AiXin Life International, Inc 10-Q for FY2021 Q3
AiXin Life International, Inc. (AIXN)
About this 10-Q
AiXin Life International, Inc filed this 10-Q on November 22, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $812.91K
- up 11.5% from $728.9K a year earlier
- Net loss
- $146.1K
- compared with net income of $640.33K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
(Issuer’s telephone number)
Securities Registered Pursuant to Section 12(g) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each Exchange on which Registered | ||
| OTCQX Venture |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: As of November 12, 2021, there were outstanding shares of the registrant’s common stock.
AIXIN LIFE INTERNATIONAL, INC.
FORM 10-Q
September 30, 2021
INDEX
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on forward-looking statements. Forward-looking statements include, among other things, statements relating to:
| ● | our goals and strategies; | |
| ● | our future business development, financial condition and results of operations; | |
| ● | our expectations regarding demand for, and market acceptance of, our products; | |
| ● | our expectations regarding keeping and strengthening our relationships with merchants, manufacturers and end-users; and | |
| ● | general economic and business conditions in the regions where we provide our services. |
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes of this report only:
the “Company,” “we,” “us,” and “our” refer to AiXin Life International, Inc. (“AiXin”) and its subsidiaries.
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
“PRC,” “China,” and “Chinese,” refer to the People’s Republic of China (excluding Hong Kong and Taiwan);
“Renminbi” and “RMB” refer to the legal currency of China;
“Securities Act” refers to the Securities Act of 1933, as amended; and
“US dollars,” “dollars” and “$” refer to the legal currency of the United States.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31 | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | - | |||||||
| Other receivables and prepaid expenses | ||||||||
| Advances to suppliers | ||||||||
| Inventories | ||||||||
| Advances to related parties | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible asset, net | - | |||||||
| Security deposit | - | |||||||
| Operating lease right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Unearned revenue | - | |||||||
| Taxes payable | ||||||||
| Accrued liabilities and other payables | ||||||||
| Loan from third parties | - | |||||||
| Operating lease liabilities - current | ||||||||
| Advance from related parties | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Undesignated preferred stock, $ par value, shares authorized, issued and outstanding | - | - | ||||||
| Common stock, par value $ per share, shares authorized; shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements
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AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues: | ||||||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Advertising | ||||||||||||||||
| Room revenues | ||||||||||||||||
| Food and beverage revenues | ||||||||||||||||
| Others | ||||||||||||||||
| Total revenue, net | ||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Hotel operating costs | - | - | ||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Provision for bad debts | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||||||
| Non-operating income (expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total non-operating income, net | ||||||||||||||||
| Income (loss) before income tax | ( | ) | ||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | $ | $ | ||||||||||
| Income per share - basic and diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted average shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these financial statements
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AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Shares | Amount | capital | reserves | deficit | income | Total | ||||||||||||||||||||||
Common Stock | Additional
| Statutory | Accumulated | Accumulated | ||||||||||||||||||||||||
| Shares | Amount | capital | reserves | deficit | income | Total | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Cancellation of shares | ||||||||||||||||||||||||||||
| Cancellation of shares, shares | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | |||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ||||||||||||||||||||||||||
| Acquisition of subsidiaries | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Debt forgiven by major shareholder | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net income | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||
| Foreign currency translation | - | - | - | - | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at March 31, 2020 | ( | ) | ||||||||||||||||||||||||||
| Cancellation of shares | ( | ) | ( | ) | - | - | - | - | ||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | |||||||||||||||||||||||
| Balance at June 30, 2020 | ( | ) | ||||||||||||||||||||||||||
| Beginning balance | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | |||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
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AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| 2021 | 2020 | |||||||
| For
the Nine Months Ended September 30 | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for bad debts | ||||||||
| Stock-based compensation | ||||||||
| Changes in net assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | - | |||||
| Accounts receivable - related party | - | |||||||
| Other receivables and prepaid expenses | ||||||||
| Advances to suppliers | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Unearned revenue | ||||||||
| Taxes payable | ( | ) | ||||||
| Accrued liabilities and other payables | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | - | ( | ) | |||||
| Cash acquired at acquisition of subsidiaries | - | |||||||
| Return of (payment) for acquisition | ( | ) | ||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Change in advance from related parties | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH | ||||||||
| NET (DECREASE) INCREASE IN CASH | ( | ) | ||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| Supplemental Cash flow data: | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements
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AIXIN LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Aixin
Life International, Inc. (the “Company” or “Aixin Life” or “we”) was incorporated under the laws
of the State of
During each year since Mercari was reactivated until 2017, the Company had no revenue and had losses approximately equal to the expenditures required to reactivate and comply with filing and reporting obligations. Expenditures were paid by Mercari from capital contributions and loans made by Mercari’s principal stockholders and entities controlled by Mercari’s directors.
On
January 20, 2017, Mercari’s principal stockholders, Algodon, sold shares of the Company’s
common stock,
On
February 2, 2017, Mr. Quanzhong Lin purchased shares of the Company’s
common stock,
On December 12, 2017, the Company issued shares of common stock to Mr. Lin, the sole stockholder of AiXin (BVI) International Group Co., Ltd. a British Virgin Islands corporation (“AiXin BVI”), for his shares of AiXin BVI, pursuant to a Share Exchange Agreement.
As a result of the Share Exchange, AiXin BVI became the Company’s wholly-owned subsidiary, and the Company now owns all of the outstanding shares of HK AiXin International Group Co., Limited, a Hong Kong limited company (“AiXin HK”), which in turn owns all of the outstanding shares of Chengdu AiXinZhonghong Biological Technology Co., Ltd., a Chinese limited company (“AiXinZhonghong”), which markets and sells premium-quality nutritional products in China.
AiXin BVI was incorporated on September 21, 2017 as a holding company and AiXin HK was established in Hong Kong on February 25, 2016 as an intermediate holding company. AiXinZhonghong was established in the People’s Republic of China (“PRC”) on March 4, 2013, and on May 27, 2017, the local government of the PRC issued a certificate of approval regarding the foreign ownership of AiXinZhonghong by AiXin HK. Neither AiXin BVI nor AiXin HK had operations prior to December 12, 2017.
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For accounting purposes, the acquisition was accounted for as a reverse acquisition and treated as a recapitalization of the Company effected by a share exchange, with AiXin BVI as the accounting acquirer. Since neither AiXin BVI nor AiXin HK had operations prior to December 12, 2017, the historical consolidated financial statements of AiXinZhonghong are now the historical consolidated financial statements of the Company. The assets and liabilities of AiXinZhonghong were brought forward at their book value and no goodwill was recognized.
Effective February 1, 2018, pursuant to Articles of Amendment to the Company’s Articles of Incorporation filed with the Secretary of State of Colorado, the Company changed its name to AiXin Life International., Inc (“Aixin Life”).
The Company, through its indirectly owned AiXinZhonghong subsidiary, mainly develops and distributes consumer products by offering a line of nutritional products. The Company sells the products through exhibition events, conferences, and person-to-person marketing. Beginning in 2019, the Company began to provide advertising services to clients who engaged the Company to help distribute their products. The Company’s business mainly focuses on a proactive approach to its customers such as hosting events for clients, which it believes is ideally suited to marketing its products because sales of nutrition products are strengthened by ongoing personal contact and support, coaching and education of its clients, as to the benefits of a healthy and active lifestyle.
On
May 25, 2021, AiXin HK entered into an Equity Transfer Agreement with Chengdu Aixin Shangyan Hotel Management Co., Ltd (“Aixin
Shangyan Hotel”), and its two shareholders Quanzhong Lin and Yirong Shen (“Transferor”). Pursuant to the agreement
(the “Hotel Purchase Agreement”), Aixin Life agreed to purchase
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of AiXinZhonghong, Aixin Shangyan Hotel and Aixintang Pharmacies is Chinese Renminbi (‘‘RMB’’). The accompanying consolidated financial statements are translated from RMB and presented in U.S. dollars (“USD”).
The consolidated financial statements include the accounts of the Company and its current wholly owned subsidiaries, AiXin HK, AiXinZhonghong, Aixin Shangyan Hotel and Aixintang Pharmacies. Intercompany transactions and accounts were eliminated in consolidation.
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Unaudited Interim Financial Information
These unaudited interim financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2021.
The balance sheets and certain comparative information as of December 31, 2020 are derived from the audited financial statements and related notes for the year ended December 31, 2020, included in the Company’s 2020 Annual Report on Form 10-K. These unaudited interim financial statements should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation and had no effect on previously reported consolidated net income (loss) or accumulated deficit.
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 effected 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 period ended September 30, 2021. The Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs. However, the Company cannot predict with certainty what measures may be taken by its suppliers and customers and the impact these measures may have on its 2021 financial position, results of operations or cash flows.
Use of Estimates
In preparing consolidated 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 consolidated 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.
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Accounts Receivable
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 September 30, 2021 and December 31, 2020,
the bad debt allowance was $
Inventories
Inventories
mainly consists of health supplements,
drugs, pharmaceutical and nutritional products, food and beverage, hotel supplies and consumables. Inventories are 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
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
SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
| Office furniture | ||||
| Electronic equipment | ||||
| Machinery | ||||
| Leasehold improvements | ||||
| Vehicles |
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 September 30, 2021 and December 31, 2020, there were
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.
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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 consolidated 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 September 30, 2021 and December 31, 2020, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
Revenue Recognition
ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As revenues are and have been primarily from the delivery of products and the performance of services, and the Company has no significant post-delivery obligations, this did not result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
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. |
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The Company’s revenue recognition policies for its various operating segments are as follows:
Advertising and Products
Advertising Revenue
Commencing in the third quarter of 2019, AiXin Zhonghong began to provide advertising services to its clients. Advertising contracts are signed to establish the price and advertising services to be provided. Pursuant to the advertising contracts, the Company provides advertising and marketing services to its clients through exhibition events, conferences, and person-to-person marketing. The Company performs a credit assessment of the customer to assess the collectability of the contract price prior to entering into contracts.
Most
of the advertisement contracts designated that the Company perform such advertising services for its clients through exhibition events,
conferences, and person-to-person marketing during the contracted period, regardless of the number of such events. As such, the Company
determined that the performance obligation is satisfied over time during the contracted period and revenue is recognized accordingly.
Such advertising revenue amounted to $
A
smaller proportion of the Company’s advertising revenue is generated from services to its clients through exhibition events, conferences,
and person-to-person marketing, and charges based on the number of promotional products sold. Such advertising revenue amounted to $
All
of the advertising revenue is subject to the PRC VAT of
Products Revenue
The Company’s revenue from sale of products is recognized when goods are delivered to the customer and no other obligation exists. The Company does not provide unconditional return or other concessions to the customer. The Company’s sales policy allows for the return of unopened products for cash after deducting certain service and transaction fees. As an alternative to the product return option, the customers have options of asking for an exchange for products with the same value.
Sales
revenue of AiXin Zhonghong 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
Hotel
Hotel
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. All of the hotel’s goods sold in China are subject to the PRC VAT of
Pharmacies
The
Company’s retail drugstores (Aixintang Pharmacies) 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. Aixintang Pharmacies
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 VAT. All of Aixintang Pharmacies’ products sold in China are subject to the PRC VAT of
| 13 |
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
During the three months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
SCHEDULE OF CONCENTRATION OF CREDIT RISK
| Customer | Net
sales for the | % of total revenue | ||||||
| B | $ | % | ||||||
| A* | % | |||||||
During the nine months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
| Customer | Net
sales for the |
% of total revenue | ||||||
| A* | $ | % | ||||||
| B | % | |||||||
During the three months ended September 30, 2020, the Company had one major customer that accounted for over 10% of its total revenue.
| Customer | Net
sales for the |
% of total revenue | ||||||
| A* | $ | % | ||||||
During the nine months ended September 30, 2020, the Company had one major customer that accounted for over 10% of its total revenue.
| Customer | Net
sales for the |
% of total revenue | ||||||
| A* | $ | % | ||||||
During the three months ended September 30, 2021, the Company had no supplier that accounted for over 10% of its total purchases.
| 14 |
During the nine months ended September 30, 2021, the Company had one major supplier that accounted for over 10% of its total purchases.
| Supplier | Net
purchases for the nine months ended |
% of total purchase | ||||||
| C | $ | % | ||||||
During the three months ended September 30, 2020, the Company had one major supplier that accounted for over 10% of its total purchases.
| Supplier | Net
purchase for the three months ended September 30, 2020 |
% of total purchase | ||||||
| D | $ | % | ||||||
During the nine months ended September 30, 2020, the Company had three major suppliers that accounted for over 10% of its total purchases.
| Supplier | Net
purchase for the nine months ended September 30, 2020 |
% of total purchase | ||||||
| A* | $ | % | ||||||
| E | % | |||||||
| D | % | |||||||
| * |
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 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. |
| 15 |
The Company determines if an arrangement is a lease at inception under FASB ASC Topic 842, Right of Use Assets (“ROU”) and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU assets include adjustments for prepayments and accrued lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company recognized no impairment of ROU assets as of September 30, 2021 and December 31, 2020. Operating leases are included in operating lease ROU and operating lease liabilities (current and non-current), on the consolidated balance sheets.
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 consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated 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 consolidated 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.
| 16 |
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 September 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 nine months ended September 30, 2021 and 2020 consisted of net income (loss) and foreign currency translation adjustments.
Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
As of September 30, 2021 and December 31, 2020, the Company did not have any potentially dilutive instruments.
Stock-Based Compensation
The Company periodically grants stock options, warrants and awards to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option, stock warrant and stock award grants to employees based on the authoritative guidance provided by the FASB where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option, stock warrant and stock award grants to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the employees and non-employees, option, warrant and award grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
| 17 |
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.
The Company manages its business as three operating segments, advertising and products, pharmacies, and hotels, all of which are located in the PRC. All of its revenues are derived in the PRC. All long-lived assets are located in PRC.
The following table shows the Company’s operations by business segment for the three months ended September 30, 2021 and 2020:
SCHEDULE OF SEGMENT REPORTING
| 2021 | 2020 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | - | |||||||
| Hotel | - | |||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | $ | ||||||
| Operating expenses | ||||||||
| Pharmacies | ||||||||
| Cost of goods sold | - | |||||||
| Operating expenses | - | |||||||
| Hotel | ||||||||
| Hotel operating costs | - | |||||||
| Operating expenses | - | |||||||
| Total operating costs and expenses | $ | $ | ||||||
| Income (loss) from operations | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ( | ) | - | |||||
| Hotel | ( | ) | - | |||||
| Income (loss) from operations | $ | ( | ) | $ | ||||
The following table shows the Company’s operations by business segment for the nine months ended September 30, 2021 and 2020.
| 2021 | 2020 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | - | |||||||
| Hotel | - | |||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | $ | ||||||
| Operating expenses | ||||||||
| Pharmacies | ||||||||
| Cost of goods sold | - | |||||||
| Operating expenses | - | |||||||
| Hotel | ||||||||
| Hotel operating costs | - | |||||||
| Operating expenses | - | |||||||
| Total operating costs and expenses | $ | $ | ||||||
| Income (loss) from operations | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ( | ) | - | |||||
| Hotel | ( | ) | - | |||||
| Income (loss) from operations | $ | $ | ||||||
| 18 |
| Segment assets | As
of September 30, 2021 | As
of December 31, 2020 | ||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | - | |||||||
| Hotel | - | |||||||
| Total assets | $ | $ | ||||||
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 consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective July 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s consolidated financial statements presentation or disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statements presentation or disclosures.
The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
3. ADVANCES TO SUPPLIERS
The
Company had advances to suppliers of $
4. INVENTORIES
Inventories consisted of the following at September 30, 2021 and December 31, 2020:
SCHEDULE OF INVENTORY
| September 30, 2021 | December 31, 2020 | |||||||
| Finished goods – health supplements | $ | $ | ||||||
| Drugs, pharmaceutical and nutritional products | - | |||||||
| Food and beverage, hotel supplies and consumables | - | |||||||
| Total | $ | $ | ||||||
| 19 |
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at September 30, 2021 and December 31, 2020:
SCHEDULE OF PROPERTY AND EQUIPMENT
| September 30, 2021 | December 31, 2020 | |||||||
| Vehicles | $ | $ | ||||||
| Office furniture | ||||||||
| Electronic equipment | ||||||||
| Machinery | ||||||||
| Construction in progress | ||||||||
| Other | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended September 30, 2021 and 2020 was $
6. INTANGIBLE ASSET, NET
Intangible asset consisted of the following at September 30, 2021 and December 31, 2020:
SCHEDULE OF INTANGIBLE ASSETS
| September 30, 2021 | December 31, 2020 | |||||||
| Software | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ||||||
| Intangible asset, net | $ | $ | ||||||
Amortization
expense for the three and nine months ended September 30, 2021 was $
7. TAXES PAYABLE
Taxes payable consisted of the following at September 30, 2021 and December 31, 2020:
SCHEDULE OF TAXES PAYABLE
| September 30, 2021 | December 31, 2020 | |||||||
| Value-added | $ | $ | ||||||
| Income | ||||||||
| City construction | ||||||||
| Education | ||||||||
| Other | ||||||||
| Taxes payable | $ | $ | ||||||
| 20 |
8. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at September 30, 2021 and December 31, 2020:
SCHEDULE OF ACCRUED LIABILITIES AND OTHER PAYABLES
| September 30, 2021 | December 31, 2020 | |||||||
| Accrued employees’ social insurance | $ | $ | ||||||
| Accrued payroll and commission | ||||||||
| Accrued rent expense | - | |||||||
| Construction payable | - | |||||||
| Accrued professional fees | ||||||||
| Deposit | - | |||||||
| Other payables | ||||||||
| Total | $ | $ | ||||||
9. LOAN FROM THIRD PARTIES
As
of September 30, 2021 and December 31, 2020, the Company had advances from former shareholders and unrelated third parties of Aixin Shangyan
Hotel in an aggregate amount of $
10. LEASE
On
September 12, 2018, the Company entered into a contract to sell its rights to a portion of a building with a buyer (the “Buyer”),
at which time the Buyer paid RMB ($)
to a shareholder of the Company as a down payment. The contract stipulated the remaining RMB
Concurrent
with the completion of this sale, the Company entered into an agreement to lease a portion of the building back from the Buyer over a
lease term of
| 21 |
The
Company also has operating leases for other sales locations under various operating lease arrangements. The leases have remaining lease
terms of approximately
Aixin Shangyan Hotel leases its hotel premises under an operating lease arrangement. The lease has a remaining lease term of approximately 2.25 years.
Aixintang Pharmacies lease 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:
SCHEDULE OF OPERATING LEASE LIABILITIES
| September 30, 2021 | December 31, 2020 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liability – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The following provides details of the Company’s lease expenses:
SCHEDULE OF OPERATING LEASE EXPENSES
| Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | $ | ||||||
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | $ | ||||||
Other information related to leases is presented below:
SCHEDULE OF OTHER INFORMATION RELATED LEASES
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Paid For Amounts Included In Measurement of Liabilities: | ||||||||
| Operating cash flows from operating leases | $ | |||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | % | % | ||||||
Maturities of lease liabilities were as follows:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
| For the year ending December 31: | ||||
| 2021 (excluding the nine months ended September 30, 2021) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
| Less: current portion | ( | ) | ||
| Lease liabilities – non-current portion | $ | |||
| 22 |
11. RELATED PARTY TRANSACTIONS
Advance to related parties
SCHEDULE OF RELATED PARTY TRANSACTIONS
Advance to related parties consisted of the following as of the periods indicated:
| September 30, 2021 | December 31, 2020 | |||||||
| Chengdu WenJiang Aixin Nanjiang Pharmacy Co., Ltd. | $ | $ | ||||||
| Qionglai Weide Pharmacy | - | |||||||
| Chengdu Xindu Cundetang Pharmacy Co., Ltd. | - | |||||||
| Chengdu Lisheng Huiren Tang Pharmacy Co., Ltd. | - | |||||||
| Total | $ | $ | ||||||
| Advance to related parties | ||||||||
Advance from related parties
Advance from related parties consisted of the following as of the periods indicated:
| September 30, 2021 | December 31, 2020 | |||||||
| Quanzhong Lin | $ | $ | ||||||
| Yirong Shen | - | |||||||
| Chengdu Aixin E-Commerce Company Ltd. | ||||||||
| Chengdu Aixin International travel service Co, Ltd | - | |||||||
| Chengdu Beibang Pharmacy | - | |||||||
| Aixin Life Beauty | - | |||||||
| Total | $ | $ | ||||||
| Advance from related parties | ||||||||
All the related party entities are controlled by Mr. Quanzhong Lin (the Chairman, President and major shareholder of Aixin Life). These advances to and from related parties were for working capital purpose, payable on demand, and bear no interest. Yirong Shen was a major shareholder of Aixin Shangyan Hotel prior to the closing of Hotel Purchase Agreement, and she serves as the supervisor of Aixin Shangyan Hotel.
Office lease from a Major Shareholder
In
May 2014, the Company entered a lease with its major shareholder for office use; the lease term was
12. INCOME TAXES
The Company was incorporated in the United States of America (“USA”) and has operations in one tax jurisdiction, i.e. the PRC. The Company generated substantially all of its sales from its operations in the PRC for the three and nine months ended September 30, 2021 and 2020, and recorded an income tax provision for each of such periods.
China
has a tax rate of
Uncertain Tax Positions
Interest associated with unrecognized tax benefits are classified as income tax, and penalties are classified in selling, general and administrative expenses in the statements of operations. For the three and nine months ended September 30, 2021 and 2020, the Company had no unrecognized tax benefits and related interest and penalties expenses. Currently, the Company is not subject to examination by major tax jurisdictions.
| 23 |
13. STOCKHOLDERS’ EQUITY
On
August 17, 2020, by unanimous written consent in lieu of a meeting, the Board adopted resolutions authorizing a
As of September 30, 2021 and December 31, 2020, the Company had common shares issued and outstanding.
In June 2020, shares owned by Quanzhong Lin (the Chairman, President and major shareholder of Aixin Life) were cancelled.
Stock Awards Issued for Services
On
October 22, 2019, the Company granted and issued shares to its employees
and contractors under its 2019 Equity Incentive Plan. The stock awards were valued at $
On
October 24, 2019, the Company granted and issued shares to its employees
and contractors under its 2019 Equity Incentive Plan. The stock awards were valued at $
The stock awards will vest over five () years from the grant date, and the grantee will forfeit a portion of the shares granted (“Shares Granted”) if the grantee is no longer employed by or contracted with the Company. Specifically,
For the three months ended September 30, 2021 and 2020, stock-based compensation expenses were $. For the nine months ended September 30, 2021 and 2020, stock-based compensation expenses were $. As of September 30, 2021, unrecognized compensation expenses related to these stock awards are $. These expenses are expected to be recognized over years.
Forgiveness of shareholder’s loan
As
of September 30, 2021, the Company’s major shareholder Mr. Lin forgave his loan to the Company for $
Acquisition of Subsidiaries
As
of September 30, 2021, the Company completed the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies (see Note 1), and the acquisition
was accounted for as entities under common control. Pursuant to the acquisition, the Company made payment to Mr. Lin in the aggregate
amount of $
14. 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.
| 24 |
Surplus reserve fund
The
Company is now required to transfer
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
Common welfare fund
Common
welfare fund is a voluntary fund to which the Company can elect to transfer
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.
15. 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.
Litigation
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.
In
December 2020, Jian Yiao (the “Plaintiff”) filed a complaint against Chengdu Aixintang Pharmacy Co., Ltd. (“Aixintang
Pharmacy”, or the “Defendant”) in Zhangjiagang People’s Court in Jiangsu Province. The complaint alleges that
Jian Yiao is entitled to $
In February 2021, the judge in the Jiangsu Suzhou Intermediate People’s Court denied the Defendant’s motion and upheld the judgment from the first trial. In March 2021, Aixintang Pharmacy filed another motion to the Jiangsu High People’s Court on the basis that the Purchase Agreement was forged. To date, this legal proceeding remains pending.
In November 2021, the Company and Mr. Quanzhong Lin agreed that Mr. Lin shall assume any losses arising from this legal proceeding. As such, the Company did not accrue contingent losses from this legal proceeding as of September 30, 2021.
The Company believes that current pending litigation will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
16. ACQUISITION OF SUBSIDIARIES
From July and September, 2021, the Company completed the required governmental procedures and obtained the documents necessary to consider the acquisitions of Aixin Shangyan Hotel and Aixintang Pharmacies completed.
Pursuant
to the Hotel Purchase Agreement dated on May 25, 2021,
AiXin HK purchased all of the outstanding equity of Aixin Shangyan Hotel for a purchase price of RMB
Pursuant
to the Pharmacies Purchase Agreement entered on June 2, 2021, AiXin HK purchased 100% ownership of Aixintang Pharmacies from Mr.
Lin and the other two shareholders for a purchase price of RMB
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The acquisition is for entities under common control under ASC 805-50-15-6, and the assets and liabilities acquired will be measured and recorded at the carrying amount under ASC 805-50-30-5. The following condensed unaudited pro forma consolidated results of operations for the Company, Aixin Shangyan Hotel and Aixintang Pharmacies for the nine months ended September 30, 2021 and 2020 present the Company, Aixin Shangyan Hotel and Aixintang Pharmacies operations as if the acquisitions occurred on January 1, 2021 and 2020, respectively. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.
SCHEDULE OF BUSINESS ACQUISITION PRO FORMA
| 2021 | 2020 | |||||||
| Revenue | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Income tax expense | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
17. SUBSEQUENT EVENT
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company has no material subsequent events.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes to those statements included elsewhere in this Form 10-Q and with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in our 2020 Form 10-K, that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We market and sell consumer products in China by offering premium-quality nutritional products. We also provide advertising and marketing services to clients which engage us to distribute their products. We offer our nutritional products and those of our clients through our sales offices, exhibition events we organize and sponsor, and person-to-person marketing. Our marketing business mainly focuses on proactively approaching customers such as by hosting events for clients, which we believe is ideally suited to marketing our products and those of our clients for which we perform advertising services because sales of nutritional products are strengthened by ongoing personal contact and support, coaching and education among the Company and our clients towards how to achieve a healthy and active lifestyle.
In July we completed the acquisition of Aixin Shangyan Hotel. Shangyan Hotel Company owns and operates a hotel located in the Jinniu District, Chengdu City. The hotel covers more than 8,000 square meters and has a large restaurant that can accommodate 600 people, 6 luxury dining rooms, a 200 square meter music tea house, 13 private tea rooms, 108 guest rooms and other supporting facilities. completed. We acquired the hotel through an acquisition of the outstanding equity of Aixin Shangyan Hotel for a purchase price of RMB 7,598,887, or approximately $1.16 million (“Transfer Price”). The Transfer Price will be reduced by an amount equal to any amounts paid or distributed by the hotel to its shareholders after December 31, 2020 and will be increased by an amount equal to any amounts contributed to the hotel by its equity owners after December 31, 2020.
In September 2021, we completed the acquisitions of nine pharmacies located in Chengdu through the acquisition of the outstanding equity of the entities which owned the pharmacies for an aggregate purchase price of RMB 34,635,845, or approximately US$5.31 million (“Transfer Price”). The Transfer Price will be reduced by an amount equal to any amounts paid or distributed by any of the entities to its shareholders after December 31, 2020 and increased by an amount contributed to any of the entities by its shareholders after such date.
In March 2020, the World Health Organization announced that infections caused by the coronavirus disease of 2019 (“COVID-19”) had become pandemic and national, provincial and local authorities, including those whose jurisdictions include Chengdu, where our offices, hotel and pharmacies are located, adopted various regulations and orders, including “shelter in place” rules, restrictions on travel, mandates on the number of people that may gather in one location and closing non-essential businesses. 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 our advertising and marketing business have not been materially adversely impacted by the measures taken to limit the spread of the disease in China. Our hotel and pharmacies, however, have experienced adverse impacts due to travel and work restrictions imposed on a temporary basis in Chengdu to limit the spread of COVID-19. The Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs. However, the Company cannot predict with certainty what measures may be taken by its suppliers and customers and the impact these measures may have on its financial results for the balance of 2021 and throughout 2022.
In addition to our ongoing operations, we seek to acquire interests in additional businesses through opportunities found by our management or presented by persons or firms which desire to take advantage of the perceived advantages of an Exchange Act registered corporation. We do not restrict our search to any specific business, industry, or geographical location and may participate in a business venture of virtually any kind or nature.
It is the goal of our management, in particular, our Chairman, Quanzhong Lin to grow our business and to modify its capital structure in order to qualify for a listing on NASDAQ or the NYSE-American exchange. As part of this effort, we will continue to seek to acquire more businesses and to modify our capital structure as necessary to meet the requirements of the exchange to which we apply for a listing. As part of this effort. on June 8, 2020, Mr. Lin transferred 35,049,685 shares of our common stock to our Company for cancellation.
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Results of Operations
The following table sets forth the results of our operations for the periods indicated as a percentage of net revenue, certain columns may not add due to rounding:
| Three Months Ended September 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| $ | % of Revenue | $ | % of Revenue | |||||||||||||
| Revenue | $ | 812,910 | 100 | % | $ | 728,896 | 100 | % | ||||||||
| Operating costs and expenses | 906,419 | 112 | % | 409,619 | 56 | % | ||||||||||
| Income (loss) from operations | (93,509 | ) | (12 | )% | 319,277 | 44 | % | |||||||||
| Non-operating income, net | 21,499 | 3 | % | 323,373 | 44 | % | ||||||||||
| Income tax expense | 74,094 | 9 | % | 2,319 | - | % | ||||||||||
| Net income (loss) | $ | (146,104 | ) | (18 | )% | $ | 640,331 | 88 | % | |||||||
| Nine Months Ended September 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| $ | % of Revenue | $ | % of Revenue | |||||||||||||
| Revenue | $ | 2,363,836 | 100 | % | $ | 1,774,139 | 100 | % | ||||||||
| Operating costs and expenses | 1,766,671 | 75 | % | 1,122,248 | 63 | % | ||||||||||
| Income from operations | 597,165 | 25 | % | 651,891 | 37 | % | ||||||||||
| Non-operating income (expenses), net | 17,264 | 1 | % | 554,885 | 31 | % | ||||||||||
| Income tax expense | 292,146 | 12 | % | 2,319 | - | % | ||||||||||
| Net income | $ | 322,283 | 14 | % | $ | 1,204,457 | 68 | % | ||||||||
The following table shows our operations by business segment for the three months ended September 30, 2021 and 2020:
| 2021 | 2020 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | 509,861 | $ | 728,896 | ||||
| Pharmacies | 139,947 | - | ||||||
| Hotel | 163,102 | - | ||||||
| Total revenues, net | $ | 812,910 | $ | 728,896 | ||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | 38,461 | $ | 20,478 | ||||
| Operating expenses | 267,331 | 389,141 | ||||||
| Pharmacies | ||||||||
| Cost of goods sold | 92,477 | - | ||||||
| Operating expenses | 124,138 | - | ||||||
| Hotel | ||||||||
| Hotel operating costs | 320,305 | - | ||||||
| Operating expenses | 63,707 | - | ||||||
| Total operating costs and expenses | $ | 906,419 | $ | 409,619 | ||||
| Income (loss) from operations | ||||||||
| Advertising and products | $ | 204,069 | $ | 319,277 | ||||
| Pharmacies | (76,668 | ) | - | |||||
| Hotel | (220,910 | ) | - | |||||
| Income (loss) from operations | $ | (93,509 | ) | $ | 319,277 | |||
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The following table shows our operations by business segment for the nine months ended September 30, 2021 and 2020.
| 2021 | 2020 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | 2,060,787 | $ | 1,774,139 | ||||
| Pharmacies | 139,947 | - | ||||||
| Hotel | 163,102 | - | ||||||
| Total revenues, net | $ | 2,363,836 | $ | 1,774,139 | ||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | 199,141 | $ | 67,379 | ||||
| Operating expenses | 966,903 | 1,054,869 | ||||||
| Pharmacies | ||||||||
| Cost of goods sold | 92,477 | - | ||||||
| Operating expenses | 124,138 | - | ||||||
| Hotel | ||||||||
| Hotel operating costs | 320,305 | - | ||||||
| Operating expenses | 63,707 | - | ||||||
| Total operating costs and expenses | $ | 1,766,671 | $ | 1,122,248 | ||||
| Income (loss) from operations | ||||||||
| Advertising and products | $ | 894,743 | $ | 651,891 | ||||
| Pharmacies | (76,668 | ) | - | |||||
| Hotel | (220,910 | ) | - | |||||
| Income (loss) from operations | $ | 597,165 | $ | 651,891 | ||||
Revenue
Revenue was $812,910 in the three months ended September 30,2021, compared to $728,896 in the same period of 2020, an increase of $84,014 or 12%. Revenue was $2,363,836 in the nine months ending September 30 2021, compared to $1,774,139 in the same period of 2020, an increase of $589,697 or 33%. The increase in revenue was mainly due to increased advertising revenue, and revenue from our hotel and pharmacies. The results of the operations of the hotel and pharmacies are included in our financial results since the completion of the acquisitions from July to September, 2021, respectively. For the third quarter and nine months ended September 30, 2021, we had advertising and products revenue of $509,861 and $2,060,787 respectively, pharmacies revenue of $139,947 and $139,947, and hotel revenue of $163,102 and $163,102. For the third quarter and nine months ended September 30, 2020, we had $728,896 and $1,774,139 in advertising and products revenue and no revenues from the hotel and pharmacies as the acquisitions were not completed until 2021. The increase in advertising and products revenue reflects an increase in the number of advertising customers during 2021.
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Operation Costs and Expenses
Cost of Goods Sold
Cost of goods sold was $130,938 and $291,618 in the three and nine months ended September 30, 2021, respectively, compared to $20,478 and $67,379 for the comparable periods of 2020, an increase of $110,460 or 539% for the three months ended September 30, 2021 compared with same period of 2020, and an increase of $224,239 or 333% for the nine months ended September 30, 2021 compared with same period of 2020. The increase in our cost of goods sold is attributable to the increase in product sales due to the acquisition of the pharmacies as well as an increase in cost of goods sold from our traditional products. The cost of goods sold for our nutritional products as a percentage of was 64% and 64% in the three and nine months ended September 30, 2021, respectively, compared to 37% and 40% for the three and nine months ended September 30, 2020, respectively. The cost of goods sold as a percentage of nutritional product sales was higher in the three and nine months ended September 30, 2021, compared with the same period of 2020 due to increased sales volume of lower profit margin products in 2021.
Hotel Operating Costs
Hotel Operating costs were $320,305 for the three and nine months ended September 30, 2021, compared to $0 for the comparable periods of 2020, an increase of $320,305, or 100%. The increase in hotel operating costs was primarily due to the inclusion of the hotel operating costs of Aixin Shangyan Hotel.
Operating Expenses
Operating expenses were $455,176 and $1,154,748 for the three and nine months ended September 30 2021, respectively, compared to $389,141 and $1,054,869 for the comparable periods of 2020, an increase of $66,305 or 17% for the three months ended September 30, 2021 compared with same period of 2020, and an increase of $99,879 or 9% for the nine months ended September 30, 2021 compared with same period of 2020. The increase in operating expenses for the three months ended September 30, 2021 was mainly due to the inclusion of the operating expenses of the hotel and pharmacies since the dates of their acquisitions and increased selling expense due to the acquisition of the hotel and pharmacies which was partly offset by decreased general and administrative expense due to the decrease in advertising revenue. The increase in operating expenses for the nine months ended September 30, 2021 was mainly due to the inclusion of the operating expenses of the hotel and pharmacies since the dates of their acquisitions and increased selling expenses and general and administrative expenses resulting from such acquisitions.
Income (loss) from Operations
Income (loss) from operations was $(93,509) and $319,277 in the three and nine months ended September 30 2021, respectively, compared to $597,165 and $651,891 in the same periods of 2020, a decrease of $412,786 or 129% for the three months ended September 30, 2021 compared with same period of 2020, and a decrease of $54,726 or 8% for the nine months ended September 30, 2021 compared with same period of 2020. The decrease in our income from operations for the three months ended September 30, 2021 was mainly due to decreased advertising revenue and increased operating costs and expenses compared with the same period of 2020. The decrease in our income from operations for the nine months ended September 30, 2021 was mainly due to the increased operating costs and expenses, partially offset by the increased revenue.
Non-operating Income
Non-operating income was $21,499 and $17,264 for the three and nine months ended September 30, 2021, respectively, compared to $323,373 and $554,885 for the comparable periods of 2020. For the three months ended September 30, 2021, we had interest income $599 and other income $22,067 and other expenses of $1,167. For the three months ended September 30, 2020, we had interest income $297,895 and other income $25,741. For the nine months ended September 30, 2021, we had interest income $3,088 and other income $22,228 and other expenses of $8,052. For the nine months ended September 30, 2020, we had interest income $529,551 and other income $25,783.
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Income tax expense
Income tax expense were $74,094 and $292,146 for the three and nine months ended September 30, 2021, compared to $2,319 and $2,319 in the same periods of 2020, an increase of $289,827 or 12,498% for the nine months ending September 30, 2021; an increase of $71,775 or 3,095% for the three months ending September 30, 2021.
Net Income (Loss)
Our net income (loss) for the three and nine months ended September 30, 2021 was $(146,104) and $322,283 respectively, compared to net income $640,331 and $1,204,457 in the same periods of 2020, a decrease in net income of $786,435 or 123% for the three months ended September 30, 2021 compared with same period of 2020, and a decrease of $882,174 or 73% for the nine months ended September 30, 2021 compared with same period of 2020. The decrease in net income in the nine and three months ended September 30, 2021 was mainly due to an increase in our income tax expense primarily in the nine months ending September 30, 2021, and a decrease in interest income and increased operating expenses due to the acquisition of the hotel and pharmacies.
Liquidity and Capital Resources
During 2020 and 2021, we depended upon advances from our major shareholder and capital raised in private placements to support our operations. During the nine months ended of September 30, 2021, we generated $546,069 from operations. As of September 30, 2021, cash and cash equivalents were $3,297,835, compared to $7,676,689 as of December 31, 2020. At September 30, 2021, we had working capital of $820,305 compared to $6,753,486 at December 31, 2020. The reduction in our cash from December 31, 2020 to September 30, 2021, was the result of the payments made to acquire Aixin Shangyan Hotel and Aixintang Pharmacies.
The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2021 and 2020, respectively.
September 30, 2021 | September 30, 2020 | |||||||
| Net cash provided by operating activities | $ | 546,069 | $ | 1,456,421 | ||||
| Net cash (used in) provided by investing activities | $ | (4,410,524 | ) | $ | 4,033,470 | |||
| Net cash (used in) provided by financing activities | $ | (592,814 | ) | $ | 2,227,904 | |||
Net cash provided by operating activities
For the nine months ended September 30, 2021, net cash provided by operating activities was $546,069. This was primarily due to our net income of $322,283, adjusted by non-cash related expenses including depreciation of $21,910, provision for bad debt of $17,883 and stock-based compensation of $278,655, and then decreased by changes in working capital of $94,662. The cash outflow from changes in working capital mainly resulted from inventory purchases of $18,728, payments of advances to suppliers of $116,795, and payments of accrued liabilities $41,986, partly offset by cash inflow from other receivables and prepaid expenses, unearned revenue and an increase in taxes payable outstanding of $46,672.
For the nine months ended September 30, 2020, net cash provided by operating activities was $1,456,421. This was primarily due to our net income of $1,204,457, adjusted by non-cash related expenses including depreciation of $34,572, provision for bad debt of $13,451, and stock-based compensation of $278,655, and then decreased by changes in working capital of $74,714. The changes in working capital mainly resulted from a decrease in accrued liabilities and other payables of $99,549, an increase in inventory of $31,830, and a decrease in taxes payable of $24,966, partly offset by a decrease in advance to suppliers of $63,235 and a decrease in other receivables and prepaid expenses of $17,327.
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Net cash (used in) provided by investing activities
For the nine months ended September 30, 2021, net cash used in investing activities was $4,410,524, mainly for the acquisition of a hotel and pharmacies from our major shareholder.
For the nine months ended September 30, 2020, net cash provided by investing activities was $4,033,470, which was mainly due to the return of a prepayment for the acquisitions of $4,035,615, partly offset by purchases of property and equipment of $2,145.
Net cash (used in) provided by financing activities
For the nine months ended September 30, 2021, net cash used in financing activities were changes in advances from related parties of $592,814.
For the nine months ended September 30, 2020, net cash provided by financing activities was an advance from our major shareholder of $2,227,904.
Impact of Inflation
Our results of operations may be affected by inflation, particularly rising prices for products and other operating costs if we cannot pass such increases along to our customers in the form of higher prices for our products and services. Generally, our inventory turns multiple times per year and we anticipate that we will be able to increase prices on products to reflect increases in the cost of inventory.
Contractual Obligations
We have no long-term fixed contractual obligations or commitments.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any uncombined entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Contingencies
The Company’s operations are conducted in the PRC and 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 in China and foreign currency exchange. The Company’s results may be adversely affected by changes in PRC government 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 expense transactions in China are denominated in RMB and all of the Company’s assets and liabilities in China are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current PRC 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 in order to affect the remittance.
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Significant Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to assist you in fully understanding and evaluating this management discussion and analysis.
Basis of Presentation
The accompanying financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of Aixin is Chinese Renminbi (‘‘RMB’’). The accompanying financial statements are translated from RMB and presented in U.S. dollars (“USD”).
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.
Accounts Receivable
The Company maintains 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. During the nine months ended in September 30, 2021 and 2020, bad debt expense was $17,883 and $13,451, respectively. During the three months ended September 30, 2021 and 2020, bad debt expense (reversal) was $17,883 and $(75), respectively. As of September 30, 2021 and December 31, 2020, the bad debt allowance was $292,742 and $148,520, respectively.
Revenue Recognition
ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As revenues are and have been primarily from the delivery of products and the performance of services, and the Company has no significant post-delivery obligations, this did not result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
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. |
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The Company’s revenue recognition policies for its various operating segments are as follows:
Advertising and Products
Advertising Revenue
Commencing in the third quarter of 2019, AiXin Zhonghong began to provide advertising services to its clients. Advertising contracts are signed to establish the price and advertising services to be provided. Pursuant to the advertising contracts, the Company provides advertising and marketing services to its clients through exhibition events, conferences, and person-to-person marketing. The Company performs a credit assessment of the customer to assess the collectability of the contract price prior to entering into contracts.
Most of the advertisement contracts designated that the Company perform such advertising services for its clients through exhibition events, conferences, and person-to-person marketing during the contracted period, regardless of the number of such events. As such, the Company determined that the performance obligation is satisfied over time during the contracted period and revenue is recognized accordingly. Such advertising revenue amounted to $445,215 and $673,978 for the three months ended September 30, 2021 and 2020, respectively. Such advertising revenue amounted to $1,742,896 and $1,597,330 for the nine months ended September 30, 2021 and 2020, respectively.
A smaller proportion of the Company’s advertising revenue is generated from services to its clients through exhibition events, conferences, and person-to-person marketing, and charges based on the number of promotional products sold. Such advertising revenue amounted to $0 for the three months ended September 30, 2021 and 2020. Such advertising revenue amounted to $0 and $6,476 for the nine months ended September 30, 2021 and 2020, respectively.
All of the advertising revenue is 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.
Products Revenue
The Company’s revenue from sale of products is recognized when goods are delivered to the customer and no other obligation exists. The Company does not provide unconditional return or other concessions to the customer. The Company’s sales policy allows for the return of unopened products for cash after deducting certain service and transaction fees. As an alternative to the product return option, the customers have options of asking for an exchange for products with the same value.
Sales revenue of AiXin Zhonghong 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 17% of the gross sales price prior to May 1, 2018, 16% since May 1, 2018 and 13% since April 1, 2019. 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.
Hotel
Hotel 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. All of the hotel’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.
Pharmacies
The Company’s retail drugstores (Aixintang Pharmacies) 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. Aixintang Pharmacies 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 VAT. All of Aixintang Pharmacies’ products sold in China are subject to the PRC VAT of 0% as it qualifies for small businesses.
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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.
We use FASB ASC Topic 220, “Comprehensive Income”. Comprehensive income (loss) is comprised of net income (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 loss for nine and three months ended September 30, 2021 and 2020 consisted of net loss and foreign currency translation adjustments.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Management of AiXin Life International, Inc. is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
At September 30, 2021, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based on their evaluation of our disclosure controls and procedures, they concluded that at June 30, 2021, such disclosure controls and procedures were not effective. This was due to our limited resources, including the absence of a financial staff with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.”
We plan to designate individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There is no pending litigation to which we are presently a party or to which our property is subject and management is not aware of any facts which are likely to result in litigation in the future.
Item 1A. Risk Factors
Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our 2020 Form 10-K, which are incorporated by reference into this report. Prospective investors are encouraged to consider the risks described in the 2020 Form 10-K, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended September 30, 2021, we did not have any sales of equity securities in transactions that were not registered under the Securities Act of 1933, as amended, that have not been previously reported in a report filed pursuant to the Exchange Act.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
None
Item 6. Exhibits
| 36 |
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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. | ||
| Dated: November 22, 2021 | By: | /s/ Quanzhong Lin |
| Quanzhong Lin | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| 37 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Quanzhong Lin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AiXin Life International, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: November 22, 2021 | |
| /s/ Quanzhong Lin | |
| Quanzhong Lin | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Guolu Li, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AiXin Life International, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: November 22, 2021 | |
| /s/ Guolu Li | |
| Guolu Li | |
| Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of AiXin Life International, Inc., a Colorado corporation (the “Company”), on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission (the “Report”) Quanzhong Lin, Chief Executive Officer of the Company, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: November 22, 2021
| /s/ Quanzhong Lin | |
| Quanzhong Lin | |
| Chief Executive Officer (Principal Executive Officer) |
[A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.]
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of AiXin Life International, Inc., a Colorado corporation (the “Company”), on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission (the “Report”), Guolu Li, Chief Financial Officer of the Company, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: November 22, 2021
| /s/ Guolu Li | |
| Chief Financial Officer (Principal Financial Officer) |
[A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company. and furnished to the Securities and Exchange Commission or its staff upon request.]