UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Securities Registered Pursuant to Section 12(g) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each Exchange on which Registered | ||
| OTCQX |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
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AIXIN LIFE INTERNATIONAL, INC.
FORM 10-Q
September 30, 2022
INDEX
| Page | ||
| Special Note Regarding Forward Looking Statements | 3 | |
| Part I – Financial Information | 4 | |
| Item 1. | Consolidated Financial Statements | |
| Consolidated Balance Sheets | 4 | |
| Consolidated Statements of Operations and Comprehensive Income (Loss) | 5 | |
| Consolidated Statements of Stockholders’ Equity | 6 | |
| Consolidated Statements of Cash Flows | 7 | |
| Notes to Consolidated Financial Statements | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 |
| Item 4. | Controls and Procedures | 37 |
| Part II – Other Information | 38 | |
| Item 1A. | Risk Factors | 38 |
| Item 6. | Exhibits | 38 |
| Signatures | 39 | |
| 2 |
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on forward-looking statements. Forward-looking statements include, among other things, statements relating to:
| ● | our goals and strategies; | |
| ● | our future business development, financial condition and results of operations; | |
| ● | our expectations regarding demand for, and market acceptance of, our products; | |
| ● | our expectations regarding keeping and strengthening our relationships with merchants, manufacturers and end-users; and | |
| ● | general economic and business conditions in the regions where we provide our services. |
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes of this report only:
the “Company,” “we,” “us,” and “our” refer to AiXin Life International., Inc. (“AiXin”) and its subsidiaries.
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
“PRC,” “China,” and “Chinese,” refer to the People’s Republic of China (excluding Hong Kong and Taiwan);
“Renminbi” and “RMB” refer to the legal currency of China;
“Securities Act” refers to the Securities Act of 1933, as amended; and
“US dollars,” “dollars” and “$” refer to the legal currency of the United States.
| 3 |
PART I - FINANCIAL INFORMATION
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Other receivables and prepaid expenses | ||||||||
| Advances to suppliers | ||||||||
| Inventory, net | ||||||||
| Advances to related parties | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible asset, net | ||||||||
| Goodwill, net | ||||||||
| Deferred tax asset | ||||||||
| Security deposit | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable-related party | ||||||||
| Unearned revenue | ||||||||
| Taxes payable | ||||||||
| Accrued liabilities and other payables | ||||||||
| Government grant | ||||||||
| Loan from third parties | ||||||||
| Operating lease liabilities | ||||||||
| Advance from related parties | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Undesignated preferred stock, $ par value, shares authorized, issued and outstanding | ||||||||
| Common stock, par value $ per share, shares authorized; shares issued and outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| 4 |
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales revenue: | ||||||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Advertising | ||||||||||||||||
| Room revenues | ||||||||||||||||
| Food and beverage revenues | ||||||||||||||||
| Others | ||||||||||||||||
| Total revenue, net | ||||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Hotel operating costs | ||||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Provision for bad debts | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Non-operating income (expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Impairment loss | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total non-operating income (expenses), net | ( | ) | ( | ) | ||||||||||||
| (Loss) income before income tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense (benefit) | ( | ) | ||||||||||||||
| Net (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation (loss) gain | ( | ) | ( | ) | ||||||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| (Loss) income per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average shares outstanding | ||||||||||||||||
| 5 |
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional paid in | Statutory | Accumulated | Accumulated other comprehensive | ||||||||||||||||||||||||
| Shares | Amount | capital | reserves | deficit | income | Total | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ||||||||||||||||||||||||||
| Acquisition of subsidiaries | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Debt forgiven by major shareholder | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net income | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| 6 |
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments required to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for bad debts | ||||||||
| Operating lease expense | ||||||||
| Stock based compensation | ||||||||
| Deferred tax | ||||||||
| Impairment loss | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Accounts receivable-related party | ||||||||
| Other receivables and prepaid expenses | ||||||||
| Advances to suppliers | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accounts payable-related party | ||||||||
| Unearned revenue | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash acquired at acquisition of subsidiaries | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Payment for acquisition | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Change in advance from related parties | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH | ( | ) | ||||||
| NET DECREASE IN CASH AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH AND RESTRICTED CASH, BEGINNING OF PERIOD | ||||||||
| CASH AND RESTRICTED CASH, END OF PERIOD | $ | $ | ||||||
| Supplemental Cash flow data: | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Accrual of unpaid investment in subsidiary | $ | $ | ||||||
| Investment in subsidiary paid by shareholder on behalf of the Company | $ | $ | ||||||
| 7 |
AIXIN LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Aixin
Life International, Inc. (the “Company” or “Aixin Life” or “we”) was incorporated under the laws
of the State of Colorado on December 30, 1987 under the name Mercari Communications Group, Ltd (“Mercari”). On February 2,
2017, Mr. Quanzhong Lin (Mr. Lin) purchased shares of the Company’s common stock, % of its outstanding shares from
China Concentric Capital Group for $
On December 12, 2017, the Company issued shares of common stock to Mr. Lin, the sole stockholder of AiXin (BVI) International Group Co., Ltd. a British Virgin Islands corporation (“AiXin BVI”), for his shares of AiXin BVI, pursuant to a Share Exchange Agreement.
As a result of the Share Exchange, AiXin BVI became the Company’s wholly-owned subsidiary, and the Company now owns all of the outstanding shares of HK AiXin International Group Co., Limited, a Hong Kong limited company (“AiXin HK”), which in turn owns all of the outstanding shares of Chengdu AiXinZhonghong Biological Technology Co., Ltd., a Chinese limited company (“AiXinZhonghong”), which markets and sells premium-quality nutritional products in China.
AiXin BVI was incorporated on September 21, 2017 as a holding company and AiXin HK was established in Hong Kong on February 25, 2016 as an intermediate holding company. AiXinZhonghong was established in the People’s Republic of China (“PRC”) on March 4, 2013, and on May 27, 2017, the local government of the PRC issued a certificate of approval regarding the foreign ownership of AiXinZhonghong by AiXin HK. Neither AiXin BVI nor AiXin HK had operations prior to December 12, 2017.
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, the Company changed its name to AiXin Life International, Inc. (“Aixin Life”).
The Company, through its indirectly owned AiXinZhonghong subsidiary, 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 (the “Hotel Purchase 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 Hotel Purchase Agreement, Aixin Life purchased
| 8 |
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, Aixintang Pharmacies and Runcangsheng is the 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, Aixintang Pharmacies and Runcangsheng. 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, 2022.
The balance sheets and certain comparative information as of December 31, 2021 are derived from the audited financial statements and related notes for the year ended December 31, 2021, included in the Company’s 2021 Annual Report on Form 10-K. These unaudited interim financial statements should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
Covid – 19; The Invasion of Ukraine
On March 11, 2020, the World Health Organization announced that infections caused by the corona virus disease of 2019 (“COVID-19”) had become pandemic. In furtherance of its zero tolerance policy, 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 from time to time in various localities. However, beginning in the second half of 2021 and continuing to date, the rate of COVID-19 cases has fluctuated in China and has increased in many provinces and cities including in Sichuan Province, where the Company is located. As a result of such increases there have been periodic short-term lockdowns and restrictions on travel in Sichuan Province. All of the Company’s operations, in particular its direct sales business and hotel, have been adversely impacted by the travel and work restrictions imposed on a temporary basis in China and Chengdu to limit the spread of COVID-19.
| 9 |
In response to COVID-19, the Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs. However, the Company cannot predict with certainty what measures may be taken by its suppliers and customers and the impact these measures may have on its future financial position, results of operations or cash flows.
The invasion of Ukraine by the Russian Federation had an immediate impact on the global economy resulting in higher prices for oil and other commodities. The United States, United Kingdom, European Union and other countries responded to Russia’s invasion of Ukraine by imposing various economic sanctions and bans. Russia has responded with its own retaliatory measures. These measures have disrupted financial and economic markets. The global impact of these measures is continually evolving and cannot be predicted with certainty and there is no assurance that Russia’s invasion of Ukraine and responses thereto will not further disrupt the global economy and financial markets.
While the invasion of Ukraine and responses thereto have not interrupted the Company’s operations, these or future developments resulting from the invasion of Ukraine could make it difficult to access debt and equity capital on attractive terms, if at all, and impact the Company’s ability to fund business activities, including proposed acquisitions.
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.
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.
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 reflects the temporary freeze of bank accounts of Aixintang Pharmacy Co., Ltd. (“Aixintang Pharmacy”) and its branches by the court during the appeal of a judgement against Aixintang Pharmacy (see Note 16 – 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 September 30, 2022 and December 31, 2021,
the bad debt allowance was $
| 10 |
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. Management periodically evaluates the composition of its inventories to identify slow-moving and obsolete
inventories to determine if a valuation allowance is required. The balance of reserve for inventory valuation as of September 30, 2022
and December 31, 2021 was $
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
| Office furniture | ||||
| Electronic equipment | ||||
| Machinery | ||||
| Leasehold improvements | ||||
| Vehicles |
Impairment of Long-Lived Assets
Long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of September 30, 2022 and December 31, 2021, there were no significant impairments of its long-lived assets.
Goodwill
The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs a two-step impairment test. The Company tests goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions.
The Company completed the required testing of goodwill for impairment as of September 30, 2022, and determined that goodwill was impaired because of the current financial condition of the Company and the Company’s inability to generate future operating income without substantial sales volume increases, which are highly uncertain. Furthermore, the Company anticipates future cash flows indicate that the recoverability of goodwill is not reasonably assured.
The goodwill write-down was reflected
as a impairment loss, $
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.
| 11 |
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, 2022 and December 31, 2021, 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. |
| 12 |
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 $0 and $445,215 for the three months ended September 30, 2022 and 2021, respectively. Such advertising revenue amounted to $0 and $1,742,896 for the nine months ended September 30, 2022 and 2021, 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.
Product 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 business.
| 13 |
Manufacture and Sale
The Company’s new subsidiary Runcangsheng recognizes revenue at the time products are shipped as this satisfies its performance obligations. The Company records a receivable for the sales when it has an unconditional right to receive payment and only the passage of time is required before payment is due. Sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s products sold in China are subject to the PRC VAT of 13% unless it is a qualified small subject to exemption.
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
During the three and nine months ended September 30, 2022, the Company had no customer that accounted for over 10% of its total revenue.
During the three months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
| Customer | Total revenue for the three months ended September 30, 2021 | % of total revenue | ||||||
| A(1) | $ | % | ||||||
| B | % | |||||||
During the nine months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
| Customer | Total revenue for the nine months ended September 30, 2021 | % of total revenue | ||||||
| A(1) | $ | % | ||||||
| B | % | |||||||
During the three months ended September 30, 2022, the Company had one major supplier that accounted for over 10% of its total purchases.
| Supplier | Net purchases for the three months ended September 30, 2022 | % of total purchase | ||||||
| C(2) | $ | % | ||||||
| 14 |
During the nine months ended September 30, 2022, the Company had one major supplier that accounted for over 10% of its total purchases.
| Supplier | Net purchases for the nine months ended September 30, 2022 | % of total purchase | ||||||
| C(2) | $ | % | ||||||
During the three months ended September 30, 2021, the Company had no supplier that accounted for over 10% of its total purchase.
During the nine months ended September 30, 2021, the Company had one major supplier accounted for over 10% of its total purchase.
| Supplier | Net purchases for the nine months ended September 30, 2021 | % of total purchase | ||||||
| D | $ | % | ||||||
| (1) | |
| (2) |
Leases
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, 2022 and December 31, 2021. 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.
| 15 |
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, 2022 and December 31, 2021, 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, 2022 and 2021 consisted of net income (loss) and foreign currency translation adjustments.
Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
As of September 30, 2022 and December 31, 2021, the Company did not have any potentially dilutive instruments.
| 16 |
Stock-Based Compensation
The Company periodically grants stock options, warrants and stock 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 four operating segments, advertising and products, pharmacies, hotels, and manufacture and sale, 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, 2022 and 2021. Revenues and expenses for the Pharmacies and Hotel segments commenced as of the respective dates of the completion of their acquisitions:
| For the Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ||||||||
| Hotel | ||||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | $ | ||||||
| Operating expenses | ||||||||
| Pharmacies | ||||||||
| Cost of goods sold | ||||||||
| Operating expenses | ||||||||
| Hotel | ||||||||
| Hotel operating costs | ||||||||
| Operating expenses | ||||||||
| Total operating costs and expenses | $ | $ | ||||||
| (Loss) income from operations | ||||||||
| Advertising and products | $ | ( | ) | $ | ||||
| Pharmacies | ( | ) | ( | ) | ||||
| Hotel | ( | ) | ( | ) | ||||
| (Loss) income from operations | $ | ( | ) | $ | ( | ) | ||
| 17 |
The following table shows the Company’s operations by business segment for the nine months ended September 30, 2022 and 2021. Revenues and expenses for the Pharmacies and Hotel segments commenced as of the respective dates of the completion of their acquisitions:
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ||||||||
| Hotel | ||||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | $ | ||||||
| Operating expenses | ||||||||
| Pharmacies | ||||||||
| Cost of goods sold | ||||||||
| Operating expenses | ||||||||
| Hotel | ||||||||
| Hotel operating costs | ||||||||
| Operating expenses | ||||||||
| Total operating costs and expenses | $ | $ | ||||||
| (Loss) income from operations | ||||||||
| Advertising and products | $ | ( | ) | $ | ||||
| Pharmacies | ( | ) | ( | ) | ||||
| Hotel | ( | ) | ( | ) | ||||
| (Loss) income from operations | $ | ( | ) | $ | ||||
| Segment assets | As of September 30, 2022 | As of December 31, 2021 | ||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ||||||||
| Hotel | ||||||||
| Manufacture and sale | ||||||||
| Total assets | $ | $ | ||||||
As the acquisition of Runcangsheng was consummated on September 30, 2022 (see Note 17), the revenues and operating results of the manufacture and sale segment will be included in the financial statements of the Company beginning on October 1, 2022.
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.
| 18 |
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 fair value, 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.
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 September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Deposits | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Employees’ social insurance | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
4. ADVANCES TO SUPPLIERS
The
Company had advances to suppliers of $
| 19 |
5. INVENTORIES
Inventories consisted of the following at September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Raw material | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods-health supplements | ||||||||
| Drugs, pharmaceutical and nutritional products | ||||||||
| Food and beverage, hotel supplies and consumables | ||||||||
| Total | $ | $ | ||||||
| Less: inventory allowance | ||||||||
| Total inventories, net | $ | $ | ||||||
6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Vehicles | $ | $ | ||||||
| Office furniture | ||||||||
| Electronic equipment | ||||||||
| Machinery | ||||||||
| Leasehold improvements | ||||||||
| Other | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended September 30, 2022 and 2021 was $
Depreciation
expense for the nine months ended September 30, 2022 and 2021 was $
7. INTANGIBLE ASSET, NET
Intangible asset consisted of the following at September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Software | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | $ | $ | ||||||
Amortization
expense for the three months ended September 30, 2022 and 2021 was $
Amortization
expense for the nine months ended September 30, 2022 and 2021 was $
8. TAXES PAYABLE
Taxes payable consisted of the following at September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Value-added | $ | $ | ||||||
| Income | ||||||||
| City construction | ||||||||
| Education | ||||||||
| Other | ||||||||
| Taxes payable | $ | $ | ||||||
| 20 |
9. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Accrued employees’ social insurance | $ | $ | ||||||
| Accrued payroll and commission | ||||||||
| Accrued rent expense | ||||||||
| Construction payable | ||||||||
| Payable for equipment purchase | ||||||||
| Accrued professional fees | ||||||||
| Deposit | ||||||||
| Other payables | ||||||||
| Acquisition payable (see Note 17) | ||||||||
| Total | $ | $ | ||||||
10. LOAN FROM THIRD PARTIES
As
of September 30, 2022 and December 31, 2021, the Company had advances from former shareholders and unrelated third parties in an aggregate amount of $
11. 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
The
Company also has operating leases for other sales locations under various operating lease arrangements. The leases have remaining lease
terms of approximately
Aixin
Shangyan Hotel leases its hotel premises under an operating lease arrangement. The lease has a remaining lease term of approximately
Aixintang
Pharmacies lease retail pharmacy stores under operating lease arrangements, with remaining lease terms of
| 21 |
Balance sheet information related to the Company’s leases is presented below:
| September 30, 2022 | December 31, 2021 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liability – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The following provides details of the Company’s lease expenses:
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease expenses | $ | $ | ||||||
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease expenses | $ | $ | ||||||
Other information related to leases is presented below:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Paid For Amounts Included In Measurement of Liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | % | % | ||||||
Maturities of lease liabilities were as follows:
| For the year ending December 31: | ||||
| 2022 (excluding the nine months ended September 30, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
| Less: current portion | ( | ) | ||
| Lease liabilities – non-current portion | $ |
12. RELATED PARTY TRANSACTIONS
Account payables to related parties
As of September 30, 2022 and December 31, 2021, the Company had accounts payable to related party in the amount of $ and $, respectively, which was for the purchase of raw materials from Luquan Shengcaofeng Biotechnology Co., Ltd. (“Shengcaofeng”), an affiliate entity of Runcangsheng.
Advance to related parties
Advance to related parties consisted of the following as of the periods indicated:
| September 30, 2022 | December 31, 2021 | |||||||
| Chengdu WenJiang Aixin Nanjiang Pharmacy Co., Ltd. | $ | $ | ||||||
| Sichuan Aixin Investment Co., Ltd. | ||||||||
| Chengdu Fuxiang Tang Pharmacy Co., Ltd. | ||||||||
| Chengdu Wenjiang district Heneng hupu Pharmacy Co., Ltd | ||||||||
| Chengdu Lisheng Huiren Tang Pharmacy Co., Ltd. | ||||||||
| Total | $ | $ | ||||||
| 22 |
Advance from related parties
Advance from related parties consisted of the following as of the periods indicated:
| September 30, 2022 | December 31, 2021 | |||||||
| Quanzhong Lin | $ | $ | ||||||
| Yirong Shen | ||||||||
| Branch manager | ||||||||
| Chengdu Aixin E-Commerce Company Ltd. | ||||||||
| Chengdu Aixin International travel service Co, Ltd | ||||||||
| Aixin Life Beauty | ||||||||
| Total | $ | $ | ||||||
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
13. 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, 2022 and 2021, and recorded income tax provision for the periods.
China
has a tax rate of
Uncertain Tax Positions
Interest associated with unrecognized tax benefits are classified as income tax, and penalties are classified in selling, general and administrative expenses in the statements of operations. For the three and nine months ended September 30, 2022 and 2021, 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.
14. STOCKHOLDERS’ EQUITY
On
August 17, 2020, by unanimous written consent in lieu of a meeting, the Board adopted resolutions authorizing a
As of September 30, 2022 and December 31, 2021, the Company had common shares issued and outstanding.
| 23 |
Stock Awards Issued for Services
On
October 22, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive Plan.
The stock awards were valued at $
On
October 24, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive Plan.
The stock awards were valued at $
The stock awards will vest over five () years from the grant date, and the grantee will forfeit a portion of the shares granted (“Shares Granted”) if the grantee is no longer employed by or contracted with the Company. Specifically,
For the three months ended September 30, 2022 and 2021, stock-based compensation expenses were $ each. For the nine months ended September 30, 2022 and 2021, stock-based compensation expenses were $ each. As of September 30, 2022, unrecognized compensation expenses related to these stock awards are $. These expenses are expected to be recognized over years.
Forgiveness of shareholder’s loan
As
of December 31, 2021, the Company’s major shareholder Mr. Lin forgave his loan to the Company for $
Acquisition of Subsidiaries
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 $
15. 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
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
| 24 |
Common welfare fund
Common
welfare fund is a voluntary fund to which the Company can elect to transfer
This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.
16. OPERATING CONTINGENCIES
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expenses are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation to affect the remittance.
Litigation
The Company is, from time to time, involved in litigation incidental to the conduct of its business regarding merchandise sold, employment matters, and litigation regarding intellectual property rights.
In
December 2020, Jian Yiao (the “Plaintiff”) filed a complaint against Chengdu Aixintang Pharmacy Co., Ltd. (“Aixintang
Pharmacy”, or the “Defendant”) in Zhangjiagang People’s Court in Jiangsu Province. The complaint alleges that
Jian Yiao is entitled to $
In February 2021, the judge in the Jiangsu Suzhou Intermediate People’s Court denied the Defendant’s motion and upheld the judgment from the first trial. In March 2021, Aixintang Pharmacy filed another motion to the Jiangsu High People’s Court on the basis that the Purchase Agreement was forged. 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 September 30, 2022.
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.
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17. ACQUISITIONS OF SUBSIDIARIES
Aixin Shangyan Hotel and Aixintang Pharmaciess
In July and September, 2021, the Company completed the required governmental procedures and obtained the documents necessary to consider the acquisitions of Aixin Shangyan Hotel and Aixintang Pharmacies completed.
Pursuant
to the Hotel Purchase Agreement, AiXin HK purchased all of the outstanding equity of Aixin Shangyan Hotel from Mr. Lin and the other
shareholder for a purchase price of RMB
Pursuant
to the Pharmacies Purchase Agreement, AiXin HK purchased
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.
Runcangsheng
On July 19, 2022, the Company entered into an Equity Transfer Agreement with Yunnan Shengshengyuan Technology Co., Ltd (“Shengshengyuan”) and Yun Chen (collectively “the Sellers”), who own 95% and 5% equity interest of Yunnan Runcangsheng Technology Co., Ltd (“Runcangsheng”), respectively.
Under
the terms of the Transfer Agreement, the Company agreed to purchase all of the outstanding equity interest of Yunnan Runcangsheng
for an aggregate purchase price of RMB
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. Goodwill as a result of the acquisition of Runcangsheng is calculated as follows:
| Total purchase considerations | $ | |||
| Estimated fair value of assets acquired: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Accounts receivable-related party | ||||
| Advance to suppliers | ||||
| Other receivables and prepaid expense | ||||
| Inventory | ||||
| Property and equipment | ||||
| Intangible assets | ||||
| Operating lease right-of-use assets | ||||
| Total assets acquired | ||||
| Estimated fair value of liabilities assumed: | ||||
| Accounts payable | ( | ) | ||
| Accounts payable-related party | ( | ) | ||
| Advance from customers | ( | ) | ||
| Government grant | ( | ) | ||
| Taxes payable | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Accrued liabilities and other payables | ( | ) | ||
| Total liabilities assumed | ( | ) | ||
| Total net assets acquired | ||||
| Goodwill as a result of the acquisition | $ |
During the nine months ended September 30, 2022, the Company has recorded goodwill impairment in full amount.
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The following condensed unaudited pro forma consolidated results of operations for the Company, Runcangsheng, Aixin Shangyan Hotel and Aixintang Pharmacies for the nine months ended September 30, 2022 and 2021 present the results of operations of the Company, Runcangsheng, Aixin Shangyan Hotel, and Aixintang Pharmacies as if the acquisitions occurred on January 1, 2022 and 2021, respectively.
The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.
For the Nine Months Ended September 30, 2022 | ||||
| Revenue | $ | |||
| Operating costs and expenses | ||||
| Loss from operations | ( | ) | ||
| Other income | ||||
| Income tax expense | ||||
| Net loss | $ | ( | ) | |
For the Nine Months Ended September 30, 2021 | ||||
| Revenue | $ | |||
| Operating costs and expenses | ||||
| Loss from operations | ( | ) | ||
| Other income | ||||
| Income tax expense | ||||
| Net loss | $ | ( | ) | |
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 need to be disclosed.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes to those statements included elsewhere in this Form 10-Q and with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in our 2021 Form 10-K, that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We are focused on the consumer healthcare market in China. We market and sell premium-quality healthcare, nutritional products and supplements. We also provide advertising and marketing services to clients which engage us to distribute their products. We offer our products and those of our clients through our pharmacies and sales offices, and through exhibition events we organize and sponsor, and person-to-person marketing. Our marketing business mainly focuses on proactively approaching customers such as by hosting events for clients, which we believe is ideally suited to marketing our products and those of our clients for which we perform advertising services because sales of healthcare, nutritional products and supplements are strengthened by ongoing personal contact and support, coaching and education among the Company and our clients towards how to achieve a healthy and active lifestyle.
In September 2021, we completed the acquisition of nine pharmacies located in Chengdu by acquiring the entities which owned the pharmacies for an aggregate purchase price of RMB 34,635,845, or approximately US$5.31 million.
In July 2021, we completed the acquisition of Aixin Shangyan Hotel. Shangyan Hotel Company owns and operates a hotel located in the Jinniu District, Chengdu City. The hotel covers more than 8,000 square meters and has a large restaurant that can accommodate 600 people, 6 luxury dining rooms, a 200 square meter music tea house, 13 private tea rooms, 108 guest rooms and other supporting facilities. We acquired the hotel through an acquisition of the outstanding equity of Aixin Shangyan Hotel for a purchase price of RMB 7,598,887, or approximately $1.16 million.
In July 2022, we entered in an Equity Transfer Agreement (the “Transfer Agreement”) with Yunnan Sheng Shengyan Technology Co., Ltd. and Chen Yun (collectively, the “Sellers”), the holders of all of the outstanding equity of Yunnan Runcansheng Technology Co., Ltd (“Runcansheng”). Pursuant to the Transfer Agreement, on September 30, 2022, we acquired all of the outstanding equity of Runcansheng from the Sellers for RMB 31,557,820 (approximately USD$4.4 million), reduced by $116,802 the excess of the estimated net worth of Runcangsheng over its audited net worth as of December 31, 2021. In addition to transferring their respective equity interest in Runcangsheng, both Sellers agree to forgive any loans due to them from Runcangsheng (see Note 17).
Runcangsheng. was established in April, 2020, and is headquartered in Luquan Yi and Miao Autonomous County, Kunming City, Yunnan Province. It is focused on promoting a healthy lifestyle through the use of foods believed to promote well-being, health foods, modernized versions of traditional Chinese medical products and plant extracts. Runcangsheng cultivates many of the raw materials used in its products, compounds the materials into easy to transport and use pre-packaged foods and distributes the products at the wholesale level. As life-styles in China evolve, work pressures increase and the ingestion of meats and other western style foods increases, Runcangsheng seeks to design and market products intended to combat the increase in obesity, hypertension, insomnia and physical ailments associated with such changes. The acquisition of Runcangsheng will enable us to operate as a vertically integrated company, capable of formulating the kinds of health foods and other nutritional products and supplements suitable for our clients and marketing those products through our distribution channels.
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In March 2020, the World Health Organization announced that infections caused by the coronavirus disease of 2019 (“COVID-19”) had become pandemic and national, provincial and local authorities in China, including those whose jurisdictions include Chengdu, where our offices, hotel and pharmacies are located, adopted various regulations and orders, including “shelter in place” rules, restrictions on travel, mandates on the number of people that may gather in one location and closing non-essential businesses. Many of these measures have been relaxed from time to time in various localities due to the decrease in the prevalence of COVID-19. However, beginning in the second half of 2021 and continuing to date, the number of COVID-19 cases has fluctuated and increased again in many cities of China, including Sichuan Province, where we are located. As a result, the authorities in Chengdu from time to time have reinstituted short-term lockdowns and restrictions on travel and the number of people that could gather at any location. During the three and nine months ended September 30, 2022, all of our operations were materially adversely impacted by the measures and restrictions taken to limit the spread of the disease in China and Sichuan Province. We implemented procedures to promote employee and customer safety. These measures will not significantly increase our operating costs. However, we cannot predict with certainty what measures may be taken by the authorities in Chengdu, our suppliers and customers and the impact these measures may have on our financial results for 2022.
Our acquisitions of pharmacies, the hotel and Runcangsheng should serve to offset the impact which the restrictions imposed in response to COVID-19 have had on our traditional direct marketing business. Nevertheless, there is no assurance that the acquisitions of these businesses will enable us to return to profitable operations in the immediate future.
In addition to our ongoing operations, we seek to acquire interests in additional businesses through opportunities found by our management or presented by persons or firms which desire to take advantage of the perceived advantages of an Exchange Act registered corporation. We do not restrict our search to any specific business, industry, or geographical location and may participate in a business venture of virtually any kind or nature.
It is the goal of our management, in particular, our Chairman, Quanzhong Lin to grow our business and to modify its capital structure in order to qualify for a listing on NASDAQ or the NYSE-American exchange. As part of this effort, we will continue to seek to acquire more businesses and to modify our capital structure as necessary to meet the requirements of the exchange to which we apply for a listing.
Results of Operations
Three Months ended September 30, 2022 and 2021
The following table sets forth the results of our operations for the periods indicated as a percentage of net revenue, certain columns may not add due to rounding:
| Three Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| $ | % of Revenue | $ | % of Revenue | |||||||||||||
| Revenue | $ | 672,786 | 100 | % | $ | 812,910 | 100 | % | ||||||||
| Operating costs and expenses | 1,206,690 | 179 | % | 906,419 | 112 | % | ||||||||||
| Income (loss) from operations | (533,904 | ) | (79 | )% | (93,509 | ) | (12 | )% | ||||||||
| Non-operating income (expenses), net | (3,839,929 | ) | (571 | )% | 21,499 | 3 | % | |||||||||
| Income (loss) before income tax | (4,373,833 | ) | (650 | )% | (72,010 | ) | (9 | )% | ||||||||
| Income tax expense (benefit) | (322 | ) | (0.05 | )% | 74,094 | 9 | % | |||||||||
| Net loss | $ | (4,373,511 | ) | (650 | )% | $ | (146,104 | ) | (18 | )% | ||||||
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The following table shows our operations by business segment for the three Months ended September 30, 2022 and 2021. As the acquisition of Runcangsheng was consummated on September 30, 2022 (see Note 17), the revenues and operating results of the manufacture and sale segment will be included in the financial statements of the Company beginning on October 1, 2022.
| For the Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | 338,327 | $ | 509,861 | ||||
| Pharmacies | 164,735 | 139,947 | ||||||
| Hotel | 169,724 | 163,102 | ||||||
| Total revenues, net | $ | 672,786 | $ | 812,910 | ||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | 90,391 | $ | 38,461 | ||||
| Operating expenses | 301,624 | 267,331 | ||||||
| Pharmacies | ||||||||
| Cost of goods sold | 124,992 | 92,477 | ||||||
| Operating expenses | 144,164 | 124,138 | ||||||
| Hotel | ||||||||
| Hotel operating costs | 404,322 | 320,305 | ||||||
| Operating expenses | 141,197 | 63,707 | ||||||
| Total operating costs and expenses | $ | 1,206,690 | $ | 906,419 | ||||
| Income (loss) from operations | ||||||||
| Advertising and products | $ | (53,688 | ) | $ | 204,069 | |||
| Pharmacies | (104,421 | ) | (76,668 | ) | ||||
| Hotel | (375,795 | ) | (220,910 | ) | ||||
| Income (loss) from operations | $ | (533,904 | ) | $ | (93,509 | ) | ||
Revenue
Revenue was $672,786 in the three months ending September 30, 2022, compared to $812,910 in the same period of 2021, a decrease of $140,124 or 17%. The decrease in revenue was mainly due to decrease in advertising revenues as due to COVID-19 restrictions, we were not able to host the types of events at which we market nutritional products, partly offset by the increase in revenues from our pharmacies and hotel which we did not own until August 2021. For three months ended of September 30, 2022, we had $0 advertising revenue and $503,062 product revenues (of which $338,327 were from direct sales and $164,735 represented sales at our pharmacies), and hotel revenue of $169,724. For three months ended September 30, 2021, we had $445,215 of advertising revenue and $204,593 product revenues (of which $64,646 were from direct sales and $139,947 represented sales at our pharmacies), and hotel revenue of $163,102.
Operation Costs and Expenses
Cost of Goods Sold
Cost of goods sold was $215,383 for the three months ended September 30, 2022, compared to $130,938 for the three months ended September 30, 2021, an increase of $84,445 or 64%. The increase in our cost of goods sold is attributable to increase in pharmacy product sales and product sales. The cost of goods sold for our direct product sales as a percentage of sales was 27% in 2022, compared to 8% for 2021. The cost of goods sold for products sold through our pharmacies as a percentage of pharmacy product sales was 76% in 2022, compared to 66% for 2021.
Hotel Operating Costs
Hotel operating costs were $404,322 for the three months ended September 30, 2022, compared to $320,305 for 2021.
Operating Expenses
Operating costs and expenses were $586,985 for the three months ended September 30, 2022, compared to $455,176 for the same period of 2021, an increase of $131,809 or 29%. The increase in operating expenses was mainly due to the inclusion of the operating expenses of our pharmacies and hotel, we completed the acquisition of pharmacies and hotel in August 2021.
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Income (Loss) from Operations
Loss from operations was $533,904 in the three months ended September 30, 2022, compared to $93,509 in the same period of 2021, an increase of $440,395 or 471%. The increase in our loss from operations for 2022 was primarily due to the decrease of advertising revenue. All of our operations and in particular our direct marketing activities were materially adversely impacted by travel and work restrictions and limits on the number of people that might gather in one place, imposed on a temporary basis in China and Chengdu to limit the spread of COVID-19.
Non-Operating Income (Expenses)
Non-operating expense was $3,839,929 for the three months ended September 30, 2022, compared to non-operating income of $21,499 for the three months ended September 30, 2021. For the three months ended September 30, 2022, we had impairment loss of $3,823,770 and other expenses of $29,317, partly offset by interest income of $1,024 and other income of $12,134. For the three months ended September 30, 2021, we had interest income $599 and other income $22,067 and other expenses of $1,167.
Income Tax Expense (Benefit)
Income tax benefit was $322 and expense of $74,094 for the three months ended September 30, 2022 and 2021, respectively, a decrease of $74,416 or 100% for the three months ended September 30, 2022 compared with the same period of 2021.
Net Income (Loss)
Our net loss for the three months ended September 30, 2022 was $4,373,511, compared to $146,104 in the same period of 2021, an increase of $4,227,407 or 2893%. The increased loss in the three months ended September 30, 2022 was mainly due to decreased sales revenue, increased operating costs and expense, and impairment loss in 2022 as explained above.
Nine Months ended September 30, 2022 and 2021
The following table sets forth the results of our operations for the periods indicated as a percentage of net revenue, certain columns may not add due to rounding:
| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| $ | % of Revenue | $ | % of Revenue | |||||||||||||
| Revenue | $ | 1,512,351 | 100 | % | $ | 2,363,836 | 100 | % | ||||||||
| Operating costs and expenses | 3,557,647 | 235 | % | 1,766,671 | 75 | % | ||||||||||
| Income (loss) from operations | (2,045,296 | ) | (135 | )% | 597,165 | 25 | % | |||||||||
| Non-operating income (expenses), net | (3,807,922 | ) | (252 | )% | 17,264 | 1 | % | |||||||||
| Income (loss) before income tax | (5,853,218 | ) | (387 | )% | 614,429 | 26 | % | |||||||||
| Income tax expense | 643 | 0.04 | % | 292,146 | 12 | % | ||||||||||
| Net income (loss) | $ | (5,853,861 | ) | (387 | )% | $ | 322,283 | 14 | % | |||||||
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The following table shows our operations by business segment for the nine months ended September 30, 2022 and 2021.
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | 371,016 | $ | 2,060,787 | ||||
| Pharmacies | 517,674 | 139,947 | ||||||
| Hotel | 623,661 | 163,102 | ||||||
| Total revenues, net | $ | 1,512,351 | $ | 2,363,836 | ||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | 98,809 | $ | 199,141 | ||||
| Operating expenses | 961,885 | 966,903 | ||||||
| Pharmacies | ||||||||
| Cost of goods sold | 395,096 | 92,477 | ||||||
| Operating expenses | 467,315 | 124,138 | ||||||
| Hotel | ||||||||
| Hotel operating costs | 1,334,041 | 320,305 | ||||||
| Operating expenses | 300,501 | 63,707 | ||||||
| Total operating costs and expenses | $ | 3,557,647 | $ | 1,766,671 | ||||
| (Loss) income from operations | ||||||||
| Advertising and products | $ | (689,678 | ) | $ | 894,743 | |||
| Pharmacies | (344,737 | ) | (76,668 | ) | ||||
| Hotel | (1,010,881 | ) | (220,910 | ) | ||||
| (Loss) income from operations | $ | (2,045,296 | ) | $ | 597,165 | |||
Revenue
Revenue was $1,512,351 in the nine months ending September 30, 2022, compared to $2,363,836 in the same period of 2021, a decrease of $851,485 or 36%. The decrease in revenue was mainly due to decreases in advertising revenues as due to COVID-19 restrictions we were not able to host the types of events at which we market nutritional products, which were partly offset by revenues from our pharmacies and hotel which we did not own in the first seven months of 2021. For the nine months ended of September 30, 2022, we had $0 advertising revenue and $888,690 product revenues (of which $371,016 were from direct sales and $517,674 represented sales at our pharmacies), and hotel revenue of $623,661. For the nine months ended September 30, 2021, we had $1,742,896 of advertising revenue and $457,838 of product revenue (of which $317,891 were from direct sales and $139,947 represented sales at our pharmacies), and hotel revenue of $163,102.
Operation Costs and Expenses
Cost of Goods Sold
Cost of goods sold was $493,905 for the nine months ended September 30, 2022, compared to $291,618 for the nine months ended September 30, 2021, an increase of $202,287 or 69%. The increase in our cost of goods sold is attributable to increase of pharmacy products sales and direct product sales. The cost of goods sold for our direct product sales as a percentage of sales was 27% in 2022, compared to 63% for 2021. The cost of goods sold for products sold through our pharmacies as a percentage of pharmacy product sales was 76% in 2022, compared to 66% 2021.
Hotel Operating Costs
Hotel operating costs were $1,334,041 for the nine months ended September 30, 2022. compared to $320,305 for the same period of 2021.
Operating Expenses
Operating costs and expenses were $1,729,701 for the nine months ended September 30, 2022, compared to $1,154,748 for the same period of 2021, an increase of $574,953 or 50%. The increase in operating expenses was mainly due to the inclusion of the operating expenses of our pharmacies and hotel. We did not complete the acquisition of pharmacies and hotel until August 2021.
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Income (Loss) from Operations
Loss from operations was $2,045,296 in the nine months ended September 30, 2022, compared to income of $597,165 in the same period of 2021, a decrease of $2,642,461 or 443%. The decrease in our income from operations for 2022 was due to the loss incurred from our direct sales activities and the inclusion of the losses incurred by our pharmacies and hotel. We didn’t complete the acquisition of pharmacies and hotel until August 2021. All of our operations and in particular our direct marketing activities were materially adversely impacted by travel and work restrictions and limits on the number of people that might gather in one place imposed on a temporary basis in China and Chengdu to limit the spread of COVID-19.
Non-Operating Income (Expense)
Non-operating expense was $3,807,922 for the nine months ended September 30, 2022, compared to non-operating income of $17,264 for the nine months ended September 30, 2021. For the nine months ended September 30, 2022, we had impairment loss of $3,823,770 and other expenses of $29,577, partly offset by interest income of $3,636 and other income of $41,789. For the nine months ended September 30, 2021, we had interest income $3,088 and other income $22,228 and other expenses of $8,052.
Income Tax Expense
Income tax expense was $643 and $292,146 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $291,503 or 100% for the nine months ended September 30, 2022 compared with the same period of 2021.
Net Income (Loss)
Our net loss for the nine months ended September 30, 2022 was $5,853,861, compared to net income of $322,283 in the same period of 2021, a decrease of $6,176,144 or 1,916%. The decrease in the nine months ended September 30, 2022 was mainly due to decreased sales revenue, increased operating costs and expense, and impairment loss in 2022 as explained above.
Liquidity and Capital Resources
During the nine months ended of September 30, 2022, we used $1,412,550 in operations. As of September 30, 2022, cash and cash equivalents were $5,298,503 (excluding $80,303 of restricted cash), compared to $8,556,642 (excluding $44,211 of restricted cash) as of December 31, 2021. At September 30, 2022, we had a working capital deficit of $2,461,269 compared to working capital of $4,753,390 at December 31, 2021.
The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2022 and 2021, respectively.
| September 30, 2022 | September 30, 2021 | |||||||
| Net cash (used in) provided by operating activities | $ | (1,412,550 | ) | $ | 546,069 | |||
| Net cash (used in) provided by investing activities | $ | 393,896 | $ | (4,410,524 | ) | |||
| Net cash (used in) provided by financing activities | $ | (1,525,860 | ) | $ | (592,814 | ) | ||
Net cash provided by (used in) operating activities
For the nine months ended September 30, 2022, net cash used in operating activities was $1,412,550. This reflects our net loss of $5,853,861, increased by non-cash related expenses including depreciation and amortization expense of $82,921, the change in deferred tax of $1,419, bad debt expense of $115,495, operating lease expense of $632,496, stock-based compensation of $278,655, and impairment loss of 3,823,770, less changes in working capital of $493,445. The cash outflow from changes in working capital mainly resulted from an increase in accounts receivable of $126,720, payments of lease liabilities of $525,979, a change in inventory of $192,791, unearned revenue of $9,444 and taxes payable of $187,009, which was partly offset by cash inflows from accrued liabilities and other payables of $232,910, other receivable and prepaid expense of $100,801, accounts payable of $201,749, and advances to suppliers of $13,038.
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For the nine months ended September 30, 2021, net cash provided by operating activities was $546,069. This was primarily due to our net income of $322,283, increased by non-cash related expenses including depreciation of $21,910, provision for bad debt of $17,883, operating lease expense of $217,642 and stock-based compensation of $278,655, less changes in working capital of $312,304. The cash outflow from changes in working capital mainly resulted from inventory purchases of $18,728, advances to suppliers of $116,795, and payments of accrued liabilities $41,986, and payments of lease liabilities of $217,642, partly offset by cash inflows from other receivables and prepaid expenses of $22,975, unearned revenue of $13,136 and an increase in taxes payable outstanding of $46,672.
Net cash provided by (used in) investing activities
For the nine months ended September 30, 2022, net cash provided by investing activities was $393,896, mainly as a result of cash acquired in connection with the acquisition of subsidiaries of $446,381, partly offset by purchases of property and equipment of $52,485.
For the nine months ended September 30, 2021, net cash used in investing activities was $4,410,524, mainly for the acquisition of a hotel and pharmacies from our major shareholder.
Net cash provided by (used in) financing activities
For the nine months ended September 30, 2022, net cash used in by financing activities was $1,525,860 as a result of payments made against advances from related parties of $1,525,860.
For the nine months ended September 30, 2021, net cash used in financing activities was $592,814 as a result of payments made against advances from related parties.
Of the $5,298,503 in cash and cash equivalents on hand as of September 30, 2022, we anticipate using approximately $4.3 million to complete the acquisition of Runcangsheng. Should we continue to incur operating losses and incur negative cash flow after completing such acquisition, we may have to seek to raise capital. We may also have to raise additional financing as our working capital requirements are expected to increase in line with the growth of our business as a result of our acquisition of Runcangsheng. In the past we have funded our operations through the proceeds from private placements of equity and advances from our principal shareholder. Should we require capital to fund our business, we intend to finance our business by raising additional capital or, when available, borrowing additional funds. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders and could cause the price of our common stock to decrease. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
Our ability to obtain funds through the issuance of debt or equity is dependent upon the state of the financial markets at such time as we may seek to raise funds. The state of the capital market markets may be adversely impacted by various risks and uncertainties, including, but not limited to future and current impacts of global events such as COVID-19 and the war in the Ukraine, increases in inflation and other risks detailed in our 2021 Annual Report on Form 10K.
Impact of Inflation
Our results of operations may be affected by inflation, particularly rising prices for products and other operating costs if we cannot pass such increases along to our customers in the form of higher prices for our products and services. Generally, we are not party to long term contracts and our inventory turns multiple times per year and we anticipate that we will be able to increase prices on products to reflect increases in the cost of inventory.
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Contractual Obligations
We have no long-term fixed contractual obligations or commitments other than our agreement to acquire Runcangsheng.
Contingencies
Our operations are conducted in the PRC and are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments in China and foreign currency exchange rates. Our results may be adversely affected by changes in PRC government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad and rates and methods of taxation, among other things. In particular, China continues to maintain a zero COVID-19 policy which has caused government agencies from time to time to impose strict lockdowns and limits on the number of people that may gather in one place at any time. Certain of these measures have had a material adverse impact on our business and may continue to do so is they are imposed in the future.
Our sales, purchases and expense transactions in China are denominated in RMB and all of our assets and liabilities in China are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current PRC law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.
Significant Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to assist you in fully understanding and evaluating this management discussion and analysis.
Basis of Presentation
The accompanying financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of AiXinZhongHong, Aixin Shangyan Hotel and Aixintang Pharmacies is Chinese Renminbi (“RMB”). The accompanying financial statements are translated from RMB and presented in U.S. dollars (“USD”).
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
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Accounts Receivable
We 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, 2022 and December 31, 2021, the bad debt allowance was $484,346 and $213,787, respectively.
Revenue Recognition
ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for us on January 1, 2018. Our revenue recognition disclosure reflects updated accounting policies that are affected by this new standard. We 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 we have no significant post-delivery obligations, this did not result in a material recognition of revenue on the accompanying consolidated financial statements for the cumulative impact of applying this new standard. We made no adjustments to previously-reported total revenues, as those periods continue to be presented in accordance with our 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 our products and services to customers in return for expected consideration and includes the following elements:
| ● | executed contract(s) with customers that we believe are 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 we satisfy each performance obligation. |
Our revenue recognition policies for our operating segments are as follows:
Advertising and Products
Advertising Revenue
Commencing in the third quarter of 2019 we began to provide advertising services to our clients. Advertising contracts are signed to establish the price and advertising services to be provided. Pursuant to the advertising contracts, we provided advertising and marketing services to clients through exhibition events, conferences, and person-to-person marketing. We perform a credit assessment of each customer to assess the collectability of the contract price prior to entering into contracts.
Most of the advertisement contracts designated that we perform advertising services for the client through exhibition events, conferences, and person-to-person marketing during the contracted period, regardless of the number of such events. As such, we determined that the performance obligation is satisfied over time during the contracted period and revenue is recognized accordingly. Such advertising revenue amounted to $0 and $445,215 for the three months ended September 30, 2022 and 2021, respectively. Such advertising revenue amounted to $0 and $1,742,896 for the nine months ended September30, 2022 and 2021, respectively.
All of the advertising revenue is subject to the PRC VAT of 6%. This VAT may be offset by VAT paid by us for raw materials and other materials purchased in China.
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Products Revenue
Our revenue from sales of products is recognized when goods are delivered to the customer and no other obligation exists. We do not provide unconditional return or other concessions to customers. Our sales policy allows for the return of unopened products for cash after deducting certain service and transaction fees. As an alternative to returning a product, customers may request an exchange for products with the same value.
Product sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All of our 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 for raw materials and other materials purchased in China. We record VAT payables and VAT receivables 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 we act as an agent for the government.
Pharmacies
Our retail drugstores recognize revenue at the time the customer takes possession of the merchandise. For pharmacy sales, each prescription claim is its own arrangement with the customer and is a performance obligation. We generally receive payment from pharmacy customers we satisfy our performance obligations. We record a receivable when we have 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 the products sold in our pharmacies are exempt from VAT as the pharmacies qualify for a small business exemption.
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 reservations. Each of these products and services represents a distinct performance obligation and, in exchange for these services, we receive 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 on raw materials and other materials purchased in China.
Manufacture and Sale
The Company’s new subsidiary Runcangsheng recognizes revenue at the time products are shipped as this satisfies its performance obligations. The Company records a receivable for the sales when it has an unconditional right to receive payment and only the passage of time is required before payment is due. Sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s products sold in China are subject to the PRC VAT of 13% unless it is a qualified small subject to exemption.
Foreign Currency Translation and Comprehensive Income (Loss)
The functional currency of our business operations is RMB. For financial reporting purposes, RMB is translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.
Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There was no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.
We use FASB ASC Topic 220, “Comprehensive Income”. Comprehensive income (loss) is comprised of net income (loss) and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive loss for the three and nine months ended September 30, 2022 and 2021 consisted of net loss and foreign currency translation adjustments.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Management of AiXin Life International, Inc. is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
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At September 30, 2022, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based on their evaluation of our disclosure controls and procedures, they concluded that at June 30, 2022, such disclosure controls and procedures were not effective. This was due to our limited resources, including the absence of a financial staff with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.”
We plan to designate individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1A. Risk Factors
Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our 2021 Form 10-K, which are incorporated by reference into this report. Prospective investors are encouraged to consider the risks described in the 2021 Form 10-K, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.
Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AIXIN LIFE INTERNATIONAL, INC. | ||
| Dated: November 14, 2022 | By: | /s/ Quanzhong Lin |
| Quanzhong Lin | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| 39 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Quanzhong Lin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AiXin Life International, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: November 14, 2022 | |
| /s/ Quanzhong Lin | |
| Quanzhong Lin | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Guolu Li, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AiXin Life International, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: November 14, 2022 | |
| /s/ Guolu Li | |
| Guolu Li | |
| Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of AiXin Life International, Inc., a Colorado corporation (the “Company”), on Form 10-Q for the period ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”) Quanzhong Lin, Chief Executive Officer of the Company, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: November 14, 2022
| /s/ Quanzhong Lin | |
| Quanzhong Lin | |
| Chief Executive Officer (Principal Executive Officer) |
[A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.]
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of AiXin Life International, Inc., a Colorado corporation (the “Company”), on Form 10-Q for the period ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), Guolu Li, Chief Financial Officer of the Company, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: November 14, 2022
| /s/ Guolu Li | |
| Chief Financial Officer (Principal Financial Officer) |
[A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company. and furnished to the Securities and Exchange Commission or its staff upon request.]
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Undesignated preferred stock, par value | $ 0.001 | $ 0.001 |
| Undesignated preferred stock, shares authorized | 20,000,000 | 20,000,000 |
| Undesignated preferred stock, shares issued | 0 | 0 |
| Undesignated preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value | $ 0.00001 | $ 0.00001 |
| Common stock, shares authorized | 500,000,000 | 500,000,000 |
| Common stock, shares issued | 49,999,891 | 49,999,891 |
| Common stock, shares outstanding | 49,999,891 | 49,999,891 |
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Sales revenue: | ||||
| Total revenue, net | $ 672,786 | $ 812,910 | $ 1,512,351 | $ 2,363,836 |
| Operating costs and expenses | ||||
| Cost of goods sold | 215,383 | 130,938 | 493,905 | 291,618 |
| Hotel operating costs | 404,322 | 320,305 | 1,334,041 | 320,305 |
| Selling | 193,820 | 156,587 | 583,438 | 250,468 |
| General and administrative | 232,642 | 187,820 | 752,113 | 607,741 |
| Provision for bad debts | 67,638 | 17,884 | 115,495 | 17,884 |
| Stock-based compensation | 92,885 | 92,885 | 278,655 | 278,655 |
| Total operating costs and expenses | 1,206,690 | 906,419 | 3,557,647 | 1,766,671 |
| (Loss) income from operations | (533,904) | (93,509) | (2,045,296) | 597,165 |
| Non-operating income (expenses) | ||||
| Interest income | 1,024 | 599 | 3,636 | 3,088 |
| Impairment loss | (3,823,770) | (3,823,770) | ||
| Other income | 12,134 | 22,067 | 41,789 | 22,228 |
| Other expenses | (29,317) | (1,167) | (29,577) | (8,052) |
| Total non-operating income (expenses), net | (3,839,929) | 21,499 | (3,807,922) | 17,264 |
| (Loss) income before income tax | (4,373,833) | (72,010) | (5,853,218) | 614,429 |
| Income tax expense (benefit) | (322) | 74,094 | 643 | 292,146 |
| Net (loss) income | (4,373,511) | (146,104) | (5,853,861) | 322,283 |
| Other comprehensive items | ||||
| Foreign currency translation (loss) gain | (139,053) | 6,638 | (152,137) | 83,762 |
| Comprehensive (loss) income | $ (4,512,564) | $ (139,466) | $ (6,005,998) | $ 406,045 |
| (Loss) income per share - basic and diluted | $ (0.087) | $ (0.003) | $ (0.117) | $ 0.006 |
| Weighted average shares outstanding | 49,999,891 | 49,999,891 | 49,999,891 | 49,999,891 |
| Product [Member] | ||||
| Sales revenue: | ||||
| Total revenue, net | $ 503,062 | $ 204,593 | $ 888,690 | $ 457,838 |
| Advertising [Member] | ||||
| Sales revenue: | ||||
| Total revenue, net | 445,215 | 1,742,896 | ||
| Room Revenue [Member] | ||||
| Sales revenue: | ||||
| Total revenue, net | 71,562 | 68,559 | 166,278 | 68,559 |
| Food And Beverage Revenues [Member] | ||||
| Sales revenue: | ||||
| Total revenue, net | 64,321 | 71,015 | 356,840 | 71,015 |
| Other [Member] | ||||
| Sales revenue: | ||||
| Total revenue, net | $ 33,841 | $ 23,528 | $ 100,543 | $ 23,528 |
Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Statutory Reserves [Member] |
Retained Earnings [Member] |
AOCI Attributable to Parent [Member] |
Total |
|---|---|---|---|---|---|---|
| Beginning balance at Dec. 31, 2020 | $ 500 | $ 11,115,765 | $ 151,988 | $ (4,964,711) | $ 588,540 | $ 6,892,082 |
| Beginning balance, shares at Dec. 31, 2020 | 49,999,891 | |||||
| Stock-based compensation | 92,885 | 92,885 | ||||
| Net income (loss) | 221,702 | 221,702 | ||||
| Foreign currency translation | (32,609) | (32,609) | ||||
| Ending balance at Mar. 31, 2021 | $ 500 | 11,208,650 | 151,988 | (4,743,009) | 555,931 | 7,174,060 |
| Ending balance, shares at Mar. 31, 2021 | 49,999,891 | |||||
| Beginning balance at Dec. 31, 2020 | $ 500 | 11,115,765 | 151,988 | (4,964,711) | 588,540 | 6,892,082 |
| Beginning balance, shares at Dec. 31, 2020 | 49,999,891 | |||||
| Net income (loss) | 322,283 | |||||
| Foreign currency translation | 83,762 | |||||
| Ending balance at Sep. 30, 2021 | $ 500 | 9,585,799 | 151,988 | (8,291,094) | 672,302 | 2,119,495 |
| Ending balance, shares at Sep. 30, 2021 | 49,999,891 | |||||
| Beginning balance at Dec. 31, 2020 | $ 500 | 11,115,765 | 151,988 | (4,964,711) | 588,540 | 6,892,082 |
| Beginning balance, shares at Dec. 31, 2020 | 49,999,891 | |||||
| Ending balance at Dec. 31, 2021 | $ 500 | 14,086,793 | 151,988 | (8,880,613) | 710,823 | 6,069,491 |
| Ending balance, shares at Dec. 31, 2021 | 49,999,891 | |||||
| Beginning balance at Mar. 31, 2021 | $ 500 | 11,208,650 | 151,988 | (4,743,009) | 555,931 | 7,174,060 |
| Beginning balance, shares at Mar. 31, 2021 | 49,999,891 | |||||
| Stock-based compensation | 92,885 | 92,885 | ||||
| Net income (loss) | 246,685 | 246,685 | ||||
| Foreign currency translation | 109,733 | 109,733 | ||||
| Ending balance at Jun. 30, 2021 | $ 500 | 11,301,535 | 151,988 | (4,496,324) | 665,664 | 7,623,363 |
| Ending balance, shares at Jun. 30, 2021 | 49,999,891 | |||||
| Stock-based compensation | 92,885 | 92,885 | ||||
| Net income (loss) | (146,104) | (146,104) | ||||
| Foreign currency translation | 6,638 | 6,638 | ||||
| Acquisition of subsidiaries | (4,257,275) | (3,648,666) | (7,905,941) | |||
| Debt forgiven by major shareholder | 2,448,654 | 2,448,654 | ||||
| Ending balance at Sep. 30, 2021 | $ 500 | 9,585,799 | 151,988 | (8,291,094) | 672,302 | 2,119,495 |
| Ending balance, shares at Sep. 30, 2021 | 49,999,891 | |||||
| Beginning balance at Dec. 31, 2021 | $ 500 | 14,086,793 | 151,988 | (8,880,613) | 710,823 | 6,069,491 |
| Beginning balance, shares at Dec. 31, 2021 | 49,999,891 | |||||
| Stock-based compensation | 92,885 | 92,885 | ||||
| Net income (loss) | (752,081) | (752,081) | ||||
| Foreign currency translation | 31,864 | 31,864 | ||||
| Ending balance at Mar. 31, 2022 | $ 500 | 14,179,678 | 151,988 | (9,632,694) | 742,687 | 5,442,159 |
| Ending balance, shares at Mar. 31, 2022 | 49,999,891 | |||||
| Beginning balance at Dec. 31, 2021 | $ 500 | 14,086,793 | 151,988 | (8,880,613) | 710,823 | 6,069,491 |
| Beginning balance, shares at Dec. 31, 2021 | 49,999,891 | |||||
| Net income (loss) | (5,853,861) | |||||
| Foreign currency translation | (152,137) | |||||
| Ending balance at Sep. 30, 2022 | $ 500 | 14,365,448 | 151,988 | (14,734,474) | 558,686 | 342,148 |
| Ending balance, shares at Sep. 30, 2022 | 49,999,891 | |||||
| Beginning balance at Mar. 31, 2022 | $ 500 | 14,179,678 | 151,988 | (9,632,694) | 742,687 | 5,442,159 |
| Beginning balance, shares at Mar. 31, 2022 | 49,999,891 | |||||
| Stock-based compensation | 92,885 | 92,885 | ||||
| Net income (loss) | (728,269) | (728,269) | ||||
| Foreign currency translation | (44,948) | (44,948) | ||||
| Ending balance at Jun. 30, 2022 | $ 500 | 14,272,563 | 151,988 | (10,360,963) | 697,739 | 4,761,827 |
| Ending balance, shares at Jun. 30, 2022 | 49,999,891 | |||||
| Stock-based compensation | 92,885 | 92,885 | ||||
| Net income (loss) | (4,373,511) | (4,373,511) | ||||
| Foreign currency translation | (139,053) | (139,053) | ||||
| Ending balance at Sep. 30, 2022 | $ 500 | $ 14,365,448 | $ 151,988 | $ (14,734,474) | $ 558,686 | $ 342,148 |
| Ending balance, shares at Sep. 30, 2022 | 49,999,891 |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION AND DESCRIPTION OF BUSINESS | 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 shares of the Company’s common stock, % 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 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, the Company changed its name to AiXin Life International, Inc. (“Aixin Life”).
The Company, through its indirectly owned AiXinZhonghong subsidiary, 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 (the “Hotel Purchase 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 Hotel Purchase Agreement, Aixin Life purchased 100% ownership of Aixin Shangyan Hotel from Transferor. 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 purchased 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 (the “Pharmacies Purchase 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 Pharmacies Purchase Agreement, AiXin HK purchased 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.
On July 19, 2022, HK Aixin entered into an Equity Transfer Agreement with Yunnan Shengshengyuan Technology Co., Ltd, and Yun Chen (the “Sellers”), the shareholders of Yunnan Runcangsheng Technology Company Ltd. (“Runcangsheng”). Yunnan Shengshengyuan owns in excess of 95% of the outstanding equity of Runcangsheng. The remaining equity interest is owned by Yun Chen. Pursuant to the Transfer Agreement, HK Aixin agreed to purchase all of the outstanding equity of Runcangsheng for an aggregate purchase price of $4,418,095 (RMB 31,557,820), adjusted by $116,802 the amount equal to the initial net worth minus the audited net worth. In addition to transferring their respective equity interest in Runcangsheng by the Sellers, both Sellers agree to forgive any loans Runcangsheng due to them. The acquisition was completed on September 30, 2022 (see Note 17).
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| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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, Aixintang Pharmacies and Runcangsheng is the 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, Aixintang Pharmacies and Runcangsheng. 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, 2022.
The balance sheets and certain comparative information as of December 31, 2021 are derived from the audited financial statements and related notes for the year ended December 31, 2021, included in the Company’s 2021 Annual Report on Form 10-K. These unaudited interim financial statements should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
Covid – 19; The Invasion of Ukraine
On March 11, 2020, the World Health Organization announced that infections caused by the corona virus disease of 2019 (“COVID-19”) had become pandemic. In furtherance of its zero tolerance policy, 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 from time to time in various localities. However, beginning in the second half of 2021 and continuing to date, the rate of COVID-19 cases has fluctuated in China and has increased in many provinces and cities including in Sichuan Province, where the Company is located. As a result of such increases there have been periodic short-term lockdowns and restrictions on travel in Sichuan Province. All of the Company’s operations, in particular its direct sales business and hotel, have been adversely impacted by the travel and work restrictions imposed on a temporary basis in China and Chengdu to limit the spread of COVID-19.
In response to COVID-19, the Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs. However, the Company cannot predict with certainty what measures may be taken by its suppliers and customers and the impact these measures may have on its future financial position, results of operations or cash flows.
The invasion of Ukraine by the Russian Federation had an immediate impact on the global economy resulting in higher prices for oil and other commodities. The United States, United Kingdom, European Union and other countries responded to Russia’s invasion of Ukraine by imposing various economic sanctions and bans. Russia has responded with its own retaliatory measures. These measures have disrupted financial and economic markets. The global impact of these measures is continually evolving and cannot be predicted with certainty and there is no assurance that Russia’s invasion of Ukraine and responses thereto will not further disrupt the global economy and financial markets.
While the invasion of Ukraine and responses thereto have not interrupted the Company’s operations, these or future developments resulting from the invasion of Ukraine could make it difficult to access debt and equity capital on attractive terms, if at all, and impact the Company’s ability to fund business activities, including proposed acquisitions.
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.
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.
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 reflects the temporary freeze of bank accounts of Aixintang Pharmacy Co., Ltd. (“Aixintang Pharmacy”) and its branches by the court during the appeal of a judgement against Aixintang Pharmacy (see Note 16 – 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 September 30, 2022 and December 31, 2021, the bad debt allowance was $483,346 and $213,787, 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. Management periodically evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required. The balance of reserve for inventory valuation as of September 30, 2022 and December 31, 2021 was $19,641 and $0, respectively.
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:
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, 2022 and December 31, 2021, there were no significant impairments of its long-lived assets.
Goodwill
The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs a two-step impairment test. The Company tests goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions.
The Company completed the required testing of goodwill for impairment as of September 30, 2022, and determined that goodwill was impaired because of the current financial condition of the Company and the Company’s inability to generate future operating income without substantial sales volume increases, which are highly uncertain. Furthermore, the Company anticipates future cash flows indicate that the recoverability of goodwill is not reasonably assured.
The goodwill write-down was reflected as a impairment loss, $3,823,770, in non-operating expenses in the statement of operation and comprehensive income(loss).
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, 2022 and December 31, 2021, 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:
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 $0 and $445,215 for the three months ended September 30, 2022 and 2021, respectively. Such advertising revenue amounted to $0 and $1,742,896 for the nine months ended September 30, 2022 and 2021, 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.
Product 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 business.
Manufacture and Sale
The Company’s new subsidiary Runcangsheng recognizes revenue at the time products are shipped as this satisfies its performance obligations. The Company records a receivable for the sales when it has an unconditional right to receive payment and only the passage of time is required before payment is due. Sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s products sold in China are subject to the PRC VAT of 13% unless it is a qualified small subject to exemption.
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 three and nine months ended September 30, 2022, the Company had no customer that accounted for over 10% of its total revenue.
During the three months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
During the nine months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
During the three months ended September 30, 2022, the Company had one major supplier that accounted for over 10% of its total purchases.
During the nine months ended September 30, 2022, the Company had one major supplier that accounted for over 10% of its total purchases.
During the three months ended September 30, 2021, the Company had no supplier that accounted for over 10% of its total purchase.
During the nine months ended September 30, 2021, the Company had one major supplier accounted for over 10% of its total purchase.
Leases
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, 2022 and December 31, 2021. 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:
As of September 30, 2022 and December 31, 2021, 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, 2022 and 2021 consisted of net income (loss) and foreign currency translation adjustments.
Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
As of September 30, 2022 and December 31, 2021, the Company did not have any potentially dilutive instruments.
Stock-Based Compensation
The Company periodically grants stock options, warrants and stock 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 four operating segments, advertising and products, pharmacies, hotels, and manufacture and sale, 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, 2022 and 2021. Revenues and expenses for the Pharmacies and Hotel segments commenced as of the respective dates of the completion of their acquisitions:
The following table shows the Company’s operations by business segment for the nine months ended September 30, 2022 and 2021. Revenues and expenses for the Pharmacies and Hotel segments commenced as of the respective dates of the completion of their acquisitions:
As the acquisition of Runcangsheng was consummated on September 30, 2022 (see Note 17), the revenues and operating results of the manufacture and sale segment will be included in the financial statements of the Company beginning on October 1, 2022.
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 fair value, 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.
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.
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OTHER RECEIVABLES AND PREPAID EXPENSES |
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| OTHER RECEIVABLES AND PREPAID EXPENSES | 3. OTHER RECEIVABLES AND PREPAID EXPENSES
Other receivables and prepaid expenses consisted of the following at September 30, 2022 and December 31, 2021:
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ADVANCES TO SUPPLIERS |
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Sep. 30, 2022 | |
| Advances To Suppliers | |
| ADVANCES TO SUPPLIERS | 4. ADVANCES TO SUPPLIERS
The Company had advances to suppliers of $137,362 and $162,969 as of September 30, 2022 and December 31, 2021, respectively. Advances to suppliers primarily include prepayments for products expected to be delivered subsequent to balance sheet dates.
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INVENTORIES |
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| INVENTORIES | 5. INVENTORIES
Inventories consisted of the following at September 30, 2022 and December 31, 2021:
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PROPERTY AND EQUIPMENT, NET |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT, NET | 6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at September 30, 2022 and December 31, 2021:
Depreciation expense for the three months ended September 30, 2022 and 2021 was $25,111 and $10,608, respectively.
Depreciation expense for the nine months ended September 30, 2022 and 2021 was $81,036 and $21,478, respectively.
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INTANGIBLE ASSET, NET |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSET, NET | 7. INTANGIBLE ASSET, NET
Intangible asset consisted of the following at September 30, 2022 and December 31, 2021:
Amortization expense for the three months ended September 30, 2022 and 2021 was $591and $432.
Amortization expense for the nine months ended September 30, 2022 and 2021 was $1,885 and $432.
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TAXES PAYABLE |
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| TAXES PAYABLE | 8. TAXES PAYABLE
Taxes payable consisted of the following at September 30, 2022 and December 31, 2021:
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ACCRUED LIABILITIES AND OTHER PAYABLES |
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| ACCRUED LIABILITIES AND OTHER PAYABLES | 9. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at September 30, 2022 and December 31, 2021:
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LOAN FROM THIRD PARTIES |
9 Months Ended |
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Sep. 30, 2022 | |
| Loan From Third Parties | |
| LOAN FROM THIRD PARTIES | 10. LOAN FROM THIRD PARTIES
As of September 30, 2022 and December 31, 2021, the Company had advances from former shareholders and unrelated third parties in an aggregate amount of $84,347 and $94,153, respectively. There was no written agreement, and these loans are payable on demand and bear no interest.
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LEASE |
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| LEASE | 11. 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 0.19 to 3.69 years.
Aixin Shangyan Hotel leases its hotel premises under an operating lease arrangement. The lease has a remaining lease term of approximately 1.25 years.
Aixintang Pharmacies lease retail pharmacy stores under operating lease arrangements, with remaining lease terms of 0.62 to 3.92 years.
Balance sheet information related to the Company’s leases is presented below:
The following provides details of the Company’s lease expenses:
Other information related to leases is presented below:
Maturities of lease liabilities were as follows:
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RELATED PARTY TRANSACTIONS |
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| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS | 12. RELATED PARTY TRANSACTIONS
Account payables to related parties
As of September 30, 2022 and December 31, 2021, the Company had accounts payable to related party in the amount of $ and $, respectively, which was for the purchase of raw materials from Luquan Shengcaofeng Biotechnology Co., Ltd. (“Shengcaofeng”), an affiliate entity of Runcangsheng.
Advance to related parties
Advance to related parties consisted of the following as of the periods indicated:
Advance from related parties
Advance from related parties consisted of the following as of the periods indicated:
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 ($757), 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 ($757), payable quarterly. The future annual minimum lease payment at September 30, 2022 is $6,056 for the year ended September 30, 2023.
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INCOME TAXES |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | 13. 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, 2022 and 2021, and recorded income tax provision for the 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, 2022 and 2021, 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.
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STOCKHOLDERS’ EQUITY |
9 Months Ended |
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Sep. 30, 2022 | |
| Equity [Abstract] | |
| STOCKHOLDERS’ EQUITY | 14. 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 shares of blank check preferred stock at $ par value and shares of common stock at $ par value per share. All share and earnings per share information has been retroactively adjusted to reflect the reverse stock split.
As of September 30, 2022 and December 31, 2021, the Company had common shares issued and outstanding.
Stock Awards Issued for Services
On October 22, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive Plan. The stock awards were valued at $337,500 based on the post-split closing price of $ on the grant date.
On October 24, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive Plan. The stock awards were valued at $1,520,200 based on the post-split closing price of $ on the grant date.
The stock awards will vest over five () years from the grant date, and the grantee will forfeit a portion of the shares granted (“Shares Granted”) if the grantee is no longer employed by or contracted with the Company. Specifically,
For the three months ended September 30, 2022 and 2021, stock-based compensation expenses were $ each. For the nine months ended September 30, 2022 and 2021, stock-based compensation expenses were $ each. As of September 30, 2022, unrecognized compensation expenses related to these stock awards are $. These expenses are expected to be recognized over years.
Forgiveness of shareholder’s loan
As of December 31, 2021, the Company’s major shareholder Mr. Lin forgave his loan to the Company for $6,912,513. The Company recorded this forgiveness of shareholder loan as additional paid-in capital.
Acquisition of Subsidiaries
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 $4,313,025.
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STATUTORY RESERVES |
9 Months Ended |
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Sep. 30, 2022 | |
| Statutory Reserves | |
| STATUTORY RESERVES | 15. 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 three and nine months ended September 30, 2022 and 2021, the Company make $0 and $0 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, 2022 and 2021.
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.
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OPERATING CONTINGENCIES |
9 Months Ended |
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Sep. 30, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| OPERATING CONTINGENCIES | 16. 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 September 30, 2022.
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.
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ACQUISITIONS OF SUBSIDIARIES |
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| Business Combination and Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITIONS OF SUBSIDIARIES | 17. ACQUISITIONS OF SUBSIDIARIES
Aixin Shangyan Hotel and Aixintang Pharmaciess
In July and September, 2021, the Company completed the required governmental procedures and obtained the documents necessary to consider the acquisitions of Aixin Shangyan Hotel and Aixintang Pharmacies completed.
Pursuant to the Hotel Purchase Agreement, AiXin HK purchased all of the outstanding equity of Aixin Shangyan Hotel from Mr. Lin and the other shareholder for a purchase price of RMB 7,598,887, or $1.16 million.
Pursuant to the Pharmacies Purchase Agreement, AiXin HK purchased 100% ownership of Aixintang Pharmacies from Mr. Lin and the other two shareholders for a purchase price of RMB 34,635,845 or $5.31 million.
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.
Runcangsheng
On July 19, 2022, the Company entered into an Equity Transfer Agreement with Yunnan Shengshengyuan Technology Co., Ltd (“Shengshengyuan”) and Yun Chen (collectively “the Sellers”), who own 95% and 5% equity interest of Yunnan Runcangsheng Technology Co., Ltd (“Runcangsheng”), respectively.
Under the terms of the Transfer Agreement, the Company agreed to purchase all of the outstanding equity interest of Yunnan Runcangsheng for an aggregate purchase price of RMB 31,557,820 or $4,418,095, adjusted by $the amount equal to the initial net worth estimate minus the audited net worth of Runcangsheng as of December 31, 2021. In addition to transferring their respective equity interest in Runcangsheng, both Sellers agree to forgive any loans due to them from Runcangsheng. The acquisition was completed on September 30, 2022. As of September 30, 2022, a major shareholder of the Company has paid $679,000 on behalf of the Company for the acquisition of Runcangsheng, and the remaining unpaid balance of $3,622,293 was included in accrued liabilities and other payables.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. Goodwill as a result of the acquisition of Runcangsheng is calculated as follows:
During the nine months ended September 30, 2022, the Company has recorded goodwill impairment in full amount.
The following condensed unaudited pro forma consolidated results of operations for the Company, Runcangsheng, Aixin Shangyan Hotel and Aixintang Pharmacies for the nine months ended September 30, 2022 and 2021 present the results of operations of the Company, Runcangsheng, Aixin Shangyan Hotel, and Aixintang Pharmacies as if the acquisitions occurred on January 1, 2022 and 2021, respectively.
The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.
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SUBSEQUENT EVENT |
9 Months Ended |
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Sep. 30, 2022 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENT | 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 need to be disclosed. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | 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, Aixintang Pharmacies and Runcangsheng is the 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, Aixintang Pharmacies and Runcangsheng. Intercompany transactions and accounts were eliminated in consolidation.
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| Unaudited Interim Financial Information | 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, 2022.
The balance sheets and certain comparative information as of December 31, 2021 are derived from the audited financial statements and related notes for the year ended December 31, 2021, included in the Company’s 2021 Annual Report on Form 10-K. These unaudited interim financial statements should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
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| Covid – 19; The Invasion of Ukraine | Covid – 19; The Invasion of Ukraine
On March 11, 2020, the World Health Organization announced that infections caused by the corona virus disease of 2019 (“COVID-19”) had become pandemic. In furtherance of its zero tolerance policy, 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 from time to time in various localities. However, beginning in the second half of 2021 and continuing to date, the rate of COVID-19 cases has fluctuated in China and has increased in many provinces and cities including in Sichuan Province, where the Company is located. As a result of such increases there have been periodic short-term lockdowns and restrictions on travel in Sichuan Province. All of the Company’s operations, in particular its direct sales business and hotel, have been adversely impacted by the travel and work restrictions imposed on a temporary basis in China and Chengdu to limit the spread of COVID-19.
In response to COVID-19, the Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs. However, the Company cannot predict with certainty what measures may be taken by its suppliers and customers and the impact these measures may have on its future financial position, results of operations or cash flows.
The invasion of Ukraine by the Russian Federation had an immediate impact on the global economy resulting in higher prices for oil and other commodities. The United States, United Kingdom, European Union and other countries responded to Russia’s invasion of Ukraine by imposing various economic sanctions and bans. Russia has responded with its own retaliatory measures. These measures have disrupted financial and economic markets. The global impact of these measures is continually evolving and cannot be predicted with certainty and there is no assurance that Russia’s invasion of Ukraine and responses thereto will not further disrupt the global economy and financial markets.
While the invasion of Ukraine and responses thereto have not interrupted the Company’s operations, these or future developments resulting from the invasion of Ukraine could make it difficult to access debt and equity capital on attractive terms, if at all, and impact the Company’s ability to fund business activities, including proposed acquisitions.
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| Use of Estimates | 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.
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| Reclassification | 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.
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| Cash and Cash Equivalents | Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
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| Restricted Cash | Restricted Cash
The restricted cash reflects the temporary freeze of bank accounts of Aixintang Pharmacy Co., Ltd. (“Aixintang Pharmacy”) and its branches by the court during the appeal of a judgement against Aixintang Pharmacy (see Note 16 – litigation).
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| Accounts Receivable | 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, 2022 and December 31, 2021, the bad debt allowance was $483,346 and $213,787, respectively.
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| Inventories | 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. Management periodically evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required. The balance of reserve for inventory valuation as of September 30, 2022 and December 31, 2021 was $19,641 and $0, respectively.
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| Property and Equipment | 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:
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| Impairment of Long-Lived Assets | 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, 2022 and December 31, 2021, there were no significant impairments of its long-lived assets.
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| Goodwill | Goodwill
The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs a two-step impairment test. The Company tests goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions.
The Company completed the required testing of goodwill for impairment as of September 30, 2022, and determined that goodwill was impaired because of the current financial condition of the Company and the Company’s inability to generate future operating income without substantial sales volume increases, which are highly uncertain. Furthermore, the Company anticipates future cash flows indicate that the recoverability of goodwill is not reasonably assured.
The goodwill write-down was reflected as a impairment loss, $3,823,770, in non-operating expenses in the statement of operation and comprehensive income(loss).
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| Income Taxes | 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, 2022 and December 31, 2021, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
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| Revenue Recognition | 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:
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 $0 and $445,215 for the three months ended September 30, 2022 and 2021, respectively. Such advertising revenue amounted to $0 and $1,742,896 for the nine months ended September 30, 2022 and 2021, 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.
Product 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 business.
Manufacture and Sale
The Company’s new subsidiary Runcangsheng recognizes revenue at the time products are shipped as this satisfies its performance obligations. The Company records a receivable for the sales when it has an unconditional right to receive payment and only the passage of time is required before payment is due. Sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s products sold in China are subject to the PRC VAT of 13% unless it is a qualified small subject to exemption.
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| Unearned Revenue | 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.
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| Concentration of Credit Risk | 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 and nine months ended September 30, 2022, the Company had no customer that accounted for over 10% of its total revenue.
During the three months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
During the nine months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
During the three months ended September 30, 2022, the Company had one major supplier that accounted for over 10% of its total purchases.
During the nine months ended September 30, 2022, the Company had one major supplier that accounted for over 10% of its total purchases.
During the three months ended September 30, 2021, the Company had no supplier that accounted for over 10% of its total purchase.
During the nine months ended September 30, 2021, the Company had one major supplier accounted for over 10% of its total purchase.
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| Leases | Leases
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, 2022 and December 31, 2021. Operating leases are included in operating lease ROU and operating lease liabilities (current and non-current), on the consolidated balance sheets.
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| Statement of Cash Flows | 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.
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| Fair Value of Financial Instruments | 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.
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| Fair Value Measurements and Disclosures | 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:
As of September 30, 2022 and December 31, 2021, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
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| Foreign Currency Translation and Comprehensive Income (Loss) | 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, 2022 and 2021 consisted of net income (loss) and foreign currency translation adjustments.
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| 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, 2022 and December 31, 2021, the Company did not have any potentially dilutive instruments.
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| Stock-Based Compensation | Stock-Based Compensation
The Company periodically grants stock options, warrants and stock 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.
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| Segment Reporting | 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 four operating segments, advertising and products, pharmacies, hotels, and manufacture and sale, 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, 2022 and 2021. Revenues and expenses for the Pharmacies and Hotel segments commenced as of the respective dates of the completion of their acquisitions:
The following table shows the Company’s operations by business segment for the nine months ended September 30, 2022 and 2021. Revenues and expenses for the Pharmacies and Hotel segments commenced as of the respective dates of the completion of their acquisitions:
As the acquisition of Runcangsheng was consummated on September 30, 2022 (see Note 17), the revenues and operating results of the manufacture and sale segment will be included in the financial statements of the Company beginning on October 1, 2022.
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| New Accounting Pronouncements | 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 fair value, 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.
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. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT ESTIMATED LIVES |
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| SCHEDULE OF CONCENTRATION OF RISK BY RISK FACTORS | During the three months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
During the nine months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
During the three months ended September 30, 2022, the Company had one major supplier that accounted for over 10% of its total purchases.
During the nine months ended September 30, 2022, the Company had one major supplier that accounted for over 10% of its total purchases.
During the three months ended September 30, 2021, the Company had no supplier that accounted for over 10% of its total purchase.
During the nine months ended September 30, 2021, the Company had one major supplier accounted for over 10% of its total purchase.
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| SCHEDULE OF INFORMATION SEGMENTS | The following table shows the Company’s operations by business segment for the three months ended September 30, 2022 and 2021. Revenues and expenses for the Pharmacies and Hotel segments commenced as of the respective dates of the completion of their acquisitions:
The following table shows the Company’s operations by business segment for the nine months ended September 30, 2022 and 2021. Revenues and expenses for the Pharmacies and Hotel segments commenced as of the respective dates of the completion of their acquisitions:
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OTHER RECEIVABLES AND PREPAID EXPENSES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Receivables And Prepaid Expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OTHER RECEIVABLES AND PREPAID EXPENSES | Other receivables and prepaid expenses consisted of the following at September 30, 2022 and December 31, 2021:
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INVENTORIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INVENTORIES | Inventories consisted of the following at September 30, 2022 and December 31, 2021:
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PROPERTY AND EQUIPMENT, NET (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT | Property and equipment consisted of the following at September 30, 2022 and December 31, 2021:
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INTANGIBLE ASSET, NET (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INTANGIBLE ASSET | Intangible asset consisted of the following at September 30, 2022 and December 31, 2021:
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TAXES PAYABLE (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes Payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF TAX PAYABLE | Taxes payable consisted of the following at September 30, 2022 and December 31, 2021:
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ACCRUED LIABILITIES AND OTHER PAYABLES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCRUED LIABILITIES AND OTHER PAYABLES | Accrued liabilities and other payables consisted of the following at September 30, 2022 and December 31, 2021:
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LEASE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPERATING LEASE LIABILITIES | Balance sheet information related to the Company’s leases is presented below:
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| SCHEDULE OF OTHER INFORMATION RELATED LEASES | The following provides details of the Company’s lease expenses:
Other information related to leases is presented below:
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| SCHEDULE OF OTHER INFORMATION RELATED LEASES | Other information related to leases is presented below:
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| SCHEDULE OF MATURITIES OF LEASE LIABILITIES | Maturities of lease liabilities were as follows:
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RELATED PARTY TRANSACTIONS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF RELATED PARTY TRANSACTIONS | Advance to related parties consisted of the following as of the periods indicated:
Advance from related parties
Advance from related parties consisted of the following as of the periods indicated:
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ACQUISITIONS OF SUBSIDIARIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FAIR VALUES OF THE ASSETS ACQUIRED AND LIABILITIES ASSUMED | The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. Goodwill as a result of the acquisition of Runcangsheng is calculated as follows:
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| SCHEDULE OF BUSINESS ACQUISITION PRO FORMA |
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ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Narrative) |
12 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
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Jul. 19, 2022
USD ($)
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Jul. 18, 2022 |
Jun. 02, 2021
USD ($)
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Jun. 02, 2021
CNY (¥)
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May 25, 2021
USD ($)
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May 25, 2021
CNY (¥)
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Dec. 12, 2017
shares
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Feb. 02, 2017
USD ($)
shares
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Dec. 31, 2020
USD ($)
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Sep. 30, 2022
shares
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Dec. 31, 2021
shares
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| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Common stock, shares outstanding | shares | 49,999,891 | 49,999,891 | |||||||||
| Business combination, consideration transferred | $ 4,301,293 | ||||||||||
| Aixin Shangyan Hotel Management [Member] | |||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Business combination, consideration transferred | $ 1,160,000 | ¥ 7,598,887 | |||||||||
| Chengdu Aixin Tang Pharmacy Co., Ltd. [Member] | Pharmacies Purchase Agreement [Member] | |||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Business acquisition, description of acquired entity | On June 2, 2021, AiXin HK entered into an Equity Transfer Agreement (the “Pharmacies Purchase 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. | On June 2, 2021, AiXin HK entered into an Equity Transfer Agreement (the “Pharmacies Purchase 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. | |||||||||
| AiXintang Pharmacises [Member] | |||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Business combination, consideration transferred | $ 5,310,000 | ¥ 34,635,845 | |||||||||
| Business combination, adjusted | $ 116,802 | ||||||||||
| Yunnan Shengshengyuan Technology Co Ltd [Member] | |||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Business combination, consideration transferred | 4,418,095 | ¥ 31,557,820 | |||||||||
| Business combination, adjusted | $ 116,802 | ||||||||||
| Yunnan Shengshengyuan Technology Co Ltd [Member] | Transfer Agreement [Member] | |||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Business acquisition, description of acquired entity | On July 19, 2022, HK Aixin entered into an Equity Transfer Agreement with Yunnan Shengshengyuan Technology Co., Ltd, and Yun Chen (the “Sellers”), the shareholders of Yunnan Runcangsheng Technology Company Ltd. (“Runcangsheng”). Yunnan Shengshengyuan owns in excess of 95% of the outstanding equity | ||||||||||
| Equity Transfer Agreement [Member] | Aixin Shangyan Hotel Management [Member] | |||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Equity method investment, ownership percentage | 100.00% | 100.00% | |||||||||
| Quanzhong Lin [Member] | |||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Stock issued during period, shares, new issues | shares | 56,838,151 | ||||||||||
| China Concentric [Member] | |||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||||||||
| Common stock, shares outstanding | shares | 7,380,352 | ||||||||||
| Common stock percentage | 65.00% | ||||||||||
| Purchase price of common stock | $ 300,000 | ||||||||||
SCHEDULE OF CONCENTRATION OF RISK BY RISK FACTORS (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
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| Product Information [Line Items] | ||||||||
| Total revenue | $ 672,786 | $ 812,910 | $ 1,512,351 | $ 2,363,836 | ||||
| Revenue Benchmark [Member] | Customer Concentration Risk [Member] | Customer A [Member] | ||||||||
| Product Information [Line Items] | ||||||||
| Total revenue | [1] | $ 146,140 | $ 1,152,208 | |||||
| Concentration Risk, Percentage | [1] | 18.00% | 49.00% | |||||
| Revenue Benchmark [Member] | Customer Concentration Risk [Member] | Customer B [Member] | ||||||||
| Product Information [Line Items] | ||||||||
| Total revenue | $ 299,076 | $ 590,688 | ||||||
| Concentration Risk, Percentage | 37.00% | 25.00% | ||||||
| Cost of Sales [Member] | Supplier Concentration Risk [Member] | Supplier C [Member] | ||||||||
| Product Information [Line Items] | ||||||||
| Concentration Risk, Percentage | [2] | 35.00% | 20.00% | |||||
| Total purchases | [2] | $ 88,948 | $ 152,629 | |||||
| Cost of Sales [Member] | Supplier Concentration Risk [Member] | Supplier D [Member] | ||||||||
| Product Information [Line Items] | ||||||||
| Concentration Risk, Percentage | [2] | 69.00% | ||||||
| Total purchases | [2] | $ 232,584 | ||||||
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SCHEDULE OF INFORMATION SEGMENTS (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
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| Product Information [Line Items] | |||||
| Total revenues, net | $ 672,786 | $ 812,910 | $ 1,512,351 | $ 2,363,836 | |
| Operating expenses | 1,206,690 | 906,419 | 3,557,647 | 1,766,671 | |
| Hotel operating costs | 404,322 | 320,305 | 1,334,041 | 320,305 | |
| Total operating costs and expenses | 1,206,690 | 906,419 | 3,557,647 | 1,766,671 | |
| (Loss) income from operations | (533,904) | (93,509) | (2,045,296) | 597,165 | |
| Total assets | 10,011,149 | 10,011,149 | $ 11,660,346 | ||
| Advertising And Product [Member] | |||||
| Product Information [Line Items] | |||||
| Total revenues, net | 338,327 | 509,861 | 371,016 | 2,060,787 | |
| Cost of goods sold | 90,391 | 38,461 | 98,809 | 199,141 | |
| Operating expenses | 301,624 | 267,331 | 961,885 | 966,903 | |
| (Loss) income from operations | (53,688) | 204,069 | (689,678) | 894,743 | |
| Total assets | 5,309,901 | 5,309,901 | 8,914,211 | ||
| Pharmacies [Member] | |||||
| Product Information [Line Items] | |||||
| Total revenues, net | 164,735 | 139,947 | 517,674 | 139,947 | |
| Cost of goods sold | 124,992 | 92,477 | 395,096 | 92,477 | |
| Operating expenses | 144,164 | 124,138 | 467,315 | 124,138 | |
| (Loss) income from operations | (104,421) | (76,668) | (344,737) | (76,668) | |
| Total assets | 719,589 | 719,589 | 931,706 | ||
| Hotel [Member] | |||||
| Product Information [Line Items] | |||||
| Total revenues, net | 169,724 | 163,102 | 623,661 | 163,102 | |
| Operating expenses | 141,197 | 63,707 | 300,501 | 63,707 | |
| Hotel operating costs | 404,322 | 320,305 | 1,334,041 | 320,305 | |
| (Loss) income from operations | (375,795) | $ (220,910) | (1,010,881) | $ (220,910) | |
| Total assets | 1,108,839 | 1,108,839 | 1,814,429 | ||
| Manufacture and Sale [Member] | |||||
| Product Information [Line Items] | |||||
| Total assets | $ 2,872,820 | $ 2,872,820 | |||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
|
Sep. 30, 2022
USD ($)
|
Sep. 30, 2021
USD ($)
|
Sep. 30, 2022
USD ($)
|
Sep. 30, 2021
USD ($)
|
Sep. 30, 2022
CNY (¥)
|
Dec. 31, 2021
USD ($)
|
|
| Accounting Policies [Abstract] | ||||||
| Bad debt allowance | $ 483,346 | $ 483,346 | $ 213,787 | |||
| Inventory valuation reserves | $ 19,641 | $ 19,641 | $ 0 | |||
| Property, plant and equipment, salvage value, percentage | 5.00% | 5.00% | 5.00% | |||
| Impairment loss | $ 3,823,770 | $ 3,823,770 | ||||
| Cash FDIC insured amount | $ 72,500 | $ 72,500 | ¥ 500,000 | |||
SCHEDULE OF OTHER RECEIVABLES AND PREPAID EXPENSES (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Other Receivables And Prepaid Expenses | ||
| Deposits | $ 14,928 | $ 68,433 |
| Prepaid expenses | 122,150 | 50,221 |
| Employees’ social insurance | 10,584 | 13,839 |
| Others | 14,978 | 10,788 |
| Total | $ 162,640 | $ 143,281 |
ADVANCES TO SUPPLIERS (Details Narrative) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Advances To Suppliers | ||
| Prepaid supplies | $ 137,362 | $ 162,969 |
SCHEDULE OF INVENTORIES (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw material | $ 152,140 | |
| Work in process | 4,600 | |
| Finished goods-health supplements | 183,148 | 6,201 |
| Drugs, pharmaceutical and nutritional products | 454,165 | 122,966 |
| Food and beverage, hotel supplies and consumables | 83,342 | 104,287 |
| Total | 877,395 | 233,454 |
| Less: inventory allowance | 19,641 | |
| Total inventories, net | $ 857,754 | $ 233,454 |
SCHEDULE OF PROPERTY AND EQUIPMENT (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 2,739,776 | $ 751,071 |
| Less: Accumulated depreciation | (829,085) | (460,923) |
| Property and equipment, net | 1,910,691 | 290,148 |
| Vehicle [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 413,857 | 295,502 |
| Office Furniture [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 80,039 | 64,263 |
| Electronic Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 19,980 | 22,304 |
| Machinery [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 1,104,495 | 106,080 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 1,104,450 | 256,548 |
| Property, Plant and Equipment, Other Types [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 16,955 | $ 6,374 |
PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation expense | $ 25,111 | $ 10,608 | $ 81,036 | $ 21,478 |
SCHEDULE OF INTANGIBLE ASSET (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Software | $ 8,479 | $ 7,896 |
| Less: Accumulated amortization | (7,086) | (5,956) |
| Intangible asset, net | $ 1,393 | $ 1,940 |
INTANGIBLE ASSET, NET (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||
| Amortization expense | $ 591 | $ 432 | $ 1,885 | $ 432 |
SCHEDULE OF TAX PAYABLE (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Taxes payable | $ 55,942 | $ 232,637 |
| Value Added [Member] | ||
| Taxes payable | 12,979 | 97,917 |
| Income [Member] | ||
| Taxes payable | 29,979 | 109,396 |
| City Construction [Member] | ||
| Taxes payable | 1,760 | 7,018 |
| Education [Member] | ||
| Taxes payable | 1,479 | 5,064 |
| Other [Member] | ||
| Taxes payable | $ 9,745 | $ 13,242 |
SCHEDULE OF ACCRUED LIABILITIES AND OTHER PAYABLES (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrued employees’ social insurance | $ 258,094 | $ 327,735 |
| Accrued payroll and commission | 264,613 | 179,183 |
| Accrued rent expense | 11,625 | 29,000 |
| Construction payable | 1,463,969 | 111,807 |
| Payable for equipment purchase | 20,051 | |
| Accrued professional fees | 206,427 | 50,840 |
| Deposit | 11,668 | 12,239 |
| Other payables | 44,998 | 41,596 |
| Acquisition payable (see Note 17) | 3,622,293 | |
| Total | $ 5,903,738 | $ 752,400 |
LOAN FROM THIRD PARTIES (Details Narrative) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Loan From Third Parties | ||
| Due to related parties | $ 84,347 | $ 94,153 |
SCHEDULE OF OPERATING LEASE LIABILITIES (Details) |
Sep. 30, 2022
USD ($)
|
Dec. 31, 2021
USD ($)
|
Mar. 31, 2019
USD ($)
|
Mar. 31, 2019
CNY (¥)
|
|---|---|---|---|---|
| Lease | ||||
| Operating lease right-of-use assets | $ 1,173,616 | $ 2,049,775 | $ 207,049 | ¥ 1,389,731 |
| Operating lease liabilities – current | 772,632 | 848,230 | ||
| Operating lease liability – non-current | 382,152 | 1,138,710 | ||
| Total operating lease liabilities | $ 1,154,784 | $ 1,986,940 |
SCHEDULE OF OTHER INFORMATION RELATED LEASES (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Mar. 31, 2019 |
|
| Lease | |||||
| Operating lease expenses | $ 183,051 | $ 161,389 | $ 632,496 | $ 217,642 | |
| Operating cash flows from operating leases | $ 525,979 | $ 217,642 | |||
| Weighted average operating lease term | 1 year 7 months 24 days | 2 years 5 months 1 day | 1 year 7 months 24 days | 2 years 5 months 1 day | |
| Weighted average operating lease discount rate | 4.75% | 4.75% | 4.75% | 4.75% | 4.75% |
SCHEDULE OF MATURITIES OF LEASE LIABILITIES (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Lease | ||
| 2022 (excluding the nine months ended September 30, 2022) | $ 215,864 | |
| 2023 | 782,260 | |
| 2024 | 123,488 | |
| 2025 | 51,579 | |
| 2026 | 21,751 | |
| Total lease payments | 1,194,942 | |
| Less: imputed interest | (40,158) | |
| Total lease liabilities | 1,154,784 | $ 1,986,940 |
| Less: current portion | (772,632) | (848,230) |
| Lease liabilities – non-current portion | $ 382,152 | $ 1,138,710 |
LEASE (Details Narrative) |
1 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
May 31, 2014 |
Sep. 30, 2022
USD ($)
|
Dec. 31, 2021
USD ($)
|
Sep. 30, 2021 |
Mar. 31, 2019
USD ($)
|
Mar. 31, 2019
CNY (¥)
|
|
| Lease term of contract | 2 years | |||||
| Operating lease right-of-use asset | $ 1,173,616 | $ 2,049,775 | $ 207,049 | ¥ 1,389,731 | ||
| Operating lease discount percentage | 4.75% | 4.75% | 4.75% | 4.75% | ||
| Lease expiration date | May 28, 2023 | Mar. 31, 2021 | ||||
| Aixin Shangyan Hotel Management [Member] | ||||||
| Lease term | 1 year 3 months | |||||
| Minimum [Member] | ||||||
| Lease term | 2 months 8 days | |||||
| Minimum [Member] | AiXintang Pharmacises [Member] | ||||||
| Lease term | 7 months 13 days | |||||
| Maximum [Member] | ||||||
| Lease term | 3 years 8 months 8 days | |||||
| Maximum [Member] | AiXintang Pharmacises [Member] | ||||||
| Lease term | 3 years 11 months 1 day | |||||
RELATED PARTY TRANSACTIONS (Details Narrative) |
1 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
|
May 31, 2014
USD ($)
|
May 31, 2014
CNY (¥)
|
Sep. 30, 2022
USD ($)
|
Dec. 31, 2022
USD ($)
|
Dec. 31, 2021
USD ($)
|
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Accounts payable-related party | $ 160,911 | ||||
| Payments for Rent | $ 757 | ¥ 5,000 | |||
| Lease Expiration Date | May 28, 2023 | May 28, 2023 | Mar. 31, 2021 | ||
| Future annual minimum lease payment | $ 6,056 | ||||
| Renewed [Member] | |||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Payments for Rent | $ 757 | ¥ 5,000 | |||
INCOME TAXES (Details Narrative) |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Foreign Tax Authority [Member] | |
| Operating Loss Carryforwards [Line Items] | |
| Effective Income Tax Rate Reconciliation, Percent | 25.00% |
STOCKHOLDERS’ EQUITY (Details Narrative) $ / shares in Units, ¥ in Millions |
3 Months Ended | 6 Months Ended | 9 Months Ended | 12 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jul. 19, 2022
USD ($)
|
Aug. 17, 2020 |
Oct. 24, 2019
USD ($)
$ / shares
shares
|
Oct. 22, 2019
USD ($)
$ / shares
shares
|
Sep. 30, 2022
USD ($)
$ / shares
shares
|
Sep. 30, 2021
USD ($)
|
Jun. 30, 2022 |
Sep. 30, 2022
USD ($)
$ / shares
shares
|
Sep. 30, 2021
USD ($)
|
Dec. 31, 2021
USD ($)
$ / shares
shares
|
Dec. 31, 2021
CNY (¥)
|
|
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||||||||||
| Stock split | one | ||||||||||
| Preferred stock shares authorized | shares | 20,000,000 | 20,000,000 | 20,000,000 | ||||||||
| Preferred stock,par value | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | ||||||||
| Common stock, shares authorized | shares | 500,000,000 | 500,000,000 | 500,000,000 | ||||||||
| Common Stock, par value | $ / shares | $ 0.00001 | $ 0.00001 | $ 0.00001 | ||||||||
| Common stock shares issued | shares | 49,999,891 | 49,999,891 | 49,999,891 | ||||||||
| Common stock shares outstanding | shares | 49,999,891 | 49,999,891 | 49,999,891 | ||||||||
| Stock-based compensation expenses | $ 92,885 | $ 92,885 | $ 278,655 | $ 278,655 | |||||||
| Unrecognized compensation expenses | $ 765,552 | $ 765,552 | |||||||||
| Employee services expected to be recognized | 3 years | ||||||||||
| Forgiveness of shareholder's loan | $ 2,448,654 | ||||||||||
| Business combination consideration | $ 4,301,293 | ||||||||||
| Aixin Shangyan Hotel and Aixintang Pharmacies [Member] | |||||||||||
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||||||||||
| Business combination consideration | $ 4,500,000 | ¥ 29 | |||||||||
| Decrease in additional paid-in capital | 4,313,025 | ||||||||||
| Quanzhong Lin [Member] | |||||||||||
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||||||||||
| Forgiveness of shareholder's loan | $ 6,912,513 | ||||||||||
| Employees and Contractors [Member] | 2019 Equity Incentive Plan [Member] | |||||||||||
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||||||||||
| Issuance of shares | shares | 550,000 | 37,500 | |||||||||
| Issuance of value | $ 1,520,200 | $ 337,500 | |||||||||
| Price per share | $ / shares | $ 2.764 | $ 9 | |||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period | 5 years | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Description | 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. | ||||||||||
STATUTORY RESERVES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
|
| Net income transfer, rate | 10.00% | ||
| Capital reserve, rate | 50.00% | ||
| Statutory reserve fund | $ 0 | $ 0 | |
| Minimum [Member] | |||
| Net income transfer, rate | 5.00% | ||
| Capital reserve, rate | 25.00% | ||
| Maximum [Member] | |||
| Net income transfer, rate | 10.00% | ||
OPERATING CONTINGENCIES (Details Narrative) - 1 months ended Dec. 31, 2020 |
USD ($) |
CNY (¥) |
|---|---|---|
| Guarantor Obligations [Line Items] | ||
| Litigation settlement expense | $ 392,305 | ¥ 2,500,000 |
| Indemnification Agreement [Member] | ||
| Guarantor Obligations [Line Items] | ||
| Purchase commitment amount | $ 392,305 | ¥ 2,500,000 |
SCHEDULE OF FAIR VALUES OF THE ASSETS ACQUIRED AND LIABILITIES ASSUMED (Details) - USD ($) |
Jul. 19, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Business Combination and Asset Acquisition [Abstract] | |||
| Total purchase considerations | $ 4,301,293 | ||
| Estimated fair value of assets acquired: | |||
| Cash | 446,381 | ||
| Accounts receivable | 144,813 | ||
| Accounts receivable-related party | 133,011 | ||
| Advance to suppliers | 3,455 | ||
| Other receivables and prepaid expense | 127,909 | ||
| Inventory | 469,594 | ||
| Property and equipment | 1,677,272 | ||
| Intangible assets | 1,406 | ||
| Operating lease right-of-use assets | 1,990 | ||
| Total assets acquired | 3,005,831 | ||
| Estimated fair value of liabilities assumed: | |||
| Accounts payable | (89,801) | ||
| Accounts payable-related party | (160,911) | ||
| Advance from customers | (4,790) | ||
| Government grant | (921,473) | ||
| Taxes payable | (21,156) | ||
| Operating lease liability | (15,182) | ||
| Accrued liabilities and other payables | (1,314,995) | ||
| Total liabilities assumed | (2,528,308) | ||
| Total net assets acquired | 477,523 | ||
| Goodwill as a result of the acquisition | $ 3,823,770 |
SCHEDULE OF BUSINESS ACQUISITION PRO FORMA (Details) - Runcangsheng Aixin Shangyan Hotel And Aixintang Pharmacies [Member] - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Revenue | $ 1,854,617 | $ 3,869,889 |
| Operating costs and expenses | 3,826,342 | 4,240,635 |
| Loss from operations | (1,971,725) | (370,746) |
| Other income | 25,313 | 82,950 |
| Income tax expense | 643 | 292,146 |
| Net loss | $ (1,947,055) | $ (579,942) |