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Exhibit
99.1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
AiXin
Life International, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of AiXin Life International, Inc. (the “Company”) as of December
31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows
for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020, in conformity
with the U.S. generally accepted accounting principles in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical
Audit Matter
The
critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue
Recognition – Identifying and evaluating the timing and amount of revenue recognition
Description
of the Matter
As
described in Note 2 of the consolidated financial statements, the Company provides advertising services to its customers, and revenue
related to these services were recognized over the applicable service period. The Company also purchases products from the same customer.
The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification
and evaluation of the timing and amount of revenue recognition, is a critical audit matter, involved judgment exercised by management
in identifying and evaluating the timing and amount of advertising revenue recognition. Auditor judgement is involved in performing our
audit procedures to evaluate whether the timing and amount of revenue recognition on advertising was appropriately stated.
How
We Addressed the Matter in Our Audit
Our
audit procedures over determining the time period over which the advertising revenue is recognized involved, among others, evaluation
of management’s assessment in regard to the timing and amount of advertising revenue recognition. We selected customer agreements
and performed the following procedures:
| |
● |
Obtained
and read the customer agreements or contracts for each selected agreement. |
| |
● |
Evaluated
and tested management’s identification of significant terms for completeness, including the identification of performance obligations. |
| |
● |
From
the terms in the customer agreement, evaluated the appropriateness of management’s application of their accounting policies,
in their determination of revenue recognition conclusions. |
For
the payment made to customer, we evaluated the application of the Company’s accounting policies in the context of applicable accounting
standards. In addition, we tested the mathematical accuracy of management’s calculations of revenue and the associated timing and
amount of revenue recognized in the consolidated financial statements.
/s/
KCCW Accountancy Corp.
We
have served as the Company’s auditor since 2019.
Diamond Bar, California
April
15, 2022, except for the effects of the restatement disclosed in Note 2, as to which the date is December 10, 2024
AIXIN
LIFE INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEETS
(RESTATED)
| | |
December 31 | | |
December 31 | |
| | |
2021 | | |
2020 | |
| Assets | |
| | | |
| | |
| Current assets | |
| | | |
| | |
| | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 8,556,642 | | |
$ | 7,757,520 | |
| Restricted cash | |
| 44,211 | | |
| - | |
| Accounts receivable, net | |
| 45,923 | | |
| 37,038 | |
| Accounts receivable, related party | |
| - | | |
| 60,262 | |
| Accounts receivable | |
| - | | |
| 60,262 | |
| Other receivables and prepaid expenses | |
| 143,281 | | |
| 256,606 | |
| Prepaid taxes | |
| - | | |
| 7,090 | |
| Advances to suppliers | |
| 162,969 | | |
| 158,004 | |
| Inventory, net | |
| 233,454 | | |
| 207,985 | |
| Due from related parties | |
| 19,055 | | |
| - | |
| Total current assets | |
| 9,205,535 | | |
| 8,484,505 | |
| Property and equipment, net | |
| 290,148 | | |
| 397,334 | |
| Intangible asset, net | |
| 1,940 | | |
| 4,465 | |
| Deferred tax asset | |
| 18,795 | | |
| - | |
| Security deposit | |
| 94,153 | | |
| 91,954 | |
| Operating lease right-of-use assets | |
| 2,049,775 | | |
| 2,377,831 | |
| Total assets | |
$ | 11,660,346 | | |
$ | 11,356,089 | |
| | |
| | | |
| | |
| Liabilities and stockholders’ equity | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 406,163 | | |
$ | 128,238 | |
| Unearned revenue | |
| 171,408 | | |
| 283,974 | |
| Taxes payable | |
| 232,637 | | |
| 283,741 | |
| Accrued liabilities and other payables | |
| 752,400 | | |
| 860,760 | |
| Loan from third parties | |
| 94,153 | | |
| 457,436 | |
| Operating lease liabilities | |
| 848,230 | | |
| 798,621 | |
| Due to related parties | |
| 1,947,154 | | |
| 2,526,136 | |
| Total current liabilities | |
| 4,452,145 | | |
| 5,338,906 | |
| Operating lease liabilities - non-current | |
| 1,138,710 | | |
| 1,579,211 | |
| Total liabilities | |
| 5,590,855 | | |
| 6,918,117 | |
| | |
| | | |
| | |
| Stockholders’ equity | |
| | | |
| | |
| Undesignated preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding | |
| - | | |
| - | |
| Common stock, par value $0.00001 per share, 500,000,000 shares authorized; 49,999,891 shares issued and outstanding as of December 31, 2021 and 2020 | |
| 500 | | |
| 500 | |
| Additional paid in capital | |
| 14,086,793 | | |
| 11,517,371 | |
| Statutory reserve | |
| 151,988 | | |
| 151,988 | |
| Accumulated deficit | |
| (8,880,613 | ) | |
| (7,704,045 | ) |
| Accumulated other comprehensive income | |
| 710,823 | | |
| 472,158 | |
| Total stockholders’ equity | |
| 6,069,491 | | |
| 4,437,972 | |
| | |
| | | |
| | |
| Total liabilities and stockholders’ equity | |
$ | 11,660,346 | | |
$ | 11,356,089 | |
AIXIN
LIFE INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(RESTATED)
| | |
2021 | | |
2020 | |
| | |
Years Ended December 31, | |
| | |
2021 | | |
2020 | |
| Sales revenue: | |
| | | |
| | |
| Products | |
$ | 1,102,117 | | |
$ | 1,845,139 | |
| Advertising | |
| 1,944,811 | | |
| 1,870,343 | |
| Room revenues | |
| 442,203 | | |
| 524,620 | |
| Food and beverage revenues | |
| 605,551 | | |
| 428,071 | |
| Others | |
| 147,309 | | |
| 121,460 | |
| Total revenue, net | |
| 4,241,991 | | |
| 4,789,633 | |
| | |
| | | |
| | |
| Operating costs and expenses | |
| | | |
| | |
| Cost of goods sold | |
| 790,588 | | |
| 1,157,756 | |
| Hotel operating costs | |
| 1,981,648 | | |
| 1,537,307 | |
| Selling | |
| 783,080 | | |
| 796,112 | |
| General and administrative | |
| 1,281,059 | | |
| 1,050,451 | |
| Provision for bad debts | |
| 36,349 | | |
| 35,851 | |
| Stock-based compensation | |
| 371,540 | | |
| 371,540 | |
| Total operating costs and expenses | |
| 5,244,264 | | |
| 4,949,017 | |
| | |
| | | |
| | |
| Loss from operations | |
| (1,002,273 | ) | |
| (159,384 | ) |
| | |
| | | |
| | |
| Non-operating income (expenses) | |
| | | |
| | |
| Interest income | |
| 4,221 | | |
| 537,731 | |
| Other income | |
| 132,103 | | |
| 116,840 | |
| Other expenses | |
| (36,298 | ) | |
| (11,105 | ) |
| Total non-operating income, net | |
| 100,026 | | |
| 643,466 | |
| | |
| | | |
| | |
| | |
| | | |
| | |
| Income tax expense | |
| 274,321 | | |
| 340,155 | |
| | |
| | | |
| | |
| Net (loss) income | |
| (1,176,568 | ) | |
| 143,927 | |
| | |
| | | |
| | |
| Other comprehensive items | |
| | | |
| | |
| Foreign currency translation gain | |
| 238,665 | | |
| 289,425 | |
| Comprehensive (loss) income | |
$ | (937,903 | ) | |
$ | 433,352 | |
| | |
| | | |
| | |
| (Loss) income per share - basic and diluted | |
$ | (0.024 | ) | |
$ | 0.002 | |
| Weighted average shares outstanding - basic and diluted | |
| 49,999,891 | | |
| 65,609,450 | |
AIXIN
LIFE INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (RESTATED)
| | |
Shares | | |
Amount | | |
capital | | |
reserves | | |
deficit | | |
income | | |
Total | |
| | |
Common Stock | | |
Additional
paid in | | |
Statutory | | |
Accumulated | | |
Accumulated other comprehensive | | |
| |
| | |
Shares | | |
Amount | | |
capital | | |
reserves | | |
deficit | | |
income | | |
Total | |
| Balance at December 31, 2019 | |
| 85,049,576 | | |
$ | 850 | | |
$ | 7,022,471 | | |
$ | 11,721 | | |
$ | (7,707,705 | ) | |
$ | 182,733 | | |
$ | (489,930 | ) |
| Cancellation of shares | |
| (35,049,685 | ) | |
| (350 | ) | |
| 350 | | |
| - | | |
| - | | |
| - | | |
| - | |
| Return of prepayment for acquisition | |
| - | | |
| - | | |
| 4,053,587 | | |
| - | | |
| - | | |
| - | | |
| 4,053,587 | |
| Capital contribution | |
| - | | |
| - | | |
| 69,423 | | |
| - | | |
| - | | |
| - | | |
| 69,423 | |
| Statutory reserve | |
| - | | |
| - | | |
| - | | |
| 140,267 | | |
| (140,267 | ) | |
| - | | |
| - | |
| Stock-based compensation | |
| - | | |
| - | | |
| 371,540 | | |
| - | | |
| - | | |
| - | | |
| 371,540 | |
| Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 143,927 | | |
| - | | |
| 143,927 | |
| Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 289,425 | | |
| 289,425 | |
| Balance at December 31, 2020 | |
| 49,999,891 | | |
| 500 | | |
| 11,517,371 | | |
| 151,988 | | |
| (7,704,045 | ) | |
| 472,158 | | |
| 4,437,972 | |
| Balance | |
| 49,999,891 | | |
| 500 | | |
| 11,517,371 | | |
| 151,988 | | |
| (7,704,045 | ) | |
| 472,158 | | |
| 4,437,972 | |
| Stock-based compensation | |
| - | | |
| - | | |
| 371,540 | | |
| - | | |
| - | | |
| - | | |
| 371,540 | |
| Acquisition of subsidiaries | |
| - | | |
| - | | |
| (4,714,631 | ) | |
| - | | |
| - | | |
| - | | |
| (4,714,631 | ) |
| Debt forgiven by major shareholder | |
| - | | |
| - | | |
| 2,473,228 | | |
| - | | |
| - | | |
| - | | |
| 2,473,228 | |
| Shareholder contribution | |
| - | | |
| - | | |
| 4,439,285 | | |
| - | | |
| - | | |
| - | | |
| 4,439,285 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,176,568 | ) | |
| - | | |
| (1,176,568 | ) |
| Net Income (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,176,568 | ) | |
| - | | |
| (1,176,568 | ) |
| Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 238,665 | | |
| 238,665 | |
| Balance at December 31, 2021 | |
| 49,999,891 | | |
$ | 500 | | |
$ | 14,086,793 | | |
$ | 151,988 | | |
$ | (8,880,613 | ) | |
$ | 710,823 | | |
$ | 6,069,491 | |
| Balance | |
| 49,999,891 | | |
$ | 500 | | |
$ | 14,086,793 | | |
$ | 151,988 | | |
$ | (8,880,613 | ) | |
$ | 710,823 | | |
$ | 6,069,491 | |
AIXIN
LIFE INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(RESTATED)
| | |
2021 | | |
2020 | |
| | |
For the Years Ended December 31 | |
| | |
2021 | | |
2020 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net (loss) income | |
$ | (1,176,568 | ) | |
$ | 143,927 | |
| Adjustments required to reconcile net income to net cash (used in) provided by operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 121,409 | | |
| 76,895 | |
| Provision for bad debt allowance | |
| 36,349 | | |
| 35,851 | |
| Operating lease expense | |
| 923,617 | | |
| 954,235 | |
| Stock based compensation | |
| 371,540 | | |
| 371,540 | |
| Deferred tax | |
| (18,570 | ) | |
| - | |
| Changes in net assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (44,251 | ) | |
| 50,898 | |
| Accounts receivable - related parties | |
| 13,656 | | |
| (56,952 | ) |
| Other receivables and prepaid expenses | |
| 111,361 | | |
| (90,669 | ) |
| Advances to suppliers | |
| (1,193 | ) | |
| 136,591 | |
| Inventory | |
| (20,247 | ) | |
| (14,384 | ) |
| Accounts payable | |
| 266,624 | | |
| (51,244 | ) |
| Unearned revenue | |
| (117,912 | ) | |
| 189,206 | |
| Taxes payable | |
| (49,982 | ) | |
| 160,472 | |
| Payment of operating lease liabilities | |
| (981,971 | ) | |
| (954,235 | ) |
| Accrued liabilities and other payables | |
| (127,048 | ) | |
| (35,511 | ) |
| Net cash (used in) provided by operating activities | |
| (693,186 | ) | |
| 916,620 | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING | |
| | | |
| | |
| ACTIVITIES: Purchase of property and equipment | |
| (3,541 | ) | |
| (113,932 | ) |
| Security deposits | |
| | | |
| | |
| Payment for (return of payment for) acquisition | |
| (4,517,620 | ) | |
| 4,087,409 | |
| Net cash (used in) provided by investing activities | |
| (4,521,161 | ) | |
| 3,973,477 | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING | |
| | | |
| | |
| ACTIVITIES: Proceeds from related parties | |
| 1,848,903 | | |
| 2,185,449 | |
| Repayment of loan from third parties | |
| (369,685 | ) | |
| 175,947 | |
| Capital contribution | |
| 4,386,070 | | |
| - | |
| Net cash provided by financing activities | |
| 5,865,288 | | |
| 2,361,396 | |
| EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | |
| 192,392 | | |
| 421,764 | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | |
| 843,333 | | |
| 7,673,257 | |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR | |
| 7,757,520 | | |
| 84,263 | |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR | |
$ | 8,600,853 | | |
$ | 7,757,520 | |
| | |
| | | |
| | |
| Supplemental Cash flow data: | |
| | | |
| | |
| Income tax paid | |
$ | 404,276 | | |
$ | 149,421 | |
| Interest paid | |
$ | - | | |
$ | - | |
| Non-cash investing and financing activities: | |
| | | |
| | |
| Capital contribution from forgiveness of related party loan | |
$ | 2,446,238 | | |
$ | 69,378 | |
AIXIN
LIFE INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
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”). On February 2,
2017, Mr. Quanzhong Lin (Mr. Lin) purchased 7,380,352 shares of the Company’s common stock, 65.0% of its outstanding shares from
China Concentric Capital Group 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 of AiXin BVI 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 was owned by Mr. Lin, and the remaining balance was 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 owned in excess of 95% of the outstanding equity the Aixintang Pharmacies. The remaining
equity interest was 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.
The
acquisitions will be accounted for as acquisitions of 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 results of operations during the year ended
December 31, 2021 were presented as through the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies has occurred at the beginning
of the period. The consolidated financial statements and financial information presented for prior years have been retrospectively adjusted
to reflect the acquisition under common control.
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.
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. However, since February 2022 to
date, COVID-19 cases have increased again in many cities of China. There has been only a slight increase in the number of cases in Sichuan
Province, the Province in which the Company is located, and the Company does not expect that the increase will impact the Company’s
operations.
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 year ended December 31, 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 future 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.
Restricted
Cash
The
restricted cash was for the temporary frozen of bank accounts held by Aixintang Pharmacy Co., Ltd. (“Aixintang Pharmacy”)
and its branches by the court for a complaint against the Aixintang Pharmacy while Aixintang Pharmacy is the process of appeal (see Note
17 – litigation).
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 December 31, 2021 and 2020, the bad debt allowance
was $213,787 and $172,879, 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 years ended December 31, 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 PROPERTY AND EQUIPMENT ESTIMATED LIVES
| 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 December 31, 2021 and 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
December 31, 2021 and 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 $1,944,811 and $1,863,785 for the years ended December 31, 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
and $6,558 for the years ended December 31, 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 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 eligible for the PRC VAT of 0% as
it qualifies as a small businesses.
Unearned
Revenue
The
Company’s unearned revenue primarily consists of advances received from customers for the rental of hotel rooms prior to the delivery
of service. The room rental services are delivered (normally within one year) based upon contract terms and customer demand.
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 year ended December 31, 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 year ended December 31, 2021 | | |
%
of total revenue | |
| A* | |
$ | 1,286,792 | | |
| 30 | % |
| B | |
| 658,018 | | |
| 16 | % |
During
the year ended December 31, 2020, the Company had one major customer that accounted for over 10% of its total revenue.
| Customer | |
Net
sales for the year ended December 31, 2020 | | |
%
of total revenue | |
| A* | |
$ | 1,863,785 | | |
| 39 | % |
During
the year ended December 31, 2021, the Company had one major supplier that accounted for over 10% of its total purchases.
| Supplier |
|
Net
purchases for the year ended
December
31, 2021
|
|
|
%
of total purchase |
|
| C |
|
$ |
233,187 |
|
|
|
19 |
% |
| F |
|
|
180,907 |
|
|
|
15 |
% |
During
the year ended December 31, 2020, the Company had one major supplies that accounted for over 10% of its total purchases.
| Supplier |
|
Net
purchase for the year ended
December
31, 2020
|
|
|
%
of total purchase |
|
| A* |
|
$ |
110,037 |
|
|
|
13 |
% |
| * | Represented advertising
revenues from this customer during the years ended December 31, 2021 and 2020. The Company also purchased inventory from this
customer during the years ended December 31, 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 December 31, 2021 and 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 December 31, 2021 and 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 year ended December 31, 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 December 31, 2021 and 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 hotel, 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 year ended December 31, 2021 and 2020.
SCHEDULE
OF SEGMENT REPORTING
| | |
2021 | | |
2020 | |
| Net revenue | |
| | | |
| | |
| Advertising
and products | |
$ | 2,406,988 | | |
$ | 2,451,055 | |
| Pharmacies | |
| 639,940 | | |
| 1,264,427 | |
| Hotel | |
| 1,195,063 | | |
| 1,074,151 | |
| Total revenues, net | |
$ | 4,241,991 | | |
$ | 4,789,633 | |
| | |
| | | |
| | |
| Operating costs and expenses | |
| | | |
| | |
| Advertising and products | |
| | | |
| | |
| Cost of goods sold | |
$ | 316,750 | | |
$ | 224,675 | |
| Operating expenses | |
| 1,344,543 | | |
| 1,431,920 | |
| Pharmacies | |
| | | |
| | |
| Cost of goods sold | |
| 473,838 | | |
| 933,081 | |
| Operating expenses | |
| 648,591 | | |
| 518,777 | |
| Hotel | |
| | | |
| | |
| Hotel operating costs | |
| 1,981,648 | | |
| 1,537,307 | |
| Operating
expenses | |
| 478,894 | | |
| 303,257 | |
| Total operating costs
and expenses | |
$ | 5,244,264 | | |
$ | 4,949,017 | |
| | |
| | | |
| | |
| Income (loss) from operations | |
| | | |
| | |
| Advertising and products | |
$ | 745,695 | | |
$ | 794,460 | |
| Pharmacies | |
| (482,489 | ) | |
| (187,431 | ) |
| Hotel | |
| (1,265,479 | ) | |
| (766,413 | ) |
| Income (loss) from operations | |
$ | (1,002,273 | ) | |
$ | (159,384 | ) |
| | |
As of | | |
As of | |
| Segment
assets | |
December
31, 2021 | | |
December
31, 2020 | |
| Advertising and products | |
$ | 8,914,211 | | |
$ | 8,078,079 | |
| Pharmacies | |
| 931,706 | | |
| 568,064 | |
| Hotel | |
| 1,814,429 | | |
| 2,709,946 | |
| Total assets | |
$ | 11,660,346 | | |
$ | 11,356,089 | |
Restatement
of Previously Issued Financial Statements
The
consolidated financial statements of the Company for the year ended December 31, 2021 have been restated in compliance with the Financial
Accounting Standards Board (FASB) ASC 805-50-45 to present the results of operations for the year ended December 31, 2021 as through
the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies has occurred at the beginning of the period. The comparative financial
statements and financial information included in the consolidated financial statements as of and for the year ended December 31, 2021
presented for prior years have also been restated to reflect the retrospective adjustment for the acquisition under common control that
financial data of previously separate entities are combined.
In
addition, the Company corrected the financial statement presentation of the capital contribution from a major shareholder during the
year ended December 31, 2021.
The
Company included the following tables that present the effect of the adjustments discussed above on selected line items of our previously
reported consolidated financial statements as of and for the years ended December 31, 2021 and 2020. Details of changes are presented
in the following tables.
SCHEDULE
OF RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENT
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Year Ended December 31, 2021 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements of Operations and Comprehensive
Income (loss) | |
| | |
| | |
| |
| Total Revenues, net | |
| 3,066,233 | | |
| 1,175,758 | | |
| 4,241,991 | |
| Total operating costs and expenses | |
| 3,093,171 | | |
| 2,151,093 | | |
| 5,244,264 | |
| (Loss) income from operations | |
| (26,938 | ) | |
| (975,335 | ) | |
| (1,002,273 | ) |
| Total non-operating income, net | |
| 34,023 | | |
| 66,003 | | |
| 100,026 | |
| Net (loss) income | |
| (267,236 | ) | |
| (909,332 | ) | |
| (1,176,568 | ) |
| Comprehensive (loss) income | |
| (144,953 | ) | |
| (792,950 | ) | |
| (937,903 | ) |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Year Ended December 31, 2021
| |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Stockholders’ Equity | |
| | | |
| | | |
| | |
| Accumulated deficit | |
| | | |
| | | |
| | |
| Acquisition of subsidiaries | |
| (3,648,666 | ) | |
| 3,648,666 | | |
| - | |
| Additional paid in capital | |
| | | |
| | | |
| | |
| Acquisition of subsidiaries | |
| (4,313,025 | ) | |
| (401,606 | ) | |
| (4,714,631 | ) |
| Debt forgiven by major shareholder | |
| 6,912,513 | | |
| (4,439,285 | ) | |
| 2,473,228 | |
| Shareholder contribution | |
| - | | |
| 4,439,285 | | |
| 4,439,285 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Year Ended December 31, 2021 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Cash Flows | |
| | | |
| | | |
| | |
| Net
cash (used in) provided by operating activities | |
| (57,804 | ) | |
| (635,382 | ) | |
| (693,186 | ) |
| Net cash (used in) provided by investing activities | |
| (4,431,513 | ) | |
| (89,648 | ) | |
| (4,521,161 | ) |
| Net cash provided by financing activities | |
| 5,221,864 | | |
| 643,424 | | |
| 5,865,288 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Year Ended December 31, 2020 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| Consolidated Balance Sheets | |
| | | |
| | | |
| | |
| Total current assets | |
| 7,925,972 | | |
| 558,533 | | |
| 8,484,505 | |
| Total assets | |
| 8,093,818 | | |
| 3,262,271 | | |
| 11,356,089 | |
| Total current liabilities | |
| 1,172,486 | | |
| 4,166,420 | | |
| 5,338,906 | |
| Total liabilities | |
| 1,201,736 | | |
| 5,716,381 | | |
| 6,918,117 | |
| Total stockholders’ equity | |
| 6,892,082 | | |
| (2,454,110 | ) | |
| 4,437,972 | |
| Total liabilities and stockholders’ equity | |
| 8,093,818 | | |
| 3,262,271 | | |
| 11,356,089 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| | |
As of and for the Year Ended
December 31, 2020 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Operations and Comprehensive Income (loss) | |
| | |
| | |
| |
| Total Revenues, net | |
| 2,451,055 | | |
| 2,338,578 | | |
| 4,789,633 | |
| Total operating costs and expenses | |
| 1,656,595 | | |
| 3,292,422 | | |
| 4,949,017 | |
| (Loss) income from operations | |
| 794,460 | | |
| (953,844 | ) | |
| (159,384 | ) |
| Total non-operating income, net | |
| 563,178 | | |
| 80,288 | | |
| 643,466 | |
| Net (loss) income | |
| 1,017,511 | | |
| (873,584 | ) | |
| 143,927 | |
| Comprehensive (loss) income | |
| 1,454,570 | | |
| (1,021,218 | ) | |
| 433,352 | |
| |
|
Previously Reported |
|
|
Adjustments |
|
|
Restated |
|
| |
|
As of and for the Year Ended December 31, 2020 |
|
| |
|
Previously Reported |
|
|
Adjustments |
|
|
Restated |
|
| Consolidated Statements of Stockholders’ Equity Additional paid in capital |
|
|
|
|
|
|
|
|
|
| Return of prepayment for acquisition |
|
|
- |
|
|
|
4,053,587 |
|
|
|
4,053,587 |
|
| Capital contribution |
|
|
- |
|
|
|
69,423 |
|
|
|
69,423 |
|
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| | |
As
of December 31, 2019 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Stockholders’ Equity | |
| | | |
| | | |
| | |
| Additional paid
in capital | |
| 10,743,875 | | |
| (3,721,404 | ) | |
| 7,022,471 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Year Ended December 31, 2020 | |
| | |
Previously
Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Cash Flows | |
| | | |
| | | |
| | |
| Net cash (used in) provided
by operating activities | |
| 1,613,207 | | |
| (696,587 | ) | |
| 916,620 | |
| Net cash (used in) provided by investing activities | |
| 4,085,236 | | |
| (111,759 | ) | |
| 3,973,477 | |
| Net cash provided by financing activities | |
| 1,546,854 | | |
| 814,542 | | |
| 2,361,396 | |
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
January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the
goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by
which a reporting unit’s carrying value exceeds its FV, not to exceed the carrying amount of goodwill. The guidance should be
adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and
annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the
impact of adopting this standard on the Company’s consolidated financial statements presentation or disclosures.
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”), which simplifies the accounting for certain financial instruments with characteristics of liabilities
and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing
guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features
and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception
from derivative accounting in ASC 815-
40
for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in
stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC
260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the
if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument
may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06
is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption
is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective
for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the
guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The
adoption of ASU 2020-06 is not expected to 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.
OTHER RECEIVABLES AND PREPAID EXPENSES
Other
receivables and prepaid expenses consisted of the following at December 31, 2021 and 2020:
SCHEDULE
OF OTHER RECEIVABLES AND PREPAID EXPENSES
| | |
| December
31, 2021 | | |
| December
31, 2020 | |
| Deposits | |
$ | 68,433 | | |
$ | 9,383 | |
| Prepaid expenses | |
| 50,221 | | |
| 168,731 | |
| Employees’ social insurance | |
| 13,839 | | |
| 16,336 | |
| Others | |
| 10,788 | | |
| 62,156 | |
| Total | |
$ | 143,281 | | |
$ | 256,606 | |
4.
ADVANCES TO SUPPLIERS
The
Company had advances to suppliers of $162,969 and $158,004 as of December 31, 2021 and 2020, respectively. Advances to suppliers primarily
include prepayments for products expected to be delivered subsequent to balance sheet dates.
5.
INVENTORIES
Inventories
consisted of the following at December 31, 2021 and 2020:
SCHEDULE
OF INVENTORIES
| | |
December
31, 2021 | | |
December
31, 2020 | |
| Finished goods – health supplements | |
$ | 6,201 | | |
$ | 45,535 | |
| Drugs, pharmaceutical and nutritional products | |
| 122,966 | | |
| 109,808 | |
| Food and beverage, hotel
supplies and consumables | |
| 104,287 | | |
| 52,642 | |
| Total | |
$ | 233,454 | | |
$ | 207,985 | |
6.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following at December 31, 2021 and 2020:
SCHEDULE OF PROPERTY AND EQUIPMENT
| | |
December
31, 2021 | | |
December
31, 2020 | |
| Vehicles | |
$ | 295,502 | | |
$ | 288,604 | |
| Office furniture | |
| 64,263 | | |
| 62,762 | |
| Electronic equipment | |
| 22,304 | | |
| 21,606 | |
| Machinery | |
| 106,080 | | |
| 101,629 | |
| Leasehold improvements | |
| 256,548 | | |
| - | |
| Construction in progress | |
| - | | |
| 250,556 | |
| Other | |
| 6,374 | | |
| 4,874 | |
| Total | |
| 751,071 | | |
| 730,031 | |
| Less: Accumulated depreciation | |
| (460,923 | ) | |
| (332,697 | ) |
| Property and equipment,
net | |
$ | 290,148 | | |
$ | 397,334 | |
Depreciation
expense for the years ended December 31, 2021 and 2020 was $118,809 and $74,434, respectively.
7.
INTANGIBLE ASSET, NET
Intangible
asset consisted of the following at December 31, 2021 and 2020:
SCHEDULE
OF INTANGIBLE ASSET
| | |
| December
31, 2021 | | |
| December
31, 2020 | |
| Software | |
$ | 7,896 | | |
$ | 7,711 | |
| Less: Accumulated amortization | |
| (5,956 | ) | |
| (3,246 | ) |
| Intangible asset, net | |
$ | 1,940 | | |
$ | 4,465 | |
Amortization
expense for the years ended December 31, 2021 and 2020 was $2,600 and $2,461.
8.
TAXES PAYABLE
Taxes
payable consisted of the following at December 31, 2021 and 2020:
SCHEDULE
OF TAX PAYABLE
| | |
December
31, 2021 | | |
December
31, 2020 | |
| Value-added | |
$ | 97,917 | | |
$ | 32,318 | |
| Income | |
| 109,396 | | |
| 235,300 | |
| City construction | |
| 7,018 | | |
| 2,422 | |
| Education | |
| 5,064 | | |
| 1,781 | |
| Other | |
| 13,242 | | |
| 11,920 | |
| Taxes payable | |
$ | 232,637 | | |
$ | 283,741 | |
9.
ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued
liabilities and other payables consisted of the following at December 31, 2021 and 2020:
SCHEDULE OF ACCRUED LIABILITIES AND OTHER PAYABLES
| | |
December 31,
2021 | | |
December 31,
2020 | |
| Accrued employees’ social
insurance | |
$ | 327,735 | | |
$ | 364,870 | |
| Accrued payroll and commission | |
| 179,183 | | |
| 181,240 | |
| Accrued rent expense | |
| 29,000 | | |
| 112,500 | |
| Construction payable | |
| 111,807 | | |
| 96,844 | |
| Accrued professional fees | |
| 50,840 | | |
| 16,927 | |
| Deposit | |
| 12,239 | | |
| - | |
| Other payables | |
| 41,596 | | |
| 88,379 | |
| Total | |
$ | 752,400 | | |
$ | 860,760 | |
10.
LOAN FROM THIRD PARTIES
As
of December 31, 2021 and 2020, the Company had advances from former shareholders and unrelated third parties of Aixin Shangyan Hotel
in an aggregate amount of $94,153 and $457,436, respectively. There was no written agreement, and these loans are payable on demand and
bear no interest.
11.
LOAN TO THIRD PARTY
On
June 8, 2020, the Company entered into an unsecured loan agreement with a third party, pursuant to which the Company agreed to lend
RMB 50,300,000, equivalent to $7,408,389, to the third party. This loan bears interest of RMB 74,000, equivalent to $10,718, per
day, and will mature on July 28, 2020. As of December 31, 2020, the Company has received the repayment of principal and interest in
full amount, and recorded interest income of $535,906 during the year ended December 31, 2020.
12.
LEASE
Concurrent
with the completion of the sale of its rights to a portion of a building completed in 2019, 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 0.5 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 years.
Aixintang
Pharmacies lease retail pharmacy stores under operating lease arrangements, with remaining lease terms of 2 to 5 years.
Balance
sheet information related to the Company’s leases is presented below:
SCHEDULE OF OPERATING LEASE LIABILITIES
| | |
December
31, 2021 | | |
December
31, 2020 | |
| Operating Leases | |
| | | |
| | |
| Operating lease right-of-use assets | |
$ | 2,049,775 | | |
$ | 2,377,831 | |
| | |
| | | |
| | |
| Operating lease liabilities – current | |
$ | 848,230 | | |
$ | 798,621 | |
| Operating lease liability
– non-current | |
| 1,138,710 | | |
| 1,579,211 | |
| Total operating lease
liabilities | |
$ | 1,986,940 | | |
$ | 2,377,832 | |
The
following provides details of the Company’s lease expenses:
SCHEDULE OF OPERATING LEASE EXPENSES
| | |
| | |
| |
| | |
Years
Ended December 31, | |
| | |
2021 | | |
2020 | |
| Operating lease expenses | |
$ | 923,617 | | |
$ | 954,235 | |
Other
information related to leases is presented below:
SCHEDULE OF OTHER INFORMATION RELATED LEASES
| | |
Years
Ended December 31, | |
| | |
2021 | | |
2020 | |
| Cash Paid For
Amounts Included In Measurement of Liabilities: | |
| | | |
| | |
| Operating cash flows from operating leases | |
$ | 981,971 | | |
| 954,235 | |
| | |
| | | |
| | |
| Weighted Average Remaining
Lease Term: | |
| | | |
| | |
| Operating leases | |
| 2.32
years | | |
| 2.91
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: | |
| | |
| Less than 1 year | |
| - | |
| 2022 | |
$ | 912,635 | |
| 2023 | |
| 959,650 | |
| 2024 | |
| 142,251 | |
| 2025 | |
| 52,176 | |
| 2026 | |
| 24,280 | |
| Thereafter | |
| - | |
| Total lease payments | |
| 2,090,992 | |
| Less: imputed interest | |
| (104,052 | ) |
| Total lease liabilities | |
| 1,986,940 | |
| Less: current portion | |
| (848,230 | ) |
| Lease liabilities –
non-current portion | |
$ | 1,138,710 | |
13.
RELATED PARTY TRANSACTIONS
Accounts
receivable – related party
As
of December 31, 2020, Aixin Shangyan Hotel had accounts receivable from an employee of AiXinZhonghong in the amount of $60,262.
Due
from related parties
Due
from related parties consisted of the following as of the periods indicated:
SCHEDULE
OF RELATED PARTY TRANSACTIONS
| | |
December
31, 2021 | | |
December
31, 2020 | |
| Chengdu WenJiang Aixin Nanjiang
Pharmacy Co., Ltd. | |
$ | 4,583 | | |
$ | - | |
| Sichuan Aixin Investment Co., Ltd | |
| 4,237 | | |
| - | |
| Chengdu Lisheng Huiren Tang Pharmacy Co., Ltd. | |
| 10,235 | | |
| - | |
| Total | |
$ | 19,055 | | |
$ | - | |
| Due
from related parties | |
$ | 19,055 | | |
$ | - | |
Due
to related parties
Due
to related parties consisted of the following as of the periods indicated:
| | |
December
31, 2021 | | |
December
31, 2020 | |
| Quanzhong Lin | |
$ | 1,822,705 | | |
$ | 2,395,543 | |
| Yirong Shen | |
| 97,292 | | |
| 33,716 | |
| Branch manager | |
| 1,667 | | |
| 28,602 | |
| Chengdu Aixin E-Commerce Company Ltd. | |
| 15,378 | | |
| 12,558 | |
| Chengdu Aixin International travel service
Co, Ltd | |
| 2,388 | | |
| 1,412 | |
| Aixin Life Beauty | |
| 7,724 | | |
| 54,305 | |
| Total | |
$ | 1,947,154 | | |
$ | 2,526,136 | |
| Due to related
parties | |
$ | 1,947,154 | | |
$ | 2,526,136 | |
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 an office. The lease term was for three years expiring in 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 rent of RMB 5,000 ($774), payable quarterly. The future
annual minimum lease payment at December 31, 2021 is $9,300 and $3,875 for each of the years ended December 31, 2022 and 2023, respectively.
14.
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 years ended December 31, 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).
The
components of the provision for income taxes for the years ended December 31, 2021 and 2020 consisted of the following:
SCHEDULE OF COMPONENTS OF THE PROVISION FOR INCOME TAXES
| | |
2021 | | |
2020 | |
| | |
For
the Year Ended December 31, | |
| | |
2021 | | |
2020 | |
| Current: | |
| | | |
| | |
| China | |
$ | 292,891 | | |
$ | 340,155 | |
| Total
current | |
| 292,891 | | |
| 340,155 | |
| Deferred: | |
| | | |
| | |
| China | |
| (18,570 | ) | |
| - | |
| Total
deferred | |
| (18,570 | ) | |
| - | |
| Total income tax expense | |
$ | 274,321 | | |
$ | 340,155 | |
Deferred
tax assets as of December 31, 2021 and 2020 consisted of the following:
SCHEDULE OF DEFERRED TAX ASSETS
| | |
December
31, 2021 | | |
December
31, 2020 | |
| Deferred tax assets: | |
| | | |
| | |
| Accumulated amortization | |
$ | 18,795 | | |
$ | - | |
The
following table reconciles the statutory rates to the Company’s effective tax rate for years ended December 31, 2021 and 2020:
SCHEDULE OF EFFECTIVE INCOME TAX RATE
| | |
2021 | | |
2020 | |
| Statutory
U.S. federal income tax rate | |
| (21.0 | )% | |
| 21.0 | % |
| Foreign tax rate differential | |
| (2.3 | )% | |
| 7.1 | % |
| Change in valuation allowances | |
| 53.7 | % | |
| 61.2 | % |
| Other (1) | |
| - | % | |
| (19.0 | )% |
| Effective combined tax
rate | |
| 30.4 | % | |
| 70.3 | % |
| (1) | Primarily consists
of utilization of net operating losses in China |
As
of December 31, 2021, the Company had $1,753,139 of net operating loss carry-forwards available to offset future taxable income in China
from the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies. Some of the net operating loss carry-forwards, if not utilized,
will begin to expire in 2022.
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 years ended December 31, 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.
15.
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. 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 500,000,000 shares of common stock at $.00001 par value
per share. All share and earnings per share information has been retroactively adjusted to reflect the reverse stock split.
As
of December 31, 2021 and 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 years ended December 31, 2021 and 2020, stock-based compensation expenses were $371,540. As of December 31, 2021, unrecognized
compensation expenses related to these stock awards are $1,044,207. These expenses are expected to be recognized over 3
years.
Forgiveness
of shareholder’s loan
During
the year ended December 31, 2021, the Company’s major shareholder Mr. Lin forgave his loan to the Company for $2,473,228. The
Company recorded this forgiveness of shareholder loan as additional paid-in capital.
Shareholder
contribution
During
the year ended December 31, 2020, a major shareholder of Aixintang Pharmacies made capital contribution to Aixintang Pharmacies in
the amount of $69,423.
During
the year ended December 31, 2021, the Company’s major shareholder made capital contribution to the Company in the amount of $4,439,285.
The
Company recorded the shareholder contributions as additional paid-in capital.
Acquisition
of Subsidiaries
As
of December 31, 2019, the Company had advances to Aixintang Pharmacies and Aixin Shangyan Hotel in the aggregate amount of $4,053,587,
including balances to Aixintang Pharmacies and affiliates in the amount of $3,981,766 and Aixin Shangyan Hotel in the amount of $71,821.
The advances were made for the future acquisition of these related parties, and recorded as prepayment for acquisition. During the year
ended December 31, 2020, these prepayments were returned to the Company in full. The prepayment for acquisition and return of prepayment
for acquisition were recorded in equity, resulting in change in additional paid-in capital as of December 31, 2019 and during the year
ended December 31, 2020 as a result of the retrospective adjustments to reflect the acquisition under common control.
As
of December 31, 2021, the Company completed the acquisitions of Aixin Shangyan Hotel and Aixintang Pharmacies (see Note 1). The acquisitions
were accounted for as acquisitions of entities under common control. In connection with the acquisitions, the Company made payments to
Mr. Lin in the aggregate amount of $4.50 million, or RMB 29 million. The difference between the consideration given and the net assets
received was recognized in equity, resulting in a decrease of additional paid-in capital of $4,714,631.
16.
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 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 years ended December 31, 2021
and 2020, the Company make $0 and $140,267 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 years ended December 31, 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.
17.
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 $392,305 (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
$392,305 (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. In February 2022, Aixintang Pharmacy filed an appeal in Jiangsu High People’s Court against
the judgment reached by Jiangsu Suzhou Intermediate People’s Court in February 2021. 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 December 31,
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.
18.
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.
AIXIN
LIFE INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEETS
(RESTATED)
| | |
September
30, 2021 | | |
December
31 2020 | |
| | |
(Unaudited) | | |
| |
| Assets | |
| | | |
| | |
| Current assets | |
| | | |
| | |
| Cash and cash
equivalents | |
$ | 3,297,835 | | |
$ | 7,757,520 | |
| Accounts receivable, net | |
| 32,558 | | |
| 37,038 | |
| Accounts receivable, related
party | |
| - | | |
| 60,262 | |
| Accounts receivable, net | |
| - | | |
| 60,262 | |
| Other receivables and prepaid
expenses | |
| 214,075 | | |
| 256,606 | |
| Prepaid taxes | |
| - | | |
| 7,090 | |
| Advances to suppliers | |
| 279,859 | | |
| 158,004 | |
| Inventory, net | |
| 319,605 | | |
| 207,985 | |
| Due
from related parties | |
| 15,507 | | |
| - | |
| Total current assets | |
| 4,159,439 | | |
| 8,484,505 | |
| Property and equipment, net | |
| 359,412 | | |
| 397,334 | |
| Intangible asset, net | |
| 2,569 | | |
| 4,465 | |
| Security deposit | |
| 93,119 | | |
| 91,954 | |
| Operating lease right-of-use
assets | |
| 2,050,023 | | |
| 2,377,831 | |
| Total
assets | |
$ | 6,664,562 | | |
$ | 11,356,089 | |
| | |
| | | |
| | |
| Liabilities and stockholders’
equity | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 428,402 | | |
$ | 128,238 | |
| Unearned revenue | |
| 306,095 | | |
| 283,974 | |
| Taxes payable | |
| 334,517 | | |
| 283,741 | |
| Accrued liabilities and
other payables | |
| 844,791 | | |
| 860,760 | |
| Loan from third parties | |
| 463,229 | | |
| 457,436 | |
| Operating lease liabilities | |
| 844,093 | | |
| 798,621 | |
| Due
to related parties | |
| 118,008 | | |
| 2,526,136 | |
| Total current liabilities | |
| 3,339,135 | | |
| 5,338,906 | |
| Operating lease liabilities
- non-current | |
| 1,205,932 | | |
| 1,579,211 | |
| Total
liabilities | |
| 4,545,067 | | |
| 6,918,117 | |
| | |
| | | |
| | |
| Stockholders’ equity | |
| | | |
| | |
| Undesignated preferred
stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding | |
| - | | |
| - | |
| Undesignated preferred
stock value | |
| - | | |
| - | |
| Common stock, par value
$0.00001 per share, 500,000,000 shares authorized; 49,999,891 shares issued and outstanding as of September 30, 2021 and December
31, 2020 | |
| 500 | | |
| 500 | |
| Common stock value | |
| 500 | | |
| 500 | |
| Additional paid in capital | |
| 9,585,799 | | |
| 11,517,371 | |
| Statutory reserve | |
| 151,988 | | |
| 151,988 | |
| Accumulated deficit | |
| (8,291,126 | ) | |
| (7,704,045 | ) |
| Accumulated
other comprehensive income | |
| 672,334 | | |
| 472,158 | |
| Total
stockholders’ equity | |
| 2,119,495 | | |
| 4,437,972 | |
| | |
| | | |
| | |
| Total
liabilities and stockholders’ equity | |
$ | 6,664,562 | | |
$ | 11,356,089 | |
AIXIN
LIFE INTERNATIONAL,
INC.
UNAUDITED
CONSOLIDATED
STATEMENTS
OF OPERATIONS
AND COMPREHENSIVE
(LOSS)
INCOME
(RESTATED)
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| | |
Three Months Ended September 30 | | |
Nine Months Ended September 30 | |
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| Sales revenue: | |
| | | |
| | | |
| | | |
| | |
| Products | |
$ | 259,203 | | |
$ | 192,074 | | |
$ | 815,448 | | |
$ | 1,266,680 | |
| Advertising | |
| 445,215 | | |
| 673,978 | | |
| 1,742,896 | | |
| 1,603,806 | |
| Room revenues | |
| 64,806 | | |
| 143,604 | | |
| 395,365 | | |
| 310,510 | |
| Food and beverage revenues | |
| 128,898 | | |
| 121,585 | | |
| 473,029 | | |
| 268,628 | |
| Others | |
| 34,081 | | |
| 30,026 | | |
| 107,447 | | |
| 76,039 | |
| Total revenue, net | |
| 932,203 | | |
| 1,161,267 | | |
| 3,534,185 | | |
| 3,525,663 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating costs and expenses | |
| | | |
| | | |
| | | |
| | |
| Cost of goods sold | |
| 169,344 | | |
| 116,572 | | |
| 545,331 | | |
| 981,562 | |
| Hotel operating costs | |
| 507,675 | | |
| 423,686 | | |
| 1,551,526 | | |
| 1,140,959 | |
| Selling | |
| 109,624 | | |
| 162,305 | | |
| 561,076 | | |
| 504,059 | |
| General and administrative | |
| 225,039 | | |
| 296,847 | | |
| 858,255 | | |
| 733,101 | |
| Provision(reversal) for bad debts | |
| 91,219 | | |
| (15,102 | ) | |
| 117,186 | | |
| 13,451 | |
| Stock-based compensation | |
| 92,885 | | |
| 92,885 | | |
| 278,655 | | |
| 278,655 | |
| Total operating costs and expenses | |
| 1,195,786 | | |
| 1,077,193 | | |
| 3,912,029 | | |
| 3,651,787 | |
| | |
| | | |
| | | |
| | | |
| | |
| (Loss) income from operations | |
| (263,583 | ) | |
| 84,074 | | |
| (377,844 | ) | |
| (126,124 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Non-operating income (expenses) | |
| | | |
| | | |
| | | |
| | |
| Interest income | |
| 600 | | |
| 297,951 | | |
| 3,197 | | |
| 529,649 | |
| Other income | |
| 35,396 | | |
| 68,536 | | |
| 90,890 | | |
| 80,662 | |
| Other expenses | |
| (4,261 | ) | |
| (5,047 | ) | |
| (11,178 | ) | |
| (7,302 | ) |
| Total non-operating income, net | |
| 31,735 | | |
| 361,440 | | |
| 82,909 | | |
| 603,009 | |
| | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Income tax expense | |
| 74,094 | | |
| 2,319 | | |
| 292,146 | | |
| 2,347 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net (loss) income | |
| (305,942 | ) | |
| 443,195 | | |
| (587,081 | ) | |
| 474,538 | |
| | |
| | | |
| | | |
| | | |
| | |
| Other comprehensive items | |
| | | |
| | | |
| | | |
| | |
| Foreign currency translation gain | |
| 150,674 | | |
| 178,249 | | |
| 200,176 | | |
| 121,374 | |
| | |
| | | |
| | | |
| | | |
| | |
| Comprehensive (loss) income | |
$ | (155,268 | ) | |
$ | 621,444 | | |
$ | (386,905 | ) | |
$ | 595,912 | |
| | |
| | | |
| | | |
| | | |
| | |
| (Loss) income per share - basic and diluted | |
$ | (0.006 | ) | |
$ | 0.009 | | |
$ | (0.012 | ) | |
$ | 0.007 | |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average shares outstanding - basic and diluted | |
| 49,999,891 | | |
| 49,999,901 | | |
| 49,999,891 | | |
| 70,850,620 | |
AIXIN
LIFE INTERNATIONAL,
INC.
UNAUDITED
CONSOLIDATED
STATEMENTS
OF STOCKHOLDERS’
EQUITY
(RESTATED)
| | |
Shares | | |
Amount | | |
capital | | |
reserves | | |
deficit | | |
income | | |
Total | |
| | |
Common Stock | | |
Additional paid in | | |
Statutory | | |
Accumulated | | |
Accumulated other comprehensive | | |
| |
| | |
Shares | | |
Amount | | |
capital | | |
reserves | | |
deficit | | |
income | | |
Total | |
| Balance at December 31, 2020 | |
| 49,999,891 | | |
$ | 500 | | |
$ | 11,517,371 | | |
$ | 151,988 | | |
$ | (7,704,045 | ) | |
$ | 472,158 | | |
$ | 4,437,972 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based compensation | |
| - | | |
| - | | |
| 92,885 | | |
| - | | |
| - | | |
| - | | |
| 92,885 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (220,024 | ) | |
| - | | |
| (220,024 | ) |
| Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (17,823 | ) | |
| (17,823 | ) |
| Balance at March 31, 2021 | |
| 49,999,891 | | |
| 500 | | |
| 11,610,256 | | |
| 151,988 | | |
| (7,924,069 | ) | |
| 454,335 | | |
| 4,293,010 | |
| Acquisition of subsidiaries prepayment | |
| - | | |
| - | | |
| (4,658,881 | ) | |
| - | | |
| - | | |
| - | | |
| (4,658,881 | ) |
| Stock-based compensation | |
| - | | |
| - | | |
| 92,885 | | |
| - | | |
| - | | |
| - | | |
| 92,885 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (61,115 | ) | |
| - | | |
| (61,115 | ) |
| Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 67,325 | | |
| 67,325 | |
| Balance at June 30, 2021 | |
| 49,999,891 | | |
| 500 | | |
| 7,044,260 | | |
| 151,988 | | |
| (7,985,184 | ) | |
| 521,660 | | |
| (266,776 | ) |
| Debt forgiven by major shareholder | |
| - | | |
| - | | |
| 2,448,654 | | |
| - | | |
| - | | |
| - | | |
| 2,448,654 | |
| Stock-based compensation | |
| - | | |
| - | | |
| 92,885 | | |
| - | | |
| - | | |
| - | | |
| 92,885 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (305,942 | ) | |
| - | | |
| (305,942 | ) |
| Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 150,674 | | |
| 150,674 | |
| Balance at September 30, 2021 | |
| 49,999,891 | | |
$ | 500 | | |
$ | 9,585,799 | | |
$ | 151,988 | | |
$ | (8,291,126 | ) | |
$ | 672,334 | | |
$ | 2,119,495 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at December 31, 2019 | |
| 85,049,576 | | |
$ | 850 | | |
$ | 7,022,471 | | |
$ | 11,721 | | |
$ | (7,707,705 | ) | |
$ | 182,733 | | |
$ | (489,930 | ) |
| Stock-based compensation | |
| - | | |
| - | | |
| 92,885 | | |
| - | | |
| - | | |
| - | | |
| 92,885 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| 13,590 | | |
| - | | |
| 13,590 | |
| Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,260 | | |
| 5,260 | |
| Balance at March 31, 2020 | |
| 85,049,576 | | |
| 850 | | |
| 7,115,356 | | |
| 11,721 | | |
| (7,694,115 | ) | |
| 187,993 | | |
| (378,195 | ) |
| Cancellation of shares | |
| (35,049,675 | ) | |
| (350 | ) | |
| 350 | | |
| - | | |
| - | | |
| - | | |
| - | |
| Return of prepayment for acquisition | |
| - | | |
| - | | |
| 4,053,587 | | |
| - | | |
| - | | |
| - | | |
| 4,053,587 | |
| Stock-based compensation | |
| - | | |
| - | | |
| 92,885 | | |
| - | | |
| - | | |
| - | | |
| 92,885 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| 17,753 | | |
| - | | |
| 17,753 | |
| Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (62,135 | ) | |
| (62,135 | ) |
| Balance at June 30, 2020 | |
| 49,999,901 | | |
| 500 | | |
| 11,262,178 | | |
| 11,721 | | |
| (7,676,362 | ) | |
| 125,858 | | |
| 3,723,895 | |
| Balance | |
| 49,999,901 | | |
| 500 | | |
| 11,262,178 | | |
| 11,721 | | |
| (7,676,362 | ) | |
| 125,858 | | |
| 3,723,895 | |
| Capital contribution | |
| - | | |
| - | | |
| 69,423 | | |
| - | | |
| - | | |
| - | | |
| 69,423 | |
| Stock-based compensation | |
| - | | |
| - | | |
| 92,885 | | |
| - | | |
| - | | |
| - | | |
| 92,885 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| 443,195 | | |
| - | | |
| 443,195 | |
| Net income (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 443,195 | | |
| - | | |
| 443,195 | |
| Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 178,249 | | |
| 178,249 | |
| Balance at September 30, 2020 | |
| 49,999,901 | | |
$ | 500 | | |
$ | 11,424,486 | | |
$ | 11,721 | | |
$ | (7,233,167 | ) | |
$ | 304,107 | | |
$ | 4,507,647 | |
| Balance | |
| 49,999,901 | | |
$ | 500 | | |
$ | 11,424,486 | | |
$ | 11,721 | | |
$ | (7,233,167 | ) | |
$ | 304,107 | | |
$ | 4,507,647 | |
AIXIN
LIFE INTERNATIONAL, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(RESTATED)
| | |
2021 | | |
2020 | |
| | |
For
the Nine Months Ended September 30, | |
| | |
2021 | | |
2020 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net (loss)
income | |
$ | (587,081 | ) | |
$ | 474,538 | |
| Adjustments required to
reconcile net income to net cash (used in) provided by operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 46,914 | | |
| 58,143 | |
| Provision for bad debt
allowance | |
| 117,186 | | |
| 13,451 | |
| Operating lease expense | |
| 702,778 | | |
| 615,945 | |
| Stock based compensation | |
| 278,655 | | |
| 278,655 | |
| Changes in net assets and
liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (112,257 | ) | |
| 40,000 | |
| Accounts receivable - related
parties | |
| 13,615 | | |
| (60,739 | ) |
| Other receivables and prepaid
expenses | |
| 42,639 | | |
| (84,138 | ) |
| Advances to suppliers | |
| (119,356 | ) | |
| (686,361 | ) |
| Inventory | |
| (108,535 | ) | |
| (62,593 | ) |
| Accounts payable | |
| 292,418 | | |
| 667,677 | |
| Unearned revenue | |
| 18,449 | | |
| 20,063 | |
| Taxes payable | |
| 54,133 | | |
| (37,189 | ) |
| Payment of operating lease
liabilities | |
| (702,778 | ) | |
| (624,535 | ) |
| Accrued
liabilities and other payables | |
| (26,626 | ) | |
| 436,995 | |
| Net
cash (used in) provided by operating activities | |
| (89,846 | ) | |
| 1,049,912 | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Purchase of property and
equipment | |
| (2,190 | ) | |
| (7,747 | ) |
| Security deposits | |
| - | | |
| 14,300 | |
| Payment
for (return of payment for) acquisition | |
| (4,497,972 | ) | |
| 4,035,615 | |
| Net
cash (used in) provided by investing activities | |
| (4,500,162 | ) | |
| 4,042,168 | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Proceeds from related parties | |
| 46,313 | | |
| 2,863,069 | |
| Repayment
of loan from third parties | |
| - | | |
| (253,117 | ) |
| Net
cash provided by financing activities | |
| 46,313 | | |
| 2,609,952 | |
| | |
| | | |
| | |
| EFFECT OF EXCHANGE
RATE CHANGE ON CASH | |
| 84,010 | | |
| 232,587 | |
| | |
| | | |
| | |
| NET INCREASE (DECREASE) IN CASH & RESTRICTED
CASH | |
| (4,459,685 | ) | |
| 7,934,619 | |
| | |
| | | |
| | |
| CASH & RESTRICTED
CASH, BEGINNING OF YEAR | |
| 7,757,520 | | |
| 84,263 | |
| | |
| | | |
| | |
| CASH & RESTRICTED
CASH, END OF YEAR | |
$ | 3,297,835 | | |
$ | 8,018,882 | |
| | |
| | | |
| | |
| Supplemental Cash flow data: | |
| | | |
| | |
| Income
tax paid | |
$ | 282,319 | | |
$ | 2,319 | |
| Interest
paid | |
$ | - | | |
$ | - | |
| Non-cash investing and financing activities: | |
| | | |
| | |
| Capital
contribution from forgiveness of related party loan | |
$ | 2,439,586 | | |
$ | 74,033 | |
AIXIN
LIFE INTERNATIONAL, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(RESTATED)
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.
The
acquisitions will be accounted for as acquisitions of 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 results of operations during the periods ended
September 30, 2021 were presented as through the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies has occurred at the beginning
of the period. The consolidated financial statements and financial information presented for prior periods have been retrospectively
adjusted to reflect the acquisition under common control.
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.
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 $172,879, 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 PROPERTY AND EQUIPMENT ESTIMATED LIVES
| 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
| | |
Net
sales for the | | |
| |
| | |
three
months ended | | |
| |
| Customer | |
September
30, 2021 | | |
%
of total revenue | |
| B | |
$ | 299,076 | | |
| 32 | % |
| A* | |
| 146,140 | | |
| 16 | % |
During
the nine months ended September 30, 2021, the Company had two major customers that accounted for over 10%
of
its total revenue.
| |
|
Net
sales for the |
|
|
|
|
| |
|
nine
months ended |
|
|
|
|
| Customer |
|
September
30, 2021 |
|
|
%
of total revenue |
|
| A* |
|
$ |
1,152,208 |
|
|
|
33 |
% |
| B |
|
|
590,688 |
|
|
|
17 |
% |
During
the three months ended September 30, 2020, the Company had one major customer that accounted for over 10% of its total revenue.
| |
|
Net
sales for the |
|
|
|
|
| |
|
three
months ended |
|
|
|
|
| Customer |
|
September
30, 2020 |
|
|
%
of total revenue |
|
| A* |
|
$ |
673,978 |
|
|
|
58 |
% |
During
the nine months ended September 30, 2020, the Company had one major customer that accounted for over 10% of its total revenue.
| |
|
Net
sales for the |
|
|
|
|
| |
|
nine
months ended |
|
|
|
|
| Customer |
|
September
30, 2020 |
|
|
%
of total revenue |
|
| A* |
|
$ |
1,603,806 |
|
|
|
45 |
% |
During
the three months ended September 30, 2021, the Company had one supplier that accounted for over 10% of its total purchases.
| |
|
Net
purchases for the |
|
|
|
|
| |
|
nine
months ended |
|
|
|
|
| Supplier |
|
September
30, 2021 |
|
|
%
of total purchase |
|
| C |
|
$ |
28,361 |
|
|
|
14 |
% |
During
the nine months ended September 30, 2021, the Company had two major suppliers that accounted for over 10% of its total purchases.
| |
|
Net
purchases for the |
|
|
|
|
| |
|
nine
months ended |
|
|
|
|
| Supplier |
|
September
30, 2021 |
|
|
%
of total purchase |
|
| D |
|
$ |
232,584 |
|
|
|
23 |
% |
| E |
|
|
180,368 |
|
|
|
18 |
% |
During
the three months ended September 30, 2020, the Company had no major supplier that accounted for over 10% of its total purchases.
During
the nine months ended September 30, 2020, the Company had no major supplier that accounted for over 10% of its total purchases.
| * |
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 | |
| | |
| | | |
| | |
| Hotel | |
| 227,785 | | |
| 295,215 | |
| Total revenues, net | |
$ | 932,203 | | |
$ | 1,161,267 | |
| | |
| | | |
| | |
| Operating costs and expenses | |
| | | |
| | |
| Advertising and products | |
| | | |
| | |
| | |
| | | |
| | |
| Operating expenses | |
| 267,331 | | |
| 389,141 | |
| | |
| | | |
| | |
| Cost of goods sold | |
| 130,883 | | |
| 96,094 | |
| | |
| | | |
| | |
| Hotel | |
| | | |
| | |
| | |
| | | |
| | |
| Operating
expenses | |
| 86,935 | | |
| 23,550 | |
| Total operating costs
and expenses | |
$ | 1,195,786 | | |
$ | 1,077,193 | |
| | |
| | | |
| | |
| Income (loss) from operations | |
| | | |
| | |
| Advertising and products | |
$ | 204,069 | | |
$ | 319,277 | |
| Pharmacies | |
| (100,827 | ) | |
| (83,182 | ) |
| Hotel | |
| (366,825 | ) | |
| (152,021 | ) |
| Income (loss) from operations | |
$ | (263,583 | ) | |
$ | 84,074 | |
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 | |
| 497,557 | | |
| 1,096,347 | |
| Hotel | |
| 975,841 | | |
| 655,177 | |
| Total revenues, net | |
$ | 3,534,185 | | |
$ | 3,525,663 | |
| | |
| | | |
| | |
| 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 | |
| 346,190 | | |
| 914,183 | |
| Operating expenses | |
| 523,107 | | |
| 373,404 | |
| Hotel | |
| | | |
| | |
| Hotel operating costs | |
| 1,551,526 | | |
| 1,140,959 | |
| Operating expenses | |
| 325,162 | | |
| 100,993 | |
| Total operating costs
and expenses | |
$ | 3,912,029 | | |
$ | 3,651,787 | |
| | |
| | | |
| | |
| Income (loss) from operations | |
| | | |
| | |
| Advertising and products | |
$ | 894,743 | | |
$ | 651,891 | |
| Pharmacies | |
| (371,740 | ) | |
| (191,240 | ) |
| Hotel | |
| (900,847 | ) | |
| (586,775 | ) |
| Income (loss) from operations | |
$ | (377,844 | ) | |
$ | (126,124 | ) |
| | |
As of | | |
As of | |
| Segment
assets | |
September
30, 2021 | | |
December
31, 2020 | |
| Advertising
and products | |
$ | 3,775,971 | | |
$ | 8,078,079 | |
| Pharmacies | |
| 797,105 | | |
| 568,064 | |
| Hotel | |
| 2,091,486 | | |
| 2,709,946 | |
| Total assets | |
$ | 6,664,562 | | |
$ | 11,356,089 | |
Restatement
of Previously Issued Financial Statements
The
consolidated financial statements of the Company for the three and nine months ended September 30, 2021 have been restated in compliance
with the Financial Accounting Standards Board (FASB) ASC 805-50-45 to present the results of operations for the three and nine months
ended September 30, 2021 as through the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies has occurred at the beginning of
the period. The comparative financial statements and financial information included in the consolidated financial statements as of and
for the periods ended September 30, 2021 presented for prior periods have also been restated to reflect the retrospective adjustment
for the acquisition under common control that financial data of previously separate entities are combined.
The
Company included the following tables that present the effect of the adjustments discussed above on selected line items of our previously
reported consolidated financial statements as of and for the periods ended September 30, 2021 and 2020. Details of changes are presented
in the following tables.
SCHEDULE
OF RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENT
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
For
the Three Months
Ended September 30, 2021 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Operations and Comprehensive Income (loss) | |
| | | |
| | | |
| | |
| Total Revenues, net | |
| 812,910 | | |
| 119,293 | | |
| 932,203 | |
| Total operating costs and expenses | |
| 906,419 | | |
| 289,367 | | |
| 1,195,786 | |
| (Loss) income from operations | |
| (93,509 | ) | |
| (170,074 | ) | |
| (263,583 | ) |
| Total non-operating income, net | |
| 21,499 | | |
| 10,236 | | |
| 31,735 | |
| Net (loss) income | |
| (146,104 | ) | |
| (159,838 | ) | |
| (305,942 | ) |
| Comprehensive (loss) income | |
| (139,466 | ) | |
| (15,802 | ) | |
| (155,268 | ) |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
For
the Nine Months
Ended September 30, 2021 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Operations and Comprehensive Income (loss) | |
| | | |
| | | |
| | |
| Total Revenues, net | |
| 2,363,836 | | |
| 1,170,349 | | |
| 3,534,185 | |
| Total operating costs and expenses | |
| 1,766,671 | | |
| 2,145,358 | | |
| 3,912,029 | |
| (Loss) income from operations | |
| 597,165 | | |
| (975,009 | ) | |
| (377,844 | ) |
| Total non-operating income, net | |
| 17,264 | | |
| 65,645 | | |
| 82,909 | |
| Net (loss) income | |
| 322,283 | | |
| (909,364 | ) | |
| (587,081 | ) |
| Comprehensive (loss) income | |
| 406,045 | | |
| (792,950 | ) | |
| (386,905 | ) |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Nine Months
Ended September 30, 2021 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements of Stockholders’ Equity Accumulated deficit | |
| | | |
| | | |
| | |
| Acquisition of subsidiaries | |
| (3,648,666 | ) | |
| 3,648,666 | | |
| - | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Nine Months
Ended September 30, 2021 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Cash Flows | |
| | | |
| | | |
| | |
| Net cash (used in) provided
by operating activities | |
| 546,069 | | |
| (635,915 | ) | |
| (89,846 | ) |
| Net cash (used in) provided by investing activities | |
| (4,410,524 | ) | |
| (89,638 | ) | |
| (4,500,162 | ) |
| Net cash (used in) provided by financing activities | |
| (592,814 | ) | |
| 639,127 | | |
| 46,313 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Year
Ended December 31, 2020 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Balance Sheets | |
| | | |
| | | |
| | |
| Total current assets | |
| 7,925,972 | | |
| 558,533 | | |
| 8,484,505 | |
| Total assets | |
| 8,093,818 | | |
| 3,262,271 | | |
| 11,356,089 | |
| Total current liabilities | |
| 1,172,486 | | |
| 4,166,420 | | |
| 5,338,906 | |
| Total liabilities | |
| 1,201,736 | | |
| 5,716,381 | | |
| 6,918,117 | |
| Total stockholders’ equity | |
| 6,892,082 | | |
| (2,454,110 | ) | |
| 4,437,972 | |
| Total liabilities and stockholders’ equity | |
| 8,093,818 | | |
| 3,262,271 | | |
| 11,356,089 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
For
the Three Months
Ended September 30, 2020 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Operations and Comprehensive Income (loss) | |
| | | |
| | | |
| | |
| Total Revenues, net | |
| 728,896 | | |
| 432,371 | | |
| 1,161,267 | |
| Total operating costs and expenses | |
| 409,619 | | |
| 667,574 | | |
| 1,077,193 | |
| (Loss) income from operations | |
| 319,277 | | |
| (235,203 | ) | |
| 84,074 | |
| Total non-operating income, net | |
| 323,373 | | |
| 38,067 | | |
| 361,440 | |
| Net (loss) income | |
| 640,331 | | |
| (197,136 | ) | |
| 443,195 | |
| Comprehensive (loss) income | |
| 901,042 | | |
| (279,598 | ) | |
| 621,444 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
For
the Nine Months
Ended
September 30, 2020 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Operations and Comprehensive Income (loss) | |
| | | |
| | | |
| | |
| Total Revenues, net | |
| 1,774,139 | | |
| 1,751,524 | | |
| 3,525,663 | |
| Total operating costs and expenses | |
| 1,122,248 | | |
| 2,529,539 | | |
| 3,651,787 | |
| (Loss) income from operations | |
| 651,891 | | |
| (778,015 | ) | |
| (126,124 | ) |
| Total non-operating income, net | |
| 554,885 | | |
| 48,124 | | |
| 603,009 | |
| Net (loss) income | |
| 1,204,457 | | |
| (729,919 | ) | |
| 474,538 | |
| Comprehensive (loss) income | |
| 1,383,847 | | |
| (787,935 | ) | |
| 595,912 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| |
For
the Nine Months
Ended
September 30, 2020 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Cash Flows | |
| | | |
| | | |
| | |
| Net cash (used in) provided
by operating activities | |
| 1,456,421 | | |
| (406,509 | ) | |
| 1,049,912 | |
| Net cash (used in) provided by investing activities | |
| 4,033,470 | | |
| 8,698 | | |
| 4,042,168 | |
| Net cash provided by financing activities | |
| 2,227,904 | | |
| 382,048 | | |
| 2,609,952 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
As
of and for the Nine Months
Ended
September 30, 2020 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Stockholders’ Equity Additional paid in capital | |
| | | |
| | | |
| | |
| Return of prepayment for acquisition | |
| - | | |
| 4,053,587 | | |
| 4,053,587 | |
| Capital contribution | |
| - | | |
| 69,423 | | |
| 69,423 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| | |
As
of December 31, 2019 | |
| | |
Previously Reported | | |
Adjustments | | |
Restated | |
| Consolidated Statements
of Stockholders’ Equity | |
| | | |
| | | |
| | |
| Additional
paid in capital | |
| 10,743,875 | | |
| (3,721,404 | ) | |
| 7,022,471 | |
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 $158,004 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 INVENTORIES
| | |
September
30, 2021 | | |
December
31,
2020 | |
| Finished goods – health supplements | |
$ | 103,334 | | |
$ | 45,535 | |
| Drugs, pharmaceutical and nutritional products | |
| 105,304 | | |
| 109,808 | |
| Food and beverage, hotel
supplies and consumables | |
| 110,967 | | |
| 52,642 | |
| Total | |
$ | 319,605 | | |
$ | 207,985 | |
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 | | |
| 62,762 | |
| Electronic equipment | |
| 21,882 | | |
| 21,606 | |
| Machinery | |
| 103,747 | | |
| 101,629 | |
| Construction in progress | |
| 253,729 | | |
| 250,556 | |
| Other | |
| 6,304 | | |
| 4,874 | |
| Total | |
| 741,478 | | |
| 730,031 | |
| Less: Accumulated depreciation | |
| (382,066 | ) | |
| (332,697 | ) |
| Property and equipment,
net | |
| 359,412 | | |
$ | 397,334 | |
Depreciation
expense for the three months ended September 30, 2021 and 2020 was $14,046 and $17,626, respectively. Depreciation expense for the nine
months ended September 30, 2021 and 2020 was $44,969 and $56,313, respectively.
6.
INTANGIBLE ASSET, NET
Intangible
asset consisted of the following at September 30, 2021 and December 31, 2020:
SCHEDULE
OF INTANGIBLE ASSET
| | |
September
30, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| Software | |
$ | 7,809 | | |
$ | 7,711 | |
| Less: Accumulated amortization | |
| (5,240 | ) | |
| (3,246 | ) |
| Intangible asset, net | |
$ | 2,569 | | |
$ | 4,465 | |
Amortization
expense for the three months ended September 30, 2021 and 2020 was $649 and $697, respectively. Amortization expense for the nine months
ended September 30, 2021 and 2020 was $1,945 and $1,830, respectively.
7.
TAXES PAYABLE
Taxes
payable consisted of the following at September 30, 2021 and December 31, 2020:
SCHEDULE
OF TAX 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 | | |
| 11,920 | |
| Taxes payable | |
$ | 334,517 | | |
$ | 283,741 | |
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 | | |
| 181,240 | |
| Accrued rent expense | |
| 101,228 | | |
| 112,500 | |
| Construction payable | |
| 76,437 | | |
| 96,844 | |
| Accrued professional fees | |
| 45,569 | | |
| 16,927 | |
| Deposit | |
| 7,450 | | |
| - | |
| Other payables | |
| 33,040 | | |
| 88,379 | |
| Total | |
$ | 844,791 | | |
$ | 860,760 | |
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 $457,436, 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 | | |
$ | 2,377,831 | |
| | |
| | | |
| | |
| Operating lease liabilities – current | |
$ | 844,093 | | |
$ | 798,621 | |
| Operating lease liability
– non-current | |
| 1,205,932 | | |
| 1,579,211 | |
| Total operating lease liabilities | |
$ | 2,050,025 | | |
$ | 2,377,832 | |
The
following provides details of the Company’s lease expenses:
SCHEDULE OF OPERATING LEASE EXPENSES
| | |
2021 | | |
2020 | |
| | |
Three
Months Ended September 30, | |
| | |
2021 | | |
2020 | |
| Operating lease expenses | |
$ | 224,940 | | |
$ | 170,484 | |
| | |
2021 | | |
2020 | |
| | |
Nine
Months Ended September 30, | |
| | |
2021 | | |
2020 | |
| Operating lease expenses | |
$ | 702,778 | | |
$ | 615,945 | |
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 | |
$ | 702,778 | | |
$ | (624,535 | ) |
| | |
| | | |
| | |
| Weighted Average Remaining
Lease Term: | |
| | | |
| | |
| Operating leases | |
| 2.42
years | | |
| 3.12
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 | |
| Less than 1 year | |
$ | 225,202 | |
| 2022 | |
| 920,209 | |
| 1 year | |
| 920,209 | |
| 2023 | |
| 912,194 | |
| 2 year | |
| 912,194 | |
| 2024 | |
| 63,731 | |
| 3 year | |
| 63,731 | |
| 2025 | |
| 30,774 | |
| 4 year | |
| 30,774 | |
| 5 year | |
| - | |
| 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
Accounts
receivable – related party
As
of December 31, 2020, Aixin Shangyan Hotel had accounts receivable from an employee of AiXinZhonghong in the amount of $60,262.
Due
from related parties
Due
from related parties consisted of the following as of the periods indicated:
SCHEDULE
OF RELATED PARTY TRANSACTIONS
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Chengdu WenJiang Aixin Nanjiang
Pharmacy Co., Ltd. | |
$ | 5,447 | | |
$ | - | |
| Chengdu Lisheng Huiren
Tang Pharmacy Co., Ltd. | |
| 10,060 | | |
| - | |
| Total | |
$ | 15,507 | | |
$ | - | |
| Due from related parties | |
$ | 15,507 | | |
$ | - | |
Due
to related parties
Due
to related parties consisted of the following as of the periods indicated:
| | |
September
30, 2021 | | |
December
31, 2020 | |
| Quanzhong Lin | |
$ | - | | |
$ | 2,395,543 | |
| Yirong Shen | |
| 96,222 | | |
| 33,716 | |
| Chengdu Aixin E-Commerce Company Ltd. | |
| 12,718 | | |
| 12,558 | |
| Chengdu Aixin International travel service
Co, Ltd | |
| 1,430 | | |
| 1,412 | |
| Branch manager | |
| - | | |
| 28,602 | |
| Aixin Life Beauty | |
| 7,638 | | |
| 54,305 | |
| Total | |
$ | 118,008 | | |
$ | 2,526,136 | |
| Due to related parties | |
$ | 118,008 | | |
$ | 2,526,136 | |
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 December 31, 2019, the Company had advances to Aixintang Pharmacies and Aixin Shangyan Hotel in the aggregate amount of $4,053,587,
including balances to Aixintang Pharmacies and affiliates in the amount of $3,981,766 and Aixin Shangyan Hotel in the amount of $71,821.
The advances were made for the prepayment of future acquisition of these related parties. During the three months ended June 30, 2020,
these prepayments were returned to the Company in full. The prepayment for acquisition and return of prepayment for acquisition were
recorded in equity, resulting in change in additional paid-in capital as of December 31, 2019 and during the year ended December 31,
2020 as a result of the retrospective adjustments to reflect the acquisition under common control.
In
May and June 2021, the Company entered into Equity Transfer Agreements with Aixin Shangyan Hotel and Aixintang Pharmacies (see Note 1).
As of June 30, 2021, these two acquisitions have not been completed, and the Company made prepayment for the acquisitions to Mr. Lin
in the aggregate amount of $4.5 million, or RMB 29 million.
As
of September 30, 2021, the Company completed the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies, and the acquisition was
accounted for as entities under common control. The difference between consideration given and net assets received was recognized in
equity, resulting in a decrease of additional paid-in capital of $4,658,881.
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.
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.
