units and could result in an impairment charge in the future.
Potential events and changes in circumstances that
could reasonably be expected to negatively affect the key assumptions are general economic conditions, regulatory developments, changes
in category growth rates as a result of changing consumer preferences, loss of key personnel, the disposition of a significant portion
of a reporting unit and competitive activity.
● | Impairment
of long-lived assets and intangible assets |
In accordance with the provisions of ASC Topic 360,
“Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and
used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to
its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
We adopted Accounting Standard Codification (“ASC”)
Topic 606, Revenues from Contract with Customers (“ASC 606”) for all periods presented. Under ASC 606, revenue is recognized
when control of the promised goods and services is transferred to the Company’s customers, in an amount that reflects the consideration
that the Company expects to be entitled to in exchange for those goods and services, net of value-added tax. The Company determines revenue
recognition through the following steps:
| ● | Identify
the contract with a customer; |
| ● | Identify
the performance obligations in the contract; |
| ● | Determine
the transaction price; |
| ● | Allocate
the transaction price to the performance obligations in the contract; and |
| ● | Recognize
revenue when (or as) the entity satisfies a performance obligation. |
The transaction price is allocated to each performance
obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized
when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which
at a point in time or over time as appropriate.
The Company’s revenues are net of value added
tax (“VAT”) collected on behalf of PRC tax authorities in respect to the sales of products and services. 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.
The primary sources of the Company’s revenues
are as follows:
The physical pharmacies sell prescription drugs,
over-the-counter (“OTC”) drugs, nutritional supplements, health foods, sundry products and medical devices. Revenue from sales
of prescription medicine at drugstores is recognized when the prescription is filled and the customer picks up and pays for the prescription.
Revenue from sales of other merchandise at drugstores is recognized at the point of sale, which is when a customer pays for and receives
the merchandise. Usually the majority merchandise, such as prescription and OTC drugs, are not refundable after the customers leave the
counter. Returns of other products, such as sundry products, are minimal. Sales of drugs reimbursed by the local government medical insurance
agency and receivables from the agency are recognized when a customer pays for the drugs at a store. The Company based on historical experience,
a reserve for potential losses from denial of reimbursement on certain unqualified drugs is made to the receivables from the government
agency.
(2) | Wholesale
medical devices and wholesale pharmaceuticals |
The Group sales of wholesale medical device mainly
through Guanzan, the group sales of wholesale pharmaceuticals mainly through Shude, Pusheng and Zhuoda, until its sale in October 2022..
The medical device and wholesale pharmaceuticals businesses primarily involve purchasing wholesale medical device and wholesale pharmaceuticals
from the suppliers and then selling to customers. Upon obtaining purchase orders, the Company instructs warehouse agent to transfer ownership
of products to customers. The transaction is normally completed within a short period of time, ranging from a few days to a month. The
Company recognizes revenue from product sales when obligations under the terms of a contract with the customer are satisfied; generally,
this occurs with the transfer of control of the goods to customers.
The medical services segment conducts its hospital
business through Guoyitang hospital, Zhongshan hospital, Qiangsheng hospital, Eurasia hospital and Mingkang hospital. Revenue from ancillary
medical services is recognized when the related services have been rendered and includes outpatient and inpatient services..
For outpatient services, the patient normally receives
outpatient treatment which contains various treatment components. Outpatient services contain more than one performance obligations, including
(i) provision of consultation services and (ii) sale of pharmaceutical products. The Group allocates the transaction price to each performance
obligation on relative stand-alone selling price basis. Both (i) provision of consultation services and (ii) sale of pharmaceutical products
for which the control of services or pharmaceutical products is transferred at a point in time, revenue is recognized when the customer
obtains the control of the completed services or pharmaceutical products and the Group has satisfied its performance obligations with
present right to payment and the collection of the consideration is probable.
For inpatient services, the customers normally receive
inpatient treatment which contains various treatment components. Inpatient services contain more than one performance obligations, including
(i) sale of pharmaceutical products and (ii) provision of inpatient healthcare services. The Group allocates the transaction price to
each performance obligation on a relative stand-alone selling price basis.
For revenue from (i) sale of pharmaceutical products
for which control of services or pharmaceutical products is transferred at a point in time, revenue is recognized when the customer obtains
the control of the completed services or pharmaceutical products and the Group has satisfied its performance obligations with present
right to payment and the collection of the consideration is probable.
For revenue from (ii) provision of inpatient healthcare
services, the corresponding revenue is recognized over the service period when customers simultaneously receive the services and consumes
the benefits provided by the Group’s performance as the Group performs.
Cost of revenues consists primarily of cost of goods
purchased from suppliers plus direct material costs for packaging and storage, direct labor, which are directly attributable to the acquisition
and maintaining of products for sales. Cost of revenues also include impairment loss of our products which are obsolete or expired for
sale, if any. Shipping and handling costs, associated with the distribution of finished products to customers, are borne by the customers.
ASC Topic 220, “Comprehensive Income”, establishes
standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying
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.
● | Beneficial conversion feature |
The Company evaluates the conversion feature 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.
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 years ended December 31, 2022 and 2021, the
Company did not have any interest and penalties associated with tax positions. As of December 31, 2022, the Company did not have any significant
unrecognized uncertain tax positions.
The Company conducts the majority of its businesses
in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are
subject to examination by the PRC.
Sales revenue represents the invoiced value of goods,
net of VAT. All of the Company’s products are sold in the PRC and 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 raw materials and other materials
included in the cost of producing or acquiring its finished products. 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 materials or 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.
● | 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.
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 discontinued operations 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 December 28, 2022, the Company entered into an
agreement to transfer 87% of the equity interests in Zhongshan, to its former owner who previously sold 100% of the equity interests in
Zhongshan to the Company pursuant to a stock purchase agreement.
Pursuant to the Agreement, the Company will transfer
87% of the equity interests in Zhongshan to the former owner and will continue to own 13% of the equity interests in Zhongshan. As consideration
for the sale of the 87% interest in Zhongshan, the former owner will return to the Company the 40,037 shares of the Company’s common
stock, which were previously issued to him. Subsequent to their issuance, such shares were consolidated into 40,037shares as a result
of a 1-for-5 reverse stock split on February 3, 2022 and a 1-for-10 reverse stock split on December 9, 2022. The former owner will release
the Company from any and all claims relating to two earn out payments that were payable under the original purchase agreement. The Company
will receive 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 Parties. The transaction is expected to close in the second quarter of
2023.
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, one of the former owners will return to the Company the 4,000,000 shares of the Company’s
common stock, which were previously issued upon the acquisition of the three hospitals. Subsequent to their issuance, such shares were
as consolidated into 80,000 shares as a result of a 1-for-5 reverse stock split on February 3, 2022 and a 1-for-10 reverse stock split
on December 9, 2022. The Company will also receive a put option to sell part or all of its 10% interest in each of the three hospitals
to the former owner before December31,2032, based on a valuation determined by a reputable third party appraisal firm jointly chosen
by the Company and the former owner. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.
The Company enters 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.
The Company calculates net loss per share in accordance
with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by
the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income
per share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common stock equivalents had been issued and if the additional common shares were dilutive.
● | Foreign currencies translation |
Transactions denominated in currencies other than
the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency
using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting currency of the Company is the United
States Dollar (“$”). 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 $ are translated into $, 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 $ has been made
at the following exchange rates for the respective year:
| |
December 31, 2022 | | |
December 31, 2021 | |
Year-end RMB: $1 exchange rate | |
| 6.9646 | | |
| 6.3757 | |
Annual average RMB: $1 exchange rate | |
| 6.7261 | | |
| 6.4515 | |
Parties, which can be a corporation or individuals,
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 geographical areas, business segments and major customers in financial statements. For the year
ended December 31, 2022, the Company operated in four reportable operating segments in the PRC.
● | Fair value of financial instruments |
The carrying value of the Company’s financial
instruments (excluding bank loans and convertible promissory notes): cash, accounts receivable, prepayments and other receivables, accounts
payable, income tax payable, amount due to related parties, other payables and accrued liabilities approximate at 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 finance lease and short-term bank borrowing
approximate the carrying amount.
The Company also follows the guidance of the ASC
Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets
and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs
used in measuring fair value as follows:
Level 1: | Inputs are based upon unadjusted
quoted prices for identical instruments traded in active markets; |
Level 2: | Inputs are based upon quoted prices
for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based
valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be
corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project
future cash flows and discount the future amounts to a present value using market-based observable inputs; and |
Level 3: | Inputs are generally unobservable
and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. |
Fair value estimates are made at a specific point
in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect
the estimates.
The carrying amount of cash, restricted deposits,
trade receivables, other accounts receivable, bank credit, trade payables and other accounts payable approximate their fair value due
to the short-term maturity of these instruments.
● | 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.
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 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 (the “Guanzan Acquisition”).
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 190,000 shares of Common Stock 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,
was subject to post-closing adjustments based on the performance of the Guanzan Group in the years ending December 31, 2020 and 2021.
The transaction closed on March 18, 2020. Upon the closing, 100% of the Guanzan Shares 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, net | |
| 1,835,981 | |
Advances to suppliers | |
| 1,222,986 | |
Amount due from related parties | |
| 410,943 | |
Inventories, net | |
| 950,225 | |
Prepayments and other receivables | |
| 90,256 | |
Property, plant and equipment, net | |
| 707,289 | |
Intangible assets | |
| 254,737 | |
Goodwill | |
| 6,686,053 | |
Liabilities: | |
| | |
Short-term loans | |
| (838,926 | ) |
Long-term loans due within one year | |
| (250,663 | ) |
Accounts payable, trade | |
| (1,303,399 | ) |
Advances from customers | |
| (1,350,129 | ) |
Amount due to related parties | |
| (106,720 | ) |
Taxes payable | |
| (406,169 | ) |
Other payables and accrued liabilities | |
| (390,593 | ) |
Long-term loans – non current | |
| (186,796 | ) |
Non-controlling interests | |
| (46,295 | ) |
Total-net assets | |
$ | 7,374,000 | |
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
Guanzan Cash consideration in the amount of RMB 20,000,000 (the “Prepayment”), in the form of shares of Common Stock
valued at $15.00 per share, in light of Guanzan’s performance during the period from March 18, 2020 to September 30, 2020.
On November 30, 2020, 200,000 shares of our Common Stock were issued to the designated assignees of the seller as the prepayment.
Upon the approval of the Company’s shareholders, on August 27, 2021, the Company issued 92,000 shares 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 Acquisition and the Prepayment and Amendment Agreement made on November 20, 2020:
The value of the shares issued on March 12, 2020 | |
| 2,717,000 | |
The value of the shares issued on November 30, 2020 | |
| 839,000 | |
The value of the shares issued on August 27, 2021 | |
| 3,818,000 | |
Total consideration | |
$ | 7,374,000 | |
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. 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. Shude is a pharmaceuticals distributor. Shude’s customers include a wide range
of clinics, private and public hospitals and pharmacies in the PRC.
5. |
THE ACQUISITION OF THE GUOYITANG HOSPITAL |
On December 9, 2020, the Company entered into an
agreement to acquire all of the outstanding equity of Guoyitang, the owner and operator of a private general hospital in Chongqing City,
a southwest city of China, with 100 hospital beds. The aggregate purchase price for Guoyitang was $15,251,807 (RMB 100,000,000).
Upon signing the agreement, 400,000 shares of Common Stock and approximately $3,096,119 (RMB 20,000,000) was paid
as partial consideration for the purchase of Guoyitang. The transaction closed on February 2, 2021. The balance of the purchase price
of approximately $6,100,723 (RMB 40,000,000) was subject to post-closing adjustments based on the performance of Guoyitang in
2021 and 2022. As a result of the performance failure of Guoyitang in 2021, the sellers are not eligible to receive any contingent payments.
The following summarizes the identified assets acquired
and liabilities assumed pursuant to the acquisition of Guoyitang as of February 2, 2021.
Items | |
Amount | |
Assets | |
| |
Cash and cash equivalents | |
$ | 28,457 | |
Accounts receivable, net | |
| 11,797 | |
Advances to suppliers | |
| 12,670 | |
Amount due from related parties | |
| 41,598 | |
Inventories, net | |
| 167,440 | |
Prepayments and other receivables | |
| 61,102 | |
Property, plant and equipment, net | |
| 528,814 | |
Operating lease-right of use assets | |
| 441,150 | |
Goodwill | |
| 7,154,393 | |
Liabilities | |
| | |
Accounts payable, trade | |
| (599,391 | ) |
Amount due to related parties | |
| (183,796 | ) |
Taxes payable | |
| (121 | ) |
Other payables and accrued liabilities | |
| (231,375 | ) |
Lease liability-current | |
| (161,707 | ) |
Lease liability-non current | |
| (354,912 | ) |
Total net assets | |
$ | 6,916,119 | |
The fair value of all assets acquired and liabilities
assumed is the estimated book value of the Guoyitang. Goodwill represents the excess of the fair value of purchase price over the amounts
assigned to the fair value of the assets acquired and the liabilities assumed of Guoyitang at the acquisition date.
6. |
THE ACQUISITION OF THE ZHONGSHAN HOSPITAL |
On December 15, 2020, the Company entered into an
agreement to acquire Zhongshan Hospital, a private hospital in the east region of China with 65 hospital beds. Zhongshan Hospital is a
general hospital known for its complex minimally invasive surgeries. Pursuant to the agreement, the Company agreed to purchase all
the issued and outstanding equity interests in Zhongshan Hospital in consideration of approximately $18,515,661 (RMB 120,000,000). As
partial consideration, approximately $6,100,723 (RMB 40,000,000) was paid in cash at the closing and 400,000 shares of Common Stock were
issued in February 2021. The balance of the purchase price of approximately $6,100,723 (RMB 40,000,000) was subject to post-closing adjustments
based on the performance of Zhongshan Hospital in 2021 and 2022. The transaction closed on February 5, 2021. As a result of the performance
failure of Zhongshan in the year ended December 31, 2021, the seller is 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, net | |
| 92,900 | |
Inventories, net | |
| 108,413 | |
Prepayments and other receivables | |
| 432,231 | |
Property, plant and equipment, net | |
| 344,208 | |
Operating lease-right of use assets | |
| 1,188,693 | |
Goodwill | |
| 10,443,494 | |
Liabilities | |
| | |
Short-term loans | |
| (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.
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, the seller agreed to return
to us the 40,037 shares of Common Stock, that were previously issued as part of the closing consideration. The transaction is expected
to close in the second quarter of 2023.
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, the Qiangsheng, Eurasia and Minkang hospitals. Pursuant
to the agreement, the Company agreed to purchase all the issued and outstanding equity interests in the three hospitals in consideration
of approximately $25,023,555 (RMB162,000,000) to paid by the issuance of 4,000,000 shares of Common Stock, the value of which was agreed
to be RMB 78 million or $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 right to receive the second and third payments in the form of shares of Common
Stock valued at $15.00 per share or in cash. The transaction closed on May 6, 2021, at which time 4,000,000 shares of Common Stock
were issued. As a result of the performance failure by the three hospitals for the year ended December 31, 2021, the sellers are not
eligible to receive any contingent payments.
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, net | |
| 41,836 | |
Inventories, net | |
| 156,576 | |
Advances and other receivables | |
| 40,620 | |
Property, plant and equipment, net | |
| 653,104 | |
Operating lease-right of use assets | |
| 2,168,709 | |
Goodwill | |
| 9,067,529 | |
Liabilities | |
| | |
Accounts payable, trade | |
| (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.
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, the sellers agreed
to return to us the 80,000 shares of Common Stock which were previously issued upon the acquisition of the three hospitals. The sales
of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.
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 $11,400,000 (RMB 75,240,000). The entire purchase consideration was payable in shares of Common Stock. At the closing
on September 22, 2021, 440,000 shares of Common Stock valued at RMB 43,560,000, or $150.00 per share (approximately $6,600,000) was issued
as partial consideration for the purchase. The remainder of the purchase price of approximately $4,800,000 (RMB 31,680,000), 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.
The following summarizes the identified assets acquired
and liabilities assumed pursuant to Zhuoda acquisition as of October 8, 2021:
Items | |
Amount | |
Assets | |
| |
Cash and cash equivalents | |
$ | 102,350 | |
Accounts receivable, net | |
| 804,083 | |
Inventories, net | |
| 131,456 | |
Advances and other receivables | |
| 886,370 | |
Property, plant and equipment, net | |
| 6,579 | |
Operating lease-right of use assets | |
| 17,160 | |
Goodwill | |
| 924,740 | |
Liabilities | |
| | |
Short-term loans | |
| (773,737 | ) |
Accounts payable, trade | |
| (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.
On October 19, 2022,
the Company entered into an agreement to sell Zhuoda to its former owners.
Pursuant to the agreement,
the Company will sell 100% of the equity interests in Zhuoda that it previously purchased for 44,000 shares of its common stock. The
44,000 shares will be returned to the Company as the full consideration of the sale of the interests in Zhouda. In
connection with the execution of the Agreement, the parties also agreed to terminate the original agreement, and that none of the parties
or any of their related parties will have any debt, obligation or liability to the original sellers in connection with or resulting from
the earnout payment under the original agreement. The Company closed this transaction in November 2022.
The Company’s wholly-owned Guanzan
subsidiary agreed to sell its 100% equity interest in Zhuoda and its wholly-owned subsidiary Qianmei to the former owner. Guanzan had
previously purchased Zhuoda for 44,000 shares of the Company’s common stock. As consideration for the sale, the buyer will return
the 44,000 shares to the Company.
The summarized operating results of the Zhuoda
and its subsidiary in the Company’s condensed consolidated statements of operations for the year ended December 31, 2022
consisted of the following:
| |
For the year ended December 31, | |
| |
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 for discontinued operations of Zhuoda con sisted
of the following items as of December 31, 2021:
| |
December 31,
| | |
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 | |
The majority of the Company’s pharmacy retail
revenues are derived from cash sales, except for sales to the government social security bureaus or commercial health insurance programs,
which typically settle once a month. The Company 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 December 31, 2022 and 2021, accounts receivable consisted of the following:
| |
December 31, 2022 | | |
December 31, 2021 | |
Accounts receivable, cost | |
$ | 4,813,160 | | |
$ | 6,170,551 | |
Less: allowance for doubtful accounts | |
| (1,604,874 | ) | |
| (295,945 | ) |
Accounts receivable, net | |
$ | 3,208,286 | | |
$ | 5,874,607 | |
11. |
ADVANCES TO SUPPLIERS |
Advances to suppliers represent the amount the Company
prepaid to its suppliers for merchandise for sale in the ordinary course of business. As of December 31, 2022 and 2021, the Company reported
advances to suppliers as follow:
| |
December 31, 2022 | | |
December 31, 2021 | |
Advances to suppliers, cost | |
$ | 6,589,759 | | |
$ | 2,909,048 | |
| |
| | | |
| | |
Advances to suppliers, net | |
$ | 6,589,759 | | |
$ | 2,909,048 | |
The Company’s inventories consist of medical
devices and pharmaceuticals 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:
| |
December 31, 2022 | | |
December 31, 2021 | |
Pharmaceuticals | |
$ | 7,067,613 | | |
$ | 1,966,809 | |
Medical devices | |
| 614,231 | | |
| 302,035 | |
Less: allowance for obsolete and expired inventory | |
| (27,602 | ) | |
| (30,152 | ) |
| |
$ | 7,654,242 | | |
$ | 2,238,692 | |
For the years ended December 31, 2022 and 2021,
the Company accrued allowances of $27,602 and $30,152 respectively for obsolete and expired items.
13. |
PREPAYMENT 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 December 31, 2022 and 2021, respectively.
| |
December 31, 2022 | | |
December 31, 2021 | |
Deposits for rentals | |
$ | 132,960 | | |
$ | 39,180 | |
Deposit for property rights trading | |
| - | | |
| - | |
Prepaid expenses and improvements of offices | |
| 56,121 | | |
| 73,566 | |
Deposit for purchase of medical devices | |
| 166,765 | | |
| - | |
VAT deductibles | |
| - | | |
| 297,141 | |
Deferred offering cost | |
| - | | |
| 1,227,778 | |
Deposit for sales platform | |
| 24,337 | | |
| - | |
Receivables from third party | |
| 66,986 | | |
| 61,781 | |
Others | |
| 923,785 | | |
| 137,816 | |
Less: allowance for doubtful accounts | |
| (23,875 | ) | |
| (26,080 | ) |
Prepayments and other receivables, net | |
$ | 1,347,079 | | |
$ | 1,811,182 | |
Management evaluates the recoverable value of these
balances periodically according to the Company’s policy of credit and allowance for doubtful accounts. For the years ended December
31, 2022 and 2021, the Company recorded bad debt expenses of $23,875 and $26,080, respectively.
14. |
PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consisted of the following:
| |
December 31, 2022 | | |
December 31, 2021 | |
Building | |
$ | 749,526 | | |
$ | 818,757 | |
Office equipment | |
| 132,329 | | |
| 144,551 | |
Electronic equipment | |
| 37,257 | | |
| 40,698 | |
Furniture | |
| 30,764 | | |
| 39,273 | |
Vehicles | |
| 168,512 | | |
| 174,353 | |
Medical equipment | |
| 925,281 | | |
| 1,010,746 | |
Leasehold improvement | |
| 598,677 | | |
| 605,394 | |
| |
| 2,642,346 | | |
| 2,833,772 | |
Less: accumulated depreciation | |
| (938,926 | ) | |
| (888,220 | ) |
Property, plant and equipment, net | |
$ | 1,703,420 | | |
$ | 1,945,552 | |
Depreciation expenses for the years ended December
31, 2022 and 2021 were $220,064 and $240,660, respectively.
| |
December 31, 2022 | | |
December 31, 2021 | |
Software | |
$ | 19,679 | | |
$ | 21,495 | |
| |
| 19,679 | | |
| 21,495 | |
Less: accumulated amortization | |
| (3,496 | ) | |
| (3,456 | ) |
Intangible assets, net | |
$ | 16,183 | | |
$ | 18,039 | |
Amortization expense for the years ended December
31, 2022 and 2021 were $3,496 and $3,456, respectively.
| |
December 31, 2022 | | |
December 31, 2021 | |
Long-term investment in Phenix Bio Inc | |
$ | 1,800,000 | | |
$ | - | |
Total long-term investment | |
$ | 1,800,000 | | |
$ | - | |
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 healthcare products 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 has been paid, plus
5,270,000 shares of the Company’s common stock, of which 270,000 shares will be issued upon the approval of the issuance by the
Company’s shareholders and the balance of 5,000,000 shares will be issued 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, subject to the approval of the Company’s shareholders.
Balance sheet information related to the Company’s
operating leases as of December 31, 2022 and 2021 was as follows:
| |
December 31, 2022 | | |
December 31, 2021 | |
Right of Use Assets | |
| | |
| |
Operating lease | |
$ | 2,942,265 | | |
| 1,708,740 | |
Total right of use assets | |
$ | 2,942,265 | | |
| 1,708,740 | |
Operating Lease Obligations | |
| | | |
| | |
Current operating lease liabilities | |
$ | 532,630 | | |
| 442,628 | |
Non-current operating lease liabilities | |
$ | 2,574,751 | | |
| 1,402,550 | |
Total Lease Liabilities | |
$ | 3,107,381 | | |
| 1,845,178 | |
Lease liability maturities as of December 31, 2022,
are as follows:
| |
Operating
Lease | |
2023 | |
| 683,240 | |
2024 | |
| 760,535 | |
2025 | |
| 773,941 | |
2026 | |
| 787,224 | |
2027 and thereafter | |
| 743,755 | |
Total minimum lease payments | |
| 3,748,695 | |
Less: Amount representing interest | |
| (641,314 | ) |
Total | |
$ | 3,107,381 | |
Changes in the carrying amount of goodwill for the
years ended December 31, 2022 and 2021 consisted of the following:
| |
December 31, 2022 | | |
December 31, 2021 | |
Beginning balance | |
$ | 8,376,217 | | |
$ | 34,504,388 | |
Disposal of Zhuoda | |
| (924,740 | ) | |
| - | |
Addition during the year | |
| - | | |
| - | |
Impairment during the year | |
| (5,385,811 | ) | |
| (26,128,171 | ) |
Goodwill | |
$ | 2,065,666 | | |
$ | 8,376,217 | |
The goodwill associated with the acquisition of (i)
Guanzan of $6,914,232, (ii) Guoyitang of $7,154,393, (iii) Zhongshan of $10,443,49, and (iv) Minkang, Qiangsheng and Eurasia of $9,067,529,
were initially recognized at the acquisition closing dates. Zhuoda has been sold in 2022.
As of December 31, 2022 and December 31, 2021, our
goodwill amounted to $2,065,666 and $8,376,217, respectively. Impairment losses for the years ended December 31, 2022 and 2021 was
$5,385,811 and $26,128,171, respectively.
Short-term loans
| |
December 31, 2022 | | |
December 31, 2021 | |
China Minsheng Bank | |
$ | 114,867 | | |
$ | - | |
Postal Savings Bank of China | |
| 703,558 | | |
| 768,543 | |
Total | |
$ | 818,425 | | |
$ | 768,543 | |
Guanzan borrowed $703,558 from Postal Savings
Bank of China on December 22,2022. The loan is due on December 20, 2023 with an interest rate of 4.50%.
Shude borrowed $114,867 from China Minsheng
Bank on March 17, 2022, which is due on March 17, 2023, with an interest rate of 6.20%.
For the years ended December 31, 2022 and 2021, the
interest expense on short-term loans amounted to $65,807 and $41,076, respectively.
Long-term loans
| |
December 31, 2022 | | |
December 31, 2021 | |
Standard Chartered Bank | |
$ | - | | |
$ | 68,723 | |
China Minsheng Bank | |
| - | | |
| 125,476 | |
Construction bank of China | |
| - | | |
| 33,565 | |
Chongwing Nan’an Zhongyin Fuden Village Bank Co. Ltd. | |
| - | | |
| 116,974 | |
We Bank | |
| 360,825 | | |
| 562,455 | |
China Construction Bank Chongqing Zhongxian Sub-branch | |
| 59,926 | | |
| - | |
Subtotal of long-term loans | |
| 420,751 | | |
| 907,193 | |
Less: current portion | |
| (105,965 | ) | |
| (369,187 | ) |
Long-term loans – non current portion | |
$ | 314,786 | | |
$ | 538,006 | |
Guanzan borrowed $116,974 from Chongwing Nan’an
Zhongyin Fuden Village Bank Co. Ltd. on February 25,2021, which is due on February 24, 2024, with an interest rate of 8.00%.
Guanzan borrowed $71,792 from We Bank on April
26, 2022, for a term of two years, with an interest rate of 9.45%. Guanzan borrowed $23,931 and $119,653 and $39,485 from We
Bank on September 6, 2022, for a term of two years, with an interest rate of 14.40%.
Guanzan borrowed $24,514 from We Bank on December
26, 2020, which is due on March 26, 2023, with an interest rate of 10.06%. Guanzan borrowed $42,341 from We Bank on July 24, 2021, which
is due on July 26, 2023, with an interest rate of 13.68%. Guanzan borrowed $39,109 from We Bank on October 7, 2021, which is due on September
26, 2023, with an interest rate of 12.96%.
For the years ended December 31, 2022 and 2021, the
interest expense on our long-term loans amounted to $75,962 and $106,600, respectively.
Long-term loans maturities as of December 31, 2022,
are as follows:
| |
December 31, 2022 | |
2023 | |
| 105,965 | |
2024 | |
| 369,187 | |
Total | |
$ | 475,152 | |
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 $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 do not bear interest except upon the occurrence
of an event of default. Each Institutional Investor also received a warrant (each an “Institutional Investor 2020 Warrant”)
to purchase 325,000 shares of Common Stock at an initial exercise price of $14.225 per share (post-Split price (as defined
below) 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 $14.225 per share (post-Split 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.
The May SPA, the 2020 Notes and the warrants provide
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 provide 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.”
The 2020 Notes, which matured on the eighteen-month
anniversary of the issuance date, were payable in installments and were convertible at the election of the investors at the conversion
price of $12.95 per share (post-Split Price and subject to the Event Market Price Adjustment), subject to adjustment in the event
of default. Each investor also received a Institutional Investor 2020 Warrant to purchase 130,000 shares of Common Stock at
an initial exercise price of $14.23 per share (post-Split Price and subject to the Event Market Price Adjustment). The placement
agent for the private placement received a warrant to purchase up to 34,369 shares of Common Stock at an initial exercise price
of $14.23 per share (post-Split 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 2020 Notes. 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.
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 152,000 shares of Common Stock at an initial exercise price of $14.23 per
share (post-Split Price and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant
to purchase up to 34,749 shares of our Common Stock at an initial exercise price of $14.23 per share post-Split 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.
| |
Consolidated | |
| |
December 31, 2022 | | |
December 31, 2021 | |
Carrying value as at January 1 | |
| 5,211,160 | | |
| 3,328,447 | |
Interest accrued at effective interest rate | |
| 2,585,840 | | |
| 7,282,713 | |
Shares issued for interest payment | |
| - | | |
| - | |
Redemption of convertible promissory note | |
| (7,797,000 | ) | |
| (5,400,000 | ) |
Exchange differences | |
| - | | |
| - | |
Carrying value as at December 31 | |
| 1,108,785 | | |
| 5,211,160 | |
On November 18, 2021, we entered into a securities
purchase agreement (the “November SPA”) with the same two Institutional Investors to sell them 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 in a private placement. 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, mature on the eighteen-month anniversary of the issuance date, are payable by the Company in installments and are
convertible at the election of the Institutional Investors at the conversion price of $3.25 (post-Split Price and subject to the Event
Market Price Adjustment), which is 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 $3.55
per share (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 $3.55 per share (post-Split Price 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 1-for-5 reverse stock split (the “Split”)
on February 3, 2022. The 2020 Notes were fully converted before the Split, and therefore no price adjustment was actually implemented
at the conversion, although the price information provided above about the 2020 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.
| |
December 31, | |
| |
2022 | | |
2021 | |
Convertible note – principal | |
$ | 1,108,785 | | |
$ | 7,800,000 | |
Convertible note – discount | |
| - | | |
| (2,588,840 | ) |
| |
$ | 1,108,785 | | |
$ | 5,211,160 | |
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:
| |
December 31, 2022 | | |
December 31, 2021 | |
Dividend yield | |
$ | 0 | % | |
$ | 0 | % |
Expected volatility | |
| 171 | % | |
| 171 | % |
Risk free interest rate | |
| 0.87 | % | |
| 0.87 | % |
Expected life (year) | |
| 1.42 | | |
| 1.42 | |
The value of the conversion option liability underlying
the Notes and Convertible Notes as of December 31, 2022 and 2021 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 year ended December 31, 2022 and 2021.
21. |
RELATED PARTIES AND RELATED
PARTIES TRANSACTIONS |
As of December 31, 2022 and 2021, the total amounts
payable to related parties and mil-level management was $4,600,441 and $730,285, respectively, which included:
| 1. | As of December 31, 2022 and 2021, Amount payable to Mr. Yongquan Bi, the former Chief Executive Officer and Chairman of the Board of directors of the Company, of $27,699 and $30,258, respectively, free of interest and due on demand. These amounts represent 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. So far, it has not been paid. |
| 2. | As of December 31, 2022 and 2021, Amount payable to Mr. Li Zhou, the legal representative (general manager) of Guanzan, of $248,690 and $477,128 respectively is for daily operations and third party professional fees with no interest. So far, it has been paid. |
| 3. | As of December 31, 2022 and 2021, Amounts payable to Mr. Fuqing Zhang, the Chief Executive Officer of Xinrongxin of $172,730 and $188,684, respectively, free of interest and due on demand. The amount due to Mr. Fuqing Zhang is for reimbursable operating expenses that the Company owed to Mr. Zhang prior to the acquisition of Boqi Zhengji. So far, it has not been paid. |
| 4. | As of December 31, 2022 and 2021, Amounts payable to Mr. Youwei Xu, the financial manager of Xinrongxin of $11,784 and $12,872, respectively, free of interest and due on demand. The amount due to Mr. Xu, relates to reimbursable operating expenses that was owed to Mr. Xu prior to the acquisition of Boqi Zhengji. So far, it has not been paid. |
| 5. | As of December 31, 2022 and 2021, Amounts payable to Shaohui Zhuo, the general manager of Guoyitang of $4,671 and $5,102, respectively, was for daily operations with no interest. So far, it has not been paid. |
| 6. | As of December 31, 2022 and 2021, Amounts payable to Nanfang Xiao, a director of Guoyitang of $10,482 and $11,450, respectively, for daily operations with no interest. So far, it has not been paid. |
| 7. | As of December 31, 2022 and 2021, Amounts payable to Jia Song, the manager of Guoyitang of $4,385 and $4,791, respectively, was for daily operations with no interest. So far, it has not been paid. |
| 8. | As of December 31, 2022, Other payable to Mr. Fnu Oudom of
$3,620,000, was for $2,000,000 personal loan with 6% interest rate on December 6, 2022, and $1,620,000 for the remaining balance for
sale of Phoenix Entity. |
| 9. | As of December 31, 2022, Other payable to Mr. Song Tie Wei
of $ 500,000, was personal loan on October 28, 2022, with a term of three months from November 3, 2022 to February 3, 2023. No interest
if return on time. 1% interest from 3/3/2023. |
22. |
OTHER PAYABLES AND ACCRUED
LIABILITIES |
Other payables and accrued liabilities consisted
of the following:
| |
December 31, 2022 | | |
December 31, 2021 | |
Payroll payable | |
$ | 411,043 | | |
$ | 671,147 | |
Salary payable – related party (1) | |
| 2,135,333 | | |
| 1,005,833 | |
Accrued operating expenses | |
| (900 | ) | |
| - | |
Social security payable | |
| - | | |
| - | |
Acquisition payable (2) | |
| - | | |
| 403,305 | |
Long-term payable | |
| - | | |
| - | |
Other payables | |
| 630,097 | | |
| - | |
Other payables and accrued liabilities, net | |
$ | 3,175,574 | | |
$ | 2,080,285 | |
(1) | The Company entered into an employment agreement with Mr. Tiewei Song, the Chief Executive Officer of the Company, dated October 1, 2019, for a term of two years commencing 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 an annual stock compensation of 100,000 shares of the Company’s common stock. |
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 with base annual cash compensation
of $250,000. We have not made any cash compensation to Ms. Zhong as of the date of this annual report,
Mr. Xiaoping Wang (the “COO Executive Employment
Agreement”) is for a term of one (1) year, effective January 1, 2022. Under the COO Executive Employment Agreement, Mr. Wang’s
compensation will consist of an annual salary of $500,000 in cash and stock compensation of 500,000 shares of the Company’s common
stock. We have not made any cash compensation to Mr. Wang as of the date of this annual report,
The Company is authorized to issue 200,000,000 shares
of Common Stock, $0.001 par value. As of December 31, 2022 and 2021, it had 34,255,000 shares and 2,302,222 shares
outstanding, respectively. As of December 31, 2022, the Company reserved a total of 15,806,052 shares of Common Stock pursuant
to the requirements of the convertible promissory notes.
On April 20, 2019 and October 7, 2019, the Company
issued an aggregate of 300,000 shares of Common Stock as a part of the consideration for the acquisition of Boqi Zhengji.
On March 12, 2020, the Company issued 190,000 shares
of Common Stock for the acquisition of Guanzan.
From April 6, 2020 through October 20, 2020, Power
Up Lending Group Ltd., Crown Bridge Partners, LLC, Labrys Fund, LP, Morningview Financial, LLC,TFK Investments LLC, BHP Capital NY Inc.,
Firstfire Global Opportunities Fund, LLC and Platinum Point Capital LLC converted $1,534,250 of convertible notes plus interest into
an aggregate of 331,643 shares of Common Stock.
On November 30, 2020, the Company issued 200,000 shares
of Common Stock as the prepayment of cash consideration payable to Guanzan.
On December 2, 2020, the Institutional Investor,
Hudson Bay Master Fund Ltd (“Hudson Bay”), converted $ 173,154 of a 2020 Note into 25,125 shares of Common
Stock.
From December 2, 2020, the Institutional Investor,
CVI Investments, Inc.(“CVI”), converted $609,615 of a 2020 Note into 89,492 shares of Common Stock.
From January 4, 2021 to February 9, 2021, Hudson
Bay converted 2020 Notes in the aggregate principal amount of $2,150,000 plus interest into 276,943 shares of Common
Stock.
From January 4, 2021 to March 1, 2021, CVI converted
2020 Notes in the aggregate principal amount of $ 2,150,000 plus interest into 227,731 shares of the Common Stock.
On February 2, 2021, the Company issued 40,000 shares
of Common Stock as the Guoyitang Stock Consideration.
On February 3, 2021, a holder of a convertible note
issued on December 16, 2019 converted a part of the note in the aggregate principal amount of $ 74,473 plus interest into 20,706
shares of Common Stock.
On February 11, 2021, the Company issued 5,000 shares
of Common Stock to Real Miracle Investments Limited in consideration for consulting services.
On March 26, 2021, the Company issued 40,000 shares
of Common Stock as part of the Zhongshan acquisition.
On April 20, 2021, the Company issued 80,000 shares
of Common Stock as partial consideration for the acquisition of the Minkang, Qiangsheng and Eurasia hospitals.
On April 29, 2021, the Company issued 10,000 shares
of Common Stock as payment for improvements to offices located in Chongqing.
On June 18, 2021, 32,500 shares of Common
Stock were issued to CVI with respect to its cashless exercise of 650,000 warrants that were issued in 2020.
On July 23, 2021, the Company issued 30,000 shares
of Common Stock as payment for salary to three employees.
From August 26, 2021 to November 30, 2021, Hudson
Bay converted 2020 Notes in the aggregate principal amount of $2,400,000 into 970,173 shares of Common Stock.
From August 26, 2021 to November 30, 2021, CVI converted
Convertible Notes in the aggregate principal amount of $3,000,000 into 1,183,251 shares of Common Stock.
On August 27, 2021, the Company issued 92,000 shares
of Common Stock in full payment of the balance of the post-closing consideration for the acquisition of Guanzan.
On September 22, 2021, the Company issued 44,000 shares
of Common Stock as the initial consideration for the acquisition of Zhuoda.
On January 7, 2022, the Company issued 600,000 shares
of Common Stock as the initial consideration for the acquisition of Mali Hospital.
On January 24, 2022, the Company issued 1,000,000 shares
of Common Stock as the salary for Mr. Tiewei Song.
On January 27, 2022, the Company entered
into an employment agreement with Mr. Xiaping Wang for a term of one (1) year, effective January 1, 2022. Under the agreement, Mr. Wang’s
compensation will consist of an annual salary of $500,000 in cash and stock compensation of 500,000 shares of the Company’s
common stock. The Company issued 500,000 shares of our common stock to Mr. Wang on February 1,2022.
On February 1, 2022, the Company issued 50,000 shares of Common
Stock 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.
On February 2, 2022, the Company issued a press release announcing
a 1-for-5 reverse stock split of its common stock would become effective on February 3, 2022.
On July 18,
2022, 12,500,000 shares of Common Stock were issued to Mr. Fnu Oudom in consideration of $5 million upon the approval of
stockholders at the Company’s 2022 annual meeting of shareholders.
On December 8, 2022, the Company issued a press release announcing
that a 1-for-10 reverse stock split of its common stock would become effective on December 9, 2022.
On November 23, 2022, the Zhouda
sale transaction closed, when 100% of the equity interests in Zhuoda were transferred to the buyers and the 44,000 shares of the Company’s
common stock were returned to the Company as the full consideration.
As of December 31, 2022, the Company has issued 15,806,052 shares of
Common Stock upon conversion of outstanding convertible notes.
From the legal perspective, the Reverse Split applied
to the issued shares of the Company on the date of the Reverse Split and does not have any retroactive effect on the Company’s shares
prior that date. However, for accounting purposes only, references to our ordinary shares in this annual report are stated as having been
retroactively adjusted and restated to give effect to the Reverse Split, as if the Reverse Split had occurred by the relevant earlier
date.
Income Taxes
United States of America
BIMI is registered in the State of Delaware and is
subject to the tax laws of United States of America.
The Company has no tax position at December 31, 2022
for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The
Company does not recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at December
31, 2022. The Company’s utilization of any net operating loss carry forward may be unlikely as a result of its intended activities.
As of December 31, 2022, the operations in the United
States of America incurred $ 6,276,080 of cumulative net operating losses which can be carried forward to offset future taxable
income. The net operating loss carryforwards begin to expire in 2039, if unutilized. The Company has provided for a full valuation allowance
against the deferred tax assets of on the expected future tax benefits from the net operating loss carryforwards as the management believes
it is more likely than not that these assets will not be realized in the future.
Hong Kong
The Company’s subsidiary, Pukung is incorporated
in Hong Kong and had no operating profit or tax liabilities during the period. Pukung is subject to tax at 16.5% on the assessable
profits arising in or derived from Hong Kong.
The PRC
The Company’s subsidiaries operating in the
PRC are subject to the Corporate Income Tax Law of the PRC at a unified income tax rate of 25%. The reconciliation of income tax
rate to the effective income tax rate for the years ended December 31, 2022 and 2021 from our operation in the PRC is as follows:
| |
For the years ended December 31, | |
| |
2022 | | |
2021 | |
Loss before income taxes from operation in the PRC | |
$ | (3,479,593 | ) | |
$ | (1,076,954 | ) |
Statutory income tax rate | |
| 25 | % | |
| 25 | % |
Income tax expense at statutory rate | |
| (869,899 | ) | |
| (269,239 | ) |
Tax effect of non-deductible items | |
| 1,481 | | |
| 9,057 | |
Tax effect of non-taxable entities | |
| 874,510 | | |
| 596,660 | |
Tax effect of preferential tax rate | |
| - | | |
| (306,806 | ) |
Income tax expense | |
$ | 6,092 | | |
$ | 29,674 | |
Value-Added Tax and Other Withholding and Other
Levies
The Company’s products are sold in the PRC
and are subject to 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 for raw materials and other materials included in the cost of producing or acquiring its finished
products. 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 materials or finished goods: otherwise, the Company records a VAT deductible in the accompanying financial statements net
of any VAT payable at the end of reporting periods. As of December 31, 2022 and 2021, the Company recorded VAT payable of $7,893 and
$11,163, respectively.
The Company is also subject to other levies such
as stamp tax, unban construction tax, additional education tax which are charged by local governments. The rates of such levies are small
and vary among the different jurisdictions in which the Company does business. The Company also acts as the personal income tax withholding
agent for the salaries paid its employees. As of December 31, 2022 and 2021, the Company recorded other levies and withholding $13 and$642,
respectively.
25. NET LOSS PER SHARE
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. The following table sets forth the computation of basic and diluted net loss per share for the years ended December 31, 2022
and 2021, giving effect to a 1-for-5 reverse split on February 3, 2022 and a 1-for-10 share reverse-split on December 9, 2022:
| |
For the years ended December 31, | |
| |
2022 | | |
2021 | |
Net loss from continuing operation attributable to common shareholders | |
$ | (21,628,406 | ) | |
$ | (34,693,619 | ) |
Net Income from discontinued operation attributable to common shareholders | |
| (689,650 | ) | |
| (228,126 | ) |
Total net loss attributable to common shareholders | |
| (22,318,056 | ) | |
| (34,921,745 | ) |
Weighted average number of common shares outstanding – Basic
and diluted | |
| 2,664,653 | | |
| 536,293 | |
loss per share – basic and diluted: | |
| | | |
| | |
Continuing operations | |
$ | (8.12 | ) | |
$ | (64.69 | ) |
Discontinued operations | |
| (0.26 | ) | |
| (0.43 | ) |
Total | |
$ | (8.38 | ) | |
$ | (65.12 | ) |
26. STATUTORY RESERVES
Under the laws of the PRC the Company’s subsidiaries
are required to make appropriations to the statutory reserve based on after-tax net earnings and determined in accordance with generally
accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve
should be at least 10% of the after-tax net income until the reserve is equal to 50% of the registered capital. The statutory
reserve is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable
other than in liquidation.
27. SEGMENTS
General Information of Reportable Segments:
The Company operates in 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 includes 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 were no inter-segment
revenues between our retail pharmacy and wholesale pharmaceuticals segments.
The segments’ accounting policies are the same
as those described in the summary of significant accounting policies. The Company’s chief operating decision maker (“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 year ended December 31, 2022 | |
Retail pharmacy | | |
Medical devices wholesale | | |
Drugs wholesale | | |
Medical services | | |
Others | | |
Total | |
Revenues from external customers | |
$ | 856,596 | | |
$ | 4,142,455 | | |
$ | 6,831,328 | | |
$ | - | | |
$ | - | | |
$ | 11,830,379 | |
Cost of revenues | |
$ | 179,386 | | |
$ | 3,273,768 | | |
$ | 6,417,821 | | |
$ | - | | |
$ | 9,454 | | |
$ | 9,880,429 | |
Depreciation, depletion, and amortization expense | |
$ | 19,495 | | |
$ | 46,563 | | |
$ | 173 | | |
$ | - | | |
$ | 11,708 | | |
$ | 77,939 | |
Loss | |
$ | (432,419 | ) | |
$ | (126,869 | ) | |
$ | (2,095,750 | ) | |
$ | (72,598 | ) | |
$ | (18,900,770 | ) | |
$ | (21,628,406 | ) |
Total assets | |
$ | 594,996 | | |
$ | 3,771,472 | | |
$ | 13,223,957 | | |
$ | 1,058,525 | | |
$ | 11,204,718 | | |
$ | 29,853,668 | |
For year ended December 31, 2021 | |
Retail pharmacy | | |
Medical device wholesale | | |
Drugs wholesale | | |
Medical services | | |
Others | | |
Total | |
Revenues from external customers | |
$ | 316,647 | | |
$ | 3,445,107 | | |
$ | 16,495,373 | | |
$ | 1,048,318 | | |
$ | 14,165 | | |
$ | 21,319,610 | |
Cost of revenues | |
$ | 200,162 | | |
$ | 3,033,702 | | |
$ | 14,553,641 | | |
$ | 1,000,582 | | |
$ | 105,580 | | |
$ | 18,893,667 | |
Depreciation, depletion, and amortization expense | |
$ | 20,742 | | |
$ | 36,122 | | |
$ | 1,724 | | |
$ | 17,680 | | |
$ | 94,265 | | |
$ | 170,532 | |
Profit (loss) | |
$ | (562,641 | ) | |
$ | 186,473 | | |
$ | 773,148 | | |
$ | 85,388 | | |
$ | (35,175,987 | ) | |
$ | (34,693,619 | ) |
Total assets | |
$ | 355,973 | | |
$ | 3,831,664 | | |
$ | 10,297,205 | | |
$ | 1,262,464 | | |
$ | 13,951,896 | | |
$ | 29,699,202 | |
Reconciliations of Reportable Segment Revenues,
Profit or Loss, and Assets, to the Consolidated Totals as of December 31, 2022 and 2021 and for the years ended December 31, 2022 and
2021.
Revenues | |
Year ended December 31, 2022 | |
Total revenues from reportable segments | |
$ | 12,813,333 | |
Other revenues | |
| - | |
Elimination of inter segments revenues | |
| (982,954 | ) |
Total consolidated revenues | |
$ | 11,830,379 | |
| |
| | |
Profit or loss | |
| | |
Total (loss) from reportable segments | |
$ | (2,727,636 | ) |
Elimination of inter segments profit or loss | |
| (696,567 | ) |
Unallocated amount: | |
| | |
Amortization of discount of Notes and Convertible Notes | |
| (3,260,788 | ) |
Other corporation expense | |
| (14,943,415 | ) |
Total net loss | |
$ | (21,628,406 | ) |
| |
| | |
Assets | |
| | |
Total assets from reportable segments | |
$ | 36,787,755 | |
Elimination of intersegments receivables | |
| (15,662,215 | ) |
Unallocated amount: | |
| | |
Other unallocated assets – Phenix Bio Inc | |
| 1,800,000 | |
Other unallocated assets – Xinrongxin | |
| 4,167 | |
Other unallocated assets – Liaoning Boyi | |
| 30,654 | |
Other unallocated assets – Dalian Boyi | |
| 3,975 | |
Other unallocated assets – Chongqing Bimai | |
| 1,624,154 | |
Other unallocated assets – BIMI | |
| 5,265,178 | |
Total consolidated assets | |
$ | 29,853,668 | |
Revenues | |
Year ended December 31, 2021 | |
Total revenues from reportable segments | |
$ | 25,685,842 | |
Other revenues | |
| 14,165 | |
Elimination of inter segments revenues | |
| (4,380,397 | ) |
Total consolidated revenues | |
$ | 21,319,610 | |
| |
| | |
Profit or loss | |
| | |
Total income/(loss) from reportable segments | |
$ | 482,368 | |
Elimination of inter segments profit or loss | |
| (671,410 | ) |
Unallocated amount: | |
| | |
Amortization of discount of Notes and Convertible Notes | |
| (2,252,401 | ) |
Other corporation expense | |
| (15,201,469 | ) |
Total net loss | |
$ | (17,642,912 | ) |
| |
| | |
Assets | |
| | |
Total assets from reportable segments | |
$ | 36,523,225 | |
Elimination of intersegments receivables | |
| (25,344,121 | ) |
Unallocated amount: | |
| | |
Other unallocated assets –Dalian Boyi | |
| 21,955 | |
Other unallocated assets –Chongqing Bimai | |
| 18,173,386 | |
Other unallocated assets – Liaoning Boyi | |
| 33,847 | |
Other unallocated assets –Xinrongxin | |
| 3,188,516 | |
Other unallocated assets – BIMI | |
| 5,531,557 | |
Total consolidated assets | |
$ | 38,128,365 | |
28.
ENTITY-WIDE INFORMATION AND CONCENTRATIONS OF RISK
Entity-Wide Information
(a) | Revenues
from each type of products and services |
For the years ended December 31, 2022 and 2021, respectively,
the Company reported revenues for each type of product as follows:
| |
For the years ended December 31, | |
| |
2022 | | |
2021 | |
Medical devices wholesale | |
$ | 4,142,455 | | |
$ | 3,445,107 | |
Pharmaceuticals wholesale | |
| 6,831,328 | | |
| 16,495,373 | |
Medical services | |
| - | | |
| 1,048,318 | |
Pharmacy retail | |
| 856,596 | | |
| 316,647 | |
Others | |
| - | | |
| 14,165 | |
Total | |
$ | 11,830,379 | | |
$ | 21,319,610 | |
(b) |
Geographic areas information |
For the years ended December 31, 2022 and 2021, 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 December
31, 2022 and 2021.
The Company engages in wholesale medical devices,
wholesale pharmaceuticals, medical services and retail pharmacies in the PRC. All revenues were generated from customers located in the
PRC. For the year ended December 31, 2022, no customer accounted for more than 10% of the Company’s total revenues.
The customers who accounted for 10% or more
of total revenues for the years ended December 31, 2021 and its outstanding accounts receivable balances as of December 31,2021, are presented
as follows:
| |
| |
For the year
ended December 31, 2021 | | |
As of
December 31,
2021 | |
Customers | |
Segment | |
Sales | | |
Percentage
of total
sales | | |
Account
receivables | |
Customer B | |
pharmaceuticals segment | |
$ | 2,865,755 | | |
| 13.44 | % | |
$ | - | |
Customer A | |
pharmaceuticals segment | |
| 2,828,121 | | |
| 13.27 | % | |
| | |
Customer D | |
pharmaceuticals segment | |
| 2,705,824 | | |
| 12.69 | % | |
| | |
For the year ended December 31, 2022, the vendors
who accounted for 10% or more of the Company’s purchases and its outstanding accounts payable balances as of December 31,2022,
are presented as follows:
| |
| |
For the year
ended December 31, 2022 | | |
As of December 31, 2022 | |
Vendors | |
Segment | |
Purchases | | |
Percentage of total
purchases | | |
Account payable | |
Vendor A | |
medicines | |
$ | 8,803,743 | | |
| 51.50 | % | |
$ | - | |
Vendor B | |
medical devices | |
| 1,870,017 | | |
| 10.94 | | |
| | |
For the year ended December 31, 2021, the vendors
who accounted for 10% or more of the Company’s purchases and its outstanding accounts payable balances as of December 31,2021,
are presented as follows:
| |
| |
For the year
ended December 31, 2021 | | |
As of December 31, 2021 | |
Vendors | |
Segment | |
Purchases | | |
Percentage of total
purchases | | |
Account payable | |
Vendor A | |
pharmaceuticals segment | |
$ | 2,730,230 | | |
| 44.25 | % | |
$ | - | |
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 collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
The Company’s interest-rate risk arises from
convertible promissory notes, short-term and long-term loans. The Company manages interest rate risk by varying the issuance and maturity
dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest
rates. As of December 31, 2022 and 2021, convertible promissory notes, short-term and long-term loans were at fixed rates.
The reporting currency of the Company is the United
States Dollar, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities
are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be
affected by fluctuations in the exchange rate between $ and RMB. If RMB depreciates against $, the value of RMB revenues and assets as
expressed in $ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose
to substantial market risk.
| (h) | 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 slowdown the growth of the global economy, including the PRC, and this effect
might be continued until the pandemic of COVID-19 was over. The slowdown of the growth of the PRC’s economy might has an adverse
effect on our current business and future developments if we would not catch the opportunities of the increasing demand of medical products
and the medical services in China.
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.
29. SUBSEQUENT EVENT
On December 28, 2022, we entered into an agreement
to transfer 87% of the equity interests in Zhongshan to its prior owner, and will continue to own 13% of the equity interests in Zhongshan.
.As consideration for the transfer, the former owner will return the 200,000 shares of the Company’s common stock, which were previously
and will release us from any and all claims relating to two earnout payments that were payable under the original purchase agreement.
The Company will receive a put option to sell part or all of the retained shares before December 31, 2032, based on a valuation determined
by a third-party appraisal firm jointly chosen by the parties. The transaction is expected to close in the second quarter of 2023.
On December 28, 2022, we entered into an agreement
to transfer 90% of the equity interests in the Qiangsheng, Eurasia and Minkang hospitals to the former owners and will continue to retain
10% equity interests in each of the three hospitals. As consideration for the transfer, the former owners will return to the Company the
400,000 shares of the Company’s common stock, which were previously issued. The Company will also receive a put option to sell part
or all of the retained shares to the former owners before December31, 2032, based on a valuation determined by a third-party appraisal
firm jointly chosen by the parties. The sales of Qiangsheng, Minkang and Eurasia are expected to close
in the second quarter of 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 distributor of healthcare products. The transaction closed effective March 15, 2023. The
aggregate purchase price for the equity interests in Phenix was $180,000 in cash, which has been paid, plus 5,270,000 shares of the Company’s
common stock, of which 270,000 shares will be issued upon the approval of the issuance by the Company’s shareholders and the balance
of 5,000,000 shares will be issued 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, subject to the approval of the Company’s shareholders. Such issuance of shares was approved by the Company’s
shareholders on April 13, 2023.
On December 6, 2022, we sold a convertible promissory note (the “Note”)
to Mr. Fnu Oudom for $ 2 million. The Note carries an annual interest rate of 6%, which is payable together with the principal amount
one (1) year after the date of the Note. Seven (7) business days before the maturity date of the Note, the Note holder has the right to
exercise a conversion right at a conversion price of $0.40, to have the aggregate amount of the principal and accrued interests repaid
in shares (the “Note Shares”) of our Common Stock, in lieu of cash payment. The conversion price of $0.40 reflects 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 (the “Prepayment Agreement”) whereby the parties agreed that the Company will exercise
its prepayment right under the Convertible Note by issuing shares of Common Stock. In consideration of Mr. Oudom’s agreement to
convert the Convertible Note in shares of Common Stock and to waive his right to any and all interest accrued and to be accrued under
the Convertible Note, the Company agreed to issue 1,330,000 shares of Common Stock (the “Prepayment Shares”) at a conversion
price of $1.50 per share, subject to the shareholders’ approval, as full payment of the $2,000,000 principal of the Convertible
Note and accrued interest. Such issuance was approved by the Company’s shareholders on April 13, 2023.
On February 27, 2023, the Company entered into a stock purchase Agreement
(the “February SPA”) with Mr. Oudom, whereby the Company agreed to sell 2,500,000 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. Such
issuance was approved by the Company’s shareholders on April 13, 2023.
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