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

NF ENERGY SAVING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

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

BOQI INTERNATIONAL MEDICAL, INC. AND ITS SUBSIDIARIES

(CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

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

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Until October 2,14, 2019, the Company, through NF Energy Saving Investment Limited and its subsidiaries mainly(the “NF Group”), operated in the energy saving enhancement technology businessindustry in the People’s of Republic of China (the “PRC”(“the PRC”). On October 2, 2019, the Company acquired Boqi Zhengji Pharmacy Chain Co., Ltd. (“Boqi Pharmacy”), a China-based pharmacy chain company with both directly operated stores and franchisees. The Company’s energy technology business includes the provision ofNF Group focused on providing services relating to energy saving technology, consulting, optimization design, services, energy saving reconstruction of pipeline networks and contractual energy management services to China’sfor the electric power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries. The Company also engagesindustries in the manufacturingPRC and the manufacture and sales of energy-saving flow control equipment. In late 2019, the Company committed to a plan to dispose of all its equity interests in the NF Group and on March 23, 2020, the Company entered into a stock purchase agreement (the “NF SPA”) to sell the NF Group (the “NF Group Disposition”). The NF Group Disposition was closed on June 23, 2020. Please refer to NOTE 5 for more information related to the NF Group Disposition.

On October 14, 2019, the Company acquired 100% of the equity interests in Lasting Wisdom Holdings Limited (“Lasting”), a limited company incorporated under the laws of the British Virgin Islands (“BVI”). Lasting has limited operating activities since incorporation except for holding the ownership interest in Pukung Limited (“Pukung”), a company organized under the laws of Hong Kong. Pukung owns 100% of the equity interest in Beijing Xinrongxin Industrial Development Co., Ltd. (“Xinrongxin”), a company organized under the laws of the PRC. Xinrongxin owns all the ownership interest of Dalian Boqi Zhengji Pharmacy Chain Co., Ltd. (“Boqi Zhengji”) and Dalian Boyi Technology Co., Ltd (“Boyi”), a subsidiary established in January 2020. On March 18, 2020, the Company, through its wholly owned subsidiary, Xinrongxin, acquired 100% of the equity interests in Chongqing Guanzan Technology Co., Ltd. (“Guanzan”). Guanzan holds an 80% equity interest in Chongqing Shude Pharmaceutical Co., Ltd. and 100% equity interest in Chongqing Lijiantang Pharmaceutical Co. Ltd., a subsidiary established in May 2020 (“Shude” and “Lijiantang ” collectively with Guanzan, the “Guanzan Group”). Lasting, Pukung, Xinrongxin, Boqi Zhengji and the Guanzan Group are hereinafter collectively referred to as the “Pharmacy Group”.

The Pharmacy Group engages in both the retail and wholesale distribution of pharmaceutical and other healthcare products in the PRC. The Pharmacy Group sells its pharmaceutical and other healthcare products to customers through its directly-owned stores and authorized retail stores. The retail segment of the Pharmacy Group offers a wide range of products, including prescription and over-the-counter (“OTC”) drugs, nutritional supplements, traditional Chinese medicines, personal and family care products and medical devices, as well as miscellaneous items. All of the Pharmacy Group’s retail pharmacies are located in Dalian City, Liaoning Province, PRC. The wholesale segments of the Pharmacy Group operates under the umbrella of the Guanzan Group and are engaged in the distribution of medical devices and generic drugs.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Description of subsidiaries

BOQI INTERNATIONAL MEDICAL INC.

NF Energy Saving Corporation (the “NFEC”) and its subsidiaries are hereinafter referred to as (the “Company”).NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 operating losses of $4,074,514 and $1,085,902, and the outflow of $3,429,513 and $26,409 from operating activities for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the Company had an accumulated deficit of $8,417,261$8.4 million and negative working capital of $9,344,148 as of September 30, 2019 and incurred a net loss of $1,973,382 for the nine months ended September 30, 2019. Since 2014 the Company has generated operating losses and has incurred cash outflows from its operations.$0.59 million. Management believes these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months.

The Company acquired Boqi Pharmacy in the third quarter of 2019 to diversify its business improve its financial position and cash flows. While we expect to continue making acquisitions and strategic alliances as part of our long-term business strategy, we there can be no assurance that the Company can realize the full benefits from any acquisitions such as increased revenue or enhanced financial position. Such acquisitions, if any, could adversely affect our consolidated financial statements.

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. Management believes the existing stockholders will provide the additional cash to meet with the Company’s obligations as they become due,financing, and (2) further implementimplementation of management’s business plan to extend its operations and generate sufficient revenues and cash flow to meet its obligations. While the Company believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds, there can be neither any assurance to that effect, nor anyno assurance that the Company will be successful in increasing its sales or 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.

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

The unaudited interim condensed consolidated financial information as of SeptemberJune 30, 20192020 and for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared in accordance with U.S.US GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K/A for the fiscal year ended December 31, 2018 previously filed with the SEC on September 6, 2019.notes.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated financial position as of SeptemberJune 30, 20192020 and its unaudited condensed consolidated results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, and its unaudited condensed consolidated cash flows for the ninethree months ended SeptemberJune 30, 20192020 and 2018,2019, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the 2020 fiscal year or any future periods.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Certain prior Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period amounts have been reclassifiedthey are determined to conform to the current period presentation.be necessary.

Cash and cash equivalents consistconsists primarily of cash on hand and cash in banks which is readily available in checking and saving accounts. Cash equivalents consist of highly liquid investments thatThe Company maintains cash with various financial institutions in the PRC, where its accounts are readily convertibleuninsured. The Company has not experienced any losses from funds held in bank accounts and believes it is not exposed to cash and that mature within three months or less from the date of purchase. The carrying amounts approximate fair value due to the short maturities of these instruments.any risk on its bank accounts.

Cash and cash equivalents that areis restricted as to withdrawal or use under the terms of certain contractual agreements or orders are recorded in a restricted cash account onin the Company’s unaudited interim condensed consolidated balance sheet. The Company’s restricted cash balance is relatedthe amount of cash deposited in the Company’s bank account that was subject to an attachment order by a local court of Dalian City due to a contract performance guarantee bond. The balancedispute with a supplier. As of June 30, 2020 and December 31, 2019, the balances of restricted cash was $180,525were $13,090 and $179,496 as of September 30, 2019 and December 2018,$311 respectively.

Accounts receivable are recorded at the invoiced amount and do not bear interest, and arewhich due within contractual payment terms, generally 30 to 90 days from shipment.delivery. Credit is grantedextended 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 SeptemberJune 30, 20192020 and December 31, 2018,2019, the allowance for doubtful accounts was $11,017,242$997,227 and $11,327,271,$53,182 respectively.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Retention receivable isAdvances to suppliers consist of prepayments to the amountCompany’s vendors, such as pharmaceutical manufacturers and medicine suppliers. We typically prepay for the purchase of receivables withheld byour merchandise, especially for those salable, scarce, personalized medicine or medical devices. We typically receive products from vendors within three to nine months after making prepayments. We continuously monitor delivery from, and payments to, our vendors while maintaining a customerprovision for estimated credit losses based upon 5-10%historical experience and any specific supplier issues, such as discontinuing of 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 action. We have not taken such type of legal action during the contract value, until a product warranty expires. The warranty period is usually 12 months.reporting periods. If none of these steps are successful, management will then determine whether the prepayments should be reserved or written off. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the allowance for doubtful accounts was $900,777$15,169 and $942,376,$11,716, respectively.

Inventories are stated at the lower of cost or market value (netnet realizable value), cost beingvalue. Cost is determined on a weighted average method. Costs include material, laborThe Company carries out physical inventory counts on a monthly basis at each store directly-owned and manufacturing overhead costs.those warehouses for temporary storage of our selling merchandises. The Company reviews historical sales activity quarterly to determineidentify if any excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand.items. The Company provides inventory allowancesreserve based on the excess quantities on hand equal to the difference, if any, between the cost of the inventory and obsoleteits estimated net realizable value, or obsolescence of inventories determined principally by customer demand.demand and the maturity period of the merchandises. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company did not recordrecorded an allowance for obsolete inventories, nor have there been any write-offs.which mainly consists of expired medicine, of $367,233 and $182,258, respectively.

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:

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.

All lands inIntangible assets consist primarily of pharmacy store club members, which was recognized at the PRC are owned byacquisition of the PRC government. Under applicable law, the PRC government may sell the right to use the land for a specified periodPharmacy Group, and software of time. Thus, the Company’s land purchases in the PRC are considered to be leaseholds andmanagement systems. Intangible assets are stated at cost less accumulated amortization and any recognized impairment, loss. Amortization is provided overif any. Intangible assets are amortized using the term ofstraight line method with the land use right agreement on a straight-line basis, which is 50 years and will expire in 2059.following estimated useful lives:

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Goodwill is tested for impairment at the reporting unit level on at least an annual basis or when an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. These events or circumstances include a significant change in stock prices, business environment, legal factors, financial performances, competition, or events affecting the reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of 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.

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.

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

We adopted Accounting Standard Codification (“ASC”) Topic 606, Revenues from Contract with Customers (“ASC 606”) for all periods presented. Under ASC 606, Revenue from Contracts with Customers, 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:

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company did not incur any interest andor penalties associated with tax positions. As of SeptemberJune 30, 2019,2020, the Company did not have any significant unrecognized uncertain tax positions.

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

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Sales revenue represents the invoiced value of goods sold, net of VAT. All of the Company’s products that are sold in the PRC are subject to a VAT on the gross sales price. The VAT rates range up to 17%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company on its purchase activities of merchandises, raw materials, utilities, and other materials which cost was included in the cost of producing or acquiring its products for sales. The Company records a VAT payable net of payments if the VAT payable on the gross sales is larger than VAT paid by the Company on purchase of finished goods; on the other hand, the Company records a VAT deductible in the accompanying financial statements net of any VAT payable at the end of reporting period.

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

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

We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring fair values. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimate and assumption changes. Under the terms of the contracts,new accounting standard, increases in the Company offers its customers a free product warranty on a case-by-case basis, depending upon the type of customer, nature and sizetrading price of the infrastructure projects. Under such arrangements,Company’s common stock and increases in fair value during a portiongiven financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the project contractcompany’s common stock and decreases in trading fair value usually 5-10%during a given financial quarter result in the application of contract value is retained by the customer, and the warranty period is usual 12 months. The Company records this portion of project contract value retained by the customer as retention receivable. As of September 30, 2019 and December 31, 2018, the Company reported $25,590 and $65,529, respectively, as retention receivable net of any allowance that the management estimate it was more likely can’t be received as the expiration of the warranty period.non-cash derivative income.

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

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the accompanying consolidated statements of operation as the related employee service is provided.

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

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 segmentsstrategies and major customers in financial statements. For the three and nine months ended September 30, 2019 and 2018,business components. Beginning in first quarter of 2020, the Company operatedoperates in onethree reportable operating segmentsegments: retail pharmacy, wholesale medicine and wholesale medical devices in the PRC.

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

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

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

In January 2017, the Financial Accounting Standard Board (“FASB”) issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard, which will be effective for the Company beginning in the first quarter of fiscal year 2020, is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In AugustNovember 2018, the FASB issued Accounting Standard Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements inASU 2018-19, “Codification Improvements to Topic 820, Fair Value Measurement, including, among other changes, the consideration of costs and benefits when evaluating disclosure requirements. For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption326, Financial Instruments-Credit Losses.” ASU 2018-19 is permitted. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company’s financial statements and footnote disclosures.

In June 2016, the FASB 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. TheThis standard will become effective and be adopted upon the effective date for us beginningby companies of which a new fiscal year starts after 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.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On February 1, 2020, the Company, Xinrongxin, Ms. Li Zhou (“Ms. Zhou”) and Guanzan entered into a stock purchase agreement (the “Guanzan SPA”). Pursuant to the Guanzan SPA, the Company agreed to purchase all the issued and outstanding shares of Guanzan (the “Guanzan Shares”) from Ms. Zhou for RMB 100,000,000 (approximately $14,285,714), to be paid by the issuance of 950,000 shares of the Company’s common stock (the “Guanzan Stock Consideration”) and the payment of RMB 80,000,000 in cash (the “Guanzan Cash Consideration”) (the “Guanzan Acquisition”). The Guanzan Stock Consideration was payable at closing and the Guanzan Cash Consideration, which is subject to post-closing adjustments based on the performance of Guanzan in the years ending December 31, 2020 and 2021, will be paid pursuant to a post-closing payment schedule.

The transaction closed on March 18, 2020. Upon the closing, the Guanzan Shares were transferred to and recorded under the name of Xinrongxin and the Guanzan Stock Consideration was paid to Ms. Zhou. The Guanzan Cash Consideration has not been paid as of the date of this report.

The following summarizes the identified assets acquired and liabilities assumed pursuant to the Guanzan Acquisition as of March 18, 2020:

The fair value of all assets acquired and liabilities assumed is the estimated book value of the Guanzan Group. Goodwill represent the excess of the fair value of purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of Guanzan Group at the acquisition date. Upon the Guanzan Acquisition, the Company recognized its non-controlling interest in Shude in the amount of $46,295, representing the 20% non-controlling equity interest in Shude.

Guanzan is a distributor of medical devices whose customers are primarily drug stores, private clinics, pharmaceutical dealers and hospitals in the Southwest of China. Guanzan holds business licenses in the PRC such as a Business Permit for Medical Devices and a Recordation Certificate for Business Activities Involving Class II Medical Devices, etc., which qualify Guanzan to engage in the distribution of medical devices in the PRC.

Shude is a pharmaceutical distributor that markets generic drugs. Shude’s customers include a wide range of clinics, private and public hospitals and pharmacies in the PRC. Shude holds Chinese business licenses such as a Business Permit for Medical Devices and a Drug Wholesale Distribution License, which qualify Shude to engage in the distribution of medicines and medical devices in China.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In late 2019, the Company committed to a plan to dispose of all the NF Group and on March 31, 2020 entered into the NF SPA with respect to the NF Group Disposition. Pursuant to the NF SPA, the aggregate sale price for the NF Group is $10,000,000. The closing of the NF SPA was subject to the satisfaction of certain conditions, including that the representations and warranties of the parties contained in the NF SPA were 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, 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 $10 million, from the buyer. Upon closing, the Company ceased to be involved in the energy efficiency enhancement business.

The consolidated NF Group balance sheet on disposal date and December 31, 2019, respectively, consisted of the following: 

The summarized operating results of the NF Group in the Company’s unaudited interim condensed consolidated statements of operations consist of the following:

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The majority of the Company’s retail pharmacy revenues are derived from cash sales, are on openexcept for sales to PRC social security bureaus or commercial health insurance programs, which typically settle once a month. We offer several credit terms to our wholesale customers and in accordance with terms specified inalso to our authorized retail stores. Accounts receivable consist of the contracts governing the relevant transactions. following:

The Company routinely evaluates the need of anfor allowance for doubtful accounts based on specifically identified amounts that the management believes to be uncollectible. If the actual collectionscollection experience changes, revisions to the allowance may be required. Based upon

Advances to suppliers represent the aforementioned criteria,amount the Company reversed a bad debt expenseprepaid to its suppliers for merchandise for sale in the ordinary course of $154,109business. As of June 30, 2020 and December 31, 2019, the Company reported bad debt expenses of $23,557 for its doubtful accounts for the three months ended September 30, 2019 and 2018, respectively, and reported bad debt expenses of $4,745 and $2,169,687 for its doubtful accounts for the nine months ended September 30, 2019 and 2018, respectively.advances to suppliers as follow:

AsThe Pharmacy Group’s inventories consist of September 30, 2019medicine and December 31, 2018, the Company reported its retention receivable as follow:

The Company reversed a bad debt expense of $12,190medical devices that were purchased from third parties for resale in our retail pharmacy stores and $15,916 for the three months and nine months ended September 30, 2019, respectively. For the three months and nine months ended September 30, 2018, the Company did not report a bad debt expense with respectwholesale sales to its retention receivable.

third party pharmacies, clinics, hospitals, etc. Inventories consisted of the following:

For the three and ninesix months ended SeptemberJune 30, 2020 and 2019, the Company accrued allowances of $187,942 and 2018, no allowance$0, respectively for obsolete inventories was recorded by the Company.and expired items.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prepayments and other receivables presentrepresent the amount that the Company advanced to suppliersprepaid as rent deposits for theboth retail stores and office space premises, special medical device purchase of materials or goods, prepayment to service renders,deposits, prepaid rental fee and professional services, advances to employees forin the ordinary course of business, purposesVAT deductibles and prepayment for acquisitions. As of September 30, 2019, such amounts also included the initial issuance of shares of Company common stock for the purchase of Boqi Pharmacy.other miscellaneous receivables. The table below sets forth the balances as of SeptemberJune 30, 20192020 and December 31, 2018.2019, respectively.

Management evaluates the recoverable value of these balances periodically in accordance with the Company’s policy of credit and allowances for doubtful accounts.policies. For the three and ninesix months ended SeptemberJune 30, 2020 and 2019, the Company reversed an allowance of thefor doubtful accounts of $66,214$22,110 and $64,032. There was no allowance expense reserved or reversed for doubtful accounts for the three and nine months ended September 30, 2018.$0, respectively.

Property, plant and equipment consisted of the following:

Depreciation expense for the threesix months ended SeptemberJune 30, 2020 and 2019 were $2,707 and 2018 were $204,229 and $184,199,$0, respectively. Depreciation expense for the nine months ended September 30, 2019 and 2018 were $671,274 and $647,584, respectively.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Land use rightIntangible assets consisted of the following:

Amortization expenses for the threesix months ended SeptemberJune 30, 2020 and 2019 were $513,022 and 2018 were $14,728 and $15,166, respectively.

Amortization expenses for the nine months ended September 30, 2019 and 2018 were $45,159 and $47,578,$0, respectively.

The estimated amortization expense on the land use rightfor these intangible assets in the next five years and thereafter is as follows:

Short-term bank borrowings consistThe goodwill associated with the Guanzan Acquisition of $6,443,170 was initially recognized at the acquisition closing date of March 18, 2020. Based on an assessment of the following:qualitative factors, management determined that it is more-likely-than-not that the fair value of the reporting unit is in excess of its carrying amount. Therefore, management concluded that it was not necessary to proceed to the two-step goodwill impairment test. No impairment loss was recorded for the six months ended June 30, 2020.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following loans were assumed upon the acquisition of the Guanzan Group on March 18, 2020.

Short-term loans

For the threesix months ended SeptemberJune 30, 2020 and 2019, interest expense on short-term loans amounted to $12,698 and 2018, the Company reported interest expenses of $133,929 and $92,897,$0, respectively.

Long-term loans

For the ninesix months ended SeptemberJune 30, 2020 and 2019, interest expense on long-term loans amounted to $27,661 and 2018, the Company reported interest expenses of $352,942 and $290,477,$0, respectively.

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On and after September 27, 2019, the Company enterentered into an agreementa series of identical security purchase agreements (the “Agreements”) with Power Up Lending Group Ltd (“Power Up” or the “Holder”a number of lenders (the “Holders”) to sell convertible promissory notes (each a convertible note (the “Note”“ Note” and collectively the “Notes”) of the Company to Power Up (the “Agreement”). The Notethe Holders. Each of these Notes was issued at par value with a term of 12 month,months, carrying 6% annual interest rate and convertible into shares of the Company’s common stock. According to the Agreement, theAgreements, each Holder at its option, has the right from time to time, and at any timeduring the period beginning on or prior to the later of (i) the Maturity Date and (ii)date which is one hundred eighty (180) calendar days following the date of payment of a default amount, each in respectissuance of the remaining outstanding principal amountNote and ending on the maturity date of thisthe 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 Company.. The conversion price shall equal 65% of the Market Priceissuance of the common stock. The Market Price meansstock upon the averagefull conversion of the lowestNotes issued pursuant to these Agreements.

On May 19, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with two (2) trading pricesinstitutional investors to sell in a private placement a new series of senior secured convertible notes having an original issue amount of $6,550,000, with a discount of 19.85%, and ranking senior to all outstanding and future indebtedness of the Company ( the “ Convertible Notes”. Each Institutional Investor paid $1,750,000 in cash for a note in the common stock duringface amount of $2,225,000. Additional Convertible Note in an aggregate original principal amount not to exceed $2,100,000 may also be issued to the fifteen (15) trading day period endingInstitutional Investors under the SPA at a later date under certain circumstances. The Convertible Notes mature on the last complete trading day prior toeighteen-month anniversary of the conversion date. The conversionissuance 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 is subject to adjustment for stock splits, stock dividends and rights offerings byin the Company. Asevent of the date of this report, 500,795default. Each Institutional Investor also received a warrant to purchase 650,000 shares of the Company’s common stock had been reservedat an initial exercise price of $2.845. The placement agent for potential conversion under the Note.private placement 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.

The following table summarizes the key terms of Notes as of June 30, 2020:

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

An aggregate amount of $139,942$7,567,223 was allocated toreported as discount on the beneficial conversion feature (“BCF”)Notes and the Convertible Notes at their issuance date of the Notedates and isare being amortized over the life of the Note. In addition, $7,650Notes and Convertible Notes. During the six months ended June 30, 2020 the Company amortized $1,075,171 of issuance costsdiscount on the Notes and $3,000 reimbursement to the Holder is being amortized over the lifeConvertible Notes. The principal balance of the Note. During the three months ended September 30, 2019, $1,239Notes and Convertible Notes was amortized to expense. The balances of the Note was representedpresented as following:

BOQI INTERNATIONAL MEDICAL INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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