AiXin Life International, Inc 8-K/A, filed Oct 14, 2021
AiXin Life International, Inc. (AIXN)
About this 8-K/A
AiXin Life International, Inc filed this 8-K/A on October 14, 2021, reporting on events of May 25, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Indicate
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with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTCQX |
Cautionary Note Regarding Forward-Looking Statements:
Any statements contained in this Current Report on Form 8-K that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. Such statements may include, but are not limited to, statements about the Registrant’s planned acquisitions, the purchase price to be paid for such acquisitions and the future performance of the businesses to be acquired, and other statements that are not historical facts. Such statements are based upon the beliefs and expectations of the Company’s management as of this date only and are subject to risks and uncertainties that could cause actual results to differ materially. Therefore, investors are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.
Explanatory Note
We filed a Report on Form 8-K dated May 25, 2021 (the “May 25 8-K”), with respect to the acquisition of Chengdu Aixin Shangyan Hotel Management Co., Ltd. (“Shangyan Co”) which owns and operates a hotel located in the Jinniu District, Chengdu City. The May 25 8-K, as previously amended, included the historical financial information of Shangyan Co for the years ended December 31, 2020 and 2019, and the three months ended March 31, 2021.
We filed an additional Report on Form 8-K dated June 2, 2021 (the “June 2 8-K”), with respect to the acquisition of Chengdu Aixintang Pharmacy Co., Ltd. and its affiliated entities (collectively, “Pharmacy Co”) which also are being acquired by us. The June 2 8-K, as previously amended, included the historical financial information of Pharmacy Co for the years ended December 31, 2020 and 2019, and the three months ended March 31, 2021.
This Form 8-K/A is being filed to include the historical financial information of each of Shangyan Co and Pharmacy Co for the three and six month periods ended June 30, 2021, and pro forma financial information as of June 30, 2021, showing the combined effects of the acquisitions of Shangyan Co and Pharmacy Co as required by Item 9.01 of Form 8-K. This Form 8-K/A makes no other amendments to the May 25 8-K and the June 2 8-K and should be read in conjunction with such Reports.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The unaudited combined balance sheets of Chengdu Aixin Shangyan Hotel Management Co., Ltd. (“Shangyan Co”) as of June 30, 2021 and the related unaudited combined statements of operations and comprehensive loss, changes in equity (deficit) and cash flows for the three and six months ended June 30, 2021 and the related notes to the unaudited combined financial statements, is filed as Exhibit 99.2 to this Current Report on Form 8-K/A and incorporated herein by reference.
The unaudited balance sheets of Chengdu Aixintang Pharmacy Co., Ltd. and its affiliates (collectively, “Pharmacy Co”) as of June 30, 2021, and the related combined statements of operations and comprehensive loss, changes in equity (deficit), and cash flows for the three and six months then ended and the related notes to the financial statements, are filed as Exhibit 99.4 to this Current Report on Form 8-K/A and incorporated herein by reference.
(b) Pro forma financial information
The unaudited pro forma condensed combined financial statements annexed hereto as Exhibit 99.5 combines the historical balance sheets of Aixin Life International, Inc., Hotel Co and Pharmacy Co as if the acquisitions of Shangyan Co and Pharmacy Co (the “Transactions”) had occurred on June 30, 2021. The unaudited pro forma combined statements of operations and comprehensive loss for the six months ended June 30, 2021 and for the year ended December 31, 2020 combine the historical consolidated statements of operations and comprehensive income (loss) of Aixin Life International, Inc., Shangyan Co and Pharmacy Co, and have been prepared as if the Transactions had closed on January 1, 2020, respectively. The unaudited pro forma condensed combined financial statements have also been adjusted to give effect to pro forma events that are directly attributable to the Transactions, factually supportable and expected to have a continuing impact on the combined results.
(c) Exhibits:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AiXin Life International, Inc. | ||
| Date: October 14, 2021 | By: | /s/ Quanzhong Lin |
| Quanzhong Lin | ||
| Chief Executive Officer | ||
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion, in this Form 8-K/A, of our report, dated August 12, 2021, with respect to our audit on the financial statements of Chengdu Aixin Shangyan Hotel Management Co., Ltd. for the years ended December 31, 2020 and 2019.
KCCW Accountancy Corp.
Diamond Bar, California
October 14, 2021
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion, in this Form 8-K/A, of our report, dated August 12, 2021, with respect to our audit on the combined financial statements of Chengdu Aixintang Pharmacy Co., Ltd. for the years ended December 31, 2020 and 2019.
KCCW Accountancy Corp.
Diamond Bar, California
October 14, 2021
Exhibit 99.2
CHENGDU AIXIN SHANGYAN HOTEL MANAGEMENT CO., LTD.
BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | 19,039 | 512 | ||||||
| Accounts receivable, net | 27,163 | 16,189 | ||||||
| Accounts receivable, related party | 6,020 | 60,262 | ||||||
| Other receivables | 40,050 | 45,160 | ||||||
| Prepaid expenses | 65,229 | 102,715 | ||||||
| Inventory, net | 184,739 | 52,642 | ||||||
| Prepaid taxes | - | 7,090 | ||||||
| Total current assets | 342,240 | 284,570 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Property and equipment, net | 309,883 | 321,587 | ||||||
| Intangible assets, net | 3,213 | 4,465 | ||||||
| Security deposits | 92,928 | 91,954 | ||||||
| Operating lease right-of-use assets | 1,684,168 | 2,007,370 | ||||||
| Total non-current assets | 2,090,192 | 2,425,376 | ||||||
| TOTAL ASSETS | $ | 2,432,432 | $ | 2,709,946 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | 284,498 | 25,378 | ||||||
| Deferred revenue | 293,857 | 283,974 | ||||||
| Accrued liabilities and other payables | 246,129 | 292,251 | ||||||
| Taxes payable | 4,138 | - | ||||||
| Loans from third parties | 462,282 | 457,436 | ||||||
| Operating lease liabilities - current | 639,726 | 623,607 | ||||||
| Due to related parties | 1,427,206 | 1,115,326 | ||||||
| Total current liabilities | 3,357,836 | 2,797,972 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities - non-current | 1,044,442 | 1,383,763 | ||||||
| Total non-current liabilities | 1,044,442 | 1,383,763 | ||||||
| TOTAL LIABILITIES | 4,402,278 | 4,181,735 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Paid-in capital | 152,207 | 152,207 | ||||||
| Accumulated deficit | (2,033,012 | ) | (1,551,559 | ) | ||||
| Accumulated other comprehensive loss | (89,041 | ) | (72,437 | ) | ||||
| Total stockholders’ deficit | (1,969,846 | ) | (1,471,789 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 2,432,432 | $ | 2,709,946 | ||||
CHENGDU AIXIN SHANGYAN HOTEL MANAGEMENT CO., LTD.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 395,809 | $ | 183,088 | $ | 748,056 | $ | 359,962 | ||||||||
| Operating costs and expenses: | ||||||||||||||||
| Hotel operating costs | 525,346 | 397,902 | 1,043,851 | 717,273 | ||||||||||||
| Selling and marketing expenses | 2,604 | 632 | 74,189 | 4,233 | ||||||||||||
| General and administrative expenses | 55,871 | 31,462 | 138,071 | 58,033 | ||||||||||||
| Provision for bad debts | 25,967 | 837 | 25,967 | 15,177 | ||||||||||||
| Total operating costs and expenses | 609,788 | 430,833 | 1,282,078 | 794,716 | ||||||||||||
| Loss from operations | (213,979 | ) | (247,745 | ) | (534,022 | ) | (434,754 | ) | ||||||||
| Other income | ||||||||||||||||
| Other income | 30,766 | 14,348 | 52,548 | 8,212 | ||||||||||||
| Interest income | 13 | 3 | 21 | 10 | ||||||||||||
| Total other income | 30,779 | 14,351 | 52,569 | 8,222 | ||||||||||||
| Loss before income tax | (183,200 | ) | (233,394 | ) | (481,453 | ) | (426,532 | ) | ||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net loss | (183,200 | ) | (233,394 | ) | (481,453 | ) | (426,532 | ) | ||||||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation income (loss) | (25,816 | ) | (2,496 | ) | (16,604 | ) | 12,163 | |||||||||
| Comprehensive loss | $ | (209,016 | ) | $ | (235,890 | ) | $ | (498,057 | ) | $ | (414,369 | ) | ||||
CHENGDU AIXIN SHANGYAN HOTEL MANAGEMENT CO., LTD.
STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
| Accumulated | ||||||||||||||||
| Accumulated | other comprehensive | |||||||||||||||
| Paid-in Capital | Deficit | income (loss) | Total | |||||||||||||
| Balance at December 31, 2020 | $ | 152,207 | $ | (1,551,559 | ) | $ | (72,437 | ) | $ | (1,471,789 | ) | |||||
| Net loss | - | (298,253 | ) | - | (298,253 | ) | ||||||||||
| Foreign currency translation | - | - | 9,212 | 9,212 | ||||||||||||
| Balance at March 31, 2021 | 152,207 | (1,849,812 | ) | (63,225 | ) | (1,760,830 | ) | |||||||||
| Net loss | - | (183,200 | ) | - | (183,200 | ) | ||||||||||
| Foreign currency translation | - | - | (25,816 | ) | (25,816 | ) | ||||||||||
| Balance at June 30, 2021 | $ | 152,207 | $ | (2,033,012 | ) | $ | (89,041 | ) | $ | (1,969,846 | ) | |||||
| Accumulated | ||||||||||||||||
| Accumulated | other comprehensive | |||||||||||||||
| Paid-in Capital | Deficit | income (loss) | Total | |||||||||||||
| Balance at December 31, 2019 | $ | 152,207 | $ | (862,454 | ) | $ | 14,205 | $ | (696,042 | ) | ||||||
| Net loss | - | (193,138 | ) | - | (193,138 | ) | ||||||||||
| Foreign currency translation | - | - | 14,659 | 14,659 | ||||||||||||
| Balance at March 31, 2020 | 152,207 | (1,055,592 | ) | 28,864 | (874,521 | ) | ||||||||||
| Net loss | - | (233,394 | ) | - | (233,394 | ) | ||||||||||
| Foreign currency translation | - | - | (2,496 | ) | (2,496 | ) | ||||||||||
| Balance at June 30, 2020 | $ | 152,207 | $ | (1,288,986 | ) | $ | 26,368 | $ | (1,110,411 | ) | ||||||
CHENGDU AIXIN SHANGYAN HOTEL MANAGEMENT CO., LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (481,453 | ) | $ | (426,532 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 18,564 | 14,031 | ||||||
| Provision for bad debts | 25,967 | 15,177 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (36,746 | ) | 76,032 | |||||
| Other receivables | 5,577 | (22,550 | ) | |||||
| Inventory | (131,264 | ) | (5,811 | ) | ||||
| Prepaid expenses | 38,492 | 18,207 | ||||||
| Accounts payable | 258,308 | (20,670 | ) | |||||
| Accrued expenses and other payables | (49,115 | ) | 125,750 | |||||
| Taxes Payable | 11,280 | (16,032 | ) | |||||
| Deferred revenue | 6,860 | 27,931 | ||||||
| Net cash used in operating activities | (333,530 | ) | (214,467 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | (2,190 | ) | (1,400 | ) | ||||
| Net cash used in investing activities | (2,190 | ) | (1,400 | ) | ||||
| Cash flows from financing activities | ||||||||
| Net proceeds from related parties | 354,200 | 166,921 | ||||||
| Net cash provided by financing activities | 354,200 | 166,921 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 47 | (548 | ) | |||||
| NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS | 18,527 | (49,494 | ) | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 512 | 53,059 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 19,039 | $ | 3,565 | ||||
| Supplemental cash flow data: | ||||||||
| Income tax paid | $ | - | $ | - | ||||
| Interest paid | $ | - | $ | - | ||||
CHENGDU AIXIN SHANGYAN HOTEL MANAGEMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDTIED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Chengdu Aixin Shangyan Hotel Management Co., Ltd. (the “Company” or “Shangyan Hotel”) was incorporated in 2016 in Chengdu, China. Shangyan Hotel is a four-star hotel, covering an area of more than 8,000 square meters. It is equipped with full central air-conditioning, a large restaurant that can accommodate 600 people at the same time, 6 luxurious dining rooms, 200 square meters of music tea house, 13 tea private rooms, 108 guest rooms and other supporting facilities.
Shangyan hotel is located at superior geographical position and a 5-minute drive from Wal-Mart, CapitaLand and other large shopping malls; The hotel has convenient transportation, which is connected to the express ring line and the bus system, and it takes 30-minute drive to Chengdu Shuangliu International Airport.
On May 25, 2021, the Company’s two shareholders, Quanzhong Lin and Yirong Shen, of which Quanzhong Lin is also the Chairman and President and major shareholder of Aixin Life International, Inc. (“Aixin Life”), entered into an Equity Transfer Agreement with Aixin Life. Pursuant to the Agreement (the “Hotel Purchase Agreement”), Aixin Life agreed to purchase 100% ownership of Shangyan Hotel from Mr. Lin and Ms. Shen. Eighty percent of the equity of Shangyan Hotel is owned by Mr. Lin, and the remaining twenty percent is owned by Ms. Shen. Under the terms of the Hotel Purchase Agreement, Aixin Life agreed to purchase all of the outstanding equity of Shangyan Hotel for a purchase price of RMB 7,598,887 or US$1,164,598 based on an exchange rate of RMB / US$ 6.5249 yuan per dollar on December 31, 2020. The purchase price will be reduced by an amount equal to any amounts paid or distributed by Shangyan Hotel to Mr. Lin or Ms. Shen after December 31, 2020 and will be increased by an amount equal to any amounts they contributed to Shangyan Hotel after December 31, 2020.
As of June 30, 2021, the governmental procedures to complete the equity transfer of Shangyan Hotel were not yet completed (see Note 14).
Both Aixin Life and Shangyan Hotel are under common control and ownership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of the Company is Chinese Renminbi (“RMB”). The accompanying financial statements are translated from RMB and presented in U.S. dollars (“USD”).
Covid – 19
On March 11, 2020, the World Health Organization announced that infections caused by the corona virus disease of 2019 (“COVID-19”) had become pandemic. The Government of China has adopted various regulations and orders, including mandatory quarantines, limits on the number of people that may gather in one location, closing non-essential businesses and travel bans to limit the spread of the disease. COVID-19 and measures to prevent its spread impacted the Company’s operations, most significantly at hotel rooms and restaurant which were closed or operating at significantly reduced capacity for a significant portion during the year 2020. However, many of these measures have been relaxed due to the decrease in the prevalence of Covid-19 in China. During the three and six months ended June 30, 2021, the ongoing operations of the Company have been back to normal.
Financial impacts related to COVID-19 were not material to the Company’s financial position, results of operations or cash flows for the three and six months ended June 30, 2021. The Company has implemented procedures to promote employee and customer safety. These measures did not significantly increase its operating costs.
While the Company continues to operate substantially in the normal course, it cannot forecast with any certainty whether and to what degree the disruptions caused by the COVID-19 pandemic will increase, or the extent to which the disruption may materially impact its financial position, results of operations, and cash flows in fiscal 2021.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
Accounts Receivable
Accounts receivable mainly consist of amounts due from corporate customers, travel agents, and hotel guests. The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of June 30, 2021 and December 31, 2020, the allowance for doubtful accounts was $50,638 and $24,359, respectively.
Inventory
Inventory mainly consists of food and beverage, hotel supplies, and consumables. Inventory is valued at the lower of average cost or market, cost being determined on a moving weighted average method at the end of the month. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down inventories to market value, if lower. The Company recorded no inventory impairment for the three and six months ended June 30, 2021 and 2020.
In July 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-11, “Inventory (Topic 330) - Simplifying the Measurement of Inventory,” which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation, and impairment losses, if any. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with 5% salvage value and estimated lives as follows:
| Machinery | 3 years |
| Electronic Equipment | 3 years |
Impairment of Long-Lived Assets
Long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of June 30, 2021 and December 31, 2020, there were no significant impairments of its long-lived assets.
Income Taxes
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows Accounting Standards Codification (“ASC”) Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of operations.
At June 30, 2021 and December 31, 2020, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
Revenue Recognition
In accordance with ASC 606, revenue is recognized upon the transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.
Revenue from sale of goods and services under Topic 606 is recognized in a manner that reasonably reflects the delivery of the Company’s products and services to customers in return for expected consideration and includes the following elements:
| ● | executed contract(s) with customers that the Company believes is legally enforceable; |
| ● | identification of performance obligation in the respective contract; |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation of the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
Revenues are primarily derived from the rental of rooms, food and beverage sales and other ancillary goods and services, including but not limited to souvenir, parking and conference reservation. Each of these products and services represents a distinct performance obligation and, in exchange for these services, the Company receives fixed amounts based on published rates or negotiated contracts. Payment is due in full at the time when the services are rendered or the goods are provided. Room rental revenue is recognized on a daily basis when rooms are occupied. Food and beverage revenue and other goods and services revenue are recognized when they have been delivered or rendered to the guests as the respective performance obligations are satisfied.
The Company generally receives payments from customers as its performance obligations were satisfied. The Company records a receivable when it has an unconditional right to receive payment and only the passage of time is required before payment is due. The Company records deferred revenue when it receives cash proceeds in advance of the satisfaction of respective performance obligations related to accommodations and other ancillary services.
Sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s goods sold in China are subject to the PRC VAT of 6%. This VAT may be offset by VAT paid by the Company on raw materials and other materials purchased in China. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.
Disaggregated Revenues
The following tables present the Company’s revenues disaggregated by the nature of the product or service:
For the Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Room revenues | $ | 179,780 | $ | 91,354 | ||||
| Food and beverage revenues | 175,494 | 66,668 | ||||||
| Others | 40,535 | 25,066 | ||||||
| Total revenues | $ | 395,809 | $ | 183,088 | ||||
For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Room revenues | $ | 330,559 | $ | 166,906 | ||||
| Food and beverage revenues | 344,131 | 147,043 | ||||||
| Others | 73,366 | 46,013 | ||||||
| Total revenues | $ | 748,056 | $ | 359,962 | ||||
Concentration of Credit Risk
The operations of the Company are in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, and by the general state of the PRC economy.
The Company has cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC. Cash in state-owned banks is covered by insurance up to RMB 500,000 ($72,500) per bank. The Company has not experienced any losses in such accounts and believes they are not exposed to any risks on its cash in these bank accounts.
Leases
The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) using the modified retrospective approach, electing the practical expedient that allows the Company not to restate the periods prior to the adoption of the standard on January 1, 2019.
The Company applied the following practical expedients in the transition to the new standard allowed under ASC 842:
| Practical Expedient | Description | |
| Reassessment of expired or existing contracts | The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases. | |
| Use of hindsight | The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets. | |
| Reassessment of existing or expired land easements | The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02. | |
| Separation of lease and non-lease components | Lease agreements that contain both lease and non-lease components are generally accounted for separately. | |
| Short-term lease recognition exemption | The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months. |
The new leasing standard requires recognition of leases on the balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. The Company’s future minimum based payments used to determine the Company’s lease liabilities mainly include minimum based rent payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The most significant impact on the adoption of ASC 842 was the recognition of the operating lease right-of-use assets and the liabilities for operating leases on its balance sheets. Accordingly, adoption of this standard resulted in the recognition of operating lease right-of-use assets of $2,932,536 and operating lease liabilities of $2,932,536 on the balance sheet as of January 1, 2019. The adoption of ASC 842 did not result in a cumulative-effect adjustment to the opening balance of retained earnings (accumulated deficit).
In addition, the adoption of the standard did not have a material impact on the Company’s results of operations or cash flows. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.
Statement of Cash Flows
In accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based on the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, approximate their fair value due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their fair value because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
Fair Value Measurements and Disclosures
ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
As of June 30, 2021 and December 31, 2020, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
Foreign Currency Translation and Comprehensive Income (Loss)
The functional currency of the Company is RMB. For financial reporting purposes, RMB is translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.
Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There was no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.
The Company uses FASB ASC Topic 220, “Comprehensive Income”. Comprehensive loss is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020 consisted of net income (loss) and foreign currency translation adjustments.
Earnings per Share
The Company is a limited Company (“LC”) formed under the laws of the PRC. Like limited liability company in the US, limited company in the PRC do not issue shares to the owners. The owners however, are called shareholders. Ownership interest is determined in proportion to capital contributed. Accordingly, earnings per share data is not presented.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
Management determined the Company’s operations constitute a single reportable segment in accordance with ASC 280. The Company operates exclusively in one business and industry segment: hospitality.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
3. PREPAID EXPENSES
The Company had prepaid expenses of $65,229 and $102,715 as of June 30, 2021 and December 31, 2020, respectively. Prepaid expenses primarily consist of prepaid consulting fee and other expenses.
4. INVENTORY
Inventory consisted of the following at June 30, 2021 and December 31, 2020:
June 30, 2021 | December 31, 2020 | |||||||
| Food and beverage, supplies, and consumables | $ | 184,739 | $ | 52,642 | ||||
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at June 30, 2021 and December 31, 2020:
June 30, 2021 | December 31, 2020 | |||||||
| Machinery | $ | 103,535 | $ | 101,629 | ||||
| Electronic equipment | 6,826 | 6,754 | ||||||
| Other | 6,291 | 4,874 | ||||||
| Construction in progress | 253,210 | 250,556 | ||||||
| Total | 369,862 | 363,813 | ||||||
| Less: Accumulated depreciation | (59,979 | ) | (42,226 | ) | ||||
| Property and equipment, net | $ | 309,883 | $ | 321,587 | ||||
Depreciation expense for the three months ended June 30, 2021 and 2020 was $8,822 and $6,487, respectively. Depreciation expense for the six months ended June 30, 2021 and 2020 was $17,268 and $12,898, respectively.
6. INTANGIBLE ASSETS, NET
Intangible assets consisted of the following at June 30, 2021 and December 31, 2020:
June 30, 2021 | December 31, 2020 | |||||||
| Software | $ | 7,793 | $ | 7,711 | ||||
| Less: Accumulated amortization | (4,580 | ) | (3,246 | ) | ||||
| Intangible assets, net | $ | 3,213 | $ | 4,465 | ||||
Amortization expense for the three months ended June 30, 2021 and 2020 was $649 and $562, respectively.
Amortization expense for the six months ended June 30, 2021 and 2020 was $1,296 and $1,133, respectively.
7. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at June 30, 2021 and December 31, 2020:
June 30, 2021 | December 31, 2020 | |||||||
| Accrued payroll | $ | 32,828 | $ | 57,616 | ||||
| Construction payables | 77,538 | 96,844 | ||||||
| Accrued rent | 88,910 | 112,500 | ||||||
| Other payables | 46,853 | 25,291 | ||||||
| Total | $ | 246,129 | $ | 292,251 | ||||
8. LOAN FROM THIRD PARTIES
As of June 30, 2021 and December 31, 2020, the Company had advances from former shareholders and unrelated third parties in an aggregate amount of $462,282 and $457,436, respectively. There was no written agreement, and these loans are payable on demand and bear no interest.
9. LEASE
The Company leased its hotel premises under an operating lease arrangement. The lease has a remaining lease term of approximately 2.5 years.
Balance sheet information related to the Company’s leases is presented below:
June 30, 2021 | December 31, 2020 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | 1,684,168 | $ | 2,007,370 | ||||
| Operating lease liabilities - current | $ | 639,726 | $ | 623,607 | ||||
| Operating lease liability – non-current | 1,044,442 | 1,383,763 | ||||||
| Total operating lease liabilities | $ | 1,684,168 | $ | 2,007,370 | ||||
The following provides details of the Company’s lease expenses:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | 170,256 | $ | 158,327 | ||||
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | 346,821 | $ | 319,104 | ||||
Other information related to leases is presented below:
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Paid For Amounts Included In Measurement of Liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 346,821 | $ | 319,104 | ||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | 2.50 years | 3.50 years | ||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | 4.75 | % | 4.75 | % | ||||
Maturities of lease liabilities were as follows:
| For the year ending December 31: | ||||
| 2021 (excluding the six months ended June 30, 2021) | $ | 348,710 | ||
| 2022 | 710,186 | |||
| 2023 | 724,391 | |||
| Total lease payments | 1,783,287 | |||
| Less: imputed interest | (99,119 | ) | ||
| Total lease liabilities | 1,684,168 | |||
| Less: current portion | (639,726 | ) | ||
| Lease liabilities – non-current portion | $ | 1,044,442 | ||
10. RELATED PARTY TRANSACTIONS
Accounts receivable
As of June 30, 2021, the Company had accounts receivable from Aixin Life Beauty, an entity controlled by the same major shareholder of the Company, of $6,020.
As of December 31, 2020, the Company had accounts receivable from a sales manager of Chengdu AiXinZhonghong Biological Technology Co., Ltd. (“AiXinZhonghong”), a Chinese limited company and a related party of the Company, of $60,262.
Due to related parties
Due to related parties consisted of the following as of the periods indicated:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Quanzhong Lin (major shareholder and Chairman of the Company) | $ | 1,393,132 | $ | 1,027,305 | ||||
| Aixin Life Beauty* | - | 54,305 | ||||||
| Yirong Shen (major shareholder) | 34,074 | 33,716 | ||||||
| Total | $ | 1,427,206 | $ | 1,115,326 | ||||
* Entity controlled by Quanzhong Lin
The balances of due to related parties are payable on demand and bear no interest.
11. INCOME TAXES
PRC
The Company is governed by the Income Tax Laws of the PRC and various local tax laws. Effective January 1, 2008, China adopted a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises).
The following table reconciles the PRC statutory rates to the Company’s effective tax rate for three months ended June 30, 2021 and 2020:
For the Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Income tax (benefit) at PRC statutory rate | (25.0 | )% | (25.0 | )% | ||||
| Change in deferred tax asset valuation allowance | 25.0 | % | 25.0 | % | ||||
| Effective combined tax rate | - | % | - | % | ||||
The following table reconciles the PRC statutory rates to the Company’s effective tax rate for six months ended June 30, 2021 and 2020:
For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Income tax (benefit) at PRC statutory rate | (25.0 | )% | (25.0 | )% | ||||
| Change in deferred tax asset valuation allowance | 25.0 | % | 25.0 | % | ||||
| Effective combined tax rate | - | % | - | % | ||||
For the three and six months ended June 30, 2021 and 2020, the change in valuation allowance is mainly from the tax benefit on net operating loss carry forward for PRC operations.
12. STATUTORY RESERVES
Pursuant to the PRC corporate law, the Company is now only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.
Surplus reserve fund
The Company is now required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. During the three and six months ended June 30, 2021 and 2020, the Company made no contribution to its statutory reserve fund due to its accumulated deficit.
The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.
Common welfare fund
Common welfare fund is a voluntary fund to which the Company can elect to transfer 5% to 10% of its net income, as determined under PRC accounting rules and regulations. The Company did not make any contribution to this fund during the three and six months ended June 30, 2021 and 2020.
This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.
13. OPERATING CONTINGENCIES
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expenses are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation to affect the remittance.
The Company is, from time to time, involved in litigation incidental to the conduct of its business regarding merchandise and services sold, employment matters, and litigation regarding intellectual property rights.
The Company believes that current pending litigation will not have a material adverse effect on its financial position, results of operations or cash flows.
14. SUBSEQUENT EVENT
In July, 2021, management completed the required governmental procedures and obtained the documents necessary to consider the equity transfer of Shangyan Hotel completed (see Note 1).
Management has evaluated subsequent events through the date which the financial statements were available to be issued. All subsequent events requiring recognition as of June 30, 2021 have been incorporated into these financial statements and there are no other subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
Exhibit 99.4
CHENGDU AIXINTANG PHARMACY CO., LTD AND AFFILIATES
COMBINED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 80,148 | $ | 80,319 | ||||
| Accounts receivable, net | 23,968 | 20,849 | ||||||
| Advance to suppliers | 5,238 | 2,318 | ||||||
| Other receivables and prepaid expense | 90,722 | 76,408 | ||||||
| Inventory, net | 113,541 | 109,808 | ||||||
| Total current assets | 313,617 | 289,702 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Property and equipment, net | 5,224 | 7,930 | ||||||
| Operating lease right-of-use assets | 436,923 | 270,432 | ||||||
| Total non-current assets | 442,147 | 278,362 | ||||||
| TOTAL ASSETS | $ | 755,764 | $ | 568,064 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 79,013 | $ | 68,587 | ||||
| Accrued liabilities and other payables | 53,491 | 54,270 | ||||||
| Due to related parties | 1,452,597 | 1,161,699 | ||||||
| Taxes payable | - | 246 | ||||||
| Operating lease liabilities - current | 154,631 | 104,234 | ||||||
| Total current liabilities | 1,739,732 | 1,389,036 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities - non-current | 282,292 | 166,198 | ||||||
| Total non-current liabilities | 282,292 | 166,198 | ||||||
| TOTAL LIABILITIES | 2,022,024 | 1,555,234 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Paid-in capital | 249,399 | 249,399 | ||||||
| Accumulated deficit | (1,460,696 | ) | (1,192,623 | ) | ||||
| Accumulated other comprehensive loss | (54,963 | ) | (43,946 | ) | ||||
| Total stockholders’ deficit | (1,266,260 | ) | (987,170 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 755,764 | $ | 568,064 | ||||
CHENGDU AIXINTANG PHARMACY CO., LTD AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
For the Three Months Ended June 30, | For The Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue, net | $ | 158,297 | $ | 299,403 | $ | 303,000 | $ | 959,191 | ||||||||
| Cost of revenue | 112,002 | 226,589 | 215,307 | 818,089 | ||||||||||||
| Gross profit | 46,295 | 72,814 | 87,693 | 141,102 | ||||||||||||
| Operating expense | ||||||||||||||||
| Selling expenses | 140,965 | 121,538 | 283,382 | 206,637 | ||||||||||||
| General and administrative expenses | 31,555 | 18,645 | 75,224 | 38,677 | ||||||||||||
| Total operating expenses | 172,520 | 140,183 | 358,606 | 245,314 | ||||||||||||
| Loss from operations | (126,225 | ) | (67,369 | ) | (270,913 | ) | (104,212 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Other income | 1,620 | 1,772 | 2,785 | 3,872 | ||||||||||||
| Interest income | 36 | 27 | 86 | 41 | ||||||||||||
| Other expenses | (32 | ) | 4,654 | (32 | ) | (2,069 | ) | |||||||||
| Interest expense | 1 | - | 1 | (9 | ) | |||||||||||
| Total other income, net | 1,625 | 6,453 | 2,840 | 1,835 | ||||||||||||
| Loss before income tax | (124,600 | ) | (60,916 | ) | (268,073 | ) | (102,377 | ) | ||||||||
| Income tax | - | - | - | 28 | ||||||||||||
| Net loss | (124,600 | ) | (60,916 | ) | (268,073 | ) | (102,405 | ) | ||||||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation income (loss) | (16,592 | ) | (62,999 | ) | (11,017 | ) | 9,369 | |||||||||
| Comprehensive loss | $ | (141,192 | ) | $ | (123,915 | ) | $ | (279,090 | ) | $ | (93,036 | ) | ||||
CHENGDU AIXINTANG PHARMACY CO., LTD AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
| Accumulated | ||||||||||||||||
| Accumulated | Other Comprehensive | |||||||||||||||
| Paid in capital | Deficit | Loss | Total | |||||||||||||
| Balance at December 31, 2020 | $ | 249,399 | $ | (1,192,623 | ) | $ | (43,946 | ) | $ | (987,170 | ) | |||||
| Net loss | - | (143,473 | ) | - | (143,473 | ) | ||||||||||
| Foreign currency translation | - | - | 5,575 | 5,575 | ||||||||||||
| Balance at March 31, 2021 | 249,399 | (1,336,096 | ) | (38,371 | ) | (1,125,068 | ) | |||||||||
| Net loss | - | (124,600 | ) | - | (124,600 | ) | ||||||||||
| Foreign currency translation | - | - | (16,592 | ) | (16,592 | ) | ||||||||||
| Balance at June 30, 2021 | $ | 249,399 | $ | (1,460,696 | ) | $ | (54,963 | ) | $ | (1,266,260 | ) | |||||
| Accumulated | ||||||||||||||||
| Accumulated | Other Comprehensive | |||||||||||||||
| Paid in capital | Deficit | Income | Total | |||||||||||||
| Balance at December 31, 2019 | $ | 189,760 | $ | (975,650 | ) | $ | 18,408 | $ | (767,482 | ) | ||||||
| Net loss | - | (41,489 | ) | - | (41,489 | ) | ||||||||||
| Foreign currency translation | - | - | 72,368 | 72,368 | ||||||||||||
| Balance at March 31, 2020 | 189,760 | (1,017,139 | ) | 90,776 | (736,603 | ) | ||||||||||
| Net loss | - | (60,916 | ) | - | (60,916 | ) | ||||||||||
| Acquisition of affiliate company | 59,639 | (31,556 | ) | - | 28,083 | |||||||||||
| Foreign currency translation | - | - | (62,999 | ) | (62,999 | ) | ||||||||||
| Balance at June 30, 2020 | $ | 249,399 | $ | (1,109,611 | ) | $ | 27,777 | $ | (832,435 | ) | ||||||
CHENGDU AIXINTANG PHARMACY CO., LTD AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For The Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (268,073 | ) | $ | (102,405 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 2,785 | 978 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (2,891 | ) | (2,837 | ) | ||||
| Advance to suppliers | (2,890 | ) | (761,251 | ) | ||||
| Other receivables | (5,663 | ) | (37,094 | ) | ||||
| Inventory | (2,563 | ) | (16,823 | ) | ||||
| Prepaid expenses and other current assets | (7,813 | ) | 23,924 | |||||
| Accounts payable | 9,680 | 696,468 | ||||||
| Accrued expenses and other current liabilities | (1,350 | ) | 121,229 | |||||
| Taxes Payable | (248 | ) | - | |||||
| Net cash used in operating activities | (279,026 | ) | (77,811 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | - | (961 | ) | |||||
| Acquisition of affiliate equity interest, net of cash acquired | - | 6,635 | ||||||
| Net cash provided by investing activities | - | 5,674 | ||||||
| Cash flows from financing activities | ||||||||
| Net proceeds from related parties | 278,007 | 106,065 | ||||||
| Net cash provided by financing activities | 278,007 | 106,065 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 848 | (470 | ) | |||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (171 | ) | 33,458 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 80,319 | 21,371 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 80,148 | $ | 54,829 | ||||
| Supplemental cash flow data: | ||||||||
| Income tax paid | $ | - | $ | - | ||||
| Interest paid | $ | - | $ | - | ||||
CHENGDU AIXINTANG PHARMACY CO., LTD AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Chengdu Aixintang Pharmacy Co., Ltd and its branches and affiliates, totaled nine pharmacies (the “Company” or “Aixintang Pharmacies”), were legally registered and have been validly existing in Chengdu, Mianyang and other cities of Sichuan Province in the PRC since 2016. Each of the pharmacies engages in the retail sale of pharmaceuticals; sales of pre-packaged food and bulk food, health food, dairy products, cosmetics, electronic products, disinfecting supplies, class-I, and class-II medical equipment and the staff at each pharmacy consults with customers regarding common nutrition and health issues, though they are not licensed to make a diagnosis and when appropriate refer customers to a physician.
On June 2, 2021, HK Aixin International Group Co., Limited (“HK Aixin”), a wholly owned subsidiary of Aixin Life International, Inc. (“Aixin Life”), entered into an Equity Transfer Agreement (the “Transfer Agreement”) with Quanzhong Lin, Ting Li, and Xiao Ling Li, the three shareholders of Aixintang Pharmacies. Mr. Quanzhong Lin, who is also the major shareholder, Chairman and President of Aixin Life, owns in excess of 95% of the outstanding equity of Aixintang Pharmacies. The remaining equity interest is owned by Ting Li and Xiao Ling Li. Under the terms of the Transfer Agreement, HK Aixin agreed to purchase all of the outstanding equity of Aixintang Pharmacies for an aggregate purchase price of RMB 34,635,845 or US$5,308,257 based on an exchange rate of RMB/ US$ 6.5249 yuan per dollar on December 31, 2020. The purchase price will be reduced by an amount equal to any amounts paid or distributed by any of the Aixintang Pharmacies to Mr. Quanzhong Lin, Ting Li, or Xiao Ling Li after December 31, 2020 and increased by an amount equal to any amounts they contributed to any of the Aixintang Pharmacies after such date.
As of June 30, 2021, the governmental procedures to complete the equity transfer of Aixintang Pharmacies were not yet completed (see Note 12).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of the Company is Chinese Renminbi (“RMB”). The accompanying financial statements are translated from RMB and presented in U.S. dollars (“USD”).
Covid – 19
On March 11, 2020, the World Health Organization announced that infections caused by the corona virus disease of 2019 (“COVID-19”) had become pandemic. The Government of China has adopted various regulations and orders, including mandatory quarantines, limits on the number of people that may gather in one location, closing non-essential businesses and travel bans to limit the spread of the disease. Many of these measures have been relaxed due to the decrease in the prevalence of Covid-19 in China. To date, the ongoing operations of the Company have not been materially adversely affected by the measures taken to limit the spread of the disease in China.
Financial impacts related to COVID-19, including the Company’s actions and costs incurred in response to the pandemic, were not material to the Company’s financial position, results of operations or cash flows for the three and six months ended June 30, 2021. The Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs.
While the Company continues to operate substantially in the normal course, it cannot forecast with any certainty whether and to what degree the disruptions caused by the COVID-19 pandemic will increase, or the extent to which the disruption may materially impact its financial position, results of operations, and cash flows in fiscal 2021.
Basis of Combination
The combined financial statements include the accounts of Chengdu Aixintang Pharmacy Co., Ltd and its affiliates, including Chengdu Beibang Pharmacy, Co., Ltd., Chengdu Xindu District Cundetang Pharmacy Co., Ltd., Chengdu Aixintang Liucheng Pharmacy Co., Ltd., Chengdu Wenjiang Aixinhui Pharmacy Co., Ltd., and Qionglai Weide Pharmacy. These companies are under common control and ownership. All significant intercompany accounts and transactions are eliminated.
Use of Estimates
In preparing combined financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the combined financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
Accounts Receivable
Accounts receivable mainly consist of amounts due from the Social Security Bureau and Health Care Administration governed by local government. The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of June 30, 2021 and December 31, 2020, there was no bad debt allowance.
Inventory
Inventories are valued at the lower of cost or net realizable value using the weighted average cost method. Physical inventory counts are taken on a regular basis in each retail store. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down inventories to market value, if lower. The Company recorded no inventory impairment for the three and six months ended June 30, 2021 and 2020.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation, and impairment losses, if any. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with 5% salvage value and estimated lives as follows:
| Furniture and Equipment | 2~5 years |
Impairment of Long-Lived Assets
Long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of June 30, 2021 and December 31, 2020, there were no significant impairments of its long-lived assets.
Income Taxes
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows Accounting Standards Codification (“ASC”) Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of income.
At June 30, 2021 and December 31, 2020, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
Revenue Recognition
In accordance with ASC 606, revenue is recognized upon the transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.
Revenue from sale of goods under Topic 606 is recognized in a manner that reasonably reflects the delivery of the Company’s products and services to customers in return for expected consideration and includes the following elements:
| ● | executed contract(s) with customers that the Company believes is legally enforceable; | |
| ● | identification of performance obligation in the respective contract; | |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation of the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
The Company’s retail drugstores recognize revenue at the time the customer takes possession of the merchandise. For pharmacy sales, each prescription claim is its own arrangement with the customer and is a performance obligation.
The Company generally receives payments from customers as it satisfies its performance obligations. The Company records a receivable when it has an unconditional right to receive payment and only the passage of time is required before payment is due.
Sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s products sold in China are subject to the PRC VAT of 0% as the Company qualifies for small businesses. The VAT may be offset by VAT paid by the Company on inventories and products purchased in China. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.
Cost of Revenue
Cost of revenue consists primarily of the cost of products sold during the reporting period. Reserve for inventory allowance due to lower of cost or market is also recorded in cost of goods sold.
Concentration of Credit Risk
The operations of the Company are in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, and by the general state of the PRC economy.
The Company has cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC. Cash in state-owned banks is covered by insurance up to RMB 500,000 ($72,500) per bank. The Company has not experienced any losses in such accounts and believes they are not exposed to any risks on its cash in these bank accounts.
Leases
ASC Topic 842, “Leases,” requires recognition of leases on the combined balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. The Company’s future minimum based payments used to determine the Company’s lease liabilities mainly include minimum based rent payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.
Statement of Cash Flows
In accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based on the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the combined statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, approximate their fair value due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their fair value because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
Fair Value Measurements and Disclosures
ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
As of June 30, 2021 and December 31, 2020, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
Foreign Currency Translation and Comprehensive Income (Loss)
The functional currency of the Company is RMB. For financial reporting purposes, RMB is translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.
Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There was no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.
The Company uses FASB ASC Topic 220, “Comprehensive Income”. Comprehensive loss is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020 consisted of net income (loss) and foreign currency translation adjustments.
Earnings per Share
The Company is a limited Company (“LC”) formed under the laws of the PRC. Like limited liability company in the US, limited company in the PRC do not issue shares to the owners. The owners however, are called shareholders. Ownership interest is determined in proportion to capital contributed. Accordingly, earnings per share data is not presented.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
Management determined the Company’s operations constitute a single reportable segment in accordance with ASC 280. The Company operates exclusively in one business and industry segment: retail pharmacy.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
3. OTHER RECEIVABLES AND PREPAID EXPENSES
The Company had other receivables and prepaid expenses of $90,722 and $76,408 as of June 30, 2021 and December 31, 2020, respectively. Prepaid expenses primarily consist of rent and other services to be expensed over the contracted period.
4. INVENTORY
Inventory consisted of the following at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Drugs, pharmaceutical and nutritional products | $ | 113,541 | $ | 109,808 | ||||
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Furniture and office equipment | $ | 14,450 | $ | 14,298 | ||||
| Less: Accumulated depreciation | (9,226 | ) | (6,368 | ) | ||||
| Property and equipment, net | $ | 5,224 | $ | 7,930 | ||||
Depreciation expense for the three months ended June 30, 2021 and 2020 was $1,395 and $891, respectively. Depreciation expense for the six months ended June 30, 2021 and 2020 was $2,785 and $978, respectively.
6. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Accrued payroll | $ | 50,065 | $ | 17,780 | ||||
| Other payables | 3,426 | 36,490 | ||||||
| Total | $ | 53,491 | $ | 54,270 | ||||
7. LEASE
The Company leases its retail pharmacy stores under operating lease arrangements, typically with initial terms of 2 to 5 years.
Balance sheet information related to the Company’s leases is presented below:
| June 30, 2021 | December 31, 2020 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | 436,923 | $ | 270,432 | ||||
| Operating lease liabilities - current | $ | 154,631 | $ | 104,234 | ||||
| Operating lease liabilities – non-current | 282,292 | 166,198 | ||||||
| Total operating lease liabilities | $ | 436,923 | $ | 270,432 | ||||
The following provides details of the Company’s lease expenses:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | 31,283 | $ | 36,355 | ||||
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | 74,764 | $ | 73,613 | ||||
Other information related to leases is presented below:
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Paid For Amounts Included In Measurement of Liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 74,764 | $ | 73,613 | ||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | 3.00 years | 2.81 years | ||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | 4.75 | % | 4.75 | % | ||||
Maturities of lease liabilities were as follows:
| For the year ending December 31, | ||||
| 2021 (excluding the six months ended June 30, 2021) | $ | 85,475 | ||
| 2022 | 174,271 | |||
| 2023 | 150,072 | |||
| 2024 | 36,015 | |||
| 2025 | 14,762 | |||
| Thereafter | 6,275 | |||
| Total lease payments | 466,870 | |||
| Less: imputed interest | (29,947 | ) | ||
| Total lease liabilities | 436,923 | |||
| Less: current portion | (154,631 | ) | ||
| Lease liabilities – non-current portion | $ | 282,292 | ||
8. RELATED PARTY TRANSACTIONS
Due to related parties are unsecured, bear no interest and payable upon demand.
Due to related parties
| June 30, 2021 | December 31, 2020 | |||||||
| Quanzhong Lin | $ | 1,441,753 | $ | 1,109,376 | ||||
| Branch manager | - | 28,602 | ||||||
| Chengdu Aixin Zhonghong Biological Technology Co., Ltd. (“Aixin Zhonghong”) | - | 12,991 | ||||||
| Chengdu Aixin E-Commence Co., Ltd. | 9,417 | 9,318 | ||||||
| Chengdu Aixin International Travel Service Co., Ltd. | 1,427 | 1,412 | ||||||
| Total | $ | 1,452,597 | $ | 1,161,699 | ||||
Mr. Quanzhong Lin is the major shareholder and Chairman of Aixintang Pharmacies. All of the related party entities are controlled by Mr. Quanzhong Lin. The advances are for working capital purpose, payable on demand and bear no interest.
The balances due to one branch manager were for working capital purpose, payable on demand and bear no interest.
9. INCOME TAXES
The Company is governed by the Income Tax Laws of the PRC and various local tax laws. Effective January 1, 2008, China adopted a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises).
The following table reconciles the PRC statutory rates to the Company’s effective tax rate for three months ended June 30, 2021 and 2020:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Income tax (benefit) at PRC statutory rate | (25.0 | )% | (25.0 | )% | ||||
| Change in deferred tax asset valuation allowance | 25.0 | % | 25.0 | % | ||||
| Other | - | % | - | % | ||||
| Effective combined tax rate | - | % | - | % | ||||
The following table reconciles the PRC statutory rates to the Company’s effective tax rate for six months ended June 30, 2021 and 2020:
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Income tax (benefit) at PRC statutory rate | (25.0 | )% | (25.0 | )% | ||||
| Change in deferred tax asset valuation allowance | 25.0 | % | 25.0 | % | ||||
| Other | - | % | 0.03 | % | ||||
| Effective combined tax rate | - | % | 0.03 | % | ||||
For the three and six months ended June 30, 2021 and 2020, the change in valuation allowance is mainly from the tax benefit on net operating loss carry forward for PRC operations.
10. STATUTORY RESERVES
Pursuant to the PRC corporate law, the Company is now only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.
Surplus reserve fund
The Company is now required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. During the three and six months ended June 30, 2021 and 2020, the Company made $0 to its statutory reserve fund due to its accumulated deficit.
The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.
Common welfare fund
Common welfare fund is a voluntary fund to which the Company can elect to transfer 5% to 10% of its net income, as determined under PRC accounting rules and regulations. The Company did not make any contribution to this fund during the three and six months ended June 30, 2021 and 2020.
This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.
11. OPERATING CONTINGENCIES
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expenses are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation to affect the remittance.
The Company is, from time to time, involved in litigation incidental to the conduct of its business regarding merchandise sold, employment matters, and litigation regarding intellectual property rights.
The Company believes that current pending litigation will not have a material adverse effect on its financial position, results of operations or cash flows.
12. SUBSEQUENT EVENT
In August and September, 2021, management completed the required governmental procedures and obtained the documents necessary to consider the equity transfer of Aixintang Pharmacies completed (see Note 1).
Management has evaluated subsequent events through the date which the financial statements were available to be issued. All subsequent events requiring recognition as of June 30, 2021 have been incorporated into these financial statements and there are no other subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
Exhibit 99.5
AIXIN LIFE INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2021
| AIXIN LIFE INTERNATIONAL, INC. | AIXINTANG PHARMACIES | AIXIN SHANGYAN HOTEL | PRO FORMA ADJUSTMENTS | PRO FORMA COMBINED | ||||||||||||||||||
| ASSETS | ||||||||||||||||||||||
| Current Assets | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 3,248,619 | $ | 80,148 | $ | 19,039 | $ | (2,666,641 | ) | {b} | $ | 681,165 | ||||||||||
| Accounts receivable, net | - | 23,968 | 27,163 | 51,131 | ||||||||||||||||||
| Accounts receivable, related party | - | - | 6,020 | 6,020 | ||||||||||||||||||
| Other receivables and prepaid expense | 33,525 | 90,722 | 105,279 | 229,526 | ||||||||||||||||||
| Advance to suppliers | 271,130 | 5,238 | - | 276,368 | ||||||||||||||||||
| Prepayment for acquisition | 4,504,418 | - | - | (4,504,418 | ) | {b} | - | |||||||||||||||
| Advance to related parties | 199,843 | - | - | 199,843 | ||||||||||||||||||
| Inventory | 135,066 | 113,541 | 184,739 | 433,346 | ||||||||||||||||||
| Total Current Assets | 8,392,601 | 313,617 | 342,240 | (7,171,059 | ) | 1,877,399 | ||||||||||||||||
| Non-Current Assets | ||||||||||||||||||||||
| Property and equipment, net | 57,643 | 5,224 | 309,883 | 372,750 | ||||||||||||||||||
| Intangible assets, net | - | - | 3,213 | 3,213 | ||||||||||||||||||
| Security deposits | - | - | 92,928 | 92,928 | ||||||||||||||||||
| Operating lease right-of-use assets | 84,117 | 436,923 | 1,684,168 | 2,205,208 | ||||||||||||||||||
| Total Non-Current Assets | 141,760 | 442,147 | 2,090,192 | -- | 2,674,099 | |||||||||||||||||
| Total Assets | $ | 8,534,361 | $ | 755,764 | $ | 2,432,432 | $ | (7,171,059 | ) | $ | 4,551,498 | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||||
| Accounts payable | $ | 39,531 | $ | 79,013 | $ | 284,498 | $ | (363,511 | ) | {a} | $ | 39,531 | ||||||||||
| Unearned revenue | 2,793 | - | 293,857 | (293,857 | ) | {a} | 2,793 | |||||||||||||||
| Taxes payable | 239,341 | - | 4,138 | (4,138 | ) | {a} | 239,341 | |||||||||||||||
| Accrued liabilities and other payables | 541,942 | 53,491 | 246,129 | (299,620 | ) | {a} | 541,942 | |||||||||||||||
| Loan from third parties | - | - | 462,282 | (462,282 | ) | {a} | - | |||||||||||||||
| Operating lease liabilities - current | 37,551 | 154,631 | 639,726 | 831,908 | ||||||||||||||||||
| Advance from related parties | 3,274 | 1,452,597 | 1,427,206 | (2,879,803 | ) | {a} | 3,274 | |||||||||||||||
| Total Current Liabilities | 864,432 | 1,739,732 | 3,357,836 | (4,303,211 | ) | 1,658,789 | ||||||||||||||||
| Non-Current Liabilities | ||||||||||||||||||||||
| Operating lease liabilities - noncurrent | 46,566 | 282,292 | 1,044,442 | 1,373,300 | ||||||||||||||||||
| Total Non-Current Liabilities | 46,566 | 282,292 | 1,044,442 | 1,373,300 | ||||||||||||||||||
| Total Liabilities | 910,998 | 2,022,024 | 4,402,278 | (4,303,211 | ) | 3,032,089 | ||||||||||||||||
| Stockholders’ Equity | ||||||||||||||||||||||
| Common stock | 500 | - | - | 500 | ||||||||||||||||||
| Additional paid in capital | 11,301,535 | 249,399 | 152,207 | (2,867,848 | ) | {a} {b} | 8,835,293 | |||||||||||||||
| Statutory reserve | 151,988 | - | - | 151,988 | ||||||||||||||||||
| Accumulated deficit | (4,496,324 | ) | (1,460,696 | ) | (2,033,012 | ) | (7,990,032 | ) | ||||||||||||||
| Accumulated other comprehensive income (loss) | 665,664 | (54,963 | ) | (89,041 | ) | 521,660 | ||||||||||||||||
| Total Stockholders’ Equity | 7,623,363 | (1,266,260 | ) | (1,969,846 | ) | (2,867,848 | ) | 1,519,409 | ||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 8,534,361 | $ | 755,764 | $ | 2,432,432 | $ | (7,171,059 | ) | $ | 4,551,498 | |||||||||||
See accompanying notes to pro forma combined financial statements
AIXIN LIFE INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2021
| AIXIN LIFE INTERNATIONAL, INC. | AIXINTANG PHARMACIES | AIXIN SHANGYAN HOTEL | PRO FORMA ADJUSTMENTS | PRO FORMA COMBINED | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Products | $ | 253,245 | $ | - | $ | - | $ | 253,245 | ||||||||||||
| Advertising | 1,297,681 | - | - | 1,297,681 | ||||||||||||||||
| Pharmacy revenue | - | 303,000 | - | 303,000 | ||||||||||||||||
| Hotel revenue | - | - | 748,056 | 748,056 | ||||||||||||||||
| Total revenues, net | 1,550,926 | 303,000 | 748,056 | 2,601,982 | ||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||||||
| Cost of goods sold | 160,680 | 215,307 | - | 375,987 | ||||||||||||||||
| Hotel operating costs | - | - | 1,043,851 | 1,043,851 | ||||||||||||||||
| Selling expenses | 93,881 | 283,382 | 74,189 | 451,452 | ||||||||||||||||
| General and administrative expenses | 419,921 | 75,224 | 164,038 | 659,183 | ||||||||||||||||
| Stock-based compensation | 185,770 | - | - | 185,770 | ||||||||||||||||
| Total operating costs and expenses | 860,252 | 573,913 | 1,282,078 | 2,716,243 | ||||||||||||||||
| Income (loss) from operations | 690,674 | (270,913 | ) | (534,022 | ) | (114,261 | ) | |||||||||||||
| Non-operating income (expenses) | ||||||||||||||||||||
| Interest income | 2,489 | 86 | 21 | 2,596 | ||||||||||||||||
| Other income | 161 | 2,785 | 52,548 | 55,494 | ||||||||||||||||
| Other expenses | (6,885 | ) | (31 | ) | (6,916 | ) | ||||||||||||||
| Total non-operating income (expenses), net | (4,235 | ) | 2,840 | 52,569 | 51,174 | |||||||||||||||
| Income (loss) before income tax | 686,439 | (268,073 | ) | (481,453 | ) | (63,087 | ) | |||||||||||||
| Income tax expense | 218,052 | - | 218,052 | |||||||||||||||||
| Net income (loss) | 468,387 | (268,073 | ) | (481,453 | ) | (281,139 | ) | |||||||||||||
| Other comprehensive items Foreign currency translation (loss) | 77,124 | (11,017 | ) | (16,604 | ) | 49,503 | ||||||||||||||
| Comprehensive income (loss) | $ | 545,511 | $ | (279,090 | ) | $ | (498,057 | ) | $ | (231,636 | ) | |||||||||
| Income (loss) per share | $ | 0.009 | $ | - | $ | - | $ | (0.006 | ) | |||||||||||
| Weighted average shares outstanding | 49,999,891 | - | - | 49,999,891 | ||||||||||||||||
See accompanying notes to pro forma combined financial statements
AIXIN LIFE INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2020
| AIXIN LIFE INTERNATIONAL, INC. | AIXINTANG PHARMACIES | AIXIN SHANGYAN HOTEL | PRO FORMA ADJUSTMENTS | PRO FORMA COMBINED | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Products | $ | 580,712 | $ | - | $ | - | $ | 580,712 | ||||||||||||
| Advertising | 1,870,343 | - | - | 1,870,343 | ||||||||||||||||
| Pharmacy revenue | - | 1,264,427 | - | 1,264,427 | ||||||||||||||||
| Hotel revenue | - | - | 1,074,151 | 1,074,151 | ||||||||||||||||
| Total revenues, net | 2,451,055 | 1,264,427 | 1,074,151 | 4,789,633 | ||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||||||
| Cost of goods sold | 224,675 | 933,081 | - | 1,157,756 | ||||||||||||||||
| Hotel operating costs | - | - | 1,537,307 | 1,537,307 | ||||||||||||||||
| Selling expenses | 244,200 | 435,348 | 116,564 | 796,112 | ||||||||||||||||
| General and administrative expenses | 802,556 | 84,359 | 164,466 | 1,051,381 | ||||||||||||||||
| Provision for bad debts | 13,624 | - | 22,227 | 35,851 | ||||||||||||||||
| Stock-based compensation | 371,540 | - | - | 371,540 | ||||||||||||||||
| Total operating costs and expenses | 1,656,595 | 1,452,788 | 1,840,564 | 4,949,947 | ||||||||||||||||
| Income (loss) from operations | 794,460 | (188,361 | ) | (766,413 | ) | (160,314 | ) | |||||||||||||
| Non-operating income (expenses) | ||||||||||||||||||||
| Interest income | 537,580 | 120 | 31 | 537,731 | ||||||||||||||||
| Interest expense | - | (8 | ) | - | (8 | ) | ||||||||||||||
| Other income | 28,924 | 5,518 | 82,398 | 116,840 | ||||||||||||||||
| Other expenses | (3,326 | ) | (2,658 | ) | (5,121 | ) | (11,105 | ) | ||||||||||||
| Total non-operating income, net | 563,178 | 2,972 | 77,308 | 643,458 | ||||||||||||||||
| Income (loss) before income tax | 1,357,638 | (185,389 | ) | (689,105 | ) | 483,144 | ||||||||||||||
| Income tax expense | 340,127 | 28 | - | 340,155 | ||||||||||||||||
| Net income (loss) | 1,017,511 | (185,417 | ) | (689,105 | ) | 142,989 | ||||||||||||||
| Other comprehensive items Foreign currency translation (loss) | 437,059 | (62,354 | ) | (86,642 | ) | 288,063 | ||||||||||||||
| Comprehensive income (loss) | $ | 1,454,570 | $ | (247,771 | ) | $ | (775,747 | ) | $ | 431,052 | ||||||||||
| Income per share | $ | 0.016 | $ | - | $ | - | $ | 0.002 | ||||||||||||
| Weighted average shares outstanding | 65,609,450 | - | - | 65,609,450 | ||||||||||||||||
See accompanying notes to pro forma combined financial statements
AIXIN LIFE INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 - INTRODUCTION
On June 2, 2021, HK Aixin International Group Co., Limited (“HK Aixin”), a wholly owned subsidiary of Aixin Life International, Inc (“Aixin Life” or the “Company”) entered into an Equity Transfer Agreement (the “Transfer Agreement”) with Quanzhong Lin, Ting Li, and Xiao Ling Li (the “Transferor”), the shareholders of Chengdu Aixintang Pharmacy Co., Ltd. and certain affiliated entities, each of which operates a pharmacy (“Aixintang Pharmacies”). Mr. Lin is the major shareholder, Chairman and President of Aixin Life. Mr. Lin also owns in excess of 95% of the outstanding equity the Aixintang Pharmacies. The remaining equity interest is owned by Ting Li and Xiao Ling Li. Pursuant to the Transfer Agreement, HK Aixin agreed to purchase all of the outstanding equity of Aixintang Pharmacies for an aggregate purchase price of RMB 34,635,845, or approximately US$5,308,257 (“Transfer Price”). The Transfer Price will be reduced by an amount equal to any amounts paid or distributed by any of the Aixintang Pharmacies to the Transferor after December 31, 2020 and increased by an amount contributed to any of the Aixintang Pharmacies by the Transferor after such date. The Transfer Price, as adjusted in accordance with this Section, is referred to as the “Adjusted Transfer Price.”
On May 25, 2021, Aixin Life International, Inc entered into an Equity Transfer Agreement with the two shareholders, Quanzhong Lin and Yirong Shen (the “Transferor”), of Chengdu Aixin Shangyan Hotel Management Co., Ltd (“Aixin Shangyan Hotel”). Quanzhong Lin is also the Chairman, President and major shareholder of Aixin Life. Pursuant to the Agreement (the “Hotel Purchase Agreement”), Aixin Life agreed to purchase 100% ownership of Aixin Shangyan Hotel from Mr. Lin and Ms. Shen. Eighty percent of the equity of Aixin Shangyan Hotel is owned by Mr. Lin. The balance is owned by Ms. Shen. Under the terms of the Hotel Purchase Agreement, Aixin Life agreed to purchase all of the outstanding equity of Aixin Shangyan Hotel for a purchase price of RMB 7,598,887, or approximately $1,164,598, (“Transfer Price”). The Transfer Price will be reduced by an amount equal to any amounts paid or distributed by Aixin Shangyan Hotel to Mr. Lin or Ms. Shen after December 31, 2020 and will be increased by an amount equal to any amounts they contributed to Aixin Shangyan Hotel after December 31, 2020. The Transfer Price, as adjusted in accordance with this Section, is referred to as the “Adjusted Transfer Price.”
NOTE 2 - BASIS OF PRESENTATION
The unaudited pro forma condensed combined balance sheet as of June 30, 2021 combines the historical balance sheets of Aixin Life, Aixintang Pharmacies, and Aixin Shangyan Hotel as if the Transactions had occurred on June 30, 2021. The unaudited pro forma combined statements of operations and comprehensive loss for the six months ended June 30, 2021 and for the year ended December 31, 2020 combine the historical consolidated statements of operations and comprehensive income (loss) of Aixin Life, Aixintang Pharmacies, and Aixin Shangyan Hotel, and have been prepared as if the Transactions had closed on January 1, 2020, respectively. The unaudited pro forma condensed combined financial statements have also been adjusted to give effect to pro forma events that are directly attributable to the Transactions, factually supportable and expected to have a continuing impact on the combined results.
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Aixin Life, Aixintang Pharmacies, and Aixin Shangyan Hotel are under common control and ownership.
The preliminary unaudited pro forma information is presented solely for informational purposes and is not necessarily indicative of the consolidated results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company.
NOTE 3 – PRO FORMA ADJUSTMENTS
The following adjustments were made in the preparation of the unaudited pro forma condensed consolidated combined balance sheet and unaudited pro forma condensed consolidated combined statements of income and comprehensive income:
{a} Pursuant to the Transfer Agreement and Hotel Purchase Agreement, the actual or potential creditor’s rights and debts of Aixintang Pharmacies and Aixin Shangyan Hotel prior to the date of equity transfer shall be owned and undertaken by the Transferor. After the transfer, the Transferor shall independently assume the liability for litigations or losses of Aixintang Pharmacies and Aixin Shangyan Hotel caused by the actual or potential debts prior to the date of equity transfer.
{b} Represents the proceeds made by Aixin Life based on the Adjusted Transfer Price. The Adjusted Transfer Price is based on the Transfer Price of $5,308,257, increased by $332,377 contributed to Aixintang Pharmacies by Mr. Lin during the six months ended June 30, 2021, and the Transfer Price of $1,164,598, increased by $365,827 contributed to Aixin Shangyan Hotel by Mr. Lin during the six months ended June 30, 2021. As of June 30, 2021, these two acquisitions have not yet been completed, and Aixin Life prepaid $4,504,418 for the acquisition price.