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Acquisitions

3 Months Ended

Jun. 30, 2020

5. Acquisitions

Hubei Rongentang Wine Co., Ltd and Hubei Rongentang Herbal Wine Co., Ltd. (“RET”)

On March 26, 2020, the Company entered into an agreement (the “Acquisition Agreement”) with Kairui Tong and Hao Huang (collectively, the “Sellers”) and Hubei Rongentang Wine Co., Ltd. and Hubei Rongentang Herbal Wine Co., Ltd., pursuant to which the Sellers will sell their 100% interest in Hubei Rongentang Wine Co., Ltd. and Hubei Rongentang Herbal Wine Co., Ltd. (collectively, the “Target Companies”) to the Company in exchange for 3,852,372 shares of the Company’s common stock and 1,000 shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”). Upon approval of the Company’s shareholders, the 1,000 shares of Series B Preferred Stock will be converted into 3,834,796 shares of the Company’s common stock. The Series B Preferred will rank on parity with the Series A Convertible Preferred Stock of the Company.

On April 22, 2020, the Company consummated the above transactions. The aggregate fair value of the consideration paid by the Company in the acquisition is approximately $9.8 million and is based on the closing price of the Company’s common stock at the date of closing. The excess of total cost of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill.

The transaction was accounted for as a business combination using the purchase method of accounting. The preliminary purchase price allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date.

The following table presents the preliminary purchase price allocation to the assets acquired and liabilities assumed at the date of this acquisition:

Cash	$	371,310
Accounts receivable, net		84,260
Inventories, net		2,099,306
Advances to suppliers, net		76,476
Other current assets		910,435
Property and equipment, net		4,310,878
Total tangible assets acquired	$	7,852,665

Accounts payable	$	9,260
Advance from customers		386,119
Accrued expenses and other payables		703,060
Deferred tax liability		954,173
Total liability assumed		2,052,612
Net tangible assets acquired		5,800,053
Intangible assets		3,013,272
Goodwill		1,026,250

Total consideration	$	9,839,575

The Company recorded acquired intangible assets of $3,013,272. These intangible assets include land use right of $2,745,289 and business license of $208,756. The associated goodwill and intangible assets are not deductible for tax purposes.

The amounts of revenue and earnings of RET included in the Company’s condensed consolidated statement of operations and comprehensive income (loss) from the acquisition date to June 30, 2020 are as follows:

	From acquisition date to June 30, 2020
Revenue	$	192,749
Net Loss		(22,597	)

Xiamen DL Medical Technology Co, Ltd. (“DL Medical”)

On March 17, 2020, the Company entered into a purchase agreement (the “Acquisition Agreement”) with Guo Hui Ji, a citizen of the People’s Republic of China (the “Seller”) and Xiamen DL Medical Technology Co, Ltd., a People’s Republic of China company, pursuant to which the Seller will sell his 70% equity interests in Xiamen DL Medical Technology Co, Ltd. to the Company (the “Equity Interests”). In consideration for the Equity Interests, the Company shall pay to the Seller $600,000 in cash and issue 900,000 shares of common stock of the Company to the Seller.

On April 28, 2020, the Company consummated the above transactions. The aggregate fair value of the consideration paid by the Company in the acquisition is approximately $1.7 million and is based on the closing price of the Company’s common stock at the date of closing.

The following table presents the preliminary purchase price allocation to the assets acquired and liabilities assumed at the date of this acquisition:

Cash	$	22,577
Inventories, net		28,975
Advances to suppliers, net		1,341,604
Property and equipment, net		69,780
Total tangible assets acquired	$	1,462,936

Advance from customers	$	703,321
Accrued expenses and other payables		59,880
Deferred tax liability		129,590
Total liability assumed		892,791
Net tangible assets acquired		570,145
Intangible assets		518,362
Goodwill		1,214,548
Net assets acquired		2,303,055

Noncontrolling interest		579,855
Total consideration	$	1,723,200

The Company recorded acquired intangible asset of $518,362. These intangible asset includes backlog list. The associated goodwill and intangible assets are not deductible for tax purposes. The estimated fair value of the non-controlling interest was determined based on the preliminary purchase price allocation report prepared by an independent third-party appraiser by using discount cash flow model.

The amounts of revenue and earnings of DL Medical included in the Company’s condensed consolidated statement of operations and comprehensive income (loss) from the acquisition date to June 30, 2020 are as follows:

	From acquisition date to June 30, 2020
Revenue	$	24,303
Net Loss		(19,725	)

The following table presents the Company’s unaudited pro forma results for the three months ended June 30, 2020 and 2019, respectively, as if the RET and DL Medical Acquisition had occurred on April 1, 2019. The unaudited pro forma financial information presented includes the effects of adjustments related to the amortization of acquired intangible assets, and Statutory rates were used to calculate income taxes.

	June 30,		June 30,
	2020		2019
Pro forma revenue	$	21,364,676	$	24,290,654
Pro forma net income (loss)		3,529,731		(3,257,360	)
Pro forma earnings per common share-basic and diluted		0.14		(0.15	)
Weighted average shares-basic and diluted		25,017,729		21,894,114