UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

xFORM 10-K

☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended: December 31, 20172020

or

¨☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______________to _______________________ to _________

Commission File Number 000-50155

NF ENERGY SAVING CORPORATIONBOQI International Medical Inc.

(Exact Name of Registrant as Specified in Its Charter)

(8624) 2560-9775(8604) 1182209211

(Issuer’s Telephone Number, Including Area Code)

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

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes¨     ☒ Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes¨     ☒ Nox

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yesx     ☐ No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☒ Yesx     ☐ No¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  x

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).

☐ Yes¨     ☒ Nox

As of June 30, 2017,March 24, 2021, the aggregate market value of the common equity held by non-affiliates of the registrant was $6,436,693$24,913,535.5 based on the closing price of $0.91$1.69 per share whichreported on the registrant’s common stock was last sold.NASDAQ Capital Market.

As of March 22, 2018,24, 2021, there were 7,573,28920,131,488 shares of the registrant’s common stock outstanding.

NFBOQI INTERNATIONAL MEDICAL INC.

(FORMERLY KNOWN AS “NF ENERGY SAVING CORPORATION

FORM 10-KCORPORATION”)

FORM 10-K

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K, other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Securities Act and the Exchange Act, as applicable by law. Such statements include, in particular, statements about our plans, strategies and prospects, and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words.

If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Annual Report on Form 10-K and other reports and registration statements filed by us with the U.S. Securities and Exchange Commission (“SEC”). Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. Forward-looking information and statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate us. Any investor in our common stock should consider all risks and uncertainties disclosed in our filings with the SEC, all of which are accessible on the SEC’s website at http://www.sec.gov. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.

PART I

ITEM 1. BUSINESS

The Company

As used herein the terms “we”, “us”, “our,” “NFEC”“BIMI” and the “Company” means NF Energy Saving Corporation,BOQI International Medical Inc., a Delaware corporation, formerly known as NF Energy Saving Corporation of America, Diagnostic Corporation of America, Global Broadcast Group, Inc., and Galli Process, Inc. These terms also include ourits subsidiaries, Liaoning Nengfa Weiye Energy Technology Company Ltd.Lasting Wisdom Holdings Limited (“Lasting”), a corporation organized and existing under the laws of the Peoples’ Republic of ChinaBVI, Pukung Limited (“PRC”Pukung”), a company organized and Liaoning Nengfa Tiefa Import & Exportexisting under the laws of Hong Kong, Beijing Xinrongxin Industrial Development Co., Ltd., (“Xinrongxin”), a limited liability corporationcompany organized and existing under the laws of the PRC, Boqi Zhengji Pharmacy Chain Co., Ltd., (“Boqi Zhengji”), a company organized and existing under the laws of the PRC, Dalian Boyi Technology Co., Ltd. (“Dalian Boyi”), a company organized and existing under the laws of the PRC, Chongqing Guanzan Technology Co., Ltd. (“Guanzan”), a company organized and existing under the laws of the PRC, Chongqing Lijiantang Pharmaceutical Co. Ltd.(“Lijiantang”), a company organized and existing under the laws of the PRC, Chongqing Shude Pharmaceutical Co., Ltd (“Shude”), a company organized and existing under the laws of the PRC. Boyi (Liaoning) Technology Co., Ltd. (“Liaoning Boyi”), a company organized and existing under the laws of the PRC, and Bimai Pharmaceutical (Chongqing) Co., Ltd (“Chongqing Bimai”), a company organized and existing under the laws of the PRC.

NF Energy Saving Corporation wasWe were incorporated under the laws of the State of Delaware under the name ofas Galli Process, Inc. on October 31, 2000 for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship.2000. On December 31, 2001, Galli Process, Inc. became a majority owned subsidiary of City View TV, Inc., a Florida corporation (“City View”). On February 7, 2002, Galli Process, Inc.Inc, changed its name to Global Broadcast Group, Inc. On March 1, 2002, City View merged intoNovember 12, 2004, Global Broadcast Group, Inc., which was the surviving entity. On November 12, 2004, the Company changed its name to Diagnostic Corporation of America. On March 15, 2007, we changed our name to NF Energy Saving Corporation of America, and on August 24, 2009, the Company furtherwe changed itsour name to NF Energy Saving Corporation, in both instancesCorporation. On December 16, 2019, we changed our name to more accuratelyBOQI International Medical Inc. to reflect our business afternew focus on the Planhealth care industry. Our internet website address is http://www.usbimi.com/index.html. The information on our website is not incorporated by reference into this annual report.

Recent History

In January 2019, Mr. Yongquan Bi, a director and a substantial stockholder of Exchange (see below). Our principal placethe Company, together with a group of business is 3106, Tower C, 390 Qingnian Avenue, Heping District, Shenyang, P. R. China 110015. Our telephone number is (8624) 2560-9775.investors whose combined holdings constituted a majority of the voting rights in our company, delivered a written consent to the Company’s registered office. The written consent modified the composition of the Board of Directors and Mr. Yongquan Bi was subsequently appointed as the Company’s Chairman of the Board, Chief Executive Officer and President. In October 2019, Mr. Yongquan Bi resigned from the office of the Chief Executive Officer and President and Mr. Tiewei Song succeeded him as Chief Executive Officer and President.

The Boqi Zhengji Acquisition and Subsequent Disposition

On November 15, 2006,October 14, 2019, as the initial step in our shift of focus from the energy sector to the healthcare business, we executedacquired Boqi Zhengji, the operator of a Plan of Exchange (“Plan of Exchange”), amongpharmacy chain business in the Company, Liaoning Nengfa Weiye Pipe Network Construction and Operation Co. Ltd. (“Nengfa”), the shareholders of Nengfa (the "Nengfa Shareholders") and Gang Li, our Chairman and Chief Executive Officer (“Mr. Li”). At the closingPRC, by purchasing 100% of the Planequity interests of Exchange, which occurred on November 30, 2006, weLasting, Boqi Zhengji’s parent company. Lasting, through its wholly owned subsidiaries Pukung, and Xinrongxin, owned all the ownership interests in Boqi Zhengji. Lasting, Pukung, Xinrongxin and Boqi Zhengji are hereinafter referenced as the “Boqi Zhengji Group”. The purchase price for the Boqi Zhengji consisted of RMB 40 million (approximately $5,655,709) and 1.5 million shares of the Company’s common stock. The 1.5 million shares of the Company’s common stock were issued to the Nengfa Shareholders 12,000,000sellers in October 2019. The cash consideration, which was subject to post-closing adjustments based on the performance of Boqi Zhengji, measured by its pharmacy club member headcount and gross profit in 2020, was not payable until 2021.

Shortly after the acquisition, the business of Boqi Zhengji was severely impacted by the spread of coronavirus, or COVID-19, and its revenues plummeted. On December 11, 2020, we entered into a Termination and Release Agreement (the “Release Agreement”) with the four individuals who sold Boqi Zhengji to us. We and the sellers confirmed that Boqi Zhengji’s performance targets as stipulated in the Stock Purchase Agreement dated April 11, 2019 (as amended on February 6, 2020, the “Boqi SPA”) would not be met, and therefore the sellers would not be eligible to receive the contingent RMB 40 million cash consideration or any other additional payment.

On December 11, 2020, we entered into an agreement to sell all the issued and outstanding equity interests in Boqi Zhengji to a third-party in consideration of $1,700,000 to be paid in cash at the closing. While the cash consideration was received on December 18, 2020, the official recognition of the closing was not received until February 2, 2021.

The Guanzan Acquisition

On February 1, 2020, we entered into a stock purchase agreement to acquire Guanzan, a company engaged in the distribution of medical devices and pharmaceuticals, based in Chongqing, the largest city in Southwest region of the PRC. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Guanzan and its subsidiary, Shude, (together the “Guanzan Group”), for RMB 100,000,000 (approximately $14,285,714) to be paid by the issuance of 950,000 shares of our common stock or 89.4%and the cash payment of RMB 80,000,000 (approximately $11,428,571). On March 18, 2020, we closed the Guanzan acquisition by delivering 950,000 shares of our then outstanding common stock,stock. The cash consideration, was subject to post-closing adjustments based on the performance of Guanzan in exchange2020 and 2021.

The rationale for allthe Guanzan Acquisition was to further expand into the healthcare field by acquiring a medical devices and pharmaceuticals distribution business, in line with our expansion strategy which focuses on deeper penetration of the shareshealthcare market in the Southwest region of capital stockChina and achieving a wider footprint in the PRC. At the time of Nengfa owned by the Nengfa Shareholders. Immediately uponacquisition, Guanzan had strong sales capabilities in Chongqing, the closing, Nengfa became our 100% owned subsidiary, andlargest city in the Company adopted and implementedSouthwest region of the business plan of Nengfa.

On January 31, 2008, to better reflect our energy technology business, we changed the name of Nengfa to Liaoning Nengfa Weiye Energy Technology Company Ltd. (“Nengfa Energy”). Nengfa Energy’s area of business includes research and development, processing, manufacturing, marketing and distribution of energy saving flow control equipment; manufacturing, marketing and distribution of energy equipment, wind power equipment and fittings; energy saving technical reconstruction; and energy saving technology consulting services.

On August 26, 2009, the Company completed a 3 to 1 reverse share split of its common stock. As a result, the total number of shares of outstanding common stock changed from 39,872,704 pre-split to 13,291,387 post-split shares.

On September 15, 2010 the Company completed a 2.5 to 1 reverse share split of its common stock, the total number of shares of outstanding common stock changed from 13,315,486 pre-split to 5,326,501 post-split shares.

On October 4, 2010 our common stock commenced trading on the Nasdaq Global Market. On March 7, 2012, and upon approval by NASDAQ, our common stock transferred from the Nasdaq Global Market to the Nasdaq Capital Market, Our common stock trades on the Nasdaq Stock Market under the ticker symbol “NFEC”.PRC.

On November 26, 2015 ,20, 2020, the parties to the Guanzan acquisition agreement entered into a new company devotingPrepayment and Amendment Agreement (the “Prepayment Agreement”) in light of Guanzan’s performance during the period from March 18, 2020 to intelligent products was set up which is named by “Liaoning Nengfa Weiye Smart Valve Technology Co. Ltd”. (“Nengfa Smart Valve”).September 30, 2020, providing for the prepayment of RMB 20,000,000 of the contingent cash consideration in the form of shares of our common stock valued at $3.00 per share. On March 8, 2017, “Liaoning Nengfa Weiye Smart Valve Technology Co. Ltd was named by “Liaoning Nengfa Tiefa ImportNovember 30, 2020, we issued 1,000,000 shares of our common stock as the prepayment.

The NF Group disposition

In late 2019, we committed to a plan to dispose of our legacy energy business, NF Investment and Export Co.its subsidiaries (the “NF Group”), Ltd.” in order to make further business activities. Liaoning Nengfa Weiye Energy Technology Co.focus on our healthcare business. On March 31, 2020, we entered into an agreement to sell the NF Group for $10 million to be paid in cash at the closing. The transaction closed on June 23, 2020, at which time we received $10 million.

The Guoyitang Acquisition

On December 9, 2020, we entered into an agreement to acquire Chongqing Guoyitang Hospital (“Guoyitang”), Ltd. Owns approximately 57%the owner and operator of a private general hospital in Chongqing City, a city in Southwest China, with 50 hospital beds and 98 employees, including 14 doctors, 28 nurses, 43 other medical staff and 13 non-medical staff. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Guoyitang for RMB 100,000,000 (approximately $15,325,905) to be paid by the issuance of 2,000,000 shares of our common stock and the payment of RMB 60,000,000 (approximately $9,195,543) in cash. The acquisition closed on February 2, 2021, at which time 2,000,000 shares of our common stock were delivered to the sellers. The cash consideration of RMB 60,000,000 (approximately $9,195,543) was paid in December 2020. The balance of the purchase price of RMB 40,000,000 (approximately $6,097,560) is subject to post-closing adjustments based on the performance of Guoyitang in 2021 and 2022.

The Zhongshan Acquisition

On December 15, 2020, we entered into a stock purchase agreement to acquire Chaohu Zhongshan Minimally Invasive Hospital (“Zhongshan”), a private hospital in the Southeast region of China with 160 hospital beds and 95 employees, including 20 doctors, 48 nurses, 10 other medical staff and 17 non-medical staff. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Zhongshan for RMB 120,000,000 (approximately $18,348,623), to be paid by the issuance of 2,000,000 shares of our common stock and the payment of RMB 80,000,000 in thiscash. The transaction closed on February 5, 2021 when 100% ownership of Zhongshan was transferred to the Company. The cash consideration of RMB 40,000,000 (approximately $6,116,207) was paid to the seller in December 2020. On February 12, 2021, we issued 2,000,000 shares of our common stock valued at RMB 40,000,000 (approximately $6,116,207) to the seller as part of the consideration. The balance of the purchase price in the amount of RMB 40,000,000 (approximately $6,116,207) will be paid subject to post-closing adjustments based on the performance of Zhongshan in 2021 and 2022.

We may pay the outstanding consideration for the Guanzan, Guoyitang and Zhongshan acquisitions to the extent payable: (i) in cash from funds to be raised from the sale of equity (to the extent possible) or (ii) through the issuance of our common stock. If we elect to issue shares of our common stock in consideration for the balance of the purchase for the three acquisitions, we may be required to seek stockholder approval of such issuances prior to issuing such shares.

Business Description

Subsequent to our disposition of the NF Group in March 2020, we have been engaged in both the retail and wholesale distribution of medical devices, pharmaceuticals and other healthcare products in the PRC. We have recently acquired two hospitals in Southwest China as our initial steps in our effort to establish a nationwide chain of hospitals specializing in obstetrics and gynecology.

Strategy

Our strategy is to build a comprehensive healthcare ecosystem, centering on online and offline healthcare products and services, including retail and wholesale sales of medical devices and pharmaceuticals, and hospital services. We intend to expand through both organic growth and acquisitions.

Corporate Organization

The structure of our corporate organization is as follows:

Business DescriptionWholesale Sales of Medical Devices and Pharmaceuticals

NFECWe acquired Guanzan on March 18, 2020 in an effort to further expand our healthcare operations by acquiring a medical devices and pharmaceuticals distribution business. The acquisition was is dedicated to energy efficiency enhancement in two fields: (1) manufacturing large diameter energy efficient intelligent flow control systems for thermal and nuclear power generation plants, major national and regional water supply projects and municipal water, gas and heat supply pipeline networks; and (2) energy saving technology consulting, optimization design services, energy saving reconstruction of pipeline networks and contractual energy management services for China’s electric power, petrochemical, coal, metallurgy, construction, and municipal infrastructure industries.

NFEC has received many awards and honors from China's regulators, professional associations and renowned international organizations, including the ISO 9001:2008 certification from Det Norske Veritas Management System, the Liaoning Provincial Government's Award of Innovative Enterpriseline with Best Investment Return Potentials, the Special Industrial Contribution Awardour expansion strategy, which focuses on deeper penetration of the ESCO Committee of China Energy Conservation Association, andhealthcare market in the “Contract-abiding and credit enterprise” Award by the Liaoning State Local administrative bureau for industry and commerce. NFEC was awarded of “Hi-tech enterprise” by Liaoning Technology bureau in 2013.

NFEC enjoys a reputation as a leader and dedicated energy saving company in China for over 15 years. Its professional capacity as a provider of energy services is officially certified by China’s National Development and Reform Commission (NDRC). It has been a corporate member on the BoardSouthwest region of the ESCO Committee of China Energy Conservation AssociationPRC and gaining a founding member of China Standardization and Technical Consortium for Energy Conservation and Emission.

As a certified energy service provider, NFEC is entitled to various tax breaks and energy saving awards created by Chinese governments at national, provincial and local levels. The major tax incentives bywider footprint in the central government include a two-year corporate income tax exemption plus a three-year reduction of corporation income tax for all energy performance based, profit sharing energy service projects. The government policy also incentivizes NFEC's clients with tax refunds on goods and properties of the energy saving projects when NFEC transfers to them at the end of the energy service contracts.

 The current principal development focus of NFEC is to improve the products, such as large intelligent flow control facility and to provide our Company with more advanced technology to supply high grade energy efficient and safety reliant products for high end markets.region.

Our corporatewholesale medical devices and pharmaceuticals business is operated by the Guanzan Group in Chongqing, the largest city in Southwestern PRC. Guanzan Group is engaged in the distribution of medical devices and pharmaceuticals, primarily to drug stores, private clinics, pharmaceutical dealers and hospitals in the Southwest region of China.

Guanzan distributes both domestic and imported advanced medical devices, such as Stryker spinal products, Olympus endoscopes, imported imaging products and diagnostic imaging equipment. The majority of customers are private enterprises in China.

Shude primarily distributes pharmaceuticals. Shude currently distributes approximately 300 varieties of products, including raw ingredients for pharmaceutical products, antibiotics, cardiovascular drugs and anti-obesity medicines. The majority of customers are private pharmaceutical manufacturers and pharmaceutical wholesale companies in China.

For the year ended December 31, 2020, our top ten wholesale medical device customers accounted for 77.27% of our wholesale medical devices revenues and four customers accounted for more than 10% of our wholesale medical devices revenues. For the year ended December 31, 2020, our top ten wholesale pharmaceuticals customers accounted for 50.06 % of our wholesale pharmaceuticals revenues and one customer accounted for 10% of our wholesale pharmaceuticals revenues.

Retail Pharmacy Business

Our retail pharmacy business sells pharmaceuticals and other healthcare products to customers through directly-owned retail stores. The retail stores offer 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. In 2020, we sold the Boqi Pharmacy Group and established a chain of retail pharmacies under the brand name “Lijiantang Pharmacy” in the city of Chongqing, PRC (the “Lijiantang Pharmacy Group”). By year-end 2020, we had opened five pharmacies in Chongqing. Each of our pharmacies employs at least one pharmacist, a store manager and several salespersons.

The pharmaceutical manufacturers and wholesalers from whom we source our products tend to provide deeper product discounts to companies with both wholesale and retail businesses.

We have also taken steps to build a business-to-online/offline + online-to-offline healthcare operating platform. “Business-to-online/offline” commerce is a popular business strategy in China used by businesses to draw customers to online and offline services. “Online-to-offline” commerce is a business strategy that draws potential customers from online channels to make purchases in physical stores. Online-to-offline commerce identifies customers in the online space, and then uses a variety of tools and approaches to entice the customers to leave the online space. Our goal is to maintain our established position as a leading providerrely on this operating platform to fully integrate and utilize both online and offline retail and wholesale resources. We have plans to launch an online platform where Guanzan and Shude’s wholesale customers may browse products online in lieu of, energy efficiency flow control systems, a cutting edge innovator with clean energy and energy efficiency technologies, and a total energy efficiency solution and service provider dedicatedor in addition to, maximum returnsface to our investors, partners, clients and environment.face sale meetings.

We favor retail locations in well-established residential communities with relatively concentrated consumer purchasing power or are located in close proximity to local hospitals, and evaluate potential store sites to assess consumer traffic, visibility and convenience. Each drugstore has at least one pharmacist on staff, all of whom are properly licensed. The average area of our pharmacy stores is 200 square meters. We only accept prescriptions from licensed health care providers, and verify the validity, accuracy, and completeness of all prescriptions. We also ask all prescription customers to disclose their drug allergies, current medical conditions, and current medications. Most pharmacies also maintain a TCM counter staffed by licensed herbalists. After opening, a location may take up to one year to achieve our projected revenue goals for that particular location. Various factors influence individual store revenue including, but not limited to, location, nearby competition, local population demographics, square footage, and government insurance coverage.

Products and Services

At present, we sell prescription drugs, OTC drugs, nutritional supplements, health foods, sundry products and medical devices through our retail pharmacy business. We also distribute medical devices and pharmaceuticals through our wholesale business.

Our retail pharmacy business procures its products from national wholesalers, small regional wholesalers and various pharmaceuticals trading platforms. Our wholesale business primarily sources its products from large state-owned pharmaceutical manufacturers and wholesalers and mid-sized or small private pharmaceutical manufacturers and wholesalers. In the year ended December 31, 2020, one vendor accounted for more than 10% of our wholesale medical devices purchases and one vendor accounted for more than 10% of our wholesale pharmaceutical purchases.

Markets and Customers

We started to operate in the pharmacy market upon completion of the acquisition of Boqi Zhengji in October 2019. Now we engage in retail pharmacy and wholesale sales of medical devices and pharmaceuticals. According to the PRC National Bureau of Statistics, in 2020, the per capita consumption expenditure for pharmaceuticals was RMB 1,843 (approximately $283). After deducting the inflation factor, the actual increase in consumption expenditure doubled the growth rate since 2013. In terms of population structure, the aging population continues to grow. The proportion of people aged 65 and over has increased by 6.45 percentage points since 2019. Affected by factors such as expansion and population migration, the urbanization rate in China is over 60%. We believe such urban population expansion means increased demand for healthcare products. We believe that the increasing demand for pharmaceutical products, the aging of the population, the effect of the new “two-child” policy which should promote an increased demand for pediatric medications, and the steady urbanization, will cause the demand for pharmaceutical products to be stable, providing a solid foundation for the growth of the pharmaceutical industry.

Marketing and Promotion

Our current marketing and promotion efforts are focused on our wholesale medical devices, wholesale pharmaceuticals and retail pharmacy segments, and our strategy is to build brand recognition, build strong customer loyalty, and develop incremental revenue opportunities.

For our wholesale business, we promote our products and services include:

1. Provide the large-diameter smart flow control device for China’s electric power generation, water supply, heating supplybrand through participation in trade shows and gas supply industries.

2. Provide the equipment relatedacademic seminars and engaging third party professionals in advertisement efforts. We actively pursue direct sales to desulfurization, denitrationhospitals, clinics and dust removal for China’s electric power generation, metallurgy, petrochemical, steel, cementpharmacies as well government centralized procurement and heating supply industries.

3. Provide consulting services, such as energy efficiency optimization design, energy consuming equipment retrofit and engineering, equipment maintenance and services, energy management based on Energy Performance Contracts for China’s industrial enterprises.

Some landmark contracts the Company has completed include:

In 2013, the Company received contracts from Zheneng Zhenhai Gas Thermal Power Co. Ltd; Chongqing Water Turbine Factory Ltd; Chongqing Wanliu Power Co., Ltd; Dalian Petrochemical Company of SenoPech; China National Electric Power Engineering Co. Ltd ; Xinyu Iron and Steel Ltd; Shandong Electric Power Corporation; Jiajie Gas-fired Cogeneration Branch of Shanxi New Energy Industry Group; and the Amedyan Power Co Ltd of the State Grid Company.

In 2014, the Company received contracts from LXB Water Supply Co., Ltd. Shandong Luneng Huaneng Power International Trade Company of Taiyuan Dongshan Gas Turbine Thermal Power Co., Ltd., Beijing Sea of Inner Mongolia Coal Gangue Power Co., Ltd. and other companies. , At the same time, the Company has also completed the installation of desulfurization, denitration and dust removal systems at the 660T/h boiler room of the Chinese Aviation Company.bidding projects.

In 2015,our retail stores, the Company received contracts from Gansu Coal Group Co. Ltd, Nanning Tiefa Valve Co., Ltd, Weinan Dongnan Bureau , Shanxi Ruiguang power Co., Ltdstore managers and Harbin Binhe Technology Co., Ltd,,Chifeng Jianxi Shangrao water diversion project, Inner Mongolia Caisen hydropower station,Chifeng Xincheng thermal power co., Ltd , Sinkiangr conservancy hub projectstaff are also encouraged to propose their own advertising andItalian Tecnedil International SRL, etc promotional plans, including holiday promotions, posters and billboards. In addition, we periodically offer special discounts and gift promotions for selected merchandise in conjunction with our suppliers’ marketing programs. We intend to invest in advertising in 2021.We also provide ancillary services such as providing free blood pressure readings in our stores.

In 2016,Many of our promotional programs are designed to encourage manufacturers to invest resources to market their brands within our stores. We charge manufacturers promotional fees in exchange for the Company received contracts fromthe 2*660MW project of a subsidiary of State Grid, Shanxin, a 2*660MW low calorific coal power generation projectright to promote their products during promotional periods. Since manufacturers provide purchasing incentives and the Hubei Huanggang cogeneration project, Jiangsu Guohua Chenjia Gang power co., Ltd, Shandong electric power construction co., Ltd ,2*350 MW cogeneration project ofShandong Junan Liyuan Thermal Power Co.,Ltd.,2*1000 MW circulating water system project of Guangdong Datang International Leizhou Power Plant , 2*1000 MW of coal-fired power generating project of Shanxin Shentou Power Co.Ltd, 2*660 MW generator project ofNorth China Power Engineering (Beijing) Co.,Ltd and Liaoning Dahufang reservoir water diversionproject etc.information to help customers make informed purchase decisions, we believe that manufacturer led promotions improve our customers’ shopping experience.

In 2017, the Company received contracts from JATIGATE hydroelectric station, Indonesia, Sinkiang ProductionGuanzan and Construction Group and Siehuan Dongfa Electric Co.Ltd, China Nuclear Qiqihar environmental protection technology Co. Ltd., for the first phase of an oxidation pond deep processing project; Chongqing water turbine Co., Ltd., for the huangshan dragon hydropower station renovation project in Vietnam; and Chongqing new century electrical Co. Ltd., for the NHESANJEN hydropower station renovation project in Nepal, Zhejiang Zhenhai power plant coal-fired units move renovation project, Wanhua chemical (Ningbo) electric co., Ltd. Valve supply water system project, Chongqing New Century electrical co., Ltd power projects in Pakistan,China Nuclear Qiqihar environmental protection technology Co. Ltd., for the first phase of an oxidation pond deep processing project, Chongqing water turbine Co., Ltd., for the huangshan dragon hydropower station renovation project in Vietnam, Chongqing new century electrical Co. Ltd., for the NHESANJEN hydropower station renovation project in Nepal etc.Shude use third party logistics services to transport their products.

ProductionRaw Materials and Sales of Energy Saving Flow Control EquipmentSuppliers

The Company’s current principal business is the productionmedical devices and sales of energy-saving flow control equipment,pharmaceuticals suppliers include national and intelligent flow control equipment. This business accountsregional large-scale pharmaceutical and medical device manufacturing companies and wholesale pharmaceutical companies.

We believe that competitive sources are readily available for the majoritysubstantially all of the Company’s revenues.products we require for our retail and wholesale businesses. As such, we believe that we can change suppliers without any material interruption to our business. To date, we have not experienced any significant difficulty in sourcing our suppliers.

Pipeline transport is one of the basic modes of transportation together with rail transport, road transport, air transport and water transport. Water, gas, oil, and heat rely on various kinds of pipelines and pipe networks to be transported to end users. In the case of water pipelines, such systems are also used for public health and safety, and waste and flood control.Quality Control

The keyWe strongly emphasize quality control, which starts with procurement. In addition to their market acceptance and costs, we select products based on Good Manufacturing Practice and Good Supply Practices (“GSP”) compliance by our suppliers. We also assess product quality based on the efficiencymanufacturer’s facilities and energy conservationcapabilities, including technology, packaging and logistics. We conduct random quality inspections of the pipeline transportation process is the valveeach batch of products we procure and the flow control equipment. Having unique technology in this field, the Company has obtained four patents and holds fourteen utilization model patents in China for flow control devices, especially in the area of the bidirectional seal zero revelation installation system with its special characteristics. Using valves of this type can result in reduced energy consumption by 20% for customers comparedreplace any supplier who fails to traditional valves. The reduced energy consumption thereby increases the efficiency of the pipeline system. It is widely used in the fields of electric power, hydro power, petroleum, and natural gas. The Company’s super intelligent flow-control device was awarded “Number One Energy Saving Valve of China” by the Chinese Energy Conservation Association. Our products are exported to the United States, Russia, Turkey, Italy, Bulgaria, South Korea, Vietnam, India, Thailand, South Africa, Iraq, and Afghanistan.

After the new manufacturing facility was completed, the new large numerical control machine tool improved the manufactured quality of the Company’s products. The “M type high torque flow control device” providing for LXB project, the maximum output torque is 1.7 million N.m , 90 degrees of rotation and total ratio is 175:1. It not only improves the quality of product , but also reduces the costpass such that has reached international advanced level.

Another main business is the energy saving technology engineering and service, the Company will continue to develop comprehensive energy conservation and energy reduction equipment and services, and to pursue research development and improved manufacturing of flow control and clean energy related equipment.

Patents and Technology

Nengfa Energy currently has been issued four invention patents and has applied for fourteen utility model patents in the PRC.inspections.

In addition to the patent protection that we seek,general quality control measures described above, we also rely onenforce strict quality control measures at our storage and distribution center. All products for our wholesale and retail businesses are screened upon their arrival, and those with evidence of defects or damages are immediately rejected. Products that pass the confidentiality ofscreening process are recorded and stored strictly according to each manufacturer’s temperature and other requirements. Products (for both our operations, proprietary know-howpharmacies and business secrets. Although we do not have formal agreementswholesale customers) are verified against the appropriate delivery orders prior to leaving the facility. We use vehicles with our employees, we do consider our employees’ workcold-temperature storage to be proprietary and owned by the Company. Where necessary, we will take steps to protect our intellectual property interests under the laws of the PRC. There can be no assurance that we will be able to enforce our rights if they are improperly taken by our employees or adopted by our competitors outside of sanctioned use and royalty agreements with the Company.make deliveries as necessary.

Competition

Certain ofGuanzan and Shude, our service offerings will not be patentable or otherwise be capable of being registered as intellectual property. Therefore, the Company will rely solely on such services being proprietary. As such the Company willmedical devices and pharmaceuticals distributors, have to rely on the services being more advanced or better than its competitors’ offerings or rely on trade secret laws and protections. Such protectionsestablished distribution channels in the PRCcity of Chongqing, China. The wholesale medical devices and pharmaceutical distribution industries in China are considered rather weakcompetitive and are difficult if not impossible to enforce. Consequently, it may be possible for ourhighly fragmented. We compete with regional distributors as well as national operators. These competitors to obtain our informationhave substantially greater logistics capacities and to copy, adopt or adapt our methods, services and technical aspects to their own business with no assurance that we will be able to prevent them from using the intellectual property in competition withmore financial resources, as well as more industry relevant experience, than us.

The Company does notdrugstore industry in China is likewise intensely competitive, rapidly evolving and highly fragmented. We compete on the basis of store location, merchandise selection, prices and brand recognition. Many of our competitors include large, national drugstore chains that may have any significant trademarks in use at this time. As our business develops, we will consider the advantage of developing specific trademarks for our productsmore financial resources, stronger brand strength, and servicesmanagement expertise than us. Other competitors include local and have registered those marks with the PRCindependent drugstores and government authorities for trademark protection.

Markets and Customers

The transport of water and fluid energy, such as oil, gas, steam and hot water depends on pipelines. The intelligent flow control device supplied by NF Energy is an important part in the fluid energy transportation systems. According to “one belt and road initiative” , China plans to invest 4 trillion yuan in the next 5 to 10 years into water conservancy projects, the average annual investment is 400 billion yuan, the investment relating to valves is approximately 40 billion yuan per year. Since it was founded in 2006, the Company has supplied its products to many projects of this national water works, including the middle and northern Guangxi Xijiang River Water Diversion Project, Shenzhen Water Supply Project, Shanghai Water Diversion Project, and the 7 urban water supply projects in Liaoning Province, three curved water diversion projects in Dandong, and other major domestic water diversion projects. We have the best industry performance in water supply projects so as to be awarded as “ king of butterfly valve” in water diversion industry. At the same time, we also provide flow control devices and equipment for supercritical thermal power plants and ultra-supercritical coal-fired power plantsoperated pharmacies, as well as domestic hydro power generation market which are dominated byChina's state-owned five big power groups. More than 80% of the Company’s annual revenues come from these marketsdiscount stores, convenience stores, and customers.

In connectionsupermarkets with its work on the water diversion project and some of the power plant projects, the Company has a preferred provider agreement with Nengfa Weiye Tieling Valve Joint Stock Co., Ltd. (“Tieling Valve”) under which Nengfa Energy is the preferred provider of the valvesrespect to sundry and other related flow control equipmentnon-medicinal products that Tieling Valve requires in its own work on the water diversion project. The agreement is in the manner of a right of first refusal whereby Tieling Valve is obliged to offer supply opportunities to Nengfa Energy within its scope of product offerings and expertise, but Tieling Valve is not prohibited from developing other supply arrangements. Tieling Valve and Nengfa Energy have agreed to cooperate to develop and market their respective technologies, equipment, products and services for their respective and mutual benefit, and will work together to examine and expand their respective businesses. Under the agreement, each party retains full right to their respective intellectual property. The agreement terminates in 2021, but by its terms will automatically extend for additional one year terms unless notice of termination is given by one party to the other at least six months prior to the then termination date.we carry

The Company will focus its marketingplans to the wind power generation and the boiler/furnace industry through participation in and addressing government organizations and industry associations related to energy conservation and emission reduction. Marketing will also focus on equipment suppliers and end-users such as the larger and medium sized high energy consumption enterprises that provide or use the kinds of products and services that the Company currently offers or plans to offer. The focus will not only be to sell the products and services, but also to learn of the customer’s needs so that the Company can develop and adapt its products and services to the needs of its customer base. Another important aspect of the marketing strategy will be to participate directlyon-line initiated sales in the consulting and reconstruction services of energy conservation projects organized by government agencies. Nevertheless, the Company plans to continue to participate in the bidding process for government projects, in an effort to enhance its market position.

The Company’s marketing and sales strategy also reliesfuture based on the use of exclusive agents throughout China who act as marketing agentsapps and after sale service providers. The Company currently has 23 exclusive distributing agents national wide. At certain times each year, the Company providesexpect to compete against famous state-owned pharmacies and organizes training sessions for these agents and their personnel. These sessions provide the Company with a valuable opportunity to gather feedback and to foster an exchange of technical ideas. These agents have agreements with the Company to sell NF flow control equipment and systems. The Company evaluates the performance of these exclusive agents annually, based on how well they achieve the annual sales target established by the Company. The Company typically will terminate its agreement with those agents that miss the sales targets for two consecutive years without good reasons.internet giants.

Raw MaterialsResearch and Development

The major raw materialsCurrently our research and development efforts by our 10-person research and development group are focused on developing mobile APPs (a computer program or software application designed to run on a mobile device such as a phone, tablet or watch) for our production are stainless steel, steelhealthcare service platform. We plan to expand the functionality of the current mobile APP used by our customers. In the future, we plan to devote more resources to research and copper, rubber parts. development and plans to acquire businesses with research and development capabilities.

Regulatory Compliance

Pharmaceutical and Ancillary Regulation

We sourcestarted to operate in and be subject to regulations in the pharmaceutical industry upon completion of the acquisition of Boqi Zhengji in October 2019. According to the “Administrative Measures for Pharmaceutical Business Licenses” and other relevant regulations in China, we need to obtain qualification certificates the operations of our materials locallyCompany, including all of our subsidiaries and pharmacy stores in China. Nengfa Energy is located in Liaoning Province which is China’s largest production baseThe qualification certificates mainly include the “Quality Management Certificate for ironPharmaceutical Administration” (GSP Certificate) and steel. Wethe “Pharmaceutical Business License”. “Food Business License”, “Medical Device Business License”, “Medical Agency Practice License”, etc.

Our pharmacy stores have stable long term supply arrangements for our principal raw material suppliers based on long standing business relationships. Since we are located close toall obtained the supplies of many“Pharmaceutical Business License” and the “Pharmaceutical Management Quality Management Certificate”. At the same time, all of our essential raw materials, we enjoy pricedirectly owned stores have obtained the “Internet Drug Information Service Qualification Certificate” and transportation cost advantages over our competitors and competing users. Through our advanced technology and our management of raw materials, we are able to manage and improve our consumption rates of the raw materials we use in production, which results in lower operating expense and extension of our inventories.

Regulatory Compliance

The Company’s products“Medical Device Network Sales Record”. These business qualifications are subject to regulatory standardsannual renewal.

A distributor of pharmaceutical products must obtain a distribution permit from the relevant provincial or designated municipal- or county level SFDA. The grant of such permit is subject to an inspection of the distributor’s facilities, warehouses, hygienic environment, quality control systems, personnel, and enforcement codes which typically requireequipment. The distribution permit is valid for five (5) years, and the holder must apply for renewal of the permit within six (6) months prior to its expiration. In addition, a pharmaceutical product distributor needs to obtain a business license from the relevant administration for industry and commerce prior to commencing its business. All of our consolidated entities that engage in the retail pharmaceutical business have obtained necessary pharmaceutical distribution permits, and we do not expect to face any difficulties in renewing these permits and/or certifications.

In addition, under the Supervision and Administration Rules on Pharmaceutical Product Distribution, promulgated by the SFDA on January 31, 2007, and effective May 1, 2007, a pharmaceutical product distributor is responsible for its procurement and sales activities and is liable for the actions of its employees or agents in connection with their conduct of distribution on behalf of the distributor. A retail distributor of pharmaceutical products meet stringent performance criteria. Standards are establishedis not allowed to sell prescription pharmaceutical products or Tier A OTC pharmaceutical products listed in the national or provincial medical insurance catalogs without a valid prescription or the presence of a certified in-store pharmacist. See “Reimbursement under the National Medical Insurance Program.”

A distributor of pharmaceutical products must obtain a distribution permit from the relevant provincial or designated municipal- or county level SFDA. The grant of such permit is subject to an inspection of the distributor’s facilities, warehouses, hygienic environment, quality control systems, personnel, and equipment. The distribution permit is valid for five (5) years, and the holder must apply for renewal of the permit within six (6) months prior to its expiration. In addition, a pharmaceutical product distributor needs to obtain a business license from the relevant administration for industry and commerce prior to commencing its business. All of our consolidated entities that engage in the retail pharmaceutical business have obtained necessary pharmaceutical distribution permits, and we do not expect to face any difficulties in renewing these permits and/or certifications.

In addition, under the Supervision and Administration Rules on Pharmaceutical Product Distribution, promulgated by industry testingthe SFDA on January 31, 2007, and certification organizations such aseffective May 1, 2007, a pharmaceutical product distributor is responsible for its procurement and sales activities and is liable for the Ministryactions of its employees or agents in connection with their conduct of distribution on behalf of the distributor. A retail distributor of pharmaceutical products is not allowed to sell prescription pharmaceutical products or Tier A OTC pharmaceutical products listed in the national or provincial medical insurance catalogs without a valid prescription or the presence of a certified in-store pharmacist. See “Reimbursement under the National Medical Insurance Program.”

A distributor of nutritional supplements and other food products must obtain a food circulation permit from its local Administration of Industry and Information TechnologyCommerce. The grant of such permit is subject to an inspection of the distributor’s facilities, warehouses, hygienic environment, quality control systems, personnel, and equipment. The food circulation permit is valid for three (3) years, and the holder must apply for renewal of the certificate within thirty (30) days prior to its expiration. Guanzan Group has been received this permit for its operation.

GSP standards regulate wholesale and retail pharmaceutical product distributors to ensure the quality of distribution of pharmaceutical products in China. All wholesale and retail pharmaceutical product distributors are required to apply for GSP certification within thirty (30) days after obtaining drug distribution permits. The current applicable GSP standards require pharmaceutical product distributors to implement strict controls on the distribution of pharmaceutical products, including standards regarding staff qualifications, distribution premises, warehouses, inspection equipment and facilities, management, and quality control. Specifically, the warehouse must be able to store the pharmaceutical products at various required temperatures and humidity, and handle transport, warehouse entries, delivery, and billing by computerized logistics management systems. The GSP certificate is usually valid for five (5) years. Currently, Guanzan Group is a GSP certified company.

Under the Rules on Administration of Prescriptions promulgated by the SFDA, effective May 1, 2007, doctors are required to include the chemical ingredients of the medicine they prescribe in their prescription and are not allowed to include brand names in their prescription. This regulation is designed to provide consumers with choices among different pharmaceutical products that contain the same chemical ingredients.

Eligible participants in the national medical insurance program, consisting primarily of urban residents, are entitled to purchase medicine when presenting their medical insurance cards in an authorized pharmacy, provided that the medicine they purchase has been included in the national or provincial medical insurance catalogs. Depending on relevant local regulations, authorized pharmacies can either (i) sell medicine on credit and obtain reimbursement from relevant government social security bureaus on a monthly basis, or (ii) receive payments from the participants at the time of their purchases, and the participants in turn obtain reimbursement from relevant government social security bureaus.

Medications included in the national and provincial medical insurance catalogs are divided into two (2) tiers. Purchases of Tier A pharmaceutical products are generally fully reimbursable, except that certain Tier A pharmaceutical products are only reimbursable to the extent the medications are used specifically for the purposes stated in the medical insurance catalogs. Purchasers of Tier B pharmaceutical products, which are generally more expensive than those in Tier A, are required to make a certain percentage of co-payments, with the remaining amount being reimbursable. The percentage of reimbursement for Tier B OTC products varies in different regions in the PRC. Factors that affect the inclusion of medicine in the medical insurance catalogs include whether the medicine is consumed in large volumes and commonly prescribed for clinical use in China and whether it is considered to be important in meeting the basic healthcare needs of the general public.

China’s Ministry of Labor and Social Security, together with other government authorities, has the power to determine which medicines are included in the national medical insurance catalog every two (2) years, under which of the two (2) tiers the included medicine falls, and whether an included medicine should be removed from the catalog.

Under the Advertising Law of the PRC, the contents of an advertisement must be true, lawful, without falsehood, and must neither deceive nor mislead consumers. Accordingly, advertisement must be examined by the competent authority prior to its publication or broadcast through any form of media. In addition, advertisement of pharmaceutical products may only be based on a drug’s approved indication of use statement, and may not contain any assurance of a product’s efficiency, treatment efficiency, curative rate, or any other information prohibited by law. Advertisement for certain drugs should include an admonishment to seek a doctor’s advice before purchasing and application. Advertising is prohibited for certain drugs such as anesthetics and psychotropic drugs.

To further prevent misleading advertising of pharmaceutical products, the SAIC and the SFDA jointly promulgated the Standards for Examination and Publication of Advertisements of Pharmaceutical Products and Measures for Examination of Advertisement of Pharmaceutical Products in March 2007. Under these regulations, an approval must be obtained from the provincial level of food and drug administration before a pharmaceutical product may be advertised. In addition, once approved, an advertisement’s content may not be altered without further approval. Such approval, once obtained, is valid for one (1) year.

General Regulations

Because our business is situated within the PRC, our operations are subject to regulations imposed by both the PRC and local governments. These include:

Regulations on Annual Inspection. In accordance with relevant PRC laws, all types of enterprises incorporated under PRC laws are required to conduct annual inspections with the State Administration for Industry and Commerce of the PRC or its local branches. In addition, foreign invested enterprises are subject to annual inspections conducted by other applicable PRC governmental authorities. In order to reduce enterprises’ burden of submitting inspection documentation to different governmental authorities, the Measures on Implementing Joint Annual Inspection on Foreign-invested Enterprises issued in 1998 by State Administration of Foreign Exchange (“SAFE”), together with six other ministries, stipulated that foreign-invested enterprises must participate in an annual inspection jointly conducted by all relevant PRC governmental authorities.

Regulations on Foreign Currency Exchange. Pursuant to the Foreign Currency Administration Rules promulgated in 1996 and amended in 2008 and various regulations issued by the State Administration of Industry and Commerce (“SAIC”) and the SAFE and other relevant PRC governmental authorities, Renminbi are freely convertible only to the extent of current account items, such as trade related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, require prior approval from SAFE or its local counterpart for conversion of Renminbi into a foreign currency, such as US dollars, and remittance of the foreign currency outside the PRC.

Payments for transactions that take place within the PRC must be made in Renminbi. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local counterpart. Unless otherwise approved, domestic enterprises must convert all of their foreign currency receipts into Renminbi. On August 29, 2008, SAFE promulgated a circular regulating the conversion by a foreign-invested company of its registered capital in foreign currency into Renminbi by restricting how the converted Renminbi may be used. This circular stipulates that the registered capital of a foreign-invested company settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within China. Violations of this circular can result in severe penalties, including monetary fines.

In addition, any foreign loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its approved total investment amount and its approved “registered capital amount”.

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions. In October 2005, SAFE issued Circular 75, which regulates foreign exchange matters in relation to the use of a “special purpose vehicle” by PRC residents to seek offshore equity financing and conduct “return investment” in China. Under Circular 75, a “special purpose vehicle” refers to an offshore entity established or controlled, directly or indirectly, by PRC citizens or PRC entities (collectively, as PRC residents) for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents or PRC entities in onshore companies, while “round trip investment” refers to the direct investment in China by PRC residents through the use of “special purpose vehicles,” including without limitation, establishing foreign invested enterprises and using such foreign invested enterprises to purchase or control (by way of contractual arrangements) onshore assets. Circular 75 requires that, before establishing or controlling a “special purpose vehicle,” PRC residents are required to complete foreign exchange registration with the competent local counterparts of SAFE for their overseas investments. In addition, such PRC resident is required to amend his or her SAFE registration or to file with SAFE or its competent local branch, with respect to that offshore special purpose vehicle in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China by the offshore special purpose vehicle. To further clarify the implementation of such amendment or filing procedure, SAFE requires domestic enterprises under Circular 75 to coordinate and supervise such amendment or filings with SAFE or its local counterparts by such PRC residents. If PRC residents fail to comply, the domestic enterprises are required to report to the local SAFE authorities.

Failure to comply with the registration procedures set forth in Circular 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including being prohibited from distributing its profits and proceeds from any reduction in capital, share transfer or liquidation to its offshore parent or affiliate, and restrictions on the ability to contribute additional capital from the offshore entity to the PRC entities, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

Regulation of Overseas Listings. On August 8, 2006, The Ministry of Commerce of the People’s Republic of China the American Society of Mechanical Engineers (A.S.M.E.(“MOFCOM”), China Securities Regulatory Commission (the “CSRC”), the Canadian Standards Association (C.S.A.State-owned Assets Supervision and Administration Commission, State Administration of Taxation (the “SAT”), the Japanese Standards Association (J.S.A.SAIC and SAFE jointly promulgated the “Rules on the Mergers and Acquisition of Domestic Enterprises by Foreign Investors,” which became effective on September 8, 2006, and was further amended on June 22, 2009, or the M&A Rules. Among other things, the M&A Rules include provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, the application of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement to various types of transactions, including those which involve the use of variable interest entity agreements.

Regulations of Dividend Distribution. Under current applicable laws and regulations, each of our consolidated PRC entities may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our consolidated PRC entities is required to deposit at least ten percent (10%) of its after-tax profit based on PRC accounting standards each year into its statutory surplus reserve fund until the accumulative amount of such reserve reaches fifty percent (50%) of its registered capital. These reserves are not distributable as cash dividends.

Regulations Relating to Taxation. The PRC Enterprise Income Tax Law applies a 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except to the extent tax incentives are granted to special industries and projects. Under the PRC Enterprise Income Tax Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008 and payable to its foreign investor may be subject to a withholding tax rate of 10% if the PRC tax authorities determine that the foreign investor is a non-resident enterprise, unless there is a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.

Under the PRC Enterprise Income Tax Law, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. A circular issued by the State Administration of Taxation in April 2009 regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese enterprise groups and established outside of China as “resident enterprises” clarified that dividends and other income paid by such PRC “resident enterprises” will be considered PRC-source income and subject to PRC withholding tax, currently at a rate of 10%, when paid to non-PRC enterprise shareholders. This circular also subjects such PRC “resident enterprises” to various reporting requirements with the International AssociationPRC tax authorities.

Under the implementation regulations to the PRC Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of Plumbingan enterprise. In addition, the tax circular mentioned above specifies that certain PRC invested overseas enterprises controlled by a Chinese enterprise or a Chinese enterprise group in the PRC will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and Mechanical Officials (I.A.P.M.O.), Factory Mutual (F.M.),departments that are responsible for daily production, operation and Underwriters Laboratory (U.L.). These standardsmanagement; financial and personnel decision making bodies; key properties, accounting books, the company seal, and minutes of board meetings and shareholders’ meetings; and 50% or more of the senior management or directors having voting rights.

Seasonality

Our management believes that our operations are incorporated into state and municipal plumbing and heating, building and fire protection codes in China.not currently subject to seasonal influences.

Employees

We maintain stringent quality controlconsider our employees the most valuable asset of our company. We offer competitive compensation and testing procedures atcomprehensive benefits to attract and retain our manufacturing facilityemployees. We believe that an engaged workforce is key to maintaining our ability to innovate. We invest in orderour employees’ career growth and development is an important focus for us. We are committed to manufacture productsproviding a safe work environment for our employees in compliance with code requirements. Our production management is certified to conformapplicable regulations. We have taken necessary precautions in response to the ISO 9001 standards by the Det Norske Veritas Management System.

Competition

The Company holds a leading positionrecent COVID-19 outbreak, including offering employees flexibility to work from home and mandatory social distancing requirements in the super diameter energy efficient flow control system market in China. The Company has an extensive competitive advantage over Chinese domestic manufactures in this field. Other manufactures that are focusing on the development of different and smaller valve products may enter this field. Our major potential competitor in this field is China Valve Technology.

In the other areas of the Company’s business, there are many different competitors with differing focuses and strengths. To some extent, boilers and furnaces are specialized to particular industries and output requirements. This specialization engenders specialization in the design, manufacture and installation of new equipment and retrofit solutions. Therefore, there are many engineering and manufacturing companies that focus on certain types of boilers and furnaces resulting in a relatively fragmented market for these services. The same is true for the retrofit and reconstruction of other industrial systems for improved energy efficiency, as well as for the localized projects for energy conservation and biomass utilization, and similar projects. Therefore, the competition that the Company faces tends to be localized companies with no dominant players at this time.

The utilization of gasified biomass energy is matured in China. Although the technology is widely used in China, it is still at a stage of individual household build gas digesters, rather with a large scale piped gas supply system. The county-city level gas supply project the Company concentrates on will generate a local area monopoly business operation. There is no direct competition in short term.

We plan to compete based on our ability to address a wide spectrum of solutions in our various market areas. We believe our competitive advantages result from our patented technologies, our strategic relationships with engineering companies, our marketing and our business relationships. We plan to continue to expand these aspects of our business to further grow our core businesses and provide solutions for the energy savings and green energy projects. We intend to participate actively in the government sponsored projects and government contracting.

Research and Development

The research and development expenses are to develop new products or new production technologies. The research and development expenses include the materials and labor costs, application fees for patents and significant improvements to existing products. We incurred $73,238 and $96,572 of research and development expenses in 2017 and 2016, respectively.

Employeesworkplace.

As of December 31, 2017, there were 2202020, we had a total of 222 full-time employees including 31 technical staff working in our subsidiaries locatedChina, including 60 employees working in China.the IT department, of which 10 are engaged in R&D, 25 employees working in retail pharmacies and 127 employees are engaged in distribution of medical devices and pharmaceuticals. The remaining 10 employees are engaged in management or administrative functions. We believe we have a good relationship with our employees.

OthersRecent Acquisitions

In evaluating potential expansion projects, our management looks for new markets that have large, affluent populations with enormous demand for healthcare services and growing economies. Our internet website address is http://www.nfenergy.com. Through our website, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, proxy statement and registration statements, and allimmediate hospital acquisitions pave the road for further development of our insider Section 16 reports,healthcare network. We believe that our best immediate growth opportunity is in broadening our network and increasing services offered in our existing geographies.

Guoyitang and Zhongshan were acquired during February 2021 as soon as reasonably practicable after such materialpart our plan to establish a more comprehensive healthcare platform, promote innovative internet healthcare services and to create a regional healthcare partnership.

Founded in 2015, Guoyitang was our first hospital acquisition in 2021. As of the date of acquisition, this hospital has a gross floor area of approximately 4000 square meters. It has 50 hospital beds, 2 surgical rooms, 6 treatment rooms and one of each ECG room, transcranial Doppler (TCD) room, color Doppler room, B ultrasound room, radiology department and laboratory. It is electronically filedequipped with or furnishedadvanced medical devices and has clinical departments, including gynecology, hepatology, gastroenterology, thyroid, oncology, rehabilitation, calculus, physiotherapy, infantile massage, internal medicine, laboratory testing, radiology and anesthesiology. As of February 28, 2020, Guoyitang had 98 employees, including 14 doctors, 28 nurses, 43 other medical staff and 13 non-medical staff. 

Founded in 2005, Zhongshan was our second hospital acquisition in 2021. As of the date of acquisition, this hospital has a gross floor area of approximately 12,000 square meters. It has 160 hospital beds (of which 110 beds are currently in use), 6 surgical rooms, 8 treatment rooms, 2 examination rooms, an ECG room and a color Doppler room. It is equipped with advanced medical devices and has clinical departments, including orthopedics, internal medicine, gynecology, otolaryngologist, dermatology, Traditional Chinese Medicine (TCM), a physical examination center, extracorporeal shock wave lithotripsy center, laboratory testing, radiology and anesthesiology. As of February 28, 2020, Zhongshan had 95 employees, including 20 doctors, 48 nurses, 10 other medical staff and 17 non-medical staff.

We plan to form partnerships with hospitals with regional reputation and emerging medical services facilities, with the goal of making quality medical care more accessible to the Securitieswider public, especially in less-developed areas, to provide health management and Exchange Commission, or SEC. These SEC reports can be accessed through the “Investors” section of our website.healthcare services for both urban and rural residents alike in a more inclusive and coherent manner.

ITEM 1A. RISK FACTORS

InvestorsInvesting in our shares of common stock involves a high degree of risk and uncertainty. You should carefully consider the following risk factors, in additionrisks and uncertainties described below before investing. Our business, prospects, financial condition and results of operations could be adversely affected due to other information included in this annual report, in evaluating NF Energy Saving Corporation and our business. If any of the following risks occur,risks. In that case, the value of our business, financial conditionordinary shares could decline, and operating resultsyou could be materially adversely affected.lose all or part of your investment. These risk factors include, but are not limited to:

Risks Related to Our Business

There are doubts about our company’s ability to continue as a going concern.

Our company’s independent auditors have raised doubts about our ability to continue as a going concern. There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources, such as securities, debt or equity financing or other potential sources. We intend to overcome the circumstances that impact our ability to remain a going concern through a combination of new sources of revenues, with interim cash flow deficiencies being addressed through additional financing. We anticipate raising additional funds through public or private financing, securities financing and/or strategic relationships or other arrangements in the near future to support our business operations; however, we may not have commitments from third parties for a sufficient amount of additional capital. We cannot be certain that any such financing will be available to us on acceptable terms, or at all, and our failure to raise capital when needed could limit our ability to continue our operations. Our ability to obtain additional funding will determine if we can continue as a going concern. Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect on our financial performance, results of operations and share price and require us to curtail or cease operations, sell off assets, seek protection from creditors through bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the holders of our shares, and debt financing, if available, may have onerous terms. including restrictive covenants. Any additional financing could have a negative effect on our shareholders.

We are in the early stages of development of our healthcare business and have limited operating history on which you can base an investment decision.

We were formed in 2006, but recently changed our business focus. We are now focused on growing our healthcare business. As a result, we may encounter many expenses, delays, problems, and difficulties that we have not anticipated and for which we have not planned. There can be no assurance that at this time we will successfully develop or acquire a significant customer base, operate profitably, or that we will have adequate working capital to fund our operations or meet our obligations as they become due.

Our recently acquired operations are subject to all of the risks inherent in the initial expenses, challenges, complications, and delays frequently encountered in connection with the formation of any new business. Investors should evaluate an investment in our company in light of the problems and uncertainties frequently encountered by companies attempting to develop new markets. Despite best efforts, we may never overcome these obstacles to achieve financial success. Our business is speculative and dependent upon the implementation of our business plan, as well as our ability to successfully acquire businesses on terms that will be commercially viable for us. There can be no assurance that our efforts will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that our investors will not lose their entire investment.

We may encounter difficulties in realizing the potential financial or strategic benefits of recent business acquisitions. We expect to make additional acquisitions in the future that could disrupt our operations and harm our operating results.

A significant part of our business strategy is to pursue acquisitions and other initiatives to spot market opportunities and to expand our healthcare business. On October 14, 2019, we acquired Boqi Zhengji which operates a pharmacy chain business in the PRC. On March 18, 2020, we acquired Guanzan, a medical devices and pharmaceuticals distribution business based in Chongqing, the largest city in the Southwest region of the PRC. On February 2, 2020, we acquired Chongqing Guoyitang Hospital, a private hospital in Chongqing. On February 5, 2020, we acquired Chaohu Zhongshan Minimally Invasive Hospital Co., Ltd, a private hospital in the city of Chaohu, PRC.

Our acquisition of Boqi Zhengji was not successful and we divested this activity in 2020. No assurance can be given that our recent or future acquisitions will be successful and will not adversely affect our business, operating results, or financial condition. In the future, we may seek to acquire or make strategic investments in complementary businesses, technologies, services or products, or enter into strategic partnerships or alliances with third parties in order to expand our business. Failure to manage and successfully integrate such acquisitions could materially harm our business and operating results. We do not have significant experience in assessing the outcome of our recent acquisitions. Even when an acquired business has previously operated successfully, there can be no assurance that our pre-acquisition due diligence will have identified all possible issues that might arise with respect to such businesses. If we acquire other businesses, we may face difficulties, including:

The recent COVID-19 pandemic had a material adverse effect on our business operations, results of operations, cash flows and financial position.

During late 2019, a virus now known as the novel coronavirus or “COVID-19” appeared in Wuhan, the Peoples Republic of China (“PRC” or “China”). By March 11, 2020, the World Health Organization (“WHO”) labeled COVID-19 as a pandemic and many countries around the world began closing borders and making efforts to either shelter-in-place or quarantine its population. During the first quarter of 2020, China placed a mandatory quarantine on certain areas, specifically in Wuhan located in Hubei Province, which lasted for more than two months.

Our company and all of its operations are located in China. Since the pandemic broke out, our operations have been materially impacted. At the beginning of February 2020, the PRC government issued a quarantine order, which lasted for more than two months in many parts of the country, where everyone had to stay at home. During February and March, all of our administrative functions had to be performed remotely. Not until the beginning of April did we start to have a small skeleton crew working in our office and were able to perform those functions that could not be handled remotely. 

We have incurred additional costs to ensure we meet the needs of our customers, including providing additional cleaning materials for our stores and other facilities. COVID-19 has also caused supply chain disruption which has resulted in higher supply chain costs to replenish inventory in our stores and distribution centers. Furthermore, we have experienced restricted stock availability in a number of key categories which negatively impacted us. Certain popular and high profit margin products could not be sold due to governmental restrictive orders, which also resulted in the expiration of a large quantify of our medicines that are otherwise in high demand in the winter season. The customer traffic in our retail pharmacy stores in Dalian dropped greatly due to the pandemic. Because of the lockdown order that lasted for more than two months, we suffered reduced sales and an operating loss in the first three quarters in 2020. Although some of the businesses in China have resumed their daily activities while the pandemic is under control, there have been relapses in certain regions of the country which caused temporary lockdowns. If similar lockdown orders or sales restrictions are implemented by the government, they may have greater impact on our business.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers, employees, suppliers, vendors, business partners and distribution channels. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which will adversely affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position. In addition to volatility in consumer demand and buying habits, we may restrict the operations of our stores or distribution facilities if we deem it necessary or if recommended or mandated by governmental authorities which would have a further adverse impact on us.

The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the severity of the virus; the duration of the outbreak; governmental, business and other actions (which could include limitations on our operations or mandates to provide products or services); the promotion of social distancing and the adoption of shelter-in-place orders affecting foot traffic in stores; the impacts on our supply chain; the impact of the pandemic on economic activity; the extent and duration of the effect on consumer confidence and spending, customer demand and buying patterns including spend on discretionary categories; the health of and the effect on our workforce and our ability to meet staffing needs in our stores, hospitals, wholesale operations and other critical functions, particularly if members of our work force are quarantined as a result of exposure; any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls including those over financial reporting as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our team members and business partners, among others. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.

China has slowly begun to relax some quarantine measures and allowed some businesses to operate again. We cannot make any assurances that COVID-19 will not reappear with new infections and to the extent that COVID-19, or another virus appears, we may encounter prolonged operational lockdown measures which would disrupt our business operations.

We have a substantial amount of existing debt, which may restrict our financing and operating flexibility and have other adverse consequences; defaults could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In order to fund our operations and recent acquisitions we have incurred a net losssubstantial amount of indebtedness. Our significant level of debt could have important consequences, including, but not limited to, the following:

Although we believe we will be able to continue to service and repay our debt, there is no assurance that we will be able to do so. If our plans for future operations do not generate sufficient cash flows and earnings, our ability to make required payments on our debt would be impaired. If we fail to pay our indebtedness when due, it could have a material adverse effect on us and may require us to curtail or cease operations, sell off assets, seek protection from creditors through bankruptcy proceedings, or otherwise.

We have had a history of losses and our ability to grow sales and achieve profitability are unpredictable.

As of December 31, 2020, we had an accumulated deficit of $12.9 million and incurred operating losses of approximately $3,812,281 and $985,974, in each of the past two years ended December 31, 2020 and there are no assurances that such losses may not continue.

We incurred a net loss of $1,578,415 for 2017 and $1,817,579 for 2016.2019, respectively. Our ability to generate net incomemaintain and improve future levels of sales and profitability depends on many factors, which include:

There can be no assurance that we will be able to successfully implement our business plan, meet our challenges and become profitable in the future.

Our business, results of operations, and cash flows could be adversely affected by legal proceedings.

We conduct our operations through a variety of businesses, including the distribution of pharmaceuticals, the dispensing of healthcare products and since February 2021, the operation of private hospitals. Each of our businesses may cause us to become involved in legal disputes or proceedings involving employment, malpractice, product liability, environmental and various other claims. Litigation is dependent upon generating sufficient revenues. If we are unablecostly, time-consuming, and disruptive to generate sufficient revenues,ordinary business operations. The defense and resolution of such proceedings could have a material adverse effect on our results of operations and financial condition may becondition. Any settlement, judgment or fine could materially adversely affected.

We are subject to the risksaffect our results of any growing enterprise, any one of which could limit our growth and our product and market development.operations.

Our operating history makes it difficultThe markets in which we now operate are very competitive and further increases in competition could adversely affect us.

In the Chinese pharmaceutical wholesale sector, wholesalers without affiliated manufacturers have inherent risks which include lack of control over product availability. We are at a significant disadvantage in comparison to predict how our businesses will developother wholesalers that are also manufacturers. Also, this sector is heavily regulated industry where government exercises strong controls. Any comparative advantages we may have could be lost because of changes in laws or government policies.

We face intense competition with local, regional and wherenational companies, including other drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, dollar stores and internet pharmacies. Competition from on-line retailers has significantly increased during the Company will find success. This is especially true in respectpast few years. The ability of our expansion into areas other than flow valve technologystores to achieve profitability depends on their ability to achieve a critical mass of loyal, repeat customers.

Some of our competitors have or may merge with or acquire pharmaceutical services companies, and their design, sales and installation. Accordingly, we face all of the risks and uncertainties encountered by companies in similar stages of development, such as: (i) uncertain and continued market acceptance for our product extensions and our services; (ii) the evolving nature of the wind energy equipment industry in the PRC, where significant consolidation may occur, leading to the formation ofhealth insurance companies, which may further increase competition. We may not be better able to effectively compete with us than is currently the case; (iii) the fragmented nature of the boiler and furnace business which may limit our ability to penetrate the market and provide comprehensive solutions on a sufficiently wide basis to make the business profitable; (iv) changing competitive conditions, technological advances or customer preferences could adversely affect the salesagainst some of our products or services; (v) maintaining our competitive positioncompetitors in the PRCretail pharmacy sector because they have financial and competing with Chinese and international companies, many of which have longer operating histories and greater financialother resources than us; (vi) continuingthat are superior to offer commercially successful products to attract and retainours. Further, we may be at a larger base of direct customers and ultimate users; (vii) maintaining effective control of our costs and expenses; and (viii) retaining our management and skilled technical staff and recruiting additional key employees.

Ifcompetitive disadvantage because we are not able to meet the challenges of buildingmore highly leveraged than our businesses and managing our growth, the likely result will be slower growth, lower margins, additional operational costs and lower income.

competitors. We may be unable to generate sufficient cash flow from operations or obtain financing in the future to support our operations and expansion.

Having access to sufficient operating funds and capital funds for expansion will affect our ability to execute our business plan. We finance our business mainly through internally generated funds, short-term bank loans and, from time to time, selling equity securities to raise additional capital. There is no guarantee that we will always have internal funds available for our future development orcannot assure you that we will be able to raise capital from investor financingeffectively compete in our markets or increase our sales volume in response to further increased competition, or that any of our competitors are not in a better position to absorb the impact of COVID-19.

Our newly acquired hospitals compete for larger and loans granted by investorsmore established state-owned and financial institutions in the future. In addition, there may be delays in the process of selling our securities, which may require us to cut back on our operations or expansion activities. Our access to debt or equity financing depends on the investors’ and banks’ willingness to lend to and invest in us, our financial condition and on general conditions in the capital markets.private hospitals. We may not be able to secure additional sources effectively compete against these hospitals because they have financial and other resources that are superior to ours and may be able to more easily attract new patients.

Consolidation in the healthcare industry could adversely affect our business, financial condition and resultsof financingoperations.

Many organizations in the healthcare industry have consolidated to create larger healthcare enterprises with greater market power, which has contributed to continued pricing pressures. If this consolidation trend continues, it could give the resulting enterprises even greater bargaining power, which may lead to further pressure on the prices for our products and services and/or reduce our access to customers. If these pressures result in reductions in our prices and/or reduce our access to customers, our business will become less profitable unless we are able to achieve corresponding reductions in costs or develop profitable new revenue streams. We expect that market demand, government regulation, third-party reimbursement policies, government contracting requirements, and societal pressures will continue to cause the healthcare industry to evolve, potentially resulting in further business consolidations and alliances among the industry participants we engage with, which may adversely impact our business, financial condition and results of operations. In addition, our new strategy also includes selective acquisition opportunities and we cannot assure you that we will be able to consummate any such transactions on commercially acceptablereasonable terms, if at all. Any shortfall in

Raising additional capital will be difficult and may cause dilution to our shareholders and restrict our operations.

We expect to finance our cash flowneeds for our working capital and capital needs may result in our having to curtail our business plans or have an adverse effect on our financial condition.

We believe that we need to raise additional capital for the expansionary elementspayment of the cash portion of our business plan, which financing may not be available or available on terms favorablerecent acquisitions. Although we have been able to us.

During the next phase of our business development, as we complete Phase II of our new manufacturing facility and continue our planned expansion into manufacture of energy-saving equipment and other aspects of the energy savings industry, including steam energy, we believe that we will need to raise additional capitalobtain funding from outside sources duringin the nextlast year, or two. Wewe cannot be certain that we will be able to continue to do so or to obtain additional financing on favorable terms, if at all.terms. One possible impediment to raising capital is the tightening credit policies of the Chinese banks and the continued effectsprospects of tightening in the global credit markets. If we cannot raise additional capital on acceptable terms, we may not be able to develop or enhanceoperate our products or services,business, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. We cannot be sure that we will be able to secure all the financing we will require, or that it will be available on favorable terms. If we are unable to obtain any necessary additional financing, we will be required to substantially curtail our approach to implementing our business objectives. Additional financing may be debt,

To the extent that we raise additional capital through the sale of equity or a combinationconvertible debt, our shareholders’ ownership interest will be diluted, and the terms of debt and equity. If equity is used, it could result in significant dilution to our shareholders.

Efforts to protect our intellectual property rights and to defend against claims against us can increase our costs and will not always succeed. Any failures couldsuch securities may include liquidation or other preferences that adversely affect our salesshareholder rights. Debt financing and results of operationsequity financing, if available, may involve agreements that include covenants limiting or restrictrestricting our ability to conduct our business.take specific actions, such as incurring additional debt, making acquisitions or capital expenditures.

Intellectual property rights are important to many aspectsBreaches of our business. We actively pursue patent protection in our flow valve business, and we expect to pursue intellectual property rights in our other business endeavors as we develop unique solutions to business demands. We, however, may be unable to obtain protection for our intellectual property. Even if protection is obtained, competitors may raise legal challenges to our rightsnetwork or illegally infringe on our rights, including through means that may be difficult to prevent, detect or defend. In addition, because of the rapid pace of technological change and the confidentiality of patent applications in some jurisdictions, competitors may be issued patents from applications that were unknown to us prior to issuance. The patents of others could reduce the value of our commercial or pipeline of products or, to the extent they cover key technologies on which we have unknowingly relied, require that we seek to obtain licenses at a financial cost to us or cease using theinformation technology no matter how valuable the patents may be to our business. We cannot assure you we would be able to obtain such licenses on acceptable terms. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of our and the proprietary rights of others. There is a risk that the outcome of such litigation will not be in our favor. Such litigation may be costly and may divert management attention as well as expend other resources which could otherwise have been devoted to our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover such costs from other parties. The occurrence of any of the foregoing may harm our business, results of operations and financial condition.

Finally, implementation of PRC intellectual property-related laws has historically been limited, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries, which increases the risk that we may not be able to adequately protect our intellectual property.

For aspects of our business we rely on strategic relationships, and there is no assurance that we will be able to renew these arrangements.

We have several strategic relationships which provide us with access to technology and provide us with a competitive advantage. These include the relationships with Shanghai Electric Co., LTD., Sichuan Eastern Electric Co., LTD, Harbin Electric Co., LTD, China Datang Corporation, China Huadian Group, China Huaneng Group and China Guodian Group. There is no guarantee that any of these agreements and arrangements will provide the benefits that we hope will result or that the relationships will be renewed on substantially similar terms or at all. Moreover, there is no assurance that any steps we have already taken or might take in the future will ensure the successful renewal of any or all our rights or the granting of further new rights or that the terms of any renewals would not be significantly less favorable to us than the terms of our current agreements. The loss of such arrangements or diminution of the rights may have an adverse impact on our business development, including product offerings, research and development and competitive position.

We derive a substantial part of our revenues from several major customers, therefore if we lose any of these customers or they reduce the amount of business they do with us in the future, our revenues may be affected

Our largest customer, Nengfa Weiye Tieling Valve Joint Stock Co. Ltd, accounted for 48% of our revenues for the year ended December 31, 2017. These customers may not maintain the same volume of business with us in the future. If we lose any of these customers or they reduce the amount of business they do with us, our revenues may be materially and adversely affected. Although we have a strategic partnership with our largest customer and a preferred provider agreement with our first largest customer until 2021, there can be no assurance that these customers will continue to provide the current level of demand or will not seek to modify or terminate their respective agreements.

Our technology may not satisfy the changing needs of our customers.

With any technology, including the technology of our current and proposed products, there are risks that the technology may not successfully address our customers' needs. Certain of our product offerings in relation to the wind energy equipment will be new for the Company. While we have already established successful relationships with our customers, their needs may change or vary. This may affect the ability of our present or proposed products to address all of our customers' ultimate technology needs in an economically feasible manner.

We may not be able to keep pace with rapid technological changes and competition in our industry.

While we believe that we have hired or engaged personnel and outside consultants who have the experience and ability necessary to keep pace with advances in technology, and while we continue to seek out and develop "next generation" technology through our research and development efforts, there is no guarantee that we will be able to keep pace with technological developments and market demands in this evolving industry and market. In addition, our industry is competitive in various aspects. Although we believe that we have developed strategic relationships to best penetrate the Chinese market, we face competition from other manufacturers of products similar to our products and services. Some of these companies have significant advantages over us with respect to their products, marketing and services, and their financial resources and customer relationships.

We may experience high accounts receivable balances from time to time, which may have an adverse effect on our operating profitability and cash flow and financing needs.

Although we generally have a 90 to 270 day accounts receivable period, if our customers extend the period in which they pay, we will experience a reduced cash flow, whichsecurity could have an adverse effect on our business.

Cyber security risks, such as a significant breach of customer, employee, or company data, could attract a substantial amount of media attention, damage our customer relationships and reputation and result in lost sales, fines or lawsuits. Throughout our operations, we receive, retain and transmit certain personal information that our customers provide to purchase products or services, fill prescriptions, enroll in promotional programs, participate in our customer loyalty programs, register on our websites, or otherwise communicate and interact with us. In addition, aspects of our operations depend upon the secure transmission of confidential information over public networks. Although we deploy a layered approach to address information security threats and vulnerabilities designed to protect confidential information against data security breaches, a compromise of our data security systems or of those of businesses with whom we interact, which results in confidential information being accessed, obtained, damaged or used by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions and claims from customers, financial institutions, payment card associations and other persons, any of which could materially and adversely affect our business operations, financial position and results of operations. In addition, a security breach could require that we expend substantial additional resources related to the security of information systems and disrupt our businesses. While no actual or attempted attacks have had a material impact on our operations or financial condition, we cannot provide any assurance that our operations will not be negatively materially affected by such attacks in the future.

We rely on computer software and hardware systems in managing our operations, the capacity of which may restrict our growth and the failure of which could adversely affect our business, financial condition and results of operations.

We are dependent upon our information management system to monitor daily operations of our retail, wholesale and hospital businesses, and to maintain accurate and up-to-date operating and financial data for the compilation of management information. If our computer software and hardware systems fail to meet the increasing needs of our expanding operations, our ability to fundgrow may be constrained. Furthermore, any system failure which causes interruptions to the input, retrieval and transmission of data or causes lags in service time could disrupt our operationsnormal operations. Although we believe that our computer software and growth. One result may behardware systems are up to date and that our disaster recovery plan is adequate in handling potential failures, we cannot provide assurance that we can effectively carry out this disaster recovery plan and that we will havebe able to obtain outside financingrestore our operation within a sufficiently short time frame to avoid our business being disrupted. Furthermore, our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, vandalism, natural disasters, catastrophic events and human error, and our operating expenses will increase. Extensiondisaster recovery planning cannot account for all eventualities. If any of our computer software and/or hardware systems are damaged, fail to function properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss or corruption of critical data and interruptions or delays in our ability to perform critical functions. Due to the limited coverage of business interruption insurance policies offered in China, we do not carry business interruption insurance and, as a result, any business disruption or natural disaster could severely disrupt our business and operations and, in turn, significantly decrease our revenue and profitability.

If we fail to implement effective internal controls required by the Sarbanes-Oxley Act of 2002, or remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.

Section 404 of the accounts receivable periodSarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual interim financial statement will not be prevented or detected on a timely basis. Due to the Company’s limited resources, we currently do not have accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which could lead to untimely identification and resolution of accounting matters inherent in our financial transactions in accordance with US GAAP.

Any failure to complete our assessment of our internal controls over financial reporting, to remediate any material weaknesses that we may alsoidentify, including the one identified above, or to implement new or improved controls, could harm our operating results, cause us to fail to meet our reporting obligations or result in reduced collections,material misstatements in our financial statements. Inadequate disclosure controls and procedures and internal controls over financial reporting could also cause investors to lose confidence in our public disclosures and reported financial information, which willcould have a negative effect on the trading price of our common stock.

Violations of anti-bribery, anti-corruption and/or international trade laws to which we are subject could have a material adverse effect on our business operations, financial position, and results of operations.

We are subject to laws concerning our business operations and marketing activities in foreign countries where we conduct business. For example, we are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), U.S. export control and trade sanction laws, and similar anti-corruption and international trade laws, any violation of which could create substantial liability for us and also harm our reputation. The FCPA generally prohibits U.S. companies and their officers, directors, employees, and intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business abroad or otherwise obtaining favorable treatment. The FCPA also requires that U.S. public companies maintain books and records that fairly and accurately reflect transactions and maintain an adequate system of internal accounting controls. If we are found to have violated the FCPA, or any other anti-bribery, anti-corruption or international trade laws, we may face sanctions including civil and criminal fines, disgorgement of profits, and suspension or debarment of our ability to contract with governmental agencies or receive export licenses. From time to time, we may face audits or investigations by one or more domestic or foreign governmental agencies relating to our international business activities, compliance with which could be costly and time-consuming, and could divert our management and key personnel from our business operations. An adverse outcome under any such investigation or audit could subject us to fines or other penalties, which could adversely affect our business operations, financial position, and profitability.results of operations.

To the extent that we depend on government projects,Failure to timely identify or effectively respond to changing consumer preferences negatively affect our business is dependent on government policy and, to some extent, government funding and government contracts.

Although we do not characterize our business as a government contractor, some aspects of our business are indirectly dependent on government policy, government funding, and government contracts. For example, the South to North Water Diversion Project is largely a government funded project, andrelationship with our customers are contractors withand the government. Similarly, our energy-saving projects and adjustments ofdemand for our products and services are dependent on the policies issued by the government. As a consequence, it is possible that our requirements based on the products and services to be provided will be diminished resulting in a decrease in our revenue. Much of the pollution control and green industries are dependent on government policy to implement societal improvements. Our business has a number of aspects that are dependent on the government and our products, services and revenues are dependent on policies that can change if the government officials determine to redirect attention and investment to other aspects of society and industrial development.services.

Additionally, as a numberThe success of our businesses depends in part on customer loyalty and superior customer service. Failure to timely identify or effectively respond to changing consumer preferences could negatively affect our relationship with our customers are dependent onand the government for their revenues through the provision of products and services on government contracts or government funded projects, there may be delays in our receiving paymentdemand for our products and services.

Moreover, customer expectations and new technology advances from our competitors have required that our business evolve so that we are able to interface with our customers not only face-to-face but also online and via mobile and social media. If we fail to keep pace with dynamic customer expectations and new technology developments, our ability to compete and maintain customer loyalty could be adversely affected.

Fluctuation in the availability and cost of our raw materials may have an adverse effectOur success depends on our operationsability to establish effective advertising, marketing and results of operations.promotional programs.

A portion of the inventory of raw materialsOur success depends on our ability to establish effective advertising, marketing and parts maypromotional programs. Our pricing strategies and value propositions must be affected by fluctuations in the availability of the items and the price. Such things may include steel, electronic components, power systems, paints and welding rods. We do not generally have long term supply contracts withappropriate for our suppliers, but rely on long standing relationships. To the extent thattarget customers. If we are not able to obtainmaintain and increase the required materialsawareness of our businesses and parts necessary to enable us to fabricate our products, orthe services we are required to pay more for such items, then there could be an adverse effect on our operations and our results of operations.

We may be unable to effectively manage our growth.

As we expand our business into several different areas of energy savings and green industry, we will need to manage our growth effectively, which may entail devising and effectively implementing business plans, training and managing our growing workforce, managing our costs, and implementing adequate control in our reporting systems in a timely manner. We may not be able to successfully manage our growth. Our failure to do so could affect our success in executing our business plan and adversely affect our revenues, profitability and results of operations.

If we fail to successfully manage our planned expansion of operations, our growth prospects will be diminished and our operating expenses could exceed budgeted amounts.

Our ability to offer our products and services in an evolving market and in different markets requires effective planning and management process. This rapid growth places significant demand on our managerial and operational resources and our internal training capabilities. In addition, we plan to increase our total work force. This growth will place a substantial burden on our management team. To manage growth effectively, we must implement and improve our operational, financial and other systems, procedures and controls on a timely basis and expand, train and manage our workforce, particularly our sales and marketing and support organizations. We cannot be certain that our systems, procedures and controls will be adequate to support our current or future operations or that our management will be able to handle such expansion and still achieve the execution necessary to meet our growth expectations. Failure to manage our growth effectively could diminish our growth prospects and could result in lost opportunities as well as operating expenses exceeding the amount budgeted.

If we fail to establish and maintain an effective system of internal control,provide, we may not be able to reportattract and retain customers and our financial results accurately orreputation may also suffer. We expect to prevent fraud. Any inabilityincur substantial expenses in our marketing and promotional efforts to reportboth attract and fileretain customers. However, our financial results accuratelymarketing and timely could harm our business and adversely impact the trading price of our common stock.

We are required to establish and maintain internal controls over financial reporting, disclosure controls, and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC thereunder. Our management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls will prevent all possible errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls mustpromotional activities may be relative to their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occurless successful than we anticipate, and may not be detected.effective at building our brand awareness and customer base. In addition, the government may impose restrictions on how marketing and promotional activities can be conducted. Failure to successfully execute our advertising, marketing and promotional programs may result in material decreases in our revenue and profitability.

Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to our Environmental, Social and Governance, or ESG, policies may impose additional costs on us or expose us to additional risks.

Companies across all industries and around the globe are facing increasing scrutiny relating to their ESG policies. Investors, lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. The increased focus and activism related to ESG may hinder our access to capital, as investors and lenders may reconsider their capital investment allocation as a result of their assessment of our ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition and price our company’s shares could be materially and adversely affected.

Our operations are vulnerablebusiness is subject to natural disasters orthe risks of earthquakes, fire, power outages, floods, health epidemics and other events.catastrophic events and to interruption by manmade problems such as terrorism.

Our operating income may be reduced by natural disasters, in locations where we own and/or operate significant manufacturing facilities or are working on significant projects. Some types of losses, such as from earthquake, severe winter storms and environmental hazards, may be either uninsurable or too expensive to justify insuring against. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in any particular property,operations, as well as any anticipated future revenue fromour customers, are located in areas exposed to risks of natural disasters such property.as earthquakes and tsunamis. A significant natural disaster, such as an earthquake, tsunami, fire or a flood, or other catastrophic event, such as a new pandemic, could have a material adverse effect on our or their business, which could in turn materially affect our financial condition, results of operations and prospects.

Our products may contain defects, which could adversely affect our reputation and cause us to incur significant costs.

Despite numerous testing and quality controls, defects may be found in existing or new products. Any such defects could cause us to incur significant return and exchange costs, re-engineering costs, divert the attention of our engineering personnel from product development efforts, and cause significant customer relations and business reputation problems. Any such defects could force us to undertake a product recall program, which could cause us to incur significant expenses and could harm our reputation and that of our products. If we deliver products with defects, our credibility and the market acceptance and sales of our products could be harmed.

Our business could be subject to environmental liabilities.

Our failure to comply with past, present and future environmental laws could result in fines, penalties, third-party claims, reduced sales of our products, substantial product inventory write-offs and reputational damage, any of which could harm our business, financial condition, results of operations and prospects. We use certain hazardous substancesalso expect that our business will be affected by new environmental laws and regulations on an ongoing basis applicable to us, including our newly acquired hospitals. To date, our expenditures for environmental compliance have not been material. Although we cannot predict the future effect of such laws or regulations, they will likely result in our operations. Currentlyadditional costs or require us to change the way we do not anticipate anyoperate, which could have a material adverse effect on our business, revenues orfinancial condition, results of operations and prospects.

Risks Relating to our Wholesale Operations

Failure to maintain relationships with our customers or to otherwise expand our distribution network would materially and adversely affect our business.

Our wholesale business sells products to drug stores, private clinics, pharmaceutical distributors and hospitals. For the year ended December 31, 2020, our top ten wholesale medical devices and wholesale pharmaceuticals customers accounted 46 % of our wholesale revenues and one customer accounted for 27.21% of sales. In line with industry practices in the PRC, we enter into written sales agreements with our wholesale customers. However, such sales agreements are not in substance equivalent to a typical distribution agreement in the United States. Each sales agreement is more in the form of a sales order and specifies one or several purchases of one or more products without any continuing obligation to make purchases, unless it is a long term agreement. Only about 10% of our wholesale customers are subject to purchase arrangements of one-year or longer terms. Their purchases contributed more than 30% of our wholesale revenues in 2020. In the event distribution customers choose not to continue their relationship with us after completing their existing sales agreements, they can do so without breaching any contract or agreement. Our financial results could be adversely affected if we cannot replace these customers. We compete with large wholesalers, many of whom may have higher visibility, greater name recognition, financial resources, and broader product selection than we do. Consequently, maintaining relationships with existing customers may be difficult and time-consuming.

Our dependence on a limited number of customers may expose us to the risk of substantial losses if a single large customer stops purchasing our products, purchases lower quantities of our products or goes out of business and we are unable to attract new customers to recover such lost revenues. If any of our significant customers reduces the quantity of the products they purchase from us or stops purchasing from us, our net revenue would be materially and adversely affected. Any disruption in our distribution network could negatively affect our ability to effectively sell our products and would materially and adversely affect our business, financial condition and results of operations.

Our wholesale business operates without the support of manufacturing capability and is at a significant disadvantage.

In the Chinese pharmaceutical wholesale sector, wholesalers without affiliated manufacturers have inherent risks which include lack of control over product availability and pricing disadvantages. We are at a significant disadvantage in comparison to other wholesalers that are also manufacturers.

Risks Relating to Our Pharmacy Business

We may be subject to fines and penalties if we fail to comply with the applicable PRC laws and regulations governing sales of medicines under China’s National Medical Insurance Program.

Eligible participants in China’s national medical insurance program, including urban and suburban residents in China, are entitled to buy medicines using their medical insurance cards from an authorized pharmacy, provided that the medicines they purchase have been included in the national or provincial medical insurance catalogs. The pharmacy, in turn, obtains reimbursement from the relevant government social security bureaus. Moreover, the applicable PRC laws, rules and regulations prohibit pharmacies from selling goods other than pre-approved medicines when purchases are made with medical insurance cards. We have established procedures to prohibit our drugstores from selling unauthorized goods to customers who make purchases with medical insurance cards. However, we cannot provide assurance that those procedures will be strictly followed by all of our employees in all of our stores.

Our ability to grow our business may be constrained by our inability to find suitable new store locations at acceptable prices or by the expiration of our current leases.

Our ability to grow our business may be constrained if suitable new store locations cannot be identified with lease terms or purchase prices that are acceptable to us. We compete with other retailers and businesses for suitable locations for our stores. Local land use regulations and other regulations applicable to the kinds of stores we seek to construct may impact our ability to find suitable locations and influence the cost of constructing our stores. The expiration of leases at existing store locations may adversely affect us if the renewal terms of those leases are unacceptable to us and we are forced to close or relocate stores. Furthermore, changing local demographics at existing store locations could materially and adversely affect revenue and profitability levels at those stores, and overall our business, financial condition, results of operation, and prospects.

We may not be able to maintain proper inventory levels for our pharmacy stores.

To ensure adequate inventory supply, we must forecast inventory needs and place orders with our suppliers based on our estimates of future demand for particular products. We may not be able to accurately forecast demand for supplies because of the difficulties of estimating the demand for our products. The volatile economic environment and fast-evolving demands and preferences of our customers have made accurate projection of inventory levels increasingly challenging.

Inventory levels in excess of customer demand may result in inventory obsolescence, a decline in inventory values, inventory write-downs or write-offs, or expiration of products, which would cause our gross margin to suffer and could impair the strength of our brand. High inventory levels may also require us to commit substantial capital resources, preventing us from using them for other important business purposes. Conversely, if we underestimate customer demand or if our suppliers fail to provide supplies to us in a timely manner, we may experience inventory shortages. Such inventory shortages might result in unfilled customer needs, damage to our reputation, and have a negative impact on customer relationships and reduce our sales. We cannot assure you that we will be able to maintain proper inventory levels for our operations and such failure may have an adverse effect on our business, financial condition, results of operations and profitability.

Certain risks are inherent in providing pharmacy services and we do not maintain professional liability and errors and omissions liability insurance.

Pharmacies are exposed to risks inherent in the distribution of pharmaceuticals and other healthcare products, such as with respect to improper filling of prescriptions, labeling of prescriptions, adequacy of warnings, unintentional distribution of counterfeit drugs and expiration of drugs. In addition, laws that require our pharmacists to offer counseling, without additional charge, to customers about medication, dosage, delivery systems, common side effects and other information the pharmacists deem significant can impact our business. Our pharmacists may also have a duty to warn customers regarding any potential negative effects of a prescription drug if the warning could reduce or negate these effects. We currently do not maintain professional liability and errors and omissions liability insurance. Consequently, we may be required to expend substantial funds to satisfy these types of claims, which could have an adverse effect on our business, financial condition, results of operations and profitability.

Risks Related to Our Newly Acquired Hospitals

Our newly acquired hospitals derive a significant portion of revenue by providing healthcare services to patients with public medical insurance coverage; any delayed payment under China’s public medical insurance programs could affect our results of operations.

Our newly acquired hospitals are China’s Medical Insurance Designated Medical Institutions. Patients who are covered by the public medical insurance programs may choose to rely on public medical insurance programs to pay for some of healthcare services. Any dispute or late or delinquent settlement under the public medical insurance programs may cause the trade receivables of our hospitals to increase or result in write-offs. Depending on the relevant public medical insurance programs’ practice, a Medical Insurance Designated Medical Institution may be subject to a government-approved annual quota for the medical fees that it is allowed to recover from the relevant public medical insurance bureau.

In addition, we cannot assure you that our newly acquired hospitals will be able to maintain their status as Medical Insurance Designated Medical Institutions, the loss of which will not only harm our reputation but may also result in reduced patient visits. Furthermore, the PRC government may alter its reimbursement policies in coverage plans in the future such that: (i) certain healthcare services provided by our hospitals will no longer be covered; or (ii) more stringent thresholds on existing coverage may be imposed. Any reduction in the rates paid or the scope of services covered may reduce patient accessibility to our hospitals and may lead to reduced patient flow and medical fees. Any of these events could lead to a decrease in our revenue generation and profitability which could have a material adverse effect on our business, results of operations and prospects.

Our hospitals could become the subject of patient complaints, claims and legal proceedings in the course of their operations, which could result in costs and materially and adversely affect our brand image, reputation and results of operations.

We rely on the physicians and other medical professionals of our hospitals to make proper clinical decisions regarding the diagnoses and treatment of their patients. However, we do not have direct control over the clinical activities of our hospitals or over the decisions and actions taken by the physicians and other medical professionals as their diagnoses and treatments of patients are subject to their professional judgment and in most cases, must be performed on a real time basis. Any incorrect decisions or actions on the part of the physicians and other medical professionals, or any failure by our hospitals to properly manage their clinical activities may result in undesirable or unexpected outcomes, including complications, injuries and even deaths in extreme cases. In addition, there are inherent risks associated with the clinical activities that may result in unavoidable and unfavorable medical outcomes.

In recent years, physicians, hospitals and other healthcare service providers in China have become subject to an increasing number of patient complaints, claims and legal proceedings alleging malpractice or other causes of action. Although rare, incidents have occurred in hospitals and medical institutions in China where dissatisfied patients carried out extreme actions or even violence during the course of the disputes. Any such incident, if occurs, would harm our reputation, impair the ability of our hospitals to recruit and retain medical professionals and staff, discouraging other patients from visiting our hospitals, and cause us to incur substantial costs.

Any negative publicity about us, our hospitals or the healthcare service industry could harm the brand image and reputation and trust in the services provided by our hospitals, which could result in a material and adverse impact on our business and prospects.

If we fail to properly manage the employment of the physicians and other medical professionals of our hospitals, we may be subject to penalties against these hospitals, which could materially and adversely affect our business and results of operations.

The activities of physicians and other medical professionals are strictly regulated under the PRC laws and regulations. Physicians, nurses and medical technicians who practice at medical institutions must hold licenses and may only practice within the scope of their licenses and at the specific medical institutions at which their licenses are registered. In practice, it takes some time for physicians, nurses and medical technicians to transfer their licenses from one medical institution to another or add another medical institution to their permitted practicing institutions. We cannot assure you that the physicians of our hospitals will complete the transfer of their licenses and related government procedures timely or at all. In addition, we cannot assure you that the medical professionals at our hospitals will always strictly follow the requirements and will not practice outside the permitted scope of their respective licenses. Any failure by our hospitals to properly manage the employment of their physicians and other medical professionals may subject us to administrative penalties against our hospitals, which could materially and adversely affect our business.

We have limited or no control over the quality of pharmaceuticals, medical consumables and other medical equipment used in the operations of our hospitals. If such quality does not meet the required standards, we could be exposed to liabilities and our reputation, business, results of operations, financial condition and prospects could be adversely affected.

The provision of healthcare services involves the frequent use of a variety of pharmaceuticals, medical equipment and medical consumables, substantially of which we procure from suppliers we do not have control over. We cannot assure you that all supplies are authentic, free of defects and meet the relevant quality standards. If these supplies are subsequently found to have been defective at the time of the supply, even though we did not know or could not have known about such defect, we may be subject to liability claims, negative publicity, reputational damage or administrative sanction, any of which may adversely affect our results of operations and reputation. We cannot assure you that significant claims of such nature will not be asserted against us in the future, and that adverse verdicts will not be reached or that we will be able to recover losses from our suppliers. In addition, we cannot assure you that we will be able to find suitable replacement suppliers, failing which our business, results of operations, financial condition and prospects will be adversely affected.

Our hospitals’ operations are susceptible to fluctuations in the costs of pharmaceuticals and medical consumables, which could adversely affect our profitability and results of operations.

The profitability of our hospitals is influenced by fluctuations in the costs of pharmaceuticals and medical consumables. The availability and prices of the pharmaceuticals and medical consumables can fluctuate from time to time and are subject to factors beyond our control, including supply, demand, general economic conditions and governmental regulations, each of which may affect the procurement costs or cause a disruption in the supply. Consistent with industry practice, we and our hospitals have not entered into any long-term supply agreements with our suppliers and we cannot assure you that our hospitals will be able to anticipate and react to changes in medical supply costs in the future by locating replacement suppliers or adjusting service offerings, or that our hospitals will be able to pass these cost increases onto the patients. Any of these factors may have a material and adverse effect on our profitability and results of operations.

Our performance depends on our ability to recruit and retain quality physicians.

The success of our hospitals depends in part on the number and quality of the physicians and the medical staffs of our hospitals, the admitting and utilization practices of those physicians, maintaining good relations with those physicians and controlling costs related to the employment of physicians. We may face increased challenges in this area as the physician population reaches retirement age, especially if there is a shortage of physicians willing and able to provide comparable services. If we are unable to provide adequate support personnel or technologically advanced equipment and hospital facilities that meet the needs of those physicians and their patients, admissions may decrease and our operating performance may decline.

As a provider of medical services, we are exposed to inherent risks relating to malpractice claims.

As a provider of medical services, any misdiagnosis or improper treatment may result in negative publicity regarding us or our services, which would harm our reputation. If we are found liable for malpractice, we may be required to pay substantial monetary damages. Furthermore, even if we successfully defend ourselves against a malpractice claim, we could be required to spend significant management, financial and other resources in the process, which could disrupt our business, and our reputation and brand name may also suffer. Since malpractice claims are not common in China, we do not carry malpractice insurance. As a result, any imposition of malpractice liability could materially harm our business, financial condition and results of operations.

Risks Related to Regulatory Matters

Our retail, wholesale operations, pharmacies and newly acquired hospitals require a number of permits and licenses in order to carry on their business.

We are required to obtain certain permits and licenses from various PRC governmental authorities to operate our businesses. We are subject to a number of regulations pertaining to the licensing of our wholesale business, retail pharmacies, and the licensing, conduct and number of medical professionals. We cannot provide any assurance that we can maintain all required licenses, permits and certifications to carry on our business at all times. Moreover, these licenses, permits and certifications are subject to periodic renewal and/or reassessment by the relevant PRC governmental authorities and the standards of such renewal or reassessment may change from time to time. We intend to apply for renewal of these licenses, permits and certifications when required by applicable laws and regulations. Any failure by us to obtain and maintain all licenses, permits and certifications necessary to carry on our business at any time could have a material adverse effect on our business, financial condition and results of operations. In addition, any inability to renew any of these licenses, permits and certifications could severely disrupt our business, and prevent us from continuing to carry on our business. Any changes in the standards used by governmental authorities in considering whether to renew or reassess our business licenses, permits and certifications, as well as any enactment of new regulations that may restrict the conduct of our business, may also decrease our revenue and/or increase our costs, materially reducing our profitability and prospects. Furthermore, if the interpretation or implementation of existing laws and regulations changes or if new regulations come into effect requiring us to obtain any additional licenses, permits or certifications that were previously not required to operate our existing businesses, we cannot provide assurance that we can successfully obtain such licenses, permits or certifications.

The operations of our hospitals are subject to various laws and regulations at the national and local levels. These laws and regulations mainly relate to the operations of medical institutions and licensing of medical professionals, the use and safety management of pharmaceuticals and medical equipment, the quality and pricing of healthcare services, occupational health and safety as well as environmental protection. In addition, our hospitals are subject to periodic license or permit renewal requirements and inspections by various government agencies and departments at the provincial and municipal level.

If we fail to maintain or renew any major license, permit, certificate or approval for all or any of our acquired hospitals, or if the medical professionals in above hospitals become unlicensed at any time during their practices, or if the hospitals are found to be non-compliant with any applicable laws or regulations, we may face penalties, suspension of operations or even revocation of operating licenses, depending on the nature of the findings, any of which could materially and adversely affect our business, financial condition and results of operations.

Regulatory pricing controls may affect the pricing of our hospitals.

The PRC government issues policies on the pricing of healthcare services, pharmaceuticals and medical consumables. As Medical Insurance Designated Medical Institutions, our hospitals are subject to the pricing guidelines set by the relevant local healthcare administrative authorities. We cannot predict if the PRC government will lower the price ceilings or change the pricing guidelines in the future or if additional healthcare services, pharmaceuticals or medical consumables may become subject to price control, or more stringent insurance reimbursement limits, which may put pressure on the pricing of our hospitals. As a result, our financial condition and results of operations could be materially and adversely affected.

If we do not maintain the privacy and security of sensitive patient, customer and business information, we could damage our reputation, incur substantial additional costs and become subject to litigation.

The protection of patient, customer, employee, and company data is critical to our businesses. Our hospitals collect and maintain medical data and treatment records of our patients. PRC laws and regulations generally require medical institutions and their medical personnel to protect the privacy of their customers and prohibit unauthorized disclosure of personal information. Such medical institutions and their medical personnel will be liable for damage caused by divulging the customers’ private or medical records without consent. We have taken measures to maintain the confidentiality of our customers’ medical records, including encrypting such information in our information technology system so that it cannot be viewed without proper authorization and setting internal rules requiring our employees to maintain the confidentiality of our customers’ medical records. However, these measures may not always be effective in protecting our customers’ medical records. Our information technology systems could be breached through hacking. Personal information could be leaked due to any theft or misuse of personal information due to misconduct or negligence. Failure to protect customers’ medical records, or any restriction on or liability as a result of, compliance with Chinese environmental laws and regulations. However, the riskour use of environmental liability and charges associated with maintaining compliance with environmental laws is inherent in the nature ofmedical data, could have a material adverse effect on our business, and there is no assurance that material environmental liabilities and compliance charges will not arise in the future.

We have limited business insurance coverage in Chinabusiness.

The insurance industryregulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and changing requirements across businesses. Compliance with changes in China is still at an early stageprivacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of development. Insurance companies in China offer limited business insurance products. Asnew operational processes. If we or those with whom we share information fail to comply with these laws and regulations or experience a data security breach, our reputation could be damaged and we could be subject to additional litigation and regulatory risks. Our security measures may be undermined due to the actions of outside parties, employee error, malfeasance, or otherwise, and, as a result, we do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

Because our funds are held in banks in the PRC that do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of a bank failure, wean unauthorized party may not haveobtain access to our funds on deposit. Depending upondata systems and misappropriate business and personal information. Because the amounttechniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors,intrusion, we may be unable to continueanticipate these techniques or to implement adequate preventative measures. Any such breach or unauthorized access could result in business.significant legal and financial exposure, damage to our reputation, and potentially have an adverse effect on our businesses.

The impact of China’s regulatory reforms is unpredictable.

The regulatory system of Chinese medical service, especially the changes in the field of healthcare reform may have a material adverse effect on the operation and development of our business in the future. New laws and policies are expected to be promulgated. It is uncertain what impact these new regulations and policies would have on our competitiveness, operations and corporate structure. In recent years, the PRC government launched a new healthcare reform plan to ensure that every citizen has access to affordable basic healthcare services. In pursuit of these policy objectives, the PRC government has implemented extensive regulations and policies to address the affordability, accessibility and quality of healthcare services, medical insurance coverage, distribution of pharmaceutical products and reform of public hospitals. In addition, the PRC government has gradually reduced regulatory hurdles for establishing and investing in private hospitals, in particular by private capital, and encouraged development of hospital management groups.

Our business operations and future expansion are largely driven by the PRC government’s policies, which may change significantly and are beyond our control. There can be no assurance that the PRC government will not impose additional or stricter laws or regulations on healthcare services or foreign investments, or strengthen and tighten supervision and management of medical institutions including hospitals, in particular, private hospitals, or implement stricter or more comprehensive regulations on the distribution of pharmaceuticals, medical equipment and medical consumables.

Depending on the priorities of the PRC government, the political situation and the regulatory regime with respect to foreign investment control at any given time, and the development of the Chinese healthcare system, future regulatory changes may affect public hospital reform, limit private or foreign investments in healthcare service industry, change reimbursement rates for healthcare services provided to publicly insured patients, or implement additional price control on pharmaceuticals or healthcare services. Any of these events could have a material and adverse impact on our business, financial condition, results of operations, prospects and future growth.

Risks Related to Our Human Capital

We may be unable to attract, hire, and retain a highly qualified workforce, including key management.

The talents and efforts of our employees, particularly our key management, are vital to our success. Our management team has significant business experience and would be difficult to replace. In addition, institutional knowledge may be lost in any potential managerial transition. We may be unable to retain them or to attract other highly qualified employees, including our medical staff and workers, particularly if we do not offer employment terms that are competitive with the rest of the labor market. Failure to attract, hire, develop, motivate, and retain highly qualified employee talent, or failure to develop and implement an adequate succession plan for the management team, could disrupt our operations and adversely affect our business and our future success.

We substantially depend on a few key personnel who, if not retained, could cause declines in productivity and operational results and loss of our strategic guidance, all of which would diminish our business prospects and value to investors.

Our success depends to a large extent upon the continued service of a few executive officers and key employees, including, Mr. Gang Li,Yongquan Bi, our Chairman, and Mr. Tiewei Song, our Chief Executive Officer and President. The loss of the services of one or more of our key employees would have an adverse effect on us and our PRC operating subsidiaries, as these individuals play a significant role in developing and executing our overall business plan and maintaining customer relationships and proprietary technology systems. While none of our key personnel is irreplaceable, the loss of the services of any of these individuals would be disruptive to our business. We believe that our overall future success depends in large part upon our ability to attract and retain highly skilled managerial and marketing personnel. There is no assurance that we will be successful in attracting and retaining such personnel on terms acceptable to the Company or the employee. Inadequate personnel will limit our growth, and will be seen as a detriment to our prospects, leading potentially to a loss in value for investors.

We are controlledOur labor costs may be adversely affected by a small groupcompetition for staffing, the shortage of our existing stockholders, whose interests may differ from other stockholders.experienced nurses and labor union activity.

Our Chairman, Chief Executive Officeroperations are dependent on the efforts, abilities and President, Mr. Gang Li, beneficially owns approximately 38.16%experience of our management and employees. We compete with other businesses and health care providers in recruiting and retaining qualified management and support personnel responsible for the daily operations of each of our businesses including our hospitals. In some markets, the availability of nurses and other medical support personnel has been a significant operating issue to health care providers. The COVID-19 pandemic has exacerbated workforce competition and shortages. We may be required to enhance wages and benefits to recruit and retain medical and medical support personnel or to hire more expensive temporary or contract personnel. As a result, our labor costs could increase. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the outstanding sharesmarkets in which we operate. If a significant portion of our common stockemployee base unionizes, it is possible our labor costs could increase. Our failure to recruit and isretain qualified management, medical and support personnel, pharmacists and other personnel, or to control labor costs, could have a material, adverse effect on our largest single stockholder. Together with, Ms. Lihua Wang, who isresults of operations.

Labor laws in the PRC may adversely affect our Chief Financial Officer, they own 47.70%operations.

The Labor Contract Law of the outstanding sharesPRC imposes liabilities on employers and significantly impacts the cost of an employer’s decision to reduce its workforce. The law requires certain terminations to be based upon seniority and not merit. In the event we decide to significantly change or decrease our common stock. Accordingly these stockholders acting together will have significant influenceworkforce, this law could adversely affect our ability to enact such changes in determining the outcome of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, consolidations, the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They will also have significant influence in preventing or causing a change in control. In addition, without the consent of these stockholders, we may be prevented from entering into certain transactions which may be beneficialmanner that is most advantageous to our other stockholders. The interestsbusiness or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of these stockholders may differ from the interests of the other stockholders.operations.

We are responsible for the indemnification of our officers and directors.

The Delaware General Corporation law and our Bylawsbylaws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against costs and expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We currently do not have any directors and officers liability insurance. Consequently, we may be required to expend substantial funds to satisfy these indemnity obligations. Any payment in respect of these indemnification rights could have an adverse effect on our cash flow and ourbusiness, financial condition, results of operations.operations and profitability.

If we fail to implement effective internal controls required by the Sarbanes-Oxley Act of 2002, or remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.

Section 404 of the Sarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual interim financial statement will not be prevented or detected on a timely basis. Due to the Company’s limited resources, the Company does not have accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which could lead to untimely identification and resolution of accounting matters inherent in the Company’s financial transactions in accordance with US GAAP.

Any failure to complete our assessment of our internal controls over financial reporting, to remediate any material weaknesses that we may identify, including the one identified above, or to implement new or improved controls, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Inadequate disclosure controls and procedures and internal controls over financial reporting could also cause investors to lose confidence in our public disclosures and reported financial information, which could have a negative effect on the trading price of our common stock.

The inability to inspect may prevent the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures since our auditors come from Hong Kong rather than United States.

Public company auditors are required by law to undergo regular Public Company Accounting Oversight Board, or PCAOB, inspections to assess their compliance with U.S. law and professional standards in connection with their audits of public company financial statements filed with the SEC. Due to the position taken by the authorities in China, the PCAOB was prevented from conducting inspections of certain registered firms in Hong Kong to the extent that their audit clients had operations in China.

The inability of the PCAOB to conduct inspections of auditors in the PRC makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of the PRC that are subject to PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

The Company’s auditor HKCMCPA Company Limited, Certified Public Accountants is subject to PCAOB inspection. The auditor was inspected in 2008 and the corresponding inspection report was issued under the name of Zhong Yi (Hong Kong) Company Limited. The most recent inspection report has been issued in 2014.

Because our auditor is located in Hong Kong and we have operations in China, in the event that PCAOB becomes unable to inspect the audit work and practices of our auditor, our investors in U.S. markets who rely on audit reports from our auditor will be unable to factor the publicly reported findings of regular recurring PCAOB inspections of audit firms and their quality control practices into their decision making processes.

Risks Related to Our Company’s Common Stock

Trading volume of our common stock has fluctuated from time to time, which may make it difficult for investors to sell their shares at times and prices that investors feel are appropriate.

To date, the trading volume of our common stock has fluctuated. Generally, lower trading volumes adversely effects the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.

The Nasdaq Capital Market imposes listing standards on our common stock that we may not be able to fulfill, thereby leading to a possible delisting of our common stock.

As a listed Nasdaq Capital Market company, we are subject to rules covering, among other things, certain major corporate transactions, the composition of our Board of Directors and committees thereof, minimum bid price of our common stock and minimum stockholders equity. The failure to meet the Nasdaq Capital Market requirements may result in the de-listing of our common stock from the Nasdaq Capital Market, which could adversely affect the liquidity and market price thereof.

If our common stock were to be de-listed, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event our common stock is de-listed, broker-dealers have certain regulatory requirements imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity thereof. These factors could result in lower prices for shares of our common stock and/or limit an investor’s ability to execute a transaction. In addition delisting from Nasdaq could also greatly impair our ability to raise additional necessary capital through equity or debt financing, and could lead to significant dilution to our stockholders caused by our issuing equity in financing or other transactions at a price per share significantly below the then market price.

We believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.

The price for our common stock may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products and media reports by us or our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions. The volatile price of our stock makes it difficult for investors to predict the value of our investment, to sell shares at a profit at any given time, or to plan purchases and sales in advance.

In addition, the stock market in general has experienced extreme price and volume fluctuations that may have been unrelated and disproportionate to the operating performance of individual companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.

Because we have not paid dividends, investors will not realize any income from an investment in our common stock unless and until investors sell their shares at profit.

We have not paid dividends on our common stock in 2017 or 2016, and we do not anticipate paying any dividends in the near future. Investors will only realize income on an investment in our stock in the event they sell or otherwise dispose of their shares at a price higher than the price they paid for their shares. Such a gain would result only from an increase in the market price of our common stock, which is uncertain and unpredictable.

The payment of any future dividends will be at the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, the success of our business activities, general financial condition, future prospects, general business conditions and such other factors as our Board of Directors may deem relevant.

Risk Related to Doing Business in China

Adverse changes in economic and political policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.

All of our business operations are currently conducted in the PRC, under the jurisdiction of the PRC government. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some

Our business and revenue growth primarily depend on the size of the healthcare market in China. As a result, our revenue and profitability may be negatively affected by changes in national, regional or local economic conditions and consumer confidence in China. External factors beyond our control that affect consumer confidence include unemployment rates, levels of personal disposable income, national, regional or local economic conditions, and acts of war or terrorism. Changes in economic conditions and consumer confidence could adversely affect consumer preferences, purchasing power and spending patterns. A decrease in overall consumer spending as a result of changes in economic conditions could adversely affect our product sales and negatively impact our profitability. In addition, acts of war or terrorism may cause damage to our facilities, disrupt the supply of the products and services we offer in our stores, or adversely impact consumer demand. Any of these measures benefit the overall PRC economy, but may alsofactors could have a negativematerial adverse effect on us. For example, our business, financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.operations.

Unprecedented rapid economic growthWe have limited business insurance coverage in China may increase our costs of doing business, and may negatively impact our profit margins and/or profitability.China.

OurThe insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business dependsinsurance products. As a result, we do not have any business liability or disruption insurance coverage for our operations in partChina. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

Because our funds are held in banks in the PRC that do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of a bank failure, we may not have access to our funds on deposit. Depending upon the availabilityamount of relatively low-cost labormoney we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, materials. Rising wages in China may increase our overall costs of production. In addition, rising raw material costs, due to strong demand and greater scarcity, may increase our overall costs of production. Ifif we are not able to pass these costs onaccess funds to pay our customerssuppliers, employees and other creditors, we may be unable to continue in the form of higher prices, our profit margins and/or profitability could declinebusiness.

We may suffer currency exchange losses if the RMB depreciates relative to the US Dollar.

Our reporting currency is the US Dollar.dollar. However, substantially all of our revenues are denominated in RMB. In July 2005, China changed its exchange rate regime by establishing a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. The RMB is no longer officially pegged to the US dollar, and the exchange rate will have some flexibility. Despite fluctuations in the exchange rate in 2015,2020, the floating exchange rate regime ishas remained stable. If the RMB depreciates relative to the US Dollar,dollar, our revenues as expressed in our US Dollardollar financial statements will decline in value and if the RMB appreciates relative to the US Dollar,dollar, our revenues as expressed in our US Dollardollar financial statements will increase in value. There are very limited hedging transactions available in China to reduce our exposure to exchange rate fluctuations. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure, if at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into US Dollars.

Labor laws in the PRC may adversely affect our results of operations.dollars.

On January 1, 2008, the PRC government promulgated the Labor Contract Law of the PRC, or the New Labor Contract Law. The New Labor Contract Law imposes greater liabilities on employers and significantly impacts the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations to be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the New Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost effective manner, thus materially and adversely affecting our financial condition and results of operations.

Changes in PRC Corporate Income Tax Law may affect our effective tax.

In March 2007, the Chinese government enacted the Corporate Income Tax Law, and promulgated related regulations, which were effective January 1, 2008. The Corporate Income Tax Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises. At present, the income tax rate of 25% is in effect for all subsidiaries of Nengfa Energy.

Governmental control of currency conversion may affect the value of your investmentinvestment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all our revenues in RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies without prior approval from the SAFEChinese State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, approval from the SAFE or its local branch is required where RMB is to be converted into foreign currency and can be remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions.

The Chinese government has strengthened the regulation of investments made by Chinese residents in offshore companies and reinvestments in China made by these offshore companies. Our business may be adversely affected by these restrictions.

The SAFE has adopted certain regulations that require registration with, and approval from, Chinese government authorities in connection with direct or indirect control of an offshore entity by Chinese residents. The term “control” under SAFE regulation is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by PRC residents in the offshore special purpose vehicles or PRC companies by means of acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. The SAFE regulations retroactively require registration of investments in non-Chinese companies previously made by Chinese residents. In particular, the SAFE regulations require Chinese residents to file with SAFE information about offshore companies in which they have directly or indirectly invested and to make follow-up filings in connection with certain material transactions involving such offshore companies, such as mergers, acquisitions, capital increases and decreases, external equity investments or equity transfers. In addition, Chinese residents must obtain approval from SAFE before they transfer domestic assets or equity interests in exchange for equity or other property rights in an offshore company. A newly established enterprise in China which receives foreign investments is also required to provide detailed information about its controlling shareholders and to certify whether it is directly or indirectly controlled by a domestic entity or resident.

In the event that a Chinese shareholder with a direct or indirect stake in an offshore parent company fails to make the requisite SAFE registration, the Chinese subsidiaries of such offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the Chinese subsidiaries. Further, failure to comply with the various SAFE registration requirements described above can result in liability under Chinese law for foreign exchange evasion.

These regulations may have a significant impact on our present and future structuring and investment. We have requested our shareholders who to our knowledge are PRC residents to make the necessary applications, filings and amendments as required under these regulations. We intend to take all necessary measures to ensure that all required applications and filings will be duly made and all other requirements will be met. We further intend to structure and execute our future offshore acquisitions in a manner consistent with these regulations and any other relevant legislation. However, because it is presently uncertain how the SAFE regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted and implemented by the relevant government authorities in connection with our future offshore financing or acquisitions, we cannot provide any assurances that we will be able to comply with, qualify under, or obtain any approvals required by the regulations or other legislation. Furthermore, we cannot assure you that any PRC shareholders of our company or any PRC company into which we invest will be able to comply with those requirements. The inability of our company or any PRC shareholder to secure required approvals or registrations in connection with our future offshore financings or acquisitions may subject us to legal sanctions, restrict our ability to pay dividends from our Chinese subsidiaries to our offshore holding company, and restrict our overseas or cross-border investment activities or affect our ownership structure.

The PRC legal system embodies uncertainties which could limit the legal protections available to us and you, or could lead to penalties on us.

The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the PRC Government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past 2540 years has significantly enhanced the protections afforded to various forms of foreign investment in mainland China. Our PRC operating subsidiary, Nengfa Energy, a wholly foreign-owned enterprises (“WFOEs”), issubsidiaries are all subject to laws and regulations applicable to foreign investment in the PRC in general and laws and regulations applicable to WFOEsforeign invested companies in particular.

It may be difficult to enforce any civil judgments against us or our board of directors or officers, because mostall of our operating and/or fixed assets are located outside of the United States.

Although we are incorporated in the State of Delaware, all of our operating and fixed assets are located in the PRC. As a result, it may be difficult for investors to enforce judgments outside the United States obtained in actions brought against us in the United States, including actions predicated upon the civil liability provisions of the federal securities laws of the United States or of the securities laws of any state of the United States. In addition, our directors and officers (principally based in the PRC) and all or a substantial portion of their assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon those directors and officers, or to enforce against them or us judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States or of the securities laws of any state of the United States. We have been advised by our PRC counsel that, in their opinion, there is doubt as to the enforceability in the PRC, in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated solely upon the federal securities laws of the United States or the securities laws of any state of the United States.

Because our assets are located overseas, shareholders may not receive distributions that they would otherwise be entitled to if we were declared bankrupt or insolvent.

Because all of our assets are located in the PRC, they may be outside of the jurisdiction of U.S. courts to administer if we are the subject of an insolvency or bankruptcy proceeding. As a result, if we declared bankruptcy or insolvency, our shareholders may not receive the distributions on liquidation that they would otherwise be entitled to if our assets were to be located within the U.S., under U.S. Bankruptcy law.

A recurrence of Severe Acute Respiratory Syndrome (SARS), Avian Flu, or another widespread public health problem, such as the spread of H1N1 (“Swine”) Flu, or COVID-19 in the PRC could adversely affect our operations.

 

●

a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public health problems will adversely affect our operations.

The PRC may establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

PRC regulations and rules concerning mergers and acquisitions including the Rules on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, and other recently adopted regulations and rules with respect to mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, according to the Anti-Monopoly Law of PRC promulgated on August 30, 2007 and the Provisions of the State Council on the Threshold of Filings for Undertaking Concentrations, or the Prior Notification Rules issued by the State Council in August 2008 and amended on September 2018, the concentration of business undertakings by way of mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the MOFCOM when the threshold is crossed and such concentration shall not be implemented without the clearance of prior notification. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. We believe that our business is not in an industry that raises “national defense and security” or “national security” concerns. However, the MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

Risks Related to Our Company’s Common Stock

We will need to raise additional capital that will likely cause dilution to our shareholders.

We believe that we will need to raise additional capital to fund our ongoing operations, repay our debt and fund future acquisitions. To the extent that we raise additional capital through the sale of equity or convertible debt, our shareholders’ ownership interest will be diluted.

Trading volume of our common stock has fluctuated from time to time, which may make it difficult for investors to sell their shares at times and prices that investors feel are appropriate.

To date, the trading volume of our common stock has fluctuated, sometimes significantly. Generally, lower trading volumes adversely effects the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.

The Nasdaq Capital Market imposes listing standards on our common stock that we may not be able to fulfill, thereby leading to a possible delisting of our common stock.

As a listed Nasdaq Capital Market company, we are subject to rules covering, among other things, certain major corporate transactions, the composition of our Board of Directors and committees thereof, minimum bid price of our common stock and minimum stockholders equity. The failure to meet the Nasdaq Capital Market requirements may result in the de-listing of our common stock from the Nasdaq Capital Market, which could adversely affect the liquidity and market price thereof.

If our common stock were to be de-listed, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event our common stock is de-listed, broker-dealers have certain regulatory requirements imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity thereof. These factors could result in lower prices for shares of our common stock and/or limit an investor’s ability to execute a transaction. In addition, delisting from NASDAQ could also greatly impair our ability to raise additional necessary capital through equity or debt financing, and could lead to significant dilution to our stockholders caused by our issuing equity in financing or other transactions at a price per share significantly below the then market price.

We believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.

The price for our common stock may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products and media reports by us or our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions. The volatile price of our stock makes it difficult for investors to predict the value of our investment, to sell shares at a profit at any given time, or to plan purchases and sales in advance.

In addition, the stock market in general has experienced extreme price and volume fluctuations that may have been unrelated and disproportionate to the operating performance of individual companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.

Because we have not paid dividends and have no present intention of paying dividends, investors will not realize any income from an investment in our common stock unless and until investors sell their shares at profit.

We have never paid any dividends on our common stock and do not anticipate paying any dividends in the near future. Investors will only realize income on an investment in our stock in the event they sell or otherwise dispose of their shares at a price higher than the price they paid for their shares. Such a gain would result only from an increase in the market price of our common stock, which is uncertain and unpredictable. 

The payment of any future dividends will be at the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, the success of our business activities, general financial condition, future prospects, general business conditions and such other factors as our Board of Directors may deem relevant.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our executive offices are located at Room 3601, Building A, Harbour View Place, No. 4A Wuwu Road, Zhongshan District, Dalian, Liaoning Province, P. R. China (also known as: No. A4, Wuwu Road, 21-2,3, Zhongshan District, Dalian, Liaoning Province, P. R. China). In 2008, the Company was approved by the local government to constructDecember 2020, we entered into a new manufacturing facility for energy-saving products and equipmentlease that expires in Yinzhou District Industrial Park, Tieling City, Liaoning Province, the PRC. Total estimated construction costDecember 2022 at an annual rental charge of a new manufacturing facility will be approximately $24 million. It covers an area of 81,561 sq. m acres.$31,617.

 

The first phaseAs of construction project was completedDecember 31, 2020, we operated 5 pharmacy stores averaging a little over 200 square meters each in size with one-year lease terms, having an annual aggregate rental charge of approximately $71,826 or RMB 0.5 million. At the conclusion of the current leases, we expect to have the ability to renew the leases. On a regular basis and began its operations in December 2012. The second phaseas part of construction project was completed in 2013our normal business, we evaluate store performance and receivedmay reduce the approval of fire security bysize, close or relocate a store if the local authority in March 2014. The property ownership certificate relatingstore is redundant, underperforming or otherwise deemed unsuitable. In such event, we may continue to the completed construction was approved athave a leasing obligations until the end of the term of the lease.

Guanzan owns a building in Chongqing which is used as offices by Guanzan, Shude and Lijiantang. The building was purchased in November 2015. The cost2019 and consists of construction has been transferred944.68 square meters.

We rent a warehouse for use of Guanzan and Shude that consists of 1,150 square meters pursuant to property, planta one-year lease expiring in December 2021, having an annual rental charge of approximately $51,391.

Our newly-acquired hospital Guoyitang rents a building that consists of 4,000 square meters pursuant to a ten-year lease expiring in June 9, 2029, having an annual rental charge of approximately $ 46,593.

Our newly-acquired hospital Zhongshan rents a building that consists of 12,000 square meters pursuant to two leases expiring on March 19, 2032 and equipment by the endMay 19, 2027, having an annual aggregate rental charge of 2016 upon the granting of property ownership certificate from the local authority.approximately $ 150,776.

ITEM 3. LEGAL PROCEEDINGS

 

 None.On April 1, 2020, the Guizhou Province Xiuwen County People’s Court ordered the attachment of two of Shude’s bank accounts pursuant to a pre-litigation attachment application filed by one of Shude’s suppliers in connection with unpaid outstanding payables of approximately RMB 365,200 (approximately $51,437). The total amount of cash in the two accounts subject to the attachment was RMB 570,902 (approximately $80,409). This dispute has been resolved and the attachment has been removed.

Legal Proceedings related to Boqi Zhengji

Boqi Zhengji was subject to the following lawsuits and/or enforcement actions, which were disposed of when we sold Boqi Zhengji in December 2020. We are no longer responsible for any of these lawsuits or enforcement actions.

On May 17, 2019, one of Boqi Zhengji’s suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 482,771.87. On June 19, 2019, the parties entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 482,771.87 in total. The same supplier filed another lawsuit against Boqi Zhengji for unpaid outstanding payable of RMB 322,771 on March 17, 2020. The parties entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 322,771 in total.

On June 26, 2019, one of Boqi Zhengji’s suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payable of RMB 184,490.77. On Sep.12, 2019, the parties entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 184,490.77 in total. Boqi Zhengji failed to pay the settlement amount. such judgment can be enforced.

On July 8, 2019, one of Boqi Zhengji’s suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 64,535. On August 1, 2019, the parties entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 64,535.00 in total. Boqi Zhengji failed to pay the settlement amount.

On July 10, 2019, one of Boqi Zhengji’s suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 122,360.20. On August 9, 2019, the parties entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 101,253.40 in total. Boqi Zhengji failed to pay the settlement amount.

On July 18, 2019, one of Boqi Zhengji’s suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 288,440.00. On September 4, 2019, the parties entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 288,440.00 in total. Boqi Zhengji failed to pay the settlement amount. The enforcement of the settlement has been temporarily suspended by the court due to the lack of assets against which such judgment can be enforced.

On August 25, 2019, one of Boqi Zhengji’s suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 137,449.90. On October 23, 2019, the parties entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 137,449.90 in total. Boqi Zhengji failed to pay the settlement amount.

On August 25, 2019, one of Boqi Zhengji’s suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 230,281.55. On October 2, 2019, Shenyang Heping District People’s Court ruled that Boqi Zhengji had to pay the outstanding balance RMB 230,281.55 to the supplier within 10 days. Boqi Zhengji failed to pay the settlement amount.

On September 10, 2019, one of Boqi Zhengji’s suppliers filed a lawsuit against Boqi Zhengji for unpaid outstanding payables of RMB 395,378.90. On October 18, 2019, the parties entered into a court-supervised settlement where Boqi Zhengji agreed to pay the supplier RMB 395,378.90 plus interest. Boqi Zhengji failed to pay the settlement amount.

 

ITEM 4. MINE SAFTEY DISCLOSURE

 

Not applicable.

 

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PART II

 

ITEM5.ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information and Dividend Policy

 

Our common stock $0.001 par value, began trading on the OTC Bulletin Board (“OTCBB”) on December 4, 2004trades under the symbol “DGNA.OB”. The symbol after the Company’s name change to NF Energy Saving Corporation of America was “NFES.OB”. On August 26, 2009, the Company further changed its name to NF Energy Saving Corporation, and the symbol was changed to “NFEC.OB”.. On October 4, 2010, the Company commenced trading“BIMI” on the Nasdaq Global Market, under the symbol “NFEC”. On March 7, 2012, the trading for the common stock was changed to the Nasdaq Capital Market. The following table sets forth the high and low bid prices forAs of March 24, 2021 we had 1,567 stockholders of record of our common stock. This number excludes stockholders whose stock for the years ended December 31, 2017 and 2016 and for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, mark-downis held in nominee or commission, and may not represent actual transactions. On March 16, 2018, the closing price was $1.02 per share.

		Common Stock (Adjusted Stock Price)
		High				Low
Fiscal year ends at December 31, 2017
First quarter		$	1.16			$	0.98
Second quarter		$	1.24			$	0.83
Third quarter		$	1.15			$	0.76
Fourth quarter		$	1.18			$	0.83
Fiscal year ends at December 31, 2016
First quarter		$	1.04			$	0.60
Second quarter		$	0.91			$	0.66
Third quarter		$	1.75			$	0.68
Fourth quarter		$	1.36			$	0.75

Record Holdersstreet name by brokers.

 

As of December 31, 2017,No dividends have been declared or paid on our common stock. We do not currently anticipate that we had 1,348 common shareholders of record.

Dividends

Since inception of NFEC, we have not paidwill pay any cash dividends on our common stock. It is our present policy not to pay cash dividends and to retain future earnings to support our growth. Any payments of cash dividendsstock in the future will be dependent upon, among other things, the amount of funds available therefore, our earnings, financial condition, capital requirements, and other factors which the Board of Directors deems relevant.foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

As of the date of this Form 10-K, we have not authorized any equity compensation plan, nor has our Board of Directors authorized the reservation or issuance of any securities under any equity compensation plan.

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Transfer Agent

Our transfer agent is Corporate Stock Transfer, Inc., located at 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado, 80209.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not Applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Report on Form 10-K. The discussion in this section of this Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, those discussed in “Risk Factors” and those discussed elsewhere in this Report on Form 10-K.

 

24

FORWARD LOOKING STATEMENTSOverview

 

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

Our current operations are focused on the healthcare industry in the PRC. On October 14, 2019, we acquired Boqi Zhengji, an operator of a pharmacy chain business in the PRC. This was the first step of our expectations, intentions, plansshift of focus from the energy sector to the healthcare business. Boqi Zhengji, however, suffered significant setbacks during 2020. The COVID-19 pandemic caused the pharmacy stores to record almost no sales for several months due to the national shutdown order and beliefs, including those containedother government orders specifically targeting OTC drugs. While we offered support to Boqi Zhengji with the implementation of the Boqi Guanzan Healthy Future Pharmacy Plan and other programs aimed to offer Guanzan’s and other company resources to the pharmacy chain, such efforts failed to help improve Boqi Zhengji’s poor performance. To avoid exposing our other business to further risks and potential joint liabilities, we decided to divest the pharmacy chain. On December 11, 2020 we entered into an agreement to sell Boqi Zhengji for $1,700,000 in or implied by "Management's Discussion and Analysis"cash. On December 18, 2020, we received the full consideration from the buyer and the Notescontrol of the Boqi Zhengji business was transferred. Due to Consolidatedthe Chinese government’s alternative working schedule and other delays caused by COVID-19, the government record reflecting the transfer of ownership was not updated until February 2, 2021.

The disposal of NF Group and Boqi Zhengji and the actions taken to fulfill the plans resulted in our classifying the businesses of NF Group and Boqi Zhengji as discontinued operations according to ASC 205-20 Presentation of Financial Statements are "forward-looking statements", within the meaning of Section 21E– Discontinued Operation. As a result, all of the Securities Exchange Actassets and liabilities of 1934,the NF Group and Boqi Zhengji were reclassified as amended (the "Exchange Act"), that are subject to certain events, risksassets and uncertainties that may be outside our control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak onlyliabilities of a discontinued operation in the statement of position as of December 31, 2020 and 2019, and the date on which theyresults of the operation are made.presented under the line item net loss from discontinued operations for the years ended December 31, 2020 and 2019.

On March 18, 2020, we completed the Guanzan acquisition. The Company undertakes no obligationrationale for the acquisition was for us to update or revise any forward-looking statements. These forward-looking statements include statementsfurther expand our healthcare operation by acquiring a medical devices and pharmaceuticals distribution business. We believed that Guanzan has strong sales capabilities and procurement resources in the local area of management's plans and objectives for our future operations and statementsChongqing, the largest city in Southwest region of future economic performance, information regardingthe PRC. The acquisition was is in line with our expansion strategy, which focuses on deeper penetration of the healthcare market in the Southwest region of China and possible resultsgaining a wider footprint in the PRC.

On February 2, 2021, we acquired Guoyitang, the owner and operator of a private general hospital in Chongqing with 50 hospital beds and 98 employees, including 14 doctors, 28 nurses, 43 other medical staff and 13 non-medical staff. The Guoyitang acquisition will enable us to serve more individuals with medical needs and is the first step in our efforts to building a hospital chain specializing in obstetrics and gynecology.

On February 8, 2021, we acquired Zhongshan, a private hospital in the southeast region of China with 160 hospital beds (of which 110 beds are currently in use) and 95 employees, including 20 doctors, 48 nurses, 10 other medical staff and 17 non-medical staff. Zhongshan is a general hospital known for its complex minimally invasive surgeries and equipped with high-end diagnostics equipment and surgical instruments for gynecology and obstetrics use. The Zhongshan acquisition marks the second step in our effort to establish a nationwide hospital chain specializing in obstetrics and gynecology.

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, for the years ended December 31, 2020 and 2019, we incurred net losses of $1.8 million and $4.5 million, respectively. In addition, we reported continuing cash out flow of $4.36 million and $1.07 million from expansion, our expected growth, our capital budgetoperating activities for the years ended December 31, 2020 and future capital requirements, the availability2019, respectively. As of funds andDecember 31, 2020, we had an accumulated deficit of $ 12.91 million. Management believes these factors raise substantial doubt about our ability to meet future capital needs,continue as a going concern for the realizationnext twelve months.

The continuation of our deferred tax assets,company as a going concern through the next twelve months is dependent upon (1) the continued financial support from our stockholders or external financing. Management believes that our existing stockholders will provide the additional cash to meet our obligations as they become due, and the assumptions described in this report underlying such forward-looking statements. Actual results(2) that it will be able to implement its business plan to expand our company’s operations and developments could differ materially from those expressed in or implied by such statements duegenerate sufficient revenues to a number of factors, including, without limitation, those describedmeet its obligations. While we believe in the context of such forward-looking statements, our expansion and acquisition strategy, our ability to achieve operating efficiencies, industry pricing and technology trends, evolving industry standards, regulatory matters, general economic and business conditions, the strength and financial resourcesviability of our competitors, our abilitystrategy to findincrease sales volume and retain skilled personnel, the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities and Exchange Commission (the "Commission"). Additional factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: 1) our ability to successfully develop, manufacture and deliver our products on a timely basis and in the prescribed condition; 2) our ability to compete effectively with other companies in the same industry; 3) our ability to raise additional funds, there can be no assurance to that effect, nor that the Company will be successful in securing sufficient capital in orderfunds to effectuatesustain the operations.

These conditions raise substantial doubt about our business plan; and 4) ourcompany’s ability to retaincontinue 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 our key executives.company to continue as a going concern.

 

Critical Accounting Policies

 

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

 

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

 

Revenue Recognition

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 we expect to be entitled to in exchange for those goods and services, net of value-added tax. We determine revenue recognition through the following steps:

25●

Identify the contract with a customer;

●

Identify the performance obligations in the contract;

 

●

Determine the transaction price;

 

Revenue recognition

●

Allocate the transaction price to the performance obligations in the contract; and

 

●

Recognize revenue when (or as) the entity satisfies a performance obligation.

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

 

The Company’s revenuetransaction price is principally derived from two primary sources: salesallocated 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 energy saving flow control equipmentthe promised goods and provision of energy project management and sub-contracting services. 

 (a) Sale of products

The Company derives a majority of its revenues from the sale of energy saving flow control equipment. Generally, the energy saving flow control equipmentservices is manufactured and configured to customer requirements. The Company typically produces the energy saving flow control equipment for customers during a period from one to six months. When the Company completes the production in accordance with the customer’s specification, the customer is required to inspect the finished products for quality and suitability, to its full satisfaction, then the Company makes delivery to the customer

The Company recognizes revenue from the sale of such finished products upon deliverytransferred to the customers, when the title and risk of losswhich at a point in time or over time as appropriate.

Our revenues are fully transferred to the customers. The Company records its revenues, net of value added taxestax (“VAT”). The Company collected on behalf of PRC tax authorities in respect to the sales of merchandise. VAT collected from customers, net of VAT paid for purchases, is subjectrecorded as a liability in the accompanying consolidated balance sheets until it is paid to VAT which is levied on the majority of the products at the rate of 17% on the invoiced value of sales. As of December 31, 2017 and 2016, there were no refunds regarding our products.relevant PRC tax authorities

 

(b) Service revenue

Service revenue is derived from energy-saving technical services, project management or sub-contracting services that are not an element of the arrangementAccounts Receivable and Allowance for the sale of products. These services are generally billed on a time-cost plus basis, for the period of service which is generally from two to three months.

Revenue is recognized, net of business taxes when the service is rendered and accepted by the customers.

(c) Interest income

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

Doubtful Accounts receivable and allowance for doubtful accounts

 

Accounts receivable are recorded at the invoiced amount and do not bear interest, andwhich are due within the contractual payment terms, generally 9030 to 18090 days from shipment.delivery. Credit is extended based on evaluation of a customer'scustomer’s financial condition, the customer’scustomer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 18090 days and those over a specified amount are reviewed individually for collectability. At the end of each period, the Companywe specifically evaluates eachevaluate individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivable. The Companyreceivables. We will consider anthe allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. 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.

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The payment terms for our accounts receivable from each source of revenue is set forth below:

	Revenue items		General payment terms:
1.	Sales of products		(a)	10% of the contract value will be paid by the customer upon signing the contract.
			(b)	50% of the contract value will be paid by the customer after the physical inspection (with a credit term from 90 to 180 days).
			(c)	30% to 35% of the contract value will be paid upon the delivery to the customer (with a credit term from 90 to 180 days).
			(d)	5% to 10% of the contract value will be paid within 12 to 24 months (from the delivery date) as warranty retention for the product.
2.	Services		(a)	10% to 15 % of the contract value will be paid by the customer upon signing the contract.
			(b)	The remaining contract value will be paid by the customer upon the completion of the service (with a credit term from 30 to 90 days).

In general, accounts receivable with aging within 90 days, between 91 and 180 days, and between 181 and 360 days represent approximately 30-40%, 50-60%, and 5%-15%, respectively, of the total accounts receivable. The Company is highly aware of the risk of default, and as a result, we actively monitor accounts receivable with aging above 1 year and those accounting for at least 1% of the total accounts receivable.

For most of our contracts, our customers are generally large or state-owned construction contractors or developers mainly engaged in government-sponsored infrastructure projects such as large hydraulic/aqua-engineering projects, power plants and urban sewage network projects in the PRC. Usually, these infrastructure projects are undertaken in a number of phrases over a certain period of time. Our flow control equipment components are generally considered as major or significant components in the development phase of these infrastructure projects. In our industry practice, we are paid by these construction contractors and/or developers when they have been paid by the local government or state-owned enterprises after the full inspection of each milestone during the construction phrase. Given that the construction of these infrastructure projects are complex, very large in size and require a high of quality in completion, the inspection process may take a considerable amount of time. Therefore, we may not collect the accounts receivable on a timely manner or only after a period longer than our agreed payment terms.

We have a high level of assurance on the recoverability of these accounts receivable, based on our ongoing assessment of the customer’s credit-worthiness and their payment history. These customers are usually large state-owned corporations with good credit ratings. At the end of each period, we specifically evaluate the structure and collectability of accounts receivable and for receivables that are past due or not being paid according to the payment terms, and we take appropriate actions to exhaust all means of collection, including seeking legal resolution in a court of law. For customers with a large accounts receivable balance, we may take other steps, such as limiting sales and changing payment terms and requesting forms of security. We will consider an adjustment to the allowance for doubtful accounts for any estimated losses resulting from the inability of our customers to make required payments.

Account balances are charged off against the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered remote. The Company doesWe do not have any off-balance sheetoff-balance-sheet credit exposure related to its customers.

 

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Inventories

 

Inventories are stated at the lower of cost or market value (net realizable value), cost being determined on a weighted average method. Costs include material, labor and manufacturing overhead costs. The Company reviewsWe review historical sales activity quarterly to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company providesWe provide inventory allowances based on excess and obsolete inventories determined principally by customer demand.

 

Property, PlantEquipment and EquipmentVehicles

 

PlantEquipment and equipmentvehicles are stated at cost less accumulated depreciation and accumulated impairment, losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which the asset becomesthey become fully operational and after taking into account itstheir estimated residual values:

 

Items		Expected useful life lives		Residual value
Building		30-5020 years			5	%
Plant and machineryElectronic equipment		10-203 years			5	%
Furniture, fixture andOffice equipment		5-83 years			5	%
Furniture		5 years			5	%
Vehicle		4 years			5	%

 

ExpenditureExpenditures 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.

 

Land use rightLeases

 

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

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on our consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of obligations under capital leases, and obligations under capital leases, non-current on our consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the PRC is ownedpresent value of the future minimum lease payments over the lease term at commencement date, adjusted by the PRC government.deferred rent liabilities at the adoption date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The government inoperating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The terms may include options to extend or terminate the PRC, according to the relevant PRC law, may sell the right to use the land for a specified period of time. Thus, the Company’s land purchase in the PRClease when it is considered to be leasehold land andreasonably certain that we will exercise that option. Operating lease expense is stated at cost less accumulated amortization and any recognized impairment loss. Amortization is provided over the term of the land use right agreement on a straight-line basis which is 50 years and will expire in 2059.over the lease term.

 

Stock based compensationGoodwill

 

The Company adopts ASC Topic 718, "Stock Compensation", ("ASC 718") usingGoodwill represents the fair value method. Under ASC 718, stock-based compensation is measured usingexcess of the Black-Scholes Option-Pricing model onpurchase price over the date of grant. For non-employee stock based compensation, the Company adopts ASC Topic 505-50, “Equity-Based Paymentsamounts assigned to Non-Employees”, stock based compensation related to non-employees is accounted for based on the fair value of the related stockassets acquired and the liabilities assumed of an acquired business. In accordance with ASC 350, Goodwill and Other Intangible Assets, recorded goodwill amounts are not amortized, but rather are tested for impairment annually or optionsmore frequently if there are indicators of impairment present.

Goodwill is tested for impairment at the reporting unit level on at least an annual basis or when an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. These events or circumstances include a significant change in stock prices, business environment, legal factors, financial performances, competition, or events affecting the servicesreporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of reporting unit using a discounted cash flow methodology also requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for the reporting unit.

Management evaluated the recoverability of goodwill by performing a qualitative assessment before using a two-step impairment test approach at the reporting unit level. If we reorganize our reporting structure in a manner that changes the composition of one or more of our reporting units, goodwill will be reassigned based on the grant date, whicheverrelative fair value of each of the affected reporting units.

Convertible Promissory Notes

We record 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 more readily determinableamortized to interest expense over the life of the debt.

Derivative Instruments

We enter into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. We account for these arrangements in accordance with Accounting Standards Codification topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 718.815”) 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. We determine 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.

 

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Income taxes

Income taxesWe estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are determined in accordanceconsidered to be consistent with the provisionsobjective measuring fair values. In selecting the appropriate technique, we consider, among other factors, the nature of ASC Topic 740, “Income Taxes”(“ASC 740”). Under this method, deferred tax assetsthe instrument, the market risks that it embodies and liabilities are recognizedthe expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes model, adjusted for the future tax consequences attributableeffect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to differences betweenfair value these instruments. Estimating fair values of derivative financial instruments requires the financial statement carrying amountsdevelopment of existing assetssignificant and liabilitiessubjective estimates that may, and their respective tax basis. Deferred tax assetsare likely to, change over the duration of the instrument with related changes in internal and liabilitiesexternal market factors. In addition, option-based techniques (such as Black-Scholes model) are measured using enacted income tax rates expectedhighly volatile and sensitive to apply to taxable incomechanges in the years in which those temporary differencestrading market price of our common stock. Since derivative financial instruments 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 ascarried at fair values, our income (expense) going forward will reflect the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement withvolatility in these estimate and assumption changes. Under the tax authority assuming full knowledgeterms of the positionnew accounting standard, increases in the trading price of the company’s common stock and relevant facts.increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the company’s common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.

 

As at December 31, 2017 and 2016, the Company had no benefit or penalties regarding its income taxes. As of December 31, 2017, there are also no any significant uncertain tax items.

The main operations of the company are located in the PRC and have jurisdiction under the local tax law. As a result of these operations, the company’s tax returns are subject to examination by a foreign tax authority. As of December 31, 2017, the Company filed and cleared the tax returns of 2017 with the appropriate local PRC tax authority.

Foreign currencies translationCurrencies 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 Companyour company is the United States Dollar ("(“US$"”). The Company'sOur subsidiaries in the PRC maintain their books and records in their local currency, the Renminbi Yuan ("RMB"(“RMB”), which is the functional currency as beingit is the primary currency of the economic environment in which these entities operate.

 

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

 

Translation of amounts from RMB into US$ has been made at the following exchange rates for the respective year:Recent Developments

 

		2017				2016
Year-end RMB:US$ exchange rate			6.5064				6.9437
Annual average RMB:US$ exchange rate			6.7570				6.6430

An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 spread globally in 2020. This outbreak resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty.

 

Since the outbreak of the pandemic, our operations have been materially impacted. At the beginning of February 2020, the Chinese government issued a quarantine order, which lasted for more than two months in many parts of the country, where everyone had to stay at home. During February and March, all of our administrative functions had to be performed remotely. In July 2020, there was a second wave of COVID-19 and a lockdown in Dalian, which lasted for several weeks. As a result, sales in our pharmacy stores in Dalian continued to be severely impacted.

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Because of the pandemic, we also suffered a significant reduction in sales during the first quarter in 2020. As a result of the Chinese government’s lockdown order, our customer traffic plummeted. Certain of our popular and high profit margin products could not be sold due to the governmental restrictive orders, which also resulted in the expiration of a large quantity of our inventory of medicines that are otherwise in high demand in the winter season.

During the epidemic outbreak of 2020, our pharmacies experienced significant difficulty in obtaining products including prescription drugs, OTC drugs, TCM, nutritional supplements, sundry products and medical consumables from our suppliers for resale, pending the settlement of several large court judgements against Boqi Zhengji in favor of such suppliers. As a result, our retail pharmacy business had minimal sales. On December 11, 2020, we entered into a Termination and Release Agreement (the “Release Agreement”) with four individuals (the “Boqi Zhengji Sellers”) who sold Boqi Zhengji to the Company. The parties to the Release Agreement confirmed that Boqi Zhengji’s performance targets as stipulated in the Stock Purchase Agreement dated April 11, 2019 (as amended on February 6, 2020, the “Boqi SPA”) would not be met, and therefore the Boqi Zhengji Sellers would not be eligible to receive the Cash Consideration or any other additional payment under the Boqi SPA.

Since the acquisition of Guanzan Group, our wholesale distribution of medical devices and pharmaceuticals made a significant contribution to our company. We started to focus on deeper penetration of the healthcare market in the Southwest region of China and gain a wider footprint in the PRC. We decided to re-focus retail pharmacies to Chongqing due to our healthcare resource advantage in that region. By the end of 2020, we had opened five (5) retail pharmacies branded “Lijiantang”. We intend to open additional pharmacy stores to expand the geographic coverage of our pharmacy business and provide support to and benefit from Guanzan’s wholesale business. We believe that the pharmaceutical manufacturers and wholesalers from whom we source our products tend to provide deeper product discounts to companies with both wholesale and retail businesses.

Guoyitang and Zhongshan were acquired during February 2021 as part our plan to establish a more comprehensive healthcare platform, promote innovative internet healthcare services and to create a regional healthcare partnership. We plan to form partnerships with hospitals with regional reputation and emerging medical services facilities, with the goal of making quality medical care more accessible to the wider public, especially in less-developed areas, to provide health management and healthcare services for both urban and rural residents alike in a more inclusive and coherent manner. We believe that the hospital acquisitions will also accelerate our online-to-offline strategy. We believe that the online-to-offline platform, in combination with enhanced drug delivery and future telemedicine services, will help the hospitals expand the coverage of their services and offer better services to patients. 

Segment Reporting

In 2020 we were engaged in three business segments, the wholesale pharmaceuticals segment, wholesale medical devices segment and retail pharmacy segment.

RESULTS OF OPERATIONS

 

Year EndedComparison of the years ended December 31, 2017 compared to Year Ended December 31, 20162020 and 2019

		2020				% of Revenues				2019				Amount increase (decrease)				Percentage increase (decrease)
Revenues		$	12,844,902				100	%		$	-			$	12,844,902				N/A
Cost of revenues			10,402,085				81	%			-				10,402,085				N/A
Gross profit			2,442,817				19	%			-				2,442,817				N/A
Operating expenses			6,255,098				49	%			985,974				5,269,124				534	%
Other income (expense)			460,552				4	%			(550,057	)			1,010,609				(184	)%
Loss before income tax			(3,351,729	)			(26	)%			(1,536,031	)			(1,815,698	)			118	%
Income tax expense			434,306				3	%			-				434,306				-
Net loss from continuing operations			(3,786,035	)			(29	)%			(1,536,031	)			(2,250,004	)			146	%
Income (loss) from operations of discontinued operations			1,908,110				15	%			(2,916,248	)			4,824,358				(165	)%
Less: non-controlling interest			119,158				1	%			(13,714	)			132,872				(969	)%
Net loss attributable to BOQI International Medical Inc.		$	(1,997,083	)			(16	)%		$	(4,438,565	)		$	2,441,482				(55	)%

Revenues

 

The following discussion should be read in conjunction with the financial statements included in this report and is qualified in its entirety by the foregoing.

REVENUES

Total revenues were $8,508,173 and $6,041,261Revenues for the years ended December 31, 20172020 and 2016,2019 were $12,844,902 and $0, respectively. Total revenues increased by $2,466,912, or 40.83%, for the year ended December 31, 2017 compared to totalThe revenues for the year ended December 31, 2016.2020 were attributable to the revenues of the Guanzan Group and to a limited degree, the revenues of the Pharmacy Group’s directly-owned stores. The increase in total revenue wasof $12,844,902 is due to the delivered goods that have been confirmed as revenue, which resultedacquisition of the Guanzan Group in an increase in total revenue.2020.

 

Product Revenues

ProductWholesale sales of medical devices and pharmaceuticals generated revenues are derived principally fromof $3,059,462 and $9,701,353, respectively, in the sale of self-manufactured products and energy saving flow control equipment. Product revenues were $8,267,174 and $5,961,098 for the yearsyear ended December 31, 2017 and 2016, respectively. Product revenues2020.

Revenues from the retail pharmacy segment for the year ended December 31, 2017 increased by $2,306,076 or 38.68%,2020 were $84,087 compared to the product revenue forno revenues in the year ended December 31, 2016. The increase in product revenue was due2019. During the last quarter of 2020, we entered into the Release Agreement with the four individuals from whom we purchased Boqi Zhengji. In the agreement, we and the sellers confirmed that the performance targets relating to the delivered goods that have been confirmedcash consideration would not be met and as revenuea consequence they would not be eligible to receive any further consideration with respect to the sale of Boqi Zhengji to us. Subsequently, on December 11, 2020, we entered into an agreement to sell Boqi Zhengji in consideration of $1.7 million, which resulted in an increase in total revenue.

Service Revenueswas paid to us on December 18, 2020.

 

Service revenues are derived principally from energy-saving technical services and product collaboration processing services. The energy-saving technical services include providing energy saving auditing, conservation plans, and/or related service reports. The product re-processing services are generally billed on a time-cost plus basis. Service revenues were $240,999 and $80,163 for the years ended December 31, 2017 and 2016, respectively, an increase of $160,836 or 200.63%. The increase in service revenue was primarily due to the increase in orders relating to product collaboration processing services, which led to an increase the service revenues.

COSTS AND EXPENSES

Cost of Revenuesrevenues

 

Cost of revenues consists of primarily of material costs, direct labor, depreciation and manufacturing overhead, which are directly attributable to the manufacture of products and the rendering of services. Total cost of revenues was $7,591,659the medical devices, pharmaceuticals and $5,892,492 for the years ended December 31, 2017 and 2016, respectively. The total cost of revenues increased by $1,699,167 or 28.83% for the year ended December 31, 2017 comparedother products sold to the total costcustomers. Cost of revenues for the year ended December 31, 2016. The increase in cost of revenues2020 was primarily due to the increase in total revenues.

The overall gross profit for the Company was $916,514 and $148,769, or 10.77% and 2.46%, of total revenues, for the years ended December 31, 2017 and 2016, respectively.

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Cost of Products

Total cost of product revenues was $7,378,113 and $5,827,978 for the years ended December 31, 2017 and 2016, respectively. The cost of products increased by $1,550,135 or 26.59%$10,402,085 compared with $0 for the year ended December 31, 2017 compared to2019. The increase reflected the costcosts associated with operations of productsthe Guanzan Group.

Cost of revenue from the wholesale medical devices and the wholesale pharmaceuticals segments for the year ended December 31, 2016. The increase in cost of products was primarily due to the increase in total revenues2020 were $2,481,616 and $7,850,315 respectively.

 

The gross profit for products was $889,061 and $133,120, and the gross profit margin was 10.75% and 2.20% for the years ended December 31, 2017 and 2016, respectively.

Cost of Service

Total cost of service revenues was $213,546 and $64,514 forrevenue from the years ended December 31, 2017 and 2016, respectively. The cost of service revenues increased by $149,032 or 231%retail pharmacy segment for the year ended December 31, 2017 compared2020 was $70,154.

During 2020, the Company recorded an impairment loss of $9,294 with respect to theinventories, which was included in cost of revenues forrevenues. Due to COVID-19, a large portion of the year ended December 31, 2016. The increase was primarilyinventory maintained by Boqi Zhengji’s retail stores were unsold and expired. We also closed several Boqi Zhengji stores in 2020 due to poor performance, which resulted in the increase in service revenue. The gross margin for services was $27,453 and $15,649, or 11.39% and 19.52%, for the years ended December 31, 2017 and 2016, respectively.expiration of some of our inventory.

 

Operating Expenses

The total operating expenses were $2,111,585 and $1,628,819 or 24.81% and 26.96% of operating income, for the years ended December 31, 2017 and 2016, respectively. The total operating expenses increased by $482,766 or 29.63% for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase of operating expenses is mainly due to increases in property taxes and operating expenses of our subsidiaries.

Sales and marketing expenses

The total sales and marketing expenses were $63,451 and $35,820, or 0.75% and 0.59%, of total revenues, for the years ended December 31, 2017 and 2016, respectively. The increase is primarily due to increased consulting expenses of our subsidiaries.

General and administrative expenses

General and administrative expenses were $2,048,134 and $1,592,999, or 24.07%% and 26.37%, of total revenue, for the year ended December 31, 2017 and 2016, respectively. General and administrative expenses increased by $455,135 or 28.57%. The increase of general and administrative expenses is primarily due to the increases in property taxes and operating expenses of our subsidiaries. Property taxes increased by $55,322 (or 62.43%) as compared to last year.

Loss from Operations

As a result of the foregoing, our loss from operations was $1,195,071 and $1,480,050 for the year ended December 31, 2017 and 2016, respectively. The decrease of loss from operations was $284,979 or 19%. This decrease in loss from operations is primarily due to the increase in total revenues, partially offset by the increase in operating expenses.

31

Other ExpensesGross profit

 

For the year ended December 31, 2017, other expense was $380,600 as2020 we had a gross profit margin of 19% compared to $337,283with gross profit margin of 0% for the year ended December 31, 2016, which increased by $43,317 or 12.84%. The increase in other expenses was due to the decrease of the interest revenue and the increase of financial service charges.2019.

 

Income Tax Expenses

For the years ended December 31, 2017The gross profit margin of our wholesale medical devices and 2016, income tax expenses were $2,744 and $246, respectively. The increase of the income tax expenses was $2,498 or 1015.44%.

As of December 31, 2017, the Company’s operations in the United States of America incurred $3,922,063 of cumulative net operating losses, which can be carried forward to offset future taxable income. The net operating loss carry forwards begin to expire in 2037, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $823,633 on the expected future tax benefits from the net operating loss carry forwards as the management believes it is more likely than not that these assets will not be realized in the future.

Net loss

As a result of the foregoing, we recorded a net loss of $1,578,415, a 18.55% loss margin on revenuewholesale pharmaceuticals segments for the year ended December 31, 2017, as compared to net loss of $1,817,579, a 30.08% loss2020 were 18.9% and 19.1%, respectively. Our retail pharmacy segment’s gross profit margin on revenues, for the year ended December 31, 2016. The net loss2020 was 16.6%.

Operating expenses

Operating expenses consist mainly of amortization of convertible notes, convertible notes issuance-related costs, auditing and legal service fees, other professional service fees and promotional expenses.

Operating expenses were $6,255,098 for the year ended December 31, 2017 decreased by $239,164 or 13.15%, as2020 compared to $985,974 for the year ended December 31, 2016.2019, an increase of $5,269,124, or 534%. The decrease of net lossincrease is primarilymainly due to amortization of convertible notes, and issuance-related costs for the increase of both product revenues and the gross profit, partially offset by the increase in operating expenses.

LIQUIDITY AND CAPITAL RESOURCESconvertible notes.

 

Operating activitiesexpenses for the year ended December 31, 2020 consist mainly of amortization of the convertible notes in the amount of $2,091,927, meeting and promotional expenses in the amount of $938,086, depreciation and amortization expense of $56,041, audit fee of $329,693, convertible notes issuance-related costs in the amount of $211,425, legal fees of $172,575 and other professional service fees in the amount of $880,505.

 

For the year ended December 31, 2017,2020, operating expenses of $4,365,751 were allocated to the parent company, which include amortization of convertible notes of $2,091,927 and professional service fees of $903,573. Operating expenses of the wholesale medical devices segment for the year ended December 31, 2020 were $88,932. Operating expenses of the wholesale pharmaceuticals segment for the year ended December 31, 2020 were $842,421. Operating expenses of the retail pharmacy segment for the year ended December 31, 2020 were $376,415.

Other income (expenses)

For the year ended December 31, 2020, we reported other income of $460,552 compared to other expense of $550,057 for the year ended December 31, 2019. For the year ended December 31, 2020, other income mainly consisted of the exchange gains resulting from the appreciation of the RMB against the US dollar during 2020; and amortization of the discount applicable to the issuance of convertible promissory notes.

In 2020, the exchange rate of Chinese RMB to US dollars increased from $1 = ¥6.9762 to $1 = ¥ 6.5249. As substantially all of our assets and revenues are denominated in RMB, we reported exchange gains of $547,114 for the year ended December 31, 2020, as a result of such exchange rate change and exchange gains/losses related to non-currency assets and liabilities, compared to exchange gains of $Nil for the year ended December 31, 2019.

For the year ended December 31, 2019, other loss of $550,057 mainly consisted of: (i) the change in fair value of derivative liabilities related to the convertible promissory notes issued during 2019; and (ii) amortization of the discount applicable to the issuance of convertible promissory notes. 

Net loss from continuing operation

Net loss from continuing operations was $3,786,035 for the year ended December 31, 2020 compared to a net loss of $1,536,031 for the year ended December 31, 2019, an increase of $2,250,004, which was primarily a result of the significantly increased operating expense of the parent company and the operating expenses of the Guanzan Group.

Income (Loss) from operations of discontinued operations

As a result of the plans to dispose of the NF Group and Boqi Zhengji and the actions taken to fulfill the plans, the businesses of the NF Group and Boqi Zhengji are recorded as discontinued operations in accordance with ASC 205-20 Presentation of Financial Statements – Discontinued Operation and the results of the operations of the NF Group and Boqi Zhengji are presented under the line item net loss from discontinued operations for the years ended December 31, 2020 and 2019.

Income from the discontinued operation was $1,908,110 for the year ended December 31, 2020 compared to a loss of $2,916,248 for the year ended December 31, 2019, which was primarily due to the income recognized upon the disposal of the NF Group and Boqi Zhengji.

Net Loss

We reported a net loss of $1,877,925 for the year ended December 31, 2020 compared to a net loss of $4,452,279 for the year ended December 31, 2019, a decrease of $2,574,354.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At December 31, 2020, we had cash of $135,309 and working capital of $9,619,274 as compared to cash of $1,601 and working capital of $8,512,585 at December 31, 2019.

Beginning on September 27, 2019, we sold $1,534,250 of convertible notes to various investors that matured during the period beginning September 27, 2020 and ending on March 13, 2021. Each of these notes was issued for a term of 12 months, carrying 6% annual interest rate and convertible into the Company’s common stock. According to the applicable agreements, each holder of such notes had the right during the period beginning one hundred eighty (180) calendar days following the date of their issuance and ending on the maturity date, to convert all or any part of the outstanding and unpaid principal into shares of common stock. All of the above notes were converted into shares of our common stock during the year ended December 31, 2020. 

On February 1, 2020, we entered into a stock purchase agreement to acquire Guanzan. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Guanzan and its subsidiary, Shude, for RMB 100,000,000 (approximately $14,285,714) to be paid by the issuance of 950,000 shares of our common stock and the cash payment of RMB 80,000,000 (approximately $11,428,571.) On March 18, 2020, we closed the Guanzan acquisition by delivering 950,000 shares of our common stock. In addition, we assumed bank indebtedness of $1,135,884 in connection with the acquisition.

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 Convertible Notes do not bear interest except upon the occurrence of an event of default.

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 2020 Notes mature on the eighteen-month anniversary of the issuance date, are payable in installments and are convertible at the election of the investors at the conversion price of $2.59 per share, subject to adjustment in the event of default. Each investor also received a warrant to purchase 650,000 shares of our company’s common stock at an initial exercise price of $2.845 per share. The placement agent for the private placement received a warrant to purchase up to 171,845 shares of our common stock at an initial exercise price of $2.845 per share, subject to increase based on the number of shares of common stock issued pursuant to the 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 760,000 shares of common stock at an initial exercise price of $2.845 per share. The placement agent for the private placement received a warrant to purchase up to 173,745 shares of our common stock at an initial exercise price of $2.845 per share, subject to increase based on the number of shares of common stock issued pursuant to the Additional Notes.

In connection with the May SPA, the Institutional Investors and the Chairman of the Board our company, Mr. Yongquan Bi, entered into a Shareholder Pledge Agreement, pursuant to which Mr. Bi agreed to pledge 1.5 million shares of common stock beneficially owned by him, in favor of the Institutional Investors to secure our performance of our obligations in the above two private placement transactions.

On June 23, 2020, we completed the disposition of the NF Group, at which time we received $10 million from the buyer.

On December 11, 2020, we entered into the Release Agreement extinguishing our obligation to pay any additional consideration in connection with the purchase of Boqi Zhenji. We subsequently sold all the issued and outstanding shares of the capital stock of Boqi Zhengji in consideration of $1,700,000 on December 11, 2020.

As a result of the receipt of the proceeds of the sales of the NF Group and of Boqi Zhenji and the proceeds from the issuance of the Additional Notes, management believes we have sufficient financial resources to fund our operations for at least the next twelve months.

The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2020 and 2019, respectively.

		For the years ended December 31,
		2020				2019
Net cash used in operating activities		$	(3,517,733	)		$	(2,064,792	)
Net cash provided (used in) by investing activities			(724,465	)			166,717
Net cash provided by financing activities			3,989,066				1,836,103
Exchange rate effect on cash			386,840				63,573
Net cash inflow		$	133,708			$	1,601

Operating Activities

We used $3,517,733 in our operations during the year ended December 2020, which included cash provided in the discontinued operations of $843,382, as compared to $2,064,792 used in our operations in the year ended December 31, 2019, which included cash used in the discontinued operations of $995,631.

The increase in the amount of cash used in operating activities was $908,229. This wasprimarily attributable primarily to net loss of $1,578,415, adjusted bythe change in accounts receivable, inventories and advances from customers. During the year ended December 31, 2020, adjustments for non-cash items of depreciation andprimarily included the gains recorded on the amortization of $944,012 an increase in accounts and retention receivable by $4,814,628, a decrease in inventories by $2,746,175, an increase in prepayment and other receivable by $316,621, an increase in the accounts payable by $330,012 and an increase in other payable and accrued liabilities by $1,388,543.convertible notes of $2.09 million.

Investing Activities

 

We have followed ASC 230-10-45-28 and choose to provide information about major classes of cash flow items byCash used in investing activities was $724,465 for the indirect method. In the statement of cash flows, we have reported the same amount for net cash flow from operating activities indirectly by adjusting net income to reconcile it to net cash flow from operating activities. The reconciliation has separately reported all major classes of reconciling items, for example, changes during the period in accounts receivables pertaining to operating activities, in inventory, and in payables pertaining to operating activities.

32

As ofyear ended December 31, 2017,2020 compared to $166,717 provided by investing activities for the decrease ofyear ended December 31, 2019. Cash used in investing activities for the inventoriesyear ended December 31, 2020 was mainly due to the delivered goodsclosing payments of $9,195,543 for the acquisitions of Guoyitang and Zhonshan and a deposit of $3,065,181 made in connection the pending acquisition of Cogmer that we did not complete. We expect to receive the return of the deposit of $3,065,181 in April 2021. During the year ended December 31, 2020, we received $ 11,700,000 from the disposal of the discontinued operations of NF Group and Boqi Zhengji.

Financing Activities

Cash provided by our financing activities was $3,989,066 for the year ended December 31, 2020 compared to $1,836,103 for the year ended December 31, 2019, which has been confirmed asincluded $793,874 provided by our discontinued operations. During the revenue.year ended December 31, 2020, we raised $3.45 million through the issuance of convertible promissory notes and $0.60 million from loans.

Contingent Contractual Obligations

 

As of December 31, 2017, accounts and retention receivable was $13,523,894, 99.92% and 0.08%2020, we had a $12,260,724 contractual obligation, which is the maximum amount of the product revenue and project revenue, respectively.

The Companycash consideration for the Guoyitang Acquisition, which is highly aware the risk of default, and as a result, we actively monitor accounts receivable with aging above 1 year and those that account for about 17% of the total accounts receivable, thus we believe there is no significant credit risk. The Company will consider an allowance for doubtful accounts for any estimated losses resulting from the inability of its customerssubject to make required payments. The Company’s accounts and retention receivable aging was as follows:

Items		Total				1-90 days				91-180 days				181-365 days				Above 365 days
Product			13,513,181				5,306,583				578,140				2,903,719				4,724,739
Service
Project			10,713				9,176				-				-				1,537
Total			13,523,894				5,315,759				578,140				2,903,719				4,726,276
Less: retention receivable			545,940				24,375				36,537				114,611				370,417
Less: allowance for doubtful accounts			760,164				-				-				-				760,164
Accounts receivable, net			12,217,790				5,291,384				541,603				2,789,108				3,595,695

Most of our customers make payments in accordance with the agreed payment terms in a timely manner. In rare cases, we may offer extended payment terms to certain customers for equipment sales. These customers are usually large state-owned corporations with good credit ratings. At the end of each period, we evaluate the structure and collectability of accounts receivable and for those receivables that are past due or not being paid accordingpost-closing adjustments pursuant to the payment terms. We take appropriate actions to exhaust all means of collection, including seeking legal resolution in a court of law, for our collection efforts. Meanwhile, the Company also adopted strict sales polices according to the signed contracts. The Company evaluated the existing customers and potential customers; as well as reducing their credit in the sales and raising the quality of contracts and controls on the doubtful accounts.Guoyitang SPA.

 

As of December 31, December, 2017,2020, we had a $15,325,905 contractual obligation, which is the accounts receivable of two customers with aging above 365 days are expected to be collected between April and June, 2018 . The Collecting time indicated below:

Collected amount by end of

Customer

AR with aging above 365 days

June  2018

September 2018

December 2018

Customer “A”

4,522,932

1,356,879

1,659,839

1,506,210

We offer a free 12 months of product warranty on a case-by-case basis, depending upon the type of customers, nature and sizemaximum amount of the infrastructure projects. Under such arrangements, a portion ofcash consideration for the project contract balance (usually 5-10% of contract value)Zhongshan Acquisition, which is withheld by a customer from 12subject to 24 months, untilpost-closing adjustments pursuant to the product warranty has expired.

33

Investing activitiesZhongshan SPA.

 

As a result of 31 December, 2017, netthe Guanzan acquisition on February 2020, we incurred a $11.4 million contractual obligation, which is the maximum amount of cash usedconsideration, which is subject to post-closing adjustments pursuant to the Guanzan SPA. Such amount was reduced to $9.58 million as the result of a $1,820,000 pre-payment of 1 million shares of our common stock valued at $1.82 per share. In addition, we assumed bank indebtedness of $1,135,884 in investing activities was $0.

connection with the acquisition.

 

Financing activities

In March 2017, the Company obtained a Short term bank loan of $6,147,814 (Equivalent to RMB 40,000,000) from SPD Bank, due March 19, 2018, monthly payable, which is guaranteed by its vendor.

Inflation and Seasonality

 

We do not believe that our operating results have been materially affected by inflation or seasonality during the relatively moderate rate ofpreceding two years. There can be no assurance, however, that our operating results will not be affected by inflation overin the past few years has not had a significant impact on our results of operations.future. At present we are able to increase our product sale prices due to offset the rising prices of raw materials.charged by our suppliers.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any material off-balance sheet arrangements.

 

IMPACT OF RECENTLY ISSUED NEW ACCOUNTING STANDARDS

 

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

34

 

ITEM 8.8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATADATA.

 

NF ENERGY SAVING CORPORATIONThe Report of the Independent Registered Public Accounting Firm, and our Financial Statements and accompanying Notes to the Financial Statements that are filed as part of the report, are listed under “Item 15. Exhibits and Financial Statement Schedules” and are set forth beginning on page F-1 immediately following the signature pages to this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTSNone

ITEM 9A. CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures.

Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective, based on the material weaknesses described below.

(b)

Management’s Annual Report on Internal Control over Financial Reporting

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

●

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company;

●

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with management authorization; and

●

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on this assessment, our management concluded that, as of December 31, 2020, our internal control over financial reporting is not effective.

In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at December 31, 2020:

●

Due to our limited resources, we do not have accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which could lead to untimely identification and resolution of accounting matters inherent in our financial transactions in accordance with US GAAP.

Management’s Remediation Plan

While management believes that the financial statements we previously filed in our SEC reports have been properly recorded and disclosed in accordance with US GAAP, based on the control deficiencies identified above, management is currently seeking to engage an outside consultant with considerable public company reporting experience and breadth of knowledge of US GAAP to provide additional training to its accounting personnel in connection with the preparation and review of our financial statements. Management’s plans to remediate the control deficiencies were impaired due to the impact of COVID-19 on its operations.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the exemption provided to issuers that are neither “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Page(c)

Changes in Internal Controls

No change in our internal control over financial reporting occurred during the last fiscal quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The persons listed below are the current officers and directors of the Company as of the filing date of this report. Our directors are elected at the annual meeting of shareholders, or may be appointed by the Board to fill an existing vacancy, and hold office for one year and until their successors are elected and qualified. Our officers are appointed by the Board of Directors and serve at the pleasure of the Board.

Name		Age		Position
Yongquan Bi		44		Chairman of the Board
Tiewei Song		49		Director, Chief Executive Officer and President
Jun Jia		32		Chief Financial Officer
Xiaoping Wang		41		Chief Operating Officer
Mia Kuang Ching		55		Independent Director, Chair of Audit Committee
Ju Li		42		Independent Director, Chair of Nomination Committee
Fengsheng Tan		56		Independent Director, Chair of Compensation Committee

Biographical Information of Our Current Directors and Executive Officers

Yongquan Bi has been a director of our company since his election in May 2018 and has been our Chairman since February 2019. He served as our CEO from February 2019 to September 2019. Mr. Bi was the founder, and has served as the Chairman of the Board of the Boqi Xinhai Group since 2009. The Boqi Xinhai Group operates in multiple industries including automobile and grocery stores. He also serves as a director of BIQI International Holdings Corp., which is in the business of breeding, raising, and selling hogs for use in China’s pork production. In 2015, Mr. Bi participated in the senior class of investment and financing of Chinese enterprises in Tsinghua University. Mr. Bi has more than 15 years of industry experience in the financial sector.

Tiewei Song was elected to the Board of Directors on May 18, 2018. He was appointed as our CEO and President in October 2019. From December 2012 to October 2019, Mr. Song served as both the president and director of Shenyang Langzi Investment Management Co., Ltd., an asset management consulting firm. From July 2008 to July 2013, Mr. Song was the chief representative of German Varengold Bank in China. From October 1999 to May 2008, Mr. Song was the executive director and president of Liaoning Jiachang Group, a consulting firm. He also serves as a director of BIQI International Holdings Corp. Mr. Song graduated from Peking University with bachelor’s and master’s degrees in mathematics.

Jun Jia has been our Chief Financial Officer since September 2020. Prior thereto and since October 2018, Mr. Jia was our assistant Chief Financial Officer, supporting the Chief Financial Officer in managing the financial and audit activities of our company. From August 2015 to October 2018, Mr. Jia was the Director of Meihuo Pharmaceutical Co., Ltd., a Shanghai Stock Exchange listed company) responsible for the company’s audit work. From September 2010 to August 2015, Mr. Jia was the Deputy Director of Finance of Paisi Co., Ltd., a Shanghai Stock Exchange listed company, in charge of the company’s financial affairs. From September 2005 to August 2010, Mr. Jia worked at Yi Fang Group as the Deputy Chief Financial officer, responsible for the company’s financial analysis and management. Mr. Jia holds a masters’ degree in finance from the British Loughborough University and an MBA degree from the Leicester University in London.

Xiaoping Wang has been our Chief Operating Officer since February 2020. He is supervising our retail pharmacy, wholesale pharmaceuticals and wholesale medical device segments a. From July 2014 to January 2020, he served as the Supervisor of Chongqing Guanzan Technology Co., Ltd. and the General Manager of Chongqing Shude Pharmaceutical Co., Ltd. From October 2004 to June 2014, he was the President of Sales, and later the President of National Sales at Fujian Hongcheng Bio-Medical Co., Ltd.. Mr. Wang graduated from Chongqing Pharmaceutical High Level Specialty School and holds an MBA degree from Chongqing Normal University.

Ju Li has served as a Director since January 2019. He has extensive financial investment and enterprise management experience. From January 2017 to present, Mr. Li has served as the General Manager of Oxxas GmbH, a clothing retailer, responsible for the company’s daily operation, including creating the company’s business plans and promoting the company’s business. From April 2015 to February 2017, Mr. Li was the general manager of Asia Pacific at Sensus Asset Management Co., Ltd., an asset management firm. From March 2009 to February 2015, Mr. Li was the general manager of Asia Pacific at Varengold Bank. Mr. Li holds a B.A. degree from the Bremen University of Applied Sciences, Germany.

Mia Kuang Ching has served as an independent Director of the Company since August 2009 and is Chairman of the Audit Committee. Since October 2013, he has served as the Managing Director of Le Yu Corporate Advisory Pte Ltd., a human resources consulting firm. From January 2012 to October 2013, he worked as an M&A consultant. May 2001 until December 2, 2011 he was the managing partner of SBA Stone Forest Corporate Advisory (Shanghai) Co., Ltd. From 1997 to 2000, he was the Chief Accountant of Dalian Container Terminal, a joint venture formed by PSA Corporation of Singapore and the Port of Dalian Authority. From 1994 to 1997, he was the Group Financial Controller of Fullmark Pte. Ltd., responsible for operations in China, Hong Kong, Malaysia and Vietnam and was in-charge of its strategic investment, group financing and mergers and acquisitions. From 1992 to 1994 he was Regional Accountant (South Europe) of Singapore Airlines.

Fengsheng Tan was elected to our Board of Directors on May 18, 2018. He has been a lawyer with the Liaoing New Century law firm since February 2005. From January 1997 to January 2005 he was a lawyer with the Liaoing Asia-Pacific Law Firm and Mr. Tan graduated from the law faculty of Liaoning University and has more than 20 years’ experience as a lawyer.

Family Relationships

There are no family relationships between or among any of the current directors or executive officers.

Audit Committee

The current members of our audit committee are Mia Kuang Ching (Chair), Ju Li and Fengsheng Tan, each of whom we believe satisfies the independence requirements of the Securities and Exchange Commission and NASDAQ. We believe Mr. Ching is qualified as an audit committee financial expert under the regulations of the SEC by reason of his work experience. Our audit committee assists our Board of Directors in its oversight of:

●

The integrity of our financial statements;

●

Our independent registered public accounting firm’s qualifications and independence; and

●

The performance of our independent auditors.

Code of Ethics

The Company has adopted a code of ethics (the “Code of Ethics”) that applies to the Company’s principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethics has been filed as an exhibit to this Annual Report. The Code of Ethics is designed with the intent to deter wrongdoing, and to promote the following:

●

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

●

Full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communication made by the Company;

●

Compliance with applicable governmental laws, rules and regulations;

●

The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

●

Accountability for adherence to the Code.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, or written representations that no other reports were required, to the best of our knowledge, Jun Jia, Ju Li and Fengsheng Tan, Xiaoping Wang have not filed Forms 3 with the SEC.

ITEM 11. EXECUTIVE COMPENSATION

Compensation of Executive Officers

We agreed to pay our Chief Executive Officer, Mr. Tiewei Song, a salary of $500,000 each year starting in October 2019. We paid Mr. Song $0 and $28,992 in 2020 and 2019, respectively. We paid our Chief Financial Officer. Jun Jia. a salary of RMB 240,000 (approximately $38,000) in 2020. We did not provide any compensation to Mr. Xiaoping Wang, our Chief Operating Officer for the year ended December 31, 2020,

Employment Agreements, Termination of Employment and Change-in-Control Arrangements

Except as described below, we currently have no employment agreements with any of our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement or any other termination of any of our executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control.

Agreement with Mr. Tiewei Song

The Company entered into an employment agreement (the “Song Agreement”) with Mr. Tiewei Song (“Mr. Song”) dated October 1, 2019, under which Mr. Song will serve as our Chief Executive Officer for a term of two years commencing October1, 2019 with base annual cash compensation of $500,000. During the term of employment, Mr. Song will perform the duties as are commensurate and consistent with his position and will devote his full working time, attention and efforts to the Company and to discharging the responsibilities of his position, and such other duties as may be assigned from time to time by the Company, which relate to the business of the Company and are reasonably consistent with his position. During the term of employment, Mr. Song will not engage in any business activity that, in the reasonable judgment of the board of directors of the Company, conflicts with his duties under the Song Agreement, whether or not such activity is pursued for gain, profit or other advantage.

The Song Agreement and employment thereunder may be terminated (1) automatically upon the death or Total Disability (as defined in the Song Agreement) of Mr. Song, (2) without Cause by the Company or for Good Reason (both as defined in the Song Agreement) by Mr. Song, in which case Mr. Song shall be entitled to receive termination payments and benefits, including without limitation, an amount equal to six (6) months’ salary, unpaid salary earned through the date of termination and unused vacation that has accrued and would be payable under the Company’s standard and COBRA and other benefits, or (3) in connection with a Change of Control (as defined in the Song Agreement), in which case Mr. Song shall be entitled to receive a change in control severance payment in the amount equal to $10,000,000, and other benefits.

Compensation of Directors

As at December 31, 2020, we had five non-employee directors, of whom only Mr. Mia Kuang Ching has received compensation, as set forth in the table below. Other non-employee directors received no compensation for their services as directors. Directors who are also employees of the Company and/or its subsidiaries received no additional compensation for their services as directors:

Name		Compensation				Other Fees				Total
Mia Kuang Ching		$	24,000				-			$	24,000

Outstanding Equity Awards

We have not implemented a stock option plan at this time and since inception, we have not issued any stock options, stock appreciation rights or other equity awards to our executive officers. We may decide, at a later date, and reserve the right to, initiate such a plan or plans as deemed appropriate by the Board of Directors.

Pension Benefits

We have not entered into any pension benefit agreements with any of our executive officers or directors. We contribute to the social insurance for our employees each month, which includes pension, medical insurance, unemployment insurance, occupational injuries insurance and housing provision funds in accordance with PRC regulations.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information regarding beneficial ownership of our common stock as of March 24, 2021 for: (i) each stockholder known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock; (ii) each of our directors and director nominees; (iii) each of our named executive officers; and (iv) all of our directors and executive officers as a group:

Name and Address of Beneficial Owner(s)		Amount and Nature of Beneficial Owner(s) (1)				Percentage of Beneficial Ownership
Yongquan Bi, Chairman, Chief Executive Officer			1,500,000				11.32	%
Yu Zhang			1,100,000				10.79	%
Jun Jia, Chief Financial Officer			-				—
Xiaoping Wang, Chief Operating Officer			-				—
Gang Li			1,899,409				14.33	%
Mia Kuang Ching, Director			-				—
Tiewei Song, Director			-				—
Fengsheng Tan, Director			-				—
Ju Li, Director			-
All officers and directors as a group (7 persons)			4,499,409				36.44	%

(1)

Pursuant to Rule 13-d-3 under the Securities Exchange Act of 1934, as amended, beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the voting) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to a security whether through a contract, arrangement, understanding, relationship or otherwise. Unless otherwise indicated, each person indicated above has sole power to vote, or dispose or direct the disposition of all shares beneficially owned.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Transactions with related persons, promoters and certain control persons

Amount due to related parties

As of December 31, 2020 and 2019, the total amounts payable to related parties was $226,514 and $382,037, respectively, which included:

1.

Amount payable to Mr. Yongquan Bi, the former Chief Executive Officer and current Chairman of the Board of Directors of our company, of $29,566 and $376,639, as of December 31,2020 and 2019, respectively, free of interest and due on demand. The amount represents the remaining balance that Mr. Bi advanced for third party services on behalf of our company during the ordinary course of business in 2020 and 2019, respectively.

2.

Amount payable to Mr. Yongjian Zhang, one of the directors of Nengfa Technology, of $0 and $4,681, as of December 31,2020 and 2019, respectively, free of interest and due on demand. The amount was advanced in several transactions for our daily operating expenditures during 2019.

3.

Amount payable to Mr. Fuqing Zhang, the Chief Executive Officer of Xinrongxin of $184,370 and $717, as of December 31,2020 and 2019, respectively, free of interest and due on demand. The amount due to Mr. Fuqing Zhang relates to reimbursable operating expenses that we owed to Mr. Fuqing Zhang during and before the acquisition of Boqi Zhengji.

4.

Amount payable to Mr. Youwei Xu, the financial manager of Xinrongxin of $12,578 and $0, as of December 31,2020 and 2019, respectively, free of interest and due on demand. The amount due to Mr. Youwei Xu, relates to reimbursable operating expenses that the we owed to Mr. Fuqing Zhang during and before the acquisition of Boqi Zhengji.

Director Independence

We undertook a review of the independence of our directors and, using the definitions and independence standards for directors provided in the rules of The NASDAQ Stock Market, considered whether any director has a material relationship with us that could interfere with his or her ability to exercise independent judgment in carrying out their responsibilities. As a result of this review, we determined that Mia Kuang Ching, Ju Li and Fengsheng Tan were “independent directors” as defined under the rules of The NASDAQ Stock Market.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table represents the aggregate fees billed for professional audit services rendered by our independent auditors, Audit Alliance LLP and HHC, for their audit of our annual financial statements during the years ended December 31, 2020 and 2019 respectively:

		2020				2019
Audit Fees		$	195,000			$	150,000
Audit-Related Fees			-				-
Tax Fees			-				-
All Other Fees			134,693				-
Total Accounting Fees and Services			329,693				150,000

Audit Fees. These are fees for professional services for the audit of our annual financial statements, and for the review of the financial statements included in our filings on Form 10-Q, and for services that are normally provided in connection with statutory and regulatory filings or engagements. The amounts shown for Audit Alliance LLP and HHC in 2020 and 2019, respectively, relate to the audits of our annual financial statements and the review of the financial statements included in our filings on Form 10-Q.

Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements. There were no audit-related fees billed during the years ended December 31, 2020 and 2019.

Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning. There were no tax fees billed during the years ended December 31, 2020 and 2019.

All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e. Audit Fees, Audit-Related Fees, Tax Fees and allowable working costs. All other fees incurred in 2020 mainly consist of costs relating to the assurance, due diligence and valuation services in connection with the acquisition of Guanzan Group and other target companies.

The audit committee has the sole and direct responsibility for appointing, evaluating and retaining our independent registered public accounting firm and overseeing their work. All audit services to be provided to us and all non-audit services, other than de minims non-audit services, to be provided to us by our independent auditors must be approved in advance by our audit committee.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements.

A list of the financial information included herein, are included in Part II, Item 8 of this Report

(a)(2) Financial Statement Schedules.

All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or Notes thereto.

(a)(3) Exhibits. The list of Exhibits filed as a part of this Form 10-K are set forth on the Exhibit Index immediately preceding such Exhibits and is incorporated herein by this reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.

	BOQI INTERNATIONAL MEDICAL INC.
	By:	/S/ TEWEI SONG
		Tewei Song
		Chief Executive Officer
		Dated: March 31, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures		Title		Date
/s/ Yongquan Bi		Chairman of the Board		March 31, 2021
Yongquan Bi
/s/ Tiewei Song		Director and Chief Executive Officer		March 31, 2021
Tiewei Song		(Principal Executive Officer),
/s/Mia Kuang Ching		Director		March 31, 2021
Mia Kuang Ching
/s/ Ju Li		Director		March 31, 2021
Ju Li
/s/ Fengsheng Tan		Director		March 31, 2021
Fengsheng Tan
/s/Jun Jia		Chief Financial Officer		March 31, 2021
Jun Jia		(Principal Financial and Accounting Officer)

INDEX TO EXHIBITS

Exhibit Number		Description		Incorporated by Reference to
3.1		Certificate of Incorporation		Exhibits with the corresponding numbers filed with our registration statement on Form 10-SB filed January 17, 2003.(File No. 000-50155).
3.2		Certificate of Amendment		Exhibits submitted with our registration statement on Form 10-SB filed January 17, 2003.(File No. 000-50155)
3.3		Certificate of Amendment to Certificate of Incorporation		Incorporated by reference from the Company’s Definitive Information Statement on Schedule 14C, filed July 23, 2009
3.4		Certificate of Amendment to Certificate of Incorporation		Incorporated by reference from the Company’s Current Report on Form 8-K, dated September 16, 2010
3.5		Certificate of Amendment to Certificate of Incorporation		Incorporated by reference from the Company’s Current Report on Form 8-K dated December 18, 2019
3.6		Bylaws		Exhibits submitted with our registration statement on Form 10-SB filed January 17, 2003. (File No. 000-50155)
4.1		Description of Securities Registered Under Section 12 of the Exchange Act		Incorporated by reference from the Company’s Annual Report on Form 10-K for year December 31, 2019
10.1		Securities Purchase Agreement by and between the Registrant and Yongquan Bi, dated March 12, 2018		Incorporated by reference from the Company’s Annual Report on Form 10-K for year December 31, 2019
10.2		Executive Employment Agreement (Song Tiewei) dated October 1, 2019		Incorporated by reference from the Company’s Current Report on Form 8-K dated October 4, 2019
10.3		Form of Securities Purchase Agreement dated May 18, 2020		Incorporated by reference from the Company’s Current Report on Form 8-K dated May 18, 2020
10.4		Form of Secured Convertible Promissory Note dated May 2020.		Incorporated by reference from the Company’s Current Report on Form 8-K dated May 18, 2020
10.5		Form of Warrant dated May 2020.		Incorporated by reference from the Company’s Current Report on Form 8-K dated May 18, 2020.
10.6		Form of Shareholder Pledge Agreement dated May 2020.		Incorporated by reference from the Company’s Current Report on Form 8-K dated May 18, 2020
10.7		Form of Voting Agreement dated May 2020.		Incorporated by reference from the Company’s Current Report on Form 8-K dated May 18, 2020
10.8		Form of Registration Rights Agreement dated May 2020.		Incorporated by reference from the Company’s Current Report on Form 8-K dated May 18, 2020

10.9		Prepayment and Amendment Agreement dated November 20, 2020		Incorporated by reference from the Company’s Current Report on Form 8-K dated November 20, 2020
10.10		Form of Waiver Agreement dated November 23, 2020		Incorporated by reference from the Company’s Current Report on Form 8-K dated November 23, 2020
10.11		Stock Purchase Agreement dated December 7, 2020		Incorporated by reference from the Company’s Current Report on Form 8-K dated December 7, 2020
10.12		Stock Purchase Agreement dated December 11, 2020		Incorporated by reference from the Company’s Current Report on Form 8-K dated December 11, 2020
10.13		Stock Purchase Agreement dated December 14, 2020		Incorporated by reference from the Company’s Current Report on Form 8-K dated December 14, 2020
10.14		Form of Amendment dated February 24. 2021		Incorporated by reference from the Company’s Current Report on Form 8-K dated February 24, 2021
14.1		Code of Ethics of the Registrant		Incorporated by reference from the Company’s Annual Report on Form 10-K, filed on March 30, 2018
21.1		Subsidiaries of the Registrant
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.		DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.		PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

BOQI INTERNATIONAL MEDICAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm- Audit Alliance LLP		F-2
Consolidated Balance SheetsReport of Independent Registered Public Accounting Firm - HHC	F-3	F-4
Consolidated Statements of OperationsBalance Sheets	F-4	F-5
Consolidated Statements of Operations and Comprehensive Income (Loss)Loss	F-5	F-6
Consolidated Statements of Cash Flows	F-6	F-7
Consolidated Statements of Changes in Stockholders’ Equity	F-7	F-8
Notes to Consolidated Financial Statements	F-8	F-9 – F-23F-36

 

F-1UEN: T12LL1223B GST Reg No : M90367663E

Tel: (65) 6227 5428

20 Maxwell Road, #11-09, Maxwell House, Singapore 069113

Website : www.allianceaudit.com

Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TheTo the Board of Directors and StockholdersShareholders of

NF Energy Saving CorporationBOQI International Medical, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NF Energy Saving CorporationBOQI International Medical, Inc. and its subsidiariesSubsidiaries (the “Company”)Company) as of December 31, 2017 and 2016,2020, and the related consolidated statements of operation,operations, comprehensive income (loss),loss, stockholders’ equity and cash flows and changes in stockholders’ equity for each of the years in the two-year period ended December 31, 2017,2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2020 and the consolidated results of its operations and its cash flows for the years ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Substantial doubt about the Company’s ability to continue as a going concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring significant losses and has accumulated deficiency in stockholders’ equity. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

AUDIT ALLIANCE LLP®

Goodwill- Guanzan Group Unit - Refer to Note 4 and Note 14

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company used the discounted cash flow model to estimate fair value, which requires management to make significant estimates and assumptions related to discount rates and forecasts of future revenues and operating margins. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance amounting to RMB 6.91 million as of December 31, 2020, was allocated to the Guanzan Group Reporting Unit. The fair value of the Guanzan Group Reporting Unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

We identified goodwill impairment for the Guanzan Group Reporting Unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of the Guanzan Group Reporting Unit and the difference between its fair value and carrying value. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and operating margin.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures relating to the discount rate and forecasts of future revenue and operating margin used by management to estimate the fair value of the Guanzan Group Reporting Unit included the following, among others:

/s/ Audit Alliance LLP

Singapore

March 31, 2021

We have served as the Company’s auditor since 2020.