| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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, 2022 and for the three months ended March 31, 2022
and 2021 have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared
in accordance with 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 Form 10-K for the fiscal year ended December 31, 2021 previously filed with the SEC on April 15, 2022. 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, 2022 and its unaudited condensed consolidated
results of operations for the three months ended March 31, 2022 and 2021, and its unaudited condensed consolidated cash flows
for the three months ended March 31, 2022 and 2021, 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 of inventory, fair value of goodwill and valuation of derivative liabilities.
While the Company believes that the estimates and assumptions used in the preparation of these condensed consolidated financial
statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed
and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
● Business
combination 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 Cash
consists primarily of cash on hand and cash in banks which is readily available in checking and saving accounts. The Company maintains
cash with various financial institutions in the PRC where its accounts are uninsured. The Company has not experienced any losses
from funds held in bank accounts and believes it is not exposed to any risk on its bank accounts.
● 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 does 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, 2022 and December 31, 2021, the allowance for doubtful accounts
were $ 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, 2022 and December 31,
2021, the Company recorded an allowance for obsolete inventories, which mainly consists of expired medicine, of $103,625 and $103,178,
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
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
Software 10 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, 2022 and December 31, 2021, the Company recorded impairments for goodwill of $ Nil
● Impairment
of long-lived assets and intangibles In
accordance with the provisions of ASC Topic 360, “ Impairment or Disposal of Long-Lived 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”,
● 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 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, 2022 and 2021, the Company did not incur any interest or penalties associated with tax positions.
As of March 31, 2022, the Company did not have any significant unrecognized uncertain tax positions. The
Company conducts all of its business in the PRC and is subject to tax in this jurisdiction. As a result of its corporate structure
the Company files tax returns that are subject to examination by a foreign tax authority.
● 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.
● 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
estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered
to be consistent with the objective measuring fair values. In selecting the appropriate technique, we consider, among other factors,
the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative
instruments, such as free-standing warrants, we generally use the Black-Scholes model, adjusted for the effect of dilution, because
it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary
to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant
and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal
and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive
to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently
carried at fair values, our income (expense) going forward will reflect the volatility in these estimate and assumption changes.
Under the terms of the new accounting standard, increases in the trading price of the Company’s common stock and increases
in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases
in the trading price of the company’s common stock and decreases in trading fair value during a given financial quarter
result in the application of non-cash derivative income.
● Net loss per share The
Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.”
● 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$, in accordance with ASC Topic 830-30, “ Translation of Financial Statement”, Translation
of amounts from RMB into US$ has been made at the following exchange rates for the respective period:
March 31, March 31,
Period-end RMB:US$1 exchange rate 6.3482 6.5566
Three months end average RMB:US$1 exchange rate 6.3504 6.4829
● Related
parties Parties,
which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly,
to control the other party or exercise significant influence over the other party in making financial and operational decisions.
Companies are also considered to be related if they are subject to common control or common significant influence.
● Segment
reporting ASC
Topic 280, “ Segment Reporting
● 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
● Level
1
● Level
2:
● Level
3: 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. 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. |
