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 Colorado on
December 30, 1987 under
the name Mercari Communications Group, Ltd (“Mercari”). Mercari’s business failed in 1990. Mercari conducted no operating
activities from June 1, 1990 to August 31, 2001 and was dormant.
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 10,955,500
shares of the Company’s
common stock, 96.5%
of the Company’s outstanding shares, to China Concentric, for $260,000,
and assigned its right to the repayment of $150,087
of non-interest bearing
advances to the Company for working capital, pursuant to a Stock Purchase Agreement dated December 20, 2016, as amended. Prior to entering
into the Stock Purchase Agreement with Algodon, neither China Concentric nor any of its affiliates had any relationship to the Company,
Algodon or any of their respective affiliates.
On
February 2, 2017, Mr. Quanzhong Lin purchased 7,380,352
shares of the Company’s
common stock, 65.0%
of its outstanding shares from China Concentric for $300,000,
pursuant to a Stock Purchase Agreement dated December 21, 2016, which resulted in a change in control of our company.
On
December 12, 2017, the Company issued 56,838,151
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.
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 100%
ownership of Aixin Shangyan Hotel from Mr. Lin and Ms. Shen. Eighty percent of the equity of Aixin Shangyan Hotel is owned by Mr. Lin,
and the remaining balance is owned by Ms. Shen. Under the terms of the Hotel Purchase Agreement, Aixin Life agreed to purchase all of
the outstanding equity of Aixin Shangyan Hotel for a purchase price of RMB 7,598,887,
or approximately $1.16
million (the “Transfer Price”).
The Transfer Price will be reduced by an amount equal to any amounts paid or distributed by Aixin Shangyan Hotel to the Transferor
after December 31, 2020 and will be increased by an amount equal to any amounts contributed to Aixin Shangyan Hotel by the Transferor
after December 31, 2020. The acquisition was completed in July 2021.
On
June 2, 2021, AiXin HK entered into an Equity Transfer Agreement with Chengdu Aixintang Pharmacy Co., Ltd. and certain affiliated
entities, each of which operates a pharmacy (together, “Aixintang Pharmacies”) and its three shareholders, Quanzhong
Lin, Ting Li and Xiao Ling Li (“Transferor”). Mr. Lin owns in excess of 95% of the outstanding equity the Aixintang Pharmacies.
The remaining equity interest is owned by Ting Li and Xiao Ling Li. Pursuant
to the agreement (the “Pharmacies Purchase Agreement”), AiXin HK agreed to purchase all of the outstanding equity
of Aixintang Pharmacies for an aggregate purchase price of RMB 34,635,845,
or approximately US$5.31
million (the “Transfer Price”).
The Transfer Price will be reduced by an amount equal to any amounts paid or distributed by any of the Aixintang Pharmacies to the Transferor
after December 31, 2020 and increased by an amount contributed to any of the Aixintang Pharmacies by the Transferor after such date.
The acquisition was completed in September 2021.
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.
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.
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 $292,746
and $148,520,
respectively.
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 no inventory
impairment for the three and nine months ended September 30, 2021 and 2020.
In
July 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-11, “Inventory (Topic 330) - Simplifying the Measurement
of Inventory,” which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable
value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation.
Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation, and impairment losses, if any. Major repairs and betterments that significantly
extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs
are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided
using the straight-line method for substantially all assets with 5%
salvage value and estimated lives as follows:
SCHEDULE
OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
|
Office furniture
|
|
|
5
years
|
|
|
Electronic equipment
|
|
|
2-3
years
|
|
|
Machinery
|
|
|
3
years
|
|
|
Leasehold improvements
|
|
|
3
years
|
|
|
Vehicles
|
|
|
5
years
|
|
Impairment
of Long-Lived Assets
Long-lived
assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. Fair value is generally
determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review,
the Company believes that, as of September 30, 2021 and December 31, 2020, there were no
significant impairments
of its long-lived assets.
Income
Taxes
Income
taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end
based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The
Company follows Accounting Standards Codification (“ASC”) Topic 740, which prescribes a more-likely-than-not threshold for
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides
guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities,
accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under
ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the 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.
|
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.
Concentration
of Credit Risk
The
operations of the Company are in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may
be influenced by the political, economic, and legal environments in the PRC, and by the general state of the PRC economy.
The
Company has cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC. Cash in state-owned banks
is covered by insurance up to RMB 500,000
($72,500)
per bank. The Company has not experienced any losses in such accounts and believes they are not exposed to any risks on its cash in these
bank accounts.
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
three months ended
September 30, 2021
|
|
|
%
of total revenue
|
|
|
B
|
|
$
|
299,076
|
|
|
|
37
|
%
|
|
A*
|
|
|
146,140
|
|
|
|
18
|
%
|
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
nine months ended September 30, 2021
|
|
|
%
of total revenue
|
|
|
A*
|
|
$
|
1,152,208
|
|
|
|
49
|
%
|
|
B
|
|
|
590,688
|
|
|
|
25
|
%
|
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
three months ended
September 30, 2020
|
|
|
%
of total revenue
|
|
|
A*
|
|
$
|
673,978
|
|
|
|
92
|
%
|
|
|
|
|
|
|
|
|
|
|
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
nine months ended
September 30, 2020
|
|
|
%
of total revenue
|
|
|
A*
|
|
$
|
1,603,806
|
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
|
During
the three months ended September 30, 2021, the Company had no supplier that accounted for over 10% of its total purchases.
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
September 30, 2021
|
|
|
%
of total purchase
|
|
|
C
|
|
$
|
232,584
|
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
12,087
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
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*
|
|
$
|
48,137
|
|
|
|
55
|
%
|
|
E
|
|
|
19,746
|
|
|
|
23
|
%
|
|
D
|
|
|
12,087
|
|
|
|
14
|
%
|
|
*
|
|
Represented
advertising revenues from this customer during the three and nine months ended September 30, 2021 and 2020. The Company also purchased
inventory from this customer in the three and nine months ended September 30, 2021 and 2020.
|
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.
|
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.
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.
Earnings
per Share
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.
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
|
|
$
|
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
|
|
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
|
|
$
|
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
|
|
|
Segment assets
|
|
As
of
September 30, 2021
|
|
|
As
of
December 31, 2020
|
|
|
Advertising
and products
|
|
$
|
3,775,971
|
|
|
$
|
8,093,818
|
|
|
Pharmacies
|
|
|
797,105
|
|
|
|
-
|
|
|
Hotel
|
|
|
2,091,486
|
|
|
|
-
|
|
|
Total assets
|
|
$
|
6,664,562
|
|
|
$
|
8,093,818
|
|
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 $279,859 and
$155,686 as
of September 30, 2021 and December 31, 2020, respectively. Advances to suppliers primarily include prepayments for products expected
to be delivered subsequent to balance sheet dates.
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
|
|
$
|
103,334
|
|
|
$
|
45,535
|
|
|
Drugs, pharmaceutical and nutritional products
|
|
|
105,304
|
|
|
|
-
|
|
|
Food and beverage,
hotel supplies and consumables
|
|
|
110,967
|
|
|
|
-
|
|
|
Total
|
|
$
|
319,605
|
|
|
$
|
45,535
|
|
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
|
|
$
|
292,259
|
|
|
$
|
288,604
|
|
|
Office furniture
|
|
|
63,557
|
|
|
|
48,464
|
|
|
Electronic equipment
|
|
|
21,882
|
|
|
|
14,852
|
|
|
Machinery
|
|
|
103,747
|
|
|
|
-
|
|
|
Construction in progress
|
|
|
253,729
|
|
|
|
-
|
|
|
Other
|
|
|
6,304
|
|
|
|
-
|
|
|
Total
|
|
|
741,478
|
|
|
|
351,920
|
|
|
Less: Accumulated depreciation
|
|
|
(382,066
|
)
|
|
|
(284,103
|
)
|
|
Property and equipment,
net
|
|
$
|
359,412
|
|
|
$
|
67,817
|
|
Depreciation
expense for the three months ended September 30, 2021 and 2020 was $10,608 and
$9,761,
respectively. Depreciation expense for the nine months ended September 30, 2021 and 2020 was $21,478 and
$34,572,
respectively.
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
|
|
$
|
7,809
|
|
|
$
|
-
|
|
|
Less: Accumulated
amortization
|
|
|
(5,240
|
)
|
|
|
|
|
|
Intangible asset,
net
|
|
$
|
2,569
|
|
|
$
|
-
|
|
Amortization
expense for the three and nine months ended September 30, 2021 was $432.
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
|
|
$
|
66,178
|
|
|
$
|
32,318
|
|
|
Income
|
|
|
248,071
|
|
|
|
235,300
|
|
|
City construction
|
|
|
4,794
|
|
|
|
2,422
|
|
|
Education
|
|
|
2,085
|
|
|
|
1,781
|
|
|
Other
|
|
|
13,389
|
|
|
|
11,674
|
|
|
Taxes payable
|
|
$
|
334,517
|
|
|
$
|
283,495
|
|
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
|
|
$
|
348,650
|
|
|
$
|
364,870
|
|
|
Accrued payroll and commission
|
|
|
232,417
|
|
|
|
105,844
|
|
|
Accrued rent expense
|
|
|
101,228
|
|
|
|
-
|
|
|
Construction payable
|
|
|
76,437
|
|
|
|
-
|
|
|
Accrued professional fees
|
|
|
45,569
|
|
|
|
16,927
|
|
|
Deposit
|
|
|
7,450
|
|
|
|
-
|
|
|
Other payables
|
|
|
33,040
|
|
|
|
26,598
|
|
|
Total
|
|
$
|
844,791
|
|
|
$
|
514,239
|
|
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 $463,229
and $0,
respectively. There was no written agreement, and these loans are payable on demand and bear no interest.
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 100,000
($14,898)
to a shareholder of the Company as a down payment. The contract stipulated the remaining RMB 8,900,000
($1,325,964)
should be paid by the Buyer on or before September 30, 2018 and before the Company would be required to go to the relevant authority
to effectuate the transfer of its property rights. The Buyer failed to make the payment on or prior to September 30, 2018, a default
under the contract which gave the Company the right to terminate the contract. In October 2018, the Buyer delivered to the shareholder
an additional RMB 7
million ($1.0
million). On
March 25, 2019, the parties entered into a supplemental agreement which provided that the Company would transfer the property rights
to Buyer if it agreed the Company would get the benefit of the RMB 7,000,000 ($1,042,893) and otherwise pay the remaining balance of
RMB 1,200,000 ($178,782) on or prior to March 31, 2019. The RMB 1,200,000 ($178,782) was paid directly to the shareholder on a timely
basis and the Company was given the benefit of the RMB 8,900,000 ($1,325,964) delivered to the Shareholder. The
cost and accumulated depreciation of the building was $1,739,228
and $364,834,
respectively. The Company recorded a loss on sale of $32,945
during the nine months
ended September 30, 2019. $1,340,862
of the proceeds from
the sale was collected by the principal shareholder which was offset against amounts due to the shareholder.
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 2 years.
The Company accounted for this lease as an operating lease right-of-use asset and a corresponding operating lease liability in accordance
with the Lease Standard. As a result, $207,049
(RMB 1,389,731)
was recorded as operating lease right-of-use asset and lease liability on March 31, 2019 when the lease commenced based on a 4.75%
discount factor. The lease agreement expired on March
31, 2021. Commencing
in April, 2021, the Company continues to lease the office on a monthly basis.
The
Company also has operating leases for other sales locations under various operating lease arrangements. The leases have remaining lease
terms of approximately 1
month to 5
years.
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
|
|
$
|
2,050,023
|
|
|
$
|
100,029
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities – current
|
|
$
|
844,093
|
|
|
$
|
70,780
|
|
|
Operating lease liability
– non-current
|
|
|
1,205,932
|
|
|
|
29,250
|
|
|
Total operating lease
liabilities
|
|
$
|
2,050,025
|
|
|
$
|
100,030
|
|
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
|
|
$
|
161,389
|
|
|
$
|
13,878
|
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Operating lease expenses
|
|
$
|
217,642
|
|
|
$
|
66,622
|
|
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
|
|
$
|
217,642
|
|
|
|
66,622
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term:
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
2.42
years
|
|
|
|
1.39
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate:
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.75
|
%
|
|
|
4.75
|
%
|
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)
|
|
$
|
225,202
|
|
|
2022
|
|
|
920,209
|
|
|
2023
|
|
|
912,194
|
|
|
2024
|
|
|
63,731
|
|
|
2025
|
|
|
30,774
|
|
|
Thereafter
|
|
|
14,206
|
|
|
Total lease payments
|
|
|
2,166,316
|
|
|
Less: imputed interest
|
|
|
(116,291
|
)
|
|
Total lease liabilities
|
|
|
2,050,025
|
|
|
Less: current portion
|
|
|
(844,093
|
)
|
|
Lease liabilities –
non-current portion
|
|
$
|
1,205,932
|
|
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.
|
|
$
|
5,447
|
|
|
$
|
-
|
|
|
Qionglai Weide Pharmacy
|
|
|
-
|
|
|
|
10,421
|
|
|
Chengdu Xindu Cundetang Pharmacy Co., Ltd.
|
|
|
-
|
|
|
|
5,318
|
|
|
Chengdu Lisheng Huiren
Tang Pharmacy Co., Ltd.
|
|
|
10,060
|
|
|
|
-
|
|
|
Total
|
|
$
|
15,507
|
|
|
$
|
15,739
|
|
|
Advance to related parties
|
|
|
15,507
|
|
|
|
15,739
|
|
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
|
|
$
|
-
|
|
|
$
|
258,862
|
|
|
Yirong Shen
|
|
|
96,222
|
|
|
|
-
|
|
|
Chengdu Aixin E-Commerce Company Ltd.
|
|
|
12,718
|
|
|
|
3,240
|
|
|
Chengdu Aixin International travel service
Co, Ltd
|
|
|
1,430
|
|
|
|
-
|
|
|
Chengdu Beibang Pharmacy
|
|
|
-
|
|
|
|
2,748
|
|
|
Aixin Life Beauty
|
|
|
7,638
|
|
|
|
-
|
|
|
Total
|
|
$
|
118,008
|
|
|
$
|
264,850
|
|
|
Advance from related parties
|
|
|
118,008
|
|
|
|
264,850
|
|
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 three
years until May 2017
with an option to renew. The
monthly rent was RMB 5,000
($774),
the Company was required to prepay each year’s annual rent at 15th of May of each year. The Company renewed the lease until May
28, 2023 with
monthly rents of RMB 5,000
($774),
payable quarterly. The future
annual minimum lease payment at September 30, 2021 is $9,311
and $6,208
for each of the
year ended September 30, 2022 and 2023, respectively.
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 25%
for all enterprises (including foreign-invested enterprises).
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.
13.
STOCKHOLDERS’ EQUITY
On
August 17, 2020, by unanimous written consent in lieu of a meeting, the Board adopted resolutions authorizing a one
(1)-for-four (4) reverse stock split and
on August 19, 2020 filed Articles of Amendment to effect the reverse stock split with the Secretary of State of the State of Colorado.
The reverse stock split became effective on October 27, 2020. According to the Articles of Amendment, the Company is authorized
to issue 20,000,000 shares
of blank check preferred stock at $0.001
par value and to reduce
the number of authorized common stock to 500,000,000
shares at $.00001
par value per share
from 950,000,000 shares.
All share and earnings per share information has been retroactively adjusted to reflect the reverse stock split.
As
of September 30, 2021 and December 31, 2020, the Company had 49,999,891
common shares issued
and outstanding.
In
June 2020, 35,049,685
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 37,500
shares to its employees
and contractors under its 2019 Equity Incentive Plan. The stock awards were valued at $337,500
based on the post-split
closing price of $9
on the grant date.
On
October 24, 2019, the Company granted and issued 550,000
shares to its employees
and contractors under its 2019 Equity Incentive Plan. The stock awards were valued at $1,520,200
based on the post-split
closing price of $2.764
on the grant date.
The
stock awards will vest over five (5)
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, the
grantee will forfeit 80% of Shares Granted if no longer employed by or contracted with the Company on the date that is one year from
the grant date, forfeit 60% of Shares Granted if no longer employed by or contracted with the Company on the date that is two years from
the grant date, forfeit 40% of Shares Granted if no longer employed by or contracted with the Company on the date that is three years
from the grant date, and forfeit 20% of Shares Granted if no longer employed by or contracted with the Company on the date that is four
years from the grant date. Effective on the 5th year from the grant date, none of the shares will be subject to forfeiture.
For
the three months ended September 30, 2021 and 2020, stock-based compensation expenses were $92,885.
For the nine months ended September 30, 2021 and 2020, stock-based compensation expenses were $278,655.
As of September 30, 2021, unrecognized compensation expenses related to these stock awards are $1,137,092.
These expenses are expected to be recognized over 4
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 $2,448,654.
The
Company recorded this forgiveness of shareholder loan as additional paid-in capital.
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 $4,497,972, or RMB 29 million. The difference between consideration given and net assets received was recognized in equity,
resulting in a decrease of additional paid-in capital of $4,257,275.
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.
Surplus
reserve fund
The
Company is now required to transfer 10%
of its net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance
reaches 50%
of the Company’s registered capital. During the three and nine months ended September 30, 2021 and 2020, the Company did not make
any contribution to statutory reserve fund.
The
surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any,
and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion
to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance
after such issue is not less than 25%
of the registered capital.
Common
welfare fund
Common
welfare fund is a voluntary fund to which the Company can elect to transfer 5%
to 10%
of its net income, as determined under PRC accounting rules and regulations. The Company did not make any contribution to this fund during
the three and nine months ended September 30, 2021 and 2020.
This
fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories,
cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.
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 $388,000
(RMB 2,500,000)
from Aixintang Pharmacy for not fulfilling the contractual obligation of a purchase agreement entered in March 2020 (the “Purchase
Agreement”). Aixintang Pharmacy claimed that the Purchase Agreement was falsely entered by an employee through forged documents,
and that Aixintang Pharmacy did not enter the Purchase Agreement. The Court determined that Aixintang Pharmacy breached the Purchase
Agreement by not delivering the products ordered and ordered Aixintang Pharmacy to pay $388,000
(RMB 2,500,000)
to the Plaintiff. In December 2020, Aixintang Pharmacy filed a motion in the Jiangsu Suzhou Intermediate People’s Court against
the determination reached from the first trial.
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 7,598,887,
or $1.18
million. The Transfer Price will be reduced by
an amount equal to any amounts paid or distributed by Aixin Shangyan Hotel to the Transferor after December 31, 2020 and will be increased
by an amount equal to any amounts contributed to Aixin Shangyan Hotel by the Transferor after December 31, 2020.
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 34,635,845
or $5.37
million. The purchase
price will be reduced by an amount equal to any amounts paid or distributed by any of the Aixintang Pharmacies to Mr. Lin or the other
two shareholders after December 31, 2020, and increased by an amount equal to any monies they contributed to any of the Aixintang Pharmacies
after such date.
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
|
|
$
|
3,534,185
|
|
|
$
|
3,525,664
|
|
|
Operating costs and expenses
|
|
|
3,907,235
|
|
|
|
3,646,621
|
|
|
Loss from operations
|
|
|
(373,050
|
)
|
|
|
(120,957
|
)
|
|
Other income (expense)
|
|
|
82,909
|
|
|
|
601,710
|
|
|
Income tax expense
|
|
|
292,146
|
|
|
|
2,347
|
|
|
Net income (loss)
|
|
$
|
(582,287
|
)
|
|
$
|
478,406
|
|
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.