The following discussion of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated
financial statements and the notes to those financial statements appearing
elsewhere in this Report.
Certain statements in this Report constitute forward-looking statements. These
forward-looking statements include statements, which involve risks and
uncertainties, regarding, among other things, (a) our projected sales,
profitability, and cash flows, (b) our growth strategy, (c) anticipated trends
in our industry, (d) our future financing plans, and (e) our anticipated needs
for, and use of, working capital. They are generally identifiable by use of the
words "may," "will," "should," "anticipate," "estimate," "plan," "potential,"
"project," "continuing," "ongoing," "expects," "management believes," "we
believe," "we intend," or the negative of these words or other variations on
these words or comparable terminology. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur. You should not place undue reliance
on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the
occurrence of unanticipated events.
As used herein the terms "we", "us", "our," "BIMI" and the "Company" mean, BOQI
International Medical, Inc., a Delaware corporation and its subsidiaries.
From 2007 until October 2019, we, through the NF Group, were engaged in the
energy efficiency enhancement business, focusing on two fields: (1)
manufacturing large diameter energy efficient intelligent flow control systems
for thermal and nuclear power generation plants, major national and regional
water supply projects and municipal water, gas and heat supply pipeline
networks; and (2) energy saving technology consulting, optimization design
services, energy saving reconstruction of pipeline networks and contractual
energy management services for China's electric power, petrochemical, coal,
metallurgy, construction, and municipal infrastructure industries. With the
decline in the constructions of power generation plants and municipal water,
gas, heat and energy pipelines in China due to a policy change by the PRC
government, the demand for our products and services declined markedly.
Our energy efficiency enhancement business incurred operating losses in each of
the last seven years, especially in 2018, when the PRC government adopted a
series of policies to favor more environmentally friendly projects and products.
As of December 31, 2019, the NF Group had an accumulated deficit of $4,231,623.
We explored many different alternatives in an effort to revive this business,
including attempts to expand into the international markets, before we
determined this business was not sustainable for us. In late 2019, we committed
to a plan to dispose of the NF Group and on March 31, 2020, we entered into the
NF SPA with respect to the sale of the NF Group. Pursuant to the NF SPA, the
aggregate sale price for the NF Group is $10,000,000, determined based on the
value of the total assets of the NF Group as shown on the Company's financial
statements as of September 30, 2019, to be paid at the closing. The closing
is/was subject to the satisfaction of certain conditions, including that the
representations and warranties of the parties contained in the NF SPA are true
and correct in all material respects on the closing date and that applicable
consents and approvals required to be obtained by the parties have been obtained
and not withdrawn. The NF Group Disposition closed on June 23, 2020.
The plan to dispose of the NF Group and the actions taken to fulfill the plan
resulted in our classifying the business of the NF Group as a discontinued
operation according to ASC 205-20 Presentation of Financial Statements -
Discontinued Operation. As a result, all of the assets and liabilities of the NF
Group were reclassified as assets and liabilities of a discontinued operation in
the statement of position as of March 31, 2020 and December 31, 2019, and the
results of the operation are presented under the line item net loss from
discontinued operation for the three months ended March 31, 2020 and 2019.
We are currently focused on the development of our newly acquired businesses
that are engaged in the operation of pharmacies and the wholesale distribution
of medicine and medical devices (the "Pharmacy Group").
On October 14, 2019, we acquired Boqi Zhengji, which operates a pharmacy chain
business in the PRC, by purchasing 100% of the equity interests of Lasting, Boqi
Zhengji's parent company. This was the first step of our shift of focus from the
energy sector to the healthcare business.
The Company, through Boqi Zhengji, sells medicines and other health-related
products. We currently have approximately sixteen directly-owned stores,
operating under the brand name "Boqi Pharmacy". All directly-owned stores are
located in the city of Dalian, in the Liaoning Province of the PRC and range in
size from 80 to 200 square meters. We favor retail locations in well-established
residential communities with relatively concentrated consumer purchasing power
or located in close proximity to local hospitals, and evaluate potential store
sites to assess consumer traffic, visibility and convenience. Depending on its
size, each pharmacy store has between two (2) to three (3) licensed pharmacists
on staff. We primarily offer third-party products at our pharmacies, including
prescription drugs, OTC drugs, traditional Chinese medicine ("TCM"), nutritional
supplements, sundry products and medical consumables.
Following our plans to become a more cost-efficient and technology-focused
company, we closed about 10 stores in 2019 to reduce the rent and overhead
costs, which had been the major fixed cost items for the pharmacies, and kept
about sixteen stores with the highest levels of consumer traffic visibility and
convenience. We also developed an online platform and made it available to our
club member customers. Our club member customers may browse our products online,
confirm availability of a specific product, make an online reservation and pick
up the products at a conveniently located store. Although we suffered some
temporarily customer loss during the transition from reliance on physical stores
to online stores, we were able to maintain the number of our club members at a
stable level. As of March 31, 2020, we had approximately 40,000 club member
customers, similar to the annualized average of 39,000 club members in 2019. The
total number of club member customers and the total revenue generated from these
club member customers as of December 31, 2020 will be used to measure the
performance of the pharmacy business and to determine if, and how much of the
cash portion of the consideration for the acquisition of Boqi Zhengji will
to be paid.
To improve our capability of serving customers online, we plan to apply for a
license that will allow our club member customers to pay for our products
directly online and receive deliveries to their homes. Online sales are highly
regulated in China, and therefore we cannot be certain that we will receive such
a license. To support our physical stores and future online sales capabilities,
we currently maintain a warehouse for our pharmacy business.
We also have certain arrangements with authorized independent retailers to
distribute the Company's products. The agreements with the authorized retailers
typically provide that they sell the Company's products exclusively at their
retail stores at a predetermined retail price. The agreements require the
authorized retailers to adhere to certain standards of product merchandising,
promotion and presentation. The agreements also prohibit authorized retailers
from selling competitors' products. In exchange, the Company provides the
authorized retailers with geographic exclusivity, discounted products, training
and support. The agreements do not require the authorized retailers to purchase
any minimum levels of products, but do require that they make at least one
purchase during each year. Such agreements are generally for terms of three
years and are renewable at the mutual agreement of both parties. The agreements
may be terminated at the Company's discretion if the authorized retailers
violate the terms of the agreements.
We plan to focus the business of Boqi Zhengji on sales of prescription drugs,
explore new retail opportunities, expand to residential communities in new rural
areas and improve our online capabilities. Through the expansion of pharmacy
stores, acquisitions of businesses in the pharmacy industry and an increase in
the number of authorized retailers, we intend to continue to build core
competencies such as specialized services. We are committed to the pharmacy
retail industry and to transforming the Company into a technology-driven health
service platform. We also intend to continue to actively explore domestic and
international financing opportunities to help us realize our goals.
On March 18, 2020, we closed the Guanzan Acquisition. The Guanzan Group is a
distributor of medical devices and generic drugs based in Chongqing, the largest
city in Southwest region of the PRC. The rationale for the Guanzan Acquisition
is for us to further expand our healthcare operation by acquiring a
pharmaceutical and medical devices distributor. Guanzan has a strong regional
brand in the local area of Chongqing and good commodity procurement resources.
The Guanzan Acquisition is in line with the Company's expansion strategy, which
focuses on deeper penetration of the healthcare market in the Southwest region
of China and gaining a wider footprint in the PRC.
The Company currently operates in three reportable segments: retail pharmacy,
wholesale medicine and wholesale medical devices. The retail pharmacy segment
sells prescription and OTC medicines, TCM, healthcare supplies and sundry items
to retail customers through its directly-owned pharmacies and authorized retail
stores. The wholesale medicine segment includes supplying prescription and OTC
medicines, TCM, healthcare supplies and sundry items to clinics, third party
pharmacies, hospitals and other drug wholesalers. There were no inter-segment
revenues between our retail pharmacy and wholesale medicine segments. The
wholesale medical device segment distributes medical devices, including medical
consumables to private clinics, hospitals, third party pharmacies and other
medical device dealers.
The segments' accounting policies are the same as those described in the summary
of significant accounting policies. The Company's chief operating decision maker
("CODM"), who is the CEO of the Company, evaluates performance of each segment
based on profit or loss from continuing operations net of income tax.
The Company's reportable business segments are strategic business units that
offer different products and services. Each segment is managed independently
because they require different operations and markets to distinct classes of
The accompanying unaudited condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the discharge of liabilities in the
normal course of business for the foreseeable future.
As reflected in the accompanying unaudited condensed consolidated financial
statements, the Company incurred significant net losses of $2,194,875 and
$567,594, and cash outflow of $798,779 and cash inflow $367,912 from operating
activities for the three months ended March 31, 2020 and 2019, respectively. As
of March 31, 2020, the Company had an accumulated deficit of $13 million and
negative working capital of $6 million. In addition, the Company continues to
generate operating losses and has limited cash flow from its continuing
operations. Management believes these factors raise substantial doubt about the
Company's ability to continue as a going concern for the next twelve months.
The continuation of the Company as a going concern through the next twelve
months is dependent upon (1) the continued financial support from its
stockholders or external financing, and (2) further implement management's
business plan to extend its operations and generate sufficient revenues and cash
flow to meet its obligations. On May 18, 2020, the Company entered into a
securities purchase agreement (the "May SPA") with two institutional investors
(each an "Institutional Investor" and collectively the "Institutional
Investors") to sell a new series of senior secured convertible notes (the
"Convertible Notes") of the Company in a private placement (the "Private
Placement"), in the aggregate principal amount of $6,550,000 having an aggregate
original issue discount of 19.85%, and ranking senior to all outstanding and
future indebtedness of the Company. On June 2, 2020, two Convertible Notes in an
aggregate original principal amount of $4,450,000 were issued to the
Institutional Investors. See "LIQUIDITY AND CAPITAL RESOURCES." While the
Company believes in the viability of its strategy to increase sales volume and
in its ability to raise additional funds, there can be neither any assurance to
that effect, nor any assurance that the Company will be successful in securing
sufficient funds to sustain its operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. These unaudited condensed financial statements do not
include any adjustments to reflect the possible future effect on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of these uncertainties.
Management believes that the actions presently being taken to obtain additional
funding and implement its strategic plan provides the opportunity for the
Company to continue as a going concern.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. On an on-going
basis, we evaluate our estimates and judgments, including those related to
revenue, receivable, inventory, and accrued expenses. We base our estimates on
historical experience, known trends and events and various other factors that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. Changes in estimates
are recorded in the period in which they become known.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
? Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount and do not bear
interest, which 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 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. The Company will consider the allowance for doubtful accounts for
any estimated losses resulting from the inability of its customers to make
required payments. For those 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, 2020 and December 31, 2019, the allowance for
doubtful accounts was $1,039,725 and $53,182, respectively.
? Advances to suppliers
Advances to suppliers consist of prepayments to the Company's vendors, such as
pharmaceutical manufacturers and upstream medicine dealers. We typically prepay
for certain merchandise, especially for scarce, personalized medicine or medical
devices. We typically receive products from vendors within three to nine months
after making prepayments. We continuously monitor deliveries from, and payments
to, our vendors while maintaining a provision for estimated credit losses based
upon historical experience and any specific supplier issues, such as
discontinued inventory supply, that have been identified. If we have difficulty
receiving products from a vendor, we would cease purchasing products from such
vendor, request return of our prepayment promptly, and if necessary, take legal
actions. We have not taken any legal actions during the reporting periods. If
none of these steps are successful, the management will then determine whether
the prepayments should be reserved or written off. As of March 31, 2020 and
December 31, 2019, the allowance for doubtful accounts was $18,409 and $11,716,
Inventories are stated at the lower of cost or net realizable value. Cost is
determined on a weighted average method. The Company carries out physical
inventory counts on a monthly basis at each store that we directly-owned and
those warehouses for temporary storage of our selling merchandises. The Company
reviews historical sales activity quarterly to identify if any excess, slow
moving items and potentially obsolete items. The Company provides for an
inventory reserve based on the excess quantities on hand equal to the
difference, if any, between the cost of the inventory and its estimated net
realizable value, or obsolescence of inventories determined principally by
customer demand and the use dates of the merchandise. As of March 31, 2020 and
December 31, 2019, the Company recorded a balance of allowance for obsolete
inventories, which mainly consist of expired medicine, of $297,011 and $182,258,
? 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:
Expected useful lives Residual value
Building 20 years 5%
Office equipment 3 years 5%
Furniture 5 years 5%
Vehicles 4 years 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 pharmacy store club members, which was
recognized at the acquisition of the Boqi Zhengji, and management system
software. Intangible assets are stated at cost less accumulated amortization and
impairment, if any. Intangible assets are amortized using the straight line
method with the following estimated useful lives:
Expected useful lives
Software 10 years
Pharmacy club members 8 years
Goodwill represents the excess of the purchase price over the amounts assigned
to the fair value of the assets acquired and the liabilities assumed of an
acquired business. In accordance with ASC 350, Goodwill and Other Intangible
Assets, recorded goodwill amounts are not amortized, but rather are tested for
impairment annually or more frequently if there are indicators of impairment
Goodwill is tested for impairment at the reporting unit level on at least an
annual basis or when an event occurs or circumstances change that would
more-likely-than-not reduce the fair value of a reporting unit below its
carrying value. These events or circumstances include a significant change in
stock prices, business environment, legal factors, financial performances,
competition, or events affecting the reporting unit. Application of the goodwill
impairment test requires judgment, including the identification of reporting
units, assignment of assets and liabilities to reporting units, assignment of
goodwill to reporting units, and determination of the fair value of each
reporting unit. The estimation of fair value of a reporting unit using a
discounted cash flow methodology also requires significant judgments, including
estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for the Company's business,
estimation of the useful life over which cash flows will occur, and
determination of the Company's weighted average cost of capital. The estimates
used to calculate the fair value of a reporting unit change from year to year
based on operating results and market conditions. Changes in these estimates and
assumptions could materially affect the determination of fair value and goodwill
impairment for the reporting unit.
The Company identified reporting units at the lowest level within the entity at
which goodwill is monitored for internal management purposes. Management
evaluated the recoverability of goodwill by performing a qualitative assessment
before using a two-step impairment test approach at the reporting unit level. If
the Company reorganizes its reporting structure in a manner that changes the
composition of one or more of its reporting units, goodwill is reassigned based
on the relative fair value of each of the affected reporting units.
? 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
? 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 or provision of
services. VAT collected from customers, net of VAT paid for purchases, is
recorded as a liability in the accompanying consolidated balance sheets until it
is paid to the relevant PRC tax authorities
? 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
? Derivative instruments
The Company enters into financing arrangements that consist of freestanding
derivative instruments or are hybrid instruments that contain embedded
derivative features. The Company accounts for these arrangements in accordance
with ASC Topic 815, Accounting for Derivative Instruments and Hedging Activities
("ASC 815") as well as related interpretation of this standard. In accordance
with this standard, derivative instruments are recognized as either assets or
liabilities in the balance sheet and are measured at fair values with gains or
losses recognized in earnings. Embedded derivatives that are not clearly and
closely related to the host contract are bifurcated and are recognized at fair
value with changes in fair value recognized as either a gain or loss in
earnings. The Company determines the fair value of derivative instruments and
hybrid instruments based on available market data using appropriate valuation
models, giving consideration to all of the rights and obligations of each
We estimate fair values of derivative financial instruments using various
techniques (and combinations thereof) that are considered to be consistent with
the objective measuring fair values. In selecting the appropriate technique, we
consider, among other factors, the nature of the instrument, the market risks
that it embodies and the expected means of settlement. For less complex
derivative instruments, such as free-standing warrants, we generally use the
Black-Scholes model, adjusted for the effect of dilution, because it embodies
all of the requisite assumptions (including trading volatility, estimated terms,
dilution and risk free rates) necessary to fair value these instruments.
Estimating fair values of derivative financial instruments requires the
development of significant and subjective estimates that may, and are likely to,
change over the duration of the instrument with related changes in internal and
external market factors. In addition, option-based techniques (such as
Black-Scholes model) are highly volatile and sensitive to changes in the trading
market price of our common stock. Since derivative financial instruments are
initially and subsequently carried at fair values, our income (expense) going
forward will reflect the volatility in these estimate and assumption changes.
Under the terms of the new accounting standard, increases in the trading price
of the Company's common stock and increases in fair value during a given
financial quarter result in the application of non-cash derivative expense.
Conversely, decreases in the trading price of the company's common stock and
decreases in trading fair value during a given financial quarter result in the
application of non-cash derivative income.
? Foreign currencies translation
Transactions denominated in currencies other than the functional currency are
translated into the functional currency at the exchange rates prevailing at the
dates of the transaction. Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the functional
currency using the applicable exchange rates at the balance sheet dates. The
resulting exchange differences are recorded in the statement of operations.
The reporting currency of 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
In general, for consolidation purposes, assets and liabilities of its
subsidiaries whose functional currency is not the US$ are translated into US$,
in accordance with ASC Topic 830-30, "Translation of Financial Statement", using
the exchange rate on the balance sheet date. Revenues and expenses are
translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of foreign subsidiaries are
recorded as a separate component of accumulated other comprehensive income
within the statement of stockholders' equity.
? Segment reporting
ASC Topic 280, "Segment Reporting" establishes standards for reporting
information about operating segments on a basis consistent with the Company's
internal organization structure as well as information about the type of
products and services, geographical areas, business strategies and major
customers in business components. For the three months ended March 31, 2020 the
Company operated in three reportable segments: retail pharmacy, wholesale
medicine and wholesale medical device in the PRC.
? Recent accounting pronouncements
In November 2018, The Financial Accounting Standards Board (the "FASB") issued
ASU 2018-19, "Codification Improvements to Topic 326, Financial
Instruments-Credit Losses." ASU 2018-19 is issued a new standard to replace the
incurred loss impairment methodology under current GAAP with a methodology that
reflects expected credit losses and requires consideration of a broader range of
reasonable and supportable information to inform credit loss estimates. We will
be required to use a forward-looking expected credit loss model for accounts
receivables, loans, and other financial instruments. Credit losses relating to
available-for-sale debt securities will also be recorded through an allowance
for credit losses rather than as a reduction in the amortized cost basis of the
securities. The standard will be adopted upon the effective date for us
beginning July 1, 2020. Adoption of the standard will be applied using a
modified retrospective approach through a cumulative-effect adjustment to
retained earnings as of the effective date to align our credit loss methodology
with the new standard. We are currently evaluating the impact of this standard
in our consolidated financial statements, including accounting policies,
processes, and systems.
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 is currently evaluating the impact of this standard on its consolidated
financial statements and related disclosures.
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.
An outbreak of infectious respiratory illness caused by a novel coronavirus
known as COVID-19 has spread globally in 2020. This outbreak has resulted in
travel restrictions, closed international borders, enhanced health screenings at
ports of entry and elsewhere, disruption of and delays in healthcare service
preparation and delivery, prolonged quarantines, cancellations, supply chain
disruptions, and lower consumer demand, layoffs, defaults and other significant
economic impacts, as well as general concern and uncertainty. The current
severity of the pandemic and the uncertainty regarding future outbreaks and the
length of its effects could have negative consequences for our company.
Since the pandemic broke out, our operations have been materially impacted. At
the beginning of February 2020, the Chinese government issued a quarantine
order, which lasted for more than two months in many parts of the country, where
everyone had to stay at home. During February and March, all of our
administrative functions had to be performed remotely. Not until the beginning
of April did we start to maintain a small skeleton crew in our office to perform
those functions that cannot be handled remotely.
Because of the pandemic, we also suffered a significant reduction.in sales.
Because of the Chinese government's lockdown order, our customer traffic dropped
greatly. Certain of our popular and high profit margin products could not be
sold due to the governmental restrictive orders, which also resulted in the
expiration of a large quantity of our medicines that are otherwise in high
demand in the winter season. We cannot be sure when this situation will improve.
We have incurred additional costs to ensure we meet the needs of our customers,
including providing additional cleaning materials for our stores and other
facilities. We expect to continue to incur additional costs, which may be
significant, as we continue to implement operational changes in response to this
pandemic. COVID-19 has also caused supply chain disruption which has resulted in
higher supply chain costs to replenish inventories in our stores and
distribution center and such increased costs in our supply chain are likely to
continue. Furthermore, we have experienced restricted stock availability in a
number of key categories, and while we have significantly increased our
purchases across many key categories, we may face delays or difficulty sourcing
certain products which could negatively impact us.
Further, our management is focused on mitigating COVID-19, which has required
and will continue to require, a large investment of time and resources across
our enterprise and will delay the availability of other value added services.
For example, we have refocused certain resources to work on COVID-19 impacts,
have delayed the roll out of new growth initiatives, such as new product
launches, and are selectively delaying investments in certain planned
initiatives. Additionally some of our employees are continuing to work remotely.
An extended period of remote work arrangements could strain our business
continuity plans, introduce operational risk, including but not limited to
cybersecurity risks, and impair our ability to manage our business.
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of
our business, including how it will impact our customers, employees, suppliers,
vendors, business partners and distribution channels. The COVID-19 pandemic has
created significant volatility in consumer demand and buying habits, uncertainty
and economic disruption, which will adversely affect our business operations and
may materially and adversely affect our results of operations, cash flows and
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2020 and 2019 of consolidated
result of operations:
For the Three Months Ended March 31, Comparison
% of Amount increase increase
2020 Revenues 2019 (decrease) (decrease)
Revenues $ 426,898 100 % $ - $ 426,898 100 %
Cost of revenues 461,782 108 % - 461,782 100 %
Gross loss (34,884 ) (8 )% - (34,884 )
Operating expenses 1,751,453 410 % 122,614 1,628,839 1,328 %
Other expenses, net (40,100 ) (9 )% - (40,100 ) 100 %
Loss before income tax (1,826,437 ) (428 )% (122,614 ) (1,703,823 ) 1,390 %
Income tax expense 1,268 - % - 1,268 100 %
Net loss from continuing
operations (1,827,705 ) (428 )% (122,614 ) (1,705,091 ) 1,391 %
Loss from operations of
discontinued operations (374,486 ) (88 )% (419,834 ) 45,348 (11 )%
Less: non-controlling interest (7,316 ) (2 )% 25,146 (32,462 ) (129 )%
Net Loss attributable to BOQI
International Medical Inc. $ (2,194,875 ) (514 )% $ (567,594 )$ (1,627,281 ) 287 %
Comparison of the three months ended March 31, 2020 and 2019 of segment result
Information of the three months ended March 31, 2020 of reportable segments:
Retail Pharmacy Medical device Wholesale Drugs Wholesale Adjustment to Consolidated Total
Percentage of Percentage of % of Reportable
Amount total % Amount Percentage of total % Amount total % Elimination Unallocated Consolidated Amount Segments
customers $ 12,314 2.88 % $ 248,027 58.10 % $ 166,557 39.02 % $ - $ - $ 426,898 ) 100.00 %
intersegments $ - $ - $ - $ - $ - $ -
revenues $ 129,483 28.04 % $ 199,036 43.10 % $ 133,263 28.86 % $ - - 461,782 100.00 %
(Loss) (951.51 )% 19.75 % 19.99 % $ $ (8.17 )%
expenses $ 345,431 19.72 % $ 12,750 0.73 % $ 34,761 1.98 % $ - $ 1,358,511 (1) $ 1,751,453 22.44 %
Interest income $ - 0.00 % $ 134 58.52 % $ 95 41.48 % $ - $ - $ 229 100.00 %
expenses $ (9 ) -0.04 % $ (2,456 ) 11.21 % $ (1,710 ) 7.81 % $ - $ (17,729 )(2) $ (21,904 ) 18.98 %
Profit (loss) $ (480,471 ) 21.82 % $ 32,650 (1.48 )% $ (3,082 ) 0.14 % $ - $ (1,751,288 )(3) $ (2,202,191 ) 20.48 %
Total assets $ 8,354,511 19.50 % $ 5,459,259
12.74 % $ 8,665,657 20.22 % $ 605,540$ 20,978,179 (4) $ 42,852,066 52.46 %
(1) The adjustments amount mainly composed of operating expense incurred in the
parent company for the wholly operating of the Company that is unallocated to
reportable segments. The amount included:
a. BIMI and Xinrongxin's general & administrative expense of $664,531;
b. The amortization of the discount of convertible notes issued by BIMI and used
for the whole Company's operation of $294,958;
c. Change in fair value of derivative liabilities related to the beneficial
conversion features reported in BIMI of $399,022.
(2) This amount represent interest expenses that BIMI accrued for the convertible
notes for the period.
(3) See reconciliations items in NOTE 21 to the condensed financial statements
elsewhere in this report.
(4) See reconciliations items in NOTE 21 to the condensed financial statements
elsewhere in this report.
There were no revenues from continuing operations for the three months ended
March 31, 2019, because the business operation of the NF Group was reclassified
as a discontinued operation and our current continuing operations were acquired
after March 31, 2019.
Revenues from our continuing operations for the three months ended March 31,
2020 and 2019 were $426,898 and $0, respectively. The revenues for the three
months ended March 31, 2020 were attributable to the revenues of the Boqi
Zhengji's retail pharmacy stores and sales to authorized retail stores and our
newly acquired Guanzan Group's wholesale sales of medical devices and generic
drugs. There were no revenues from continuing operations for the three months
ended March 31, 2019, because the business operation of the NF Group was
reclassified as a discontinued operation and our current continuing operations
were acquired after March 31, 2019. Our revenues for the three months ended
March 31, 2020 were adversely y due to impact of the spread of COVID-2019 and
the mitigation efforts imposed on our operations during this period.
Revenues from retail pharmacy segment for the three months ended March 31, 2020
was $12,314. The local lockdown policy due to COVID-2019 had an adverse effect
on our retail pharmacy business in which almost none of our retail pharmacy
stores generated any business, but were required to remain open during the
Revenues from wholesale medicine segment for the three months ended March 31,
2020 was $248,027. These revenues reflect the sales of the wholesale medicine
segment of the Guanzan Group since its acquisition on March 18, 2020.
Revenues from the wholesale medical devices segment for the three months ended
March 31, 2020 was $166,557. These revenues reflect the sales of the wholesale
medical devices segment of the Guanzan Group since its acquisition on March
Cost of revenues
Cost of revenues from our continuing operations for the three months ended March
31, 2020 and 2019 were $461,782 and $0, respectively. The Company recorded an
obsolescence loss of $119,342 with respect to inventories, which was included in
the cost of revenues for the three months ended March 31, 2020. Because of the
lockdown policy, our retail pharmacy stores made almost no sales which resulted
in a large portion of our inventory to expire unsold. Cost of revenues of our
retail pharmacy segment consists primarily of the cost of the pharmaceuticals,
medical devices and other products that we sell to customers. For the three
months ended March 31, 2020, cost of revenues of our retail pharmacy segment was
$129,483, which included an inventory write-off of $119,342.
Cost of revenues of our wholesale medical devices segment consists primarily of
cost of medical devices, medical consumables and costs related directly to
contracts with customers. For the three months ended March 31, 2020, the cost of
revenues of our wholesale medical devices segment was $199,036.
Cost of revenues of our wholesale medicine segment consists primarily of the
cost of medicine, medical consumables and costs related directly to contracts
with customers. For the three months ended March 31, 2020, the cost of revenues
of our wholesale medicine segment was $133,263.
Gross profit loss
For the three months ended March 31, 2020, we had a negative gross margin from
our continuing operations of (8.17)%, which was primarily attributable to the
write-off of obsolete inventory. There was no revenue from our continuing
operations for the three months ended March 31, 2019.
The gross profit margin of our wholesale medical devices and wholesale medicine
segments for the three months ended March 31, 2020 were 19.73% and 19.99%,
Operating expenses consist mainly of auditing and legal service fees, other
professional service fees, directors' and officers' compensation expenses,
meeting and promotional expenses, changes in fair value of derivative
liabilities, depreciation and amortization of items not associated with
production, office rental fee and utilities.
Operating expenses from continuing operations were $1,751,453 for the three
months ended March 31, 2020 as compared to $122,614 for the same period in 2019,
an increase of $1,628,839, or 1,328%. The increase is primarily attributable to
the operating expenses of Boqi Zhengji of appropriately $345,431 and the Guanzan
Group of appropriately $47,511, the amortization of the discount relating to the
convertible notes issued in 2019 of $294,958, changes in fair value of
derivative liabilities of $399,022 and an increase of about $540,000 of general
operating expenses which primarily resulted from the increase in auditing and
legal expenses and officers' salary. There were no operating expenses
attributable to our three segments for the three months ended March 31, 2019,
because our current continuing operations were acquired after March 31, 2019.
Operating expenses of the retail pharmacy segment for the three months ended
March 31, 2020 was $345,431, which included $256,511 of amortization of the
intangible assets recognized in the acquisition of Boqi Zhengji.
Operating expenses of the wholesale medical devices segment for the three months
ended March 31, 2020 was $12,750.
Operating expenses of the wholesale medicine segment for the three months ended
March 31, 2020 was $34,761.
For the three months ended March 31, 2020 operating expenses of $1,358,511 were
allocated to the parent company, which primarily included: (1) general operating
expenses of $664,531 incurred by the parent company and Xinrongxin, as holding
companies, (2) $294,958 of amortization expense related to the discount of the
Notes and (3) $399,022 of changes in fair value of derivative liabilities.
For the three months ended March 31, 2020, we reported other loss of $40,100.
Other loss mainly consisted of interest expense. No other expense was reported
during the same period of 2019.
Net loss from continuing operation
Net loss from continuing operations was $1,827,705 for the three months ended
March 31, 2020 as compared to a net loss of $122,614 for the same period in
2019, an increase of $1,705,091, or 1,391%, which was primarily a result of the
increase in operating expenses and the other expenses described above.
Loss from operations of discontinued operations
The operations of the NF Group are classified as discontinued operations. Loss
from the discontinued operation was $374,486 for the three months ended March
31, 2020 compared to a loss of $419,834 for the same period of 2019. The
decrease of $45,348, or 11%, was mainly due to lower depreciation and
amortization costs in the current period.
As a result of the foregoing we reported a net loss of $2,202,191 for the three
months ended March 31, 2020 compared to a net loss of $542,448 for the same
period of 2019, an increase of $1,659,743, or 306%.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2020, we had cash of $175,865 and negative working capital of
$6,008,248 as compared to cash of $36,363 and working capital of $500,765 at
December 31, 2019.
Beginning on September 27, 2019, the Company sold $1,534,250 of Notes to various
investors that will mature during the period beginning September 27, 2020 and
ending on March 13, 2021. Each of these Notes was issued for a term of 12
months, carrying 6% annual interest rate and convertible into the Company's
common stock. According to the Note agreements, each holder of a Note has the
right during the period beginning on the date which is one hundred eighty (180)
calendar days following the date of the issuance of the Note and ending on the
maturity date of the Note, to convert all or any part of the outstanding and
unpaid principal amount of the Note into fully paid and non-assessable shares of
common stock. During the period that these Notes are outstanding, the Company
will reserve from its authorized and unissued shares of common stock a
sufficient number of shares, free from preemptive rights, to provide for the
issuance of the common stock upon the full conversion of the Notes issued
pursuant to these Agreements.
The following table summarizes the key terms of these Notes:
Lenders/Holders Principal Rate
Maturity Dates Shares reserved Convertible Rate
1 Power Up Lending Group Ltd.$ 153,000
6 % 09/27/2020 324,668 * 65 %
2 Power Up Lending Group Ltd. 83,000 6 % 10/14/2020 176,127 ** 65 %
3 CROWN BRIDGE PARTNERS, LLC 101,500 6 % 11/15/2020 250,000 65 %
4 TFK INVESTMENTS, LLC, 101,500 6 % 11/15/2020 250,000 65 %
5 LABRYS FUND, LP 254,000 6 % 12/13/2020 934,110 *** 65 %
6 MORNINGVIEW FINANCIAL, LLC 156,750 6 % 12/18/2020 500,000 65 %
7 CROWN BRIDGE PARTNERS, LLC 50,750 6 % 12/16/2020 250,000 65 %
8 BHP Capital NY Inc. 183,750 6 % 02/13/2021 450,000 65 %
FIRSTFIRE GLOBAL OPPORTUNITIES
9 FUND, LLC 200,000 6 % 02/13/2021 500,000 65 %
10 Platinum Point Capital LLC 250,000 6 %
02/27/2021 1,061,232 65 %
Total $ 1,534,250 4,696,137
*: The number of shares reserved was adjusted from 1,086,390 shares to 324,668
shares on October 31, 2019.
**: The number of shares reserved was adjusted from 729,607 shares to 176,127
shares on October 31, 2019.
***: The number of shares reserved was adjusted from 625,000 shares to 934,110
shares on January 23, 2020.
On April 6 and April 7, 2020, respectively, Power Up Lending Group Ltd. ("Power
Up"), converted the full amount of a Note with a principal amount of $153,000
plus interest into 113,775 shares of the Company's common stock.
On April 21, 2020, Power Up converted the full amount of another Note with a
principal amount of $83,000 plus interest into 55,144 shares of the Company's
On June 18, 2020, CROWN BRIDGE PARTNERS, LLC converted $27,027 of a Note with a
principal amount of $101,500 plus interest into 18,000 shares of the Company's
On June 19, 2020, LABRYS FUND, LP converted the full amount of a Note with a
principal amount $254,000 plus interest into 174,225 shares of the Company's
After these conversions of $517,000 principal amount of the Notes, the principal
amount of $1,107,223 remains outstanding.
Our existing cash on hand at March 31, 2020 and the cash flows expected from our
continuing operations will not be sufficient to support our operating and
capital requirements during the next twelve months. In order to provide our
company with additional working capital, we plan to raise funds from our
investors in the next twelve months, in addition to borrowing from banks and
other third-party lenders.
On May 18, 2020, the Company entered into the May SPA with the Institutional
Investors to sell the Convertible Notes in the aggregate principal amount of
$6,550,000 having an aggregate original issue discount of 19.85%, and ranking
senior to all outstanding and future indebtedness of the Company. The
Convertible Notes do not bear interest except upon the occurrence of an event of
On June 2, 2020, two Convertible Notes in an aggregate original principal amount
of $4,450,000 were issued to the Institutional Investors. Each of the
Convertible Notes has a face amount of $2,225,000 for which each Institutional
Investor paid $1,750,000 in cash. The Convertible Notes mature on the
eighteen-month anniversary of the issuance date, are payable by the Company in
installments and are convertible at the election of the Institutional Investors
at the convertible price of $2.59, which subject to the adjustment at the event
of default. Each Institutional Investor also received a warrant to purchase
650,000 shares of the Company's common stock at an initial exercise price of
$2.845. The placement agent for the Private Placement also received a warrant to
purchase up to 171,845 shares of the Company's common stock at an initial
exercise price of $2.845 per share, subject to increase based on the number of
shares of common stock issued pursuant to the Convertible Notes. Additional
Convertible Notes in an aggregate original principal amount not to exceed
$2,100,000 may also be issued to the Institutional Investors under the SPA at a
later date under certain circumstances.
On June 23, 2020, we completed the disposition of the NF Group, at which time
the Company received banker's acceptance bills (Chinese bank instruments that
are payable by a bank and transferrable by endorsement) in an aggregate amount
of RMB 70,180,000 (approximately $10 million) from the buyer. As a result of the
receipt of the proceeds of the sale of the NF Group and the proceeds from the
issuance of the Convertible Notes, management believes we have sufficient
financial resources to fund our operations for at least the next twelve months.
The following is a summary of cash provided by or used in each of the indicated
types of activities during the three months ended March 31, 2020 and 2019,
For the three months ended
Net cash provided by (used in) operating activities $ (798,779 )$ 367,912
Net cash provided by investing activities 95,220 -
Net cash provided by (used in) financing activities 843,336
Exchange rate effect on cash (280 ) (262,852 )
Net cash inflow $ 139,497 $ -
We used $798,779 in our operations during the three months ended March 31, 2020,
which included cash used in our discontinued operation of $1,513, as compared to
$367,912 provided by operating activities for the three months ended March 31,
2019, which included cash provided by the discontinued operation of $501,241.
Net loss from our continuing operation (before non-cash adjustments) was $1.83
million for the three months ended March 31, 2020, an increase of $1.71 million,
compared to the net loss of $0.12 million incurred in the same period in 2019.
The increase of net loss is attributable to: (1) the increase in fees paid for
our external professional services as a result of increased auditing and legal
services of approximately $0.62 million; (2) the increase in our newly acquired
operation of the Pharmacy Group of $0.14 million; (3) increase of amortization
of discount on the Notes of $0.29 million; (4) the increase of amortization of
intangible assets of pharmacy stores club members of $0.26 million; and (5)
changes in fair value of derivative liabilities of $0.40 million.
Cash provided by investing activities was $95,220 for the three months ended
March 31, 2020, as compared to $0 provided by investing activities for the same
period of 2019. Cash provided by investing activities for the three months ended
March 31, 2020 was from the acquisition of the Guanzan Group.
Cash provided by our financing activities was $843,336 for the three months
ended March 31, 2020, as compared to $105,060 used in financing activities for
the three months ended March 31, 2019, including $238,389 cash outflow from our
discontinued operation. For the three months ended March 31, 2020, we raised
$593,224 by the issuance of convertible promissory notes and $250,112 from
related party loans. During the three months ended March 31, 2019, we raised
$133,329 from related party loans.
As of March 31, 2020, the Company had a $5,655,709 contractual obligation, which
is the maxim amount of the cash portion of the consideration for the acquisition
of Boqi Zhengji, which amount is subject to post-closing adjustments.
As of March 31, 2020, the Company accrued a $4,414,119 contractual obligation,
which is the estimated fair value of the Guanzan Cash Consideration, which is
subject to post-closing adjustments.
Inflation and Seasonality
We do not believe that our operating results have been materially affected by
inflation during the preceding two years. There can be no assurance, however,
that our operating results will not be affected by inflation in the future. At
present we are able to increase our product sale prices due to the rising prices
charged by our suppliers. At present we are able to increase our product sale
prices to offset the rising prices charged by our suppliers.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any material off-balance sheet arrangements.
© Edgar Online, source Glimpses