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

FORM 10-Q

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

For the quarterly period ended March 31, 20222023

or

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

For the transition period from ___________ to ___________

Commission File Number: 000-50155

BIMI International Medical Inc.

(Exact name of registrant as specified in its charter)

Delaware02-0563302
(State of Incorporation)(I.R.S. Employer ID Number)
9th

725 5th Avenue, 15th Floor, Building 2, Chongqing Corporation Avenue,
Yuzhong District, Chongqing,
P. R. China
Suite 15-01

New York NY

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

 

(+86) 023-6310 7239212 542 0028

(Registrant’s telephone number, including area code)

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

Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which
Registered
Common stock, $0.001 par valueBIMIThe NASDAQ Capital Market

 

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

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

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

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
 Emerging growth company

 

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

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

As of May 17, 2022,April 26, 2023, the registrant had 10,359,2644,384,780 shares of common stock, par value $0.001 per share, issued and shares outstanding.

 

 

 

TABLE OF CONTENTS

 Page
PART IFINANCIAL INFORMATION 1
Item 1Financial Statements 1
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations 3537
Item 3Quantitative and Qualitative Disclosures About Market Risk 4750
Item 4Controls and Procedures 4750
    
PART IIOTHER INFORMATION 4851
Item 1Legal Proceedings 4851
Item 1ARisk Factors 4851
Item 2Unregistered Sales of Equity Securities and Use of Proceeds 4851
Item 3Defaults Upon Senior Securities 4851
Item 4Mine Safety Disclosures 4851
Item 5Other Information. 4851
Item 6Exhibits. 4952
    
Signatures 5053

 

i

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

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

 

 March 31, December 31,  March 31, December 31, 
 2022  2021  2023  2022 
ASSETS          
CURRENT ASSETS             
Cash $1,606,214  $4,797,849 
Cash and cash equivalents $1,730,063  $2,336,636 
Accounts receivable, net  7,515,863   7,005,442   3,915,373   3,208,286 
Advances to suppliers  6,797,153   3,163,836   7,260,331   6,589,759 
Amount due from related parties  803,191   622,554 
Inventories, net  2,169,589   2,639,883   8,465,313   7,654,242 
Prepayments and other receivables  3,162,380   2,930,083   1,363,675   1,347,079 
Current assets from discontinued operations-held for sale  2,243,316   2,099,673 
Total current assets  22,054,390   21,159,647   24,978,071   23,235,675 
                
NON-CURRENT ASSETS                
Deferred tax assets  208,448   207,549   192,703   190,132 
Property, plant and equipment, net  3,343,981   3,521,401   1,791,503   1,703,420 
Intangible assets-net  17,752   18,039   512,235   16,183 
Operating lease-right of use assets  4,711,222   4,845,509   3,028,518   2,942,265 
Goodwill  8,376,217   8,376,217   2,065,666   2,065,666 
Long-term investment  -   1,800,000 
Non-current assets from discontinued operations-held for sale  3,704,990   3,761,149 
Total non-current assets  16,657,620   16,968,715   11,295,615   12,478,815 
                
TOTAL ASSETS $38,712,010  $38,128,362  $36,273,686  $35,714,490 
                
LIABILITIES AND EQUITY                
CURRENT LIABILITIES                
Short-term loans $1,791,531  $1,799,394  $829,489  $818,425 
Long-term loans due within one year  186,750   369,187   163,183   105,965 
Convertible promissory notes, net  5,765,617   5,211,160   773,985   1,108,785 
Accounts payable, trade  6,629,460   7,339,210   10,093,270   10,785,531 
Advances from customers  2,447,076   1,943,028   1,149,438   923,131 
Amount due to related parties  531,817   730,285   2,519,803   4,600,441 
Taxes payable  692,908   662,777   22,075   71,915 
Other payables and accrued liabilities  1,724,964   3,082,917   3,099,929   3,175,574 
Lease liability-current  924,360   954,182   665,115   532,630 
Current liabilities from discontinued operations-held for sale  3,292,463   3,239,950 
Total current liabilities  20,694,483   22,092,140   22,608,750   25,362,347 
                
NON-CURRENT LIABILITIES                
Lease liability-non current  4,094,833   4,161,789 
Lease liability-non-current  2,587,353   2,574,751 
Long-term loans - non-current  528,911   538,006   160,077   314,786 
Non-current liabilities from discontinued operations-held for sale  2,298,314   2,245,373 
Total non-current liabilities  4,623,744   4,699,795   5,045,744   5,134,910 
                
TOTAL LIABILITIES  25,318,227   26,791,935   27,654,494   30,497,257 
                
EQUITY        
Common stock, $0.001 par value; 200,000,000 shares authorized; 10,359,264 and 8,502,222 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively *  10,359   8,502 
STOCKHOLDERS’ EQUITY        
Common stock, $0.001 par value; 200,000,000 shares authorized; 4,034,780 and 3,764,780 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively *  4,035   3,765 
Additional paid-in capital  60,566,188   55,220,130   77,424,486   71,899,271 
Statutory reserves  2,263,857   2,263,857   2,263,857   2,263,857 
Accumulated deficit  (50,640,327)  (47,900,929)  (71,027,106)  (70,143,785)
Accumulated other comprehensive income  1,051,790   1,601,870 
Accumulated other comprehensive income (loss)  (1,059,889)  24,583 
Total BIMI International Medical Inc.’s equity  13,251,867   11,193,430   7,605,383   4,047,691 
                
NON-CONTROLLING INTERESTS  141,916   142,997   1,013,809   1,169,542 
                
Total equity  13,393,783   11,336,427 
Total stockholders’ equity  8,619,192   5,217,233 
                
Total liabilities and equity $38,712,010  $38,128,362 
Total liabilities and stockholders’ equity $36,273,686  $35,714,490 

*Retrospectively restated due to five for one reverse stock split, see Note 2121. A subsequent 1-for-10 reverse split took place on December 9, 2022.

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


 

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

 

 For three months ended
March 31,
  For three months ended
March 31,
 
 2022  2021  2023  2022 
REVENUES  5,019,748   2,168,004   3,197,637   2,714,711 
                
COST OF REVENUES  3,561,278   1,575,743   1,507,396   2,342,367 
                
GROSS PROFIT  1,458,470   592,261   1,690,241   372,344 
                
OPERATING EXPENSES:                
Sales and marketing  754,880   452,636   256,158   345,564 
General and administrative  3,260,289   3,380,014   853,337   2,176,482 
Impairment loss of goodwill  -   - 
Total operating expenses  4,015,169   3,832,650   1,109,495   2,522,046 
                
LOSS FROM OPERATIONS  (2,556,699)  (3,240,389)
INCOME/(LOSS) FROM OPERATIONS  580,746   (2,149,702)
                
OTHER INCOME (EXPENSE)                
Interest income  146   -   261   146 
Interest expense  (107,759)  (44,355)  (35,299)  (48,136)
Exchange loss  (3,266)  - 
Other income/(expense)  (50,321)  12,865 
Total other expense, net  (161,200)  (31,490)
Exchange gains/loss  2,125   (3,266)
Amortization of convertible notes (1)  -   (771,124)
Other expense  (1,408,468)  (631)
Total other income (expense), net  (1,441,381)  (823,011)
                
LOSS BEFORE INCOME TAXES  (2,717,899)  (3,271,879)  (860,635)  (2,972,713)
                
PROVISION FOR INCOME TAXES  22,581   18,748   -   2,929 
                
NET LOSS FROM CONTINUING OPERATIONS  (860,635)  (2,975,642)
        
DISCONTINUED OPERATIONS        
Loss from operations of discontinued operations-held for sale  23,129   - 
NET LOSS  (2,740,480)  (3,290,627)  (883,764)  (2,975,642)
Less: net income/(loss) attributable to non-controlling interest  (1,082)  42,615 
Less: net income (loss) attributable to non-controlling interest  443   (1,082)
NET LOSS ATTRIBUTABLE TO BIMI INTERATIONAL MEDICAL INC. $(2,739,398) $(3,333,242) $(884,207) $(2,974,560)
                
OTHER COMPREHENSIVE LOSS                
Foreign currency translation adjustment  (550,080)  (149,597)  (1,084,472)  (550,080)
                
TOTAL COMPREHENSIVE LOSS  (3,290,560)  (3,440,224)  (1,968,236)  (3,525,722)
Less: comprehensive loss attributable to non-controlling interests  (24,974)  (10,886)  (896,867)  (24,974)
COMPREHENSIVE LOSS ATTRIBUTABLE TO BIMI INTERNATIONAL MEDICAL INC. $(3,265,586) $(3,429,338) $(1,071,369) $(3,500,748)
                
WEIGHTED AVERAGE NUMBER OF COMMON SHARES                
Basic and diluted  10,087,665   3,338,608   3,834,443   10,087,665 
                
LOSS PER SHARE                
Continuing operation-Basic and diluted $(0.22) $(0.29)
Discontinued operation-Basic and diluted $(0.01) $- 
Basic and diluted $(0.27) $(0.99) $(0.23) $(0.29)

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


 

 

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

 Common Stock Additional
Paid-in
  

Accumulated

Other

Comprehensive

  Statutory Non Controlling Accumulated  

Total

Stockholders’

  Common Stock  Additional
Paid-in
  

Accumulated

Other
Comprehensive

  Statutory  Non
Controlling
  Accumulated  

Total
Stockholders’

 
 Shares* Amount Capital Income 

Reserves

 

Interests

 Deficit Equity  Shares*  Amount  Capital  Income  Reserves  Interests  Deficit  Equity 
Balance as of December 31, 2021  8,502,222   8,502   55,220,130   1,601,870   2,263,857   142,997   (47,900,929)  11,336,427 
Balance as of December 31, 2022  3,764,780   3,765   71,899,271   24,583   2,263,857   1,169,542   (70,143,785)  5,217,233 
                                                                
Issuance of common shares  1,857,042   1,857   5,346,058   -   -   -   -   5,347,915   270,000   270   5,525,215   -   -   -   -   5,525,485 
                                                                
Net loss  -   -   -   -   -   (24,974)  (2,739,398)  (2,764,372)  -   -   -   -   -   (896,867)  (884,207)  (1,781,074)
                                                                
Foreign currency translation adjustment  -   -   -   (550,080)      23,893   -   (526,187)  -   -   -   (1,084,398)      741,134   3,187,088   2,843,824 
                                                                
Balance as of March 31, 2022  10,359,264   10,359   60,566,188   1,051,790   2,263,857   141,916   (50,640,327)  13,393,783 
Discontinued operations and subsidiaries -held for sale              (74)          (3,186,202)  (3,186,276)
                                
Balance as of March 31, 2023  4,034,780   4,035   77,424,486   (1,059,889)  2,263,857   1,013,809   (71,027,106)  8,619,192 

 

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


 

 

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

 For the three months ended
March 31,
  For the three months ended
March 31,
 
 2022  2021  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss $(2,740,480) $(3,290,627) $(883,764) $(2,975,642)
Adjustments to reconcile net loss to cash used in operating activities:                
Depreciation and amortization  89,159   35,958   53,800   89,159 
Inventories impairment reserve  -   14,507   27,975   - 
Allowance for doubtful accounts  (584)  (43,799)  -   (584)
Stock compensation  -   585,000 
Lease expense  -   20,719 
Profit/Loss on disposal of discontinuing operations and subsidiaries  (1,338,666)  - 
Amortization of discount of convertible promissory notes  554,457   1,607,105   -   771,124 
                
Change in operating assets and liabilities                
Accounts receivable  (509,837)  (334,056)  287,763   901,465 
Advances to suppliers  1,714,599   (387,940)  

4,982,127

   (1,387,694)
Prepayments and other receivables  (232,298)  281,718   (11,164)  1,416,960 
Inventories  470,294   (2,572,438)  (84,382)  862,481 
Operating lease-right of use assets  134,287   64,231   (1,510,111)  3,187,153 
Accounts payable, trade  (709,750)  2,803,460   (673,409)  (2,859,880)
Advances from customers  504,048   329,591   226,307   479,832 
Operating lease liabilities  (96,779)  (95,368)  1,861,441   (3,315,170)
Taxes payable  30,130   (701,687)  (52,411)  (322,917)
Other payables and accrued liabilities  (1,357,952)  (46,085)  (67,683)  (2,271,842)
Net cash used in operating activities  (2,150,706)  (1,729,711)
Net cash provided by (used in) operating activities  2,817,823   (5,425,555)
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Cash received from acquisition of Guoyitang Hospital  -   28,457 
Cash received from acquisition of Zhongshan Hospital  -   46,748 
Discontinued operations-disposal of Zhuoda  -   (273,363)
Discontinued operations-held for sale of Minkang, Eurasia, Qiangsheng and Zhongshan Hospitals  -   1,951,652 
Purchase of property, plant, and equipment  -   (36,100)  -   - 
Net cash provided by investing activities  -   39,105 
Net cash (used in) provided by investing activities  -   1,678,289 
  -   -   -   - 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from short-term loan  -   462,773   11,064   - 
Repayment of long-term loan  -   (295,404)  (154,709)  (191,530)
Net proceeds from issuance of convertible promissory notes  -   4,065,000   -   - 
Repayment of short-term loans  (7,863)  (4,419)  -  (1,027,522)
Long-term loans due within one year  (191,530)  - 
Proceeds from long-term loan  57,218  - 
Amount financed from/(to) related parties  (379,105)  164,067   (2,080,638)  424,085 
Net cash provided by (used in) financing activities  (578,498)  4,392,017 
Net cash used in financing activities  (2,167,065)  (794,967)
                
EFFECT OF EXCHANGE RATE ON CASH  (462,431)  (1,295)  (1,257,331)  981,932 
                
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS  (3,191,635)  2,700,116 
NET DECREASE IN CASH AND CASH EQUIVALENTS  (606,573)  (3,560,301)
CASH AND CASH EQUIVALENTS, beginning of period  4,797,849   135,308   2,336,636   4,797,849 
CASH AND CASH EQUIVALENTS, end of period $1,606,214  $2,835,424  $1,730,063  $1,237,548 
                
SUPPLEMENTAL CASH FLOW INFORMATION:                
Cash paid for income tax $19,319  $86,153  $-  $428,753 
Cash paid for interest expense, net of capitalized interest $12,916  $47,696  $20,408  $163,883 
        
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES        
        
Issuance of common shares for equity acquisition of Guoyitang Hospital $-  $2,000 
Issuance of common shares for equity acquisition of Zhongshan Hospital $-  $2,000 
Issuance of common shares for equity acquisition of Mali Hospital $600  $- 
Goodwill recognized from equity acquisition of Zhongshan Hospital $-  $10,433,494 
Goodwill recognized from equity acquisition of Guoyitang Hospital $-  $7,154,392 
Outstanding payment for equity acquisition of Guanzan Group $-  $3,065,181 
Outstanding payment for equity acquisition of Guoyitang Hospital $-  $6,100,723 
Outstanding payment for equity acquisition of Zhongshan Hospital $-  $6,100,723 

 


 

 

BIMI INTERNATIONAL MEDICAL INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.ORGANIZATION AND BUSINESS BACKGROUND

 

BIMI International Medical, Inc. (the “Company” or “BIMI”) was incorporated in the State of Delaware as Galli Process, Inc. on October 31, 2000. On February 7, 2002, the Company changed its name to Global Broadcast Group, Inc. On November 12, 2004, the Company changed its name to Diagnostic Corporation of America. On March 15, 2007, the Company changed its name to NF Energy Saving Corporation of America, and on August 24, 2009, the Company changed its name to NF Energy Saving Corporation. On December 16, 2019, the Company changed its name to BOQI International Medical Inc., to reflect the Company’s refocus of its business from the energy saving industry to the health care industry.industry and on June 21, 2021, we changed our name to BIMI International Medical Inc. Since March 7, 2012, the common stock of the Company (the “Common Stock”) has been traded on the Nasdaq Capital Market.

Until October 14, 2019, the Company, through NF Energy Saving Investment Limited and its subsidiaries (the “NF Group”), operated in the energy saving enhancement technology industry in the People’s Republic of China (the “PRC”). The NF Group focused on providing services relating to energy saving technology, optimization design, energy saving reconstruction of pipeline networks and contractual energy management for the electric power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries in the PRC and the manufacture and sales of energy-saving flow control equipment. In late 2019, the Company committed to a plan to dispose of all its equity interests in the NF Group and on March 31, 2020, the Company entered into a stock purchase agreement (the “NF SPA”) to sell the NF Group. The sale of the NF Group closed on June 23, 2020. Please refer to NOTE 7 for more information relating to the sale of the NF Group.

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

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

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


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

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

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

On April 9, 2021, the Company entered into a stock purchase agreement to acquire three private hospitals in the PRC, Wuzhou Qiangsheng Hospital (“Qiangsheng”), Suzhou Eurasia Hospital(“Eurasia”) and Yunnan Yuxi MinKang hospital (“Minkang”). The transaction closed on May 6, 2021.

On April 21, 2021, Bimai Hospital Management (Chongqing) Co. Ltd. was incorporated in the PRC by the Company to manage the operations of the Company’s medical devices segment.


On April 21, 2021, Pusheng Pharmaceutical Co., Ltd. was incorporated in the PRC by the Company to manage its wholesale distribution of generic drugs.

On September 10, 2021, the Company entered into a stock purchase agreement to acquire 100% of the equity interests in Chongqing Zhuoda Pharmaceutical Co., LTD (“Zhuoda”). The transaction closed on October 8, 2021.

On December 20, 2021, the Company entered into a stock purchase agreement to acquire Bengbu Mali OB-GYN Hospital Co., Ltd. (“Mali Hospital”). The closing ofWe agreed to purchase all the issued and outstanding equity interests in Mali Hospital SPA hasin consideration of $16,750,000. On January 4, 2022, we paid RMB7,227,000 to the seller as partial consideration. The transaction did not taken placeclose and on December 15, 2022, we entered into a termination agreement with respect to the purchase. Pursuant to the termination agreement, the original agreement will terminate effective as of the date of the return of the 60,000 shares of the Company’s Common Stock previously issued to the sellers and certain third-party beneficiaries. The Company did not incur any penalties as a result of the termination of the agreement. As of the date of this report.report, we have not received the 60,000 shares.

As of March 31, 2023, the Company has four operating segments: retail pharmacy, wholesale pharmaceuticals, wholesale medical devices and healthcare products. The retail pharmacy segment sells prescription and OTC medicines, TCM, healthcare supplies and sundry items to retail customers through its directly-owned pharmacies and authorized retail stores. The wholesale pharmaceuticals segment includes supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals and other drug wholesalers. There were no inter-segment revenues between our retail pharmacy and wholesale pharmaceuticals segments. The wholesale medical device segment distributes medical devices, including medical consumables to private clinics, hospitals, third party pharmacies and other medical device dealers. Healthcare products includes cardiovascular product, anti-insomnia and depression product, male aphrodisiac product, women’s menopausal syndrome product, gout product and immune enhancer/ vaccine sequelae product.

As of March 31,2022, the Company had four operating segments: wholesale medical devices, wholesale pharmaceuticals, medical services and retail pharmacies. The Pharmacy Group engages in the retail sale of medicine and other healthcare products in the PRC. The Pharmacy Group sells its medicine and other healthcare products to customers through its directly-owned stores. The Pharmacy Group offers a wide range of products, including prescription and over-the-counter (“OTC”) drugs, nutritional supplements, traditional Chinese medicines, personal and family care products and medical devices, as well as miscellaneous items.

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


The Company’s medical services segments aresegment was engaged in providing medical services in its hospitals, of which the hospitals.Zhongshan, Qiangsheng, Eurasia and Minkang hospitals were held for sale as of the date of this report.

As of March 31,2022,31,2023, the details of the Company’s subsidiaries are as follows:

NamePlace of incorporation and
kind of legal entity
Principal activities and
place of operation
 Effective
interest held
Lasting Wisdom Holdings Limited (“Lasting”)British Virgin Island, a limited liability companyInvestment holding100%
100
Pukung Limited (“Pukung”)Hong Kong, a limited liability companyInvestment holding100%
Beijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”)The PRC, a limited liability companyInvestment holding100%
Boyi (Liaoning) Technology Co., Ltd (“Liaoning Boyi”)The PRC, a limited liability companyIT Technology service research and development100%
Dalian Boyi Technology Co., Ltd (“Dalian Boyi”)The PRC, a limited liability companyIT Technology service research and development100%
Chongqing Guanzan Technology Co., Ltd. (“Guanzan”)The PRC, a limited liability companyWholesale distribution of medical devices in the PRC100%
Chongqing Shude Pharmaceutical Co., Ltd.(“Shude”)The PRC, a limited liability companyWholesale distribution of generic drugs in the PRC95%
Chongqing Lijiantang Pharmaceutical Co., Ltd.(“Lijiantang”)The PRC, a limited liability companyWholesale distribution of generic drugs in the PRC100%
        
Bimai Pharmaceutical (Chongqing) Co., Ltd.Pukung Limited (“Pukung”)The PRC,Hong Kong, a limited liability companyInvestment holding100


Chongqing Guoyitang Hospital Co., Ltd.100The PRC, a limited liability companyHospital in the PRC100%
        
Chongqing Huzhongtang Healthy TechnologyBeijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”)The PRC, a limited liability companyInvestment holding100%
Boyi (Liaoning) Technology Co., Ltd (“Liaoning Boyi”)The PRC, a limited liability companyIT Technology service research and development100%
Dalian Boyi Technology Co., Ltd (“Dalian Boyi”)The PRC, a limited liability companyIT Technology service research and development100%
Chongqing Guanzan Technology Co., Ltd. (“Guanzan”)The PRC, a limited liability companyWholesale distribution of medical devices in the PRC100%
Chongqing Shude Pharmaceutical Co., Ltd.(“Shude”)The PRC, a limited liability companyWholesale distribution of generic drugs in the PRC10095%
Chaohu Zhongshan Minimally Invasive HospitalChongqing Lijiantang Pharmaceutical Co.,Ltd.(“Lijiantang”)The PRC, a limited liability companyHospital in the PRC100
Yunnan Yuxi Minkang Hospital Co., Ltd.The PRC, a limited liability companyHospital in the PRC100
Wuzhou Qiangsheng Hospital Co., Ltd.The PRC, a limited liability companyHospital in the PRC100
Suzhou Eurasia Hospital Co., Ltd.The PRC, a limited liability companyHospital in the PRC100
Bimai Hospital Management (Chongqing) Co. LtdThe PRC, a limited liability companyHospital management in the PRC100
Pusheng Pharmaceutical Co., LtdThe PRC, a limited liability companyWholesale distribution of generic drugs in the PRC100100%
Chongqing ZhuodaBimai Pharmaceutical (Chongqing) Co., Ltd(“Zhuoda”)Ltd.The PRC, a limited liability companyInvestment holding100
Chongqing Guoyitang Hospital Co., Ltd.The PRC, a limited liability companyHospital in the PRC100
Chongqing Huzhongtang Healthy Technology Co., Ltd.The PRC, a limited liability companyWholesale distribution of generic drugs in the PRC100100
Chongqing Qianmei Medical DevicesChaohu Zhongshan Minimally Invasive Hospital Co., Ltd (“Qianmei”)Ltd.The PRC, a limited liability companyHospital in the PRC100
Yunnan Yuxi Minkang Hospital Co., Ltd.The PRC, a limited liability companyHospital in the PRC100
Wuzhou Qiangsheng Hospital Co., Ltd.The PRC, a limited liability companyHospital in the PRC100
Suzhou Eurasia Hospital Co., Ltd.The PRC, a limited liability companyHospital in the PRC100
Bimai Hospital Management (Chongqing) Co. LtdThe PRC, a limited liability companyHospital management in the PRC100
Pusheng Pharmaceutical Co., LtdThe PRC, a limited liability companyWholesale distribution of medical devicesgeneric drugs in the PRC100100


 

2.GOING CONCERN UNCERTAINTIES

 

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

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company incurred significant net losses of $2,740,480$883,764 and $3,290,627 and cash outflows of $2,150,706 and $1,729,711 from operating activities for$2,975,642 during the three months ended March 31, 20222023 and 2021,2022, respectively. As of March 31, 2022,2023, the Company had an accumulated deficit of $50.64$71.03 million. In addition, the Company continues to generate operating losses and has limited cash flow from its operations. Primarily as a result of its operating loss in the quarter, the Company’s cash position declined by $2.15 million in the three months ended March 31, 2022. Management believes these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months.

The continuation of the Company as a going concern through the next twelve months is dependent upon (1) the continued financial support from its stockholders or its ability to obtain external financing, and (2) further implementation of management’s business plan to expand its operations and generate sufficient revenues and cash flow to meet its obligations. While the Company believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds, there can be no assuranceneither any assurances to that iteffect, nor any assurance that the Company will be successful in either respect.securing sufficient funds to sustain the operations.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.


 

We have restated our financial statements for year ended December 31, 2021 to correct errors identified in our prior financial statements. In FY2021, we recorded amortization of convertible note in G&A expense account, it has been revised to record amortization of convertible note in other income(expense) account. The restatement was necessary to address the misstatement. The impact of the restatement on our financial statement is reclassification of other expense in financial statements. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

We previously erroneously recorded amortization of our convertible note as G&A expense in the financial statements for the year ended December 31, 2021 and 2020. We now record the amortization of the convertible notes in other income expense account, consistent with our statement of cash flow. The amortization of convertible notes for the years ended December 31, 2022 and 2021 was $2,252,401 and $2,091,927, respectively.

We have taken steps to address the cause of the restatement and to improve our internal controls over financial reporting. We hired a consulting firm to assist our accounting department on internal controls and financial reporting. We are committed to maintaining the integrity of our financial statements and to providing accurate and transparent financial information to our investors.

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and consolidation

 

These accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). These unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

The unaudited condensed consolidated financial information as of March 31, 20222023 and for the three months ended March 31, 20222023 and 20212022 have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared in accordance with US GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 previously2022 filed with the SEC on April 15, 2022.May 4, 2023.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated financial position as of March 31, 20222023 and its unaudited condensed consolidated results of operations for the three months ended March 31, 20222023 and 2021,2022, and its unaudited condensed consolidated cash flows for the three months ended March 31, 20222023 and 2021,2022, as applicable, have been made. The results of operations are not necessarily indicative of the operating results for the fiscal year or any future periods.


Use of estimates

 

The preparation of these condensed consolidated financial statements in conformity with the US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date of these condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant estimates and assumptions made by management include, among others, useful lives and impairment of long-lived assets, collectability of accounts receivable, advances to suppliers, allowance for doubtful accounts, reserve offor inventory obsolescence, fair value of goodwill and valuation of derivative liabilities. While the Company believes that the estimates and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Business combinationcombinations

 

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


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

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

Cash and cash equivalents

Cash consistsand cash equivalents consist primarily of cash on hand and cash in banks which is readily available in checking and saving accounts. The Company maintains cash with various financial institutions in the PRC where its accounts are uninsured. The Company has not experienced any losses from funds held in bank accounts and believes it is not exposed to any risk on its bank accounts.

Restricted cash

Cash that is restricted as to withdrawal or use under the terms of certain contractual agreements or orders are recorded in a restricted cash account in the Company’s unaudited interim condensed consolidated balance sheet.

Accounts receivable and allowance for doubtful accounts

 

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from delivery. Credit is extended based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company doesWe do not have any off-balance-sheet credit exposure related to its customers. As of March 31, 2022 and December 31, 2021, the allowance for doubtful accounts was $322,956 and $322,145, respectively.

Advances to suppliers

 

Advances to suppliers consist of prepayments to the Company’s vendors, such as pharmaceutical manufacturers and medicine suppliers. The Company typically prepays for the purchase of our merchandise, especially for those salable, scarce, personalized medicine or medical devices. The Company typically receive products from vendors within three to nine months after making prepayments. The Company continuously monitor delivery from, and payments to, the vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such as discontinuing of inventory supply, that have been identified. If the Company has difficulty receiving products from a vendor, the Company would cease purchasing products from such vendor, request return of our prepayment promptly, and if necessary, take legal action. The Company has not taken such type of legal action during the reporting periods. If none of these steps are successful, management will then determine whether the prepayments should be reserved or written off. As of March 31, 20222023 and December 31, 2021,2022, the allowance for doubtful accounts were $was Nil.


Business held for sale

In late 2022, we committed to a plan to dispose of the Zhongshan, Minkang and Qiangsheng hospitals.

On December 28, 2022, we entered into an agreement to transfer 87% of the equity interests in Zhongshan to the prior owner. As consideration for the transfer, the seller agreed to return the 40,037 shares of Common Stock, that were previously issued as part of the closing consideration. The transaction is expected to close in the second quarter of 2023.

On December 28, 2022, we entered into an agreement to transfer 90% of the equity interests in Qiangshen, Minkang and Eurasia to the previous owners. As consideration for the transfer, the sellers agreed to return the 80,000 shares of Common Stock which were previously issued upon the acquisition of the three hospitals. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.

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

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

  March 31,  December 31, 
  2023  2022 
Assets from held for sale      
Current assets      
Cash and cash equivalents $162,465  $53,928 
Accounts receivable, net  542,892   501,054 
Advances to suppliers  207,926   211,335 
Amount due from related parties  355,316   350,577 
Inventories, net  161,912   155,736 
Prepayments and other receivables  812,805   827,043 
Operating lease-right of use assets  -   - 
Total current assets  2,243,316   2,099,673 
         
Non-current assets        
Deferred tax assets  (135)  (133)
Property, plant and equipment, net  1,252,955   1,254,328 
Operating lease-right of use assets  2,452,170   2,506,954 
Goodwill  -   - 
Total non-current assets  3,704,990   3,761,149 
         
Total assets from held for sale $5,948,306  $5,860,822 
         
Liabilities from held for sale        
Current liabilities        
Short-term loans $218,287  $215,375 
Long-term loans due within one year  -   - 
Accounts payable, trade  1,446,840   1,480,098 
Advances from customers  2,805   1,537 
Taxes payable  341,307   336,755 
Other payables and accrued liabilities  806,104   739,873 
Lease liability-current  477,120   466,312 
Total current liabilities  3,292,463   3,239,950 
         
Non-current liabilities        
Lease liability-non current  2,298,314   2,245,373 
Long-term loans - non-current  -   - 
Total non-current liabilities  2,298,314   2,245,373 
         
Total liabilities  5,590,777   5,485,323 


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

  For the year ended
March 31,
 
  2023  2022 
Revenues $334,211   1,585,234 
Cost of revenues  121,597   609,989 
Gross profit  212,614   975,245 
         
Operating expense  196,563   666,362 
Other expense  (38,433)  (82,992)
Loss(Income) before income taxes  (22,382)  225,891 
         
Income tax expense  743   22,164 
Loss(Income) from business held for sale $(23,125) $207,416 

Inventories

 

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average method, and market value is the middle (the second highest) value among an inventory item’s replacement cost, market celling and market floor. The Company carries out physical inventory counts on a monthly basis at each store and warehouse location. The Company reviews historical sales activity quarterly to determine excess, slow movingslow-moving items and potentially obsolete items. The Company provides inventory reserve based on the excess quantities on hand equal to the difference, if any, between the cost of the inventory and its estimated market value, or obsolescence of inventories determined principally by customer demand. As of March 31, 20222023 and December 31, 2021,2022, the Company recorded an allowance for obsolete inventories, which mainly consists of expired medicine, of $103,625$27,975 and $103,178,$59,567, respectively.


Property, plant and equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and impairment, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:

Items 

Expected


useful lives

 Residual
value
 
Building 20 years  5%
Office equipment 3 years  5%
Electronic equipment 3 years  5%
Furniture 5 years  5%
Medical equipment 10 years  5%
Vehicles 4 years  5%
Leasehold Improvement Shorter of lease term or useful life  5%

 

Expenditures for repairs and maintenance are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

Intangible assets

Intangible assets consist primarily of software of management systems. Intangible assets are stated at cost less accumulated amortization and impairment, if any. Intangible assets are amortized using the straight line method with the following estimated useful lives:

Expected
useful lives
Software10 years

 

Leases

 

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


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

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date, adjusted by the deferred rent liabilities at the adoption date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.


Goodwill

 

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

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

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

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

Management evaluated the recoverability of goodwill by performing a qualitative assessment before using a two-step impairment test approach at the reporting unit level. If the Company reorganizes its reporting structure in a manner that changes the composition of one or more of its reporting units, goodwill will be reassigned based on the relative fair value of each of the affected reporting units. As of March 31, 20222023 and December 31, 2021,2022, the Company recorded impairments for goodwill of $Nil$5,385,811 and $26,128,171,$5,385,811, respectively.

At the date of the most recent annual goodwill impairment test, all the reporting units’ fair value were either equal to or slightly higher than their carrying values. None of the reporting units’ fair values were substantially in excess of their carrying values. The fair value of the goodwill associated with each of the Guanzan Group (which covers the wholesale pharmaceutical, wholesale medical devices and the Lijiantang Pharmacies segments) and the medical services segment (consisting of Guoyitang, Zhongshan and the Qiangsheng, Eurasia and Minkang hospitals), were equal to their carrying value after their last impairment test and the fair value of the goodwill for Zhuoda exceeded its carrying value by approximately 5.62%. Zhuoda was sold as of October 31, 2022, so there was no remaining goodwill of Zhuoda for impairment assessment in 2022. Accordingly, the goodwill associated with Guanzan Group, Zhongshan, Qiangsheng, Eurasia and Minkang are considered at risk for impairment in future periods.


Impairment of long-lived assets and intangibles

 

In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

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 the Company expects to be entitled to in exchange for those goods and services, net of value-added tax. The Company determines revenue recognition through the following steps:

Identify the contract with a customer;

 

Identify the performance obligations in the contract;

 

Determine the transaction price;

 

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

 


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

 

The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which at a point in time or over time as appropriate.

The Company’s revenue is net of value added tax (“VAT”) collected on behalf of PRC tax authorities in respect to the sales of products. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax authorities

Cost of revenue

 

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

Comprehensive income

 

ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying condensed consolidated statement of stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

Beneficial conversion feature of convertible promissory notes

 

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


Income taxes

 

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the three months ended March 31, 20222023 and 2021,2022, the Company did not incur any interest or penalties associated with the tax positions.positions it has taken. As of March 31, 2022,2023, the Company did not have any significant unrecognized uncertain tax positions.


The Company conducts allthe majority of its businessbusinesses in the PRC and is subject to tax in this jurisdiction. As a result, of its corporate structure the Company files tax returns that are subject to examination by a foreign tax authority.the PRC.

Value added tax

 

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

Convertible promissory notes

 

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

Debt issuance costs and debt discounts

 

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

Discontinued operation

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

On December 28, 2022, the Company entered into an agreement to transfer 87% of the equity interests in Zhongshan, to its former owner who previously sold Zhongshan to the Company pursuant to a stock purchase agreement.

Pursuant to the Agreement, the Company will transfer 87% of the equity interests in Zhongshan to the former owner and will continue to own 13% of the equity interests in Zhongshan. As consideration for the sale of the 87% interest in Zhongshan, the former owner will return to the Company the 40,037 shares of the Company’s common stock, which were previously issued to him. Subsequent to their issuance, such shares were consolidated into 40,037shares as a result of a 1-for-5 reverse stock split on February 3, 2022 and a 1-for-10 reverse stock split on December 9, 2022. The former owner will release the Company from any and all claims relating to two earn out payments that were payable under the original purchase agreement. The Company will receive a put option to sell part or all of its 13% interest in Zhongshan before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by the Parties. The transaction is expected to close in the second quarter of 2023.


On December 28, 2022, the Company entered into an agreement to transfer 90% of the equity interests in the Qiangsheng, Eurasia and Minkang hospitals- to their former owners. Pursuant to the agreement, the Company will transfer 90% of the equity interests in each of the three hospitals and continue to own 10% of the equity interests in each hospital. . As consideration for the transfer, one of the former owners will return to the Company the 4,000,000 shares of the Company’s common stock, which were previously issued upon the acquisition of the three hospitals. Subsequent to their issuance, such shares were as consolidated into 80,000 shares as a result of a 1-for-5 reverse stock split on February 3, 2022 and a 1-for-10 reverse stock split on December 9, 2022. The Company will also receive a put option to sell part or all of its 10% interest in each of the three hospitals to the former owner before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by the Company and the former owner. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.

Derivative instruments

 

The Company has entered into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with Accounting Standards Codification Topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration to all of the rights and obligations of each instrument.

We estimateThe Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring fair values. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock.Common Stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimate and assumption changes. Under the terms of the new accounting standard, increases in the trading price of the Company’s common stockCommon Stock and increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the company’s common stockCommon Stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.


Net loss per share

 

The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

Foreign currencies translation

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.

The reporting currency of the Company is the United States Dollar (“US$”). The Company’s subsidiaries in the PRC maintain their books and records in their local currency, the Renminbi Yuan (“RMB”), which is the functional currency as being the primary currency of the economic environment in which these entities operate.

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

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

 March 31,
2022
  March 31,
2021
  March 31,
2023
  March 31,
2022
 
Period-end RMB:US$1 exchange rate  6.3482   6.5566   6.8717   6.3482 
Three months end average RMB:US$1 exchange rate  6.3504   6.4829   6.8476   6.3504 

 


Related parties

 

Parties, which can be a corporation or an individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

Segment reporting

 

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about the type of products and services, geographical areas, business strategies and major customers in business components. For the three months ended March 31, 2023, and 2022, the Company operated in 4four reportable segments in the PRC.

As of March 31, 2023, the Company four operating segments consisted of retail pharmacy, wholesale pharmaceuticals, wholesale medical devices and healthcare products.

As of March 31, 2022, the Company four reportable segments consisted of wholesale medical devices, wholesale pharmaceuticals, medical services and retail pharmacies.

Fair value of financial instruments

 

The carrying value of the Company’s financial instruments (excluding short-term bank borrowing and convertible promissory notes): cash and cash equivalents, accounts and retention receivable, prepayments and other receivables, accounts payable, income tax payable, amounts due to related parties other payables and accrued liabilities approximate their fair values because of the short-term nature of these financial instruments.

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of its obligation under its finance lease and short-term bank borrowing approximate the carrying amount.

The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:


Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

 

Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and

 

Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

 

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The carrying amount of cash, restricted cash, accounts receivable, other receivable, bank credit, accounts payable and other accounts payable approximate their fair value due to the short-term maturity of these instruments.


Recent accounting pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326)”, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life, instead of when incurred. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”, which amends Subtopic 326-20 (created by ASU No.2016-13) to explicitly state that operating lease receivables are not in the scope of Subtopic 326-20. Additionally, in April 2019, the FASB issued ASU No.2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, in May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief”, and in November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, and ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”, to provide further clarifications on certain aspects of ASU No. 2016-13 and to extend the nonpublic entity effective date of ASU No. 2016-13. The changes (as amended) are effective for the Company for annual and interim periods in fiscal years beginning after December 15, 2022, and the Company is in the process of evaluating the potential effect on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test. Step two of the goodwill impairment test measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with its carrying amount. As amended by ASU 2019-10, annual or interim goodwill impairment tests are performed in fiscal years beginning after December 15, 2022. We do not expect that the adoption of this guidance will have a material impact on our financial position, results of operations and cash flows.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance effective January 1, 2021, which adoption did not have a material impact on the consolidated financial statements.

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

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

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.


4.THE ACQUISITION OF THE GUANZAN GROUP

 

On February 1, 2020, the Company entered into a stock purchase agreement to purchase the Guanzan Group (the “Guanzan SPA”). Guanzan is a distributor of medical devices whose customers are primarily drug stores, private clinics, pharmaceutical dealers and hospitals in the Southwest of China (the “Guanzan Acquisition”). Guanzan holds business licenses in the PRC such as a Business Permit for Medical Devices and a Recordation Certificate for Business Activities Involving Class II Medical Devices, etc., which qualify Guanzan to engage in the distribution of medical devices in the PRC. Pursuant to the Guanzan SPA, we agreed to purchase all the issued and outstanding shares of the Guanzan Group (the “Guanzan Shares”) for RMB 100,000,000 (approximately $14,285,714) to be paid by the issuance of 190,000 shares of Common Stock and the payment of RMB 80,000,000 (approximately $11,428,571) in cash. The stock consideration was payable at closing and the cash consideration, which iswas subject to post-closing adjustments based on the performance of the Guanzan Group in the years ending December 31, 2020 and 2021, respectively, willwas to be paid pursuant to a post-closing payment schedule. The transaction closed on March 18, 2020. Upon the closing, 100% of the Guanzan Shares were transferred to the Company and the stock consideration was issued to the seller.


Items Amount 
Assets   
Cash and cash equivalents $95,220 
Accounts receivable  1,835,981 
Advances to suppliers  1,222,986 
Amount due from related parties  410,943 
Inventories  950,225 
Prepayments and other receivables  90,256 
Property, plant and equipment  707,289 
Intangible assets  254,737 
Goodwill  6,686,053 
Liabilities    
Short-term bank borrowings  (838,926)
Long-term loans due within one year  (250,663)
Accounts payable, trade  (1,303,399)
Advances from customers  (1,350,126)
Amount due to related parties  (106,720)
Taxes payable  (406,169)
Other payables and accrued liabilities  (390,593)
Long-term loans – noncurrent portion  (186,796)
Non-controlling interests  (46,295)
Total-net assets $7,374,000 

On November 20, 2020, the parties to the Guanzan SPA entered into a Prepayment and Amendment Agreement (the “Prepayment Agreement”) for the prepayment of a portion of the Guanzan Cash consideration in the amount of RMB 20,000,000 (the “Prepayment”), in the form of shares of Common Stock valued at $15.00 per share, in light of Guanzan’s performance during the period from March 18, 2020 to September 30, 2020. On November 30, 2020, 200,000 shares (after two reverse splits was 4,000 shares) of our Common Stock were issued to the designated assignees of the seller as the prepayment. Upon the approval of the Company’s shareholders, on August 27, 2021, the Company issued 920,000 shares (after two reverse splits was 18,400 shares) of Common Stock as payment in full for the balance of the post-closing consideration for the acquisition of Guanzan.

The following summarizesreconciles the identified assets acquired and liabilities assumed pursuant to the Guanzan Acquisition as of March 18,and the Prepayment and Amendment Agreement made on November 20, 2020:

Items Amount 
Assets   
Cash $95,220 
Accounts receivable  1,835,981 
Advances to suppliers  1,222,986 
Amount due from related parties  410,943 
Inventories  950,225 
Prepayments and other receivables  90,256 
Property, plant and equipment  707,289 
Intangible assets  254,737 
Goodwill  6,914,232 
Liabilities    
Short-term bank borrowings  (838,926)
Long-term loans due within one year  (250,663)
Accounts payable, trade  (1,303,399)
Advances from customers  (1,350,126)
Amount due to related parties  (106,720)
Taxes payable  (406,169)
Other payables and accrued liabilities  (390,594)
Long-term loans – noncurrent portion  (186,796)
Non-controlling interests  (46,295)
Total-net assets $7,602,179 
The value of the shares issued on March 12, 2020  2,717,000 
The value of the shares issued on November 30, 2020  839,000 
The value of the shares issued on August 27, 2021  3,818,000 
Total consideration $7,374,000 

 

The fair value of all assets acquired and liabilities assumed is the estimated book value of Guanzan Group. Goodwill represent the excess of the fair value of purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Guanzan Group at the acquisition date. Upon the Guanzan Acquisition, the Company recognized its non-controlling interest in Shude in the amount of $46,295, representing the 20% non-controlling equity interest in Shude. Shude is a pharmaceuticals distributor. Shude’s customers include a wide range of clinics, private and public hospitals and pharmacies in the PRC.  On April 9, 2021, the Company increased its equity interest in Shude from 80% to 95.2% by making a direct capital investment of $4,892,293 in Shude. Shude is a pharmaceuticals distributor. Shude’s customers include a wide range of clinics, private and public hospitals and pharmacies in the PRC. Shude holds Chinese business licenses such as Drug Wholesale Distribution License, which qualify Shude to engage in the distribution of pharmaceuticals in China.


 

5.THE ACQUISITION OF THE GYOYITANG HOSPITAL

 

On December 9, 2020, the Company entered into an agreement to acquire all of the outstanding equity of Guoyitang, the owner and operator of a private general hospital in Chongqing City, a southwest city of China, with 100 hospital beds. The aggregate purchase price for Guoyitang was $15,251,807 (RMB 100,000,000). Upon signing the agreement, 400,000 shares of Common Stock and approximately $3,096,119 (RMB 20,000,000) was paid as partial consideration for the purchase of Guoyitang. The transaction closed on February 2, 2021. The balance of the purchase price of approximately $6,100,723 (RMB 40,000,000) was subject to post-closing adjustments based on the performance of Guoyitang in 2021 and 2022. As a result of the performance failure of Guoyitang in 2021, the sellers are not eligible to receive any contingent payments.

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

Items Amount  Amount 
Assets      
Cash $28,457 
Cash and cash equivalents $28,457 
Accounts receivable  11,797   11,797 
Advances to suppliers  12,670   12,670 
Amount due from related parties  41,598   41,598 
Inventories  167,440   167,440 
Prepayments and other receivables  61,102   61,102 
Property, plant and equipment  528,814   528,814 
Right-of-use asset  441,150   441,150 
Goodwill  7,154,393   7,154,393 
Liabilities        
Accounts payable, trade  (599,391)  (599,391)
Amount due to related parties  (183,796)  (183,796)
Taxes payable  (121)  (121)
Other payables and accrued liabilities  (231,375)  (231,375)
Lease liability-current  (161,707)  (161,707)
Lease liability-non current  (354,912)  (354,912)
Total-net assets $6,916,119  $6,916,119 

 

The fair value of all assets acquired and liabilities assumed is the estimated book value of the Guoyitang. Goodwill represents the excess of the fair value of purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Guoyitang at the acquisition date.


 

6.THE ACQUISITION OF THE ZHONGSHAN HOSPITAL

 

On December 15, 2020, the Company entered into an agreement to acquire Zhongshan Hospital, a private hospital in the east region of China with 65 hospital beds. Zhongshan Hospital is a general hospital known for its complex minimally invasive surgeries. Pursuant to the agreement, the Company agreed to purchase all the issued and outstanding equity interests in Zhongshan Hospital in consideration of approximately $18,515,661 (RMB 120,000,000). As partial consideration, approximately $6,100,723 (RMB 40,000,000) was paid in cash at the closing and 400,000 shares of Common Stock were issued on February 2021. The balance of the purchase price of approximately $6,100,723 (RMB 40,000,000) was subject to post-closing adjustments based on the performance of Zhongshan Hospital in 2021 and 2022. The transaction closed on February 5, 2021. As a result of the performance failure of Zhongshan in the year ended December 31, 2021, the seller is not eligible to receive any contingent payments.


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

Items Amount  Amount 
Assets      
Cash $46,748 
Cash and cash equivalents $46,748 
Accounts receivable  92,900   92,900 
Inventories  108,413   108,413 
Prepayments and other receivables  432,231   432,231 
Property, plant and equipment  344,208   344,208 
Right-of-use asset  1,188,693   1,188,693 
Goodwill  10,443,494   10,443,494 
Liabilities        
Short-term bank borrowings  (154,701)  (154,701)
Accounts payable, trade  (928,640)  (928,640)
Advances from customers  (5,603)  (5,603)
Amount due to related parties  (217,203)  (217,203)
Other payables and accrued liabilities  (435,290)  (435,290)
Lease liability-current  (160,774)  (160,774)
Lease liability-non current  (1,102,589)  (1,102,589)
Total-net assets $9,651,887  $9,651,887 

 

The fair value of all assets acquired and liabilities assumed is the estimated book value of the Zhongshan. Goodwill represents the excess of the fair value of purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Zhongshan Hospital at the acquisition date.


 

On December 28, 2022, we entered into an agreement to transfer 87% of the equity interests in Zhongshan to the prior owner. As consideration for the transfer, the seller agreed to return to us the 40,037 shares of Common Stock, that were previously issued as part of the closing consideration. The transaction is expected to close in the second quarter of 2023.

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

 

On April 9, 2021, the Company and Chongqing Bimai entered into a stock purchase agreement to acquire three private hospitals in the PRC, Qiangsheng, Eurasia and Minkang. Pursuant to the agreement, the Company agreed to purchase all the issued and outstanding equity interests in Qiangsheng, Eurasia and Minkang in consideration of approximately $25,023,555 (RMB162,000,000) to paid by the issuance of 800,000 shares of Common Stock (the “April Stock Consideration”), the value of which was agreed to be RMB 78 million or $12 million and the payment of RMB 84,000,000 (approximately $13,008,734) in cash (the “Cash Consideration”). The first payment of the Cash Consideration was RMB 20,000,000 (approximately $3,097,317). The second and third payments of the Cash Consideration of RMB 64,000,000 (approximately $9,911,416) were subject to post-closing adjustments based on the performance of Qiangsheng, Eurasia and Minkang in 2021 and 2022. The sellers had the choice to receive the second and third payments in the form of the shares of Common Stock valued at $15.00 per share or in cash. The transaction closed on May 6, 2021, at which time the April Stock Consideration was issued. As a result of the performance failure by the three hospitals for the year ended December 31, 2021, the sellers are not eligible to receive any contingent payments.


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

Items Amount  Amount 
Assets       
Cash $12,341 
Cash and cash equivalents $12,341 
Accounts receivable  41,836   41,836 
Inventories  156,576   156,576 
Advances and other receivables  40,620   40,620 
Property, plant and equipment  653,104   653,104 
Right of use assets  2,168,709   2,168,709 
Goodwill  9,067,529   9,067,529 
Liabilities        
Accounts payable  (355,980)  (355,980)
Advances from customers  (36,798)  (36,798)
Tax payable  (345,870)  (345,870)
Other payables and accrued liabilities  (311,174)  (311,174)
Lease liability-current  (365,788)  (365,788)
Lease liability-non-current  (1,988,195)  (1,988,195)
Total net assets $8,736,910  $8,736,910 

 

The fair value of all assets acquired and liabilities assumed is the estimated book value of the Qiangsheng, Eurasia and Minkang hospitals. Goodwill represents the excess of the fair value of purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Qiangsheng, Eurasia and Minkang Hospitals at the acquisition date.


 

On December 28, 2022, we entered into an agreement to transfer 90% of the equity interests in Qiangsheng, Minkang and Eurasia to the previous owners. As consideration for the transfer, the sellers agreed to return to us the 80,000 shares of Common Stock which were previously issued upon the acquisition of the three hospitals. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.

8.THE ACQUISITION OF ZHUODA

 

On September 10, 2021, Guanzan entered into an agreement to acquire Zhuoda. Pursuant to the agreement, Guanzan agreed to purchase all the issued and outstanding equity interests in Zhuoda in consideration of $11,400,000 (RMB 75,240,000). The entire purchase consideration was payable in shares of Common Stock. At the closing on September 22, 2021, 440,000 shares of Common Stock valued at RMB 43,560,000, or $15.00$150.00 per share (approximately $6,600,000) was issued as partial consideration for the purchase. The remainder of the purchase price of approximately $4,800,000 (RMB 31,680,000), iswas subject to post-closing adjustments based on the performance of Zhuoda in 2022 and 2023. The transaction closed on October 8, 2021. As the future performance of Zhuoda in 2022 and 2023 was uncertain, the total acquired consideration at the acquisition date and at December 31, 2021 was calculated based on the value of the closing payment without taking into consideration of potential payments based on future performance.


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

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

 

The fair value of all assets acquired and liabilities assumed is the estimated book value of the Zhuoda. Goodwill represents the excess of the fair value of purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Zhuoda at the acquisition date.

On October 19, 2022, the Company entered into an agreement to sell Zhuoda to its former owners.

Pursuant to the agreement, the Company will sell 100% of the equity interests in Zhuoda that it previously purchased for 44,000 shares of its common stock. The shares will be returned to the Company as the full consideration of the sale of the interests in Zhouda. In connection with the execution of the agreement, the parties also agreed to terminate the original agreement, and that none of the parties or any of their related parties will have any debt, obligation or liability to the original sellers in connection with or resulting from the earnout payment under the original agreement. The Company closed this transaction in November 2022. 

9.THE SALE OF ZHUODA

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

The summarized operating results of the Zhuoda and its subsidiary in the Company’s condensed consolidated statements of operations for the year ended December 31, 2022 consisted of the following:

  For the year ended
December 31,
 
  2022 
Revenues $2,713,818 
Cost of revenues  2,314,877 
Gross profit  398,941 
     
Operating expense  392,875 
Other income (expense)  (45,146)
Loss before income taxes  (39,080)
     
Income tax expense  1,425 
Net income/(loss) from discontinued operations $(40,505)


 

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

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


9.10.ACCOUNTS RECEIVABLE

 

The majority of the Company’s pharmacy retail revenues are derived from cash sales, except for sales to the government social security bureaus or commercial health insurance programs, which typically settle once a month. The Company offers several credit terms to our wholesale customers and to our authorized retailer stores. The Company routinely evaluates the need for allowance for doubtful accounts based on specifically identified amounts that the management believes to be uncollectible. If the actual collection experience changes, revisions to the allowance may be required. As of March 31, 20222023 and December 31,2021,31,2022, accounts receivable consisted of the following:

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Accounts receivable, cost $7,838,819  $7,327,587  $5,541,944  $4,813,160 
Less: allowance for doubtful accounts  (322,956)  (322,145)  (1,626,571)  (1,604,874)
Accounts receivable, net $7,515,863  $7,005,442  $3,915,373  $3,208,286 

 

The Company routinely evaluates the need for allowance for doubtful accounts based on specifically identified amounts that the management believes to be uncollectible. If the actual collection experience changes, revisions to the allowance may be required. Due to subsequent collections, the Company reversed an allowance for doubtful accounts of $584 and $43,799 for the three months ended, March 31, 2022 and 2021, respectively.2022.

10.11.ADVANCES TO SUPPLIERS

 

Advances to suppliers represent the amount the Company prepaid to its suppliers for merchandises for sale in the ordinary course of business. As of March 31, 20222023 and December 31,2021,31, 2022, the Company reported advances to suppliers as follow:

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Advances to suppliers, cost $6,797,153  $3,163,836  $7,260,331  $6,589,759 
Less: allowance for doubtful accounts  -   -   -   - 
Advances to suppliers, net $6,797,153  $3,163,836  $7,260,331  $6,589,759 

 

No bad debt expenses were accrued for doubtful accounts relating to advances to suppliers for the three months ended March 31, 2023 and 2022, and 2021, respectively.

11.12.INVENTORIES

 

The Company’s inventories consist of medicine and medical devices that were purchased from third parties and sold in our retail pharmacy stores and wholesale to third party pharmacies, clinics, hospitals, etc. Inventories consisted of the following:

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Pharmaceuticals $1,886,475  $2,395,824  $7,924,362  $7,067,613 
Medical devices  386,739   347,237   568,926   614,231 
Less: allowance for obsolete and expired inventory  (103,625)  (103,178)  (27,975)  (27,602)
 $2,169,589  $2,639,883  $8,465,313  $7,645,242 

For the three months ended March 31, 20222023 and 2021,2022, respectively, the Company accrued allowances of $103,625$27,975 and $103,178$30,282 for obsolete and expired items.


 

 

12.13.PREPAYMENTS AND OTHER RECEIVABLES

 

Prepayments and other receivables represent the amount that the Company prepaid as rent deposits for bothits retail stores, hospitals and office space, premises, special medical device purchase deposits, prepaid rental fee and professional services, advances to employees in the ordinary course of business, VAT deductibles and other miscellaneous receivables. The table below sets forth the balances as of March 31, 20222023 and December 31, 2021.2022.

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Deposit for rentals $62,978  $63,021  $151,401  $132,960 
Prepaid expenses and improvements of offices  61,570   293,933   56,879   56,121 
Deposit for purchase of medical devices  169,019   166,765 
Deposit for sales platform  21,450   24,337 
Deferred offering cost  1,011,111   1,227,778   -   - 
Receivables form third party  1,270,646   766,197   54,700   66,986 
VAT deductibles  890,173   229,754 
Others  782,268   605,234   44,251   694,031 
Less: allowance for doubtful accounts  (26,193)  (26,080)  (24,198)  (23,875)
Prepayments and other receivables, net $3,162,380   2,930,083  $1,363,675   1,347,079 

 

Management evaluates the recoverable value of these balances periodically in accordance withaccording to the Company’s policies.policy of credit and allowance for doubtful accounts. For the three months ended March 31, 20222023 and 2021,2022, the Company did not accrue any allowance for doubtful accounts.recorded bad debt expenses of $24,198 and $26,193, respectively.

13.14.PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following:

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Buildings $822,303  $818,757  $759,659  $749,526 
Office equipment  442,800   440,890   233,717   132,329 
Electronic equipment  1,548,456   1,541,777   37,761   37,257 
Furniture  60,672   60,411   31,179   30,764 
Vehicle  221,385   220,430 
Vehicles  153,257   168,512 
Medical equipment  2,441,772   2,431,240   937,790   925,281 
Leasehold Improvements  1,899,035   1,928,538   599,660   598,677 
  7,436,423   7,442,043   2,753,023   2,642,346 
Less: accumulated depreciation  (4,092,442)  (3,920,642)  (961,520)  (938,926)
Property, plant and equipment, net $3,343,981  $3,521,401  $1,791,503  $1,703,420 

 

Depreciation expense for the three months ended March 31, 2023 and 2022 were $46,091 and 2021 were $88,796 and $50,414,$85,322, respectively.

14.15.Intangible assets

 

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Software $21,589  $21,495  $19,944  $19,679 
  21,589   21,495 
Trademark use right  500,000   - 
Less: accumulated amortization  (3,837)  (3,456)  (7,709)  (3,496)
Intangible assets, net $17,752  $18,039  $512,235  $16,183 

 

Amortization expense for the three months ended March 31, 2023 and 2022 were $7,709 and 2021 were $363 and $1,182,$3,837, respectively.


 

15.16.LONG-TERM INVESTMENT

  March 31,
2023
  December 31,
2022
 
Long-term investment in Phenix Bio Inc $-  $1,800,000 
Total long-term investment $-  $1,800,000 

On July 5, 2022, we entered into a stock purchase agreement (as amended on February 27, 2023) with Mr. Fnu Oudom, the Chairman of our board of directors, whereby we agreed to acquire 100% of the equity interests in Phenix Bio Inc. (“Phenix”), a distributor of healthcare products in consideration of $1,800,000. The transaction closed effective March 15, 2023. The aggregate purchase price for the equity interests in Phenix was $180,000 in cash, which has been paid, plus 5,270,000 shares of the Company’s common stock, of which 270,000 shares will be issued upon the approval of the issuance by the Company’s shareholders and the balance of 5,000,000 shares will be issued if the aggregate net profit generated by Phenix is at least $2,500,000 in calendar year 2023 or in any fiscal quarter of 2023.

17.LEASES

 

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

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Operating Lease Assets             
Operating lease $4,711,222  $4,845,509  $3,028,518  $2,942,265 
Total operating lease assets $4,711,222  $4,845,509  $3,028,518  $2,942,265 
Operating Lease Obligations                
                
Current operating lease liabilities $924,360   954,182  $665,115   532,630 
Non-current operating lease liabilities $4,094,833   4,161,789  $2,587,353   2,574,751 
Total Lease Liabilities $5,019,193   5,115,971  $3,252,468   3,107,381 

 

Lease liability maturities as of March 31, 2022,2023, are as follows:

 March 31,
2022
  March 31,
2023
 
2023 1,082,061   826,567 
2024 1,033,489   830,667 
2025 900,669   822,675 
2026 833,838   795,581 
2027 and Thereafter 2,455,326   605,797 
Total minimum lease payments 6,305,383   3,881,287 
Less: Amount representing interest  (1,286,190)  (628,819)
Total  5,019,193   3,252,468 


 

16.18.

GOODWILL

 

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

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Beginning balance $8,376,217  $6,914,232  $8,376,217  $8,376,217 
Disposal of Zhuoda  (924,740)  (924,740)
Addition during the year  -   27,590,156   -   - 
Impairment during the year  -   (26,128,171)  (5,385,811)  (5,385,811)
Goodwill $8,376,217  $8,376,217  $2,065,666  $2,065,666 

 

The goodwill associated with the acquisitions of: (i) Guanzan of $6,914,232; (ii) Guoyitang of $7,154,393; (iii) Zhongshan of $10,443,494,(iv) Minkang, Qiangsheng and Eurasia of $9,067,529, and (v) Zhuoda of $924,740, were initially recognized at the acquisition closing dates. Zhuoda was sold in 2022.

As of March 31, 20222023 and December 31, 2021,2022, goodwill was $8,376,217$2,065,666 and $8,376,217,$2,065,666, respectively. No impairment losses were recognized for the three months ended March 31, 20222023 and 2021. 2022. 

19.LOANS

Short-term loans

  March 31,
2023
  December 31,
2022
 
China Minsheng Bank $116,419  $114,867 
Postal Savings Bank of China  713,070   703,558 
Total $829,489  $818,425 

For the three months ended March 31, 2023 and 2022, interest expense on short-term loans amounted to $6,351 and $21,269, respectively.

Long-term loans

  March 31,
2023
  December 31,
2022
 
China Construction Bank Chongqing Zhongxian Sub-branch  -   59,926 
We Bank  323,260   360,825 
Subtotal of long-term loans  323,260   420,751 
Less: current portion  (163,183)  (105,965)
Total Long-term loans – noncurrent portion $160,077  $314,786 

For the three months ended March 31, 2023 and 2022, interest expense on long-term loans amounted to $14,058 and $22,319, respectively.


 

17.LOANS

Short-term loans

  March 31,
2022
  December 31,
2021
 
Construction Bank of China $531,332  $544,630 
Wuhu Yangzi Rural Commercial Bank  236,287   235,268 
Industrial and Commercial Bank of China  94,515   94,107 
Agricultural Bank of China  157,525   156,846 
Postal Savings Bank of China  771,872   768,543 
Total $1,791,531  $1,799,394 

For the three months ended March 31, 2022 and 2021, interest expense on short-term loans amounted to $29,227 and $12,015, respectively.

Long-term loans

  March 31,
2022
  December 31,
2021
 
Standard Chartered Bank $51,213  $68,723 
China Minsheng Bank  126,020   125,476 
Construction bank of china  104,938   33,565 
Chongwing Nan’an Zhongyin Fuden Village Bank Co. Ltd.  -   116,974 
We Bank  433,490   562,455 
Subtotal of long-term loans  715,661   907,193 
Less: current portion  (186,750)  (369,187)
Total Long-term loans – noncurrent portion $528,911  $538,006 

For the three months ended March 31, 2022 and 2021, interest expense on long-term loans amounted to $22,319 and $21,203, respectively.


18.20.CONVERTIBLE PROMISSORY NOTES AND EMBEDDED DERIVATIVE INSTRUCTIONS

 

On May 18, 2020, we entered into a securities purchase agreement (the “May SPA”) with two institutional investors (the “Institutional Investors”) to sell convertible notes having a face amount of $6,550,000 at an aggregate original issue discount of 19.85% (the “2020 Notes”) and ranking senior to all outstanding and future indebtedness of the Company. The 2020 Notes do not bear interest except upon the occurrence of an event of default. Each Institutional Investor also received a warrant (the “Institutional Investor 2020 Warrant”) to purchase 325,000 shares of Common Stock at an initial exercise price of $14.225 per share (post-Split price (as defined below) and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant (the “Placement Agent 2020 Warrant”, together with the Institutional Investor 2020 Warrant, the “2020 Warrants”) to purchase up to 10% of the aggregate number of shares of Common Stock at an initial exercise price of $14.225 per share (post-Split price and subject to the Event Market Price Adjustment), subject to increase based on the number of shares Common Stock issued pursuant to the 2020 Notes.

Pursuant to the May SPA, two 2020 Notes each in the face amount of $2,225,000 were issued to the Institutional Investors in consideration of the payment of $1,750,000 in cash for each 2020 Note.

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

The 2020 Notes, which matured on the eighteen-month anniversary of the issuance date, were payable in installments and were convertible at the election of the investors at the conversion price of $12.95 per share (post-Split Price and subject to the Event Market Price Adjustment), subject to adjustment in the event of default. Each investor also received a warrant to purchase 130,000 shares of Common Stock at an initial exercise price of $14.23 per share (post-Split Price and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant to purchase up to 34,369 shares of Common Stock at an initial exercise price of $14.23 per share (post-Split Price and subject to the Event Market Price Adjustment), subject to increase based on the number of shares of Common Stock issued pursuant to the 2020 Notes. Pursuant to the May SPA, additional convertible notes in an aggregate original face amount not to exceed $2,100,000 (the “Additional Notes”) could also be issued to the Institutional Investors under certain circumstances.

On February 24, 2021, we entered into an amendment to the May SPA with the Institutional Investors to increase the amount of the Additional Notes by $3,300,000 to $5,400,000. On February 26, 2021, Additional Notes in an aggregate original principal amount of $5,400,000 were issued to the Institutional Investors, together with the issuance of warrants to acquire an aggregate of 152,000 shares of Common Stock at an initial exercise price of $14.23 per share (post-Split Price and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant to purchase up to 34,749 shares of our Common Stock at an initial exercise price of $14.23 per share post-Split Price and (subject to the Event Market Price Adjustment), subject to increase based on the number of shares of Common Stock issued pursuant to the Additional Notes. All the convertible promissory notes with a principal amount of $5,400,000 were converted into 2,153,424 shares of common stock prior to November 30, 2021.


 

On November 18, 2021, we entered into a securities purchase agreement (the “November SPA”) with the same two Institutional Investors to sell them a series of senior convertible notes (the “2021 Notes”) with an original issue discount of 20% and ranking senior to all outstanding and future indebtedness of the Company in a private placement. Each Institutional Investor paid $3,250,000 in cash for a 2021 Note in the face amount of $3,900,000. The November SPA also provided for the issuance of additional 2021 Notes in an aggregate original principal amount not to exceed $3,900,000 under certain circumstances. The November SPA also contains provisions about the Market Event Price. The 2021 Notes, which were issued on November 22, 2021, mature on the eighteen-month anniversary of the issuance date, are payable by the Company in installments and are convertible at the election of the Institutional Investors at the conversion price of $3.25 (post-Split Price and subject to the Event Market Price Adjustment), which is subject to adjustment in the event of default. Each Institutional Investor also received a warrant (the “Institutional Investor 2021 Warrant”) to purchase 180,000 shares of Common Stock at an initial exercise price of $3.55 per share (subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant (the “Placement Agent 2021 Warrant”, together with the Institutional Investor 2021 Warrant, the “2021 Warrants”) to purchase up to 8% of the aggregate number of shares of Common Stock at an initial exercise price of $3.55 per share (post-Split Price and subject to the Event Market Price Adjustment), subject to increase based on the number of shares Common Stock issued pursuant to the 2021 Notes.

The Company implemented a reverse stock split (the “Split”) on February 2, 2022 at the ratio of 5 to 1. The 2020 Notes were fully converted before the Split, and therefore no price adjustment was actually implemented at the conversion, although the price information provided above about the 2020 Notes was post-split price. The conversion price of the 2021 Notes and the exercise price of the 2020 Warrants and the 2021 Warrants werewill be adjusted to $1.30 pursuant to the Event Market Price formula upon conversion or exercise. With exception of a cashless exercise of 650,000 warrants by one Institutional Investor on June 18, 2021, through which the Company delivered 162,500 shares of Common Stock to such Institutional Investor, thereThere has been no conversion of the 2021 Notes or exercise of the 2020 Warrants or the 2021 Warrants as of the date of this report.

Upon evaluation, the Company determined that the two agreements contained embedded beneficial conversion features which met the definition of Debt with Conversion and Other Options covered under the Accounting Standards Codification topic 470 (“ASC 470”). According to ASC 470, an embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Convertible note – principal $7,800,000  $7,800,000  $1,108,785  $1,108,785 
Convertible note – discount  (2,034,383)  (2,588,840)  (334,800)  - 
 $5,765,617  $5,211,160  $773,985  $1,108,785 

 

Additionally, the Company accounted for the embedded conversion option liability in accordance with the Accounting Standards Codification topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with these standards, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration to all of the rights and obligations of each instrument. The initial fair value of the embedded conversion option liability associated with each Note was valued using the Black-Scholes model. The assumptions used in the Black-Scholes option pricing model are as follows:

 March 31,
2022
  December 31,
2021
  March 31,
2023
  December 31,
2022
 
Dividend yield $0% $0% $0% $0%
Expected volatility  171%  171%  171%  171%
Risk free interest rate  0.87%  0.87%  0.87%  0.87%
Expected life (year)  1.17   1.42   1.42   1.42 

 

The value of the conversion option liability underlying the Notes and Convertible Notes as of March 31, 20222023 and December 31,202131,2022 were nil. The Company recognized a loss from the increase in the fair value of the conversion option liability in the amount of nil for the three months ended March 31, 20222023 and 2021.2022.


 

19.21.OTHER PAYABLES AND ACCRUED LIABILITIES

 

Other payables and accrued liabilities consisted of the following:

  March 31,
2022
  December 31,
2021
 
Salary payable $800,281  $947,911 
Salary payable – related party (1)  778,334   1,005,832 
Accrued operating expenses  -   175,215 
Other payables  146,349   953,959 
  $1,724,964  $3,082,917 

 

  March 31,
2023
  December 31,
2022
 
Salary payable $276,635  $411,043 
Salary payable – related party (1)  2,210,333   2,135,333 
Accrued operating expenses  (900)  (900)
Other payables  613,861   630,097 
  $3,099,929  $3,175,574 

(1)

The Company entered into the Song Agreement with Mr. Tiewei Song dated October 1, 2019, as its Chief Executive Officer for a term of two years commencing October 1, 2019 with base annual cash compensation of $500,000.The$500,000. The Song Agreement was renewed on October 28, 2021 for one year with an annual base salary of $1,000,000 in cash and an annual stock compensation of 1,000,000 shares of the Company’s common stock.Common Stock. We have not paid any cash compensation to Mr. Song as of the date of this quarterly report.

The Company entered into the employment Agreement with Ms. Baiqun Zhong dated January 27, 2022, as the Interim CFO from May 21, 2021 until July 14, 2021 with base annual cash compensation of $250,000. We have not paid any cash compensation to Ms. Zhong as of the date of this quarterly report.

On January 27, 2022, the Company entered into an employment agreement with Mr. Xiaping Wang for a term of one year, effective January 1, 2022.Mr. Wang’s compensation will consist of an annual salary of $500,000 in cash and stock compensation of 500,000 shares of the Company’s common stock. We have not paid any cash compensation to Mr. Wang as of the date of this quarterly report,

 

20.22.RELATED PARTIES AND RELATED PARTIES TRANSACTIONS

 

Amount due from mid-level management personnel

As of March 31, 2022 and December 31, 2021, the total amounts due from certain mid-level management personnel were $803,191 and $622,554, respectively, which included:.

1.As of March 31, 2022 and December 31, 2021, the amounts due from Mr. Jiangjin Shen, the Chief Executive Officer of Minkang, of $573,108 and $544,600, respectively, carried no interest. The Company received full repayment on this advance on April 13, 2022.

2.As of March 31, 2022 and December 31, 2021, the amounts due from Mr. Zhiwei Shen, the Chief Executive Officer of Qiangsheng of $230,083 and $77,954, carried no interest. The Company received full repayment on this advance on April 13, 2022.

Amounts due to related parties and mid-level management personnel

As of March 31, 20222023 and December 31,2021,31,2022, the total amounts payable to related parties and mid-level management was $531,817$2,519,803 and $730,285,$4,600,441, respectively, which included:

1.March 31, 2023 and December 31, 2022, Amount payable to Mr. Yongquan Bi, the former Chief Executive Officer and Chairman of the Board of directors of the Company, of $30,389Nil and $30,258,$27,699, respectively, free of interest and due on demand. These amounts representsrepresent the remaining balance that Mr. Yongquan Bi advanced for third party services on behalf of the Company during the ordinary course of business of the Company since the beginning of 2018. So far, it has not been paid. Xinrongxin was cancelled this period.

 

2.As of March 31, 2023 and December 31, 2022, Amount payable to Mr. Li Zhou, the legal representative (general manager) of Guanzan, of $277,563Nil and $477,128,$248,690 respectively areis for advance to fund daily operations and third-partythird party professional fees with no interest. So far, it has been paid. Xinrongxin was cancelled this period.

 

3.As of March 31, 2023 and December 31, 2022, Amounts payable to Mr. Fuqing Zhang, the Chief Executive Officer of Xinrongxin of $189,502$Nil and $188,684,$172,730, respectively, free of interest and due on demand. The amount due to Mr. Fuqing Zhang is for reimbursable operating expenses that the Company owed to Mr. Zhang prior to the acquisition of Boqi Zhengji. So far, it has not been paid. Xinrongxin was cancelled this period.

 


4.

AmountsAs of March 31, 2023 and December 31, 2022, amounts payable to Mr. Youwei Xu, the financial manager of Xinrongxin of $12,928were $11,943 and $12,872,$11,784, respectively, free of interest and due on demand. The amount due to Mr. Xu, relates to reimbursable operating expenses that was owed to Mr. Xu prior to the acquisition of Boqi Zhengji.

   
 5.AmountsAs of March 31, 2023 and December 31, 2022, the amounts payable to Shaohui Zhuo, the general manager of Guoyitang, of $5,124were $4,734 and $5,102,$4,671, respectively, waswhich amounts were used for daily operations with noand did not bear any interest.


6.As of March 31, 2023 and December 31, 2022, the amounts payable to Nanfang Xiao, a director of Guoyitang, were $10,623 and $10,482, respectively, which amounts were used for daily operations and did not bear any interest.

 

6.Amounts payable to Nanfang Xiao, a director of Guoyitang, of $11,499 and $11,450, respectively, for daily operations with no interest.

7.As of March 31, 2023 and December 31, 2022, Amounts payable to Jia Song, the manager of Guoyitang, of $4,812were $4,446 and $4,791,$4,385, respectively, waswhich amounts were used for daily operations and did not bear any interest.

8.As of December 31, 2022, Other payable to Mr. Fnu Oudom of $3,620,000, was for $2,000,000 personal loan with no interest.6% interest rate on December 6, 2022, and $1,620,000 for the remaining balance for sale of Phenix. The transaction closed effective March 15, 2023 when 100% of equity interests in Phenix were transferred to the Company and the closing consideration was paid.

9.As of December 31, 2022, Other payable to Mr. Song Tie Wei of $ 500,000, was a personal loan on October 28, 2022, with a term of three months from November 3, 2022 to February 3, 2023. No interest is payable if loan is return on time. 1% interest has accrued since March 3, 2023. As of filing date, this loan has not been repaid and per the agreement, the loan shall be automatically extended till the principal amount and all accrued interest are paid in full.  

 

21.23.STOCK EQUITY

 

The Company is authorized to issue 200,000,000 shares of Common Stock, $0.001 par value. As of March 31, 20222023 and December 31,2021,31,2022, there were 10,359,264 shares and 8,502,22234,255,000 shares outstanding, respectively.

On April 20, 2019 and October 7, 2019, the Company issued an aggregate of 300,000 shares of Common Stock as a part of the consideration for the acquisition of Boqi Zhengji.

On March 12, 2020, the Company issued 190,000 shares of Common Stock as the Guanzan Stock Consideration.

From April 6, 2020 through October 20, 2020, Power Up Lending Group Ltd., Crown Bridge Partners, LLC, Labrys Fund, LP, Morningview Financial, LLC,TFK Investments LLC, BHP Capital NY Inc., Firstfire Global Opportunities Fund, LLC and Platinum Point Capital LLC converted $1,534,250 of convertible notes plus interest into an aggregate of 331,643 shares of Common Stock.

On November 30, 2020, the Company issued 200,000 shares of Common Stock as the prepayment of the outstanding cash consideration for the Guanzan acquisition.

On December 2, 2020, Hudson Bay Master Fund Ltd (“Hudson Bay”), an institutional investor, converted $ 173,154 of a 2020 Note into an aggregate of 25,125 shares of Common Stock.

OnFrom December 2, 2020 until March 31, 2023, the Institutional Investor, CVI Investments, Inc.(“CVI”), ”), an institutional investor, converted $609,615 of a 2020 Note in the aggregate principal amount of $ 2,150,000 into an aggregate of 89,492 shares of Common Stock.

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

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

 

On February 2, 2021, the Company issued 400,00040,000 shares of Common Stock in connection with the purchase of Guoyitang.Guoyitang Hospital. 

On February 3, 2021, a holder of a convertible note issued on December 16, 2019 converted a part of the note in the aggregate principal amount of $ 74,473 plus interest into 20,706 shares of Common Stock.

On February 11, 2021, the Company issued 50,0005,000 shares of Common Stock to Real Miracle Investments Limited in consideration for consulting services.

On March 26, 2021, the Company issued 400,00040,000 shares of Common Stock in connection withas part of the purchase of Zhongshan.Zhongshan acquisition.


 

On April 20, 2021, the Company issued 800,00080,000 shares of Common Stock as partial consideration for the acquisition of the Minkang, Qiangsheng and Eurasia hospitals.

On April 29, 2021, the Company issued 100,00010,000 shares of Common Stock as payment for improvements to offices located in Chongqing.

 

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


 

On July 23, 2021, the Company issued 30,000 shares of Common Stock as payment for salary to three employees.

From August 26, 2021 to November 30, 2021, Hudson Bay converted 2020 Notes in the aggregate principal amount of $2,400,000 into 970,173 shares of Common Stock.

From August 26, 2021 to November 30, 2021, CVI converted 2020 Notes in the aggregate principal amount of $3,000,000 into 1,183,251 shares of Common Stock.

On August 27, 2021, the Company issued 920,00092,000 shares of Common Stock in full payment of the balance of the post-closing consideration for the acquisition of Guanzan.

On September 22, 2021, the Company issued 440,00044,000 shares of Common Stock as the initial consideration for the acquisition of Zhuoda.

On January 7, 2022, the Company issued 600,000 shares of Common Stock as the initial consideration for the acquisition of Mali Hospital.

On January 24, 2022, the Company issued 1,000,000 shares of Common Stock as salary for Mr. Tiewei Song.

On FebruaryJanuary 27, 2022, the Company entered into an employment agreement with Mr. Xiaping Wang for a term of one (1) year, effective January 1, 2022, we issued 50,0002022. Under the agreement, Mr. Wang’s compensation will consist of an annual salary of $500,000 in cash and stock compensation of 500,000 shares of our Common Stock to a consultant as payment for legal consulting Services.

the Company’s common stock. The Company issued 500,000 shares of our common stock to Mr. Xiaping Wang as the salary on February 1, 2022.1,2022.

On February 1, 2022, the Company issued 50,000 shares of Common Stock to Chongqing Jinmujinyang (Jiulongpo) Law Firm (a/k/a in English: Chongqing Kingmoon & Kingyang (Jiulongpo) Law Firm) as payment for services under a legal consulting agreement dated January 1, 2022.

On February 2, 2022, we completedthe Company issued a five (5) for one (1)press release announcing a 1-for-5 reverse stock split (the “Reverse Split”) of our issued and outstanding ordinary shares, par value $0.001 per share.its common stock would become effective on February 3, 2022.

On July 18, 2022, 12,500,000 shares of Common Stock were issued to Mr. Fnu Oudom in consideration of $5 million after obtaining the approval of stockholders at the Company’s 2022 annual meeting of shareholders.

On December 8, 2022, the Company issued a press release announcing that a 1-for-10 reverse stock split of its common stock would become effective on December 9, 2022.

On November 23, 2022, the Zhouda sale transaction closed, when 100% of the equity interests in Zhuoda were transferred to the buyers and the 44,000 shares of the Company’s common stock were returned to the Company as the full consideration.

From the legal perspective, the Reverse Split applied to the issued shares of the Company on the date of the Reverse Split and does not have any retroactive effect on the Company’s shares prior that date. However, for accounting purposes only, references to our ordinary shares in this annual report are stated as having been retroactively adjusted and restated to give effect to the Reverse Split, as if the Reverse Split had occurred by the relevant earlier date.

22.24.NET LOSS PER SHARE

 

Basic net loss per share is computed using the weighted average number of common shares outstanding during the year. The dilutive effect of potential common shares outstanding is included in diluted net loss per share. Due to the Company’s net loss from its continuing operations, all potential common share issuances had anti-dilutive effect on net loss per share. The following table sets forth the computation of basic and diluted net loss per share for the three months ended March 31, 20222023 and 2021:2022:

  For the
Three Months ended
March 31,
 
  2022  2021 
Total net loss attributable to common shareholders $(2,740,480) $(3,290,627)
         
Weighted average common shares outstanding – Basic and diluted  10,087,665   3,338,608 
         
Loss per shares – basic and diluted:        
Loss per shares – basic and diluted: $(0.27) $(0.99)
  For the three months ended
March 31,
 
  2023  2022 
Net loss from continuing operation attributable to common shareholders $(860,635) $(2,975,642)
Net Income from discontinued operation attributable to common shareholders  (23,129)  - 
Total net loss attributable to common shareholders  (883,764)  (2,975,642)
Weighted average number of common shares outstanding – Basic and diluted  3,834,443   10,087,665 
loss per share – basic and diluted:        
Continuing operations $(0.22) $(0.29)
Discontinued operations  (0.01)  - 
Total $(0.23) $(0.29)

 


 

 

24.25.SEGMENTS

 

General Information of Reportable Segments:

TheFor the three months ended March 31, 2023, and 2022, the Company currently has 4operated in four reportable segments in the PRC.

As of March 31, 2023, the Company had four operating reportable segments: retail pharmacy, wholesale pharmaceuticals, wholesale medical devices wholesale pharmaceuticals and medical services.healthcare products. The retail pharmacy segment sells prescription and OTC medicines, traditional Chinese medicines (“TCM”),TCM, healthcare supplies and sundry items to retail customers through its directly-owned pharmacies and authorized retail stores. The wholesale pharmaceuticals segment includes supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals and other drug vendors. The medical services segment includes the hospitals acquired in February 2021.

To date, therewholesalers. There were no inter-segment revenues between our retail pharmacy and wholesale pharmaceuticals segments. The wholesale medical devicesdevice segment distributes medical devices, including medical consumables to private clinics, hospitals, third party pharmacies and other medical devicesdevice dealers. Disclosure should relate to all segmentsHealthcare products includes cardiovascular product, anti-insomnia and depression product, male aphrodisiac product, women’s menopausal syndrome product, gout product and immune enhancer/ vaccine sequelae product.

As of March 31, 2022, the Company had four reportable segments: wholesale medical devices, wholesale pharmaceuticals, medical services and retail pharmacies. The wholesale medical devices segment distributes medical devices, including medical consumables to drug stores, private clinics, pharmaceutical dealers and hospitals. The wholesale pharmaceuticals segment includes supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals and other drug vendors. The medical services segment includes the hospitals acquired in 2021.The retail pharmacy segment sells prescription and OTC medicines, traditional Chinese medicines (“TCM”), healthcare supplies, and sundry items to retail customers through its directly-owned pharmacies and authorized retail stores. To date, there were no inter-segment revenues between our retail pharmacy and wholesale pharmaceuticals segments.

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

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

Information about Operating Segment Profit or Loss and Segment Assets

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

For three months ended March 31, 2022 Retail
pharmacy
  Medical
device
wholesale
  Drugs
wholesale
  Medical
services
  Others  Total 
Revenues from external customers $65,156  $2,138,047  $1,231,856  $1,584,689  $-  $5,019,748 
Cost of revenues $40,192  $1,835,885  $1,075,422  $609,779  $-  $3,561,278 
Depreciation, depletion, and amortization expense $3,481  $12,329  $360  $43,319  $29,670  $89,159 
Profit (loss) $(102,615) $114,476  $(143,429) $207,345  $(2,816,257) $(2,740,480)
Total assets $253,906  $4,629,920  $10,528,955  $8,169,624  $15,129,605  $38,712,010 

 

For three months ended March 31, 2021 Retail
pharmacy
  Medical
device
wholesale
  Drugs
wholesale
  Medical
services
  Others  Total 
For three months ended March 31, 2023 Retail pharmacy  Medical device wholesale  Drugs wholesale  Healthcare products sales  Medical services  Others  Total 
Revenues from external customers $120,113  $64,439  $1,264,868  $704,487  $14,097  $2,168,004  $210,246  $158,141  $806,742  $2,022,508  $-  $-  $3,197,637 
Cost of revenues $99,495  $30,462  $806,856  $638,807  $123  $1,575,743  $133,455  $98,939  $772,272  $501,112  $-  $1,618  $1,507,396 
Depreciation, depletion, and amortization expense $5,138 $6,873  $680  $17,443  $5,824  $35,958  $4,579  $11,434  $-  $8,943  $-  $2,547  $27,503 
Profit (loss) $(156,065) $(102,831) $213,077  $(272,333) $(2,972,475) $(3,290,627) $(66,917) $(206,263) $(16,486) $1,395,494  $908  $(1,976,314) $(869,578)
Total assets $412,494  $5,516,800  $14,690,504  $21,079,758  $8,046,969  $49,746,525  $471,553  $3,913,199  $12,987,234  $3,996,806  $1,073,740  $7,882,848  $30,325,380 

 

For three months ended March 31, 2022 Retail
pharmacy
  Medical
device
wholesale
  Drugs
wholesale
  Medical
services
  Others  Total 
Revenues from external customers $65,156  $2,137,253  $512,302  $-  $-  $2,714,711 
Cost of revenues $40,192  $1,835,465  $466,710  $-  $-  $2,342,367 
Depreciation, depletion, and amortization expense $3,481  $12,329  $79  $-  $3,358  $19,247 
Profit (loss) $(102,615) $114,476  $(171,166) $-  $(2,816,338) $(2,975,643)
Total assets $253,906  $4,590,217  $8,218,069  $-  $16,205,774  $29,267,966 


 

 

Reconciliations of Operating Segment Revenues, Profit or Loss, and Assets, to the Consolidated Totals as of March 31, 20222023 and March 31,202131,2022 and for the Three Months ended March 31, 20222023 and 2021.2022.

 Three months ended
March 31,
2022
 
>>Revenues   
Total revenues of operating segments $5,025,014 
Other revenues  - 
Elimination of intersegments revenues  (5,266)
Total consolidated revenues $5,019,748 
     
>> Profit or loss    
Total loss from operating segments $75,776 
Elimination of intersegments profit or loss  - 
Unallocated amount:    
Amortization of discount of convertible notes  (771,124)
Other corporation expense  (2,045,132)
Total net loss $(2,740,480)
     
>>Assets    
Total assets of operating segments $51,304,157 
Elimination of intersegments receivables  (15,156,049)
Unallocated amount:    
Other unallocated assets -- Xinrongxin  4,571 
Other unallocated assets – Liaoning Boyi  33,631 
Other unallocated assets – Dalian Boyi  4,885 
Other unallocated assets – Chongqing Bimai  1,728,643 
Other unallocated assets -- BIMI  792,172 
Total consolidated assets $38,712,010 

 

  Three months ended
March 31,
2023
 
>>Revenues   
Total revenues of operating segments $3,443,413 
Other revenues  - 
Elimination of intersegments revenues  (245,776)
Total consolidated revenues $3,197,637 
     
>> Profit or loss    
Total loss from operating segments $1,106,737 
Elimination of intersegments profit or loss  (133,455)
Unallocated amount:    
Amortization of discount of convertible notes  - 
Other corporation expense  (1,842,860)
Total net loss $(869,578)
     
>>Assets    
Total assets of operating segments $38,388,388 
Elimination of intersegments receivables  (13,588,019)
Unallocated amount:    
Other unallocated assets – Phenix Bio Inc    
Other unallocated assets – Xinrongxin  - 
Other unallocated assets – Liaoning Boyi  31,069 
Other unallocated assets – Dalian Boyi  4,028 
Other unallocated assets – Chongqing Bimai  1,071,003 
Other unallocated assets – BIMI  4,418,911 
Total consolidated assets $30,325,380 


  Three months ended
March 31,
2022
 
>>Revenues   
Total revenues of operating segments $2,719,977 
Other revenues  - 
Elimination of intersegments revenues  (5,266)
Total consolidated revenues $2,714,711 
     
>> Profit or loss    
Total loss from operating segments $(159,306)
Elimination of intersegments profit or loss  - 
Unallocated amount:    
Amortization of discount of convertible notes  (771,124)
Other corporation expense  (2,045,213)
Total net loss $(2,975,643)
     
>>Assets    
Total assets of operating segments $41,860,113 
Elimination of intersegments receivables  (15,156,049)
Unallocated amount:    
Other unallocated assets – Xinrongxin  4,571 
Other unallocated assets – Liaoning Boyi  33,631 
Other unallocated assets – Dalian Boyi  4,885 
Other unallocated assets – Chongqing Bimai  1,728,643 
Other unallocated assets – BIMI  792,172 
Total consolidated assets $29,267,966 

 

 Three months ended
March 31,
2021
 
>>Revenues   
Total revenues of operating segments $2,153,907 
Other revenues  14,097 
Elimination of intersegments revenues  - 
Total consolidated revenues $2,168,004 
     
>> Profit or loss    
Total loss from operating segments $(325,367)
Elimination of intersegments profit or loss  - 
Unallocated amount:    
Amortization of discount of convertible notes  (1,386,586)
Other corporation expense  (1,578,674)
Total net loss $(3,290,627)
     
>>Assets    
Total assets of operating segments $44,115,292 
Elimination of intersegments receivables  (2,415,736)
Unallocated amount:    
Other unallocated assets -- Xinrongxin  3,055,027 
Other unallocated assets – Liaoning Boyi  274,871 
Other unallocated assets – Dalian Boyi  5,307 
Other unallocated assets – Chongqing Bimai  2,344,579 
Other unallocated assets -- BIMI  2,367,185 
Total consolidated assets $49,746,525 


 

 

25.26.ENTITY-WIDE INFORMATION AND CONCENTRATIONS OF RISK

 

Entity-Wide Information

(a)Revenues from each typestype of products

 

For the three months ended March 31, 20222023 and 2021,2022, respectively, the Company reported revenues for each type of productsproduct and servicesservice as follows:

 

For the
three months ended

March 31,

  For the three months ended
March 31,
 
 2022  2021  2023  2022 
Medical devices $2,138,047  $64,439  $158,141  $2,137,253 
Medical services  1,584,689   704,487 
Pharmaceuticals  1,231,856   1,264,868 
Healthcare products  2,022,508   - 
Wholesale pharmaceuticals  806,742   512,302 
Pharmacy retail  65,156   120,113   210,246   65,156 
Others  -   14,097 
        
Total $5,019,748  $2,168,004  $3,197,637  $2,714,711 

 

(b)Geographic areas information

 

For the three months ended March 31, 20222023 and 2021,2022, respectively, all the Company’s revenues were generated in the PRC. There were no long-lived assets located outside of the PRC as of March 31, 20222023 and 2021.2022.

(c)Major customers

 

For the three months ended March 31, 2022, no customer2023, two customers accounted for more than 10% of the Company’s revenues:

    For the three months ended  As of
March 31,
 
    March 31, 2023  2023 
Customers Segment Purchases  Percentage of total purchases  Accounts receivable 
Customer A Wholesale pharmaceuticals $1,052,467   32.91%  - 
Customer B Healthcare products $994,850   31.11%           - 

(d)Major vendors

 

For the three months ended March 31, 2022, three2023, two vendors accounted for more than 10% of the Company’s purchases and its outstanding balances as at balance sheet dates:March 31, 2023:

 

   For the
three months ended
 As of    For the
three months ended
 As of
March 31,
 
   

March 31,

2022

 

March 31,

2022

    March 31, 2023  2023 
Vendors Segment Purchases  Percentage
of total
purchases
  Accounts
payable
  Segment Purchases  Percentage
of total
purchases
  Accounts
payable
 
Vendor A Medical services $1,159,849   37.33%  -  Healthcare product $261,780   13%           - 
Vendor B Medical services $602,012   19.37%  -  Medical services $189,976   10%  - 
Vendor C Wholesale pharmaceuticals $494,939   15.93%  495,109 

 


 

Concentrations of Risk

The Company is exposed to the following concentrations of risk:

(a)Credit risk

 

Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require prepayments or deposits from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

(b)Interest rate risk

 

The Company’s interest-rate risk arises from convertible promissory notes, short-term and long-term loans. The Company manages interest rate risk by varying the issuance and maturity dates, fixing interest rate of debt, limiting the amount of debts,debt, and continually monitoring the effects of market changes in interest rates. As of March 31, 20222023 and December 31, 2021,2022, respectively, the Notes, short-term and long-term loans were at fixed rates.

(c)Exchange rate risk

 

Substantially all of the Company’s revenues and a majority of its costs are denominated in RMB and a significant portion of its assets and liabilities are denominated in RMB. As a result, the Company’s results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If the RMB depreciates against the US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.

(d)Economic and political risks

 

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

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

(e)Enforcement risks

The PRC People’s Supreme Court adopted rules in 2010 which restrict parties who are subject to effective court enforcement orders for monetary judgements from extravagant spending until the monetary judgments have been satisfied. According to those rules, if a company becomes subject to a court enforcement order due to failure to satisfy a monetary judgement, the company’s name will appear on a defaulters’ list published by the Chinese courts and the company together with its legal representative and responsible person will be prohibited from using the company property for extravagant spending such as buying real property, vacationing and paying for children’s private school education, until, among other conditions, the monetary judgment has been satisfied. Boqi Zhengji and Nengfa Energy are currently on the defaulters’ list due to their failure to pay off several monetary judgments.

26.27.SUBSEQUENT EVENTS

 

None Noted On February 27, 2023, the Company entered into a stock purchase Agreement (the “February SPA”) with Mr. Oudom, whereby the Company agreed to sell 2,500,000 shares of Common Stock to Mr. Oudom for $3,000,000 in cash, based on a purchase price of $1.50 per share, subject to shareholder approval of the issuance of such shares. Such issuance was approved by the Company’s shareholders on April 13, 2023, but have not been issued to date.


 

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

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

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

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

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

OVERVIEW

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

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 shift of focus from the energy sector to the healthcare business. Boqi Zhengji, however, suffered significant setbacks during 2020. The COVID-19 pandemic caused the pharmacy stores to record almost no sales for several months due to the national shutdown order and other government orders specifically targeting OTC drugs. To avoid exposing our 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 cash. On December 18, 2020, we received the full consideration from the buyer and the control of the Boqi Zhengji business was transferred. Due to the Chinese government’s alternative working schedule and other delays caused by COVID-19, the government record reflecting the transfer of ownership was not updated until February 2, 2021.

On March 18, 2020, we completed the Guanzan acquisition. The rationale for the acquisition was for us to further 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 Chongqing, the largest city in Southwest region of the 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 gaining a wider footprint in the PRC. On April 9, 2021, we increased our equity interest in Shude from 80% to 95.2% by making a direct capital investment in Shude.

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 enabled us to serve more individuals with medical needs and was the first step in our efforts to build a hospital chain specializing in obstetrics and gynecology.


 

 

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

On May 6,April 9, 2021, we acquired three private hospitals operating in China, Wuzhou Qiangsheng Hospital Co.,Ltd.(“Qiangsheng”) in the southeast region of the PRC, Suzhou Eurasia Hospital Co.,Ltd. (“Eurasia”) in the central region of the PRC and Yunan Yuxi Minkang Hospital Co.,Ltd.(“Minkang”) in the southwest region of the PRC. Qiangsheng, Eurasia and Minkang were owned by the same owners. Qiangsheng has 20 hospital beds and is a general hospital locally known for its OB/GYN and Chinese traditional medicine specialties. Eurasia has 30 hospital beds. Minkang has 120 hospital beds and is a general hospital locally known for its OB/GYN and Chinese traditional medicine specialties..

On October 8,September 10, 2021, we acquired Chongqing Zhuoda Pharmaceutical Co., Ltd. (“Zhuoda”), a company engaged in the distribution of medical devices and pharmaceuticals, based in Chongqing, the largest city in Southwest region of the PRC.

In response to the poor performance of Zhuoda primarily distributes pharmaceuticals.since its acquisition, whose operations were impacted by COVID-19, on October 19, 2022, we entered into a sale and purchase agreement to sell Zhuoda currently distributes approximately 100 products, including antibioticsback to the former owners. Pursuant to the agreement, we sold 100% of the equity interests in Zhuoda in consideration for the return of the 44,000 shares of Common Stock previously issued to the former owners of Zhuoda. The transaction closed effective November 23, 2022, when 100% of the equity interests in Zhuoda were transferred to the former owners and their preparations, proprietary Chinese herbal medicine, biochemical drugsthe 440,000 shares of Common Stock were returned to us.

Our hospitals performed poorly in 2022 due in great measure to the impact of COVID-19 and Chinese medicine, etc.the PRC’s policies to combat its spread. In response to the poor performance of Zhongshan, on December 28, 2022, we entered into an agreement to transfer 87% of the equity interests in Zhongshan to the seller. As consideration for the transfer, the seller will return to us 40,037 shares of Common Stock, which were previously issued to the seller as part of the closing consideration for Zhongshan. The transaction is expected to close in the second quarter of 2023.

In response to the poor performance of the Qiangsheng, Eurasia and Minkang hospitals, on December 28, 2022 we entered into an agreement to transfer 90% of the equity interests in the three hospitals back to the sellers. As consideration for the transfer, the sellers will return to us 80,000 shares of Common Stock, which were previously issued to them upon the acquisition of the hospitals. Pursuant to the agreement, we will continue to own 10% of the equity interests in each of the three hospitals. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.

The actions taken to fulfill the plans to dispose of the majority of its customers are private pharmaceutical manufacturers and pharmaceutical wholesale companiesour ownership interests in the PRC.Zhongshan, Qiangsheng, Eurasia and Minkang hospitals resulted in our classifying these hospitals as held for sale operations according to ASC 205-20 Presentation of Financial Statements – Discontinued Operation. As a result, all of the assets and liabilities of the Zhongshan, Qiangsheng, Eurasia and Minkang hospitals were reclassified as assets and liabilities of a held for sale operation in the statement of position as of December 31, 2022, and the results of the operation are presented under the line item net loss from held for sale operations for the year ended December 31, 2022.

On December 20, 2021,July 5, 2022, we entered into a stock purchase agreement (as amended on February 27, 2023) with Mr. Fnu Oudom, the Chairman of our board of directors, whereby we agreed to acquire Bengbu Mali OB-GYN Hospital Co., Ltd.100% of the equity interests in Phenix Bio Inc. (“Mali Hospital”Phenix”), a private OB-GYN specialty hospitaldistributor of healthcare products in consideration of $1,800,000. The transaction closed effective March 15, 2023. The aggregate purchase price for the equity interests in Phenix was $180,000 in cash 270,000 shares of Common stock. The Company has agreed to issue 5,000.000 shares of Common Stock to Mr. Oudom if the aggregate net profit for Phenix is at least $2,500,000 in calendar 2023, or in any fiscal quarter in 2023.

We have restated our financial statements for the year ended December 31, 2021, to correct errors identified in our prior financial statements. In FY2021, we recorded amortization of convertible note in G&A expense account, it has been revised to record amortization of convertible note in other income(expense) account. The restatement was necessary to address misstatement of financial statements. The impact of the restatement on our financial statement is reclassification of other expense in financial statements. We have concluded that the restatement does not materially affect our liquidity or our compliance with 199 beds locateddebt covenants or other financial obligations.

We have taken steps to address the cause of the restatement and to improve our internal controls over financial reporting. We hired a consulting firm to assist us on daily internal controls and financial reporting process review. And we also improved our internal accounting department management as well. We are committed to maintaining the integrity of our financial statements and to providing accurate and transparent financial information to our investors.


BUSINESS SEGMENTS

For the three months ended March 31, 2023, and 2022, the Company operated in Bengbu cityfour reportable segments in the southeast region of the People’s Republic of China. Mali Hospital has 148 employees, including 26 doctors, 52 nurses, 11 other medical staff members and 59 non-medical staff members. The acquisition of Mali Hospital has not closed as of the date of this report.PRC.

BUSINESS SEGMENTS

TheAs of March 31, 2023, the Company currentlyhas four operating segments: retail pharmacy, wholesale pharmaceuticals, wholesale medical devices and medical services.healthcare products. The retail pharmacy segment sells prescription and OTC medicines, TCM, healthcare supplies and sundry items to retail customers through its directly-owned pharmacies and authorized retail stores. The wholesale pharmaceuticals segment includes supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals and other drug wholesalers. There were no inter-segment revenues between our retail pharmacy and wholesale pharmaceuticals segments. The wholesale medical device segment distributes medical devices, including medical consumables to private clinics, hospitals, third party pharmacies and other medical device dealers. Medical servicesHealthcare products includes private comprehensive hospitals operating in China.cardiovascular product, anti-insomnia and depression product, male aphrodisiac product, women’s menopausal syndrome product, gout product and immune enhancer/ vaccine sequelae product.

As of March 31, 2022, the Company had four reportable segments: wholesale medical devices, wholesale pharmaceuticals, medical services and retail pharmacies. The wholesale medical devices segment distributes medical devices, including medical consumables to drug stores, private clinics, pharmaceutical dealers and hospitals. The wholesale pharmaceuticals segment includes supplying prescription and OTC medicines, TCM, healthcare supplies and sundry items to clinics, third party pharmacies, hospitals and other drug vendors. The medical services segment includes the hospitals acquired in 2021.The retail pharmacy segment sells prescription and OTC medicines, traditional Chinese medicines (“TCM”), healthcare supplies, and sundry items to retail customers through its directly-owned pharmacies and authorized retail stores. To date, there were no inter-segment revenues between our retail pharmacy and wholesale pharmaceuticals segments.

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

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

GOING CONCERN

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

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company incurred net losses of $2,740,480$883,764 and $3,290,627 and cash outflows of $2,150,706 and $1,729,711, from operating activities for$2,975,642 during the three months ended March 31, 20222023 and 2021,2022, respectively. As of March 31, 2022,2023, the Company had an accumulated deficit of $50.64$71.03 million. In addition, the Company continues to generate operating losses and has limited cash flow from its operations. Primarily as a result of it operating loss in the quarter, the Company’s cash position declined by $2.15 million in the three months ended March 31, 2022. Management believes these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months.

 


The continuation of the Company as a going concern through the next twelve months is dependent upon (1) the continued financial support from itsour stockholders or external financing,financing. Management believes that our existing stockholders will provide the additional cash necessary to meet our obligations as they become due, and (2) furtherthat we will be able to implement management’sour business plan to extend itsexpand our company’s operations and generate sufficient revenues and cash flow to meet itsour obligations. On November 18, 2021, the Company entered into a securities purchase agreement (the “November SPA”) with two institutional investors (each an “Institutional Investor” and collectively the “Institutional Investors”) to sell a new series of senior secured convertible notes (the “Convertible Notes”) of the Company in a private placement (the “Private Placement”), in the aggregate principal amount of $7,800,000 having an aggregate original issue discount of 20%, and ranking senior to all outstanding and future indebtedness of the Company. See “LIQUIDITY AND CAPITAL RESOURCES.” While the Company believeswe believe in the viability of itsour strategy to increase sales volume and in itsour ability to raise additional funds, there can be no assurance to that effect, nor that our company will be successful in securing sufficient funds to sustain the Company will succeed in either respect.operations.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.

CRITICAL ACCOUNTING ESTIMATES

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

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


Accounts receivable and allowance for doubtful accounts

 

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from delivery. Credit is extended based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company doesWe do not have any off-balance-sheet credit exposure related to itsour customers. As of March 31, 2022 and December 31, 2021, the allowance for doubtful accounts was $322,956 and $322,145, respectively.


Advances to suppliers

 

Advances to suppliers consist of prepayments to the Company’s vendors, such as pharmaceutical manufacturers and medicine suppliers. The Company typically prepays for the purchase of our merchandise, especially for those salable, scarce, personalized medicine or medical devices. The Company typically receive products from vendors within three to nine months after making prepayments. The Company continuously monitor delivery from, and payments to, the vendors while maintaining a provision for estimated credit losses based upon historical experience and any specific supplier issues, such as discontinuing of inventory supply, that have been identified. If the Company has difficulty receiving products from a vendor, the Company would cease purchasing products from such vendor, request return of our prepayment promptly, and if necessary, take legal action. The Company has not taken such type of legal action during the reporting periods. If none of these steps are successful, management will then determine whether the prepayments should be reserved or written off. As of March 31, 20222023 and December 31, 2021,2022, the allowance for doubtful accounts were $Nil.Nil.

Inventories

 

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average method, and market value is the middle (the second highest) value among an inventory item’s replacement cost, market celling and market floor. The Company carries out physical inventory counts on a monthly basis at each store and warehouse location. The Company reviews historical sales activity quarterly to determine excess, slow moving items and potentially obsolete items. The Company provides inventory reserve based on the excess quantities on hand equal to the difference, if any, between the cost of the inventory and its estimated market value, or obsolescence of inventories determined principally by customer demand. As of March 31, 20222023 and December 31, 2021,2022, the Company recorded an allowance for obsolete inventories, which mainly consists of expired medicine, of $103,625$27,975 and $103,178,$584, respectively.

Property, plant and equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and impairment, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:

Items 

Expected

useful lives

 Residual
value
 
Building 20 years  5%
Office equipment 3 years  5%
Electronic equipment 3 years  5%
Furniture 5 years  5%
Medical equipment 10 years  5%
Vehicles 4 years  5%
Leasehold Improvement Shorter of lease term or useful life  5%

 

Expenditures for repairs and maintenance are expensed as incurred. When assets have been retired or sold, the cost and

related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

Intangible assets

 

Intangible assets consist primarily of management system software. Intangible assets are stated at cost less accumulated amortization and impairment, if any. Intangible assets are amortized using the straight line method with the following estimated useful lives:

  

Expected

useful lives

Software 10 years

 


 

 

Leases

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

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

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

Goodwill

 

Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. In accordance with ASC 350, Goodwill and Other Intangible Assets, recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment present.

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

The Company identified reporting units at the lowest level within the entity at which goodwill is monitored for internal management purposes. Management evaluated the recoverability of goodwill by performing a qualitative assessment before using a two-step impairment test approach at the reporting unit level. If the Company reorganizes its reporting structure in a manner that changes the composition of one or more of its reporting units, goodwill is reassigned based on the relative fair value of each of the affected reporting units. As of March 31, 20222023 and December 31, 2021,2022, the Company recorded impairments for goodwill of $Nil$5,385,811 and $26,128,171,$5,385,811, respectively.

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:

Identify the contract with a customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; and
Recognize revenue when (or as) the entity satisfies a performance obligation.

 

The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which at a point in time or over time as appropriate.

Our revenues are net of value added tax (“VAT”) 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 recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax authorities


 

 

Businesses Held for Sale

In late 2022, we committed to a plan to dispose of the Zhongshan, Minkang, Eurasia, and Qiangsheng hospitals.

On December 28, 2022, we entered into an agreement to transfer 87% of the equity interests in Zhongshan to the prior owner. As consideration for the transfer, the seller agreed to return to us the 40,037 shares of Common Stock, that were previously issued as part of the closing consideration. The transaction is expected to close in the second quarter of 2023.

On December 28, 2022, we entered into an agreement to transfer 90% of the equity interests in Qiangsheng, Minkang and Eurasia to the previous owners. As consideration for the transfer, the sellers agreed to return to us the 80,000 shares of Common Stock which were previously issued upon the acquisition of the three hospitals. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.

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

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 amortized to interest expense over the life of the debt.

Beneficial Conversion Feature

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

Derivative instruments

 

We enter into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with ASC Topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretation of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration to all of the rights and obligations of each instrument.

We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring fair values. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimate and assumption changes. Under the terms of the new accounting standard, increases in the trading price of the Company’s common stock and increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the company’s common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.

Foreign currencies translation

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations. The reporting currency of our company is the United States Dollar (“US$”). Our subsidiaries in the PRC maintain their books and records in their local currency, the Renminbi Yuan (“RMB”), which is the functional currency as it 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.

Segment reporting

 

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about the type of products and services, geographical areas, business strategies and major customers in business components. For the three months ended March 31, 2022 the Company operated in four reportable segments: retail pharmacy, wholesale medical devices, wholesale pharmaceuticals and medical services in the PRC.


Recent accounting pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326)”, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life, instead of when incurred. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”, which amends Subtopic 326-20 (created by ASU No.2016-13) to explicitly state that operating lease receivables are not in the scope of Subtopic 326-20. Additionally, in April 2019, the FASB issued ASU No.2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, in May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief”, and in November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, and ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”, to provide further clarifications on certain aspects of ASU No. 2016-13 and to extend the nonpublic entity effective date of ASU No. 2016-13. The changes (as amended) are effective for the Company for annual and interim periods in fiscal years beginning after December 15, 2022, and the Company is in the process of evaluating the potential effect on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test. Step two of the goodwill impairment test measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with its carrying amount. As amended by ASU 2019-10, annual or interim goodwill impairment tests are performed in fiscal years beginning after December 15, 2022. We do not expect that the adoption of this guidance will have a material impact on our financial position, results of operations and cash flows.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance effective January 1, 2021, which adoption did not have a material impact on the consolidated financial statements.

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

Other accounting standards that have been issued or proposed byIn October 2021, the FASB or other standards-setting bodiesissued ASU No. 2021-08, “‘Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for the Company beginning after December 15, 2023, and are applied prospectively to business combinations that dooccur after the effective date. The Company does not requireexpect the adoption until a future date are not expected toof ASU 2021-04 will have a material impacteffect on the Company’s consolidated financial statements upon adoption.statements.

Recent Developments

On January 7, 2022, we issued 600,000 shares of Common Stock as the initial consideration for the acquisition of Mali.

On January 24, 2022, we issued 1,000,000 shares of Common Stock as the salary for Mr. Tiewei Song, which were not subject to the reverse split.


 

 

Recent Developments

On December 6, 2022, we sold a convertible promissory note (the “Note”) to Mr. Fnu Oudom for $ 2 million. The Note carries an annual interest rate of 6%, which is payable together with the principal amount one (1) year after the date of the Note. Seven (7) business days before the maturity date of the Note, the Note holder has the right to exercise a conversion right at a conversion price of $0.40, to have the aggregate amount of the principal and accrued interests repaid in shares (the “Note Shares”) of our Common Stock, in lieu of cash payment. The conversion price of $0.40 reflects a 60% premium on the closing price of the Common Stock on NASDAQ on the date of issuance of the Note, which was $0.25). On February 27, 2023, the Company and Mr. Oudom entered into an agreement (the “Prepayment Agreement”) whereby the parties agreed that the Company will exercise its prepayment right under the Convertible Note by issuing shares of Common Stock. In consideration of Mr. Oudom’s agreement to convert the Convertible Note in shares of Common Stock and to waive his right to any and all interest accrued and to be accrued under the Convertible Note, the Company agreed to issue 1,330,000 shares of Common Stock (the “Prepayment Shares”) at a conversion price of $1.50 per share, subject to the shareholders’ approval, as full payment of the $2,000,000 principal of the Convertible Note and accrued interest. Such issuance was approved by the Company’s shareholders on April 13, 2023. Such issuance has not occurred to date.

On January 27,July 5, 2022, we entered into an employmenta stock purchase agreement (as amended on February 27, 2023) with Mr. Xiaoping WangFnu Oudom, the Chairman of our board of directors, whereby we agreed to acquire 100% of the equity interests in Phenix Bio Inc. (“Phenix”), a distributor of healthcare products. The transaction closed effective March 15, 2023. The aggregate purchase price for a term of one (1) year, effective January 1, 2022. Under the agreement, Mr. Wang’s compensation will consist of an annual salary of $500,000equity interests in Phenix was $180,000 in cash, and stock compensation of 500,000which has been paid, plus 5,270,000 shares of our Common Stock. Wethe Company’s common stock, of which 270,000 shares was issued  500,000and the balance of 5,000,000 shares will be issued if the aggregate net profit generated by Phenix is at least $2,500,000 in calendar year 2023 or in any fiscal quarter of our2023.

On February 27, 2023, we entered into a stock purchase agreement (the “February SPA”) with Mr. Oudom, whereby the Company agreed to sell 2,500,000 shares of Common Stock to Mr. WangOudom for $3,000,000 in cash, based on February 1, 2022, which were nota purchase price of $1.50 per share, subject to shareholder approval of the reverse split.issuance of such shares. Such issuance was approved by the Company’s shareholders on April 13, 2023. As of the date of this report, Mr. Oudom has paid $350,000. The remaining $2,650,000 is expected to be received by July 2023.

On February 1, 2022, we issued 50,000 shares of our Common Stock to a consultant as payment for legal consulting Services.

On February 1, 2022, we entered into an Amendment and Settlement Agreement to amend the Stock Purchase Agreement relating to the acquisition of the Zhongshan hospital. The amendment reduced post-closing performance targets and payments and settled certain payments as a result of such amendment. Pursuant to the amendment, the purchase price was retroactively reduced by 50% from RMB 120,000,000 (currently approximately $18,864,957) to RMB 60,000,000 (currently approximately $9,432,479), the closing cash payment was retroactively reduced from RMB 40,000,000 to nil and the deferred closing stock payment was retroactively reduced from 400,000 shares of our Common Stock to 200,000 shares of Common Stock. The 2021 revenue target was also reduced by 50% from RMB 30,000,000 to RMB 15,000,000, the 2021 profit target was reduced from RMB 5,000,000 to RMB 2,500,000, the 2022 revenue target was reduced from RMB 33,000,000 to RMB 16,500,000 and the 2022 profit target was reduced from RMB 5,500,000 to RMB 2,750,000. The parties agreed that immediately after the signing of the amendment, the seller of Zhongshan hospital will execute and deliver all documents as requested by us in order to cause the return of 200,000 shares of our Common Stock on a post reverse split basis and that prior to December 31, 2022, the seller will return RMB 40,000,000 to us in cash, which amount was previously paid by us.

On February 2, 2022, we announced a 1-for-5 reverse split of our Common Stock, which began to trade on Nasdaq Capital Market on February 3, 2022 on a split adjusted basis. All share numbers in this discussion have been revised to reflect the reverse split.

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 20222023 and 20212022 of consolidated results of operations:

 

For the Three Months Ended March 31,

  Comparison  For the Three Months Ended March 31,  Comparison 
 2022  % of
Revenues
  2022  Amount
increase
(decrease)
  Percentage
increase
(decrease)
  2023  % of
Revenues
  2022  Amount
increase
(decrease)
  Percentage
increase
(decrease)
 
Revenues $5,019,748   100% $2,168,004  $2,851,744   132% $3,197,637   100% $2,714,711  $482,926   18%
Cost of revenues  3,561,278   71%  1,575,743   1,985,535   126%  1,507,396   47%  2,342,367   (834,971)  (36)%
Gross profit  1,458,470   29%  592,261   866,209   146%  1,690,241   53%  372,344   1,317,897   354%
Operating expenses  4,015,169   80%  3,832,650   182,519   5%  1,109,495   35%  2,522,046   (1,412,551)  (56)%
Other expenses, net  (161,200)  (3)%  (31,490)  (129,710)  412%  (1,441,381)  (45)%  (823,011)  (618,370)  75%
Loss before income tax  (2,717,899)  (54)%  (3,271,879)  553,980   (17)%  (860,635)  (27)%  (2,972,713)  2,112,078   (71)%
Income tax expense  22,581   0%  18,748   3,833   20%  -   0%  2,929   (2,929)  (100)%
Net loss  (2,740,480)  (55)%  (3,290,627)  550,147   (17)%
Net loss from continuing operations  (860,635)  (27)%  (2,975,642)  2,115,007   (71)%
Income (loss) from operations of discontinued operations  (23,129)  (1)%  -   (23,129)  -%
Less: non-controlling interest  (1,082)  0%  42,615   (43,697)  (103)%  (443)  0%  (1,082)  639   (59)%
Net Loss attributable to BIMI International Medical Inc. $(2,739,398)  (55)% $(3,333,242) $593,844   (18)% $(884,207)  (28)% $(2,974,560) $2,090,353   (70)%

 

Revenues

Revenues for the three months ended March 31, 2023 and 2022 were $3,197,637 and 2021 were $5,019,748 and $2,168,004,$2,714,711, respectively. The revenues for the three months ended March 31, 20222023 were primarily attributable to the revenues from the wholesale sales of generic drugs and medical devices and from medical services providedsales of healthcare products by hospitals purchased during the first quarterPhenix, which we acquired in 2022.March 2023. Compared with the same period in 2021,2022, revenue increased by $2,851,744,$482,926, mainly due to the $2,073,608 increase in$2,022,508 of sales of healthcare products by Phenix, which was acquired on March 15, 2023. In addition, the revenues of the Zhongshan, Qiangsheng, Eurasia and Minkang hospitals, that were held for sale, were accounted for separately. 

Revenues from wholesale medical devices segment for the three months ended March 31, 2023 and $880,202 increase in medical services revenues.2022 were $158,141 and $2,137,253 respectively. The increase in medical device salesdecrease is mainly due to sales to a public hospitals, that are subject to a long acceptance period after receipt of the medical devices. We expect to record these sales in the second quarter of 2023.

Revenues from the wholesale pharmaceuticals segment for the three months ended March 31, 2023 and 2022 were $806,742 and $512,302 respectively. The main reason for the increase in sales in the 2023 period was the impact of Covid-19 and the higher demand duringfor pharmaceuticals.

Revenues from retail pharmacy segment for the first quarterthree months ended March 31, 2023 and 2022 were $210,246 and $65,156. The growth in the retail pharmacy segment in three month ended March 31, 2023 was the impact of 2022. The 2022 medical servicesCovid-19 and the higher demand for pharmaceuticals.

Revenues from the healthcare products segment the three months ended March 31, 2023 were $2,022,508. These revenues reflect the revenues generated by three hospitals,the Phenix, which werewas acquired in May 2021.March 2023.

 


 

Cost of revenues

Cost of revenues for the three months ended March 31, 2023 and 2022 were $1,507,396 and 2021 were $3,561,278 and $1,575,743,$2,342,367, respectively. The increase primarily reflectdecrease reflected the decrease in the costs associated with the operations of the Guanzan Group, Qiangsheng, Eurasia and Minkang hospitals.Group.

Cost of revenues of our wholesale medical devices segment consists primarily of cost of medical devices, medical consumables and costs related directly to contracts with customers. For the three months ended March 31, 20222023 and 2021,2022, the cost of revenues of our wholesale medical devices segment were $1,835,885$98,939 and $30,462,$1,835,465, respectively. The increasedecrease is mainly due to the increasedecrease in sales.the revenue in the current three months period compares to the same period in 2022.

Cost of revenues of our wholesale pharmaceuticals segment consists primarily of the cost of medicines, medical consumables and costs related directly to contracts with customers. For the three months ended March 31, 20222023 and 2021,2022, the cost of revenues of our wholesale pharmaceuticals segment were $1,075,422$772,272 and $806,856, respectively.

Cost of revenues of our medical services segment consists primarily of the salaries of the doctors and nurses and the cost of medicines. For the three months ended March 31, 2022 and 2021, the cost of revenues of our medical services segment were $609,779 and $638,807,$466,710, respectively.

Cost of revenues of our retail pharmacy segment consists primarily of the cost of the pharmaceuticals, medical devices and other products that we sell to customers. For the three months ended March 31, 20222023 and March 31, 2021,2022, the cost of revenues of our retail pharmacy segment were $133,455 and $40,192, and $99,495, respectively.

Gross profit loss

Cost of revenues of our healthcare products segment consists primarily of the sales of healthcare products. For the three months ended March 31, 20222023 the cost of revenues of our newly acquired healthcare products segment was $501,112.

Gross profit (loss)

For the three months ended March 31, 2023 and 2021,2022, we had a gross margin of 29%53% and 27%14%, respectively. For the three months ended March 31, 20222023 and 2021,2022, the gross profit margin of our: (i) retail pharmacy segment were 38.31%36.52% and 17.17%38.31%, respectively; (ii) wholesale medical devices segment were 14.13%37.44% and 52.73%14.12%, respectively; (iii) wholesale pharmaceuticals segment were 12.70%4.27% and 36.21%8.90%, respectively; and (iv) medical serviceshealthcare products segment were 61.52%75.22% and 9.32%,Nil, respectively.

Operating expenses

Operating expenses consist mainly of the impairment loss of goodwill, general and administrative expenses including auditing and legal service fees, other professional service fees directors’ and officers’ compensation expenses, meeting and promotional expenses, changes in fair value of derivative liabilities, depreciation and amortization of items not associated with production, office rental fee and utilities.

expenses. Operating expenses were $4,015,169 for the three months ended March 31, 20222023, consisted mainly of general and administrative expenses of $853,337 and selling expenses in the amount of $256,158.

Operating expenses were $1,109,495 for the three months ended March 31, 2023 as compared to $3,832,650$2,522,046 for the same period in 2021, an increase2022, a decrease of $182,519$1,412,551, or 5%56%. The increasedecrease is primarily due to the reduction in salaries of the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer of $1,400,500to $75,000 for the three months ended March 31, 2022.During2023 as compared to $1,400,000 for the 2021same period the Company’s operating expenses included a $771,000 expense related to the amortization of the discount relating to the convertible notes issued in 2021.2022.

Operating expenses of the wholesale medical devices segment for the three months ended March 31, 2023 and 2022 were $157,783 and 2021 were $161,669, and $120,583, respectively.

Operating expenses of the wholesale pharmaceuticals segment for the three months ended March 31, 2023 and 2022 were $165,747 and 2021 were $666,131 and $210,894,$204,097, respectively.

Operating expenses of medical services segment for the three months ended March 31, 2022 and 2021 was $236,925 and $319,169, respectively.

Operating expenses of the retail pharmacy segment for the three months ended March 31, 2023 and 2022 was $141,142 and 2021 were $128,451, and $177,966, respectively.

Operating expenses of the healthcare products segment for the three months ended March 31, 2023 were $123,590.


 

 

Other income (expense)

For the three months ended March 31, 20222023 and 2021,2022, we reported other expenses of $161,200$1,441,381 and $31,490,$823,011, respectively. Other expenses mainly consisted of interest expense relating to the bank loans of the Guanzan Group Zhuoda and Zhongshan.Shude and amortization of convertible notes.

Other expenses were $1,441,381 for the three months ended March 31, 2023 which mainly consisted of interest expense of $35,299 and investment expense of Guoyiyang write-off adjustment expense of $1,338,666.

Net lossOther expenses were $823,011 for the three months ended March 31, 2022 which mainly consisted of interest expense of $48,136 and amortization of convertible notes of $771,124.

Net loss from continuing operations

Net loss from continuing operations was $860,635 for the three months ended March 31, 2023 compared to a net loss of $2,975,642 for the three months ended March 31, 2022, an decrease $2,115,007, which was primarily due to the impairment of goodwill in 2022 and as a result of the significant increase in operating expenses of our consolidated company.

Loss from operations of discontinued operations

As a result of the disposition of Zhuoda and its Qianmei subsidiary the businesses of Zhuoda and Qianmei 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 Zhuoda and Qianmei are presented under the line-item net loss from discontinued operations for the three months ended March 31, 2022.

As a result of the plans to dispose of the Zhongshan, Qiangsheng, Eurasia and Minkang and the actions taken to fulfill the plans, the businesses of the four hospitals are recorded as held for sale in accordance with ASC 205-20 Presentation of Financial Statements – Discontinued Operation and the results of the operations of the Zhongshan, Qiangsheng, Eurasia and Minkang are presented under the line item net loss from discontinued operations of held for sale for the three months ended March 31, 2023. Loss from the discontinued operation was $23,125 for the three months ended March 31, 2023.

Net loss

As a result of the foregoing our net loss decreased by $ 550,147 to $2,740,480$884,207 in the three months ended March 31, 20222023 from $3,290,627$2,974,560 for the three months ended March 31, 2021.2022. 

Foreign currency translation

We reported a negative foreign currency translation adjustment of $1,084,472 for the three months ended March 31, 2023 compared to a negative foreign currency translation adjustment of $550,082 for the three months ended March 31, 2022. This is the difference between accumulated other comprehensive income in the first quarter of 2023 and 2022.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2022,2023, we had cash of $1,606,214$1,730,063 and net working capital of $1,359,907$2,369,321 as compared to cash of $4,797,849$2,336,636 and negative working capital of $932,493$2,126,672 at December 31, 2021.2022.

In order to improve our financial condition, on February 27, 2023, we entered into a stock purchase agreement (the “February SPA”) with Mr. Oudom, whereby the Company agreed to sell 2,500,000 shares of Common Stock to Mr. Oudom for $3,000,000 in cash, based on a purchase price of $1.50 per share, subject to shareholder approval of the issuance of such shares. Such issuance was approved by the Company’s shareholders on April 13, 2023, but has not been completed to date. As of the date of this report, Mr. Oudom has paid $350,000. The remaining $2,650,000 is expected to be received by July 2023.

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 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 these notes were converted into shares of Common Stock during the year ended December 31, 2020.

On December 14,February 1, 2020, we entered into a stock purchase agreement (the “Cogmer SPA”) to acquire Chongqing Cogmer Biology Technology Co., Ltd. (“Cogmer”), a distributor of medical devices including in vitro diagnostic devices, focused on sales to hospitals and sub-distributors in the southwest region of the PRC.Guanzan. Pursuant to the Cogmer SPA, the Companyagreement, we agreed to purchase all the issued and outstanding equity interests in CogmerGuanzan and its 80% owned subsidiary, Shude, for RMB 116,000,000100,000,000 (approximately $17,737,000),$14,285,714) to be paid by the issuance of 400,000190,000 shares of our common stockCommon Stock and the cash payment of RMB 76,000,000 in cash. In December,80,000,000 (approximately $11,428,571.) On March 18, 2020, we paid a depositclosed the Guanzan acquisition by delivering 190,000 shares of $3,065,181 toCommon Stock. In addition, we assumed bank indebtedness of $1,135,884 in connection with the shareholders of Cogmer.acquisition. On March 15,April 9, 2021, we terminated the Cogmer SPA upon mutual agreement with the Cogmer shareholders without incurring any penalties asincreased our equity interest in Shude from 80% to 95.2% by making a resultdirect capital investment of the termination. We recovered the deposit of $3,065,181 from the shareholders of Cogmer on November 29, 2021.$4,892,293 in Shude.


On May 18, 2020, we entered into a securities purchase agreement (the “May SPA”) with two institutional investors (the “Institutional Investors”) to sell convertible notes having a face amount of $6,550,000 at an aggregate original issue discount of 19.85% (the “2020 Notes”) and ranking senior to all outstanding and future indebtedness of the Company. The 2020 Notes do not bear interest except upon the occurrence of an event of default. Each Institutional Investor also received a warrant (the “Institutional Investor 2020 Warrant”) to purchase 325,000 shares of Common Stock at an initial exercise price of $14.225 per share (post-Split price (as defined below) and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant (the “Placement Agent 2020 Warrant”, together with the Institutional Investor 2020 Warrant, the “2020 Warrants”) to purchase up to 10% of the aggregate number of shares of Common Stock at an initial exercise price of $14.225 per share (post-Split price and subject to the Event Market Price Adjustment), subject to increase based on the number of shares Common Stock issued pursuant to the 2020 Notes.

Pursuant to the May SPA, two 2020 Notes each in the face amount of $2,225,000 were issued to the Institutional Investors in consideration of the payment of $1,750,000 in cash for each 2020 Note.

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


The 2020 Notes, which matured on the eighteen-month anniversary of the issuance date, WERE payable in installments and WERE convertible at the election of the investors at the conversion price of $12.95 per share (post-Split Price and subject to the Event Market Price Adjustment), subject to adjustment in the event of default. Each investor also received a warrant to purchase 130,000 shares of Common Stock at an initial exercise price of $14.23 per share (post-Split Price and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant to purchase up to 34,369 shares of Common Stock at an initial exercise price of $14.23 per share (post-Split Price and subject to the Event Market Price Adjustment), subject to increase based on the number of shares of Common Stock issued pursuant to the 2020 Notes. Pursuant to the May SPA, additional convertible notes in an aggregate original face amount not to exceed $2,100,000 (the “Additional Notes”) could also be issued to the Institutional Investors under certain circumstances.

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

On February 24, 2021, we entered into an amendment to the May SPA with the Institutional Investors to increase the amount of the Additional Notes by $3,300,000 to $5,400,000. On February 26, 2021, Additional Notes in an aggregate original principal amount of $5,400,000 were issued to the Institutional Investors, together with the issuance of warrants to acquire an aggregate of 152,000 shares of Common Stock at an initial exercise price of $14.23 per share (post-Split Price and subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant to purchase up to 34,749 shares of our Common Stock at an initial exercise price of $14.23 per share post-Split Price and (subject to the Event Market Price Adjustment), subject to increase based on the number of shares of Common Stock issued pursuant to the Additional Notes. All the convertible promissory notes with a principal amount of $5,400,000 were converted into 2,153,424 common shares prior to November 30, 2021.

On November 18, 2021, we entered into a securities purchase agreement (the “November SPA”) with the same two Institutional Investors to sell them a series of senior convertible notes (the “2021 Notes”) with an original issue discount of 20% and ranking senior to all outstanding and future indebtedness of the Company in a private placement. Each Institutional Investor paid $3,250,000 in cash for a 2021 Note in the face amount of $3,900,000. The November SPA also provided for the issuance of additional 2021 Notes in an aggregate original principal amount not to exceed $3,900,000 under certain circumstances. The November SPA also contains provisions about the Market Event Price. The 2021 Notes, which were issued on November 22, 2021, mature on the eighteen-month anniversary of the issuance date, are payable by the Company in installments and are convertible at the election of the Institutional Investors at the conversion price of $3.25 (post-Split Price and subject to the Event Market Price Adjustment), which is subject to adjustment in the event of default. Each Institutional Investor also received a warrant (the “Institutional Investor 2021 Warrant”) to purchase 180,000 shares of Common Stock at an initial exercise price of $3.55 per share (subject to the Event Market Price Adjustment). The placement agent for the private placement received a warrant (the “Placement Agent 2021 Warrant”, together with the Institutional Investor 2021 Warrant, the “2021 Warrants”) to purchase up to 8% of the aggregate number of shares of Common Stock at an initial exercise price of $3.55 per share (post-Split Price and subject to the Event Market Price Adjustment), subject to increase based on the number of shares Common Stock issued pursuant to the 2021 Notes.


On December 11, 2020, we entered into a release agreement extinguishing our obligation to pay any additional consideration in connection with the purchase of Boqi Zhengji. 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. 

On December 14, 2020, we entered into a stock purchase agreement to acquire Chongqing Cogmer Biology Technology Co., Ltd. (“Cogmer”), a distributor of medical devices including in vitro diagnostic devices, focused on sales to hospitals and sub-distributors in the southwest region of the PRC. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Cogmer for RMB 116,000,000 (approximately $17,737,000), to be paid by the issuance of 40,000 shares of our Common Stock and the payment of RMB 76,000,000 in cash. In December 2020, we paid a deposit of $3,065,181 to the shareholders of Cogmer. On March 15, 2021, we terminated the Cogmer SPA upon mutual agreement with the Cogmer shareholders without incurring any penalties as a result of the termination. We recovered the deposit of $3,065,181 from the shareholders of Cogmer on November 29, 2021.

The Company implemented a 1-for-5 reverse stock split (the “Split”) on February 2,3, 2022 at the ratioand a second 1-for-10 reverse split as of 5 to 1. December 9, 2022.

The 2020 Notes were fully converted before the Split, and therefore no price adjustment was actually implemented at the conversion, although the price information provided above about the 2020 Notes was post-split price. The conversion price of the 2021 Notes and the exercise price of the 2020 Warrants and the 2021 Warrants werewill be adjusted to $1.30 pursuant to the Event Market Price formula upon conversion or exercise. With exception

Our hospitals performed poorly in 2022 due in great measure to the impact of COVID-19 and the PRC’s policies to combat its spread In response to the poor performance of Zhongshan since its acquisition, on February 1, 2022, we entered into an amendment to the Zhongshan acquisition agreement providing for the reduction of the purchase price, including a cashless exerciseretroactive 50% decrease in the closing cash payment, a 50% retroactive decrease in the deferred closing stock payment and a 50% reduction of 650,000 warrants by one Institutional Investor on June 18,the 2021 through whichand 2022 performance targets. As a result of such amendment, the Company delivered 162,500former owner agreed to return RMB 40,000,000 in cash and 20,000 shares of Common Stock to such Institutional Investor, there has been no conversion of the 2021 Notes or exercise of the 2020 Warrants or the 2021 Warrants as of the date of this report.us in 2022.

On February 1,December 28, 2022, the Companywe entered into an Amendmentagreement to transfer 87% of the equity interests in Zhongshan to the prior owner. As consideration for the transfer, the seller agreed to return to us the 40,037 shares of Common Stock, that were previously issued as part of the closing consideration.

Subsequent to their issuance, such shares were consolidated into 40,037 shares as a result of a 1-for-5 reverse stock split on February 3, 2022 and Settlement Agreementa 1-for-10 reverse stock split on December 9, 2022. The prior owner will release our company from any and all claims relating to amend the earnout payments that were payable under the original purchase agreement and we will receive a put option to sell part or all of our 13% interest in Zhongshan before December 31, 2032, based on a valuation determined by a reputable third-party appraisal firm jointly chosen by us and the prior owner. The transaction is expected to close in the second quarter of 2023.

In response to the poor performance of the Qiangsheng, Eurasia and Minkang hospitals we entered into an agreement on December 28, 2022, to transfer 90% of the equity interests in the three hospitals back to the sellers. As consideration for the transfer, the sellers will return to us 80,000 shares of Common Stock, Purchase Agreement relatingwhich were previously issued to them upon the acquisition of the Zhongshan hospital. The amendment reduced post-closing performance targets and payments and settled certain payments as a result of such amendment.hospitals. Pursuant to the amendment,agreement, we will continue to own 10% of the equity interests in each of the three hospitals. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.

In response to the poor performance of Zhouda since its acquisition, whose operations were impacted by COVID-19, we entered into a sale and purchase price was retroactively reduced by 50% from RMB 120,000,000 (currently approximately $18,864,957)agreement to RMB 60,000,000 (currently approximately $9,432,479),sell Zhuoda back to the closing cash payment was retroactively reduced from RMB 40,000,000former owners on October 19, 2022, Pursuant to nil and the deferred closing stock payment was retroactively reduced from 400,000 sharesagreement, we sold 100% of our Common Stock to 200,000the equity interests in Zhuoda in consideration for the return of the 44,000 shares of Common Stock.Stock previously issued to the former owners of Zhouda. The 2021 revenue target was also reduced by 50% from RMB 30,000,000transaction closed effective November 23, 2022, when 100% of the equity interests in Zhuoda were transferred to RMB 15,000,000, the 2021 profit target was reduced from RMB 5,000,000 to RMB 2,500,000, the 2022 revenue target was reduced from RMB 33,000,000 to RMB 16,500,000former owners and the 2022 profit target was reduced from RMB 5,500,000 to RMB 2,750,000.As a result of the amendments, the parties agreed that immediately after the signing of the amendment, the seller of Zhongshan hospital will execute and deliver all documents as requested by us in order to cause the return of 200,00044,000 shares of our Common Stock and that priorwere returned to December 31, 2022, the seller will return RMB 40,000,000 to us in cash.us.


The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2023 and 2022, and 2021, respectively.

  For the
three months ended
March 31,
 
  2022  2021 
Net cash used in operating activities $(2,150,706) $(1,729,711)
Net cash provided by investing activities  -   39,105 
Net cash provided by (used in) financing activities  (578,498)  4,392,017 
Exchange rate effect on cash  (462,431)  (1,295)
Net cash inflow/(outflow) $(3,191,635) $2,700,116 
  For the three months ended
March 31,
 
  2023  2022 
Net cash provided by (used in) operating activities $2,817,823  $(5,425,555)
Net cash (used in) provided by investing activities  -   1,678,289 
Net cash used in financing activities  (2,167,065)  (794,967)
Exchange rate effect on cash  (1,257,331)  981,932 
Net cash outflow $(606,573) $(3,560,301)

 

Operating Activities


Operating Activities

We used $2,150,706 in

Net cash provided by our operationsoperating activities was $2,817,823 during the three months ended March 31, 2022,2023, as compared to $1,729,711$5,425,555 used in operating activities for the three months ended March 31, 2021.2022.

Net loss from our operation (before non-cash adjustments)The increase in the amount of cash used in operating activities was $1.44 million forprimarily attributable to the change in other payables and accrued liabilities and operating lease liabilities. During the three months ended March 31, 2022, a decrease of $1.86 million, compared to2023, the net loss of $3.29 million incurred in the same period in 2021. The decrease of net lossincrease is attributable to: (1) the decreaseincrease in fees paid for our external professional services as a result of decreased auditing and legal services of approximately $0.585 million;; and (2) decreaseincrease of amortizationright of discount on the convertible notesuse rental expenses of $1.05 million;$1.59 million.

 

Investing Activities

Cash provided byused in investing activities was Nil for the three months ended March 31, 2022,2023, as compared to $39,105$1,678,289 provided by investing activities for the same period ended March 31, 2021.2022. Cash provided by investing activities for the three months ended March 31, 20212022 was from the acquisitiondiscontinued operations-held for sale of the GuoyitangZhongshan, Minkang, Qiangsheng and Zhongshan, which offset the purchase of $75,205 of fixed assets.Eurasia hospitals.

Financing Activities

Cash used in our financing activities was $578,498$2,167,065 for the three months ended March 31, 2022,2023, as compared to $4,392,017 provided by financing activities$794,967 for the three months ended March 31, 2021.2022. For the three months ended March 31, 2022,2023, we repaid $199,393 OF$154,709 of bank loans and $379,105 OF$2,080,638 of related party loans. During the three months ended March 31, 2021,2022, we received $4,065,500 by the issuancerepaid $1,027,522 of convertible promissory notes, net proceeds of $162,950 from bankshort-term loans and $164,067$191,530 from long-term loans and $424,085 from related party loans.

Contractual Obligations

On December 28, 2022, we entered into an agreement to transfer 87% of the equity interests in Zhongshan to its prior owner, and will continue to own 13% of the equity interests in Zhongshan. .As consideration for the transfer, the former owner will return the 200,000 shares of our company’s common stock, which were previously and will release us from any and all claims relating to two earnout payments that were payable under the original purchase agreement. Our company will receive a put option to sell part or all of the retained shares before December 31, 2032, based on a valuation determined by a third party appraisal firm jointly chosen by the parties. The transaction is expected to close in the second quarter of 2023.

On December 28, 2022, we entered into an agreement to transfer 90% of the equity interests in the Qiangsheng, Eurasia and Minkang hospitals to the former owners and will continue to retain 10% equity interests in each of the three hospitals. As consideration for the transfer, the former owners will return to our company the 400,000 shares of our common stock, which were previously issued. Our company will also receive a put option to sell part or all of the retained shares to the former owners before December31, 2032, based on a valuation determined by a third party appraisal firm jointly chosen by the parties. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.  

Contractual Obligations

On July 5, 2022, we entered into a stock purchase agreement (as amended on February 27, 2023) with Mr. Fnu Oudom, the Chairman of our board of directors, whereby we agreed to acquire 100% of the equity interests in Phenix Bio Inc. (“Phenix”), a distributor of healthcare products. The transaction closed effective March 15, 2023. The aggregate purchase price for the equity interests in Phenix was $180,000 in cash, which has been paid, plus 5,270,000 shares of our company’s common stock, of which 270,000 shares were issued upon the approval of the issuance by our shareholders and the balance of 5,000,000 shares will be issued if the aggregate net profit generated by Phenix is at least $2,500,000 in calendar year 2023 or in any fiscal quarter of 2023, subject to the approval of our shareholders.

As of March 31, 2022, we had a $4,800,000 contractual obligation, which is the maximum amount of the cash consideration for the Zhuoda Acquisition, which is subject to post-closing adjustments pursuant to the Zhuoda SPA.

Inflation and Seasonality

We do not believe that our operating results have been materially affected by inflation during the preceding two years. There can be no assurance, however, that our operating results will not be affected by inflation in the future. At present we are able to increase our product sale prices due to the rising prices charged by our suppliers. At present we are able to increase our product sale prices to offset the rising prices charged by our suppliers.

OFF-BALANCE SHEET ARRANGEMENTS

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


 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).Not applicable.

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the designOur management is responsible for establishing and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation and the identification of a material weakness inmaintaining adequate internal control over financial reporting described below, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures, as of March 31, 2020, and during the period prior were not effective.

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 the 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 the 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 the 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.

We have restated our financial statements for year ended December 31, 2021 to correct errors identified in our prior financial statements. The impact of the restatement on our financial statement is a reclassification of other expense in financial statements. We have concluded that the restatement does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.

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.

The Company has insufficient written policies and procedures for accounting and financial reporting, which led to inadequate financial statement closing process.

The Company have taken steps to address the cause of the restatement and to improve our internal controls over financial reporting. The Company hired a consulting firm to assist our accounting department on internal controls and financial reporting. The Company are committed to maintaining the integrity of our financial statements and to providing accurate and transparent financial information to our investors.

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.

We expect to implement the following measures in 2023 to continue to remediate the material weaknesses identified: (1) To establish additional written policies and procedures for accounting and financial reporting to improve the Company’s financial statement closing process; (2) To continue providing applicable training for our financial and accounting staff to enhance their understanding of U.S. GAAP and internal control over financial reporting; (3) To continue providing applicable training for our accounting manager to improve our internal review process.

In 2022, we hired a consulting firm to assist our accounting department on internal controls and financial reporting July of 2022.

Changes in Internal Control over Financial Reporting

Subject to the foregoing disclosure, there were no changesNo change in our internal control over financial reporting occurred during the three months ended March 31, 20222023 that has materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.


 

PART II ---- OTHER INFORMATION

Item 1. Legal Proceedings.

 

Item 1A. Risk Factors

As of the date of this filing, there have been no material changes from the risk factors disclosed in Part I, Item 1A (Risk Factors) contained in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On January 7, 2022, the Company issued 600,000 shares of Common Stock as the initial consideration for the acquisition of Mali Hospital.

On January 24, 2022, the Company issued 1,000,000 shares of Common Stock as the salary for Mr. Tiewei Song.

On January 27, 2022, the Company entered into an employment agreement with Mr. Xiaoping Wang for a term of one (1) year, effective January 1, 2022. Under the agreement, Mr. Wang’s compensation will consist of an annual salary of $500,000 in cash and stock compensation of 500,000 shares of the Company’s Common Stock. The Company issued 500,000 shares of our Common Stock to Mr. Wang on February 1,2022.

On February 1, 2022, the Company issued 50,000 shares of Common Stock to Kingmoon & Kingyang (Jiulongpo) Law Firm as payment for services under a legal consulting agreement dated January 1, 2022.

In the first quarter of 2023,the Hudson Bay Master Fund Ltd was issued 270,000 shares of Common Stock upon the conversion of convertible notes.

As of March 31, 2023, the Company has issued 1,850,605 shares of Common Stock upon conversion of outstanding convertible notes.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.


 

 

Item 6. Exhibits.

The list of Exhibits required by Item 601 of Regulation S-K to be filed as a part of this Form 10-Q are set forth on the Exhibit Index immediately preceding such Exhibits and is incorporated herein by this reference.

Exhibit
Number
DescriptionIncorporated by
Reference to
31.1Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer
31.2Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer
32.1Section 1350 Certification of principal executive officer
32.2Section 1350 Certification of principal financial officer
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 and contained in Exhibit 101).  

 


 

 

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.

BIMI International Medical Inc.
(Registrant)
Date: May 20, 202219, 2023By:/s/ Tiewei Song
Tiewei Song
Chief Executive Officer
Date: May 20, 202219, 2023By:/s/ Baiqun Zhong
Baiqun Zhong
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)

 


53

0001213660 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31bimi:ZhuodaAcquisitionMember 2023-03-31 iso4217:USD xbrli:shares