BIMI Medical(BIMI) - 2018 Q4 - Annual Report

Part I Business The company is shifting from energy-saving equipment to the healthcare sector via the acquisition of Boqi Pharmacy - In 2019, the company decided to shift its business focus to the sale of medicines and other health-related commodities, aiming to transform into a technology-driven health service platform[18] - The company entered into a stock purchase agreement in April 2019 to acquire Boqi Pharmacy, a key part of its expansion into the pharmacy business, with a purchase price including RMB 40,000,000 in cash and up to 1,500,000 shares of common stock[15] - The company's traditional business involves manufacturing large diameter energy-efficient intelligent flow control systems and providing energy-saving technology consulting services for various industries in China[16] - The company holds four invention patents and fourteen utility model patents in the PRC for its flow control devices, which it claims can reduce energy consumption by 20% compared to traditional valves[24][27] - As of December 31, 2018, the company had 81 employees, including 52 technical staff located in China[50] Risk Factors The company faces significant going concern risks, operational challenges in its new healthcare venture, and financial vulnerabilities - There is substantial doubt about the company's ability to continue as a going concern, highlighted by an accumulated deficit of $6.4 million and a working capital deficit of $10.5 million as of December 31, 2018[54] - The company has a history of losses, with a net loss of approximately $17 million for the year ended December 31, 2018[56] - Significant risks are associated with the expansion into the healthcare industry through the acquisition of Boqi Pharmacy, an area where the company has limited operational and management experience[58][59] - The company faces a high accounts receivable balance and accrued a significant allowance of $14.7 million for doubtful accounts as of December 31, 2018, due to customers requesting extended payment terms[100] - The company is at risk of being delisted from the Nasdaq Capital Market for failing to timely file its periodic reports, including the Form 10-K and subsequent Form 10-Qs[125][127] - A small group of existing stockholders, including the Chairman and CEO Mr. Yongquan Bi, controls approximately 51% of the outstanding common stock, giving them significant influence over corporate actions[116] - All business operations are conducted in the PRC, making the company susceptible to adverse changes in China's economic and political policies, including the impact of US-China trade tariffs[136][137] Unresolved Staff Comments The company reports no unresolved staff comments - None[149] Properties The company owns an 81,561 square meter manufacturing facility in Tieling City, Liaoning Province, PRC - The company constructed a manufacturing facility in Yinzhou District Industrial Park, Tieling City, Liaoning Province, PRC, covering 81,561 sq. meters[150] - Construction was completed in two phases, with the second phase finished in 2013, and the property ownership certificate was approved at the end of November 2016[151] Legal Proceedings The company settled a lawsuit with a supplier for an unpaid payable of RMB 1.26 million in May 2019 - On April 22, 2019, a supplier sued NF Energy for an unpaid payable of RMB 1,278,181.8, and the company settled the lawsuit for RMB 1.26 million on May 24, 2019[152] Mine Safety Disclosure This section is not applicable to the company's operations - Not applicable[152] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "BIMI", and no dividends have been paid or are anticipated - The company's common stock trades on the Nasdaq Capital Market under the ticker symbol "BIMI"[154] - No dividends have been declared or paid on the common stock, and none are anticipated in the foreseeable future[155] Selected Financial Data This section is not applicable - Not Applicable[156] Management's Discussion and Analysis of Financial Condition and Results of Operations Financial performance deteriorated significantly in 2018, with a 23% revenue decline and a 977% increase in net loss Financial Performance Comparison (FY 2018 vs. FY 2017) | Metric | 2018 | 2017 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $6,542,232 | $8,508,173 | -23% | | Cost of Revenues | $6,082,878 | $7,591,659 | -20% | | Gross Profit | $459,354 | $916,514 | -50% | | Gross Margin | 7.0% | 10.8% | -3.8 p.p. | | Operating Expenses | $16,253,087 | $2,111,585 | +670% | | Loss from Operations | ($15,793,733) | ($1,195,071) | +1,222% | | Net Loss | ($16,999,794) | ($1,578,415) | +977% | - The primary reason for the 670% increase in operating expenses was a $14.7 million provision for bad debt allowances, reflecting higher credit risks and challenges in collecting outstanding receivables from customers in China[182][183] - Net cash used in operating activities was $343,970 in 2018, an improvement from $908,229 used in 2017, mainly impacted by the large non-cash bad debt expense offsetting the net loss[192][194] - Net cash provided by financing activities was $211,264 in 2018, resulting from $500,000 in common stock sales and related party funding, offset by net repayments of bank borrowings[200] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable - Not applicable[204] Financial Statements and Supplementary Data The consolidated financial statements for 2018 and 2017 highlight a significant net loss and working capital deficit Consolidated Balance Sheet Highlights (As of Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Total Current Assets | $2,607,273 | $18,755,767 | | Accounts Receivable, net | $1,340,509 | $12,217,790 | | Total Assets | $23,050,799 | $41,433,065 | | Total Current Liabilities | $13,065,378 | $14,136,253 | | Total Liabilities | $13,065,378 | $14,136,253 | | Total Equity | $9,985,421 | $27,296,812 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Total Revenues, net | $6,542,232 | $8,508,173 | | Gross Profit | $459,354 | $916,514 | | Loss from Operations | ($15,793,733) | ($1,195,071) | | Net Loss | ($16,999,794) | ($1,578,415) | | Net Loss per Share | ($2.27) | ($0.22) | - The financial statements were prepared assuming the company will continue as a going concern, but management notes that the significant net loss, accumulated deficit, and negative working capital raise substantial doubt about this ability[227] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company changed its independent accounting firm multiple times in 2018 and 2019 but reported no disagreements - On December 24, 2018, HKCM CPA & Co. resigned as the company's principal independent accountant[302] - Centurion ZD CPA & Co was engaged on December 26, 2018, and subsequently dismissed on April 16, 2019[306][307] - On April 16, 2019, the company engaged HHC as its new independent registered public accounting firm[310] - The company stated there were no disagreements with any of its independent registered public accounting firms during the fiscal years ended December 31, 2017 and 2018[303][312] Controls and Procedures Management concluded that disclosure controls were ineffective as of year-end 2018 due to a material weakness in accounting expertise - Management concluded that as of December 31, 2018, the company's disclosure controls and procedures were not effective[313] - A material weakness was identified: the company lacks accounting personnel with extensive experience in maintaining books and preparing financial statements in accordance with US GAAP[317] - Management's remediation plan includes seeking an outside consultant to provide more training to employees on US GAAP and public company reporting[318] Other Information There is no other information to report in this section - None[320] Part III Directors, Executive Officers and Corporate Governance The company's leadership and board structure are outlined, noting a failure by some to file required SEC ownership forms - Yongquan Bi has served as Chairman, CEO, and President since February 2019, and Zhang Tingting was appointed CFO in March 2019[323][324][325] - The Audit Committee is chaired by Mia Kuang Ching, who is considered an audit committee financial expert[332] - The company has adopted a code of ethics for its principal executive and financial officers[333] - Several directors and the CFO have not filed their initial beneficial ownership reports (Form 3) with the SEC as required by Section 16(a)[335] Executive Compensation No compensation was provided to executive officers in 2017 or 2018, and only one non-employee director was compensated - No compensation was provided to executive officers for the years ended December 31, 2018 or 2017[336] - Director Mia Kuang Ching was the only non-employee director to receive compensation, amounting to $24,000 in 2018[337] - The company has not implemented a stock option plan and has not issued any equity awards to executive officers[338] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Stock ownership is highly concentrated, with directors and officers collectively owning approximately 48% of outstanding shares Beneficial Ownership as of August 29, 2019 | Beneficial Owner | Shares Owned | Percentage of Ownership | | :--- | :--- | :--- | | Gang Li, Director | 1,899,409 | 23.52% | | Pelaria International Ltd. | 1,540,119 | 19.08% | | Yongquan Bi, Chairman & CEO | 1,500,000 | 18.58% | | Cloverbay International Limited | 834,142 | 10.33% | | All officers & directors as a group (8 persons) | 3,874,261 | 47.99% | - Shares held by Pelaria International Ltd. and Cloverbay International Limited are effectively controlled by Gang Li (80%) and Lihua Wang (20%)[343] Certain Relationships and Related Transactions, and Director Independence The company engaged in several unsecured, interest-free transactions with related parties connected to management - As of December 31, 2018, the company had a trade payable of $416,547 and other payables of $174,256 to Bainianye New Energy, an entity controlled by former executives Ms. Li Hua Wang and Mr. Gang Li[344][345] - As of December 31, 2018, the company also reported payables of $606,194 to former CFO Ms. Li Hua Wang and $162,463 to executive director Mr. Haibo Gong[345] - The Board of Directors has determined that Mia Kuang Ching, Ju Li, Fengsheng Tan, and Changqing Yan are independent directors according to NASDAQ standards[345] Principal Accountant Fees and Services Total accounting fees were $139,500 in 2018 and $74,500 in 2017, exclusively for audit and review services Accountant Fees and Services | Fee Type | 2018 | 2017 | | :--- | :--- | :--- | | Audit Fees | $139,500 | $74,500 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | Total | $139,500 | $74,500 | - The 2018 audit fees included $120,000 to HHC for the annual audit and $19,500 to HKCMCPA for quarterly reviews; the 2017 fees of $74,500 were all to HKCMCPA[346] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits filed with the Form 10-K, omitting inapplicable schedules - This section contains a list of the financial statements and exhibits filed as part of the Form 10-K[348][349] - All financial statement schedules are omitted as they are not applicable or the information is included elsewhere[348]