BIMI HOLDINGS INC. The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Report on Form 10-K. The discussion in this section of this Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, those discussed in "Risk Factors" and those discussed elsewhere in this Report on Form 10-K. Overview
From 2007 untilOctober 2019 , we, through theNF 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 inChina 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 for 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 theNF Group and onMarch 31, 2020 , we entered into an agreement for the sale of theNF Group . The sale closed onJune 23, 2020 when the$10 million sales price was paid to us in full. Concurrent with our decision to dispose of theNF Group , we decided to focus our business activity on the healthcare industry in the PRC. OnOctober 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. While we offered support to Boqi Zhengji with the implementation of the Boqi Guanzan Healthy Future Pharmacy Plan and other programs aimed to offer the resources of our other subsidiaries to the pharmacy chain, such efforts failed to help improve Boqi Zhengji's poor performance. To avoid exposing our other businesses to further risks and potential joint liabilities, we decided to divest the pharmacy chain. OnDecember 11, 2020 , we entered into an agreement to sell Boqi Zhengji for$1,700,000 in cash. OnDecember 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 untilFebruary 2, 2021 . The disposal ofNF Group and Boqi Zhengji and the actions taken to fulfill the plans resulted in our classifying the businesses ofNF Group and Boqi Zhengji as discontinued operations according to ASC 205-20 Presentation of Financial Statements - Discontinued Operation. As a result, all of the assets and liabilities of theNF Group and Boqi Zhengji were reclassified as assets and liabilities of a discontinued operation in the statement of position as ofDecember 31, 2020 , and the results of the operation are presented under the line item net loss from discontinued operations for the year endedDecember 31, 2020 . OnMarch 18, 2020 , we completed the Guanzan acquisition. The rationale for the acquisition was for us to expand our healthcare operation by acquiring a medical devices and pharmaceuticals distribution business. We believed that Guanzan had strong sales capabilities and procurement resources in the local area ofChongqing , the largest city in Southwest region of the PRC. The acquisition was in line with our expansion strategy, which focuses on deeper penetration of the healthcare market in the Southwest region ofChina and gaining a wider footprint in the PRC. OnApril 9, 2021 , we increased our equity interest in Shude from 80% to 95.2% by making a direct capital investment in Shude. 63 OnFebruary 2, 2021 , we acquired Guoyitang, the owner and operator of a private general hospital inChongqing with 50 hospital beds and 98 employees, including 14 doctors, 28 nurses, 43 other medical staff and 13 non-medical staff. The Guoyitang acquisition was the first step in our efforts to build a hospital chain specializing in obstetrics and gynecology. OnFebruary 8, 2021 , we acquired Zhongshan, a private hospital in the southeast region ofChina 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 marked the second step in our effort to establish a nationwide hospital chain specializing in obstetrics and gynecology. OnApril 9, 2021 , we acquired Qiangsheng, Eurasia and Minkang hospitals, three private hospitals in the south, northern and southwest region ofChina , respectively. Qiangsheng has 20 hospital beds and 63 employees, including 18 doctors, 17 nurses, 8 other medical staff and 20 non-medical staff. Eurasia has 12 hospital beds and 52 employees, including 12 doctors, 15 nurses, 7 other medical staff and 18 non-medical staff. Minkang has 126 hospital beds and 116 employees, including 24 doctors, 58 nurses, 12 other medical staff and 22 non-medical staff. The three hospitals acquisition marked the third step in our effort to establish a nationwide hospital chain specializing in obstetrics
and gynecology. OnSeptember 10, 2021 , we acquiredZhuoda , a company engaged in the distribution of medical devices and pharmaceuticals, based inChongqing , the largest city in Southwest region of the PRC. TheZhuoda acquisition marked the second step in our effort to further penetrate the healthcare market in southwestChina . In response to the poor performance ofZhuoda since its acquisition, whose operations were impacted by COVID-19, onOctober 19, 2022 , we entered into a sale and purchase agreement to sellZhuoda back to the former owners. Pursuant to the agreement, we sold 100% of the equity interests inZhuoda in consideration for the return of the 44,000 shares of Common Stock previously issued to the former owners ofZhuoda . The transaction closed effectiveNovember 23, 2022 , when 100% of the equity interests inZhuoda were transferred to the former owners and the 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 the PRC's policies to combat its spread. In response to the poor performance of Zhongshan, onDecember 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, onDecember 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 our ownership interests in the 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 ofDecember 31, 2022 , and the results of the operation are presented under the line item net loss from held for sale operations for the year endedDecember 31 ,
2022.
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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 debt 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.Going Concern Uncertainties The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. As reflected in the accompanying consolidated financial statements, for the years endedDecember 31, 2022 and 2021, we incurred net losses of approximately$22.32 million and$34.92 million , respectively. In addition, we reported a cash outflow of$2.27 million in the year endedDecember 31, 2022 . As ofDecember 31, 2022 , we had an accumulated deficit of$70.14 million . Management believes these factors raise substantial doubt about our ability to continue as a going concern for the next twelve months. The continuation of our company as a going concern through the next twelve months is dependent upon (1) the continued financial support from our stockholders or external financing. Management believes that our existing stockholders will provide the additional cash to meet our obligations as they become due, and (2) that we will be able to implement our business plan to expand our company's operations and generate sufficient revenues to meet our obligations. While we believe in the viability of our strategy to increase sales volume and in our 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 operations. These conditions raise substantial doubt about our company's ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for our company to continue as a going concern.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance withU.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.
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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 throughthe 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.
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, we specifically evaluate individual customer's financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. We will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to its
customers. Leases
OnJanuary 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.
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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 ofDecember 31, 2022 and 2021, the Company recorded impairments for goodwill of$5,385,811 and$26,128,171 , respectively. At the date of the most recent annual goodwill impairment test, all the reporting units' fair value were either equal to or slightly higher than their carrying values. None of the reporting units' fair values were substantially in excess of their carrying values. The fair value of the goodwill associated with each of theGuanzan 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 forZhuoda only exceeded its carrying value by approximately 5.62 %. Accordingly, the goodwill associated with ,Guanzan Group , Guoyitang, Zhongshan and Qiangsheng, Eurasia and Minkang are considered at risk for impairment in future periods. The sale of Zhongshan is expected to close in the second quarter of 2023. The sales of Qiangsheng, Minkang and Eurasia are expected to close in the second quarter of 2023.
The fair value of a reporting unit is based on discounted estimated future income statement. The assumptions used to estimate fair value include management's estimates of future growth rates, operating revenue, and discount rates. We disclose the methodology used to determine the fair values of our reporting units for our annual impairment review as using the income approach.
All of our reporting units share similar characteristics due to the nature of their businesses and operating model. As a result, the methodology used to determine fair value and the key estimates and assumptions used in our annual goodwill review are consistent for all of our reporting units.
Our key assumptions used includes revenue growth, profit margins, terminal value growth rates, capital expenditures projections, assumed tax rates, discount rates, other assumptions deemed reasonable by the management and relevant comparable to similar industry.
We believe that the estimates and assumptions made are reasonable, but they are susceptible to change from period to period. Actual results of operations, cash flows and other factors will likely differ from the estimates used in our valuation, and it is possible that differences and changes could be material. A deterioration in profitability, adverse market conditions, changes in regulatory developments, changes in category growth rates as a result of changing consumer preferences, loss of key personnel, the disposition of a significant portion of a reporting unit and competitive activity or a slower or weaker economic recovery than currently estimated by management could have a significant impact on the assumption and estimation in calculating the fair value of our reporting units and could result in an impairment charge in the future.
Potential events and changes in circumstances that could reasonably be expected to negatively affect the key assumptions are general economic conditions, regulatory developments, changes in category growth rates as a result of changing consumer preferences, loss of key personnel, the disposition of a significant portion of a reporting unit and competitive activity.
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Businesses Held for Sale
In late 2022, we committed to a plan to dispose of the Zhongshan, Minkang, Eurasia, Qiangsheng and Guoyitang hospitals.
OnDecember 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. OnDecember 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. The carrying amount of the major classes of assets and liabilities of the business held for sale as ofDecember 31, 2022 and 2021 consist of the following: December 31, December 31, 2022 2021 Assets from held for sale Current assets Cash and cash equivalents$ 53,928 $ 87,741 Accounts receivable, net 501,054 146,805 Advances to suppliers 211,335 136,425
Amount due from related parties 350,577 622,554 Inventories, net 155,736 238,309 Prepayments and other receivables 827,043 393,020 Operating lease-right of use assets - -
Total current assets 2,099,673 1,624,854 Non-current assets Deferred tax assets (133 ) (145 )
Property, plant and equipment, net 1,254,328 1,573,342 Intangible assets, net - - Operating lease-right of use assets 2,506,954 3,120,810 Goodwill - - Long-term investment - - Total non-current assets 3,761,149 4,694,007 Total assets from held for sale$ 5,860,822 $ 6,318,861 Liabilities from held for sale Current liabilities Short-term loans$ 215,375 $ 235,268 Long-term loans due within one year - - Convertible promissory notes, net - - Accounts payable, trade 1,480,098 1,870,661 Advances from customers 1,537 48,486 Amount due to related parties - - Taxes payable 336,755 354,057 Other payables and accrued liabilities 739,873 533,663
Lease liability-current 466,312 503,452
Total current liabilities 3,239,950 3,545,587
Non-current liabilities
Lease liability-non current 2,245,373 2,746,512
Long-term loans - non-current - -
Total non-current liabilities 2,245,373 2,746,512
Total liabilities 5,485,323 6,292,099
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The summarized operating results of the business held for sale included in the Company's consolidated statements of operations consist of the following:
For the year ended
December 31,
2022 2021
Revenues $ 5,446,619 5,350,061
Cost of revenues 2,644,003 3,213,602
Gross profit 2,802,616 2,136,459
Operating expense 3,077,452 2,137,692
Other expense (352,145 ) (201,268 )
Loss before income taxes (626,981 ) (202,501 )
Income tax expense 22,164 26,339
Net loss from business held for sale
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.
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Derivative Instruments
We enter into financing arrangements that consist of freestanding derivative
instruments or are hybrid instruments that contain embedded derivative features.
We account for these arrangements in accordance with Accounting Standards
Codification topic 815, Accounting for Derivative Instruments and Hedging
Activities ("ASC 815") as well as related interpretation of this standard. In
accordance with this standard, derivative instruments are recognized as either
assets or liabilities in the balance sheet and are measured at fair values with
gains or losses recognized in earnings. Embedded derivatives that are not
clearly and closely related to the host contract are bifurcated and are
recognized at fair value with changes in fair value recognized as either a gain
or loss in earnings. We determine the fair value of derivative instruments and
hybrid instruments based on available market data using appropriate valuation
models, giving consideration to all of the rights and obligations of each
instrument.
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 Common Stock and increases in fair value during a given financial quarter
result in the application of non-cash derivative expense. Conversely, decreases
in the trading price of the Common Stock and decreases in trading fair value
during a given financial quarter result in the application of non-cash
derivative income.
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 ("$"). 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 $ are translated into $, in
accordance with ASC Topic 830-30, "Translation of Financial Statement", using
the exchange rate on the balance sheet date. Revenues and expenses are
translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of foreign subsidiaries are
recorded as a separate component of accumulated other comprehensive income
within the statement of stockholders' equity.
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Segment Reporting
In 2022 and 2021, we were engaged in four business segments, wholesale pharmaceuticals, wholesale medical devices, medical services and retail pharmacies.
RESULTS OF OPERATIONS
Comparison of the Years Ended
Amount Percentage
% of increase increase
2022 Revenues 2021 (decrease) (decrease)
Revenues $ 11,830,379 100 % $ 21,319,610 $ (9,489,231 ) (45 )%
Cost of revenues 9,880,429 84 % 18,893,667 (9,013,238 ) (48 )%
Gross profit 1,949,950 16 % 2,425,943 (475,993 ) (20 )%
Operating expenses 17,288,404 146 % 34,337,960 (17,049,556 ) (50 )%
Other income (expense) (6,283,860 ) (53 )% (2,751,928 ) (3,531,932 ) 128 %
Loss before income tax (21,622,314 ) (183 )% (34,663,945 ) 13,041,631 (38 )%
Income tax expense 6,092 0 % 29,674 (23,582 ) (79 )%
Net loss from continuing
operations (21,628,406 ) (183 )% (34,693,619 ) 13,065,213 (38 )%
Income (loss) from operations of
discontinued operations (689,650 ) (5 )% (229,554 ) 460,096 200 %
Less: non-controlling interest 75,203 1 % 64,211 10,992 ) 17 %
Net loss attributable to
(36 )%
Revenues
Revenues for the years ended December 31, 2022 and 2021 were $11,830,379 and
$21,319,610 , respectively. The decrease of $9,489,231 is mainly due to the
$10,712,363 decrease in sales of wholesale pharmaceuticals, the $1,048,318
decline in medical services revenues, offset in part by the $697,348 increase in
medical devices revenues and the $539,949 increase in pharmacy retail revenues.
For the year ended December 31, 2022 , the revenues of the retail pharmacies,
wholesale medical devices, wholesale pharmaceuticals and medical services were
$856,596 , $4,142,455 , $6,831,328 and $Nil, respectively. For the year ended
December 31, 2021 , the revenues of the retail pharmacies, wholesale medical
devices, wholesale pharmaceuticals and medical services were $316,647 ,
$3,445,107 , $16,495,373 and $1,048,318 , respectively.
As the Zhongshan, Qiangsheng, Eurasia and Minkang were held for sale as of
Cost of revenues Cost of revenues consists of primarily of the cost of the medical devices, pharmaceuticals and other products sold to customers. Cost of revenues for the year endedDecember 31, 2022 was$9,880,429 compared with$18,893,667 for the year endedDecember 31, 2021 . The decrease was due to the four hospitals (Zhongshan, Qiangsheng, Eurasia and Minkang) that were held for sale are accounted for separately. For the year endedDecember 31, 2022 , the cost of revenues of Zhongshan, Qiangsheng, Eurasia and Minkang were$2,644,003 . Cost of revenue of the retail pharmacies, wholesale medical devices, wholesale pharmaceuticals and medical services for the year endedDecember 31, 2022 were$179,386 ,$3,273,768 ,$6,417,821 and $Nil, respectively. Cost of revenue of the retail pharmacies, wholesale medical devices, wholesale pharmaceuticals and medical services for the year endedDecember 31, 2021 were$200,162 ,$3,033,702 ,$14,553,641 and$1,000,582 , respectively. 71 Gross profit For the year endedDecember 31, 2022 we had a gross profit margin of 16% compared with a gross profit margin of 11% for the year endedDecember 31, 2021 . The increase in the gross profit margin in 2022 was mainly due to the increase in the gross profit margin of the retail pharmaceuticals segment from 36.8% in 2021 to 79% in 2022 caused by a change in the product mix. In addition, in 2022,some suppliers to our retail pharmacies provided significant promotions and discounts. The gross profit margin of our retail pharmacies, wholesale medical devices, wholesale pharmaceuticals and medical services segments for the year endedDecember 31, 2022 were 79.1%, 21.0%, 8.5% and 51.5%, respectively. The gross profit margin of our retail pharmacies, wholesale medical devices, wholesale pharmaceuticals and medical services segments for the year endedDecember 31, 2021 were 36.8%, 12.0%, 2.7% and 57.3%, 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 and promotional expenses. Operating expenses for the year endedDecember 31, 2022 , consisted mainly of general and administrative expenses of$10,599,818 and selling expenses in the amount of$1,302,775 . The Company recorded an impairment loss of goodwill of$5,385,811 . Operating expenses were$17,288,404 for the year endedDecember 31, 2022 compared to$34,337,960 for the year endedDecember 31, 2021 , a decrease of$17,049,556 , or 50%, primarily due to the decrease in goodwill impairment charges in the year endedDecember 31, 2022 . The goodwill impairment charge in 2022 was mainly attributable to the Qiangsheng, Eurasia and Minkang hospitals which were held for sale in 2022. Operating expenses for the year endedDecember 31, 2022 consisted mainly of general and administrative expenses of$10,599,818 , selling expenses in the amount of$1,302,775 . As ofDecember 31, 2022 , the Company recorded impairment loss of goodwill of$5,385,811 , respectively. For the year endedDecember 31, 2022 , operating expenses of$7,806,362 were allocated to the parent company, which expenses include salaries of$6,237,183 and professional service fees of$1,569,179 . For the year endedDecember 31, 2021 , operating expenses of$3,908,957 were allocated to the parent company, which expenses include salaries of$1,121,083 and professional service fees
of$2,787,874 . Operating expenses of the wholesale medical devices segment for the years endedDecember 31, 2022 and 2021 were$510,637 and$633,241 , respectively. The decrease in 2022 of$122,604 is attributable to the influence of the epidemic control policy. The operation hours ofHu Zhong Tang , a subsidiary of Guoyitang, in 2022 were relatively short and the expenses were greatly reducing. Operating expenses of the wholesale pharmaceuticals segment for the years endedDecember 31, 2022 and 2021 were$2,192,312 and$190,359 , respectively; the reasons for the decrease are the establishment of a bad debt allowance of$1.4 million in accounts receivable and the increase of$0.7 million in expenses due to the full operation of Pusheng in 2022. Operating expenses of the retail pharmacies segment for the years endedDecember 31, 2022 and 2021 were$592,973 and$681,140 , respectively. The decrease in 2022 was attributable to improved internal management and controls. Operating expenses of the medical services segment for the years endedDecember 31, 2022 and 2021 were$68,669 and$956,021 , respectively. The decline in 2022 was attributable to the imposition of the PRC government's COVID-19 control policy, Guoyitang only opened for a short period of time in 2022, resulting in a sharp drop in costs. The decrease in 2022 was attributable to the held for sale status of Zhongshan, Qiangsheng, Eurasia and Minkang, which are accounted for separately. 72 Other income (expense) For the year endedDecember 31, 2022 , we reported other expense of$6,283,860 compared to other expense of$2,751,928 for the year endedDecember 31, 2021 . In both years this expense related to the amortization of the convertible notes and also included$1,799,671 of penalties in 2022 relating to the convertible notes. No penalties were assessed in 2021. In 2022, the exchange rate of Chinese RMB to US dollars decreased from$1 = ¥6.3757 to$1 = ¥ 6.9646. Since substantially all of our assets and revenues are denominated in RMB, we reported an exchange loss of$6,583 for the year endedDecember 31, 2022 , taking into consideration of such exchange rate change and exchange gains/losses related to non-currency assets and liabilities, compared to exchange gains of$24,967 for the year endedDecember 31, 2021 .
Net loss from continuing operations
Net loss from continuing operations was$21,628,406 for the year endedDecember 31, 2022 compared to a net loss of$34,693,619 for the year endedDecember 31, 2021 , an increase$13,065,213 , which was primarily due to the impairment of goodwill and 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
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 years endedDecember 31, 2022 . Loss from the discontinued operation was$689,650 for the year endedDecember 31, 2022 . Net Loss
We reported a net loss of
Foreign currency translation We reported a negative foreign currency translation adjustment of$1,577,289 for the year endedDecember 31, 2022 compared to a positive foreign currency translation adjustment of$598,481 for the year endedDecember 31, 2021 . This is the difference between accumulated other comprehensive income in 2022 and 2021.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. As ofDecember 31, 2022 , we had cash and cash equivalents of$2,336,636 and negative working capital of$1,973,736 as compared to cash and cash equivalents of$4,609,431 and negative working capital of$932,492 onDecember 31, 2021 . In order to improve our financial condition, onFebruary 27, 2023 , we entered into a stock purchase agreement (the "February SPA") withMr. Oudom , whereby the Company agreed to sell 2,500,000 shares of Common Stock toMr. 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 onApril 13, 2023 . Beginning onSeptember 27, 2019 , we sold$1,534,250 of convertible notes to various investors that matured during the period beginningSeptember 27, 2020 and ending onMarch 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 endedDecember 31, 2020 . 73
OnFebruary 1, 2020 , we entered into a stock purchase agreement to acquire Guanzan. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Guanzan and its 80% owned subsidiary, Shude, forRMB 100,000,000 (approximately$14,285,714 ) to be paid by the issuance of 190,000 shares of Common Stock and the cash payment ofRMB 80,000,000 (approximately$11,428,571 .) OnMarch 18, 2020 , we closed the Guanzan acquisition by delivering 190,000 shares of Common Stock. In addition, we assumed bank indebtedness of$1,135,884 in connection with the acquisition. OnApril 9, 2021 , we increased our equity interest in Shude from 80% to 95.2% by making a direct capital investment of$4,892,293 in Shude. OnMay 18, 2020 , we entered into a securities purchase agreement (the "May SPA") with two 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 and subject to an Event Market Price Adjustment (as defined below). 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 issued pursuant to the 2020 Notes 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 theInstitutional Investors in consideration of the payment of$1,750,000 in cash for each 2020 Note ($3,500,00 in the aggregate). The May SPA, the 2020 Notes and the warrants provide that each and every reference to share prices, shares of Common Stock and any other numbers therein that relate to the Common Stock will be automatically adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions that occur with respect to the Common Stock (each, a "Stock Combination Event", and such date thereof, the "Stock Combination Event Date") thereafter. The May SPA, the 2020 Notes and the 2020 Warrants further provide if after a Stock Combination Event, the Event Market Price is less than the conversion price (in the case of the Convertible Notes) or the exercise price (in the case of the warrants) then in effect (after giving effect to the above adjustments), then on the sixteenth (16th) trading day immediately following such Stock Combination Event Date, the conversion price or exercise then in effect on such sixteenth (16th) trading day (after giving effect to the above adjustments) will be reduced (but in no event increased) to the Event Market Price. "Event Market Price" means, with respect to any Stock Combination Event Date, the quotient determined by dividing (x) the sum of the dollar volume-weighted average price of the Common Stock for each of the five (5) trading days with the lowest dollar volume-weighted average price of the Common Stock during the fifteen (15) consecutive trading day period ending and including the trading day immediately preceding the sixteenth (16th) trading day after such Stock Combination Event Date, divided by (y) five (5). The price adjustment described in this paragraph is hereinafter referred to as the "Event Market Price Adjustment." The 2020 Notes, which matured on the eighteen-month anniversary of the issuance date, were payable in installments and 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 theInstitutional Investors under certain circumstances.
On
74
OnFebruary 24, 2021 , we entered into an amendment to the May SPA with theInstitutional Investors to increase the amount of the Additional Notes by$3,300,000 to$5,400,000 . OnFebruary 26, 2021 , Additional Notes in an aggregate original principal amount of$5,400,000 were issued to theInstitutional 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. OnNovember 18, 2021 , we entered into a securities purchase agreement (the "November SPA") with the same twoInstitutional 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 onNovember 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 theInstitutional 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. OnDecember 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 onDecember 11, 2020 .
OnDecember 14, 2020 , we entered into a stock purchase agreement to acquireChongqing 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 forRMB 116,000,000 (approximately$17,737,000 ), to be paid by the issuance of 40,000 shares of our Common Stock and the payment ofRMB 76,000,000 in cash. InDecember 2020 , we paid a deposit of$3,065,181 to the shareholders of Cogmer. OnMarch 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 onNovember 29, 2021 .
The Company implemented a 1-for-5 reverse stock split (the "Split") on
The 2020 Notes were fully converted before the Split, and therefore no price adjustment was actually implemented at the conversion, although the price information provided above about the 2020 Notes was post-split price. The conversion price of the 2021 Notes and the exercise price of the 2020 Warrants and the 2021 Warrants will be adjusted pursuant to the Event Market Price formula upon conversion or exercise. 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, onFebruary 1, 2022 , we entered into an amendment to the Zhongshan acquisition agreement providing for the reduction of the purchase price, including a retroactive 50% decrease in the closing cash payment, a 50% retroactive decrease in the deferred closing stock payment and a 50% reduction of the 2021 and 2022 performance targets. As a result of such amendment, the former owner agreed to returnRMB 40,000,000 in cash and 20,000 shares of Common Stock to us in 2022. OnDecember 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. Subsequent to their issuance, such shares were consolidated into 40,037 shares as a result of a 1-for-5 reverse stock split onFebruary 3, 2022 and a 1-for-10 reverse stock split onDecember 9, 2022 . The prior owner will release our company from any and all claims relating to 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 beforeDecember 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. 75
In response to the poor performance of the Qiangsheng, Eurasia and Minkang hospitals we entered into an agreement onDecember 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, 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. 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 agreement to sellZhuoda back to the former owners onOctober 19, 2022 , Pursuant to the agreement, we sold 100% of the equity interests inZhuoda in consideration for the return of the 440,000 shares of Common Stock previously issued to the former owners of Zhouda. The transaction closed effectiveNovember 23, 2022 , when 100% of the equity interests inZhuoda were transferred to the former owners and the 440,000 shares of Common Stock were returned to us. OnDecember 20, 2021 , we entered into a stock purchase agreement to acquireBengbu Mali OB-GYN Hospital Co., Ltd. ("Mali Hospital "), a private OB-GYN specialty hospital with 199 beds located in Bengbu city in the southeast region ofthe People's Republic of China . We agreed to purchase all the issued and outstanding equity interests inMali Hospital in consideration of$16,750,000 . OnJanuary 4, 2022 , we paidRMB7,227,000 to the seller as partial consideration. OnDecember 15, 2022 , we entered into an agreement to terminate the stock purchase agreement. 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 ofMali Hospital and certain third-party beneficiaries. Such return is expected to take place promptly. The Company did not incur any penalties as a result of the termination of the Original Agreement. As of the date of this annual report, we have not received the refund ofRMB7,227,000 we paid onJanuary 4, 2022 .
Our PRC operating subsidiaries have individually incurred debt in connection with their operations.
Short-term loans
Zhongshan borrowed$215,375 fromWuhu Yangzi Rural Commercial Bank onJuly 27, 2022 . The loan is due onJuly 27, 2023 with an interest rate of 5.80%. Guanzan borrowed$703,558 fromPostal Savings Bank of China On December 22,2022 . The loan is due onDecember 20,2023 with an interest rate of 4.50%. Shude borrowed$114,867 fromChina Minsheng Bank onMarch 17,2022 , which is due onMarch 17, 2023 , with an interest rate of 6.20%.
Long-term loan-current portion
Guanzan borrowed$24,514 fromWe Bank onDecember 26, 2020 , which is due onMarch 26, 2023 , with an interest rate of 10.06%. Guanzan borrowed$42,341 fromWe Bank onJuly 24, 2021 , which are due onJuly 26, 2023 , with an interest rate of 13.68%. Guanzan borrowed$39,109 fromWe Bank onOctober 7, 2021 , which is due onSeptember 26, 2023 , with an interest rate of 12.96%. Long-term loans
Guanzan borrowed$59,926 from Chongwing Nan'anZhongyin Fuden Village Bank Co. Ltd. onFebruary 25,2021 , which is due onFebruary 24, 2024 , with an interest rate of 8.00%.Guanzan borrowed$71,792 fromWe Bank onApril 26, 2022 , for a term of two years, with an interest rate of 9.45%. Guanzan borrowed$23,931 and$119,653 and$39,485 fromWe Bank onSeptember 6,2022 , for a term of two years, with an interest rate of 14.40%.
As of
and long- term debt of our operating subsidiaries in the PRC were
The following is a summary of cash provided by or used in each of the indicated
types of activities during the years ended
For the years ended
December 31,
2022 2021
Net cash used in operating activities $ (10,255,206 ) $ (4,436,775 )
Net cash used in (provided by) investing activities (536,866 ) 1,310,641
Net cash provided by financing activities 8,433,596 6,877,883 Exchange rate effect on cash 85,681 722,372 Net cash (outflow) inflow$ (2,272,795 ) $ 4,474,122 76 Operating Activities We used$10,255,206 in our operations during the year endedDecember 2022 as compared to$4,436,775 used in our operations in the year endedDecember 31, 2021 . During pandemic, we focused on cash flow efficiency and cut extra operations expense. The increase in the amount of cash used in operating activities was primarily attributable to the change in other payables and accrued liabilities and operating lease liabilities. During the year endedDecember 31, 2022 , adjustments for non-cash items primarily included the decrease recorded on the amortization of convertible notes of$3.26 million . Investing Activities
Cash used in investing activities was$536,866 for the year endedDecember 31, 2022 compared to$1,310,641 used in investing activities for the year endedDecember 31, 2021 . Cash used in investing activities for the year endedDecember 31, 2022 was due to the payment for the acquisition ofPhenix Bio Inc and the disposal ofZhuoda and held for sale status of Minkang, Qiangsheng and Eurasia. Cash used in investing activities for the year endedDecember 31, 2021 was due to the payment for the acquisition of Qiangsheng, Eurasia andMinkang Hospital and the deposit for the acquisition of Cogmer. Financing Activities
Cash provided by our financing activities was$8,433,596 for the year endedDecember 31, 2022 compared to$6,877,883 for the year endedDecember 31, 2021 . During the year endedDecember 31, 2022 , we reduced$6.5 million from issuance of convertible promissory notes and$0.5 million from the repayment of long-term loans. OnJune 9, 2022 , we entered into a stock purchase agreement with our Chairman of the Board, Mr.Fnu Oudom , wherebyMr. Oudom agreed to purchase 1,250,000 (post a 1-for-10 reverse split inDecember 2022 ) shares of Common Stock for$5 million , or$0.40 per share, subject to the approval of our stockholders. OnJuly 18, 2022 , 1,250,000 (post a 1-for-10 reverse split inDecember 2022 ) shares of Common Stock were issued toMr. Oudom upon the approval of the stockholders at our 2022 annual meeting of shareholders. OnDecember 6, 2022 , we sold a convertible promissory note (the "Note") to Mr.Fnu Oudom for$ 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 ). OnFebruary 27, 2023 , the Company andMr. 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 ofMr. 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.
Contingent Contractual Obligations
OnDecember 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 beforeDecember 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. OnDecember 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.
OnJuly 5, 2022 , we entered into a stock purchase agreement (as amended onFebruary 27, 2023 ) with Mr.Fnu Oudom , the Chairman of our board of directors, whereby we agreed to acquire 100% of the equity interests inPhenix Bio Inc. ("Phenix"), a distributor of healthcare products. The transaction closed effectiveMarch 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 will be 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. 77 Inflation and Seasonality
We do not believe that our operating results have been materially affected by inflation or seasonality 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 to offset the rising prices charged by our suppliers.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any material off-balance sheet arrangements.
IMPACT OF RECENTLY ISSUED NEW ACCOUNTING STANDARDS
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
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